<PAGE> 1
As filed with the Securities and Exchange Commission on February 7, 1997
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. 53 [x]
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 55 [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.
This Registration Statement has also been executed by Master Investment
Trust, Series I.
================================================================================
<PAGE> 3
PACIFIC HORIZON FUNDS, INC.
SRF Shares of the
Intermediate Bond (formerly, Flexible Bond) Fund, Blue Chip Fund and
Asset Allocation Fund
----------
Form N-1A Item Prospectus Caption
- -------------- ------------------
Part A
- ------
1. Cover Page............................. Cover Page
2. Synopsis............................... Expense Summary
3. Condensed Financial Information........ Financial Highlights;
....................................... Measuring Performance
4. General Description of Registrant...... Description of Shares; Cover
Page; Fund Investments; Other
Investment Practices;
Fundamental Limitations
5. Management of the Fund................. The Business of the Funds
5.A. Management's Discussion of
Fund Performance..................... *
6. Capital Stock and Other
Securities........................... Description of Shares; How to
Invest in SRF Shares -
Dividend and Distribution
Policies; Dividend and
Distribution Policies; Tax
Information
7. Purchase of Securities Being
Offered............................... How to Invest in SRF Shares;
The Business of the
Funds; Plan Payments;
Measuring Performance
8. Redemption or Repurchase............... Redemption of SRF Shares;
Plan Payments
9. Pending Legal Proceedings.............. *
* Item inapplicable or answer negative.
<PAGE> 4
PROSPECTUS
APRIL __, 1997
PACIFIC HORIZON INTERMEDIATE BOND FUND
PACIFIC HORIZON BLUE CHIP FUND
PACIFIC HORIZON ASSET ALLOCATION FUND
Investment Portfolios Offered by Pacific Horizon Funds, Inc.
This Prospectus applies to the SRF Shares of the Pacific Horizon Intermediate
Bond Fund, Pacific Horizon Blue Chip Fund and Pacific Horizon Asset Allocation
Fund (each a "Fund" and collectively the "Funds"), three diversified mutual
funds offered by Pacific Horizon Funds, Inc. (the "Company").
The PACIFIC HORIZON INTERMEDIATE BOND FUND, formerly the Flexible Bond Fund (the
"Intermediate Bond Fund"), is a diversified mutual fund whose investment
objective is to obtain interest income and capital appreciation. The
Intermediate Bond Fund seeks its objective by investing in investment grade
intermediate and longer term bonds, including corporate and governmental fixed
income obligations and mortgage-backed securities.
The PACIFIC HORIZON BLUE CHIP FUND (the "Blue Chip Fund") is a diversified
mutual fund whose investment objective is long-term capital appreciation through
investments in blue chip stocks.
The PACIFIC HORIZON ASSET ALLOCATION FUND (the "Asset Allocation Fund") is a
diversified mutual fund whose investment objective is to obtain long-term growth
from capital appreciation and dividend and interest income. The Asset Allocation
Fund seeks to achieve its objective by actively allocating investments among the
three major asset categories: bonds, equity securities and cash equivalents.
UNLIKE MOST OTHER INVESTMENT COMPANIES WHICH INVEST DIRECTLY IN PORTFOLIO
SECURITIES, THE INTERMEDIATE BOND AND BLUE CHIP FUNDS SEEK TO ACHIEVE THEIR
RESPECTIVE INVESTMENT OBJECTIVES BY INVESTING ALL THEIR INVESTABLE ASSETS IN
FUNDS OF AN OPEN-END, MANAGEMENT INVESTMENT COMPANY (THE "INTERMEDIATE BOND
MASTER PORTFOLIO" AND THE "BLUE CHIP MASTER PORTFOLIO," RESPECTIVELY;
COLLECTIVELY, THE "MASTER PORTFOLIOS" AND, TOGETHER WITH THE ASSET ALLOCATION
FUND, THE "PORTFOLIOS") HAVING THE SAME INVESTMENT OBJECTIVE AS THAT OF EACH OF
THE INTERMEDIATE BOND AND BLUE CHIP FUNDS, RESPECTIVELY. THE INTERMEDIATE BOND
AND BLUE CHIP FUNDS WILL PURCHASE SHARES OF THE RESPECTIVE MASTER PORTFOLIOS AT
NET ASSET VALUE. THE NET ASSET VALUES OF THE INTERMEDIATE BOND AND BLUE CHIP
FUNDS WILL RESPOND TO INCREASES AND DECREASES IN THE VALUE OF EACH RESPECTIVE
MASTER PORTFOLIO'S SECURITIES. INVESTORS SHOULD CAREFULLY CONSIDER THIS
INVESTMENT APPROACH. SEE "FUND INVESTMENTS--INVESTMENT OBJECTIVES AND POLICIES--
SPECIAL CONSIDERATIONS--MASTER-FEEDER STRUCTURE" ON PAGE __ FOR ADDITIONAL
INFORMATION REGARDING THIS STRUCTURE.
As of the date of this Prospectus, the Asset Allocation Fund also invests all of
its investable assets in a fund of an open-end, management investment company
(the "Asset Allocation Master Portfolio") having the same investment objective
as that of the Fund. Upon the consummation of the proposed reorganization of the
Bond, Blue Chip and Asset Allocation Funds of the Seafirst Retirement Funds into
the SRF Shares of the Pacific Horizon Funds on ____________, 1997 (the
"Reorganization Date"), the Asset Allocation Fund will withdraw its assets from
the Asset Allocation Master Portfolio and invest its assets directly in
portfolio securities. Accordingly, because the SRF Share class will not be sold
until the Reorganization Date, the description of the Asset Allocation Fund in
this Prospectus reflects its operation as a Fund which invests directly in
portfolio securities.
1
<PAGE> 5
SRF Shares are sold without a sales charge and are available for the investment
of retirement funds held in Eligible Retirement Accounts (as defined in "How to
Invest in SRF Shares - Eligibility for Admission" on page ___ of this
Prospectus). An individual for whose benefit an Eligible Retirement Account is
maintained, or who may be entitled to receive benefits from an Eligible
Retirement Account, is referred to as a "Participant."
SRF Shares of a Fund will automatically convert to A Shares of the same Fund on
the third anniversary of the Reorganization Date. A Shares of the Funds are
offered through separate prospectuses available from Retirement Services by
calling the phone number on the cover page of this Prospectus.
SRF Shares held in any Fund by an Eligible Retirement Account may be exchanged
for: 1) SRF Shares of any other Fund, 2) A Shares of any other taxable non-money
market investment portfolio offered by the Company or Time Horizon Funds (a
"Time Horizon Fund") without incurring the front-end sales charge otherwise
applicable on sales of A Shares or, 3) Pacific Horizon Shares of the Pacific
Horizon Prime Fund. See "How To Invest in SRF Shares - Exchange Privileges" on
page ___ of this Prospectus for additional exchange privileges and information.
The Funds are offered by the Company. Both the Company and Time Horizon Funds
are open-end, series management investment companies advised by Bank of America
National Trust and Savings Association ("Bank of America" or the "investment
adviser"). Based in San Francisco, California, Bank of America and its
affiliates have over $48 billion under management, including over $13 billion in
mutual funds.
This Prospectus describes concisely the information about the Funds and the
Company that you should know before investing. Please read it carefully and
retain it for future reference. More information about the Funds is contained in
a Statement of Additional Information that has been filed with the Securities
and Exchange Commission. To obtain a free copy, call 800-323-9919. The Statement
of Additional Information, as it may be revised from time to time, is dated
April__, 1997 and is incorporated by reference into this Prospectus.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus is part of a Registration Statement that has been filed with the
Securities and Exchange Commission ("SEC") in Washington, D.C. under the
Securities Act of 1933.
No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus, in the Statement
of Additional Information and in the Funds' official sales literature, in
connection with the offering of the Funds' shares and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or Concord Financial Group, Inc. ("CFG" or the "Distributor").
This Prospectus does not constitute an offer by the Funds or by the Distributor
to sell, or a solicitation of any offer to buy, any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful for the Funds or
the Distributor to make such offer in such jurisdiction.
Shares of the Funds 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
2
<PAGE> 6
Board or any other governmental agency. Investment in the Funds involves
investment risk, including the possible loss of principal.
3
<PAGE> 7
CONTENTS
EXPENSE SUMMARY
FINANCIAL HIGHLIGHTS
FUND INVESTMENTS
INVESTMENT OBJECTIVES AND POLICIES
Other Investment Practices
Fundamental Limitations
HOW TO INVEST IN SRF SHARES
Eligibility for Admission
Additional Contributions or
Transfers into Eligible Retirement
Accounts
Dividend and Distribution Policies
REDEMPTION OF SRF SHARES
EXCHANGE PRIVILEGES
AUTOMATIC CONVERSION
VALUATION OF SRF SHARES
THE BUSINESS OF THE FUNDS Fund Management
Service Providers
TAX INFORMATION
MEASURING PERFORMANCE
DESCRIPTION OF SHARES
PLAN PAYMENTS
APPENDIX A
DISTRIBUTOR: INVESTMENT ADVISER:
Concord Financial Group, Bank of America National Trust
Inc. and Savings Association
3435 Stelzer Road 555 California Street
Columbus, OH 43219-3035 San Francisco, CA 94104
4
<PAGE> 8
EXPENSE SUMMARY
SRF Shares of the Funds are offered through this Prospectus. SRF Shares of a
Fund will automatically convert to A Shares of the same Fund on the third
anniversary of the Reorganization Date. Because of this conversion feature,
certain information is provided in the Prospectus as to A Shares of the Funds.
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when buying or selling
shares of the Funds. SRF Shares are offered at net asset value without the
payment of any sales charge (see page __ of the Prospectus for an explanation of
net asset value per share). SRF Shares of a Fund will automatically convert to A
Shares of the same Fund on the third anniversary of the Reorganization Date. A
Shares of the Funds are offered at net asset value plus a front-end sales
charge. However, the front-end sales charge is not applicable to A Shares
purchased by Eligible Retirement Accounts.
ANNUAL FUND OPERATING EXPENSES include payments by the Funds and payments by the
respective Master Portfolios which are allocable to the Intermediate Bond Fund
and Blue Chip Fund. Operating expenses include fees for portfolio management,
maintenance of shareholder accounts, general administration, shareholder
servicing, accounting and other services.
Below is a summary of the shareholder transaction expenses imposed by the Funds
for SRF Shares and A Shares and the operating expenses (including the operating
expenses of the respective Master Portfolios which are allocable to the
Intermediate Bond Fund and Blue Chip Fund) expected to be incurred by SRF Shares
and A Shares of each Fund during the current fiscal year. The information with
respect to A Shares of the Funds has been restated to assume that current fees
had been in effect during the previous fiscal year. Actual expenses may vary. A
hypothetical example based on the summary is also shown.
<TABLE>
<CAPTION>
-----------------------------------------------------------------
SRF SHARES A SHARES
---------- --------
<S> <C> <C> <C> <C>
INTERMEDIATE BOND FUND
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) None 4.50%(1)
Sales Load Imposed on Reinvested Dividends None None
Maximum Contingent Deferred Sales Load
(as a percentage of offering price) None None
Redemption Fees None None
Exchange Fee None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees 0.50% 0.50%
All Other Expenses (After Fee Waivers 0.45% 0.40%
and expense reimbursements)(2)
Other Expenses (After Fee Waivers
and expense reimbursements)(2) 0.40% 0.40%
Shareholder Services Fee
(After Fee Waivers)(2) 0.05% 0%
Total Operating Expenses
(After Fee Waivers
and expense reimbursements)(2)(3) 0.95% 0.90%
===== =====
-----------------------------------------------------------------
<FN>
(1) There will be no sales load imposed on conversion of SRF Shares to A
Shares, and there is no sales load imposed on subsequent purchases of A
Shares in an Eligible Retirement Account.
</TABLE>
5
<PAGE> 9
(2) Absent fee waivers and expense reimbursements, "All Other Expenses" for
the Fund's SRF and A Shares would be 0.80% and 0.80%, respectively, of
average net assets (annualized); "Other Expenses" for the Fund's SRF
and A Shares would be 0.55% and 0.55%, respectively, of average net
assets (annualized) and "Total Operating Expenses" for the Fund's SRF
and A Shares would be 1.30% and 1.30%, respectively, of average net
assets (annualized). Absent fee waivers, "Shareholder Services Fees"
for SRF Shares and A Shares would be 0.25% (annualized) of average
daily net assets.
(3) Bank of America and The BISYS Group, Inc. ("BISYS") have agreed to
waive fees and reimburse expenses in such amounts as are necessary to
limit the expenses of the SRF Shares (including the pro rata share of
the expenses incurred by the Master Portfolio in which the Intermediate
Bond Fund invests) to 0.95% of the average daily net assets of the Fund
for the first two years after the Reorganization Date, and to limit
expenses to 1.05% of the average daily net assets for the third year
after the Reorganization Date. This limitation on expenses of the SRF
Shares will continue until such shares convert into A Shares.
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 AFTER
AFTER 1 YEAR AFTER 3 YEARS 5 YEARS 10 YEARS
------------ ------------- ------- --------
<S> <C> <C> <C> <C>
SRF Shares $ 10 $ 32(1) $ N/A $ N/A
A Shares(2) $ 54 $ 72 $ 93 $ 151
<FN>
(1) SRF Shares will convert to A Shares 3 years after the Reorganization Date.
(2) Assumes deduction at time of purchase of maximum applicable front-end
sales charge which does not apply to Eligible Retirement Accounts. Such
amounts would be $9, $29, $50 and $111 without deducting the front-end
sales charge.
</TABLE>
6
<PAGE> 10
<TABLE>
<CAPTION>
------------------------------------------------------------------
SRF SHARES A SHARES
---------- --------
<S> <C> <C> <C> <C>
BLUE CHIP FUND
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) None 4.50%(1)
Sales Load Imposed on Reinvested Dividends None None
Maximum Contingent Deferred Sales Load
(as a percentage of offering price) None None
Redemption Fees None None
Exchange Fee None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees 0.70% 0.70%
All Other Expenses (After Fee Waivers
and expense reimbursements)(2) 0.25% 0.47%
---- ----
Other Expenses (After Fee Waivers
and expense reimbursements)(2) 0.22% 0.22%
Shareholder Services Fee
(After Fee Waivers)(2) 0.03% 0.25%
Total Operating Expenses
(After Fee Waivers
and expense reimbursements)(2)(3) 0.95% 1.17%
===== =====
------------------------------------------------------------------
<FN>
(1) There will be no sales load imposed on conversion of SRF Shares to A
Shares and there is no sales load imposed on subsequent purchases of A
Shares in an Eligible Retirement Account.
(2) Absent fee waivers, "All Other Expenses" for the Fund's SRF Shares
would be 0.47% of average net assets (annualized); and "Total Operating
Expenses" for the Fund's SRF Shares would be 1.17% of average net
assets (annualized). Absent fee waivers, "Shareholder Services Fees"
for SRF Shares would be 0.25% (annualized) of average daily net assets.
(3) Bank of America and BISYS have agreed to waive fees and reimburse
expenses in such amounts as are necessary to limit the expenses of the
SRF Shares (including the pro rata share of the expenses incurred by
the Master Portfolio in which the Blue Chip Fund invests) to 0.95% of
the average daily net assets of the Fund for the first two years after
the Reorganization Date, and to limit expenses to 1.05% of the average
daily net assets for the third year after the Reorganization Date. This
limitation on expenses of the SRF Shares will continue until such
shares convert into A Shares.
</TABLE>
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 AFTER
AFTER 1 YEAR AFTER 3 YEARS 5 YEARS 10 YEARS
------------ ------------- ------- --------
<S> <C> <C> <C> <C>
SRF Shares $ 10 $ 32(1) $ N/A $ N/A
A Shares(2) $ 56 $ 80 $ 106 $ 181
<FN>
(1) SRF Shares will convert to A Shares 3 years after the Reorganization Date.
(2) Assumes deduction at time of purchase of maximum applicable front-end
sales charge which does not apply to Eligible Retirement Accounts. Such
amounts would be $12, $37, $64 and $142 without deducting the front-end
sales charge.
</TABLE>
7
<PAGE> 11
<TABLE>
<CAPTION>
-----------------------------------------------------------------
SRF SHARES A SHARES
---------- --------
<S> <C> <C> <C> <C>
ASSET ALLOCATION FUND
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) None 4.50%(1)
Sales Load Imposed on Reinvested Dividends None None
Maximum Contingent Deferred Sales Load
(as a percentage of offering price) None None
Redemption Fees None None
Exchange Fee None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees 0.55% 0.55%
All Other Expenses (After Fee Waivers
and expense reimbursements)(2) 0.40% 0.45%
----- -----
Other Expenses (After Fee Waivers
and expense reimbursements)(2) 0.20% 0.20%
Shareholder Services Fee
(After Fee Waivers)(2) 0.20% 0.25%
Total Operating Expenses
(After Fee Waivers
and expense reimbursements)(2)(3) 0.95% 1.00%
===== =====
-----------------------------------------------------------------
<FN>
(1) There will be no sales load imposed on conversion of SRF Shares to A
Shares and there is no sales load imposed on subsequent purchases of A
Shares in an Eligible Retirement Account.
(2) Absent fee waivers, "All Other Expenses" for the Fund's SRF Shares
would be 0.45% of average net assets (annualized) and "Total Operating
Expenses" for the Fund's SRF Shares would be 1.00% of average net
assets (annualized). Absent fee waivers, "Shareholder Services Fees"
for SRF Shares would be 0.25% (annualized) of average daily net assets.
(3) Bank of America and BISYS have agreed to waive fees and reimburse
expenses in such amounts as are necessary to limit the expenses of the
SRF Shares to 0.95% of the average daily net assets of the Fund for the
first two years after the Reorganization Date, and to limit expenses to
1.05% of the average daily net assets for the third year after the
Reorganization Date. This limitation on expenses of the SRF Shares will
continue until such shares convert into A Shares.
</TABLE>
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 AFTER
AFTER 1 YEAR AFTER 3 YEARS 5 YEARS 10 YEARS
------------ ------------- ------- --------
<S> <C> <C> <C> <C>
SRF Shares $ 10 $ 32(1) $ N/A $ N/A
A Shares(2) $ 55 $ 77 $101 $ 170
<FN>
(1) SRF Shares will convert to A Shares 3 years after the Reorganization Date.
(2) Assumes deduction at time of purchase of maximum applicable front-end
sales charge which does not apply to Eligible Retirement Accounts. Such
amounts would be $10, $32, $55 and $122 without deducting the front-end
sales charge.
</TABLE>
Note: The preceding operating expenses and examples 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.
8
<PAGE> 12
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 shareholder of the Funds.
MANAGEMENT FEES CONSIST OF:
o an investment advisory fee payable at the annual rate of 0.30%, 0.50%
and 0.40% of the Intermediate Bond Master Portfolio's, Blue Chip Master
Portfolio's and Asset Allocation Fund's respective average daily net
assets; and
o an administration fee payable at the annual rate of 0.15% and 0.05% of
the Intermediate Bond Fund's and the Intermediate Bond Master
Portfolio's respective average daily net assets, 0.15% and 0.05% of the
Blue Chip Fund's and the Blue Chip Master Portfolio's respective
average daily net assets, and 0.15% of the Asset Allocation Fund's
average daily net assets.
Currently, the most restrictive expense limitation limits each Fund's aggregate
annual expenses (including management fees and the Intermediate Bond Fund's and
Blue Chip Fund's pro rata share of such expenses of the particular Master
Portfolio) to 2.5% of the first $30 million of each Fund's average daily net
assets, 2% of the next $70 million and 1.5% of each Fund's remaining average
daily net assets.
The Board of Directors of the Company believes that the aggregate per share
expenses of the Intermediate Bond and Blue Chip Funds and the respective Master
Portfolios in which each Fund's assets are invested will be approximately the
same as the expenses which the particular Fund would incur if the Company
retained the services of an investment adviser for that Fund and the assets of
that Fund were invested directly in the type of securities held by its Master
Portfolio. Further, the Directors believe that the shareholders of the
Intermediate Bond and Blue Chip Funds may participate in the ownership of a
larger portfolio of securities than could be achieved directly by the
Intermediate Bond and Blue Chip Funds. There can be no assurance, however, that
such will be the case or that any economies of scale that might occur if other
investors acquire shares of the Intermediate Bond and Blue Chip Master
Portfolios will be realized.
9
<PAGE> 13
FINANCIAL HIGHLIGHTS
The tables below show certain information concerning the investment results of A
Shares of the Funds for the years and periods indicated. During the years and
periods shown, the Funds did not offer SRF Shares. Actual investment results of
the SRF Shares may be different. The information for the six-month period ended
August 31, 1996 is unaudited. The information for the years and periods ended on
or prior to February 29, 1996 was audited by Price Waterhouse LLP, the
independent accountants for the Funds, whose unqualified reports on the
financial statements containing such information are incorporated by reference
into the Statement of Additional Information.
For the years and periods shown, the Asset Allocation Fund operated as part of a
master feeder structure and invested all of its assets in the Asset Allocation
Master Portfolio which had an identical investment objective. On the
Reorganization Date, the Asset Allocation Fund will withdraw its investment in
the Asset Allocation Master Portfolio and begin investing its assets directly in
portfolio securities.
The Financial Highlights should be read in conjunction with the financial
statements and notes thereto and the unqualified report of independent
accountants thereon which are incorporated by reference into the Statement of
Additional Information. Further information about the performance of the Funds
is available in the annual and semi-annual reports to shareholders. The
Statement of Additional Information and the annual and semi-annual reports to
shareholders may be obtained free of charge by calling 800-323-9919.
10
<PAGE> 14
INTERMEDIATE BOND FUND
Selected data for an A Share of common stock outstanding throughout each of the
periods indicated:
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 24,
1994
FOR THE (COMMENCEMENT
SIX-MONTHS FOR THE YEAR FOR THE YEAR OF OPERATIONS)
ENDED ENDED ENDED THROUGH
AUGUST 31, 1996 FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
(UNAUDITED)* 1996 1995 1994
------------ ---- ---- ----
<S> <C> <C> <C> <C>
Net asset value per share, beginning
of period $ 9.75 $ 9.44 $ 9.81 $10.00
------- -------- -------- -----
Income from Investment Operations:
Net investment income 0.26 0.59 0.59 0.08
Net realized and unrealized gains
(losses) on securities (0.27) 0.33 (0.37) (0.19)
------- -------- -------- -----
Total income (loss) from
investment operations (0.01) 0.92 0.22 (0.11)
Less Dividends and Distributions:
Dividends to shareholders from net
investment income (0.26) (0.59) (0.59) (0.08)
Distributions to shareholders from
net realized gains on securities -- (0.02) -- --
------- -------- -------- -----
Total dividends and distributions (0.26) (0.61) (0.59) (0.08)
Net change in net asset value (0.27) 0.31 (0.37) (0.19)
------- -------- -------- -----
Net asset value per share, end
of period $ 9.48 $ 9.75 $ 9.44 $ 9.81
======= ======== ======== ======
Total Return** (0.10)% 10.45% 2.27% (1.10)%
Ratios/Supplemental Data:
Net assets, end of period (000) $14,792 $ 13,179 $ 1,964 $ 356
Ratio of expenses to average
net assets*** 0.75%+ 0.27% 0.00% 0.00%+
Ratio of net investment income to
average net assets*** 5.36%+ 6.13% 6.43% 5.70%+
<FN>
* As of July 22, 1996, the Fund designated the existing shares as "A"
shares.
** The total returns listed are not annualized for the periods ended
August 31, 1996 and February 28, 1994, and do not include the effect of
the maximum 4.50% sales charge on A Shares.
*** Reflects the Intermediate Bond Fund's proportionate share of the
Intermediate Bond Master Portfolio's expenses and fee waivers and expense
reimbursements by the Intermediate Bond Master Portfolio's investment
adviser and administrator and the Intermediate Bond Fund's administrator
and distributor. Such fee waivers and expense reimbursements had the
effect of reducing the ratio of expenses to average net assets and
increasing the ratio of net investment income to average net assets by
1.64%, 4.73%, 17.95% and 160.20% (annualized) for the periods ended
August 31, 1996, February 29, 1996, February 28, 1995 and February 28,
1994, respectively.
+ Annualized.
</TABLE>
11
<PAGE> 15
BLUE CHIP FUND
Selected data for an A Share of common stock outstanding throughout each of the
periods indicated:
<TABLE>
FOR THE PERIOD
JANUARY 13,
1994
(COMMENCEMENT OF
FOR THE SIX-MONTHS FOR THE FOR THE OPERATIONS)
ENDED YEAR ENDED YEAR ENDED THROUGH
AUGUST 31, 1996 FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
(UNAUDITED)* 1996 1995 1994
------------ ---- ---- ----
<S> <C> <C> <C> <C>
Net asset value per share,
beginning of period $ 20.53 $ 15.81 $ 14.97 $ 15.00
------- ------- ------- -------
Income from Investment Operations:
Net investment income 0.11 0.26 0.31 0.02
Net realized and unrealized
gains (losses) on securities 0.48 4.96 0.80 (0.05)
------- ------- ------- -------
Total gain (loss) from
investment operations 0.59 5.22 1.11 (0.03)
------- ------- ------- -------
Less Dividends and Distributions:
Dividends to shareholders from
net investment income (0.11) (0.28) (0.27) --
-------- ------- ------- -------
Distributions to shareholders
from net realized gains on
securities -- (0.22) -- --
------- ------- ------- -------
Total dividends and distributions (0.11) (0.50) (0.27) --
------- ------- ------- -------
Net change in net asset value 0.48 4.72 0.84 (0.03)
------- ------- ------- -------
Net asset value per share, end
of period $ 21.01 $ 20.53 $ 15.81 $ 14.97
======= ======= ======= =======
Total Return** 2.88% 33.39% 7.60% (0.20)%
Ratios/Supplemental Data:
Net assets, end of period (000) $ 95,163 $66,933 $ 6,002 $ 1,180
Ratio of expenses to average net
assets*** 1.27%+ 0.83% 0.00% 0.00%+
Ratio of net investment income
to average net assets*** 2.28%+ 1.63% 2.46% 2.92%+
<FN>
* As of July 22, 1996, the Fund designated the existing series of shares "A"
shares.
** The total returns listed are not annualized for the period ended August
31, 1996 and February 28, 1994, and do not include the effect of the
maximum 4.50% sales charge on A Shares.
*** Reflects the Blue Chip Fund's proportionate share of the Master
Portfolio's expenses, the Blue Chip Master Portfolio's fee waivers and
expense reimbursements by the Blue Chip Master Portfolio's investment
adviser and administrator and fee waivers and expense reimbursements by
the Blue Chip Fund's administrator and Distributor. Such fee waivers and
expense reimbursements had the effect of reducing the ratio of expenses to
average net assets and increasing the ratio of net investment income to
average net assets by 0.48%, 1.45%, 6.32% and 55.00% (annualized) for the
periods ended August 31, 1996, February 29, 1996, February 28, 1995 and
February 28, 1994, respectively.
+ Annualized.
</TABLE>
12
<PAGE> 16
ASSET ALLOCATION FUND
Selected data for an A Share of common stock outstanding throughout each of the
periods indicated:
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 18,
1994
FOR THE (COMMENCEMENT
SIX-MONTHS FOR THE YEAR FOR THE YEAR OF OPERATIONS)
ENDED ENDED ENDED THROUGH
AUGUST 31, 1996 FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
(UNAUDITED)* 1996 1995 1994
------------ ---- ---- ----
<S> <C> <C> <C> <C>
Net asset value per share, beginning
of period $ 17.52 $ 15.15 $14.84 $15.00
------- ------- ------ ------
Income from Investment Operations:
Net investment income 0.14 0.52 0.48 0.03
Net realized and unrealized gains
(losses) on securities 0.03 $ 2.86 0.24 (0.19)
------- ------- ------ ------
Total gain (loss) from investment
operations 0.17 $ 3.38 0.72 (0.16)
Less Dividends and Distributions:
Dividends to shareholders from net
investment income (0.13) (0.53) (0.41) --
Distributions to shareholders from
net realized gains on securities -- (0.48) -- --
------- ------- ------ ------
Total dividends and distributions (0.13) (1.01) (0.41) --
------- ------- ------ ------
Net change in net asset value 0.04 $ 2.37 0.31 (0.16)
------- ------- ------ ------
Net asset value per share, end
of period $ 17.56 $ 17.52 $15.15 $14.84
======= ======= ====== ======
Total Return** 1.55% 22.80% 5.03% (1.07)%
Ratios/supplemental data:
Net assets, end of period (000) $26,319 $22,355 $5,694 $ 666
Ratio of expenses to average
net assets*** 1.25%+ 0.62% 0.00% 0.00%+
Ratio of net investment income to
average net assets*** 2.62%+ 3.49% 4.25% 4.20%+
<FN>
* As of July 22, 1996, the Fund designated the existing series of shares as
"A" shares.
** The total returns listed are not annualized for the periods ended
August 31, 1996 and February 28, 1994, and do not include the effect of
the maximum 4.50% sales charge on A Shares.
*** Reflects the Asset Allocation Fund's proportionate share of the fee
waivers and expense reimbursements by the Asset Allocation Master
Portfolio's investment adviser and administrator and the Asset Allocation
Fund's administrator and distributor. Such fee waivers and expense
reimbursements had the effect of reducing the ratio of expenses to average
net assets and increasing the ratio of net investment income to average
net assets by 0.71%, 2.30%, 7.89% and 83.95% (annualized) for the periods
ended August 31, 1996, February 29, 1996, February 28, 1995 and
February 28, 1994, respectively.
+ Annualized.
</TABLE>
13
<PAGE> 17
FUND INVESTMENTS
INVESTMENT OBJECTIVES AND POLICIES
The Intermediate Bond and Blue Chip Funds seek to achieve their respective
investment objectives by investing all of their investable assets in their
respective Master Portfolios.
Because the investment characteristics of the Intermediate Bond ad Blue Chip
Funds will correspond to those of the respective Intermediate Bond an Blue Chip
Master Portfolios, the following is a discussion of the various investments of
and techniques employed by the Intermediate Bond and Blue Chip Master Portfolios
and the Asset Allocation Fund.
While each Master Portfolio and the Asset Allocation Fund strives to attain its
respective investment objective, there can be no assurance that it will be able
to do so.
THE INTERMEDIATE BOND FUND
The investment objective of the Intermediate Bond Fund is to obtain
interest income and capital appreciation through investment in investment grade
intermediate and longer-term bonds, which consist of corporate and governmental
fixed-income obligations, mortgage-backed securities, municipal securities and
cash equivalents. Assets of the Intermediate Bond Fund are invested in the
Intermediate Bond Master Portfolio, which has the same investment objective as
the Intermediate Bond Fund. Under normal circumstances, at least 65% of the
Intermediate Bond Master Portfolio's net assets will be invested in bonds.
Investment grade bonds are bonds that are rated within the four highest
ratings categories by a nationally recognized statistical rating organization,
i.e., BBB or better by Standard & Poor's Ratings Group, Division of McGraw Hill
("S&P"), Fitch Investors Service, Inc. ("Fitch") or Duff & Phelps Credit Rating
Co. ("Duff & Phelps") or Baa or better by Moody's Investors Service, Inc.
("Moody's"). (A description of applicable ratings is attached to the Statement
of Additional Information as Appendix A.) While bonds rated BBB or Baa are
regarded as having adequate capacity to pay interest and repay principal,
adverse economic conditions or changing circumstances could lead to a weakened
capacity to pay interest and repay principal. Bonds with the lowest investment
grade rating (i.e., BBB or Baa) do not have outstanding investment
characteristics and may have speculative characteristics as well. Unrated
securities will be purchased only if Bank of America determines that they are of
comparable quality to the rated securities in which the Intermediate Bond Master
Portfolio may invest. Corporate bonds will be diversified by investment in bonds
issued by different companies in different industries.
Under normal market and interest rate conditions, the investment
adviser expects that the Intermediate Bond Master Portfolio's average portfolio
duration generally will be approximately the same as the Lehman Brothers
Intermediate Government/Corporate Bond Index. This means that the Intermediate
Bond Fund's net asset value fluctuation is expected to be similar to the price
fluctuation of the Lehman Brothers Intermediate Government/Corporate Bond Index.
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). In addition, under
normal market and interest rate conditions, the investment adviser expects that
the Fund's average portfolio maturity will be between three and six years.
14
<PAGE> 18
Mortgage-backed securities, such as Government National Mortgage
Association ("GNMA"), Federal National Mortgage Association ("FNMA") and Federal
Home Loan Mortgage Corporation ("FHLMAC") securities, will be guaranteed as to
principal and interest, but not market value, by the U.S. Government or one of
its agencies or instrumentalities. The Intermediate Bond Master Portfolio will
not invest more than 35% of its net assets in mortgage-backed securities. There
is the risk that corporate bonds might be called by the issuer if the bond
interest rate is higher than currently prevailing interest rates. Similarly, a
risk associated with mortgage-backed securities is early paydown of principal
resulting from refinancing of the underlying mortgages. The rate of such
prepayments, and hence the life of the security, will primarily be a function of
current market rates. In periods of falling interest rates, the rate of
prepayments tends to increase. During such periods, the reinvestment of
prepayment proceeds will generally be at lower rates than the rates on the
prepaid obligations.
The Intermediate Bond Master Portfolio may invest in GNMA Certificates.
These are mortgage-backed debt securities representing fractional ownership of a
pool of mortgage loans. They are issued by lenders (such as savings and loan
associations, commercial banks and mortgage bankers) approved by the Federal
Housing Administration which meet criteria imposed by GNMA. The lender assembles
a specified pool of mortgage loans, all of which are insured by the Federal
Housing Administration or the Farmers' Home Administration, and applies to GNMA
for approval of the pool. Upon approval, GNMA provides its commitment to
guarantee timely payment of principal and interest on the GNMA certificates
secured by the mortgage loans in the pool.
GNMA Certificates usually bear a nominal rate of interest equal to the
effective rate on the mortgage loans in the pool less .5%, which is the fee
charged by the issuer and GNMA. The actual yield on the Intermediate Bond Master
Portfolio's investments, calculated by dividing the interest payments by the
purchase price for the GNMA Certificate, may differ significantly from the
nominal interest rate. This difference is due to variations in the lives of the
mortgages in the pool and to the impossibility of anticipating the effective
interest rate at which future principal payments might be reinvested.
GNMA Certificates have in the past provided higher yields than direct
investments in U.S. Treasury obligations, although there is no assurance they
will continue to do so in the future.
If mortgage loans in the pool are prepaid (because of either voluntary
prepayments, which are more likely during periods of falling interest rates, or
because of foreclosure), the principal payments are passed through to the
Certificate holders. Because of these prepayments, the life of a GNMA
Certificate may be substantially shorter than the time remaining until maturity
of the mortgages in the pool.
As opposed to bonds, where principal is normally returned in a lump sum
at maturity, the principal underlying a GNMA Certificate is paid back over the
life of the loan. The Intermediate Bond Master Portfolio will purchase GNMA
Certificates known as "modified pass-through" certificates, on which timely
payment of principal and interest is guaranteed. The Intermediate Bond Master
Portfolio may also purchase "variable rate" GNMA Certificates, which are backed
by pools of variable rate mortgages, as well as other types of Certificates that
are backed by GNMA's guarantee.
The Intermediate Bond Master Portfolio may also invest, from time to
time, in obligations issued by state and local governmental issuers ("Municipal
Securities"). The purchase of such securities may be advantageous when, as a
result of prevailing economic, regulatory or other circumstances, the
performance of such securities, on a pre-tax basis, is comparable to that of
corporate or
15
<PAGE> 19
U.S. Government obligations. Dividends received by shareholders which are
attributable to interest income received from Municipal Securities generally
will be subject to Federal income tax.
The two principal classifications of Municipal Securities which may be
held by the Intermediate Bond Master Portfolio are "general obligation"
securities and "revenue" securities. General obligation securities are secured
by the issuer's pledge of its full faith, credit and taxing power for the
payment of principal and interest. Revenue securities are payable only from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise tax or other specific revenue
source such as the user of the facility being financed. Private activity bonds
held by the Intermediate Bond Master Portfolio are in most cases revenue
securities and are not payable from the unrestricted revenues of the issuer.
Consequently, the credit quality of such private activity bonds is usually
directly related to the credit standing of the corporate user of the facility
involved.
The Intermediate Bond Master Portfolio may also include "moral
obligation" securities, which are normally issued by special purpose public
authorities. If the issuer of moral obligation securities is unable to meet its
debt service obligations from current revenues, it may draw on a reserve fund,
the restoration of which is a moral commitment but not a legal obligation of the
state or municipality which created the issuer.
Interest income is expected to be the primary basis for investment
return from an investment in the Intermediate Bond Master Portfolio and capital
appreciation the secondary basis. The Intermediate Bond Master Portfolio will
attempt to achieve capital appreciation by moderate market timing in response to
anticipated interest rate changes. The Intermediate Bond Master Portfolio will
also attempt to take advantage of undervalued sectors while selling bonds in
overvalued sectors. However, since investments will normally consist of bonds
and mortgage-backed securities, the ability to achieve capital appreciation is
limited.
The value of the securities held in the Intermediate Bond Master
Portfolio will tend to vary inversely with changes in prevailing interest rates.
When, in the evaluation of Bank of America, there is a high probability that
there will be a decline in the bond market, up to 75% of the net assets of the
Intermediate Bond Master Portfolio may be held in cash equivalents as a
temporary defensive strategy. To the extent that the Intermediate Bond Master
Portfolio invests in cash equivalents, it will not be invested in accordance
with the investment policies designed for it to realize its investment
objective. Cash equivalents include the following short-term, interest-bearing
instruments: obligations issued or guaranteed by the U.S. Government, its
agencies and instrumentalities, certificates of deposit, bankers' acceptances,
time deposits and other interest-bearing deposits issued by domestic and foreign
banks and foreign branches of U.S. banks, asset-backed securities, foreign
government securities and commercial paper issued by U.S. and foreign issuers
which is rated at the time of purchase at least Prime-2 by Moody's or A-2 by
S&P.
THE BLUE CHIP FUND
The investment objective of the Blue Chip Fund is long-term capital
appreciation through investment in blue chip stocks. Assets of the Blue Chip
Fund are invested in the Blue Chip Master Portfolio, which has the same
investment objective as the Blue Chip Fund. The Blue Chip Master Portfolio
invests substantially all of its assets in stocks included in either the Dow
Jones Industrial Average or the Standard & Poor's 500 Index. The Blue Chip
Master Portfolio will hold approximately 100 stocks. The Blue Chip Master
Portfolio expects that under normal market conditions at lest 80% of its net
assets will be invested in blue chip stocks and the other 20% may be invested in
16
<PAGE> 20
cash equivalent securities of the type permitted to be held by the Intermediate
Bond Master Portfolio (other than asset backed securities). The Blue Chip Master
Portfolio may make other investments as described more fully below under "Other
Investment Practices."
THE ASSET ALLOCATION FUND
The investment objective of the Asset Allocation Fund is to obtain
long-term growth from capital appreciation and dividend and interest income. The
Asset Allocation Fund seeks to achieve its objective through a balanced approach
to investment using bonds, equity securities and cash equivalents.
Investments in equity securities will generally be limited to common
stocks of the same type in which the Blue Chip Master Portfolio invests. Bonds
acquired by the Asset Allocation Fund will be the same type of investment grade
corporate and governmental obligations, mortgage-backed securities and Municipal
Securities acquired by the Intermediate Bond Master Portfolio. Unrated
securities will be purchased only if Bank of America determines they are of
comparable quality to the rated securities in which the Asset Allocation Fund
may invest. Cash equivalents are short-term, interest bearing instruments of the
type permitted to be held by the Intermediate Bond Master Portfolio. Under
normal market conditions at least 25% of the Asset Allocation Fund's total
assets will be invested in fixed-income senior securities and no more than 35%
of the Asset Allocation Fund's net assets will be invested in mortgaged-backed
securities. The Asset Allocation Fund may make other investments as described
more fully below under "Other Investment Practices."
SPECIAL CONSIDERATIONS
IN GENERAL. Monies invested in the Funds are not insured deposits and
are subject to certain risks. Since each of the Portfolios will invest in
different types of investments, investment risks will vary depending on the Fund
or Funds chosen by a Participant. Before investing, a Participant should assess
the risks associated with the types of investments made by the Intermediate Bond
and Blue Chip Master Portfolios and the Asset Allocation Fund.
MASTER-FEEDER STRUCTURE. The Intermediate Bond and Blue Chip Funds are
open-end investment portfolios that seek to achieve their respective investment
objectives by investing all of their investable assets in each Fund's respective
Master Portfolio which has the same investment objective. Such Funds may
withdraw their investment in the particular Master Portfolio at any time if the
Board of Directors of the Company determines that it is in the best interest of
a Fund to do so. Upon such withdrawal, the Board of Directors would consider
what action might be taken, including the investment of all of the assets of
that Fund in another pooled investment entity having the same investment
objective as the Fund or the hiring of an investment adviser to manage the
Fund's assets in accordance with the investment policies described above with
respect to its Master Portfolio. See "Expense Summary," "Fund Investments" and
"The Business of Funds - Fund Management" for a description of this investment
objective and the investment policies, restrictions, management and expenses of
the Intermediate Bond and Blue Chip Funds and their respective Master
Portfolios.
The Master Portfolios are separate series of Master Investment Trust, Series I
(the "Master Trust"), which is organized as a business trust under the laws of
Delaware. The Intermediate Bond and Blue Chip Funds and other entities that may
invest in the Master Portfolios from time to time (e.g., other investment
companies and commingled trust funds) will each be liable for all obligations of
their respective Master Portfolios. However, the risk of a Fund's incurring
financial loss on account of such liability is limited to circumstances in which
both inadequate insurance exists and a Master Portfolio itself is unable to meet
its obligations. Accordingly, the Company's Board of Directors believes that
17
<PAGE> 21
neither a Fund nor its shareholders will be adversely affected by reason of that
Fund's investing in the corresponding Master Portfolio. As stated below, the
investment objective of a Fund and the corresponding Master Portfolio is a
fundamental policy and may not be changed, in the case of a Fund, without the
vote of its shareholders or, in the case of the Master Portfolio, without the
vote of its interestholders. As with any mutual fund, other investors in the
Master Portfolio could control the results of voting at the Master Portfolio
level in certain instances (e.g. a change in fundamental policies by the Master
Portfolio which was not approved by the Fund's shareholders). This could result
in a Fund's withdrawal of its investment in the Master Portfolio, and in
increased costs and expenses for the Fund. Further, the withdrawal of other
entities that may from time to time invest in the Master Portfolio could have an
adverse effect on the performance of the Master Portfolio and its corresponding
Fund, such as decreased economies of scale and increased per share operating
expenses. In addition, the total withdrawal by another investment company as an
investor in a Master Portfolio will cause the Master Portfolio to terminate
automatically in 120 days unless a Fund and any other investors in that Master
Portfolio unanimously agree to continue the business of the Master Portfolio. If
unanimous agreement is not reached to continue the Master Portfolio, the Board
of Directors of the Company would need to consider alternative arrangements for
that Fund, such as those described above. When a Fund is required to vote as a
shareholder of a Master Portfolio, current regulations provide that in those
circumstances a Fund may either seek instructions from its security holders with
regard to the voting of such proxies and vote such proxies in accordance with
such instructions, or the Fund may vote its shares in the Master Portfolio in
the same proportion of all other security holders in the Master Portfolio. The
policy of the Intermediate Bond and Blue Chip Funds, and other similar
investment companies, to invest their investable assets in trusts such as the
Master Portfolios is a relatively recent development in the mutual fund industry
and, consequently, there is a lack of substantial experience with the operation
of this policy.
There may also be other investment companies through which you can invest in a
Master Portfolio which may have higher or lower fees and expenses than those of
its corresponding Fund and which may therefore have different performance
results than that Fund. Information concerning whether an investment in a Master
Portfolio may be available through another entity investing in a Master
Portfolio may be obtained by calling 800-323-9919.
PORTFOLIO TRANSACTIONS. Investment decisions for the Portfolios 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 a Portfolio.
When a purchase or sale of the same security is made at substantially the same
time on behalf of a Portfolio and another investment company or account,
available investments or opportunities for sales will be equitably allocated
pursuant to procedures of Bank of America. In some instances, this investment
procedure may adversely affect the price paid or received by a Portfolio or the
size of the position obtained or sold by the Portfolio.
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 shares of the Funds by broker-dealers and other
financial institutions (including affiliates of Bank of America and the Funds'
distributor to the extent permitted by law), provided it believes the quality of
the transaction and the price to the particular Portfolio are not less favorable
than what they would be with any other unaffiliated qualified firm.
18
<PAGE> 22
PORTFOLIO TURNOVER. The Intermediate Bond Master Portfolio's and the
Asset Allocation Fund's investment practices may result in portfolio turnover
greater than that of other mutual fund portfolios. 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 payment of more dealer mark-ups and mark-downs than
would otherwise be the case. Higher portfolio turnover rates can also result in
corresponding increases in brokerage commissions and other transaction costs.
The investment adviser will not consider portfolio turnover a limiting factor in
making investment decisions for the Portfolios consistent with its investment
objective and policies.
Since all SRF shareholders are tax exempt, no significant tax
consequences result from portfolio turnover.
OTHER INVESTMENT PRACTICES
SECURITIES ISSUED BY BANK OF AMERICA AND AFFILIATES. A Portfolio may
not invest in instruments or securities issued by Bank of America or any of its
affiliates.
OPTIONS. A Portfolio may purchase put and call options on listed
securities and stock indexes so long as the aggregate premiums paid for options
does not exceed 2% of the net assets of the Portfolio (this restriction does not
apply to options on futures contracts). Put options may be purchased in order to
protect a Portfolio's securities in expectation of a declining market and call
options may be purchased to benefit from anticipated price increases in the
underlying securities or index. A Portfolio may not write put options but may
write fully covered call options as long as the Portfolio remains fully covered
throughout the life of the option, either by owning the optioned securities or
possessing a call issued by another writer that is identical in all respects to
the call written by the Portfolio.
FUTURES. The Asset Allocation Fund may purchase and sell both interest
rate and stock index futures contracts (as well as purchase related options) as
a hedge against anticipated fluctuations or changes resulting from relevant
market conditions in the values of the securities held by the Fund or which it
intends to purchase and where the transactions are economically appropriate for
the reduction of risks inherent in the ongoing management of the Fund.
Similarly, the Intermediate Bond Master Portfolio may purchase and sell interest
rate futures contracts (as well as purchase related options) and the Blue Chip
Master Portfolio may purchase and sell stock index 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
or stock index (which assigns relative values to the common stocks included in
the index) at the close of the last trading day of the contract and the price at
which the futures contract is originally struck. No physical delivery of the
underlying securities is normally made. A Portfolio may not purchase or sell a
futures contract and purchase related options unless immediately after any such
transaction 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 Portfolio's total assets (after taking into account certain technical
adjustments).
VARIABLE RATE INSTRUMENTS. A Portfolio may invest in variable and
floating rate instruments, which may include master demand notes. Although
payable on demand of the investing Portfolio, master demand notes may not be
marketable.
19
<PAGE> 23
Consequently, the ability to redeem such notes depends on the borrower's ability
to pay, which will be continuously monitored by Bank of America. Such notes will
be purchased only from domestic corporations that either: (a) are rated Aa or
better by Moody's or AA or better by S&P; (b) have commercial paper rated at
least Prime-2 by Moody's or A-2 by S&P or the equivalent by another nationally
recognized statistical rating organization ("NRSRO"); (c) are backed by a bank
letter of credit; or (d) are determined by Bank of America to be of a quality
comparable to securities described in either clause (a) or (b).
INVESTMENT COMPANY SECURITIES. In connection with the management of its
daily cash position, the Portfolios may invest in securities issued by other
investment companies which invest in short-term debt securities and which seek
to maintain a $1.00 net asset value per share (i.e., "money market funds")
(including money market funds advised by Bank of America). No more than 10% of
the value of each Portfolio's total assets will be invested in securities of
other investment companies, with no more than 5% invested in the securities of
any one investment company; except that, with respect to the investment in a
money market mutual fund advised by Bank of America, a Portfolio is permitted to
invest the greater of 5% of its net assets or $2.5 million. In addition, the
Portfolios may each hold no more than 3% of the outstanding voting stock of any
other investment company. As a shareholder of another investment company, a
Portfolio would bear, along with other shareholders, its pro rata portion of the
other investment company's expenses, including advisory fees.
REPURCHASE AGREEMENTS. A Portfolio may enter into repurchase
agreements. Under these agreements, the Portfolio will acquire securities from
either a bank which has a commercial paper rating of A-2 or better by S&P or
Prime-2 or better by Moody's, or the equivalent by another NRSRO, or a
registered broker-dealer, and the seller will agree to repurchase such
securities within a specified time at a fixed price (equal to the purchase price
plus interest). Repurchase agreements are considered to be loans under the
Investment Company Act of 1940 (the "1940 Act"). Repurchase agreements maturing
in more than seven days are considered to be illiquid investments and investment
in such repurchase agreements along with any other illiquid securities will not
exceed 10% of the value of the net assets of a Portfolio. Repurchase agreements
will be entered into only for debt obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, certificates of deposit, bankers'
acceptances or commercial paper, and either the particular Portfolio's custodian
or its agent will have physical possession of the securities or the securities
will be transferred to such Portfolio's custodian, by appropriate entry in the
Federal Reserve Bank's records and, in either case, will be maintained in a
segregated account.
Bank of America will monitor the value of securities acquired under
repurchase agreements to ensure that the value of such securities will always
equal or exceed the repurchase price under the repurchase agreement. If the
other party to a repurchase agreement defaults, a Portfolio may incur a loss if
the value of the securities securing the repurchase agreement declines and might
incur disposition costs in connection with liquidating the securities. In
addition, if bankruptcy proceedings are commenced with respect to the seller,
realization upon the securities collateralizing the repurchase agreement by the
Portfolio may be delayed or denied.
REVERSE REPURCHASE AGREEMENTS. A Portfolio may enter into reverse
repurchase agreements. Under these arrangements, the Portfolio will sell a
security held by the Portfolio to either a bank which has a commercial paper
rating of A-2 or better by S&P or Prime-2 or better by Moody's, or the
equivalent by another NRSRO, or a registered broker-dealer, with an agreement to
repurchase the security at an agreed date, price and interest payment. Reverse
repurchase agreements involve the possible risk that the value of portfolio
securities a Portfolio relinquishes may decline below the price the Portfolio
must pay when
20
<PAGE> 24
the transaction closes. Reverse repurchase agreements are considered to be
borrowings under the 1940 Act. Borrowings may magnify the potential for gain or
loss on amounts invested resulting in an increase in the speculative character
of a Portfolio's outstanding shares.
SECURITIES LENDING. In order to earn additional income, a Portfolio may
lend its portfolio securities to broker-dealers that Bank of America considers
to be of good standing. Borrowers of portfolio securities may not be affiliated
directly or indirectly with the Company or the particular Portfolio. If the
broker-dealer should become bankrupt, however, the Portfolio could experience
delays in recovering its securities. A securities loan will be made only when,
in Bank of America's judgment, 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 a Portfolio exceeds 10% of its total assets.
Securities loans will be fully collateralized.
ASSET-BACKED SECURITIES. The Intermediate Bond Master Portfolio and the
Asset Allocation Fund may purchase asset-backed securities. Asset-backed
securities consist of undivided fractional interests in pools of consumer loans
(unrelated to mortgage loans) or receivables held in a trust. Examples include
certificates for automobile receivables (CARS) and credit card receivables
(CARDS). Payments of principal and interest on the loans or receivables are
passed through to certificate holders. Asset-backed securities may be issued by
either governmental or non-governmental entities. Payment on asset-backed
securities of private issuers is typically supported by some form of credit
enhancement, such as a letter of credit, surety bond, limited guaranty, or
subordination. The extent of credit enhancement varies, but usually amounts to
only a fraction of the asset-backed security's par value until exhausted.
Ultimately, asset-backed securities are dependent upon payment of consumer loans
or receivables by individuals, and the certificate holder generally has no
recourse to the entity that originated the loan or receivables. The underlying
loans or receivables may be prepaid with the result of shortening the
certificates' weighted average life. Prepayment rates vary widely and may be
affected by changes in market interest rates. It is not possible to accurately
predict the average life of a particular pool of loans or receivables. The
proceeds of prepayments received by a Portfolio must be reinvested in securities
whose yields reflect interest rates prevailing at the time. Thus, the
Portfolio's ability to maintain a portfolio which includes high-yielding
asset-backed securities will be adversely affected to the extent reinvestments
are in lower yielding securities. The actual maturity and realized yield will
therefore vary based upon the prepayment experience of the underlying pool of
loans or receivables and prevailing interest rates at the time of prepayment.
Asset-backed securities may be subject to greater risk of default during periods
of economic downturn than other instruments. Also, while the secondary market
for asset-backed securities is ordinarily quite liquid, in times of financial
stress the secondary market may not be as liquid as the market for other types
of securities, which could result in a Portfolio experiencing difficulty in
valuing or liquidating such securities.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. The Intermediate Bond
Master Portfolio and Asset Allocation Fund may purchase securities on a
"when-issued" basis and may purchase or sell securities on a "forward
commitment" basis. These transactions, which involve a commitment by a Portfolio
to purchase or sell particular securities with payment and delivery taking place
at a future date (perhaps one or two months later), permit the Portfolio to lock
in a price or yield on a security, regardless of future changes in interest
rates. When-issued and forward commitment 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 Intermediate Bond Master Portfolio and Asset
Allocation Fund will set aside in a segregated account cash or liquid securities
equal to the purchase price of any when-issued or forward commitment
21
<PAGE> 25
transactions. A Portfolio's when-issued purchases and forward commitments will
not exceed 25% of the value of such Portfolio's total assets absent unusual
market conditions. The Intermediate Bond Master Portfolio and Asset Allocation
Fund intend to engage in when-issued purchases and forward commitments only in
furtherance of their respective investment objectives and not for speculative
purposes.
FOREIGN SECURITIES. Subject to its investment objective and policies, a
Portfolio may invest up to 25% of its net assets (at the time of purchase) in
securities of foreign issuers that may or may not be publicly traded in the
United States, such as Yankee bonds (dollar-denominated bonds sold in the United
States by non-U.S. issuers) and Eurobonds (bonds issued in a country and
sometimes a currency other than the country of the issuer). The Portfolios
purchasing these securities may be subjected to additional risks associated with
the holding of property abroad, such as future political and economic
developments, currency fluctuations, possible withholding of tax payments,
possible seizure or nationalization of foreign assets, possible establishment of
currency exchange control regulations or the adoption of other foreign
government restrictions that might adversely affect the payment of principal or
interest on foreign securities in a Portfolio. In addition, securities of some
foreign companies are less liquid, and their prices more volatile than domestic
companies, there may be less publicly available information about foreign
companies, and foreign companies are not generally subject to uniform
accounting, auditing and financial reporting standards, practices and
requirements comparable to those applicable to domestic companies.
22
<PAGE> 26
FUNDAMENTAL LIMITATIONS
The investment objective of each Fund and Master Portfolio may not be changed
without a vote by the holders of a majority of the outstanding shares of the
Fund or of the outstanding interests of the Master Portfolio, respectively, as
defined in the 1940 Act. Policies requiring such a vote to effect a change are
known as "fundamental." A number of the other fundamental investment limitations
are summarized below.
Neither the Funds nor the Master Portfolios may:
1. Purchase securities (except securities issued by the U.S. Government, its
agencies or instrumentalities) if, as a result, more than 5% of its total
assets will be invested in the securities of any one issuer or it would
own more than 10% of the voting securities of such issuer, except that up
to 25% of its total assets may be invested without regard to these
limitations; and provided that all of its assets may be invested in a
diversified, open-end management investment company, or a series thereof,
with substantially the same investment objectives, policies and
restrictions without regard to the limitations set forth in this
paragraph;
2. Make loans to other persons, except that it may make time or demand
deposits with banks, provided that time deposits shall not have an
aggregate value in excess of 10% of its net assets, and may purchase
bonds, debentures or similar obligations that are publicly distributed,
may loan portfolio securities not in excess of 10% of the value of its
total assets, and may enter into repurchase agreements as long as
repurchase agreements maturing in more than seven days do not exceed 10%
of the value of its total assets; or
3. Purchase or sell commodities contracts, except that it may purchase or
sell futures contracts on financial instruments, such as bank certificates
of deposit and U.S. Government securities, foreign currencies and stock
indexes and options on any such futures if such options are written by
other persons and if (i) the futures or options are listed on a national
securities or commodities exchange, (ii) the aggregate premiums paid on
all such options that are held at any time do not exceed 20% of its total
net assets, and (iii) the aggregate margin deposits required on all such
futures or options thereon held at any time do not exceed 5% of its total
assets.
If a percentage restriction is satisfied at the time of investment, a later
increase or decrease in percentage resulting from a change in values will not
constitute a violation of that restriction.
A complete list of fundamental investment limitations is set out in full in the
Statement of Additional Information.
23
<PAGE> 27
HOW TO INVEST IN SRF SHARES
ELIGIBILITY FOR ADMISSION
Only Eligible Retirement Accounts are qualified to invest in SRF
Shares. Eligible Retirement Accounts are accounts which were open prior to the
Reorganization Date, have remained open continuously since that date and meet
one of the following descriptions:
-- Individual Retirement Accounts ("IRAs") that are exempt under
Section 408(e) and are maintained in conformity with
Section 408(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), including a) rollover accounts and Simplified Employee
Pension Plans ("SEP Plans") for which Seafirst Bank ("Seafirst"), a
division of Bank of America, or one of its affiliates, serves as
custodian or b) IRAs opened after the Reorganization Date under a
SEP Plan that was open as of the Reorganization Date and has
remained open continuously since that date ("Eligible IRAs"), and
-- Qualified pension or profit sharing trusts that are exempt under
Section 501(a) and that are maintained in conformity with
Section 401(a) of the Code, including a) corporate pension or
profit-sharing trusts, b) pension or profit sharing trusts
benefiting one or more self-employed individuals (generally referred
to as H.R. 10 or Keogh plans), or c) accounts opened for new
participants in a qualified pension or profit-sharing trust that was
open as of the Reorganization Date and has remained open
continuously since that date ("Eligible Pension or Profit Sharing
Trusts").
Maintenance of Eligible Retirement Account status is a prerequisite to
all transactions with the Company described below with respect to SRF Shares.
ADDITIONAL CONTRIBUTIONS OR TRANSFERS INTO ELIGIBLE RETIREMENT ACCOUNTS
Additional contributions or transfers into an Eligible Retirement
Account can be made by using a form available from any Bank of America or
Seafirst branch or by calling 1-800-323-9919 in Washington and Alaska, or
1-800-441-8379 in Idaho. The completed form can be returned in person at any
branch or be mailed in Washington to Retirement Services, P.O. Box 84248,
Seattle, Washington 98124, in Idaho to Retirement Services, P.O. Box 6900, Coeur
d'Alene, Idaho 83814-2002, or in Alaska to Retirement Services, P.O. Box 107007,
Anchorage, Alaska 99510-7007.
There is no minimum requirement for additional contributions or
transfers. All assets will be invested in full and fractional SRF Shares at a
purchase price equal to the net asset value per share determined at the next
close of regular trading on the New York Stock Exchange (the "Exchange")
(currently, 4:00 p.m. Eastern time) following receipt by the Company of a
shareholder's satisfactorily completed investment instructions and payment. See
"Valuation of Shares." Investments are subject to determination by the Company
that the investment instruction form has been properly completed.
Because SRF Shares are not transferable, certificates representing
shares will not be issued. All SRF Shares purchased are confirmed by mail to the
shareholder and are credited to the account of the shareholder on the Company's
books. The Company reserves the right in its sole discretion to (i) suspend the
availability of its SRF Shares and (ii) reject investment instructions when, in
the judgment of the Board of Directors, such suspension or rejection is in the
best interest of the Company.
24
<PAGE> 28
Each Fund's SRF Shares are sold on a continuous basis by the
Distributor. The Distributor is an indirect wholly owned subsidiary of BISYS,
and is located at 3435 Stelzer Road, Columbus, OH 43219.
DIVIDEND AND DISTRIBUTION POLICIES
Shareholders of the Intermediate Bond Fund and Blue Chip Fund are
entitled to dividends and distributions arising from the net investment income
and net realized gains, if any, earned on investments in the corresponding
Master Portfolio that are allocable to each Fund. Dividends from the
Intermediate Bond Fund's net investment income are declared daily and paid
within five business days after the end of each month. Dividends from the Blue
Chip Fund's and Asset Allocation Fund's net investment income are declared
quarterly and paid within five business days after the quarter end. A Fund's net
realized capital gains (if any) are distributed at least annually. Dividends and
capital gain distributions are automatically reinvested in additional SRF Shares
of the Fund for which the dividend or distribution was declared.
REDEMPTION OF SRF SHARES
All or a portion of the SRF Shares held in a Fund can be redeemed
(sold) at any time. Redemptions may be effected by writing in Washington to
Retirement Services, P.O. Box 84248, Seattle, Washington 98124, in Idaho to
Retirement Services, P.O. Box 6900, Coeur d'Alene, Idaho 83814-2002 or in Alaska
to Retirement Services, P.O. Box 107007, Anchorage, Alaska 99510-7007.
The redemption price will be the net asset value per share next
determined following receipt by the Company of a shareholder's satisfactorily
completed instructions. See "Valuation of SRF Shares." The value of an SRF Share
upon redemption may be more or less than the value when purchased, depending
upon the net asset value of an SRF Share of the Fund at the time of the
redemption. Redemptions are subject to determination by the Company that the
investment instruction form or the redemption request and other distribution
documents, if any, are complete. While payment for SRF Shares redeemed normally
will be made in cash, if conditions exist making payment in cash undesirable,
the Company may make payment for the SRF Shares redeemed wholly or partly in
securities or other property of the Fund.
Payment for SRF Shares redeemed will normally be made to the custodian
of the shareholder within one business day of receipt by the Company of
redemption instructions, but in no event will payment be made more than seven
days after receipt of redemption instructions except in the circumstances
described below. The payment may be delayed or the right of redemption suspended
at a time when (a) trading on the Exchange is restricted or the Exchange is
closed, for other than customary weekends and holidays, (b) an emergency, as
defined by rules of the Securities and Exchange Commission, exists making
disposal of portfolio securities or determination of the value of the net assets
of the Fund not reasonably practicable, or (c) the Securities and Exchange
Commission has by order permitted such suspension.
EXCHANGE PRIVILEGES
The following exchange privileges are available for Eligible Retirement
Accounts:
1. SRF Shares held in any Fund may be exchanged for SRF Shares of any
other Fund;
2. SRF Shares held in any Fund may be exchanged for A Shares in any other
taxable, non-money market fund offered by the Company or a Time Horizon
25
<PAGE> 29
Fund without incurring the front-end sales charge otherwise applicable
on sales of A Shares ("Eligible Exchange Shares");
3. SRF Shares or Eligible Exchange Shares may be exchanged for Pacific
Horizon Shares of the Pacific Horizon Prime Fund;
4. Eligible Exchange Shares may be further exchanged for A Shares in any
taxable, non-money market fund offered by the Company or a Time Horizon
Fund without incurring the front-end sales charges otherwise
applicable, or for SRF Shares offered by a Fund; and
5. SRF Shares or Eligible Exchange Shares held in an IRA account for which
a Participant's surviving spouse is the beneficiary may continue to be
exchanged for SRF Shares or A Shares as described above.
The following transactions are examples of transactions that will
interrupt the maintenance of Eligible Retirement Account status for a
Participant's account and will terminate the account's ability to engage in the
exchange privileges described above.
1. SRF Shares or Eligible Exchange Shares held in an Eligible Pension or
Profit Sharing Trust or a SEP IRA, which are transferred by the
Participant into a personal rollover IRA, will no longer be eligible to
exchange such shares for A Shares without incurring the front-end sales
load applicable to A Shares; and
2. SRF Shares or Eligible Exchange Shares held in an IRA account for which
a Participant's surviving beneficiary upon transfer out of the
decedent's account is other than the Participant's spouse will no
longer be eligible to exchange such shares for A Shares without
incurring the front-end sales load applicable to A Shares.
3. SRF Shares or Eligible Exchange Shares which are liquidated in their
entirety by the Participant into a Certificate of Deposit will no
longer be eligible to exchange such shares for A Shares without
incurring the front-end sales load applicable to A Shares.
Exchanges may be effected by phone or by writing in Washington to
Retirement Services, P.O. Box 84248, Seattle, Washington 98124, in Idaho to
Retirement Services, P.O. Box 6900, Coeur d'Alene, Idaho 83814-2002, or in
Alaska to Retirement Services, P.O. Box 107007, Anchorage, Alaska 99510-7007. To
make an exchange by phone, call 1-800-323-9919 in Washington and Alaska, or
1-800-441-8379 in Idaho.
The Company may act upon the instruction of any person, by telephone,
representing himself or herself to be a shareholder and reasonably believed by
the Company 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 a
Shareholder should experience difficulty in contacting the Company to place
telephone exchanges, for example, because of unusual market activity,
shareholders are urged to consider sending exchange requests in writing. Calls
may be recorded for the shareholder's protection. As a result of this telephone
exchange policy, the shareholder will bear the risk of loss, if any, resulting
from telephone instructions of a person reasonably believed to be a shareholder.
During times of severe market or economic changes, telephone exchanges may be
difficult to implement. Therefore, it is recommended that you send your exchange
requests in writing.
26
<PAGE> 30
Any exchange will be based on the respective net asset values of the
shares involved next determined after receipt by the Company of a shareholder's
instructions for an exchange, subject to any applicable front-end sales load as
discussed above.
The Company 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.
AUTOMATIC CONVERSION
SRF shares of a Fund will automatically convert to A Shares of the same
Fund on the third anniversary of the Reorganization Date. The conversion from
SRF Shares to A Shares will take place at net asset value, as a result of which
a shareholder will receive the same value of A Shares of a Fund as the
shareholder had of SRF Shares.
VALUATION OF SRF SHARES
Net asset value per share is determined separately for each class of
shares of a Fund by dividing the total value of the assets of the Fund
attributable to a particular class of shares, less any liabilities of the Fund
attributable to such class, by the number of outstanding shares of the class.
Net asset value is determined as of the end of regular trading hours on the
Exchange (currently 4:00 p.m., Eastern time) on days the Exchange is open, or at
such other time as may be determined by the Board of Directors each day on which
such value must be determined in accordance with the 1940 Act.
The Master Portfolios' and the Asset Allocation 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 Master Portfolios or Asset
Allocation Fund, as appropriate, pursuant to procedures adopted by the Master
Portfolios' Board of Trustees or the Asset Allocation Fund'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.
27
<PAGE> 31
THE BUSINESS OF THE FUNDS
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 and about the Trustees and Officers of the Master
Trust is included in the Statement of Additional Information under "Management."
SERVICE PROVIDERS
-----------------
INVESTMENT ADVISER
Bank of America serves as Investment Adviser of the Portfolios. Bank of America
is a subsidiary of BankAmerica Corporation, a registered bank holding company.
Its principal offices are located at 555 California Street, San Francisco,
California 94104.
Formed in 1904, Bank of America is a national banking association that provides
commercial banking and trust business through an extensive system of branches
across the western United States. Bank of America's principal banking affiliates
operate branches in ten U.S. states as well as corporate banking, business
credit and thrift offices in major U.S. cities. In addition, it has branches,
corporate offices and representative offices in 36 foreign countries.
In separate advisory agreements with the Master Trust and the Company
(collectively, the "Advisory Agreements"), Bank of America has agreed to manage
the Portfolios' investments and to be responsible for, place orders for, and
make decisions with respect to, all purchases and sales of the Portfolios'
securities. The investment advisory agreements also provide 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; and employ a sub-adviser provided that
Bank of America remains fully responsible to the Portfolios for the acts and
omissions of the sub-adviser.
Since March 1996, portfolio management services for the Intermediate Bond Master
Portfolio have been conducted by an investment committee of the Fixed Income
Division of the Investment Management Services Group of Bank of America, and no
one person is primarily responsible for making recommendations to that
committee.
Bank of America Illinois' Investment Advisors Division is responsible for the
day-to-day investment activities of the Blue Chip Master Portfolio. The
investment management team is headed by James Miller, Executive Vice President
and Chief Investment Officer of BofA Illinois (a wholly owned subsidiary of
BankAmerica Corporation). Mr. Miller has been the Blue Chip Master Portfolio's
manager since May 1995 and has been associated with BofA Illinois Investment
Management (and its predecessor Continental Bank) since 1988. Mr. Miller is a
Chartered Financial Analyst, a member of the Association of Investment
Management and Research, and a former Director of the Investment Analysts
Society of Chicago.
The Asset Allocation Committee of Bank of America's Global Investment Management
Division establishes general parameters for the selection of securities for the
Asset Allocation Fund. Robert Pyles, Director of Research and Senior Portfolio
Manager of BofA Capital Management, Inc. (a wholly owned subsidiary of Bank of
America), and Steven L. Vielhaber are primarily responsible for the selection of
particular securities for the equity and fixed-income portions, respectively, of
the Asset Allocation Fund. Mr. Pyles has been the Asset Allocation Fund's
manager since November 1994 and has been associated with Seafirst, which is
controlled by BankAmerica Corporation (a bank holding company), since 1976. Mr.
28
<PAGE> 32
Pyles currently manages various common trust, employee benefit and individual
accounts for Bank of America. Mr. Vielhaber has been the Asset Allocation Fund's
manager since April 1994 and has been employed by Bank of America since 1993.
Prior thereto, Mr. Vielhaber had been Director of Fixed Income Marketing at
Dimensional Fund Advisers since 1990, and Vice President and Manager of
Investments at Gibraltar Savings from 1986 to 1990.
Effective upon the Reorganization Date, Bank of America is entitled to receive a
fee at the annual rate of 0.30%, 0.50% and 0.40% of each of the Intermediate
Bond Master Portfolio's, Blue Chip Master Portfolio's and Asset Allocation
Fund's respective average daily net assets for the services provided and
expenses assumed under the Advisory Agreements. These amounts may be reduced
pursuant to undertakings by Bank of America. (See the information below under
"Fee Waivers.") Prior to the Reorganization Date, Bank of America was entitled
to receive an investment advisory fee at the annual rate of 0.45%, 0.75% and
0.55% of each of the Intermediate Bond Master Portfolio's, Blue Chip Master
Portfolio's and Asset Allocation Master Portfolio's respective average daily net
assets. During the fiscal year ended February 29, 1996, Bank of America waived
its entire investment advisory fee payable by the Intermediate Bond Master
Portfolio. For the same period, the Blue Chip Master Portfolio paid Bank of
America advisory fees at an effective annual rate of 0.20% of such Master
Portfolio's average daily net assets, and Bank of America waived a portion of
its fee at an effective annual rate of 0.55% of such Master Portfolio's average
daily net assets. During the fiscal year ended February 28, 1996, the Asset
Allocation Fund invested all of its assets in the Asset Allocation Master
Portfolio, which paid advisory fees to Bank of America for that period at an
effective annual rate of 0.12% of such Master Portfolio's average daily net
assets, and Bank of America waived a portion of its fee at an effective annual
rate of 0.43% of such Master Portfolio's average daily set assets.
In addition, Bank of America and its affiliates may be entitled to fees under
the Shareholder Services Plan, as described under "Plan Payments," and may
receive fees charged directly to their accounts in connection with investments
in shares of the Funds.
ADMINISTRATOR
BISYS, through its wholly-owned subsidiary BISYS Fund Services, L.P., serves as
Administrator of the Funds and the Master Portfolios. Their officers are located
at 150 Clove Road, Little Falls, New Jersey 07424 and 3435 Stelzer Road,
Columbus, Ohio 43219-3035, respectively. Prior to November 1, 1996, Concord
Holding Corporation ("Concord"), an indirect, wholly owned subsidiary of BISYS,
served as Administrator of the Funds and the Master Portfolios.
Under its administration agreements with the Company and the Master Trust, BISYS
has agreed to: pay the costs of maintaining the offices of the Company and the
Master Portfolios; 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 Funds,
interestholders of the Master Portfolios and the Securities and Exchange
Commission; prepare tax returns; maintain the registration or qualification of
each Fund's shares for sale under state securities laws; maintain books and
records of the Funds and the Master Portfolios; calculate the net asset value of
the Funds and the Master Portfolios; calculate the dividends and capital gains
distributions paid to shareholders; serve as dividend disbursing agent for the
Master Portfolios; and generally assist in all aspects of the operations of the
Funds and the Master Portfolios.
For its services as administrator, BISYS is entitled to receive administration
fees at the annual rate of 0.15% of each of the Intermediate Bond, Blue Chip and
Asset Allocation Fund's respective average daily net assets. BISYS is entitled
29
<PAGE> 33
to receive an administration fee from the Intermediate Bond Master Portfolio's
and Blue Chip Master Portfolio's net assets, at an annual rate of 0.05% of each
such Master Portfolio's average daily net assets. These amounts may be reduced
pursuant to undertakings by BISYS. (See the information below under "Fee
Waivers.") During the fiscal year ended February 29, 1996, Concord, the Funds'
and Master Portfolios' prior administrator, waived its entire administration fee
payable by the Intermediate Bond Fund, Blue Chip Fund and Asset Allocation Fund
and the Intermediate Bond Master Portfolio. For the same period, Concord also
reimbursed a portion of the operating expenses with respect to the Intermediate
Bond Fund, Blue Chip Fund and Asset Allocation Fund. During the fiscal year
ended February 29, 1996, the Blue Chip Master Portfolio paid Concord
administration fees at an effective annual rate of 0.01% of such Master
Portfolio's average daily net assets, and Concord waived a portion of its fee at
an effective annual rate of 0.19% of such Master Portfolio's average daily net
assets. During the same period, the Asset Allocation Fund invested all of its
assets in the Asset Allocation Master Portfolio, which paid administration fees
to Concord for that period at an effective annual rate of .01% of such Master
Portfolio's average daily net assets and Concord waived a portion of its fee at
the effective annual rate of 0.19% of such Master Portfolio's average daily net
asset.
Pursuant to the authority granted in the administration agreements, BISYS or a
subcontractor has entered into agreements with PFPC, Inc. ("PFPC") under which
PFPC (and an offshore affiliate of PFPC) perform certain of the services listed
above including calculating the net asset value of the Funds and the Master
Portfolios, calculating dividends and capital gains distributions to
shareholders, and maintaining the books and records of the Funds and the Master
Portfolios. The Funds and the Master Portfolios bear all fees and expenses
charged by PFPC for these services.
DISTRIBUTOR
Each Fund's shares are sold on a continuous basis by Concord Financial Group,
Inc. The Distributor is an indirect, wholly owned subsidiary of BISYS and is
located at 3435 Stelzer Road, Columbus, Ohio 43219-3035.
CUSTODIAN AND TRANSFER AGENT
PNC Bank, National Association, 1600 Market Street, 28th Floor, Philadelphia,
Pennsylvania, 19103 serves as the Custodian of the Funds and the Master
Portfolios. BISYS Fund Services, Inc., a wholly owned subsidiary of BISYS, is
the transfer and dividend disbursing agent for each of the Funds and is located
at 3435 Stelzer Road, Columbus, Ohio 43219-3035.
FEE WAIVERS
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 each Fund's fiscal year, Bank of America and/or BISYS may
prospectively choose not to receive fee payments and/or may assume certain
expenses of the Funds or Master Portfolios as a result of competitive pressures
and in order to preserve and protect the business and reputation of BISYS and
Bank of America. However, the service providers retain the ability to
discontinue such fee waivers and/or expense reimbursements at any time.
30
<PAGE> 34
TAX INFORMATION
During its most recent taxable year, each Fund qualified separately as a
"regulated investment company" under the Code, and each Fund intends that it
will so qualify in future years as long as such qualification is in the best
interests of its shareholders. As a result of this qualification, each Fund
generally is not required to pay federal income taxes to the extent its earnings
are distributed in accordance with the Code. It is expected that the Master
Portfolios will not be subject to federal income taxes. Each Master Portfolio
intends to qualify as a partnership (or other pass-through entity) for federal
income tax purposes. As such, the Master Portfolios are not subject to tax, and
the Intermediate Bond Fund and Blue Chip Fund will be treated for federal income
tax purposes as recognizing a pro rata share of their corresponding Master
Portfolio's income and deductions and owning a pro rata share of their
corresponding Master Portfolio's assets. The Intermediate Bond Fund's and Blue
Chip Fund's status as regulated investment companies is dependent on, among
other things, their corresponding Master Portfolio's continued qualification as
a partnership (or other pass-through entity) for federal income tax purposes.
For federal income tax purposes, income earned by each Fund will not be taxable
to the Eligible Retirement Accounts that are its shareholders or to Participants
until a Participant receives, or is deemed under federal tax law to have
received, a distribution from the Participant's Eligible Retirement Account. A
distribution from the Participant's Eligible Retirement Account is a payment or
a deemed payment from the Eligible Retirement Account to the Participant. A
withdrawal by an Eligible Retirement Account from a Fund is a payment by the
Fund to a shareholder in redemption of shares of the Company. Therefore,
withdrawals from a Fund can be made at any time by an Eligible Retirement
Account without penalty and without the amount withdrawn being subject to
federal income tax.
MEASURING PERFORMANCE
EACH 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 a 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 a Fund over a specified 30-day
period.
Periodically, a 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 a Fund during the period are reinvested in Fund shares and include the
maximum front-end sales charge for A Shares. Each 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.
Each 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.
31
<PAGE> 35
Each 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 performance. For example, a 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. Each
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; the Wilshire 5000 Equity Indexes; or the Consumer Price Index.
Since a 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 a 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 a 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 the following four classes
of shares representing interests in the Funds: 40 million shares of Class M
Common Stock, 60 million shares of Class M--Special Series 3 Common Stock, 50
million shares of Class M--Special Series 5 Common Stock and 50 million shares
of Class M--Special Series 7 Common Stock, representing interests in the
Intermediate Bond Fund; 40 million shares of Class N Common Stock, 60 million
shares of Class N--Special Series 3 Common Stock, 50 million shares of Class N--
Special Series 5 Common Stock and 50 million shares of Class N--Special Series 7
Common Stock, representing interests in the Blue Chip Fund and 40 million shares
of Class O Common Stock, 60 million shares of Class O--Special Series 3 Common
Stock, 50 million shares of Class O--Special Series 5 Common Stock and 50
million shares of Class O--Special Series 7 Common Stock, representing interests
in the Asset Allocation Fund; and additional classes of shares representing
interests in other investment portfolios of the Company. Class M, N and O Common
Stock represent the "A" Shares, Class M, N and O--Special Series 3 Common Stock
represent "B" Shares, Class M, N and O -Special Series 5 Common Stock represent
the "K" Shares and Class M, N and O--Special Series 7 Common Stock represent the
"SRF" Shares. As of the date of this Prospectus, B, K and SRF Shares have not
been sold to the public. The Board of Directors may similarly classify or
reclassify any class of shares (including unissued Class M Common Stock, Class
M- -Special Series 3 Common Stock, Class M--Special Series 5 Common Stock, Class
M-- Special Series 7 Common Stock, Class N Common Stock, Class N--Special Series
3 Common Stock, Class N--Special Series 5 Common Stock, Class N--Special Series
7 Common Stock, Class O Common Stock, Class O--Special Series 3 Common Stock,
Class O--Special Series 5 Common Stock or Class O--Special Series 7 Common
Stock)
32
<PAGE> 36
into one or more series. This Prospectus relates primarily to the Funds' SRF
Shares. For more information about the Funds' A, B and K Shares or about the
Company's other portfolios, contact the Company at the telephone number listed
on the cover page of this Prospectus.
SRF Shares are offered for investment by Eligible Retirement Accounts and are
neither subject to a front-end sales charge nor a contingent deferred sales
charge. SRF Shares will automatically convert to A Shares on the third
anniversary of the Reorganization Date. A Shares are sold to investors choosing
the front-end sales charge alternative unless an exemption to the sales charge
is otherwise available, which is the case for Eligible Retirement Accounts. B
Shares are sold to investors choosing the contingent deferred sales charge
("CDSC") alternative. B Shares are subject to a CDSC upon redemption within the
first six years of investment. B Shares of a Fund held for 8 years will
automatically convert into A Shares of the particular Fund. 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. K Shares are
neither subject to a front-end sales charge nor a contingent deferred sales
charge. K Shares, however, are sold only to: (a) businesses and other
organizations that participate in the Daily Advantage(R) Program sponsored by
Bank of America; (b) individuals investing proceeds from a redemption of shares
from another open-end investment company on which such individual paid a
front-end sales load if (i) such redemption occurred within 30 days prior to the
purchase order, and (ii) such other open-end investment company was not
distributed and advised by Concord Financial Group, Inc. and Bank of America,
respectively, or their affiliates; (c) accounts opened for IRA rollovers from a
401(k) plan in which the assets were held in any Fund of the Company or a Time
Horizon Fund and subsequent purchases into an IRA rollover account, so long as
the original IRA rollover account remains open on the Company's books; and (d)
accounts under Section 403 (b) (7) of the Code.
A Shares, B Shares and K Shares each have certain purchase, redemption and
exchange privileges and certain shareholder services. For example, A Shares have
certain privileges such as TeleTrade, an automatic investment program, an
automatic withdrawal plan and a direct deposit program.
The four classes of shares in each Fund represent interests in the same
portfolio of investments of the particular Fund, have the same rights and are
identical in all respects except (a) SRF Shares and A Shares bear the expenses
of their respective Shareholder Services Plans; (b) B Shares bear the expenses
of a Distribution and Services Plan, and also bear the expenses of the deferred
sales charge arrangements and any expenses resulting from such arrangements and
(c) K Shares bear the expenses of a Distribution Plan and/or Administrative and
Shareholder Services Plan. The four classes also have different exchange
privileges.
Except as noted below, shares representing interests in the Funds are entitled
to participate in the dividends and distributions declared by the Board of
Directors and in the net distributable assets of the particular Fund upon
liquidation. The net income attributable to SRF, A, B and K Shares and the
dividends payable on such Shares will be reduced by the amount of the: (a)
Shareholder Services Plan fees attributable to SRF Shares and A Shares,
respectively, (b) Distribution and Services Plan fees attributable to B Shares,
(c) Distribution Plan fees and/or Administrative and Shareholder Services Plan
fees attributable to K Shares, respectively, and (e) the incremental expenses
associated with such Plans. SRF, A, B and K Shares may have different
performance results due to sales charges and other expenses attributable to
33
<PAGE> 37
distribution and/or shareholder servicing plans applicable with respect to a
particular share class.
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 holders of SRF Shares will
be entitled to vote on matters submitted to a vote of shareholders relating to
the Shareholder Services Plan attributable to SRF Shares; only holders of A
Shares will be entitled to vote on matters submitted to a vote of shareholders
relating to the Shareholder Services Plan attributable to A Shares; only holders
of B Shares will be entitled to vote on matters submitted to a vote of
shareholders relating to the Distribution and Services Plan attributable to B
Shares and only holders of K Shares will be entitled to vote on matters relating
to the Distribution Plan and Administrative and Shareholder Services Plan
attributable to K Shares. 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.
The Funds do 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 Funds 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 SEPARATE SHAREHOLDER SERVICES
PLANS (THE "PLANS") FOR SRF SHARES AND A SHARES
The Company has adopted separate Shareholder Services Plans for SRF Shares and A
Shares, under which SRF Shares and A Shares of each Fund reimburse the
Distributor for shareholder servicing fees the Distributor pays to Service
Organizations.
Shareholder servicing expenses include expenses incurred in connection with
shareholder services provided by the Distributor and payments to Service
Organizations for support services for the beneficial owners of Fund shares,
such as: establishing and maintaining accounts and records relating to the
Service Organization's clients who invest in Fund shares; assisting those
clients in processing exchange and redemption requests and in changing dividend
options and account designations; and responding to inquiries from clients
concerning their investments.
Under a particular Plan, payments by a Fund for shareholder servicing expenses
may not exceed 0.25% (annualized) of the respective average daily net assets of
such Fund's SRF Shares or A Shares, as appropriate. 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. During the fiscal year ended
February 29, 1996, the Distributor waived all payments under the Shareholder
Services Plan
34
<PAGE> 38
applicable with respect to A Shares of each of the Funds. During the same
period, no SRF Shares were offered by the Company.
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 particular 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 a Fund with respect to
the amount "carried forward."
The Glass-Steagall Act and other applicable laws, among other things, prohibit
banks from engaging in the business of underwriting securities. If a bank were
prohibited from acting as a Service Organization, its shareholder clients would
be permitted to remain Company shareholders and alternative means for continuing
the servicing of such shareholders would be sought. In such event, changes in
the operation of the Company might occur and a shareholder serviced by such bank
might no longer be able to avail itself of the automatic investment or other
services then being provided by the bank. It is not expected that shareholders
would suffer any adverse financial consequences as a result of any of these
occurrences.
35
<PAGE> 39
APPENDIX A
CORPORATE BOND RATINGS
Excerpts from Moody's description of its corporate bond ratings: Aaa--judged to
be the best quality, carry the smallest degree of investment risk and are
generally referred to as "gilt edged"; Aa--judged to be of high quality by all
standards; A--deemed to have many favorable investment attributes and considered
as upper medium grade obligations; Baa--considered as medium grade obligations,
i.e. they are neither highly protected nor poorly secured; Ba, B, Caa, Ca, C--
protection of interest and principal payments is questionable (Ba indicates some
speculative elements, B represents bonds that generally lack characteristics of
desirable investment, Caa represents bonds which are in poor standing, Ca
represents a high degree of speculation and C represents the lowest rated class
of bonds); Caa, Ca and C bonds may be in default. Those bonds in the Aa, A, Baa,
Ba and B groups which Moody's believes possess the strongest investment
attributes are designated by the symbols Aa1, A1, Baa1, Ba1 and B1. [The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks at the lower end of its generic rating
category.]
A Standard & Poor's corporate debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. Debt rated
"AAA" has the highest rating assigned by Standard & Poor's. Capacity to pay
interest and repay principal is considered to be extremely strong. Debt rated
"AA" is considered to have a very strong capacity to pay interest and to repay
principal and differs from the highest rated issues only in small degree. Debt
rated "A" is considered to have a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt of a higher rated
category. Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and to repay principal for
debt in this category than for higher rated categories. Debt rated "BB," "B,"
"CCC," "CC" or "C" is regarded, on balance, as predominately speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligations. "BB" indicates the lowest degree of speculation and
"C" the highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions. Debt rated "CI" is
reserved for income bonds on which no interest is being paid. Debt rated "D" is
in default. This rating is used when interest payments or principal payments are
not made on the date due, even if the applicable grace period has not expired,
unless Standard & Poor's believes that such payments will be made during such
grace period. The "D" rating also will be used upon the filing of a bankruptcy
petition if debt service payments are jeopardized. The ratings from "AA" to
"CCC" may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
Excerpts from Fitch's description of its corporate bond ratings: "AAA"--
considered to be investment grade and of the highest credit quality. Capacity to
pay interest and repay principal is considered to be exceptionally strong;
"AA"--judged to be investment grade and of very high credit quality, although
the capacity to pay interest and repay principal is not quite as strong as bonds
rated "AAA"; "A"--deemed investment grade and of high credit quality, although
the capacity to pay interest and repay principal may be more susceptible to the
adverse changes in economic conditions and circumstances than bonds with higher
ratings; "BBB" is considered to be investment grade and is regarded as having
satisfactory credit quality with an adequate capacity to pay interest and repay
A-1
<PAGE> 40
principal although adverse changes in economic conditions and circumstances are
more likely to impair timely payment than for higher rated categories; "BB,"
"B," "CCC," "CC," "C," "DDD," "DD," and "D"--regarded as speculative
investments. [The ratings "BB" to "C" represent the likelihood of timely payment
of principal and interest in accordance with the terms of obligation for bond
issues not in default. For defaulted bonds, the rating "DDD" to "D" is an
assessment of the ultimate recovery value through reorganization or
liquidation.] The ratings from "AA" to "BBB" may be modified by the addition of
a plus or minus sign to show relative standing within the major rating
categories.
COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the relevant
market. The designation "A-1" indicates the degree of safety regarding timely
payment is considered to be strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus (+) sign designation. The
designation "A-2" indicates the capacity for timely payment is satisfactory,
however, the relative degree of safety is not as high as for issues designated
"A-1." Moody's commercial paper ratings are opinions of the ability of issuers
to repay punctually promissory obligations not having an original maturity in
excess of 9 months. The rating "Prime-1" is the highest commercial paper rating
assigned by Moody's. Issuers rated "Prime-1" (or related supporting
institutions) are considered to have a superior capacity for repayment of
short-term promissory obligations. Issuers rated "Prime-2" (or related
supporting institutions) are considered to have a strong capacity for repayment
of short-term promissory obligations.
Fitch short-term ratings apply to debt obligations that are payable on demand or
have original maturities of up to three years. The designation "F-1" indicates
that the securities possess very strong credit quality. Those securities
determined to possess exceptionally strong credit quality are denoted with a
plus (+) sign designation. Securities rated "F-2" are considered to possess good
credit quality. Issues assigned this rating have a satisfactory degree of
assurance for timely payment.
UNRATED SECURITIES
Unrated securities are securities which have not been rated by a nationally
recognized statistical rating organization.
A-2
<PAGE> 41
PACIFIC HORIZON MUTUAL FUNDS
SRF SHARES OF THE
INTERMEDIATE BOND FUND
BLUE CHIP FUND
ASSET ALLOCATION FUND
PROSPECTUS
APRIL __, 1997
NOT FDIC INSURED
<PAGE> 42
PACIFIC HORIZON FUNDS, INC.
SRF Shares of the
Intermediate Bond (formerly, Flexible Bond) Fund, Blue Chip Fund and
Asset Allocation Fund
--------------------------------
<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
15. Control Persons and Principal Holders of Management; Miscellaneous
Securities
16. Investment Advisory and Other Services .................... Management-Investment Adviser;
Management-Administrator;
Management-Distributor and
Plan Payments; General
Information-Custodian,
Accounting Agent and Transfer
Agent; General Description-
Independent Accountants
17. Brokerage Allocation and Other Practices Portfolio Transactions
18. Capital Stock and Other Securities......................... General Information-
Description of Shares
19. Purchase, Redemption and Pricing of ....................... Additional Purchase and
Securities Being Offered Redemption Information
20. Tax Status................................................... Additional Information
Concerning Taxes
21. Underwriters................................................. Management-Distributor and
Plan Payments
22. Calculation of Performance Data.............................. 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> 43
PACIFIC HORIZON FUNDS, INC.
(THE "COMPANY" OR "PACIFIC HORIZON")
STATEMENT OF ADDITIONAL INFORMATION
FOR
SRF SHARES OF THE
INTERMEDIATE BOND FUND
BLUE CHIP FUND
ASSET ALLOCATION FUND
April __, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
THE COMPANY..................................................................................................... 2
INVESTMENT OBJECTIVES AND POLICIES.............................................................................. 2
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.................................................................. 27
ADDITIONAL INFORMATION CONCERNING TAXES......................................................................... 32
MANAGEMENT...................................................................................................... 35
GENERAL INFORMATION............................................................................................. 66
Appendix A......................................................................................................A-1
Appendix B......................................................................................................B-1
</TABLE>
This Statement of Additional Information applies to the SRF Shares of
the Pacific Horizon Intermediate Bond Fund and Pacific Horizon Blue Chip Fund
(the "Feeder Funds") and to the SRF Shares of the Pacific Horizon Asset
Allocation Fund, (collectively with the Feeder Funds, the "Funds") of Pacific
Horizon Funds, Inc. The Master Portfolios corresponding to the Intermediate Bond
Fund and Blue Chip Fund are referred to individually as the "Intermediate Bond
Master Portfolio" and "Blue Chip Master Portfolio" respectively, collectively as
the "Master Portfolios," and collectively with the Asset Allocation Fund, as the
"Portfolios." The Company and Master Investment Trust, Series I ("Master Trust
I"), are collectively referred to herein as the "Companies." This Statement of
Additional Information is meant to be read in conjunction with the Prospectus
dated April __, 1997, as it may from time to time be revised, which describes
the particular Fund of the Company in which the investor is interested. This
Statement of Additional Information is incorporated by reference in its entirety
into such Prospectus. Because this Statement of Additional Information is not
itself a prospectus, no investment in SRF Shares of any Fund should be made
solely upon the information contained herein. Copies of the Prospectus relating
to Pacific Horizon's Funds to which this Statement of Additional Information
relates may be obtained by calling Concord Financial Group, Inc. at
800-323-9919. Capitalized terms used but not defined herein have the same
meaning as in the Prospectus.
<PAGE> 44
THE COMPANY
The Company was organized on October 27, 1982 as a Maryland
corporation. The Intermediate Bond Fund (formerly, Flexible Bond Fund), Blue
Chip Fund and Asset Allocation Fund commenced operations on January 24, 1994,
January 13, 1994 and January 18, 1994, respectively. The Feeder Funds seek to
achieve their respective investment objectives by investing substantially all of
their assets in diversified investment portfolios of an open-end, management
investment company having the same investment objective as these Funds. As of
the date of this Statement of Additional Information, the Asset Allocation Fund
also invests substantially all of its assets in a diversified investment
portfolio of an open-end management investment company, the Asset Allocation
Master Portfolio, which has the same investment objective as that of the Fund.
On the Reorganization Date, the Asset Allocation Fund will withdraw its assets
from the Asset Allocation Master Portfolio and invest its assets directly in
portfolio securities. Accordingly, because the SRF Share class will not be sold
until the Reorganization Date, the description of the Asset Allocation Fund in
this Statement of Additional Information reflects its operation as a Fund which
invests directly in portfolio securities.
The Company also offers other classes of shares in the Funds
as well as other investment portfolios which are described in separate
Prospectuses and Statements of Additional Information. For information
concerning these other classes or shares or portfolios contact the Distributor
at the telephone number stated on the cover page of this Statement of Additional
Information.
INVESTMENT OBJECTIVES AND POLICIES
The Prospectus for the Funds describes the investment
objective of each Fund. Because the investment characteristics of each Feeder
Fund will correspond with its respective Master Portfolio, the following is a
discussion of the various investments and techniques employed by each Master
Portfolio. The following information supplements and should be read in
conjunction with the descriptions of the investment objective and policies in
the Prospectus for the Funds.
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
-2-
<PAGE> 45
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 and Master Trust I to receive certain favorable tax treatment. Portfolio
turnover will not be a limiting factor in making portfolio decisions.
For the fiscal years or periods indicated, the portfolio
turnover rates for each Portfolio were as follows:
<TABLE>
<CAPTION>
==========================================================================================================================
Year Ended Year or Period Ended
February 29, 1996 February 28, 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Intermediate Bond Master Portfolio 172% 240%
- --------------------------------------------------------------------------------------------------------------------------
Blue Chip Master Portfolio 108% 44%
- --------------------------------------------------------------------------------------------------------------------------
Asset Allocation Fund* 157% 142%
==========================================================================================================================
<FN>
- --------------------
* Until the Reorganization Date, the Asset Allocation Fund invested all
of its assets in the Asset Allocation Portfolio of Master Investment
Trust, Series I (the "Asset Allocation Master Portfolio"). Information
contained in the chart above relates to the Master Portfolio.
</TABLE>
Subject to the general control of the Company's Board of
Directors, and the Master Portfolios' Trustees, Bank of America National Trust
and Savings Association ("Bank of America" or the "investment adviser") is
responsible for, makes decisions with respect to, and places orders for all
purchases and sales of portfolio securities for each Portfolio.
Transactions on stock exchanges involve the payment of
negotiated brokerage commissions. There is generally no stated commission in the
case of securities traded in the over-the-counter market, but the price includes
an undisclosed commission or mark-up. The cost of securities 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 fixed income securities are
normally principal transactions without brokerage commissions.
For the fiscal years or periods indicated, each Portfolio paid
the following brokerage commissions:
<TABLE>
<CAPTION>
=========================================================================================================================
Year Ended Year Ended Year or Period* Ended
February 29, 1996 February 28, 1995 February 28, 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Intermediate Bond Master $ 0 $ 0 $ 0
Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Blue Chip Master Portfolio $428,667 $202,817 $270,323
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
-3-
<PAGE> 46
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Asset Allocation Fund+ $175,960 $152,778 $ 21,798
=========================================================================================================================
<FN>
- --------------------
+ Until the Reorganization Date, the Asset Allocation Fund invested all
of its assets in the Asset Allocation Master Portfolio. Information
contained in the chart above relates to the Asset Allocation Master
Portfolio.
* The Intermediate Bond, Blue Chip and Asset Allocation Master Portfolios
commenced operations on December 6, 1993.
</TABLE>
In executing portfolio transactions and selecting brokers or
dealers, it is the Portfolios' policy to seek the best overall terms available.
The Investment Advisory Agreements between the particular Company and Bank of
America provide 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 Agreements authorize Bank
of America, subject to the approval of the particular Board, to cause a
Portfolio to pay a broker-dealer which furnishes brokerage and research services
a higher commission than that which might be charged by another broker-dealer
for effecting the same transaction, provided that such commission is deemed
reasonable in terms of either that particular transaction or the overall
responsibilities of Bank of America to the particular Company or Portfolio.
Brokerage and research services may include: (1) advice as to the value of
securities, the advisability of investing in, purchasing or selling securities
and the availability of securities or purchasers or sellers of securities; and
(2) analyses and reports concerning industries, securities, economic factors and
trends, portfolio strategy and the performance of accounts.
It is possible that certain of the brokerage and research
services received will primarily benefit one or more other investment companies
or other accounts for which investment discretion is exercised. Conversely, a
particular Company or any given Portfolio may be the primary beneficiary of the
brokerage or research services received as a result of portfolio transactions
effected for such other accounts or investment companies.
Brokerage and research services so received are in addition to
and not in lieu of services required to be performed by Bank of America and do
not reduce the advisory fee payable to Bank of America. Such services may be
useful to Bank of America in serving both the Companies, the Portfolios and
other clients and, conversely, services obtained by the placement of business
-4-
<PAGE> 47
of other clients may be useful to Bank of America in carrying out its
obligations to the Companies and the Portfolios. In connection with its
investment management services with respect to the Portfolios, 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 Companies, the
Portfolios, Bank of America, the Distributor and their affiliates acting as
principal, underwriter, syndicate member, market-maker, dealer, broker or in any
similar capacity, provided such purchase, sale or dealing is permitted under the
Investment Company Act of 1940 (the "1940 Act") and the rules thereunder.
A Portfolio may participate, if and when practicable, in
bidding for the purchase of securities of the U.S. Government and its agencies
and instrumentalities directly from an issuer in order to take advantage of the
lower purchase price available to members of a bidding group. A Portfolio will
engage in this practice only when Bank of America, in its sole discretion
subject to guidelines adopted by the particular Board, believes such practice to
be in the interest of the Portfolio.
To the extent permitted by law, Bank of America may aggregate
the securities to be sold or purchased on behalf of the Portfolios 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 Group, 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 Co., 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.
-5-
<PAGE> 48
quarterly variable rate obligation in the principal amount of $50,000,000;
Goldman Sachs Group L.P. master note in the principal amount of $220,000,000;
Morgan Stanley Group, Inc. master note in the principal amount of $200,000,000,
Repurchase Agreement with Dean Witter Reynolds, Inc. in the principal amount of
$105,000,000; Repurchase Agreement with Morgan Stanley Group, Inc. in the
principal amount of $105,000,000; Repurchase Agreement with Morgan Stanley
Group, Inc. in the principal amount of $105,000,000; (d) the U.S. Government
Securities Fund held the following securities, Merrill Lynch & Co., Inc.
commercial paper in the principal amount of $3,000,000; (e) the Corporate Bond
Master Portfolio held the following securities, Goldman Sachs Group LP corporate
obligation in the principal amount of $1,500,000; and Lehman Brothers corporate
obligation in the principal amount of $1,000,000; (f) the Intermediate Bond
Master Portfolio held the following securities, Morgan Stanley Group, Inc.
medium term note in the amount of $2,000,000 and Merrill Lynch Mtg. Inv. Inc.
collateral mortgage obligation in the amount of $16,000; (g) the Blue Chip
Master Portfolio held the following securities, Dean Witter common stock in the
principal amount of $2,821,875; and (h) the Asset Allocation Master Portfolio
held the following securities, Dean Witter common stock in the principal amount
of $1,085,750; Lehman Brothers corporate obligations in the principal amount of
$1,000,000; Morgan Stanley Group, Inc. medium term note in the principal amount
of $1,500,000; Merrill Lynch & Co., Inc. collateralized mortgage obligation in
the principal amount of $8,000; and Merrill Lynch & Co., Inc. 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.
BANK CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES AND TIME
DEPOSITS. Each Portfolio may acquire certificates of deposit, bankers'
acceptances and time deposits as described in the Prospectus. Certificates of
deposit are negotiable certificates issued against funds deposited in a
commercial bank for a definite period of time and earning a specified return.
Bankers' Acceptances are negotiable drafts or bills of exchange, normally drawn
by an importer or exporter to pay for specific merchandise, which are "accepted"
by a bank, meaning, in effect, that the bank unconditionally agrees to pay the
face value of the instrument on maturity. Certificates of Deposit and Bankers
-6-
<PAGE> 49
Acceptances may only be purchased from domestic or foreign banks and financial
institutions having total assets at the time of purchase in excess of $2.5
billion (including assets of both domestic and foreign branches). Time deposits
are non-negotiable deposits maintained at a banking institution for a specified
period of time at a specified interest rate. The Portfolios will not acquire
obligations issued by the International Bank for Reconstruction and Development,
the Asian Development Bank or the Inter-American Development Bank.
Instruments issued by foreign banks or financial institutions
may be subject to additional investment risks that are different in some
respects from those that would be incurred if it were to invest only in debt
obligations of U.S. domestic issuers. Such risks include future political and
economic developments, the possible imposition of withholding taxes on interest
income payable on the securities by the particular country in which the issuer
is located, the possible seizure or nationalization of foreign deposits, the
possible establishment of exchange controls or the adoption of other foreign
governmental restrictions which might adversely affect the payment of principal
and interest on these securities.
Domestic banks and foreign banks are subject to different
governmental regulations with respect to the amounts and types of loans which
may be made and interest rates which may be charged. In addition, the
profitability of the banking industry depends largely upon the availability and
cost of funds for the purpose of financing lending operations under prevailing
money market conditions. General economic conditions as well as exposure to
credit losses arising from possible financial difficulties of borrowers play an
important part in the operations of the banking industry.
As a result of federal and state laws and regulations,
domestic banks are, among other things, required to maintain specified levels of
reserves, limited in the amount which they can loan to a single borrower, and
subject to other regulations designed to promote financial soundness. However,
such laws and regulations do not necessarily apply to foreign bank obligations.
COMMERCIAL PAPER AND SHORT-TERM NOTES. A Portfolio may invest
a portion of its assets in commercial paper and short-term notes. Commercial
paper consists of unsecured promissory notes issued by corporations. Except as
noted below with respect to variable and floating rate instruments, issues of
commercial paper and short-term notes will normally have maturities of less than
9 months and fixed rates of return, although such instruments may have
maturities of up to one year. Commercial paper and short-term notes will consist
of issues rated at the time of purchase A-2 or better by Standard & Poor's
Ratings Group, Division of McGraw Hill ("S&P"), Prime-2 or better by
-7-
<PAGE> 50
Moody's Investors Service, Inc. ("Moody's"), or similarly rated by another
nationally recognized statistical rating organization ("NRSRO"); or if unrated,
will be determined by Bank of America to be of comparable quality under
procedures established by the particular Board.
MONEY MARKET FUNDS. In connection with the management of their
daily cash position, the Portfolios may each invest in the securities of a money
market mutual fund (including money market mutual funds advised by Bank of
America). Such Portfolios are permitted to invest up to 5% of the value of their
respective total assets in the securities of a money market mutual fund; except
that pursuant to the terms of an investment order granted by the Securities and
Exchange Commission ("SEC"), with respect to the investment in a money market
mutual fund advised by Bank of America, such Portfolios are permitted to invest
the greater of 5% of their respective net assets or $2.5 million. However, no
more than 10% of such Portfolio's total assets may be invested in the securities
of money market mutual funds in the aggregate. Except for investments in money
market mutual funds advised by Bank of America described above, securities of
other investment companies will be acquired by the Portfolios within the limits
prescribed by the Investment Company Act of 1940 and each Portfolio's applicable
fundamental investment limitations. As a shareholder of another investment
company, a Portfolio would bear along with other shareholders, its pro-rata
portion of the other investment company's expenses, including advisory fees.
These expenses would be in addition to the advisory and other expenses that the
Portfolio bears directly in connection with its own operations.
The 1940 Act generally prohibits each Portfolio from investing
more than 5% of the value of its total assets in any one investment company, or
more than 10% of the value of its total assets in investment companies as a
group, and also restricts its investment in any investment company to 3% of the
voting securities of such investment company. In addition, no more than 10% of
the outstanding voting stock of any one investment company may be owned in the
aggregate by the Portfolios and any other investment company advised by the
investment adviser.
REPURCHASE AGREEMENTS. Each Portfolio is permitted to enter
into repurchase agreements with respect to its portfolio securities. Pursuant to
such agreements, a Portfolio acquires securities from financial institutions
such as banks and broker-dealers which are deemed to be creditworthy subject to
the seller's agreement to repurchase and the agreement of the Portfolio to
resell such securities at a mutually agreed upon date and price. Repurchase
agreements maturing in more than seven days are considered illiquid investments
and investments in such repurchase agreements along with any other illiquid
-8-
<PAGE> 51
securities will not exceed 10% of the value of the net assets of the Portfolios.
The Portfolios are 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 a Portfolio plus interest negotiated on the basis of current
short-term rates (which may be more or less than the rate on the underlying
portfolio security). Securities subject to repurchase agreements will be held by
a custodian or sub-custodian of the Portfolio or in the Federal Reserve/Treasury
Book-Entry System. The seller under a repurchase agreement will be required to
deliver instruments the value of which is 102% of the repurchase price
(excluding accrued interest), provided that notwithstanding such requirement,
the adviser shall require that the value of the collateral, after transaction
costs (including loss of interest) reasonably expected to be incurred on a
default, shall be equal to or greater than the resale price (including interest)
provided in the agreement. If the seller defaulted on its repurchase obligation,
a Portfolio would suffer a loss because of adverse market action or to the
extent that the proceeds from a sale of the underlying securities were less than
the repurchase price under the agreement. Bankruptcy or insolvency of such a
defaulting seller may cause the particular Portfolio's rights with respect to
such securities to be delayed or limited. Repurchase agreements are considered
to be loans by a Portfolio under the 1940 Act.
U.S. GOVERNMENT OBLIGATIONS. Each Portfolio may make
investments in U.S. Government obligations. Such obligations include Treasury
bills, certificates of indebtedness, notes and bonds, and issues of such
entities as the Government National Mortgage Association, Export-Import Bank of
the United States, Tennessee Valley Authority, Resolution Funding Corporation,
Farmers Home Administration, Federal Home Loan Banks, Federal Intermediate
Credit Banks, Federal Farm Credit Banks, Federal Land Banks, Federal Housing
Administration, Federal National Mortgage Association, Federal Home Loan
Mortgage Corporation, and the Student Loan Marketing Association. Treasury bills
have maturities of one year or less, Treasury notes have maturities of one to
ten years and Treasury bonds generally have maturities of more than ten years.
Some of these obligations, such as those of the Government National Mortgage
Association, are supported by the full faith and credit of the U.S. Treasury.
Others, such as those of the Export-Import Bank of the United States, are
supported by the right of the issuer to borrow from the Treasury. Others, such
as those of the Federal National Mortgage Association, are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations. Still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide
-9-
<PAGE> 52
financial support to U.S. Government sponsored instrumentalities if it is not
obligated to do so by law.
VARIABLE AND FLOATING RATE INSTRUMENTS. Each Portfolio may
acquire variable and floating rate instruments, including master demand notes.
The actual yield on variable and floating rate instruments varies not only as a
result of variations in the lives of the underlying securities, but also as a
result of changes in prevailing interest rates. Such instruments are frequently
not rated by credit rating agencies. However, in determining the
creditworthiness of unrated variable and floating rate instruments and their
eligibility for purchase by a Portfolio, Bank of America will consider the
earning power, cash flow and other liquidity ratios of the issuers of such
instruments (which include financial, merchandising, bank holding and other
companies) and will continuously monitor their financial condition. An active
secondary market may not exist with respect to particular variable or floating
rate instruments purchased by a Portfolio. The absence of such an active
secondary market could make it difficult to dispose of a variable or floating
rate instrument in the event the issuer of the instrument defaulted on its
payment obligation or during periods that the Portfolio is not entitled to
exercise its demand rights, and the Portfolio could, for these or other reasons,
suffer a loss to the extent of the default. Investments in illiquid variable and
floating rate instruments (instruments which are not payable upon seven days'
notice and do not have active trading markets) are subject to a Portfolio's 10%
limitation on illiquid securities. Variable and floating rate instruments may be
secured by bank letters of credit.
MUNICIPAL SECURITIES. The Asset Allocation Fund and
Intermediate Bond Master Portfolio may invest in Municipal Securities. Municipal
Securities are debt obligations issued to obtain funds for various public
purposes, including the construction of a wide range of public facilities, the
refunding of outstanding obligations, the payment of general operating expenses
and the extension of loans to public institutions and facilities. In addition,
certain types of private activity bonds (including industrial development bonds
under prior law) are issued by or on behalf of public authorities to finance
various privately-operated facilities. Such obligations are included within the
term Municipal Securities if the interest paid thereon is exempt from regular
federal income tax. The two principal classifications of Municipal Securities
which may be held by the Portfolios are "general obligation" securities and
"revenue" securities. General obligation securities are secured by the issuer's
pledge of its full faith, credit and taxing power for the payment of principal
and interest. Revenue securities are payable only from the revenues derived from
a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise tax or other specific revenue source such as the
-10-
<PAGE> 53
user of the facility being financed. Private activity bonds held by the
Portfolios are in most cases revenue securities and are not payable from the
unrestricted revenues of the issuer. Consequently, the credit quality of such
private activity bonds is usually directly related to the credit standing of the
corporate user of the facility involved.
The Asset Allocation Fund and Intermediate Bond Portfolio may
also invest in "moral obligation" securities, which are normally issued by
special purpose public authorities. If the issuer of moral obligation securities
is unable to meet its debt service obligations from current revenues, it may
draw on a reserve fund, the restoration of which is a moral commitment but not a
legal obligation of the state or municipality which created the issuer.
The Asset Allocation Fund and the Intermediate Bond Master
Portfolio may purchase short-term Tax Anticipation Notes, Bond Anticipation
Notes, Revenue Anticipation Notes and other forms of short-term tax-exempt
loans. Such notes are issued with a short-term maturity in anticipation of the
receipt of tax funds, the proceeds of bond placements or other revenues. Those
Portfolios may also purchase tax-exempt commercial paper.
There are, of course, variations in the quality of Municipal
Securities, both within a particular classification and between classifications,
and the yields on Municipal Securities depend upon a variety of factors,
including general money market conditions, the financial condition of the
issuer, general conditions of the municipal bond market, the size of a
particular offering, the maturity of the obligation and the rating of the issue.
The ratings of Moody's, S&P, Fitch Investor's Service, L.P. ("Fitch") and Duff &
Phelps Credit Rating Co. ("D&P") represent their opinions as to the quality of
Municipal Securities. It should be emphasized, however, that ratings are general
and are not absolute standards of quality, and Municipal Securities with the
same maturity, interest rate and rating may have different yields while
Municipal Securities of the same maturity and interest rate with different
ratings may have the same yield. Subsequent to its purchase by a Portfolio, an
issue of Municipal Securities may cease to be rated or its rating may be
reduced. The investment adviser will consider such an event in determining
whether a Portfolio should continue to hold the obligation.
An issuer's obligations under its Municipal Securities are
subject to the provisions of bankruptcy, insolvency and other laws affecting the
rights and remedies of creditors, such as the federal Bankruptcy Code, and laws,
if any, which may be enacted by federal or state legislatures extending the time
for payment of principal or interest, or both, or imposing other constraints
upon enforcement of such obligations. The power or ability of an
-11-
<PAGE> 54
issuer to meet its obligations for the payment of interest on, and principal of,
its Municipal Securities may be materially adversely affected by litigation or
other conditions. Further, it should also be noted with respect to all Municipal
Securities issued after August 15, 1986 (August 31, 1986 in the case of certain
bonds), the issuer must comply with certain rules formerly applicable only to
"industrial development bonds" which, if the issuer fails to observe them, could
cause interest on the Municipal Securities to become taxable retroactive to the
date of issue.
Information about the financial condition of issuers of
Municipal Securities may be less available than about corporations, a class of
whose securities is registered under the Securities Exchange Act of 1934.
MORTGAGE-RELATED SECURITIES. To the extent described in the
Prospectus, the Asset Allocation Fund and Intermediate Bond Master Portfolio 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 Mortgage Corporation ("FHLMC"),
commercial banks, trusts, financial companies, finance subsidiaries of
industrial companies, savings and loan associations, mortgage banks and
investment banks. These certificates are in most cases pass-through instruments,
through which the holder receives a share of all interest and principal payments
from the mortgages underlying the certificate, net of certain fees. The average
life of a mortgage-backed security varies with the underlying mortgage
instruments, which have maximum maturities of 40 years. The average life is
likely to be substantially less than the original maturity of the mortgage pools
underlying the securities as the result of prepayments, mortgage refinancings or
foreclosure. Mortgage prepayment rates are affected by factors including the
level of interest rates, general economic conditions, the location and age of
the mortgage and other social and demographic conditions. Such prepayments are
passed through to the registered holder with the regular monthly payments of
principal and interest and have the effect of reducing future payments.
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
-12-
<PAGE> 55
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 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.
ASSET-BACKED SECURITIES. The Asset Allocation Fund and
Intermediate Bond Master Portfolio may invest in asset-backed securities,
including interests in pools of receivables, such as motor vehicle installment
purchase obligations and credit card receivables. Such securities are generally
issued as pass-through certificates, which represent undivided fractional
ownership interests in the underlying pools of assets. Such securities may also
be debt instruments, which are also known as collateralized obligations and are
generally issued as the debt of a special purpose entity organized solely for
the purpose of owning such assets and issuing such debt. Non-mortgage backed
securities are not issued or guaranteed by the U.S. Government or its agencies
or instrumentalities; however, the payment of principal and interest on such
obligations may be guaranteed up to certain amounts and for a certain time
period by a letter of credit issued by a financial institution (such as a bank
or insurance company) unaffiliated with the issuers of such securities.
The purchase of non-mortgage backed securities raises
considerations peculiar to the financing of the instruments underlying such
securities. For example, most organizations that issue asset-backed securities
relating to motor vehicle installment purchase obligations perfect their
interests in the respective obligations only by filing a financing statement and
-13-
<PAGE> 56
by having the servicer of the obligations, which is usually the originator, take
custody thereof. In such circumstances, if the servicer were to sell the same
obligations to another party, in violation of its duty not to do so, there is a
risk that such party could acquire an interest in the obligations superior to
that of the holders of the asset-backed securities. Also, although most of the
obligations grant a security interest in the motor vehicle being financed, in
most states the security interest in a motor vehicle must be noted on the
certificate of title to perfect such security interest against competing claims
of other parties. Due to the large number of vehicles involved, however, the
certificate of title to each vehicle financed, pursuant to the obligations
underlying the asset-backed securities, usually is not amended to reflect the
assignment of the seller's security interest for the benefit of the holders of
the asset-backed securities. Therefore, there is the possibility that recoveries
on repossessed collateral may not, in some cases, be available to support
payments on those securities. In addition, various state and federal laws give
the motor vehicle owner the right to assert against the holder of the owner's
obligation certain defenses such owner would have against the seller of the
motor vehicle. The assertion of such defenses could reduce payments on the
related asset-backed securities. Insofar as credit card receivables are
concerned, credit card holders are entitled to the protection of a number of
state and federal consumer credit laws, many of which give such holders the
right to set off certain amounts against balances owed on the credit card,
thereby reducing the amounts paid on such receivables. In addition, unlike most
other asset-backed securities, credit card receivables are unsecured obligations
of the cardholder.
The development of non-mortgage backed securities is at an
early stage compared to mortgage backed securities. While the market for
asset-backed securities is becoming increasingly liquid, the market for mortgage
backed securities issued by certain private organizations and non-mortgage
backed securities is not as well developed as that for mortgage backed
securities guaranteed by government agencies or instrumentalities. Bank of
America intends to limit its purchase of mortgage-backed securities to those
issued by certain private organizations and to limit its purchase of
non-mortgage backed securities to securities that are readily marketable at the
time of purchase.
Non-mortgage, asset-backed securities involve certain risks
that are not presented by mortgage-backed securities. Primarily, these
securities do not have the benefit of the same security interest in the
underlying collateral. Credit card receivables are generally unsecured and the
debtors are entitled to the protection of a number of state and federal consumer
credit laws, many of which have given debtors the right to set off certain
amounts owed on the credit cards, thereby reducing
-14-
<PAGE> 57
the balance due. Most issuers of automobile receivables permit the servicers to
retain possession of the underlying obligations. If the servicer were to sell
these obligations to another party, there is a risk that the purchaser would
acquire an interest superior to that of the holders of the related automobile
receivables. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee for
the holders of the automobile receivables may not have an effective security
interest in all of the obligations backing such receivables. Therefore, there is
a possibility that recoveries on repossessed collateral may not, in some cases,
be able to support payments on these securities.
REVERSE REPURCHASE AGREEMENTS. Each Portfolio is permitted to
borrow funds for temporary purposes by entering into reverse repurchase
agreements with such financial institutions as banks and broker-dealers.
Whenever a Portfolio enters into a reverse repurchase agreement, it will place
in a segregated account maintained with its custodian liquid assets such as
cash, U.S. Government securities or other liquid high grade debt securities
having a value equal to the repurchase price (including accrued interest), and
Bank of America will subsequently continuously monitor the account for
maintenance of such equivalent value. Each Portfolio intends to enter into
reverse repurchase agreements to avoid otherwise having to sell securities
during unfavorable market conditions in order to meet redemptions. Reverse
repurchase agreements are considered to be borrowings by a Portfolio under the
1940 Act.
SECURITIES LENDING. A Portfolio 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 and
is "marked to market" daily. A Portfolio will continue to receive interest or
dividends on the securities it loans, and will also earn interest on the
investment of any cash collateral. Cash collateral may be invested in short-term
U.S. Government securities, certificates of deposit, other high-grade,
short-term obligations or interest-bearing cash equivalents. Although voting
rights, or rights to consent, attendant to securities loaned pass to the
borrower, such loans may be called at any time and will be called so that the
securities may be voted by a Portfolio if a material event affecting the
investment is to occur.
OPTIONS TRADING. A Portfolio may, under certain
circumstances and in accordance with investment limitations
described in the Prospectus, engage in options trading. Such
options may relate to U.S. and foreign securities or to various
stock indices. Such options may be traded on U.S. exchanges and
-15-
<PAGE> 58
on foreign exchanges to the extent permitted by law. Each Portfolio presently
intends that the aggregate value of its assets subject to options written by
such Portfolio will not exceed 5% of the value of its net assets. The investment
policies of each Portfolio provide that the aggregate value of its assets
subject to options written by such Portfolio may not exceed 25% of the value of
its net assets.
Options trading is a highly specialized activity which entails
greater than ordinary risks. Regardless of how much the market price of the
underlying security or index increases or decreases, the option buyer's risk is
limited to the amount of the original premium paid for the purchase of the
option. However, options may be more volatile than the underlying instruments,
and therefore, on a percentage basis, an investment in options may be subject to
greater fluctuation than an investment in the underlying instruments themselves.
A listed call option for a particular security gives the purchaser of the option
the right to buy from a clearing corporation, and obligates a writer to sell to
the clearing corporation, the underlying security at the stated exercise price
at any time prior to the expiration of the option, regardless of the market
price of the security. The premium paid to the writer is in consideration for
undertaking the obligations under the option contract. A listed put option gives
the purchaser the right to sell to a clearing corporation the underlying
security at the stated exercise price at any time prior to the expiration date
of the option, regardless of the market price of the security. In contrast to an
option on a particular security, an option on a stock index provides the holder
with the right to make or receive a cash settlement upon exercise of the option.
The amount of this settlement will be equal to the difference between the
closing price of the index at the time of exercise and the exercise price of the
option expressed in dollars, times a specified multiple.
A Portfolio will continue to receive interest or dividend
income on the securities underlying such puts until they are exercised by the
Portfolio. Any losses realized by a Portfolio in connection with its purchase of
put options will be limited to the premiums paid by the Portfolio for the
options plus any transaction costs. A gain or loss may be wholly or partially
offset by a change in the value of the underlying security which the Portfolio
owns.
A Portfolio may write call options only if they are "covered."
In the case of a call option on a security, the option is "covered" if a
Portfolio owns the security underlying the call or has an absolute and immediate
right to acquire that security without additional cash consideration (or, if
additional cash consideration is required, cash or cash equivalents in such
amount held in a segregated account by its custodian) upon
-16-
<PAGE> 59
conversion or exchange of other securities held by it. For a call option on an
index, the option is covered if the Portfolio maintains with its custodian cash
or cash equivalents equal to the contract value. A call option is also covered
if a Portfolio holds a call on the same security or index as the call written
where the exercise price of the call held is (i) equal to or less than the
exercise price of the call written, or (ii) greater than the exercise price of
the call written provided the difference is maintained by the Portfolio in cash
or cash equivalents in a segregated account with its custodian.
The principal reason for writing call options on a securities
portfolio is the attempt to realize, through the receipt of premiums, a greater
current return than would be realized on the securities alone. In return for the
premium, the covered option writer gives up the opportunity for profit from a
price increase in the underlying security above the exercise price so long as
its obligation as a writer continues, but retains the risk of loss should the
price of the security decline. Unlike one who owns securities not subject to an
option, the covered option writer has no control over when it may be required to
sell its securities, since it may be assigned an exercise notice at any time
prior to the expiration of its obligation as a writer.
If a Portfolio desires to sell a particular security it owns
on which it has written an option, the Portfolio will seek to effect a closing
purchase transaction prior to, or concurrently with, the sale of the security.
In order to close out a covered call option position, a Portfolio will enter
into a "closing purchase transaction" - the purchase of a call option on a
security or stock index with the same exercise price and expiration date as the
call option which it previously wrote on the same security or index.
When a Portfolio purchases a put or call option, the premium
paid by it is recorded as an asset of the Portfolio. When a Portfolio writes an
option, an amount equal to the net premium (the premium less the commission)
received by such Portfolio is included in the liability section of such
Portfolio's statement of assets and liabilities as a deferred credit. The amount
of this asset or deferred credit is subsequently marked-to-market to reflect the
current value of the option purchased or written. The current value of the
traded option is the last sale price or, in the absence of a sale, the average
of the closing bid and asked prices. If an option purchased by a Portfolio
expires unexercised, the Portfolio realizes a loss equal to the premium paid. If
a Portfolio enters into a closing sale transaction on an option purchased by it,
the Portfolio will realize a gain if the premium received by such Portfolio on
the closing transaction is more than the premium paid to purchase the option, or
a loss if it is less. Moreover,
-17-
<PAGE> 60
because increases in the market price of an option will generally reflect
(although not necessarily in direct proportion) increases in the market price of
the underlying security, any loss resulting from a closing purchase transaction
is likely to be offset in whole or in part by appreciation of the underlying
security if such security is owned by a Portfolio. If an option written by a
Portfolio expires on the stipulated expiration date or if a Portfolio enters
into a closing purchase transaction, it realizes a gain (or loss if the cost of
a closing purchase transaction exceeds the net premium received when the option
is sold) and the deferred credit related to such option is eliminated. If an
option written by a Portfolio is exercised, the proceeds of the sale are
increased by the net premium originally received and the Portfolio realizes a
gain or loss.
There are several risks associated with transactions in
options on securities and indices. For example, there are significant
differences between the securities, currencies and options markets that could
result in an imperfect correlation between these markets, causing a given
transaction not to achieve its objectives. In addition, a liquid secondary
market for particular options on a national securities exchange (an "Exchange")
may be absent for reasons which include the following: there may be insufficient
trading interest in certain options; restrictions may be imposed by an Exchange
on opening transactions or closing transactions or both; trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of options or underlying securities; unusual or unforeseen
circumstances may interrupt normal operations on an Exchange; the facilities of
an Exchange or the Options Clearing Corporation may not at all times be adequate
to handle current trading volume; or one or more Exchanges could, for economic
or other reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in which event
the secondary market on that Exchange (or in that class or series of options)
would cease to exist, although outstanding options that had been issued by the
Options Clearing Corporation as a result of trades on that Exchange would
continue to be exercisable in accordance with their terms.
A decision as to whether, when and how to use options involves
the exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected events.
FUTURES CONTRACTS. As stated in the Prospectus, the Portfolios
may engage in futures contracts and related options for hedging purposes. 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
-18-
<PAGE> 61
or stock index (which assigns relative values to the common stocks included in
the index) at the close of the last trading day of the contract and the price at
which the futures contract is originally struck. No physical delivery of the
underlying securities is normally made. A Portfolio 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 that
Portfolio under the rules of the exchange on which the futures contract (or
futures option) is traded, plus any premiums paid by the Portfolio on its open
futures options positions, does not exceed 5% of the Portfolio's total assets,
after taking into account any unrealized profits and losses on the Portfolio's
open contracts and excluding the amount that a futures option is "in-the-money"
at the time of purchase. An option to buy a futures contract is "in-the-money"
if the then current purchase price of the contract that is subject to the option
is less than the exercise or strike price; an option to sell a futures contract
is "in-the-money" if the exercise or strike price exceeds the then current
purchase price of the contract that is the subject of the option.
Successful use of futures contracts by a Portfolio is subject
to Bank of America's ability to predict correctly movements in the direction of
the stock market or interest rates. There are several risks in connection with
the use of futures contracts by a Portfolio as a hedging devise. One risk arises
because of the imperfect correlation between movements in the price of the
futures contract and movements in the price of the securities which are the
subject of the hedge. The price of the futures contract may move more than or
less than the price of the securities being hedged. If the price of the futures
contract moves less than the price of the securities which are the subject of
the hedge, the hedge will not be fully effective but, if the price of the
securities being hedged has moved in an unfavorable direction, a Portfolio would
be in a better position than if it had not hedged at all. If the price of the
securities being hedged has moved in a favorable direction, this advantage 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, a Portfolio
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 a Portfolio 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 a Portfolio may decline. If this
occurred, a Portfolio would lose money on the futures contract and also
experience a decline in value in its portfolio securities.
-19-
<PAGE> 62
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 Portfolios intend to purchase or sell futures contracts
only on exchanges or boards of trade where there appear to be active secondary
markets, there is no assurance that a liquid secondary market on any exchange or
board of trade will exist for any particular contract or at any particular time.
In such event, it may not be possible to close a futures investment position,
and in the event of adverse price movements, a Portfolio 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.
For additional information concerning futures and options
thereon, please see Appendix C to this Statement of Additional Information.
OPTIONS ON FUTURES CONTRACTS. The acquisition of put and call
options on a futures contract will give a Portfolio 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 Portfolio 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 a Portfolio's
assets. By writing a call option, a Portfolio 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
-20-
<PAGE> 63
an increase in the price of securities that the Portfolio intends to purchase.
However, the Portfolio becomes obligated to purchase a futures contract, which
may have a value lower than the exercise price. Thus, the loss incurred by the
Portfolio in writing options on futures is potentially unlimited and may exceed
the amount of the premium received. The Portfolio 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. A
Portfolio's ability to establish and close out positions on such options will be
subject to the development and maintenance of a liquid market.
FOREIGN INVESTMENTS. A Portfolio may invest in securities of
foreign issuers that are not publicly traded in the United States. Investments
in foreign securities involve certain inherent risks, such as political or
economic instability of the issuer or the country of issue, the difficulty of
predicting international trade patterns and the possibility of imposition of
exchange controls. Such securities may also be subject to greater fluctuations
in price than securities of domestic corporations. In addition, there may be
less publicly available information about a foreign company than about a
domestic company. Foreign companies generally are not subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to domestic companies. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries.
In considering whether to invest in the securities of a
foreign company, Bank of America considers such factors as the characteristics
of the particular company, differences between economic trends and the
performance of securities markets within the U.S. and those within other
countries, and also factors relating to the general economic, governmental and
social conditions of the country or countries where the company is located.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. When a
Portfolio agrees to purchase securities on a "when-issued" or "forward
commitment" basis, its custodian will set aside cash or liquid portfolio
securities equal to the amount of the commitment in a separate account.
Normally, its custodian will set aside portfolio securities to satisfy a
purchase commitment. In such a case, a Portfolio may be required subsequently to
place additional assets in the separate account in order to assure that the
value of the account remains equal to the amount of the Portfolio's commitment.
A Portfolio's net assets will fluctuate
-21-
<PAGE> 64
to a greater degree when it sets aside portfolio securities to cover such
purchase commitments than when it sets aside cash. The Portfolios do not intend
to engage in these transactions for speculative purposes but primarily in order
to hedge against anticipated changes in interest rates. Because each Portfolio
will set aside cash or liquid portfolio securities to satisfy the purchase
commitments in the manner described, a Portfolio's liquidity and the ability of
Bank of America to manage it may be affected in the event the forward
commitments and commitments to purchase when-issued securities ever exceeded 25%
of the value of its assets.
A Portfolio will purchase securities on a when-issued or
forward commitment basis only with the intention of completing the transaction.
If deemed advisable as a matter of investment strategy, however, a Portfolio 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
a Portfolio on the settlement date. In these cases a Portfolio may realize a
taxable capital gain or loss.
When a Portfolio engages in when-issued or forward commitment
transactions, it relies on the other party to consummate the trade. Failure of
such party to do so may result in the Portfolio's incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
The market value of the securities underlying a when-issued
purchase or forward commitment transaction and any subsequent fluctuations in
their market value is taken into account when determining the market value of a
Portfolio starting on the day the Portfolio agrees to purchase the securities.
The Portfolios do not earn interest on the securities they have committed to
purchase until they are paid for and delivered on the settlement date.
ADDITIONAL INFORMATION - ALL FUNDS
- ----------------------------------
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
Portfolio. The Portfolios 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 Portfolio).
-22-
<PAGE> 65
OTHER INVESTMENT LIMITATIONS
- ----------------------------
A Fund's or Master Portfolio's investment objectives are
fundamental and may not be changed with respect to such Fund or Master Portfolio
without the affirmative vote of the holders of the majority of the Fund's or
Master Portfolio's outstanding shares (as defined below under "Additional
Information Miscellaneous"). Similarly, the following enumerated fundamental
policies may not be changed with respect to each Fund or Master Portfolio
without such a vote of shareholders.
NEITHER THE ASSET ALLOCATION FUND, NOR THE INTERMEDIATE
BOND OR BLUE CHIP FUNDS OR THEIR CORRESPONDING MASTER PORTFOLIOS,
MAY:
1. Purchase securities (except securities issued by the U.S.
Government, its agencies or instrumentalities) if, as a result, more than 5% of
the value of its total assets will be invested in the securities of any one
issuer or it would own more than 10% of the voting securities of such issuer,
except that up to 25% of its total assets may be invested without regard to
these limitations; and provided that all of its assets may be invested in a
diversified, open-end management investment company, or a series thereof, with
substantially the same investment objectives, policies and restrictions without
regard to the limitations set forth in this paragraph;
2. Pledge, mortgage or hypothecate the assets of any Fund to
any extent greater than 10% of the value of the total assets of that Fund;
3. Make loans to other persons, except that a Fund may make
time or demand deposits with banks, provided that time deposits shall not have
an aggregate value in excess of 10% of a Fund's net assets, and may purchase
bonds, debentures or similar obligations that are publicly distributed, may loan
portfolio securities not in excess of 10% of the value of the total assets of
such Fund, and may enter into repurchase agreements as long as repurchase
agreements maturing in more than seven days do not exceed 10% of the value of
the total assets of a Fund;
4. Purchase or sell commodities contracts, except that any
Fund may purchase or sell futures contracts on financial instruments, such as
bank certificates of deposit and U.S. Government securities, foreign currencies
and stock indexes and options on any such futures if such options are written by
other persons and if (i) the futures or options are listed on a national
securities or commodities exchange, (ii) the aggregate premiums paid on all such
options that are held at any time do not exceed 20% of the total net assets of
that Fund, and (iii) the aggregate margin deposits required on all such futures
or
-23-
<PAGE> 66
options thereon held at any time do not exceed 5% of the total
assets of the Fund;
5. Purchase any securities for any Fund that would cause more
than 25% of the value of the Fund's total assets at the time of such purchase to
be invested in the securities of one or more issuers conducting their principal
activities in the same industry; provided that there is no limitation with
respect to investments in obligations issued or guaranteed by the United States
Government, its agencies and instrumentalities; and provided further that a Fund
may invest all its assets in a diversified, open-end management investment
company, or a series thereof, with substantially the same investment objectives,
policies and restrictions as the Fund without regard to the limitations set
forth in this paragraph (5).
6. Invest the assets of any Fund in nonmarketable securities
that are not readily marketable (including repurchase agreements maturing in
more than seven days, securities described in restriction (2) with respect to
such Fund in the Prospectus, restricted securities, certain OTC options and
securities used as cover for such options and stripped mortgage-backed
securities) to any extent greater than 10% of the value of the total assets of
that Fund; provided, however, that a Fund may invest all its assets in a
diversified, open-end management investment company, or a series thereof with
substantially the same investment objectives, policies and restrictions as the
Fund, without regard to the limitations set forth in this paragraph (6).
7. Borrow money for any Fund except for temporary emergency
purposes and then only in an amount not exceeding 5% of the value of the total
assets of that Fund. Borrowings shall, for purposes of this paragraph, include
reverse repurchase agreements. Any borrowings, other than reverse repurchase
agreements, will be from banks. Pacific Horizon will repay all borrowings in any
Fund before making additional investments for that Fund and interest paid on
such borrowings will reduce income.
8. Issue senior securities.
9. Underwrite any issue of securities, provided, however, that
a Fund may invest all of its assets in a diversified, open-end management
investment company, or a series thereof, with substantially the same investment
objectives, policies and restrictions as such Fund, without regard to the
limitations set forth in this paragraph (9).
10. Purchase or sell real estate or real estate mortgage loans,
but this shall not prevent investments in instruments secured by real estate or
interests therein or in
-24-
<PAGE> 67
marketable securities of issuers that engage in real estate operations.
11. Purchase on margin or sell short.
12. Purchase or retain securities of an issuer if those members
of the Board of Pacific Horizon or the Master Portfolio, each of whom own more
than 1/2 of 1% of such securities, together own more than 5% of the securities
of such issuer, provided, however, that a Fund may invest all of its assets in a
diversified, open-end management investment company, or a series thereof, having
substantially the same investment objectives, policies and restrictions as such
Fund without regard to the limitations set forth in this paragraph (12).
13. Purchase securities of any other investment company (except
in connection with a merger, consolidation, acquisition or reorganization) if,
immediately after such purchase, Pacific Horizon (and any companies controlled
by it) would own in the aggregate (i) more than 3% of the total outstanding
voting stock of such investment company, (ii) securities issued by such
investment company would have an aggregate value in excess of 5% of the value of
the total assets of Pacific Horizon, or (iii) securities issued by such
investment company and all other investment companies would have an aggregate
value in excess of 10% of the value of the total assets of Pacific Horizon
provided, however, that a Fund may invest all its assets in a diversified,
open-end management investment company, or a series thereof, having
substantially the same investment objectives, policies and restrictions as such
Fund, without regard to the limitations set forth in this paragraph (13).
14. Invest in or sell put, call, straddle or spread options or
interests in oil, gas or other mineral exploration or development programs.
* * *
With respect to the Intermediate Bond, Blue Chip and Asset
Allocation Funds, if a percentage restriction is satisfied at the time of
investment, a later increase or decrease in such percentage resulting from a
change in asset value will not constitute a violation of such restriction.
For the purposes of investment limitation P. 5 in this
Statement of Additional Information with respect to the Asset Allocation Fund
and the Intermediate Bond and Blue Chip Funds and their respective Master
Portfolios the Funds treat, in accordance with the current views of the staff of
the SEC and as a matter of non-fundamental policy that may be changed without a
vote of shareholders, all supranational organizations as a single
-25-
<PAGE> 68
industry and each foreign government (and all of its agencies) as
a separate industry.
In order to permit the sale of a Portfolio's shares in certain
states, Pacific Horizon and Master Trust I may make commitments more restrictive
than the investment policies and limitations described above. Pacific Horizon
and Master Trust I are reviewing the continuing applicability of these
commitments in light of recent legislation that preempts state regulation of
investment company securities. As of the date of this Statement of Additional
Information, the following such commitments have been made:
1. The Portfolios will not invest more than 5% of the
value of their respective net assets in warrants, of
which no more than 2% may be warrants which are not
listed on the New York or American Stock Exchanges.
2. The Portfolios will not invest in oil, gas or
other mineral leases.
3. The Portfolios will not purchase or sell real
property, including limited partnership interests,
but excluding readily marketable interests in Real
Estate Investment Trusts ("REITs") or readily
marketable securities of companies that invest in
real estate or real estate limited partnerships.
4. The Portfolios have agreed to exclude any assets of a
Portfolio which are invested in the shares of any
money market mutual fund for the purposes of
calculating that Portfolio's investment advisory fee.
5. The Portfolios will not purchase or retain the
securities of any issuer if the Officers or Directors
or Trustees of the Master Portfolio or its investment
adviser, owning beneficially more than one half of
one percent of the securities of an issuer together
own beneficially more than 5% of the securities of
that issuer.
6. The Portfolios will not invest more than 5% of their
respective total assets in the securities of issuers
which together with any predecessors have a record of
less than three years continuous operation.
7. The Portfolios will not invest more than 15% of
their respective total assets in the securities of
issuers which together with any predecessors have
-26-
<PAGE> 69
a record of less than three years continuous
operation or securities of issuers which are
restricted as to disposition.
8. The Portfolios will not invest more than 10% of their
respective total assets in illiquid securities
including securities of foreign issuers which are not
listed on a recognized domestic or foreign securities
exchange.
In the event that Pacific Horizon or Master Trust I determine
that any such commitment is no longer in the best interests of a Portfolio, it
may revoke its commitment. In such event, the Portfolio may no longer be able to
sell its securities in such state.
* * *
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Information on how to purchase and redeem SRF Shares, and how
such shares are priced, is included in the Prospectus. Additional information is
contained below. The net asset values of the Master Portfolios corresponding to
each of the Feeder Funds are determined at the same time and on the same days as
the net asset values per share of the respective Feeder Funds are determined.
The net asset value of each of the Feeder Funds is equal to such Fund's pro rata
share of the total investments and other assets of its corresponding Master
Portfolio, less any liabilities with respect to such Feeder Fund, including each
Feeder Fund's pro rata share of the Master Portfolio's liabilities.
VALUATION OF THE PORTFOLIOS
- ---------------------------
Except for debt securities held by the Portfolios with
remaining maturities of 60 days or less, assets for which market quotations are
available are valued as follows: (a) each listed security is valued at its
closing price obtained from the primary exchange on which the security is
listed, or, if there were no sales on that day, at its last reported current
closing price; (b) each unlisted security is valued at the last current bid
price (or last current sale price, as applicable) obtained from NASDAQ; (c)
United States Government and agency obligations are valued based upon bid
quotations from the Federal Reserve Bank for identical or similar obligations;
and (d) short-term money market instruments (such as certificates of deposit,
bankers' acceptances and commercial paper) are most often valued by bid
quotations or by reference to bid quotations of available yields for similar
instruments of issuers with similar credit ratings. The Board of Directors of
Pacific Horizon and Board of Trustees of Master Trust I have determined that the
values obtained using
-27-
<PAGE> 70
the procedures described in (c) and (d) represent the fair values of the
securities valued by such procedures. Most of these prices are obtained by PFPC,
Inc. ("PFPC") from a service that collects and disseminates such market prices.
Bid quotations for short-term money market instruments reported by such service
are the bid quotations reported to it by major dealers in such instruments.
Valuation of options is described above under "Investment
Objectives and Policies--Options Trading."
Debt securities held by the Portfolios with remaining
maturities of 60 days or less are valued on the basis of amortized cost, which
provides stability of net asset value. Under this method of valuation, the
security is initially valued at cost on the date of purchase or, in the case of
securities purchased with more than 60 days remaining to maturity and to be
valued on the amortized cost basis only during the final 60 days of its
maturity, the market value on the 61st day prior to maturity. Thereafter a
constant proportionate amortization in value until maturity of any discount or
premium is assumed, regardless of the impact of fluctuating interest rates on
the market value of the security, unless the Board of Directors of Pacific
Horizon or the Board of Trustees of Master Trust I determines that amortized
cost no longer represents fair value. Pacific Horizon and Master Trust I will
monitor the market value of these investments for the purpose of ascertaining
whether any such circumstances exist.
When approved by the Board of Directors of Pacific Horizon or
the Board of Trustees of Master Trust I, certain securities may be valued on the
basis of valuations provided by an independent pricing service when such prices
are believed to reflect the fair market value of such securities. These
securities may include those that have no available recent market value, have
few outstanding shares and therefore infrequent trades, or for which there is a
lack of consensus on the value, with quoted prices covering a wide range. The
lack of consensus might result from relatively unusual circumstances such as no
trading in the security for long periods of time, or a company's involvement in
merger or acquisition activity, with widely varying valuations placed on the
company's assets or stock. Prices provided by an independent pricing service may
be determined without exclusive reliance on quoted prices and may take into
account appropriate factors such as institutional-size trading in similar groups
of securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data.
In the absence of an ascertainable market value, assets are
valued at their fair value as determined using methods and
-28-
<PAGE> 71
procedures reviewed and approved by the Board of Directors of Pacific Horizon
and the Board of Trustees of Master Trust I.
SUPPLEMENTARY PURCHASE AND REDEMPTION INFORMATION
- -------------------------------------------------
IN GENERAL. SRF Shares of the Funds are available for
the investment of retirement funds held in Eligible Retirement
Accounts as described in the Prospectus.
SRF Shares in each Fund are sold without a sales load. SRF
Shares are subject to shareholder servicing fees. Service Organizations may be
paid by the Distributor at the Company's expense for shareholder services.
Depending on the terms of the particular account, Bank of America, its
affiliates, and Service Organizations also may charge their customers fees for
automatic investment, redemption and other services provided. Such fees may
include, for example, account maintenance fees, compensating balance
requirements or fees based upon account transactions, assets or income. Bank of
America or the particular Service Organization is responsible for providing
information concerning these services and any charges to any customer who must
authorize the purchase of Fund shares prior to such purchase.
All or a portion of the SRF Shares held in a Fund can be
redeemed (sold) at any time. The redemption price will be the net asset value
per share next determined following receipt by the Company of a shareholder's
satisfactorily completed instructions. The value of an SRF Share upon redemption
may be more or less than the value when purchased, depending upon the net asset
value of an SRF Share of the Fund at the time of the redemption. Redemptions are
subject to determination by the Company that the investment instruction form or
the redemption request and other distribution documents, if any, are complete.
Payment for SRF Shares redeemed will normally be made to the
custodian of the shareholder within one business day of receipt by the Company
of redemption instructions, but in no event will payment be made more than seven
days after receipt of redemption instructions except in the circumstances
described below.
EXCHANGE PRIVILEGES FOR ELIGIBLE RETIREMENT ACCOUNTS. SRF
Shares held in any Fund may be exchanged for SRF Shares of any other Fund. SRF
Shares held in any Fund may also be exchanged for A Shares in any other taxable,
non-money market Fund offered by the Company or a Time Horizon Fund without
incurring the front-end sales charge otherwise applicable on sales of A Shares
("Eligible Exchange Shares"). SRF Shares or Eligible Exchange Shares may be
exchanged for Pacific Horizon Shares of the Pacific Horizon Prime Fund. Eligible
Exchange Shares may be further exchanged for A Shares in any taxable, non-money
market fund offered by the Company or a Time Horizon Fund
-29-
<PAGE> 72
without incurring the front-end sales charges otherwise applicable, or for SRF
Shares offered by a Fund. SRF Shares or Eligible Exchange Shares held in an IRA
account for which a Participant's surviving spouse is the beneficiary may
continue to be exchanged for SRF Shares or A Shares as described above. 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.
The following transactions are examples of transactions that
will interrupt the maintenance of Eligible Retirement Account status for a
Participant's account and will terminate the account's ability to engage in the
exchange privileges described above:
1. SRF Shares or Eligible Exchange Shares held in an Eligible
Pension or Profit Sharing Trust or a SEP IRA, which are
transferred by the Participant into a personal rollover IRA,
will no longer be eligible to exchange such shares for A
Shares without incurring the front-end sales load applicable
to A Shares;
2. SRF Shares or Eligible Exchange Shares held in an IRA account
for which a Participant's surviving beneficiary upon transfer
out of the decedent's account is other than the Participant's
spouse will no longer be eligible to exchange such shares for
A Shares without incurring the front-end sales load applicable
to A Shares; and
3. SRF Shares or Eligible Exchange Shares which are liquidated in
their entirety by the Participant into a Certificate of
Deposit will no longer be eligible to exchange such shares for
A Shares without incurring the front-end sales load applicable
to A Shares.
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
-30-
<PAGE> 73
investment portfolios involved in the request are priced will be processed on
the next business day in the manner described above.
MISCELLANEOUS. Certificates for shares will not be
issued.
Depending on the terms of the customer account at Bank of
America or a Service Organization, certain purchasers may arrange with the
Company's custodian for sub-accounting services paid by the Company without
direct charge to the purchaser.
A "business day" for purposes of processing share purchases
and redemptions received by the Transfer Agent at its Columbus office is a day
on which the New York Stock Exchange is open for trading. In 1997, the holidays
on which the New York Stock Exchange is closed are: New Year's Day, Presidents'
Day, Good Friday, Memorial Day (observed), Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
The Company may suspend the right of redemption or postpone
the date of payment for shares during any period when (a) trading on the New
York Stock Exchange is restricted by applicable rules and regulations of the
SEC; (b) the New York Stock Exchange is closed for other than customary weekend
and holiday closings; (c) the SEC has by order permitted such suspension; or (d)
an emergency exists as determined by the SEC. (The Company may also suspend or
postpone the recordation of the transfer of its shares upon the occurrence of
any of the foregoing conditions.)
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 Funds will no longer be able to sell their
shares in the State of Texas. The Company is reviewing the continuing
applicability of this commitment in light of recent legislation which preempts
state regulation of investment company securities). 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.
-31-
<PAGE> 74
ADDITIONAL INFORMATION CONCERNING TAXES
FEDERAL - ALL FUNDS
- -------------------
Each 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, each 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 a Fund does not qualify for the
special federal tax treatment afforded regulated investment companies, all of
the Fund's taxable income will 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 will be taxable as ordinary income
to the extent of the current and accumulated earnings and profits of the
particular Fund and will be eligible for the dividends received deduction in the
case of corporate shareholders.
Qualification as a regulated investment company under the Code
requires, among other things, that each 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, a Fund's investment company
taxable income will be its taxable income, including dividends and interest, and
the excess of net short-term capital gain over net long-term capital loss, if
any, subject to certain adjustments and excluding the excess of net long-term
capital gain for the taxable year over the net short-term capital loss for such
year, if any. Each Fund will be taxed on its undistributed investment company
taxable income, if any. As stated, each Fund of the Company intends to
distribute at least 90% of its investment company taxable income, if any, for
each taxable year. To the extent the Funds distribute such income (whether in
cash or additional shares), it will be taxable to shareholders as ordinary
income.
A 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 a 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 a Fund upon maturity or disposition
-32-
<PAGE> 75
of a security held for less than three months will not be treated as gross
income derived from the sale or other disposition of such security within the
meaning of this requirement. However, any other income which is attributable to
realized market appreciation will be treated as gross income from the sale or
other disposition of securities for this purpose. With respect to covered call
options, if the call is exercised by the holder, the premium and the price
received on exercise constitute the proceeds of sale, and the difference between
the proceeds and the cost of the securities subject to the call is capital gain
or loss. Premiums from expired call options written by a Fund and net gains from
closing purchase transactions are treated as short-term capital gains for
federal income tax purposes, and losses on closing purchase transactions are
short-term capital losses. See Appendix C -- "Accounting and Tax Treatment" --
for a general discussion of the federal tax treatment of futures contracts,
related options thereon and other financial instruments, including their
treatment under the Short-Short test.
Any distribution of the excess of net long-term capital gain
over net short-term capital loss is taxable to shareholders as long-term capital
gain, regardless of how long the shareholder has held Fund shares and whether
such gain is received in cash or additional Fund shares. The Fund will designate
such a distribution as a capital gain dividend in a written notice mailed to
shareholders after the close of the Fund's taxable year. It should be noted
that, upon the sale or exchange of Fund shares, if the shareholder has not held
such shares for more than six months, any loss on the sale or exchange of those
shares will be treated as long-term capital loss to the extent of the capital
gain dividends received with respect to those shares.
Ordinary income of individuals is taxable at a maximum
marginal rate of 39.6%, but because of limitations on itemized deductions
otherwise allowable and the phase-out of personal exemptions, the maximum
effective marginal rate of tax for some taxpayers may be higher. An individual's
long-term capital gain is taxable at a maximum nominal rate of 28%. For
corporations, long-term capital gains and ordinary income are both taxable at a
maximum nominal rate of 35%.
A 4% non-deductible excise tax is imposed on regulated
investment companies that fail to currently distribute specific percentages of
their ordinary taxable income and capital gain net income (excess of net capital
gain over net capital loss). Each 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.
-33-
<PAGE> 76
The Company will be required in certain cases to withhold and
remit to the United States Treasury 31% of taxable dividends or 31% of gross
sale proceeds paid to shareholders (i) who have failed to provide a correct tax
identification number in the manner required, (ii) who are subject to
withholding by the Internal Revenue Service for failure to properly include on
their return payments of taxable interest or dividends or (iii) who have failed
to certify to the Company that they are not subject to backup withholding or
that they are "exempt recipients."
TAXATION OF THE MASTER PORTFOLIOS
- ---------------------------------
Management of the Master Portfolios corresponding to each of
the Feeder Funds intends for each Master Portfolio to be treated as a
partnership (or, in the event that a Feeder Fund is the sole investor in a
Master Portfolio, as an agent or nominee) rather than as a regulated investment
company or a corporation under the Code. Under the rules applicable to a
partnership (or an agent of nominee) under the Code, any interest, dividends,
gains and losses of the Master Portfolios will be deemed to have been reported
as income/loss (i.e., "passed through") to their investors, regardless of
whether any amounts are actually distributed by the Master Portfolios.
Each investor in a Master Portfolio will be taxed on its share
(as determined in accordance with the governing instruments of the particular
Master Portfolio) of the Master Portfolio's ordinary income and capital gains in
determining its income tax liability. The determination of such share will be
made in accordance with the Code and regulations promulgated thereunder. It is
intended that each Master Portfolio's assets, income and distributions will be
managed in such a way that an investor in a Master Portfolio will be able to
satisfy the requirements of Subchapter M of the Code, assuming that the investor
invested all of its assets in the Master Portfolio.
OTHER INFORMATION
- -----------------
Depending upon the extent of activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located or in which it is otherwise deemed to be
conducting business, the Funds may be subject to the tax laws of such states or
localities.
The foregoing discussion is based on tax laws and regulations
which are in effect on the date of this Statement of Additional Information.
Such laws and regulations may be changed by legislative or administrative
action. This discussion is only a summary of some of the important tax
considerations generally affecting purchasers of Fund shares. No attempt is made
to present a detailed explanation of the federal income tax treatment of the
Funds or their shareholders, and this discussion
-34-
<PAGE> 77
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,
ages, and principal occupations during the past five years are:
<TABLE>
<CAPTION>
Position with
Name and Address Age Company Principal Occupations
- ---------------- --- ------- ---------------------
<S> <C> <C> <C>
Thomas M. Collins 62 Director Of counsel, law firm of McDermott & Trayner; Partner
McDermott & Trayner of the law firm of Musick, Peeler, Garrett (until April,
225 S. Lake Avenue 1993); Chairman of the Board and Trustee, Master Investment
Suite 410 Trust, Series I (registered investment company) (since
Pasadena, CA 91101-3005 1993); President and Chairman of the Board of Pacific
Horizon Funds, Inc. (1982 to August 31, 1995); former
Trustee, Master Investment Trust, Series II (registered
investment company) 1993 to February 1997; former Director,
Bunker Hill Income Securities, Inc. (registered investment
company) through 1991.
Douglas B. Fletcher 70 Vice Chairman Chairman of the Board and Chief Executive Officer, Fletcher
Fletcher Capital of the Board Capital Advisors, Incorporated, (registered investment
Advisors Incorporated adviser) 1991 to date; Partner, Newport Partners
4 Upper Newport Plaza (private venture capital firm), 1981 to date; Chairman of
Suite 100 the Board and Chief Executive Officer, First Pacific
Newport Beach, CA 92660-2629 Advisors, Inc. (registered investment adviser) and seven
</TABLE>
-35-
<PAGE> 78
<TABLE>
<CAPTION>
Position with
Name and Address Age Company Principal Occupations
- ---------------- --- ------- ---------------------
<S> <C> <C> <C>
investment companies under its management, prior to 1983;
former Allied Member, New York Stock Exchange; Chairman of
the Board of FPA Paramount Fund, Inc. through 1984;
Director, TIS Mortgage Investment Company (real estate
investment trust); Trustee and former Vice Chairman of the
Board, Claremont McKenna College; Chartered Financial
Analyst.
Robert E. Greeley 64 Director Chairman, Page Mill Asset Management (a private investment
Page Mill Asset company) since 1991; Manager, Corporate Investments, Hewlett
Management Packard Company from 1979 to 1991; Trustee, Master
433 California Street Investment Trust, Series I (since 1993); Director, Morgan
Suite 900 Grenfell Small Cap Fund (since 1986); former Director,
San Francisco, CA 94104 Bunker Hill Income Securities, Inc. (since 1989) (registered
investment companies); former Trustee, SunAmerica Fund Group
(previously Equitec Siebel Fund Group) from 1984 to 1992;
former Trustee, Master Investment Trust, Series II from 1993
to February 1997 (registered investment companies).
</TABLE>
-36-
<PAGE> 79
<TABLE>
<CAPTION>
Position with
Name and Address Age Company Principal Occupations
- ---------------- --- ------- ---------------------
<S> <C> <C> <C>
Kermit O. Hanson 79 Director Vice Chairman of the Advisory Board, 1988 to date, Executive
17760 14th Ave., N.W. Director, 1977 to 1988, Pacific Rim Bankers Program (a
Shoreline, WA 98177 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 of American Universities, February
Association of American the Board and 1993 to date; Provost, 1982 to January 1993, Senior Vice
Universities President President for Academic Affairs, 1981 to January 1993,
1200 New York Avenue, NW University of Southern California; Trustee, Master
Suite 550 Investment Trust, Series I; former Trustee, Master
Washington, DC 20005 Investment Trust, Series II (October 1995 to February 1997).
J. David Huber 49 Vice President Employee of BISYS Fund Services, Inc., June 1987 to present;
BISYS Fund Services President of Master Investment Trust, Series I, Master Investment
3435 Stelzer Road Trust Series II and Seafirst Retirement Funds (since 1996).
Columbus, OH 43219
Irimga McKay 35 Vice Senior Vice President, July 1993 to date, prior thereto
BISYS Fund Services President First Vice President of Concord and the Distributor,
1230 Columbia Street November 1988 to July 1993; Vice President,
5th Floor Seafirst Retirement Funds (since 1993); Vice
La Jolla, CA 92037
</TABLE>
-37-
<PAGE> 80
<TABLE>
<CAPTION>
Position with
Name and Address Age Company Principal Occupations
- ---------------- --- ------- ---------------------
<S> <C> <C> <C>
President of Master Investment Trust, Series II (1993 to
February 1997); Regional Vice President, Continental
Equities, June 1987 to November 1988; Assistant Wholesaler,
VMS Realty Partners (a real estate limited partnership), May
1986 to June 1987.
Michael Brascetta 37 Assistant Vice Senior Vice President of Shareholder Services, BISYS
BISYS Fund Services President Fund Services, Inc., April 1996 to present; employee, The
3435 Stelzer Road Vanguard Group, 1981 to April 1996.
Columbus, OH 43219
Stephanie L. Blaha 37 Assistant Vice Director of Client Services of Concord, March 1995 to
BISYS Fund Services President date, prior thereto Assistant Vice President of
3435 Stelzer Road Concord and the Distributor, October 1991 to March 1995;
Columbus, OH 43219 Vice President, Seafirst Retirement Funds and Master
Investment Trust, Series I (since 1996); Vice President of
Master Investment Trust, Series II (1996 to February 1997);
Account Manager, AT&T American Transtech, Mutual Fund
Division, July 1989 to October 1991.
Kevin L. Martin 35 Treasurer Vice President, Fund Accounting BISYS Fund Services, Inc.
BISYS Fund Services February 1996 to Present; Treasurer, Seafirst Retirement
3435 Stelzer Road Funds (since 1996); Treasurer of Master Investment Trust,
Columbus, OH 43219 Series II (1996 to February 1997); Senior Audit Manager,
Ernst & Young LLP (1984 to February 1996).
</TABLE>
-38-
<PAGE> 81
<TABLE>
<CAPTION>
Position with
Name and Address Age Company Principal Occupations
- ---------------- --- ------- ---------------------
<S> <C> <C> <C>
Lisa Ling 36 Assistant Employee, BISYS Fund Services, Inc., November 1995 to
BISYS Fund Services Treasurer present; Assistant Treasurer, Seafirst Retirement Funds
3435 Stelzer Road (since 1996); Assistant Treasurer of Master Investment
Columbus, OH 43219 Trust, Series II (1996 to February 1997); employee,
Federated Investors, October 1982 to November 1995.
W. Bruce McConnel, III 53 Secretary Partner of the law firm of Drinker Biddle & Reath.
1345 Chestnut Street
Philadelphia National Bank
Building, Suite 1100
Philadelphia, PA 19107
George O. Martinez 36 Assistant Senior Vice President and Director of Administrative and
BISYS Fund Services Secretary Regulatory Services, of Concord, since April 1995; Assistant
3435 Stelzer Road Secretary, Seafirst Retirement Funds (since 1995); Assistant
Columbus, OH 43219 Secretary of Master Investment Trust, Series II (1995 to
February 1997); prior thereto, Vice President and Associate
General Counsel, Alliance Capital Management, L.P.
Alaina V. Metz 28 Assistant Chief Administrator, Administrative and Regulatory Services,
BISYS Fund Services Secretary BISYS Fund Services, Inc., June 1995 to present; Assistant
3435 Stelzer Road Secretary of Seafirst Retirement Funds (since 1996);
Columbus, OH 43219 Supervisor, Mutual Fund Legal Department, Alliance Capital
Management, May 1989 to June 1995.
<FN>
- ------------------------
* Dr. Pings is an "interested director" of the Company as defined in the
1940 Act.
</TABLE>
-39-
<PAGE> 82
The Audit Committee of the Board is comprised of all directors
and is chaired by Dr. Hanson. The Board does not have an Executive Committee.
Each director is entitled to receive an annual fee of $25,000
plus $1,000 for each day that a director participates in all or a part of a
Board meeting; the President receives an additional $20,000 per annum for his
services as President; Mr. Collins, in recognition of his years of service as
President and Chairman of the Board, receives an additional $40,000 per annum
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 investment
portfolio 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. Of that amount, $6,935, $6,354 and $1,165 of
directors' compensation were allocated to the Intermediate Bond, Blue Chip and
Asset Allocation Funds, respectively. 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, owned less than 1% of the outstanding shares of each
of the Company's investment portfolios.
Under a retirement plan approved by the Board, including a
majority of its directors who are not "interested persons" of the Company, a
director who dies or resigns after five years of service is entitled to receive
ten annual payments each equal to the greater of: (i) 50% of the annual
director's retainer that was payable by the Company during the year of his/her
death or resignation, or (ii) 50% of the annual director's retainer then in
effect for directors of the Company during the year of such payment. A director
who dies or resigns after nine years of service is entitled to receive ten
annual payments each equal to the greater of: (i) 100% of the annual director's
retainer that was payable by the Company during the year of his/her death or
resignation, or (ii) 100% of the annual director's retainer then in effect for
directors of the Company during the year of such payment. Further, the amount
payable each year to a director who dies or resigns is increased by $1,000 for
each year of service that the director served as Chairman of the Board.
-40-
<PAGE> 83
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" of the Company within 120 days
following the director's death or resignation and may be authorized as a single
sum cash payment or as not more than ten annual payments (beginning the first
anniversary of the director's date of death or resignation and continuing for
one or more anniversary date(s) thereafter). On August 31, 1996, Dr. Kenneth L.
Trefftzs retired from the Board of Directors. In honor of his years of service
to the Company, the Board of Directors designated Dr. Trefftzs as a "director
emeritus" of the Company. Additionally, in recognition of Dr. Trefftzs' years of
service to the Company prior to March 1, 1994 as director and Chairman of the
Company's Audit Committee, the Board of Directors, including a majority of the
directors who are not "interested persons" of the Company, authorized a single
sum cash payment retirement benefit of $60,000 payable January 1, 1997.
The obligation of the Company to pay benefits to a former
director is neither secured nor funded by the Company but shall be binding upon
its successors in interest. The payment of benefits under the retirement plan
has no priority or preference over the lawful claims of the Company's creditors
or shareholders, and the right to receive such payments is not
-41-
<PAGE> 84
assignable or transferable by a director (or former director) other than by
will, by the laws of descent and distribution, or by the director's written
designation of a beneficiary.
TRUSTEES AND OFFICERS OF MASTER INVESTMENT TRUST, SERIES I
- ----------------------------------------------------------
The trustees and officers of Master Investment Trust, Series I
("Master Trust I"), their addresses, age, and principal occupations during the
past five years are:
<TABLE>
<CAPTION>
Position with
Name and Address Age Master Trust I Principal Occupation
- ---------------- --- -------------- --------------------
<S> <C> <C> <C>
Thomas M. Collins 62 Chairman of See "Directors and
McDermott & Trayner the Board Officers of the
225 S. Lake Avenue, Company."
Suite 410
Pasadena, CA 91101-3005
Michael Austin 59 Trustee of Master Chartered Accountant;
Victory House, Trust I Trustee, Master
Nelson Quay Investment Trust, Series
Governor's Harbour II (1993 to February 1997);
Grand Cayman Retired Partner, KPMG
Cayman Islands Peat Marwick LLP.
British West Indies
Robert E. Greeley 64 Trustee of Master See "Directors and
Page Mill Asset Trust I Officers of the Company."
Management
433 California Street
Suite 900
San Francisco, CA 94104
Robert A. Nathane* 70 Trustee of Master Retired President, Laird
1200 Shenandoah Drive East Trust I Norton Trust Company,
Seattle, WA 98112 Chairman of the Board of
Advisors, Phoenix Venture
Funds; Trustee, Seafirst
Retirement Funds; Trustee,
Master Investment Trust,
Series II (1993 to February
1997); former Supervisor,
Collective Investment
Trust for Seafirst Retirement
Accounts; former Trustee,
First Funds of America
(registered investment
companies).
Cornelius J. Pings 66 Trustee of Master See "Directors and Officers of
Association of American Trust I the Company."
Universities
1200 New York Avenue, NW
Suite 550
Washington, DC 20005
J. David Huber 49 President of See "Directors and Officers
BISYS Fund Services Master Trust I of the Company."
</TABLE>
-42-
<PAGE> 85
<TABLE>
<CAPTION>
Position with
Name and Address Age Master Trust I Principal Occupation
- ---------------- --- -------------- --------------------
<S> <C> <C> <C>
3435 Stelzer Road
Columbus, OH 43219
Adrian J. Waters 32 Executive Vice Managing Director,
BISYS Fund Services President, Concord Management
Floor 2, Block 2 Treasurer and (Ireland) Ltd. since May
Harcourt Centre Assistant 1993; Manager in the
Dublin 2, Ireland Secretary of Investment Company Industry
Master Trust I Services Group, Price
Waterhouse 1989 to May 1993;
Member of Oliver Freaney and
Co./Spicer and Openheim
Chartered Accountants 1986-
1989.
Stephanie L. Blaha 37 Vice President of See "Directors and Officers of
BISYS Fund Services Master Trust I the Company."
3435 Stelzer Road
Columbus, OH 43219
W. Bruce McConnel, III 53 Secretary of See "Directors and
1345 Chestnut Street Master Trust I Officers of the Company."
Philadelphia, PA 19107
<FN>
- -----------------------------
* Mr. Nathane is an "interested trustee" of Master Trust I as defined in
the 1940 Act.
</TABLE>
Each trustee receives an aggregate annual fee of $3,000 ($5,000 in the
case of any trustee who is not also a Director or Trustee of a feeder fund of
one of the portfolios of Master Trust I) plus $500 per day for each travel day
and each day of a Board or committee meeting attended, for his services as
trustee of each of Master Trust I. Each trustee is also reimbursed for
out-of-pocket expenses incurred as a trustee. For its fiscal year ended February
29, 1996, Master Trust I paid or accrued for the account of its trustees as a
group for services in all capacities a total of $14,525; of that amount, $3,499,
$3,500 and $3,500 were allocated to the Master Portfolios corresponding to the
Intermediate Bond, Blue Chip and Asset Allocation Funds, respectively (prior to
the Reorganization Date, the Asset Allocation Fund operated as part of a master
feeder structure and invested all of its assets in the Asset Allocation Master
Portfolio). The trustee's fees and reimbursements are allocated among all of
Master Trust I's portfolios based on their relative net asset values. Drinker
Biddle & Reath, of which Mr. McConnel is a partner, receives legal fees as
counsel to Master Trust I.
The following chart provides certain information for the
fiscal year ended February 29, 1996 about the fees received by directors of the
Company as directors and/or officers of the Company and as directors and/or
trustees of the Fund Complex:
-43-
<PAGE> 86
<TABLE>
<CAPTION>
=================================================================================================================================
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM
BENEFITS ESTIMATED REGISTRANT
AGGREGATE ACCRUED AS ANNUAL AND FUND
COMPENSATION PART OF BENEFITS COMPLEX**
NAME OF PERSON/ FROM THE FUND UPON PAID TO
POSITION COMPANY EXPENSES* RETIREMENT DIRECTORS
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Thomas M. Collins $76,215 $ 0 $ 0 $85,000
Director+
- ---------------------------------------------------------------------------------------------------------------------------------
Douglas B. Fletcher $28,555 $ 0 $ 0 $29,055
Vice Chairman of
the Board
- ---------------------------------------------------------------------------------------------------------------------------------
Robert E. Greeley $31,395 $ 0 $ 0 $44,055
Director
- ---------------------------------------------------------------------------------------------------------------------------------
Kermit O. Hanson $27,485 $ 0 $ 0 $32,055
Director
- ---------------------------------------------------------------------------------------------------------------------------------
Cornelius J. Pings $29,555 $ 0 $ 0 $30,055
President and
Chairman of the
Board++
- ---------------------------------------------------------------------------------------------------------------------------------
Kenneth L. Trefftzs $28,555 $ 0 $ 0 $29,055
Director+++
=================================================================================================================================
<FN>
- ------------------------------
* For the fiscal year ended February 29, 1996, the Company accrued on the
part of all of the directors an aggregate of $65,739 in retirement
benefits.
** The "Fund Complex" consists of the Company, Seafirst Retirement Funds
(reorganized into the Company on _________, 1997), Master Trust I,
Master Trust II, Time Horizon Funds and World Horizon Funds.
+ Mr. Collins was President and Chairman of the Board of the Company until
August 31, 1995.
++ Dr. Pings became President and Chairman of the Board of the Company
effective September 1, 1995. At February 29, 1996, $10,000, $3,500 and
$3,500 in deferred compensation was payable to Dr. Pings for services
as President of the Company, trustee of Master Trust I and trustee of
Master Trust II, respectively.
+++ Dr. Trefftzs retired from the Board of the Company on August 31, 1996.
</TABLE>
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. As described in
the Prospectuses, the Feeder Funds have not retained the services of an
investment adviser because they seek to achieve their investment objectives by
investing all their assets in their corresponding Master Portfolios. In the
Investment Advisory Agreements with the Companies, Bank of America has agreed to
-44-
<PAGE> 87
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 agreements other than the cost of securities, including
brokerage commissions, if any, purchased for the Portfolios. In rendering its
advisory services, Bank of America may utilize Bank officers from one or more of
the departments of the Bank which are authorized to exercise the fiduciary
powers of Bank of America with respect to the investment of trust assets. In
some cases, these officers may also serve as officers, and utilize the
facilities, of wholly-owned subsidiaries and other affiliates of Bank of America
or its parent corporation. In addition, the Investment Advisory Agreements with
respect to the Intermediate Bond and Blue Chip Master Portfolios provide 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.
Effective upon the Reorganization Date, the Companies have
agreed to pay Bank of America fees, accrued daily and payable monthly, at the
annual rates of .30% of the net assets of the Intermediate Bond Master
Portfolio; .50% of the net assets of the Blue Chip Master Portfolio and .40% of
the net assets of the Asset Allocation Fund for the services provided and
expenses assumed pursuant to the particular Investment Advisory Agreement. Prior
to the Reorganization Date, Bank of America was entitled to receive an
investment advisory fee at the annual rate of 0.45%, 0.75% and 0.55% of each of
the Intermediate Bond Master Portfolio's, Blue Chip Master Portfolio's and Asset
Allocation Master Portfolio's respective average daily net assets. The fees
payable to Bank of America are not subject to reduction as the value of the
Asset Allocation Fund's or Master Portfolio's net assets increase. From time to
time, Bank of America may waive fees or reimburse the Asset Allocation Fund or a
particular Master Portfolio for expenses voluntarily or as required by certain
state securities laws.
For the fiscal years and period indicated, the following
advisory fees were paid or payable to the Bank of America by the Intermediate
Bond Master Portfolio, Blue Chip Master Portfolio and Asset Allocation Master
Portfolio. Except as noted below, for the fiscal years and period indicated,
Bank of America waived its entire advisory fee with respect to the Intermediate
Bond Master Portfolio, Blue Chip Master Portfolio and Asset Allocation Master
Portfolio:
-45-
<PAGE> 88
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
Period from
commencement
of
operations(1)
Year ended Year ended through
February 29, February 28, February 28,
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Intermediate Bond $ 269,136 $ 293,222 $ 84,856
Master Portfolio
- --------------------------------------------------------------------------------------------------------------------------
Blue Chip Master $1,574,388(2) $1,091,132 $225,019
Portfolio
- --------------------------------------------------------------------------------------------------------------------------
Asset Allocation $ 913,660(2) $ 849,188 $197,611
Master Portfolio(3)
==========================================================================================================================
<FN>
Additionally, for the fiscal years indicated and for the
period from commencement of operations through February 28, 1994, Bank of
America assumed certain operating expenses of the Intermediate Bond Fund, Blue
Chip Fund and Asset Allocation Fund
as follows:
- --------
1 The Intermediate Bond Master Portfolio, Blue Chip Master Portfolio and
Asset Allocation Master Portfolio commenced operations on December 6, 1993.
2 For the fiscal year ended February 29, 1996, Bank of America waived
$1,164,328 and $720,259, respectively, in advisory fees with respect to the
Blue Chip Master Portfolio and Asset Allocation Master Portfolio.
3 Prior to the Reorganization Date, the Asset Allocation Fund invested all of
its assets in the Asset Allocation Master Portfolio. On the Reorganization
Date, the Asset Allocation Fund withdrew assets from the Asset Allocation
Master Portfolio and invested them directly in investment securities.
</TABLE>
-46-
<PAGE> 89
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
Period from
commencement
of
operations
Year ended Year ended through
February 29, February 28, February 28,
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Intermediate Bond $0 $207,033 $24,300
Fund
- -----------------------------------------------------------------------------------------------------------------------------
Blue Chip Fund $0 $245,776 $31,726
- -----------------------------------------------------------------------------------------------------------------------------
Asset Allocation $0 $245,718 $28,384
Fund
=============================================================================================================================
</TABLE>
For the period from December 6, 1993 (commencement of
operations) through April 11, 1994, Bank of America had a Sub-Advisory Agreement
with Seattle Capital Management Company ("Seattle Capital") with respect to
management of the assets of the Intermediate Bond Master Portfolio and that
portion of the assets of the Asset Allocation Master Portfolio which Bank of
America determined from time to time to be appropriate for investment in debt
securities (including money market instruments). The Sub-Advisory Agreement
provided that Bank of America would pay Seattle Capital a monthly advisory fee
based upon the net assets of such Master Portfolios, at the annual rate of .45%
of the net assets of the Intermediate Bond Master Portfolio, and .55% of that
portion of the net assets of the Asset Allocation Master Portfolio managed by
Seattle Capital. For the period from December 6, 1993 (commencement of
operations) through February 28, 1994, Bank of America paid Seattle Capital
sub-advisory fees of $0 for sub-advisory services to the Intermediate Bond
Master and Asset Allocation Master Portfolios.
The Investment Advisory Agreements between Bank of America and
each Company will be in effect until October 31, 1997, and will continue in
effect with respect to a particular Master Portfolio or Fund from year to year
thereafter only so long as such continuation is approved at least annually by
(i) the Board of Trustees/Directors of the particular Company or the vote of a
"majority," as defined in the 1940 Act, of the outstanding voting securities of
such particular Master Portfolio or Fund, and (ii) a majority of those
trustees/directors of the particular Company who are not "interested persons,"
as defined in the 1940 Act, of any party to the particular Investment Advisory
Agreement, acting in person at a meeting called for the purpose of voting on
such approval. Each Investment Advisory Agreement will terminate automatically
in the event of its "assignment," as defined in the 1940 Act. In addition, each
Investment Advisory Agreement is terminable with respect to a
-47-
<PAGE> 90
particular Master Portfolio or Fund at any time without penalty upon 60 days'
written notice by the Board of Trustees/Directors of the particular Company, by
vote of the holders of a majority of a particular Master Portfolio's or Fund's
outstanding voting securities, or by Bank of America.
See "Management - Administrator" for instances where the
investment adviser is required to make expense reimbursements to the Funds or
Master Portfolios.
The Investment Advisory Agreements provide 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
Agreements, 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 of Governors") issued a
regulation and interpretation to the effect that the Glass-Steagall Act and such
decision forbid a bank holding company registered under the Federal Bank Holding
Company Act of 1956 (the "Holding Company Act") or any non-bank affiliate
thereof from sponsoring, organizing or controlling a registered, open-end
investment company continuously engaged in the issuance of its shares, but do
not prohibit such a holding company or affiliate from acting as investment
adviser, transfer agent and custodian to such an investment company. In 1981,
the United States Supreme Court held in BOARD OF GOVERNORS OF THE FEDERAL
RESERVE SYSTEM V. INVESTMENT COMPANY INSTITUTE that the Board of Governors did
not exceed its authority under the Holding Company Act when it adopted its
regulation and interpretation authorizing bank holding companies and their
non-bank affiliates to act as investment advisers to registered closed-end
investment companies.
Bank of America believes that if the question were properly
presented, a court should hold that Bank of America may perform the services for
the Portfolios contemplated by the
-48-
<PAGE> 91
particular Investment Advisory Agreement, the Prospectus, and this Statement of
Additional Information without violation of the Glass-Steagall Act or other
applicable banking laws or regulations. It should be noted, however, that there
have been no cases deciding whether a national bank may perform services
comparable to those performed by Bank of America and that future changes in
either federal or state statutes and regulations relating to permissible
activities of banks or trust companies and their subsidiaries or affiliates, as
well as further judicial or administrative decisions or interpretations of
present and future statutes and regulations, could prevent Bank of America from
continuing to perform such services for the Portfolios or from continuing to
purchase Fund shares for the accounts of its customers. (For a discussion of the
Glass Steagall Act in connection with the Company's Shareholder Service Plans,
see "Plan Payments" in the Funds' Prospectuses.)
On the other hand, as described herein, the Funds are
currently distributed by Concord Financial Group, Inc. and The BISYS Group,
Inc., its parent, either directly or through its off-shore subsidiary with
respect to the Intermediate Bond Master Portfolio and Blue Chip Master Portfolio
provides the Funds and Master Portfolios with administrative services. If
current restrictions under the Glass-Steagall Act preventing a bank from
sponsoring, organizing, controlling, or distributing shares of an investment
company were relaxed, the Companies expect that Bank of America would consider
the possibility of offering to perform some or all of the services now provided
by The BISYS Group, Inc. or Concord Financial Group, Inc. From time to time,
legislation modifying such restriction has been introduced in Congress which, if
enacted, would permit a bank holding company to establish a non-bank subsidiary
having the authority to organize, sponsor and distribute shares of an investment
company. If this or similar legislation were enacted, the Companies expect that
Bank of America's parent bank holding company would consider the possibility of
one of its non-bank subsidiaries offering to perform some or all of the services
now provided by The BISYS Group, Inc. or Concord Financial Group, Inc. It is not
possible, of course, to predict whether or in what form such legislation might
be enacted or the terms upon which Bank of America or such a non-bank affiliate
might offer to provide services for consideration by a particular Company's
Board of Directors/Trustees.
ADMINISTRATOR
- -------------
The BISYS Group, Inc. ("BISYS" or the "Administrator"),
through its wholly-owned subsidiary BISYS Fund Services, L.P.,
with offices at 150 Clove Road, Little Falls, New Jersey 07424
and 3435 Stelzer Road, Columbus, Ohio 43219-3035, respectively,
serves as Administrator of the Funds and the Master Portfolios.
Prior to November 1, 1996, Concord Holding Corporation
-49-
<PAGE> 92
("Concord"), an indirect, wholly owned subsidiary of BISYS, served as
administrator of the Funds and the Master Portfolios.
BISYS (and/or BISYS' off-shore affiliate with respect to the
Intermediate Bond Master Portfolio and Blue Chip Master Portfolio) provides
administrative services to the Funds and the Master Portfolios as described in
the Funds' Prospectus pursuant to separate administration agreements for each
Company. Each Master Portfolio's administration agreement will continue in
effect until October 31, 1997 and thereafter for successive periods of one year,
provided that such continuance is specifically approved at least annually (a) by
a vote of a majority of those members of the Board of Trustees of the particular
Master Trust who are not parties to the administration agreement or "interested
persons" of any such party, cast in person at a meeting called for the purpose
of voting on such approval, and (b) by the Board of Trustees of the particular
Master Trust or by vote of a "majority of the outstanding voting securities" of
such Master Portfolio. Each Master Portfolio's administration agreement is
terminable at any time with respect to such Master Portfolio, without penalty,
by its Board of Trustees or by vote of a majority of such Master Portfolio's
outstanding securities upon 60 days' notice to BISYS, or by BISYS, upon 90 days'
written notice to such Master Portfolio. The Company's administration agreement
will continue in effect until October 31, 1997 and thereafter will be extended
with respect to each Fund for successive periods of one year, provided that each
such extension is specifically approved by (a) vote of a majority of those
members of the Company's Board of Directors who are not interested persons of
any party to the agreement, cast in person at a meeting called for the purpose
of voting on such approval, and (b) the Company's Board of Directors or by vote
of a majority of the outstanding voting securities of such 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 securities of any Fund upon 60 days'
notice to BISYS, or by BISYS upon 90 days' notice to the Company.
For its services as administrator, BISYS is entitled to
receive administration fees, accrued daily and payable monthly, at the annual
rates of .05% of the average daily net assets of the Intermediate Bond Master
Portfolio and Blue Chip Master Portfolio. BISYS is entitled to receive
administration fees, accrued daily and payable monthly, at the annual rate of
.15% of the average daily net assets of the Intermediate Bond Fund, Blue Chip
Fund and Asset Allocation Fund. The fees payable to BISYS are not subject to
reduction as the value of each Fund's and Master Portfolio's net assets
increase. From time to time, BISYS may waive fees or reimburse a Fund or Master
Portfolio for expenses, either voluntarily or as required by certain state
securities laws.
-50-
<PAGE> 93
For the fiscal years and period indicated, Concord, as the
Funds' prior administrator, reimbursed operating expenses of the Blue Chip Fund,
Asset Allocation Fund and Intermediate Bond
Fund as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
Year or
period1
Year ended Year ended ended
February 29, February 28, February 28,
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Intermediate Bond $253,991 $ 0 $ 0
Fund
- -----------------------------------------------------------------------------------------------------------------------------
Blue Chip Fund $150,472 $ 0 $ 0
- -----------------------------------------------------------------------------------------------------------------------------
Asset Allocation $192,545 $ 0 $ 0
Fund
=============================================================================================================================
<FN>
For the fiscal years and period indicated, the following
administration fees were paid or payable to Concord, as the Funds' and the
Master Portfolios' prior administrator, by the Intermediate Bond Fund, the
Intermediate Bond Master Portfolio, the Blue Chip Fund, the Blue Chip Master
Portfolio, the Asset Allocation Fund and the Asset Allocation Master Portfolio.
Except as noted below, for the fiscal years and period indicated, Concord waived
its entire administration fee with respect to the Intermediate Bond Fund and the
Intermediate Bond Master Portfolio, the Blue Chip Fund and the Blue Chip Master
Portfolio and the Asset Allocation Fund and the Asset Allocation Master
Portfolio):
- --------
1 The Blue Chip Fund, Asset Allocation Fund and Intermediate Bond Fund
commenced operations on January 13, 1994, January 18, 1994 and January 24,
1994, respectively.
</TABLE>
-51-
<PAGE> 94
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
Period from
commencement
of operations(1)
Year Ended Year ended through
February 29, February 28, February 28,
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Intermediate Bond $ 9,952 $ 1,723 $ 22
Fund
- -----------------------------------------------------------------------------------------------------------------------------
Intermediate Bond $ 30,769 $33,431 $ 9,429
Master Portfolio
- -----------------------------------------------------------------------------------------------------------------------------
Blue Chip Fund $ 44,971 $ 5,833 $ 87
- -----------------------------------------------------------------------------------------------------------------------------
Blue Chip Master $104,889(2) $72,742 $15,001
- -----------------------------------------------------------------------------------------------------------------------------
Asset Allocation $ 19,909 $ 4,703 $ 52
Fund(3)
- -----------------------------------------------------------------------------------------------------------------------------
Asset Allocation $ 83,060(2) $79,573 $17,965
Master Portfolio
=============================================================================================================================
<FN>
If total expenses borne (directly or indirectly) by any Fund
in any fiscal year exceed the expense limitations imposed by applicable state
securities regulations, a Company may deduct from the payments to be made with
respect to such Fund and/or Master Portfolio to Bank of America and BISYS or
Bank of America and BISYS each will bear the amount of such excess to the extent
required by such regulations in proportion to the fees otherwise payable to them
for such year. Such amount, if any, will be estimated, reconciled and effected
or paid, as the case may be, on a monthly basis. As of the date of this
Statement of
- --------
1 The Intermediate Bond Fund, Blue Chip Fund and Asset Allocation Fund
commenced operations on January 24, 1994, January 13, 1994 and January 18,
1994, respectively. The Intermediate Bond Master Portfolio, Blue Chip
Master Portfolio and Asset Allocation Master Portfolio commenced operations
on December 6, 1993.
2 For the fiscal year ended February 29, 1996, the Administrator waived
$77,922 and $65,491, respectively in administration fees with respect to
the Blue Chip Master Portfolio and Asset Allocation Master Portfolio.
3 Prior to the Reorganization Date, the Asset Allocation Fund invested all of
its investment in the Asset Allocation Master Portfolio. On the
Reorganization Date, the Asset Allocation Fund withdrew its assets from the
Asset Allocation Master Portfolio and invested directly in investment
securities.
</TABLE>
-52-
<PAGE> 95
Additional Information, the most restrictive expense limitation that may be
applicable to a Company limits aggregate annual expenses with respect to a Fund,
including management and advisory fees and the Funds' pro rata share of such
expenses of their corresponding Master Portfolio but excluding interest, taxes,
brokerage commissions, and certain other expenses, to 2-1/2% of the first $30
million of its average daily net assets, 2% of the next $70 million, and 1-1/2%
of its remaining average daily net assets. During the course of the Company's
fiscal year, BISYS and Bank of America may prospectively waive payment of fees
and/or assume certain expenses of one or more of the Funds or Master Portfolios,
as a result of competitive pressures and in order to preserve and protect the
business and reputation of BISYS and Bank of America. This will have the effect
of increasing yield to investors at the time such fees are not received or
amounts are assumed and decreasing yield when such fees or amounts are
reimbursed.
BISYS will bear all expenses in connection with the
performance of its services under the administration agreements with the
exception of the fees charged by PFPC for certain fund accounting services which
are borne by the Funds and Master Portfolios. See "General
Information--Custodian, Accounting Agent and Transfer Agent" below. Expenses
borne by the Funds and Master Portfolios include taxes, interest, brokerage fees
and commissions, if any, fees of Board members who are not officers, directors,
partners, employees or holders of 5% or more of the outstanding voting
securities of Bank of America or BISYS or any of their affiliates, SEC fees and
state securities qualification fees, advisory fees, administration fees, charges
of custodians, transfer and dividend disbursing agents' fees, certain insurance
premiums, outside auditing and legal expenses, costs of maintaining corporate
existence, costs attributable to investor services, including without limitation
telephone and personnel expenses, costs of preparing and printing prospectuses
and Statements of Additional Information for regulatory purposes, cost of
shareholders' and interestholders' reports and corporate meetings and any
extraordinary expenses. Certain shareholder servicing (and/or distribution fees
with respect to the Funds' B Shares and K Shares) in connection with Pacific
Horizon's shares are also paid by Pacific Horizon. See "Distributor and Plan
Payments."
The administration agreements provide that BISYS shall not be
liable for any error of judgment or mistake of law or any loss suffered by the
Company, the Funds, Master Trust I, or the Master Portfolios in connection with
the performance of the administration agreements, except a loss resulting from
willful misfeasance, bad faith or negligence in the performance of its duties or
from the reckless disregard by it of its obligations and duties thereunder.
-53-
<PAGE> 96
PFPC (and an off-shore affiliate of PFPC with respect to the
Intermediate Bond Fund and Blue Chip Fund and their corresponding Master
Portfolios) provides the Funds and the Master Portfolios with certain accounting
services pursuant to separate fund accounting services agreements with BISYS or
a subcontractor. Under the fund accounting services agreements, PFPC has agreed
to provide certain accounting, bookkeeping, pricing, dividend and distribution
calculation services with respect to the Funds and the Master Portfolios. The
monthly fees charged by PFPC under the fund accounting services agreements are
borne by the Funds and the Master Portfolios.
DISTRIBUTOR AND PLAN PAYMENTS
- -----------------------------
Concord Financial Group, Inc. (the "Distributor"), an
indirect, wholly owned subsidiary of BISYS, acts as distributor of the shares of
Pacific Horizon. 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
Pacific Horizon's shares although it is not obliged to sell any particular
amount of shares. The distribution agreement shall continue in effect with
respect to each Fund until October 31, 1997. Thereafter, if not terminated, the
distribution agreement shall continue automatically for successive terms of one
year, provided that such continuance is specifically approved at least annually
(a) by a vote of a majority of those members of Pacific Horizon's Board of
Directors 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 Pacific Horizon's Board of Directors or
by vote of a "majority of the outstanding voting securities" of the Funds as to
which the distribution agreement is effective; PROVIDED, HOWEVER, that the
distribution agreement may be terminated by Pacific Horizon at any time, without
the payment of any penalty, by vote of a majority of Pacific Horizon's entire
Board of Directors or by a vote of a "majority of the outstanding voting
securities" of such Funds 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 Pacific Horizon. The agreement will automatically and
immediately terminate in the event of its "assignment."
For the fiscal years ended February 29, 1996, February 28,
1995 and the period from the commencement of operations through February 28,
1994, the Distributor received sales loads in connection with the purchase of
shares of the Intermediate Bond, Blue Chip and Asset Allocation Funds as
follows:
-54-
<PAGE> 97
<TABLE>
<CAPTION>
Fiscal Year Ended February 29, 1996
----------------------------------------------------------------------------------------
Amount of
Total Sales
Amount of Load
Total Sales Retained By
Total Sales Load Affiliates
Load Received Retained By of Bank of
By Distributor Distributor America
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Intermediate Bond $ 460,801(1) $ 51,076 $ 408,407
Fund
- -----------------------------------------------------------------------------------------------------------------------------
Blue Chip Fund $2,138,130(1) $255,167 $1,875,240
- -----------------------------------------------------------------------------------------------------------------------------
Asset Allocation $ 642,818(1) $ 69,818 $ 569,332
Fund
=============================================================================================================================
<CAPTION>
Fiscal Year Ended February 28, 1995
----------------------------------------------------------------------------------------
Amount of
Total Sales
Amount of Load
Total Sales Retained By
Total Sales Load Affiliates
Load Received Retained By of Bank of
By Distributor Distributor America
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Intermediate Bond $ 53,285 $ 5,470 $ 47,815
Fund
- -----------------------------------------------------------------------------------------------------------------------------
Blue Chip Fund $ 186,628 $121,377 $165,251
- -----------------------------------------------------------------------------------------------------------------------------
Asset Allocation $ 114,338 $ 30,504 $ 83,884
Fund(1)
=============================================================================================================================
<FN>
- --------
1 Balance was paid to selling dealers.
</TABLE>
-55-
<PAGE> 98
<TABLE>
<CAPTION>
Period from Commencement of Operations*
through February 28, 1994
----------------------------------------------------------------------------------------
Amount of
Total Sales
Amount of Load
Total Sales Retained By
Total Sales Load Affiliates
Load Received Retained By of Bank of
By Distributor Distributor America
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Intermediate Bond $14,623 $1,628 $12,995
Fund
- -----------------------------------------------------------------------------------------------------------------------------
Blue Chip Fund $22,924 $2,692 $20,232
- -----------------------------------------------------------------------------------------------------------------------------
Asset Allocation $11,896(1) $2,243 $ 9,653
Fund
=============================================================================================================================
<FN>
- --------
* The Intermediate Bond, Blue Chip and Asset Allocation Funds commenced
operations on January 24, 1994, January 13, 1994 and January 18, 1994,
respectively.
1 Balance was paid to selling dealers.
</TABLE>
-56-
<PAGE> 99
The following table shows all sales loads, commissions and
other compensation received by the Distributor directly or indirectly from each
of the Intermediate Bond Fund, Blue Chip Fund and Asset Allocation Fund during
each fund's fiscal year ended February 29, 1996.
<TABLE>
<CAPTION>
Brokerage
Commis-
Net Under- sions in
writing Dis- Compensation connection Other
counts and on Redemption with Fund Compen-
Commissions(1) and Repurchase(2) Transactions sation(3)
-------------- ----------------- ------------ ---------
<S> <C> <C> <C> <C>
Concord Financial
Group, Inc.
Intermediate Bond Fund $ 51,076 $0 $0 $0
Blue Chip Fund $255,167 $0 $0 $0
Asset Allocation Fund $ 69,818 $0 $0 $0
<FN>
(1) Represents amounts received from front-end sales charge on A Shares.
(2) Represents amounts received from contingent deferred sales charges on B
Shares and A Shares subject to the Large Purchase Exemption. The basis
on which such sales charges are paid is described in the Prospectuses.
No B Shares were offered or sold during the fiscal year covered by this
chart. A Shares were not subject to a contingent deferred sales charge
during the fiscal year covered by this chart.
(3) Represents the total of (i) amounts paid to Concord, as the Funds'
prior administrator, for administrative services provided to the Fund
(see "Management of the Company-Administrator" above) and (ii) payments
made under the Shareholder Service Plan, the Distribution and Services
Plan, Distribution Plan and Administrative and Shareholder Services
Plan (see discussion in next section) and retained by the Distributor.
</TABLE>
THE SHAREHOLDER SERVICES PLANS. Pacific Horizon has adopted
separate Shareholder Services Plans (the "Plans") for SRF Shares and A Shares,
under which SRF Shares and A Shares of each Fund reimburse the Distributor for
shareholder servicing fees the Distributor pays to Service Organizations. The
fees paid under the Shareholder Services Plan for A Shares are in addition to
the sales loads on A Shares described above and in the Prospectus.
Under the Plans, Pacific Horizon pays the Distributor, with
respect to the Funds for (a) non-distribution shareholder services provided by
the Distributor to Service Organizations and/or the beneficial owners of Fund
shares, including, but not limited to shareholder servicing provided by the
Distributor at facilities dedicated for use by Pacific Horizon, provided such
shareholder servicing is not duplicative of the servicing otherwise provided on
behalf of the Funds, and (b) fees paid to
-57-
<PAGE> 100
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 Funds 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 Funds
necessary for accounting or subaccounting; (vii) if required by law, forwarding
shareholder communications from the Funds (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.
Each 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 SRF Shares or A Shares of the Funds, as
the case may be, during such month for shareholder servicing expenses. The
calculation of a Fund's average daily net assets for these purposes does not
include assets held in accounts opened via a transfer of assets from trust and
agency accounts of Bank of America. Further, payments made out of or charged
against the assets of a particular 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 a 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 a 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 a Plan may not be
"carried forward" beyond the end of the fiscal year in which such amounts or
credits due are accrued.
For the fiscal years or period indicated, the Distributor
waived all fees payable under the Shareholder Service
-58-
<PAGE> 101
Plan with respect to A Shares of the Intermediate Bond, Blue Chip and Asset
Allocation Funds as follows (no SRF Shares were offered or sold during such
fiscal years or period):
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
Period from
Commencement
of
Operations*
Year ended Year Ended through
February 29, February 28, February 28,
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Intermediate Bond $16,582 $2,873 $36
Fund
- ---------------------------------------------------------------------------------------------------------------------------
Blue Chip Fund $74,950 $9,721 $146
- ---------------------------------------------------------------------------------------------------------------------------
Asset Allocation $33,182 $7,754 $86
Fund
===========================================================================================================================
Payments for shareholder service expenses under the Plans are
not subject to Rule 12b-1 (the "Rule") under the 1940 Act. Pursuant to the
Plans, the Distributor provides that a report of the amounts expended under the
Plans, and the purposes for which such expenditures were incurred, will be made
to the Board of Directors for its review at least quarterly. In addition, the
Plans provide that the selection and nomination of the directors of Pacific
Horizon 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 Pacific Horizon nor have any direct or indirect financial
interest in the operation of the Plans (or related servicing agreements) (the
"Non-Interested Plan Directors").
Pacific Horizon 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 SRF Shares or A
Shares. These fees would be in addition to any amounts which might be received
under the Plans. Small, inactive long-term accounts involving such additional
charges may not be in the best interest of shareholders.
Pacific Horizon's Board of Directors has concluded that the
Plans will benefit the Funds and the holders of their SRF and A shares,
respectively. Each Plan is subject to annual reapproval by a majority of the
Non-Interested Plan Directors and is terminable at any time with respect to any
Fund by a vote of
- --------
* The Intermediate Bond, Blue Chip and Asset Allocation Funds commenced
operations on January 24, 1994, January 13, 1994 and January 18, 1994,
respectively.
</TABLE>
-59-
<PAGE> 102
majority of such Directors or by vote of the holders of a majority of the SRF or
A Shares, as the case may be, of the Fund involved. Any agreement entered into
pursuant to a Plan with a Service Organization is terminable with respect to any
Fund without penalty, at any time, by vote of the holders of a majority of the
Non-Interested Plan Directors, by vote of the holders of a majority of the SRF
or A Shares, as the case may be, of such Fund, by the Distributor 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 total returns of the Funds
may be quoted in and compared to other mutual funds with similar investment
objectives in advertisements, shareholder reports or other communications to
shareholders. The Funds 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 any Fund.) Such calculations may from time to time include
discussions or illustrations of the effects of compounding in advertisements.
"Compounding" refers to the fact that, if dividends or other distributions on a
Fund investment are reinvested by being paid in additional Fund shares, any
future income or capital appreciation of a Fund would increase the value, not
only of the original Fund investment, but also of the additional Fund shares
received through reinvestment. As a result, the value of the Fund investment
would increase more quickly than if dividends or other distributions had been
paid in cash. The Funds 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 a 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 a Fund
and/or a Master Portfolio), 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 a Fund. The Funds 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 a Fund. In addition,
advertisements or shareholder communications may include a discussion of certain
attributes or benefits to be derived by an investment in a Fund.
-60-
<PAGE> 103
Such advertisements or communications may include symbols, headlines or other
material which highlight or summarize the information discussed in more detail
therein. From time to time, the investment adviser may enter into alliances with
retirement plan sponsors, including The Legend Group, and the Fund may in its
advertisements or sales literature include a discussion of certain attributes or
benefits to be derived from its relationship with such retirement plan sponsors.
With proper authorization, a Fund may reprint articles (or excerpts) written
regarding the Fund and provide them to prospective shareholders. Performance
information with respect to the Funds is generally available by calling (800)
346-2087.
YIELD CALCULATIONS. The yield for the respective share classes
of a Fund are 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:
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
-61-
<PAGE> 104
computing the yield to maturity of each obligation based on the market value of
the obligation (including actual accrued interest) at the close of business on
the last business day of each month, or, with respect to obligations purchased
during the month, the purchase price (plus actual accrued interest), and
dividing the result by 360 and multiplying the quotient by the market value of
the obligation (including actual accrued interest) in order to determine the
interest income on the obligation for each day of the subsequent month that the
obligation is held. For purposes of this calculation, it is assumed that each
month contains 30 days. The maturity of an obligation with a call provision is
the next call date on which the obligation reasonably may be expected to be
called or, if none, the maturity date. With respect to debt obligations
purchased at a discount or premium, the formula generally calls for amortization
of the discount or premium. The amortization schedule will be adjusted monthly
to reflect changes in the market values of such debt obligations.
Interest earned on tax-exempt obligations that are issued
without original issue discount and have a current market discount is calculated
by using the coupon rate of interest instead of the yield to maturity. In the
case of tax-exempt obligations that are issued with original issue discount but
which have discounts based on current market value that exceed the
then-remaining portion of the original issue discount (market discount), the
yield to maturity is the imputed rate based on the original issue discount
calculation. On the other hand, in the case of tax-exempt obligations that are
issued with original issue discount but which have the discounts based on
current market value that are less than the then-remaining portion of the
original issue discount (market premium), the yield to maturity is based on the
market value.
With respect to mortgage or other receivables-backed
obligations which are expected to be subject to monthly payments of principal
and interest ("pay downs"), (a) gain or loss attributable to actual monthly pay
downs are accounted for as an increase or decrease to interest income during the
period; and (b) a Fund or Master Portfolio may elect either (i) to amortize the
discount and premium on the remaining security, based on the cost of the
security, to the weighted average maturity date, if such information is
available, or to the remaining term of the security, if any, if the weighted
average maturity date is not available, or (ii) not to amortize discount or
premium on the remaining security.
Undeclared earned income will be subtracted from the maximum
offering price per share (variable "d" in the formula). Undeclared earned income
is the net investment income which, at the end of the base period, has not been
declared as a dividend, but is reasonably expected to be and is declared and
paid as a
-62-
<PAGE> 105
dividend shortly thereafter. A 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.
Based on the foregoing calculations, the 30-day yields of the
A Shares of the Intermediate Bond, Blue Chip and Asset Allocation Funds (after
fee waivers and expense reimbursements) for the 30-day period ended August 31,
1996 were as follows:
<TABLE>
<CAPTION>
Yield
-----
<S> <C>
Intermediate Bond Fund 5.53%
Blue Chip Fund 1.60%
Asset Allocation Fund 2.80%
</TABLE>
No SRF Shares were issued or outstanding during the 30 day
period ended August 31, 1996.
TOTAL RETURN CALCULATIONS. The Funds compute their average
annual total returns separately for their separate share classes by determining
the average annual compounded rates of return during specified periods that
equate the initial amount invested in a particular share class to the ending
redeemable value of such investment in such class. This is done by dividing the
ending redeemable value of a hypothetical $1,000 initial payment by $1,000 and
raising the quotient to a power equal to one divided by the number of years (or
fractional portion thereof) covered by the computation and subtracting one from
the result. This calculation can be expressed as follows:
ERV 1/n
T = [(-----) - 1]
P
Where: T = average annual total return.
ERV = ending redeemable value at the end
of the period covered by the
computation of a hypothetical $1,000
payment made at the beginning of the
period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation,
expressed in terms of years.
The Funds compute their aggregate total returns separately for
their 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
-63-
<PAGE> 106
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
Funds' 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.
Based on the foregoing calculations, the 1) average annual
total returns, and 2) the aggregate total returns for the SRF Shares of the
Intermediate Bond, Blue Chip and Asset Allocation Funds for the years or periods
indicated were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Average Annual Return
- ------------------------------------------------------------------------------------------------------------------
One-Year Period Five-Year Period Period From Commencement
Ended Ended of Operations* through
August 31, 1996 August 31, 1996 August 31, 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Intermediate Bond Fund 3.27% 5.96% 7.49%
- ------------------------------------------------------------------------------------------------------------------
Blue Chip Fund 18.24% 13.38% 14.24%
- ------------------------------------------------------------------------------------------------------------------
Asset Allocation Fund 10.82% 10.24% 11.10%
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Aggregate Total Return
- ------------------------------------------------------------------------------------------------------------------
One-Year Period Five-Year Period Period From Commencement
Ended Ended of Operations* through
August 31, 1996 August 31, 1996 August 31, 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Intermediate Bond Fund 3.27% 33.60% 84.52%
- ------------------------------------------------------------------------------------------------------------------
Blue Chip Fund 18.24% 87.47% 209.52%
- ------------------------------------------------------------------------------------------------------------------
Asset Allocation Fund 10.82% 62.91% 142.64%
- ------------------------------------------------------------------------------------------------------------------
<FN>
- -------------------------
* Performance of the SRF Shares for the years or periods between August 31,
1996 and December 6, 1993 is represented by the performance of the shares
of the Bond, Blue Chip and Asset Allocation Funds ("SeaFirst Funds") of
SeaFirst Retirement Funds ("SeaFirst") which will be reorganized
into SRF Shares of the Company's Intermediate Bond, Blue Chip
and Asset Allocation Funds on the Reorganization Date. The Company's
Intermediate Bond, Blue Chip and Asset Allocation Funds and their
corresponding SeaFirst Funds invest their assets in Master Investment
Trust, Series I. Seafirst is the successor to Collective Investment Trust
for Seafirst Retirement Accounts ("CIT"), a registered open-end management
company, pursuant to a reorganization consummated on December 6, 1993.
Prior to December 6, 1993, CIT offered funds ("CIT Funds") which had
substantially similar investment objectives, policies and restrictions as
those of the Seafirst Funds. The CIT Funds commenced operations on
March 9, 1988. Performance of the SRF Shares for the period March 9, 1988
to December 6, 1993 is represented by the performance of the CIT Funds.
</TABLE>
-64-
<PAGE> 107
Based on the foregoing calculations, the 1) average annual
total returns, and 2) the aggregate total returns for the A Shares of the
Intermediate Bond, Blue Chip and Asset Allocation Funds for the years or periods
indicated were as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Aggregate Total Returns
------------------------------------------------------------
Period from
Commencement
of
One-Year Operations*
Period Ended through
August 31, August 31,
1996 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Intermediate (1.00)% 2.48%
Bond Fund
- ---------------------------------------------------------------------------------------------
Blue Chip Fund 12.67% 13.86%
- ---------------------------------------------------------------------------------------------
Asset
Allocation Fund 5.68% 8.47%
- ---------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------
Aggregate Total Returns
------------------------------------------------------------
Period from
Commencement
One-Year of Operations
Period Ended through
August 31, August 31,
1996 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Intermediate (1.00)% 6.59%
Bond Fund
- ---------------------------------------------------------------------------------------------
Blue Chip Fund 12.67% 40.73%
- ---------------------------------------------------------------------------------------------
Asset Allocation 5.68% 23.72%
Fund
=============================================================================================
No SRF Shares of any of the Funds were outstanding during the
year and period indicated.
<FN>
- --------
* The Intermediate Bond, Blue Chip and Asset Allocation Funds commenced
operations on January 24, 1994, January 13, 1994 and January 18, 1994,
respectively.
</TABLE>
-65-
<PAGE> 108
The Funds may also advertise total return data without
reflecting sales charges in accordance with the rules of the SEC. Quotations
which do not reflect such sales charges will, of course, be higher than
quotations which do reflect the sales charge.
GENERAL INFORMATION
DESCRIPTION OF SHARES
- ---------------------
Pacific Horizon is an open-end management investment company
organized as a Maryland corporation on October 27, 1982. Pacific Horizon's
Charter authorizes the Board of Directors to issue up to two hundred billion
full and fractional common shares. Pursuant to the authority granted in the
Charter, the Board of Directors has authorized the issuance of twenty-two
classes of stock - Classes A through W Common Stock, $.001 par value per share,
representing interests in twenty-two separate investment portfolios. As
described in the Prospectus, each Fund offers four classes of shares, each of
which is offered to different types of investors and bears different expenses.
Class M represents interests in the A Shares of the Intermediate Bond Fund,
Class M -- Special Series 3 represents interests in the B Shares of the
Intermediate Bond Fund, Class M -- Special Series 5 represents interests in the
K Shares of the Intermediate Bond Fund and Class M - Special Series 7 represents
interests in the SRF Shares of the Intermediate Bond Fund; Class N represents
interests in the A Shares of the Blue Chip Fund, Class N --Special Series 3
represents interests in the B Shares of the Blue Chip Fund, Class N -- Special
Series 5 represents interests in the K Shares of the Blue Chip Fund and Class N
- -- Special Series 7 represents interests in the SRF Shares of the Blue Chip
Fund; Class O represents interests in the A Shares of the Asset Allocation Fund,
Class O -- Special Series 3 represents interests in the B Shares of the Asset
Allocation Fund, Class O -- Special Series 5 represents interests in the K
Shares of the Asset Allocation Fund and Class O -- Special Series 7 represents
interests in the SRF Shares of the Asset Allocation Fund. Pacific Horizon's
charter also authorizes the Board of Directors to classify or reclassify any
particular class of Pacific Horizon'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 Prospectuses, Pacific Horizon's shares will be fully
paid and non-assessable. For information concerning possible restrictions upon
the transferability of Pacific Horizon's shares and redemption provisions with
respect to such shares, see "Additional Purchase and Redemption Information."
-66-
<PAGE> 109
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 Pacific Horizon 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. A Fund is affected by a matter unless it is
clear that the interests of each Fund 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 a Fund only if approved by a majority of the outstanding shares
of such 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
Pacific Horizon voting without regard to particular Funds.
Notwithstanding any provision of Maryland law requiring a
greater vote of Pacific Horizon's common stock (or of the shares of a 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
Pacific Horizon's Charter, Pacific Horizon may take or authorize such action
upon the favorable vote of the holders of more than 50% of the outstanding
common stock of Pacific Horizon voting without regard to class.
THE MASTER PORTFOLIOS
- ---------------------
The Intermediate Bond Master Portfolio and Blue Chip Master
Portfolio are separate series of Master Investment Trust, Series I. The Master
Trust's Declaration of Trust authorizes its Board of Trustees to issue an
unlimited number of interests of beneficial interest and to establish and
designate any unissued interests of one or more additional series of interests.
Investors in a Master Portfolio are entitled to distributions arising from the
net investment income and net realized gains, if any, earned on investments held
by the Master Portfolio. Investors are also entitled to participate in the net
distributable assets of the Master Portfolio in which they hold beneficial
interests on liquidation. Beneficial interests have no preemptive rights,
conversion or exchange rights.
-67-
<PAGE> 110
REPORTS
- -------
Shareholders will receive unaudited semi-annual reports
describing the Master Portfolio's and Fund's investment operations and annual
financial statements together with the reports of the independent accountants of
the Portfolios and the Funds.
CUSTODIAN, ACCOUNTING AGENT AND TRANSFER AGENT
- ----------------------------------------------
PNC Bank, National Association, 1600 Market Street, 28th
Floor, Philadelphia, PA 19103 has been appointed custodian for the Funds and the
Master Portfolios. PFPC provides the Funds and the Master Portfolios with
certain accounting services pursuant to Fund Accounting Services Agreements with
BISYS. Both PFPC, which is located at Bellevue Park Corporate Center, 400
Bellevue Parkway, Wilmington, DE 19809, and PNC Bank, National Association are
wholly owned subsidiaries of PNC Bancorp, Inc., a bank holding company. Under
the Fund Accounting Services Agreement, PFPC has agreed to provide certain
accounting, bookkeeping, pricing, dividend and distribution calculation services
with respect to the Funds and Master Portfolios. The monthly fees charged by
PFPC under the Fund Accounting Agreement are borne by the Funds and Master
Portfolios. As custodian, PNC Bank, N.A. (i) maintains separate account or
accounts in the name of the respective Funds and/or Master Portfolios, as
appropriate (ii) holds and disburses portfolio securities; (iii) makes receipts
and disbursements of money, (iv) collects and receives income and other payments
and distributions on account of portfolio securities, (v) responds to
correspondence from security brokers and others relating to their respective
duties and (vi) makes periodic reports concerning their duties.
BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus, Ohio
43219 serves as transfer and dividend disbursing agent for the Funds and Master
Portfolios.
COUNSEL
- -------
Drinker Biddle & Reath (of which W. Bruce McConnel, III,
Secretary of Pacific Horizon, is a partner), 1345 Chestnut Street, Suite 1100,
Philadelphia, Pennsylvania 19107, serves as counsel to the Companies 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 each Fund and Master Portfolio for the fiscal year ended February 28, 1997.
-68-
<PAGE> 111
FINANCIAL STATEMENTS AND EXPERTS
- --------------------------------
The audited financial statements and notes thereto in the
Annual Reports for each Fund and for the Investment Grade Bond, Blue Chip and
Asset Allocation Master Portfolios for the fiscal year ended February 29, 1996
and the unaudited financial statements and notes thereto contained in the
Semi-Annual Reports for each Fund and for the Investment Grade Bond, Blue Chip
and Asset Allocation Master Portfolios for the six-month period ended August 31,
1996 are incorporated in this Statement of Additional Information by reference.
The financial statements and notes thereto in the Annual Reports have been
audited by Price Waterhouse LLP, whose report thereon also appears in each
Annual Report and is also incorporated herein by reference. No other parts of
the Annual Reports and the Semi-Annual Reports are incorporated by reference
herein. Such financial statements in the Annual Report have been incorporated
herein in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
MISCELLANEOUS
- -------------
As used in the Prospectuses and this Statement of Additional
Information, a "vote of a majority" of the outstanding shares or interests of a
Fund, a Master Portfolio or a particular series means the affirmative vote of
the lesser of (a) more than 50% of the outstanding shares or interests of such
Fund, Master Portfolio or series or (b) 67% of the shares or interests of such
Fund, Master Portfolio or series present at a meeting at which more than 50% of
the outstanding shares or interests of such Fund, Master Portfolio or series are
represented in person or by proxy.
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Pacific
Horizon Shares of the Treasury Only Fund were as follows: BA Investment
Services, Inc., For the Benefit of Clients, Attn: Unit #7852 - Bob Santilli,
P.O. Box 7042, San Francisco, CA 94120, 126,915,035.89 shares (58.20%); BA
Securities, Inc., 185 Berry Street, 3rd Floor, San Francisco, CA 94107,
68,598.778.77 shares (31.46%); and Hare & Co., Bank of New York and Short-Term
Investment Funds, Attn: Bimal Saha, One Wall Street, New York, NY 10286,
13,226,723.61 shares (6.07%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Horizon
Service Shares of the Treasury Only Fund were as follows: Omnibus Account for
the Shareholder Accounts Maintained By Concord Financial Services, Inc., Attn:
Linda Zerbe, First and Market Building, 100 First Avenue, Suite 300, Pittsburgh,
PA 15222, 41,122,167.83 shares (21.40%);
-69-
<PAGE> 112
Comcare, Inc., 4001 North Third Street, Suite 120, Phoenix, AZ 85012,
13,816.969.71 shares (7.20%); and Omnibus Account for the Shareholder Accounts
Maintained by Concord Financial Services, Inc., Attn: Linda Zerbe, 100 First
Avenue, Suite 300, Pittsburgh, PA 15222, 43,115,349.41 shares (22.41%).
At January 16, 1997, the name, address and share ownership of
the entities which held as beneficial owners more than 5% of the outstanding
Horizon Shares of the Treasury Only Fund were as follows: Centinela Healthcare
Foundation, c/o Allan C. Shubin, City of Hope, 1500 East Duarte, Duarte, CA
91010, 1,912,695.64 shares (5.67%); Bank of America Illinois/Treas Slam, Attn:
Jewel James, 231 LaSalle Street, Chicago, IL 60697, 5,196,437.50 shares
(15.41%); Bank of America NT&SA TTEE/Cus, Attn: Common Trust Funds Unit 38329,
P.O. Box 513577, Terminal Annex, Los Angeles, CA 90051-1577, 13,973,087.38
shares (41.44%); Cable Design Technologies, Inc., Attn: Ken Hale, Foster Plaza
7, 661 Anderson Drive, Pittsburgh, PA 15220 3,686,462.62 shares (10.93%); and
City and County of San Francisco, Mayor's Office of Community Development
(MOCD), Attn: Priscilla Watts, 25 Van Ness Avenue, Suite 700, San Francisco, CA
94102, 8,029,482.67 shares (23.81%).
At January 16, 1997, the name, address and share ownership of
the entities which held as beneficial owners more than 5% of the outstanding
Horizon Service Shares of the Treasury Only Fund were as follows: Bank of
America NT&SA TTEE/Cus, Attn: Common Trust Funds Unit 38329, P.O. Box 513577,
Terminal Annex, Los Angeles, CA 90051-1577, 37,600,696.83 shares (19.54%); and
BA Investment Services, Inc., Attn: Bob Santilli, 185 Berry Street, 3rd Floor,
Unit 7852, San Francisco, CA 94107, 32,306,705.83 shares (16.79%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Pacific
Horizon Shares of the Treasury Fund were as follows: Hare & Co., Bank of New
York and Short Term Investment Funds, Attn: Bimal Saha, One Wall Street, New
York, NY 10286, 107,055,740.91 shares (21.56%); BA Investment Services, Inc.,
For the Benefit of Clients, Attn: Unit #7852 - Bob Santilli, P.O. Box 7042, San
Francisco, CA 94120, 202,977,365.10 shares (40.87%); Hellman & Friedman Capital
Partners III, Limited Partnership, 1 Maritime Plaza, 12th Floor, San Francisco,
CA 94111, 30,252,068.66 shares (6.09%) and VAR & Co., Attn: Linda Frintz, 180 E.
5th Street, 4th Floor, St. Paul, MN 55101, 93,131,870.00 shares (8.75%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Horizon
Service Shares of the Treasury Fund were as follows: BISYS Fund Services, Inc.
Pittsburgh, fbo Sweep
-70-
<PAGE> 113
Customers, Attn: Linda Zerbe, 100 First Avenue, Suite 300, Pittsburgh, PA 15222,
178,639.074.83 shares (12.38%); and BISYS Fund Services, Inc. Pittsburgh, fbo
Sweep Customers, Attn: Linda Zerbe, 100 First Avenue, Suite 300, Pittsburgh, PA
15222, 483,752,664.42 shares (33.51%).
At January 16, 1997, the name, address and share ownership of
the entities which held as beneficial owners more than 5% of the outstanding
Horizon Shares of the Treasury Fund were as follows: Bank of America NT&SA, The
Private Bank, Attn: Common Trust Funds, Unit 38329, P.O. Box 513577, Terminal
Annex, Los Angeles, CA 90051-1577, 244,930,192.81 shares (38.82%); Central
Garden & Pet Company, Attn: Lewis R. Volls, 3697 Mt. Diablo Blvd. #310,
Lafayette, CA 94549, 54,646,103.60 shares (8.66%); Hare & co., c/o Bank of New
York, Attn: Frank Notaro Spec. Proc. Dep., One Wall Street, 5th Floor, New York,
NY 10286, 85,587,252.27 shares (13.57%); and Raymond Hickey as Trustee for
Raymond Hickey Revocable Trust as Amended, 703 Broadway, Suite 600, Vancouver,
WA 98660, 40,407,107.11 shares (6.40%).
At January 16, 1977, the name, address and share ownership of
the entities which held as beneficial owners more than 5% of the outstanding
Horizon Service Shares of the Treasury Fund were as follows: BofA Nevada
Southern Comm. Bank, Attn: Cindy 2964, P.O. Box 98600, Las Vegas, NV 89193-8600,
151,223,491.86 shares (10.48%); Security Pacific Cash Management, c/o Bank of
America-GPO M/C 5533, Attn: Regina Olsen, 1850 Gateway Boulevard, Concord, CA
94520, 166,890,200.00 shares (11.56%); Bank of America FM&TS Operat CA, Attn:
Common Trust Funds Unit 38329, P.O. Box 513577, Terminal Annex, Los Angeles, CA
90051-1577, 270,479,864.52 shares (18.74%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Class X
Shares of the Treasury Fund were as follows: BA Investment Services, Inc., fbo
Clients, Attn: Unit 7852- Dan Spillane, P.O. Box 7042, San Francisco, CA 94120,
3,532,607.80 shares (99.97%);
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Pacific
Horizon Shares of the Government Fund were as follows: BA Investment Services,
Inc., For the Benefit of Clients, Attn: Unit #7852 - Bob Santilli, P.O. Box
7042, San Francisco, CA 94120, 67,476,016.22 shares (40.33%); BA Securities,
Inc., 185 Berry Street, 3rd Floor, San Francisco, CA 94107, 51,958,875.16 shares
(31.06%); Hare & Co., Bank of New York and Short Term Investment Funds, Attn:
Bimal Saha, One Wall Street, New York, NY 10286, 11,242,817.21 shares (6.72%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than
-71-
<PAGE> 114
5% of the outstanding Horizon Service Shares of the Government Fund were as
follows: Omnibus Account for the Shareholder Accounts Maintained By Concord
Financial Services, Inc., Attn: Linda Zerbe, First and Market Building, 100
First Avenue, Suite 300, Pittsburgh, PA 15222, 47,936.871.20 shares (16.12%);
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, 42,391,382.81 (14.25%); Viejas Bond of Kumeyaay
Indians, a Federally recognized Indian tribe, 5000 Willows Road, Alpine, CA
91901, 17,823,280.06 share (5.99%); Good Health Plan of WA, Attn: Linda Lam Ha,
1501 4th Avenue, Suite 500, Seattle, WA 98101 15,252,859.49 shares (5.13%); Lone
Star Northwest, Inc., Attn: Krisky Vasquez, P.O. Box 1730, Seattle, WA 98111,
15,730,448.71 shares (5.29%); and Providence Healthcare Attn: Linda Lam Ha, 1501
4th Avenue, Suite 500, Seattle, WA 98101-1621, 15,004,725.82 shares (5.05%).
At January 16, 1997, the name, address and share ownership of
the entities which held as beneficial owners more than 5% of the outstanding
Horizon Shares of the Government Fund were as follows: Sunquest Information
Systems, Inc., Attn: Trena Couch, 1407 Eisenhower Boulevard, Johnstown, PA
15904-3217, 28,582,372.49 shares (40.21%); First Trust, NA as Escrow Agent, fbo
Kaiser Aluminum & Chemical Corp. Dept. of Labor, AC# 98925410, P.O. Box 64010,
St. Paul, MN 55164-0010, 7,198,000.00 shares (10.13%); San Diego Regional
Transport Com, Attn: Andre Douzdjian, 401 B Street, San Diego, CA 92101,
8,524,973.33 shares (12.00%); Skinner Corporation, Attn: Debbie Sokvilne, 1326
Fifth Avenue, Ste. 711, Seattle, WA 98101, 5,081,286.67 shares (7.15%); and
Imperial Thrift and Loan Assoc., Attn: Steve Cooper, 700 N. Central Avenue,
Suite 600, Glendale, CA 91203, 8,304,781.65 shares (11.69%).
At January 16, 1997, the name, address and share ownership of
the entities which held as beneficial owners more than 5% of the outstanding
Horizon Service Shares of the Government Fund were as follows: Bank of America
NT&SA, Financial Management & Trust Services, Attn: Common Trust Funds Unit
38329, P.O. Box 513577, Terminal Annex, Los Angeles, CA 90051-1577,
42,932,778.28 shares (14.44%); and BofA Nevada Southern Comm. Bank, Attn: Cindy
2964, P.O. Box 98600, Las Vegas, NV 89193-8600, 39,962,243.73 shares (13.44%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Horizon
Service Shares of the Prime Fund were as follows: BISYS Fund Services, Inc.
Pittsburgh, fbo Sweep Customers, Attn: Linda Zerbe, 100 First Avenue, Suite 300,
Pittsburgh, PA 15222, 1,518,412,454.25 shares (51.12%); and BISYS Fund Services,
Inc. Pittsburgh, fbo Sweep Customers, Attn: Linda
-72-
<PAGE> 115
Zerbe, 100 First Avenue, Suite 300, Pittsburgh, PA 15222, 345,369,548.92 shares
(11.63%).
At January 16, 1997, the name, address and share ownership of
the entities which held as beneficial owners more than 5% of the outstanding
Horizon Shares of the Prime Fund were as follows: Bank of America NT&SA, The
Private Bank, Attn: Common Trust Funds Unit 38329, Terminal Annex, Los Angeles,
CA 90051- 1577, 601,768,725.22 shares (34.13%); Hare & Co., c/o The Bank of New
York, Attn: Frank Notaro Spec. Prec. Dep., One Wall Street, 5th Floor, New York,
NY 10286, 112,025,304.13 shares (6.35%); and Williams-Sonoma, Inc., Attn: Anne
Willis, 100 North Point St., San Francisco, CA 94133, 95,846,682.04 shares
(5.44%).
At January 16, 1997, the name, address and share ownership of
the entities which held as beneficial owners more than 5% of the outstanding
Horizon Service Shares of the Prime Fund were as follows: Bank of America NT&SA
Financial Management & Trust Securities, Attn: Common Trust Funds Unit 38329,
P.O. Box 513577, Terminal Annex, Los Angeles, CA 90051-1577, 774,557,020.40
shares (26.08%); BA Investment Services, Inc., Attn: Bob Santilli, 185 Berry
Street, 3rd Floor, Unit 7852, San Francisco, CA 94107, 215,048,397.20 shares
(7.24%); and Security Pacific Cash Management, c/o Bank of America-GPO M/C 5533,
Attn: Regina Olsen, 1850 Gateway Blvd., Concord, CA 94520, 623,555,100.00 shares
(20.99%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Class X
Shares of the Prime Fund were as follows: BA Investment Services, Inc., fbo
Clients, Attn: Unit 7852- Dan Spillane, P.O. Box 7042, San Francisco, CA 94120,
182,122,939.79 shares (99.93%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Pacific
Horizon Shares of the Tax-Exempt Money Fund were as follows: BA Investment
Services, Inc., For the Benefit of Clients, Attn: Unit #7852 - Bob Santilli,
P.O. Box 7042, San Francisco, CA 94120, 70,078,022.430 shares (86.13%); BA
Securities, Inc., 185 Berry Street, San Francisco, CA 94107, 8,946,080.940
shares (11.00%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Horizon
Shares of the Tax-Exempt Money Fund were as follows: BISYS Fund Services, Inc.
Pittsburgh, fbo Sweep Customers, Attn: Linda Zerbe, 100 First Avenue, Suite 300,
Pittsburgh, PA 15222, 127,407,819.400 shares (75.58%); and BISYS Fund Services,
Inc. Pittsburgh, fbo Sweep Customers, Attn: Linda Zerbe, 100 First Avenue, Suite
300, Pittsburgh, PA 15222, 25,509,587,090 shares (15.13%).
-73-
<PAGE> 116
At January 16, 1997, the name, address and share ownership of
the entities which held as beneficial owenrs more than 5% of the outstanding
Horizon Shares of the Tax-Exempt Money Fund were as follows: Bank of America
NT&SA, The Private Bank, Attn: Common Trust Funds Unit 38329, P.O. Box 513577,
Terminal Annex, Los Angeles, CA 90051-1577, 277,671,104.36 shares (98.02%).
At January 16, 1997, the name, address and share ownership of
the entities which held as beneficial owners more than 5% of the outstanding
Horizon Service Shares of the Tax-Exempt Money Fund were as follows: BA
Investment Services, Inc., Attn: Bob Santilli, 185 Berry St., 3rd Floor, Unit
7852, San Francisco, CA 94107, 24,291,230.92 shares (14.41%); and Bank of
America FM&TS Oper. CA, Attn: Common Trust Funds Unit 38329, P.O. Box 513577,
Terminal Annex, Los Angeles, CA 90051-1571, 127,407,819.40 shares (75.58%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Pacific
Horizon Shares of the California Tax-Exempt Money Market Fund were as follows:
BA Securities, Inc., 185 Berry Street, 3rd Floor, San Francisco, CA 94107,
199,716,452.460 shares (41.24%); BA Investment Services, Inc., For the Benefit
of Clients, Attn: Unit #7852 - Bob Santilli, P.O. Box 7042, San Francisco, CA
94120, 270,828,273.620 shares (55.93%).
At January 16, 1997, the name, address and share ownership of
the entities which held as beneficial owners more than 5% of the outstanding
Horizon Service Shares of the California Tax-Exempt Money Market Fund were as
follows: BA Investment Services, Inc., Attn: Bob Santilli, 185 Berry St., 3rd
Floor, Unit 7852, San Francisco, CA 94107, 109,455,388.64 shares (23.81%); and
Bank of America NT&SA TTEE/Cus, Attn: Common Trust Funds Unit 38329, P.O. Box
513577, Terminal Annex, Los Angeles, CA 90051-1577, 198,047,795.49 shares
(43.09%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Class X
Shares of the California Tax-Exempt Money Market Fund were as follows: BA
Investment Services, Inc., For the Benefit of Clients, Attn: Unit #7852- Dan
Spillane, P.O. Box 7042, San Francisco, CA 94120, 23,643,642.410 shares (100%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding A
Shares of the Corporate Bond Fund were as follows: Bank of America National
Trust and Savings Association, The Private Bank, Attn: Common Trust Funds, Unit
38329, P.O. Box 3577 Terminal Annex, Los Angeles, CA 90051 ,251,255.44 shares
(12.34%).
-74-
<PAGE> 117
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Class K
Shares of the Corporate Bond Fund were as follows: Corelink Financial Inc., P.O.
Box 4054, Concord, CA 94524, 11,694.177 shares (99.44%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Class A
Shares of the National Municipal Bond Fund were as follows: BA Investment
Services, Inc., fbo 421981352, 185 Berry Street, 3rd Floor 2640, San Francisco,
CA 94104, 79,473.387 shares (5.34%); and BA Investment Services, Inc., fbo
405084421, 555 California Street, 4th Floor 2640, San Francisco, CA 94104,
90,141.644 shares (6.06%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Class K
Shares of the National Municipal Bond Fund were as follows: BISYS Fund Services,
Inc., 3435 Stelzer Road, Suite 100, Columbus, Ohio 43219, 102.732 shares (100%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Class A
Shares of the International Equity Fund were as follows: PACO, Attn: Mutual
Funds, P.O. Box 3577, Terminal Annex, Los Angeles, CA 90051, 216,572,540 shares
(15.56%); and PACO, Attn: Mutual Funds, P.O. Box 3577, Terminal Annex, Los
Angeles, CA 90051, 406,657,130 shares (29.22%); and Bank of America National
Trust and Savings Association, The Private Bank, Attn: Common Trust Funds, Unit
38329, P.O. Box 3577, Terminal Annex, Los Angeles, CA 90051, 417,172.137 shares
(29.98%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Class K
Shares of the International Equity Fund were as follows: Corelink Financial
Inc., P.O. Box 4054, Concord, CA 94524, 10,729.796 shares (99.06%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Class A
Shares of the Aggressive Growth Fund were as follows: Charles Schwabb & Co.,
Inc., Reinvest Account, Attn: Mutual Fund Department, 101 Montgomery Street, San
Francisco, CA 94104, 664,279.549 shares (6.30%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Class K
Shares of the Aggressive Growth Fund were as follows: Corelink Financial Inc.,
P.O. Box 4054, Concord, CA 94524, 11,482.539 shares (99.53%).
-75-
<PAGE> 118
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Class A
Shares of the Intermediate Bond Fund were as follows: Bank of America National
Trust and Savings Association, The Private Bank, Attn: Common Trust Funds Unit
38329, P.O. Box 3577, Terminal Annex, Los Angeles, CA 90051, 934,163.859 shares
(41.55%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Class K
Shares of the Intermediate Bond Fund were as follows: Corelink Financial Inc.,
P.O. Box 4054, Concord, CA 94524, 33,424.373 shares (99.68%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Class A
Shares of the Blue Chip Fund were as follows: Bank of America National Trust and
Savings Association, The Private Bank, Attn: Common Trust Funds Unit 38329, P.O.
Box 3577, Terminal Annex, Los Angeles, CA 90051, 437,870.491 shares (7.65%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Class K
Shares of the Blue Chip Fund were as follows: Corelink Financial Inc., P.O. Box
4054, Concord, CA 94524, 41,926.034 shares (99.88%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Class K
Shares of the Capital Income Fund were as follows: Corelink Financial Inc., P.O.
Box 4054, Concord, CA 94524, 31,671.008 shares (94.91%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Class K
Shares of the California Tax-Exempt Bond Fund were as follows: BISYS Fund
Services, Inc., Attn: Regulation and Compliance Department, 3435 Stelzer Road,
Suite 1000, Columbus, Ohio 43219, 141.651 shares (100%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Class K
Shares of the Asset Allocation Fund were as follows: Corelink Financial Inc.,
P.O. Box 4054, Concord, CA 94524, 36,492.589 shares (99.83%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Class K
Shares of the U.S. Government Securities Fund were as follows: Corelink
Financial Inc., P.O. Box 4054, Concord, CA 94524, 21,757.224 shares (99.50%).
-76-
<PAGE> 119
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Class A
Shares of the Short-Term Government Fund were as follows: Bank of America
National Trust and Savings Association, The Private Bank, Attn: Common Trust
Funds, Unit 38329, P.O. Box 3577 Terminal Annex, Los Angeles, CA 90051,
1,273,707.695 shares (96.07%).
At such dates, no other person was known by the Company to
hold of record or beneficially more than 5% of the outstanding shares of any
investment portfolio of the Company.
The Prospectus relating to the Funds and this Statement of
Additional Information omit certain information contained in the Company's
registration statement filed with the SEC. Copies of the registration statement,
including items omitted herein, may be obtained from the Commission by paying
the charges prescibed under its rules and regulations.
-77-
<PAGE> 120
APPENDIX A
----------
COMMERCIAL PAPER RATINGS
- ------------------------
A Standard & Poor's commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market. The following summarizes the rating categories used by
Standard and Poor's for commercial paper:
"A-1" - Issue's degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety
characteristics are denoted "A-1+."
"A-2" - Issue's capacity for timely payment is satisfactory.
However, the relative degree of safety is not as high as for issues designated
"A-1."
"A-3" - Issue has an adequate capacity for timely payment. It
is, however, somewhat more vulnerable to the adverse effects of changes in
circumstances than an obligation carrying a higher designation.
"B" - Issue has only a speculative capacity for timely
payment.
"C" - Issue has a doubtful capacity for payment.
"D" - Issue is in payment default.
Moody's commercial paper ratings are opinions of the ability
of issuers to repay punctually promissory obligations not having an original
maturity in excess of 9 months. The following summarizes the rating categories
used by Moody's for commercial paper:
"Prime-1" - Issuer or related supporting institutions are
considered to have a superior capacity for repayment of short-term promissory
obligations. Prime-1 repayment capacity will normally be evidenced by the
following characteristics: leading market positions in well established
industries; high rates of return on funds employed; conservative capitalization
structures with moderate reliance on debt and ample asset protection; broad
margins in earning coverage of fixed financial charges and high internal cash
generation; and well established access to a range of financial markets and
assured sources of alternate liquidity.
A-1
<PAGE> 121
"Prime-2" - Issuer or related supporting institutions are
considered to have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics
cited above but to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions.
Ample alternative liquidity is maintained.
"Prime-3" - Issuer or related supporting institutions have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuer does not fall within any of the Prime
rating categories.
The three rating categories of Duff & Phelps for investment
grade commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff &
Phelps employs three designations, "D- 1+," "D-1" and "D-1-," within the highest
rating category. The following summarizes the rating categories used by Duff &
Phelps for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
"D-2" - Debt possesses good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to capital markets is
good. Risk factors are small.
"D-3" - Debt possesses satisfactory liquidity, and other
protection factors qualify issue as investment grade. Risk
A-2
<PAGE> 122
factors are larger and subject to more variation. Nevertheless, timely payment
is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch short-term ratings apply to debt obligations that are
payable on demand or have original maturities of generally up to three years.
The following summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" - Securities possess exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest degree
of assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues
assigned this rating have a satisfactory degree of assurance for timely payment,
but the margin of safety is not as great as the "F-1+" and "F-1" categories.
"F-3" - Securities possess fair credit quality. Issues
assigned this rating have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues
assigned this rating have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
"D" - Securities are in actual or imminent payment
default.
Fitch may also use the symbol "LOC" with its short-term
ratings to indicate that the rating is based upon a letter of credit issued by a
commercial bank.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely or incomplete payment of principal or interest of unsubordinated
instruments having a maturity of one year or less which are issued by United
States commercial banks,
A-3
<PAGE> 123
thrifts and non-bank banks; non-United States banks; and broker-dealers. The
following summarizes the ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest rating category and indicates a very high degree of likelihood that
principal and interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree of
safety regarding timely payment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents the lowest investment
grade category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher ratings,
capacity to service principal and interest in a timely fashion is considered
adequate.
"TBW-4" - This designation indicates that the debt is regarded
as non-investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1+" - Obligations which posses a particularly strong credit
feature are supported by the highest capacity for timely repayment.
"A1" - Obligations are supported by the highest
capacity for timely repayment.
"A2" - Obligations are supported by a satisfactory capacity
for timely repayment.
"A3" - Obligations are supported by a satisfactory capacity
for timely repayment.
"B" - Obligations for which there is an uncertainty as to the
capacity to ensure timely repayment.
"C" - Obligations for which there is a high risk of default or
which are currently in default.
A-4
<PAGE> 124
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
- ----------------------------------------------
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - This designation represents the highest rating
assigned by Standard & Poor's to a debt obligation and indicates an extremely
strong capacity to pay interest and repay principal.
"AA" - Debt is considered to have a very strong capacity to
pay interest and repay principal and differs from AAA issues only in small
degree.
"A" - Debt is considered to have a strong capacity to pay
interest and repay principal although such issues are somewhat more susceptible
to the adverse effects of changes in circumstances and economic conditions than
debt in higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay
interest and repay principal. Whereas such issues normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher-rated categories.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
"BB" - Debt has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
"B" - Debt has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.
A-5
<PAGE> 125
"CCC" - Debt has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The "CCC" rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied "B" or "B-" rating.
"CC" - This rating is typically applied to debt subordinated
to senior debt that is assigned an actual or implied "CCC" rating.
"C" - This rating is typically applied to debt subordinated to
senior debt which is assigned an actual or implied "CCC-" debt rating. The "C"
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
"CI" - This rating is reserved for income bonds on which no
interest is being paid.
"D" - Debt is in payment default. This rating is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid,
and certain other obligations that S & P believes may experience high volatility
or high variability in expected returns due to non-credit risks. Examples of
such obligations are: securities whose principal or interest return is indexed
to equities, commodities, or currencies; certain swaps and options; and interest
only and principal only mortgage securities. The absence of an "r" symbol should
not be taken as an indication that an obligation will exhibit no volatility or
variability in total return.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and
A-6
<PAGE> 126
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of
these ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" represents a poor standing; "Ca"
represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in
default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
(P)... - When applied to forward delivery bonds, indicates
that the rating is provisional pending delivery of the bonds. The rating may be
revised prior to delivery if changes
A-7
<PAGE> 127
occur in the legal documents or the underlying credit quality of the bonds.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which
Moody's believes possess the strongest investment attributes are designated by
the symbols, Aa1, A1, Ba1 and B1.
The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below average protection factors but
such protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of
these ratings is considered to be below investment grade. Although below
investment grade, debt rated "BB" is deemed likely to meet obligations when due.
Debt rated "B" possesses the risk that obligations will not be met when due.
Debt rated "CCC" is well below investment grade and has considerable uncertainty
as to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the
"AA," "A," "BBB," "BB" and "B" ratings may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major categories.
The following summarizes the highest four ratings used by
Fitch for corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
A-8
<PAGE> 128
"AA" - Bonds considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated "F-1+."
"A" - Bonds considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
To provide more detailed indications of credit quality, the
Fitch ratings from and including "AA" to "BBB" may be modified by the addition
of a plus (+) or minus (-) sign to show relative standing within these major
rating categories.
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions may increase investment risk, albeit not very significantly.
"A" - Obligations for which there is a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
strong, although adverse changes in business, economic or financial conditions
may lead to increased investment risk.
A-9
<PAGE> 129
"BBB" - Obligations for which there is currently a low
expectation of investment risk. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in business, economic or
financial conditions are more likely to lead to increased investment risk than
for obligations in other categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one
of these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree of
speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating
to denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation represents the highest category
assigned by Thomson BankWatch to long-term debt and indicates that the ability
to repay principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to
repay principal and interest on a timely basis with limited incremental risk
compared to issues rated in the highest category.
"A" - This designation indicates that the ability to repay
principal and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of
A-10
<PAGE> 130
principal and interest. "BB" indicates the lowest degree of speculation and "CC"
the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
- ----------------------
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit very
strong or strong capacity to pay principal and interest. Those issues determined
to possess overwhelming safety characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") and variable
rate demand obligations are designated Variable Moody's Investment Grade
("VMIG"). Such ratings recognize the differences between short-term credit risk
and long-term risk. The following summarizes the ratings by Moody's Investors
Service, Inc. for short-term notes:
"MIG-1"/"VMIG-1" - Loans bearing this designation are of the
best quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high
quality, with margins of protection ample although not so large as in the
preceding group.
"MIG-3"/"VMIG-3" - Loans bearing this designation are of
favorable quality, with all security elements accounted for but lacking the
undeniable strength of the preceding grades. Liquidity and cash flow protection
may be narrow and market access for refinancing is likely to be less well
established.
A-11
<PAGE> 131
"MIG-4"/"VMIG-4" - Loans bearing this designation are of
adequate quality, carrying specific risk but having protection commonly regarded
as required of an investment security and not distinctly or predominantly
speculative.
"SG" - Loans bearing this designation are of speculative
quality and lack margins of protection.
Fitch and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
A-12
<PAGE> 132
APPENDIX B
----------
As stated in the Prospectus, the Portfolios, may enter into
futures contracts and options for hedging purposes. Such transactions are
described in this Appendix B.
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, a Portfolio may use interest rate
futures as a defense, or hedge, against anticipated interest rate changes and
not for speculation. As described below, this would include the use of futures
contract sales to protect against expected increases in interest rates and
futures contract purchases to offset the impact of interest rate declines.
A Portfolio presently could accomplish a similar result to
that which it hopes to achieve through the use of futures contracts by selling
bonds with long maturities and investing in bonds with short maturities when
interest rates are expected to increase, or conversely, selling short-term bonds
and investing in long-term bonds when interest rates are expected to decline.
However, because of the liquidity that is often available in the futures market
the protection is more likely to be achieved, perhaps at a lower cost and
without changing the rate of interest being earned by a Fund, through using
futures contracts.
DESCRIPTION OF INTEREST RATE FUTURES CONTRACTS. An interest
rate futures contract sale would create an obligation by a Portfolio, as seller,
to deliver the specific type of financial instrument called for in the contract
at a specific future time for a specified price. A futures contract purchase
would create an obligation by a Portfolio, as purchaser, to take delivery of the
specific type of financial instrument at a specific future time at a specific
price. The specific securities delivered or taken, respectively, at settlement
date, would not be determined until at or near that date. The determination
would be in accordance with the rules of the exchange on which the futures
contract sale or purchase was made.
Although interest rate futures contracts by their terms call
for actual delivery or acceptance of securities, in most
B-1
<PAGE> 133
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 Portfolio's entering into a futures contract purchase for the
same aggregate amount of the specific type of financial instrument and the same
delivery date. If the price in the sale exceeds the price in the offsetting
purchase, the Portfolio is paid the difference and thus realizes a gain. If the
offsetting purchase price exceeds the sale price, the Portfolio pays the
difference and realizes a loss. Similarly, the closing out of a futures contract
purchase is effected by the Portfolio's entering into a futures contract sale.
If the offsetting sale price exceeds the purchase price, the Portfolio realizes
a gain, and if the purchase price exceeds the offsetting sale price, the
Portfolio realizes a loss.
Interest rate futures contracts are traded in an auction
environment on the floors of several exchanges principally, the Chicago Board of
Trade and the Chicago Mercantile Exchange. A Portfolio would deal only in
standardized contracts on recognized exchanges. Each exchange guarantees
performance under contract provisions through a clearing corporation, a
nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering
various financial instruments including long-term United States Treasury bonds
and notes; Government National Mortgage Association (GNMA) modified pass-through
mortgage-backed securities; three-month United States Treasury bills; and
ninety-day commercial paper. A Portfolio may trade in any futures contract for
which there exists a public market, including, without limitation, the foregoing
instruments.
EXAMPLES OF FUTURES CONTRACT SALE. A Portfolio would engage in
an interest rate futures contract sale to maintain the income advantage from
continued holding of a long-term bond while endeavoring to avoid part or all of
the loss in market value that would otherwise accompany a decline in long-term
securities prices. Assume that the market value of a certain security in a
Portfolio 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. Such Portfolio 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.
B-2
<PAGE> 134
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 Portfolio in the
above example might incur a loss of 2 points (which might be reduced by an
off-setting transaction prior to the settlement date). In each transaction,
transaction expenses would also be incurred.
EXAMPLES OF FUTURES CONTRACT PURCHASE. A Portfolio would
engage in an interest rate futures contract purchase when it is not fully
invested in long-term bonds but wishes to defer for a time the purchase of
long-term bonds in light of the availability of advantageous interim
investments, e.g., shorter-term securities whose yields are greater than those
available on long-term bonds. The Portfolio's basic motivation would be to
maintain for a time the income advantage from investing in the short-term
securities; the Portfolio would be endeavoring at the same time to eliminate the
effect of all or part of an expected increase in market price of the long-term
bonds that the Portfolio may purchase.
For example, assume that the market price of a long-term bond
that a Portfolio 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 Portfolio might enter into futures contracts purchases of Treasury
bonds for an equivalent price of 98. At the same time, the Portfolio 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,
B-3
<PAGE> 135
the 5-point increase in the price that the Portfolio pays for the long-term bond
would be offset by the 5-point gain realized by closing out the futures contract
purchase.
The investment adviser 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 Portfolio would continue
with its purchase program for long-term bonds. The market price of available
long-term bonds would have decreased. The benefit of this price decrease, and
thus yield increase, will be reduced by the loss realized on closing out the
futures contract purchase.
If, however, short-term rates remained above available
long-term rates, it is possible that the Portfolio would discontinue its
purchase program for long-term bonds. The yield on short-term securities in the
portfolio, including those originally in the pool assigned to the particular
long-term bond, would remain higher than yields on long-term bonds. The benefit
of this continued incremental income will be reduced by the loss realized on
closing out the futures contract purchase. In each transaction, expenses would
also be incurred.
II. STOCK INDEX FUTURES CONTRACTS
-----------------------------
A stock index assigns relative values to the stocks included
in the index and the index fluctuates with changes in the market values of the
stocks included. A stock index futures contract is a bilateral agreement
pursuant to which two parties agree to take or make delivery of an amount of
cash equal to a specified dollar amount times the difference between the stock
index value (which assigns relative values to the common stocks included in the
index) at the close of the last trading day of the contract and the price at
which the futures contract is originally struck. No physical delivery of the
underlying stocks in the index is made. Some stock index futures contracts are
based on broad market indices, such as the Standard & Poor's 500 or the New York
Stock Exchange Composite Index. In contrast, certain exchanges offer futures
contracts on narrower market indices, such as the Standard & Poor's 100 or
indices based on an industry or market segment, such as oil and gas stocks.
Futures contracts are traded on organized exchanges regulated by the Commodity
Futures Trading Commission. Transactions on such exchanges are cleared through a
clearing corporation, which guarantees the performance of the parties to each
contract.
The Asset Allocation Fund and Blue Chip Master Portfolio will
sell stock index futures contracts in order to offset a decrease in market value
of their respective portfolio securities that might otherwise result from a
market decline. The Portfolios may do so either to hedge the value of their
B-4
<PAGE> 136
respective portfolios as a whole, or to protect against declines, occurring
prior to sales of securities, in the value of the securities to be sold.
Conversely, the Portfolios will purchase stock index futures contracts in
anticipation of purchases of securities. In a substantial majority of these
transactions, the Portfolios will purchase such securities upon termination of
the long futures position, but a long futures position may be terminated without
a corresponding purchase of securities.
In addition, the Asset Allocation Fund and Blue Chip Master
Portfolio may utilize stock index futures contracts in anticipation of changes
in the composition of their respective portfolio holdings. For example, in the
event that a Portfolio expects to narrow the range of industry groups
represented in its holdings it may, prior to making purchases of the actual
securities, establish a long futures position based on a more restricted index,
such as an index comprised of securities of a particular industry group. The
Portfolios may also sell futures contracts in connection with this strategy, in
order to protect against the possibility that the value of the securities to be
sold as part of the restructuring of their respective portfolios will decline
prior to the time of sale.
The following are examples of transactions in stock index
futures (net of commissions and premiums, if any).
B-5
<PAGE> 137
ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
<TABLE>
<CAPTION>
Portfolio Futures
--------- -------
<S> <S>
-Day Hedge is Placed-
Anticipate Buying $62,500 Buying 1 Index Futures
Blue Chip Master Portfolio at 125
Value of Futures =
$62,500/Contract
-Day Hedge is Lifted-
Buy Blue Chip Master Portfolio with Sell 1 Index Futures at 130
Actual Cost = $65,000 Value of Futures = $65,000/
Increase in Purchase Price = Contract
$2,500 Gain on Futures = $2,500
</TABLE>
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Fund
Factors:
Value of Stock Fund = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Fund Beta Relative to the Index = 1.0
<TABLE>
<CAPTION>
Portfolio Futures
--------- -------
<S> <S>
-Day Hedge is Placed-
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Blue Chip Master Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
Blue Chip Master Portfolio-Own Buy 16 Index Futures at 120
Stock with Value = $960,000 Value of Futures = $960,000
Loss in Fund Value = $40,000 Gain on Futures = $40,000
</TABLE>
If, however, the market moved in the opposite direction, that
is, market value decreased and a Portfolio had entered into an anticipatory
purchase hedge, or market value increased and a Portfolio had hedged its stock
portfolio, the results of the Portfolio's transactions in stock index futures
would be as set forth below.
B-6
<PAGE> 138
ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
<TABLE>
<CAPTION>
Portfolio Futures
--------- -------
<S> <S>
-Day Hedge is Placed-
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Blue Chip Master Portfolio Value of Futures = $62,500/
Contract
-Day Hedge is Lifted-
Buy Blue Chip Master Portfolio with Sell 1 Index Futures at 120
Actual Cost - $60,000 Value of Futures = $60,000/
Decrease in Purchase Price = $2,500 Contract
Loss on Futures = $2,500
</TABLE>
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Fund
Factors:
Value of Stock Fund = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Fund Beta Relative to the Index = 1.0
<TABLE>
<CAPTION>
Portfolio Futures
--------- -------
<S> <S>
-Day Hedge is Placed-
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Blue Chip Master Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
Blue Chip Master Portfolio-Own Buy 16 Index Futures at 130
Stock with Value = $1,040,000 Value of Futures = $1,040,000
Gain in Fund Value = $40,000 Loss of Futures = $40,000
</TABLE>
III. MARGIN PAYMENTS
---------------
Unlike when a Portfolio purchases or sells a security, no
price is paid or received by the Portfolio upon the purchase or sale of a
futures contract. Initially, the Portfolio will be required to deposit with the
broker or in a segregated account with the Portfolio's custodian an amount of
cash or cash equivalents, the value of which may vary but is generally equal to
10% or less of the value of the contract. This amount is known as initial
margin. The nature of initial margin in futures transactions is different from
that of margin in security transactions in that futures contract margin does not
involve the borrowing of funds by the customer to finance the transactions.
Rather, the initial margin is in the nature of a performance bond or good faith
deposit on the contract which is returned to the Portfolio upon termination of
the futures contract assuming all
B-7
<PAGE> 139
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 a Portfolio has purchased a futures
contract and the price of the contract has risen in response to a rise in the
underlying instruments, that position will have increased in value and the
Portfolio will be entitled to receive from the broker a variation margin payment
equal to that increase in value. Conversely, where a Portfolio has purchased a
futures contract and the price of the future contract has declined in response
to a decrease in the underlying instruments, the position would be less valuable
and the Portfolio would be required to make a variation margin payment to the
broker. At any time prior to expiration of the futures contract, the investment
adviser 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
Portfolio's position in the futures contract. A final determination of variation
margin is then made, additional cash is required to be paid by or released to
the Portfolio, and the Portfolio realizes a loss or gain.
IV. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS
------------------------------------------
There are several risks in connection with the use of futures
in the Portfolios 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
Portfolio would be in a better position than if it had not hedged at all. If the
price of the securities being hedged has moved in a favorable direction, this
advantage 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 Portfolio
involved will experience either a loss or gain on the future which will not be
completely offset by movements in the price of the securities which are the
subject of the hedge. To compensate for the imperfect correlation of movements
in the price of securities being hedged and movements in the price of futures
contracts, a Portfolio may buy or sell futures contracts in a greater dollar
amount than the dollar amount of securities being hedged if the volatility over
a particular time period of the prices of such securities has been greater than
the volatility over such time period of the future, or if otherwise deemed to be
appropriate by the investment adviser. Conversely, a Portfolio may buy or sell
fewer futures
B-8
<PAGE> 140
contracts if the volatility over a particular time period of the prices of the
securities being hedged is less than the volatility over such time period of the
futures contract being used, or if otherwise deemed to be appropriate by the
investment adviser. It is also possible that, where the Portfolio has sold
futures to hedge its portfolio against a decline in the market, the market may
advance and the value of securities held in the Portfolio may decline. If this
occurred, the Portfolio would lose money on the future and also experience a
decline in value in its portfolio securities.
Where futures are purchased to hedge against a possible
increase in the price of securities before a Portfolio is able to invest its
cash (or cash equivalents) in securities (or options) in an orderly fashion, it
is possible that the market may decline instead; if the Portfolio then concludes
not to invest in securities or options at that time because of concern as to
possible further market decline or for other reasons, the Portfolio will realize
a loss on the futures contract that is not offset by a reduction in the price of
securities purchased.
In instances involving the purchase of futures contracts by a
Portfolio, an amount of cash and cash equivalents, equal to the market value of
the futures contracts, will be deposited in a segregated account with the
Portfolio's custodian and/or in a margin account with a broker to collateralize
the position and thereby insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
securities being hedged, the price of futures may not correlate perfectly with
movement in the cash market due to certain market distortions. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through off-setting transactions which 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
B-9
<PAGE> 141
rate movements by the investment 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
Portfolios intend 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 Portfolio would continue to be required to make daily cash
payments of variation margin. However, in the event futures contracts have been
used to hedge portfolio securities, such securities will not be sold until the
futures contract can be terminated. In such circumstances, an increase in the
price of the securities, if any, may partially or completely offset losses on
the futures contract. However, as described above, there is no guarantee that
the price of the securities will in fact correlate with the price movements in
the futures contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary
market in a futures contract may be adversely affected by "daily price
fluctuation limits" established by commodity exchanges which limit the amount of
fluctuation in a futures contract price during a single trading day. Once the
daily limit has been reached in the contract, no trades may be entered into at a
price beyond the limit, thus preventing the liquidation of open futures
positions.
Successful use of futures by a Portfolio is also subject to
the investment adviser's ability to predict correctly movements in the direction
of the market. For example, if a Portfolio has hedged against the possibility of
a decline in the market adversely affecting securities held by it and securities
prices increase instead, the Portfolio will lose part of all of the benefit to
the increased value of its securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations, if
the Portfolio has insufficient cash, it may have to sell securities to meet
daily variation margin requirements. Such sales of securities may be, but will
not necessarily be, at increased prices which reflect the rising market. A
Portfolio may have to sell securities at a time when it may be disadvantageous
to do so.
V. OPTIONS ON FUTURES CONTRACTS
----------------------------
Each Portfolio may purchase options on the futures contracts
described above. A futures option gives the holder, in return for the premium
paid, the right to buy (call) from or sell
B-10
<PAGE> 142
(put) to the writer of the option a futures contract at a specified price at any
time during the period of the option. Upon exercise, the writer of the option is
obligated to pay the difference between the cash value of the futures contract
and the exercise price. Like the buyer or seller of a futures contract, the
holder, or writer, of an option has the right to terminate its position prior to
the scheduled expiration of the option by selling, or purchasing, an option of
the same series, at which time the person entering into the closing transaction
will realize a gain or loss.
Investments in futures options involve some of the same
considerations that are involved in connection with investments in futures
contracts (for example, the existence of a liquid secondary market). In
addition, the purchase of an option also entails the risk that changes in the
value of the underlying futures contract will not be fully reflected in the
value of the option purchased. Depending on the pricing of the option compared
to either the futures contract upon which it is based, or upon the price of the
securities being hedged, an option may or may not be less risky than ownership
of the futures contract or such securities. In general, the market prices of
options can be expected to be more volatile than the market prices on the
underlying futures contract. Compared to the purchase or sale of futures
contracts, however, the purchase of call or put options on futures contracts may
frequently involve less potential risk to the Portfolios because the maximum
amount at risk is the premium paid for the options (plus transaction costs).
VI. OTHER HEDGING TRANSACTIONS
--------------------------
The Asset Allocation Fund and Intermediate Bond Master
Portfolio presently intend to use interest rate futures contracts, and the Asset
Allocation Fund and the Blue Chip Master Portfolio presently intend to use stock
index futures contracts, in connection with their hedging activities.
Nevertheless, each of these Portfolios 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 Portfolios' hedging strategies if, in the
judgment of the investment adviser, transactions therein are necessary or
advisable.
VII. 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 a Portfolio at the close of the Portfolio's
B-11
<PAGE> 143
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 Portfolio holds the futures contract or option
("the 40%-60% rule"). The amount of any capital gain or loss actually realized
by a Portfolio in a subsequent sale or other disposition of those futures
contracts or options will be adjusted to reflect any capital gain or loss taken
into account by a Portfolio in a prior year as a result of the constructive sale
of the contracts or options. With respect to futures contracts to sell, which
will be regarded as parts of a "mixed straddle" because their values fluctuate
inversely to the values of specific securities held by a Portfolio, losses as to
such contracts to sell will be subject to certain loss deferral rules which
limit the amount of loss currently deductible on either part of the straddle to
the amount thereof which exceeds the unrecognized gain (if any) with respect to
the other part of the straddle, and to certain wash sales regulations. Under
short sales rules, which also will be applicable, the holding period of the
securities forming part of the straddle (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, a Portfolio may make an election
which will exempt (in whole or in part) those identified futures contracts from
being treated for federal income tax purposes as sold on the last business day
of the Portfolio'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, a
Portfolio would be allowed (in lieu of the foregoing) to elect either (1) to
offset gains or losses from portions which are part of a mixed straddle by
separately identifying each mixed straddle to which such treatment applies, or
(2) to establish a mixed straddle account for which gains and losses would be
recognized and offset on a periodic basis during the taxable year. Under either
election, the 40%-60% rule will apply to the net gain or loss attributable to
the futures contracts, but in the case of a mixed straddle account election, not
more than 50 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.
With respect to the Asset Allocation Fund and the Intermediate
Bond Master Portfolio, some investments may be subject to special rules which
govern the federal income tax treatment of certain transactions denominated in
terms of a
B-12
<PAGE> 144
currency other than the U.S. dollar or determined by reference to the value of
one or more currencies other than the U.S. dollar. The types of transactions
covered by the special rules include the following: (i) the acquisition of, or
becoming the obligor under, a bond or other debt instrument (including, to the
extent provided in Treasury regulations, preferred stock); (ii) the accruing of
certain trade receivables and payables; and (iii) the entering into or
acquisition of any forward contract, futures contract, option or similar
financial instrument. However, regulated futures contracts and non-equity
options are generally not subject to the special currency rules if they are or
would be treated as sold for their fair market value at year-end under the
marking-to-market rules, unless an election is made to have such currency rules
apply. The disposition of a currency other than the U.S. dollar by a U.S.
taxpayer is also treated as a transaction subject to the special currency rules.
With respect to transactions covered by the special rules, foreign currency gain
or loss is calculated separately from any gain or loss on the underlying
transaction and is normally taxable as ordinary gain or loss. A taxpayer may
elect to treat as capital gain or loss foreign currency gain or loss arising
from certain identified forward contracts, futures contracts and options that
are capital assets in the hands of the taxpayer and which are not part of a
straddle. In accordance with Treasury regulations, certain transactions subject
to the special currency rules that are part of a "section 988 hedging
transaction" (as defined in the Code and the Treasury regulations) will be
integrated and treated as a single transaction or otherwise treated consistently
for purposes of the Code. "Section 988 hedging transactions" are not subject to
the mark-to-market or loss deferral rules under the Code. It is anticipated that
some of the non-U.S. dollar denominated investments and foreign currency
contracts that such Funds may make or may enter into will be subject to the
special currency rules described above. Gain or loss attributable to the foreign
currency component of transactions engaged in by a Fund which are not subject to
special currency rules (such as foreign equity investments other than certain
preferred stocks) will be treated as capital gain or loss and will not be
segregated from the gain or loss on the underlying transaction.
Qualification as a regulated investment company under the Code
requires that 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
B-13
<PAGE> 145
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.
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 moths: (1) stock and securities
(as defined in section 2(a)(36) of the 1940 Act); (2) options, futures and
forward contracts other than those on foreign currencies; and (3) foreign
currencies (and options, futures and forward contracts on foreign currencies)
that are not directly related to 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 marking-to-market rules, the Internal Revenue Service has ruled
in private letter rulings that a gain realized from such a futures contract or
financial instrument will be treated as being derived from a security held for
three months or more (regardless of the actual period for which the contract or
instrument is held) if the gain arises as a result of a constructive sale under
the marking-to-market rules, and will be treated as being derived from a
security held for less than three months only if the contract or instrument is
terminated (or transferred) during the taxable year (other than by reason of
marking-to-market) and less than three months have elapsed between the date the
contract or instrument is acquired and the termination date. In determining
whether the 30% test is met for a taxable year, increases and decreases in the
value of each Fund's futures contracts and other investments that qualify as
part of a "designated hedge," as defined in the Code, may be netted.
B-14
<PAGE> 146
FORM N-1A
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
(1) Included in Part A hereof:
Financial Highlights for the:
Intermediate Bond, Blue Chip and
Asset Allocation Funds
(2) Incorporated by reference in Part B hereof:
The audited Financial Statements
and related notes thereto and the
Auditor's reports thereon for the
Intermediate Bond (formerly,
Flexible Bond Fund), Blue Chip and
Asset Allocation Funds for the
fiscal year ended February 29, 1996
- as filed with the Securities and
Exchange Commission ("SEC") on June
11, 1996 pursuant to Rule 30b2-1 of
the Investment Company Act of 1940
(Nos. 2-81110 and 811-4293).
The audited Financial Statements and
related notes thereto and the
Auditor's reports thereon for the
Investment Grade Bond, Blue Chip and
Asset Allocation Portfolios of
Master Investment Trust, Series I
for the fiscal year ended February
29, 1996 - as filed with the SEC on
June 11, 1996 pursuant to Rule
30b2-1 of the Investment Company Act
of 1940 (Nos. 2-81110 and 811-4293).
The unaudited Financial Statements
and related notes thereto for the
Intermediate Bond, Blue Chip and
Asset Allocation Funds for the
period ended August 31, 1996 - as
filed with the SEC on November 12,
1996 pursuant to Rule 30b2-1 of the
Investment Company Act of 1940 (Nos.
2-8110 and 811-4293).
The unaudited Financial Statements
and related notes thereto for the
Investment Grade Bond, Blue Chip
and Asset
1
<PAGE> 147
Allocation Portfolios of Master
Investment Trust, Series I for the
period ended August 31, 1996 - as
filed with the SEC on November 12,
1996 pursuant to Rule 30b2-1 of the
Investment Company Act of 1940 (Nos.
2-81110 and 811-4293).
(b) Exhibits:
(1) (a) Restated Articles of Incorporation filed
November 22, 1983 are incorporated by
reference to Exhibit 1(a) to Post-
Effective Amendment No. 45 to the
Registration Statement of the Registrant
on Form N-1A (Nos. 2-81110/811-4293)
filed February 23, 1996 ("Post-Effective
Amendment No. 45").
(b) Articles Supplementary filed January 9,
1986 are incorporated by reference to
Exhibit 1(b) to Post-Effective Amendment
No. 45.
(c) Articles Supplementary to increase
authorized capital stock filed
August 31, 1989 are incorporated by
reference to Exhibit 1(c) to Post-
Effective Amendment No. 45.
(d) Articles Supplementary classifying
shares filed August 31, 1989 are
incorporated by reference to Exhibit
1(d) to Post-Effective Amendment No. 45.
(e) Articles Supplementary classifying
shares filed June 3, 1991 are
incorporated by reference to Exhibit
1(e) to Post-Effective Amendment No. 45.
(f) Articles Supplementary classifying and
reclassifying shares filed August 1,
1991 are incorporated by reference to
Exhibit 1(f) to Post-Effective Amendment
No. 45.
(g) Articles Supplementary to increase
authorized capital stock filed August
16, 1991 are incorporated by reference
to Exhibit 1(g) to Post-Effective
Amendment No. 45.
2
<PAGE> 148
(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
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
3
<PAGE> 149
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) Articles Supplementary reclassifying
shares filed on April 12, 1996 are
incorporated by reference to Exhibit
1(z) to Post-Effective Amendment No. 51
to the Registration Statement of the
Registrant on Form N-1A (Nos. 2-
81110/811-4293) filed November 13, 1996
("Post-Effective Amendment No. 51").
(aa) Articles Supplementary reclassifying
shares filed on June 25, 1996 are
incorporated by reference to Exhibit
1(z) to Post-Effective Amendment No. 50
4
<PAGE> 150
to the Registration Statement of the
Registrant on Form N-1A (Nos. 2-
81110/811-4293) filed July 29, 1996
("Post-Effective Amendment No. 50.").
(bb) Articles Supplementary reclassifying
shares filed on June 25, 1996 are
incorporated by reference to Exhibit
1(aa) to Post-Effective Amendment
No. 50.
(cc) Articles Supplementary reclassifying
shares filed on June 25, 1996 are
incorporated by reference to Exhibit
1(bb) to Post-Effective Amendment
No. 50.
(dd) Form of Articles Supplementary
reclassifying shares.
(2) (a) Amended and Restated By-Laws as approved
by Registrant's Board of Directors on
July 23, 1996 are incorporated by
reference to Exhibit 2(f) to Post-
Effective Amendment No. 50.
(3) None.
(4) See Article VI, Section (2) of Article
VII, Article VIII and Section (2) and
(4) of Article X of the Restated
Articles of Incorporation incorporated
by reference to Exhibit 1(a) of Post-
Effective Amendment No. 45 and Article
I, Section 1 and 10 of Article II,
Article IV and Section 1 of Article VI
of the Amended and Restated By-laws
incorporated by reference to Exhibit
2(f) of Post-Effective Amendment No. 50.
(5) (a) Investment Advisory Agreement
dated as of April 22, 1992 between
Registrant and Bank of America
National Trust and Savings
Association (Money Market Funds) is
incorporated by reference to Exhibit
5(a) to Post-Effective Amendment No.
45.
(b) Investment Advisory Agreement dated as
of April 22, 1992 between Registrant and
Bank of America National Trust and
Savings Association (Non-Money Market
Funds) is incorporated by reference to
Exhibit 5(b) to Post-Effective Amendment
No. 45.
5
<PAGE> 151
(c) Addendum to Investment Advisory
Agreement dated as of March 1, 1993
between Registrant and Bank of
America National Trust and Savings
Association (Money Market Funds -
Prime Value Fund) is incorporated by
reference to Exhibit 5(c) to
Post-Effective Amendment No. 45.
(d) Addendum to Investment Advisory
Agreement dated as of March 1, 1993
between Registrant and Bank of America
National Trust and Savings Association
(Money Market Funds - Government and
Treasury Only Funds) is incorporated by
reference to Exhibit 5(d) to Post-
Effective Amendment No. 45.
(e) Investment Advisory Agreement dated
November 1, 1994 between Registrant
and Bank of America National Trust &
Savings Association with respect to
the Capital Income Fund is
incorporated by reference to Exhibit
5(e) to Post-Effective Amendment No. 45.
(f) Investment Advisory Agreement dated
as of July 1, 1996 between
Registrant and Bank of America
National Trust & Savings Association
with respect to the National
Municipal Bond Fund is incorporated
by reference to Exhibit 5(f) to
Post-Effective Amendment No. 51.
(g) Investment Advisory Agreement dated as
of July 30, 1996 between Registration
and Bank of America National Trust and
Savings Association with respect to the
International Equity and Short-Term
Government Funds is incorporated by
reference to Exhibit 5(g) to Post-
Effective Amendment No. 51.
(h) Investment Advisory Agreement dated as
of September 1, 1996 between Registrant
and Bank of America National Trust &
Savings Association with respect to the
Corporate Bond Fund is incorporated by
reference to Exhibit 5(h) to Post-
Effective Amendment No. 52 to the
Registration Statement of the Registrant
on Form N-1A (Nos. 2-81110/811-4293)
filed January 31, 1997 ("Post-Effective
Amendment No. 52").
6
<PAGE> 152
(i) Amended and Restated Investment Advisory
Agreement dated as of January 1, 1997
between Registrant and Bank of America
National Trust & Savings Association
with respect to the International Equity
Fund is incorporated by reference to
Exhibit 5(i) to Post-Effective Amendment
No. 52.
(j) Sub-Investment Advisory Agreement dated
as of January 1, 1997 between Bank of
America National Trust & Savings
Association and Wellington Management
Company, LLP with respect to the
International Equity Fund is
incorporated by reference to Exhibit
5(j) to Post-Effective Amendment No. 52.
(k) Form of Investment Advisory Agreement
dated as of ___________ between
Registrant and Bank of America National
Trust & Savings Association with respect
to the Asset Allocation Fund.
(6) (a) Amended and Restated Distribution
Agreement between the Registrant and
Concord Financial Group, Inc. is
incorporated by reference to Exhibit
6(a) to Post-Effective Amendment No. 51.
(b) Form of Broker/Dealer Agreement is
incorporated by reference to Exhibit
6(c) to Post-Effective Amendment No. 45.
(c) Form of Bank Agreement is incorporated
by reference to Exhibit 6(d) to Post-
Effective Amendment No. 45.
(7) Board Guidelines on Significant
Governance Issues (which includes a
description of the Board of Director's
retirement policy and benefit) are
incorporated by reference to Exhibit 7
to Post-Effective Amendment No. 45.
(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
7
<PAGE> 153
incorporated by reference to Exhibit
8(b) to Post-Effective Amendment No. 45.
(c) Amendment No. 2 to Custody Agreement
between Registrant and The Bank of New
York dated as of February 26, 1993 is
incorporated by reference to Exhibit
8(c) to Post-Effective Amendment No. 49
to the Registration Statement of the
Registrant on Form N-1A (Nos. 2-
81110/811-4293) filed June 28, 1996
("Post-Effective Amendment No. 49").
(d) Amendment No. 3 to Custody Agreement
between Registrant and The Bank of New
York dated as of April 24, 1996 is
incorporated by reference to Exhibit
8(d) to Post-Effective Amendment No. 49.
(e) Amendment No. 4 to Custody Agreement
between Registrant and The Bank of New
York dated as of July 1, 1996 is
incorporated by reference to Exhibit
8(e) to Post-Effective Amendment No. 51.
(f) Custodian Services Agreement between
Registrant and PNC Bank, N.A is
incorporated by reference to Exhibit
8(c) to Post-Effective Amendment No. 45.
(g) Transfer Agency Agreement between
Registrant and BISYS Fund Services, Inc.
is incorporated by reference to Exhibit
8(d) to Post-Effective Amendment No. 47.
(h) Amendment No. 1 to Transfer Agency
Agreement between Registrant and BISYS
Fund Services, Inc. is incorporated by
reference to Exhibit 8(h) to Post-
Effective Amendment No. 52.
(i) Sub-Custodian Agreement between
Registrant, The Bank of New York, and
Security Pacific National Bank is
incorporated by reference to Exhibit
8(e) to Post-Effective Amendment No. 45.
(j) Sub-Custodian Agreement between The Bank
of New York and Citibank, N.A. dated
May 18, 1988 is incorporated by
reference to Exhibit 8(f) to Post-
Effective Amendment No. 45.
8
<PAGE> 154
(k) Form of Sub-Custody Agreement between
The Bank of New York and Bank of America
National Trust and Savings Association
is incorporated by reference to Exhibit
(8)(i) to Post-Effective Amendment No.
37.
(9) (a) Basic Administrative Services Agreement
between Registrant and The BISYS Group,
Inc. (Money Market Funds) dated as of
November 1, 1996 is incorporated by
reference to Exhibit 9(a) to Post-
Effective Amendment No. 52.
(b) Administration Agreement between
Registrant and The BISYS Group, Inc.
(Non-Money Market Funds) dated as of
November 1, 1996 is incorporated by
reference to Exhibit 9(b) to Post-
Effective Amendment No. 52.
(c) Form of Amendment No. 1 to the
Administration Agreement between
Registrant and The BISYS Group, Inc.
(Asset Allocation Fund) dated as of
____________________.
(d) 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.
(e) 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.
(f) 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.
9
<PAGE> 155
(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
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.
- --------
1 Filed with the Securities and Exchange Commission ("SEC") on April 29, 1996
under Rule 24f-2 as part of Registrant's 24f-2 Notice.
10
<PAGE> 156
(g) Purchase Agreement between Pacific
Horizon California Tax-Exempt Bond
Portfolio, Inc. and Hambrecht & Quist
Group, Inc. is incorporated by reference
to Exhibit 13(g) to Post-Effective
Amendment No. 45.
(h) Purchase Agreement between Pacific
Horizon California Tax-Exempt Bond
Portfolio, Inc. and The Dreyfus
Corporation is incorporated by reference
to Exhibit 13(h) to Post-Effective
Amendment No. 45.
(i) Purchase Agreement between Pacific
Horizon California Tax-Exempt Bond
Portfolio, Inc. and Pacific Horizon Tax-
Exempt Funds, Inc. is incorporated by
reference to Exhibit 13(i) to Post-
Effective Amendment No. 45.
(j) Investment Letter of Concord Financial
Group, Inc. to The Horizon Capital Funds
is incorporated by reference to Exhibit
13(j) to Post-Effective Amendment No.
45.
(14) (a) Individual Retirement Account and
accompanying Custodial Agreement,
Disclosure Statement, IRA Application
and IRA Transfer/Rollover Request Form
is incorporated by reference to Exhibit
14(a) to Post-Effective Amendment No.
45.
(b) Appointment of Successor Custodian for
Individual Retirement Account dated
as of August 3, 1990 is incorporated
by reference to Exhibit 14(b) to
Post-Effective Amendment No. 45.
(15) (a) Shareholder Services Plan for Non-Money
Market Funds is incorporated by
reference to Exhibit 15(a) to Post-
Effective Amendment No. 45.
(b) Shareholder Services Plan for Horizon
Service Shares as modified by
Registrant's Board of Directors on
January 29, 1993 is incorporated by
reference to Exhibit 15(b) to Post-
Effective Amendment No. 45.
(c) Revised Shareholder Servicing Agreement
is incorporated by reference to Exhibit
11
<PAGE> 157
15(c) to Post-Effective Amendment No.
45.
(d) Revised Shareholder Service Agreement
as modified by Registrant's Board of
Directors on January 29, 1993 is
incorporated by reference to Exhibit
15(d) to Post-Effective Amendment No.
45.
(e) Revised Shareholder Servicing Agreement
for Non-Money Market Funds is
incorporated by reference to Exhibit
15(e) to Post-Effective Amendment No.
45.
(f) Special Management Services Plan and
related Special Management Services
Agreement for Pacific Horizon Shares
of Registrant's Money Market Funds
is incorporated by reference to
Exhibit 15(f) to Post-Effective
Amendment No. 51.
(g) Distribution and Services Plan and
related Administrative Servicing
Agreement and Distribution Agreement
with respect to Registrant's "B"
Shares is incorporated by reference
to Exhibit 15(g) to Post-Effective
Amendment No. 51.
(h) Distribution and Services Plan and
related Distribution and Administrative
Servicing Agreement with respect to
Registrant's "S" Shares and "X" Shares
is incorporated by reference to Exhibit
15(f) to Post-Effective Amendment No.
47.
(i) Distribution Plan and related
Distribution Agreement with respect to
Registrant's "K" Shares is incorporated
by reference to Exhibit 15(i) to Post-
Effective Amendment No. 51.
(j) Administrative and Shareholder
Services Plan and related
Administrative and Shareholder
Services Agreement with respect to
Registrant's "K" Shares is
incorporated by reference to Exhibit
15(j) to Post-Effective Amendment
No. 51.
12
<PAGE> 158
(k) Shareholder Service Plan and related
Shareholder Servicing Agreement for SRF
Shares.
(16) (a) Schedule for Computation of Performance
Quotations with respect to the Prime
Fund, Treasury Fund, Tax-Exempt Money
Fund, Tax-Exempt Money Market Fund,
California Tax-Exempt Money Market Fund,
Aggressive Growth Fund, California Tax-
Exempt Bond Fund, U.S. Government
Securities Fund (formerly known as the
GNMA Extra Fund) and Capital Income Fund
(formerly known as the Convertible
Securities Fund) is incorporated by
reference to Exhibit 16(a) to Post-
Effective Amendment No. 45.
(b) Schedule for Computation of Performance
Quotations with respect to the
Government Fund, Treasury Only Fund and
Prime Value Fund is incorporated by
reference to Exhibit 16(b) to Post-
Effective Amendment No. 45.
(c) Schedule for Computation of Performance
Quotations with respect to the Corporate
Bond Fund, Intermediate Bond Fund
(formerly known as the Flexible Bond
Fund), Blue Chip Fund, Asset Allocation
Fund and National Municipal Bond Fund is
incorporated by reference to Exhibit
16(c) to Post-Effective Amendment No.
45.
(d) Schedule for Computation of
Performance Quotations with respect
to the International Equity Fund is
incorporated by reference to Exhibit
16(d) to Post-Effective Amendment
No. 51.
(e) Schedule for Computation of Performance
Quotations with respect to the
Short-Term Government Fund is
incorporated by reference to Exhibit
16(e) to Post-Effective Amendment
No. 52.
(17) Financial Data Schedule.
(18) Amended and Restated Plan Pursuant to
Rule 18f-3 for Operation of a Multi-
Class System.
13
<PAGE> 159
ITEM 25. PERSONS CONTROLLED BY OR UNDER
COMMON CONTROL WITH REGISTRANT
------------------------------
Registrant is controlled by its Board of Directors.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
-------------------------------
<TABLE>
<CAPTION>
NUMBER OF RECORD
HOLDERS AS OF
TITLE OF CLASS DECEMBER 31, 1996
-------------- -----------------
<S> <C>
Class A Common Stock 365
Class A Common Stock -
Special Series 1 1300
Class A Common Stock -
Special Series 2 104
Class A Common Stock -
Special Series 3 0
Class A Common Stock -
Special Series 4 2
Class B Common Stock 1703
Class B Common Stock -
Special Series 1 2012
Class B Common Stock -
Special Series 2 398
Class B Common Stock -
Special Series 3 0
Class B Common Stock -
Special Series 4 4
Class D Common Stock 16712
Class D Common Stock -
Special Series 3 0
Class D Common Stock -
Special Series 5 2
Class E Common Stock 3842
Class E Common Stock -
Special Series 3 0
Class E Common Stock -
Special Series 5 2
Class F Common Stock 17551
Class F Common Stock -
Special Series 3 0
Class F Common Stock -
Special Series 5 3
Class G Common Stock 4149
Class G Common Stock -
Special Series 3 0
Class G Common Stock -
Special Series 5 1
Class H Common Stock 0
Class I Common Stock 155
Class I Common Stock -
Special Series 1 55
</TABLE>
14
<PAGE> 160
<TABLE>
<CAPTION>
NUMBER OF RECORD
HOLDERS AS OF
TITLE OF CLASS DECEMBER 31, 1996
-------------- -----------------
<S> <C>
Class I Common Stock -
Special Series 2 20
Class J Common Stock 240
Class J Common Stock -
Special Series 1 333
Class J Common Stock -
Special Series 2 5
Class J Common Stock -
Special Series 4 2
Class K Common Stock 64
Class K Common Stock -
Special Series 1 1578
Class K Common Stock -
Special Series 2 18
Class L Common Stock 121
Class L Common Stock -
Special Series 1 193
Class L Common Stock -
Special Series 2 49
Class M Common Stock 569
Class M Common Stock -
Special Series 3 0
Class M Common Stock -
Special Series 5 2
Class M Common Stock -
Special Series 7 0
Class N Common Stock 9978
Class N Common Stock -
Special Series 3 0
Class N Common Stock -
Special Series 5 2
Class N Common Stock -
Special Series 7 0
Class O Common Stock 2121
Class O Common Stock -
Special Series 3 0
Class O Common Stock -
Special Series 5 2
Class O Common Stock -
Special Series 7 0
Class Q Common Stock 406
Class Q Common Stock -
Special Series 3 0
Class Q Common Stock -
Special Series 5 1
Class R Common Stock 0
Class R Common Stock -
Special Series 3 0
Class R Common Stock -
Special Series 5 0
Class S Common Stock 0
Class S Common Stock -
Special Series 3 0
Class S Common Stock -
</TABLE>
15
<PAGE> 161
<TABLE>
<CAPTION>
NUMBER OF RECORD
HOLDERS AS OF
TITLE OF CLASS DECEMBER 31, 1996
-------------- -----------------
<S> <C>
Special Series 5 0
Class T Common Stock 327
Class T Common Stock -
Special Series 3 0
Class T Common Stock -
Special Series 5 2
Class U Common Stock 6
Class U Common Stock -
Special Series 3 0
Class U Common Stock -
Special Series 5 0
Class V Common Stock 0
Class V Common Stock -
Special Series 3 0
Class V Common Stock -
Special Series 5 0
Class W Common Stock 2508
Class W Common Stock -
Special Series 3 0
Class W Common Stock -
Special Series 5 2
</TABLE>
ITEM 27. INDEMNIFICATION
---------------
Article VII, Section 3, of Registrant's Restated Articles of
Incorporation, incorporated herein by reference as Exhibit (1)(a) hereto, and
Article VI, Section 2, of Registrant's Amended and Restated By-Laws,
incorporated herein by reference as Exhibit (2)(a) hereto, provide for the
indemnification of Registrant's directors and officers. Indemnification of the
Fund's sub-adviser, principal underwriter, custodians, sub-custodians, transfer
agent and sub-transfer agent is provided for, respectively, in Section 8 of the
Sub-Advisory Agreement incorporated herein by reference as Exhibit (5)(j),
Article V of the Amended and Restated Distribution Agreement, incorporated
herein by reference as Exhibit (6)(a), Article XV, Section 15 of the Custody
Agreement incorporated herein by reference as Exhibit (8)(a) hereto, Article
XII, Section 14 of the Sub-Custodian Agreement incorporated herein by reference
as Exhibit (8)(i) hereto, Article III, Section 4 of the Sub-Custodian Agreement
incorporated herein by reference as Exhibit (8)(j) hereto, Section 8 of the form
of Sub-Custody Agreement incorporated herein by reference as Exhibit (8)(k),
Article VII, Section 7, of the Transfer Agency Agreement incorporated herein by
reference as Exhibit (8)(g), and Article VI, Section 3, of the Cash Management
and Related Services Agreement incorporated herein by reference as Exhibit
(9)(d) 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
16
<PAGE> 162
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.
ITEM 28. (A) BUSINESS AND OTHER CONNECTIONS OF INVESTMENT
ADVISER
--------------------------------------------
Bank of America National Trust and Savings Association ("Bank
of America") performs investment advisory services for Registrant. Bank of
America and its predecessors have been in the business of managing the
investments of fiduciary and other accounts since 1904. In addition to its trust
business, Bank of America provides commercial and consumer banking services.
To the knowledge of Registrant, none of the directors or
officers of Bank of America, except those set forth below, is or has been, at
any time during the past two calendar years, engaged in any other business,
profession, vocation or employment of a substantial nature, except that certain
directors and officers of Bank of America also hold various positions with, and
engage in business for, BankAmerica Corporation, which owns all the outstanding
stock of Bank of America, or other subsidiaries of BankAmerica Corporation. Set
forth below are the names and principal businesses of the directors of Bank of
America and the directors and certain of the senior executive officers of Bank
of America who are engaged in any other business, profession, vocation or
employment of a substantial nature, other than with BankAmerica Corporation.
17
<PAGE> 163
<TABLE>
<CAPTION>
POSITION WITH
BANK OF AMERICA
NATIONAL TRUST
AND SAVINGS PRINCIPAL TYPE OF
ASSOCIATION NAME OCCUPATION BUSINESS
- ----------- ---- ---------- --------
<S> <C> <C> <C>
Director...................Joseph F. Alibrandi Chairman of the Manufacturer of
Board and CEO, Aerospace and
Whittaker Communication
Corporation Products
Director...................Jill Elikann Barad President and Chief Toy manufacturer
Executive Officer, and distributor
Mattel, Inc.
Director...................Peter B. Bedford Chairman and CEO, California based
Bedford Property Real Estate
Investors, Inc. Investment Trust
Director ..................Andrew F. Brimmer President, Consulting
Brimmer & Co., Inc.
Director ..................Richard A. Retired Chairman of Utility Company
Clarke the Board, Pacific
Gas and Electric
Company
Chairman ..................David A. Coulter Chairman of the Banking
Board, Chief
Executive Officer
and President, Bank
America Corporation
and Bank of
America National
Trust & Savings
Association
Director ..................Timm F. Crull Chairman, Greeting cards
Hallmark International
Director ..................Kathleen Feldstein President, Economic
Economics Consulting
Studies, Inc.
Director ..................Donald E. Guinn Chairman Emeritus, Telecommuni-
Pacific Telesis cations and
Group Diversified
Holding Com-
pany
Director ..................Frank L. Hope, Jr. Consulting Architectural
Architect and Engineering
Consulting
Director ..................Ignacio E. Lozano, Chairman, Newspaper
Jr. "La Opinion" Publishing
Director ..................Walter E. Massey, President, Higher
Ph.D. Morehouse Education
College
Director ..................John M. Richman Of Counsel, Law firm
Wachtell, Lipton,
Rosen & Katz
</TABLE>
18
<PAGE> 164
<TABLE>
<CAPTION>
POSITION WITH
BANK OF AMERICA
NATIONAL TRUST
AND SAVINGS PRINCIPAL TYPE OF
ASSOCIATION NAME OCCUPATION BUSINESS
- ----------- ---- ---------- --------
<S> <C> <C> <C>
Director ..................Richard M. Retired; Chairman Banking
Rosenberg of the Board and
CEO, Bank America
Corporation and
Bank of America
National Trust &
Savings Association
Director ..................A. Michael Spence Dean of the Higher
Graduate School of Education
Business, Stanford
University
Director ..................Solomon D. President and CEO, Telecommunica-
Trujillo U.S. West tions
Communications
Group
</TABLE>
(b) BUSINESS AND OTHER CONNECTIONS OF SUB-ADVISER
Wellington Management Corporation, LLP, ("Wellington") is an
investment adviser registered under the Investment Advisers Act of 1940 (the
"Advisers Act").
The list required by this Item 28 of the partners of
Wellington, together with information as to any business profession, vocation or
employment of substantial nature engaged in by such partners during the past two
years, is incorporated herein by references to Schedules A and D of Form ADV
filed by Wellington pursuant to the Advisers Act (SEC File No. 801-15908).
ITEM 29. PRINCIPAL UNDERWRITERS
----------------------
(a) Principal underwriter (exclusive distributor) also acts as
principal underwriter or exclusive distributor for The Infinity Funds, Inc., The
Pilot Funds, Seafirst Retirement Funds and Time Horizon Funds.
(b) For information as to the business, profession, vocation
or employment of a substantial nature of each of the principal underwriter, its
officers and directors, reference is made to their Form BD File No. 8-37601
filed by the principal underwriter. For information, as to the positions or
offices of each of the principal underwriter, its officers and directors,
reference is made to the section entitled "Management" in the Statement 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.
19
<PAGE> 165
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
--------------------------------
(1) The BISYS Group, Inc., 150 Clove Road, Little
Falls, New Jersey 07424 (records relating to the
administrator).
(2) Concord Financial Group, Inc., 3435 Stelzer Road,
Columbus, Ohio 43219 (records relating to the
distributor).
(3) Concord Management (Ireland) Limited, Floor 2,
Block 2, Harcourt Centre, Dublin 2, Ireland
(records relating to the administrator for the
Funds it services).
(4) Bank of America National Trust and Savings
Association, 555 California Street, San Francisco,
California 94104 (records relating to the
investment adviser).
(5) Wellington Management Company, LLP, 75 State Street,
Boston, Massachusetts 02109 (records relating to the
investment sub-adviser for the International Equity
Fund)
(6) Bank of America National Trust and Savings
Association, 555 California Street, San Francisco,
California 94104 (records relating to the
Sub-Custodian for the Funds it services).
(7) The Bank of New York, 90 Washington Street, New York,
New York 10286) (records relating to the custodian
for the Funds it services).
(8) BISYS Fund Services, Inc., 3435 Stelzer Road,
Columbus, Ohio 43219 (records relating to the
transfer agent for the Funds it services).
(9) Drinker Biddle & Reath, Philadelphia National Bank
Building, 1345 Chestnut Street, Philadelphia,
Pennsylvania 19107-3496 (Registrant's Charter, By-
Laws and Minute Books).
(10) PNC Bank, National Association, 1600 Market Street,
28th Floor, Philadelphia, PA 19103, (records relating
to the custodian for the Funds it services).
(11) PFPC, Inc. 103 Bellevue Parkway, Wilmington, DE
19809, (records relating to the sub-administrator
for the Funds it services).
20
<PAGE> 166
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.
21
<PAGE> 167
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 6th day of February, 1997.
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 February 6, 1997
- --------------------------- Board and President
Cornelius John Pings
/s/ Kevin L. Martin Treasurer (Chief February 6, 1997
- --------------------------- Accounting and
Kevin L. Martin Financial Officer)
*/Thomas M. Collins Director February 6, 1997
- ---------------------------
Thomas M. Collins
*/Douglas B. Fletcher Director February 6, 1997
- ---------------------------
Douglas B. Fletcher
*/Robert E. Greeley Director February 6, 1997
- ---------------------------
Robert E. Greeley
*/Kermit O. Hanson Director February 6, 1997
- ---------------------------
Kermit O. Hanson
*By: /s/ W. Bruce McConnel, III
---------------------------
W. Bruce McConnel, III
Attorney-in-fact
</TABLE>
22
<PAGE> 168
SIGNATURES
Master Investment Trust, Series I has duly caused this
Amendment to the Registration Statement of the Pacific Horizon Funds, Inc. as it
relates to the Intermediate Bond (formerly, Flexible Bond), Blue Chip and Asset
Allocation Funds only, to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Philadelphia, and the Commonwealth of
Pennsylvania on this 6th day of February, 1997.
MASTER INVESTMENT TRUST, SERIES I
/s/ J. David Huber
------------------
J. David Huber
President
(Signature and Title)
Pursuant to the requirements of the Securities Act of 1933,
this Amendment to the Registration Statement of Pacific Horizon Funds, Inc. has
been signed below by the Trustees and Principal Officers of Master Investment
Trust, Series I on the Dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ J. David Huber President February 6,1997
- --------------------------
J. David Huber
*/ Thomas M. Collins Chairman of the Board February 6,1997
- --------------------------
Thomas M. Collins
/s/ Adrian J. Waters Executive Vice President, February 6,1997
- -------------------------- Assistant Secretary and
Adrian J. Waters Treasurer (Chief Accounting
and Financial Officer)
*/Michael Austin Trustee February 6,1997
- --------------------------
Michael Austin
*/Robert A. Nathane Trustee February 6,1997
- --------------------------
Robert A. Nathane
*/Robert E. Greeley Trustee February 6,1997
- --------------------------
Robert E. Greeley
*/Cornelius J. Pings Trustee February 6,1997
- --------------------------
Cornelius J. Pings
*By: /s/ W. Bruce McConnel, III
----------------------------
W. Bruce McConnel, III
Attorney-in-fact
</TABLE>
23
<PAGE> 169
PACIFIC HORIZON FUNDS, INC.
Certificate of Secretary
The following resolution was duly adopted by the Board of
Directors of Pacific Horizon Funds, Inc. on October 29, 1996 and remains in
effect on the date hereof:
FURTHER RESOLVED, that the directors and officers of
Pacific Horizon who may be required to execute any amendments
to Pacific Horizon's Registration Statement be, and each
hereby is, authorized to execute a power of attorney
appointing W. Bruce McConnel, III and Cornelius J. Pings their
true and lawful attorney or attorneys, to execute in their
name, place and stead, in their capacity as director or
officer, or both, of Pacific Horizon any and all amendments to
the Registration Statement, and all instruments necessary or
incidental in connection therewith, and to file the same with
the SEC; and either of said attorneys shall have the power to
act thereunder with or without the other said attorney and
shall have full power of substitution and resubstitution; and
to do in the name and on behalf of said directors and
officers, or any or all of them, in any and all capacities,
every act whatsoever requisite or necessary to be done in the
premises, as fully and to all intents and purposes as each of
said directors or officers, or any or all of them, might or
could do in person, said acts of said attorneys, being hereby
ratified and approved.
IN WITNESS WHEREOF, I have hereunto set my hand this 29th day
of October, 1996.
PACIFIC HORIZON FUNDS, INC.
/s/ W. Bruce McConnel, III
--------------------------
W. Bruce McConnel, III
Secretary
<PAGE> 170
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> 171
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> 172
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> 173
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> 174
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> 175
MASTER INVESTMENT TRUST, SERIES I
POWER OF ATTORNEY
-----------------
Thomas M. Collins, whose signature appears below, does hereby
constitute and appoint W. Bruce McConnel, III, his true and lawful attorney and
agent, with power of substitution or resubstitution, to do any and all acts and
things and to execute any and all instruments which said attorney and agent may
deem necessary or advisable or which may be required to enable Master Investment
Trust, Series I (the "Trust") to comply with the Investment Company Act of 1940,
as amended and/or the Securities Act of 1933, as amended (the "Acts") and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the filing and effectiveness of (i) the
Trust's Registration Statement and (ii) the Registration Statement of any
management investment company which invests or intends to invest substantially
all of its assets in the Trust (collectively, the "Registration Statements") and
any and all amendments to the Registration Statements (including post-effective
amendments) pursuant to said Acts, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a trustee and/or officer of the Trust the
Registration Statements and any and all amendments thereto filed with the
Securities and Exchange Commission under said Acts, and any other instruments or
documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorney and agent shall do or cause to be done by virtue hereof.
/s/ Thomas M. Colllins
----------------------
Thomas M. Collins
Date: October 6, 1993
<PAGE> 176
MASTER INVESTMENT TRUST, SERIES I
POWER OF ATTORNEY
-----------------
Michael Austin, whose signature appears below, does hereby constitute
and appoint Thomas M. Collins and W. Bruce McConnel, III, and either of them,
his true and lawful attorneys and agents, with power of substitution or
resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorneys and agents, or either of them, may deem
necessary or advisable or which may be required to enable Master Investment
Trust, Series I (the "Trust") to comply with the Investment Company Act of 1940,
as amended and/or the Securities Act of 1933, as amended (the "Acts") and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the filing and effectiveness of (i) the
Trust's Registration Statement and (ii) the Registration Statement of any
management investment company which invests or intends to invest substantially
all of its assets in the Trust (collectively, the "Registration Statements") and
any and all amendments to the Registration Statements (including post-effective
amendments) pursuant to said Acts, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a trustee and/or officer of the Trust the
Registration Statements and any and all amendments thereto filed with the
Securities and Exchange Commission under said Acts, and any other instruments or
documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorneys and agents, or either of them, shall do or cause to be
done by virtue hereof.
/s/ Michael Austin
------------------
Michael Austin
Date: October 6, 1993
<PAGE> 177
MASTER INVESTMENT TRUST, SERIES I
POWER OF ATTORNEY
-----------------
Robert A. Nathane, whose signature appears below, does hereby
constitute and appoint Thomas M. Collins and W. Bruce McConnel, III, and either
of them, his true and lawful attorneys and agents, with power of substitution or
resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorneys and agents, or either of them, may deem
necessary or advisable or which may be required to enable Master Investment
Trust, Series I (the "Trust") to comply with the Investment Company Act of 1940,
as amended and/or the Securities Act of 1933, as amended (the "Acts") and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the filing and effectiveness of (i) the
Trust's Registration Statement and (ii) the Registration Statement of any
management investment company which invests or intends to invest substantially
all of its assets in the Trust (collectively, the "Registration Statements") and
any and all amendments to the Registration Statements (including post-effective
amendments) pursuant to said Acts, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a trustee and/or officer of the Trust the
Registration Statements and any and all amendments thereto filed with the
Securities and Exchange Commission under said Acts, and any other instruments or
documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorneys and agents, or either of them, shall do or cause to be
done by virtue hereof.
/s/ Robert A. Nathane
---------------------
Robert A. Nathane
Date: October 6, 1993
<PAGE> 178
MASTER INVESTMENT TRUST, SERIES I
POWER OF ATTORNEY
-----------------
Robert E. Greeley, whose signature appears below, does hereby
constitute and appoint Thomas M. Collins and W. Bruce McConnel, III, and either
of them, his true and lawful attorneys and agents, with power of substitution or
resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorneys and agents, or either of them, may deem
necessary or advisable or which may be required to enable Master Investment
Trust, Series I (the "Trust") to comply with the Investment Company Act of 1940,
as amended and/or the Securities Act of 1933, as amended (the "Acts") and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the filing and effectiveness of (i) the
Trust's Registration Statement and (ii) the Registration Statement of any
management investment company which invests or intends to invest substantially
all of its assets in the Trust (collectively, the "Registration Statements") and
any and all amendments to the Registration Statements (including post-effective
amendments) pursuant to said Acts, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a trustee and/or officer of the Trust the
Registration Statements and any and all amendments thereto filed with the
Securities and Exchange Commission under said Acts, and any other instruments or
documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorneys and agents, or either of them, shall do or cause to be
done by virtue hereof.
/s/ Robert E. Greeley
---------------------
Robert E. Greeley
Date: October 6, 1993
<PAGE> 179
MASTER INVESTMENT TRUST, SERIES I
POWER OF ATTORNEY
-----------------
Cornelius John Pings, whose signature appears below, does hereby
constitute and appoint Thomas M. Collins and W. Bruce McConnel, III, and either
of them, his true and lawful attorneys and agents, with power of substitution or
resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorneys and agents, or either of them, may deem
necessary or advisable or which may be required to enable Master Investment
Trust, Series I (the "Trust") to comply with the Investment Company Act of 1940,
as amended and/or the Securities Act of 1933, as amended (the "Acts") and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the filing and effectiveness of (i) the
Trust's Registration Statement and (ii) the Registration Statement of any
management investment company which invests or intends to invest substantially
all of its assets in the Trust (collectively, the "Registration Statements") and
any and all amendments to the Registration Statements (including post-effective
amendments) pursuant to said Acts, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a trustee and/or officer of the Trust the
Registration Statements and any and all amendments thereto filed with the
Securities and Exchange Commission under said Acts, and any other instruments or
documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorneys and agents, or either of them, shall do or cause to be
done by virtue hereof.
/s/ Cornelius John Pings
------------------------
Cornelius John Pings
Date: December 6, 1995
<PAGE> 180
EXHIBIT INDEX
EXHIBITS
1(dd) Form of Articles Supplementary reclassifying shares.
5(k) Investment Advisory Agreement dated as of _________________
between Registrant and Bank of America National Trust & Savings
Association with respect to the Asset Allocation Fund.
9(c) Form of Amendment No. 1 to the Administration Agreement between
Registrant and The BISYS Group, Inc. (Asset Allocation Fund)
dated as of ________________.
11(a) Consent of Drinker Biddle & Reath
11(b) Consent of Price Waterhouse, LLP
15(k) Shareholder Service Plan and related Shareholder Servicing
Agreement for SRF Shares.
17 Financial Data Schedule
18 Amended and Restated Plan Pursuant to Rule 18f-3 for Operation
of a Multi-Class System.
<PAGE> 1
EXHIBIT 1(dd)
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 One
Hundred Fifty Million (150,000,000) shares of authorized and unissued capital
stock of the Corporation, previously unclassified, as follows:
<TABLE>
<CAPTION>
Number of Shares
Classified Shares Reclassified
----------------- ------------
<S> <C> <C>
Class M-Special Series 7 50,000,000
Class N-Special Series 7 50,000,000
Class O-Special Series 7 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
October 29, 1996.
SECOND: Pursuant to Article VI, Section (5) of the
Charter, the shares of Common Stock newly reclassified hereby shall
have the following preferences, conversion and other rights, voting
powers, 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 M-Special Series
7, Class N-Special Series 7 and Class O-Special Series 7 (collectively,
the "Special Series 7" 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 7 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
<PAGE> 2
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
determined in accordance with law, except that, subject to law:
(a) shares of each class and/or series (each a
"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
-2-
<PAGE> 3
shares of a Common Stock Group which the Board of Directors
determines should be borne solely by such Other Series.
3. PREFERENCES, CONVERSION AND OTHER RIGHTS, 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 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
-3-
<PAGE> 4
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;
and
(c) At such times, which may vary among the holders
of shares within the Series, as may be determined by the Board
of Directors (or with the authorization of the Board of
Directors, the officers of the Corporation) in accordance with
the Investment Company Act of 1940, as amended, and applicable
rules and regulations of the National Association of
Securities Dealers, Inc. and reflected in the registration
statement relating to the Corporation's shares of a Common
Stock Group, shares of a Series of a Common Stock Group may be
automatically converted into shares of an Other Series of the
Common Stock Group based on the relative net asset values of
such series at the time of conversion, subject, however, to
any conditions of conversion that may be imposed by the Board
of Directors (or with the authorization of the Board of
Directors, the officers of the Corporation) and reflected in
the registration statement relating to the Common Stock Group
as aforesaid.
GENERAL
- -------
THIRD: The shares of capital stock of the Corporation
classified pursuant to 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 M-Special Series 7 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 N-Special Series 7 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 O-Special Series 7 50,000,000
</TABLE>
-5-
<PAGE> 6
<TABLE>
<CAPTION>
<S> <C>
Class Q 40,000,000
Class Q-Special Series 3 60,000,000
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 9,250,000,000
</TABLE>
IN WITNESS WHEREOF, PACIFIC HORIZON FUNDS, INC. has caused these
presents to be signed in its name and on its behalf by its Executive Vice
President and its corporate seal to be hereunto affixed and attested by its
Secretary on this ____ day of _________, 1996.
PACIFIC HORIZON FUNDS, INC.
[SEAL] By:
--------------------------------
Name: J. David Huber
Title: Executive Vice President
Attest:
- -----------------------------
W. Bruce McConnel, III
Secretary
-6-
<PAGE> 7
CERTIFICATE
-----------
THE UNDERSIGNED, Executive Vice President of PACIFIC HORIZON
FUNDS, INC., who executed on behalf of said Corporation the attached
Articles Supplementary of said Corporation, of which this Certificate
is made a part, hereby acknowledges, in the name and on behalf of said
Corporation, the attached Articles Supplementary to be the corporate
act of said Corporation, and certifies that to the best of his
knowledge, information and belief the matters and facts set forth in
the attached Articles Supplementary with respect to authorization and
approval are true in all material respects, under the penalties for
perjury.
Dated: , 1996
------------ -------------------------------
Name: J. David Huber
Title: Executive Vice President
<PAGE> 1
EXHIBIT 5(k)
INVESTMENT ADVISORY AGREEMENT
(ASSET ALLOCATION FUND)
THIS AGREEMENT is made as of __________, 1997 between PACIFIC HORIZON
FUNDS, INC., a Maryland corporation (herein called the "Company"), and Bank of
America National Trust and Savings Association (the "Adviser").
WHEREAS, the Company is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Company desires to retain the Adviser to furnish
investment advisory services to the Company's Asset Allocation Fund (the
"Fund");
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT.
(a) The Company hereby appoints the Adviser to act as
investment adviser to the Fund for the period and on the terms set forth in this
Agreement. The Adviser accepts such appointment and agrees to furnish the
services herein set forth for the compensation herein provided. The Adviser may,
in its discretion, provide such services through its own employees or the
employees of one or more affiliated companies that are qualified to act as
investment adviser to the Company under applicable law and are under the common
control of BankAmerica Corporation PROVIDED (i) that all persons, when providing
services hereunder, are functioning as part of an organized group of persons,
and (ii) that such organized group of persons is managed at all times by
authorized officers of the Adviser.
(b) In the event that the Company establishes one or more
investment portfolios other than the Fund with respect to which it desires to
retain the Adviser to act as investment adviser hereunder, it shall notify the
Adviser in writing. If the Adviser is willing to render such services under this
Agreement it shall so notify the Company in writing whereupon such investment
portfolio shall become a "Fund" hereunder and shall be subject to the provisions
of this Agreement to the same extent as the Fund except to the extent that said
provisions (including those relating to the compensation payable by the Fund to
the Adviser) are modified with respect to such additional Fund in writing by the
Company and the Adviser at the time.
<PAGE> 2
2. SERVICES. Subject to the supervision of the Company's Board of
Directors (the "Board"), the Adviser, in consultation with any Sub-Adviser
appointed pursuant to Section 3 hereof with respect to the Fund, will provide a
continuous investment program for the Fund, including investment research and
management with respect to all securities and investments and cash equivalents
in the Fund. The Adviser will determine from time to time what securities and
other investments will be purchased, retained or sold by the Company with
respect to the Fund. The Adviser will provide the services under this Agreement
in accordance with the Fund's investment objective, policies and restrictions as
stated in the Fund's registration statement, as from time to time amended, and
resolutions of the Board. The Adviser further agrees that it:
(a) Will conform with all applicable rules and regulations of
the Securities and Exchange Commission and will in addition conduct its
activities under this Agreement in accordance with other applicable law,
including but not limited to banking law.
(b) Will review, monitor and report to the Board of Directors
regarding the performance and investment procedures of any Sub-Adviser (as
defined in Section 3 of this Agreement).
(c) Will assist and consult with any Sub-Adviser appointed
with respect to the Fund in connection with the Fund's continuous investment
program (as defined in Section 3 of this Agreement).
(d) Will place all orders for the purchase and sale of
portfolio securities for the account of the Fund with brokers or dealers
selected by the Adviser. In executing portfolio transactions and selecting
brokers or dealers, the Adviser will use its best efforts to seek on behalf of
the Company and the Fund the best overall terms available. In assessing the best
overall terms available for any transaction, the Adviser shall consider all
factors it deems relevant, including the breadth of the market in the security,
the price of the security, the financial condition and execution capability of
the broker or dealer, and the reasonableness of the commission, if any, both for
the specific transaction and on a continuing basis. In evaluating the best
overall terms available, and in selecting the broker or dealer to execute a
particular transaction, the Adviser may also consider the brokerage and research
services (as those terms are defined in Section 28(c) of the Securities Exchange
Act of 1934, as amended) provided to the Fund and/or other accounts over which
the Adviser or any affiliate of the Adviser exercises investment discretion. The
Adviser is authorized, subject to the prior approval of the Board, to pay to a
broker or dealer who provides such brokerage and research services a commission
for executing a portfolio transaction for the Fund which is in excess
-2-
<PAGE> 3
of the amount of commission another broker or dealer would have charged for
effecting that transaction if, but only if, the Adviser determines in good faith
that such commission was reasonable in relation to the value of the brokerage
and research services provided by such broker or dealer viewed in terms of that
particular transaction or in terms of the overall responsibilities of the
Adviser to the Fund and to the Company. In no instance will portfolio securities
be purchased from or sold to the Adviser, any Sub-Adviser or Concord Holding
Corporation, the Company's administrator (the "Administrator"), or an affiliated
person of any of them acting as principal or as broker, except as permitted by
law. In executing portfolio transactions for the Fund, the Adviser may, but
shall not be obligated to, to the extent permitted by applicable laws and
regulations, aggregate the securities to be sold or purchased with those of
other Funds and its other clients where such aggregation is not inconsistent
with the policies set forth in the Company's registration statement. In such
event, the Adviser will allocate the securities so purchased or sold, and the
expenses incurred in the transaction, in the manner it considers to be the most
equitable and consistent with its fiduciary obligations to the Fund and such
other clients.
In performing the investment advisory services hereunder, the Adviser
is authorized to purchase, sell or otherwise deal with securities or other
instruments for which (a) Bank of America National Trust and Savings
Association, (b) any affiliate of Bank of America National Trust and Savings
Association, (c) an entity in which Bank of America National Trust and Savings
Association has a direct or indirect interest, or (d) another member of a
syndicate or other intermediary (where an entity referred to in (a), (b) or (c)
above was a member of the syndicate), has acted, now acts or in the future will
act as an underwriter, syndicate member, market-maker, dealer, broker or in any
other similar capacity, whether the purchase, sale or other dealing occurs
during the life of the syndicate or after the close of the syndicate, provided
such purchase, sale or dealing is permitted under the 1940 Act and the rules
thereunder. Insofar as permitted by law any rules of or under applicable law
prohibiting or restricting in any way an agent or fiduciary from dealing with
itself or from dealing with respect to any matter in which it may or does have a
personal interest shall not apply to the Adviser, to the extent its actions are
authorized under this paragraph.
(e) Will maintain all books and records with respect to the
securities transactions for the Fund, keep books of account with respect to the
Fund and furnish the Board such periodic special reports as the Board may
request.
(f) Will maintain a policy and practice of conducting its
investment advisory operations independently of its
-3-
<PAGE> 4
commercial banking operations. When the Adviser makes investment recommendations
for the Fund, its investment advisory personnel will not inquire or take into
consideration whether the issuer of securities proposed for purchase or sale for
the Fund's account are customers of its commercial department. In dealing with
commercial customers, the Adviser's commercial department will not inquire or
take into consideration whether securities of those customers are held by the
Fund.
(g) Will treat confidentially and as proprietary information
of the Company all records and other information relative to the Company and
prior or present Company shareholders or those persons or entities who respond
to inquires concerning investment in the Company, and will not use such records
and information for any purpose other than performance of its responsibilities
and duties hereunder or under any other agreement with the Company except after
prior notification to and approval in writing by the Company, which approval
shall not be unreasonably withheld and may not be withheld where the Adviser may
be exposed to civil or criminal contempt proceedings for failure to comply, when
requested to divulge such information by duly constituted authorities, or when
so requested by the Company. Nothing contained herein, however, shall prohibit
the Adviser from advertising to or soliciting the public generally with respect
to other products or services, including, but not limited to, any advertising or
marketing via radio, television, newspapers, magazines or direct mail
solicitation, regardless of whether such advertisement or solicitation may
coincidentally include prior or present Company shareholders or those persons or
entities who have responded to inquiries regarding the Company.
3. SUB-ADVISER. It is understood that the Adviser may from time to time
employ or associate with itself such person or persons as the Adviser believes
to be fitted to assist it in the performance of this Agreement (each a
"Sub-Adviser"); provided, however, that the compensation of such person or
persons shall be paid by the Adviser and that the Adviser shall be as fully
responsible to the Company for the acts and omissions of any such person as it
is for its own acts and omissions; and provided further, that the retention of
any Sub-Adviser shall be approved as may be required by the 1940 Act.
Additionally, in the event that any Sub-Adviser appointed hereunder is
terminated, the Adviser may provide investment advisory services pursuant to
this Agreement to the Fund without further shareholder approval.
4. SERVICES NOT EXCLUSIVE. The Adviser will for all purposes herein be
deemed to be an independent contractor and will, unless otherwise expressly
provided herein or authorized by the Board from time to time, have no authority
to act for or represent the Company in any way or otherwise be deemed its agent.
The investment management services furnished by the Adviser hereunder are not
deemed exclusive, and the Adviser will
-4-
<PAGE> 5
be free to furnish similar services to others so long as its services under this
Agreement are not impaired thereby.
5. BOOKS AND RECORDS. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Adviser hereby agrees that all records which it
maintains for the Company are the property of the Company and further agrees to
surrender promptly to the Company any such records upon the Company's request.
The Adviser further agrees to preserve for the periods prescribed by Rule 31a-2
under the 1940 Act the records required to be maintained by Rule 31-1 under the
1940 Act.
6. EXPENSES. During the term of this Agreement, the Adviser will pay
all expenses incurred by it in connection with its activities under the
Agreement other than the cost of securities (including brokerage commissions, if
any) purchased for the Company.
7. COMPENSATION. For the services provided and the expenses assumed
pursuant to this Agreement, the Company will pay the Adviser and the Adviser
will accept as full compensation therefor a fee, computed daily and paid monthly
(in arrears), at an annual rate of .40% of the net assets of the Fund.
If in any fiscal year the aggregate expenses of the Fund (as defined
under the securities regulations of any state having jurisdiction over the Fund)
exceed the expense limitations of any such state, the Adviser will reimburse the
Fund to the extent necessary to reduce the Fund's expenses below such expense
limitation. The obligation of the Adviser to reimburse the Fund hereunder is
limited in any fiscal year to the amount of its fee hereunder for such fiscal
year with respect to the Fund; provided, however, that notwithstanding the
foregoing, the Adviser will reimburse the Fund for excess expenses regardless of
the amount of fees paid to it during such fiscal year to the extent that the
securities regulations of any state having jurisdiction over the Fund so
require. Such expense reimbursement, if any, will be estimated and accrued daily
and paid on a monthly basis.
8. LIMITATION OF LIABILITY. Subject to the provisions of Section 3
hereof concerning the Adviser's responsibility for the acts and omissions of
persons employed by or associated with the Adviser, the Adviser will not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Company in connection with the performance of this Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith or negligence on the part of the Adviser in the performance of its duties
or from reckless disregard by it of its obligations and duties under this
Agreement.
-5-
<PAGE> 6
9. DURATION AND TERMINATION. This Agreement will become effective as of
the date first above written. This Agreement will become effective with respect
to any additional Fund on the date of receipt by the Company of notice from the
Adviser in accordance with Section 1(b) hereof that the Adviser is willing to
serve as investment adviser with respect to such Fund, provided that this
Agreement (as supplemented by the terms specified in any notice and agreement
pursuant to Section 1(b) hereof) shall have been approved by the shareholders of
such Fund in accordance with the requirements of the 1940 Act.
Unless sooner terminated as provided herein, this Agreement will
continue in effect until October 31, 1997. Thereafter, if not terminated, this
Agreement shall continue in effect for successive annual periods, provided such
continuance is specifically approved at least annually (a) by the vote of a
majority of those members of the Board who are not interested persons of any
party to this Agreement, cast in person at a meeting called for the purpose of
voting on such approval, and (b) by the Board or by vote of a majority of the
outstanding voting securities of the Fund. Notwithstanding the foregoing, this
Agreement may be terminated at any time, without the payment of any penalty, by
the Company (by vote of the Board or by vote of a majority of the outstanding
voting securities of the Fund), or by the Adviser, on sixty days' written
notice. This Agreement will immediately terminate in the event of its
assignment. (As used in this Agreement, the terms "majority of the outstanding
voting securities," "interested persons" and "assignment" shall have the same
meaning as the meaning of such terms in the 1940 Act.)
10. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought. No amendment of this Agreement will be
effective until approved by vote of a majority of the outstanding voting
securities of the Fund.
11. NOTICES. Notices of any kind to be given to the Adviser hereunder
by the Company will be in writing and will be duly given if mailed or delivered
to the Adviser at 555 South Flower Street, 5th Floor, Los Angeles, California
90071, Attention: Sandra C. Brown, or at such other address or to such
individuals as will be so specified by the Adviser to the Company. Notices of
any kind to be given to the Company hereunder by the Adviser will be in writing
and will be duly given if mailed or delivered to the Company at 3435 Stelzer
Road, Columbus, Ohio 43219, Attention: J. David Huber (with a copy to
Association of American Universities, One DuPont Circle, Suite 730, Washington,
DC 20036, Attention: Cornelius J. Pings,
-6-
<PAGE> 7
President), or at such other address or to such individual as will be so
specified by the Company to the Adviser.
12. MISCELLANEOUS. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement will not be affected
thereby. This Agreement will be binding upon and will inure to the benefit of
the parties hereto and their respective successors and will be governed by the
internal laws, and not the law of conflicts, of the State of Maryland; provided
that nothing herein will be construed in a manner inconsistent with the 1940
Act, the Investment Advisers Act of 1940, as amended, or any rule or regulation
of the Securities and Exchange Commission thereunder. This Agreement may be
executed in two or more parts which together shall constitute a single
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
PACIFIC HORIZON FUNDS, INC.
By:
------------------------------
Name:
Title:
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By:
-----------------------------
Name:
Title:
-7-
<PAGE> 1
EXHIBIT 9 (c)
AMENDMENT NO. 1 TO ADMINISTRATION AGREEMENT
This Amendment No. 1, dated as of the 1st day of November, 1996, is
entered into between PACIFIC HORIZON FUNDS, INC. (the "Company"), a Maryland
corporation, and The BISYS Group, Inc. ("BISYS").
WHEREAS, the Company and BISYS have entered into an Administration
Agreement (the "Administration Agreement") dated November 1, 1996, pursuant to
which the Company retained BISYS as its Administrator to provide administrative
services for the Utilities Fund, Growth and Income Fund, International Bond
Fund, Blue Chip Fund, Intermediate Bond Fund and Asset Allocation Fund
(collectively, the "Feeder Funds") and Aggressive Growth Fund, Capital Income
Fund, U.S. Government Securities Fund, California Tax-Exempt Bond Fund, National
Municipal Bond Fund, Short-Term Government Fund, International Equity Fund and
Corporate Bond Fund (collectively, the "Managed Funds" and collectively with the
Feeder Funds, the "Funds");
WHEREAS, the Company has notified BISYS that it is reorganizing the
Asset Allocation Fund (the "Fund") from a Feeder Fund into a managed fund
("Reorganization") and that it desires to retain BISYS to act as the
Administrator therefor effective upon the Reorganization, and BISYS has notified
the Company that it is willing to serve as the Administrator for the Fund; and
WHEREAS, the Company desires that the Fund shall become a "Managed
Fund" as that term is defined in the Administration Agreement, and that the Fund
shall become subject to the provisions of said Administration Agreement to the
same extent as the other Funds except to the extent said provisions are modified
below;
NOW THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. APPOINTMENT. The Company hereby appoints BISYS as Administrator of
the Fund for the period and on the terms set forth in the Administration
Agreement. BISYS accepts such appointment and agrees to perform the duties and
services set forth in the Administration Agreement, for the compensation herein
provided.
2. COMPENSATION. For the services provided and the expenses assumed as
Administrator pursuant to Section I of the Administration Agreement with respect
to the Fund, the Company
<PAGE> 2
will pay BISYS a fee, computed daily and payable monthly, at the annual rate of
0.15% of the Fund's average net assets.
Except to the extent amended hereby, the Administration Agreement as
amended shall remain unchanged and in full force and effect and is hereby
ratified and confirmed in all respects as amended hereby.
This Amendment may be executed in one or more counterparts and all such
counterparts will constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 1
as of the date and year first above written.
PACIFIC HORIZON FUNDS, INC.
By:
------------------------------
Name:
Title:
THE BISYS GROUP, INC.
By:
------------------------------
Name:
Title:
-2-
<PAGE> 1
EXHIBIT 11 (A)
CONSENT OF COUNSEL
------------------
We hereby consent to the use of our name and to the reference
to our Firm under the caption "Counsel" in the Statement of Additional
Information that is included in Post-Effective Amendment No. 53 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
February 5, 1997
<PAGE> 1
Exhibit 11(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 53 to the registration statement on Form N-1A (the "Registration
Statement") of our reports dated April 25, 1996, relating to the financial
statements and financial highlights of Pacific Horizon Asset Allocation Fund,
Pacific Horizon Blue Chip Fund, and Pacific Horizon Intermediate Bond Fund
(formerly known as Pacific Horizon Flexible Bond Fund), three of the portfolios
of the Pacific Horizon Funds, Inc., appearing in the respective February 29,
1996 Annual Reports to Shareholders, and our reports dated April 25, 1996
relating to the financial statements and supplementary data appearing in their
respective February 29, 1996 Annual Reports to Investors of the Asset Allocation
Portfolio, Blue Chip Portfolio, and Investment Grade Bond Portfolio, three
portfolios constituting Master Investment Trust, Series I, which financial
statements, financial highlights and supplementary data are also incorporated by
reference into the Registration Statement. We also consent to the references to
us under the heading "Financial Highlights" in the Prospectus and under the
headings "Independent Accountants" and "Financial Statements and Experts" in the
Statement of Additional Information.
/s/ Price Waterhouse LLP
- -------------------------
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
February 6, 1997
<PAGE> 1
EXHIBIT 15(k)
PACIFIC HORIZON FUNDS, INC.
SHAREHOLDER SERVICE PLAN
I. Introduction
It has been proposed that Pacific Horizon Funds, Inc. (the
"Company") pay for expenses incurred in connection with the provisions of
shareholder services with respect to the SRF Shares of its Asset Allocation,
Blue Chip and Intermediate Bond Funds (collectively the "Funds" and individually
a "Fund"), and that a written plan describing all material aspects of the
proposed financing be adopted by the Company.
In particular, it has been proposed that the SRF Shares of the
Funds bear: (a) expenses incurred in connection with nondistribution shareholder
service provided by the distributor of the Company (the "Distributor") to
Service Organizations and/or the beneficial owners of SRF Shares; (b) periodic
payments made to Service Organizations for the provision of support services to
the beneficial owners of SRF Shares; and (c) expenses incurred in implementing
and operating this Plan. Under this proposal, payments would be made by the
Company to the Distributor to the extent described below.
The Board of Directors in considering whether the Company
should implement this Plan, has requested and evaluated such information as it
deemed necessary to an informed determination as to whether a written plan
should be implemented and has considered such pertinent factors as it deemed
necessary to form the basis for a decision to use the assets of the SRF Shares
of the Funds for such purposes.
In voting to approve the implementation of this Plan, the
Directors have concluded, in the exercise of their reasonable business judgment
and in light of their respective fiduciary duties, that there is a reasonable
likelihood that the Plan will benefit the SRF Shares of the Funds and their
shareholders.
II. Financing
The material aspects of the financing by the Company of
shareholder servicing expenses incurred in connection with the SRF Shares of the
Funds are as follows:
The SRF Shares of the Funds will pay the Distributor for
expenses incurred in connection with non-distribution shareholder services
provided by the Distributor to Service Organizations and/or the beneficial
owners of SRF Shares,
<PAGE> 2
including but not limited to shareholder servicing provided by the Distributor
at facilities dedicated for Fund use, provided that such shareholder servicing
is not duplicative of the servicing otherwise provided on behalf of the SRF
Shares of the Funds.
In addition, the SRF Shares of the Funds will pay the
Distributor for fees to Service organizations (which may include the Distributor
itself) for the provision of support services to persons who are the beneficial
owners of SRF Shares ("Clients"). Such services may include: (a) establishing
and maintaining accounts and records relating to Clients that invest in SRF
Shares; (b) processing dividend and distribution payments from the SRF Shares of
the Funds on behalf of Clients; (c) providing information periodically to
Clients regarding their positions in SRF Shares; (d) arranging for bank wires;
(e) responding to Client inquiries concerning their investments in SRF Shares;
(f) providing the information to the Funds necessary for accounting and
subaccounting; (g) if required by law, forwarding shareholder communications
from the Funds (such as proxies, shareholder reports, annual and semi-annual
financial statements and dividend, distribution and tax notices) for Clients;
(h) assisting in processing exchange and redemption requests from Clients; (i)
assisting Clients in changing dividends options, account designations and
addresses; and (j) providing such other similar services as the Distributor may
reasonably request.
While this Plan is in effect the Distributor will be paid for
such shareholder servicing expenses that are incurred in connection with the SRF
Shares of the Funds on a monthly basis, at an annual rate of up to but not more
than .25 of 1 percent of the average daily net assets of the SRF Shares of each
Fund during such month. These monthly payments to the Distributor shall be made
in accordance with, and subject to, the conditions set forth in Part III of this
Plan.
III. Other Provisions
(a) The monthly payments to the Distributor under Part II of
this Plan shall be made in accordance with, and subject to, the following
conditions:
(1) the calculation of the average daily net assets
of the SRF Shares will not include those assets held
in accounts opened via a transfer of assets from
trust and agency accounts of Bank of America National
Trust and Savings Association;
(2) if in any month the Distributor expends or is due
more monies that can be immediately paid under Part
II, due to the percentage limitation noted therein,
the unpaid amount shall be carried
-2-
<PAGE> 3
forward from month to month while this Plan is in
effect until such time, if ever, when it can be paid
in accordance with the provisions of Part II;
(3) if in any month the Distributor does not expend
the entire amount then available under Part II, and
assuming that no unpaid amounts have been carried
forward and remain unpaid under such Part, then the
amount not expended shall be considered a credit and
may be drawn upon from month to month by the
Distributor to permit payment under Part II when
necessary in the future (i.e., carried back);
(4) payments made out of or charged against the
assets of a particular Fund must be in payment for
shareholder servicing expenses incurred on behalf of
such Fund; and
(5) payments made pursuant to Part II must be for
the shareholder servicing expenses described
therein.
Notwithstanding any provisions of items (2) and (3) above,
however, no amounts payable or credit due pursuant to this Plan for any fiscal
year may be carried over for payment or utilized as a credit, as the case may
be, beyond the end of such year. In addition, any amount being carried forward
during any given year will be extinguished in the event this Plan is terminated
in that year.
Payment to a Service Organization under Part II shall be
subject to compliance by the Service Organization with the terms of an agreement
between the Service Organization and the Distributor. If an investor in SRF
Shares of a Fund ceases to be a client of a Service Organization that has
entered into an agreement with the Distributor, but continues to hold SRF Shares
of a Fund, the Distributor will be entitled to receive similar payments in
respect to the shareholder servicing provided with respect to such investor.
(b) For the purpose of determining the amounts payable under
this Plan, the value of the net assets of the SRF Shares for a Fund shall be
computed in the manner specified in the Fund's prospectus as then in effect for
the computation of the value of the net assets of a Fund's SRF Shares.
(c) The Distributor shall provide the Board of Directors, at
least quarterly, with a written report of all amounts expended pursuant to Part
II of this Plan. The report shall state the purpose for which the amounts were
expended.
-3-
<PAGE> 4
(d) This plan shall continue until October 31, 1997, unless
earlier terminated in accordance with its terms, and thereafter shall continue
automatically for successive annual periods, provided such continuance is
approved by a majority of the Board of Directors, including a majority of the
Directors who are not "interested persons" (as defined in the Act) of the
Company and who have no direct or indirect financial interest in the operation
of this Plan or in any agreements entered into in connection with this Plan (the
"Disinterested Directors"), pursuant to a vote cast in person at a meeting
called for the purpose of voting on the continuance of the Plan.
(e) This Plan may be amended at any time by the Board of
Directors provided that any material amendments of the terms of this Plan shall
become effective only upon approval as provided in paragraph (d) hereof.
(f) This Plan is terminable, as to any Fund, without penalty
at any time by (i) vote of a majority of the Disinterested Directors, or (ii)
vote of a majority of the outstanding voting securities of such Fund.
(g) The Company's Board of Directors has adopted this Plan as
of November 1, 1996.
-4-
<PAGE> 5
SHAREHOLDER SERVICING AGREEMENT
With Respect to SRF Shares
of the Asset Allocation, Blue Chip and
Intermediate Bond Funds of
PACIFIC HORIZON FUNDS, INC.
Concord Financial Group, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
Ladies and Gentlemen:
We wish to enter into this Shareholder Servicing Agreement
("Agreement") with you concerning the provision of support services to our
clients ("Clients") who may from time to time beneficially own SRF Shares of the
Asset Allocation, Blue Chip and Intermediate Bond Funds (collectively the
"Funds") of the Pacific Horizon Funds, Inc. (the "Company") that are covered by
the Company's Shareholder Service Plan of which you are the principal
underwriter as defined in the Investment Company Act of 1940 (the "Act") and the
exclusive agent for the continuous distribution of said SRF Shares. SRF Shares
of the Funds above are hereinafter referred to collectively as "Shares".
The terms and conditions of this Agreement are as follows:
We agree to provide the following support services to Clients
who may from time to time acquire and beneficially own Shares(1): (i)
establishing and maintaining accounts and records relating to clients that
invest in Shares; (ii) processing dividend and distribution payments from the
Funds 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 Shares; (vi)
providing the information to the Funds necessary for accounting or
subaccounting; (vii) if required by law, forwarding shareholder communications
from the Funds (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, accounts designations and
addresses and (x) providing such other similar services as you may reasonably
request to the extent we are permitted to do so under applicable statutes,
rules and regulations.
We will provide such office space and equipment, telephone
facilities and
-5-
<PAGE> 6
personnel (which may be any part of the space, equipment and facilities
currently used in our business, or any personnel employed by us) as may be
reasonably necessary or beneficial in order to provide the aforementioned
services and assistance to Clients.
Neither we nor any of our officers, employees or agents are
authorized to make any representations concerning you or the Shares except those
contained in the Funds' applicable prospectuses and statements of additional
information for the Shares, copies of which will be supplied by you to us, or in
such supplemental literature or advertising as may be authorized by you in
writing.
For all purposes of this Agreement we will be deemed to be an
independent contractor, and will have no authority to act as agent for you or
the Funds in any matter or in any respect. We and our employees will, upon
request, be available during normal business hours to consult with you or your
designees concerning the performance of our responsibilities under this
Agreement. We will not engage in activities pursuant to this Agreement which
constitute acting as a broker or dealer under state law unless we have obtained
the licenses required by such law.
In consideration of the services and facilities provided by us
hereunder, you will pay to us, and we will accept as full payment thereof, a fee
at the annual rate of .____ of 1% of the average daily net asset value of the
Shares beneficially owned by our Clients for whom we are the dealer of record or
holder of record or with whom we have a servicing relationship (the "Clients'
Shares"). Said fee will be computed daily and payable monthly. For purposes of
determining the fee payable under Paragraph 5, the average daily net asset value
of the Clients' Shares will be computed in the manner specified in the Funds'
Registration Statement (as the same is in effect from time to time) in
connection with the computation of the net asset value of the particular Shares
involved for purposes of purchases and redemptions. The fee rate stated above
may be prospectively increased or decreased by you, in your sole discretion, at
any time upon notice to us. Further, you may, in your discretion and without
notice, suspend or withdraw the sale of Shares, including the sale of Shares for
the account of any Client or Clients.
We acknowledge that you will provide to the Funds' Board of
Directors, and the Board of Directors will review, at least quarterly, a written
report of the amounts expended pursuant to this Agreement and the purposes for
which such expenditures were made. In connection with such reviews, we will
furnish you or your designs with such information as you or they may reasonably
request (including, without limitation, periodic certifications confirming the
-6-
<PAGE> 7
provision to Clients of the services describe herein), and will otherwise
cooperate with you and your designee (including, without limitation, any
auditors designated by you), in connection with the preparation of reports to
the Funds' Board of Directors concerning this Agreement and the monies paid or
payable by you pursuant hereto, as well as any other reports or filings that may
be required by law.
You may enter into other similar Agreements with any other
person or persons without our consent.
We hereby represent, warrant and agree that the compensation
payable to us hereunder, together with any other compensation payable to us by
our Clients in connection with the investment of their assets in Shares of the
Funds, will be disclosed by us to our Clients, will authorized by our Clients
and will not result in an excessive or unreasonable fee to us. We hereby further
represent, warrant and agree that in no event will any of the services provided
by us hereunder primarily intended to result in the sale of Shares.
This Agreement will become effective on the date a fully
executed copy of this Agreement is received by you or your designee. Unless
sooner terminated, this Agreement will continue until October 31, 1997, and
thereafter will continue automatically for successive annual periods provided
such continuance is specifically approved at least annually by the Funds in the
manner described in Paragraph 12. This Agreement is terminable with respect to
the Shares, without penalty, at a time by the Funds (which termination may be by
a vote of a majority of the Disinterested Directors as deemed in Paragraph 12 or
by vote of the holders of a majority of the outstanding Shares) or by us or you
upon notice to the other party hereto. This Agreement will terminate
automatically in the event of its assignment (as deemed in the Act).
All notices and other communications to either you or us will
be duly given if mailed, telegraphed, telexed or transmitted by similar
telecommunications device to the appropriate address stated herein, or such
other address as either party shall so provide the other.
This Agreement will be construed in accordance with the
internal laws of the State of New York, without giving effect to principles of
conflict of laws.
This Agreement has been approved by vote of a majority of (a)
the Funds' Board of Directors and (b) those Directors of the Funds who are not
"interest persons" (as defined in the Act) of the Funds and have no direct or
indirect financial interest in the operation of the Shareholder Service Plan
adopted by the Funds regarding
-7-
<PAGE> 8
the provision of support services in connection with the Shares or in any
agreement related thereto cast in person at a meeting called for the purpose of
voting on such approval ("Disinterested Directors").
Very truly yours,
- --------------------------------------------------------------------------------
Service Organization Name (Please Print or Type)
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City State Zip Code
Dated:
--------------------------------------------------------------------------
By:
-----------------------------------------------------------------------------
Authorized Signature
NOTE:
Please return both signed copies of this Agreement to Concord Financial Group,
Inc. Upon acceptance one countersigned copy will be returned for your files.
Accepted
Concord Financial Group, Inc.
Dated:
--------------------------------------------------------------------------
By:
-----------------------------------------------------------------------------
Authorized Signature
-8-
<PAGE> 9
PACIFIC HORIZON FUNDS INC.
AUTHORIZATION
The following person or persons represent(s) and warrant(s) that he (they) are
fully authorized to purchase or redeem shares on behalf of the beneficial
owners.
- ------------------------------ ------------------------------
Name Signature
- ------------------------------ ------------------------------
Title Date
- ------------------------------ ------------------------------
Name Signature
- ------------------------------ ------------------------------
Title Date
- ------------------------------ ------------------------------
Name Signature
- ------------------------------ ------------------------------
Title Date
- ------------------------------ ------------------------------
Name Signature
- ------------------------------ ------------------------------
Title Date
<PAGE> 1
EXHIBIT 18
PACIFIC HORIZON FUNDS, INC.
(THE "COMPANY")
AMENDED AND RESTATED PLAN PURSUANT TO RULE 18F-3
FOR OPERATION OF A MULTI-CLASS SYSTEM
-------------------------------------
I. INTRODUCTION
---------------
On February 23, 1995, the Securities and Exchange Commission
(the "Commission") adopted Rule 18f-3 under the Investment Company Act of 1940,
as amended (the "1940 Act"), which permits the creation and operation of a
multi-class distribution structure without the need to obtain an exemptive order
under Section 18 of the 1940 Act. Rule 18f-3, which became effective on April 3,
1995, requires an investment company to file with the Commission a written plan
specifying all of the differences among classes, including the various services
offered to shareholders, different distribution arrangements for each class,
methods for allocating expenses relating to those differences and any conversion
features or exchange privileges. The Company operated a multi-class distribution
structure pursuant to an exemptive order granted by the Commission on November
17, 1989. On April 27, 1995, the Board of Directors of the Company authorized
the Company to operate its current multi-class distribution structure in
compliance with Rule 18f-3.
II. ATTRIBUTES OF CLASSES
-------------------------
A. GENERALLY
---------
MONEY MARKET FUNDS
The Company is authorized to offer five classes of shares --
Pacific Horizon Shares, Horizon Shares, Horizon Service Shares, Class S Shares
and Class X Shares -- in the Prime and Treasury Funds. The Company is authorized
to offer four classes of shares -- Pacific Horizon Shares, Horizon Shares,
Horizon Service Shares and Class X Shares -- in the California Tax-Exempt Money
Market Fund. The Company is authorized to offer three classes of shares --
Pacific Horizon Shares, Horizon Shares and Horizon Service Shares in the
Treasury Only, Government, and Tax-Exempt Money Funds. The Prime Fund, Treasury
Fund, California Tax-Exempt Money Market Fund, Treasury Only Fund, Government
Fund, and Tax-Exempt Money Fund are each referred herein as a "Fund," and
collectively as the "Money Market Funds."
- 1 -
<PAGE> 2
NON-MONEY MARKET FUNDS
The Company is authorized to offer four classes of shares --
Class A Shares, Class B Shares, Class K Shares and Class SRF Shares -- in the
Asset Allocation, Blue Chip and Intermediate (formerly, Flexible) Bond Funds.
The Company is authorized to offer three classes of shares -- Class A Shares,
Class B Shares and Class K Shares -- in the Aggressive Growth, Capital Income,
U.S. Government Securities, Corporate Bond, Utilities, Short-Term Government,
Growth and Income, International Bond, International Equity, California
Tax-Exempt Bond and National Municipal Bond Funds. The Aggressive Growth,
Capital Income, U.S. Government Securities, Corporate Bond, Blue Chip, Asset
Allocation, Intermediate (formerly, Flexible) Bond, Utilities, Short-Term
Government, Growth and Income, International Bond, International Equity,
California Tax-Exempt Bond and National Municipal Bond Funds are each referred
to herein as a "Fund," and collectively as the "Non-Money Market Funds."
ALL FUNDS
In general, shares of each class shall be identical except for
different expense variables (which will result in different returns for each
series), certain related rights, certain distribution, administrative and
shareholder services and certain sales charges. More particularly, the Pacific
Horizon Shares, Horizon Shares, Horizon Service Shares, Class X Shares and Class
S Shares of the Money Market Funds and Class A Shares, Class B Shares, Class K
Shares and Class SRF Shares of the Non-Money Market Funds shall represent
interests in the same portfolio of investments of the particular Fund, and shall
be identical in all respects, except for: (a) the impact of expenses assessed to
the Pacific Horizon Shares pursuant to a Special Management Services Plan,
expenses assessed to the Horizon Service Shares, Class A Shares and Class SRF
Shares pursuant to the Shareholder Services Plan adopted for such classes,
expenses assessed to Class S Shares, Class X Shares and Class B Shares pursuant
to the Distribution and Services Plan adopted for such classes, expenses
assessed to Class K Shares pursuant to the Distribution Plan and Administrative
and Shareholder Services Plan adopted for such class, the sales charges imposed
on Class A Shares and Class B Shares and any other incremental expenses
subsequently identified that should be properly allocated to one class so long
as any subsequent changes in expense allocations are reviewed and approved by a
vote of the Board of Directors, including a majority of the independent
directors; (b) the fact that a class shall vote separately on matters which
pertain to the Special Management Services Plan, Shareholder Services Plan,
Distribution and Services Plan, Distribution Plan or Administrative and
Shareholder Services Plan adopted for that class and any matter submitted to
shareholders relating to such
- 2 -
<PAGE> 3
class's expenses; (c) the different exchange privileges, sales charges and
conversion features of the class of shares; (d) the designation of each class of
shares of the particular Fund; and (e) the different shareholder services
relating to a class of shares.
B. DISTRIBUTION AND SERVICING ARRANGEMENTS, EXPENSES AND SALES CHARGES
-------------------------------------------------------------------
1. MONEY MARKET FUNDS
------------------
PACIFIC HORIZON SHARES
Pacific Horizon Shares are currently available for purchase by
individuals directly from the Company's distributor, by clients of Bank of
America National Trust and Savings Association ("Bank of America") through their
qualified trust and agency accounts and by clients of certain institutions such
as banks or broker-dealers ("Service Organizations"). Pacific Horizon Shares
shall not initially be subject to a sales charge (except as provided below) but
shall initially be subject to a servicing fee payable pursuant to a Special
Management Services Plan which shall not initially exceed 0.32% (on an annual
basis) of the average daily net asset value of each Fund's (other than the
California Tax-Exempt Money Market Fund) Pacific Horizon Shares outstanding from
time to time and 0.35% (on an annual basis) of the average daily net asset value
of the California Tax-Exempt Money Market Fund's Pacific Horizon Shares
outstanding from time to time.
Shareholder services under the Special Management Services
Plan initially shall consist of: (i) aggregating and processing purchase and
redemption requests for shares from clients and placing net purchase and
redemption orders with the distributor; (ii) providing clients with a service
that invests the assets of their accounts in such shares pursuant to specific or
pre-authorized instructions; (iii) processing dividend payments from us on
behalf of clients; (iv) providing statements periodically to clients showing
their positions in such shares; (v) providing subaccounting with respect to
shares beneficially owned by clients or the information to the Company necessary
for subaccounting; (vi) if required by law, forwarding shareholder
communications from the Company (such as proxies, shareholder reports, annual
and semi-annual financial statements and dividend, distribution and tax notices)
to clients; (vii) forwarding to clients proxy statements and proxies containing
any proposals regarding the Special Management Services Plan; (viii) developing
and monitoring investor programs offered from time to time; (ix) providing
dedicated walk-in and telephone facilities to handle client inquires and serve
client needs; (x) providing and maintaining specialized systems for the
automatic investments of clients; (xi) maintaining the registration or
qualification of
- 3 -
<PAGE> 4
a class for sale under state securities laws; (xii) paying for the operation of
arrangements that facilitate same-day purchases by clients; (xiii) assuming the
expense of payments made to third parties for services provided in connection
with the investments of their customers in a class; and (xiv) providing various
other services (such as the provision of a facility to receive purchase and
redemption orders) for shareholders who have made a minimum initial investment
of less than $500,000; and (xv) providing such other similar services as the
Company may reasonably request to the extent permitted under applicable
statutes, rules or regulations.
Pacific Horizon Shares of the Prime Fund acquired through
exchange of shares ("B Shares") of Time Horizon Funds offered with a contingent
deferred sales charge ("CDSC") will be subject to a maximum CDSC of up to 5.00%
upon redemption in accordance with the prospectus for B Shares of Time Horizon
Funds. For purposes of computing the CDSC, the length of time of ownership will
be measured from the date of the original purchase of B Shares and will not
include any period of ownership of the Pacific Horizon Shares of the Prime Fund.
HORIZON SHARES
Horizon Shares are currently offered to institutional
investors and shall not be available for purchase by individuals directly.
Horizon Shares are not currently subject to a sales charge or a fee payable
pursuant to a Shareholder Services Plan.
HORIZON SERVICE SHARES
Horizon Service Shares are currently offered to institutional
investors such as Bank of America or the Company's administrator (also referred
to as "Shareholder Organizations"), who are compensated by the Money Market
Funds for providing shareholder services pursuant to a Shareholder Services
Agreement to their customers who are the beneficial owners of the Horizon
Service Shares. Horizon Service Shares are not available for purchase by
individuals directly. Horizon Service Shares are not currently subject to a
sales charge but shall be subject to a shareholder servicing fee payable
pursuant to a Shareholder Services Plan adopted for that class which shall not
initially exceed 0.25% (on an annualized basis) of the average daily net asset
value of the Horizon Service Shares beneficially owned by the customers of
Shareholder Organizations.
The services provided by Shareholder Organizations may
initially include the following: (i) aggregating and processing purchase and
redemption requests from customers for Horizon Service Shares and placing net
purchase and redemption orders with the distributor; (ii) providing customers
with a service that invests the assets of their accounts in Horizon Service
- 4 -
<PAGE> 5
Shares pursuant to specific or preauthorized instructions; (iii) processing
dividend payments from a Fund on behalf of customers; (iv) providing information
periodically to customers regarding their position in Horizon Service Shares;
(v) arranging for bank wires; (vi) responding to customer inquiries regarding
services performed by the Shareholder Organizations; (vii) providing sub-
accounting with respect to Horizon Service Shares beneficially owned by
customers or the information necessary for sub-accounting; (viii) forwarding
shareholder communications from a Fund to customers; and (ix) other similar
services if requested by a Fund.
CLASS S SHARES
Class S Shares are currently available only to customers of
Bank of America or a Service Organization who purchase such shares through a
Sweep Account offered by Bank of America or the Service Organization. Class S
Shares shall not initially be subject to a sales charge. Class S Shares shall
initially be subject to distribution and shareholder servicing fee payable
pursuant to the Distribution and Services Plan adopted for that class which
shall not initially exceed 1.00% of the average daily net asset value of
outstanding Class S Shares. Distribution expenses under the Distribution and
Services Plan include: (i) direct out-of-pocket promotional expenses incurred by
the distributor in advertising and marketing Class S Shares; (ii) expenses
incurred in connection with preparing, printing, mailing, and distributing or
publishing advertisements and sales literature for Class S Shares; (iii)
expenses incurred in connection with printing and mailing prospectuses and
statements of additional information to other than current Class S shareholders;
(iv) periodic payments or commissions to one or more securities dealers,
brokers, financial institutions or other industry professionals, such as
investment advisors, accountants, and estate planning firms, including any of
the Company's service providers, (severally, "a Distribution Organization" and
collectively, "Distribution Organizations") with respect to a Fund's Class S
Shares beneficially owned by customers for whom the Distribution Organization is
the Distribution Organization of record or holder of record of such Class S
Shares; (v) the direct or indirect cost of financing the payments or expenses
included in (i) and (iv) above; and (vi) for such other services as may be
construed, by any court or governmental agency or commission, including the
Commission, to constitute distribution services under the 1940 Act or rules and
regulations thereunder.
Shareholder services provided pursuant to this Distribution and
Services Plan include: (i) processing dividend and distribution payments from a
Fund on behalf of its clients; (ii) providing information periodically to its
clients showing their positions in Class S Shares; (iii) arranging for bank
wires; (iv) responding to routine client inquiries concerning their
- 5 -
<PAGE> 6
investment in Class S Shares; (v) providing the information to the Funds
necessary for accounting or sub-accounting; (vi) if required by law, forwarding
shareholder communications from a Fund (such as proxies, shareholder reports,
annual and semi-annual financial statements and dividend, distribution and tax
notices) to its clients; (vii) aggregating and processing purchase and
redemption requests from its clients and placing net purchase and redemption
orders for its clients; (viii) establishing and maintaining accounts and records
relating to clients that invest in Class S Shares; (ix) assisting clients in
changing dividend options, account designations and addresses; (x) developing,
maintaining and operating systems necessary to support Sweep Accounts; or (xi)
other similar services if requested by the Company.
CLASS X SHARES
Class X Shares are currently available only to customers of BA
Investment Services, Inc. or Service Organizations who purchase such shares
through a Sweep Account offered by BA Investment Services, Inc. or Service
Organizations. Class X Shares shall not initially be subject to a sales charge.
Class X Shares also shall initially be subject to a distribution and shareholder
servicing fee payable pursuant to the Distribution and Services Plan adopted for
that class which shall not initially exceed 0.55% of the average daily net asset
value of outstanding Class X Shares. Distribution expenses and shareholder
services under the Distribution and Services Plan for Class X Shares are
identical to those provided under the Distribution and Services Plan for Class S
Shares.
2. NON-MONEY MARKET FUNDS
----------------------
CLASS A SHARES
Class A Shares are currently offered to the general public and
shall initially be subject to a front-end sales charge which shall not initially
exceed 4.50% of the offering price of Class A Shares. There is no front-end
sales charge imposed on combined purchases of Class A Shares in excess of $1
million or if the aggregate value of Class A Shares beneficially owned by a
shareholder in any Pacific Horizon or Time Horizon Fund equals or exceeds $1
million ("Large Purchase Exemption"). 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. Class A
Shares are also currently subject to a fee payable pursuant to a Shareholder
Services Plan which currently does not initially exceed 0.25% (on an annual
basis) of the average daily net asset value of the Class A Shares.
- 6 -
<PAGE> 7
Services provided under the Shareholder Services Plan adopted
for the class currently 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 Class A Shares. 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 Funds 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 Funds necessary for accounting or
subaccounting; (vii) if required by law, forwarding shareholder communications
from the Funds (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.
CLASS B SHARES
Class B Shares of the Non-Money Market Funds shall initially
be offered to the general public and may be offered through broker-dealers or
other organizations acting on behalf of their customers. Class B Shares shall be
subject to a CDSC which initially shall be payable on certain share redemptions
made within six years of the purchase date at a rate which shall not initially
exceed 5.00% of the lower of (1) the net asset value of the redeemed shares or
(2) the original purchase price of the redeemed shares. Class B Shares are also
currently subject to a fee payable pursuant to a Distribution and Services Plan
which currently does not initially exceed 1.00% (on an annual basis) of the
average daily net asset value of the Class B Shares.
Distribution expenses under the Distribution and Services Plan
include: (i) direct out-of-pocket promotional expenses incurred by the
distributor in advertising and marketing Class B shares; (ii) expenses incurred
in connection with preparing, printing, mailing, and distributing or publishing
advertisements and sales literature for Class B shares; expenses incurred in
connection with printing and mailing prospectuses and statements of additional
information to other than current Class B shareholders; (iii) periodic payments
or commissions to one or more Distribution Organizations with respect to a
Fund's Class B Shares beneficially owned by customers for whom the Distribution
Organization is the Distribution Organization of record or holder of record of
such Class B Shares; (iv) the direct or indirect cost of financing the payments
or expenses included in (i) and (iii) above; or (v) for such other services
- 7 -
<PAGE> 8
as may be construed, by any court or governmental agency or commission,
including the Commission, to constitute distribution services under the 1940 Act
or rules and regulations thereunder.
Shareholder services provided pursuant to this Distribution
and Services Plan include: (i) processing dividend and distribution payments
from a Fund on behalf of its clients; (ii) providing information periodically to
its clients showing their positions in Class B Shares; (iii) arranging for bank
wires; (iv) responding to routine client inquiries concerning their investment
in Class B Shares; (v) providing the information to the Fund necessary for
accounting or sub-accounting; (vi) if required by law, forwarding shareholder
communications from a Fund (such as proxies, shareholder reports, annual and
semi-annual financial statements and dividend, distribution and tax notices) to
its clients; (vii) aggregating and processing purchase, exchange, and redemption
requests from its clients and placing net purchase, exchange, and redemption
orders for its clients; (viii) providing clients with a service that invests the
assets of their accounts in Class B Shares pursuant to specific or
pre-authorized instructions; (ix) establishing and maintaining accounts and
records relating to clients that invest in Class B Shares; (x) assisting clients
in changing dividend options, account designations and addresses; or (xi) other
similar services if requested by the Company.
CLASS K SHARES
Class K Shares are currently available only to: (a) businesses
or other organizations that participate in the Daily Advantage(R) Program
sponsored by Bank of America; (b) individuals investing proceeds from a
redemption of shares from another open-end investment company on which such
individual paid a front-end sales load if (i) such redemption occurred within
thirty days prior to the purchase order and (ii) such other open-end investment
company was not distributed and advised by Concord Financial Group, Inc.
("Concord") and Bank of America, respectively, or their affiliates; and (c)
accounts opened for IRA rollovers from a 401(k) plan in which the assets were
held in any Pacific Horizon or Time Horizon Fund and subsequent purchases into
an IRA rollover account opened as described above, so long as the original IRA
rollover account remains open on the Company's books ("Qualified IRA
Rollovers").
Class K Shares shall not initially be subject to a sales
charge. Class K Shares shall initially be subject to a distribution fee payable
pursuant to the Distribution Plan adopted for that class which shall not
initially exceed 0.75% of the average daily net asset value of outstanding Class
K Shares. Distribution expenses under the Distribution Plan include: (i) direct
out-of-pocket promotional expenses incurred by the distributor in advertising
and marketing K Shares; (ii) expenses
- 8 -
<PAGE> 9
incurred in connection with preparing, printing, mailing, and distributing or
publishing advertisements and sales literature; (iii) expenses incurred in
connection with printing and mailing prospectuses and statements of additional
information to other than current shareholders; (iv) periodic payments or
commissions to one or more Distribution Organizations with respect to a Fund's K
Shares beneficially owned by customers for whom the Distribution Organization is
the Distribution Organization of record or holder of record of such K Shares;
(v) the direct or indirect cost of financing the payments or expenses included
in (i) and (iv) above; or (vi) for such other services as may be construed by
any court or governmental agency or commission, including the Commission, to
constitute distribution services under the 1940 Act or rules and regulations
thereunder.
Class K Shares also shall initially be subject to a
shareholder servicing fee payable pursuant to the Administrative and Shareholder
Services Plan adopted for that class which shall not initially exceed 0.25% of
the average daily net asset value of outstanding Class K Shares. Shareholder
services provided pursuant to the Administrative and Shareholder Services Plan
include: (i) arranging for bank wires; (ii) responding to routine client
inquiries concerning their investment in the shares; (iii) assisting customers
in changing dividend options, account designations and addresses; and (iv) other
similar shareholder services that the Company may reasonably request to the
extent permitted under applicable law.
Class K Shares also shall initially be subject to an
administrative servicing fee payable pursuant to the Administrative and
Shareholder Services Plan adopted for that class which shall not initially
exceed 0.75% of the average daily net asset value of outstanding Class K Shares.
Administrative services provided pursuant to the Administrative and Shareholder
Services Plan include: (i) processing dividend and distribution payments from a
Fund on behalf of clients; (ii) providing statements periodically to clients
showing their positions in Class K Shares; (iii) providing the information to
the Funds necessary for accounting or sub-accounting; (iv) if required by law,
forwarding shareholder communications from a Fund (such as proxies, shareholder
reports, annual and semi-annual financial statements and dividend, distribution
and tax notices) to clients; (v) aggregating and processing purchase, exchange,
and redemption requests from clients and placing net purchase, exchange, and
redemption orders for customers; (vi) establishing and maintaining accounts and
records relating to clients that invest in Class K Shares; and (vii) other
similar administrative services that the Company may reasonably request to the
extent permitted under applicable law.
- 9 -
<PAGE> 10
Payments under the Distribution Plan and the Administrative
and Shareholder Services Plan are not intended for services if not permitted by
the Employee Retirement Income Security Act of 1974, as amended.
The total of all fees under the Distribution Plan and
Administrative and Shareholder Services Plan may not exceed, in the aggregate,
the annual rate of 1.00% of the average net assets of a Fund's Class K Shares.
CLASS SRF SHARES
Class SRF Shares are currently available only to shareholders
of Seafirst Retirement Funds on the date of its reorganization into the Company
(the "Reorganization Date"). Class SRF Shares are not currently subject to a
sales charge but shall be subject to a shareholders servicing fee payable
pursuant to a Shareholders Services Plan adopted for that class which shall not
initially exceed 0.25% (on an annualized basis) of the average daily net asset
value of the Class SRF Shares.
Services provided under the Shareholder Services Plan adopted
for the class currently 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 Class SRF Shares. 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 Funds 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 Funds necessary for accounting or
subaccounting; (vii) if required by law, forwarding shareholder communications
from the Funds (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.
C. CONVERSION FEATURES
-------------------
1. MONEY MARKET FUNDS
------------------
The Company does not currently offer a conversion feature to
holders of Pacific Horizon Shares, Horizon Shares, Horizon Service Shares, Class
S Shares or Class X Shares.
- 10 -
<PAGE> 11
2. NON-MONEY MARKET FUNDS
----------------------
CLASS A SHARES
The Company does not currently offer a conversion feature to
holders of Class A Shares.
CLASS B SHARES
Class B Shares acquired by purchase currently convert
automatically into Class A Shares, based on relative net asset value, eight
years after the beginning of the calendar month in which the shares were
purchased.
Class B Shares acquired through reinvestment of dividends or
distributions currently will convert automatically into Class A Shares at the
earlier of eight years after the beginning of the calendar month in which the
reinvestment occurred or the date of conversion of the most recently purchased
Class B Shares that were not acquired through reinvestment of dividends or
distributions.
CLASS K SHARES
The Company does not currently offer a conversion feature to
holders of Class K Shares.
CLASS SRF SHARES
Class SRF Shares acquired in the reorganization of Seafirst
Retirement Funds into the Company, and additional shares acquired through
purchase, exchange and/or the reinvestment of dividends and distributions
currently will convert automatically into Class A Shares on March 1, 2000.
D. SHAREHOLDER SERVICES
--------------------
1. EXCHANGE PRIVILEGES
-------------------
MONEY MARKET FUNDS
Only holders of Pacific Horizon Shares are currently permitted
to exchange their shares in a Fund for like Shares of another Fund of the
Company or for like shares of any Time Horizon Fund provided, however, that
Pacific Horizon Shares of the Prime Fund acquired through an exchange of B
Shares of an investment portfolio of Time Horizon Funds may only be exchanged
for B Shares of an investment portfolio of Time Horizon Funds and, provided
further that such other shares may legally be sold in the state of the
investor's residence. When Pacific Horizon Shares are exchanged for shares of
another Fund of the Company
- 11 -
<PAGE> 12
which are sold with a sales load, the applicable sales load, if any, shall be
deducted.
B Shares of Time Horizon Funds offered with a CDSC may be
exchanged for Pacific Horizon Shares and Class S Shares of the Prime Fund and
Class S Shares of the Treasury Fund. Such exchange-acquired Pacific Horizon
Shares of the Prime Fund will be subject to a CDSC upon redemption in accordance
with the prospectus for B Shares of Time Horizon Funds.
NON-MONEY MARKET FUNDS
----------------------
CLASS A SHARES
Holders of Class A Shares are currently permitted to exchange
their shares for Class A Shares of other Non-Money Market Funds, for Pacific
Horizon Shares of the Money Market Funds or for like shares of any Time Horizon
Fund. Holders of Class A Shares who purchased their shares with a front-end
sales charge generally shall be permitted to exchange their shares without
paying an additional front-end sales charge on shares acquired through the
exchange. 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.
CLASS B SHARES
Holders of Class B Shares shall initially be permitted to
exchange their shares for Class B Shares of other Funds of the Company or for
like shares of any Time Horizon Fund without paying a CDSC at the time the
exchange is made.
CLASS K SHARES
Holders of Class K Shares shall initially be permitted to
exchange their shares for Class K Shares of other Funds of the Company or for
like shares of any Time Horizon Fund.
CLASS SRF
Holders of Class SRF Shares are currently permitted to
exchange their shares for Class SRF Shares of other Funds of the Company, Class
A Shares of other Non-Money Market Funds or for Pacific Horizon Shares of the
Money Market Funds. No sales load will be imposed on purchases of Class A Shares
of the Non-Money Market Funds provided that the exchange is made from an account
existing on the date of the reorganization from Seafirst
- 12 -
<PAGE> 13
Retirement Funds into the Company. New participants in qualified pension or
profit sharing trusts, including corporate pension or profit sharing trusts and
pension or profit sharing trusts benefiting one or more self-employed
individuals ("Eligible Retirement Accounts"), but excluding simplified Employee
Pension Plans ("SEPs") will be allowed to purchase Class A Shares without paying
a sales charge, provided that the Eligible Retirement Account existed on the
Reorganization Date.
2. INDIVIDUAL RETIREMENT ACCOUNTS ("IRAS")
---------------------------------------
MONEY MARKET FUNDS
Currently, the Company only makes IRAs, including IRAs set up
under a Simplified Employee Pension Plan and IRA "Rollover Accounts," available
to holders of Pacific Horizon Shares in each Money Market Fund other than the
California Tax-Exempt Money Market Fund and the Tax-Exempt Money Fund.
NON-MONEY MARKET FUNDS
The Company currently makes IRAs available only to holders of
Class A Shares and to holders of Class B Shares. Class K Shares are available to
Qualified IRA Rollovers. Class SRF Shares are available to new participants of
an Eligible Retirement Account that existed on the Reorganization Date.
3. AUTOMATIC INVESTMENT PROGRAM
----------------------------
MONEY MARKET FUNDS
Only holders of Pacific Horizon Shares of each Money Market
Fund currently have an automatic investment plan whereby a shareholder may
purchase Pacific Horizon Shares of a Money Market Fund at regular intervals
selected by the investor.
NON-MONEY MARKET FUNDS
CLASS A SHARES
Holders of Class A Shares currently have an automatic
investment plan whereby, a shareholder may purchase Class A Shares of a Fund at
regular intervals selected by the investor.
CLASS B SHARES
Holders of Class B Shares shall initially have an automatic
investment plan whereby, in general, a shareholder may purchase Class B Shares
of a Fund at regular intervals selected by the investor.
CLASS K SHARES
- 13 -
<PAGE> 14
Holders of Class K Shares shall initially have an automatic
investment plan whereby, in general, a shareholder may purchase Class K Shares
of a Fund at regular intervals selected by the investor.
CLASS SRF SHARES
No automatic investment plan is currently available for Class
SRF Shares.
4. DIRECT DEPOSIT PROGRAM
----------------------
MONEY MARKET FUNDS
Only holders of Pacific Horizon Shares currently have a direct
deposit program whereby a shareholder who receives payments from the federal
government may purchase Pacific Horizon Shares by having these payments
automatically deposited into his or her Fund account.
NON-MONEY MARKET FUNDS
CLASS A SHARES
Holders of Class A Shares currently have a direct deposit
program whereby a shareholder who receives payments from the federal government
may purchase Class A Shares of a Fund by having these payments automatically
deposited into his or her Fund Account.
CLASS B SHARES
Holders of Class B Shares shall initially have a direct
deposit program whereby a shareholder who receives payments from the federal
government may purchase Class B Shares of a Fund by having these payments
automatically deposited into his or her Fund Account.
CLASS K SHARES
Holders of Class K Shares shall initially have a direct
deposit program whereby a shareholder who receives payments from the federal
government may purchase Class K Shares of a Fund by having these payments
automatically deposited into his or her Fund Account.
CLASS SRF SHARES
No direct deposit program is currently available for Class SRF
Shares.
- 14 -
<PAGE> 15
5. AUTOMATIC WITHDRAWAL PLAN
-------------------------
MONEY MARKET FUNDS
Only holders of Pacific Horizon Shares currently have an
automatic withdrawal plan whereby a shareholder may request withdrawal of a
certain dollar amount on a monthly, quarterly, semi-annual or annual basis.
NON-MONEY MARKET FUNDS
CLASS A SHARES
Holders of Class A Shares currently have an automatic
withdrawal plan whereby a shareholder may request withdrawal of a certain dollar
amount on a monthly, quarterly, semi-annual or annual basis.
CLASS B SHARES
Holders of Class B Shares shall initially have an automatic
withdrawal plan whereby a shareholder may request withdrawals of a certain
dollar amount on a monthly, quarterly, semi-annual or annual basis.
CLASS K SHARES
Holders of Class K Shares shall initially have an automatic
withdrawal plan whereby a shareholder may request withdrawals of a certain
dollar amount on a monthly, quarterly, semi-annual or annual basis.
CLASS SRF SHARES
No automatic withdrawal plan is currently available for Class
SRF Shares.
E. METHODOLOGY FOR ALLOCATING EXPENSES BETWEEN CLASSES
---------------------------------------------------
Expenses of each Fund will be apportioned to each class of
shares depending upon the nature of the expense item.
Specifically, before determining the daily dividend rates and
yields, the following expense items shall be calculated as follows:
- 15 -
<PAGE> 16
1. GENERAL OPERATING EXPENSES
--------------------------
Operating expenses which are attributable to all classes of
shares ("operating expenses") will be allocated among the classes of shares
based on their net asset value at the end of the day. Operating expenses will
include fees paid to Bank of America under the Investment Advisory Agreement,
fees paid to Concord Holding Corporation under the Basic Administrative Services
Agreement and all other expenses such as custody fees, transfer agent fees and
audit fees, except those specifically listed below.
2. CLASS-SPECIFIC EXPENSES
-----------------------
SHAREHOLDER SERVICES FEES
In addition to their respective pro-rata share of operating
expenses, Horizon Service Shares shall initially bear a shareholder services fee
which is calculated at an annual rate not to exceed 0.25% of the average daily
net asset value of such outstanding shares at the end of the day, Pacific
Horizon Shares shall initially bear a special management services fee which is
presently calculated at an annual rate not to exceed 0.32% (0.35% for the
California Tax-Exempt Money Fund) of the average daily net asset value of such
outstanding shares at the end of the day, Class A Shares shall initially bear a
shareholder services fee which is calculated at an annual rate not to exceed
0.25% of the average daily net asset value of such outstanding shares at the end
of the day, and Class SRF Shares shall initially bear a shareholder services fee
which is calculated at an annual rate not to exceed 0.25% of the average daily
net asset value of such outstanding shares at the end of the day.
DISTRIBUTION AND SERVICES FEES
In addition to their respective pro-rata share of operating
expenses, Class B Shares shall initially bear a distribution and shareholder
services fee which is presently calculated at an annual rate not to exceed 0.75%
and 0.25%, respectively, of the average daily net asset value of such
outstanding shares at the end of the day. Class S Shares shall initially bear a
distribution and shareholder services fee which is calculated at an annual rate
not to exceed 0.75% and 0.25%, respectively, of the average daily net asset
value of such outstanding shares at the end of the day. Class X Shares shall
initially bear a distribution and shareholder services fee which is presently
calculated at an annual rate not to exceed 0.30% and 0.25%, respectively, of the
average daily net asset value of such outstanding shares at the end of the day.
Class K Shares shall initially bear a distribution fee which is presently
calculated at an annual rate not to exceed 0.75% of the average daily net
- 16 -
<PAGE> 17
asset value of such outstanding shares at the end of the day, a shareholder
services fee which is presently calculated at an annual rate not to exceed 0.25%
of the average daily net asset value of such outstanding shares at the end of
the day, and an administrative services fee which is presently calculated at an
annual rate not to exceed 0.75% of the average daily net asset value of such
outstanding shares at the end of the day. The total of all distribution,
shareholder services and administrative services fees may not exceed, in the
aggregate, the annual rate of 1.00% of the average daily net assets of the
Fund's Class K Shares.
Approved: October 29, 1996
- 17 -
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000913961
<NAME> MASTER INVESTMENT TRUST, SERIES I
<SERIES>
<NUMBER> 011
<NAME> MASTER INVESTMENT TRUST ASSET ALLOCATION PORTFOLIO
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 176393070
<INVESTMENTS-AT-VALUE> 183829106
<RECEIVABLES> 9138572
<ASSETS-OTHER> 105992
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 193073670
<PAYABLE-FOR-SECURITIES> 10448530
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 113265
<TOTAL-LIABILITIES> 10561795
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 182511875
<DIVIDEND-INCOME> 1020836
<INTEREST-INCOME> 2535308
<OTHER-INCOME> 0
<EXPENSES-NET> 293640
<NET-INVESTMENT-INCOME> 3262504
<REALIZED-GAINS-CURRENT> 8726909
<APPREC-INCREASE-CURRENT> (8382622)
<NET-CHANGE-FROM-OPS> 3606791
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1457461
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 507536
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 690507
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> .000
<PER-SHARE-NII> .000
<PER-SHARE-GAIN-APPREC> .000
<PER-SHARE-DIVIDEND> .000
<PER-SHARE-DISTRIBUTIONS> .000
<RETURNS-OF-CAPITAL> .000
<PER-SHARE-NAV-END> .000
<EXPENSE-RATIO> .320
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000913961
<NAME> MASTER INVESTMENT TRUST, SERIES I
<SERIES>
<NUMBER> 021
<NAME> MASTER INVESTMENT TRUST BLUE CHIP PORTFOLIO
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 298146861
<INVESTMENTS-AT-VALUE> 338557968
<RECEIVABLES> 7719529
<ASSETS-OTHER> 29473
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 346306970
<PAYABLE-FOR-SECURITIES> 6761707
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 393867
<TOTAL-LIABILITIES> 7155574
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 339151396
<DIVIDEND-INCOME> 3372255
<INTEREST-INCOME> 302621
<OTHER-INCOME> 0
<EXPENSES-NET> 943282
<NET-INVESTMENT-INCOME> 2731594
<REALIZED-GAINS-CURRENT> 12400049
<APPREC-INCREASE-CURRENT> (5968861)
<NET-CHANGE-FROM-OPS> 9162782
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 63629122
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1156068
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1427290
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> .000
<PER-SHARE-NII> .000
<PER-SHARE-GAIN-APPREC> .000
<PER-SHARE-DIVIDEND> .000
<PER-SHARE-DISTRIBUTIONS> .000
<RETURNS-OF-CAPITAL> .000
<PER-SHARE-NAV-END> .000
<EXPENSE-RATIO> .610
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000913961
<NAME> MASTER INVESTMENT TRUST, SERIES I
<SERIES>
<NUMBER> 031
<NAME> MASTER INVESTMENT TRUST INVESTMENT GRADE BOND PORTFOLIO
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 91680545
<INVESTMENTS-AT-VALUE> 90266512
<RECEIVABLES> 1743499
<ASSETS-OTHER> 85893
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 92095904
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 74292
<TOTAL-LIABILITIES> 74292
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 92021612
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2274374
<OTHER-INCOME> 0
<EXPENSES-NET> 84108
<NET-INVESTMENT-INCOME> 2190266
<REALIZED-GAINS-CURRENT> (643236)
<APPREC-INCREASE-CURRENT> (1413251)
<NET-CHANGE-FROM-OPS> 133779
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 25732037
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 167152
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 245608
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> .000
<PER-SHARE-NII> .000
<PER-SHARE-GAIN-APPREC> .000
<PER-SHARE-DIVIDEND> .000
<PER-SHARE-DISTRIBUTIONS> .000
<RETURNS-OF-CAPITAL> .000
<PER-SHARE-NAV-END> .000
<EXPENSE-RATIO> .230
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000711663
<NAME> PACIFIC HORIZON FUNDS, INC.
<SERIES>
<NUMBER> 121
<NAME> PACIFIC HORIZON ASSETS ALLOCATION FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 25,679,056
<INVESTMENTS-AT-VALUE> 26,336,658
<RECEIVABLES> 0
<ASSETS-OTHER> 29,591
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 26,366,249
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 46,063
<TOTAL-LIABILITIES> 46,063
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 24,552,704
<SHARES-COMMON-STOCK> 1,498,834<F1>
<SHARES-COMMON-PRIOR> 1,275,880<F1>
<ACCUMULATED-NII-CURRENT> 125,657
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 984,233
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 657,602
<NET-ASSETS> 26,320,186
<DIVIDEND-INCOME> 137,394
<INTEREST-INCOME> 340,291
<OTHER-INCOME> 0
<EXPENSES-NET> 153,799
<NET-INVESTMENT-INCOME> 323,886
<REALIZED-GAINS-CURRENT> 691,887
<APPREC-INCREASE-CURRENT> (673,872)
<NET-CHANGE-FROM-OPS> 341,901
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 310,689<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 360,850<F1>
<NUMBER-OF-SHARES-REDEEMED> 154,871<F1>
<SHARES-REINVESTED> 16,975<F1>
<NET-CHANGE-IN-ASSETS> 3,965,513
<ACCUMULATED-NII-PRIOR> 112,461
<ACCUMULATED-GAINS-PRIOR> 292,337
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 242,284
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 17.520<F1>
<PER-SHARE-NII> .140<F1>
<PER-SHARE-GAIN-APPREC> .030<F1>
<PER-SHARE-DIVIDEND> .130<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 17.560<F1>
<EXPENSE-RATIO> 1.250<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000711663
<NAME> PACIFIC HORIZON FUNDS, INC.
<SERIES>
<NUMBER> 122
<NAME> PACIFIC HORIZON ASSET ALLOCATION FUND
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> JUL-22-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 25,679,056
<INVESTMENTS-AT-VALUE> 26,336,658
<RECEIVABLES> 0
<ASSETS-OTHER> 29,591
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 26,366,249
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 46,063
<TOTAL-LIABILITIES> 46,063
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 24,552,704
<SHARES-COMMON-STOCK> 58<F1>
<SHARES-COMMON-PRIOR> 0<F1>
<ACCUMULATED-NII-CURRENT> 125,657
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 984,223
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 657,602
<NET-ASSETS> 26,320,186
<DIVIDEND-INCOME> 137,394
<INTEREST-INCOME> 340,291
<OTHER-INCOME> 0
<EXPENSES-NET> 153,799
<NET-INVESTMENT-INCOME> 323,886
<REALIZED-GAINS-CURRENT> 691,887
<APPREC-INCREASE-CURRENT> (673,872)
<NET-CHANGE-FROM-OPS> 341,901
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 58<F1>
<NUMBER-OF-SHARES-REDEEMED> 0<F1>
<SHARES-REINVESTED> 0<F1>
<NET-CHANGE-IN-ASSETS> 3,965,513
<ACCUMULATED-NII-PRIOR> 112,461
<ACCUMULATED-GAINS-PRIOR> 292,337
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 242,284
<AVERAGE-NET-ASSETS> 158,282,872
<PER-SHARE-NAV-BEGIN> 17.230<F1>
<PER-SHARE-NII> .040<F1>
<PER-SHARE-GAIN-APPREC> .280<F1>
<PER-SHARE-DIVIDEND> .000<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 17.550<F1>
<EXPENSE-RATIO> 1.750<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class K Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000711663
<NAME> PACIFIC HORIZON FUNDS, INC.
<SERIES>
<NUMBER> 131
<NAME> PACIFIC HORIZON BLUE CHIP FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 88,934,196
<INVESTMENTS-AT-VALUE> 95,169,376
<RECEIVABLES> 0
<ASSETS-OTHER> 33,823
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 95,203,199
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 39,250
<TOTAL-LIABILITIES> 39,250
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 86,225,811
<SHARES-COMMON-STOCK> 4,530,289<F1>
<SHARES-COMMON-PRIOR> 3,259,781<F1>
<ACCUMULATED-NII-CURRENT> 185,808
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,517,150
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,235,180
<NET-ASSETS> 95,163,949
<DIVIDEND-INCOME> 898,243
<INTEREST-INCOME> 79,937
<OTHER-INCOME> 0
<EXPENSES-NET> 515,425
<NET-INVESTMENT-INCOME> 462,775
<REALIZED-GAINS-CURRENT> 1,776,941
<APPREC-INCREASE-CURRENT> (252,548)
<NET-CHANGE-FROM-OPS> 1,987,168
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 413,905<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 1,641,124<F1>
<NUMBER-OF-SHARES-REDEEMED> 389,445<F1>
<SHARES-REINVESTED> 18,829<F1>
<NET-CHANGE-IN-ASSETS> 28,230,495
<ACCUMULATED-NII-PRIOR> 136,938
<ACCUMULATED-GAINS-PRIOR> 740,209
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 703,314
<AVERAGE-NET-ASSETS> 305,728,760
<PER-SHARE-NAV-BEGIN> 20.530<F1>
<PER-SHARE-NII> .110<F1>
<PER-SHARE-GAIN-APPREC> .480<F1>
<PER-SHARE-DIVIDEND> .110<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 21.010<F1>
<EXPENSE-RATIO> 1.270<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class A Shares
<F2>Class N Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000711663
<NAME> PACIFIC HORIZON FUNDS, INC.
<SERIES>
<NUMBER> 132
<NAME> PACIFIC HORIZON BLUE CHIP FUND
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> JUL-22-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 88,934,196
<INVESTMENTS-AT-VALUE> 95,169,376
<RECEIVABLES> 0
<ASSETS-OTHER> 33,823
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 95,203,199
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 39,250
<TOTAL-LIABILITIES> 39,250
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 86,225,811
<SHARES-COMMON-STOCK> 49<F1>
<SHARES-COMMON-PRIOR> 0<F1>
<ACCUMULATED-NII-CURRENT> 185,808
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,517,150
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,235,180
<NET-ASSETS> 95,163,949
<DIVIDEND-INCOME> 898,243
<INTEREST-INCOME> 79,937
<OTHER-INCOME> 0
<EXPENSES-NET> 515,425
<NET-INVESTMENT-INCOME> 462,775
<REALIZED-GAINS-CURRENT> 1,776,941
<APPREC-INCREASE-CURRENT> (252,548)
<NET-CHANGE-FROM-OPS> 1,987,168
<EQUALIZATION> 305,728,760
<DISTRIBUTIONS-OF-INCOME> 0<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 49<F1>
<NUMBER-OF-SHARES-REDEEMED> 0<F1>
<SHARES-REINVESTED> 0<F1>
<NET-CHANGE-IN-ASSETS> 28,230,495
<ACCUMULATED-NII-PRIOR> 136,938
<ACCUMULATED-GAINS-PRIOR> 740,209
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 703,314
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 20.380<F1>
<PER-SHARE-NII> .050<F1>
<PER-SHARE-GAIN-APPREC> .560<F1>
<PER-SHARE-DIVIDEND> .000<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 20.990<F1>
<EXPENSE-RATIO> 1.770<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class K Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000711663
<NAME> PACIFIC HORIZON FUNDS, INC.
<SERIES>
<NUMBER> 141
<NAME> PACIFIC HORIZON INTERMEDIATE BOND FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 15,117,812
<INVESTMENTS-AT-VALUE> 14,844,523
<RECEIVABLES> 13,402
<ASSETS-OTHER> 49,072
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 14,906,997
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 113,681
<TOTAL-LIABILITIES> 113,681
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 15,125,874
<SHARES-COMMON-STOCK> 1,560,106<F1>
<SHARES-COMMON-PRIOR> 1,351,159<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 59,269
<ACCUM-APPREC-OR-DEPREC> (273,289)
<NET-ASSETS> 14,793,316
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 404,490
<OTHER-INCOME> 0
<EXPENSES-NET> 49,608
<NET-INVESTMENT-INCOME> 354,882
<REALIZED-GAINS-CURRENT> (156,064)
<APPREC-INCREASE-CURRENT> (232,004)
<NET-CHANGE-FROM-OPS> (33,186)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 354,861<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 465,390<F1>
<NUMBER-OF-SHARES-REDEEMED> 276,229<F1>
<SHARES-REINVESTED> 19,786<F1>
<NET-CHANGE-IN-ASSETS> 1,613,917
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 96,796
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 157,849
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 9.750<F1>
<PER-SHARE-NII> .260<F1>
<PER-SHARE-GAIN-APPREC> (.270)<F1>
<PER-SHARE-DIVIDEND> .260<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 9.480<F1>
<EXPENSE-RATIO> .750<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000711663
<NAME> PACIFIC HORIZON FUNDS, INC.
<SERIES>
<NUMBER> 142
<NAME> PACIFIC HORIZON INTERMEDIATE BOND FUND
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> JUL-22-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 15,117,812
<INVESTMENTS-AT-VALUE> 14,844,523
<RECEIVABLES> 13,402
<ASSETS-OTHER> 49,072
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 14,906,997
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 113,681
<TOTAL-LIABILITIES> 113,681
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 15,125,874
<SHARES-COMMON-STOCK> 105<F1>
<SHARES-COMMON-PRIOR> 0<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 59,269
<ACCUM-APPREC-OR-DEPREC> (273,289)
<NET-ASSETS> 14,793,316
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 404,490
<OTHER-INCOME> 0
<EXPENSES-NET> 49,608
<NET-INVESTMENT-INCOME> 354,882
<REALIZED-GAINS-CURRENT> (156,064)
<APPREC-INCREASE-CURRENT> (232,004)
<NET-CHANGE-FROM-OPS> (33,186)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 21<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 105<F1>
<NUMBER-OF-SHARES-REDEEMED> 0<F1>
<SHARES-REINVESTED> 0<F1>
<NET-CHANGE-IN-ASSETS> 1,613,917
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 96,796
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 157,849
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 9.530<F1>
<PER-SHARE-NII> .050<F1>
<PER-SHARE-GAIN-APPREC> (.050)<F1>
<PER-SHARE-DIVIDEND> .050<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 9.480<F1>
<EXPENSE-RATIO> 1.250<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class K Shares
</FN>
</TABLE>
