<PAGE> 1
As filed with the Securities and Exchange Commission on MAY 31, 1996
Registration Nos. 2-81110/811-4293
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
Post-Effective Amendment No. 48 /x/
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. 50 /x/
--------------------------------
PACIFIC HORIZON FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road
Columbus, OH 43219
(Address of Principal Executive Offices)
Registrant's Telephone Number, including area code: (800) 332-3863
W. Bruce McConnel, III
Drinker Biddle & Reath
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107-3496
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE> 2
Registrant has registered an indefinite number of its shares under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940, as amended. The Registrant has filed its Rule 24f-2 Notice relating to
such shares for Registrant's most recent fiscal year on April 29, 1996.
================================================================================
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THIS POST-EFFECTIVE AMENDMENT IS BEING FILED SOLELY WITH RESPECT TO THE
SHORT TERM GOVERNMENT FUND. AS SUCH, THE PROSPECTUSES AND STATEMENTS OF
ADDITIONAL INFORMATION FOR THE OTHER PACIFIC HORIZON FUNDS ARE NOT INCLUDED IN
THIS FILING.
<PAGE> 4
PACIFIC HORIZON FUNDS, INC.
Short Term Government Fund
------------------------------
<TABLE>
<CAPTION>
Form N-1A Item Prospectus Caption
- -------------- ------------------
Part A
- ------
<S> <C>
1. Cover Page................................................. Cover Page
2. Synopsis................................................... Expense Summary
3. Condensed Financial Information............................ *
4. General Description of Registrant.......................... Description of Shares; Cover
Page; Fund Investments; Types
of Investments; Fundamental
Limitations; Other Investment
Practices and Considerations
5. Management of the Fund..................................... The Business of the Fund
5.A. Management's Discussion of
Fund Performance......................................... *
6. Capital Stock and Other
Securities............................................... Description of Shares;
Dividend and Distribution
Policies; Tax Information
7. Purchase of Securities Being
Offered................................................... How to Buy Shares; Shareholder
Services; The Business of the
Fund; Plan Payments; Measuring
Performance
8. Redemption or Repurchase................................... How to Sell Shares;
Shareholder Services; Plan
Payments
9. Pending Legal Proceedings.................................. *
<FN>
- ---------------------
* Item inapplicable or answer negative.
</TABLE>
<PAGE> 5
PROSPECTUS
July ___, 1996
PACIFIC HORIZON SHORT-TERM GOVERNMENT FUND
An Investment Portfolio Offered by Pacific Horizon Funds, Inc.
The PACIFIC HORIZON SHORT-TERM GOVERNMENT FUND (the "Fund") is a diversified
mutual fund whose investment objective is to provide high current income
consistent with relative stability of principal. The Fund seeks to achieve its
objective through investment primarily in securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
This Prospectus describes two classes of shares from which investors may choose.
A Shares are sold with a front-end sales charge. B Shares are sold with a
contingent deferred sales charge.
The Fund is offered by Pacific Horizon Funds, Inc. (the "Company"), an open-end,
series management investment company. Bank of America National Trust and Savings
Association ("Bank of America" or the "investment adviser") serves as the Fund's
investment adviser. Based in San Francisco, California, Bank of America and its
affiliates have over $48 billion under management, including over $11 billion in
mutual funds.
This Prospectus describes concisely the information about the Fund and the
Company that you should know before investing. Please read it carefully and
retain it for future reference.
More information about the Fund is contained in a Statement of Additional
Information that has been filed with the Securities and Exchange Commission. To
obtain a free copy, call 800- 346- 2087. The Statement of Additional
Information, as it may be revised from time to time, is dated July ___, 1996 and
is incorporated by reference into this Prospectus.
Shares of the Fund are not bank deposits or obligations of, or guaranteed or
endorsed by, Bank of America or any of its affiliates and are not federally
insured by, guaranteed by, obligations of or otherwise supported by the U.S.
Government, the Federal Deposit Insurance Corporation, the Federal Reserve Board
or any other governmental agency. Investment in the Fund involves investment
risk, including the possible loss of principal.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE
<PAGE> 6
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus is part of a Registration Statement that has been filed with the
Securities and Exchange Commission in Washington, D.C. under the Securities Act
of 1933.
No person has been authorized to give any information or to make any
representations in connection with the offer of the Fund's shares, other than as
contained in this Prospectus and the Fund's official sales literature.
Therefore, other information and representations must not be relied upon as
having been authorized by the Fund. This Prospectus does not constitute an offer
in any State in which, or to any person to whom, such offering may not lawfully
be made.
<PAGE> 7
CONTENTS
EXPENSE SUMMARY
FUND INVESTMENTS
INVESTMENT OBJECTIVE
TYPES OF INVESTMENTS
FUNDAMENTAL LIMITATIONS
OTHER INVESTMENT PRACTICES AND CONSIDERATIONS
SHAREHOLDER GUIDE
HOW TO BUY SHARES
What Is My Minimum Investment In The Fund?
What Alternative Sales Arrangements Are Available?
How Are Shares Priced?
How Do I Decide Whether To Buy A or B Shares?
How Can I Buy Shares?
What Price Will I Receive When I Buy Shares?
What Else Should I Know To Make A Purchase?
HOW TO SELL SHARES
How Do I Redeem My Shares?
What NAV Will I Receive For Shares I Want To Sell?
What Kind of Paperwork Is Involved In Selling Shares?
How Quickly Can I Receive My Redemption Proceeds?
Do I Have Any Reinstatement Privileges After I Have
Redeemed Shares?
DIVIDEND AND DISTRIBUTION POLICIES
SHAREHOLDER SERVICES
CAN I USE THE FUND IN MY RETIREMENT PLAN?
CAN I EXCHANGE MY INVESTMENT FROM ONE FUND TO ANOTHER?
WHAT IS TELETRADE?
CAN I ARRANGE TO HAVE AUTOMATIC INVESTMENTS MADE ON A REGULAR
BASIS?
WHAT IS DOLLAR COST AVERAGING AND HOW CAN I IMPLEMENT IT?
CAN I ARRANGE PERIODIC WITHDRAWALS?
CAN MY DIVIDENDS FROM THE FUND BE INVESTED IN OTHER FUNDS?
IS THERE A SALARY DEDUCTION PLAN AVAILABLE?
THE BUSINESS OF THE FUND
FUND MANAGEMENT
Expenses
Service Providers
TAX INFORMATION
MEASURING PERFORMANCE
DESCRIPTION OF SHARES
PLAN PAYMENTS
3
<PAGE> 8
- ------------------------------------------------------------------
Distributor: Investment Adviser:
Concord Financial Group, Inc. Bank of America National Trust and
3435 Stelzer Road Savings Association
Columbus, OH 43219-3035 555 California Street
San Francisco, CA 94104
- ------------------------------------------------------------------
4
<PAGE> 9
EXPENSE SUMMARY
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when buying or selling
shares of the Fund. The Fund offers two classes of shares. A Shares are offered
at net asset value plus a front-end sales charge (see page 14 of the Prospectus
for an explanation of net asset value per share) and are subject to a
shareholder servicing fee. B Shares are offered at net asset value without a
front-end sales charge but are subject to a contingent deferred sales charge
plus distribution and shareholder servicing fees. B Shares of the Fund held for
8 years will convert to A Shares of the Fund.
ANNUAL FUND OPERATING EXPENSES include payments by the Fund for portfolio
management, maintenance of shareholder accounts, general administration,
distribution (in the case of B Shares only), shareholder servicing, accounting
and other services.
Below is a summary of the shareholder transaction expenses imposed by the Fund
for A and B Shares and their estimated operating expenses expected to be
incurred during the first twelve months of operations. Actual expenses may vary.
A hypothetical example based on the summary is also shown.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES A Shares B Shares
-------- --------
<S> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) 4.50% None
Sales Load Imposed on Reinvested Dividends None None
Maximum Contingent Deferred Sales Load
(as a percentage of original purchase
price or redemption proceeds, whichever
is lower) None(1) 5.00%
Redemption Fees None None
Exchange Fee None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (After Fee Waivers)+ 0.__% 0.__%
12b-1 Fee* 0 % 0.75%
Shareholder Services Fee* 0.25% 0.25%
Other Expenses (After Expense Reimbursements)+ ____% ____%
Total Operating Expenses (After Fee Waivers and
Expense Reimbursements)+ ____% ____%
<FN>
1. There is no front-end sales load on combined purchases of A Shares of the
Company of $1,000,000 or more ("Large Purchase Exemption"). A Shares
purchased under the Large Purchase Exemption are subject to a contingent
deferred sales charge of 1.00% and 0.50%, respectively, on redemptions
within one and two years after purchase. The contingent deferred sales
charge is paid to Concord Financial Group, Inc. (the "Distributor"). A
Shares cannot be purchased under the Large Purchase Exemption if there is
another no-load exemption available. Accordingly, A Shares purchased under
another no-load exemption are not subject to a contingent deferred sales
charge. Although no front-end sales load will be paid on shares purchased
under the Large Purchase Exemption, the Distributor will compensate brokers
whose customers purchase such shares at the following rates: 1.00% of the
amount under $3 million, 0.50% of the next $47 million and 0.25%
thereafter.
+ Management intends to waive fees and reimburse certain "Other Expenses" on
behalf of the Fund so that "Total Operating Expenses" for the Fund (other
than interest, taxes, brokerage commissions and other portfolio transaction
expenses, capital expenditures and extraordinary expenses) will not exceed
___% and ___% of the average net assets of the Fund's A and B Shares,
respectively, on an annual basis. Absent fee waivers and/or expense
reimbursement, management fees would be 0.__% of the average net assets
(annualized); "Other Expenses" for the Fund's A and B Shares would be ___%
and ___%, respectively,
</TABLE>
5
<PAGE> 10
of average net assets (annualized); and "Total Operating Expenses" for the
Fund's A and B Shares would be ____% and ____% of average net assets
(annualized), respectively.
* Because of the Rule 12b-1 and shareholder services fees paid by the Fund as
shown in the above table, long-term B shareholders may pay more than the
economic equivalent of the maximum front-end sales charge permitted by the
National Association of Securities Dealers, Inc. For a further description
of shareholder transaction expenses and the Fund's operating expenses, see
the sections entitled "Shareholder Guide," "The Business of the Fund" and
"Plan Payments" below.
EXAMPLE: Assume the annual return is 5% and operating expenses are the same
as those stated above. For every $1,000 you invest, here is how much you
would have paid in total expenses if you closed your account after the
number of years indicated:
<TABLE>
<CAPTION>
After 1 Yr After 3 Yrs
----------- -----------
<S> <C> <C>
A Shares(1) $___ $___
B Shares
Assuming complete
redemption at
end of period(2) $___ $___
Assuming no redemption $___ $___
<FN>
1 Assumes deduction at time of purchase of maximum applicable front-end sales
charge.
2 Assumes deduction at redemption of maximum applicable contingent deferred
sales charge.
</TABLE>
Note: The preceding operating expenses and example should not be considered a
representation of future investment returns and operating expenses.
Actual investment returns and operating expenses may be more or less than those
shown.
This expense information is provided to help you understand the expenses you
would bear either directly (as with transaction expenses) or indirectly (as with
annual operating expenses) as a Fund shareholder.
Management fees consist of:
o an investment advisory fee payable at the annual rate of 0.__% of the
Fund's average daily net assets; and
o an administration fee payable at the annual rate of 0.__% of the
Fund's average daily net assets .
Currently, the most restrictive expense limitation limits the Fund's aggregate
annual expenses (including management fees) to 2.5% of the first $30 million of
the Fund's average daily net assets, 2% of the next $70 million and 1.5% of the
Fund's remaining average daily net assets.
The alternative sales arrangements permit you to choose the method of purchasing
shares that is most beneficial given the amount of the purchase, the length of
time you expect to hold the shares and other circumstances. You should determine
whether under your particular circumstances it is more advantageous to incur a
front-end sales charge and thereafter be subject to annual fees under a
Shareholder Services Plan with respect to A Shares; or have the entire initial
purchase price invested
6
<PAGE> 11
in the Fund with the investment thereafter being subject to annual fees under a
Distribution and Services Plan and a contingent deferred sales charge upon
redemption within the first six years of investment, with respect to B Shares.
See the section entitled "How To Buy Shares" below.
FUND INVESTMENTS
INVESTMENT OBJECTIVE
THE PACIFIC HORIZON SHORT-TERM GOVERNMENT FUND SEEKS HIGH CURRENT INCOME
CONSISTENT WITH RELATIVE STABILITY OF PRINCIPAL. THE FUND SEEKS THIS OBJECTIVE
THROUGH INVESTING PRIMARILY IN SECURITIES ISSUED OR GUARANTEED BY THE U.S.
GOVERNMENT, ITS AGENCIES OR INSTRUMENTALITIES.
THE FUND MAY BE APPROPRIATE FOR INVESTORS WHO WANT:
(o) INCOME FROM SECURITIES ISSUED OR GUARANTEED BY THE U.S. GOVERNMENT,
ITS AGENCIES AND INSTRUMENTALITIES; AND
(o) RELATIVE STABILITY OF INVESTMENT BUT ARE WILLING TO ACCEPT SOME PRICE
AND YIELD VARIATIONS.
DURATION
Under normal market and interest rate conditions, the investment
adviser expects that the Fund's average portfolio duration generally will be
approximately the same as a one-year U.S. Treasury bill (approximately one
year). This means that the Fund's net asset value fluctuation is expected to be
similar to the price fluctuation of a one-year U.S. Treasury bill. Under normal
market and interest rate conditions, the investment adviser does not expect that
the Fund's average portfolio duration to exceed that of a two-year U.S. Treasury
note (approximately 1.9 years). However, there is no limitation on duration.
Unlike maturity which indicates when the security repays principal, "duration"
incorporates the cash flows of all interest and principal payments and the
proceeds from calls and redemptions over the life of the security. These
payments are multiplied by the number of years over which they are received to
produce a value that is expressed in years (i.e., duration).
TYPES OF INVESTMENTS
IN GENERAL. The Fund has a policy that it will invest primarily in securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities,
including, but not limited to, direct obligations of the U.S. Treasury, such as
U.S. Treasury bills, certificates of indebtedness, notes and bonds, and in
repurchase agreements involving such securities. Other types of U.S. Government
obligations that the Fund may hold include obligations of U.S. Government
agencies or
7
<PAGE> 12
instrumentalities such as Federal Home Loan Banks, Federal National Mortgage
Association, Government National Mortgage Association, Banks for Cooperatives,
Federal Land Banks, Federal Intermediate Credit Banks, Tennessee Valley
Authority, Export-Import Bank of the United States, Commodity Credit
Corporation, Federal Financing Bank, Student Loan Marketing Association, Federal
Home Loan Mortgage Corporation or National Credit Union Administration.
Obligations of some of these agencies and instrumentalities, such as the Small
Business Administration or the Maritime Administration, are supported by the
full faith and credit of the U.S. Treasury; others, such as those of the
Export-Import Bank of the United States, are supported by the right of the
issuer to borrow from the Treasury; others, like the Federal National Mortgage
Association, are backed by the discretionary authority of the U.S. Government to
purchase the agency's obligations; and still others, including the Student Loan
Marketing Association, are supported by the credit of the instrumentality. There
is no assurance that the U.S. Government would support a U.S.
Government-sponsored entity if it was not required to do so by law. Under normal
circumstances, it is expected that the average weighted maturity of the Fund's
investments will be less than three years.
Guarantees of the Fund's investment securities by the U.S. Government or its
agencies or instrumentalities assure only the payment of principal and interest
on the guaranteed securities, and do not guarantee the securities' yield or
value, or the yield or value of the Fund's shares. U.S. Government obligations
ordinarily carry lower rates of interest income than debt securities of other
issuers with similar maturities.
The market value of debt securities and thus the Fund's net asset value per
share is expected to vary with changes in interest rates. The value of the
Fund's investments will normally fall when prevailing interest rates rise and
rise when interest rates fall. Interest rate fluctuations can be expected to
affect the Fund's earnings. In an effort to preserve the capital of the Fund
when interest rates are generally rising, Bank of America may shorten the
average weighted maturity of the Fund's investments. Because the principal
values of the securities with shorter maturities are less affected by rising
interest rates, a portfolio with a shorter average weighted maturity will
generally diminish less in value during such periods than a portfolio with a
longer average weighted maturity. Because securities with shorter maturities,
however, generally have a lower yield to maturity, the Fund's current return
based on its net asset value will generally be lower as a result of such action
than it would have been had such action not been taken.
MORTGAGE-RELATED SECURITIES GENERALLY. The Fund may invest in U.S. Government
securities which are collateralized by or represent interests in real estate
mortgages. The types of mortgage securities in which the Fund may invest include
the following: (i) adjustable rate mortgage securities; (ii) collateralized
mortgage obligations; (iii) real estate mortgage investment conduits; and (iv)
other securities collateralized by or representing interests in real estate
mortgages whose interest rates reset at periodic intervals and are issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
The Fund may also invest in mortgage-related securities which are
issued by private entities such as investment banking firms and companies
related to the construction industry. The privately issued
8
<PAGE> 13
mortgage-related securities in which the Fund may invest include but not limited
to: (i) privately issued securities which are collateralized by pools of
mortgages in which such mortgages are guaranteed as to payment of principal and
interest by an agency or instrumentality of the U.S. Government; (ii) privately
issued securities which are collateralized by pools of mortgages in which such
mortgages are guaranteed as to the payment of principal and interest by the
issuer and such guarantee is collateralized by U.S. Government securities; and
(iii) other privately issued securities in which the proceeds of the issuance
are invested in mortgage-backed securities and which mortgage-related securities
are supported as to the payment of the principal and interest by the credit of
any agency or instrumentality of the U.S. Government.
The privately issued mortgage-related securities provide for periodic
payments consisting of both interest and principal. The interest portion of
these payments will be distributed by the Fund as income, and the capital
portion will be reinvested.
FUNDAMENTAL LIMITATIONS
The investment objective of the Fund may not be changed without a vote by the
holders of a majority of the outstanding shares of the Fund. Policies requiring
such a vote to effect a change are known as "fundamental." A number of the other
fundamental investment limitations are summarized below. The Fund may not:
1. Borrow money for the purpose of obtaining investment leverage or issue
senior securities (as defined in the Investment Company Act of 1940),
provided that the Fund may borrow from banks for temporary purposes
and in an amount not exceeding 10% of the value of the total assets of
the Fund; or mortgage, pledge or hypothecate any assets, except in
connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of its total
assets at the time of such borrowing. This restriction shall not apply
to (a) the sale of portfolio securities accompanied by a simultaneous
agreement as to their repurchase, or (b) transactions in currency,
options, futures contracts and options on futures contracts, or
forward commitment transactions.
2. Make loans, except investments in debt securities, repurchase
agreements and securities loans .
A complete list of the Fund's fundamental investment limitations is set out in
the Statement of Additional Information.
OTHER INVESTMENT PRACTICES AND CONSIDERATIONS
MORTGAGE-RELATED SECURITIES. The Fund may invest in mortgage-related securities.
Purchasable mortgage-related securities are represented by pools of mortgage
loans assembled for sale to investors by various governmental agencies such as
the Government National Mortgage Association ("GNMA") and government-related
organizations such as the Federal National Mortgage Association ("FNMA")
9
<PAGE> 14
and the Federal Home Loan Mortgage Corporation ("FHLMC"), as well as by private
issuers such as commercial banks, savings and loan institutions, mortgage
bankers and private mortgage insurance companies. Although certain
mortgage-related securities are guaranteed by a third party or are otherwise
similarly secured, the market value of the security, which may fluctuate, is not
so secured. If the Fund purchases a mortgage-related security at a premium, the
portion may be lost if there is a decline in the market value of the security
whether resulting from increases in interest rates or prepayment of the
underlying mortgage collateral. As with other interest-bearing securities, the
prices of such securities are inversely affected by changes in interest rates.
However, though the value of a mortgage-related security may decline when
interest rates rise, the converse is not necessarily true because mortgages
underlying securities are prone to prepayment in periods of declining interest
rates. For this and other reasons, a mortgage-related security's maturity may be
shortened by unscheduled prepayments on underlying mortgages and, therefore, it
is not possible to accurately predict the security's return to the Fund.
Mortgage-related securities provide regular payments consisting of interest and
principal. No assurance can be given as to the return the Fund will receive when
these amounts are reinvested.
Mortgage-related securities acquired by the Fund may include
collateralized mortgage obligations ("CMOs"), a type of derivative, issued by
FNMA, FHLMC or other U.S. Government agencies or instrumentalities, as well as
by private issuers. CMOs provide an investor with a specified interest in the
cash flow of a pool of underlying mortgage or other mortgage-related securities.
Issuers of CMOs frequently elect to be taxed as pass-through entities known as
real estate mortgage investment conduits ("REMICs"). CMOs are issued in multiple
classes, each with a specified fixed or floating interest rate and a final
distribution date. The relative payment rights of the various CMO classes may be
structured in many ways. Generally, payments of principal are applied to the CMO
classes in the order of their respective stated maturities, so that no principal
payments will be made on a CMO class until all other classes having an earlier
stated maturity date are paid in full. Sometimes, however, CMO classes are
"parallel pay," i.e. payments of principal are made to two or more classes
concurrently.
CMOs may involve additional risks other than those found in other types
of mortgage-related obligations. CMOs may exhibit more price volatility and
interest rate risk than other types of mortgage-related obligations. During
periods of rising interest rates, CMOs may lose their liquidity as CMO market
makers may choose not to repurchase, or may offer prices, based on current
market conditions, which are unacceptable to a Fund based on the Fund's analysis
of the market value of the security.
Privately issued mortgage-related securities generally offer a higher
yield than mortgage-related securities issued by governmental agencies or
instrumentalities because of the absence of any direct or indirect government or
agency payment guarantees. However, timely payment of interest and principal on
mortgage loans in these pools may be supported by various forms of insurance or
guarantees, including individual loan, pool and hazard insurance, subordination
and letters of credit. The insurance and guarantees are issued by government
entities, private insurers, banks and mortgage poolers. Although the market for
such securities is becoming increasingly liquid, some mortgage-related
securities issued by private organizations may not be readily marketable.
10
<PAGE> 15
REPURCHASE AGREEMENTS. The Fund may buy securities subject to the seller's
agreement to repurchase them at an agreed upon time and price. These
transactions are known as repurchase agreements. The Fund will enter into
repurchase agreements only with financial institutions (such as banks and
broker-dealers) deemed creditworthy by Bank of America, under guidelines
approved by the Company's Board of Directors. It is intended that such
agreements will not have maturities longer than 60 days. During the term of any
repurchase agreement, the seller must maintain the value of the securities
subject to the agreement in an amount that is greater than the repurchase price.
Bank of America then continually monitors that value. Nonetheless, should the
seller default on its obligations under the agreement, the Fund would be exposed
to possible loss due to adverse market action or delays connected with the
disposition of the underlying obligations. Repurchase agreements are considered
to be loans under the Investment Company Act of 1940 (the "1940 Act").
WHEN-ISSUED PURCHASES, FORWARD COMMITMENTS AND DELAYED SETTLEMENTS. The Fund may
purchase securities on a "when-issued" basis and purchase or sell securities on
a "forward commitment" basis. Additionally, the Fund may purchase or sell
securities on a "delayed settlement" basis. Whenissued and forward commitment
transactions, which involve a commitment by the Fund to purchase or sell
particular securities with payment and delivery taking place at a future date
(perhaps one or two months later), permit the Fund to lock in a price or yield
on a security it owns or intends to purchase, regardless of future changes in
interest rates. Delayed settlement refers to a transaction in the secondary
market that will settle some time in the future. These transactions involve the
risk that the price or yield obtained may be less favorable than the price or
yield available when the delivery takes place. The Fund will set aside in a
segregated account cash or liquid securities equal to the amount of any
when-issued, forward commitment or delayed settlement transactions. When-issued
purchases, forward commitments and delayed settlements are not expected to
exceed 25% of the value of the Fund's total assets under normal circumstances.
These transactions will not be entered into for speculative purposes, but
primarily in order to hedge against anticipated changes in interest rates.
SECURITIES LENDING. In order to earn additional income, the Fund may lend its
portfolio securities to financial institutions (such as banks and brokers) that
Bank of America considers to be of good standing. Borrowers of portfolio
securities may not be affiliated directly or indirectly with the Company. If the
financial institution should become bankrupt, however, the Fund could experience
delays in recovering its securities. A securities loan will only be made when,
in the judgment of Bank of America, the possible reward from the loan justifies
the possible risks. In addition, such loans will not be made if, as a result,
the value of securities loaned by the Fund exceeds 30% of its total assets.
Securities loans will be fully collateralized.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. To assist in reducing
fluctuations in net asset value, the Fund may enter into contracts for the
purchase or sale for future delivery of U.S. Government securities,
mortgage-related securities or Euro-dollar securities or may purchase put and
call options to buy or sell futures contracts. The Fund will engage in futures
and related options transactions only for bona fide hedging purposes.
A "sale" of a futures contract means the acquisition of a contractual obligation
to deliver the securities called for by the contract at a specified price on a
specified date. A "purchase" of a futures contract
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<PAGE> 16
means the incurring of a contractual obligation to acquire the securities called
for by the contract at a specified price on a specified date. These investment
techniques would be used to hedge against anticipated future changes in interest
which otherwise might either adversely affect the value of the Fund's
securities. The Fund may not purchase or sell a futures contract or purchase a
related option unless immediately after any such transaction the sum of the
aggregate amount of margin deposits on its existing futures positions and the
amount of premiums paid for related options does not exceed 5% of the Fund's
total assets (after taking into account certain technical adjustments). In order
to prevent leverage in connection with the purchase of futures contracts or call
options thereon by the Fund, an amount of cash, cash equivalents or liquid high
grade debt securities equal to the market value of the obligation under the
futures contracts (less any related margin deposits) will be maintained in a
segregated account with the custodian. Furthermore, the Fund's ability to engage
in options and futures transactions may be limited by tax considerations. More
information about futures contracts and related options may be found in Appendix
A to the Statement of Additional Information.
PORTFOLIO TRANSACTIONS. Investment decisions for the Fund are made independently
from those for other investment companies and accounts managed by Bank of
America and its affiliated entities. Such other investment companies and
accounts may also invest in the same securities as the Fund. When a purchase or
sale of the same security is made at substantially the same time on behalf of
the Fund and another investment company or account, available investments or
opportunities for sales will be equitably allocated pursuant to procedures of
Bank of America . In some instances, this investment procedure may adversely
affect the price paid or received by the Fund or the size of the position
obtained or sold by the Fund.
In allocating purchase and sale orders for investment securities (involving the
payment of brokerage commissions or dealer concessions), Bank of America may
consider the sale of Fund shares by broker-dealers and other financial
institutions (including affiliates of Bank of America and the Fund's distributor
to the extent permitted by law), provided it believes the quality of the
transaction and the price to the Fund are not less favorable than what they
would be with any other qualified firm.
PORTFOLIO TURNOVER. Although no commissions are paid on bond transactions,
purchases and sales are at net prices which reflect dealers' mark-ups and
mark-downs, and a higher portfolio turnover rate for bond investments will
result in the payment of more dealer mark-ups and mark-downs than would
otherwise be the case. Turnover may require payment of brokerage commissions,
impose other transaction costs and could increase substantially the amount of
income received by the Fund that constitutes taxable capital gains. To the
extent capital gains are realized, distributions from those gains may be
ordinary income for federal tax purposes (see "Tax Information"). The Fund's
annual portfolio turnover is not expected to exceed 100%, although the Fund's
annual portfolio turnover rate will not be a limiting factor in making
investment decisions.
12
<PAGE> 17
- --------------------------------------------------------------------------------
SHAREHOLDER GUIDE
THE FOLLOWING SECTION WILL PROVIDE YOU WITH ANSWERS TO
SOME OF THE MOST OFTEN-ASKED QUESTIONS REGARDING BUYING
AND SELLING THE FUND'S SHARES AND
REGARDING THE FUND'S DIVIDENDS.
- --------------------------------------------------------------------------------
HOW TO BUY SHARES
WHAT IS MY MINIMUM INVESTMENT IN THE FUND?
Generally, there is a minimum investment requirement of $500 for initial
purchases and $50 for subsequent purchases, although these amounts may be
altered in certain circumstances as shown below.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
INVESTMENT MINIMUMS FOR SPECIFIC TYPES OF ACCOUNTS
INITIAL INVESTMENT SUBSEQUENT INVESTMENT
<S> <C> <C>
REGULAR ACCOUNT $500* $50
AUTOMATIC INVESTMENT PLAN $50 $50
IRAS, SEP-IRAS (ONE PARTICIPANT) $500 No minimum
SPOUSAL IRAS** $250 No minimum
SEP-IRAS
(MORE THAN ONE PARTICIPANT) $2,500 No minimum
<FN>
* The minimum investment is $100 for purchases made through Bank of America's
trust and agency accounts or a Service Organization (defined below) whose
clients have made aggregate minimum purchases of $1,000,000. The minimum
investment is $200 for BankAmericard holders with an appropriate award
certificate from BankAmeriChoice Program.
** A regular IRA must be opened in conjunction with this account.
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 18
WHAT ALTERNATIVE SALES ARRANGEMENTS ARE AVAILABLE?
The Fund issues two classes of shares. A Shares are sold to investors choosing
the front-end sales charge alternative. B Shares are sold to investors choosing
the deferred sales charge alternative. The two classes of shares in the Fund
represent interests in the same portfolio of investments of the Fund, have the
same rights and are identical in all respects except as discussed below. A
Shares bear the expenses of a Shareholder Services Plan and have exclusive
voting rights with respect to the Shareholder Services Plan. B Shares bear the
expenses of a Distribution and Services Plan and have exclusive voting rights
with respect to the Distribution and Services Plan. B Shares also bear the
expenses of the deferred sales charge arrangements and any expenses resulting
from such arrangements. The two classes also have different exchange privileges,
as described below. The net income attributable to A and B Shares and the
dividends payable on A and B Shares will be reduced by the amount of the: (a)
Shareholder Services Plan fees attributable to A Shares, (b) Distribution and
Services Plan fees attributable to B Shares, and (c) the incremental expenses
associated with such Plans. Lastly, B Shares of the Fund held for 8 years will
automatically convert into A Shares of the Fund.
HOW ARE SHARES PRICED?
Shares are purchased at their public offering price, which is based upon each
class' net asset value per share plus a front-end sales load on A Shares. Each
class calculates its net asset value ("NAV") as follows:
NAV = (Value of Assets Attributable to the Class) - (Liabilities
Attributable to the Class) Number of Outstanding Shares of the Class
Net asset value is determined as of the end of regular trading hours on the New
York Stock Exchange (the "Exchange") (currently 4:00 p.m. Eastern Time) on days
the Exchange is open.
The Fund's investments are valued at market value or, where market quotations
are not readily available, at fair value as determined in good faith by the Fund
pursuant to procedures adopted by the Company's Board of Directors. Short-term
debt securities are valued at amortized cost, which approximates market value.
For further information about valuing securities, see the Statement of
Additional Information. For price and yield information call (800) 346-2087.
The per share net asset values of A and B Shares will diverge due to the
different distribution and other expenses borne by the classes.
A SHARES SALES LOAD. The front-end sales load ("front-end sales load," "sales
load," "front-end sales charge," or "sales charge") for the A Shares of the Fund
begins at 4.50% and may decrease as the amount you invest increases, as shown in
the following chart:
14
<PAGE> 19
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Amount of Transaction As a % of As a % of Dealer's
offering net asset reallowance
price value as a % of
offering price*
<S> <C> <C> <C>
Less than $100,000 4.50 4.71 4.00
$100,000 but less than $250,000 3.75 3.90 3.35
$250,000 but less than $500,000 2.50 2.56 2.20
$500,000 but less than $750,000 2.00 2.04 1.75
$750,000 but less than $1,000,000 1.00 1.01 0.90
$1,000,000 or more** 0.00 0.00 0.00
<FN>
* Dealer's reallowance may be changed periodically.
** See "Large Purchase Exemption" below for a description of the contingent
deferred sales charge.
</TABLE>
From time to time, the Fund's distributor will make or allow additional payments
or promotional incentives in the form of cash or other compensation such as
trips to sales seminars, tickets to sporting and other entertainment events and
gifts of merchandise to firms that sell shares of the Fund.
- --------------------------------------------------------------------------------
LARGE PURCHASE EXEMPTION. To the extent that no other A Share no-load exemption
is available, the foregoing schedule of sales loads does not apply to purchases
of A Shares of $1,000,000 or more. If a customer purchases $1,000,000 or more of
A Shares and redeems such shares, a contingent deferred sales load will be
imposed as follows:
<TABLE>
<CAPTION>
Number of Years Applicable Contingent
Elapsed Since Purchase Deferred Sales Load
<S> <C> <C>
1 year 1.0%
2 years 0.5%
3 years None
</TABLE>
The contingent deferred sales load is imposed on the lesser of the current
market value or the cost of the shares being redeemed. This means that this
charge will not be imposed upon increases in net asset value above the initial
purchase price or upon reinvested dividends. In determining whether a contingent
deferred sales charge is applicable to a redemption of such shares, the
calculation will be made in a manner that results in the lowest possible rate.
It will be assumed that the redemption is made first of amounts representing
shares acquired pursuant to the reinvestment of dividends and distributions;
then of amounts representing the increase in net asset value of your holdings of
shares above the total amount of payments for the purchase of shares during the
preceding 2 years; then of amounts representing the cost of shares held beyond
the applicable contingent deferred sales charge period; and finally, of
15
<PAGE> 20
amounts representing the cost of the shares held for the longest period of time.
Although no front-end sales load will be paid on Large Purchase Exemptions, the
Fund's distributor will compensate brokers whose customers purchase shares at
the following rates: 1.00% of the amount under $3 million, 0.50% of the next $47
million and 0.25% thereafter.
B SHARES CONTINGENT DEFERRED SALES CHARGE. B Shares may be purchased at net
asset value per share without the imposition of a sales charge at the time of
purchase. The Fund's distributor compensates broker-dealers that have entered
into a selling agreement with the distributor from its own funds at the time the
shares are purchased. The proceeds of the contingent deferred sales charges and
the ongoing distribution and services plan fees described below are used to
reimburse the Fund's distributor for its expenses, including the compensation of
broker-dealers.
B Shares that are redeemed within 6 years of purchase are subject to the
contingent deferred sales charge at the rates set forth below, charged as a
percentage of the lesser of the current market value or the cost of the shares
being redeemed. Accordingly, no sales charge will be imposed on increases in net
asset value above the initial purchase price. In addition, no charge will be
assessed on shares derived from reinvestment of dividends or capital gains
distributions. B Shares will convert to A Shares on the first business day of
the month following the eighth anniversary of the date of purchase unless the B
Shares have been exchanged for Pacific Horizon Shares of the Pacific Horizon
Prime Fund.
<TABLE>
<CAPTION>
Contingent Deferred
Sales Charge (as a
Number of Years percentage of dollar amount
Elapsed Since Purchase* subject to the charge)
<S> <C>
Less than one............................................................................... 5.0%
More than one, but less
than two.................................................................................. 4.0%
More than two, but less
than three................................................................................ 3.0%
More than three, but less
than four................................................................................. 3.0%
More than four, but less
than five................................................................................. 2.0%
More than five, but less
than six.................................................................................. 1.0%
After six years............................................................................. None
<FN>
- ---------------------------------
* The time period during which Pacific Horizon Shares of the Pacific
Horizon Prime Fund acquired through an exchange are held is not
included when the amount of the contingent deferred sales charge is
calculated.
</TABLE>
In determining whether a contingent deferred sales charge is applicable to a
redemption of B Shares, the calculation will be made in a manner that results in
the lowest possible rate. It will be assumed that
16
<PAGE> 21
the redemption is made first of amounts representing B Shares acquired pursuant
to the reinvestment of dividends and distributions; then of amounts representing
the increase in net asset value of your holdings of B Shares above the total
amount of payments for the purchase of B Shares during the preceding 6 years;
then of amounts representing the cost of B Shares held beyond the applicable
contingent deferred sales charge period; and finally, of amounts representing
the cost of the B Shares held for the longest period of time.
As an example, assume that you purchased 100 shares at $10 per share (at a cost
of $1,000), that you have not exchanged for Pacific Horizon Shares of the
Pacific Horizon Prime Fund, that in the third year after purchase the net asset
value per share is $12, and that during the three-year period you had acquired
10 additional shares through dividend reinvestment. If at such time you make
your first redemption of 50 shares (proceeds of $600), 10 shares will not be
subject to the charge because of dividend reinvestment. With respect to the
remaining 40 shares, the charge is applied only to the original cost of $10 per
share and not to the increase in net asset value of $2 per share. Therefore,
$400 of the $600 redemption proceeds will be charged at a rate of 3.00% (the
applicable rate in the third year after purchase).
WHEN NO FRONT-END SALES LOAD IS APPLIED. You pay no front-end sales load on the
following types of transactions:
o reinvestment of dividends or distributions;
o accounts of corporate/business retirement plans (such as 401(k), 403(b)(7),
457 and Keogh accounts) which are sponsored by the Fund's administrator and were
invested in the Fund as of July 1, 1996 so long as the account remains open on
the Company's books;
o accounts of employer-sponsored employee pension or retirement plans (other
than 403(b) plans) which make direct investments in the Fund and were invested
in the Fund as of July 1, 1996 so long as the account remains open on the
Company's books;
o 403(b) plans invested in the Fund as of December 7, 1995;
o any purchase of shares by an investment adviser regulated by federal or state
governmental authority when the investment adviser is purchasing shares for its
own account or for an account for which it is authorized to make investment
decisions (i.e., a discretionary account) other than purchases for 403(b) plans;
provided that investment advisers who have invested 403(b) plans in the Fund on
behalf of existing and new clients as of December 7, 1995 may continue to invest
on a no-load basis;
o accounts opened by a bank, trust company or thrift institution, acting as a
fiduciary, provided appropriate notification of such status is given at the time
of investment;
o any purchase of shares by clients of The Private Bank of Bank of America
Illinois or by Private Banking clients of Seattle-First National Bank or by or
on behalf of agency accounts administered by any bank or trust company affiliate
of Bank of America;
17
<PAGE> 22
o any purchase of shares through a discount broker-dealer that imposes a
transaction charge with respect to such purchase, provided you were the
beneficial owner of shares of the Fund (or any other fund in the Pacific Horizon
Family of Funds) prior to July 1, 1992, so long as your account remains open on
the Company's books;
o any purchase of shares, provided you were the beneficial owner of shares of
the Fund (or any other fund in the Pacific Horizon Family of Funds) before April
20, 1987, so long as your account remains open on the Company's books;
o any purchase of shares, provided you were the beneficial owner of shares of
Bunker Hill Income Securities, Inc. on the date of its reorganization into the
Pacific Horizon Corporate Bond Fund, so long as your account remains open on the
Company's books;
o any purchase of shares pursuant to the Reinstatement Privilege described
below; and
o any purchase of shares pursuant to the Directed Distribution Plan described
below.
Additionally, some individuals are not required to pay a front-end sales load
when purchasing Fund shares, including:
o members of the Company's Board of Directors;
o U.S.-based employees and retirees (including employees who are U.S. citizens
but work abroad and retirees who are U.S. citizens but worked abroad) of Bank of
America or any of its affiliates, and their parents, spouses, minor children and
grandchildren, as well as members of the Board of Directors of Bank of America
or any of its affiliates;
o registered representatives or full-time employees of broker-dealers having
agreements with the Fund's distributor pertaining to the sale of Fund shares
(and their spouses and minor children) to the extent permitted by such
organizations;
o former full-time employees (and retirees) of Security Pacific Corporation (or
any of its subsidiaries) and the surviving spouses and minor children of such
employees (and retirees), provided they were the beneficial owner of shares of
the Fund (or any other fund in the Pacific Horizon Family of Funds) prior to
July 1, 1992, so long as their account remains open on the Company's books; and
o holders of the BankAmericard with an appropriate award certificate from the
BankAmeriChoice Program (initial award only; a front-end sales load will apply
to subsequent purchases).
WHEN NO CONTINGENT DEFERRED SALES CHARGE IS APPLIED. To receive one of the first
three exemptions listed below, you must explain the status of your redemption at
the time you redeem your shares. The contingent deferred sales charge with
respect to B Shares or certain A Shares is not charged on (1) exchanges
described under "Shareholder Services - Can I Exchange My Investment From One
Fund to Another?;" (2) redemptions in connection with minimum required
distributions from IRA accounts due
18
<PAGE> 23
to a shareholder reaching age 70-1/2; (3) redemptions in connection with a
shareholder's death or disability (as defined in the Internal Revenue Code); and
(4) involuntary redemptions as a result of an account's net asset value
remaining below $500 after sixty days' written notice. In addition, no
contingent deferred sales charge is charged on shares acquired through the
reinvestment of dividends or distributions.
RIGHTS OF ACCUMULATION. When buying A Shares in Pacific Horizon Funds, your
current aggregate investment determines the front-end sales load that you pay.
Your current aggregate investment is the accumulated combination of your
immediate investment along with the shares that you beneficially own in any
Pacific Horizon Fund on which you paid a front-end sales load (including shares
that carry no sales load but were obtained through an exchange and can be traced
back to shares that were acquired with a sales load). Shares of any investment
portfolio of Time Horizon Funds (a "Time Horizon Fund"), an open-end investment
company managed by Bank of America, generally will not be included when
determining reduced sales loads under the rights of accumulation program, except
that you may aggregate your investment in Pacific Horizon Funds and Time Horizon
Funds in order to qualify for the Large Purchase Exemption.
To qualify for a reduced sales load on A Shares, you or your Service
Organization (which is an institution such as a bank or broker-dealer that has
entered into a selling and/or servicing agreement with the Fund's distributor)
must notify the Fund's transfer agent at the time of investment that a quantity
discount is applicable. Use of this service is subject to a check of appropriate
records, after which you will receive the lowest applicable sales charge. If you
want to participate you can so indicate on your Account Application or make a
subsequent written request to the Transfer Agent.
Example: Suppose you beneficially own A Shares carrying a sales load of the
Fund, the Pacific Horizon California Tax-Exempt Bond Fund, the Pacific Horizon
U.S. Government Securities Fund, the Pacific Horizon Capital Income Fund and
shares of the Company's money market funds that can be traced back to the
purchase of shares carrying a sales load (or any combination thereof) with an
aggregate current value of $90,000. If you subsequently purchase additional A
Shares of the Fund carrying a sales load with a current value of $10,000, the
sales load applicable to the subsequent purchase would be reduced to 3.75% of
the offering price.
LETTER OF INTENT. You may also obtain a reduced sales charge on A Shares by
means of a written Letter of Intent, which expresses your non-binding commitment
to invest in the aggregate $100,000 or more in shares of any Pacific Horizon
Fund within a period of 13 months, beginning up to 90 days prior to the date of
the Letter's execution. A Shares carrying a sales load purchased during that
period count as a credit toward completion of the Letter of Intent. Any
investments you make during the period receive the discounted sales load based
on the full amount of your investment commitment. When your commitment is
fulfilled, an adjustment will be made to reflect any reduced sales load
applicable to shares purchased during the 90-day period prior to the submission
of your Letter of Intent. Shares of Time Horizon Funds will generally not be
included when determining reduced sales loads under the letter of intent program
unless you are a participant in the Daily Advantage(R) Program.
19
<PAGE> 24
While signing a Letter of Intent does not bind you to purchase, or the Company
to sell, the full amount indicated at the sales load in effect at the time of
signing, you must complete the intended purchase to obtain the reduced sales
load. When you sign a Letter of Intent, the Company holds in escrow shares
purchased by you in an amount equal to 5% of the total amount of your
commitment. After you fulfill the terms of the Letter of Intent, the escrow will
be released.
If your aggregate investment exceeds the amount indicated in your Letter of
Intent, you will receive an adjustment which reflects the further reduced sales
load applicable to your excess investment. It will be in the form of additional
shares credited to your account at the then current offering price applicable to
a single purchase of the total amount of the total purchase.
If your aggregate investment is less than the amount you committed, you will be
requested to remit an amount equal to the difference between the sales load
actually paid and the sales load applicable to the aggregate purchases actually
made. If such remittance is not received within 20 days, the Transfer Agent will
redeem an appropriate number of shares held in escrow to realize the difference.
If you would like to participate, complete the Letter of Intent on your Account
Application. If you have any questions regarding the Letter of Intent, call
800-346-2087. Please read it carefully, as you will be bound by its terms.
HOW DO I DECIDE WHETHER TO BUY A OR B SHARES?
The alternative sales arrangements of the Fund permits you to choose the method
of purchasing shares that is most beneficial given the amount of the purchase,
the length of time you expect to hold the shares and other relevant
circumstances. You should determine whether under your particular circumstances
it is more advantageous to invest in A Shares and incur a front-end sales charge
and an ongoing shareholder services plan fee; or invest in B Shares and have the
entire initial purchase price invested in the Fund with the investment
thereafter being subject to a contingent deferred sales charge and ongoing
distribution and services plan fees.
As an illustration, investors who qualify for a significantly reduced sales
load, as described above, might elect the front-end sales charge alternative (A
Shares) because similar sales charge reductions are not available for purchases
under the contingent deferred sales charge alternative (B Shares). Moreover, A
Shares would not be subject to ongoing distribution and services plan fees, as
described below. However, because front-end sales charges are deducted at the
time of purchase, such investors who pay a front-end sales charge would not have
all their funds invested initially. The Company will not accept any order for B
Shares from an investor who is eligible to purchase A Shares without a sales
load.
Investors not qualifying for a reduced front-end sales charge who expect to
maintain their investment in the Fund for an extended period of time might also
elect the front-end sales charge alternative because over time the accumulated
continuing distribution and services plan fees related to B Shares may exceed
the front-end sales charge and ongoing shareholder services plan fees related to
A Shares. However, such investors must weigh this consideration against the fact
that not all their funds will be invested initially. Furthermore, the ongoing
distribution and services plan fees may be offset to the
20
<PAGE> 25
extent any return is realized on the additional funds initially invested under
the contingent deferred sales charge alternative.
Certain investors might determine it to be more advantageous to have all their
funds invested initially in B Shares, although subject to continuing
distribution and services plan fees and to a contingent deferred sales charge
for a 6-year period of time.
21
<PAGE> 26
HOW CAN I BUY SHARES?
The chart below provides more information regarding some of the different
methods for investing in the Fund.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
TO BUY SHARES
- ----------------------------------------------------------------------------------------------------------------------------------
Opening an Account Adding to an Account
- ----------------------------------------------------------------------------------------------------------------------------------
Through Bank of America, your Broker or another
Service Organization (orders are not effective
until received by the Fund's transfer agent)
<S> <C> <C>
Contact them directly Contact them directly
for instructions. for instructions.
- ----------------------------------------------------------------------------------------------------------------------------------
Through the Distributor
(if you are or will be the shareholder of record on the Company's books)
By Mail Complete Account Mail all subsequent
Application and mail investments to:
it with a check
(payable to Pacific Pacific Horizon Funds,
Horizon Short-Term Inc.
Government Fund) to File No. 54634
the address on the Los Angeles, CA 90074
Account Application. - 4634
- ----------------------------------------------------------------------------------------------------------------------------------
In Person Deliver Account Deliver your payment
Application and your directly to the address
BISYS Fund Services , Inc. payment directly to on the left.
3435 Stelzer Road the address on the
Columbus, OH 43219-3035 left.
- ----------------------------------------------------------------------------------------------------------------------------------
By Wire Initial purchases of Contact the Fund's
shares into a new transfer agent at 800-
account may not be 346-2087 for complete
made by wire. wiring instructions.
Instruct your bank to transmit
immediately available funds for
purchase of Fund shares in your
name.
Be sure to include your name and
your Fund account number.
Consult your bank for information on remitting funds by wire and any
associated bank charges.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 27
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------------
TO BUY SHARES
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Opening an Account Adding to an Account
By TeleTrade TeleTrade Privileges Purchases may be made
(a service permitting may not be used to in the minimum amount
transfers of money from your make an initial of $500 and the maximum
checking, NOW or bank money purchase. amount of $50,000 per
market account) transaction as soon as
appropriate information regarding
your bank account has been
established on your Fund account.
This information may be
provided on the Account Application
or in a signature guaranteed
letter of instruction to the Transfer Agent.
Signature guarantees are discussed under
"How to Sell Shares."
Call 800-346-2087 to
make your purchase.
You should refer to the "Shareholder Services" section for additional
important information about the TeleTrade Privilege.
You may use other investment options, including automatic investments and
exchanges, to invest in your fund account. Please refer to the section entitled
"shareholder services" for more information.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
WHAT PRICE WILL I RECEIVE WHEN I BUY SHARES?
Your shares will be purchased at the Fund's public offering price calculated at
the next close of regular trading on the Exchange (currently 4:00 p.m. Eastern
Time) after your purchase order is received in proper form by the Fund's
transfer agent, BISYS Fund Services, Inc. (the "Transfer Agent"), at its
Columbus office.
If you purchase shares through Bank of America, your broker or another Service
Organization, the entity involved is responsible for transmitting your order and
required funds to the Transfer Agent on a timely basis in accordance with the
procedures in this Prospectus. Share purchases (and redemptions) executed
through Bank of America or a Service Organization are executed only on days on
which the particular institution and the Fund are open for business. Purchase
orders received by a Service Organization in proper form by 4:00 p.m. Eastern
Time on a business day will be effected at the public offering price calculated
at 4:00 p.m. Eastern Time on that day, if the Service Organization transmits
your order to the Transfer Agent by the end of the Transfer Agent's business
day. Except as provided in the following two sentences, if the order is not
received in proper form by a Service Organization by 4:00 p.m. Eastern Time or
not received by the Transfer Agent by the close of the Transfer Agent's business
day, the order will be based upon the next determined purchase price. The
Company may from time to time
23
<PAGE> 28
in its sole discretion appoint one or more entities as the Fund's agent to
receive irrevocable purchase and redemption orders and to transmit them on a net
basis to the Transfer Agent. In these instances orders received by the entity by
4:00 p.m. Eastern Time on a business day will be effected as of 4:00 p.m.
Eastern Time that day if the order is actually received by the Transfer Agent
not later than the next business morning accompanied by payment in federal
funds.
WHAT ELSE SHOULD I KNOW TO MAKE A PURCHASE?
You must specify at the time of investment whether you are purchasing A or B
Shares. Certificates for shares will not be issued.
Federal regulations require you to provide a certified taxpayer identification
number upon opening or reopening an account.
If your check used for investment does not clear, a fee may be imposed by the
Transfer Agent. All payments should be in U.S. dollars and, to avoid fees and
delays, should be drawn only on U.S. banks. Please remember that the Company
reserves the right to reject any purchase order.
You should note that Bank of America, Service Organizations and registered
investment advisers may charge a separate fee or transaction charge to their
clients for providing them with administrative services related to their
investment in Fund shares. These fees could constitute a substantial portion of
smaller accounts and may not be in an investor's best interest. Bank of America
and Service Organizations may also impose minimum customer account and other
requirements in addition to those imposed by the Fund. If you purchase or redeem
shares directly from the Fund, you may do so without incurring any charges other
than those described in this Prospectus.
HOW TO SELL SHARES
HOW DO I REDEEM MY SHARES?
Pacific Horizon Funds, Inc. makes it easy to sell, or "redeem," shares. The
value of the shares you redeem may be more or less than your cost, depending on
the Fund's current net asset value.
If you purchased your shares through an account at Bank of America, your Broker
or another Service Organization, you may redeem all or part of your shares in
accordance with the instructions pertaining to that account. If you are also the
shareholder of record on the Company's books, you may redeem shares in
accordance with the procedures described in the chart below as well as those of
your account. To use the redemption methods described below, you must arrange
with Bank of America or your Service Organization for delivery of the required
application(s) to the Transfer Agent.
24
<PAGE> 29
- --------------------------------------------------------------------------------
TO SELL SHARES
- --------------------------------------------------------------------------------
Through Bank of America, your Broker or another
Service Organization
(orders are not effective until received by the Transfer Agent)
Contact them directly for instructions.
- --------------------------------------------------------------------------------
Through the Distributor
(if you are a shareholder of record on the Company's books)
- --------------------------------------------------------------------------------
By Mail
Pacific Horizon Send a signed, written request (each owner, including each
Short-Term joint owner, must sign) to the Transfer Agent.
Government Fund
c/o Pacific Horizon
Funds, Inc.
P.O. Box 80221
Los Angeles, CA
90080-9909
- --------------------------------------------------------------------------------
In Person
BISYS Fund Deliver your signed, written request (each owner, including
Services, Inc. each joint owner, must sign) to the address on the left.
3435 Stelzer Road
Columbus, OH
43219-3035
- --------------------------------------------------------------------------------
By Wire As soon as appropriate information regarding your bank
account has been established on your Fund account, you may
write, telephone or telegraph redemption requests to the
Transfer Agent, and redemption proceeds will be wired in
federal funds to the commercial bank you have specified.
Information regarding your bank account may be provided on
the Account Application or in a signature guaranteed letter
of instruction to the Transfer Agent. Signature guarantee
requirements are discussed in the section entitled "What
Kind Of Paperwork Is Involved In Selling Shares?".
Redemption proceeds will normally be wired
the business day after your request and any
other necessary documents have been received
by the Transfer Agent.
Wire Privileges apply automatically unless
you indicate on the Account Application or
in a subsequent written notice to the
Transfer Agent that you do not wish to have
them.
Requests must be for at least $1,000 and may
be subject to limits on frequency and
amount.
Wire Privileges may be modified or suspended
at any time, and are not available for
shares issued in certificate form.
Contact your bank for information on any charges imposed by
the bank in connection with receipt of redemptions by wire.
- --------------------------------------------------------------------------------
25
<PAGE> 30
- --------------------------------------------------------------------------------
TO SELL SHARES
- --------------------------------------------------------------------------------
By Check You may write Redemption Checks
("Checks") payable to any payee from your
Fund account in the amount of $500 or more.
The Transfer Agent (as your agent) will
redeem the necessary number of shares to
cover the Check when it is presented for
payment.
You will continue earning dividends on
shares redeemed in this manner until the
Check actually clears the Transfer Agent.
You may request this Privilege on an Account
Application that has been signed by the
registered owner(s) and a set of Checks will
then be sent to the registered owner(s) at
the address of record.
There is no charge for the use of Checks,
although the Transfer Agent will charge for
any "stop payment" requests made by you, or
if a Check cannot be honored due to
insufficient funds or for other valid
reasons.
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By TeleTrade You may redeem Fund shares (minimum
(a service of $500 and maximum of $50,000 per
permitting transaction) by telephone after
transfers of money appropriate information regarding
to your checking, your bank account has been established
NOW or bank money on your Fund account. This information
market account) may be provided on the Account
Application or in a signature
guaranteed letter of instruction to the
Transfer Agent. Signature guarantee
requirements are discussed in the
section entitled "What Kind Of Paperwork Is
Involved In Selling Shares?".
Redemption orders may be placed by calling
800-346-2087.
TeleTrade Privileges apply automatically
unless you indicate on the Account
Application or in a subsequent written
notice to the Transfer Agent that you do not
wish to have them.
You should refer to the "Shareholder
Services" section for additional important
information about the TeleTrade Privilege.
Other redemption options, including exchanges and
automatic withdrawals, are also available. Please refer to
the section entitled "shareholder services" for more information.
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WHAT NAV WILL I RECEIVE FOR SHARES I WANT TO SELL?
Redemption orders are effected at the net asset value per share next determined
after receipt of the order in proper form by the Transfer Agent at its Columbus
office. Although the Fund itself imposes no charge when A Shares are redeemed
(except pursuant to the Large Purchase Exemption described above), if you
purchase shares through Bank of America or a Service
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<PAGE> 31
Organization, they may charge a fee for providing certain services in connection
with investments in Fund shares.
When you redeem your B Shares within 6 years of purchase (or longer if your
shares have been exchanged for Pacific Horizon Shares of the Pacific Horizon
Prime Fund), you may be subject to a contingent deferred sales charge as
described above.
The Company reserves the right to redeem accounts (other than 401(k), IRA and
non-working spousal IRA accounts) involuntarily if, after sixty days' written
notice, the account's net asset value remains below a $500 minimum balance. The
contingent deferred sales charge will not be imposed upon such involuntary
redemptions.
WHAT KIND OF PAPERWORK IS INVOLVED IN SELLING SHARES?
Redemption requests must be signed by each shareholder, including each joint
owner. When redeeming shares, you should indicate whether you are redeeming A or
B Shares. If you own both A and B Shares of the Fund, A Shares will be redeemed
first unless you request otherwise. Certain types of redemption requests will
need to include a signature guarantee. Signature guarantees must accompany
redemption requests for (i) an amount in excess of $50,000 per day, (ii) any
amount if the redemption proceeds are to be sent somewhere other than the
address of record on the Company's books, or (iii) an amount of $50,000 or less
if the address of record has not been on the Company's books for sixty days.
You may obtain a signature guarantee from: (i) a bank which is a member of the
FDIC; (ii) a trust company; (iii) a member firm of a national securities
exchange; or (iv) another eligible guarantor institution. Guarantees must be
signed by an authorized signatory of the guarantor institution and be
accompanied by the words "Signature Guaranteed." The Transfer Agent will not
accept guarantees from notaries public.
HOW QUICKLY CAN I RECEIVE MY REDEMPTION PROCEEDS?
The Company will make payment for all shares redeemed after the Transfer Agent
receives a request in proper form, except as provided by the rules of the
Securities and Exchange Commission. If the shares to be redeemed have been
purchased by check or by TeleTrade, the Company will, upon the clearance of the
purchase check or TeleTrade payment, mail the redemption proceeds within seven
business days. This does not apply to situations where the Fund receives payment
in cash or immediately available funds for the purchase of shares. The Company
may suspend the right of redemption or postpone the date of payment upon
redemption (as well as suspend the recordation of the transfer of shares) for
such periods as are permitted under the 1940 Act.
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<PAGE> 32
Bank of America and the Service Organizations are responsible for transmitting
redemption orders and crediting their customers' accounts with redemption
proceeds on a timely basis.
DO I HAVE ANY REINSTATEMENT PRIVILEGES AFTER I HAVE REDEEMED SHARES?
You may reinvest all or any portion of your redemption proceeds in shares of the
Fund, in shares of the same class of the Fund out of which you redeemed, in like
shares of another Fund in the Pacific Horizon Family of Funds or in like shares
of any investment portfolio of Time Horizon Funds within 90 days of your
redemption trade date without paying a sales load. Upon such a reinvestment, the
Fund's distributor will credit to your account any contingent deferred sales
charge imposed on any redeemed B Shares, certain A Shares or any Pacific Horizon
Shares of the Pacific Horizon Prime Fund. Shares so reinvested will be purchased
at a price equal to the net asset value next determined after the Transfer Agent
receives a reinstatement request and payment in proper form.
If you wish to use this Privilege, you must submit a written reinstatement
request to the Transfer Agent stating that you are eligible to use the
Privilege. The reinstatement request and payment must be received within 90 days
of the trade date of the redemption. Currently, there are no restrictions on the
number of times you may use this Privilege.
Generally, exercising the Reinstatement Privilege will not affect the character
of any gain or loss realized on redemption for federal income tax purposes.
However, if a redemption results in a loss, the reinstatement may result in the
loss being disallowed under IRS "wash sale" rules.
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DIVIDEND AND DISTRIBUTION POLICIES
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Shareholders of the Fund are entitled to dividends and distributions arising
from the Fund's net investment income and net realized gains, if any. The Fund's
net realized gains (after reduction for capital loss carryforwards, if any) are
distributed at least annually. Dividends from the Fund's net investment income
are declared daily and paid no later than the fifth business day of the month
next following the month in which it was declared.
You will automatically receive dividends and capital gain distributions in
additional shares of the same class of shares of the Fund for which the dividend
was declared without a sales load unless you: (i) elect in writing to receive
payment in cash; or (ii) elect to participate in the Directed Distribution Plan
described in the section entitled "Can My Dividends From A Fund Be Invested In
Other Funds?"
To elect to receive payment in cash, or to revoke such election, you must do so
in writing to the Transfer Agent, at P.O. Box 80221, Los Angeles, California
90080-9909. The election or
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<PAGE> 33
revocation will become effective with respect to dividends paid after it is
received and processed by the Transfer Agent.
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SHAREHOLDER SERVICES
PACIFIC HORIZON FUNDS, INC. PROVIDES A VARIETY OF WAYS TO MAKE MANAGING YOUR
INVESTMENTS MORE CONVENIENT.
- --------------------------------------------------------------------------------
Some or all of the following services and privileges as well as others described
in this Prospectus may not be available for, or may have different conditions
imposed on them than as described in this Prospectus with respect to, certain
clients of Bank of America and particular Service Organizations. Consult these
entities for more information.
CAN I USE THE FUND IN MY RETIREMENT PLAN?
The Company makes available Individual Retirement Accounts ("IRAs"), including
IRAs set up under a Simplified Employee Pension Plan ("SEP-IRAs") and IRA
"Rollover Accounts."
YOUR INVESTMENTS GROW TAX DEFERRED UNTIL WITHDRAWAL AT RETIREMENT AND IN MANY
CASES THE INITIAL INVESTMENT IS TAX DEDUCTIBLE.
The contingent deferred sales charge with respect to B Shares and certain A
Shares will not be charged on redemptions in connection with minimum required
distributions from an IRA due to a shareholder having reached age 70-1/2. For
details, contact the Fund's distributor at 800-346- 2087. Investors should also
read the IRA Disclosure Statement and the Bank Custodial Agreement for further
details on eligibility, service fees and tax implications, and should consult
their tax advisers.
CAN I EXCHANGE MY INVESTMENT FROM ONE
FUND TO ANOTHER?
As a shareholder, you have the privilege of exchanging your shares for: like
shares of another Pacific Horizon Fund, or like shares of any Time Horizon Fund,
provided that such other shares may be legally sold in your state of residence.
Specifically, A Shares may be exchanged for other A Shares, and B Shares may be
exchanged for other B Shares. NO ADDITIONAL SALES LOAD WILL BE INCURRED WHEN
EXCHANGING A SHARES PURCHASED WITH A SALES LOAD FOR A SHARES OF ANOTHER LOAD
FUND OF THE COMPANY OR TIME HORIZON FUNDS. A AND B SHARES MAY BE EXCHANGED FOR
OTHER A AND B SHARES, RESPECTIVELY, OR FOR PACIFIC HORIZON SHARES OF THE
29
<PAGE> 34
PACIFIC HORIZON PRIME FUND WITHOUT THE PAYMENT OF ANY CONTINGENT DEFERRED SALES
CHARGE AT THE TIME THE EXCHANGE IS MADE. IN ADDITION, PACIFIC HORIZON SHARES OF
THE PACIFIC HORIZON PRIME FUND THAT WERE ACQUIRED THROUGH AN EXCHANGE OF B
SHARES MAY BE EXCHANGED FOR B SHARES WITHOUT THE PAYMENT OF ANY CONTINGENT
DEFERRED SALES CHARGE AT THE TIME THE EXCHANGE IS MADE. IN DETERMINING THE
HOLDING PERIOD FOR CALCULATING THE CONTINGENT DEFERRED SALES CHARGE PAYABLE UPON
REDEMPTION OF B SHARES, THE HOLDING PERIOD OF THE SHARES ORIGINALLY HELD WILL BE
ADDED TO THE HOLDING PERIOD OF THE SHARES ACQUIRED THROUGH THE EXCHANGE UNLESS
THE SHARES ACQUIRED THROUGH THE EXCHANGE ARE PACIFIC HORIZON SHARES OF THE
PACIFIC HORIZON PRIME FUND. THE TIME PERIOD DURING WHICH PACIFIC HORIZON SHARES
OF THE PACIFIC HORIZON PRIME FUND ACQUIRED THROUGH AN EXCHANGE ARE HELD IS NOT
INCLUDED WHEN THE AMOUNT OF THE CONTINGENT DEFERRED SALES CHARGE IS CALCULATED.
Neither a contingent deferred sales load nor a front-end sales load will be
imposed if a shareholder who has entered a Fund under the Large Purchase
Exemption exchanges shares between Funds of the Company or Time Horizon Funds.
However, shares acquired in the exchange will remain subject to the contingent
deferred sales load discussed above. The contingent deferred sales load is
calculated as a percentage of the lesser of the current market value or the cost
of the shares being redeemed. This means that this charge will not be imposed
upon increases in net asset value above the initial purchase price or upon
reinvested dividends. In determining whether a contingent deferred sales charge
is applicable to a redemption of such shares, the calculation will be made in a
manner that results in the lowest possible rate. It will be assumed that the
redemption is made first of amounts representing shares acquired pursuant to the
reinvestment of dividends and distributions; then of amounts representing the
increase in net asset value of your holdings of shares above the total amount of
payments for the purchase of shares during the preceding 2 years; then of
amounts representing the cost of shares held beyond the applicable contingent
deferred sales charge period; and finally, of amounts representing the cost of
the shares held for the longest period of time.
An investment in the Fund automatically entitles you to use this Privilege,
unless you indicate on the Account Application or in a subsequent letter to the
Transfer Agent that you do not wish to use this Privilege.
Fund shares being exchanged must have a current value of at least $500 and are
subject to the minimum initial investment requirements of the particular fund
into which the exchange is being made. You may obtain prospectuses regarding the
funds into which you wish to make an exchange from your Service Organization or
the Fund's distributor.
You may provide exchange instructions by telephone by calling the Transfer Agent
at 800-346-2087. (See the section below entitled "What Is TeleTrade?" for a
description of the Company's policy regarding responsibility for telephone
instructions.) You may also send exchange instructions in writing by following
directions set forth previously under "How to Sell Shares."
If you would like more information on making an exchange, please read the
Statement of Additional Information and consult your Service Organization or the
Fund's distributor.
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<PAGE> 35
The Fund reserves the right to reject any exchange request and the Exchange
Privilege may be modified or terminated at any time. At least 60 days' notice of
any material modification to or termination of the Exchange Privilege will be
given to shareholders except where notice is not required under the regulations
of the Securities and Exchange Commission.
WHAT IS TELETRADE?
TELETRADE IS A SERVICE WHICH ALLOWS YOU TO AUTHORIZE ELECTRONIC TRANSFERS OF
MONEY TO PURCHASE SHARES IN OR REDEEM SHARES FROM AN ESTABLISHED FUND ACCOUNT.
THE SERVICE MAY BE USED LIKE AN "ELECTRONIC CHECK" TO MOVE MONEY BETWEEN AN
ACCOUNT AT A FINANCIAL INSTITUTION AND A FUND ACCOUNT WITH A SINGLE TELEPHONE
CALL.
Purchase and redemption proceeds with respect to TeleTrade transactions will be
transferred between your Fund account and the checking, NOW or bank money market
account designated by you. Only an account maintained at a domestic financial
institution that is an Automated Clearing House member may be so designated.
TeleTrade purchases will be effected at the public offering price next
determined after the Transfer Agent receives payment for the transaction.
Redemption proceeds will be on deposit in your account at your financial
institution generally two business days after the redemption request is received
by the Transfer Agent. You may also request receipt of your redemption proceeds
by check, which will only be payable to the registered owners of your Fund
account and will be sent only to the address of record.
You should note that the Transfer Agent may act upon a telephone redemption
request (including a telephone wire redemption request) from any person
representing himself or herself to be you and reasonably believed by the
Transfer Agent to be genuine. Neither the Company nor any of its service
contractors will be liable for any loss or expense caused by acting upon
telephone instructions that are reasonably believed to be genuine. In attempting
to confirm that telephone instructions are genuine, the Company will use such
procedures as are considered reasonable, including requesting certain personal
or account information to confirm the identity of the shareholder. If you should
experience difficulty in contacting the Transfer Agent to place telephone
redemptions (including telephone wire redemptions), for example because of
unusual market activity, you are urged to consider redeeming your shares by mail
or in person.
The Company may modify the TeleTrade Privilege at any time or charge a service
fee upon notice to shareholders. No such fee currently is contemplated.
CAN I ARRANGE TO HAVE AUTOMATIC INVESTMENTS
MADE ON A REGULAR BASIS?
YOU MAY ARRANGE, THROUGH THE AUTOMATIC INVESTMENT PROGRAM, FOR SYSTEMATIC
INVESTMENTS IN YOUR FUND ACCOUNT IN AMOUNTS OF $50 OR MORE BY DIRECTLY DEBITING
YOUR ACCOUNT AT YOUR FINANCIAL INSTITUTION. At your option, your checking, NOW
or bank money market account
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<PAGE> 36
designated by you will be debited in the specified amount, and Fund shares will
be purchased, once a month, on either the first or fifteenth day, or twice a
month, on both days. Only accounts maintained at a domestic financial
institution which permits automatic withdrawals and is an Automated Clearing
House member are eligible. The Automatic Investment Program is one means by
which you may use Dollar Cost Averaging in making investments.
WHAT IS DOLLAR COST AVERAGING
AND HOW CAN I IMPLEMENT IT?
DOLLAR COST AVERAGING INVOLVES INVESTING A FIXED DOLLAR AMOUNT AT REGULAR
PREDETERMINED INTERVALS. BECAUSE MORE SHARES ARE BOUGHT DURING PERIODS WITH
LOWER SHARE PRICES AND FEWER SHARES ARE BOUGHT WHEN THE PRICE IS HIGHER, YOUR
AVERAGE COST PER SHARE MAY BE REDUCED. YOU MAY ALSO IMPLEMENT DOLLAR COST
AVERAGING ON YOUR OWN INITIATIVE OR THROUGH OTHER ENTITIES.
In order to be effective, Dollar Cost Averaging should be followed on a
sustained, consistent basis. You should be aware, however, that shares bought
using Dollar Cost Averaging are made without regard to their price on the day of
investment or to market trends. In addition, while you may find Dollar Cost
Averaging to be beneficial, it will not prevent a loss if you ultimately redeem
your shares at a price that is lower than their purchase price.
To establish an Automatic Investment Account that uses the Dollar Cost Averaging
method, check the appropriate box and supply the necessary information on the
Account Application or in a subsequent written request to the Transfer Agent.
You may cancel this Privilege or change the amount of purchase at any time by
mailing written notification to the Transfer Agent.
Notification will be effective three business days following receipt. The Fund
may modify or terminate this Privilege at any time or charge a service fee,
although no such fee currently is contemplated.
CAN I ARRANGE PERIODIC WITHDRAWALS?
IF YOU ARE A SHAREHOLDER WITH A FUND ACCOUNT VALUED AT $5,000 OR MORE, YOU MAY
WITHDRAW AMOUNTS IN MULTIPLES OF $50 FROM YOUR ACCOUNT ON A MONTHLY, QUARTERLY,
SEMI-ANNUAL OR ANNUAL BASIS THROUGH THE AUTOMATIC WITHDRAWAL PLAN.
At your option, monthly, quarterly, semi-annual or annual withdrawals will be
made on either the first or fifteenth day of the particular month selected. To
participate in this Plan, check the appropriate box and supply the necessary
information on the Account Application or in a subsequent signature guaranteed
written request to the Transfer Agent. Purchases of additional
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<PAGE> 37
shares concurrently with withdrawals are ordinarily not advantageous because of
the Fund's sales load. Use of this Plan may also be disadvantageous for B Shares
or A Shares subject to the Large Purchase Exemption due to the potential need to
pay a contingent deferred sales charge.
CAN MY DIVIDENDS FROM THE FUND BE INVESTED
IN OTHER FUNDS?
You may elect to have your dividends, capital gains distributions, or both
("distribution proceeds") received from a non-retirement Fund account
automatically invested in shares of any other investment portfolio of the
Company, or in like shares of any Time Horizon Fund, provided such shares are
held in a non-retirement account. To participate in this program, known as the
Directed Distribution Plan, check the appropriate box and supply the necessary
information on the Account Application or subsequently send a written request to
the Transfer Agent. Participants in the Directed Distribution Plan are subject
to the minimum initial investment requirements of the particular fund involved.
Investments will be made at a price equal to the net asset value of the
purchased shares next determined after receipt of the distribution proceeds by
the Transfer Agent.
There are no subsequent investment requirements for accounts to which
distribution proceeds are directed nor are service fees currently charged for
effecting these transactions.
IS THERE A SALARY DEDUCTION PLAN AVAILABLE?
YOU MAY PURCHASE FUND SHARES BY HAVING PAYMENTS AUTOMATICALLY DEPOSITED INTO
YOUR FUND ACCOUNT (MINIMUM OF $50 AND MAXIMUM OF $50,000 PER TRANSACTION) IF YOU
RECEIVE A FEDERAL SALARY, SOCIAL SECURITY OR CERTAIN VETERAN'S, MILITARY OR
OTHER PAYMENTS FROM THE FEDERAL GOVERNMENT. Subject to these limitations, you
may deposit as much of your payments as you wish.
For instructions on how to enroll in this Direct Deposit Program, call the
Transfer Agent at 800- 346-2087.
Note: Death or legal incapacity will terminate participation in the Program. You
may also choose at any time to terminate your participation by notifying the
appropriate federal agency in writing. Further, the Fund may terminate your
participation after serving 30 days' notice.
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<PAGE> 38
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THE BUSINESS OF THE FUND
- --------------------------------------------------------------------------------
FUND MANAGEMENT
The business affairs of Pacific Horizon Funds, Inc. are managed under the
general supervision of its Board of Directors. Information about the Directors
and Officers of the Company is included in the Statement of Additional
Information under "Management."
EXPENSES
Operating expenses borne by the Fund include taxes, fees and expenses of the
directors and officers, administration, custodial and transfer agency fees,
certain insurance premiums, outside auditing and legal expenses, cost of
shareholder reports and meetings and any extraordinary expenses. Fund expenses
also include Securities and Exchange Commission fees, state securities
qualification fees, cost of preparing and printing prospectuses and statements
of additional information for regulatory purposes and for distribution to
existing shareholders, and certain shareholder servicing fees. Except as noted
in this Prospectus, the service contractors bear all expenses in connection with
the performance of their services, and the Fund bears the expenses incurred in
its operations.
SERVICE PROVIDERS
INVESTMENT ADVISER
Bank of America serves as Investment Adviser of the Fund. Bank of America is a
subsidiary of BankAmerica Corporation, a registered bank holding company. Its
principal offices are located at 555 California Street, San Francisco,
California 94104.
Formed in 1904, Bank of America is a national banking association that provides
commercial banking and trust business through an extensive system of branches
across the western United States. Bank of America's principal banking affiliates
operate branches in ten U.S. states as well as corporate banking, business
credit and thrift offices in major U.S. cities and branches, corporate offices
and representative offices in 37 countries.
In its advisory agreement, Bank of America has agreed to manage the Fund's
investments and to be responsible for, place orders for, and make decisions with
respect to, all purchases and
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<PAGE> 39
sales of the Fund's securities. The advisory agreement also provides that Bank
of America may, in its discretion, provide advisory services through its own
employees or employees of one or more of its affiliates that are under the
common control of Bank of America's parent, BankAmerica Corporation, provided
such employees are under the management of Bank of America. Bank of America may
also employ a sub-adviser provided that Bank of America remains fully
responsible to the Fund for the acts and omissions of the sub-adviser.
Portfolio management services for the Fund are conducted by the Fixed Income
Division of the Investment Management Services Group of Bank of America.
For the services provided and expenses assumed under the advisory agreement,
Bank of America is entitled to receive a fee at the annual rate of 0.__% of the
Fund's average daily net assets. This amount may be reduced pursuant to
undertakings by Bank of America. (See the information below under "Fee
Waivers").
In addition, Bank of America and its affiliates may be entitled to fees under
the Shareholder Services Plan, and Distribution and Services Plan as described
under "Plan Payments" below, and may receive fees charged directly to their
accounts in connection with investments in Fund shares.
ADMINISTRATOR
Bank of America also serves as Administrator of the Fund.
Under its administration agreements with the Company , Bank of America has
agreed to: pay the costs of maintaining the offices of the Company ; provide a
facility to receive purchase and redemption orders; provide statistical and
research data, data processing services and clerical services; coordinate the
preparation of reports to shareholders of the Fund and the Securities and
Exchange Commission; prepare tax returns; maintain the registration or
qualification of the Fund's shares for sale under state securities laws;
maintain books and records of the Fund ; calculate the net asset value of the
Fund ; calculate the dividends and capital gains distributions paid to
shareholders; and generally assist in all aspects of the operations of the Fund.
For its services as administrator, Bank of America is entitled to receive an
administration fee from the Fund at the annual rate of 0.__% of the Fund's
average daily net assets . These amounts may be reduced pursuant to undertakings
by Bank of America. (See the information below under "Fee Waivers").
Pursuant to the authority granted in its administration agreement, Bank of
America has entered into a sub-administration agreement with BISYS Fund
Services, Inc. ("BISYS") under which BISYS will perform certain of the services
listed above, e.g., pay the costs of maintaining the offices of the Fund,
maintain the registration or qualification of the Fund's shares for sale under
state securities laws; maintain books and records of the Fund ; and
35
<PAGE> 40
generally assist in all aspects of the Fund's operations. BISYS is an indirect,
wholly-owned subsidiary of The BISYS Group, Inc. Its offices are located at 3435
Stelzer Road, Columbus, Ohio 43219-3035. For its services, BISYS is paid by Bank
of America and not by the Fund.
DISTRIBUTOR
The Fund's shares are sold on a continuous basis by Concord Financial Group,
Inc. (the "Distributor"). The Distributor is an indirect, wholly-owned
subsidiary of The BISYS Group, Inc. and is located at 3435 Stelzer Road,
Columbus, Ohio 43219-3035.
CUSTODIAN AND TRANSFER AGENT
The Bank of New York, 90 Washington Street, New York, New York 10286 serves as
the Custodian of the Fund. BISYS Fund Services, Inc. is the transfer and
dividend disbursing agent of the Fund and is located at 3435 Stelzer Road,
Columbus, OH 43219-3035.
FEE WAIVERS
Except as noted in this Prospectus, the service contractors bear all expenses in
connection with the performance of their services, and the Fund bears the
expenses incurred in its operations. Expenses can be reduced by voluntary fee
waivers and expense reimbursements by Bank of America and other service
providers as well as by certain expense limitations imposed by state securities
regulators. Periodically, during the course of the Fund's fiscal year, Bank of
America and/or the Distributor may prospectively choose not to receive fee
payments and/or may assume certain Fund expenses as a result of competitive
pressures and in order to preserve and protect the business and reputation of
Bank of America. However, the service providers retain the ability to
discontinue such fee waivers and/or expense reimbursements at any time .
- --------------------------------------------------------------------------------
TAX INFORMATION
YOU WILL BE ADVISED AT LEAST ANNUALLY REGARDING
THE FEDERAL INCOME TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
MADE TO YOU. YOU SHOULD SAVE YOUR ACCOUNT STATEMENTS BECAUSE THEY
CONTAIN INFORMATION YOU WILL NEED TO CALCULATE YOUR CAPITAL GAINS OR
LOSSES UPON YOUR ULTIMATE SALE OR EXCHANGE OF SHARES IN THE FUND.
- --------------------------------------------------------------------------------
As with any investment, you should consider the tax implications of an
investment in the Fund.
36
<PAGE> 41
The following is only a brief summary of some of the important tax
considerations generally affecting the Fund and its shareholders. Consult your
tax adviser with specific reference to your own tax situation.
FEDERAL TAXES
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code, as amended (the "Code"), for the current taxable year, as
well as in future years as long as such qualification is in the best interests
of its shareholders. As a result of this qualification, the Fund generally is
not required to pay federal income taxes to the extent its earnings are
distributed in accordance with the Code.
Distributions (whether received in cash or additional shares) derived from
ordinary income and/or the excess of net short-term capital gains over net
long-term capital loss are taxable to you as ordinary income. It is not
anticipated that any such distribution from the Fund will qualify for the
dividends received deduction allowed to corporations.
Any distribution you receive comprised of the excess of net long-term capital
gains over net short-term capital losses ("capital gain dividend") will be taxed
as a long-term capital gain no matter how long you have held Fund shares.
A distribution paid to you by the Fund in January of a particular year will be
deemed for tax purposes to have been received by you on December 31 of the
preceding year, if the dividend was declared and payable to shareholders of
record on a specified date in October, November or December of that preceding
year. If you are considering buying shares of the Fund on or just before the
record date of a dividend, you should be aware that the amount of the
forthcoming dividend payment, although in effect a return of capital, will be
taxable to you.
You may realize a taxable capital gain (or loss) upon redemption or exchange of
Fund shares, depending upon the tax basis of your shares and their price at the
time of such redemption or exchange. If you hold Fund shares for six months or
less and during that time receive a capital gain dividend on those shares, any
loss realized on the sale or exchange of those shares will be treated as a
long-term capital loss to the extent of the capital gain dividend.
Generally, you may include sales loads incurred in the purchase of Fund shares
in your tax basis when determining your gain (or loss) on a redemption or
exchange of these shares. However, if you exchange such shares for shares of
another investment portfolio of the Company within 90 days of the purchase and
are able to reduce the sales load on the new shares through the Exchange
Privilege, the reduction may not be included in the tax basis of your exchanged
shares for the purpose of calculating your gain or loss from the exchange. It
may be included in the tax basis of the new shares, subject to this same
limitation.
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<PAGE> 42
STATE AND LOCAL TAXES
A substantial portion of the dividends that you receive are derived from the
Fund's investments in U.S. Government obligations. These dividends may not be
entitled to the same exemptions from state and local taxes that would have been
available if you had purchased U.S.Government obligations directly. Because
state and local taxes may be different from the federal taxes described above,
you should consult your tax adviser regarding these taxes.
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MEASURING PERFORMANCE
THE FUND'S PERFORMANCE MAY BE QUOTED IN TERMS OF AVERAGE
ANNUAL TOTAL RETURN, AGGREGATE TOTAL RETURN AND YIELD.
PERFORMANCE INFORMATION IS HISTORICAL AND IS NOT INTENDED TO
INDICATE FUTURE RESULTS.
- --------------------------------------------------------------------------------
Average annual total return reflects the average annual percentage change in
value of an investment in the Fund over the period being measured, while
aggregate total return reflects the total percentage change in value over the
period being measured. Yield measures the net income of the Fund over a
specified 30-day period.
Periodically, the Fund's total return (calculated on an average annual total
return and/or an aggregate total return basis for various periods) and yield may
be quoted in advertisements or in communications to shareholders. Both methods
of calculating total return assume dividends and capital gains distributions
made by the Fund during the period are reinvested in Fund shares, and include
the maximum front-end sales charge for A Shares and the applicable contingent
deferred sales charge for B Shares. The Fund may also advertise total return
data without reflecting the sales load imposed on the purchase of Fund shares in
accordance with the rules of the Securities and Exchange Commission. Quotations
that do not reflect the sales load will, of course, be higher than quotations
that do reflect sales loads.
The Fund calculates its yield by dividing its net income per share (which may
differ from the net income per share used for accounting purposes) during a
30-day (or one month) period by the maximum offering price per share on the last
day of the measuring period, and then annualizing the result on a semi-annual
basis. The 30-day or one month measuring period will be identified along with
any yield quotation to which it relates.
The Fund may compare its total return and yield to that of other mutual funds
with similar investment objectives and to bond and other relevant indices or to
rankings prepared by independent services or other financial or industry
publications that monitor mutual fund
38
<PAGE> 43
performance. For example, the Fund's total return may be compared to data
prepared by: Lipper Analytical Services, Inc.; Donoghue's Money Fund Report;
Mutual Fund Forecaster; Morningstar; Micropal; Wiesenberger Investment Companies
Services; or CDA Investment Technologies, Inc.
Total return data as reported in national financial publications such as MONEY,
FORBES, BARRON'S, THE WALL STREET JOURNAL and THE NEW YORK TIMES, or in local or
regional publications, may also be used in comparing Fund performance. The
Fund's total return also may be compared to indices such as: the Dow Jones
Industrial Average; the Standard & Poor's 500 Stock Index; the Shearson Lehman
Bond Indexes; or the Consumer Price Index.
Since the Fund's performance will fluctuate, it should not be compared with bank
deposits, savings accounts and similar investments that often provide an agreed
or guaranteed fixed yield for a stated period of time. Performance is generally
a function of the kind and quality of the instruments in a portfolio, portfolio
maturity, operating expenses and market conditions. Not included in the Fund's
calculations of total return and yield are fees charged by Bank of America and
Service Organizations directly to their customer accounts in connection with
investments in the Fund (e.g. account maintenance fees, compensating balance
requirements or fees based upon account transactions, assets or income).
- --------------------------------------------------------------------------------
DESCRIPTION OF SHARES
THE COMPANY IS A MARYLAND CORPORATION THAT WAS ORGANIZED ON OCTOBER 27, 1982.
- --------------------------------------------------------------------------------
ABOUT THE COMPANY
THE COMPANY'S CHARTER AUTHORIZES THE BOARD OF DIRECTORS TO ISSUE UP TO TWO
HUNDRED BILLION FULL AND FRACTIONAL SHARES OF CAPITAL STOCK ($.001 PAR VALUE PER
SHARE) AND TO CLASSIFY AND RECLASSIFY ANY AUTHORIZED AND UNISSUED SHARES INTO
ONE OR MORE CLASSES OF SHARES.
The Board of Directors has authorized the issuance of 40 million shares of Class
U Common Stock and 60 million shares of Class U -- Special Series 3 Common
Stock, representing interests in the Fund; and additional classes of shares
representing interests in other investment portfolios of the Company. Class U
Common Stock are the "A" Shares and Class U -- Special Series 3 Common Stock are
the "B" Shares. The Board of Directors may similarly classify or reclassify any
class of shares (including unissued Class U Common Stock or Class U -- Special
Series 3 Common Stock) into one or more series. For more information about the
Company's other portfolios, contact the Company at the telephone number listed
on the inside cover page.
39
<PAGE> 44
Shares representing interests in the Fund are entitled to participate in the
dividends and distributions declared by the Board of Directors and in the net
distributable assets of the Fund on liquidation. Fund shares have no preemptive
rights and only such conversion and exchange rights as the Board may grant in
its discretion. When issued for payment as described in this Prospectus, Fund
shares will be fully paid and non-assessable.
VOTING RIGHTS
SHAREHOLDERS ARE ENTITLED TO ONE VOTE FOR EACH FULL SHARE HELD AND FRACTIONAL
VOTES FOR FRACTIONAL SHARES HELD. Fund shares have cumulative voting rights to
the extent that may be required by applicable law. Additionally, shareholders
will vote in the aggregate and not by class or series, except as required by law
(or when permitted by the Board of Directors). Only A Shares will vote on
matters relating solely to A Shares, and B Shares will vote on matters relating
solely to B Shares. The Fund does not presently intend to hold annual meetings
of shareholders to elect directors or for other business unless and until such
time as less than a majority of the directors holding office has been elected by
the shareholders. At that time, the directors then in office will call a
shareholders' meeting for the election of directors. Under certain
circumstances, however, shareholders have the right to call a shareholder
meeting to consider the removal of one or more directors. Such meetings will be
held when requested by the shareholders of 10% or more of the Company's
outstanding shares of common stock. The Fund will assist in shareholder
communications in such matters to the extent required by law and the Company's
undertaking with the Securities and Exchange Commission.
- --------------------------------------------------------------------------------
PLAN PAYMENTS
THE COMPANY HAS ADOPTED A SHAREHOLDER SERVICES PLAN
(THE "PLAN") FOR A SHARES AND A DISTRIBUTION AND
SERVICES PLAN FOR B SHARES.
- --------------------------------------------------------------------------------
The Company has adopted a Shareholder Services Plan for A Shares, under which
the A Shares of the Fund reimburse the Distributor for shareholder servicing
fees the Distributor pays to Service Organizations. The Company has also adopted
a Distribution and Services Plan pursuant to Rule 12b-1 under the 1940 Act,
under which the B Shares of the Fund reimburse the Distributor for services
rendered and costs incurred in connection with distribution of the B Shares and
for shareholder servicing fees the Distributor pays to Service Organizations.
SHAREHOLDER SERVICES PLAN
Shareholder servicing expenses include expenses incurred in connection with
shareholder services provided by the Distributor and payments to Service
Organizations for support services for the beneficial owners of Fund shares,
such as: establishing and maintaining accounts and records relating to the
Service Organization's clients who invest in Fund shares; assisting those
clients
40
<PAGE> 45
in processing exchange and redemption requests and in changing dividend options
and account designations; and responding to inquiries from clients concerning
their investments.
Under the Plan, payments by the Fund for shareholder servicing expenses may not
exceed 0.25% (annualized) of the average daily net assets of the Fund's A
Shares. Excluded from this calculation, however, are all shares acquired via a
transfer of assets from trust and agency accounts at Bank of America. This
amount may be reduced pursuant to undertakings by the Distributor.
If in any month the Distributor is due more monies than are immediately payable
because of the percentage limitation described above, the unpaid amount is
"carried forward" from month to month while the Plan is in effect until such
time when it may be paid. However, any "carried forward" amounts will not be
payable beyond the fiscal year during which the amounts are accrued. No
interest, carrying or other finance charge is borne by the Fund with respect to
the amount "carried forward."
Banks may act as Service Organizations. The Glass-Steagall Act and other
applicable laws, among other things, prohibit banks from engaging in the
business of underwriting securities. If a bank were prohibited from acting as a
Service Organization, its shareholder clients would be permitted to remain
Company shareholders and alternative means for continuing the servicing of such
shareholders would be sought. In such event, changes in the operation of the
Company might occur and a shareholder serviced by such bank might no longer be
able to avail itself of the automatic investment or other services then being
provided by the bank. It is not expected that shareholders would suffer any
adverse financial consequences as a result of any of these occurrences.
DISTRIBUTION AND SERVICES PLAN
Under the Distribution and Services Plan, the Fund pays the Distributor for
distribution expenses primarily intended to result in the sale of the Fund's B
Shares and for shareholder servicing expenses. Such distribution expenses
include expenses incurred in connection with advertising and marketing the
Fund's B Shares; payments to Service Organizations for assistance in connection
with the distribution of B Shares; and expenses incurred in connection with
preparing, printing and distributing prospectuses for the Fund (except those
used for regulatory purposes, for solicitation or distribution to existing or
potential A shareholders, or for distribution to existing B shareholders of the
Fund) and in implementing and operating the Distribution and Services Plan.
Shareholder servicing expenses under the Distribution and Services Plan include,
but are not limited to, expenses incurred in connection with shareholder
services provided by the Distributor and payments to Service Organizations for
the provision of support services with respect to the beneficial owners of B
Shares, such as assisting clients in processing exchange and redemption requests
and in changing dividend options and account descriptions and responding to
client inquiries concerning their investments.
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<PAGE> 46
Under the Distribution and Services Plan, payments by the Fund for distribution
expenses may not exceed 0.75% (annualized), of the average daily net assets of
the Fund's B Shares. Under the Distribution and Services Plan, payments for
shareholder servicing expenses may not exceed 0.25% (annualized) of the average
daily net assets of the Fund's B Shares. These amounts may be reduced pursuant
to undertakings by the Distributor. Payments for distribution expenses under the
Distribution and Services Plan are subject to Rule 12b-1 under the 1940 Act.
The Company will obtain a representation from the Service Organizations (and
from Bank of America and Concord) that they are or will be licensed as dealers
as required by applicable law or will not engage in activities which would
require them to be so licensed.
----------------------------------------------------
42
<PAGE> 47
PACIFIC HORIZON FUNDS, INC.
Short Term Government Fund
Cross Reference Sheet
--------------------------------
<TABLE>
<CAPTION>
Part B
Item No. Heading
- -------- -------
<S> <C> <C>
10. Cover Page................................................. Cover Page
11. Table of Contents.......................................... Table of Contents
12. General Information and History............................ The Company
13. Investment Objectives and Policies......................... Investment Objectives and Policies
14. Management of the Fund..................................... Management of the Fund
15. Control Persons and Principal Holders of Management of the Fund;
Securities................................................. Miscellaneous
16. Investment Advisory and Other Services .................... Management of the Fund; Investment
Adviser; Administrator; Distributor;
Custodian and Transfer Agent
17. Brokerage Allocation and Other Practices................... Portfolio Transactions
18. Capital Stock and Other Securities......................... General Information; Description of
Shares
19. Purchase, Redemption and Pricing of ....................... Additional Purchase and
Securities Being Offered Redemption Information
20. Tax Status................................................. Additional Information
Concerning Taxes
21. Underwriters............................................... Management of the Fund; Distributor
22. Calculation of Performance Data............................ Yield, Tax-Equivalent Yield and Total
Return
</TABLE>
PART C
Information to be included in Part C is set forth under the appropriate Item, so
numbered in Part C to this Registration Statement.
<PAGE> 48
PACIFIC HORIZON FUNDS, INC.
(THE "COMPANY")
PART B
STATEMENT OF ADDITIONAL INFORMATION
FOR
SHORT-TERM GOVERNMENT FUND
July __, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
The Company............................................................ 2
Investment Objective and Policies...................................... 2
Additional Purchase and Redemption Information......................... 14
Additional Information Concerning Taxes................................ 22
Management............................................................. 25
General Information.................................................... 44
Appendix A............................................................. A-1
</TABLE>
This Statement of Additional Information applies to the A and B Shares
of the Pacific Horizon Short-Term Government Fund (the "Fund") of the Company.
This Statement of Additional Information is meant to be read in conjunction with
the Prospectus dated July __, 1996, as it may from time to time be revised (the
"Prospectus"), and is incorporated by reference in its entirety into the
Prospectus. Because this Statement of Additional Information is not itself a
prospectus, no investment in either A or B Shares of the Fund should be made
solely upon the information contained herein. Copies of the Fund's Prospectus
may be obtained by calling Concord Financial Group, Inc. at 800-332-3863.
Capitalized terms used but not defined herein have the same meaning as in the
Prospectus.
<PAGE> 49
THE COMPANY
The Company was organized on October 27, 1982 as a Maryland
corporation. The Fund is a new portfolio that is expected to commence operations
in 1996 .
The Company also offers other investment portfolios which are
described in separate Prospectuses and Statements of Additional Information. For
information concerning these other portfolios contact the Distributor at the
telephone number stated on the cover page of this Statement of Additional
Information.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's Prospectus describes the investment objective of
the Fund . The following is a discussion of the various investments of and
techniques employed by the Fund. The following information supplements and
should be read in conjunction with the description of the investment objective
and policies in the Prospectus.
PORTFOLIO TRANSACTIONS
- ----------------------
The portfolio turnover rate described in the Prospectus is
calculated by dividing the lesser of purchases or sales of portfolio securities
for the year by the monthly average value of the portfolio securities. The
calculation excludes all securities whose maturities at the time of acquisition
were one year or less. Portfolio turnover may vary greatly from year to year as
well as within a particular year, and may also be affected by cash requirements
for redemptions of shares and by requirements which enable the Company to
receive certain favorable tax treatment. Portfolio turnover will not be a
limiting factor in making portfolio decisions.
Subject to the general control of the Company's Board of
Directors, Bank of America National Trust and Savings Association ("Bank of
America" or the "investment adviser") is responsible for, makes decisions with
respect to, and places orders for, all purchases and sales of portfolio
securities for the Fund.
There is generally no stated commission in the case of
securities traded in the over-the-counter market, but the price includes an
undisclosed commission or mark-up. The cost of securities purchased from
underwriters includes an underwriting commission or concession, and the prices
at which securities are purchased from and sold to dealers include a dealer's
mark-up or mark-down. Purchases and sales of portfolio securities for the Fund
are normally principal transactions without brokerage commissions.
-2-
<PAGE> 50
In executing portfolio transactions and selecting brokers or
dealers, it is the Fund's policy to seek the best overall terms available. The
investment advisory agreement between the Fund and Bank of America provides
that, in assessing the best overall terms available for any transaction, Bank of
America shall consider factors it deems relevant, including the breadth of the
market in the security, the price of the security, the financial condition and
execution capability of the broker or dealer, and the reasonableness of the
commission, if any, for the specific transaction and on a continuing basis. In
addition, the investment advisory agreement authorizes Bank of America, subject
to the approval of the Board of Directors of the Company to cause the Fund to
pay a broker-dealer which furnishes brokerage and research services a higher
commission than that which might be charged by another broker-dealer for
effecting the same transaction, provided that such commission is deemed
reasonable in terms of either that particular transaction or the overall
responsibilities of Bank of America to the Fund or the Company. Brokerage and
research services may include: (1) advice as to the value of securities, the
advisability of investing in, purchasing or selling securities and the
availability of securities or purchasers or sellers of securities; and (2)
analyses and reports concerning industries, securities, economic factors and
trends, portfolio strategy and the performance of accounts.
It is possible that certain of the brokerage and research
services received will primarily benefit one or more other investment companies
or other accounts for which investment discretion is exercised. Conversely, the
Company or the Fund may be the primary beneficiary of the brokerage or research
services received as a result of portfolio transactions effected for such other
accounts or investment companies.
Brokerage and research services so received are in addition to
and not in lieu of services required to be performed by Bank of America and do
not reduce the advisory fee payable to Bank of America. Such services may be
useful to Bank of America in serving both the Company and other clients and,
conversely, services obtained by the placement of business of other clients may
be useful to Bank of America in carrying out its obligations to the Company. In
connection with its investment management services with respect to the Fund,
Bank of America will not acquire certificates of deposit or other securities
issued by it or its affiliates, and will give no preference to certificates of
deposit or other securities issued by Service Organizations. In addition,
portfolio securities in general will be purchased from and sold to affiliates of
the Company, Bank of America, the Distributor and their affiliates acting as
principal, underwriter, syndicate member, market-maker, dealer, broker or in any
similar capacity, provided such purchase, sale or dealing is
-3-
<PAGE> 51
permitted under the Investment Company Act of 1940 (the "1940 Act") and the
rules thereunder.
The Fund may participate, if and when practicable, in bidding
for the purchase of securities of the U.S. Government and its agencies and
instrumentalities directly from an issuer in order to take advantage of the
lower purchase price available to members of a bidding group. The Fund will
engage in this practice only when Bank of America, in its sole discretion,
subject to guidelines adopted by the Board of Directors of the Company, believes
such practice to be in the interest of the Fund.
To the extent permitted by law, Bank of America may aggregate
the securities to be sold or purchased on behalf of the Fund with those to be
sold or purchased for other investment companies or common trust funds in order
to obtain best execution.
The Company is required to identify any securities of its
regular brokers or dealers (as defined in Rule 10b-1 under the 1940 Act) or
their parents held by the Company as of the close of its most recent fiscal
year. As of February 29, 1996: (a) the Treasury Fund held the following
securities, Repurchase Agreement with Dean Witter, Reynolds, Inc. in the
principal amount of $130,000,000; Repurchase Agreement with Goldman Sachs & Co.
in the principal amount of $375,000,000; Repurchase Agreement with Merrill Lynch
& Co., Inc. in the principal amount of $130,000,000; and Repurchase Agreement
with Morgan Stanley , Inc. in the principal amount of $130,000,000; (b) the
Government Fund held the following securities, Repurchase Agreement with Morgan
Stanley Group in the principal amount of $20,000,000; (c) the Prime Fund held
the following securities, Merrill Lynch & Co., Inc. commercial paper in the
principal amount of $50,000,000; Bear Stearns Cos., Inc. monthly variable rate
obligation in the principal amount of $100,000,000; Merrill Lynch & Co., Inc.
monthly variable rate obligation in the principal amount of $50,000,000; Merrill
Lynch & Co., Inc. quarterly variable rate obligation in the principal amount of
$50,000,000; Merrill Lynch & Co., Inc. quarterly variable rate obligation in the
principal amount of $50,000,000; Dean Witter Discover & Co. quarterly variable
rate obligation in the principal amount of $50,000,000; Goldman Sachs Group L.P.
master note in the principal amount of $220,000,000; Morgan Stanley Group, Inc.
master note in the principal amount of $200,000,000, Repurchase Agreement with
Dean Witter Reynolds, Inc. in the principal amount of $105,000,000; Repurchase
Agreement with Morgan Stanley Group, Inc. in the principal amount of
$105,000,000; Repurchase Agreement with Morgan Stanley Group, Inc. in the
principal amount of $105,000,000; (d) the U.S. Government Securities Fund held
the following securities, Merrill Lynch & Co., Inc. commercial paper in the
principal
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<PAGE> 52
amount of $3,000,000; (e) the Corporate Bond master portfolio held the following
securities, Goldman Sachs Group L.P. corporate obligation in the principal
amount of $1,500,000; and Lehman Brothers corporate obligation in the principal
amount of $1,000,000; (f) the Intermediate Bond master portfolio held the
following securities, Morgan Stanley Group medium term note in the amount of
$2,000,000; (g) the Blue Chip master portfolio held the following securities,
Dean Witter common stock in the principal amount of $2,821,875; and (h) the
Asset Allocation master portfolio held the following securities, Dean Witter
common stock in the principal amount of $1,085,750; Lehman Brothers corporate
obligations in the principal amount of $981,250; Morgan Stanley Group medium
term note in the principal amount of $1,483,125; Merrill Lynch & Co., Inc.
collateralized mortgage obligation in the principal amount of $8,000; and
Merrill Lynch commercial paper in the principal amount of $3,500,000.
Merrill Lynch & Co., Inc., Goldman, Sachs & Co., Bear
Stearns Co., Inc., Morgan Stanley & Co. Incorporated, Shearson Lehman Brothers,
Inc. , Dean Witter Reynolds, Inc. and Paine Webber are considered to be regular
brokers and dealers of the Company.
TYPES OF OBLIGATIONS, INVESTMENT RISKS, AND OTHER INVESTMENT INFORMATION
- ------------------------------------------------------------------------
The following discussion supplements the descriptions
of such investments in the Prospectus.
REPURCHASE AGREEMENTS. The Fund is permitted to enter into repurchase
agreements with respect to its portfolio securities. Pursuant to such
agreements, the Fund acquires securities from financial institutions such as
banks and broker-dealers as are deemed to be creditworthy subject to the
seller's agreement to repurchase and the agreement of the Fund to resell such
securities at a mutually agreed upon date and price. Although securities subject
to a repurchase agreement may bear maturities exceeding ten years, the Fund
intends to only enter into repurchase agreements having maturities not exceeding
60 days. The Fund is not permitted to enter into repurchase agreements with Bank
of America or its affiliates, and will give no preference to repurchase
agreements with Service Organizations. The repurchase price generally equals the
price paid by the Fund plus interest negotiated on the basis of current
short-term rates (which may be more or less than the rate on the underlying
portfolio security). Securities subject to repurchase agreements will be held by
the custodian or sub-custodian of the Company or in the Federal Reserve/Treasury
BookEntry System. The seller under a repurchase agreement will be required to
deliver instruments the value of which is 102% of the repurchase price
(excluding accrued interest), provided that
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<PAGE> 53
notwithstanding such requirement, the investment adviser shall require that the
value of the collateral, after transaction costs (including loss of interest)
reasonably expected to be incurred on a default, shall be equal to or greater
than the resale price (including interest) provided in the agreement. If the
seller defaulted on its repurchase obligation, the Fund would suffer a loss
because of adverse market action or to the extent that the proceeds from a sale
of the underlying securities were less than the repurchase price under the
agreement. Bankruptcy or insolvency of such a defaulting seller may cause the
Fund's rights with respect to such securities to be delayed or limited.
Repurchase agreements are considered to be loans by the Fund under the 1940 Act.
U.S. GOVERNMENT OBLIGATIONS. The Fund makes investments in U.S.
Government obligations. Treasury bills have maturities of one year or less,
Treasury notes have maturities of one to ten years and Treasury bonds generally
have maturities of more than ten years.
WHEN-ISSUED SECURITIES, FORWARD COMMITMENTS AND DELAYED SETTLEMENTS.
When the Fund agrees to purchase securities on a "when-issued," forward
commitment or delayed settlement basis, its custodian will set aside cash or
liquid portfolio securities equal to the amount of the commitment in a separate
account. Normally, the custodian will set aside portfolio securities to satisfy
a purchase commitment. In such a case, the Fund may be required subsequently to
place additional assets in the separate account in order to assure that the
value of the account remains equal to the amount of the commitment. It may be
expected that the net assets of the Fund will fluctuate to a greater degree when
it sets aside portfolio securities to cover such purchase commitments than when
it sets aside cash. The Fund does not intend to engage in these transactions for
speculative purposes but primarily in order to hedge against anticipated changes
in interest rates. Because the Fund will set aside cash or liquid portfolio
securities to satisfy its purchase commitments in the manner described, its
liquidity and the ability of the investment adviser to manage it may be affected
in the event the forward commitments, commitments to purchase when-issued
securities and delayed settlements ever exceeded 25% of the value of the Fund's
assets.
The Fund will purchase securities on a when-issued, forward
commitment or delayed settlement basis only with the intention of completing the
transaction. If deemed advisable as a matter of investment strategy, however,
the Fund may dispose of or renegotiate a commitment after it is entered into,
and may sell securities it has committed to purchase before those securities are
delivered to the Fund on the settlement date. In these cases the Fund may
realize a taxable capital gain or loss.
-6-
<PAGE> 54
When the Fund engages in when-issued, forward commitment and
delayed settlement transactions, it relies on the other party to consummate the
trade. Failure of such party to do so may result in the Fund's incurring a loss
or missing an opportunity to obtain a price considered to be advantageous.
The market value of the securities underlying a when-issued
purchase, forward commitment to purchase securities, or a delayed settlement and
any subsequent fluctuations in their market value is taken into account when
determining the market value of the Fund starting on the day the Fund agrees to
purchase the securities. The Fund does not earn interest on the securities it
has committed to purchase until they are paid for and delivered on the
settlement date.
SECURITIES LENDING. The Fund may lend securities as described in the
Prospectus. Such loans will be secured by cash or securities of the U.S.
Government and its agencies and instrumentalities. The collateral must be at all
times equal to at least the market value of the securities loaned. The Fund will
continue to receive interest or dividends on the securities it loans, and will
also earn interest on the investment of any cash collateral. Cash collateral may
be invested in short-term U.S. Government securities. Although voting rights, or
rights to consent, attendant to securities loaned pass to the borrower, such
loans may be called at any time and will be called so that the securities may be
voted by the Fund if a material event affecting the investment is to occur.
FUTURES. The Fund may purchase and sell interest rate futures contracts
(as well as purchase related options). A futures contract is a bilateral
agreement pursuant to which two parties agree to take or make delivery of an
amount of cash equal to a specified dollar amount times the difference between
the value of a specified obligation at the close of the last trading day of the
contract and the price at which the futures contract is originally struck. No
physical delivery of the underlying securities is normally made. The Fund may
not purchase or sell futures contracts and purchase related options unless
immediately after any such transaction the aggregate initial margin that is
required to be posted by the Fund under the rules of the exchange on which the
futures contract (or futures option) is traded, plus any premiums paid by the
Fund on its open futures options positions, does not exceed 5% of the Fund's
total assets, after taking into account any unrealized profits and losses on the
Fund's open contracts and excluding the amount that a futures option is
"in-the-money" at the time of purchase. An option to buy a futures contract is
"in-the-money" if the then current purchase price of the contract that is
subject to the option is less than the exercise or strike price; an option to
sell a futures contract is "in-the-money" if the exercise or strike
-7-
<PAGE> 55
price exceeds the then current purchase price of the contract that is the
subject of the option.
Successful use of futures contracts by the Fund is subject to
Bank of America's ability to predict correctly movements in the direction of
interest rates. There are several risks in connection with the use of futures
contracts by the Fund as a hedging device. One risk arises because of the
imperfect correlation between movements in the price of the futures contract and
movements in the price of the securities which are the subject of the hedge. The
price of the futures contract may move more than or less than the price of the
securities being hedged. If the price of the futures contract moves less than
the price of the securities which are the subject of the hedge, the hedge will
not be fully effective but, if the price of the securities being hedged has
moved in an unfavorable direction, the Fund would be in a better position than
if it had not hedged at all. If the price of the securities being hedged has
moved in a favorable direction, this advantage will be partially offset by the
loss on the futures contract. If the price of the futures contract moves more
than the price of the hedged securities, the Fund involved will experience
either a loss or gain on the futures contract which will not be completely
offset by movements in the price of the securities which are the subject of the
hedge.
It is also possible that, where the Fund has sold futures
contracts to hedge its portfolio against a decline in the market, the market may
advance and the value of securities held in the Fund may decline. If this
occurred, the Master Portfolio would lose money on the futures contract and also
experience a decline in value in its portfolio securities.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures contract
and the securities being hedged, the price of futures contracts may not
correlate perfectly with movement in the cash market due to certain market
distortions. Due to the possibility of price distortion in the futures market,
and because of the imperfect correlation between the movement in the cash market
and movements in the price of futures contracts, a correct forecast of general
market trends or interest rate movements by Bank of America may still not result
in a successful hedging transaction over a short time frame.
Positions in futures contracts may be closed out only on an
exchange or board of trade which provides a secondary market for such futures
contracts. Although the Fund intends to purchase or sell futures contracts only
on exchanges or boards of trade where there appear to be active secondary
markets, there is no assurance that a liquid secondary market on any exchange or
board of trade will exist for any particular contract or at any
-8-
<PAGE> 56
particular time. In such event, it may not be possible to close a futures
investment position, and in the event of adverse price movements, the Fund would
continue to be required to make daily cash payments of variation margin. The
liquidity of a secondary market in a futures contract may in addition be
adversely affected by "daily price fluctuation limits" established by commodity
exchanges which limit the amount of fluctuation in a futures contract price
during a single trading day. Once the daily limit has been reached in the
contract, no trades may be entered into at a price beyond the limit, thus
preventing the liquidation of open futures positions.
Options on Futures Contracts. The acquisition of put and call
options on a futures contract will give the Fund the right (but not the
obligation), for a specified price, to sell or to purchase, respectively, the
underlying futures contract at any time during the option period. As the
purchaser of an option on a futures contract, the Fund obtains the benefit of
the futures position if prices move in a favorable direction but limits its risk
of loss in the event of an unfavorable price movement to the loss of the premium
and transaction costs.
The writing of a call option on a futures contract generates a
premium which may partially offset a decline in the value of the Fund's assets.
By writing a call option, the Fund becomes obligated, in exchange for the
premium, to sell a futures contract, which may have a value higher than the
exercise price. Conversely, the writing of a put option on a futures contract
generates a premium, which may partially offset an increase in the price of
securities that the Fund intends to purchase. However, the Fund becomes
obligated to purchase a futures contract, which may have a value lower than the
exercise price. Thus, the loss incurred by the Fund in writing options on
futures is potentially unlimited and may exceed the amount of the premium
received. The Fund will incur transaction costs in connection with the writing
of options on futures.
The holder or writer of an option on a futures contract may
terminate its position by selling or purchasing an offsetting option on the same
series. There is no guarantee that such closing transactions can be effected.
The Fund's ability to establish and close out positions on such options will be
subject to the development and maintenance of a liquid market.
For additional information concerning Futures and options
thereon, please see Appendix A to this Statement of Additional Information.
MORTGAGE-RELATED SECURITIES. The Funds may purchase
mortgage-backed securities that are secured by entities such as the Government
National Mortgage Association ("GNMA"), Federal National Mortgage Association
("FNMA"), Federal Home Loan
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<PAGE> 57
Mortgage Corporation ("FHLMC"), commercial banks, trusts, financial companies,
finance subsidiaries of industrial companies, savings and loan associations,
mortgage banks and investment banks.
There are a number of important differences among the agencies
and instrumentalities of the U.S. Government that issue mortgage-related
securities and among the securities that they issue. Mortgage-related securities
guaranteed by GNMA include GNMA Mortgage Pass-Through Certificates (also known
as "Ginnie Maes") which are guaranteed as to the timely payment of principal and
interest by GNMA and such guarantee is backed by the full faith and credit of
the United States. GNMA is a wholly-owned U.S. Government corporation within the
Department of Housing and Urban Development. GNMA certificates also are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under its guarantee. Mortgage-related securities issued by FNMA
include FNMA guaranteed Mortgage Pass-Through Certificates (also known as
"Fannie Maes") which are solely the obligations of FNMA, are not backed by or
entitled to the full faith and credit of the United States and are supported by
the right of the issuer to borrow from the Treasury. FNMA is a
government-sponsored organization owned entirely by private stockholders. Fannie
Maes are guaranteed as to timely payment of principal and interest by FNMA.
Mortgage-related securities issued by the Federal Home Loan Mortgage Corporation
("FHLMC") include FHLMC Mortgage Participation Certificates (also known as
"Freddie Macs" or "Pcs"). FHLMC is a corporate instrumentality of the United
States, created pursuant to an Act of Congress, which is owned entirely by
Federal Home Loan Banks. Freddie Macs are not guaranteed by the United States or
by any Federal Home Loan Banks and do not constitute a debt or obligation of the
United States or of any Federal Home Loan Bank. Freddie Macs entitle the holder
to timely payment of interest, which is guaranteed by FHLMC. FHLMC guarantees
either ultimate collection or timely payment of all principal payments on the
underlying mortgage loans. When FHLMC does not guarantee timely payment of
principal, FHLMC may remit the amount due on account of its guarantee of
ultimate payment of principal at any time after default on an underlying
mortgage, but in no event later than one year after it becomes payable.
The Fund may invest in multiple class pass-through securities,
including collateralized mortgage obligations ("CMOs") and real estate mortgage
investment conduits ("REMIC") pass-through or participation certificates ("REMIC
Certificates"). These multiple class securities may be issued by U.S. Government
agencies or instrumentalities, including FNMA and FHLMC, or by trusts formed by
private originators of, or investors in, mortgage loans. In general, CMOs and
REMICs are debt obligations of a legal entity that are collateralized by, and
multiple class pass-through securities represent direct
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<PAGE> 58
ownership interests in, a pool of residential mortgage loans or mortgage
pass-through securities (the "Mortgage Assets"), the payments on which are used
to make payments on the CMOs or multiple pass-through securities. Investors may
purchase beneficial interests in REMICs, which are known as "regular" interests
or "residual" interests. The Fund does not intend to purchase residual
interests.
Each class of CMOs or REMIC Certificates, often referred to as
a "tranche," is issued at a specific adjustable or fixed interest rate and must
be fully retired no later than its final distribution date. Principal
prepayments on the Mortgage Assets underlying the CMOs or REMIC Certificates may
cause some or all of the classes of CMOs or REMIC Certificates to be retired
substantially earlier than their final distribution dates. Generally, interest
is paid or accrues on all classes of CMOs or REMIC Certificates on a monthly
basis.
The principal of and interest on the Mortgage Assets may be
allocated among the several classes of CMOs or REMIC Certificates in various
ways. In certain structures (known as "sequential pay" CMOs or REMIC
Certificates), payments of principal, including any principal prepayments, on
the Mortgage Assets generally are applied to the classes of CMOs or REMIC
Certificates in the order of their respective final distribution dates. Thus no
payment of principal will be made on any class of sequential pay CMOs or REMIC
Certificates until all other classes having an earlier final distribution date
have been paid in full.
Additional structures of CMOs or REMIC Certificates include,
among others, "parallel pay" CMOs and REMIC Certificates. Parallel pay CMOs or
REMIC Certificates are those which are structured to apply principal payments
and prepayments of the Mortgage Assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
A wide variety of REMIC Certificates may be issued in the
parallel pay or sequential pay structures. These securities include accrual
certificates (also known as "Z-Bonds"), which only accrue interest at a
specified rate until all other certificates having an earlier final distribution
date have been retired and are converted thereafter to an interest-paying
security, and planned amortization class ("PAC") certificates, which are
parallel pay REMIC Certificates which generally require that specified amounts
of principal be applied on each payment date to one or more classes of REMIC
Certificates (the "PAC Certificates"), even though all other principal payments
and prepayments of the Mortgage Assets are then required to be applied to one or
more other classes of the Certificates. The scheduled principal payments for the
PAC Certificates generally
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<PAGE> 59
have the highest priority on each payment date after interest due has been paid
to all classes entitled to receive interest currently. Shortfalls, if any, are
added to the amount payable on the next payment date. The PAC Certificate
payment schedule is taken into account in calculating the final distribution
date of each class of PAC. In order to create PAC tranches, one or more tranches
generally must be created that absorb most of the volatility in the underlying
Mortgage Assets. These tranches tend to have market prices and yields that are
much more volatile than the PAC classes.
FNMA REMIC Certificates are issued and guaranteed as to timely
distribution of principal and interest by FNMA. In addition, FNMA will be
obligated to distribute on a timely basis to holders of FNMA REMIC Certificates
required installments of principal and interest and to distribute the principal
balance of each class of REMIC Certificates in full, whether or not sufficient
funds are otherwise available.
For FHLMC REMIC Certificates, FHLMC guarantees the timely
payment of interest, and also guarantees the ultimate payment of principal as
payments are required to be made on the underlying mortgage participation
certificates ("Pcs"). Pcs represent undivided interests in specified level
payment, residential mortgages or participation therein purchased by FHLMC and
placed in a PC pool. With respect to principal payments on Pcs, FHLMC generally
guarantees ultimate collection of all principal of the related mortgage loans
without offset or deduction. FHLMC also guarantees timely payment of principal
on certain Pcs, referred to as "Gold Pcs."
ADDITIONAL INFORMATION
- ----------------------
The investment adviser's own investment portfolios may include
bank certificates of deposit, bankers' acceptances, corporate debt obligations,
equity securities and other investments any of which may also be purchased by a
fund of the Company. The Fund may also invest in securities, interests or
obligations of companies or entities which have a deposit, loan, commercial
banking or other business relationship with Bank of America or any of its
affiliates (including outstanding loans to such issuers which may be repaid in
whole or in part with the proceeds of securities purchased by a fund of the
Company).
OTHER INVESTMENT LIMITATIONS
- ----------------------------
The investment objective of the Fund is fundamental. The Prospectus for
the Fund sets forth certain fundamental policies that may not be changed with
respect to the Fund without the affirmative vote of the holders of the majority
of the Fund's outstanding shares (as defined below under "General Information
- -Miscellaneous") . The following is a complete list
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<PAGE> 60
of fundamental policies which may not be changed for the Fund without such a
vote of shareholders.
THE FUND MAY NOT:
1. Purchase securities (except securities issued by the U.S.
Government, its agencies or instrumentalities) if, as a result more than 5% of
its total assets will be invested in the securities of any one issuer, except
that up to 25% of its total assets may be invested without regard to this 5%
limitation; provided that all of the assets of the Fund may be invested in
another investment company.
2. Underwrite the securities of other issuers,
provided that all of the assets of the Fund may be invested in another
investment company.
3. Purchase or sell real estate, except that the Fund may, to
the extent appropriate to its investment objective, invest in securities and
instruments guaranteed by agencies or instrumentalities of the U.S. Government,
and securities issued by companies which invest in real estate or interests
therein.
4. Purchase securities on margin (except for such short-term
credits as may be necessary for the clearance of transactions), make short sales
of securities or maintain a short position. For this purpose, the deposit or
payment by the Fund for initial or maintenance margin in connection with futures
contracts is not considered to be the purchase or sale of a security on margin.
5. Write or sell puts, calls, straddles, spreads or
combinations thereof.
6. Purchase or sell commodities or commodity contracts, or
invest in oil, gas or mineral exploration or development programs. This
restriction shall not apply to securities issued by companies which purchase or
sell commodities or commodity contracts or which invest in such programs, or to
futures contracts or options on futures contracts.
7. Purchase securities of other investment companies to the
extent prohibited by the 1940 Act.
8. Purchase any securities which would cause 25% or more of
the value of its total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal business activities
in the same industry; provided, however, that (a) there is no limitation with
respect to investments in obligations issued or guaranteed by the federal
government and its agencies and instrumentalities; (b) each utility (such as
gas, gas transmission, electric and
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<PAGE> 61
telephone service) will be considered a single industry for purposes of this
policy; and (c) wholly-owned finance companies will be considered to be in the
industries of their parents if their activities are primarily related to
financing the activities of their parents.
9. Purchase securities of any issuer if as a result it would
own more than 10% of the voting securities of such issuer; provided that all of
the assets of the Fund may be invested in another investment company.
10. Borrow money for the purpose of obtaining investment
leverage or issue senior securities (as defined in the 1940 Act), provided that
the Fund may borrow from banks for temporary purposes and in an amount not
exceeding 10% of the value of the total assets of the Fund ; or mortgage, pledge
or hypothecate any assets, except in connection with any such borrowing and in
amounts not in excess of the lesser of the dollar amounts borrowed or 10% of the
value of its total assets at the time of such borrowing. This restriction shall
not apply to (a) the sale of portfolio securities accompanied by a simultaneous
agreement as to their repurchase, or (b) transactions in currency, options,
futures contracts and options on futures contracts, or forward commitment
transactions.
11. Make loans, except investments in debt securities,
repurchase agreements and securities loans.
* * *
In order to permit the sale of the Fund's shares in certain
states, the Company may make commitments more restrictive than the investment
policies and limitations described above.
If a percentage restriction is satisfied at the time of
investment, a later increase or decrease in such percentage resulting from a
change in asset value will not constitute a violation of such restriction.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Information on how to purchase and redeem Fund shares, and how
such shares are priced, is included in the Prospectus.
Additional information is contained below.
Portfolio securities for which market quotations are readily
available (other than debt securities with remaining maturities of 60 days or
less) are valued at the last reported sale price or (if none is available) the
mean between the current quoted bid and asked prices provided by investment
dealers. Other securities and assets for which market quotations are not
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<PAGE> 62
readily available are valued at their fair value using methods determined under
the supervision of the Board of Directors of the Company. Debt securities with
remaining maturities of 60 days or less are valued on an amortized cost basis
unless the Board determines that such basis does not represent fair value at the
time. Under this method such securities are valued initially at cost on the date
of purchase or, in the case of securities purchased with more than 60 days to
maturity, are valued at their market or fair value each day until the 61st day
prior to maturity. Thereafter, absent unusual circumstances, a constant
proportionate amortization of any discount or premium is assumed until maturity
of the security.
A pricing service may be used to value certain portfolio
securities where the prices provided are believed to reflect the fair value of
such securities. In valuing securities the pricing service would normally take
into consideration such factors as yield, risk, quality, maturity, type of
issue, trading characteristics, special circumstances and other factors it deems
relevant in determining valuations for normal institutional-sized trading units
of debt securities and would not rely on quoted prices. The methods used by the
pricing service and the valuations so established will be utilized under the
general supervision of the Board.
SUPPLEMENTARY PURCHASE INFORMATION
- ----------------------------------
For the purpose of applying the Right of Accumulation or
Letter of Intent privileges available to certain shareholders as described in
the Prospectus, the scale of sales loads applies to purchases made by any
"purchaser," which term includes an individual and/or spouse purchasing
securities for his, her or their own account or for the account of any minor
children; or a trustee or other fiduciary account (including a pension,
profit-sharing or other employee benefit trust created pursuant to a plan
qualified under Section 401 of the Internal Revenue Code) although more than one
beneficiary is involved; or "a qualified group" which has been in existence for
more than six months and has not been organized for the purpose of buying
redeemable securities of a registered investment company at a discount, provided
that the purchases are made through a central administrator or a single dealer,
or by other means which result in economy of sales effort or expense. A
"qualified group" must have more than 10 members, must be available to arrange
for group meetings between representatives of the Fund and the members, and must
be able to arrange for mailings to members at reduced or no cost to the
Distributor. The value of shares eligible for the Right of Accumulation
privilege may also be used as a credit toward completion of the Letter of Intent
privilege. Such shares will be valued at their offering price prevailing on the
date of submission of the Letter of Intent. Distributions on shares held in
escrow pursuant to the Letter of Intent privilege will be
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<PAGE> 63
credited to the shareholder, but such shares are not eligible for the Fund's
Exchange Privilege.
The computation of the hypothetical offering price per share
of an A Share for the Fund based on the value of the Fund's net assets at
inception and the Fund's A Shares outstanding on such date is as follows:
<TABLE>
<CAPTION>
SHORT-TERM
GOVERNMENT
FUND
<S> <C>
Net Assets $10.00
Outstanding Securities 1
Net Asset Value Per Share $10.00
Sales Charge, 4.50 percent
of offering price (4.71 percent
of net asset value per share) $0.47
Maximum Offering Price to Public $10.47
SUPPLEMENTARY REDEMPTION INFORMATION
</TABLE>
Shares in the Fund for which orders for wire redemption are
received on a business day before the close of regular trading hours on the New
York Stock Exchange (currently 4:00 p.m. Eastern Time) will be redeemed as of
the close of regular trading hours on such Exchange and the proceeds of
redemption (less any applicable contingent deferred sales charge on B Shares or
certain A Shares) will normally be wired in federal funds on the next business
day to the commercial bank specified by the investor on the Account Application
(or other bank of record on the investor's file with the Transfer Agent). To
qualify to use the wire redemption privilege, the payment for Fund shares must
be drawn on, and redemption proceeds paid to, the same bank and account as
designated on the Account Application (or other bank of record as described
above). If the proceeds of a particular redemption are to be wired to another
bank, the request must be in writing and signature guaranteed. Shares for which
orders for wire redemption are received after the close of regular trading hours
on the New York Stock Exchange or on a non-business day will be redeemed as of
the close of trading on such Exchange on the next day on which shares of the
Fund are priced and the proceeds (less any applicable contingent deferred sales
charge on B Shares or certain A Shares) will normally be wired in federal funds
on the next business day thereafter. Redemption proceeds (less any applicable
contingent deferred sales charge on B Shares or certain A Shares) will be
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<PAGE> 64
wired to a correspondent member bank if the investor's designated bank is not a
member of the Federal Reserve System. Immediate notification by the
correspondent bank to the investor's bank is necessary to avoid a delay in
crediting the funds to the investor's bank account. Proceeds of less than $1,000
will be mailed to the investor's address.
To change the commercial bank or account designated to receive
redemption proceeds, a written request must be sent to the Company, c/o Pacific
Horizon Funds, Inc., P.O. Box 80221, Los Angeles, California 90080-9909. Such
request must be signed by each shareholder, with each signature guaranteed as
described in the Fund's Prospectus. Guarantees must be signed by an authorized
signatory and "signature guaranteed" must appear with the signature. The
Transfer Agent may request further documentation from corporations, executors,
administrators, trustees or guardians, and will accept other suitable
verification arrangements from foreign investors, such as consular verification.
SUPPLEMENTARY PURCHASE INFORMATION
- ----------------------------------
IN GENERAL. As described in the Prospectus, both A and B
Shares may be purchased directly by the public, by clients of Bank of America
through their qualified trust and agency accounts, or by clients of securities
dealers, financial institutions (including banks) and other industry
professionals, such as investment advisers, accountants and estate planning
firms that have entered into service and/or selling agreements with the
Distributor. (The Distributor, such institutions and professionals are
collectively referred to as "Service Organizations.") Bank of America and
Service Organizations may impose minimum customer account and other requirements
in addition to those imposed by the Fund and described in the Prospectus.
Purchase orders will be effected only on business days.
A Shares in the Fund are sold with a sales load, except for
such exemptions as noted in the Prospectus. A Shares which are subject to the
Large Purchase Exemption are also subject to a contingent deferred sales load.
These exemptions to the imposition of a sales load on A Shares are due to the
nature of the investors and/or the reduced sales efforts that will be necessary
in obtaining such investments. A Shares are also subject to a shareholder
servicing fee. B Shares are sold without a front-end sales load, but are subject
to a contingent deferred sales charge and an ongoing distribution and
shareholder servicing fee. Service Organizations may be paid by the Distributor
at the Company's expense for shareholder services. Depending on the terms of the
particular account, Bank of America, its affiliates, and Service Organizations
also may charge their customers fees for automatic investment, redemption
-17-
<PAGE> 65
and other services provided. Such fees may include, for example, account
maintenance fees, compensating balance requirements or fees based upon account
transactions, assets or income. Bank of America or the particular Service
Organization is responsible for providing information concerning these services
and any charges to any customer who must authorize the purchase of Fund shares
prior to such purchase.
Persons or organizations wishing to purchase Company shares
through their accounts at Bank of America or a Service Organization should
contact such entity directly for appropriate instructions.
Initial purchases of shares into a new account may not be made
by wire. However, persons wishing to make a subsequent purchase of Company
shares into an already existing account by wire should telephone the Transfer
Agent at (800) 346-2087. The investor's bank must be instructed to wire federal
funds to the Transfer Agent, referring in the wire to the particular fund in
which such investment is to be made; the investor's portfolio account number;
and the investor's name.
The Transfer Agent may charge a fee to act as Custodian for
IRAs, payment of which could require the liquidation of shares. B Shares
liquidated by the Transfer Agent as fees for custodial services to IRA accounts
will not be subject to the contingent deferred sales charge. All fees charged
are described in the appropriate form. Shares may be purchased in connection
with these plans only by direct remittance to the Transfer Agent. Purchases for
IRA accounts will be effective only when payments received by the Transfer Agent
are converted into federal funds. Purchases for these plans may not be made in
advance of receipt of funds.
For processing redemptions, the Transfer Agent may request
further documentation from corporations, executors, administrators, trustees or
guardians. The Transfer Agent will accept other suitable verification
arrangements from foreign investors, such as consular verification.
Investors should be aware that if they have selected the
TeleTrade Privilege, any request for a wire redemption will be effected as a
TeleTrade transaction through the Automated Clearing House (ACH) system unless
more prompt transmittal is specifically requested. Redemption proceeds of a
TeleTrade transaction will be on deposit in the investor's account at the ACH
member bank normally two business days after receipt of the redemption request.
EXCHANGE PRIVILEGE. Shareholders in the Pacific
Horizon Family of Funds have an exchange privilege whereby they may exchange all
or part of their shares for like shares of
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<PAGE> 66
another investment portfolio in the Pacific Horizon Family of Funds or for like
shares of an investment portfolio of Time Horizon Funds. In addition,
shareholders of the Fund may exchange B Shares for Pacific Horizon Shares of the
Pacific Horizon Prime Fund without the payment of any contingent deferred sales
charge at the time the exchange is made. By use of the exchange privilege, the
investor authorizes the Transfer Agent to act on telephonic, telegraphic or
written exchange instructions from any person representing himself or herself to
be the investor and believed by the Transfer Agent to be genuine. The Transfer
Agent's records of such instructions are binding. The exchange privilege may be
modified or terminated at any time upon notice to shareholders. For federal
income tax purposes, exchange transactions are treated as sales on which a
purchaser will realize a capital gain or loss depending on whether the value of
the shares exchanged is more or less than his basis in such shares at the time
of the transaction.
Exchange transactions described in Paragraphs A, B, C, D, E, F
and G below will be made on the basis of the relative net asset values per share
of the investment portfolios involved in the transaction.
A. A Shares of any investment portfolio purchased with a sales
load, as well as additional shares acquired through
reinvestment of dividends or distributions on such shares, may
be exchanged without a sales load for other A Shares of any
other investment portfolio in the Pacific Horizon Family of
Funds or for like shares of Time Horizon Funds.
B. B Shares acquired pursuant to an exchange transaction
will continue to be subject to a contingent deferred
sales charge. However, B Shares that had been acquired
through an exchange of B Shares may be exchanged for
other B Shares or for like shares of Time Horizon Funds
without the payment of a contingent deferred sales
charge at the time of exchange. In determining the
holding period for calculating the contingent deferred
sales charge payable on redemption of B Shares, the
holding period of the shares originally held will be
added to the holding period of the shares acquired
through exchange.
C. A Shares acquired pursuant to an exchange transaction will
continue to be subject to any applicable contingent deferred
sales charge. However, A Shares that have been acquired
through an exchange of A Shares may be exchanged for other A
Shares or for like shares of Time Horizon Funds without the
payment of a contingent deferred sales charge at the time of
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<PAGE> 67
exchange. In determining the holding period for calculating
the contingent deferred sales charge payable on redemption of
A Shares, the holding period of the shares originally held
will be added to the holding period of the shares acquired
through exchange.
D. B Shares may be exchanged for Pacific Horizon Shares of
the Pacific Horizon Prime Fund ("Prime Shares") without
paying a contingent deferred sales charge. At the time
of such an exchange, a shareholder's holding period for
calculating the contingent deferred sales charge
payable on redemption of B Shares of a Fund will cease
to accumulate. If the shareholder subsequently
exchanges the shares back into B Shares of a Fund, the
holding period accumulation on the shares will resume
as of the time when the exchange was made into the
Prime Shares. In the event that a shareholder wishes
to redeem Prime Shares acquired by exchange for
B Shares of a Fund, the contingent deferred sales
charge applicable to the accumulated B Shares of a Fund
holding period prior to the exchange into the Prime
Shares will be charged.
E. A or B Shares of any investment portfolio in the
Pacific Horizon Family of Funds or like shares of the
Time Horizon Funds acquired by a previous exchange
transaction involving shares on which a sales load has
directly or indirectly been paid (e.g. A Shares
purchased with a sales load or issued in connection
with an exchange transaction involving A Shares that
had been purchased with a sales load), as well as
additional shares acquired through reinvestment of
dividends or distributions on such shares, may be
redeemed and the proceeds used to purchase without a
sales load A or B Shares, as the case may be, of any
other investment portfolio within 90 days of your
redemption trade date. To accomplish an exchange
transaction under the provisions of this paragraph,
investors must notify the Transfer Agent of their prior
ownership of shares and their account number.
F. A Shares of any investment portfolio in the Pacific
Horizon Family of Funds may be exchanged without a
sales load for shares of any other investment portfolio
in the Pacific Horizon Family of Funds that is offered
without a sales load.
G. A Shares of any investment portfolio in the Pacific
Horizon Family of Funds purchased without a sales load
may be exchanged without a sales load for A Shares in
any other portfolio where the investor involved
maintained an account in the Pacific Horizon Family of
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<PAGE> 68
Funds before April 20, 1987 or was the beneficial owner
of shares of Bunker Hill Income Securities, Inc. on the
date of its reorganization into the Pacific Horizon
Corporate Bond Fund.
Except as stated above, a sales load will be imposed when A
Shares of any investment portfolio in the Pacific Horizon Family of Funds that
were purchased or otherwise acquired without a sales load are exchanged for A
Shares of another investment portfolio in the Pacific Horizon Family or for like
shares of Time Horizon Funds which are sold with a sales load.
Exchange requests received on a business day prior to the time
shares of the investment portfolios involved in the request are priced will be
processed on the date of receipt. "Processing" a request means that shares in
the investment portfolio from which the shareholder is withdrawing an investment
will be redeemed at the net asset value per share next determined on the date of
receipt. Shares of the new investment portfolio into which the shareholder is
investing will also normally be purchased at the net asset value per share next
determined coincident to or after the time of redemption. Exchange requests
received on a business day after the time shares of the investment portfolios
involved in the request are priced will be processed on the next business day in
the manner described above.
MISCELLANEOUS. Certificates for shares will not be issued.
Depending on the terms of the customer account at Bank of
America or a Service Organization, certain purchasers may arrange with the
Company's custodian for sub-accounting services paid by the Company without
direct charge to the purchaser.
A "business day" for purposes of processing share purchases
and redemptions received by the Transfer Agent at its Columbus office is a day
on which the New York Stock Exchange is open for trading. In 1996, the holidays
on which the New York Stock Exchange is closed are: New Year's Day, Presidents'
Day, Good Friday, Memorial Day (observed), Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
The Company may suspend the right of redemption or postpone
the date of payment for shares during any period when (a) trading on the New
York Stock Exchange is restricted by applicable rules and regulations of the
SEC; (b) the New York Stock Exchange is closed for other than customary weekend
and holiday closings; (c) the SEC has by order permitted such suspension; or (d)
an emergency exists as determined by the SEC . (The Company may also suspend or
postpone the recordation of the transfer of its shares upon the occurrence of
any of the foregoing conditions.)
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<PAGE> 69
The Company's Charter permits its Board of Directors to
require a shareholder to redeem involuntarily shares in a Fund if the balance
held of record by the shareholder drops below $500 and such shareholder does not
increase such balance to $500 or more upon 60 days' notice. The contingent
deferred sales charge with respect to B Shares or certain A Shares is not
charged on involuntary redemptions. The Company will not require a shareholder
to redeem shares of a Fund if the balance held of record by the shareholder is
less than $500 solely because of a decline in the net asset value of the Fund's
shares. The Company may also redeem shares involuntarily if such redemption is
appropriate to carry out the Company's responsibilities under the 1940 Act.
If the Company's Board of Directors determines that conditions
exist which make payment of redemption proceeds wholly in cash unwise or
undesirable, the Company may make payment wholly or partly in securities or
other property. Additionally, the Company has made an undertaking to the State
of Texas that it may only make payment of such proceeds wholly or in part in
"readily marketable" securities or other property. (If the Company determines
that such undertaking is no longer in its best interests, it will revoke such
commitment. In such an event, the Fund will no longer be able to sell its shares
in the State of Texas.) In such an event, a shareholder would incur transaction
costs in selling the securities or other property. The Company has committed
that it will pay all redemption requests by a shareholder of record in cash,
limited in amount with respect to each shareholder during any ninety-day period
to the lesser of $250,000 or 1% of the net asset value at the beginning of such
period.
ADDITIONAL INFORMATION CONCERNING TAXES
FEDERAL
- -------
The Fund will be treated as a separate corporate entity under
the Internal Revenue Code of 1986, as amended (the "Code"), and intends to
qualify as a "regulated investment company." By following this policy, the Fund
expects to eliminate or reduce to a nominal amount the federal income taxes to
which it may be subject. If for any taxable year the Fund does not qualify for
the special federal tax treatment afforded regulated investment companies, all
of the Fund's taxable income would be subject to tax at regular corporate rates
(without any deduction for distributions to shareholders). In such event, the
Fund's dividend distributions to shareholders would be taxable as ordinary
income to the extent of the current and accumulated earnings and profits of the
Fund and would be eligible for the dividends received deduction in the case of
corporate shareholders.
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<PAGE> 70
Qualification as a regulated investment company under the Code
requires, among other things, that the Fund distribute to its shareholders an
amount equal to at least the sum of 90% of its investment company taxable income
(if any) and 90% of its tax-exempt income (if any), net of certain deductions
for each taxable year. In general, the Fund's investment company taxable income
will be its taxable income, including dividends, interest, and short-term
capital gains (the excess of net short-term capital gain over net long-term
capital loss), subject to certain adjustments and excluding the excess of net
long-term capital gain (if any) for the taxable year over the net short-term
capital loss (if any) for such year. The Fund will be taxed on its undistributed
investment company taxable income, if any. As stated, the Fund intends to
distribute at least 90% of its investment company taxable income (if any) for
each taxable year. To the extent such income is distributed by the Fund (whether
in cash or additional shares) it will be taxable to shareholders as ordinary
income.
The Fund will not be treated as a regulated investment company
under the Code if 30% or more of the Fund's gross income for a taxable year is
derived from gains realized on the sale or other disposition of the following
investments held for less than three months: (1) stock and securities (as
defined in section 2(a)(36) of the 1940 Act) ; (2) options, futures and forward
contracts other than those on foreign currencies; and (3) foreign currencies
(and options, futures and forward contracts on foreign currencies) that are not
directly related to the Fund's principal business of investing in stock and
securities (and options and futures with respect to stocks and securities) (the
"Short-Short Test"). Interest (including original issue discount and accrued
market discount) received by the Fund upon maturity or disposition of a security
held for less than three months will not be treated as gross income derived from
the sale or other disposition of such security within the meaning of this
requirement. However, any other income that is attributable to realized market
appreciation will be treated as gross income from the sale or other disposition
of securities for this purpose.
Any distribution of the excess of net long-term capital gains
over net short-term capital losses is taxable to shareholders as long-term
capital gains, regardless of how long the shareholder has held Fund shares and
whether such gains are received in cash or additional Fund shares. The Fund will
designate such a distribution as a capital gain dividend in a written notice
mailed to shareholders after the close of the Fund's taxable year. It should be
noted that, upon the sale or exchange of Fund shares, if the shareholder has not
held such shares for more than six months, any loss on the sale or exchange of
those shares will be treated as long-term capital loss to the extent of the
capital gain dividends received with respect to the shares.
-23-
<PAGE> 71
Ordinary income of individuals is taxable at a maximum nominal
rate of 39.6% but because of limitations on itemized deductions otherwise
allowable and the phase-out of personal exemptions, the maximum effective
marginal rate of tax for some taxpayers may be higher. An individual's long-term
capital gains are taxable at a maximum nominal rate of 28%. For corporations,
long-term capital gains and ordinary income are both taxable at a maximum
nominal rate of 35% (or at a maximum effective marginal rate of 39% in the case
of corporations having taxable income between $100,000 and $335,000).
A 4% non-deductible excise tax is imposed on regulated
investment companies that fail to currently distribute specific percentages of
their ordinary taxable income and capital gain net income (excess of capital
gains over capital losses) . The Fund intends to make sufficient distributions
or deemed distributions of its ordinary taxable income and any capital gain net
income prior to the end of each calendar year to avoid liability for this excise
tax.
The Company will be required in certain cases to withhold and
remit to the United States Treasury 31% of taxable dividends or 31% of gross
sale proceeds paid to shareholders (i) who have failed to provide a correct tax
identification number in the manner required, (iii) who are subject to
withholding by the Internal Revenue Service for failure to properly include on
their return payments of taxable interest or dividends or (iii) who have failed
to certify to the Company when required to do so either that they are subject to
backup withholding or that they are "exempt recipients."
OTHER INFORMATION
- -----------------
Depending upon the extent of activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located or in which it is otherwise deemed to be
conducting business, the Fund may be subject to the tax laws of such states or
localities.
Income distributions may be taxable to shareholders under
state or local law as dividend income even though all or a portion of such
distributions may be derived from interest on U.S. government obligations which,
if realized directly, would be exempt from such income taxes. Shareholders are
advised to consult their tax advisers concerning the application of state and
local taxes.
The foregoing discussion is based on tax laws and regulations
which are in effect on the date of this Statement of Additional Information.
Such laws and regulations may be changed
-24-
<PAGE> 72
by legislative or administrative action. This discussion is only a summary of
some of the important tax considerations generally affecting purchasers of Fund
shares. No attempt is made to present a detailed explanation of the federal
income tax treatment of the Fund or its shareholders, and this discussion is not
intended as a substitute for careful tax planning. Accordingly, potential
purchasers of Fund shares should consult their tax advisers with specific
reference to their own tax situation.
MANAGEMENT
DIRECTORS AND OFFICERS OF THE COMPANY
- -------------------------------------
The directors and officers of the Company, their addresses,
and principal occupations during the past five years are:
<TABLE>
<CAPTION>
Position with
Name and Address Age Company Principal Occupations
<S> <C> <C> <C>
Thomas M. Collins 61 Director Of counsel, law firm of
McDermott & Trayner McDermott & Trayner;
225 S. Lake Avenue Partner of the law firm
Suite 410 of Musick, Peeler &
Pasadena, CA 91101-3005 Garrett (until April,
1993); Trustee, Master
Investment Trust, Series I
(registered investment
company) (since 1993);
former Director, Bunker
Hill Income Securities,
Inc. (registered
investment company)
through 1991.
Douglas B. Fletcher 70 Vice Chairman Chairman of the Board
Fletcher Capital of the Board and Chief Executive
Advisors Incorporated Officer, Fletcher Capital
4 Upper Newport Plaza Advisors, Incorporated,
Suite 100 (registered investment
Newport Beach, CA 92660-2629 adviser) 1991 to date;
Partner, Newport Partners
(private venture capital
firm), 1981 to date;
Chairmanof the Board and
Chief Executive Officer,
First Pacific Advisors, Inc.
(registered investment
adviser) and seven
investment companies under
its management, prior to
1983; former Allied Member,
New York Stock Exchange;
Chairman of the Board of
FPA Paramount Fund, Inc.
through 1984; Director,
</TABLE>
-25-
<PAGE> 73
<TABLE>
<CAPTION>
Position with
Name and Address Age Company Principal Occupations
<S> <C> <C> <C>
TIS Mortgage Investment
Company (real estate
investment trust); Trustee
and former Vice Chairman
of the Board, Claremont
McKenna College; Chartered
Financial Analyst.
Robert E. Greeley 62 Director Chairman, Page Mill Asset
Page Mill Asset Management (a private
Management investment company) since
433 California Street 1991; Manager, Corporate
Suite 900 Investments, Hewlett
San Francisco, CA 94104 Packard Company from 1979
to 1991; Trustee, Master
Investment Trust, Series I
(since 1993); Director,
Morgan Grenfell Small Cap
Fund (since 1986); former
Director, Bunker Hill
Income Securities, Inc.
(since 1989) (registered
investment companies);
former Trustee, SunAmerica
Fund Group (previously
Equitec Siebel Fund Group)
from 1984 to 1992.
Kermit O. Hanson 79 Director Vice Chairman of the
17760 14th Ave., N.W. Advisory Board, 1988 to
Seattle, WA 98177 date, Executive Director,
1977 to 1988, Pacific
Rim Bankers Program
(a non-profit educational
institution); Dean
Emeritus, 1981 to date,
Dean, 1964-81, Graduate
School of Business
Administration, University
of Washington; Director,
Washington Federal
Savings & Loan Association;
Trustee, Seafirst
Retirement Funds (since
1993) (registered
investment company).
Cornelius J. Pings * 66 Chairman of President, Association
Association of American the Board and of American Universities,
Universities President February 1993 to date;
One DuPont Circle Provost, 1982 to January
Suite 730 1993, Senior Vice
Washington, DC 20036 President for Academic
Affairs, 1981 to January
1993, University of
Southern California;
Trustee, Master Investment
Trust, Series I (since 1995).
</TABLE>
-26-
<PAGE> 74
<TABLE>
<CAPTION>
Position with
Name and Address Age Company Principal Occupations
<S> <C> <C> <C>
Kenneth L. Trefftzs 83 Director Private Investor; formerly
11131 Briarcliff Drive Distinguished Emeritus
San Diego, CA 92131-1329 Professor of Finance and
Chairman of the Department
of Finance and Business
Economics of the Graduate
School of Business of the
University of Southern
California; former Director,
Metro Goldwyn Mayer, Inc.;
Director, Fremont General
Corporation (insurance and
financial services holding
company); Director, Source
Capital, Inc. (closed-end
investment company); Director
of three open-end investment
companies managed by
First Pacific Advisors, Inc.;
formerly Chairman of the
Board of Directors (or
Trustees) of nineteen
investment companies managed
by American Capital Asset
Management, Inc.
Richard E. Stierwalt 40 Executive Chairman of the Board
125 W. 55th Street Vice President and Chief Executive
New York, NY 10019 Officer , July 1993 to
date, prior thereto Senior
Director, Managing
Director and Chief
Executive Officer of the
Administrator and
Distributor, February 1987
to July 1993; President,
Master Investment Trust,
Series I, and Seafirst
Retirement Funds (since
1993); First Vice
President, Trust Operation
Administration, Security
Pacific National Bank,
1983-1987.
William B. Blundin 57 Executive Vice Vice Chairman, July 1993
125 W. 55th Street President to date, prior thereto
New York, NY 10019 Director and President
of the Administrator and
Distributor, February 1987
to July 1993; Executive
Vice President, Seafirst
Retirement Funds (since
1993); Senior Vice
President, Shearson Lehman
Brothers, 1978-1987.
</TABLE>
-27-
<PAGE> 75
<TABLE>
<CAPTION>
Position with
Name and Address Age Company Principal Occupations
<S> <C> <C> <C>
Irimga McKay 35 Vice Senior Vice President,
1230 Columbia Street President July 1993 to date, prior
5th Floor thereto First Vice
La Jolla, CA 92037 President of the
Administrator and
Distributor, November 1988
to July 1993; Vice
President, Seafirst
Retirement Funds (since
1993); Regional Vice
President, Continental
Equities, June 1987 to
November 1988; Assistant
Wholesaler, VMS Realty
Partners (a real estate
limited partnership), May
1986 to June 1987.
Stephanie L. Blaha 36 Assistant Vice Manager of Client
BISYS Fund Services President Services of the
3435 Stelzer Road Administrator, March
Columbus, OH 43219 1995 to date, prior
thereto Assistant Vice
President of the
Administrator and
Distributor, October
1991 to March 1995;
Vice President, Seafirst
Retirement Funds and
Master Investment Trust,
Series I (since 1996);
Account Manager, AT&T
American Transtech,
Mutual Fund Division,
July 1989 to October 1991.
Mark E. Nagle 36 Treasurer Senior Vice President,
BISYS Fund Services Fund Accounting Services
3435 Stelzer Road The BISYS Group, Inc.,
Columbus, OH 43219 September 1995 to Present;
Treasurer, Seafirst
Retirement Funds (since 1996)
Senior Vice President Fidelity
Institutional Retirement
Services (1993 to September
1995); Fidelity Accounting
& Custody Services (1981 to
1993).
Martin R. Dean 31 Assistant Manager of Fund
3435 Stelzer Road Treasurer Accounting of BISYS
Columbus, OH 43219 Fund Services, May 1994 to
Present; Assistant Treasurer,
Seafirst Retirement Funds
(since 1996); Senior
Manager at KPMG Peat Marwick
previously 1990-1994.
</TABLE>
-28-
<PAGE> 76
<TABLE>
<CAPTION>
Position with
Name and Address Age Company Principal Occupations
<S> <C> <C> <C>
W. Bruce McConnel, III 52 Secretary Partner of the law firm
1345 Chestnut Street of Drinker Biddle &
Philadelphia National Bank Reath.
Building, Suite 1100
Philadelphia, PA 19107
George O. Martinez 35 Assistant Senior Vice President
3435 Stelzer Road Secretary and Director of Legal
Columbus, OH 43219 and Compliance Services,
of the Administrator .
since April 1995;
Assistant Secretary,
Seafirst Retirement Funds
(since 1995); prior
thereto, Vice President
and Associate General
Counsel, Alliance Capital
Management, L.P.
</TABLE>
* Mr. Pings is an "interested director" of the Company as defined in the
1940 Act.
The Audit Committee of the Board is comprised of all
directors and is chaired by Dr. Trefftzs. The Board does not
have an Executive Committee.
Each director is entitled to receive an annual fee of $25,000
plus $1,000 for each day that a director participates in all or a part of a
Board meeting; the President receives an additional $20,000 per annum for his
services as President; Mr. Collins, in consideration of his years of service as
President and Chairman of the Board, receives an additional $40,000 per annum in
recognition of his years of service to the Company until February 28, 1997; each
member of a Committee of the Board is entitled to receive $1,000 for each
Committee meeting they participate in (whether or not held on the same day as a
Board meeting); and each Chairman of a Committee of the Board shall be entitled
to receive an annual retainer of $1,000 for his services as Chairman of the
Committee. The Funds, and each other fund of the Company, pays its proportionate
share of these amounts based on relative net asset values.
For the fiscal year ended February 29, 1996, the Company paid
or accrued for the account of its directors as a group for services in all
capacities a total of $388,155; none of this amount was allocated to the Fund.
Each director is also reimbursed for out-of-pocket expenses incurred as a
director. Drinker Biddle & Reath, of which Mr. McConnel is a partner, receives
legal fees as counsel to the Company. As of the date of this Statement of
Additional Information, the directors and officers of the Company, as a group,
own less than 1% of the
-29-
<PAGE> 77
outstanding shares of each of the Company's investment portfolios.
Under a retirement plan approved by the Board of Directors,
including a majority of its directors who are not "interested persons" of the
Company, a director who dies or resigns after five years of service is entitled
to receive ten annual payments each equal to the greater of: (i) 50% of the
annual director's retainer that was payable by the Company during the year of
his/her death or resignation, or (ii) 50% of the annual director's retainer then
in effect for directors of the Company during the year of such payment. A
director who dies or resigns after nine years of service is entitled to receive
ten annual payments each equal to the greater of: (i) 100% of the annual
director's retainer that was payable by the Company during the year of his/her
death or resignation, or (ii) 100% of the annual director's retainer then in
effect for directors of the Company during the year of such payment. Further,
the amount payable each year to a director who dies or resigns is increased by
$1,000 for each year of service that the director served as Chairman of the
Board .
Years of service for purposes of calculating the benefit
described above are based upon service as a director or Chairman after February
28, 1994. Retirement benefits in which a director has become vested may not be
reduced by later Board action.
In lieu of receiving ten annual payments, a director may elect
to receive substantially equivalent benefits through a single-sum cash payment
of the present value of such benefits paid by the Company within 45 days of the
death or resignation of the director. The present value of such benefits is to
be calculated (i) based on the retainer that was payable by the Company during
the year of the director's death or resignation (and not on any retainer payable
to directors thereafter), and (ii) using the interest rate in effect as of the
date of the director's death or resignation by the Pension Benefit Guaranty
Corporation (or any successor thereto) for valuing immediate annuities under
terminating defined benefit pension plans. A director's election to receive a
single sum must be made in writing within the 30 calendar days after the date
the individual is first elected as a director.
In addition to the foregoing, the Board of Directors may, in
its discretion and in recognition of a director's period of service before March
1, 1994 as a director and possibly as Chairman, authorize the Company to pay a
retirement benefit following the director's death or resignation (unless the
director has vested benefits as a result of completing nine years of service).
Any such action shall be approved by the Board and by a majority of the
directors who are not "interested persons"
-30-
<PAGE> 78
of the Company within 120 days following the director's death or resignation and
may be authorized as a single sum cash payment or as not more than ten annual
payments (beginning the first anniversary of the director's date of death or
resignation and continuing for one or more anniversary date(s) thereafter).
The obligation of the Company to pay benefits to a former
director is neither secured nor funded by the Company but shall be binding upon
its successors in interest. The payment of benefits under the retirement plan
has no priority or preference over the lawful claims of the Company's creditors
or shareholders, and the right to receive such payments is not assignable or
transferable by a director (or former director) other than by will, by the laws
of descent and distribution, or by the director's written designation of a
beneficiary.
The following chart provides certain information as of February 29, 1996 about
the fees received by directors of the Company as directors and/or officers of
the Company and as directors and/or trustees of the Fund Complex:
<TABLE>
<CAPTION>
TOTAL
COMPENSATION
PENSION OR FROM
RETIREMENT ESTIMATED REGISTRANT
AGGREGATE BENEFITS ANNUAL AND FUND
COMPENSATION ACCRUED AS BENEFITS COMPLEX*
NAME OF PERSON/ FROM THE PART OF FUND UPON PAID TO
POSITION COMPANY EXPENSES RETIREMENT DIRECTORS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Thomas M. Collins $ $ $ $
Director+
- ----------------------------------------------------------------------------------------------------------------------------------
Douglas B. Fletcher $ $ $ $
Vice Chairman of
the Board
- ----------------------------------------------------------------------------------------------------------------------------------
Robert E. Greeley** $ $ $ $
Director
- ----------------------------------------------------------------------------------------------------------------------------------
Kermit O. Hanson $ $ $ $
Director
- ----------------------------------------------------------------------------------------------------------------------------------
Cornelius J. Pings $ $ $ $
President and
Chairman of the
Board++
- ----------------------------------------------------------------------------------------------------------------------------------
Kenneth L. Trefftzs $ $ $ $
Director
<FN>
- ------------------------------
* The "Fund Complex" consists of the Company, Seafirst Retirement Funds,
Master Trust I, Master Investment Trust, Series II, Time Horizon Funds
</TABLE>
-31-
<PAGE> 79
and World Horizon Funds. As of _____, 1996 Master Investment Trust,
Series II ceased operations.
** Mr. Greeley became a director of the Company on April 25, 1994.
+ Mr. Collins was President and Chairman of the Board of the Company
until August 31, 1995.
++ Mr. Pings became President and Chairman of the Board of the Company on
August 31, 1995.
INVESTMENT ADVISER
- ------------------
Bank of America is the successor by merger to Security Pacific
National Bank ("Security Pacific"), which previously served as investment
adviser to the Company since the commencement of its operations. In the
investment advisory agreement with the Fund, Bank of America has agreed to
provide investment advisory services as described in the Prospectus. Bank of
America has also agreed to pay all expenses incurred by it in connection with
its activities under its agreement other than the cost of securities, including
brokerage commissions, if any, purchased for the Fund. In rendering its advisory
services, Bank of America may utilize Bank officers from one or more of the
departments of the Bank which are authorized to exercise the fiduciary powers of
Bank of America with respect to the investment of trust assets. In some cases,
these officers may also serve as officers, and utilize the facilities, of
wholly-owned subsidiaries and other affiliates of Bank of America or its parent
corporation. In addition, the agreement also provides that Bank of America may,
in its discretion, provide advisory services through its own employees or
employees of one or more of its affiliates that are under the common control of
Bank of America's parent, BankAmerica Corporation; provided such employees are
under the management of Bank of America.
For the services provided and expenses assumed pursuant to the
investment advisory agreement, the Fund has agreed to pay Bank of America fees,
accrued daily and payable monthly, at the annual rate of ___% of the average
daily net assets of the Fund. The fees payable to Bank of America are not
subject to reduction as the value of the Fund's net assets increases. From time
to time, Bank of America may waive fees or reimburse the Fund for expenses
voluntarily or as required by certain state securities laws. See "Management --
Administrator" for instances where Bank of America is required to make expense
reimbursements to the Fund.
The investment advisory agreement will be in effect until
October 31, 1996, and will continue in effect from year to year thereafter only
so long as such continuation is approved at least annually by (i) the Board of
Directors of the Company or the vote of a "majority," as defined in the 1940
Act, of the outstanding voting securities of the Fund, and (ii) a majority of
those directors of the Company who are not
-32-
<PAGE> 80
"interested persons," as defined in the 1940 Act, of any party to the investment
advisory agreement, acting in person at a meeting called for the purpose of
voting on such approval. The investment advisory agreement will terminate
automatically in the event of its "assignment," as defined in the 1940 Act. In
addition, the investment advisory agreement is terminable at any time without
penalty upon 60 days' written notice by the Board of Directors of the Company,
by vote of the holders of a majority of the Fund's outstanding voting
securities, or by Bank of America.
The investment advisory agreement provides that Bank of
America shall not be liable for any error of judgment or mistake of law or for
any loss suffered in connection with the performance of the investment advisory
agreement, except a loss resulting from a breach of fiduciary duty with respect
to the receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or negligence in the performance of its duties or from
reckless disregard by it of its duties and obligations thereunder.
THE GLASS-STEAGALL ACT AND PROPOSED LEGISLATION
- -----------------------------------------------
The Glass-Steagall Act, among other things, prohibits banks
from engaging in the business of underwriting securities, although national and
state-chartered banks generally are permitted to purchase and sell securities
upon the order and for the account of their customers. In 1971, the United
States Supreme Court held in Investment Company Institute v. Camp that the
Glass-Steagall Act prohibits a national bank from operating a fund for the
collective investment of managing agency accounts. Subsequently, the Board of
Governors of the Federal Reserve System (the "Board") issued a regulation and
interpretation to the effect that the Glass-Steagall Act and such decision
forbid a bank holding company registered under the Federal Bank Holding Company
Act of 1956 (the "Holding Company Act") or any non-bank affiliate thereof from
sponsoring, organizing or controlling a registered, open-end investment company
continuously engaged in the issuance of its shares, but do not prohibit such a
holding company or affiliate from acting as investment adviser, transfer agent
and custodian to such an investment company. In 1981, the United States Supreme
Court held in Board of Governors of the Federal Reserve System v. Investment
Company Institute that the Board did not exceed its authority under the Holding
Company Act when it adopted its regulation and interpretation authorizing bank
holding companies and their non-bank affiliates to act as investment advisers to
registered closed-end investment companies.
Bank of America believes that if the questions were properly
presented, a court should hold that Bank of America may perform the services for
the Fund contemplated by the
-33-
<PAGE> 81
investment advisory agreement, administration agreement, the Prospectus, and
this Statement of Additional Information without violation of the Glass-Steagall
Act or other applicable banking laws or regulations. It should be noted,
however, that there have been no cases deciding whether a national bank may
perform services comparable to those performed by Bank of America and that
future changes in either federal or state statutes and regulations relating to
permissible activities of banks or trust companies and their subsidiaries or
affiliates, as well as further judicial or administrative decisions or
interpretations of present and future statutes and regulations, could prevent
Bank of America from continuing to perform such services for the Fund or from
continuing to purchase Fund shares for the accounts of its customers.
On the other hand, as described herein, the Fund is currently
distributed by Concord Financial Group, Inc. If current restrictions under the
Glass-Steagall Act preventing a bank from sponsoring, organizing, controlling,
or distributing shares of an investment company were relaxed, the Company
expects that Bank of America would consider the possibility of offering to
perform some or all of the services now provided by Concord Financial Group,
Inc. From time to time, legislation modifying such restriction has been
introduced in Congress which, if enacted, would permit a bank holding company to
establish a non-bank subsidiary having the authority to organize, sponsor and
distribute shares of an investment company. If this or similar legislation were
enacted, the Company expects that Bank of America's parent bank holding company
would consider the possibility of one of its non-bank subsidiaries offering to
perform some or all of the services now provided by Concord Financial Group,
Inc. It is not possible, of course, to predict whether or in what form such
legislation might be enacted or the terms upon which Bank of America or such a
non-bank affiliate might offer to provide services for consideration by the
Company's Board of Directors .
ADMINISTRATOR
-------------
Bank of America also provides administrative services to the
Fund as described in the Fund's Prospectus. The administration agreement will
continue in effect until October 31, 1996 and thereafter for successive periods
of one year, provided that each such extension is specifically approved by (a) a
vote of a majority of those members of the Company's Board of Directors who are
not interested persons of any party to the agreement, cast in person at a
meeting called for the purpose of voting on such approval, and (b) the Company's
Board of Directors or by vote of a majority of the outstanding voting securities
of the Fund. The agreement is terminable at any time without penalty by the
Company's Board of Directors or by vote of a majority of the outstanding voting
-34-
<PAGE> 82
securities of the Fund upon 60 days' notice to Bank of America, or by Bank of
America upon 90 days' notice to the Company.
The Company has agreed to pay Bank of America a fee for its
services as administrator, accrued daily and payable monthly, at the annual
rates of ___% of the average daily net assets of the Fund. The fees payable to
Bank of America are not subject to reduction as the value of the Fund's net
assets increases. From time to time, Bank of America may waive fees or reimburse
the Fund for expenses, either voluntarily or as required by certain state
securities laws.
If total expenses borne (directly or indirectly) by the Fund
in any fiscal year exceed the expense limitations imposed by applicable state
securities regulations, the Company may deduct from the payments to be made with
respect to the Fund, or Bank of America will bear, the amount of such excess to
the extent required by such regulations in proportion to the fee otherwise
payable for such year. Such amount, if any, will be estimated, reconciled and
effected or paid, as the case may be, on a monthly basis. As of the date of this
Statement of Additional Information, the most restrictive expense limitation
that may be applicable to the Fund limits aggregate annual expenses with respect
to the Fund, including management and advisory fees but excluding interest,
taxes, brokerage commissions, and certain other expenses to 2-1/2% of the first
$30 million of its average daily net assets, 2% of the next $70 million, and
1-1/2% of its remaining average daily net assets. During the course of the
Company's fiscal year, Bank of America may prospectively waive payment of fees
and/or assume certain expenses of the Fund as a result of competitive pressures
and in order to preserve and protect the business and reputation of Bank of
America. This will have the effect of increasing yield to investors at the time
such fees are not received or amounts are assumed and decreasing yield when such
fees or amounts are reimbursed.
Bank of America will bear all expenses in connection with the
performance of its services under the administration agreement .
Pursuant to the authority granted in its administration
agreement, Bank of America has entered into a sub-administration agreement with
BISYS Fund Services, Inc. ("BISYS") under which BISYS will perform certain
administrative services, e.g., pay the costs of maintaining the offices of the
Fund; maintain the registration or qualification of the Fund's shares for sale
under state securities laws; maintain books and records of the Fund; and
generally assist in all aspects of the Fund's operations. BISYS is an indirect,
wholly-owned subsidiary of The BISYS Group, Inc. Its offices are located at 3435
Stelzer Road, Columbus, Ohio 43219-3035. For its services, BISYS is paid by Bank
of America and not by the Fund.
-35-
<PAGE> 83
The administration agreement and sub-administration agreement
each provide that Bank of America and BISYS shall not be liable for any error of
judgment or mistake of law or any loss suffered by the Company or the Fund in
connection with the performance of the administration agreement or
subadministration agreement, except a loss resulting from willful misfeasance,
bad faith or negligence in the performance of its duties or from the reckless
disregard by it of its obligations and duties thereunder.
DISTRIBUTOR AND PLAN PAYMENTS
-----------------------------
Concord Financial Group, Inc. (the "Distributor"), an
indirect, wholly-owned subsidiary of The BISYS Group, Inc., acts as distributor
of the shares of the Company. Shares are sold on a continuous basis by the
Distributor. The Distributor has agreed to use its best efforts to solicit
orders for the sale of the Company's shares although it is not obliged to sell
any particular amount of shares. The distribution agreement shall continue in
effect with respect to the Fund until October 31, 1996. Thereafter, if not
terminated, the distribution agreement shall continue automatically for
successive terms of one year, provided that such continuance is specifically
approved at least annually by (a) a vote of a majority of those members of the
Board of Directors of the Company who are not parties to the distribution
agreement or "interested persons" of any such party, cast in person at a meeting
called for the purpose of voting on such approval, and (b) by the Board of
Directors of the Company or by vote of a "majority of the outstanding voting
securities" of the Fund as to which the distribution agreement is effective;
provided, however, that the distribution agreement may be terminated by the
Company at any time, without the payment of any penalty, by vote of a majority
of the entire Board of Directors of the Company or by a vote of a "majority of
the outstanding voting securities" of the Fund on 60 days' written notice to the
Distributor, or by the Distributor at any time, without the payment of any
penalty, on 90 days' written notice to the Company. The agreement will
automatically and immediately terminate in the event of its "assignment."
THE SHAREHOLDER SERVICES PLAN. In addition to the sales loads
described above, the Distributor is entitled to payment by the Company for
certain shareholder servicing expenses in addition to the sales loads on A
Shares described above and in the Prospectus under the Shareholder Services Plan
(the "Plan") adopted by the Company for its A Shares. Under the Plan for A
Shares, the Company pays the Distributor, with respect to the Fund, for (a)
non-distribution shareholder services provided by the Distributor to Service
Organizations and/or the beneficial owners of Fund shares, including, but not
limited to shareholder servicing provided by the Distributor at facilities
dedicated for Company use, provided such shareholder servicing is not
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<PAGE> 84
duplicative of the servicing otherwise provided on behalf of the Fund, and (b)
fees paid to Service Organizations (which may include the Distributor itself)
for the provision of support services for shareholders for whom the Service
Organization is the dealer of record or holder of record or with whom the
Service Organization has a servicing relationship ("Clients").
Support services provided by Service Organizations may
include, among other things: (i) establishing and maintaining accounts and
records relating to Clients that invest in Fund shares; (ii) processing dividend
and distribution payments from the Fund on behalf of Clients; (iii) providing
information periodically to Clients regarding their positions in shares; (iv)
arranging for bank wires; (v) responding to Client inquiries concerning their
investments in Fund shares; (vi) providing the information to the Fund necessary
for accounting or subaccounting; (vii) if required by law, forwarding
shareholder communications from the Fund (such as proxies, shareholder reports,
annual and semi-annual financial statements and dividend, distribution and tax
notices) to Clients; (viii) assisting in processing exchange and redemption
requests from Clients; (ix) assisting Clients in changing dividend options,
account designations and addresses; and (x) providing such other similar
services.
The Plan provides that the Distributor is entitled to receive
payments for expenses on a monthly basis, at an annual rate not exceeding .25%
of the average daily net assets of the A Shares of the Fund during such month
for shareholder servicing expenses. The calculation of the Fund's average daily
net assets for these purposes does not include assets held in accounts opened
via a transfer of assets from trust and agency accounts of Bank of America.
Further, payments made out of or charged against the assets of the Fund must be
in payment for expenses incurred on behalf of the Fund.
If in any month the Distributor expends or is due more monies
than can be immediately paid due to the percentage limitations described above,
the unpaid amount is carried forward from month to month while the Plan is in
effect until such time, if ever, when it can be paid in accordance with such
percentage limitations. Conversely, if in any month the Distributor does not
expend the entire amount then available under the Plan, and assuming that no
unpaid amounts have been carried forward and remain unpaid, then the amount not
expended will be a credit to be drawn upon by the Distributor to permit future
payment. However, any unpaid amounts or credits due under the Plan may not be
"carried forward" beyond the end of the fiscal year in which such amounts or
credits due are accrued.
Payments for shareholder service expenses under the Plan are
not subject to Rule 12b-1 (the "Rule") under the 1940
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<PAGE> 85
Act. Pursuant to the Plan, the Distributor provides that a report of the amounts
expended under the Plan, and the purposes for which such expenditures were
incurred, will be made to the Board of Directors for its review at least
quarterly. In addition, the Plan provides that the selection and nomination of
the directors of the Company who are not "interested persons" thereof have been
committed to the discretion of the directors who are neither "interested
persons" (as defined in the 1940 Act) of the Company nor have any direct or
indirect financial interest in the operation of the Plan (or related servicing
agreements) (the "Non-Interested Plan Directors").
The Company understands that Bank of America and/or some
Service Organizations may charge their clients a direct fee for administrative
and shareholder services in connection with the holding of A Shares. These fees
would be in addition to any amounts which might be received under the Plan.
Small, inactive long-term accounts involving such additional charges may not be
in the best interest of shareholders.
The Company's Board of Directors has concluded that the Plan
will benefit the Fund and its A shareholders. The Plan is subject to annual
reapproval by a majority of the Non-Interested Plan Directors and is terminable
at any time with respect to the Fund by a vote of a majority of such Directors
or by vote of the holders of a majority of the A Shares of the Fund. Any
agreement entered into pursuant to the Plan with a Service Organization is
terminable with respect to the Fund without penalty, at any time, by vote of a
majority of the Non-Interested Plan Directors, by vote of the holders of a
majority of the A Shares of the Fund, by the Distributor or by the Service
Organization. Each agreement will also terminate automatically in the event of
its assignment.
THE DISTRIBUTION AND SERVICES PLAN. The Distributor is also
entitled to payment from the Company for distribution and services fees pursuant
to the Distribution and Services Plan adopted on behalf of the B Shares. Under
the Distribution and Services Plan the Company may pay the Distributor for: (a)
direct out-of-pocket promotional expenses incurred by the Distributor in
advertising and marketing B Shares; (b) expenses incurred in connection with
preparing, printing, mailing, and distributing or publishing advertisements and
sales literature for B Shares; expenses incurred in connection with printing and
mailing Prospectuses and Statements of Additional Information to other than
current B shareholders; (c) periodic payments or commissions to one or more
securities dealers, brokers, financial institutions or other industry
professionals, such as investment advisors, accountants, and estate planning
firms (severally, "a Distribution Organization") with respect to the Fund's B
Shares beneficially owned by customers for whom the Distribution Organization is
the Distribution Organization of record or holder of record of such B Shares;
(d) the direct or indirect cost of
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<PAGE> 86
financing the payments or expenses included in (a) and (c) above; or (e) for
such other services as may be construed, by any court or governmental agency or
commission, including the SEC, to constitute distribution services under the
1940 Act or rules and regulations thereunder.
Pursuant to the Distribution and Services Plan, the Company
may also pay securities dealers, brokers, financial institutions or other
industry professionals, such as investment advisors, accountants, and estate
planning firms (severally, a "Service Organization") for support services
provided with respect to its Client's B Shares. Administrative and shareholder
services provided may include some or all of the following: (i) processing
dividend and distribution payments from a Fund on behalf of its Clients; (ii)
providing statements periodically to its Clients showing their positions in B
Shares; (iii) arranging for bank wires; (iv) responding to routine Client
inquiries concerning their investment; (v) providing the information to the Fund
necessary for accounting or sub-accounting; (vi) if required by law, forwarding
shareholder communications from the Fund (such as proxies, shareholder reports,
annual and semi-annual financial statements and dividend, distribution and tax
notices) to its Clients; (vii) aggregating and processing purchase, exchange,
and redemption requests from its Clients and placing net purchase, exchange, and
redemption orders for its Clients; (viii) providing Clients with a service that
invests the assets of their accounts pursuant to specific or pre-authorized
instructions; (ix) establishing and maintaining accounts and records relating to
Clients; (x) assisting Clients in changing dividend options, account
designations and addresses; or (xi) other similar services if requested by the
Company.
The Distribution and Services Plan provides that the
Distributor is entitled to receive payments on a monthly basis at an annual rate
not exceeding 1.00% of the average daily net assets during such month of the
outstanding B Shares. Not more than 0.25% of such net assets will be used to
compensate Service Organizations for personal services provided to B
shareholders, and/or the maintenance of such shareholders' accounts and not more
than 0.75% of such net assets of B Shares will be used for promotional and other
primary distribution activities.
Payments made out of or charged against the assets of a
particular class of shares of the Fund must be in payment for expenses incurred
on behalf of that class.
Payments for distribution expenses under the Distribution Plan
(the "12b-1 Plan") are subject to Rule 12b-1 (the "Rule") under the 1940 Act.
The Rule defines distribution expenses to include the cost of "any activity
which is primarily intended to result in the sale of [Company] shares." The Rule
provides, among other things, that an investment company may bear
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<PAGE> 87
such expenses only pursuant to a plan adopted in accordance with the Rule. In
accordance with the Rule, the 12b-1 Plan provides that a written report of the
amounts expended under the 12b-1 Plan, and the purposes for which such
expenditures were incurred, will be made to the Board of Directors for its
review at least quarterly. In addition, the 12b-1 Plan provides that it may not
be amended to increase materially the costs which the Fund may bear for
distribution pursuant to the 12b-1 Plan without shareholder approval and that
other material amendments of the 12b-1 Plan must be approved by a majority of
the Board of Directors, and by a majority of the directors who are neither
"interested persons" (as defined in the 1940 Act) of the Company nor have any
direct or indirect financial interest in the operation of the 12b-1 Plan, or in
any agreements entered into in connection with the 12b-1 Plan, by vote cast in
person at a meeting called for the purpose of considering such amendments (the
"Non-Interested Plan Directors"). The selection and nomination of the directors
of the Company who are not "interested persons" of the Company have been
committed to the discretion of the Non-Interested Plan Directors.
The Company's Board of Directors has concluded that there is a
reasonable likelihood that the 12b-1 Plan will benefit the Fund and its B
shareholders. The 12b-1 Plan is subject to annual reapproval by a majority of
the Company's Board of Directors, including a majority of the Non-Interested
Plan Directors and is terminable without penalty at any time with respect to the
Fund by a vote of a majority of the Non-Interested Plan Directors or by vote of
the holders of a majority of the outstanding B Shares of the Fund. Any agreement
entered into pursuant to the 12b-1 Plan with a Service Organization is
terminable with respect to the Fund without penalty, at any time, by vote of a
majority of the Non-Interested Plan Directors, by vote of the holders of a
majority of the outstanding B Shares of the Fund, or by the Service
Organization. Each agreement will also terminate automatically in the event of
its assignment.
YIELD AND TOTAL RETURN
From time to time, the yields and the total returns of the
Fund may be quoted in and compared to other mutual funds with similar investment
objectives in advertisements, shareholder reports or other communications to
shareholders. The Fund may also include calculations in such communications that
describe hypothetical investment results. (Such performance examples will be
based on an express set of assumptions and are not indicative of the performance
of the Fund.) Such calculations may from time to time include discussions or
illustrations of the effects of compounding in advertisements. "Compounding"
refers to the fact that, if dividends or other distributions on the Fund
investment are reinvested by being paid in additional Fund shares, any future
income or capital appreciation of the Fund
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<PAGE> 88
would increase the value, not only of the original Fund investment, but also of
the additional Fund shares received through reinvestment. As a result, the value
of the Fund investment would increase more quickly than if dividends or other
distributions had been paid in cash. The Fund may also include discussions or
illustrations of the potential investment goals of a prospective investor
(including but not limited to tax and/or retirement planning), investment
management techniques, policies or investment suitability of the Fund, economic
conditions, legislative developments (including pending legislation), the
effects of inflation and historical performance of various asset classes,
including but not limited to stocks, bonds and Treasury bills. From time to time
advertisements or communications to shareholders may summarize the substance of
information contained in shareholder reports (including the investment
composition of the Fund), as well as the views of the investment adviser as to
current market, economic, trade and interest rate trends, legislative,
regulatory and monetary developments, investment strategies and related matters
believed to be of relevance to the Fund. The Fund may also include in
advertisements charts, graphs or drawings which illustrate the potential risks
and rewards of investment in various investment vehicles, including but not
limited to stocks, bonds, Treasury bills and shares of the Fund. In addition,
advertisements or shareholder communications may include a discussion of certain
attributes or benefits to be derived by an investment in the Fund. Such
advertisements or communications may include symbols, headlines or other
material which highlight or summarize the information discussed in more detail
therein. With proper authorization, the Fund may reprint articles (or excerpts)
written regarding the Fund and provide them to prospective shareholders.
Performance information with respect to the Fund is generally available by
calling (800) 346-2087.
YIELD CALCULATIONS. The yield for the respective share classes
of the Fund is calculated by dividing the net investment income per share (as
described below) earned by the Fund during a 30-day (or one month) period by the
maximum offering price per share (including the maximum front-end sales charge
of an A Share) on the last day of the period and annualizing the result on a
semi-annual basis by adding one to the quotient, raising the sum to the power of
six, subtracting one from the result and then doubling the difference. The
Fund's net investment income per share earned during the period with respect to
a particular class is based on the average daily number of shares outstanding in
the class during the period entitled to receive dividends and includes dividends
and interest earned during the period attributable to that class minus expenses
accrued for the period attributable to that class, net of reimbursements. This
calculation can be expressed as follows:
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<PAGE> 89
a-b
Yield = 2 [(----- + 1)(6) - 1]
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends.
d = maximum offering price per share on the last day
of the period.
For the purpose of determining net investment income earned
during the period (variable "a" in the formula), dividend income on equity
securities is recognized by accruing 1/360 of the stated dividend rate of the
security each day. Except as noted below, interest earned on debt obligations is
calculated by computing the yield to maturity of each obligation based on the
market value of the obligation (including actual accrued interest) at the close
of business on the last business day of each month, or, with respect to
obligations purchased during the month, the purchase price (plus actual accrued
interest), and dividing the result by 360 and multiplying the quotient by the
market value of the obligation (including actual accrued interest) in order to
determine the interest income on the obligation for each day of the subsequent
month that the obligation is held. For purposes of this calculation, it is
assumed that each month contains 30 days. The maturity of an obligation with a
call provision is the next call date on which the obligation reasonably may be
expected to be called or, if none, the maturity date. With respect to debt
obligations purchased at a discount or premium, the formula generally calls for
amortization of the discount or premium. The amortization schedule will be
adjusted monthly to reflect changes in the market values of such debt
obligations.
Interest earned on tax-exempt obligations that are issued
without original issue discount and have a current market discount is calculated
by using the coupon rate of interest instead of the yield to maturity. In the
case of tax-exempt obligations that are issued with original issue discount but
which have discounts based on current market value that exceed the
then-remaining portion of the original issue discount (market discount), the
yield to maturity is the imputed rate based on the original issue discount
calculation. On the other hand, in the case of tax-exempt obligations that are
issued with original
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<PAGE> 90
issue discount but which have the discounts based on current market value that
are less than the then-remaining portion of the original issue discount (market
premium), the yield to maturity is based on the market value.
With respect to mortgage or other receivables-backed
obligations which are expected to be subject to monthly payments of principal
and interest ("pay downs"), (a) gain or loss attributable to actual monthly pay
downs are accounted for as an increase or decrease to interest income during the
period; and (b) the Fund may elect either (i) to amortize the discount and
premium on the remaining security, based on the cost of the security, to the
weighted average maturity date, if such information is available, or to the
remaining term of the security, if any, if the weighted average maturity date is
not available, or (ii) not to amortize discount or premium on the remaining
security.
Undeclared earned income will be subtracted from the maximum
offering price per share (variable "d" in the formula). Undeclared earned income
is the net investment income which, at the end of the base period, has not been
declared as a dividend, but is reasonably expected to be and is declared and
paid as a dividend shortly thereafter. The Fund's maximum offering price per
share for purposes of the formula includes the maximum sales load imposed by the
Fund on A Shares -- currently 4.50% of the per share offering price.
TOTAL RETURN CALCULATIONS. The Fund computes its average
annual total returns separately for its separate share classes by determining
the average annual compounded rates of return during specified periods that
equate the initial amount invested in a particular share class to the ending
redeemable value of such investment in the class. This is done by dividing the
ending redeemable value of a hypothetical $1,000 initial payment by $1,000 and
raising the quotient to a power equal to one divided by the number of years (or
fractional portion thereof) covered by the computation and subtracting one from
the result. This calculation can be expressed as follows:
ERV 1/n
T = [(-----) - 1]
P
Where: T = average annual total return.
ERV = ending redeemable value at the end
of the period covered by the
computation of a hypothetical $1,000
payment made at the beginning of the
period.
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<PAGE> 91
P = hypothetical initial payment of $1,000.
n = period covered by the computation,
expressed in terms of years.
The Fund computes its aggregate total returns separately for
its separate share classes by determining the aggregate rates of return during
specified periods that likewise equate the initial amount invested in a
particular share class to the ending redeemable value of such investment in the
class. The formula for calculating aggregate total return is as follows:
ERV
aggregate total return = [(----- - 1)]
P
The calculations of average annual total return and aggregate
total return assume the reinvestment of all dividends and capital gain
distributions on the reinvestment dates during the period. The ending redeemable
value (variable "ERV" in each formula) is determined by assuming complete
redemption of the hypothetical investment and the deduction of all nonrecurring
charges at the end of the period covered by the computations. In addition, the
Fund's average annual total return and aggregate total return quotations reflect
the deduction of the maximum front-end sales load charged in connection with the
purchase of A Shares and the deduction of any applicable contingent deferred
sales charge with respect to B Shares.
The Fund may also advertise total return data without
reflecting sales charges in accordance with the rules of the SEC. Quotations
which do not reflect the sales load will, of course, be higher than quotations
which do.
GENERAL INFORMATION
DESCRIPTION OF SHARES
- ---------------------
The Company is an open-end management investment company
organized as a Maryland corporation on October 27, 1982. The Company's Charter
authorizes the Board of Directors to issue up to two hundred billion full and
fractional common shares. Pursuant to the authority granted in the Charter, the
Board of Directors has authorized the issuance of twenty- two classes of stock,
Classes A through W Common Stock, $.001 par value per share, representing
interests in twenty- two separate investment portfolios. Class U represents
interests in the A Shares of the Fund and Class U -- Special Series 3 represents
interests in the B Shares of the Fund. The Company's charter also authorizes the
Board of Directors to classify or reclassify
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<PAGE> 92
any particular class of the Company's shares into one or more series.
Shares have no preemptive rights and only such conversion or
exchange rights as the Board may grant in its discretion. When issued for
payment as described in the Prospectus, the Company's shares will be fully paid
and non-assessable. For information concerning possible restrictions upon the
transferability of the Company's shares and redemption provisions with respect
to such shares, see "Additional Purchase and Redemption Information."
Shareholders are entitled to one vote for each full share
held, and fractional votes for fractional shares held, and will vote in the
aggregate and not by class or series except as otherwise required by the 1940
Act or other applicable law or when permitted by the Board of Directors. Shares
have cumulative voting rights to the extent they may be required by applicable
law.
Rule 18f-2 under the 1940 Act provides that any matter
required to be submitted to the holders of the outstanding voting securities of
an investment company such as the Company shall not be deemed to have been
effectively acted upon unless approved by a majority of the outstanding shares
of each fund affected by the matter. The Fund is affected by a matter unless it
is clear that the interests of each of the Company's funds in the matter are
substantially identical or that the matter does not affect any interest of the
Fund. Under Rule 18f-2 the approval of an investment advisory agreement or 12b-1
distribution plan or any change in a fundamental investment policy would be
effectively acted upon with respect to the Fund only if approved by a majority
of the outstanding shares of the Fund. However, the rule also provides that the
ratification of independent public accountants, the approval of principal
underwriting contracts and the election of directors may be effectively acted
upon by shareholders of the Company voting without regard to particular Funds.
Notwithstanding any provision of Maryland law requiring a
greater vote of the Company's common stock (or of the shares of the Fund voting
separately as a class) in connection with any corporate action, unless otherwise
provided by law (for example, by Rule 18f-2 discussed above) or by the Company's
Charter, the Company may take or authorize such action upon the favorable vote
of the holders of more than 50% of the outstanding common stock of the Company
voting without regard to class.
CUSTODIAN AND TRANSFER AGENT
- ----------------------------
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<PAGE> 93
The Company has appointed The Bank of New York, 90
Washington Street, New York, New York, 10286 ("BONY") as
custodian for the Fund .
BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus, Ohio
43219 serves as transfer and dividend disbursing agent for the Fund.
COUNSEL
- -------
Drinker Biddle & Reath (of which W. Bruce McConnel, III,
Secretary of the Company, is a partner), 1345 Chestnut Street, Suite 1100,
Philadelphia, Pennsylvania 19107, serves as counsel to the Company and will pass
upon the legality of the
shares offered hereby.
INDEPENDENT ACCOUNTANTS
- -----------------------
Price Waterhouse LLP, with offices at 1177 Avenue of the
Americas, New York, New York 10036, has been selected as independent accountants
of the Fund for the fiscal year ended February 28, 1997.
REPORTS
- -------
Shareholders will receive unaudited semi-annual reports
describing the Fund's investment operations, and annual financial statements
together with the reports of the Fund, audited by the independent accountants.
MISCELLANEOUS
- -------------
As used in the Prospectus and this Statement of Additional
Information, a "vote of a majority" of the outstanding shares of the Fund or a
particular series means the affirmative vote of the lesser of (a) more than 50%
of the outstanding shares or interests of the Fund or series, or (b) 67% of the
shares or interests of the Fund or series present at a meeting at which more
than 50% of the outstanding shares or interests of the Fund or series are
represented in person or by proxy.
At May 23, 1996, the name, address and share ownership of the
entities which held more than 5% of the outstanding Pacific Horizon Shares of
the Treasury Only Fund were as follows: BA Investment Services, Inc., For the
Benefit of Clients, P.O. Box 7042, Attn: Unit #7852 - Bob Santilli, San
Francisco, CA 94120, 113,473,484.02 shares (44.97%); VAR & Co., 180 E. 5th
Street, 4th Floor, St. Paul, MN 55101, Attn: Linda Frintz, 17,846,817 shares
(7.07%); BA Securities, Inc., 185 Berry Street, Third floor, San Francisco, CA
94107, 60,715,647.92 shares (24.06%) and Hare & Co., Bank of New York and
Short-Term
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<PAGE> 94
Investment Funds, Attn: Bimal Saha, One Wall Street, New York, NY 10286,
15,867,692.18 shares (6.29%).
At May 23, 1996, the name, address and share ownership of the
entities which held more than 5% of the outstanding Horizon Service Shares of
the Treasury Only Fund were as follows: Omnibus Account for the Shareholder
Accounts Maintained By Concord Financial Services, Inc., Attn: Linda Zerbe,
First and Market Building, 100 First Avenue, Suite 300, Pittsburgh, PA 15222,
19,110,354.10 shares (14.56%); Comcare, Inc., 4001 North Third Street, Suite
120, Phoenix, AZ, 13,085,028.73 shares (9.97%); Comcare, Inc., 4001 North Third
Street, Suite 120, Phoenix, AZ, 17,407,690.39 shares (13.26%) and Omnibus
Account Maintained by Concord Financial Services. Attn: Linda Zerbe, 100 First
Avenue, Suite 300, Pittsburgh, PA 15222, 38,966,085.59 shares (29.70%).
At May 23, 1996, the name, address and share ownership of the
entities which held more than 5% of the outstanding Pacific Horizon Shares of
the Treasury Fund were as follows: Hare & Company, Bank of New York and Short
Term Investment Funds, Attn: Bimal Saha, One Wall Street, New York, NY 10286,
133,121,899.89 shares (12.83%); BA Investment Services, Inc., For the Benefit of
Clients, P.O. Box 7042, Attn: Unit #7852 - Bob Santilli, San Francisco, CA
94120, 211,139,848.05 shares (20.35%); and VAR & Co., 180 E. 5th Street, 4th
Floor, St. Paul, MN 55101, Attn: Linda Frintz, 566,534,406 shares (54.62%).
At May 23, 1996, the name, address and share ownership of the
entities which held more than 5% of the outstanding Horizon Service Shares of
the Treasury Fund were as follows: BISYS Fund Services, Inc. Pittsburgh, FBO
Sweep Customers, Attn: Linda Zerbe, 100 First Avenue, Suite 300, Pittsburgh, PA
15222, 167,963,508.62 shares (12.71%); and BISYS Fund Services, Inc. Pittsburgh,
FBO Sweep Customers, Attn: Linda Zerbe, 100 First Avenue, Suite 300, Pittsburgh,
PA 15222, 451,980,455.27 shares (34.21%).
At May 23, 1996, the name, address and share ownership of the
entities which held more than 5% of the outstanding Pacific Horizon Shares of
the Government Fund were as follows: BA Investment Services, Inc., For the
Benefit of Clients, P.O. Box 7042, Attn: Unit #7852 - Bob Santilli, San
Francisco, CA 94120, 105,243,681.55 shares (44%); VAR & Co., 180 E. 5th Street,
4th Floor, St. Paul, MN 55101, Attn: Linda Frintz, 25,957,838 shares (12.11%);
BA Securities, Inc., 185 Berry Street, Third floor, San Francisco, CA 94107,
44,345,691.76 shares (18.54%); and Bank of America National Trust and Savings
Association and Private Bank, Attn: ACI Unit 8329, P.O. Box 3577, Terminal
Annex, Los Angeles, CA 90051, 26,070,658.24 shares (10.90%).
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<PAGE> 95
At May 23, 1996, the name, address and share ownership of the
entities which held more than 5% of the outstanding Horizon Service Shares of
the Government Fund were as follows: Toasty, Ltd., Leslie L. Alexander, One
Greenway Plaza, Suite 645, Houston, TX 77046, 20,147,690.33 shares (9.82%); and
Omnibus Account for the Shareholder Accounts Maintained By Concord Financial
Services, Inc., Attn: Linda Zerbe, First and Market Building, 100 First Avenue,
Suite 300, Pittsburgh, PA 15222, 46,077,153.23 shares (22.46%).
At May 23, 1996, the name, address and share ownership of the
entities which held more than 5% of the outstanding Pacific Horizon Shares of
the Prime Fund were as follows: BA Securities, Inc., 185 Berry Street, Third
floor, San Francisco, CA 94107, 176,780,160.19 shares (7.89%); Hare & Co., Bank
of New York, and Short Term Investment Funds, Attn: Bimal Saha, One Wall Street,
New York, NY 10286, 165,525,293.39 shares (7.39%); and BA Investment Services,
Inc., For the Benefit of Clients, P.O. Box 7042, Attn: Unit #7852 - Bob
Santilli, San Francisco, CA 94120, 1,544,794,996.35 shares (68.93%).
At May 23, 1996, the name, address and share ownership of the
entities which held more than 5% of the outstanding Horizon Service Shares of
the Prime Fund were as follows: BISYS Fund Services, Inc. Pittsburgh, FBO Sweep
Customers, Attn: Linda Zerbe, 100 First Avenue, Suite 300, Pittsburgh, PA 15222,
270,598.977.30 shares (13.10%); BISYS Fund Services, Inc. Pittsburgh, FBO Sweep
Customers, Attn: Linda Zerbe, 100 First Avenue, Suite 300, Pittsburgh, PA 15222,
960,454,776.51 shares (46.50%).
At May 23, 1996, the name, address and share ownership of the
entities which held more than 5% of the outstanding Pacific Horizon Shares of
the Tax-Exempt Money Fund were as follows: BA Investment Services, Inc., For the
Benefit of Clients, P.O. Box 7042, Attn: Unit #7852 - Bob Santilli, San
Francisco, CA 94120, 41,267,253.60 shares (86.45%); and BA Securities, Inc., 185
Berry Street, San Francisco, CA 94107, 2,402,029.93 shares (5.03%)
At May 23, 1996, the name, address and share ownership of the
entities which held more than 5% of the outstanding Horizon Service Shares of
the Tax-Exempt Money Fund were as follows: BISYS Fund Services, Inc. Pittsburgh,
FBO Sweep Customers, 100 First Avenue, Suite 300, Pittsburgh, PA 15222,
44,749,317.15 shares (59.73%); and BISYS Fund Services, Inc. Pittsburgh, FBO
Sweep Customers, Attn: Linda Zerbe, 100 First Avenue, Suite 300, Pittsburgh, PA
15222, 20,628,929.94 shares (27.54%).
At May 23, 1996, the name, address and share ownership
of the entities which held more than 5% of the outstanding
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Pacific Horizon Shares of the California Tax-Exempt Money Market Fund were as
follows: BA Securities, Inc., 185 Berry Street, Third floor, San Francisco, CA
94107, 187,616,740.71 shares (39.02%); BA Investment Services, Inc., For the
Benefit of Clients, P.O. Box 7042, Attn: Unit #7852 - Bob Santilli, San
Francisco, CA 94120, 214,678,138.25 shares (44.65%); and Bank of America
National Trust and Savings Association and Private Bank, Attn: Common Trust
Funds Unit 8329, P.O. Box 3577 Terminal Annex, Los Angeles, CA 90051,
28,002,648.46 shares (5.82%).
At May 23, 1996, the name, address and share ownership of the
entities which held more than 5% of the outstanding Horizon Service Shares of
the California Tax-Exempt Money Market Fund were as follows: BISYS Fund
Services, Inc. Pittsburgh, FBO Sweep Customers, Attn: Linda Zerbe, 100 First
Avenue, Suite 300, Pittsburgh, PA 15222, 41,023,339.79 shares (21.86%); and
BISYS Fund Services, FBO Sweep Customers, Attn: Linda Zerbe, First and Market
Building, 100 First Avenue, Suite 300, Pittsburgh, PA 15222, 90,824,904.75
shares (48.39%).
At May 23, 1996, the name, address and share ownership of the
entities which held more than 5% of the outstanding A Shares of the Corporate
Bond Fund were as follows: Smith Barney Inc. Custodian, 388 Greenwich, 16th
Floor, New York, NY 10013-2391 119,376.19 shares (6.08%); and Dean Witter
Reynolds, Inc. Stock Record Department, 5 World Trade Center, New York, NY
10048, Attn: Al Dimino, 109,721 shares (5.59%).
At May 23, 1996, the name, address and share ownership of the
entities which held more than 5% of the outstanding Class A Shares of the
National Municipal Bond Fund were as follows: BA Investment Services, Inc., FBO
406171021, 185 Berry Street, San
Francisco, CA 94104, 114,904.33 shares (8.38%).
At May 23, 1996, the name, address and share ownership
of the entities which held more than 5% of the outstanding Class A Shares of the
International Equity Fund were as follows: Bank of America National Trust and
Savings Association, Agent for Lee G. Paul Trust, The Paul Family Trust. P.O.
Box 3577, Terminal Annex, Los Angeles, CA 90051, 5,000 shares (16.24%); Bank of
America National Trust and Savings Association, Agent Norman S. Oberstein Trust,
A Prof. Law Corp., P.O. Box 3577, Terminal Annex, Los Angeles, CA 90051, 2,500
shares (8.12%); and Bank of America National Trust and Savings Association,
Agent Norman S. Oberstein Trust, A Prof. Law Corp., P.O. Box 3577, Terminal
Annex, Los Angeles, CA 90051, 10,000 shares (32.48%).
At such date, no other person was known by the Company to hold
of record or beneficially more than 5% of the outstanding shares of any
investment portfolio of the Company.
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The Prospectus relating to the Fund and this Statement of
Additional Information omit certain information contained in the Company's
registration statement filed with the SEC. Copies of the registration statement,
including items omitted herein, may be obtained from the SEC by paying the
charges prescribed under its rules and regulations.
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APPENDIX A
----------
As stated in the Prospectus, the Fund may enter into
futures contracts and options for hedging purposes. Such transactions are
described in this Appendix.
I. INTEREST RATE FUTURES CONTRACTS
Use of Interest Rate Futures Contracts. Bond prices are
established in both the cash market and the futures market. In the cash market,
bonds are purchased and sold with payment for the full purchase price of the
bond being made in cash, generally within five business days after the trade. In
the futures market, only a contract is made to purchase or sell a bond in the
future for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, the Fund may use interest rate futures
as a defense, or hedge, against anticipated interest rate changes and not for
speculation. As described below, this would include the use of futures contract
sales to protect against expected increases in interest rates and futures
contract purchases to offset the impact of interest rate declines.
The Fund presently could accomplish a similar result to that
which it hopes to achieve through the use of futures contracts by selling bonds
with long maturities and investing in bonds with short maturities when interest
rates are expected to increase, or conversely, selling short-term bonds and
investing in long-term bonds when interest rates are expected to decline.
However, because of the liquidity that is often available in the futures market
the protection is more likely to be achieved, perhaps at a lower cost and
without changing the rate of interest being earned by the Fund, through using
futures contracts.
Description of Interest Rate Futures Contracts. An interest
rate futures contract sale would create an obligation by the Fund, as seller,
to deliver the specific type of financial instrument called for in the contract
at a specific future time for a specified price. A futures contract
purchase would create an obligation by the Fund, as purchaser, to take delivery
of the specific type of financial instrument at a specific future time at a
specific price. The specific securities delivered or taken, respectively, at
settlement date, would not be determined until at or near that date. The
determination would be in accordance with the rules of the exchange on which
the futures contract sale or purchase was made.
Although interest rate futures contracts by their terms
call for actual delivery or acceptance of securities, in most
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cases the contracts are closed out before the settlement date without the making
or taking of delivery of securities. Closing out a futures contract sale is
effected by the Fund's entering into a futures contract purchase for the same
aggregate amount of the specific type of financial instrument and the same
delivery date. If the price in the sale exceeds the price in the offsetting
purchase, the Fund is paid the difference and thus realizes a gain. If the
offsetting purchase price exceeds the sale price, the Fund pays the difference
and realizes a loss. Similarly, the closing out of a futures contract purchase
is effected by the Fund's entering into a futures contract sale. If the
offsetting sale price exceeds the purchase price, the Fund realizes a gain, and
if the purchase price exceeds the offsetting sale price, the Fund realizes a
loss.
Interest rate futures contracts are traded in an auction
environment on the floors of several exchanges principally, the Chicago Board of
Trade and the Chicago Mercantile Exchange. The Fund would deal only in
standardized contracts on recognized exchanges. Each exchange guarantees
performance under contract provisions through a clearing corporation, a
nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering
various financial instruments including long-term United States Treasury bonds
and notes; Government National Mortgage Association (GNMA) modified pass-through
mortgage-backed securities; three-month United States Treasury bills; and
ninety-day commercial paper. The Fund may trade in any futures contract for
which there exists a public market, including, without limitation, the foregoing
instruments.
Examples of Futures Contract Sale. The Fund would engage in an
interest rate futures contract sale to maintain the income advantage from
continued holding of a long-term bond while endeavoring to avoid part or all of
the loss in market value that would otherwise accompany a decline in long-term
securities prices. Assume that the market value of a certain security in the
Fund tends to move in concert with the futures market prices of long-term United
States Treasury bonds ("Treasury bonds"). The investment adviser wishes to fix
the current market value of this portfolio security until some point in the
future. Assume the portfolio security has a market value of 100, and the
investment adviser believes that, because of an anticipated rise in interest
rates, the value will decline to 95. The Fund might enter into futures contract
sales of Treasury bonds for an equivalent of 98. If the market value of the
portfolio security does indeed decline from 100 to 95, the equivalent futures
market price for the Treasury bonds might also decline from 98 to 93.
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In that case, the five-point loss in the market value of the
portfolio security would be offset by the five-point gain realized by closing
out the futures contract sale. Of course, the futures market price of Treasury
bonds might well decline to more than 93 or to less than 93 because of the
imperfect correlation between cash and futures prices mentioned below.
The investment adviser could be wrong in its forecast of
interest rates and the equivalent futures market price could rise above 98. In
this case, the market value of the portfolio securities, including the portfolio
security being protected, would increase. The benefit of this increase would be
reduced by the loss realized on closing out the futures contract sale.
If interest rate levels did not change, the Fund in the above
example might incur a loss of 2 points (which might be reduced by an off-setting
transaction prior to the settlement date). In each transaction, transaction
expenses would also be incurred.
Examples of Futures Contract Purchase. The Fund would engage
in an interest rate futures contract purchase when it is not fully invested in
long-term bonds but wishes to defer for a time the purchase of long-term bonds
in light of the availability of advantageous interim investments, e.g.,
shorter-term securities whose yields are greater than those available on
long-term bonds. The Fund's basic motivation would be to maintain for a time the
income advantage from investing in the short-term securities; the Fund would be
endeavoring at the same time to eliminate the effect of all or part of an
expected increase in market price of the long-term bonds that the Fund may
purchase.
For example, assume that the market price of a long-term bond
that the Fund may purchase, currently yielding 10%, tends to move in concert
with futures market prices of Treasury bonds. The investment adviser wishes to
fix the current market price (and thus 10% yield) of the long-term bond until
the time (four months away in this example) when it may purchase the bond.
Assume the long-term bond has a market price of 100, and the investment adviser
believes that, because of an anticipated fall in interest rates, the price will
have risen to 105 (and the yield will have dropped to about 9 1/2%) in four
months. The Fund might enter into futures contracts purchases of Treasury bonds
for an equivalent price of 98. At the same time, the Fund would assign a pool of
investments in short-term securities that are either maturing in four months or
earmarked for sale in four months, for purchase of the long-term bond at an
assumed market price of 100. Assume these short-term securities are yielding
15%. If the market price of the long-term bond does indeed rise from 100 to 105,
the equivalent futures market price for Treasury bonds might also rise from 98
to 103. In that case, the 5-point increase in the price that the Fund pays for
the long-term bond
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would be offset by the 5-point gain realized by closing out the futures contract
purchase.
The investment adviser could be wrong in its forecast of
interest rates; long-term interest rates might rise to above 10%; and the
equivalent futures market price could fall below 98. If short-term rates at the
same time fall to 10% or below, it is possible that the Fund would continue with
its purchase program for long-term bonds. The market price of available
long-term bonds would have decreased. The benefit of this price decrease, and
thus yield increase, will be reduced by the loss realized on closing out the
futures contract purchase.
If, however, short-term rates remained above available
long-term rates, it is possible that the Fund would discontinue its purchase
program for long-term bonds. The yield on short-term securities in the
portfolio, including those originally in the pool assigned to the particular
long-term bond, would remain higher than yields on long-term bonds. The benefit
of this continued incremental income will be reduced by the loss realized on
closing out the futures contract purchase. In each transaction, expenses would
also be incurred.
II. MARGIN PAYMENTS
Unlike when the Fund purchases or sells a security, no price
is paid or received by the Fund upon the purchase or sale of a futures contract.
Initially, the Fund will be required to deposit with the broker or in a
segregated account with the Fund's custodian an amount of cash or cash
equivalents, the value of which may vary but is generally equal to 10% or less
of the value of the contract. This amount is known as initial margin. The nature
of initial margin in futures transactions is different from that of margin in
security transactions in that futures contract margin does not involve the
borrowing of funds by the customer to finance the transactions. Rather, the
initial margin is in the nature of a performance bond or good faith deposit on
the contract which is returned to the Fund upon termination of the futures
contract assuming all contractual obligations have been satisfied. Subsequent
payments, called variation margin, to and from the broker, will be made on a
daily basis as the price of the underlying instruments fluctuates making the
long and short positions in the futures contract more or less valuable, a
process known as marking-to-market. For example, when the Fund has purchased a
futures contract and the price of the contract has risen in response to a rise
in the underlying instruments, that position will have increased in value and
the Fund will be entitled to receive from the broker a variation margin payment
equal to that increase in value. Conversely, where the Fund has purchased a
futures contract and the price of the future contract has declined in response
to a decrease in the underlying instruments, the position would be less valuable
and the Fund
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would be required to make a variation margin payment to the broker. At any time
prior to expiration of the futures contract, the investment advisor may elect to
close the position by taking an opposite position, subject to the availability
of a secondary market, which will operate to terminate the Fund's position in
the futures contract. A final determination of variation margin is then made,
additional cash is required to be paid by or released to the Fund, and the Fund
realizes a loss or gain.
III. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS
There are several risks in connection with the use of futures
in the Fund as a hedging device. One risk arises because of the imperfect
correlation between movements in the price of the future and movements in the
price of the securities which are the subject of the hedge. The price of the
future may move more than or less than the price of the securities being hedged.
If the price of the future moves less than the price of the securities which are
the subject of the hedge, the hedge will not be fully effective but, if the
price of the securities being hedged has moved in an unfavorable direction, the
Fund would be in a better position than if it had not hedged at all. If the
price of the securities being hedged has moved in a favorable direction, this
advantage will be partially offset by the loss on the future. If the price of
the future moves more than the price of the hedged securities, the Fund involved
will experience either a loss or gain on the future which will not be completely
offset by movements in the price of the securities which are the subject of the
hedge. To compensate for the imperfect correlation of movements in the price of
securities being hedged and movements in the price of futures contracts, the
Fund may buy or sell futures contracts in a greater dollar amount than the
dollar amount of securities being hedged if the volatility over a particular
time period of the prices of such securities has been greater than the
volatility over such time period of the future, or if otherwise deemed to be
appropriate by the investment adviser. Conversely, the Fund may buy or sell
fewer futures contracts if the volatility over a particular time period of the
prices of the securities being hedged is less than the volatility over such time
period of the futures contract being used, or if otherwise deemed to be
appropriate by the adviser. It is also possible that, where the Fund has sold
futures to hedge its portfolio against a decline in the market, the market may
advance and the value of securities held in the Fund may decline. If this
occurred, the Fund would lose money on the future and also experience a decline
in value in its portfolio securities.
Where futures are purchased to hedge against a possible
increase in the price of securities before the Fund is able to invest its cash
(or cash equivalents) in securities (or options) in an orderly fashion, it is
possible that the market may decline instead; if the Fund then concludes not to
invest in securities
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or options at that time because of concern as to possible further market decline
or for other reasons, the Fund will realize a loss on the futures contract that
is not offset by a reduction in the price of securities purchased.
In instances involving the purchase of futures contracts by
the Fund, an amount of cash and cash equivalents, equal to the market value of
the futures contracts, will be deposited in a segregated account with the Fund's
custodian and/or in a margin account with a broker to collateralize the position
and thereby insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
securities being hedged, the price of futures may not correlate perfectly with
movement in the cash market due to certain market distortions. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through off-setting transactions which could distort the normal
relationship between the cash and futures markets. Second, with respect to
financial futures contracts, the liquidity of the futures market depends on
participants entering into off-setting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced thus producing distortions. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price distortion in the
futures market, and because of the imperfect correlation between the movements
in the cash market and movements in the price of futures, a correct forecast of
general market trends or interest rate movements by the adviser may still not
result in a successful hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or
board of trade which provides a secondary market for such futures. Although the
Fund intends to purchase or sell futures only on exchanges or boards of trade
where there appear to be active secondary markets, there is no assurance that a
liquid secondary market on any exchange or board of trade will exist for any
particular contract or at any particular time. In such event, it may not be
possible to close a futures investment position, and in the event of adverse
price movements, the Fund would continue to be required to make daily cash
payments of variation margin. However, in the event futures contracts have been
used to hedge portfolio securities, such securities will not be sold until the
futures contract can be terminated. In such circumstances, an increase in the
price of the securities, if
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any, may partially or completely offset losses on the futures contract. However,
as described above, there is no guarantee that the price of the securities will
in fact correlate with the price movements in the futures contract and thus
provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary
market in a futures contract may be adversely affected by "daily price
fluctuation limits" established by commodity exchanges which limit the amount of
fluctuation in a futures contract price during a single trading day. Once the
daily limit has been reached in the contract, no trades may be entered into at a
price beyond the limit, thus preventing the liquidation of open futures
positions.
Successful use of futures by the Fund is also subject to the
investment adviser's ability to predict correctly movements in the direction of
the market. For example, if the Fund has hedged against the possibility of a
decline in the market adversely affecting securities held by it and securities
prices increase instead, the Fund will lose part of all of the benefit to the
increased value of its securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations, if
the Fund has insufficient cash, it may have to sell securities to meet daily
variation margin requirements. Such sales of securities may be, but will not
necessarily be, at increased prices which reflect the rising market. The Fund
may have to sell securities at a time when it may be disadvantageous to do so.
IV. OPTIONS ON FUTURES CONTRACTS
The Fund may purchase options on the futures contracts
described above. A futures option gives the holder, in return for the premium
paid, the right to buy (call) from or sell (put) to the writer of the option a
futures contract at a specified price at any time during the period of the
option. Upon exercise, the writer of the option is obligated to pay the
difference between the cash value of the futures contract and the exercise
price. Like the buyer or seller of a futures contract, the holder, or writer, of
an option has the right to terminate its position prior to the scheduled
expiration of the option by selling, or purchasing, an option of the same
series, at which time the person entering into the closing transaction will
realize a gain or loss.
Investments in futures options involve some of the same
considerations that are involved in connection with investments in futures
contracts (for example, the existence of a liquid secondary market). In
addition, the purchase of an option also entails the risk that changes in the
value of the underlying futures contract will not be fully reflected in the
value of the
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option purchased. Depending on the pricing of the option compared to either the
futures contract upon which it is based, or upon the price of the securities
being hedged, an option may or may not be less risky than ownership of the
futures contract or such securities. In general, the market prices of options
can be expected to be more volatile than the market prices on the underlying
futures contract. Compared to the purchase or sale of futures contracts,
however, the purchase of call or put options on futures contracts may frequently
involve less potential risk to the Fund because the maximum amount at risk is
the premium paid for the options (plus transaction costs). Although permitted by
its fundamental investment policies, the Fund does not currently intend to write
futures options, and will not do so in the future absent any necessary
regulatory approvals.
V. OTHER HEDGING TRANSACTIONS
The Fund presently intends to use interest rate futures
contracts in connection with its hedging activities. Nevertheless, the Fund is
authorized to enter into hedging transactions in any other futures or options
contracts which are currently traded or which may subsequently become available
for trading. Such instruments may be employed in connection with the Fund's
hedging strategies if, in the judgment of the investment adviser, transactions
therein are necessary or advisable.
VI. ACCOUNTING AND TAX TREATMENT
Accounting for futures contracts and related options
will be in accordance with generally accepted accounting
principles.
Generally, futures contracts and options on futures contracts
held by the Fund at the close of the Fund's taxable year will be treated for
federal income tax purposes as sold for their fair market value on the last
business day of such year, a process known as "marking-to-market." Forty percent
of any gain or loss resulting from such constructive sale will be treated as
short-term capital gain or loss and 60% of such gain or loss will be treated as
long-term capital gain or loss without regard to the length of time the Fund
holds the futures contract or option ("the 40%-60% rule"). The amount of any
capital gain or loss actually realized by the Fund in a subsequent sale or other
disposition of those futures contracts or options will be adjusted to reflect
any capital gain or loss taken into account by the Fund in a prior year as a
result of the constructive sale of the contracts or options. With respect to
futures contracts to sell, which will be regarded as parts of a "mixed straddle"
because their values fluctuate inversely to the values of specific securities
held by the Fund, losses as to such contracts to sell will be subject to certain
loss deferral rules which limit the amount of loss currently deductible on
either part of
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the straddle to the amount thereof which exceeds the unrecognized gain (if any)
with respect to the other part of the straddle, and to certain wash sales
regulations. Under short sales rules, which also will be applicable, the holding
period of the securities forming part of the straddle (if they have not been
held for the long-term holding period) will be deemed not to begin prior to
termination of the straddle. With respect to certain futures contracts and
related options, deductions for interest and carrying charges will not be
allowed. Notwithstanding the rules described above, with respect to futures
contracts to sell which are properly identified as such, the Fund may make an
election which will exempt (in whole or in part) those identified futures
contracts from being treated for federal income tax purposes as sold on the last
business day of the Fund's taxable year, but gains and losses will be subject to
such short sales, wash sales and loss deferral rules and the requirement to
capitalize interest and carrying charges. Under Temporary Regulations, the Fund
would be allowed (in lieu of the foregoing) to elect either (1) to offset gains
or losses from portions which are part of a mixed straddle by separately
identifying each mixed straddle to which such treatment applies, or (2) to
establish a mixed straddle account for which gains and losses would be
recognized and offset on a periodic basis during the taxable year. Under either
election, the 40%-60% rule will apply to the net gain or loss attributable to
the futures contracts, but in the case of a mixed straddle account election, not
more than 50 percent of any net gain may be treated as long-term and no more
than 40 percent of any net loss may be treated as short-term.
Qualification as a regulated investment company under the Code
requires that each Fund satisfy certain requirements with respect to the source
of its income during a taxable year. At least 90% of the gross income of each
Fund must be derived from dividends, interests, payments with respect to
securities loans, gains from the sale or other disposition of stock, securities
or foreign currencies, and other income (including, but not limited to, gains
from options, futures, or forward contracts) derived with respect to the Fund's
business of investing in such stock, securities or currencies. The Treasury
Department may by regulation exclude from qualifying income foreign currency
gains which are not directly related to a Fund's principal business of investing
in stock or securities, or options and futures with respect to stock or
securities. Any income derived by a Fund from a partnership or trust is treated
for this purpose as derived with respect to the Fund's business of investing in
stock, securities or currencies only to the extent that such income is
attributable to items of income which would have been qualifying income if
realized by the Fund in the same manner as by the partnership or trust.
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An additional requirement for qualification as a regulated
investment company under the Code is that less than 30% of a Fund's gross income
must be derived from gains realized on the sale or other disposition of the
following investments held for less than three months: (1) stock and securities
(as defined in section 2(a)(36) of the 1940 Act); (2) options, futures and
forward contracts other than those on foreign currencies; and (3) foreign
currencies (and options, futures and forward contracts on foreign currencies)
that are not directly related to a Fund's principal business of investing in
stock and securities (and options and futures with respect to stocks and
securities).
With respect to futures contracts and other financial
instruments subject to the mark-to-market rules, the Internal Revenue Service
has ruled in private letter rulings that a gain realized from such a futures
contract or financial instrument will be treated as being derived from a
security held for three months or more (regardless of the actual period for
which the contract or instrument is held) if the gain arises as a result of a
constructive sale under the marking-to-market rules, and will be treated as
being derived from a security held for less than three months only if the
contract or instrument is terminated (or transferred) during the taxable year
(other than by reason of marking-to-market) and less than three months have
elapsed between the date the contract or instrument is acquired and the
termination date. In determining whether the Short-Short test is met for a
taxable year, increases and decreases in the value of each Fund's futures
contracts and other investments that qualify as part of a "designated hedge," as
defined in the Code, may be netted.
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FORM N-1A
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
(1) Included in Part A and Part B hereof:
None
(b) Exhibits:
(1) (a) Restated Articles of Incorporation filed November
22, 1983 are incorporated by reference to Exhibit 1(a)
to Post- Effective Amendment No. 45 to the Registration
Statement of the Registrant on Form N-1A
(Nos. 2-81110/811-4293) filed February 23, 1996
("Post-Effective Amendment No. 45").
(b) Articles Supplementary filed January 9, 1986 are
incorporated by reference to Exhibit 1(b) to
Post-Effective Amendment No. 45.
(c) Articles Supplementary to increase authorized capital
stock filed August 31, 1989 are incorporated by
reference to Exhibit 1(c) to Post- Effective Amendment
No. 45.
(d) Articles Supplementary classifying shares filed August
31, 1989 are incorporated by reference to Exhibit 1(d)
to Post-Effective Amendment No. 45.
(e) Articles Supplementary classifying shares filed June 3,
1991 are incorporated by reference to Exhibit 1(e) to
Post-Effective Amendment No. 45.
(f) Articles Supplementary classifying and reclassifying
shares filed August 1, 1991 are incorporated by
reference to Exhibit 1(f) to Post-Effective Amendment
No. 45.
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<PAGE> 109
(g) Articles Supplementary to increase authorized capital
stock filed August 16, 1991 are incorporated by
reference to Exhibit 1(g) to Post-Effective Amendment
No. 45.
(h) Articles Supplementary classifying shares filed August
16, 1991 are incorporated by reference to Exhibit 1(h)
to Post-Effective Amendment No. 45.
(i) Articles Supplementary classifying shares filed
November 25, 1991 are incorporated by reference to
Exhibit 1(i) to Post-Effective Amendment No. 45.
(j) Articles Supplementary classifying shares filed May 11,
1992 are incorporated by reference to Exhibit 1(j) to
Post-Effective Amendment No. 45.
(k) Articles Supplementary reclassifying shares filed May
15, 1992 are incorporated by reference to Exhibit 1(k)
to Post-Effective Amendment No. 45.
(l) Articles Supplementary classifying shares filed July
20, 1992 are incorporated by reference to Exhibit 1(l)
to Post-Effective Amendment No. 45.
(m) Articles Supplementary to increase authorized capital
stock filed August 6, 1992 are incorporated by
reference to Exhibit 1(m) to Post-Effective Amendment
No. 45.
(n) Articles Supplementary classifying shares filed August
6, 1992 are incorporated by reference to Exhibit 1(n)
to Post-Effective Amendment No. 45.
(o) Articles Supplementary classifying shares filed March
3, 1993 are incorporated by reference to Exhibit 1(o)
to Post-Effective Amendment No. 45.
(p) Articles Supplementary reclassifying shares filed May
12, 1993 are incorporated by reference to Exhibit 1(p)
to Post-Effective Amendment No. 45.
(q) Articles of Amendment eliminating restriction on number
of classes of shares filed May 8, 1990 are
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<PAGE> 110
incorporated by reference to Exhibit 1(q) to Post-
Effective Amendment No. 45.
(r) Articles of Amendment reclassifying shares filed on
July 9, 1993 are incorporated by reference to Exhibit
1(r) to Post-Effective Amendment No. 45.
(s) Articles Supplementary classifying shares filed
November 18, 1993 are incorporated by reference to
Exhibit 1(s) to Post-Effective Amendment No. 45.
(t) Articles Supplementary reclassifying shares filed
November 18, 1993 are incorporated by reference to
Exhibit 1(t) to Post-Effective Amendment No. 45.
(u) Articles Supplementary reclassifying shares filed
January 21, 1994 are incorporated by reference to
Exhibit 1(u) to Post-Effective Amendment No. 45.
(v) Articles Supplementary classifying shares filed October
30, 1995 are incorporated by reference to Exhibit 1(v)
to Post-Effective Amendment No. 47 to the Registration
Statement of the Registrant on Form N-1A (Nos. 2-
81110/811-4293) filed April 30, 1996 ("Post-Effective
Amendment No. 47") .
(w) Articles of Amendment cancelling shares filed on
January 26, 1996 are incorporated by reference to
Exhibit 1(v) to Post-Effective Amendment No. 45.
(x) Articles Supplementary classifying shares filed on
January 26, 1996 are incorporated by reference to
Exhibit 1(w) to Post-Effective Amendment No. 45.
(y) Articles Supplementary reclassifying shares filed on
January 26, 1996 are incorporated by reference to
Exhibit 1(x) to Post-Effective Amendment No. 45.
(z) Form of Articles Supplementary reclassifying shares.
(aa) Form of Articles Supplementary reclassifying shares.
3
<PAGE> 111
(2) (a) Amended By-Laws dated January 15, 1987 are
incorporated by reference to Exhibit 2(a) to Post-
Effective Amendment No. 45.
(b) Amendment to By-Laws dated July 17, 1987 is
incorporated by reference to Exhibit 2(b) to
Post-Effective Amendment No. 45.
(c) Amendment to By-Laws as approved by the Registrant's
Board of Directors on March 30, 1989 is incorporated by
reference to Exhibit 2(c) to Post- Effective Amendment
No. 45.
(d) Amendment to By-Laws as approved by the Registrant's
Board of Directors on January 29, 1990 is incorporated
by reference to Exhibit 2(d) to Post- Effective
Amendment No. 45.
(e) Amendment to By-Laws as approved by the Registrant's
Board of Directors on November 29, 1995 is incorporated
by reference to Exhibit 2(e) to Post- Effective
Amendment No. 47 .
(3) None.
(4) (a) Specimen copy of share certificate for all Classes and
Series of Shares is incorporated by reference to
Exhibit (4)(a) to Post-Effective Amendment No. 37 to
Registration Statement on Form N- 1A (Nos.
2-81110/811-4293) filed July 1, 1994 ("Post-Effective
Amendment No. 37").
(5) (a) Investment Advisory Agreement dated as of April 22,
1992 between Registrant and Bank of America National
Trust and Savings Association (Money Market Funds) is
incorporated by reference to Exhibit 5(a) to
Post-Effective Amendment No. 45.
(b) Investment Advisory Agreement dated as of April 22,
1992 between Registrant and Bank of America National
Trust and Savings Association (Non-Money Market Funds)
is incorporated by reference to Exhibit 5(b) to
Post-Effective Amendment No. 45.
(c) Addendum to Investment Advisory Agreement dated as of
March 1, 1993 between Registrant and Bank of America
4
<PAGE> 112
National Trust and Savings Association (Money Market
Funds - Prime Value Fund) is incorporated by reference
to Exhibit 5(c) to Post-Effective Amendment No. 45.
(d) Addendum to Investment Advisory Agreement dated as of
March 1, 1993 between Registrant and Bank of America
National Trust and Savings Association (Money Market
Funds - Government and Treasury Only Funds) is
incorporated by reference to Exhibit 5(d) to Post-
Effective Amendment No. 45.
(e) Investment Advisory Agreement dated November 1, 1994
between Registrant and Bank of America National Trust &
Savings Association with respect to the Capital Income
Fund is incorporated by reference to Exhibit 5(e) to
Post-Effective Amendment No. 45.
(f) Form of Investment Advisory Agreement between
Registrant and Bank of America National Trust & Savings
Association with respect to the National Municipal Bond
Fund is incorporated by reference to Exhibit 5(f) to
Post-Effective Amendment No. 47 .
(6) (a) Distribution Agreement between the Registrant and
Concord Financial Group, Inc. is incorporated by
reference to Exhibit 6(a) to Post-Effective Amendment
No. 45.
(b) Agreement relating to the Distribution Agreement
between Registrant and Concord Financial Group, Inc. is
incorporated by reference to Exhibit 6(b) to Post-
Effective Amendment No. 45.
(c) Form of Broker/Dealer Agreement is incorporated by
reference to Exhibit 6(c) to Post-Effective Amendment
No. 45.
(d) Form of Bank Agreement is incorporated by reference to
Exhibit 6(d) to Post- Effective Amendment No. 45.
(e) Form of Amended and Restated Distribution Agreement is
incorporated
5
<PAGE> 113
by reference to Exhibit (6)(e) to Post- Effective
Amendment No. 42 to the Registration Statement of the
Registrant on Form N-1A (Nos. 2-81110/811-4293) filed
July 31, 1995 ("Post-Effective Amendment No. 42").
(7) Board Guidelines on Significant Governance Issues
(which includes a description of the Board of
Director's retirement policy and benefit) are
incorporated by reference to Exhibit 7 to
Post-Effective Amendment No. 45.
(8) (a) Custody Agreement between Registrant and The Bank of
New York dated as of April 3, 1989 is incorporated by
reference to Exhibit 8(a) to Post- Effective Amendment
No. 45.
(b) Amendment No. 1 to Custody Agreement between Registrant
and The Bank of New York dated as of March 30, 1990 is
incorporated by reference to Exhibit 8(b) to
Post-Effective Amendment No. 45.
(c) Custodian Services Agreement between Registrant and PNC
Bank, N.A is incorporated by reference to Exhibit 8(c)
to Post-Effective Amendment No. 45.
(d) Transfer Agency Agreement between Registrant and BISYS
Fund Services, Inc. is incorporated by reference to
Exhibit 8(d) to Post-Effective Amendment No. 47.
(e) Sub-Custodian Agreement between Registrant, The Bank of
New York, and Security Pacific National Bank is
incorporated by reference to Exhibit 8(e) to
Post-Effective Amendment No. 45.
(f) Sub-Custodian Agreement between The Bank of New York
and Citibank, N.A. dated May 18, 1988 is incorporated
by reference to Exhibit 8(f) to Post- Effective
Amendment No. 45.
(g) Form of Sub-Custody Agreement between The Bank of New
York and Bank of America National Trust and Savings
Association is incorporated by reference to Exhibit
6
<PAGE> 114
(8)(i) to Post-Effective Amendment No. 37.
(9) (a) Basic Administrative Services Agreement between
Registrant and Concord Holding Corporation (Money
Market Funds) dated as of November 13, 1989 is
incorporated by reference to Exhibit 9(a) to Post-
Effective Amendment No. 45.
(b) Amendment No. 1 to Basic Administrative Services
Agreement between Registrant and Concord Holding
Corporation (Money Market Funds) dated November 1, 1991
is incorporated by reference to Exhibit 9(b) to
Post-Effective Amendment No. 45.
(c) Amendment No. 2 to Basic Administrative Services
Agreement dated as of March 1, 1993 between Registrant
and Concord Holding Corporation (Money Market Funds) is
incorporated by reference to Exhibit 9(c) to
Post-Effective Amendment No. 45.
(d) Amendment No. 3 to Basic Administrative Services
Agreement dated as of March 1, 1993 between Registrant
and Concord Holding Corporation is incorporated by
reference to Exhibit 9(d) to Post- Effective Amendment
No. 45.
(e) Amendment No. 4 to Basic Administrative Services
Agreement dated November 1, 1993 between Registrant and
Concord Holding Corporation is incorporated by
reference to Exhibit 9(e) to Post- Effective Amendment
No. 45.
(f) Amendment No. 5 to Basic Administrative Services
Agreement dated November 1, 1995 between Registrant and
Concord Holding Corporation is incorporated by
reference to Exhibit 9(f) to Post- Effective Amendment
No. 46 to the Registration Statement of the Registrant
on Form N-1A (Nos. 281110/811-4293) filed March 4, 1996
("Post-Effective Amendment No. 46").
(g) Agreement relating to the Basic Administrative Services
Agreement between Registrant and Concord Holding
7
<PAGE> 115
Corporation is incorporated by reference to Exhibit 9
(f) to Post-Effective Amendment No. 45.
(h) Special Management Services Agreement among Registrant,
Concord Holding Corporation and Bank of America
National Trust and Savings Association (Money Market
Funds) dated as of April 22, 1992 is incorporated by
reference to Exhibit 9(g) to Post-Effective Amendment
No. 45.
(i) Amendment No. 1 to Special Management Services
Agreement dated as of March 1, 1993 between Registrant,
Concord Holding Corporation and Bank of America
National Trust and Savings Association (Money Market
Funds) is incorporated by reference to Exhibit 9(h) to
Post- Effective Amendment No. 45.
(j) Amendment No. 2 to Special Management Services
Agreement dated as of March 1, 1993 among Registrant,
Concord Holding Corporation and Bank of America
National Trust and Savings Association (Money Market
Funds) is incorporated by reference to Exhibit 9(i) to
Post- Effective Amendment No. 45.
(k) Amendment No. 3 to Special Management Services
Agreement dated as of April 1, 1993 among Registrant,
Concord Holding Corporation and Bank of America
National Trust and Savings Association (Money Market
Funds) is incorporated by reference to Exhibit 9(j) to
Post- Effective Amendment No. 45.
(l) Amendment No. 4 to Special Management Services
Agreement among Registrant, Concord Holding Corporation
and Bank of America National Trust and Savings
Association (Money Market Funds) is incorporated by
reference to Exhibit 9(k) to Post-Effective Amendment
No. 45.
(m) Agreement relating to the Special Management Services
Agreement among Registrant, Concord Holding Corporation
and Bank of America National Trust and Savings
Association (Money Market Funds)
8
<PAGE> 116
is incorporated by reference to Exhibit 9(l) to
Post-Effective Amendment No. 45.
(n) Administration Agreement between Registrant and Concord
Holding Corporation (Non-Money Market Funds) dated as
of November 13, 1989 is incorporated by reference to
Exhibit 9(m) to Post-Effective Amendment No. 45.
(o) Amendment No. 1 to Administration Agreement between
Registrant and Concord Holding Corporation (Aggressive
Growth Fund, U.S. Government Securities Fund, Capital
Income Fund and California Tax- Exempt Bond Fund) dated
as of November 1, 1991 is incorporated by reference to
Exhibit 9(n) to Post-Effective Amendment No. 45.
(p) Amendment No. 2 to Administration Agreement between
Registrant and Concord Holding Corporation (non-Money
Market Funds) is incorporated by reference to Exhibit
9(o) to Post-Effective Amendment No. 45.
(q) Amendment No. 3 to the Administration Agreement between
Registrant and Concord Holding Corporation (non-Money
Market Funds) is incorporated by reference to Exhibit
9(p) to Post-Effective Amendment No. 45.
(r) Amendment No. 4 to the Administration Agreement between
Registrant and Concord Holding Corporation (non-Money
Market Funds) is incorporated by reference to Exhibit
9(q) to Post-Effective Amendment No. 45.
(s) Amendment No. 5 to Administration Agreement between
Registrant and Concord Holding Corporation (non-Money
Market Funds) dated November 1, 1995 is incorporated by
reference to Exhibit 9(s) to Post-Effective Amendment
No. 46.
(t) Form of Amendment No. 6 to the Administration Agreement
is incorporated by reference to Exhibit 9(t) to
Post-Effective Amendment No. 47 .
9
<PAGE> 117
(u) Agreement relating to the Administration Agreement
between Registrant and Concord Holding Corporation
(non-Money Market Funds) is incorporated by reference
to Exhibit 9(r) to Post-Effective Amendment No. 45.
(v) Cash Management and Related Services Agreement between
Registrant and The Bank of New York (Horizon Shares and
Horizon Service Shares) dated as of May 1, 1990 is
incorporated by reference to Exhibit 9(s) to
Post-Effective Amendment No. 45.
(w) Amendment to Cash Management and Related Services
Agreement between Registrant and The Bank of New York
dated as of June 21, 1993 is incorporated by reference
to Exhibit 9(t) to Post- Effective Amendment No. 45.
(x) Accounting Services Agreement between the Registrant
and Provident Financial Processing Corp is incorporated
by reference to Exhibit 9(u) to Post- Effective
Amendment No. 45.
(10)1 Opinion of counsel that shares are validly issued,
fully paid and non-assessable.
(11)(a) Consent of Drinker Biddle & Reath.
(b) Consent of Price Waterhouse LLP.
(12) None
(13)(a) Purchase Agreement between Registrant and The
Dreyfus Corporation is incorporated by reference to
Exhibit 13(a) to Post-Effective Amendment No. 45.
(b) Purchase Agreement between Registrant and Hambrecht &
Quist Group, Inc. dated
- --------
1 Filed with the SEC on April 29, 1996 under Rule 24f-2 as part of
Registrant's 24f-2 Notice.
10
<PAGE> 118
March 31, 1988 is incorporated by reference to Exhibit
13(b) to Post- Effective Amendment No. 45.
(c) Investment Letter of Concord Financial Group, Inc. to
The Horizon Funds is incorporated by reference to
Exhibit 13(c) to Post-Effective Amendment No. 45.
(d) Purchase Agreement between Pacific Horizon Tax-Exempt
Money Market Portfolio, Inc. and Hambrecht & Quist
Group, Inc. is incorporated by reference to Exhibit
13(d) to Post-Effective Amendment No. 45.
(e) Purchase Agreement between Pacific Horizon Tax-Exempt
Money Market Portfolio, Inc. and Pacific Horizon Tax-
Exempt Funds, Inc. is incorporated by reference to
Exhibit 13(e) to Post- Effective Amendment No. 45.
(f) Purchase Agreement between Pacific Horizon Tax-Exempt
Money Market Portfolio, Inc. and The Dreyfus
Corporation is incorporated by reference to Exhibit
13(f) to Post-Effective Amendment No. 45.
(g) Purchase Agreement between Pacific Horizon California
Tax-Exempt Bond Portfolio, Inc. and Hambrecht & Quist
Group, Inc. is incorporated by reference to Exhibit
13(g) to Post-Effective Amendment No. 45.
(h) Purchase Agreement between Pacific Horizon California
Tax-Exempt Bond Portfolio, Inc. and The Dreyfus
Corporation is incorporated by reference to Exhibit
13(h) to Post-Effective Amendment No. 45.
(i) Purchase Agreement between Pacific Horizon California
Tax-Exempt Bond Portfolio, Inc. and Pacific Horizon
Tax- Exempt Funds, Inc. is incorporated by reference to
Exhibit 13(i) to Post- Effective Amendment No. 45.
11
<PAGE> 119
(j) Investment Letter of Concord Financial Group, Inc. to
The Horizon Capital Funds is incorporated by reference
to Exhibit 13(j) to Post-Effective Amendment No. 45.
(14) (a) Individual Retirement Account and accompanying
Custodial Agreement, Disclosure Statement, IRA
Application and IRA Transfer/Rollover Request Form is
incorporated by reference to Exhibit 14(a) to
Post-Effective Amendment No. 45.
(b) Appointment of Successor Custodian for Individual
Retirement Account dated as of August 3, 1990 is
incorporated by reference to Exhibit 14(b) to Post-
Effective Amendment No. 45.
(15) (a) Shareholder Service Plan for Non-Money Market Funds
is incorporated by reference to Exhibit 15(a) to Post-
Effective Amendment No. 45.
(b) Shareholder Services Plan for Horizon Service Shares as
modified by Registrant's Board of Directors on January
29, 1993 is incorporated by reference to Exhibit 15(b)
to Post- Effective Amendment No. 45.
(c) Revised Shareholder Servicing Agreement is incorporated
by reference to Exhibit 15(c) to Post-Effective
Amendment No. 45.
(d) Revised Shareholder Service Agreement as modified by
Registrant's Board of Directors on January 29, 1993 is
incorporated by reference to Exhibit 15(d) to
Post-Effective Amendment No. 45.
(e) Revised Shareholder Servicing Agreement for Non-Money
Market Funds is incorporated by reference to Exhibit
15(e) to Post-Effective Amendment No. 45.
(f) Distribution and Services Plan and related Distribution
and Administrative
12
<PAGE> 120
Servicing Agreement with respect to Registrant's "S"
Shares and "X" Shares is incorporated by reference to
Exhibit 15(f) to Post-Effective Amendment No. 47.
(16) (a) Schedule for Computation of Performance Quotations
with respect to the Prime Fund, Treasury Fund,
Tax-Exempt Money Fund, Tax-Exempt Money Market Fund,
California Tax-Exempt Money Market Fund, Aggressive
Growth Fund, California Tax- Exempt Bond Fund, U.S.
Government Securities Fund (formerly known as the GNMA
Extra Fund) and Capital Income Fund (formerly known as
the Convertible Securities Fund) is incorporated by
reference to Exhibit 16(a) to Post- Effective Amendment
No. 45.
(b) Schedule for Computation of Performance Quotations with
respect to the Government Fund, Treasury Only Fund and
Prime Value Fund is incorporated by reference to
Exhibit 16(b) to Post- Effective Amendment No. 45.
(c) Schedule for Computation of Performance Quotations with
respect to the Corporate Bond Fund, Flexible Bond Fund,
Blue Chip Fund, Asset Allocation Fund and National
Municipal Bond Fund is incorporated by reference to
Exhibit 16(c) to Post- Effective Amendment No. 45.
(17) None
(18) Amended and Restated Plan Pursuant to Rule 18f-3 for
Operation of a Multi- Class System is incorporated by
reference to Exhibit 18 to Post- Effective Amendment
No. 47.
Item 25. Persons Controlled by or under Common Control with Registrant
Registrant is controlled by its Board of Directors.
13
<PAGE> 121
Item 26. Number of Holders of Securities
<TABLE>
<CAPTION>
Number of Record
Holders as of
Title of Class May 1, 1996
<S> <C>
Class A Common Stock 1,243
Class A Common Stock -
Special Series 1 678
Class A Common Stock -
Special Series 2 0
Class B Common Stock 13,114
Class B Common Stock -
Special Series 1 1,174
Class B Common Stock -
Special Series 2 0
Class D Common Stock 15,559
Class E Common Stock 4,443
Class F Common Stock 16,465
Class G Common Stock 4,460
Class H Common Stock 0
Class I Common Stock 159
Class I Common Stock -
Special Series 1 51
Class I Common Stock -
Special Series 2 0
Class J Common Stock 571
Class J Common Stock -
Special Series 1 169
Class J Common Stock -
Special Series 2 0
Class K Common Stock 976
Class K Common Stock -
Special Series 1 130
Class K Common Stock -
Special Series 2 0
Class L Common Stock 128
Class L Common Stock -
Special Series 1 196
Class L Common Stock -
Special Series 2 0
Class M Common Stock 581
Class N Common Stock 7,046
Class O Common Stock 1,923
Class Q Common Stock 371
Class R Common Stock 0
Class S Common Stock 0
Class T Common Stock 0
Class U Common Stock 0
Class V Common Stock 0
Class W Common Stock 2,613
</TABLE>
Item 27. Indemnification
---------------
Article VII, Section 3, of Registrant's Restated Articles of
Incorporation, incorporated herein by reference as Exhibit (1)(a) hereto, and
Article VI, Section 2, of Registrant's
14
<PAGE> 122
By-Laws, incorporated herein by reference as Exhibit (2)(a) hereto, provide for
the indemnification of Registrant's directors and officers. Indemnification of
the Fund's principal underwriter, custodians, sub-custodians, transfer agent and
subtransfer agent is provided for, respectively, in Article V of the
Distribution Agreement, incorporated herein by reference as Exhibit (6)(a),
Article XV (and in Article V of the amended and restated Distribution Agreement
incorporated herein by reference as Exhibit (6)(e)), Section 15 of the Custody
Agreement incorporated herein by reference as Exhibit (8)(a) hereto, Article
III, Section 4 of the Sub-Custodian Agreement, incorporated herein by reference
as Exhibit (8)(f) hereto, and Section 8 of the form of Sub-Custody Agreement
incorporated herein by reference as Exhibit (8)(g), Article VII, Section 7, of
the Transfer Agency Agreement incorporated herein by reference as Exhibit
(8)(d), and Article VI, Section 3, of the Cash Management and Related Services
Agreement incorporated herein by reference as Exhibit (9)(v) hereto. Registrant
has obtained from a major insurance carrier a directors and officers' liability
policy covering certain types of errors and omissions. In no event will
Registrant indemnify any of its directors, officers, employees or agents against
any liability to which such person would otherwise be subject by reason of his
willful misfeasance, bad faith or gross negligence in the performance of his
duties or by reason of his reckless disregard of the duties involved in the
conduct of his office or under his agreement with Registrant. Registrant will
comply with Rule 484 under the Securities Act of 1933 and Release 11330 under
the Investment Company Act of 1940 in connection with any indemnification.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of Registrant pursuant to the foregoing provisions, or otherwise,
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Registrant of expenses
incurred or paid by a director, officer or controlling person of Registrant in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
15
<PAGE> 123
Item 28. Business and Other Connections of Investment
--------------------------------------------
Adviser
-------
Bank of America National Trust and Savings Association ("Bank
of America") performs investment advisory services for Registrant. Bank of
America and its predecessors have been in the business of managing the
investments of fiduciary and other accounts since 1904. In addition to its trust
business, Bank of America provides commercial and consumer banking services.
To the knowledge of Registrant, none of the directors or
officers of Bank of America, except those set forth below, is or has been, at
any time during the past two calendar years, engaged in any other business,
profession, vocation or employment of a substantial nature, except that certain
directors and officers of Bank of America also hold various positions with, and
engage in business for, BankAmerica Corporation, which owns all the outstanding
stock of Bank of America, or other subsidiaries of BankAmerica Corporation. Set
forth below are the names and principal businesses of the directors of Bank of
America and the directors and certain of the senior executive officers of Bank
of America who are engaged in any other business, profession, vocation or
employment of a substantial nature, other than with BankAmerica Corporation.
<TABLE>
<S> <C> <C>
Director...................Joseph F. Alibrandi Chairman of the Manufacturer of
Board, Whittaker Aerospace and
Corporation Biotechnology
Products
Director...................Jill Elikann Barad President and Chief Toy manufacturer
Operating Officer,
Mattel, Inc.
Director...................Peter B. Bedford Chairman and CEO, California based
Bedford Property Real Estate Dev-
Investors, Inc. elopment and In-
vestment Firm
</TABLE>
16
<PAGE> 124
<TABLE>
<CAPTION>
Position with
Bank of America
National Trust
and Savings Principal Type of
Association Name Occupation Business
- ----------- ---- ---------- --------
<S> <C> <C> <C>
Director. . . . Andrew F. Brimmer President, Consulting
Brimmer & Co., Inc.
Director . . . Richard A. Retired Chairman of Utility Company
Clarke the Board, Pacific
Gas and Electric
Company
President and
Director. . . David A. Coulter Chief Executive Banking
Officer and
President, Bank
America Corporation
and Bank of
America National
Trust & Savings
Association
Director. . . . Timm F. Crull Retired Chairman of Food and Related
the Board, Products
Nestle USA, Inc.
Director. . . . Kathleen Feldstein President, Economic
Economics Consulting
Studies, Inc.
Director . . . . Donald E. Guinn Chairman Emeritus, Telecommuni-
Pacific Telesis cations and
Group Diversified
Holding Com-
pany
Director . . . . Philip M. Hawley Retired Chairman Retail
and Chief Executive Department
Officer, The Stores
Broadway
Stores, Inc.
Director . . . . Frank L. Hope, Jr. Consulting Architectural
Architect and Engineering
Consulting
Director . . . . Ignacio E. Lozano, Chairman, Newspaper
Jr. "La Opinion" Publishing
Director . . . . Walter E. Massey, President, Higher
Ph.D. Morehouse Education
College
Director. . . . John M. Richman Counsel, Wachtell, Law firm
Lipton, Rosen &
Katz
</TABLE>
17
<PAGE> 125
<TABLE>
<CAPTION>
Position with
Bank of America
National Trust
and Savings Principal Type of
Association Name Occupation Business
- ----------- ---- ---------- --------
<S> <C> <C> <C>
Chairman of the
Board . . . Richard M. Chairman of the Banking
Rosenberg Board, Bank
America
Corporation and
Bank of America
National Trust &
Savings
Association
Director. . . . A. Michael Spence Dean of the Higher
Graduate School of Education
Business, Stanford
University
</TABLE>
Item 29. Principal Underwriters
----------------------
(a) Principal underwriter (exclusive distributor) also acts as
principal underwriter or exclusive distributor for The Infinity Funds, Inc., The
Pilot Funds, Seafirst Retirement Funds
and Time Horizon Funds.
(b) For information as to the business, profession, vocation
or employment of a substantial nature of each of the principal underwriter, its
officers and directors, reference is made to their Form BD File No. 8-37601
filed by the principal underwriter. For information, as to the positions or
offices of each of the principal underwriter, its officers and directors,
reference is made to the section entitled "Management" in the Statements of
Additional Information. Both the principal underwriter's Form BD and the
Registrants Statements of Additional Information are incorporated herein by
reference.
(c) Not Applicable.
Item 30. Location of Accounts and Records
--------------------------------
(1) Concord Holding Corporation, 125 West 55th Street,
New York, New York 10019 (records relating to the
administrator).
(2) Concord Financial Group, Inc., 125 West 55th
Street, New York, New York 10019 (records relating to
the distributor).
(3) Concord Management (Ireland) Limited, Floor 2,
Block 2, Harcourt Centre, Dublin 2, Ireland
(records relating to the administrator for the
Funds it services).
18
<PAGE> 126
(4) Bank of America National Trust and Savings
Association, 555 California Street, San Francisco,
California 94104 (records relating to the investment
adviser).
(5) Bank of America National Trust and Savings
Association, 555 California Street, San Francisco,
California 94104 (records relating to the Sub-
Custodian for the Funds it services).
(6) The Bank of New York, 90 Washington Street, New York,
New York 10286) (records relating to the custodian
for the Funds it services).
(7) BISYS Fund Services, Inc., 3435 Stelzer Road,
Columbus, Ohio 43219 (records relating to the
transfer agent for the Funds it services).
(8) Drinker Biddle & Reath, Philadelphia National Bank
Building, 1345 Chestnut Street, Philadelphia,
Pennsylvania 19107-3496 (Registrant's Charter, By-
Laws and Minute Books).
(9) PNC Bank, N.A., Broad and Chestnut Streets,
Philadelphia, PA 19101, (records relating to the
custodian for the Funds it services).
(10) PFPC, Inc. 103 Bellevue Parkway, Wilmington, DE
19809, (records relating to the sub-administrator
for the Funds it services).
Item 31. Management Services
-------------------
Inapplicable.
Item 32. Undertakings
------------
Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the Investment Company Act of 1940, as amended, as though such
provisions were applicable to it.
Registrant hereby undertakes to furnish its Annual Report to
Shareholders upon request and without charge to any person to whom a prospectus
is delivered.
Registrant hereby undertakes to file a post-effective
amendment, using financial statements which need not be certified, within four
to six months from the effective date of Registrant's 1933 Act Registration
Statement.
19
<PAGE> 127
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant has duly caused this
Amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Philadelphia, and the
Commonwealth of Pennsylvania, on this 31st day of May, 1996.
PACIFIC HORIZON FUNDS, INC.
Registrant
*/Cornelius John Pings
----------------------------------
Cornelius John Pings
President
(Signature and Title)
Pursuant to the requirements of the Securities Act of 1933,
this Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
*/Cornelius John Pings Chairman of the May 31, 1996
- ---------------------- ------
Cornelius John Pings Board and President
/s/ Mark Nagle Treasurer (Chief May 31, 1996
- ---------------------- ------
Mark Nagle Accounting and
Financial Officer)
*/Thomas M. Collins Director May 31, 1996
- ---------------------- ------
Thomas M. Collins
*/Douglas B. Fletcher Director May 31, 1996
- ---------------------- ------
Douglas B. Fletcher
*/Robert E. Greeley Director May 31, 1996
- ---------------------- ------
Robert E. Greeley
*/Kermit O. Hanson Director May 31, 1996
- ---------------------- ------
Kermit O. Hanson
*/Kenneth L. Trefftzs Director May 31, 1996
- ---------------------- ------
Kenneth L. Trefftzs
*By: /s/ W. Bruce McConnel
---------------------
W. Bruce McConnel, III
Attorney-in-fact
</TABLE>
20
<PAGE> 128
PACIFIC HORIZON FUNDS, INC.
Certificate of Secretary
The following resolution was duly adopted by the Board of
Directors of Pacific Horizon Funds, Inc. on April 23, 1996 and remains in effect
on the date hereof:
FURTHER RESOLVED, that the directors and officers of
Pacific Horizon who may be required to execute any amendments
to Pacific Horizon's Registration Statement be, and each
hereby is, authorized to execute a power of attorney
appointing W. Bruce McConnel, III and Cornelius J. Pings their
true and lawful attorney or attorneys, to execute in their
name, place and stead, in their capacity as director or
officer, or both, of Pacific Horizon any and all amendments to
the Registration Statement, and all instruments necessary or
incidental in connection therewith, and to file the same with
the SEC; and either of said attorneys shall have the power to
act thereunder with or without the other said attorney and
shall have full power of substitution and resubstitution; and
to do in the name and on behalf of said directors and
officers, or any or all of them, in any and all capacities,
every act whatsoever requisite or necessary to be done in the
premises, as fully and to all intents and purposes as each of
said directors or officers, or any or all of them, might or
could do in person, said acts of said attorneys, being hereby
ratified and approved.
IN WITNESS WHEREOF, I have hereunto set my hand this 31st day
of May, 1996.
PACIFIC HORIZON FUNDS, INC.
/s/ W. Bruce McConnel, III
--------------------------
W. Bruce McConnel, III
Secretary
<PAGE> 129
PACIFIC HORIZON FUNDS, INC.
POWER OF ATTORNEY
-----------------
Cornelius John Pings, whose signature appears below, does hereby
constitute and appoint W. Bruce McConnel, III, his true and lawful attorney and
agent, with power of substitution or resubstitution, to do any and all acts and
things and to execute any and all instruments which said attorney and agent may
deem necessary or advisable or which may be required to enable Pacific Horizon
Funds, Inc. (the "Fund"), to comply with the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
amendments (including post-effective amendments) to the Fund's Registration
Statement pursuant to said Acts, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a director and/or officer of the Fund any and
all such amendments filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney and agent
shall do or cause to be done by virtue hereof.
s/ Cornelius John Pings
Cornelius John Pings
Date: December 6, 1995
<PAGE> 130
PACIFIC HORIZON FUNDS, INC.
POWER OF ATTORNEY
-----------------
Thomas M. Collins, whose signature appears below, does hereby
constitute and appoint Cornelius John Pings and W. Bruce McConnel, III, and
either of them his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, or either of them, may
deem necessary or advisable or which may be required to enable Pacific Horizon
Funds, Inc. (the "Fund"), to comply with the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
amendments (including post-effective amendments) to the Fund's Registration
Statement pursuant to said Acts, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a director and/or officer of the Fund any and
all such amendments filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
/s/ Thomas M. Collins
---------------------
Thomas M. Collins
Date: December 7, 1995
<PAGE> 131
PACIFIC HORIZON FUNDS, INC.
POWER OF ATTORNEY
-----------------
Douglas, B. Fletcher, whose signature appears below, does hereby
constitute and appoint Cornelius John Pings and W. Bruce McConnel, III, and
either of them his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, or either of them, may
deem necessary or advisable or which may be required to enable Pacific Horizon
Funds, Inc. (the "Fund"), to comply with the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
amendments (including post-effective amendments) to the Fund's Registration
Statement pursuant to said Acts, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a director and/or officer of the Fund any and
all such amendments filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
/s/ Douglas B. Fletcher
-----------------------
Douglas B. Fletcher
Date: December 7, 1995
<PAGE> 132
PACIFIC HORIZON FUNDS, INC.
POWER OF ATTORNEY
-----------------
Robert E. Greeley, whose signature appears below, does hereby
constitute and appoint Cornelius John Pings and W. Bruce McConnel, III, and
either of them his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, or either of them, may
deem necessary or advisable or which may be required to enable Pacific Horizon
Funds, Inc. (the "Fund"), to comply with the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
amendments (including post-effective amendments) to the Fund's Registration
Statement pursuant to said Acts, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a director and/or officer of the Fund any and
all such amendments filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
/s/Robert E. Greeley
--------------------
Robert E. Greeley
Date: December 7, 1995
<PAGE> 133
PACIFIC HORIZON FUNDS, INC.
POWER OF ATTORNEY
-----------------
Kermit O. Hanson, whose signature appears below, does hereby constitute
and appoint Cornelius John Pings and W. Bruce McConnel, III, and either of them
his true and lawful attorneys and agents, with power of substitution or
resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorneys and agents, or either of them, may deem
necessary or advisable or which may be required to enable Pacific Horizon Funds,
Inc. (the "Fund"), to comply with the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
amendments (including post-effective amendments) to the Fund's Registration
Statement pursuant to said Acts, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a director and/or officer of the Fund any and
all such amendments filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
/s/ Kermit O. Hanson
--------------------
Kermit O. Hanson
Date: December 6, 1995
<PAGE> 134
PACIFIC HORIZON FUNDS, INC.
POWER OF ATTORNEY
-----------------
Kenneth L. Trefftzs, whose signature appears below, does hereby
constitute and appoint Cornelius John Pings and W. Bruce McConnel, III, and
either of them his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, or either of them, may
deem necessary or advisable or which may be required to enable Pacific Horizon
Funds, Inc. (the "Fund"), to comply with the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
amendments (including post-effective amendments) to the Fund's Registration
Statement pursuant to said Acts, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a director and/or officer of the Fund any and
all such amendments filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
/s/ Kenneth L. Trefftzs
-----------------------
Kenneth L. Trefftzs
Date: December 6, 1995
<PAGE> 135
EXHIBIT INDEX
-------------
EXHIBIT NO. DESCRIPTION
- ----------- -----------
(1) (z) Form of Articles Supplementary reclassifying
shares.
(aa) Form of Articles Supplementary reclassifying
shares.
(11) (a) Consent of Drinker Biddle & Reath.
(b) Consent of Price Waterhouse, LLP.
<PAGE> 1
EXHIBIT 1(Z)
ARTICLES SUPPLEMENTARY
OF
PACIFIC HORIZON FUNDS, INC.
PACIFIC HORIZON FUNDS, INC., a Maryland corporation having its
principal office in the City of Baltimore, Maryland (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: Pursuant to Section 2-208 of the Maryland General
Corporation Law, the Board of Directors of the Corporation has classified Seven
(7) Hundred Million (700,000,000) shares of authorized and unissued capital
stock of the Corporation, previously unclassified, as follows:
<TABLE>
<CAPTION>
Number of Shares
Classified Shares Reclassified
----------------- ------------
<S> <C>
Class D-Special Series 5 50,000,000
Class E-Special Series 5 50,000,000
Class F-Special Series 5 50,000,000
Class G-Special Series 5 50,000,000
Class M-Special Series 5 50,000,000
Class N-Special Series 5 50,000,000
Class O-Special Series 5 50,000,000
Class Q-Special Series 5 50,000,000
Class R-Special Series 5 50,000,000
Class S-Special Series 5 50,000,000
Class T-Special Series 5 50,000,000
Class U-Special Series 5 50,000,000
Class V-Special Series 5 50,000,000
Class W-Special Series 5 50,000,000
</TABLE>
pursuant to resolutions adopted by the Board of Directors of the
Corporation at the Regular Meeting of the Board of Directors held on
April 23, 1996.
SECOND: Pursuant to Article VI, Section (5) of the Charter,
the shares of Common Stock newly reclassified hereby shall have the
following preferences, voting powers,
<PAGE> 2
restrictions, limitations as to dividends, qualifications and terms
and conditions of redemption:
1. ASSETS BELONGING TO A CLASS. All consideration received by
the Corporation for the issue and sale of such Class D - Special Series
5, Class E - Special Series 5, Class F - Special Series 5, Class G -
Special Series 5, Class M - Special Series 5, Class N - Special Series
5, Class O - Special Series 5, Class Q - Special Series 5, Class R -
Special Series 5, Class S - Special Series 5, Class T - Special Series
5, Class U - Special Series 5, Class V - Special Series 5 and Class W -
Special Series 5 (collectively, the "Special Series 5" shares) shall be
invested and reinvested with the consideration received by the
Corporation for the issue and sale of all other shares now or hereafter
classified with the same alphabetical designation as the particular
Special Series 5 shares (a "Common Stock Group") (irrespective of
whether said shares have been classified as a part of a series of said
Common Stock Group and, if so classified as a part of a series,
irrespective of the particular series classification), along with all
income, earnings, profits, and proceeds thereof, including any proceeds
derived from the sale, exchange, or liquidation thereof, and any funds
or payments derived from any reinvestment of such proceeds in whatever
form the same may be, and any general assets of the Corporation
allocated to the particular Common Stock Group by the Board of
Directors in accordance with the Corporation's Charter. All income,
earnings, profits, and proceeds, including any proceeds derived from
the sale, exchange or liquidation of such shares, and any assets
derived from any reinvestment of such proceeds in whatever form shall
be allocated among shares of a Common Stock Group, (irrespective of
whether said shares have been classified as a part of a series of said
Common Stock Group and, if so classified as a part of a series,
irrespective of the particular series classification), in proportion to
their respective net asset values or in such other manner as determined
in accordance with law.
2. LIABILITIES BELONGING TO A CLASS. All of the liabilities
(including expenses) of the Corporation in respect of a Common Stock
Group and in respect of any general liabilities (including expenses) of
the Corporation allocated to shares of that Common Stock Group in
accordance with the Charter of the Corporation and law shall be
allocated among shares in the Common Stock Group (irrespective of
whether said shares have been classified as a part of a series of said
Common Stock Group and, if so classified as a part of a series,
irrespective of the particular series classification), in proportion to
their respective net asset values, or in such other manner as
-2-
<PAGE> 3
determined in accordance with law, except that, subject to law:
(a) shares of each class and/or series (collectively,
"Series") of a Common Stock Group shall bear the expenses and
liabilities relating to any agreements or arrangements entered
into by or on behalf of the Corporation pursuant to which an
organization or other person agrees to provide services with
respect to such Series but not with respect to another Series
of the Common Stock Group ("Other Series"), as well as any
other expenses and liabilities directly attributable to such
Series which the Board of Directors determines should be borne
solely by such Series; and
(b) shares of a Series of a Common Stock Group shall
not bear the expenses and liabilities relating to any
agreements or arrangements entered into by or on behalf of the
Corporation pursuant to which an organization or other person
agrees to provide services with respect to an Other Series,
but not with respect to such Series of a Common Stock Group as
well as any other expenses and liabilities directly
attributable to shares of a Common Stock Group which the Board
of Directors determines should be borne solely by such Other
Series.
3. PREFERENCES, VOTING POWERS, RESTRICTIONS, LIMITATIONS AS TO
DIVIDENDS, QUALIFICATIONS, AND TERMS AND CONDITIONS OF REDEMPTION. Each
share of a Common Stock Group shall otherwise have the same
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption as each other share of that Common Stock Group (irrespective
of whether said share has been classified as part of a Series of said
Common Stock Group and, if so classified as part of a Series,
irrespective of the particular Series classification), except that:
(a) on any matter that pertains to the agreements,
arrangements, expenses or liabilities described in clause (a)
of Section 2 above (or to any plan or other document adopted
by the Corporation relating to said agreements, arrangements,
expenses and liabilities) and is submitted to a vote of
shareholders of the Corporation, only shares of the Series
affected shall be entitled to vote, provided that if said
matter affects shares of an Other Series, such other affected
shares shall also be entitled to vote, and in such case shares
shall be voted in the aggregate together with such other
affected shares and not by Series except where otherwise
required by law or permitted by the Board of Directors of the
Corporation; and if any matter submitted to a vote of the
shareholders does not affect shares of a Series, said shares
shall not be entitled to vote (except where otherwise required
by law or permitted by the
-3-
<PAGE> 4
Board of Directors) even though the matter is submitted to a
vote of the holders of shares of capital stock of the
Corporation other than shares of that Series;
(b) on any matter that pertains to the agreements,
arrangements, expenses or liabilities described in clause (b)
of Section 2 above (or any plan or other document adopted by
the Corporation relating to said agreements, arrangements,
expenses and liabilities) (collectively, "Agreements") and is
submitted to a vote of shareholders of the Corporation, a
Series for which services are not provided under a particular
Agreement shall not be entitled to vote, except where
otherwise required by law or permitted by the Board of
Directors of the Corporation and except that if said matter
affects said Series such shares shall be entitled to vote, and
in such case shares of said Series shall be voted in the
aggregate together with all other shares of capital stock of
the Corporation voting on the matter and not by Series except
where otherwise required by law or permitted by the Board of
Directors of the Corporation;
(c) a contingent deferred sales charge may be imposed
on shares of a particular Special Series 2 of Common Stock or
a particular Special Series 5 of Common Stock, which shares
may be converted into shares of another Series, as, and with
such terms and conditions, as determined from time to time by
the Board of Directors of the Corporation.
GENERAL
THIRD: The shares of capital stock of the Corporation
classified pursuant to the resolutions set forth in Article FIRST of these
Articles Supplementary have been classified by the Corporation's Board of
Directors under the authority contained in the Charter of the Corporation.
FOURTH: These Articles Supplementary do not increase the
authorized number of shares of the Corporation or the aggregate par value
thereof. The total number of shares of capital stock which the Corporation is
presently authorized to issue remains Two Hundred Billion (200,000,000,000)
shares (of the par value of One Mill ($.001) each) and of the aggregate par
value of Two Hundred Million Dollars ($200,000,000) of Common Stock classified
as follows:
-4-
<PAGE> 5
<TABLE>
<CAPTION>
Number of shares
Classification Authorized
- -------------- ----------
<S> <C>
Class A 10,000,000,000
Class A-Special Series 1 10,000,000,000
Class A-Special Series 2 10,000,000,000
Class A-Special Series 3 10,000,000,000
Class A-Special Series 4 4,400,000,000
Class B 10,000,000,000
Class B-Special Series 1 10,000,000,000
Class B-Special Series 2 18,000,000,000
Class B-Special Series 3 10,000,000,000
Class B-Special Series 4 10,000,000,000
Class C 250,000,000
Class D 400,000,000
Class D-Special Series 3 600,000,000
Class D-Special Series 5 50,000,000
Class E 100,000,000
Class E-Special Series 3 150,000,000
Class E-Special Series 5 50,000,000
Class F 100,000,000
Class F-Special Series 3 150,000,000
Class F-Special Series 5 50,000,000
Class G 100,000,000
Class G-Special Series 3 150,000,000
Class G-Special Series 5 50,000,000
Class I 1,500,000,000
Class I-Special Series 1 3,000,000,000
Class I-Special Series 2 3,000,000,000
Class J 1,000,000,000
Class J-Special Series 1 500,000,000
Class J-Special Series 2 500,000,000
Class J-Special Series 4 1,000,000,000
Class K 15,000,000,000
Class K-Special Series 1 15,000,000,000
Class K-Special Series 2 7,000,000,000
Class L 15,000,000,000
Class L-Special Series 1 15,000,000,000
Class L-Special Series 2 7,000,000,000
Class M 40,000,000
Class M-Special Series 3 60,000,000
Class M-Special Series 5 50,000,000
Class N 40,000,000
Class N-Special Series 3 60,000,000
Class N-Special Series 5 50,000,000
Class O 40,000,000
Class O-Special Series 3 60,000,000
Class O-Special Series 5 50,000,000
Class Q 40,000,000
Class Q-Special Series 3 60,000,000
</TABLE>
-5-
<PAGE> 6
<TABLE>
<CAPTION>
<S> <C>
Class Q-Special Series 5 50,000,000
Class R 40,000,000
Class R-Special Series 3 60,000,000
Class R-Special Series 5 50,000,000
Class S 40,000,000
Class S-Special Series 3 60,000,000
Class S-Special Series 5 50,000,000
Class T 40,000,000
Class T-Special Series 3 60,000,000
Class T-Special Series 5 50,000,000
Class U 40,000,000
Class U-Special Series 3 60,000,000
Class U-Special Series 5 50,000,000
Class V 40,000,000
Class V-Special Series 3 60,000,000
Class V-Special Series 5 50,000,000
Class W 40,000,000
Class W-Special Series 3 60,000,000
Class W-Special Series 5 50,000,000
Unclassified 9,400,000,000
</TABLE>
IN WITNESS WHEREOF, PACIFIC HORIZON FUNDS, INC. has caused these
presents to be signed in its name and on its behalf by its ___________________
and its corporate seal to be hereunto affixed and attested by its Secretary on
this ____ day of May, 1996.
PACIFIC HORIZON FUNDS, INC.
[SEAL] By:________________________
Name:
Title:
Attest:
- ----------------------
W. Bruce McConnel, III
Secretary
-6-
<PAGE> 7
CERTIFICATE
THE UNDERSIGNED, ______________________ of PACIFIC HORIZON
FUNDS, INC., who executed on behalf of said Corporation the attached
Articles Supplementary of said Corporation, of which this Certificate
is made a part, hereby acknowledges, in the name and on behalf of said
Corporation, the attached Articles Supplementary to be the corporate
act of said Corporation, and certifies that to the best of his
knowledge, information and belief the matters and facts set forth in
the attached Articles Supplementary with respect to authorization and
approval are true in all material respects, under the penalties for
perjury.
Dated: May __, 1996 ________________________________
Name:
Title:___________________________
<PAGE> 1
EXHIBIT 1(aa)
ARTICLES SUPPLEMENTARY
OF
PACIFIC HORIZON FUNDS, INC.
PACIFIC HORIZON FUNDS, INC., a Maryland corporation having its
principal office in the City of Baltimore, Maryland (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
CLASS A COMMON STOCK - SPECIAL SERIES 4
FIRST: Pursuant to Section 2-208 of the Maryland General
Corporation Law, the Board of Directors of the Corporation has reclassified Four
(4) Billion, Four Hundred (400) Million (4,400,000,000) shares of authorized and
unissued capital stock of the Corporation previously classified as Class A
Common Stock-Special Series 2 (par value One Mill ($0.001) per share) as Class A
Common Stock -Special Series 4 (par value One Mill ($0.001) per share), such
that there now exists a total of Four (4) Billion, Four Hundred (400) Million
(4,400,000,000) shares of capital stock of the Corporation classified as Class A
Common Stock - Special Series 4 pursuant to the following resolution adopted by
the Board of Directors of the Corporation at the Regular Meeting of the Board of
Directors held on April 23, 1996:
RESOLVED, that pursuant to Article VI of the Articles of
Incorporation of the Corporation For Four Billion, Four Hundred Million
(4,400,000,000) authorized and unissued shares of capital stock of the
Corporation previously
<PAGE> 2
classified as Class A Common Stock-Special
Series 2 (of the par value of One Mill ($0.001) per share and of the
aggregate par value of Four Million, Four Hundred Thousand Dollars
($4,400,000.000)) be, and hereby are, divided into and reclassified as
Class A Common Stock - Special Series 4;
FURTHER RESOLVED, that all consideration received by the
Corporation for the issue or sale of shares of Class A Common Stock -
Special Series 4 shall be invested and reinvested with the
consideration received by the Corporation for the issue and sale of all
other shares now or hereafter designated as Class A Common Stock
(irrespective of whether said shares have been designated as Special
Series of said Class, and if so designated as Special Series,
irrespective of the particular Series designation), along with all
income, earnings, profits and proceeds thereof, including any proceeds
derived from the sale, exchange or liquidation thereof, any funds or
payments derived from any reinvestment of such proceeds in whatever
form the same may be, and any general assets of the Corporation
allocated to the shares of Class A Common Stock - Special Series 4 or
such other shares by the Board of Directors in accordance with the
Charter of the Corporation, and each share of Class A Common Stock -
Special Series 4 shall share equally with each such other share in such
consideration and other assets, income, earnings, profits and proceeds
thereof, including any proceeds derived from the sale, exchange or
liquidation thereof, and any assets derived from any reinvestment of
such proceeds in whatever form;
FURTHER RESOLVED, that each share of Class A Common Stock -
Special Series 4 shall be charged equally with each other share now or
hereafter designated as Class A Common Stock (irrespective of whether
said shares have been designated as part of a Special Series of said
Class and, if so designated as a part of a Special Series, irrespective
of the particular Series designation) with the expenses and liabilities
of the Corporation in respect of shares of Class A Common Stock -
Special Series 4 or such other shares and in respect of any general
expenses and liabilities of the Corporation allocated to shares of
Class A Common Stock - Special Series 4 or such other shares in
accordance with the Charter of the Corporation, except that:
(a) shares of Class A Common Stock - Special Series 4 shall
bear the expenses and liabilities relating to any agreements or
arrangements entered into by or on behalf of the Corporation pursuant
to which an organization or other person agrees to provide services
with respect to such Series but not with respect to shares of Class A
Common Stock (irrespective of whether said shares have been
-2-
<PAGE> 3
designated as part of a Special Series of said Class and, if so
designated as a part of a Special Series, irrespective of the
particular Series designation) other than Class A Common Stock -
Special Series 4, as well as any other expenses and liabilities
directly attributable to Class A Common Stock - Special Series 4 which
the Board of Directors determines should be borne solely by such
Series; and
(b) shares of Class A Common Stock - Special Series 4 shall
not bear the expenses and liabilities relating to any agreements or
arrangements entered into by or on behalf of the Corporation pursuant
to which an organization or other person agrees to provide services
with respect to other shares of Class A Common Stock (irrespective of
whether said shares have been designated as part of a Special Series of
said Class and, if so designated as a part of a Special Series,
irrespective of the particular Series designation) of the Corporation
but not with respect to Class A Common Stock - Special Series 4, as
well as any other expenses and liabilities directly attributable to
shares of Class A Common Stock other than Class A Common Stock -
Special Series 4 which the Board of Directors determines should be
borne solely by such other shares;
FURTHER RESOLVED, that each share of Class A Common Stock -
Special Series 4 shall otherwise have the same preferences, conversion
and other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption as
each other share now or hereafter designated as Class A Common Stock
(irrespective of whether said share has been designated as part of a
Special Series of said Class and, if so designated as part of a Special
Series, irrespective of the particular Series designation), except
that:
(a) on any matter that pertains to the agreements,
arrangements, expenses or liabilities described in clause (a) of the
immediately preceding resolution (or to any plan or other document
adopted by the Corporation relating to said agreements, arrangements,
expenses or liabilities) and is submitted to a vote of shareholders of
the Corporation, only shares of Class A Common Stock - Special Series 4
shall be entitled to vote, except that: (i) if said matter affects
shares of capital stock of the Corporation other than shares of Class A
Common Stock - Special Series 4, such other affected shares of capital
stock shall also be entitled to vote, and in such case shares of Class
A Common Stock - Special Series 4 shall be voted in the aggregate
together with such other affected shares and not by Class or Series
except where otherwise required by law or permitted by the Board of
Directors of the Corporation; and (ii) if said matter does not affect
shares of Class A Common Stock -
-3-
<PAGE> 4
Special Series 4, said shares shall not be entitled to vote (except
where otherwise required by law or permitted by the Board of
Directors) even though the matter is submitted to a vote of the
holders of shares of capital stock of the Corporation other than
shares of Class A Common Stock - Special Series 4; and
(b) on any matter that pertains to the agreements,
arrangements, expenses or liabilities described in clause (b) of the
immediately preceding resolution (or any plan or other document adopted
by the Corporation relating to said agreements, arrangements, expenses
or liabilities) and is submitted to a vote of shareholders of the
Corporation, shares of Class A Common Stock - Special Series 4 shall
not be entitled to vote, except where otherwise required by law or
permitted by the Board of Directors of the Corporation, and except that
if said matter affects shares of Class A Common Stock - Special Series
4, such shares shall be entitled to vote, and in such case shares of
Class A Common Stock - Special Series 4 shall be voted in the aggregate
together with all other shares of capital stock of the Corporation
voting on the matter and not by Class or Series except where otherwise
required by law or permitted by the Board of Directors.
GENERAL
SECOND: The shares of capital stock of the Corporation
reclassified pursuant to the resolutions set forth in Article FIRST of these
Articles Supplementary have been reclassified by the Corporation's Board of
Directors under the authority contained in the Charter of the Corporation.
THIRD: These Articles Supplementary do not increase the
authorized number of shares of the Corporation or the aggregate par value
thereof. The total number of shares of capital stock which the Corporation is
presently authorized to issue remains Two Hundred Billion (200,000,000,000)
shares (of the par value of One Mill ($.001) each) and of the aggregate par
value of Two Hundred Million Dollars ($200,000,000) of Common Stock classified
as follows:
-4-
<PAGE> 5
<TABLE>
<CAPTION>
Number of shares
Classification Authorized
- -------------- ----------
<S> <C>
Class A 10,000,000,000
Class A-Special Series 1 10,000,000,000
Class A-Special Series 2 10,000,000,000
Class A-Special Series 3 10,000,000,000
Class A-Special Series 4 4,400,000,000
Class B 10,000,000,000
Class B-Special Series 1 10,000,000,000
Class B-Special Series 2 18,000,000,000
Class B-Special Series 3 10,000,000,000
Class B-Special Series 4 10,000,000,000
Class C 250,000,000
Class D 400,000,000
Class D-Special Series 3 600,000,000
Class D-Special Series 5 50,000,000
Class E 100,000,000
Class E-Special Series 3 150,000,000
Class E-Special Series 5 50,000,000
Class F 100,000,000
Class F-Special Series 3 150,000,000
Class F-Special Series 5 50,000,000
Class G 100,000,000
Class G-Special Series 3 150,000,000
Class G-Special Series 5 50,000,000
Class I 1,500,000,000
Class I-Special Series 1 3,000,000,000
Class I-Special Series 2 3,000,000,000
Class J 1,000,000,000
Class J-Special Series 1 500,000,000
Class J-Special Series 2 500,000,000
Class J-Special Series 4 1,000,000,000
Class K 15,000,000,000
Class K-Special Series 1 15,000,000,000
Class K-Special Series 2 7,000,000,000
Class L 15,000,000,000
Class L-Special Series 1 15,000,000,000
Class L-Special Series 2 7,000,000,000
Class M 40,000,000
Class M-Special Series 3 60,000,000
Class M-Special Series 5 50,000,000
Class N 40,000,000
Class N-Special Series 3 60,000,000
Class N-Special Series 5 50,000,000
Class O 40,000,000
Class O-Special Series 3 60,000,000
Class O-Special Series 5 50,000,000
Class Q 40,000,000
Class Q-Special Series 3 60,000,000
Class Q-Special Series 5 50,000,000
</TABLE>
-5-
<PAGE> 6
<TABLE>
<CAPTION>
<S> <C>
Class R 40,000,000
Class R-Special Series 3 60,000,000
Class R-Special Series 5 50,000,000
Class S 40,000,000
Class S-Special Series 3 60,000,000
Class S-Special Series 5 50,000,000
Class T 40,000,000
Class T-Special Series 3 60,000,000
Class T-Special Series 5 50,000,000
Class U 40,000,000
Class U-Special Series 3 60,000,000
Class U-Special Series 5 50,000,000
Class V 40,000,000
Class V-Special Series 3 60,000,000
Class V-Special Series 5 50,000,000
Class W 40,000,000
Class W-Special Series 3 60,000,000
Class W-Special Series 5 50,000,000
Unclassified 9,400,000,000
</TABLE>
IN WITNESS WHEREOF, PACIFIC HORIZON FUNDS, INC. has caused these
presents to be signed in its name and on its behalf by its ___________________
and its corporate seal to be hereunto affixed and attested by its Secretary on
this ____ day of May, 1996.
PACIFIC HORIZON FUNDS, INC.
[SEAL] By:________________________
Name:
Title:
Attest:
- ----------------------
W. Bruce McConnel, III
Secretary
-6-
<PAGE> 7
CERTIFICATE
THE UNDERSIGNED, ____________________ of PACIFIC HORIZON
FUNDS, INC., who executed on behalf of said Corporation the attached
Articles Supplementary of said Corporation, of which this Certificate
is made a part, hereby acknowledges, in the name and on behalf of said
Corporation, the attached Articles Supplementary to be the corporate
act of said Corporation, and certifies that to the best of his
knowledge, information and belief the matters and facts set forth in
the attached Articles Supplementary with respect to authorization and
approval are true in all material respects, under the penalties for
perjury.
Dated: May , 1996 ________________________
Name:
Title:
<PAGE> 1
EXHIBIT 11 (A)
CONSENT OF COUNSEL
------------------
We hereby consent to the use of our name and to the reference
to our Firm under the caption "Counsel" in the Statements of Additional
Information that are included in Post-Effective Amendment No. 48 to the
Registration Statement (No. 2-81110) on Form N-1A under the Securities Act of
1933 and the Investment Company Act of 1940, as amended, of Pacific Horizon
Funds, Inc. This consent does not constitute a consent under section 7 of the
Securities Act of 1933, and in consenting to the use of our name and the
references to our Firm under such caption we have not certified any part of the
Registration Statement and do not otherwise come within the categories of
persons whose consent is required under said section 7 or the rules and
regulations of the Securities and Exchange Commission thereunder.
/s/ Drinker Biddle & Reath
--------------------------
DRINKER BIDDLE & REATH
Philadelphia, Pennsylvania
May 31, 1996
<PAGE> 1
EXHIBIT 11(B)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the reference to us under the heading
"Independent Accountants" in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 48 to the registration
statement on Form N-1A.
/s/Price Waterhouse LLP
- -----------------------
Price Waterhouse LLP
New York, New York
May 29, 1996
