<PAGE> 1
As filed with the Securities and Exchange Commission on April 16, 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. 54 [x]
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 56 [x]
----------------------------------
PACIFIC HORIZON FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road
Columbus, OH 43219
(Address of Principal Executive Offices)
Registrant's Telephone Number, including area code: (800) 332-3863
W. Bruce McConnel, III
Drinker Biddle & Reath
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107-3496
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has registered an indefinite number of its shares under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940, as amended. The Registrant will file its Rule 24f-2 Notice relating to
such shares for Registrant's most recent fiscal year on or before April 29,
1997.
<PAGE> 2
PACIFIC HORIZON FUNDS, INC.
Horizon Shares and Horizon Service Shares of the
Prime Fund, Treasury Fund, Government Fund and Treasury Only Fund
and
S Shares of the
Prime Fund and Treasury Fund
<TABLE>
<CAPTION>
Form N-1A Item Prospectus Caption
- -------------- ------------------
Part A
- ------
<S> <C> <C>
1. Cover Page................................................. Cover Page
2. Synopsis................................................... Expense Information
3. Condensed Financial Information............................ Financial Highlights
4. General Description of Registrant.......................... Description of Shares; Cover
Page; Investment Objectives
and Policies; Common
Investment Policies;
Investment Limitations
5. Management of the Fund..................................... Management of the Funds
5.A. Management's Discussion of
Fund Performance......................................... *
6. Capital Stock and Other
Securities............................................... Description of Shares;
Dividends and Distributions;
Taxes
7. Purchase of Securities Being
Offered................................................... Purchase and Redemption of
Shares; Management of the
Funds; Shareholder Services
Plan; Distribution and
Services Plan; Additional
Shareholder Services
8. Redemption or Repurchase................................... Redemption of Shares;
Shareholder Services Plan;
Distribution and Services
Plan; Additional Shareholder
Services
9. Pending Legal Proceedings.................................. *
- -------------
* Item inapplicable or answer negative.
</TABLE>
<PAGE> 3
PROSPECTUS
_______ __, 1997
S Shares of the
Prime Fund
Treasury Fund
Horizon Shares and Horizon Service Shares of the
Prime Fund
Treasury Fund
Government Fund
Treasury Only Fund
Investment Portfolios Offered by Pacific Horizon Funds, Inc.
This Prospectus applies to the S Shares of the Prime Fund and Treasury Fund and
Horizon Shares and Horizon Service Shares of the Prime Fund, Treasury Fund,
Government Fund and Treasury Only Fund (the "Funds"), four no-load diversified
investment portfolios offered by Pacific Horizon Funds, Inc. (the "Company").
The Company is registered under the Investment Company Act of 1940 as an
open-end management investment company. The Funds are designed to provide
institutions with daily liquidity.
The investment objectives of the PRIME FUND and TREASURY FUND are to seek high
current income and stability of principal.
- - The PRIME FUND seeks to achieve its investment objective by investing
substantially all of its assets in a diversified portfolio of U.S.
dollar-denominated "money market" instruments such as bank certificates
of deposit and bankers' acceptances, commercial paper and repurchase
agreements, in addition to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
- - The TREASURY FUND seeks to achieve its investment objective by
investing solely in direct obligations issued by the U.S. Treasury and
repurchase agreements relating to such Treasury obligations.
The investment objectives of the GOVERNMENT FUND and TREASURY ONLY FUND are to
provide liquidity and as high a level of current income as is consistent with
the preservation of capital.
- - The GOVERNMENT FUND seeks to achieve its investment objective by
investing in short-term debt obligations issued or guaranteed as to
interest and principal by the U.S. Government, its agencies,
authorities or instrumentalities and in repurchase agreements with
respect to such obligations.
- - The TREASURY ONLY FUND seeks to achieve its investment objective by
investing solely in obligations of the U.S. Treasury.
This Prospectus briefly sets forth certain information about the Funds described
herein that investors should know before investing. It should be read and
retained for future reference. Additional information about the Funds, contained
in a Statement of Additional Information dated _______ __, 1997, has been filed
with the Securities and Exchange Commission and is available to investors upon
request and without charge by calling the Funds' Distributor at (800) 426-3863.
The Statement of Additional Information, as it may from time to time be revised,
is incorporated in its entirety by reference into this Prospectus.
(Continued next page)
1
<PAGE> 4
Shares of the Funds are not bank deposits or obligations of, or guaranteed or
endorsed by, Bank of America National Trust and Savings Association or any of
its affiliates and are not federally insured by, guaranteed by, obligations of
or otherwise supported by the U.S. Government, the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other governmental agency. Each
Fund seeks to maintain its net asset value per share at $1.00 for purposes of
purchases and redemptions, although there can be no assurance that it will be
able to do so on a continuous basis. Investment in the Funds involves investment
risk, including the possible loss of principal amount invested.
2
<PAGE> 5
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.
No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus, in the Statement
of Additional Information and the 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 its 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.
S Shares are available to customers who purchase such shares through cash
management services, such as a sweep account ("Sweep Account") offered by Bank
of America National Trust and Savings Association, any of its banking affiliates
("Bank of America") and certain other financial service organizations, such as
banks or broker-dealers ("Service Organizations"). A Sweep Account combines a
deposit account (the "Transaction Account") with a daily sweep of balances to or
from the Prime and Treasury Funds' S Shares. Bank of America or Service
Organizations, as applicable, are responsible for providing persons investing in
S Shares through a Sweep Account with Sweep Account materials (the "Sweep
Materials") describing the various features and operations of the Sweep Account.
The Sweep Materials should be reviewed in conjunction with this Prospectus.
Horizon Shares and Horizon Service Shares may not be purchased by individuals
directly, but institutional investors may purchase Horizon and Horizon Service
Shares for accounts maintained by individuals.
Bank of America National Trust and Savings Association (the "Investment
Adviser") San Francisco, California acts as investment adviser to the Funds.
Concord Financial Group, Inc. (the "Distributor") sponsors the Funds and acts as
their distributor and The BISYS Group, Inc. acts as their administrator, neither
of which is affiliated with the Investment Adviser.
Portfolio securities held by each Fund have remaining maturities of thirteen
months or less from the date of purchase by the Fund. Portfolio securities which
have certain put or demand features exercisable by a Fund within thirteen months
(as well as certain U.S. Government obligations with floating or variable
interest rates) and securities held as collateral for repurchase agreements may
have longer maturities.
3
<PAGE> 6
Contents
Summary 5
Expense Information 9
Financial Highlights 11
Investment Objectives and Policies 23
Management of the Funds 30
Purchase and Redemption of Shares 34
Additional Shareholder Services 37
Dividends and Distributions 37
Taxes 37
Description of Shares 38
Distributor: Investment Adviser:
Concord Financial Group, Inc. Bank of America National Trust and Savings
Association
3435 Stelzer Road 555 California Street
Columbus, OH 43219 San Francisco, CA 94104
For purchase and redemption orders, yield information and
other Fund information call (800) 426-3863
4
<PAGE> 7
SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information included elsewhere in the Prospectus.
<TABLE>
<CAPTION>
<S> <C>
S Shares, Horizon Shares and
Horizon Service Shares: The Prime Fund and the Treasury Fund each issue
S Shares, and each of the Funds issue Horizon
Shares and Horizon Service Shares. S Shares,
Horizon Shares and Horizon Service Shares each
represent interests in a particular Fund's
investment portfolio. S Shares, Horizon Shares
and Horizon Service Shares are identical in all
respects except that: 1) S Shares of the Prime and
Treasury Funds bear fees payable to the
Distributor for distribution and shareholder
servicing expenses at the annual rate of up to
0.75% and 0.25% respectively of the average daily
net assets of such Fund's S Shares, and 2) Horizon
Service Shares bear fees payable by a Fund to
institutional investors ("Shareholder
Organizations") at the annual rate of up to 0.25%
of the average daily net asset value of such
Fund's Horizon Service Shares for support services
provided by Shareholder Organizations to the
beneficial owners of such shares pursuant to the
Shareholder Services Plan. In addition, S Shares
of the Prime and Treasury Funds have certain
exclusive voting rights on matters submitted to a
vote of shareholders pertaining to the
Distribution and Services Plan relating to a
particular series of such funds, and Horizon
Service Shares have certain exclusive voting
rights on matters relating to the Shareholder
Services Plan adopted with respect to such shares.
See "Description of Shares."
Investment Objectives and
Policies: The investment objective of the Prime Fund and
Treasury Fund is to seek high current income and
stability of principal. The Prime Fund seeks to
achieve this objective by investing substantially
all of its assets in a diversified portfolio of
U.S. dollar-denominated "money market" instruments
such as bank certificates of deposit and bankers'
acceptances, commercial paper and repurchase
agreements, in addition to obligations issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities. The Treasury Fund seeks to
achieve this objective by investing solely in
direct obligations issued by the U.S. Treasury and
repurchase agreements relating to such Treasury
obligations.
The investment objective of the
Government Fund and Treasury Only
Fund is to provide liquidity and as
high a level of current income as is
consistent with the preservation of
capital. The Government Fund seeks
to achieve this objective by
investing in short-term debt
obligations issued or guaranteed as
to interest and principal by the
5
</TABLE>
<PAGE> 8
<TABLE>
<CAPTION>
<S> <C>
U.S. Government, its agencies,
authorities or instrumentalities and
in repurchase agreements with
respect to such obligations. The
Treasury Only Fund seeks to achieve
this objective by investing solely
in obligations of the U.S. Treasury.
Portfolio securities held by a Fund
have remaining maturities of
thirteen months or less from the
date of purchase by the Fund.
(Portfolio securities which have
certain put or demand features
exercisable by a Fund within
thirteen months, as well as certain
U.S. Government obligations with
floating or variable interest rates,
and securities held as collateral
for repurchase agreements may have
longer maturities.)
There can be no assurance that the
Funds will achieve their investment
objectives. The Funds' investments
are subject to certain investment
risks including default by the
issuers of debt obligations and
parties with which a Fund may have
in accordance with its investment
policies entered into repurchase and
reverse repurchase transactions. In
addition, investments of the Prime
Fund in foreign commercial paper and
in securities issued by foreign
branches of domestic banks, domestic
branches of foreign banks or foreign
branches of foreign banks are
subject to investment risks that
differ from debt obligations of
domestic issuers. The market value
of the Funds' portfolio securities
will normally vary inversely with
prevailing interest rates. See
"Investment Objectives and
Policies."
Net Asset Value: Each Fund seeks to maintain its net asset value
per share at $1.00, and values its portfolio
securities on the basis of amortized cost. The
dollar weighted average maturity of each Fund is
90 days or less. See "Purchase and Redemption of
Shares--Net Asset Value."
Investment Adviser: Bank of America National Trust and Savings
Association (the "Investment Adviser") is the
investment adviser of each Fund. The Investment
Adviser is a national banking association formed
in 1904 which provides commercial banking and
trust business through an extensive system of
branches across the western United States. The
Investment Adviser'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 countries. The Investment Adviser
is the successor by merger to Security Pacific
National Bank ("Security Pacific"), which
previously served as investment adviser to the
Company since the commencement of its operations
in 1984. The Investment Adviser and its
affiliates have over $__ billion under management,
</TABLE>
6
<PAGE> 9
<TABLE>
<CAPTION>
<S> <C>
including over $__ billion in mutual funds. See
"Management of the Funds."
Distributor and Administrator:
Concord Financial Group, Inc. (the "Distributor")
sponsors the Funds and acts as their distributor.
The Distributor is an indirect, wholly-owned
subsidiary of the BISYS Group, Inc. (the
"Administrator"), which acts as the Funds'
administrator. See "Management of the Funds--
Administrator."
Advisory, Administration and
Distribution Fees: For their respective services the Investment
Adviser and the Administrator each receive fees at
the maximum annual rate of .10% of each Fund's net
assets. These fees are subject to decrease as the
net assets of the respective Funds increase. No
fee is payable by the Funds to the Distributor for
its distribution services. See "Management of the
Funds."
Investing in the Funds: S Shares of the Prime and Treasury Funds are
available to customers who purchase such shares
through cash management services, such as a sweep
account ("Sweep Account") offered by Bank of
America National Trust and Savings Association,
any of its banking affiliates ("Bank of America")
and certain other financial service organizations,
such as broker-dealers ("Service Organizations").
A Sweep Account combines a deposit account (the
"Transaction Account") with a daily sweep of
balances to or from the Prime and Treasury Funds'
S Shares. S Shares may be purchased on any
Business Day (as defined below) that Bank of
America and the particular Service Organization
are open for business by making a deposit into
your Transaction Account. All transaction orders
are processed by the Company at the net asset
value next determined after the order is received.
See "Purchase and Redemption of Shares--How
S Shares Are Purchased."
Horizon and Horizon Service Shares
of each Fund may be purchased by
institutional investors for accounts
maintained by individuals by
telephone or terminal access order
at the next determined net asset
value without a sales charge.
Purchase orders for Horizon and
Horizon Service Shares of the Prime
Fund, Treasury Fund and Government
Fund that are received by the
transfer agent before 2:30 p.m.
Eastern time on a day on which both
the Funds' custodian and the New
York Stock Exchange are open for
business (a "Business Day") will be
executed as of 2:30 p.m. Eastern
time on such Business Day if payment
is received by 4:00 p.m. Eastern
time on that day. Purchase orders
for the Treasury Only Fund that are
received by the transfer agent
before 11:30 a.m. Eastern time on a
Business Day are executed at such
time on the same day if payment is
received by 4:00 p.m. Eastern time
on such Business Day. Payment for
</TABLE>
7
<PAGE> 10
<TABLE>
<CAPTION>
<S> <C>
Fund shares may be made only in
Federal funds or other immediately
available funds.
Each Fund requires a minimum initial investment of
$500,000 for Horizon Shares and Horizon Service
Shares; there is no subsequent minimum investment.
See "Purchase and Redemption of Shares--How
Horizon and Horizon Service Shares are Purchased."
Redemption of Investment: With respect to S Shares of the Prime and Treasury
Fund, if withdrawals and charges to your Sweep
Account exceed deposits and credits, Bank of
America or the particular Service Organization, as
applicable, will transmit a redemption order on
your behalf to the appropriate Fund in the dollar
amount of that day's Net Sweep Amount.
Redemptions are effected by the Company on a
Business Day at the net asset value per share next
determined after receipt of the redemption order
by the Transfer Agent. See "Purchase and
Redemption of Shares--How S Shares Are Redeemed."
With respect to Horizon and Horizon
Service Shares of the Funds,
investors may redeem all or any part
of the value of their accounts by
instructing the proper Fund to
redeem shares. Redemptions may be
requested by telephone or by
terminal access and are effected at
the net asset value per share next
determined after receipt of the
request by the transfer agent.
Redemption proceeds will be wired to
the investor's designated bank
account, and will be wired on the
same Business Day as the redemption
is requested if the request is
received by the transfer agent
before 2:30 p.m. Eastern time with
respect to the Prime Fund, Treasury
Fund and Government Fund, and before
11:30 a.m. Eastern time with respect
to the Treasury Only Fund, on a
Business Day. While the Company no
longer issues share certificates,
Horizon and Horizon Service Shares
for which certificates previously
had been issued may not be redeemed
unless the certificates have been
submitted to the transfer agent and
endorsed for transfer.
A Fund may redeem Horizon and Horizon Service
Shares in any account at net asset value, without
the investor's request, if the value of the
account is less than $500 as a result of
redemptions. See "Purchase and Redemption of
Shares--How Horizon and Horizon Service Shares Are
Redeemed."
Custodian and
Transfer Agent: The Bank of New York acts as custodian for the
Funds, and Bank of America National Trust and
Savings Association acts as sub-custodian for the
Prime and Treasury Funds. BISYS Fund Services,
Inc. serves as the Funds' transfer and dividend
disbursing agent.
</TABLE>
8
<PAGE> 11
Expense Information
The following table sets forth certain information regarding the shareholder
transaction expenses imposed by S Shares of the Prime and Treasury Funds and
Horizon Shares and Horizon Service Shares of the Prime Fund, Treasury Fund,
Government Fund and Treasury Only Fund and the annual operating expenses 1)
expected to be incurred by S Shares of the Prime and Treasury Funds during their
first twelve months of operations and 2) incurred by the Horizon Shares and
Horizon Service Shares of the Prime, Treasury, Government and Treasury Only
Funds during the last fiscal year. Actual expenses may vary. Hypothetical
examples based on the table are also shown.
<TABLE>
<CAPTION>
Prime Treasury
------------------------------------- -------------------------------------
Horizon Horizon
Horizon Service Horizon Service
S Shares(1) Shares Shares S Shares(1) Shares Shares
----------- ------ ------ ----------- ------ ------
Shareholder Transaction Expenses
<S> <C> <C> <C> <C> <C> <C>
Sales Load Imposed on Purchases None None None None None None
Sales Load Imposed on Reinvested Dividends None None None None None None
Sales Load Imposed on Redemptions(2) None None None None None None
Deferred Sales Load None None None None None None
Redemption Fees None None None None None None
Exchange Fees None None None None None None
Annual Operating Expenses
(as a percentage of average net assets)
Management Fees(3) (After Fee Waivers) % % % % % %
--- --- --- --- --- ---
Rule 12b-1 Fees(3) % % % % % %
--- --- --- --- --- ---
Shareholder Services Fees % % % % % %
--- --- --- --- --- ---
All Other Expenses % % % % % %
--- --- --- --- --- ---
Total Operating Expenses % % % % % %
==== ==== ==== ==== ==== ====
<CAPTION>
Government Treasury Only
------------------------ ----------------------
Horizon Horizon
Horizon Service Horizon Service
Shares Shares Shares Shares
------ ------ ------ ------
<S> <C> <C> <C> <C>
Sales Load Imposed on Purchases None None None None
Sales Load Imposed on Reinvested Dividends None None None None
Sales Load Imposed on Redemptions(2) None None None None
Deferred Sales Load None None None None
Redemption Fees None None None None
Exchange Fees None None None None
Management Fees(3) (After Fee Waivers) %(5) %(5) % %
---- ---- ---- ----
Rule 12b-1 Fees(3) % % % %
---- ---- ---- ----
Shareholder Services Fees % % % %
---- ---- ---- ----
All Other Expenses % % % %
---- ---- ---- ----
Total Operating Expenses %(5) %(5) % %
==== ==== ==== ====
<FN>
- --------------------------------
(1) Additional fees charged by Bank of America or Service Organizations related
to the Sweep Account are not included in this table. For additional
information with respect to Sweep Account fees and charges, including a
description of the services available to Sweep Account holders, you should
refer to the Sweep Materials.
(2) The Company reserves the right to impose a charge for wiring redemption
proceeds.
(3) Without fee waivers and expense reimbursements, the Funds incur an
investment advisory fee and an administration fee, each payable at a
maximum annual rate of .10% of each Fund's average daily net asset value.
(4) Because of the Distribution Plan Payment paid by S Shares of the Prime and
Treasury Funds as shown in the above table, long-term Class S shareholders
may pay more than the economic equivalent of the maximum front-end sales
charge permitted by the National Association of Securities, Dealers, Inc.
(5) Absent fee waivers, Management Fees and Total Operating Expenses would have
been .__% and .__%, respectively, with respect to Horizon Shares of the
Government Fund and .__% and .__%, respectively, with respect to Horizon
Service Shares of the Government Fund.
</TABLE>
9
<PAGE> 12
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
You would pay the following expenses on a $1,000 investment, assuming (1) a 5%
annual return and (2) redemption at the end of each time period:
<S> <C> <C> <C> <C>
Prime Fund
S Shares $__ $__ $__ $__
Horizon Shares $__ $__ $__ $__
Horizon Service Shares $__ $__ $__ $__
Treasury Fund
S Shares $__ $__ $__ $__
Horizon Shares $__ $__ $__ $__
Horizon Service Shares $__ $__ $__ $__
Government Fund
Horizon Shares $__ $__ $__ $__
Horizon Service Shares $__ $__ $__ $__
Treasury Only Fund
Horizon Shares $__ $__ $__ $__
Horizon Service Shares $__ $__ $__ $__
</TABLE>
The foregoing Expense Summary and Example are intended to assist investors in S
Shares of the Prime and Treasury Funds and Horizon Shares and Horizon Service
Shares of the Prime, Treasury, Government and Treasury Only Funds in
understanding the various shareholder transaction and operating expenses of each
class that investors bear either directly or indirectly. Investors bear
operating expenses indirectly since they reduce the amount of income paid by the
Funds to investors as dividends. From time to time, the investment adviser and
administrator may prospectively waive a portion of their respective fees and/or
assume certain expenses of the Funds. See "Management of the Funds" and
"Description of Shares" for more complete descriptions of the various expenses
referred to above.
THE EXAMPLE SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RETURN AND OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND
OPERATING EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
10
<PAGE> 13
FINANCIAL HIGHLIGHTS
On March 30, 1984, the Company commenced its public sale of shares (Pacific
Horizon Shares) in each of the Prime Fund and Treasury Fund, which were
originally called "Money Market Portfolio" and "Government Money Market
Portfolio," respectively. On January 19, 1990, the Prime Fund and Treasury Fund
of The Horizon Funds (the "Predecessor Prime Fund" and the "Predecessor Treasury
Fund") were combined with the Money Market Portfolio and Government Money Market
Portfolio of the Company; the Company changed the names of its resulting
portfolios to "Prime Fund" and "Treasury Fund;" and the Company began offering
Horizon Shares and Horizon Service Shares in the Prime and Treasury Funds. On
April 7, 1997 the Company began offering S Shares in the Prime Fund. The Company
has also classified an X Share class of the Prime and Treasury Funds and an S
Share class of the Treasury Funds. Pacific Horizon Shares of each Fund and X
Shares of the Prime and Treasury Funds are offered through another prospectus.
The shares of each class in a Fund represent equal pro rata interests in such
Fund, except that they bear different expenses which reflect the difference in
the range of services provided to them. S Shares bear the expense of a
distribution and services plan (the "Distribution and Services Plan") at an
annual rate not to exceed 1.00% of the average daily net asset value of the
Prime and Treasury Funds' outstanding S Shares. Horizon Service Shares bear the
expense of a Shareholder Services Plan (the "Plan") at an annual rate not to
exceed 0.25% of the average daily net asset value of the Prime, Treasury,
Government and Treasury Only Funds' outstanding Horizon Service Shares. See
"Description of Shares" below for certain differences among the Pacific Horizon
Shares, Horizon Shares, Horizon Service Shares, S Shares and X Shares, including
differences related to expenses.
The tables below set forth certain information concerning (i) the investment
results for the Horizon Shares and the Horizon Service Shares of the Predecessor
Prime Fund and Predecessor Treasury Fund for the periods ended on or before
January 19, 1990, and (ii) the investment results for the Horizon Shares and
Horizon Service Shares of the Prime Fund and Treasury Fund for the period
January 20, 1990 through February 28, 1990 and for the fiscal years ended
February 28, 1991, February 29, 1992, February 28, 1993, February 28, 1994,
February 28, 1995, February 29, 1996 and February 28, 1997. The information
contained in the Financial Highlights insofar as it pertains to each of the six
fiscal years in the six year period ended February 28, 1997 has been audited by
[ ], independent accountants for both the Predecessor Prime and Predecessor
Treasury Funds and the Prime and Treasury Funds, whose unqualified report on the
financial statements containing such information is incorporated by reference
into the Statement of Additional Information, which may be obtained upon
request. The Financial Highlights should be read in conjunction with the
financial statements and notes thereto and the unqualified report of independent
accountants which are incorporated by reference into the Statement of Additional
Information. During the periods indicated, no S Shares were outstanding.
11
<PAGE> 14
<TABLE>
<CAPTION>
Selected Data for a Share Outstanding Throughout Each of the Periods Indicated:
Prime Fund oo
-------------------------------------------------------------------------------------------------
Jan. 20,
Year Ended 1990
-------------------------------------------------------------------------------- through
Feb. 28, Feb. 29, Feb. 28, Feb. 28, Feb. 28, Feb. 29, Feb. 28, Feb. 28,
1997 1996 1995 1994 1993 1992 1991 1990
------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
HORIZON SHARES:
Net asset value per share,
beginning of period........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- ------- -------
Income From Investment
Operations:
Net investment income......... 0.0571 0.0461 0.0319 0.0372 0.0590 0.0794 0.0085
Net realized gain (loss)
on securities............... 0.0004 (0.0232) (0.0016) 0.0000 0.0005 (0.0001) 0.0000
------- ------- ------- ------- ------- ------- -------
Total income from
investment operations....... 0.0575 0.0229 0.0303 0.0372 0.0595 0.0793 0.0085
Less Dividends:
Dividends from net
investment income........... (0.0571) (0.0454) (0.0319) (0.0372) (0.0589) (0.0794) (0.0085)
Increase due to voluntary
capital contribution from
investment adviser............ 0.0000 0.0233 0.0000 0.0000 0.0000 0.0000 0.0000
------- ------- ------- ------- ------- ------- -------
Net change in net asset
value per share............... 0.0004 0.0008 (0.0016) 0.0000 0.0006 (0.0001) 0.0000
------- ------- ------- ------- ------- ------- -------
Net asset value per share,
end of period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= ======= =======
Total return.................... 5.86% 4.63%*** 3.24% 3.78% 6.06% 8.23% 0.90%o
Ratios/Supplemental Data:
Net assets, end of period
(millions).................. $1,651 $ 622 $3,840 $10,301 $ 2,855 $ 487 $ 405
Ratio of expenses to
average net assets.......... 0.23%** 0.16%** 0.20%** 0.23% 0.24% 0.24% 0.28%+
Ratio of net investment
income to average net assets. 5.69%** 4.11%** 3.19%** 3.59% 5.59% 7.91% 8.09%+
<CAPTION>
Prime Fund oo
---------------------------------------
May 1,
1989 Year Period
through Ended Ended
Jan. 19, April 30, April 30,
1990 1989++ 1988++*
-------- --------- ---------
<S> <C> <C> <C>
HORIZON SHARES:
Net asset value per share,
beginning of period.......... $ 1.00 $ 1.00 $ 1.00
------- ------- -------
Income From Investment
Operations:
Net investment income........ 0.0655 0.0829 0.0557
Net realized gain (loss)
on securities.............. 0.0000 0.0000 0.0000
------- ------- -------
Total income from
investment operations...... 0.0655 0.0829 0.0557
Less Dividends:
Dividends from net
investment income.......... (0.0655) (0.0829) (0.0557)
Increase due to voluntary
capital contribution from
investment adviser........... 0.0000 0.0000 0.0000
------- ------- -------
Net change in net asset
value per share.............. 0.0000 0.0000 0.0000
------- ------- -------
Net asset value per share,
end of period................ $ 1.00 $ 1.00 $ 1.00
======= ======= =======
Total return................... 6.69%o 8.61% 5.72%o
Ratios/Supplemental Data:
Net assets, end of period
(millions)................. $ 447 $ 303 $ 208
Ratio of expenses to
average net assets......... 0.20%+** 0.20%** 0.20%+**
Ratio of net investment
income to average net asset 9.04%+** 8.47%** 6.90%+**
<FN>
- ------------------------------
* For the period July 10, 1987 (commencement of operations) through April 30, 1988.
** Includes fee waivers and/or expense reimbursements which had the effect
of reducing the ratio of expenses to average net assets and increasing
the ratio of net investment income to average net assets by 0.01%,
0.07%, 0.01%, 0.03% (annualized), 0.12% and 0.07% (annualized) for the
years or periods ended February 29, 1996, February 28, 1995, February
28, 1994, January 19, 1990, April 30, 1989 and April 30, 1988,
respectively.
*** Total return includes the effect of a voluntary capital contribution
from the investment adviser. Without this capital contribution, the
total return would have been lower.
++ This information represents the results of operations of the
Predecessor Prime Fund, the former Horizon Prime Fund, the assets and
liabilities of which were transferred to the Pacific Horizon Prime Fund
on January 19, 1990.
</TABLE>
12
<PAGE> 15
oo Security Pacific National Bank served as investment adviser through
April 21, 1992. Bank of America National Trust and Savings Association
served as investment adviser commencing April 22, 1992.
o Not annualized.
13
<PAGE> 16
<TABLE>
<CAPTION>
Prime Fund oo
-------------------------------------------------------------------------------------
Year Ended
----------------------------------------------------------------------------------
Feb. 28, Feb. 29, Feb. 28, Feb. 28, Feb. 28, Feb. 29, Feb. 28,
1997 1996 1995 1994 1993 1992 1991
------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
HORIZON SERVICE SHARES:
Net asset value per share,
beginning of period................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- -------
Income From Investment
Operations:
Net investment income.............. 0.0546 0.0431 0.0294 0.0345 0.0565 0.0769
Net realized gain (loss)
on securities.................... 0.0004 (0.0227) (0.0016) 0.0000 0.0005 (0.0001)
------- ------- ------- ------- ------- -------
Total income from
investment operations............ 0.0550 0.0204 0.0278 0.0345 0.0570 0.0768
Less Dividends:
Dividends from net
investment income................ (0.0546) (0.0429) (0.0294) (0.0347) (0.0564) (0.0769)
Increase due to voluntary
capital contribution from
investment adviser................. 0.0000 0.0233 0.0000 0.0000 0.0000 0.0000
------- ------- ------- ------- ------- -------
Net change in net asset
value per share.................... 0.0004 0.0008 (0.0016) (0.0002) 0.0006 (0.0001)
------- ------- ------- ------- ------- -------
Net asset value per share,
end of period...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= =======
Total return......................... 5.60% 4.37%*** 2.98% 3.53% 5.79% 7.96%
Ratios/Supplemental Data:
Net assets, end of period
(millions)....................... $1,561 $864 $839 $793 $859 $560
Ratio of expenses to
average net assets............... 0.48%** 0.44%** 0.45%** 0.48% 0.49% 0.49%
Ratio of net investment
income to average net assets..... 5.44%** 4.31%** 2.94%** 3.49% 5.58% 7.64%
<CAPTION>
Prime Fund oo
-----------------------------------------------------
Jan. 20, May 1,
1990 1989 Year Period
through through Ended Ended
Feb. 28, Jan. 19, April 30, April 30,
1990 1990 1989++ 1988++*
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
HORIZON SERVICE SHARES:
Net asset value per share,
beginning of period................ $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- -------
Income From Investment
Operations:
Net investment income.............. 0.0082 0.0636 0.0804 0.0128
Net realized gain (loss)
on securities.................... 0.0000 0.0000 0.0000 0.0000
------- ------- ------- -------
Total income from
investment operations............ 0.0082 0.0636 0.0804 0.0128
Less Dividends:
Dividends from net
investment income................ (0.0082) (0.0636) (0.0804) (0.0128)
Increase due to voluntary
capital contribution from
investment adviser................. 0.0000 0.0000 0.0000 0.0000
------- ------- ------- -------
Net change in net asset
value per share.................... 0.0000 0.0000 0.0000 0.0000
------- ------- ------- -------
Net asset value per share,
end of period...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= =======
Total return......................... 0.87%o 6.50%o 8.35% 1.28%o
Ratios/Supplemental Data:
Net assets, end of period
(millions)....................... $330 $321 $164 $3
Ratio of expenses to
average net assets............... 0.53%+ 0.45%+** 0.45%** 0.45%+**
Ratio of net investment
income to average net assets..... 7.84%+ 8.74%+** 8.63%** 6.49%+**
- -----------------------------------
* For the period February 18, 1988 (initial offering date of Horizon Service Shares) through April 30, 1988.
** Includes fee waivers and expense reimbursements which had the effect of
reducing the ratio of expenses to average net assets and increasing the
ratio of net investment income to average net assets by 0.01%, 0.04%,
0.01%, 0.08% (annualized), 0.12% and 0.08% (annualized) for the years
or periods ended February 29, 1996, February 28, 1995, February 28,
1994, January 19, 1990, April 30, 1989 and April 30, 1988,
respectively.
*** Total return includes the effect of a voluntary capital contribution
from the investment adviser. Without this capital contribution,
the total return would have been lower.
+ Annualized.
++ This information represents the results of operations of the
Predecessor Prime Fund, the former Horizon Prime Fund, the assets and
liabilities of which were transferred to the Pacific Horizon Prime Fund
on January 19, 1990.
</TABLE>
14
<PAGE> 17
oo Security Pacific National Bank served as investment adviser through
April 21, 1992. Bank of America National Trust and Savings Association
served as investment adviser commencing April 22, 1992.
o Not annualized.
15
<PAGE> 18
<TABLE>
<CAPTION>
Treasury Fund oo
-------------------------------------------------------------------------------------
Year Ended
-------------------------------------------------------------------------------------
Feb. 28, Feb. 29, Feb. 28, Feb. 28, Feb. 28, Feb. 29, Feb. 28,
1997 1996 1995 1994 1993++ 1992 1991
------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
HORIZON SHARES:
Net asset value per share,
beginning of period................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- -------
Income From Investment
Operations:
Net investment income.............. 0.0559 0.0437 0.0294 0.0341 0.0543 0.0764
Net realized gain (loss) on
securities....................... 0.0011 0.0001 (0.0002) 0.0002 0.0003 0.0005
------- ------- ------- ------- ------- -------
Total income from
investment operations............ 0.0570 0.0438 0.0292 0.0343 0.0546 0.0769
Less Dividends:
Dividends from net
investment income................ (0.0559) (0.0437) (0.0294) (0.0343) (0.0545) (0.0765)
------- ------- ------- ------- ------- -------
Net change in net asset
value per share.................... 0.0011 0.0001 (0.0002) 0.0000 0.0001 0.0004
------- ------- ------- ------- ------- -------
Net asset value per share,
end of period...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= =======
Total return......................... 5.73% 4.46% 2.98% 3.48% 5.59% 7.92%
Ratios/Supplemental Data:
Net assets, end of period
(millions)....................... $722 $469 $487 $598 $432 $455
Ratio of expenses to
average net assets............... 0.25%** 0.23% 0.23% 0.24% 0.24% 0.23%
Ratio of net investment
income to average net assets..... 5.56%** 4.36% 2.94% 3.38% 5.44% 7.57%
<CAPTION>
Treasury Fund oo
----------------------------------------------------
Jan. 20, May 1,
1990 1989 Year Period
through through Ended Ended
Feb. 28, Jan. 19, April 30, April 30,
1990 1990 1989++ 1988++*
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
HORIZON SHARES:
Net asset value per share,
beginning of period................ $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- -------
Income From Investment
Operations:
Net investment income.............. 0.0082 0.0631 0.0792 0.0527
Net realized gain (loss) on
securities....................... -- -- -- --
------- ------- ------- -------
Total income from
investment operations............ 0.0082 0.0631 0.0792 0.0527
Less Dividends:
Dividends from net
investment income................ (0.0082) (0.0631) (0.0792) (0.0527)
------- ------- ------- -------
Net change in net asset
value per share.................... 0.0000 0.0000 0.0000 0.0000
------- ------- ------- -------
Net asset value per share,
end of period...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= =======
Total return......................... 0.87% 6.44%o 8.21% 5.39%o
Ratios/Supplemental Data:
Net assets, end of period
(millions)....................... $257 $292 $239 $133
Ratio of expenses to
average net assets............... 0.27%+ 0.20%+** 0.21%** 0.20%+**
Ratio of net investment
income to average net assets..... 7.94%+ 8.65%+** 8.07%** 6.57%+**
<FN>
- ---------------------------
* For the period July 10, 1987 (commencement of operations) through April 30,
1988.
** Includes fee waivers and/or expense reimbursements which had the effect of
reducing the ratio of expenses to average net assets and increasing the
ratio of net investment income to average net assets by 0.01%, 0.12%
(annualized), 0.16% and 0.15% (annualized) for the years or periods ended
February 29, 1996, January 19, 1990, April 30, 1989 and April 30, 1988,
respectively.
+ Annualized.
++ This information represents the results of operations of the Predecessor
Treasury Fund, the former Horizon Treasury Fund, the assets and liabilities
of which were transferred to the Pacific Horizon Treasury Fund on January
19, 1990.
oo Security Pacific National Bank served as investment adviser through April
21, 1992. Bank of America National Trust and Savings Association served as
investment adviser commencing April 22, 1992.
o Not annualized.
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
Treasury Fund oo
-----------------------------------------------------------------------------------
Year Ended
----------------------------------------------------------------------------------
Feb. 28, Feb. 29, Feb. 28, Feb. 28, Feb. 28, Feb. 29, Feb. 28,
1997 1996 1995 1994 1993 1992 1991
------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
HORIZON SERVICE SHARES:
Net asset value per share,
beginning of period.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- -------
Income From Investment
Operations:
Net investment income.............. 0.0534 0.0412 0.0269 0.0316 0.0517 0.0739
Net realized gain (loss) on
securities....................... 0.0011 0.0001 (0.0002) 0.0002 0.0004 0.0005
------- ------- ------- ------- ------- -------
Total income from
investment operations............ 0.0545 0.0413 0.0267 0.0318 0.0521 0.0744
Less Dividends:
Dividends from net
investment income................ (0.0534) (0.0412) (0.0269) (0.0318) (0.0520) (0.0740)
------- ------- ------- ------- ------- -------
Net change in net asset value
per share.......................... 0.0011 0.0001 (0.0002) 0.0000 0.0001 0.0004
------- ------- ------- ------- ------- -------
Net asset value per share,
end of period...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= =======
Total return......................... 5.47% 4.20% 2.72% 3.23% 5.33% 7.65%
Ratios/Supplemental Data:
Net assets, end of period
(millions)...................... $1,031 $364 $541 $369 $381 $304
Ratio of expenses to
average net assets.............. 0.50%** 0.48% 0.48% 0.49% 0.49% 0.48%
Ratio of net investment
income to average net assets..... 5.31%** 4.01% 2.69% 3.28% 5.13% 7.31%
<CAPTION>
Treasury Fund oo
-----------------------------------------------------
Jan. 20, May 1,
1990 1989 Year Period
through through Ended Ended
Feb. 28, Jan. 19, April 30, April 30,
1990 1990 1989++ 1988++*
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
HORIZON SERVICE SHARES:
Net asset value per share,
beginning of period.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- -------
Income From Investment
Operations:
Net investment income.............. 0.0080 0.0613 0.0767 0.0122
Net realized gain (loss) on
securities....................... -- -- -- --
------- ------- ------- -------
Total income from
investment operations............ 0.0080 0.0613 0.0767 0.0122
Less Dividends:
Dividends from net
investment income................ (0.0080) (0.0613) (0.0767) (0.0122)
------- ------- ------- -------
Net change in net asset value
per share.......................... 0.0000 0.0000 0.0000 0.0000
------- ------- ------- -------
Net asset value per share,
end of period...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= =======
Total return......................... 0.84%o 6.25%o 7.94% 1.52%o
Ratios/Supplemental Data:
Net assets, end of period
(millions)...................... $157 $166 $239 $133
Ratio of expenses to
average net assets.............. 0.52%+ 0.45%+** 0.46%** 0.45%+**
Ratio of net investment
income to average net assets..... 7.70%+ 8.31%+** 8.44%** 6.27%+**
<FN>
- ---------------------------------------
* For the period February 18, 1988 (initial offering date of Horizon
Service Shares) through April 30, 1988.
** Includes fee waivers and/or expense reimbursements which had the effect
of reducing the ratio of expenses to average net assets and increasing
the ratio of net investment income to average net assets by 0.01%,
0.12% (annualized), 0.16% and 0.10% (annualized) for the years or
periods ended February 29, 1996, January 19, 1990, April 30, 1989 and
April 30, 1988, respectively.
+ Annualized.
++ This information represents the results of operations of the
Predecessor Treasury Fund, the former Horizon Treasury Fund, the assets
and liabilities of which were transferred to the Pacific Horizon
Treasury Fund on January 19, 1990.
oo Security Pacific National Bank served as investment adviser through
April 21, 1992. Bank of America National Trust and Savings Association
served as investment adviser commencing April 22, 1992.
o Not annualized.
</TABLE>
17
<PAGE> 20
The Government Fund and the Treasury Only Fund commenced operations on June 4,
1990 as separate investment portfolios (the "Predecessor Government Funds" and
"Predecessor Treasury Only Funds," respectively) of First Cash Funds of America
and First Funds of America, which were organized as Massachusetts business
trusts. On March 1, 1993 the Predecessor Government Funds and Predecessor
Treasury Only Funds were reorganized as the Government Fund and Treasury Only
Fund, respectively, of the Company. Prior to this reorganization, these
Predecessor Funds offered and sold shares of beneficial interest that were
similar to the Company's Horizon Service and Pacific Horizon Shares. Pacific
Horizon Shares of the Funds are described in a separate Prospectus available
from the Distributor by calling (800) 332-3863.
The tables below set forth certain information concerning the investment results
of (i) Horizon Service Shares and Horizon Shares of the Government Fund and
Horizon Service Shares of the Treasury Only Fund for the years or period ended
February 28, 1994, February 28, 1995, February 29, 1996 and February 28, 1997;
(ii) shares of the Predecessor Government Fund and Predecessor Treasury Only
Fund of First Cash Funds of America, which offered and sold shares of beneficial
interest similar to the Company's Horizon Service Shares for the 11 month period
ended February 28, 1993, the fiscal year ended March 31, 1992 and the fiscal
period ended March 31, 1991; and (iii) Horizon Shares of the Treasury Only Fund
for the periods ended February 29, 1996 and February 28, 1997. The information
about the Government Fund and Treasury Only Fund has been audited by [ ],
independent accountants for these two Funds, whose unqualified report thereon is
incorporated by reference in the Statement of Additional Information, which may
be obtained upon request. The information about the Predecessor Government Fund
and Predecessor Treasury Only Fund has been audited by other independent
accountants for these Predecessor Funds for the periods indicated, whose
unqualified report dated March 1, 1993 expressed an unqualified opinion on such
financial statements. The Financial Highlights should be read in conjunction
with the financial statements and notes thereto and the unqualified reports of
the independent accountants which are incorporated by reference in the Statement
of Additional Information with respect to the Government and Treasury Only
Funds.
18
<PAGE> 21
<TABLE>
<CAPTION>
Selected Data for a Share Outstanding Throughout Each of the Periods Indicated:
Government Fund Predecessor Government Fund
--------------------------------------- ---------------------------------------------------
March 1, 1993 June 4, 1990
(Commencement (Commencement
of of
Operations) 11 Month Operations)
Year Ended Year Ended Year Ended to Period Ended Year Ended to
Feb. 28. Feb. 29, Feb. 28, Feb. 28, Feb. 28, March 31, March 31,
1997 1996 1995 1994 1993 1992 1991
-------- --------- --------- ------------ ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
HORIZON SERVICE SHARES:
Net asset value
per share, beginning
of period............................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Income From
Investment Operations:
Net investment income.............. 0.0537 0.0429 0.0300 0.0303 0.0507 0.0599
Net realized loss
on securities................. (0.0004)*** (0.0092) (0.0006) 0.0000 0.0000 0.0000
-------- -------- -------- -------- -------- --------
Total income from
investment operations......... 0.0533 0.0337 0.0294 0.0303 0.0507 0.0599
Less Dividends:
Dividends from net
investment income.................. (0.0531) (0.0427) (0.0300) (0.0303) (0.0507) (0.0599)
-------- -------- -------- -------- -------- --------
Increase due to
voluntary capital
contribution from
investment adviser................. 0.0000 0.0085 0.0000 0.0000 0.0000 0.0000
-------- -------- -------- -------- -------- --------
Net change in net
asset value per share.............. 0.0002 (0.0005) (0.0006) 0.0000 0.0000 0.0000
-------- -------- -------- -------- -------- --------
Net asset value per share,
end of period...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total return........................... 5.44% 4.35%** 3.04% 3.07%o 5.19% 6.15%o
Ratios/Supplemental Data:
Net assets,
end of period (000)................ $213,430 $288,809 $326,017 $228,679 $116,604 $326,874
Ratio of expenses
to average net assets*............. 0.49% 0.43% 0.48% 0.46%+ 0.46% 0.46%+
Ratio of net
investment income
to average net assets*............. 5.41% 4.32% 2.99% 3.22%+ 5.27% 6.67%+
<FN>
- ----------------------------
* Includes fee waivers and expense reimbursements which had the effect of
reducing the ratio of expenses to average net assets and increasing the
ratio of net investment income to average net assets by 0.07%, 0.08%
and 0.05% for the years ended February 29, 1996, February 28, 1995 and
February 28, 1994, respectively. Reflects the Predecessor Government
Fund's share of the expenses of the Government Money Trust, in which
the assets of the Predecessor Government Fund were invested, as well as
a voluntary waiver of fees by affiliates of the Predecessor Government
Fund and Trust. If the voluntary expense waiver had not been in place,
the annualized ratios of expenses to average net assets would have been
0.58%, 0.59% and 0.58% for the year or periods ended February 28, 1993,
March 31, 1992 and March 31, 1991, respectively.
** Total return includes the effect of a voluntary capital contribution
from the investment adviser. Without this capital contribution, the
total return would have been lower.
*** Net realized loss for the fiscal year ended February 29, 1996 is a
direct result of a decrease in outstanding shares between February 28,
1995 and the date of the gain realization.
+ Annualized.
o Not annualized.
</TABLE>
19
<PAGE> 22
<TABLE>
<CAPTION>
Government Fund
---------------
For the
Period
June 14,
1993
(initial
issuance
of Shares)
Year Ended Year Ended Year Ended through
Feb. 28, Feb. 29, Feb. 28, Feb. 28,
1997 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C>
HORIZON SHARES:
Net asset value per
share, beginning of period................. $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Income From Investment
Operations:
Net investment income.................... 0.0600 0.0454 0.0227
Net realized loss
on securities.......................... (0.0042)*** (0.0092) (0.0006)
-------- -------- --------
Total income from
investment operations.................... 0.0558 0.0362 0.0221
Less Dividends:
Dividends from
net investment income.................... (0.0556) (0.0452) (0.0227)
-------- -------- --------
Increase due to
voluntary capital
contribution from
investment adviser......................... 0.0000 0.0085 0.0000
-------- -------- --------
Net change in net
asset value per share...................... 0.0002 (0.0005) (0.0006)
-------- -------- --------
Net asset value per
share, end of period....................... $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total return................................. 5.71% 4.61%** 2.29%o
Ratios/Supplemental Data:
Net assets,
end of period (000)...................... $ 54,803 $235,285 $369,664
Ratio of expenses to
average net assets*...................... 0.24% 0.17% 0.28%+
Ratio of net investment
income to average net
assets*.................................. 5.66% 4.67% 3.17%+
<FN>
- -----------------------
* Includes fee waivers and expense reimbursements which had the effect of
reducing the ratio of expenses to average net assets and increasing the
ratio of net investment income to average net assets by 0.06%, 0.08%
and 0.002% (annualized) for the years ended February 29, 1996 and
February 28, 1995 and the period ended February 28, 1994, respectively.
** Total return includes the effect of a voluntary capital contribution
from the investment adviser. Without this capital contribution, the
total return would have been lower.
*** Net realized loss for the fiscal year ended February 29, 1996 is a
direct result of a decrease in outstanding shares between February 28,
1995 and the date of the gain realization.
+ Annualized.
o Not annualized.
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
Treasury Only Fund Predecessor Treasury Only Fund
------------------------------------------- ---------------------------------------------------
March 1, 1993 June 4, 1990
(commencement (commencement
of of
operations) 11 Month operations)
Year Ended Year Ended Year Ended to Period Ended Year Ended to
Feb. 28. Feb. 29, Feb. 28, Feb. 28, Feb. 28, March 31, March 31,
1997 1996 1995 1994 1993 1992 1991
-------- --------- --------- ------------ ----------- ---------- --------
HORIZON SERVICE SHARES:
<S> <C> <C> <C> <C> <C> <C>
Net asset value
per share, beginning
of period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Income From
Investment Operations:
Net investment income......... 0.0502 0.0391 0.0273 0.0279 0.0486 0.0571
Net realized gain
(loss) on securities........ 0.0003 (0.0002) (0.0002) -- -- --
-------- -------- -------- -------- -------- --------
Total income from
investment operations......... 0.0505 0.0389 0.0271 0.0279 0.0486 0.0571
Less Dividends:
Dividends from net
investment income............. (0.0502) (0.0391) (0.0273) (0.0279) (0.0486) (0.0571)
-------- -------- -------- -------- -------- --------
Net change in net
asset value per share........... 0.0003 (0.0002) (0.0002) 0.0000 0.0000 0.0000
-------- -------- -------- -------- -------- --------
Net asset value per share,
end of period................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total return...................... 5.14% 3.98% 2.76% 2.83%o 4.96% 5.86%o
Ratios/Supplemental Data:
Net assets,
end of period (000)........... $185,957 $194,363 $271,588 $123,669 $154,811 $128,546
Ratio of expenses
to average net assets*........ 0.56% 0.55% 0.39% 0.36%+ 0.36% 0.35%+
Ratio of net
investment income
to average net assets*........ 5.01% 3.86% 2.73% 3.10%+ 4.74% 6.57%+
<FN>
- ---------------------------------
* Includes fee waivers which had the effect of reducing the ratio of expenses to average net assets and increasing the
ratio of net investment income to average net assets by 0.01% and 0.25% for the years ended February 28, 1995 and
February 28, 1994, respectively. There were no fee waivers or expense reimbursements during the fiscal year ended
February 29, 1996. Reflects the Predecessor Treasury Only Fund's share of the expenses of the Treasury Money Trust,
in which the assets of the Predecessor Treasury Only Fund were invested, as well as a voluntary waiver of fees by
affiliates of the Predecessor Treasury Only Fund and Trust. If the voluntary expense waiver had not been in place, the
annualized ratios of expenses to average net assets would have been 0.61%, 0.60% and 0.64% for the year and periods ended
February 28, 1993, March 31, 1992 and March 31, 1991, respectively.
+ Annualized.
o Not annualized.
</TABLE>
21
<PAGE> 24
<TABLE>
<CAPTION>
Treasury Only Fund
-------------------------------------------------
Period Sept. 20,
1995
(initial issuance
of shares)
Year Ended through
Feb. 28, Feb. 29,
1997 1996
---- ----
<S> <C> <C>
HORIZON SHARES:
Net asset value per share,
beginning of period............................. $ 1.00
Income From Investment Operations:
Net investment income........................... 0.0227
Net realized loss on securities................. (0.0001)
-------
Total income from investment operations......... 0.0226
Less Dividends:
Dividends from net investment income............ (0.0227)
-------
Net change in net asset value per share........... (0.0001)
-------
Net asset value per share, end of period.......... $ 1.00
=======
Total return...................................... 2.30%o
Ratios/Supplemental Data:
Net assets, end of period (000)................. $ 7,264
Ratio of expenses to average net assets......... 0.70%+*
Ratio of net investment income to
average net assets............................ 11.88%+*
<FN>
- -------------------------
* There were no fee waivers or expense reimbursements during the period.
+ Annualized.
o Not annualized.
</TABLE>
22
<PAGE> 25
Yield Information. From time to time the "yield" or "effective yield" of a Fund
may be quoted in advertisements or reports to shareholders. Both yield figures
are based on historical earnings and are not intended to indicate future
performance. The "yield" of a Fund refers to the income generated by an
investment in the Fund over a seven-day period (which period will be stated in
the advertisement or report). This income is then "annualized" [epsilon] that
is, the amount of income generated by the investment during that week is assumed
to be generated each week over a 52-week period and is shown as a percentage of
the investment. The "effective yield" is calculated similarly but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment.
Additionally, the yields of each Fund may be compared to those of other mutual
funds with similar investment objectives and to other relevant indices or to
rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
Funds' yields may be compared to Donoghue's Money Fund Averages, which are
averages compiled by Donoghue's Money Fund Report. Yield data as reported in
national financial publications, including Money, Forbes, Barron's, The Wall
Street Journal and The New York Times, or in publications of a local or regional
nature, may also be used in comparing the yields of the Funds. A complete
listing of the indices, rankings and publications discussed above is contained
in the Statement of Additional Information.
Since yields fluctuate, yield data cannot necessarily be used to compare an
investment in the shares of a Fund with bank deposits, savings accounts and
similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that yield
is generally a function of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses and market conditions. Any
fees charged by the Investment Adviser or institutional investors directly to
their customer accounts in connection with investments in shares of the Funds
(which fees may include, for example, account maintenance fees, compensating
balance requirements or fees based upon account transactions, assets or income)
will not be included in the Funds' calculations of yield.
INVESTMENT OBJECTIVES AND POLICIES
This section describes the investment objective and policies of each Fund.
Assets of the Funds will be invested in dollar-denominated debt securities with
remaining maturities of thirteen months or less as defined by the Securities and
Exchange Commission, and the dollar-weighted average portfolio maturity of each
Fund will not exceed 90 days. All securities acquired by the Funds will be
determined by the investment adviser, under guidelines established by the
Company's Board of Directors, to present minimal credit risks. Securities
acquired by the Prime, Treasury, Government and Treasury Only Funds will be U.S.
Government securities or other "First Tier Securities" (as defined by the
Securities and Exchange Commission) of the types described below. First Tier
Securities consist of instruments that are either rated at the time of purchase
in the top rating category by one (if rated by only one) or more unaffiliated
nationally recognized statistical rating organizations ("NRSROs") including
Standard and Poor's Ratings Group, Division of McGraw-Hill ("Standard &
Poor's"), Moody's Investors Service, Inc. ("Moody's"), Duff & Phelps Credit Co.
("Duff & Phelps") or Fitch Investors Service, Inc. ("Fitch") or are issued by
issuers with such ratings. The Appendix to the Statement of Additional
Information includes a description of the applicable NRSRO ratings. Unrated
instruments (including instruments with long-term but no short-term ratings)
purchased by a particular Fund will be of comparable quality to the rated
instruments that the Fund may purchase, as determined by the Funds' investment
adviser pursuant to guidelines approved by the Board of Directors.
23
<PAGE> 26
PRIME FUND. The Prime Fund's investment objective is to seek high current income
and stability of principal. The Fund invests substantially all of its assets in
a diversified portfolio of U.S. dollar-denominated money market instruments such
as bank certificates of deposit and bankers' acceptances, commercial paper
(including variable and floating rate instruments) and repurchase agreements, in
addition to obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. Portfolio securities held by the Fund have
remaining maturities of thirteen months or less from the date of purchase by the
Fund. (Portfolio securities which are subject to repurchase agreements or have
certain put or demand features exercisable by the Fund within thirteen months,
as well as certain U.S. Government obligations with floating or variable
interest rates, may have longer maturities.)
In pursuing its investment objective, the Prime Fund invests in a broad range of
government, bank and commercial obligations that may be available in the money
markets. The money market instruments in which the Fund invests will generally
have neither as much risk nor as high a return as longer-term or lower-rated
instruments. In accordance with current regulations of the Securities and
Exchange Commission, the Fund intends to limit its investments in the securities
of any single issuer (other than securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities) to not more than 5% of the Fund's
total assets at the time of purchase, provided that the Fund may invest up to
25% of its total assets in the securities of any one issuer for a period of up
to three business days.
The Prime Fund may purchase bank obligations such as certificates of deposit and
bankers' acceptances issued or supported by the credit of domestic banks,
foreign branches of domestic banks ("Euro CDs") or domestic branches of foreign
banks ("Yankee CDs" and "Yankee BAs") or foreign branches of foreign banks
("Yankee Euros"). Such banks must have total assets at the time of purchase in
excess of $2.5 billion. No more than 25% of the Prime Fund's total assets at the
time of purchase may be invested in Yankee CDs and BAs, Euro CDs and Yankee
Euros. The Fund may also make interest-bearing savings deposits in such
commercial banks in amounts not in excess of 5% of the Fund's total assets.
The Prime Fund may be subject to additional investment risks because the Fund
may hold securities issued by foreign branches of domestic banks, domestic
branches of foreign banks and foreign branches of foreign banks (and, as
described below, commercial paper issued by foreign issuers). These risks are
different in some respects from those incurred by a fund which invests 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
branch 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. In addition, foreign branches of domestic
banks, domestic branches of foreign banks and foreign branches of foreign banks
are not necessarily subject to the same regulatory requirements that apply to
domestic branches of domestic banks (such as reserve requirements, loan
limitations, examinations, accounting, auditing and recordkeeping requirements,
and public availability of information) and the Fund may experience difficulties
in obtaining or enforcing a judgment against the issuing bank.
The Prime Fund may purchase commercial paper, short-term notes and corporate
bonds that meet the Fund's maturity limitations. Commercial paper purchased by
the Prime Fund may include instruments issued by foreign issuers, such as
Canadian Commercial Paper ("CCP"), which is U.S. dollar-denominated commercial
paper issued by a Canadian corporation or a Canadian counterpart of a U.S.
corporation, and Europaper, which is U.S. dollar-denominated commercial paper of
a foreign issuer.
24
<PAGE> 27
The Prime Fund may also invest in commercial paper issued in reliance on the
so-called "private placement" exemption from registration afforded by Section
4(2) of the Securities Act of 1933 ("Section 4(2) paper"). Section 4(2) paper is
restricted as to disposition under the Federal securities laws and generally is
sold to institutional investors such as the Prime Fund that agree that they are
purchasing the paper for investment and not with a view to public distribution.
Any resale by the purchaser must be in an exempt transaction. Section 4(2) paper
normally is resold to other institutional investors like the Prime Fund through
or with the assistance of the issuer or investment dealers that make a market in
Section 4(2) paper. Section 4(2) paper will not be subject to the Fund's 10%
limitation on illiquid securities set forth below where the Board of Directors
or Bank of America (pursuant to guidelines adopted by the Board) determines that
a liquid trading market exists.
TREASURY FUND. The Treasury Fund's investment objective is to seek high current
income and stability of principal. The Fund invests solely in direct obligations
issued by the U.S. Treasury and repurchase agreements relating to such Treasury
obligations. Portfolio securities which are subject to repurchase agreements may
have remaining maturities of longer than thirteen months.
Examples of the types of U.S. Treasury obligations that may be held by the
Treasury Fund include U.S. Treasury bills and notes. Under normal market
conditions, 100% of the total assets of the Fund will be invested in direct
obligations of the U.S. Treasury and repurchase agreements relating to such
Treasury obligations. Securities issued by the U.S. Government have historically
involved little risk of loss of principal if held to maturity and, in general,
the instruments held by the Fund will have neither as much risk nor as high a
return as longer term or non-U.S. Government obligations.
GOVERNMENT FUND. The investment objective of the Government Fund is to provide
liquidity and as high a level of current income as is consistent with the
preservation of capital. The Government Fund seeks to achieve this objective by
investing in short-term debt obligations issued or guaranteed as to interest and
principal by the U.S. Government, its agencies, authorities or instrumentalities
and in repurchase agreements with respect to such obligations.
The Government Fund may purchase certain agency securities (such as guaranteed
notes of the Federal Aviation Administration, Department of Defense, Bureau of
Indian Affairs and Private Export Funding Corporation) which often provide
higher yields than are available from the more common types of government-backed
investments. However, such specialized investments may only be available from a
few sources, in limited amounts, or only in very large denominations; they may
also require specialized capability in portfolio servicing and in legal matters
related to government guarantees. While frequently offering attractive yields,
the limited-activity markets of many of these securities means that if the
Government Fund were required to liquidate any of them it might not be able to
do so advantageously; accordingly, the Government Fund intends normally to hold
such securities to maturity or pursuant to repurchase agreements, and would
limit its investment in such securities (as well as repurchase agreements
maturing in more than seven days) to not more than 10% of the Fund's net assets.
TREASURY ONLY FUND. The investment objective of the Treasury Only Fund is to
provide liquidity and as high a level of current income as is consistent with
the preservation of capital. The Treasury Only Fund seeks to achieve this
objective by investing solely in obligations of the U.S. Treasury. U.S. Treasury
securities are backed by the "full faith and credit" of the U.S. Government.
U.S. Treasury securities include Treasury bills, Treasury notes and Treasury
bonds. While U.S. Treasury securities are guaranteed as to the timely payment of
principal and interest, the market value of such obligations is not guaranteed
and may rise and fall in response to changes in interest rates.
25
<PAGE> 28
To increase income on portfolio securities, the Treasury Only Fund may lend its
portfolio securities to broker-dealers, banks and other institutional investors
pursuant to agreements requiring that the loans be continuously secured by
collateral equal at all times in value to at least the market value of the
securities loaned plus accrued interest. Collateral for such loans may include
cash or securities of the U.S. Treasury. Such loans will not be made if, as a
result, the aggregate of all outstanding loans of the Fund exceeds 33% of the
value of its total assets. There may be risks of delay in receiving additional
collateral or in recovering the securities loaned or even a loss of rights in
the collateral should the borrower of the securities fail financially. Loans
will be made only to borrowers deemed by the adviser to be of good standing and
when, in the adviser's judgment, the income to be earned from the loan justifies
the attendant risks.
COMMON INVESTMENT POLICIES
GOVERNMENT OBLIGATIONS. The Prime Fund and Government Fund may purchase
obligations issued or guaranteed by the U.S. Government or its agencies and
instrumentalities. Obligations of certain agencies and instrumentalities of the
U.S. Government, such as the Small Business Administration, are backed by the
full faith and credit of the United States. Others are backed by the right of
the issuer to borrow from the U.S. Treasury (such as obligations of the Federal
Home Loan Bank), by the discretionary authority of the U.S. Government to
purchase the agency's obligations (such as obligations of the Federal National
Mortgage Association), or only by the credit of the agency or instrumentality
issuing the obligation (such as the Student Loan Marketing Association).
Securities issued or guaranteed by the U.S. Government and its agencies and
instrumentalities have historically involved little risk of loss of principal if
held to maturity. However, no assurance can be given that the U.S. Government
would provide financial support to any agency or instrumentality if it is not
obligated to do so by law.
Certain securities issued or guaranteed by all governmental agencies may be
prepaid by the issuer without penalty. Thus, when prevailing interest rates
decline, the value of these securities is not likely to rise on a comparable
basis with other debt securities that are not so prepayable. The proceeds of
prepayments and scheduled payments of principal of these securities will be
reinvested by a Fund at then-prevailing interest rates, which may be lower than
the rate of interest on the securities on which these payments were received.
"STRIPPED" SECURITIES. Each Fund may invest in "stripped" securities,
which are U.S. Treasury bonds and notes the unmatured interest coupons of which
have been separated from the underlying principal obligation. Stripped
securities are zero coupon obligations that are normally issued at a discount to
their "face value," and may exhibit greater price volatility than ordinary debt
securities because of the manner in which their principal and interest are
returned to investors. The Treasury and Treasury Only Funds may only invest in
stripped securities issued by the U.S. Treasury and recorded in the Federal
Reserve book-entry record-keeping system. The Government Fund may invest no more
than 35% of its assets in stripped securities that have been stripped by their
holder, typically a custodian bank or investment brokerage firm. A number of
securities firms and banks have stripped the interest coupons and resold them in
custodian receipt programs with different names such as Treasury Income Growth
Receipts ("TIGRs") and Certificates of Accrual on Treasuries ("CATS"). The
Government Fund intends to rely on the opinions of counsel to the sellers of
these certificates or other evidences of ownership of U.S. Treasury obligations
that, for Federal tax and securities purposes, purchasers of such certificates
most likely will be deemed the beneficial holders of the underlying U.S.
Government obligations. Privately-issued stripped securities such as TIGRs and
CATS are not themselves guaranteed by the U.S. Government, but the future
payment of principal or interest on U.S. Treasury obligations which they
represent is so guaranteed.
26
<PAGE> 29
REPURCHASE AGREEMENTS. Each Fund (other than the Treasury Only Fund)
may agree to purchase securities from financial institutions, such as banks and
broker-dealers, as are deemed creditworthy by the Company's investment adviser
under guidelines approved by the Board of Directors, subject to the seller's
agreement to repurchase them at an agreed upon time and price ("repurchase
agreements"). Although the securities subject to a repurchase agreement may bear
maturities exceeding thirteen months, each Fund intends only to enter into
repurchase agreements having maturities not exceeding 60 days. Securities
subject to repurchase agreements are held either by the Company's custodian or
sub-custodian, or in the Federal Reserve/Treasury Book-Entry System. The seller
under a repurchase agreement will be required to deliver instruments the value
of which is greater than the repurchase price. Default by the seller would,
however, expose a Fund to possible loss because of adverse market action or
delay in connection with the disposition of the underlying obligations.
Repurchase agreements are considered to be loans under the Investment Company
Act of 1940.
REVERSE REPURCHASE AGREEMENTS. The Funds may borrow monies for
temporary purposes by entering into reverse repurchase agreements in accordance
with the investment restrictions described below. Pursuant to such agreements, a
Fund would sell portfolio securities to banks, and with respect to the Prime and
Treasury Funds, other financial institutions, and agree to repurchase them at an
agreed upon date and price. At the time a Fund enters into a reverse repurchase
agreement, it will place in a segregated custodial account liquid assets or high
grade debt securities having a value equal to or greater than the repurchase
price and the Company's investment adviser will continuously monitor the account
to ensure that the value is maintained. A Fund would only enter into reverse
repurchase agreements to avoid otherwise selling securities during unfavorable
market conditions to meet redemptions. Reverse repurchase agreements involve the
risk that the market value of the portfolio securities sold by a Fund may
decline below the price of the securities such Fund is obligated to repurchase.
Interest paid by a Fund in connection with a reverse repurchase agreement will
reduce the net investment income of such Fund. Reverse repurchase agreements are
considered to be borrowings under the Investment Company Act of 1940.
VARIABLE AND FLOATING RATE INSTRUMENTS. Securities purchased by a Fund
may include variable and floating rate instruments, which may have a stated
maturity in excess of a Fund's maturity limitations but which will, except for
certain U.S. Government obligations, permit a Fund to demand payment of the
principal of the instrument at least once every thirteen months upon not more
than thirty days' notice. Variable and floating rate instruments purchased by
the Government Fund will be U.S. Government agency securities with stated
maturities of typically up to 10 years, although stated maturities of up to 30
years are possible. Variable and floating rate instruments may include variable
amount master demand notes that permit the indebtedness thereunder to vary in
addition to providing for periodic adjustments in the interest rate. There may
be no active secondary market with respect to a particular variable or floating
rate instrument. Nevertheless, the periodic readjustments of their interest
rates tend to assure that their value to a Fund will approximate their par
value. Illiquid variable and floating rate instruments (instruments which are
not payable upon seven days notice and do not have an active trading market)
that are acquired by the Funds are subject to a Fund's percentage limitations
regarding securities that are illiquid or not readily marketable. The Funds'
investment adviser will continuously monitor the creditworthiness of issuers of
variable and floating rate instruments in which the Funds invest, and their
ability to repay principal and interest.
Variable and floating rate instruments purchased by a Fund may include
participation certificates issued by trusts or financial institutions in
variable and floating rate obligations owned by such issuers or affiliated
organizations. A participation certificate gives a Fund a specified undivided
interest (up to 100%) in the underlying obligation and the right to demand
payment of the unpaid principal balance plus accrued interest on the
participation interest from the
27
<PAGE> 30
institution upon a specified number of days' notice. If the credit of the
obligor is of minimal credit risk, no credit support from a bank or other
financial institution will be necessary. In other circumstances, the
participation certificate will be backed by an irrevocable letter of credit or
guarantee of a bank, or will be insured by an insurer, that the Funds'
investment adviser has determined meets the quality standards for the Fund
involved. If an interest is backed by an irrevocable letter of credit or
guarantee of a bank or is insured as described above, a Fund will usually have
the right to sell the interest back to the institution or draw on the letter of
credit or insurance policy on demand after a specified notice period, for all or
any part of the principal amount of the interest plus accrued interest. Although
a participation interest may be sold by a Fund, under normal circumstances they
will be held until maturity.
A Fund may also invest in obligations which provide for a variable or floating
interest rate which is determined through a periodic "auction process." From
time to time, holders of the obligations have the right to tender any such
obligations to a remarketing agent which then remarkets the obligations which
have been tendered and thereby determines a new interest rate for the following
period.
WHEN-ISSUED PURCHASES, FORWARD COMMITMENTS AND DELAYED SETTLEMENTS. The
Funds may purchase securities on a "when-issued basis" and may purchase or sell
securities on a "forward commitment" or "delayed settlement" basis. When-issued
and forward commitment transactions, which involve a commitment by a Fund to
purchase or sell particular securities with payment and delivery taking place at
a future date (perhaps one or two months later), permit a Fund to lock in a
price or yield on a security it owns or intends to purchase or sell, regardless
of future changes in interest rates. Delayed settlement describes a securities
transaction in a secondary market for which settlement will occur sometime in
the future. When-issued, forward commitment and delayed settlement transactions
involve the risk, however, that the yield or price obtained in a transaction may
be less favorable than the yield or price available in the market when the
securities delivery takes place. The Funds' forward commitments, when-issued
purchases and delayed settlements are not expected to exceed 25% of the value of
the total assets of a particular Fund absent unusual market conditions. A Fund's
liquidity and the ability of its investment adviser to manage its portfolio may
be adversely affected in the event a Fund's forward commitments, commitments to
purchase when-issued securities and delayed settlements ever exceed 25% of the
value of its total assets. The Funds do not intend to engage in these
transactions for speculative purposes but only in furtherance of their
investment objectives.
INVESTMENT LIMITATIONS. The investment objectives of the Prime and Treasury
Funds (but not the Government and Treasury Only Funds) are fundamental policies
that may not be changed without a vote of the holders of a majority of the
particular Fund's outstanding shares (as defined in the Investment Company Act
of 1940). A Fund's policies may be changed by the Company's Board of Directors
without the affirmative vote of the holders of a majority of such Fund's
outstanding shares, except that the investment limitations set forth below may
not be changed without such a vote of shareholders. A description of certain
other fundamental investment limitations is contained in the Statement of
Additional Information.
PRIME FUND. The Prime Fund may not:
1. Purchase any securities which would cause 25% or more of the Fund's
total assets at the time of purchase to be invested in the securities
of one or more issuers conducting their principal business activities
in the same industry, provided that (a) there is no limitation with
respect to obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities or domestic bank certificates of deposit,
bankers' acceptances and repurchase agreements secured by instruments
of domestic
28
<PAGE> 31
branches of U.S. banks or obligations of the U.S. Government, its
agencies or instrumentalities; (b) wholly-owned finance companies will
be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the
parents; and (c) the industry classification of utilities will be
determined according to their service. For example, gas, gas
transmission, electric and gas, electric and telephone will each be
considered a separate industry.
PRIME FUND AND TREASURY FUND. Neither the Prime Fund nor the Treasury
Fund may:
1. Borrow money or issue senior securities, except that each Fund may
borrow from banks or enter into reverse repurchase agreements to meet
redemptions or for other temporary purposes in amounts up to 10% of
its total assets at the time of such borrowing; or mortgage, pledge or
hypothecate any assets except in connection with any such borrowing
and in amounts not in excess of the lesser of the dollar amount
borrowed or 10% of its total assets at the time of such borrowing; or
purchase securities at any time after such borrowings (including
reverse repurchase agreements) have been entered into and before they
are repaid.
2. Purchase securities without available market quotations which cannot be
sold without registration or the filing of a notification under federal
or state securities laws, enter into repurchase agreements providing
for settlement more than seven days after notice, or purchase any other
securities deemed illiquid by the Directors if, as a result, such
securities and repurchase agreements would exceed 10% of the Fund's
total assets.
The Prime Fund intends that, except as stated above under "Common Investment
Policies--Variable and Floating Rate Instruments," variable amount master demand
notes with maturities of nine months or less, as well as any investments in
securities that are not registered under the Securities Act of 1933 but that may
be purchased by institutional buyers under Rule 144A and for which a liquid
trading market exists as determined by the Board of Directors or the Investment
Adviser (pursuant to guidelines adopted by the Board) will not be subject to the
10% limitation on illiquid securities set forth in Investment Limitation No. 2
above.
GOVERNMENT FUND AND TREASURY ONLY FUND. Neither the Government Fund
nor the Treasury Only Fund may:
1. Invest more than 10% of the Fund's net assets in securities that are
not readily marketable (such as repurchase agreements maturing in more
than seven days). If changes in the markets of certain securities cause
a Fund to exceed such 10% limit, the Fund will take steps to bring the
aggregate amount of its illiquid securities back below 10% of its net
assets.
2. Borrow money, except that as a temporary measure for extraordinary or
emergency purposes each Fund may borrow from banks in an amount not to
exceed = of the value of its net assets, including the amount
borrowed; moreover, neither Fund may purchase any securities at any
time at which borrowings exceed 5% of the total assets of the Fund
(taken at market value) (it is intended that each Fund would borrow
money only from banks and only to accommodate requests for withdrawals
while effecting an orderly liquidation of securities).
Pursuant to certain regulatory requirements, with regard to Investment
Limitation No. 2, the Government and Treasury Only Funds intend not to borrow
money for any purpose in excess of 10% of the Fund's total assets (taken at
cost). This 10% limitation is not a fundamental investment limitation of the
Government or Treasury Only Funds.
29
<PAGE> 32
INVESTMENT DECISIONS. Investment decisions for each Fund are made independently
from those for other Portfolios of the Company, other investment companies and
common trust funds managed by the Investment Adviser and its affiliated
entities. Such other investment companies and common trust funds may also invest
in the same securities as a Fund. When a purchase or sale of the same security
is made at substantially the same time on behalf of a Fund and another
portfolio, investment company or common trust fund, available investments or
opportunities for sales will be allocated in a manner which the Investment
Adviser believes to be equitable. In some instances, this investment procedure
may adversely affect the price paid or received by a Fund or the size of the
position obtained or sold by a Fund. In addition, in allocating purchase and
sale orders for portfolio securities (involving the payment of brokerage
commissions or dealer concessions), the Investment Adviser may take into account
the sale of shares of a Fund by broker-dealers and other financial institutions
(including affiliates of the Investment Adviser and the Distributor), provided
the Investment Adviser believes that the quality of the transaction and the
amount of the commission are not less favorable than what they would be with any
other unaffiliated qualified firm.
MANAGEMENT OF THE FUNDS
BOARD OF DIRECTORS. The business of the Company is managed under the direction
of its Board of Directors. Information about the Directors and officers of the
Company is included in the Statement of Additional Information.
INVESTMENT ADVISER. Bank of America National Trust and Savings Association (the
"Investment Adviser") serves as investment adviser to each Fund. The Investment
Adviser, which has principal offices located at 555 California Street, San
Francisco, California 94104, is a national banking association formed in 1904
which provides commercial banking and trust business through an extensive system
of branches across the western United States. The Investment Adviser'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 countries.
The Investment Adviser is the successor by merger to Security Pacific National
Bank ("Security Pacific"), which previously served as investment adviser to the
Company since it commenced operations in 1984. The Investment Adviser and its
affiliates have over $__ billion under management, including over $__ billion in
mutual funds. Bank of America is a subsidiary of BankAmerica Corporation, a
registered bank holding company.
The Investment Adviser manages the investments of the Funds and is responsible
for all purchases and sales of the Funds' portfolio securities. For its
investment advisory services the Investment Adviser is entitled to receive a fee
accrued daily and payable monthly at the following annual rates: .10% of the
first $3 billion of each Fund's net assets, plus .09% of the next $2 billion of
each Fund's net assets, plus .08% of each Fund's net assets over $5 billion. For
the fiscal year ended February 28, 1997, the Prime Fund, Treasury Fund,
Government Fund and the Treasury Only Fund paid the Investment Adviser advisory
fees at the effective annual rates of .__%, .__%, .__% and .__% of such Funds'
respective average daily net assets, and the Investment Adviser waived advisory
fees at the effective annual rates of ___% of the Government Fund's average
daily net assets.
In addition, Bank of America may receive fees under the Company's Shareholder
Services Plan with respect to the Funds' Horizon Service Shares and may receive
fees pursuant to the Distribution and Services Plan with respect to the Prime
and Treasury Funds' S Shares. Bank of America and Service Organizations may
receive fees charged directly to their customers' accounts in connection with
investments in S Shares of the Prime and Treasury Funds, and Bank of America and
Shareholder Organizations may receive fees charged directly to their customers'
accounts in connection with investments in Horizon Service Shares of the Funds.
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ADMINISTRATOR. The BISYS Group, Inc. (the "Administrator"), through its
wholly-owned subsidiary BISYS Fund Services, L.P., serves as the Company's
administrator and assists generally in supervising the Funds' operations. Their
offices are located at 50 Clove Road, Little Falls, New Jersey 07424 and 3435
Stelzer Road, Columbus, Ohio 43219. Prior to November 1, 1996, Concord Holding
Corporation, an indirect, wholly-owned subsidiary of the current Administrator,
served as administrator.
Under its basic administrative services agreement for the Funds, the
Administrator has agreed to provide facilities, equipment and personnel to carry
out administrative services that are for the benefit of all series of shares in
the Funds, including coordination of reports to shareholders and the Securities
and Exchange Commission; calculation of the net asset value of the Funds' shares
and dividends and capital gains distributions to shareholders; payment of the
costs of maintaining the Funds' offices; preparation of tax returns; provision
of internal legal and accounting compliance services; maintenance (or oversight
of the maintenance by others approved by the Board of Directors) of the Funds'
books and records; and the provision of various services for shareholders who
have made a minimum initial investment of at least $500,000, including the
provision of a facility to receive purchase and redemption orders for the
accounts of such shareholders.
For its administrative services the Administrator is entitled to receive an
administration fee computed daily and payable monthly at the following annual
rates: .10% of the first $7 billion of each Fund's net assets, plus .09% of the
next $3 billion of each Fund's net assets, plus .08% of each Fund's net assets
over $10 billion. This amount may be reduced pursuant to certain undertakings by
the Administrator described below under "Fee Waivers." For the fiscal year ended
February 28, 1997, the Prime Fund, Treasury Fund, Government Fund and the
Treasury Only Fund paid the Administrator administration fees at the effective
annual rates of .___%, .___%, .___% and .___% of such Funds' respective average
daily net assets, and the Administrator waived administration and/or reimbursed
expenses at the effective annual rates of .___% of the Government Fund's average
daily net assets.
Pursuant to the authority granted in its agreement with the Company, the
Administrator has entered into an agreement with The Bank of New York under
which the bank performs certain of the services listed above--e.g. calculating
the net asset value of the Funds' shares and dividends to shareholders and
maintaining the Funds' books and records. The Funds bear all fees and expenses
charged by The Bank of New York for these services.
DISTRIBUTOR. Concord Financial Group, Inc. (the "Distributor") is the principal
underwriter and distributor of shares of the Funds. The Distributor is an
indirect, wholly-owned subsidiary of the Administrator organized to distribute
shares of mutual funds to institutional and retail investors. Its offices are
located at 3435 Stelzer Road, Columbus, Ohio 43219.
The Distributor makes a continuous offering of the Funds' shares and bears the
costs and expenses of printing and distributing to selected dealers and
prospective investors copies of any prospectuses, statements of additional
information and annual and interim reports of the Funds (after such items have
been prepared and set in type by the Funds) which are used in connection with
the offering of shares, and the costs and expenses of preparing, printing and
distributing any other literature used by the Distributor or furnished by it for
use by selected dealers in connection with the offering of the Funds' shares for
sale to the public.
CUSTODIAN AND TRANSFER AGENT. The Bank of New York, located at 90 Washington
Street, New York, New York 10286, serves as custodian for the Funds and Bank of
America National Trust and Savings Association serves as the Prime and Treasury
Funds' sub-custodian. BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus,
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OH 43219 (the "Transfer Agent") a wholly-owned subsidiary of the Administrator,
serves as the Funds' transfer agent and dividend disbursing agent. The Company
has also entered into a Cash Management and Related Services Agreement with The
Bank of New York pursuant to which The Bank of New York receives and disburses
funds in connection with the purchase and redemption of, and the payment of
dividends and other distributions with respect to the Funds' shares.
SHAREHOLDER SERVICES PLAN. The Company has adopted the Plan pursuant to which
Horizon Service Shares are sold to Shareholder Organizations that enter into
Shareholder Service Agreements with the Company pursuant to the Plan. Such
Shareholder Organizations may include the Investment Adviser, the Administrator
and their affiliates. The Shareholder Service Agreements require the Shareholder
Organizations to provide support services to their customers ("Customers") who
are beneficial owners of Horizon Service Shares in return for payment by the
respective Fund of up to .25% (on an annualized basis) of the average daily net
asset value of the Horizon Service Shares beneficially owned by Customers of the
Shareholder Organizations. Holders of a Fund's Horizon Service Shares will bear
all fees paid to Shareholder Organizations for their services with respect to
such shares. Such fees are not paid to Shareholder Organizations with respect to
Horizon Shares or the Funds' Pacific Horizon Shares. During the fiscal year
ended February 28, 1997, the Prime, Treasury, Government and Treasury Only Funds
made payments under the Plan at an effective annual rate of .__% of each Fund's
average daily net asset value.
The services provided by Shareholder Organizations may include the following:
aggregating and processing purchase and redemption requests from Customers for
Horizon Service Shares and placing net purchase and redemption orders with the
Distributor; providing Customers with a service that invests the assets of their
accounts in Horizon Service Shares pursuant to specific or preauthorized
instructions; processing dividend payments from a Fund on behalf of Customers;
providing information periodically to Customers regarding their position in
Horizon Service Shares; arranging for bank wires; responding to Customer
inquiries regarding services performed by the Shareholder Organizations;
providing sub-accounting with respect to Horizon Service Shares beneficially
owned by Customers or the information necessary for sub-accounting; forwarding
shareholder communications from a Fund to Customers; and other similar services
if requested by a Fund.
Each Fund will accrue payments made pursuant to the Plan daily. The Funds will
receive an undertaking from each Shareholder Organization waiving a portion of
any payment such Organization is entitled to receive pursuant to the Plan to the
extent necessary to assure that the payments made pursuant to the Plan which are
required to be accrued to the respective Fund's Horizon Service Shares on any
day do not exceed the income to be accrued to such shares on that day.
The Company understands that Shareholder Organizations may charge fees to their
Customers who are the beneficial owners of Horizon Service Shares in connection
with their Customer accounts. These fees would be in addition to any amounts
which may be received by a Shareholder Organization under a Shareholder Service
Agreement. Under the terms of the Shareholder Service Agreements, Shareholder
Organizations are required to disclose the compensation payable to them by the
Company and any other compensation payable by their Customers in connection with
the investment of their assets in the Funds. Customers of Shareholder
Organizations should read this Prospectus in light of the terms governing their
accounts with their Shareholder Organizations.
Conflict-of-interest restrictions may apply to an institution's receipt of
compensation paid by a Fund in connection with the investment of fiduciary funds
in Horizon Service Shares. Institutions, including banks regulated by the
Comptroller of the Currency, the Federal Reserve Board or the Federal Deposit
Insurance Corporation, and investment advisers and other money managers subject
to the jurisdiction of the Securities and Exchange Commission, the Department of
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Labor or state securities commissions, are urged to consult their legal advisers
before investing fiduciary funds in Horizon Service Shares.
BANKS MAY ACT AS SHAREHOLDER ORGANIZATIONS. The Glass-Steagall Act and other
applicable laws, among other things, prohibit banks from engaging in the
business of underwriting securities. If a bank were prohibited from acting as a
Shareholder Organization, its shareholder clients would be permitted by the
Company to remain shareholders of the Funds and alternative means for continuing
the servicing of such shareholders would be sought. In such event, changes in
the operation of the Funds might occur and a shareholder serviced by such bank
might no longer be able to avail itself of any 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.
The Company will obtain representation from Shareholder Organizations (as well
as from the Investment Adviser and the Administrator) that they are or will be
licensed as dealers as required by applicable law or will not engage in
activities which would require them to be so licensed.
DISTRIBUTION AND SERVICES PLAN. Under the Distribution and Services Plan, the
Prime and Treasury Funds pay the Distributor for distribution expenses primarily
intended to result in the sale of such Funds' S Shares and for shareholder
servicing expenses. Such distribution expenses include expenses incurred in
connection with advertising and marketing each Fund's Class S Shares; payments
to Service Organizations for assistance in connection with the distribution of S
Shares; and expenses incurred in connection with preparing, printing and
distributing prospectuses for the Funds (except those used for regulatory
purposes or for distribution to existing shareholders of the Funds) and in
implementing and operating the Distribution and Services Plan. Shareholder
servicing expenses include expenses incurred in connection with shareholder
services provided by the Distributor and payments to Service Organizations for
the provision of support services with respect to the beneficial owners of S
Shares, such as establishing and maintaining accounts and records relating to
their clients who invest in S Shares, assisting clients in processing exchange
and redemption requests, developing, maintaining and supporting systems
necessary to support cash management services, such as Sweep Accounts and/or in
changing dividend options and account descriptions and responding to client
inquiries concerning their investments.
Under the Distribution and Services Plan, payments by the Prime and Treasury
Funds for distribution expenses and shareholder servicing expenses may not
exceed the annual rate of up to 0.75% and 0.25%, respectively of the average
daily net assets of such Funds' S Shares. These amounts may be reduced pursuant
to undertakings by the Distributor. Payments for distribution expenses under the
Distribution and Services Plan are subject to Rule 12b-1 under the 1940 Act. As
stated below under "Description of Shares," fees pursuant to the Distribution
and Services Plan are borne by the S and X Shares of the Prime and Treasury
Funds and are not paid with respect to such Funds' other series of shares.
The Company will obtain a representation from the Service Organizations (and
from Bank of America and the Distributor) that they are or will be licensed as
dealers as required by applicable law or will not engage in activities which
would require them to be so licensed.
FEE WAIVERS. Except as noted in this Prospectus and the Statement of Additional
Information, the Funds' service contractors bear all expenses in connection with
the performance of their services and the Funds bear the expenses incurred in
their operations. From time to time during the course of the Funds' fiscal year,
the Administrator and/or the Investment Adviser may prospectively waive payment
of fees and/or assume certain expenses of a Fund as a result of competitive
pressures and in order to protect the business and reputation of the
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Administrator and Investment Adviser. This will have the effect of lowering the
overall expense ratio of the Fund involved and of increasing such Fund's yield
to investors at the time such fees are not received or amounts are assumed and
of increasing the overall expense ratio of such Fund and of decreasing yield to
investors when such fees are not waived or amounts are not reimbursed.
PURCHASE AND REDEMPTION OF SHARES
HOW S SHARES ARE PURCHASED. S Shares of the Prime and Treasury Funds are offered
by this Prospectus to customers of Bank of America or Service Organizations that
establish cash management services, such as a Sweep Account with Bank of America
or a Service Organization. Each Sweep Account combines a Transaction Account
with a periodic sweep of balances to or from the Prime and Treasury Funds.
Investors may open a Sweep Account by completing and signing the appropriate
Sweep Materials. The Sweep Materials contain important information about the
various features and operations of the Sweep Account and should be reviewed in
conjunction with this Prospectus.
S Shares may be purchased on any Business Day (as defined below) that Bank of
America and the particular Service Organization are open for business by making
a deposit into your Transaction Account. On each day that both the Prime and
Treasury Funds' custodian and the New York Stock Exchange (the "Exchange") are
open for business (a "Business Day") and Bank of America and a Service
Organization are open for business, Bank of America or a Service Organization
computes the net amount of all deposits, withdrawals, charges and credits made
to and from a Transaction Account in accordance with their Sweep Account
procedures (the "Net Sweep Amount"). If deposits and credits exceed withdrawals
and charges, you authorize Bank of America or a Service Organization, on your
behalf, to transmit a purchase order to the Fund designated in your Sweep
Account in the amount of that day's Net Sweep Amount in accordance with the
Sweep Account procedures of Bank of America or a Service Organization. Your
purchase order will be made effective and full and fractional S Shares will be
purchased at the net asset value per share next determined after receipt by the
Transfer Agent. It is the responsibility of Bank of America or a Service
Organization to transmit orders for the purchases of S Shares by its customers
to the Transfer Agent and deliver required funds on a timely basis, in
accordance with the procedures stated above. Share purchases and redemptions
executed through Bank of America or a Service Organization are executed only on
Business Days that Bank of America or a Service Organization, respectively, is
open for business. Contact Bank of America or your Service Organization for
additional information about Bank of America's or the Service Organization's
Sweep Account procedures.
HOW HORIZON AND HORIZON SERVICE SHARES ARE PURCHASED. Horizon and Horizon
Service Shares of the Funds are sold at the net asset value per share next
determined after receipt of a purchase order by the Transfer Agent. Purchase
orders placed directly with the Transfer Agent without the assistance of a
broker-dealer or other person are without charge. Broker-dealers (other than the
Distributor) and others who process purchase orders on behalf of customers may
charge a fee for their services.
Purchase orders for Horizon and Horizon Service Shares are accepted by the Funds
only on Business Days, and must be transmitted to the Transfer Agent by
telephone c/o the Distributor (800-426-3863) or terminal access. An investment
in Horizon Shares and Horizon Service Shares of a Fund automatically entitles
the investor to purchase Fund shares, subject to the minimum described below,
without charge by telephone unless they indicate otherwise in a written notice
to the Transfer Agent that they do not wish to use this telephone privilege.
Purchase orders for Horizon and Horizon Service Shares of the Prime Fund,
Treasury Fund and Government Fund received by the Transfer Agent before 2:30
p.m. Eastern time on a Business Day will be executed as of 2:30 p.m. Eastern
time on such Business Day if payment is received by 4:00 p.m. Eastern time on
that day.
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Purchase orders for the Treasury Only Fund that are received before 11:30 a.m.
Eastern time on a Business Day will be executed at such time on that day if
payment is received by 4:00 p.m. Eastern time on such Business Day. Orders
received after the times specified, and orders for which payment has not been
received by 4:00 p.m. Eastern time, will not be accepted. A Fund may in its
discretion reject any order for shares. Payment for orders which are not
received or paid for in a timely manner or are not accepted by a Fund will be
returned after prompt notification to the sending institution.
Payment for shares may be made only in Federal funds or other funds immediately
available to the Transfer Agent. The minimum initial investment for Horizon
Shares and Horizon Service Shares in any Fund is $500,000 (although
broker-dealers and other institutional investors may set a higher minimum for
their customers) and there is no minimum subsequent investment. The Funds
reserve the right to suspend the sale of shares to the public at any time, in
response to conditions in the securities markets or otherwise.
Federal regulations require that each investor provide a certified Taxpayer
Identification Number upon opening or reopening an account.
HOW S SHARES ARE REDEEMED. If, on any Business Day Bank of America or the
particular Service Organization, as applicable, is open for business,
withdrawals and charges to your Sweep Account, including without limitation
check transactions, exceed deposits and credits, Bank of America or the
particular Service Organization, as applicable, will transmit a redemption order
on your behalf to the Fund in the dollar amount of that day's Net Sweep Amount.
If your Sweep Account with Bank of America or the particular Service
Organization, as applicable, is closed as described in the Sweep Materials, Bank
of America or the particular Service Organization, as applicable, will normally
transmit a redemption request on your behalf to the Fund for the balance of the
S Shares of the Fund held through your Sweep Account. Redemptions are effected
by the Company on a Business Day at the net asset value per share next
determined after receipt of the redemption order by the Transfer Agent. It is
the responsibility of Bank of America or the particular Service Organization to
transmit the redemption order and credit its customer's Transaction Account with
the redemption proceeds on a timely basis. Bank of America or the Service
Organization may withhold redemption proceeds pending check collection or
processing or for other reasons all as set forth more fully in the Sweep
Materials.
HOW HORIZON AND HORIZON SERVICE SHARES ARE REDEEMED. Redemption orders for
Horizon Shares and Horizon Service Shares must be transmitted to the Transfer
Agent by telephone c/o the Distributor or terminal access in the manner
described above under "Purchase and Redemption of Shares--How Horizon and
Horizon Service Shares Are Purchased." While the Company no longer issues share
certificates, Horizon and Horizon Service Shares for which certificates
previously had been issued may not be redeemed unless the certificates have been
submitted to the Transfer Agent and endorsed for transfer. While each Fund seeks
to maintain its net asset value per share at $1.00 there can be no assurance
that it will be able to do so, and the proceeds paid upon redemption may be more
or less than the amount invested depending upon a share's net asset value at the
time of redemption.
Redemption orders submitted directly to the Transfer Agent without the
assistance of a broker-dealer or other person, and orders submitted by the
Distributor for its own brokerage customers, are processed without charge.
Broker-dealers (other than the Distributor) and others who process redemption
orders on behalf of their customers may charge a fee for their services.
Redemption orders are effected on a Business Day at the net asset value per
share next determined after receipt of the order by the Transfer Agent. Payment
for redeemed shares for which a redemption order is received by the Transfer
Agent
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prior to 2:30 p.m. Eastern time with respect to the Prime Fund, Treasury Fund or
Government Fund, or before 11:30 a.m. Eastern time with respect to the Treasury
Only Fund, on a Business Day is normally made in Federal funds wired to the
redeeming shareholder on the same Business Day. Payment for redeemed shares for
which a redemption order is received after the times stated above on a Business
Day is normally made in Federal funds wired to the redeeming shareholder on the
next Business Day following redemption. In order to allow Bank of America to
most effectively manage the Funds' portfolios, investors are urged to initiate
redemptions of shares as early in the day as possible and to notify the Transfer
Agent at least one day in advance of redemptions in excess of $5 million. Each
Fund reserves the right to wire redemption proceeds up to seven days after
receiving the redemption order if, in the judgment of the investment adviser, an
earlier payment could adversely affect the Fund. In making redemption requests
the names of the registered shareholders and their account numbers must be
supplied. An investment in Horizon Shares and Horizon Service Shares
automatically entitles the investor to redeem shares, without charge, by
telephone unless the investor indicates through a written notice to the Transfer
Agent that they do not wish to use this telephone privilege. Neither the Funds,
the Distributor nor the Transfer Agent will be responsible for any loss or
expense for acting upon any 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 identify of
the shareholder.
OTHER REDEMPTION INFORMATION--S SHARES AND HORIZON AND HORIZON SERVICE SHARES.
Redemption orders are effected on a Business Day at the net asset value per
share next determined after receipt of the order by the Transfer Agent. The
Funds will make payment for all shares redeemed after receipt by the Transfer
Agent of a request in proper form, except as provided by the rules of the
Securities and Exchange Commission. A Fund may suspend the right of redemption
or postpone the date of payment upon redemption (as well as suspend or postpone
the recordation of the transfer of its shares) for such periods as are permitted
under the Investment Company Act of 1940. During the period prior to the time
shares are redeemed dividends on such shares will accrue and be payable, and an
investor will be entitled to exercise all other rights of beneficial ownership.
Each Fund reserves the right to redeem Horizon and Horizon Service Shares in any
account at their net asset value if the value of the account is less than $500
as a result of redemptions. The shareholder having the account will first be
notified in writing that its account has a value of less than $500 and will be
allowed 60 days to make additional investments to bring the value of its account
to $500 before the redemption is processed by a Fund. In addition, a Fund may
redeem Horizon and Horizon Service Shares involuntarily under certain special
circumstances described in the Statement of Additional Information under
"Purchase and Redemption of Shares." The Funds impose no charge when S Shares,
Horizon Shares or Horizon Service Shares are redeemed.
NET ASSET VALUE. The net asset value per share of the S Shares of the Prime and
Treasury Funds and Horizon and Horizon Service Shares of each Fund is the value
of all securities and other assets owned by a Fund that are allocable to a
particular class, less the liabilities charged to such class, divided by the
number of outstanding shares of such class. The net asset value per share of the
Prime Fund, Treasury Fund and Government Fund is determined on each Business Day
as of 2:30 p.m. Eastern time and the close of regular trading hours on the
Exchange (or 4:00 p.m. Eastern time if the Exchange is closed). The net asset
value per share of the Treasury Only Fund is determined on such Business Days as
of 11:30 a.m. Eastern time. In computing net asset value, each Fund uses the
amortized cost method of valuation as described in the Statement of Additional
Information under "Purchase and Redemption of Shares." The net asset value per
share for each Fund for purposes of pricing purchase and redemption orders is
determined independently of that for other portfolios of the Company.
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ADDITIONAL SHAREHOLDER SERVICES
Certain optional services available to persons who invest directly in Pacific
Horizon Shares of a Fund, including but not limited to certain exchange
privileges which allow shareholders to exchange their Fund shares for shares of
other funds in the Company, an automatic investment program, automatic
withdrawal program, and direct deposit program, are not available to persons who
invest directly in Horizon or Horizon Service Shares of the Funds or in X Shares
or S Shares of the Prime and Treasury Funds.
DIVIDENDS AND DISTRIBUTIONS
The shareholders of a Fund are entitled to dividends and distributions arising
from the net investment income and net realized gains, if any, earned on
investments held by the Fund involved. Generally, each Fund's net income is
declared daily as a dividend. Shares begin accruing dividends on the day the
purchase order for the shares is executed and continue to accrue dividends
through and including the day before the redemption order for the shares is
executed. Dividends are paid within five business days after the end of each
month. Although the Funds do not expect to realize net long-term capital gains,
any such capital gains as may be realized will be distributed no more than twice
a year after reduction for any available capital loss carry-forward.
Dividends are paid in the form of additional full and fractional shares of the
same series as the shares on which the dividends are declared at the net asset
value of such shares on the payment date. However, holders of the Funds Horizon
and Horizon Service Shares may elect to receive dividends in cash. Reinvestment
dividends receive the same tax treatment as dividends paid in cash. Such
election or any revocation thereof must be made in writing to the Transfer Agent
at P.O. Box 80221, Los Angeles, California 90080-9909, and will become effective
with respect to dividends paid after its receipt by the dividend disbursing
agent.
TAXES
FEDERAL. During its most recent taxable year, each Fund qualified separately as
a "regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"), and each Fund intends to so qualify in future years, as
long as such qualification is in the best interest 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.
In connection with such tax qualification, each Fund contemplates declaring as
dividends at least 90% of its investment company taxable income for each taxable
year. An investor of any Fund who receives a dividend derived from investment
company taxable income (including any excess of net short-term capital gain over
net long-term capital loss) treats it as a receipt of ordinary income in the
computation of his gross income, whether such dividend is paid in the form of
cash or additional shares of a Fund. Because all of the net investment income of
the Funds is expected to be derived from earned interest, it is anticipated that
all dividends paid by the Funds will be taxable as ordinary income to
shareholders who are not exempt from federal income taxes and that no part of
any distribution paid by the Funds will be eligible for the dividends received
deduction for corporations.
Although the Funds anticipate that they will not have net long-term capital
gain, any distribution of a Fund's excess of net long-term capital gain over its
net short-term capital loss will be taxable to shareholders of that Fund as
long-term capital gain, regardless of how long the shareholder has held shares
of the Fund.
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Dividends declared in October, November or December of any calendar year payable
to shareholders of record on a specified date in December will be deemed for
federal tax purposes to have been paid by the Funds and received by the
shareholders on December 31 of such year, if such dividends are paid during
January of the following year.
The foregoing is only a brief summary of some of the important federal income
tax considerations generally affecting the Funds and their shareholders, and is
based on federal tax laws and regulations which are in effect as of the date of
this Prospectus. Such laws and regulations may be changed by legislative or
administrative actions. Additional tax information of relevance to particular
investors is contained in the Statement of Additional Information. Potential
investors in the Funds should consult their tax advisers with specific reference
to their own tax situation. Shareholders will be advised at least annually as to
the federal income tax consequences of dividends and distributions made each
year.
STATE AND LOCAL. Investors are advised to consult their tax advisers concerning
the application of state and local taxes, which may have different consequences
from those of the federal income tax law described above.
DESCRIPTION OF SHARES
The Company was organized on October 27, 1982 as a Maryland corporation, and is
registered under the Investment Company Act of 1940 as an open-end management
company. On March 30, 1984 the Company commenced its public sale of shares
(Pacific Horizon Shares) in each of the Prime Fund and Treasury Fund, which were
originally called "Money Market Portfolio" and "Government Money Market
Portfolio," respectively. The Predecessor Prime Fund and Predecessor Treasury
Fund originally commenced operations on July 10, 1987 as separate portfolios of
The Horizon Funds, a Massachusetts business trust. On January 19, 1990, the
Predecessor Prime Fund and the Predecessor Treasury Fund were combined with the
Money Market Portfolio and Government Money Market Portfolio, respectively, of
the Company; the Company changed the names of its resulting portfolios to "Prime
Fund" and "Treasury Fund"; and, in addition to continuing its offering of
Pacific Horizon Shares in such Funds, the Company began offering Horizon Shares
and Horizon Service Shares in the Prime and Treasury Funds. The Predecessor
Government Funds and Predecessor Treasury Only Funds commenced operations on
June 4, 1990 as investment portfolios of First Cash Funds of America and First
Funds of America. On March 1, 1993, the Predecessor Government Funds and
Predecessor Treasury Only Funds were reorganized as new portfolios of the
Company, offering Pacific Horizon Shares and Horizon Service Shares; the
Government Fund and Treasury Only Fund began offering Horizon Shares on June 14,
1993 and September 20, 1995, respectively. On July 22, 1996, the Company began
offering X Shares in the Prime and Treasury Funds and on April 7, 1997, the
Company began offering S Shares in the Prime Fund. The Company has also
classified an S share class of the Treasury Fund. X Shares are offered to retail
customers who purchase such shares through a sweep account offered by BA
Investment Services, Inc. and certain Service Organizations. Pacific Horizon
Shares may be purchased directly from the Distributor by clients of Bank of
America through their qualified trust and agency accounts or by clients of
Service Organizations.
The Company's charter authorizes the Board of Directors to issue up to two
hundred billion full and fractional shares of capital stock, and to classify and
reclassify any authorized and unissued shares into one or more classes of
shares. The Board of Directors may similarly classify or reclassify any class of
shares into one or more series.
Pursuant to such authority, the Board of Directors has authorized the issuance
of the following series of shares representing interests in the Funds, each of
which is classified as a diversified company under the Investment Company Act of
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1940: ten billion X Shares, ten billion S Shares, eighteen billion Horizon
Shares, ten billion Horizon Service Shares and ten billion Pacific Horizon
Shares representing interests in the Prime Fund; four billion, four hundred
million X Shares, ten billion S Shares, ten billion Horizon Shares, ten billion
Horizon Service Shares and ten billion Pacific Horizon Shares representing
interests in the Treasury Fund; seven billion Horizon Shares, fifteen billion
Horizon Service Shares and fifteen billion Pacific Horizon Shares representing
interests in the Government Fund, and seven billion Horizon Shares, fifteen
billion Horizon Service Shares and fifteen billion Pacific Horizon Shares
representing interests in the Treasury Only Fund. Pacific Horizon Shares of the
Funds and X Shares of the Prime and Treasury Funds are described in a separate
Prospectus available from the Distributor at the telephone number on the cover
of this Prospectus. The Board of Directors has also authorized the issuance of
additional classes of shares representing interests in other investment
portfolios of the Company, which are likewise described in separate Prospectuses
available from the Distributor. This Prospectus relates primarily to the Horizon
Shares and Horizon Service Shares of the Funds and S Shares of the Prime and
Treasury Funds and describes only the investment objectives and policies,
operations, contracts and other matters relating to such shares.
Each Horizon Share, Horizon Service Share, Pacific Horizon Share, S Share and X
Share in a Fund has a par value of $.001, and, except as noted below, is
entitled to participate equally in the dividends and distributions declared by
the Board of Directors with respect to such Fund and in the net distributable
assets of such Fund on liquidation. Holders of S Shares bear the fees described
in this Prospectus that are paid to the Distributor and Service Organizations by
the Funds under the Company's Distribution and Services Plan. Similarly, holders
of the Fund's X Shares bear the fees described in the prospectus relating to
such shares that are paid to the Distributor and Service Organization by such
Fund or by the same Plan. The fees paid under the Distribution and Services Plan
are for distribution and shareholder services and are paid to the Distributor
and Shareholder Service Organizations in connection with X and S Shares of the
Funds, and are not paid by the Funds' Horizon, Horizon Service or Pacific
Horizon Shares. Holders of a Fund's Horizon Service Shares bear the fees
described in this Prospectus that are paid to Shareholder Organizations by the
Fund under the Company's Shareholder Services Plan. Similarly, holders of the
Fund's X Shares bear the fees described in the Prospectuses for such shares that
are paid to Shareholder Organizations by the Fund under the Company's Special
Management Services Plan for Pacific Horizon Shares. Holders of Horizon Shares
are not subject to fees such as those paid under the Shareholder Services Plan
or the Special Management Services Plan. Holders of the Prime and Treasury
Funds' X Shares bear the fees as described in the Prospectus for such shares
that are paid to the Distributor and service organizations by the Fund under the
Company's Distribution and Services Plan.
As a result of the different fees borne by the various series of shares in a
Fund, at any given time, absent waivers of any class-specific fees or expenses,
the net yield on a) the Prime and Treasury Funds' S Shares generally will be
approximately 0.68% lower than the yield on the same Fund's Pacific Horizon
Shares, 0.75% lower than the yield on the same Fund's Horizon Service Shares,
1.00% lower than the yield on the same Fund's Horizon Shares and 0.45% lower
than the yield on the same Fund's X Shares; b) a Fund's Horizon Shares generally
will be approximately .25% higher than the yield on the same Fund's Horizon
Service Shares, .32% higher than the yield on the same Fund's Pacific Horizon
Shares, and 1.00% and .55% higher than the yield on the same Fund's X Shares and
S Shares, respectively, with respect to the Prime and Treasury Funds; and c) a
Fund's Horizon Service Shares generally will be approximately .25% lower than
the yield on the same Fund's Horizon Shares, .07% higher than the yield on the
same Fund's Pacific Horizon Shares, and .30% and .75% higher than the yield on
the same Fund's S and X Shares, respectively, with respect to the Prime and
Treasury Funds. Standardized yield quotations will be computed separately for
each series of shares.
39
<PAGE> 42
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 law or when class voting is
permitted by the Board of Directors. It is contemplated that all shareholders of
a Fund will vote together as a single class on matters relating to the Fund's
investment advisory agreement and on any change in its fundamental investment
limitations. Only holders of Horizon Service Shares will be entitled to vote on
matters submitted to a vote of shareholders pertaining to the Funds' Shareholder
Services Plan. Only holders of particular S and X Shares, if affected by changes
to such Plan, will be entitled to vote on matters submitted to a vote of
shareholders pertaining to a Fund's Distribution and Services Plan relating to
the particular series. Only holders of Pacific Horizon Shares will be entitled
to vote on matters submitted to a vote of shareholders pertaining to the Funds'
Special Management Services Plan. Shares have no preemptive rights and only such
conversion and exchange rights as the Board may grant at its discretion. When
issued for payment as described in this Prospectus, shares will be fully paid
and non-assessable. Certificates for shares will not be issued.
The Company does not presently intend to hold annual meetings of shareholders
for the election of directors and other business unless and until such time as
less than a majority of the directors holding office have been elected by the
shareholders of the Company, at which 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 meeting of
shareholders to consider the removal of one or more directors and such meetings
will be called when requested by the holders of record of 10% or more of the
Company's outstanding shares of common stock. To the extent required by law and
the Company's undertaking with the Securities and Exchange Commission, the
Company will assist in shareholder communications in such matters. Shares have
cumulative voting rights to the extent that may be required by applicable law.
40
<PAGE> 43
PACIFIC HORIZON MUTUAL FUNDS
S Shares of the
Prime Fund
Treasury Fund
Horizon Shares
and
Horizon Service Shares
of the
Prime Fund
Treasury Fund
Government Fund
Treasury Only Fund
PROSPECTUS
_________ __, 1997
NOT FDIC INSURED
41
<PAGE> 44
PACIFIC HORIZON FUNDS, INC.
Pacific Horizon Shares of the
Prime Fund, Treasury Fund, Government Fund and Treasury Only Fund
and
X Shares of the
Prime Fund and Treasury Fund
------------
<TABLE>
<CAPTION>
Form N-1A Item Prospectus Caption
- -------------- ------------------
Part A
- ------
<S> <C> <C>
1. Cover Page................................................. Cover Page
2. Synopsis................................................... Expense Summary
3. Condensed Financial Information............................ Financial Highlights;
Performance Calculations
4. General Description of Registrant.......................... Description of Shares; Cover
Page; Investment Objectives
and Policies; Investment
Limitations; Other Investment
Practices; Special
Considerations and Risks
5. Management of the Fund..................................... Management of the Funds
5.A. Management's Discussion of
Fund Performance......................................... *
6. Capital Stock and Other
Securities............................................... Description of Shares;
Dividends; Distributions and
Taxes
7. Purchase of Securities Being
Offered.................................................. Purchase of Shares; Redemption
of Shares; Management of the
Funds; Shareholder Services;
Performance Calculations
8. Redemption or Repurchase................................... Redemption of Shares;
Shareholder Services
9. Pending Legal Proceedings.................................. *
<FN>
- ----------
* Item inapplicable or answer negative.
</TABLE>
<PAGE> 45
PROSPECTUS
_________ __, 1997
X Shares of the
PRIME FUND
TREASURY FUND
Pacific Horizon Shares of the
PRIME FUND
TREASURY FUND
GOVERNMENT FUND
TREASURY ONLY FUND
Investment Portfolios Offered by Pacific Horizon Funds, Inc.
THIS PROSPECTUS APPLIES TO THE X SHARES OF THE PRIME FUND AND TREASURY FUND AND
THE PACIFIC HORIZON SHARES OF THE PRIME FUND, TREASURY FUND, GOVERNMENT FUND AND
TREASURY ONLY FUND (THE "FUNDS"), FOUR NO-LOAD, DIVERSIFIED INVESTMENT
PORTFOLIOS OFFERED BY PACIFIC HORIZON FUNDS, INC. (THE "COMPANY"). THE COMPANY
IS REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940 AS AN OPEN-END MANAGEMENT
INVESTMENT COMPANY. THE FUNDS ARE DESIGNED TO PROVIDE INVESTORS WITH DAILY
LIQUIDITY.
THE INVESTMENT OBJECTIVES OF THE PRIME FUND AND TREASURY FUND ARE TO SEEK HIGH
CURRENT INCOME AND STABILITY OF PRINCIPAL. THE PRIME FUND SEEKS TO ACHIEVE ITS
INVESTMENT OBJECTIVE BY INVESTING SUBSTANTIALLY ALL OF ITS ASSETS IN A
DIVERSIFIED PORTFOLIO OF U.S. DOLLAR-DENOMINATED "MONEY MARKET" INSTRUMENTS SUCH
AS BANK CERTIFICATES OF DEPOSIT AND BANKERS' ACCEPTANCES, COMMERCIAL PAPER AND
REPURCHASE AGREEMENTS, IN ADDITION TO OBLIGATIONS ISSUED OR GUARANTEED BY THE
U.S. GOVERNMENT, ITS AGENCIES OR INSTRUMENTALITIES. THE TREASURY FUND SEEKS TO
ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING SOLELY IN DIRECT OBLIGATIONS
ISSUED BY THE U.S. TREASURY AND REPURCHASE AGREEMENTS RELATING TO SUCH TREASURY
OBLIGATIONS. THE INVESTMENT OBJECTIVES OF THE GOVERNMENT FUND AND THE TREASURY
ONLY FUND ARE TO PROVIDE LIQUIDITY AND AS HIGH A LEVEL OF CURRENT INCOME AS IS
CONSISTENT WITH THE PRESERVATION OF CAPITAL. THE GOVERNMENT FUND SEEKS TO
ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING IN SHORT-TERM DEBT OBLIGATIONS
ISSUED OR GUARANTEED AS TO INTEREST AND PRINCIPAL BY THE U.S. GOVERNMENT, ITS
AGENCIES, AUTHORITIES OR INSTRUMENTALITIES AND IN REPURCHASE AGREEMENTS WITH
RESPECT TO SUCH OBLIGATIONS. THE TREASURY ONLY FUND SEEKS TO ACHIEVE ITS
INVESTMENT OBJECTIVE BY INVESTING SOLELY IN OBLIGATIONS OF THE U.S. TREASURY.
THIS PROSPECTUS BRIEFLY SETS FORTH CERTAIN INFORMATION ABOUT THE FUNDS DESCRIBED
HEREIN THAT YOU SHOULD KNOW BEFORE INVESTING. IT SHOULD BE READ AND RETAINED FOR
FUTURE REFERENCE. ADDITIONAL INFORMATION ABOUT THE FUNDS, CONTAINED IN A
STATEMENT OF ADDITIONAL INFORMATION DATED _______ __, 1997 HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION AND IS AVAILABLE TO INVESTORS UPON
REQUEST AND WITHOUT CHARGE BY CALLING THE FUNDS' DISTRIBUTOR AT (800) 332-3863.
THE STATEMENT OF ADDITIONAL INFORMATION, AS IT MAY FROM TIME TO TIME BE REVISED,
IS INCORPORATED IN ITS ENTIRETY BY REFERENCE INTO THIS PROSPECTUS AND DISCUSSES
CERTAIN SUBJECTS IN THIS PROSPECTUS FURTHER AS WELL AS OTHER MATTERS WHICH MAY
BE OF INTEREST TO INVESTORS.
(Continued next page)
Shares of the Funds are not bank deposits or obligations of, or guaranteed or
endorsed by, Bank of America National Trust and Savings Association or any of
its affiliates and are not federally insured by, guaranteed by, obligations of
or otherwise supported by the U.S. Government, the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other governmental agency. Each
Fund seeks to maintain its net asset value per share at $1.00 for purposes of
purchases and redemptions, although there can be no assurance that it will be
able to do so on a continuous basis. Investment in the Funds involves investment
risk, including the possible loss of principal amount invested.
1
<PAGE> 46
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.
No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus, in the Statement
of Additional Information and the 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 its 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.
CURRENTLY, X SHARES ARE AVAILABLE ONLY TO QUALIFIED RETAIL CUSTOMERS WHO
PURCHASE SUCH SHARES THROUGH A SWEEP ACCOUNT ("SWEEP ACCOUNT") OFFERED BY BA
INVESTMENT SERVICES, INC. ("BAIS") AND CERTAIN OTHER FINANCIAL SERVICE
ORGANIZATIONS, SUCH AS BANKS OR BROKER-DEALERS ("SERVICE ORGANIZATIONS"). A
SWEEP ACCOUNT COMBINES A BROKERAGE ACCOUNT (THE "TRANSACTION ACCOUNT") WITH A
DAILY SWEEP OF BALANCES TO OR FROM THE PRIME AND TREASURY FUNDS' X SHARES. BAIS
OR SERVICE ORGANIZATIONS, AS APPLICABLE, ARE RESPONSIBLE FOR PROVIDING PERSONS
INVESTING IN X SHARES THROUGH A SWEEP ACCOUNT WITH SWEEP ACCOUNT MATERIALS (THE
"SWEEP MATERIALS") DESCRIBING THE VARIOUS FEATURES AND OPERATIONS OF THE SWEEP
ACCOUNT. THE SWEEP MATERIALS SHOULD BE REVIEWED IN CONJUNCTION WITH THIS
PROSPECTUS.
PACIFIC HORIZON SHARES MAY BE PURCHASED DIRECTLY FROM CONCORD FINANCIAL GROUP,
INC., BY CLIENTS OF BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
THROUGH THEIR QUALIFIED TRUST AND AGENCY ACCOUNTS OR BY CLIENTS OF SERVICE
ORGANIZATIONS.
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION ("BANK OF AMERICA"), SAN
FRANCISCO, CALIFORNIA, ACTS AS INVESTMENT ADVISER TO THE FUNDS. CONCORD
FINANCIAL GROUP, INC. (THE "DISTRIBUTOR") SPONSORS THE FUNDS AND ACTS AS THEIR
DISTRIBUTOR AND THE BISYS GROUP, INC. ACTS AS THEIR ADMINISTRATOR, NEITHER OF
WHICH IS AFFILIATED WITH BANK OF AMERICA.
PORTFOLIO SECURITIES HELD BY EACH FUND HAVE REMAINING MATURITIES OF THIRTEEN
MONTHS OR LESS FROM THE DATE OF PURCHASE BY THE FUND. PORTFOLIO SECURITIES WHICH
HAVE CERTAIN PUT OR DEMAND FEATURES EXERCISABLE BY A FUND WITHIN THIRTEEN MONTHS
(AS WELL AS CERTAIN U.S. GOVERNMENT OBLIGATIONS WITH FLOATING OR VARIABLE
INTEREST RATES) AND SECURITIES HELD AS COLLATERAL FOR REPURCHASE AGREEMENTS MAY
HAVE LONGER MATURITIES.
2
<PAGE> 47
<TABLE>
CONTENTS
<CAPTION>
PAGE
<S> <C>
EXPENSE SUMMARY 4
FINANCIAL HIGHLIGHTS 7
INVESTMENT OBJECTIVES AND POLICIES 15
COMMON INVESTMENT POLICIES 17
MANAGEMENT OF THE FUNDS 21
PURCHASES OF SHARES 24
REDEMPTION OF SHARES 27
SHAREHOLDER SERVICES 29
DIVIDENDS, DISTRIBUTIONS AND TAXES 32
DESCRIPTION OF SHARES 33
PERFORMANCE CALCULATIONS 35
DISTRIBUTOR: INVESTMENT ADVISER:
Concord Financial Group, Inc. Bank of America National Trust and Savings
3435 Stelzer Road Association
Columbus, OH 43219 555 California Street
San Francisco, CA 94104
</TABLE>
3
<PAGE> 48
EXPENSE SUMMARY
The following table sets forth certain information regarding the shareholder
transaction expenses imposed by the X Shares of the Prime and Treasury Funds and
Pacific Horizon Shares of the Prime, Treasury, Government and Treasury Only
Funds and the annual operating expenses 1) incurred by X Shares of the Prime and
Treasury Funds during the last fiscal year, and 2) incurred by the Pacific
Horizon Shares of the Prime, Treasury, Government and Treasury Only Funds during
the last fiscal year. Actual expenses may vary. Hypothetical examples based on
the table are also shown.
<TABLE>
<CAPTION>
TREASURY
PRIME TREASURY GOVERNMENT ONLY
FUND FUND FUND FUND
----- ---- ---- ----
PACIFIC PACIFIC PACIFIC PACIFIC
X HORIZON X HORIZON HORIZON HORIZON
SHARES(1) SHARES SHARES(1) SHARES SHARES SHARES
--------- ------ --------- ------- ------- -------
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C> <C> <C> <C> <C>
Sales Load Imposed on Purchases None None None None None None
Sales Load Imposed on
Reinvested Dividends None None None None None None
Sales Load Imposed on
Redemptions(2) None None None None None None
Deferred Sales Load(3) None None None None None None
Redemption Fees None None None None None None
Exchange Fees None None None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees(4) (After Fee
Waivers) .__% .__% .__% .__% .__%(6) .__%
Rule 12b-1 Fees .__%(5) .__% .__%(5) .__% .__% .__%
Special Management or
Shareholder Services Fees .__% .__% .__% .__% .__% .__%
All Other Expenses .__% .__% .__% .__% .__% .__%
=== === === === === ===
Total Operating Expenses
(After Fee Waivers) .__% .__% .__% .__% .__%(6) .__%
=== === === === === ===
</TABLE>
(1) Additional fees charged by BAIS or Service Organizations related to the
Sweep Account are not included in this table. For additional information
with respect to Sweep Account fees and charges, including a description of
the services available to Sweep Account holders, you should refer to the
Sweep Materials.
(2) The Company reserves the right to impose a charge for wiring redemption
proceeds.
(3) No contingent deferred sales load is charged, except that Pacific Horizon
Shares of the Prime Fund acquired through an exchange of shares ("B
Shares") of the Time Horizon Funds (an open-end investment company managed
by Bank of America) offered with a contingent deferred sales charge
("CDSC") will be subject to a CDSC of up to a maximum of 5% upon redemption
in accordance with the prospectus for the particular B Shares. See
"Shareholder Services--Exchanges."
(4) Without fee waivers and expense reimbursements, the Funds incur an
investment advisory fee and an administration fee, each payable at a
maximum annual rate of .10% of each Fund's average daily net asset value.
(5) Because of the Distribution Plan Payments paid by X Shares of the Prime and
Treasury Funds as shown in the above table, long-term Class X shareholders
may
4
<PAGE> 49
pay more than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities, Dealers, Inc.
(6) Absent fee waivers, Management Fees and Total Operating Expenses would have
been .__%, and .__%, respectively, with respect to Pacific Horizon Shares
of the Government Fund.
5
<PAGE> 50
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses
on a $1,000 investment, assuming (1)
a 5% annual return and (2) redemption
at the end of each time period:
PRIME FUND
X Shares $_ $__ $__ $__
Pacific Horizon Shares* $_ $__ $__ $__
TREASURY FUND
X Shares $_ $__ $__ $__
Pacific Horizon Shares $_ $__ $__ $__
GOVERNMENT FUND
Pacific Horizon Shares $_ $__ $__ $__
TREASURY ONLY FUND
Pacific Horizon Shares $_ $__ $__ $__
</TABLE>
* Example does not include deduction at redemption of a CDSC for Pacific
Horizon Shares of the Prime Fund acquired through exchange of B Shares
of the Time Horizon Funds.
The foregoing Expense Summary and Example are intended to assist investors in X
Shares of the Prime and Treasury Funds and Pacific Horizon Shares of the Prime,
Treasury, Government and Treasury Only Funds in understanding the various
shareholder transaction and operating expenses of each class that investors bear
either directly or indirectly. Investors bear operating expenses indirectly
since they reduce the amount of income paid by the Funds to investors as
dividends. From time to time, the investment adviser and administrator may
prospectively waive a portion of their respective fees and/or assume certain
expenses of the Funds. See "Management of the Funds" and "Description of Shares"
for more complete descriptions of the various expenses referred to above.
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RETURN AND OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND
OPERATING EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
6
<PAGE> 51
FINANCIAL HIGHLIGHTS
On March 30, 1984, the Company commenced its public sale of shares (Pacific
Horizon Shares) in each of the Prime Fund and Treasury Fund, which were
originally called "Money Market Portfolio" and "Government Money Market
Portfolio," respectively. On January 19, 1990, the Prime Fund and Treasury Fund
of The Horizon Funds (the "Predecessor Prime Fund" and the "Predecessor Treasury
Fund") were combined with the Money Market Portfolio and Government Money Market
Portfolio of the Company; the Company changed the names of its resulting
portfolios to "Prime Fund" and "Treasury Fund"; and the Company began offering
Horizon Shares and Horizon Service Shares in the Prime and Treasury Funds. On
July 22, 1996, the Company began offering X Shares in the Prime and Treasury
Fund. On April 17, 1997, the Company began offering S Shares in the Prime Fund.
The Company has also classified an S Share class of the Treasury Fund. Horizon
Shares, Horizon Service Shares and S Shares of the Prime and Treasury Funds are
offered through another prospectus. The shares of each class in a Fund represent
equal pro rata interests in such Fund, except that they bear different expenses
which reflect the difference in the range of services provided to them. X Shares
bear the expense of a distribution and services plan (the "Distribution and
Services Plan") at an annual rate not to exceed 0.55% of the average daily net
asset value of the Prime and Treasury Funds' outstanding X Shares. Pacific
Horizon Shares bear the expense of a special management services plan at an
annual rate not to exceed 0.32% of the average daily net asset value of the
Prime and Treasury Funds' outstanding Pacific Horizon Shares. See "Description
of Shares" below for certain differences among the Pacific Horizon Shares,
Horizon Shares, Horizon Service Shares, S Shares and X Shares, including
differences related to expenses.
The tables below set forth certain information concerning the investment results
of Pacific Horizon Shares of the Prime Fund and Treasury Fund for the periods
indicated. The information contained in the Financial Highlights insofar as it
pertains to each of the six fiscal years in the six year period ended February
28, 1997 has been audited by [ ], independent accountants
for these two Funds, whose unqualified report on the financial statements
containing such information is incorporated by reference into the Statement of
Additional Information, which may be obtained upon request. The information
contained in the Financial Highlights for each of the three years in the period
ended February 28, 1989 was audited by other independent accountants whose
report thereon dated April 20, 1989 expressed an unqualified opinion on the
statements containing such information. The Financial Highlights should be read
in conjunction with the financial statements and notes thereto and the
unqualified report of independent accountants which are incorporated by
reference into the Statement of Additional Information.
7
<PAGE> 52
Selected Data for a Pacific Horizon Share Outstanding throughout Each of the
Periods Indicated:
<TABLE>
<CAPTION>
PRIME FUND+
----------------------------------------------------------------
YEAR ENDED
----------------------------------------------------------------
FEB. 28, FEB. 29, FEB. 28, FEB. 28, FEB. 28, FEB. 29,
1997 1996 1995 1994 1993 1992
-------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from Investment Operations:
Net investment income........................ 0.0539 0.0424 0.0287 0.0340 0.0558
Net realized gain (loss) on securities....... 0.0004 (0.0227) (0.0016) 0.0000 0.0005
------ ------- ------- ------ ------
Total income from investment operations...... 0.0543 0.0197 0.0271 0.0340 0.0563
Less Distributions:
Dividends from net investment income......... (0.0539) (0.0422) (0.0287) (0.0341) (0.0557)
Increase due to voluntary capital
contribution from investment adviser....... 0.0000 0.0233 0.0000 0.0000 0.0000
Net change in net asset value per share...... 0.0004 0.0008 (0.0016) (0.0001) 0.0006
------ ------ -------- -------- ------
Net asset value per share, end of year....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return................................. 5.53% 4.30%** 2.91% 3.45% 5.72%
Ratios/Supplemental Data:
Net assets, end of year (millions)........... $ 2,200 $ 1,129 $ 1,216 $ 992 $ 1,413
Ratio of expenses to average net assets...... 0.55%* 0.51%* 0.52%* 0.55% 0.56%
Ratio of net investment income to
average net assets......................... 5.37%* 4.19%* 2.86%* 3.42% 5.51%
PRIME FUND+
---------------------------------------------
YEAR ENDED
---------------------------------------------
<CAPTION>
FEB. 28, FEB. 28, FEB. 28, FEB. 29,
1991 1990 1989 1988
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net asset value, beginning of year........... $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from Investment Operations:
Net investment income........................ 0.0762 0.0855 0.0738 0.0643
Net realized gain (loss) on securities....... (0.0001) 0.0001 (0.0002) 0.0003
------- ------ -------
Total income from investment operations...... 0.0761 0.0856 0.0736 0.0646
Less Distributions:
Dividends from net investment income......... (0.0762) (0.0855) (0.0738) (0.0643)
Increase due to voluntary capital
contribution from investment adviser....... 0.0000 0.0000 0.0000 0.0000
Net change in net asset value per share...... (0.0001) 0.0001 (0.0002) 0.0003
------- ------ -------
Net asset value per share, end of year....... $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return................................. 7.89% 8.90% 7.63%++ 6.62%++
Ratios/Supplemental Data:
Net assets, end of year (millions)........... $ 1,086 $ 890 $ 921 $ 957
Ratio of expenses to average net assets...... 0.56% 0.63% 0.63% 0.58%
Ratio of net investment income to
average net assets......................... 7.61% 8.52% 7.38% 6.42%
<FN>
* Includes fee waivers and expense reimbursements which had the effect of
reducing the ratio of expenses to average net assets and increasing the
ratio of net investment income to average net assets by 0.01%, 0.05%
and 0.01% for the years ended February 29, 1996, February 28, 1995 and
February 28, 1994, respectively.
** Total return includes the effect of a voluntary capital contribution
from the investment adviser. Without this capital contribution, the
total return would have been lower.
+ Security Pacific National Bank served as investment adviser through
April 21, 1992. Bank of America National Trust and Savings Association
served as investment adviser commencing April 22, 1992.
++ Unaudited.
</TABLE>
8
<PAGE> 53
Selected Data for an X Share Outstanding throughout the Period Indicated:
<TABLE>
<CAPTION>
PRIME FUND
-----------
PERIOD FROM
-----------
JULY 22, 1996
TO
FEBRUARY 28,
1997(a)
------------
<S> <C>
X SHARES
Net asset value per share,
beginning of period....................................
Income from Investment Operations:
Net investment income..................................
Net realized and unrealized gains/
(losses) on investment transactions................
Total income from investment operations....................
Less dividends to shareholders from
net investment income..................................
Net change in asset value per share........................
Net asset value per share, end of period
Total return...............................................
Ratios/Supplemental Data:
Net assets at end of year (millions)...................
Ratio of expenses to average net assets................ #
Ratio of net investment income
to average net assets.............................. #
<FN>
- ----------
(a) Period from inception date of share class to February 28, 1997.
# Annualized.
</TABLE>
9
<PAGE> 54
Selected Data for a Pacific Horizon Share Outstanding throughout each of the
Periods Indicated:
<TABLE>
<CAPTION>
TREASURY FUND+
----------------------------------------------------------------------
YEAR ENDED
----------------------------------------------------------------------
FEB. 28, FEB. 29, FEB. 28, FEB. 28, FEB. 28, FEB. 29,
1997 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income.................................... 0.0527 0.0405 0.0262 0.0309 0.0512
Net realized gain (loss) on securities................... 0.0011 0.0001 (0.0002) 0.0000 0.0002
------- ------- ------- ------- -------
Total income from investment operations.................. 0.0538 0.0406 0.0260 0.0309 0.0514
------- ------- ------- ------- -------
Less Dividends and Distributions:
Dividends from net investment income..................... (0.0527) (0.0405) (0.0262) (0.0311) (0.0513)
------- ------- ------- ------- -------
Net change in net asset value per share.................. 0.0011 0.0001 (0.0002) (0.0002) 0.0001
------- ------- ------- ------- -------
Net asset value per share, end of year................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
Total return............................................. 5.40% 4.13% 2.65% 3.15% 5.25%
Ratios/Supplemental Data:
Net assets, end of year (millions)....................... $ 1,091 $ 1,132 $ 1,577 $ 1,746 $ 2,300
Ratio of expenses to average net assets.................. 0.57%* 0.55% 0.55% 0.56% 0.56%
Ratio of net investment income to average
net assets............................................. 5.24%* 3.99% 2.62% 3.11% 5.07%
<CAPTION>
TREASURY FUND+
---------------------------------------------
YEAR ENDED
---------------------------------------------
FEB. 28, FEB. 28, FEB. 28, FEB. 29,
1991 1990 1989 1988
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net asset value, beginning of year....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- -------
Income from Investment Operations:
Net investment income.................................... 0.0731 0.0833 0.0712 0.0587
Net realized gain (loss) on securities................... 0.0006 0.0004 (0.0005) (0.0003)
------- ------- ------- -------
Total income from investment operations.................. 0.0737 0.0837 0.0707 0.0584
------- ------- ------- -------
Less Dividends and Distributions:
Dividends from net investment income..................... (0.0733) (0.0830) (0.0709) (0.0587)
------- ------- ------- -------
Net change in net asset value per share.................. 0.0004 0.0007 (0.0002) 0.0003
------- ------- ------- -------
Net asset value per share, end of year................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= =======
Total return............................................. 7.58% 8.62% 7.33%++ 6.08%++
Ratios/Supplemental Data:
Net assets, end of year (millions)....................... $ 1,663 $ 1,144 $ 1,048 $ 947
Ratio of expenses to average net assets.................. 0.55% 0.55% 0.54% 0.56%
Ratio of net investment income to average
net assets............................................. 7.29% 8.33% 7.14% 5.90%
<FN>
+ Security Pacific National Bank served as investment adviser through
April 21, 1992. Bank of America National Trust and Savings Association
served as investment adviser commencing April 22, 1992.
++ Unaudited.
* Includes fee waivers and expense reimbursements which had the effect of
reducing the ratio of expenses to average net assets and increasing the
ratio of net investment income to average net assets by 0.01% for the
year ended February 29, 1996.
</TABLE>
10
<PAGE> 55
Selected Data for an X Share Outstanding throughout the Period Indicated:
<TABLE>
<CAPTION>
PERIOD FROM
JULY 22, 1996
TO
FEBRUARY 28,
1997(a)
-------------
<S> <C> <C>
X SHARES
Net asset value per share,
beginning of period....................................... $
Income from Investment Operations:
Net investment income.....................................
Total income from investment operations.......................
Less dividends to shareholders from
net investment income.....................................
Net change in asset value per share...........................
Net asset value per share, end of period
Total return.................................................. $
Ratios/Supplemental Data:
Net assets at end of year (millions)...................... $
Ratio of expenses to average net assets.................. #
Ratio of net investment income
to average net assets................................. #
<FN>
(a) Period from inception date of share class to February 28, 1997.
# Annualized.
</TABLE>
11
<PAGE> 56
The Government Fund and the Treasury Only Fund commenced operations on June 4,
1990 as separate investment portfolios (the "Predecessor Government Funds" and
"Predecessor Treasury Only Funds," respectively) of First Funds of America and
First Cash Funds of America, which were organized as Massachusetts business
trusts. On March 1, 1993 the Predecessor Government Funds and Predecessor
Treasury Only Funds were reorganized as the Government Fund and Treasury Only
Fund, respectively, of the Company. Prior to this reorganization, these
Predecessor Funds offered and sold shares of beneficial interest that were
similar to the Company's Pacific Horizon Shares and Horizon Service Shares.
Horizon Shares and Horizon Service Shares of the Government and Treasury Only
Funds are described in a separate Prospectus available from the Distributor by
calling (800) 332-3863.
The tables below set forth certain information concerning the investment results
of: (i) Pacific Horizon Shares of the Government Fund and the Treasury Only Fund
for the four years ended February 28, 1997; and (ii) shares of the Predecessor
Government Fund and Predecessor Treasury Only Fund of First Funds of America,
which offered and sold shares of beneficial interest similar to the Company's
Pacific Horizon Shares for the 11 month period ended February 28, 1993, the
fiscal year ended March 31, 1992 and the fiscal period ended March 31, 1991. The
information about the Government Fund and Treasury Only Fund has been audited by
[ ], independent accountants for those two Funds, whose
unqualified report thereon is incorporated by reference into the Statement of
Additional Information, which may be obtained upon request. The information
about the Predecessor Government Fund and Predecessor Treasury Only Fund has
been audited by other independent accountants for these Predecessor Funds for
the periods indicated, whose unqualified report dated March 1, 1993 expressed an
unqualified opinion on such financial statements. The Financial Highlights
should be read in conjunction with the financial statements and notes thereto
and the unqualified reports of independent accountants which are incorporated by
reference into the Statement of Additional Information with respect to the
Government and Treasury Only Funds.
12
<PAGE> 57
Selected Data for a Share Outstanding throughout Each of the Periods Indicated:
<TABLE>
<CAPTION>
GOVERNMENT FUND-PACIFIC HORIZON SHARE PREDECESSOR GOVERNMENT FUND
------------------------------------- ------------------------------------------------------
MARCH 1, JUNE 4,
1993 1990
(COMMENCEMENT (COMMENCEMENT
OF OF
OPERATION) 11 MONTH OPERATIONS)
YEAR ENDED YEAR ENDED YEAR ENDED TO PERIOD ENDED YEAR ENDED TO
FEB. 28, FEB. 29, FEB. 28, FEB. 28, FEB. 28, MARCH 31, MARCH 31,
1997 1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value per share,
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Income From Investment
Operations:
Net investment income 0.0530 0.0421 0.0288 0.0275 0.0477 0.0575
Net realized loss on
securities (0.0004)+ (0.0091) (0.0006) -- -- --
-------- -------- -------- -------- -------- --------
Total income from
investment operations 0.0526 0.0330 0.0282 0.0275 0.0477 0.0575
-------- -------- -------- -------- -------- --------
Less dividends from net
investment income (0.0524) (0.0420) (0.0288) (0.0275) (0.0477) (0.0575)
Increase due to
voluntary capital
contribution from
investment adviser 0.0000 0.0085 0.0000 0.0000 0.0000 0.0000
-------- -------- -------- -------- -------- --------
Net change in net
asset value per share 0.0002 (0.0005) (0.0006) 0.0000 0.0000 0.0000
-------- -------- -------- -------- -------- --------
Net asset value per
share, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total return 5.37% 4.28%*** 2.92% 2.79%o 4.88% 5.90%o
Ratios/Supplemental Data:
Net assets, end of
period (millions) $261,099 $354,828 $154,349 $102,576 $135,078 $145,388
Ratio of expenses to
average net assets* 0.56% 0.50% 0.60% 0.76%** 0.76% 0.74%**
Ratio of net investment
income to average
net assets* 5.34% 4.27% 2.88% 3.03%** 4.76% 6.57%**
<FN>
* Includes fee waivers and expense reimbursements which had the effect of
reducing the ratio of expenses to average net assets and increasing the
ratio of net investment income to average net assets by 0.07%, 0.08%
and 0.002% for the years ended February 29, 1996, February 28, 1995 and
February 28, 1994, respectively. Reflects the Predecessor Government
Fund's share of the expenses of the Government Money Trust, in which
the assets of the Predecessor Government Fund were invested, as well as
a voluntary waiver of fees by affiliates of the Portfolio and Trust. If
the voluntary expense waiver had not been in place the annualized
ratios of expenses to average net assets would have been 0.94%, 0.91%
and 0.91% for the periods ended February 28, 1993, March 31, 1992 and
March 31, 1991, respectively.
** Annualized.
*** Total return includes the effect of a voluntary capital contribution
from the investment adviser. Without this capital contribution, the
total return would have been lower.
o Not annualized.
+ Net realized loss for the period is a direct result of a decrease in
outstanding shares and the date of the gain realization.
</TABLE>
13
<PAGE> 58
<TABLE>
<CAPTION>
TREASURY ONLY FUND-PACIFIC HORIZON SHARE PREDECESSOR TREASURY FUND
---------------------------------------- -------------------------------------------------
MARCH 1, JUNE 4,
1993 1990
COMMENCEMENT (COMMENCEMENT
OF OF
OPERATION) 11 MONTH OPERATIONS)
YEAR ENDED YEAR ENDED YEAR ENDED TO PERIOD ENDED YEAR ENDED TO
FEB. 28, FEB. 29, FEB. 28, FEB. 28, FEB. 28, MARCH 31, MARCH 31,
1997 1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value per
share, beginning
of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ------- ------- ------- ------- -------
Income from Investment
Operations:
Net investment income 0.0495 0.0384 0.0254 0.0264 0.0466 0.0554
Net realized loss
on securities 0.0003 (0.0002) (0.0002) -- -- --
-------- ------- ------- ------- ------- -------
Total income from
investment operations 0.0498 0.0382 0.0252 0.0264 0.0466 0.0554
-------- ------- ------- ------- ------- -------
Less Dividends:
Dividends from net
investment income (0.0495) (0.0384) (0.0254) (0.0264) (0.0466) (0.0554)
-------- ------- ------- ------- ------- -------
Net change in net
asset value per share 0.0003 (0.0002) (0.0002) 0.0000 0.0000 0.0000
-------- ------- ------- ------- ------- -------
Net asset value per
share, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======= ======= ======= ======= =======
Total return 5.06% 3.90% 2.57% 2.67%o 4.76% 5.68%o
Ratios/Supplemental Data:
Net assets, end of
period (000) $274,282 $90,337 $72,120 $33,557 $41,637 $48,348
Ratio of expenses to
average net assets* 0.63% 0.62% 0.56% 0.56%** 0.56% 0.54%**
Ratio of net investment
income to average
net assets* 4.94% 3.90% 2.54% 2.86%** 4.66% 6.34%**
<FN>
* Includes fee waivers which had the effect of reducing the ratio of
expenses to average net assets and increasing the ratio of net
investment income to average net assets by 0.01% and 0.16% for the
years ended February 28, 1995 and February 28, 1994, respectively.
There were no fee waivers or expense reimbursements during the fiscal
year ended February 29, 1996. Reflects the Predecessor Treasury Only
Fund's share of the expenses of the Treasury Money Trust, in which the
assets of the Predecessor Treasury Only Fund were invested, as well as
a voluntary waiver of fees by affiliates of the Portfolio and Trust. If
the voluntary expense waiver had not been in place, the annualized
ratios of expenses to average net assets would have been 0.99%, 0.94%
and 0.98% for the periods ended February 28, 1993, March 31, 1992 and
March 31, 1991, respectively.
** Annualized.
o Not annualized.
</TABLE>
14
<PAGE> 59
INVESTMENT OBJECTIVES AND POLICIES
This section describes the investment objective and policies of each Fund.
Assets of the Funds will be invested in dollar-denominated debt securities with
remaining maturities of thirteen months or less as defined by the Securities and
Exchange Commission, and the dollar-weighted average portfolio maturity of each
Fund will not exceed 90 days. All securities acquired by the Funds will be
determined by the investment adviser, under guidelines established by the
Company's Board of Directors, to present minimal credit risks. Securities
acquired by the Prime, Treasury, Government and Treasury Only Funds will be U.S.
Government securities or other "First Tier Securities" (as defined by the
Securities and Exchange Commission) of the types described below. First Tier
Securities consist of instruments that are either rated at the time of purchase
in the top rating category by one (if rated by only one) or more unaffiliated
nationally recognized statistical rating organizations ("NRSROs") including
Standard and Poor's Ratings Group, Division of McGraw-Hill ("Standard &
Poor's"), Moody's Investors Service, Inc. ("Moody's"), Duff & Phelps Credit Co.
("Duff & Phelps") or Fitch Investors Service, Inc. ("Fitch") or are issued by
issuers with such ratings. The Appendix to the Statement of Additional
Information includes a description of the applicable NRSRO ratings. Unrated
instruments (including instruments with long-term but no short-term ratings)
purchased by a particular Fund will be of comparable quality to the rated
instruments that the Fund may purchase, as determined by the Funds' investment
adviser pursuant to guidelines approved by the Board of Directors.
PRIME FUND. The Prime Fund's investment objective is to seek high current income
and stability of principal. The Fund invests substantially all of its assets in
a diversified portfolio of U.S. dollar-denominated money market instruments such
as bank certificates of deposit and bankers' acceptances, commercial paper
(including variable and floating rate instruments) and repurchase agreements, in
addition to obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. Portfolio securities held by the Fund have
remaining maturities of thirteen months or less from the date of purchase by the
Fund. (Portfolio securities which are subject to repurchase agreements or have
certain put or demand features exercisable by the Fund within thirteen months,
as well as certain U.S. Government obligations with floating or variable
interest rates, may have longer maturities.)
In pursuing its investment objective, the Prime Fund invests in a broad range of
government, bank and commercial obligations that may be available in the money
markets. The money market instruments in which the Fund invests will generally
have neither as much risk nor as high a return as longer-term or lower-rated
instruments. In accordance with current regulations of the Securities and
Exchange Commission, the Fund intends to limit its investments in the securities
of any single issuer (other than securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities) to not more than 5% of the Fund's
total assets at the time of purchase, provided that the Fund may invest up to
25% of its total assets in the securities of any one issuer for a period of up
to three business days.
The Prime Fund may purchase bank obligations such as certificates of deposit and
bankers' acceptances issued or supported by the credit of domestic banks,
foreign branches of domestic banks ("Euro CDs") or domestic branches of foreign
banks ("Yankee CDs" and "Yankee BAs") or foreign branches of foreign banks
("Yankee Euros"). Such banks must have total assets at the time of purchase in
excess of $2.5 billion. No more than 25% of the Prime Fund's total assets at the
time of purchase may be invested in Yankee CDs and BAs, Euro CDs and Yankee
Euros. The Fund may also make interest-bearing savings deposits in such
commercial banks in amounts not in excess of 5% of the Fund's net assets.
The Prime Fund may be subject to additional investment risks because the Fund
may hold securities issued by foreign branches of domestic banks, domestic
branches
15
<PAGE> 60
of foreign banks and foreign branches of foreign banks (and, as described below,
commercial paper issued by foreign issuers). These risks are different in some
respects from those incurred by a fund which invests 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 branch 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. In addition, foreign branches of domestic
banks, domestic branches of foreign banks and foreign branches of foreign banks
are not necessarily subject to the same regulatory requirements that apply to
domestic branches of domestic banks (such as reserve requirements, loan
limitations, examinations, accounting, auditing and recordkeeping requirements,
and public availability of information) and the Fund may experience difficulties
in obtaining or enforcing a judgment against the issuing bank.
The Prime Fund may purchase commercial paper, short-term notes and corporate
bonds that meet the Fund's maturity limitations. Commercial paper purchased by
the Fund may include instruments issued by foreign issuers, such as Canadian
Commercial Paper ("CCP"), which is U.S. dollar-denominated commercial paper
issued by a Canadian corporation or a Canadian counterpart of a U.S.
corporation, and Europaper, which is U.S. dollar-denominated commercial paper of
a foreign issuer.
The Prime Fund may also invest in commercial paper issued in reliance on the
so-called "private placement" exemption from registration afforded by Section
4(2) of the Securities Act of 1933 ("Section 4(2) paper"). Section 4(2) paper is
restricted as to disposition under the Federal securities laws and generally is
sold to institutional investors such as the Prime Fund that agree that they are
purchasing the paper for investment and not with a view to public distribution.
Any resale by the purchaser must be in an exempt transaction. Section 4(2) paper
normally is resold to other institutional investors like the Prime Fund through
or with the assistance of the issuer or investment dealers that make a market in
Section 4(2) paper. Section 4(2) paper will not be subject to the Fund's 10%
limitation on illiquid securities set forth below where the Board of Directors
or Bank of America (pursuant to guidelines adopted by the Board) determines that
a liquid trading market exists.
TREASURY FUND. The Treasury Fund's investment objective is to seek high current
income and stability of principal. The Fund invests solely in direct obligations
issued by the U.S. Treasury and repurchase agreements relating to such Treasury
obligations. Portfolio securities which are subject to repurchase agreements may
have remaining maturities of longer than thirteen months.
Examples of the types of U.S. Treasury obligations that may be held by the
Treasury Fund include U.S. Treasury bills and notes. Under normal market
conditions, 100% of the total assets of the Fund will be invested in direct
obligations of the U.S. Treasury and repurchase agreements relating to such
Treasury obligations. Securities issued by the U.S. Government have historically
involved little risk of loss of principal if held to maturity and, in general,
the instruments held by the Fund will have neither as much risk nor as high a
return as longer term or non-U.S. Government obligations.
GOVERNMENT FUND. The investment objective of the Government Fund is to provide
liquidity and as high a level of current income as is consistent with the
preservation of capital. The Government Fund seeks to achieve this objective by
investing in short-term debt obligations issued or guaranteed as to interest and
principal by the U.S. Government, its agencies, authorities or instrumentalities
and in repurchase agreements with respect to such obligations.
16
<PAGE> 61
The Government Fund may purchase certain agency securities (such as guaranteed
notes of the Federal Aviation Administration, Department of Defense, Bureau of
Indian Affairs and Private Export Funding Corporation) which often provide
higher yields than are available from the more common types of government-backed
investments. However, such specialized investments may only be available from a
few sources, in limited amounts, or only in very large denominations; they may
also require specialized capability in portfolio servicing and in legal matters
related to government guarantees. While frequently offering attractive yields,
the limited-activity markets of many of these securities means that if the
Government Fund were required to liquidate any of them it might not be able to
do so advantageously; accordingly, the Government Fund intends normally to hold
such securities to maturity or pursuant to repurchase agreements, and would
limit its investment in such securities (as well as repurchase agreements
maturing in more than seven days) to not more than 10% of the Fund's net assets.
TREASURY ONLY FUND. The investment objective of the Treasury Only Fund is to
provide liquidity and as high a level of current income as is consistent with
the preservation of capital. The Treasury Only Fund seeks to achieve this
objective by investing solely in obligations of the U.S. Treasury. U.S. Treasury
securities are backed by the "full faith and credit" of the U.S. Government.
U.S. Treasury securities include Treasury bills, Treasury notes and Treasury
bonds. While U.S. Treasury securities are guaranteed as to the timely payment of
principal and interest, the market value of such obligations is not guaranteed
and may rise and fall in response to changes in interest rates.
To increase income on portfolio securities, the Treasury Only Fund may lend its
portfolio securities to broker-dealers, banks and other institutional investors
pursuant to agreements requiring that the loans be continuously secured by
collateral equal at all times in value to at least the market value of the
securities loaned plus accrued interest. Collateral for such loans may include
cash or securities of the U.S. Treasury. Such loans will not be made if, as a
result, the aggregate of all outstanding loans of the Fund exceeds 33% of the
value of its total assets. There may be risks of delay in receiving additional
collateral or in recovering the securities loaned or even a loss of rights in
the collateral should the borrower of the securities fail financially. Loans
will be made only to borrowers deemed by the adviser to be of good standing and
when, in the adviser's judgment, the income to be earned from the loan justifies
the attendant risks.
COMMON INVESTMENT POLICIES
GOVERNMENT OBLIGATIONS. The Prime Fund and Government Fund may purchase
obligations issued or guaranteed by the U.S. Government or its agencies and
instrumentalities. Obligations of certain agencies and instrumentalities of the
U.S. Government, such as the Small Business Administration, are backed by the
full faith and credit of the United States. Others are backed by the right of
the issuer to borrow from the U.S. Treasury (such as obligations of the Federal
Home Loan Bank), by the discretionary authority of the U.S. Government to
purchase the agency's obligations (such as obligations of the Federal National
Mortgage Association), or only by the credit of the agency or instrumentality
issuing the obligation (such as the Student Loan Marketing Association).
Securities issued or guaranteed by the U.S. Government and its agencies and
instrumentalities have historically involved little risk of loss of principal if
held to maturity. However, no assurance can be given that the U.S. Government
would provide financial support to any agency or instrumentality if it is not
obligated to do so by law.
Certain securities issued or guaranteed by all governmental agencies may be
prepaid by the issuer without penalty. Thus, when prevailing interest rates
decline, the value of these securities is not likely to rise on a comparable
basis with other debt securities that are not so prepayable. The proceeds of
prepayments and scheduled payments of principal of these securities will be
17
<PAGE> 62
reinvested by a Fund at then-prevailing interest rates, which may be lower than
the rate of interest on the securities on which these payments were received.
"STRIPPED" SECURITIES. Each Fund may invest in "stripped" securities,
which are U.S. Treasury bonds and notes the unmatured interest coupons of which
have been separated from the underlying principal obligation. Stripped
securities are zero coupon obligations that are normally issued at a discount to
their "face value," and may exhibit greater price volatility than ordinary debt
securities because of the manner in which their principal and interest are
returned to investors. The Treasury and Treasury Only Funds may only invest in
stripped securities issued by the U.S. Treasury and recorded in the Federal
Reserve book-entry record-keeping system. The Government Fund may invest no more
than 35% of its assets in stripped securities that have been stripped by their
holder, typically a custodian bank or investment brokerage firm. A number of
securities firms and banks have stripped the interest coupons and resold them in
custodian receipt programs with different names such as Treasury Income Growth
Receipts ("TIGRs") and Certificates of Accrual on Treasuries ("CATS"). The
Government Fund intends to rely on the opinions of counsel to the sellers of
these certificates or other evidences of ownership of U.S. Treasury obligations
that, for Federal tax and securities purposes, purchasers of such certificates
most likely will be deemed the beneficial holders of the underlying U.S.
Government obligations. Privately-issued stripped securities such as TIGRs and
CATS are not themselves guaranteed by the U.S. Government, but the future
payment of principal or interest on U.S. Treasury obligations which they
represent is so guaranteed.
REPURCHASE AGREEMENTS. Each Fund (other than the Treasury Only Fund)
may agree to purchase securities from financial institutions, such as banks and
broker-dealers, as are deemed creditworthy by the Company's investment adviser
under guidelines approved by the Board of Directors, subject to the seller's
agreement to repurchase them at an agreed upon time and price ("repurchase
agreements"). Although the securities subject to a repurchase agreement may bear
maturities exceeding thirteen months, each Fund intends only to enter into
repurchase agreements having maturities not exceeding 60 days. Securities
subject to repurchase agreements are held either by the Company's custodian or
sub-custodian, or in the Federal Reserve/Treasury Book-Entry System. The seller
under a repurchase agreement will be required to deliver instruments the value
of which is greater than the repurchase price. Default by the seller would,
however, expose a Fund to possible loss because of adverse market action or
delay in connection with the disposition of the underlying obligations.
Repurchase agreements are considered to be loans under the Investment Company
Act of 1940.
REVERSE REPURCHASE AGREEMENTS. The Funds may borrow monies for
temporary purposes by entering into reverse repurchase agreements in accordance
with the investment restrictions described below. Pursuant to such agreements, a
Fund would sell portfolio securities to banks, and with respect to the Prime and
Treasury Funds, other financial institutions, and agree to repurchase them at an
agreed upon date and price. At the time a Fund enters into a reverse repurchase
agreement, it will place in a segregated custodial account liquid assets or high
grade debt securities having a value equal to or greater than the repurchase
price and the Company's investment adviser will continuously monitor the account
to ensure that the value is maintained. A Fund would only enter into reverse
repurchase agreements to avoid otherwise selling securities during unfavorable
market conditions to meet redemptions. Reverse repurchase agreements involve the
risk that the market value of the portfolio securities sold by a Fund may
decline below the price of the securities such Fund is obligated to repurchase.
Interest paid by a Fund in connection with a reverse repurchase agreement will
reduce the net investment income of such Fund. Reverse repurchase agreements are
considered to be borrowings under the Investment Company Act of 1940.
VARIABLE AND FLOATING RATE INSTRUMENTS. Securities purchased by a Fund
may include variable and floating rate instruments, which may have a stated
maturity
18
<PAGE> 63
in excess of a Fund's maturity limitations but which will, except for certain
U.S. Government obligations, permit a Fund to demand payment of the principal of
the instrument at least once every thirteen months upon not more than thirty
days' notice. Variable and floating rate instruments purchased by the Government
Fund will be U.S. Government agency securities with stated maturities of
typically up to 10 years, although stated maturities of up to 30 years are
possible. Variable and floating rate instruments may include variable amount
master demand notes that permit the indebtedness thereunder to vary in addition
to providing for periodic adjustments in the interest rate. There may be no
active secondary market with respect to a particular variable or floating rate
instrument. Nevertheless, the periodic readjustments of their interest rates
tend to assure that their value to a Fund will approximate their par value.
Illiquid variable and floating rate instruments (instruments which are not
payable upon seven days notice and do not have an active trading market) that
are acquired by the Funds are subject to a Fund's percentage limitations
regarding securities that are illiquid or not readily marketable. The Funds'
investment adviser will continuously monitor the creditworthiness of issuers of
variable and floating rate instruments in which the Funds invest, and their
ability to repay principal and interest.
Variable and floating rate instruments purchased by a Fund may include
participation certificates issued by trusts or financial institutions in
variable and floating rate obligations owned by such issuers or affiliated
organizations. A participation certificate gives a Fund a specified undivided
interest (up to 100%) in the underlying obligation and the right to demand
payment of the unpaid principal balance plus accrued interest on the
participation interest from the institution upon a specified number of days'
notice. If the credit of the obligor is of minimal credit risk, no credit
support from a bank or other financial institution will be necessary. In other
circumstances, the participation certificate will be backed by an irrevocable
letter of credit or guarantee of a bank, or will be insured by an insurer, that
the Funds' investment adviser has determined meets the quality standards for the
Fund involved. If an interest is backed by an irrevocable letter of credit or
guarantee of a bank or is insured as described above, a Fund will usually have
the right to sell the interest back to the institution or draw on the letter of
credit or insurance policy on demand after a specified notice period, for all or
any part of the principal amount of the interest plus accrued interest. Although
a participation interest may be sold by a Fund, under normal circumstances they
will be held until maturity.
A Fund may also invest in obligations which provide for a variable or floating
interest rate which is determined through a periodic "auction process." From
time to time, holders of the obligations have the right to tender any such
obligations to a remarketing agent which then remarkets the obligations which
have been tendered and thereby determines a new interest rate for the following
period.
WHEN-ISSUED PURCHASES, FORWARD COMMITMENTS AND DELAYED SETTLEMENTS. The
Funds may purchase securities on a "when-issued" basis and may purchase or sell
securities on a "forward commitment" or "delayed settlement" basis. When-issued
and forward commitment transactions, which involve a commitment by a Fund to
purchase or sell particular securities with payment and delivery taking place at
a future date (perhaps one or two months later), permit a Fund to lock in a
price or yield on a security it owns or intends to purchase or sell, regardless
of changes in interest rates. Delayed settlement describes a securities
transaction in a secondary market for which settlement will occur sometime in
the future. When-issued, forward commitment and delayed settlement transactions
involve the risk, however, that the yield or price obtained in a transaction may
be less favorable than the yield or price available in the market when the
securities delivery takes place. The Funds' forward commitments, when-issued
purchases and delayed settlements are not expected to exceed 25% of the value of
the total assets of a particular Fund absent unusual market conditions. A Fund's
liquidity and the ability of its investment adviser to manage its portfolio may
be
19
<PAGE> 64
adversely affected in the event a Fund's forward commitments, commitments to
purchase when-issued securities and delayed settlements ever exceed 25% of the
value of its total assets. The Funds do not intend to engage in these
transactions for speculative purposes but only in furtherance of their
investment objectives.
INVESTMENT LIMITATIONS. The investment objectives of the Prime and Treasury
Funds (but not the Government and Treasury Only Funds) are fundamental policies
that may not be changed without a vote of the holders of a majority of the
particular Fund's outstanding shares (as defined in the Investment Company Act
of 1940). A Fund's policies may be changed by the Company's Board of Directors
without the affirmative vote of the holders of a majority of such Fund's
outstanding shares, except that the investment limitations set forth below may
not be changed without such a vote of shareholders. A description of certain
other fundamental investment limitations is contained in the Statement of
Additional Information.
PRIME FUND. The Prime Fund may not:
1. Purchase any securities which would cause 25% or more of the Fund's
total assets at the time of purchase to be invested in the securities
of one or more issuers conducting their principal business activities
in the same industry, provided that (a) there is no limitation with
respect to obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities or domestic bank certificates of deposit,
bankers' acceptances and repurchase agreements secured by instruments
of domestic branches of U.S. banks or obligations of the U.S.
Government, its agencies or instrumentalities; (b) wholly-owned finance
companies will be considered to be in the industries of their parents
if their activities are primarily related to financing the activities
of the parents; and (c) the industry classification of utilities will
be determined according to their service. For example, gas, gas
transmission, electric and gas, electric and telephone will each be
considered a separate industry.
PRIME FUND AND TREASURY FUND. Neither the Prime Fund nor the Treasury
Fund may:
1. Borrow money or issue senior securities, except that each Fund may
borrow from banks or enter into reverse repurchase agreements to meet
redemptions or for other temporary purposes in amounts up to 10% of its
total assets at the time of such borrowing; or mortgage, pledge or
hypothecate any assets except in connection with any such borrowing and
in amounts not in excess of the lesser of the dollar amount borrowed or
10% of its total assets at the time of such borrowing; or purchase
securities at any time after such borrowings (including reverse
repurchase agreements) have been entered into and before they are
repaid.
2. Purchase securities without available market quotations which cannot be
sold without registration or the filing of a notification under federal
or state securities laws, enter into repurchase agreements providing
for settlement more than seven days after notice, or purchase any other
securities deemed illiquid by the Directors if, as a result, such
securities and repurchase agreements would exceed 10% of the Fund's
total assets.
The Prime Fund intends that, except as stated above under "Common Investment
Policies--Variable and Floating Rate Instruments," variable amount master demand
notes with maturities of nine months or less, as well as any investments in
securities that are not registered under the Securities Act of 1933 but that may
be purchased by institutional buyers under Rule 144A and for which a liquid
trading market exists as determined by the Board of Directors or Bank of America
(pursuant to guidelines adopted by the Board) will not be subject to the 10%
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limitation on illiquid securities set forth in Investment Limitation No. 2
above.
GOVERNMENT FUND AND TREASURY ONLY FUND. Neither the Government Fund nor
the Treasury Only Fund may:
1. Invest more than 10% of the Fund's net assets in securities that are
not readily marketable (such as repurchase agreements maturing in more
than seven days). If changes in the markets of certain securities cause
a Fund to exceed such 10% limit, the Fund will take steps to bring the
aggregate amount of its illiquid securities back below 10% of its net
assets.
2. Borrow money, except that as a temporary measure for extraordinary or
emergency purposes each Fund may borrow from banks in an amount not to
exceed 1/3 of the value of its net assets, including the amount
borrowed; moreover, neither Fund may purchase any securities at any
time at which borrowings exceed 5% of the total assets of the Fund
(taken at market value) (it is intended that each Fund would borrow
money only from banks and only to accommodate requests for withdrawals
while effecting an orderly liquidation of securities).
Pursuant to certain regulatory requirements, with regard to Investment
Limitation No. 2, the Government and Treasury Only Funds intend not to borrow
money for any purpose in excess of 10% of the Fund's total assets. This 10%
limitation is not a fundamental investment limitation of the Government or
Treasury Only Funds.
INVESTMENT DECISIONS. Investment decisions for each Fund are made independently
from those for other portfolios of the Company and other investment companies
and common trust funds managed by Bank of America and its affiliated entities.
Such other investment companies and common trust funds may also invest in the
same securities as a Fund. When a purchase or sale of the same security is made
at substantially the same time on behalf of a Fund and another portfolio,
investment company or account, available investments or opportunities for sales
will be allocated in a manner which Bank of America believes to be equitable. In
some instances, this investment procedure may adversely affect the price paid or
received by a Fund or the size of the position obtained or sold by a Fund. In
addition, in allocating purchase and sale orders for portfolio securities
(involving the payment of brokerage commissions or dealer concessions), Bank of
America may take into account the sale of shares of a Fund by broker-dealers and
other financial institutions (including affiliates of Bank of America and the
Distributor), provided Bank of America believes that the quality of the
transaction and the amount of the commission are not less favorable than what
they would be with any other unaffiliated qualified firm.
MANAGEMENT OF THE FUNDS
BOARD OF DIRECTORS. The business of the Company is managed under the direction
of its Board of Directors. Information about the Directors and officers of the
Company is included in the Statement of Additional Information.
INVESTMENT ADVISER. Bank of America serves as the Funds' investment adviser.
Bank of America, which has principal offices at 555 California Street, San
Francisco, California 94104, is a national banking association formed in 1904
which 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. 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 it commenced operations in 1984. Bank of America
and its affiliates have over $ billion under management, including over $
billion
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in mutual funds. Bank of America is a subsidiary of BankAmerica Corporation, a
registered bank holding company.
As investment adviser Bank of America manages the Funds' investments and is
responsible for all purchases and sales of the Funds' portfolio securities. For
its investment advisory services Bank of America is entitled to receive a fee
accrued daily and payable monthly at the following annual rates: .10% of the
first $3 billion of each Fund's net assets, plus .09% of the next $2 billion of
each Fund's net assets, plus .08% of each Fund's net assets over $5 billion. For
the fiscal year ended February 28, 1997, the Prime Fund, Treasury Fund,
Government Fund and the Treasury Only Fund paid Bank of America advisory fees at
the effective annual rates of .___%, .___%, .___% and .___% of such Funds'
respective average daily net assets, and Bank of America waived advisory fees at
the effective annual rate of .___% of the Government Fund's average daily net
assets.
In addition, Bank of America is also entitled to fees under the Company's
Special Management Services Plan with respect to the Funds' Pacific Horizon
Shares and may receive fees pursuant to the Distribution and Services Plan with
respect to the Prime and Treasury Funds' X Shares. Bank of America and Service
Organizations may also receive fees charged directly to their customers'
accounts in connection with investments in X Shares of the Prime and Treasury
Funds' and/or Pacific Horizon Shares of the Funds.
ADMINISTRATOR. The BISYS Group, Inc. (the "Administrator"), through its
wholly-owned subsidiary BISYS Fund Services, L.P., serves as the Company's
administrator and assists generally in supervising the Funds' operations. Their
offices are located at 50 Clove Road, Little Falls, New Jersey 07424 and 3435
Stelzer Road, Columbus, Ohio 43219. Prior to November 1, 1996, Concord Holding
Corporation, an indirect, wholly-owned subsidiary of the current Administrator,
served as administrator.
Under its basic administrative services agreement for the Funds, the
Administrator has agreed to provide facilities, equipment and personnel to carry
out administrative services that are for the benefit of all series of shares in
the Funds, including coordination of reports to shareholders and the Securities
and Exchange Commission; calculation of the net asset value of the Funds' shares
and dividends and capital gains distributions to shareholders; payment of the
costs of maintaining the Funds' offices; preparation of tax returns; provision
of internal legal and accounting compliance services; maintenance (or oversight
of the maintenance by others approved by the Board of Directors) of the Funds'
books and records; and the provision of various services for shareholders who
have made a minimum initial investment of at least $500,000, including the
provision of a facility to receive purchase and redemption orders for the
accounts of such shareholders.
For its administrative services the Administrator is entitled to receive an
administration fee computed daily and payable monthly at the following annual
rates: .10% of the first $7 billion of each Fund's net assets, plus .09% of the
next $3 billion of each Fund's net assets, plus .08% of each Fund's net assets
over $10 billion. For the fiscal year ended February 28, 1997, the Prime Fund,
Treasury Fund, Government Fund and Treasury Only Fund paid the Administrator
administration fees at the effective annual rates of .___%, .___%, .___% and
.___% of such Funds' respective average daily net assets, and the Administrator
waived and/or reimbursed administration fees at the effective annual rate of
.__% of the Government Funds average daily net assets.
Pursuant to the authority granted in its agreement with the Company, the
Administrator has entered into an agreement with The Bank of New York under
which the bank performs certain of the services listed above--e.g. calculating
the net asset value of the Funds' shares and dividends to shareholders and
maintaining
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the Funds' books and records. The Funds bear all fees and expenses charged by
The Bank of New York for these services.
DISTRIBUTOR. Concord Financial Group, Inc. (the "Distributor") is the principal
underwriter and distributor of shares of the Funds. The Distributor is an
indirect, wholly-owned subsidiary of the Administrator organized to distribute
shares of mutual funds to institutional and retail investors. Its offices are
located at 3435 Stelzer Road, Columbus, Ohio 43219.
The Distributor makes a continuous offering of the Funds' shares and bears the
costs and expenses of printing and distributing to selected dealers and
prospective investors copies of any prospectuses, statements of additional
information and annual and interim reports of the Funds (after such items have
been prepared and set in type by the Funds) which are used in connection with
the offering of shares, and the costs and expenses of preparing, printing and
distributing any other literature used by the Distributor or furnished by it for
use by selected dealers in connection with the offering of the Funds' shares for
sale to the public.
CUSTODIAN AND TRANSFER AGENT. The Bank of New York, located at 90 Washington
Street, New York, New York 10286, serves as custodian for the Funds and Bank of
America serves as the Prime and Treasury Funds' sub-custodian. BISYS Fund
Services, Inc., 3435 Stelzer Road, Columbus, Ohio 43219 (the "Transfer Agent"),
a wholly-owned subsidiary of the Administrator, serves as the Funds' transfer
agent and dividend disbursing agent. The Company has also entered into a Cash
Management and Related Services Agreement with The Bank of New York pursuant to
which The Bank of New York receives and disburses funds in connection with the
purchase and redemption of, and the payment of dividends and other distributions
with respect to the Funds' shares.
DISTRIBUTION AND SERVICES PLAN. Under the Distribution and Services Plan, the
Prime and Treasury Funds pay the Distributor for distribution expenses primarily
intended to result in the sale of such Fund's X Shares and for shareholder
servicing expenses. Such distribution expenses include expenses incurred in
connection with advertising and marketing each Fund's X Shares; payments to
Service Organizations for assistance in connection with the distribution of X
Shares; and expenses incurred in connection with preparing, printing and
distributing prospectuses for the Funds (except those used for regulatory
purposes or for distribution to existing shareholders of the Funds) and in
implementing and operating the Distribution and Services Plan. Shareholder
servicing expenses include expenses incurred in connection with shareholder
services provided by the Distributor and payments to Service Organizations for
the provision of support services with respect to the beneficial owners of X
Shares, such as establishing and maintaining accounts and records relating to
their clients who invest in X Shares, assisting clients in processing exchange
and redemption requests, developing, maintaining and supporting systems
necessary to support Sweep Accounts and in changing dividend options and account
descriptions and responding to client inquiries concerning their investments.
Under the Distribution and Services Plan, payments by the Prime and Treasury
Funds for distribution expenses and shareholder servicing expenses may not
exceed the annual rate of 0.30% and 0.25%, respectively, of the average daily
net assets of such Fund's X Shares. These amounts may be reduced pursuant to
undertakings by the Distributor. Payments for distribution expenses under the
Distribution and Services Plan are subject to Rule 12b-1 under the 1940 Act. As
stated below under "Description of Shares," fees pursuant to the Distribution
and Services Plan are borne by the X and S Shares of the Prime and Treasury
Funds and are not paid with respect to such Funds' other series of shares.
The Company will obtain a representation from the Service Organizations (and
from Bank of America and the Distributor) that they are or will be licensed as
dealers
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as required by applicable law or will not engage in activities which would
require them to be so licensed.
SPECIAL MANAGEMENT SERVICES PLAN. The Company has adopted a Special Management
Services Plan pursuant to which Pacific Horizon Shares are sold to securities
dealers, financial institutions and other industry professionals that are
shareholders or dealers of record or which have a servicing relationship
("Shareholder Organizations") with beneficial owners of the Fund's Pacific
Horizon Shares that enter into a Special Management Services Agreement with the
Company pursuant to the Plan. Under the Special Management Services Plan,
Shareholder Organizations have agreed to provide the following support services
to their clients: aggregating and processing purchase and redemption requests
for Pacific Horizon Shares and placing net purchase and redemption orders;
providing a service that invests the assets of shareholder accounts in Pacific
Horizon Shares pursuant to specific or pre-authorized instructions; processing
dividend payments; providing statements periodically to shareholders showing
their positions in Pacific Horizon Shares; providing subaccounting or the
information necessary for subaccounting; if required by law, forwarding
shareholder communications (such as proxies, shareholder reports, annual and
semi-annual financial statements and dividend, distribution and tax notices) to
shareholders; forwarding to shareholders proxy statements and proxies containing
any proposals regarding the Special Management Services Plan or related
agreements; developing and monitoring investor programs offered from time to
time; providing dedicated walk-in and telephone facilities to handle shareholder
inquiries and serve shareholder needs; providing and maintaining specialized
systems for automatic investments; maintaining the registration or qualification
of Pacific Horizon Shares for sale under state securities laws; paying for the
operation of arrangements that facilitate same-day purchases by shareholders;
assuming the expenses of payments made to third parties for services provided in
connection with the investments of their customers in Pacific Horizon Shares;
and 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.
In consideration of the services provided pursuant to the Special Management
Services Plan, Shareholder Organizations are entitled to receive a fee, computed
daily and payable monthly at the annual rate of up to 0.32% of the average daily
net asset value of each Fund's Pacific Horizon Shares beneficially owned by
clients of such Shareholder Organizations. The fees paid under the Special
Management Services Plan are for services provided by Shareholder Organizations
to their clients who beneficially own Pacific Horizon Shares of the Funds and
are not borne by the Funds' Horizon Shares or Horizon Service Shares, or by X
Shares or S Shares of the Prime and Treasury Funds.
FEE WAIVERS. Except as noted in this Prospectus and the Statement of Additional
Information, the Funds' service contractors bear all expenses in connection with
the performance of their services, and the Funds bear the expenses incurred in
their operations. From time to time during the course of the Funds' fiscal year,
Bank of America and/or the Administrator may prospectively waive payment of fees
and/or assume certain expenses of a Fund as a result of competitive pressures
and in order to protect the business and reputation of Bank of America and the
Administrator. This will have the effect of lowering the overall expense ratio
of the Fund involved and of increasing such Fund's yield to investors at the
time such fees are not received or amounts are assumed and of increasing the
overall expense ratio of such Fund and of decreasing yield to investors when
such fees are not waived or amounts are not reimbursed.
PURCHASES OF SHARES
HOW X SHARES ARE PURCHASED. X Shares of the Prime and Treasury Funds are offered
by this Prospectus to customers of BAIS or Service Organizations that establish
a Sweep Account with BAIS or a Service Organization. Each Sweep Account combines
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a Transaction Account with a periodic sweep of balances to or from the Prime and
Treasury Funds. Investors may open a Sweep Account by completing and signing the
Sweep Materials. The Sweep Materials contain important information about the
various features and operations of the Sweep Account and should be reviewed in
conjunction with this Prospectus.
X Shares may be purchased on any Business Day (as defined below) that BAIS or
the particular Service Organization, as applicable, is open for business by
making a deposit into your Transaction Account. On each day that both the Prime
and Treasury Fund's custodian and the New York Stock Exchange (the "Exchange")
are open for business (a "Business Day") and that BAIS or a Service Organization
is open for business, BAIS or a Service Organization computes the net amount of
all deposits, withdrawals, charges and credits made to and from a Transaction
Account in accordance with their Sweep Account procedures (the "Net Sweep
Amount"). If deposits and credits exceed withdrawals and charges, you authorize
BAIS or a Service Organization, on your behalf, to transmit a purchase order to
the Fund designated in your Sweep Account in the amount of that day's Net Sweep
Amount in accordance with the Sweep Account procedures of Bank of America or a
Service Organization. Your purchase order will be made effective and full and
fractional X Shares will be purchased at the net asset value per share next
determined after receipt by the Transfer Agent. It is the responsibility of BAIS
or a Service Organization to transmit orders for the purchases of X Shares by
its customers to the Transfer Agent and deliver required funds on a timely
basis, in accordance with the procedures stated above. Share purchases and
redemptions executed through BAIS or a Service Organization are executed only on
Business Days that BAIS or a Service Organization, respectively, is open for
business. Contact BAIS or your Service Organization for additional information
about BAIS's or the Service Organization's Sweep Account procedures.
HOW PACIFIC HORIZON SHARES ARE PURCHASED.
Pacific Horizon Shares may be purchased directly from the Distributor, by
clients of Bank of America through their qualified trust and agency accounts or
by clients of Service Organizations without a charge imposed by the Funds,
although Bank of America and Service Organizations may charge a fee for
providing administrative services in connection with investments in Pacific
Horizon Shares of the Funds. The minimum initial investment is $500, except for
purchases through Bank of America's trust and agency accounts or through a
Service Organization whose clients have made aggregate minimum purchases of
$1,000,000, in which event the minimum initial investment is $100, or as
otherwise described below under "Shareholder Services." The minimum subsequent
investment is $50, except for investments arising from automatic investment
transactions on behalf of Bank of America's trust and agency accounts, as to
which there is no minimum. Bank of America and Service Organizations may impose
minimum customer account and other requirements in addition to those imposed by
the Funds. The Funds reserve the right to reject any purchase order. Persons
wishing to purchase Pacific Horizon Shares through their accounts at Bank of
America or a Service Organization should contact such entity directly for
appropriate instructions. Other investors may purchase Pacific Horizon Shares in
the manner described below.
An investor desiring to make an initial purchase of Pacific Horizon Shares by
mail should complete an Account Application and mail the Application and a check
payable to the appropriate Fund of Pacific Horizon to the address on the Account
Application. All subsequent purchases of Pacific Horizon Shares of a Fund made
by mail should be delivered to Pacific Horizon Funds, Inc., File No. 54634, Los
Angeles, California 90074-4634. Initial purchases of Pacific Horizon shares into
a new account may not be made by wire. However, an investor desiring to make a
subsequent purchase of Pacific Horizon shares of a Fund into an already existing
account by wire should contact the Transfer Agent at (800) 346-2087 for complete
wiring instructions and request his bank to transmit immediately available funds
by wire for purchase of Pacific Horizon shares in the investor's name. It is
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important that the wire include the investor's name and Fund account number. An
investor should contact his bank for information on remitting funds in this
manner, including any charges imposed by the bank for wiring funds. Payments
which are hand delivered must be delivered directly to the Transfer Agent at
3435 Stelzer Road, Columbus, OH 43219.
A fee will be imposed by the Transfer Agent if any check used for investment in
an account does not clear. All payments should be in U.S. dollars. Purchase
orders in proper form are effected on each Business Day at the net asset value
per share next determined after receipt by the Transfer Agent at its Columbus
office of both an order and federal funds. Purchases will not be effected until
payments made in other than federal funds are converted to federal funds, which
is ordinarily within two business days of receipt. Purchase orders effected
through automatic investment transactions on behalf of Bank of America's trust
and agency accounts are received by Bank of America as sub-custodian for the
Funds before 12:00 noon (Pacific time) and are effected as of 4:00 p.m. (Eastern
time) on the same day. It is the responsibility of Bank of America or the
Service Organization involved to transmit orders for the purchases of Pacific
Horizon Shares by its customers to the Transfer Agent and deliver required funds
on a timely basis, in accordance with the procedures stated above. Share
purchases and redemptions executed through Bank of America or a Service
Organization are executed only on days on which the particular institution and
the Fund are open for business.
TELETRADE. Although the privilege may not be used to make an initial purchase,
an investment in Pacific Horizon Shares of a Fund entitles an investor to
purchase Fund shares (minimum of $500 and maximum of $50,000 per transaction)
without charge by telephone unless he indicates on the Account Application or in
a subsequent written notice to the Transfer Agent that he does not wish to use
the Teletrade privilege. Appropriate information concerning the investor's bank
must be provided on the Account Application or in a subsequent signature
guaranteed letter of instruction to the Transfer Agent before the TeleTrade
Privilege may be used. The proceeds will be transferred between the checking,
NOW or bank money market account designated in one of these documents and the
investor's Fund account. Only an account maintained at a domestic financial
institution which is an Automated Clearing House member may be so designated.
TeleTrade purchases will be effected at the net asset value next determined
after receipt of payment by the Funds' Transfer Agent. The Company may modify
this Privilege at any time or charge a service fee upon notice to shareholders.
No such fee currently is contemplated.
An investor who has selected the TeleTrade Privilege may request TeleTrade
purchases by telephoning the Transfer Agent at (800)346-2087. The TeleTrade
Privilege may not be available to certain clients of Bank of America or
particular institutional investors.
NET ASSET VALUE. The net asset value per share of the X Shares of the Prime and
Treasury Funds and Pacific Horizon Shares of each Fund is the value of all
securities and other assets owned by a Fund that are allocable to a particular
class, less the liabilities charged to such class, divided by the number of
outstanding shares of such class. The net asset value per share of the Prime
Fund, Treasury Fund and Government Fund is determined on each Business Day as of
2:30 p.m. Eastern time and the close of regular trading hours on the Exchange
(or 4:00 p.m. Eastern time if the Exchange is closed). The net asset value per
share of the Treasury Only Fund is determined on such Business Days as of 11:30
a.m. Eastern time. In computing net asset value, each Fund uses the amortized
cost method of valuation as described in the Statement of Additional Information
under "Additional Purchase and Redemption Information--Valuation." The net asset
value per share for purposes of pricing purchase and redemption orders for each
Fund is determined independently of that for other portfolios of the Company.
For price and yield information call (800) 346-2087.
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Federal regulations require that each investor provide a certified Taxpayer
Identification Number upon opening or reopening an account. See the Account
Application for Pacific Horizon Shares of the Funds and the Sweep Account
Application for X Shares of the Prime and Treasury Funds for further information
about this requirement.
The Company will obtain a representation from Service Organizations (as well as
from Bank of America and the Distributor) that they will be licensed as dealers
as required by applicable law or will not engage in activities which would
require them to be so licensed.
REDEMPTION OF SHARES
HOW X SHARES ARE REDEEMED. If, on any Business Day that BAIS or the particular
Service Organization is open for business, withdrawals from and charges to your
Sweep Account, including without limitation check transactions, exceed deposits
and credits, BAIS or the particular Service Organization, as applicable, will
transmit a redemption order on your behalf to the Prime or Treasury Fund, as
appropriate, in the dollar amount of that day's Net Sweep Amount. If your Sweep
Account with BAIS or a Service Organization, as applicable, is closed as
described in the Sweep Materials, BAIS or the Service Organization, as
applicable, transmits a redemption request on your behalf to the appropriate
Fund for the balance of X Shares of such Fund held through your Sweep Account.
Redemptions are effected by the Company on a business day at the net asset value
next determined after receipt of the redemption order by the Transfer Agent. It
is the responsibility of BAIS or the particular Service Organization to transmit
the redemption order and credit its customer's Transaction Account with the
redemption proceeds on a timely basis. BAIS or the Service Organization may
withhold redemption proceeds pending check collection or processing or for other
reasons all as set forth more fully in the Sweep Materials.
HOW PACIFIC HORIZON SHARES ARE REDEEMED.
Investors whose Pacific Horizon Shares are purchased through accounts at Bank of
America or a Service Organization may redeem all or part of such shares in
accordance with the instructions pertaining to such accounts. If such investors
are also the shareholders of record of those accounts on the books of the
Transfer Agent, they may redeem shares in accordance with the procedures
described below under "Regular Redemption." Such investors wishing to use the
other redemption methods must arrange with Bank of America or a Service
Organization for delivery of the required application(s) to the Transfer Agent.
Redemption orders are effected on a Business Day at the net asset value per
share next determined after receipt of the order by the Transfer Agent. Pacific
Horizon Shares of the Prime Fund acquired through exchange of B Shares of the
Time Horizon Funds are subject to a CDSC upon redemption in accordance with the
prospectus for the particular B Shares. 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. It is the responsibility of Bank of America or
the Service Organization to transmit the redemption order and credit its
customer's account with the redemption proceeds on a timely basis. Other
investors may redeem all or part of their shares in accordance with one of the
following procedures.
REGULAR REDEMPTION. An investor in Pacific Horizon Shares may redeem Pacific
Horizon Shares in any amount by sending a written request to the Prime Fund,
Treasury Fund, Government Fund or Treasury Only Fund, c/o Pacific Horizon Funds,
Inc., P.O. Box 80221, Los Angeles, CA 90080-9909. Redemption orders are
effected upon receipt by the Transfer Agent at its Columbus office. Redemption
requests delivered to the Company other than by mail must be delivered to the
offices of the Transfer Agent at 3435 Stelzer Road, Columbus, OH 43219. While
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the Company no longer issues share certificates, Pacific Horizon Shares for
which certificates previously had been issued may not be redeemed unless the
certificates have been submitted to the Transfer Agent and endorsed for
transfer.
Redemption requests must be signed by each shareholder, including each joint
owner on redemption requests for joint accounts. A redemption request for (i) an
amount in excess of $50,000 per day (ii) any amount if the proceeds are to be
sent elsewhere than to the address of record, and (iii) an amount of $50,000 or
less if the address of record has not been on file with the Transfer Agent for a
period of 60 days, must be accompanied by a signature guarantee. The guarantor
of a signature must be a bank that is a member of the FDIC, a trust company, a
member firm of a national securities exchange or other eligible guarantor
institution. The Transfer Agent will not accept guarantees from notaries public.
Signatures on endorsed certificates submitted for redemption must also be
guaranteed. Guarantees must be signed by an authorized signatory of the
guarantor institution and "Signature Guaranteed" must appear with the signature.
TELETRADE. An investor may redeem Pacific Horizon Shares in the same manner and
subject to the same limitations as described under "Purchases of Shares--How
Pacific Horizon Shares Are Purchased--TeleTrade" above. Redemption proceeds will
be on deposit in the investor's account at a domestic financial institution
which is an Automated Clearing House member bank ordinarily two business days
after receipt of the redemption request. An investor may also request that
redemption proceeds be sent by check. Checks will be sent only to the registered
owner(s) and only to the address of record. An investor who has selected the
TeleTrade Privilege may request TeleTrade redemptions by telephoning the
Transfer Agent at (800) 346-2087. Pacific Horizon Shares issued in certificate
form are not eligible for this Privilege. Neither the Company nor any of its
service contractors will be liable for any loss or expense for acting upon any
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.
WIRE REDEMPTION. An investment in Pacific Horizon Shares of a Fund automatically
entitles an investor to redeem shares by wire unless he indicates on the Account
Application or in a subsequent signature guaranteed written notice to the
Transfer Agent that he does not wish to use this method of redemption.
Appropriate information concerning the investor's bank must be provided on the
Account Application or in a subsequent signature guaranteed letter of
instruction to the Transfer Agent before shares may be redeemed by wire.
Shareholders may instruct the Transfer Agent to redeem shares in a Fund on
written, telegraphic, or telephone instructions from any person representing
himself to be the investor and believed by the Transfer Agent to be genuine. The
responsibility of the Transfer Agent and certain other parties for telephonic
instructions believed to be genuine is discussed in the preceding paragraph. The
proceeds of redemption will normally be wired in federal funds to the commercial
bank specified by the investor on the Account Application. Redemption proceeds
must be in an amount of at least $1,000, and may be subject to limits as to
frequency and overall amount. Wire redemptions may be terminated or modified by
a Fund at any time. Pacific Horizon Shares issued in certificate form are not
eligible for wire redemption. A shareholder should contact his bank for
information on any charges imposed by the bank in connection with the receipt of
redemption proceeds by wire. During periods of substantial economic or market
change, telephone wire redemptions may be difficult to implement. If an investor
is unable to contact the Transfer Agent by telephone, shares may also be
redeemed by delivering the redemption request in person to the Transfer Agent or
by mail as described above under "Regular Redemption." For additional
information concerning wire redemptions, see the Statement of Additional
Information and the Funds' Account Application.
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<PAGE> 73
CHECK REDEMPTION. An investor in Pacific Horizon Shares may request on the
Account Application that the Company provide Redemption Checks ("Checks") drawn
on a Fund. Checks will be sent only to the registered owner(s) and only to the
address of record. The Account Application must be manually signed by the
registered owner(s). Checks may be made payable to the order of any person in
the amount of $500 or more. Dividends are earned until the Check clears the
Transfer Agent. When a Check is presented to the Transfer Agent for payment, the
Transfer Agent, as the investor's agent, will cause the Fund involved to redeem
a sufficient number of the investor's Pacific Horizon Shares to cover the amount
of the Check and any applicable CDSC with respect to the Prime Fund. There is no
charge to the investor for the use of the Checks; however, the Transfer Agent
will impose a charge for stopping payment of a Check upon the request of the
investor, or if the Transfer Agent cannot honor a Check due to insufficient
funds or other valid reasons. Because dividends accrue daily and because a CDSC
may be applicable with respect to the Prime Fund, checks should not be used to
close an account. Pacific Horizon Shares for which stock certificates have been
issued may not be redeemed by Check.
OTHER REDEMPTION INFORMATION--X SHARES AND PACIFIC HORIZON SHARES. Redemption
orders are effected on a Business Day at the net asset value per share next
determined after receipt of the order by the Transfer Agent. The Funds will make
payment for all shares redeemed after receipt by the Transfer Agent of a request
in proper form, except as provided by the rules of the Securities and Exchange
Commission. If the shares to be redeemed have been purchased by check or
TeleTrade, the Company will, upon the clearance of the purchase check or
TeleTrade payment, mail the redemption proceeds within seven business days.
Where redemption is requested other than by mail, shares purchased by check or
by TeleTrade will not be redeemed for a period of seven business days after
their purchase. This procedure does not apply to situations where the Fund
receives payment in cash or immediately available funds for the purchase of
shares. The Company may suspend the right of redemption or postpone the date of
payment upon redemption (as well as suspend the recordation of the transfer of
shares) for such periods as are permitted under the 1940 Act. During the period
prior to the time the shares are redeemed, dividends on such shares will accrue
and be payable, and an investor will be entitled to exercise all other rights of
beneficial ownership.
The Funds impose no charge when X Shares or Pacific Horizon Shares are redeemed
unless Pacific Horizon Shares of the Prime Fund have been acquired through
exchange of B Shares of the Time Horizon Funds, in which case any applicable
CDSC will be charged in accordance with the prospectus for the particular B
Shares. Additionally, if Pacific Horizon Shares have been purchased through Bank
of America or a Service Organization, Bank of America or the Service
Organization may charge a fee for providing administrative services in
connection with investments in shares. The Funds reserve the right to redeem
Pacific Horizon Share accounts (other than non-working spousal IRA accounts)
involuntarily, upon sixty days' written notice, if the account's net asset value
falls below the $500 minimum balance. A CDSC will not be imposed upon such
involuntary redemptions with respect to the Prime Fund.
SHAREHOLDER SERVICES
The services and privileges described under this heading are available only to
holders of the Funds' Pacific Horizon Shares and are not available to persons
who invest directly in Horizon or Horizon Service Shares of the Funds or in X
Shares or S Shares of the Prime and Treasury Funds. Additionally, these services
and privileges may not be available to certain clients of Bank of America and
particular Service Organizations. Bank of America and some Service Organizations
may impose conditions on their clients which are different from those described
in this Prospectus. You should consult Bank of America or your Service
Organization in this regard.
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<PAGE> 74
INDIVIDUAL RETIREMENT ACCOUNTS ("IRAS"). The Company makes available IRAs,
including IRAs set up under a Simplified Employee Pension Plan ("SEP-IRAs") and
IRA "Rollover Accounts." For details contact the Distributor at (800) 332-3863.
The minimum initial investment for SEP-IRAs with more than one participant is
$2,500, with no minimum on subsequent purchases. The minimum initial investment
for IRAs and SEP-IRAs with only one participant is normally $500, with no
minimum on subsequent purchases. Individuals who open an IRA may also open a
non-working spousal IRA with a minimum investment of $250. The CDSC with respect
to Pacific Horizon Shares acquired through exchange of B Shares will not be
charged on redemptions in connection with minimum required distributions from an
IRA due to the shareholder having reached age 70. The investor should read the
IRA Disclosure Statement and the Bank Custodial Agreement for further details as
to eligibility, service fees and tax implications, and should consult a tax
adviser.
EXCHANGES. The Exchange Privilege enables an investor to exchange Pacific
Horizon Shares of a Fund for: like shares in another portfolio of the Company,
or like shares of any investment portfolio of Time Horizon Funds, provided that
(i) Pacific Horizon Shares of the Prime Fund acquired through an exchange of B
Shares of an investment portfolio of the Time Horizon Funds may only be
exchanged for B Shares of an investment portfolio of the Time Horizon Funds, and
(ii) such other shares may legally be sold in the state of the investor's
residence. An investment in Pacific Horizon Shares of a Fund automatically
entitles an investor to use this Privilege unless he indicates on the Account
Application or in a subsequent written notice to the Transfer Agent that he does
not wish to use this Privilege. The shares that are exchanged must have a
current value of at least $500; furthermore, in establishing a new account
through use of this Privilege, the shares being exchanged must have a value at
least equal to the minimum initial investment required by the particular
portfolio into which the exchange is being made. Prospectuses for portfolios of
the Company (as well as prospectuses for investment portfolios of Time Horizon
Funds) into which an exchange is being made may be obtained from the investor's
Service Organization or the Distributor. B Shares of the Time Horizon Funds
offered with a CDSC may be exchanged for Pacific Horizon Shares of the Prime
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 the
particular B Shares. 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. A shareholder may telephone instructions by calling the Transfer
Agent at (800) 346-2087. See "Redemption of Shares--TeleTrade" for a description
of the Company's policy regarding responsibility for telephone instructions.
When Fund shares are exchanged for shares of another portfolio in the Company
(or for shares of an investment portfolio of Time Horizon Funds) which are sold
with a front-end sales load, the applicable front-end sales load, if any, will
be deducted. An investor desiring to use the Exchange Privilege should read the
Statement of Additional Information and consult his or her Service Organization
or the Distributor for further information applicable to use of the Exchange
Privilege. 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 will be given to shareholders of any material modification or termination
except where notice is not required under the regulations of the Securities and
Exchange Commission.
AUTOMATIC INVESTMENT PROGRAM. The Automatic Investment Program permits an
investor to purchase Pacific Horizon Shares (minimum $50 per transaction) at
regular intervals selected by the investor. Provided the investor's financial
institution allows automatic withdrawals, shares are purchased by transferring
funds from an investor's checking, bank money market or NOW account designated
by the investor. At the investor's option, the account designated will be
debited in the specified amount, and shares will be purchased, once a month, on
either the first or fifteenth day, or twice a month, on both days. Only an
30
<PAGE> 75
account maintained at a domestic financial institution which is an Automated
Clearing House member may be so designated. The minimum initial investment
requirement for investors establishing an Automatic Investment account is $50.
To establish an Automatic Investment account, an investor must check the
appropriate box and supply the necessary information on the Account Application
or subsequently file a written request with the Transfer Agent. Such
applications are available from the Distributor. An investor may cancel this
Privilege or change the amount of purchase at any time by mailing written
notification to the Transfer Agent at P.O. Box 80221, Los Angeles, California
90080-9909 and notification will be effective three business days following
receipt. The Company may modify or terminate this Privilege at any time or
charge a service fee, although no such fee currently is contemplated.
DIRECT DEPOSIT PROGRAM. If an investor receives federal salary, social security,
or certain veteran's, military or other payments from the federal government, he
is eligible for the Direct Deposit Program. With this Program, an investor may
purchase Pacific Horizon Shares (minimum of $50 and maximum of $50,000 per
transaction) by having these payments automatically deposited into his Fund
account. An investor may deposit as much of such payments as he elects. For
instructions on how to enroll in the Direct Deposit Program, an investor should
call the Transfer Agent at (800) 346-2087. Death or legal incapacity will
terminate an investor's participation in the Program. An investor may elect at
any time to terminate his participation by notifying the appropriate federal
agency. Further, the Company may terminate an investor's participation upon 30
days' notice to the investor.
AUTOMATIC WITHDRAWAL PLAN. Investors having a $5,000 minimum account may request
withdrawal of a dollar amount in multiples of $50 on a monthly, quarterly,
semi-annual or annual basis. At the investor's option, monthly withdrawals will
be made on either the first or fifteenth day of the month and quarterly, semi
annual or annual withdrawals will be made on either the first or fifteenth day
of the month selected. To participate in the automatic withdrawal plan, an
investor must check the appropriate box and supply the necessary information on
the Account Application which may be obtained from the Distributor or
subsequently file a signature guaranteed written request with the Transfer
Agent. Use of this Plan may be disadvantageous for Pacific Horizon Shares of the
Prime Fund acquired through exchange of B Shares due to the potential need to
pay a CDSC.
REINSTATEMENT PRIVILEGES. An investor may reinvest all or any portion of his
redemption proceeds received from the redemption of Pacific Horizon Shares of
the Prime Fund, which were acquired through exchange of B Shares of the Time
Horizon Funds, within 90 days of the redemption trade date. Such reinvestment
must be made in B Shares of an investment portfolio of the Time Horizon Funds.
Upon such a reinvestment, the distributor will credit to an investor's account
any contingent deferred sales charge imposed on any redeemed shares. For
purposes of computing the CDSC upon redemption of shares reinvested through this
Privilege, 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. Shares so reinvested will be
purchased at a price equal to the net asset value next determined after the
Transfer Agent receives a reinstatement request and payment in proper form.
If an investor wishes to use this Privilege, he must submit a written request to
the Transfer Agent stating that he is eligible to use the Privilege. The
reinstatement request and payment must be received within 90 days of the trade
date of the redemption. Currently, there are no restrictions on the number of
times an investor may use this Privilege.
Generally, exercising the Reinstatement Privilege will not affect the character
of any gain or loss realized on redemption for federal income tax purposes.
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<PAGE> 76
However, if a redemption results in a loss, the reinstatement may result in the
loss being disallowed under IRS "wash sale" rules.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS. The shareholders of a Fund are entitled to
dividends and distributions arising from the net investment income and net
realized gains, if any, earned on investments held by the Fund involved.
Generally, each Fund's net income is declared daily as a dividend. Shares begin
accruing dividends on the day the purchase order for the shares is executed and
continue to accrue dividends through and including the day before the redemption
order for the shares is executed. Dividends are paid within five business days
after the end of each month. Although the Funds do not expect to realize net
long-term capital gains, any such capital gains as may be realized will be
distributed no more than twice a year after reduction for any available capital
loss carry-forward.
Dividends are paid in the form of additional full and fractional shares of the
same series as the shares on which the dividends are declared at the net asset
value of such shares on the payment date. However, holders of the Funds' Pacific
Horizon Shares may elect to receive dividends in cash. Reinvested dividends
receive the same tax treatment as dividends paid in cash. Such election or any
revocation thereof must be made in writing to the Transfer Agent at P.O. Box
80221, Los Angeles, California 90080-9909, and will become effective with
respect to dividends paid after its receipt by the dividend disbursing agent.
FEDERAL TAXES. During its most recent taxable year, each Fund qualified
separately as a "regulated investment company" under the Internal Revenue Code
of 1986, as amended (the "Code"), each Fund intends to so qualify in future
years, as long as such qualification is in the best interest 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.
In connection with such tax qualification, each Fund contemplates declaring as
dividends at least 90% of its investment company taxable income for each taxable
year. An investor of any Fund who receives a dividend derived from investment
company taxable income (including any excess of net short-term capital gain over
net long-term capital loss) treats it as a receipt of ordinary income in the
computation of his gross income, whether such dividend is paid in the form of
cash or additional shares of a Fund. Because all of the net investment income of
the Funds is expected to be derived from earned interest, it is anticipated that
all dividends paid by the Funds will be taxable as ordinary income to
shareholders who are not exempt from federal income taxes and that no part of
any distribution paid by the Funds will be eligible for the dividends received
deduction for corporations.
Although the Funds anticipate that they will not have net long-term capital
gain, any distribution of a Fund's excess of net long-term capital gain over its
net short-term capital loss will be taxable to shareholders of that Fund as
long-term capital gain, regardless of how long the shareholder has held shares
of the Fund.
Dividends declared in October, November, or December of any calendar year
payable to shareholders of record on a specified date in December will be deemed
for federal tax purposes to have been paid by the Funds and received by the
shareholders on December 31 of such year, if such dividends are paid during
January of the following year.
The foregoing is only a brief summary of some of the important federal income
tax considerations generally affecting the Funds and their shareholders, and is
based on federal tax laws and regulations which are in effect as of the date of
this Prospectus. Such laws and regulations may be changed by legislative or
32
<PAGE> 77
administrative actions. Additional tax information of relevance to particular
investors is contained in the Statement of Additional Information. Potential
investors in the Funds should consult their tax advisers with specific reference
to their own tax situation. Shareholders will be advised at least annually as to
the federal income tax consequences of distributions made each year.
STATE AND LOCAL TAXES. Investors are advised to consult their tax advisers
concerning the application of state and local taxes, which may have different
consequences from those of the federal income tax law described above.
DESCRIPTION OF SHARES
The Company was organized on October 27, 1982 as a Maryland corporation. On
March 30, 1984 the Company commenced its public sale of shares (Pacific Horizon
Shares) in each of the Prime Fund and Treasury Fund, which were originally
called "Money Market Portfolio" and "Government Money Market Portfolio,"
respectively. The Predecessor Prime Fund and Predecessor Treasury Fund
originally commenced operations on July 10, 1987 as separate portfolios of The
Horizon Funds, a Massachusetts business trust. On January 19, 1990, the
Predecessor Prime Fund and Predecessor Treasury Fund of The Horizon Funds were
combined with the Money Market Portfolio and Government Money Market Portfolio,
respectively, of the Company; the Company changed the names of its resulting
portfolios to "Prime Fund" and "Treasury Fund"; and, in addition to continuing
its offering of Pacific Horizon Shares in such Funds, the Company began offering
Horizon Shares and Horizon Service Shares in the Prime and Treasury Funds. The
Predecessor Government Funds and Predecessor Treasury Only Funds commenced
operations on June 4, 1990 as investment portfolios of First Funds of America
and First Cash Funds of America. On March 1, 1993, the Predecessor Government
Funds and Predecessor Treasury Only Funds were reorganized as new portfolios of
the Company, offering Pacific Horizon Shares and Horizon Service Shares; the
Government Fund and Treasury Only Fund began offering Horizon Shares on June 14,
1993 and September 20, 1995, respectively. On July 22, 1996, the Company began
offering X Shares in the Prime and Treasury Funds and on April 7, 1997 began
offering S Shares in the Prime Fund. The Company has also classified an S share
class of the Treasury Fund. S Shares are offered to customers who purchase such
shares through cash management services, such as a sweep account offered by Bank
of America, any of its banking affiliates and certain other Service
Organizations. Horizon and Horizon Service Shares may be purchased by
institutional investors for accounts maintained by individuals, but may not be
purchased by individuals directly.
The Company's charter authorizes the Board of Directors to issue up to two
hundred billion full and fractional shares of capital stock, and to classify and
reclassify any authorized and unissued shares into one or more classes of
shares. The Board of Directors may similarly classify or reclassify any class of
shares into one or more series.
Pursuant to such authority, the Board of Directors has authorized the issuance
of the following series of shares representing interests in the Funds, each of
which is classified as a diversified company under the Investment Company Act of
1940: ten billion X Shares, ten billion S Shares, ten billion Pacific Horizon
Shares, eighteen billion Horizon Shares and ten billion Horizon Service Shares
representing interests in the Prime Fund; four billion, four hundred million X
Shares, ten billion S Shares, ten billion Pacific Horizon Shares, ten billion
Horizon Shares and ten billion Horizon Service Shares representing interests in
the Treasury Fund; fifteen billion Pacific Horizon Shares, seven billion Horizon
Shares and fifteen billion Horizon Service Shares representing interests in the
Government Fund; and fifteen billion Pacific Horizon Shares, seven billion
Horizon Shares and fifteen billion Horizon Service Shares representing interests
in the Treasury Only Fund. Horizon Shares and Horizon Service Shares of the
Funds and S Shares of the Prime and Treasury Funds are described in a separate
Prospectus available from the Distributor at the telephone number on the cover
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<PAGE> 78
of this Prospectus. The Board of Directors has also authorized the issuance of
additional classes of shares representing interests in other investment
portfolios of the Company, which are likewise described in separate Prospectuses
available from the Distributor. This Prospectus relates primarily to the Pacific
Horizon Shares of the Funds and X Shares of the Prime and Treasury Funds and
describes only the investment objectives and policies, operations, contracts and
other matters relating to such Shares.
Each X Share, S Share, Pacific Horizon Share, Horizon Share and Horizon Service
Share in a Fund has a par value of $.001, and, except as noted below, is
entitled to participate equally in the dividends and distributions declared by
the Board of Directors with respect to such Fund and in the net distributable
assets of such Fund on liquidation. Holders of X Shares of the Prime and
Treasury Funds bear the fees described in this Prospectus that are paid to the
Distributor and Service Organizations by such Funds under the Company's
Distribution and Services Plan. Similarly, holders of such Funds' S Shares bear
the fees described in the Prospectus relating to such shares that are paid to
the Distributor and Service Organizations by such Funds under the same plan. The
fees paid under the Distribution and Services Plan are for distribution and
shareholder services paid to the Distributor and Service Organizations in
connection with S and X Shares of the Prime and Treasury Funds, and are not paid
by such Funds' Horizon, Horizon Service or Pacific Horizon Shares. Holders of a
Fund's Pacific Horizon Shares bear the fees described in this Prospectus that
are paid to Shareholder Organizations by the Fund under the Company's Special
Management Services Plan for Pacific Horizon Shares. Similarly, holders of
Horizon Service Shares bear the fees described in the Prospectus for such shares
that are paid to shareholder organizations by a Fund under the Company's
Shareholder Services Plan. The fees paid under the Special Management Services
Agreement are for services provided by Shareholder Organizations to holders of
the Funds' Pacific Horizon Shares and are not borne by the Funds' Horizon Shares
or Horizon Service Shares or by X Shares or S Shares of the Prime and Treasury
Funds. The fees paid under the Shareholder Services Plan are for services
provided by shareholder organizations to their customers in connection with
Horizon Service Shares, and shareholder organizations do not receive similar
fees with respect to the Funds' Horizon Shares or Pacific Horizon Shares or the
X Shares or S Shares of the Prime and Treasury Funds. As a result of the
different fees borne by the various series of shares in a Fund, at any given
time, absent waivers of any class-specific fees or expenses, the net yield on a)
the Prime and Treasury Funds' X Shares generally will be approximately 0.23%
lower than the yield on the same Fund's Pacific Horizon Shares, 0.30% lower than
the yield on the same Fund's Horizon Service Shares, 0.55% lower than the yield
on the same Fund's Horizon Shares and 0.45% higher than the yield on the same
Fund's S Shares; and b) a Fund's Pacific Horizon Shares generally will be
approximately 0.07% lower than the yield on the same Fund's Horizon Service
Shares, 0.32% lower than the yield on the same Fund's Horizon Shares, and 0.23%
and 0.68% higher than the yield on the same Fund's X Shares and S Shares,
respectively, with respect to the Prime and Treasury Funds. Standardized yield
quotations will be computed separately for each series of Shares.
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 law or when class voting is
permitted by the Board of Directors. It is contemplated that all shareholders of
a Fund will vote together as a single class on matters relating to the Fund's
investment advisory agreement and on any change in its fundamental investment
limitations. Only holders of Pacific Horizon Shares will be entitled to vote on
matters submitted to a vote of shareholders pertaining to the Funds' Special
Management Services Agreement. Only holders of Horizon Service Shares will be
entitled to vote on matters submitted to a vote of shareholders pertaining to
the Funds' Shareholder Service Plan. Only holders of particular S and X Shares,
if affected by changes to such Plan, will be entitled to vote on matters
submitted to a vote of shareholders pertaining to a Fund's Distribution and
Services Plan relating
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to the particular series. Shares have no preemptive rights and only such
conversion and exchange rights as the Board may grant at its discretion. When
issued for payment as described in this Prospectus, shares will be fully paid
and non-assessable. Certificates for shares will not be issued.
The Company does not presently intend to hold annual meetings of shareholders
for the election of directors and other business unless and until such time as
less than a majority of the directors holding office have been elected by the
shareholders of the Company, at which 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 meeting of
shareholders to consider the removal of one or more directors and such meetings
will be called when requested by the holders of record of 10% or more of the
Company's outstanding shares of common stock. To the extent required by law and
the Company's undertaking with the Securities and Exchange Commission, the
Company will assist in shareholder communications in such matters. Shares have
cumulative voting rights to the extent that may be required by applicable law.
PERFORMANCE CALCULATIONS
From time to time the "yield" or "effective yield" of a Fund may be quoted in
advertisements or reports to shareholders. Both yield figures are based on
historical earnings and are not intended to indicate future performance. The
"yield" of a Fund refers to the income generated by an investment in the Fund
over a seven-day period (which period will be stated in the advertisement or
report). This income is then "annualized"--that is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly but, when annualized, the income
earned by an investment in the Fund is assumed to be reinvested. The "effective
yield" will be slightly higher than the "yield" because of the compounding
effect of this assumed reinvestment.
Additionally, the yields of each Fund may be compared to those of other mutual
funds with similar investment objectives and to other relevant indices or to
rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
Funds' yields may be compared to Donoghue's Money Fund Averages, which are
averages compiled by Donoghue's Money Fund Report. Yield data as reported in
national financial publications, including Money, Forbes, Barron's, The Wall
Street Journal and The New York Times, or in publications of a local or regional
nature, may also be used in comparing the yields of the Funds. A complete
listing of the indices, rankings and publications discussed above is contained
in the Statement of Additional Information.
Since yields fluctuate, yield data cannot necessarily be used to compare an
investment in the shares of a Fund with bank deposits, savings accounts and
similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that yield
is generally a function of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses and market conditions. Any
fees charged by Bank of America or other institutional investors directly to
their customers in connection with investments in shares of the Funds (which
fees may include, for example, account maintenance fees, compensating balance
requirements or fees based upon account transactions, assets or income) will not
be included in the Funds' calculations of yield.
Shareholder inquiries should be addressed to the Distributor at the address or
telephone numbers stated on the inside cover of this Prospectus.
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<PAGE> 80
PACIFIC HORIZON MUTUAL FUNDS
PRIME FUND
TREASURY FUND
GOVERNMENT FUND
TREASURY ONLY FUND
PROSPECTUS
_______ __, 1997
NOT FDIC INSURED
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<PAGE> 81
PACIFIC HORIZON FUNDS, INC.
Pacific Horizon Shares of the
Tax-Exempt Money Fund and California Tax-Exempt Money Market Fund
and
X Shares of the
California Tax-Exempt Money Market Fund
------------------
<TABLE>
<CAPTION>
Form N-1A Item Prospectus Caption
- -------------- ------------------
Part A
- ------
<S> <C> <C>
1. Cover Page................................................. Cover Page
2. Synopsis................................................... Expense Summary
3. Condensed Financial Information............................ Financial Highlights;
Performance Calculations
4. General Description of Registrant.......................... Description of Shares; Cover
Page; Investment Objectives
and Policies; Investment
Limitations; Other Investment
Practices; Special
Considerations and Risks
5. Management of the Fund..................................... Management of the Funds
5.A. Management's Discussion of
Fund Performance......................................... *
6. Capital Stock and Other
Securities............................................... Description of Shares;
Dividends; Distributions and
Taxes
7. Purchase of Securities Being
Offered................................................... Purchase of Shares; Redemption
of Shares; Management of the
Funds; Shareholder Services;
Performance Calculations
8. Redemption or Repurchase................................... Redemption of Shares;
Shareholder Services
9. Pending Legal Proceedings.................................. *
- -----------
* Item inapplicable or answer negative.
</TABLE>
<PAGE> 82
PROSPECTUS
_________ __, 1997
Pacific Horizon Shares of the
Tax-Exempt Money Fund
California Tax-Exempt
Money Market Fund
X Shares of the
California Tax-Exempt Money Market Fund
Investment Portfolios Offered by Pacific Horizon Funds, Inc.
This Prospectus applies to the X Shares of the California Tax-Exempt Money
Market Fund and Pacific Horizon Shares of the Tax-Exempt Money Fund and the
California Tax-Exempt Money Market Fund (the "Funds"), two no-load tax-exempt
investment portfolios offered by Pacific Horizon Funds, Inc. (the "Company").
The Funds are designed to provide investors with daily liquidity. The Company is
registered under the Investment Company Act of 1940 as an open-end management
investment company. The Tax-Exempt Money Fund is a diversified investment
portfolio and the California Tax-Exempt Money Market Fund is a non-diversified
investment portfolio.
The investment objective of the TAX-EXEMPT MONEY FUND is to provide as high a
level of current interest income exempt from federal income taxes as is
consistent with relative stability of principal. The investment objective of the
CALIFORNIA TAX-EXEMPT MONEY MARKET FUND is to seek as high a level of current
interest income free of federal income tax and California state personal income
tax as is consistent with the preservation of capital and relative stability of
principal. The Funds seek to achieve their objectives by investing primarily in
U.S. dollar-denominated obligations the interest on which is exempt from regular
federal income tax, and in the case of the California Tax-Exempt Money Market
Fund, is also exempt from taxation under the laws or constitution of California.
The California Tax-Exempt Money Market Fund is, and the Tax-Exempt Money Fund
may be, concentrated in securities issued by the state of California or entities
within the State of California and the California Tax-Exempt Money Market Fund
may invest a significant percentage of its assets in a single issuer. Therefore,
investment in the Funds may be riskier than an investment in other types of
money market funds.
This Prospectus briefly sets forth certain information about the Funds described
herein that investors should know before investing. It should be read and
retained for future reference. Additional Information about the Funds is
contained in a Statement of Additional Information dated _______ __, 1997 that
has been filed with the Securities and Exchange Commission and is available upon
request and without charge by calling the Fund's distributor at (800) 332-3863.
The Statement of Additional Information, as it may from time to time be revised,
is incorporated in its entirety by reference into this prospectus.
Shares of the Funds are not bank deposits or obligations of, or guaranteed or
endorsed by, Bank of America National Trust and Savings Association or any of
its affiliates and are not federally insured by, guaranteed by, obligations of
or otherwise supported by the U.S. Government, the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other governmental agency. Each
Fund seeks to maintain its net asset value per share at $1.00 for purposes of
purchases and redemptions, although there can be no assurance that it will be
able to do so on a continuous basis. Investment in the Funds involves investment
risk, including the possible loss of principal amount invested.
(Continued next page)
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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.
No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus, in the Statement
of Additional Information and the 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 its 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.
Currently, X Shares are available only to qualified retail customers who
purchase such shares through a sweep account ("Sweep Account") offered by BA
Investment Services, Inc. ("BAIS") and certain other financial service
organizations, such as banks or broker-dealers ("Service Organizations"). A
Sweep Account combines a brokerage account (the "Transaction Account") with a
daily sweep of balances to or from the California Tax-Exempt Money Market Fund's
X Shares. BAIS or Service Organizations, as applicable, are responsible for
providing persons investing in X Shares through a Sweep Account with Sweep
Account materials (the "Sweep Materials") describing the various features and
operations of the Sweep Account. The Sweep Materials should be reviewed in
conjunction with this Prospectus.
Pacific Horizon Shares may be purchased directly from Concord Financial Group,
Inc., by clients of Bank of America National Trust and Savings Association
through their qualified trust and agency accounts or by clients of Service
Organizations.
Bank of America National Trust and Savings Association ("Bank of America"), San
Francisco, California, acts as investment adviser to the Funds. Concord
Financial Group, Inc. sponsors the Funds and acts as their distributor and The
BISYS Group, Inc. acts as their administrator, neither of which is affiliated
with Bank of America.
Portfolio securities held by each Fund have remaining maturities of thirteen
months or less from the date of purchase by the Fund. Portfolio securities which
have certain put or demand features exercisable by a Fund within thirteen months
(as well as certain U.S. Government obligations with floating or variable
interest rates) and securities held as collateral for repurchase agreements may
have longer maturities.
2
<PAGE> 84
Contents
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Expense Summary 2
Financial Highlights 4
Investment Objectives and Policies 6
Management of the Funds 14
Purchase of Shares 17
Redemption of Shares 20
Shareholder Services 22
Dividends, Distributions and Taxes 24
Description of Shares 25
Performance Calculations 27
Distributor: Investment Adviser:
Concord Financial Group, Inc. Bank of America National Trust and
3435 Stelzer Road Savings Association
Columbus, OH 43219-3035 555 California Street
San Francisco, CA 94104
</TABLE>
3
<PAGE> 85
Expense Summary
The following table sets forth certain information regarding the shareholder
transaction expenses imposed by X Shares of the California Tax-Exempt Money
Market Fund and Pacific Horizon Shares of the Tax-Exempt Money Fund and
California Tax-Exempt Money Market Fund and the annual operating expenses 1)
incurred by X Shares of the California Tax-Exempt Money Market Fund during the
last fiscal year, and 2) incurred by the Pacific Horizon Shares of the
California Tax-Exempt Money Market Fund and Tax-Exempt Money Fund during the
last fiscal year. Actual expenses may vary. Hypothetical examples based on the
summary are also shown.
<TABLE>
<CAPTION>
Tax-
Exempt California
Money Tax-Exempt
Fund Money Market
---- ------------
Pacific Pacific
Horizon X Horizon
Shares Shares(1) Shares
------ --------- ------
Shareholder Transaction Expenses
<S> <C> <C> <C>
Sales Load Imposed on Purchases None None None
Sales Load Imposed on Reinvested Dividends None None None
Sales Load Imposed on Redemptions(2) None None None
Deferred Sales Load None None None
Redemption Fees None None None
Exchange Fee None None None
</TABLE>
Annual Fund Operating Expenses
(as a percentage of average net assets)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Management Fees __% __% __%
Rule 12b-1 Fees __% __%(3) __%
Special Management or Shareholder Services
Fees (after waivers) .__% .__% .__%(4)
All Other Expenses (after waivers) .__% .__% .__%
Total Operating Expenses (after waivers)(4) .__% .__% .__%(4)
</TABLE>
(1) Additional fees charged by BAIS or Service Organizations related to the
Sweep Account are not included in this table. For additional
information with respect to Sweep Account fees and charges, including a
description of the services available to Sweep Account holders, you
should refer to the Sweep Materials.
(2) The Company reserves the right to impose a charge for wiring redemption
proceeds.
(3) Because of the Distribution Plan payments paid by X Shares of the
California Tax-Exempt Money Market Fund as shown in the above table,
long-term Class X shareholders may pay more than the economic
equivalent of the maximum front-end sales charge permitted by the
National Association of Securities Dealers, Inc.
(4) Absent fee waivers, Special Management Fees and Total Operating
Expenses would have been .__% and .__%, respectively, with respect to
Pacific Horizon Shares of the California Tax-Exempt Money Market Fund.
4
<PAGE> 86
<TABLE>
<CAPTION>
Examples 1 Year 3 Years 5 Years 10 Years
- -------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses
on a $1,000 investment, assuming (1)
a 5% annual return and (2) redemption
at the end of each time period:
Tax-Exempt Money Fund, Pacific Horizon
Shares $__ $__ $__ $__ $__
California Tax-Exempt Money Market
Fund X Shares $__ $__ $__ $__
Pacific Horizon Shares $__ $__ $__ $__
</TABLE>
The foregoing Expense Summary and Example are intended to assist investors in X
Shares of the California Tax-Exempt Money Market Fund and Pacific Horizon Shares
of the Tax-Exempt Money Fund and California Tax-Exempt Money Market Fund in
understanding the various shareholder transaction and operating expenses of each
class that investors bear either directly or indirectly. Investors bear
operating expenses indirectly since they reduce the amount of income paid by the
Funds to investors as dividends. From time to time, the investment adviser and
administrator may prospectively waive a portion of their respective fees and/or
assume certain expenses of the Funds. See "Management of the Funds" and
"Description of Shares" for more complete descriptions of the various expenses
referred to above.
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RETURN AND OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND
OPERATING EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
5
<PAGE> 87
FINANCIAL HIGHLIGHTS
The Tax-Exempt Fund commenced operations on July 10, 1987 as a separate
investment portfolio (the "Predecessor Tax-Exempt Fund") of The Horizon Funds.
On January 19, 1990, the Predecessor Tax-Exempt Fund was reorganized as the
Tax-Exempt Money Fund of the Company and has previously offered only two series
of shares--Horizon Shares and Horizon Service Shares. The Company first offered
Pacific Horizon Shares of the Tax-Exempt Money Fund on July 9, 1993. See
"Description of Shares" below for certain differences among the Pacific Horizon
Shares, Horizon Shares and Horizon Service Shares, including differences
relating to expenses.
The table below sets forth certain information concerning the investment results
for Pacific Horizon Shares of the Tax-Exempt Money Fund for the periods
indicated. The information for the years and periods indicated contained in the
Financial Highlights has been audited by [ ] independent accountants of the
Tax-Exempt Money Fund, whose unqualified report on the financial statements
containing such information for the five years in the period ended February 28,
1997 is incorporated by reference into the Statement of Additional Information,
which may be obtained upon request. The Financial Highlights should be read in
conjunction with the financial statements and notes thereto and the unqualified
report of the independent accountants which are incorporated by reference in the
Statement of Additional Information.
Selected Data for a Pacific Horizon Share Outstanding Throughout Each of the
Periods Indicated.
<TABLE>
<CAPTION>
Tax-Exempt Money Fund
Period
Year Ended Year Ended Year Ended Ended
February 28, February 29, February 28, February 28,
1997 1996 1995 1994*
---- ---- ---- -----
<S> <C> <C> <C> <C>
PACIFIC HORIZON SHARES:
Net asset value per share,
beginning of period $ 1.00 $ 1.00 $ 1.00
------- ------- -------
Income from Investment Operations:
Net investment income 0.0327 0.0253 0.0124
Less Dividends:
Dividends from net investment income (0.0327) (0.0253) (0.0124)
------- ------- -------
Net change in net asset value per share 0.0000 0.0000 0.0000
------- ------- -------
Net asset value per share,
end of period $ 1.00 $ 1.00 $ 1.00
======= ======= =======
Total return 3.32% 2.56% 1.25%o
Ratios/Supplemental Data:
Net assets, end of period (000) $49,618 $37,454 $49,648
Ratio of expenses to average
net assets 0.63% 0.60% 0.60%+**
Ratio of net investment income
to average net assets 3.26% 2.47% 1.95%+**
</TABLE>
* For the period July 9, 1993 (initial offering date) through February
28, 1994.
** Includes fees waived by the Adviser and Administrator which had the
effect of reducing the ratio of expenses to average net assets and
increasing the ratio of net investment income to average net assets by
0.01% (annualized).
+ Annualized.
o Not annualized.
6
<PAGE> 88
The California Tax-Exempt Money Market Fund commenced operations on December 6,
1989 as a portfolio of the Company with a single series of shares, Pacific
Horizon Shares. On March 1, 1993 the California Tax-Exempt Money Market Fund
began offering a second series of shares known as the Horizon Service Shares. On
September 2, 1996, the California Tax-Exempt Money Market Fund began offering an
X Share class. The Company has also classified an S Share class and a Horizon
Share class of the California Tax-Exempt Money Market Fund. Horizon Shares,
Horizon Service Shares, and S Shares of the Tax-Exempt Money and California
TaxExempt Money Market Fund are offered through another prospectus. The shares
of each class in the California Tax-Exempt Money Market Fund represent equal pro
rata interests in such Fund, except that they bear different expenses which
reflect the difference in the range of services provided to them. X Shares bear
the expense of a distribution and services plan (the "Distribution and Services
Plan") at annual rates not to exceed 0.55% of the average daily net asset value
on the Fund's respective outstanding X Shares. Pacific Horizon Shares bear the
expense of a special management services plan at an annual rate not to exceed
0.35% of the average daily net asset value of the California Tax-Exempt Money
Market Fund's outstanding Pacific Horizon Shares. See "Description of Shares"
below for certain differences among the Pacific Horizon Shares, Horizon Shares,
Horizon Service Shares and X Shares, including differences relating to expenses.
The tables below set forth certain information concerning the investment results
for Pacific Horizon Shares and X Shares of the California Tax-Exempt Money
Market Fund for the periods indicated. The information contained in the (i)
Financial Highlights relating to the Pacific Horizon Shares insofar as it
pertains to each of the five fiscal years in the five year period ended February
28, 1997 and (ii) Financial Highlights relating to X Shares insofar as it
pertains to the fiscal period ended February 28, 1997 has been audited by [ ],
independent accountants of the California Tax-Exempt Money Market Fund, whose
unqualified report on the financial statements containing such information is
incorporated by reference in the Statement of Additional Information, which may
be obtained upon request. The Financial Highlights should be read in conjunction
with the financial statements and notes thereto and the unqualified report of
the independent accountants which are incorporated by reference in the Statement
of Additional Information.
7
<PAGE> 89
Selected Data for a Pacific Horizon Share Outstanding Throughout Each of the
Periods Indicated.
<TABLE>
<CAPTION>
California Tax-Exempt Money Market Fund++
---------------------------------------------------------------------------------------------------
Year Ended Period
------------------------------------------------- Ended
Feb. 28, Feb. 29, Feb. 28, Feb. 28, Feb. 28, Feb. 29, Feb. 28, Feb. 28,
1997 1996 1995 1994 1993 1992 1991 1990*
------ ------ ------ ------ ------ ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PACIFIC HORIZON
SHARES:
Net asset value
per share,
beginning of
period .......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- -------
Income from
Investment
Operations:
Net investment
income .......... 0.0324 0.0249 0.0186 0.0224 0.0364 0.0495 0.0118
Net realized
gain (loss)
on securities........ (0.0001) (0.0001) 0.0002 (0.0002) 0.0000 (0.0001) 0.0000
-------- -------- -------- -------- -------- -------- -------
Total income from
investment
operations........... 0.0323 0.0248 0.0188 0.0222 0.0364 0.0494 0.0118
Less Dividends:
Dividends from net
investment income..... (0.0324) (0.0249) (0.0186) (0.0224) (0.0364) (0.0495) (0.0118)
-------- -------- -------- -------- -------- -------- -------
Net change in
net asset
value per share....... (0.0001) (0.0001) 0.0002 (0.0002) 0.0000 (0.0001) 0.0000
-------- -------- -------- -------- -------- -------- -------
Net asset value
per share,
end of period......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== =======
Total return ..... 3.29% 2.52% 1.88% 2.27% 3.70% 5.06% 1.18%o
Ratios/supplemental
data:
Net assets,
end of period
(000) .......... $528,008 $186,643 $203,724 $128,448 $107,424 $118,816 $51,380
Ratio of expenses to
average net assets.... 0.62% 0.62% 0.66%** 0.66%** 0.57%** 0.55%** 0.49%+**
Ratio of net investment
income to average net
assets .......... 3.35% 2.48% 1.86%** 2.21%** 3.62%** 4.81%** 5.10%+**
</TABLE>
* For the period December 6, 1989 (commencement of operations) through
February 28, 1990.
** Includes fee waivers and expense reimbursements by the Adviser and the
Administrator which had the effect of reducing the ratio of expenses to
average net assets and increasing the ratio of net investment income to
average net assets by 0.02%, 0.08%, 0.13% and 0.22% for the years ended
February 28, 1994, February 28, 1993, February 29, 1992 and February 28,
1991, respectively, and 0.49% (annualized) for the period ended February
28, 1990. For the fiscal year ended February 29, 1996, the Fund received
credits from its custodian for interest earned on uninvested cash balances
which were used to offset custodian fees and expenses. If such credits had
not occurred, the ratio of expenses to average net assets (without fee
waivers and/or expense reimbursements) would have been 0.63%. The ratio of
net investment income to average net assets was not affected.
+ Annualized.
++ Security Pacific National Bank served as investment adviser through April
21, 1992. Bank of America National Trust and Savings Association served as
investment adviser commencing April 22, 1992.
o Not annualized.
8
<PAGE> 90
Selected Data for an X Share Outstanding Throughout Each of the Periods
- ------------------------------------------------------------------------
Indicated.
- ----------
Pacific Horizon California Tax-Exempt Money Fund
Financial Highlights
<TABLE>
<CAPTION>
For the period from
October 2, 1996 through
February 28, 1997(a)
--------------------
<S> <C>
X SHARES
Net asset value per share, beginning
of period
Income from Investment Operations:
Net investment income.........................................
Total income from investment
operations....................................................
Less dividends to shareholders from net
investment income.............................................
Net change in net asset value
per share.....................................................
Net asset value per share,
end of period
Total Return
Ratios/Supplemental Data:
Net assets, end of year (000).................................
Ratio of expenses to average net
assets...............................................
Ratio of net investment income to
average net assets...................................
</TABLE>
- ------------------------------------
(a) Period from inception date of share class
# Annualized.
9
<PAGE> 91
Investment Objectives and
Policies
IN GENERAL
This section describes the investment objectives and policies of the Funds.
Assets of the Funds will be invested in dollar-denominated debt securities with
remaining maturities of thirteen months or less as defined by the Securities and
Exchange Commission (the "SEC"), and the dollar-weighted average portfolio
maturity of each Fund will not exceed 90 days. All securities acquired by the
Funds will be determined by the investment adviser, under guidelines established
by the Company's Board of Directors, to present minimal credit risks. Securities
acquired by the Tax-Exempt Money Fund will, under normal market conditions, be
"First Tier Securities," (as defined by the SEC) of the types described below.
During temporary defensive periods or if in the investment adviser's opinion
suitable First Tier Securities are not available for investment, however, the
Tax-Exempt Money Fund may also acquire "Eligible Securities" (as defined by the
SEC) of the types described below. Securities acquired by the California
Tax-Exempt Money Market Fund will be Eligible Securities. First Tier Securities
consist of instruments that are rated at the time of purchase in the top rating
category by one (if rated by only one) or more unaffiliated nationally
recognized statistical rating organizations ("NRSROs") including Standard and
Poor's Ratings Group, Division of McGraw-Hill ("Standard & Poor's"), Moody's
Investors Service, Inc. ("Moody's"), Duff & Phelps Credit Co. ("Duff and
Phelps") or Fitch Investors Service, Inc. ("Fitch") or issued by issuers with
such ratings. Eligible Securities consist either of instruments that are rated
at the time of purchase in the top two ratings categories by one or more NRSROs,
or are issued by issuers with such ratings. The Appendix to the Statement of
Additional Information includes a description of the applicable NRSRO ratings.
Unrated instruments (including instruments with long-term but not short-term
ratings) purchased by a particular Fund will be of comparable quality to the
rated instruments that the Fund may purchase, as determined by the Funds'
investment adviser pursuant to guidelines approved by the Board of Directors.
TAX-EXEMPT MONEY FUND. The Tax-Exempt Money Fund's investment objective is to
provide as high a level of current interest income exempt from federal income
taxes as is consistent with relative stability of principal. The Fund invests
substantially all of its assets in a diversified portfolio of U.S.
dollar-denominated short-term obligations issued by or on behalf of states,
territories and possessions of the United States, the District of Columbia and
their political subdivisions, agencies, instrumentalities and authorities, the
interest on which, in the opinion of bond counsel to the issuer, is exempt from
regular federal income tax ("Municipal Securities"). Portfolio securities held
by the Fund have remaining maturities of thirteen months or less from the date
of purchase by the Fund. (Portfolio securities which have certain put or demand
features exercisable by the Fund within thirteen months or are subject to
repurchase agreements may have longer maturities.)
As a matter of fundamental policy, under normal market conditions at least 80%
of the Fund's total assets will be invested in Municipal Securities (other than
private activity bonds the interest on which is treated as a specific tax
preference item under the federal alternative minimum tax). The Fund may also
invest in taxable obligations and may hold uninvested cash reserves pending
investment, during temporary defensive periods or if, in the opinion of the
Fund's investment adviser, suitable tax-exempt obligations are not available.
Uninvested cash reserves will not earn income. Taxable obligations acquired by
the Fund will not exceed under normal market conditions 20% of the Fund's total
assets at the time of purchase. Such taxable obligations include obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
(some of which may be subject to repurchase agreements), certificates of deposit
and bankers' acceptances of selected banks and commercial paper. Because the
Fund may invest in securities backed by banks and other financial institutions,
10
<PAGE> 92
changes in the credit quality of these institutions could cause losses to the
Fund and affect its share price. These obligations are described further in the
Statement of Additional Information.
CALIFORNIA TAX-EXEMPT MONEY MARKET FUND. The California Tax-Exempt Money Market
Fund's investment objective is to seek as high a level of current interest
income free of federal income tax and California state personal income tax as is
consistent with the preservation of capital and relative stability of principal.
The Fund's assets are primarily invested in Municipal Securities issued by or on
behalf of the State of California and other governmental issuers. Municipal
Securities acquired by the Fund will generally have remaining maturities of
thirteen months or less.
As a matter of fundamental policy, under normal market conditions at least 80%
of the Fund's net assets will be invested in Municipal Securities the interest
on which is exempt from taxation under the California Constitution or the laws
of California ("California Municipal Securities"). So long as at least 50% of
the Fund's total assets are invested in debt obligations the interest on which
is exempt from taxation by California ("California Exempt Securities," which
generally are limited to California Municipal Securities and certain U.S.
Government and U.S. Possession obligations) as of the end of each quarter,
dividends paid by the Fund which are derived from interest on California Exempt
Securities will be exempt from California state personal income tax; if this
policy is not achieved, no portion of the Fund's dividends will be exempt from
California state personal income tax. Dividends derived from interest on
Municipal Securities other than California Municipal Securities will be subject
to California state personal income tax. See "Dividends, Distributions and
Taxes."
The Fund may hold uninvested cash reserves pending investment, during temporary
defensive periods, or if, in the opinion of the Fund's investment adviser,
suitable tax-exempt obligations are unavailable. In accordance with the Fund's
investment objective, and subject to the Fund's fundamental policy that under
normal market conditions 80% of its net assets be invested in California
Municipal Securities, investments may be made in taxable obligations of up to
thirteen months in maturity if, for example, suitable tax-exempt obligations are
unavailable or if acquisition of U.S. Government or other taxable securities is
deemed appropriate for temporary defensive purposes. Such taxable obligations
include, without limitation, obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (some of which may be subject to
repurchase agreements), certificates of deposit and bankers' acceptances of
selected banks and commercial paper. Because the California Tax-Exempt Money
Market Fund may invest in securities backed by banks and other financial
institutions, changes in the credit quality of these institutions could cause
losses to the Fund and affect its share price. These obligations are further
described in the Statement of Additional Information. Under normal market
conditions, the Fund anticipates that not more than 5% of its net assets will be
invested in any one category of taxable securities. Additionally, the Fund will
not invest more than 10% of its net assets in securities that are illiquid
because of the absence of a readily available market or otherwise, including
repurchase agreements providing for settlement more than seven days after
notice.
MUNICIPAL SECURITIES
The two principal classifications of Municipal Securities which may be held by
the Funds 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 Funds are in most cases revenue
11
<PAGE> 93
securities which 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 ratings of the users of the facility involved.
The Funds may also require "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.
Municipal Securities include debt obligations issued by governmental entities 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 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. Municipal Securities also include short-term tax anticipation notes,
bond anticipation notes, revenue anticipation notes and other forms of
short-term loan obligations. 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. The Funds may also purchase tax-exempt commercial paper.
Securities acquired by the Funds may be in the form of custodial receipts
evidencing rights to receive a specific future interest payment, principal
payment or both on certain Municipal Securities. Such obligations are held in
custody by a bank on behalf of holders of the receipts. These custodial receipts
are known by various names, including "Municipal Receipts," "Municipal
Certificates of Accrual on Tax-Exempt Securities" ("M-CATS") and "Municipal
Zero-Coupon Receipts." A Fund may also purchase from time to time participation
interests in debt securities held by trusts or financial institutions. A
participation interest gives a Fund an undivided interest (up to 100%) in the
underlying obligation. Participation interests purchased by a Fund may have
fixed, floating or variable rates of interest, and will have remaining
maturities of thirteen months or less as determined in accordance with the
regulations of the Securities and Exchange Commission (although the securities
held by the issuer may have longer maturities). If a participation interest is
unrated, the investment adviser will have determined that the interest is of
comparable quality to those instruments in which the Fund involved may invest
pursuant to guidelines approved by the Company's Board of Directors. For certain
participation interests, the Fund involved will have the right to demand
payment, on not more than 30 days' notice, for all or any part of such until
maturity participation interest, plus accrued interest. As to these instruments,
the Funds intend to exercise their right to demand payment as needed to provide
liquidity, to maintain or improve the quality of their respective investment
portfolios or upon a default (if permitted under the terms of the instrument).
Although a participation interest may be sold by a Fund under normal
circumstances, they will be held.
Opinions relating to the validity of Municipal Securities and to the exemption
of interest thereon from regular federal income tax (and, with respect to
California Municipal Securities, California state personal income tax) are
rendered by bond counsel to the respective issuers at the time of issuance.
Neither the Funds nor their investment adviser will review the proceedings
relating to the issuance of Municipal Securities or the basis for such opinions.
OTHER INVESTMENT PRACTICES
VARIABLE AND FLOATING RATE INSTRUMENTS. Securities purchased by the Funds may
include variable and floating rate instruments, which may have a stated maturity
in excess of the Funds' maturity limitations but which will, in such event and
except with respect to certain U.S. Government obligations purchased by the
12
<PAGE> 94
Tax-Exempt Money Fund, permit the Fund involved to demand payment of the
principal of the instrument at least once every thirteen months upon not more
than thirty days' notice. Such instruments may include variable amount master
demand notes that permit the indebtedness thereunder to vary in addition to
providing for periodic adjustments in the interest rate. There may be no active
secondary market with respect to a particular variable or floating rate
instrument. Nevertheless, the periodic re-adjustments of their interest rates
tend to assure that their value to a Fund will approximate their par value.
Illiquid variable and floating rate instruments (instruments which are not
payable upon seven days notice and do not have an active trading market) that
are acquired by a Fund are subject to a Fund's percentage limitations on
illiquid investments. The creditworthiness of the issuers of such instruments
and their ability to repay principal and interest will be continuously monitored
by a Fund's investment adviser.
WHEN-ISSUED PURCHASES, FORWARD COMMITMENTS AND DELAYED SETTLEMENTS. The Funds
may purchase securities on a "when-issued" basis and may purchase or sell
securities on a "forward commitment" or "delayed settlement" basis. When-issued
and forward commitment transactions, which involve a commitment by a Fund to
purchase or sell particular securities with payment and delivery taking place at
a future date (perhaps one or two months later), permit the Fund to lock in a
price or yield on a security it owns or intends to purchase, regardless of
future changes in interest rates. Delayed settlement describes a securities
transaction in the secondary market for which settlement will occur sometime in
the future. When-issued, forward commitment and delayed settlement transactions
involve the risk, however, that the yield or price obtained in a transaction may
be less favorable than the yield or price available in the market when the
securities delivery take place. A Fund's forward commitments, when-issued
purchases and delayed settlements are not expected to exceed 25% of the value of
its total assets absent unusual market conditions. A Fund's liquidity and the
ability of the investment adviser to manage its portfolios may be adversely
affected in the event its forward commitments, when-issued purchases and delayed
settlements ever exceeded 25% of the value of its total assets. The Funds do not
intend to engage in these transactions for speculative purposes but only in
furtherance of their respective investment objectives.
STAND-BY COMMITMENTS. The Funds may acquire "stand-by commitments" with respect
to Municipal Securities held in their respective portfolios. Under a stand-by
commitment, a dealer agrees to purchase at a Fund's option specified Municipal
Securities at a specified price. The Funds will acquire stand-by commitments
solely to facilitate portfolio liquidity and do not intend to exercise their
rights thereunder for trading purposes. The California Tax-Exempt Money Market
Fund expects that "stand-by commitments" will generally be available without the
payment of any direct or indirect consideration. However, if necessary or
advisable, that Fund may pay for a "stand-by commitment" either separately in
cash or by paying a higher price for portfolio securities which are acquired
subject to the commitment (thus reducing the yield to maturity otherwise
available for the same securities).
REPURCHASE AGREEMENTS. The Funds may agree to purchase securities from financial
institutions, such as banks and broker-dealers as are deemed creditworthy by the
investment adviser under guidelines approved by the Board of Directors, subject
to the seller's agreement to repurchase them at an agreed upon time and price
("repurchase agreements"). Although the securities subject to a repurchase
agreement may bear maturities exceeding thirteen months, the Funds intend only
to enter into repurchase agreements having maturities not exceeding 60 days.
Securities subject to repurchase agreements are held either by the Company's
custodian, or sub-custodian, or in the Federal Reserve/Treasury Book-Entry
System. The seller under a repurchase agreement will be required to deliver
instruments the value of which is greater than the repurchase price. Default by
the seller would, however, expose the Fund involved to possible loss because of
adverse market action or delay in connection with the disposition of the
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underlying obligations. Repurchase agreements are considered to be loans under
the Investment Company Act of 1940.
REVERSE REPURCHASE AGREEMENTS. The Funds may borrow monies for temporary
purposes by entering into reverse repurchase agreements in accordance with the
investment restrictions described below. Pursuant to such agreements, a Fund
would sell portfolio securities to financial institutions and agree to
repurchase them at an agreed upon date and price. At the time a Fund enters into
a reverse repurchase agreement, it will place in a segregated custodial account
liquid assets or high grade debt securities having a value equal to or greater
than the repurchase price and the investment adviser will continuously monitor
the account to ensure that the value is maintained. A Fund would only enter into
reverse repurchase agreements to avoid otherwise selling securities during
unfavorable market conditions to meet redemptions. Reverse repurchase agreements
involve the risk that the market value of the portfolio securities sold by the
Fund involved may decline below the price of the securities the Fund is
obligated to repurchase. Interest paid by a Fund in connection with a reverse
repurchase agreement will reduce the net investment income of the Fund. Reverse
repurchase agreements are considered to be borrowings under the Investment
Company Act of 1940. A Fund will not purchase securities while it has borrowings
(including reverse repurchase agreements) outstanding.
SPECIAL CONSIDERATIONS AND RISKS
The California Tax-Exempt Money Market Fund is, and the Tax-Exempt Money Fund
may be, concentrated in securities issued by the State of California or entities
within the State of California and the California Tax-Exempt Money Market Fund
may invest a significant percentage of its assets in a single issuer. Therefore,
investment in the Funds may be riskier than an investment in other types of
money market funds.
In seeking to achieve their respective investment objectives the Funds may
invest in Municipal Securities that are private activity bonds the interest on
which, although exempt from regular federal income tax, may constitute an item
of tax preference for purposes of the federal alternative minimum tax. See
"Dividends, Distributions and Taxes." Investments in such securities, however,
will not exceed under normal market conditions 20% of a Fund's total assets when
added together with any taxable investments held by a Fund. Moreover, although
the Funds do not presently intend to do so on a regular basis, they may invest
more than 25% of their respective assets in Municipal Securities the interest on
which is paid solely from revenues of similar projects if such investment is
deemed necessary or appropriate by the Funds' investment adviser. Additionally,
although the Tax-Exempt Money Fund may invest more than 25% of its assets in
Municipal Securities the issuers of which are located in the same state, it does
not presently intend to do so on a regular basis other than issuers located in
California. To the extent a Fund's assets are concentrated in Municipal
Securities payable from revenues on similar projects or issued by issuers
located in the same state, the Fund will be subject to the peculiar economic,
political and business risks presented by the laws and economic conditions
relating to such states and projects to a greater extent than it would be if its
assets were not so concentrated.
The California Tax-Exempt Money Market Fund is classified as a non-diversified
investment company under the Investment Company Act of 1940. Investment return
on a non-diversified portfolio typically is dependent upon the performance of a
smaller number of securities relative to the number held in a diversified
portfolio. Consequently, the change in value of any one security may affect the
overall value of a non-diversified portfolio more than it would a diversified
portfolio, and thereby subject the market-based net asset value per share of the
non-diversified portfolio to greater fluctuations. In addition, a
non-diversified portfolio may be more susceptible to economic, political and
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regulatory developments than a diversified investment portfolio with similar
objectives may be.
The concentration in California Municipal Securities by the California
Tax-Exempt Money Market Fund and Tax-Exempt Money Fund raises additional
considerations. Payment of the interest on and the principal of these
obligations is dependent upon the continuing ability of California issuers
and/or obligors of state, municipal and public authority debt obligations to
meet their obligations thereunder. Investors should consider the greater risk
inherent in a Fund's concentration in such obligations versus the safety that
comes with a less geographically concentrated investment portfolio and should
compare the yield available on a portfolio of California issues with the yield
of a more diversified portfolio including non-California issues before making an
investment decision.
Many of the Funds' Municipal Securities are likely to be obligations of
California governmental issuers which rely in whole or in part, directly or
indirectly, on real property taxes as a source of revenue. "Proposition
Thirteen" and similar California constitutional and statutory amendments and
initiatives in recent years have restricted the ability of California taxing
entities to increase real property tax revenues. Other initiative measures
approved by California voters in recent years, through limiting various other
taxes, have resulted in a substantial reduction in state revenues. Decreased
state revenues may result in reductions in allocations of state revenues to
local governments.
Because of the complex nature of the various initiatives mentioned above and
certain possible ambiguities and inconsistencies in their terms and the scope of
various exemptions and exceptions, as well as the impossibility of predicting
the level of future appropriations for state and local California governmental
entities, it is not presently possible to determine the impact of these
initiatives and related measures on the ability of California governmental
issuers to pay interest or repay principal on their obligations. There have,
however, been certain adverse developments with respect to Municipal Securities
of California governmental issuers over the past several years.
In addition to the various initiatives discussed above, economic factors such as
the reduction in defense spending, a decline in tourism and high levels of
unemployment have had an adverse impact on the economy of California. In recent
years, these economic factors reduced revenues to the state government at a time
when expenses of state government such as education costs, various welfare costs
and other expenses were rising. Such economic factors adversely impacted the
ability of state and local California governmental entities to repay debt and
these factors, and others that cannot be predicted, may have an adverse impact
in the future.
In addition to the risk of nonpayment of state and local California governmental
debt, if such debt declines in quality and is downgraded by the NRSROs, it may
become ineligible for purchase by the Funds pursuant to current SEC regulations.
Since there are large numbers of buyers of such debt that are similarly
restricted, the supply of Eligible Securities (as defined above) could become
inadequate at certain times. A more detailed description of special factors
affecting investments in California Municipal Securities, of which investors
should be aware, is set forth in the Statement of Additional Information.
INVESTMENT LIMITATIONS
The investment objective of each Fund is fundamental and may not be changed
without a vote of the holders of a majority of the particular Fund's outstanding
shares (as defined in the Investment Company Act of 1940). A Fund's policies may
be changed by the Company's Board of Directors without the affirmative vote of
the holders of a majority of such Fund's outstanding shares, except that the
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following investment limitations may not be changed without such a vote of
shareholders. A description of certain other fundamental investment limitations
is contained in the Statement of Additional Information.
The Tax-Exempt Money Fund may not:
1. Under normal circumstances invest less than 80% of its total assets in
Municipal Securities (other than private activity bonds the interest on
which may be subject to the federal alternative minimum tax).
2. Purchase any securities which would cause 25% or more of the value of its
total assets at the time of such purchase to be invested in the securities
of one or more issuers conducting their principal business activities in
the same industry; provided, however, that (a) there is no limitation with
respect to investments in Municipal Securities or obligations issued or
guaranteed by the Federal Government and its agencies and
instrumentalities; (b) although there is no limitation with respect to
investments in certificates of deposit and bankers' acceptances issued by
domestic branches of United States banks, no more than 10% of the total
value of the Fund's assets at the time of purchase may be invested in
certificates of deposit and bankers' acceptances issued by domestic
branches of foreign banks and no more than 25% of the total value of the
Fund's assets at the time of purchase may be invested in certificates of
deposit and bankers' acceptances issued by domestic branches of foreign
banks and foreign branches of domestic banks; (c) each utility service
(such as gas, gas transmission, electric and telephone service) will be
considered a single industry for purposes of this policy; and (d)
wholly-owned finance companies will be considered to be in the industries
of their parents if their activities are primarily related to financing the
activities of their parents.
3. Borrow money except from banks for temporary purposes and in amounts not in
excess of 10% of the value of the Fund's total assets at the time of such
borrowing, or mortgage, pledge or hypothecate any assets except in
connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of the Fund's
total assets at the time of such borrowing. (This borrowing provision is
not for investment leverage, but solely to facilitate management of the
Fund's portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be disadvantageous or
inconvenient. The Fund will not purchase any securities while borrowings
are outstanding. Interest paid on borrowed funds will reduce the net
investment income of the Fund.)
4. Invest more than 10% of the value of its total assets in securities with
legal or contractual restrictions on resale (including repurchase
agreements with terms greater than seven days).
The California Tax-Exempt Money Market Fund may not:
1. Under normal market conditions invest less than 80% of its net assets in
California Municipal Securities.
2. Purchase the securities of any issuer if as a result more than 5% of the
value of the Fund's total assets would be invested in the securities of
such issuer, except that (a) up to 50% of the value of the Fund's total
assets may be invested without regard to this 5% limitation provided that
no more than 25% of the value of the Fund's total assets are invested in
the securities of any one issuer, and (b) this 5% limitation does not apply
to securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
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3. Borrow money or issue senior securities, except that the Fund may borrow
from banks or enter into reverse repurchase agreements to meet redemptions
or for other temporary purposes in amounts up to 10% of its total assets at
the time of such borrowing; or mortgage, pledge or hypothecate any assets
except in connection with any such borrowing and in amounts not in excess
of the lesser of the dollar amounts borrowed or 10% of its total assets at
the time of such borrowing.
INVESTMENT DECISIONS
Investment decisions for each Fund are made independently from those for other
investment companies and accounts managed by Bank of America and its affiliated
entities. Such other investment companies and accounts may also invest in the
same securities as a Fund. When a purchase or sale of the same security is made
at substantially the same time on behalf of a Fund and another investment
company or account, available investments or opportunities for sales will be
allocated in a manner which Bank of America believes to be equitable. In some
instances, this investment procedure may adversely affect the price paid or
received by a Fund or the size of the position obtained or sold by a Fund. In
addition, in allocating purchase and sale orders for portfolio securities
(involving the payment of brokerage commissions or dealer concessions), Bank of
America may take into account the sale of shares of a Fund by broker-dealers and
other financial institutions (including affiliates of Bank of America and the
Funds' distributor), provided Bank of America believes that the quality of the
transaction and the amount of the commission are not less favorable than what
they would be with any other unaffiliated qualified firm.
MANAGEMENT OF THE FUNDS
BOARD OF DIRECTORS. The business of the Company is managed under the direction
of its Board of Directors. Information about the Directors and Officers of the
Company is included in the Statement of Additional Information.
INVESTMENT ADVISER. Bank of America serves as the Funds' investment adviser.
Bank of America, which has principal offices at 555 California Street, San
Francisco, California 94104, is a national banking association formed in 1904
which 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. 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 it commenced operations in 1984. Bank of America
and its affiliates have over $__ billion under management, including over $__
billion in mutual funds. Bank of America is a subsidiary of BankAmerica
Corporation, a registered bank holding company.
As investment adviser, Bank of America manages the Funds' investments and is
responsible for all purchases and sales of the Funds' portfolio securities. For
its investment advisory services Bank of America is entitled to receive a fee
accrued daily and payable monthly at the following annual rates: .10% of the
first $3 billion of each Fund's net assets, plus .09% of the next $2 billion of
each Fund's net assets, plus .08% of each Fund's net assets over $5 billion. For
the fiscal year ended February 28, 1997, the Tax-Exempt Money Fund and the
California Tax-Exempt Money Market Fund paid Bank of America advisory fees at
the effective annual rates of .__% of their respective average daily net assets.
In addition, Bank of America is also entitled to fees under the Company's
Special Management Services Plan with respect to the Funds' Pacific Horizon
Shares and may receive fees pursuant to the Distribution and Services Plan with
respect to X Shares of the California Tax-Exempt Money Market Fund. Bank of
America and
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Service organizations may receive fees charged directly to their customers'
accounts in connection with investments in X Shares and/or Pacific Horizon
Shares of the Funds.
ADMINISTRATOR. The BISYS Group, Inc. (the "Administrator"), through its
wholly-owned subsidiary BISYS Fund Services, L.P., serves as the Company's
administrator and assists generally in supervising the Funds' operations. Their
offices are located at 50 Clove Road, Little Falls, New Jersey 07424 and 3435
Stelzer Road, Columbus, Ohio 43219, respectively. Prior to November 1, 1996,
Concord Holding Corporation, an indirect, wholly-owned subsidiary of the current
Administrator served as administrator.
Under its basic administrative services agreement for the Funds, the
Administrator has agreed to: provide facilities, equipment and personnel to
carry out administrative services for the benefit of all series in the Funds,
including coordination of the preparation of reports to shareholders and the
Securities and Exchange Commission; calculation of the net asset value of the
Funds' shares; calculation of dividends and capital gains distributions to
shareholders; payment of the costs of maintaining the Funds' offices;
preparation of tax returns; provision of internal legal and accounting
compliance services; maintenance (or oversight of the maintenance by others
approved by the Board of Directors) of the Funds' books and records; and the
provision of various services (such as the provision of a facility to receive
purchase and redemption orders for the accounts of such shareholders) for
shareholders who have made a minimum initial investment of at least $500,000.
For its administrative services the Administrator is entitled to receive an
administration fee computed daily and payable monthly at the following annual
rates: .10% of the first $7 billion of each Fund's net assets, plus .09% of the
next $3 billion of each Fund's net assets, plus .08% of each Fund's net assets
over $10 billion. For the fiscal year ended February 28, 1997, the California
Tax-Exempt Money Market Fund and the Tax-Exempt Money Fund paid the
Administrator administration fees at the effective annual rates of .__% of their
respective average daily net assets.
Pursuant to the authority granted in its agreement with the Company, the
Administrator has entered into an agreement with The Bank of New York under
which the bank performs certain of the services listed above--e.g., calculating
the net asset value of the Funds' shares and dividends paid to shareholders and
maintaining the Funds' books and records. The Funds bear all fees and expenses
charged by The Bank of New York for these services.
DISTRIBUTOR. Concord Financial Group, Inc. (the "Distributor") is the principal
underwriter and distributor of shares of the Funds. The Distributor is an
indirect, wholly-owned subsidiary of the Administrator organized to distribute
shares of mutual funds to institutional and retail investors. Its offices are
located at 3435 Stelzer Road, Columbus, Ohio 43219-3035.
The Distributor makes a continuous offering of the Funds' shares and bears the
costs and expenses of printing and distributing to selected dealers and
prospective investors copies of any prospectuses, statements of additional
information and annual and interim reports of the Funds (after such items have
been prepared and set in type by the Funds) that are used in connection with the
offering of shares, and the costs and expenses of preparing, printing and
distributing any other literature used by the Distributor or furnished by it for
use by selected dealers in connection with the offering of the Funds' shares for
sale to the public.
CUSTODIAN AND TRANSFER AGENT. The Bank of New York, located at 90 Washington
Street, New York, New York 10286, serves as the Fund's custodian. BISYS Fund
Services, Inc. (the "Transfer Agent"), 3435 Stelzer Road, Columbus, OH 43219, a
wholly-owned subsidiary of the Administrator, serves as the Funds' transfer
agent
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and dividend disbursing agent. The Company has also entered into a Cash
Management and Related Services Agreement with The Bank of New York pursuant to
which The Bank of New York receives and disburses funds in connection with the
purchase and redemption of and payment of dividends and other distributions with
respect to the Funds' shares.
DISTRIBUTION AND SERVICES PLAN. Under the Distribution and Services Plan, the
California Tax-Exempt Money Market Fund pays the Distributor for distribution
expenses primarily intended to result in the sale of such Fund's X Shares and
for shareholder servicing expenses. Such distribution expenses include expenses
incurred in connection with advertising and marketing the California Tax-Exempt
Money Market Fund's X Shares; payments to Service Organizations for assistance
in connection with the distribution of X Shares; and expenses incurred in
connection with preparing, printing and distributing prospectuses for the
California Tax-Exempt Money Market Fund (except those used for regulatory
purposes, or for distribution to existing shareholders of the Fund) and in
implementing and operating the Distribution and Services Plan. Shareholder
servicing expenses include expenses incurred in connection with shareholder
services provided by the Distributor and payments to Service Organizations for
the provision of support services with respect to the beneficial owners of X
Shares, such as establishing and maintaining accounts and records relating to
their clients who invest in X Shares, assisting clients in processing exchange
and redemption requests, developing, maintaining and supporting systems
necessary to support Sweep Accounts and in changing dividend options and account
descriptions, and responding to client inquiries concerning their investments.
Under the Distribution and Services Plan, payments by the California Tax-Exempt
Money Market Fund for distribution expenses and shareholder servicing expenses
may not exceed the annual rate of 0.30% and 0.25%, respectively, of the average
daily net assets of such Fund's X Shares. These amounts may be reduced pursuant
to undertakings by the Distributor. Payments for distribution expenses under the
Distribution and Services Plan are subject to Rule 12b-1 under the 1940 Act. As
stated below under "Description of Shares," fees pursuant to the Distribution
and Services Plan are borne by X Shares of the California Tax-Exempt Money
Market Fund and are not paid with respect to such Fund's other series of shares.
The Company will obtain a representation from the Service Organizations (and
from Bank of America and the Distributor) that they are or will be licensed as
dealers as required by applicable law or will not engage in activities which
would require them to be so licensed.
SPECIAL MANAGEMENT SERVICES PLAN. The Company has adopted a Special Management
Services Plan pursuant to which Pacific Horizon Shares are sold to securities
dealers, financial institutions and other industry professionals that are
shareholders or dealers of record or which have a servicing relationship
("Shareholder Organizations") with beneficial owners of the Funds' Pacific
Horizon Shares that enter into a Special Management Services Agreement with the
Company pursuant to the Plan. Under the Special Management Services Plan,
Shareholder Organizations have agreed to provide the following support services
to their clients: aggregating and processing purchase and redemption requests
for Pacific Horizon Shares and placing net purchase and redemption orders;
providing a service that invests the assets of shareholder accounts in Pacific
Horizon Shares pursuant to specific or pre-authorized instructions; processing
dividend payments; providing statements periodically to shareholders showing
their positions in Pacific Horizon Shares; providing subaccounting or the
information necessary for subaccounting; if required by law, forwarding
shareholder communications (such as proxies, shareholder reports, annual and
semi-annual financial statements and dividend, distribution and tax notices) to
shareholders; forwarding to shareholders proxy statements and proxies containing
any proposals regarding the Special Management Services Plan or related
agreements; developing and monitoring investor programs offered from time to
time; providing dedicated walk-in and telephone facilities to handle shareholder
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inquiries and serve shareholder needs; providing and maintaining specialized
systems for automatic investments; maintaining the registration or qualification
of Pacific Horizon Shares for sale under state securities laws; paying for the
operation of arrangements that facilitate same-day purchases by shareholders;
assuming the expenses of payments made to third parties for services provided in
connection with the investments of their customers in Pacific Horizon Shares;
and 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.
In consideration of the services provided pursuant to the Special Management
Services Plan, Shareholder Organizations are entitled to receive a fee, computed
daily and payable monthly at the annual rate of up to 0.32% of the average daily
net asset value of each Fund's Pacific Horizon Shares (0.35% of the average
daily net asset value of the California Tax-Exempt Money Market Fund's Pacific
Horizon Shares) beneficially owned by clients of such Shareholder Organizations.
The fees paid under the Special Management Services Plan are for services
provided by Shareholder Organizations to their clients who beneficially own
Pacific Horizon Shares of the Funds and are not borne by the Funds' Horizon
Shares or Horizon Service Shares, by X Shares or S Shares of the Prime, Treasury
and California Tax-Exempt Money Market Funds or by X Shares of the California
TaxExempt Money Market Fund or S Shares of the Tax-Exempt Money Fund.
FEE WAIVERS. Except as noted in this Prospectus and the Statement of Additional
Information, the Funds' service contractors bear all expenses in connection with
the performance of their services, and the Funds bear the expenses incurred in
their operations. Expenses can be reduced by voluntary fee waivers and expense
reimbursements by Bank of America and other service provides, as well as by
certain expense limitations imposed by state securities regulators. From time to
time during the course of each Funds' fiscal year, Bank of America and/or the
Administrator may prospectively waive payment of fees and/or reimburse certain
expenses of a Fund as a result of competitive pressures and in order to protect
the business and reputation of Bank of America and the Administrator. This will
have the effect of lowering the overall expense ratio of the Fund involved and
of increasing such Fund's yield to investors at the time such fees are waived or
expenses are reimbursed and of increasing the overall expense ratio of such Fund
and of decreasing yield to investors when such fees are not waived or amounts
not reimbursed.
BANKING LAWS. Banking laws and regulations currently prohibit a bank holding
company registered under the Federal Bank Holding Company Act of 1986 or any
bank or non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from underwriting securities, but such banking laws and regulations do not
prohibit such a holding company or affiliate or banks generally from acting as
investment adviser, administrator or custodian to such an investment company, or
from purchasing shares of such a company as agent for and upon the order of
customers. Bank of America is subject to such banking laws and regulations.
Bank of America believes it may perform the services for the Funds contemplated
by its agreements without violation of applicable banking laws or regulations.
It should be noted, however, that there have been no cases deciding whether bank
and non-bank subsidiaries of a registered bank holding company may perform
services comparable to those that are to be performed by Bank of America, and
future changes in either federal or state statutes and regulations relating to
permissible activities of banks and their subsidiaries or affiliates, as well as
future judicial or administrative decisions or interpretations of current and
future statutes and regulations, could prevent Bank of America from continuing
to perform such services for the Funds.
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Should future legislative, judicial or administrative action prohibit or
restrict the activities of Bank of America in connection with the provision of
services on behalf of a Fund, such Fund might be required to alter materially or
discontinue its arrangements with Bank of America and change its method of
operations. It is not anticipated, however, that any change in such Fund's
method of operations would affect its net asset value per share or result in a
financial loss to any shareholder.
PURCHASE OF SHARES
HOW X SHARES ARE PURCHASED. X Shares of the California Tax-Exempt Money Market
Fund are offered by this Prospectus to customers of BAIS or Service
Organizations that establish a Sweep Account with BAIS or a Service
Organization. Each Sweep Account combines a Transaction Account with a periodic
sweep of balances to or from the California Tax-Exempt Money Market Fund.
Investors may open a Sweep Account by completing and signing the Sweep
Materials. The Sweep Materials contain important information about the various
features and operations of the Sweep Account and should be reviewed in
conjunction with this Prospectus.
X Shares may be purchased on any Business Day (as defined below) that BAIS or
the particular Service Organization are open for business by making a deposit
into your Transaction Account. On each day that both the California Tax-Exempt
Money Market Fund's custodian and the New York Stock Exchange (the "Exchange")
are open for business (a "Business Day") and that BAIS or a Service Organization
is open for business, BAIS or a Service Organization computes the net amount of
all deposits, withdrawals, charges and credits made to and from a Transaction
Account in accordance with their Sweep Account procedures (the "Net Sweep
Amount"). If deposits and credits exceed withdrawals and charges, you authorize
BAIS or a Service Organization, on your behalf, to transmit a purchase order to
the Fund designated in your Sweep Account in the amount of that day's Net Sweep
Amount in accordance with the Sweep Account procedures of Bank of America or a
Service Organization. Your purchase order will be made effective and full and
fractional X Shares will be purchased at the net asset value per share next
determined after receipt by the Transfer Agent. It is the responsibility of BAIS
or a Service Organization to transmit orders for the purchases of X Shares by
its customers to the Transfer Agent and deliver required funds on a timely
basis, in accordance with the procedures stated above. Share purchases and
redemptions executed through BAIS or a Service Organization are executed only on
Business Days that BAIS or a Service Organization, respectively, is open for
business. Contact BAIS or your Service Organization for additional information
about BAIS's or the Service Organization's Sweep Account procedures.
HOW PACIFIC HORIZON SHARES ARE PURCHASED
Pacific Horizon Shares may be purchased directly from the Distributor, by
clients of Bank of America through their qualified trust and agency accounts or
by clients of Service Organizations without a charge imposed by the Funds,
although Bank of America and Service Organizations may charge a fee for
providing administrative services in connection with investments in Pacific
Horizon Shares of the Funds. The minimum initial investment is $500, except for
purchases through Bank of America's trust and agency accounts or through a
Service Organization whose clients have made aggregate minimum purchases of
$1,000,000, in which event the minimum initial investment is $100, or as
otherwise described below under "Shareholder Services." The minimum subsequent
investment is $50, except for investments arising from automatic investment
transactions on behalf of Bank of America's trust and agency accounts, as to
which there is no minimum. Bank of America and Service Organizations may impose
minimum customer account and other requirements in addition to those imposed by
the Funds. The Funds reserve the right to reject any purchase order. Persons
wishing to purchase Pacific Horizon Shares through their accounts at Bank of
America or a Service Organization should contact such entity directly for
appropriate instructions.
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Other investors may purchase Pacific Horizon Shares in the manner described
below.
An investor desiring to make an initial purchase of Pacific Horizon Shares by
mail should complete an Account Application and mail the Application and a check
payable to the appropriate Fund of Pacific Horizon to the address on the Account
Application. All subsequent purchases of Pacific Horizon Shares of a Fund made
by mail should be delivered to Pacific Horizon Funds, Inc., File No. 54634, Los
Angeles, California 90074-4634. Initial purchases of Pacific Horizon shares into
a new account may not be made by wire. However, an investor desiring to make a
subsequent purchase of Pacific Horizon shares of a Fund into an already existing
account by wire should contact the Transfer Agent at (800) 346-2087 for complete
wiring instructions and request his bank to transmit immediately available funds
by wire for purchase of Pacific Horizon shares in the investor's name. It is
important that the wire include the investor's name and Fund account number. An
investor should contact his bank for information on remitting funds in this
manner, including any charges imposed by the bank for wiring funds. Payments
which are hand delivered must be delivered directly to the Transfer Agent at
3435 Stelzer Road, Columbus, OH 43219.
A fee will be imposed by the Transfer Agent if any check used for investment in
an account does not clear. All payments should be in U.S. dollars. Purchase
orders in proper form are effected on each Business Day at the net asset value
per share next determined after receipt by the Transfer Agent at its Columbus
office of both an order and federal funds. Purchases will not be effected until
payments made in other than federal funds are converted to federal funds, which
is ordinarily within two business days of receipt. If an order is received by
the Transfer Agent before 10:30 a.m. Eastern time (with respect to the
California Tax-Exempt Money Market Fund) or 12:00 noon Eastern time (with
respect to the Tax-Exempt Money Fund) on a Business Day and Federal Funds are
received by 4:00 p.m. the same Business Day, Pacific Horizon Shares will be
purchased at the net asset value next determined after receipt on that day.
Otherwise Fund shares will be purchased at the net asset value next determined
on the next Business Day. It is the responsibility of Bank of America or the
Service Organization involved to transmit orders for the purchases of Pacific
Horizon Shares by its customers to the Transfer Agent and deliver required funds
on a timely basis, in accordance with the procedures stated above. Share
purchases and redemptions executed through Bank of America or a Service
Organization are executed only on days on which the particular institution and
the Fund are open for business.
TELETRADE. Although the privilege may not be used to make an initial purchase,
an investment in Pacific Horizon Shares of a Fund entitles an investor to
purchase Fund shares (minimum of $500 and maximum of $50,000 per transaction)
without charge by telephone unless he indicates on the Account Application or in
a subsequent written notice to the Transfer Agent that he does not wish to use
the TeleTrade privilege. Appropriate information concerning the investor's bank
must be provided on the Account Application or in a subsequent signature
guaranteed letter of instruction to the Transfer Agent before the TeleTrade
Privilege may be used. The proceeds will be transferred between the checking,
NOW or bank money market account designated in one of these documents and the
investor's Fund account. Only an account maintained at a domestic financial
institution which is an Automated Clearing House member may be so designated.
TeleTrade purchases will be effected at the net asset value next determined
after receipt of payment by the Funds' Transfer Agent. The Company may modify
this Privilege at any time or charge a service fee upon notice to shareholders.
No such fee currently is contemplated.
An investor who has selected the TeleTrade Privilege may request TeleTrade
purchases by telephoning the Transfer Agent at (800)346-2087. The TeleTrade
Privilege may not be available to certain clients of Bank of America or
particular institutional investors.
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NET ASSET VALUE
The net asset value per share of the X Shares of the California Tax-Exempt Money
Market Fund and Pacific Horizon Shares of each Fund is the value of all
securities and other assets owned by a Fund that are allocable to a particular
class less the liabilities charged to such class, divided by the number of
outstanding shares of such class. The net asset value per share of the
California Tax-Exempt Money Market Fund and Tax-Exempt Money Fund is determined
on each Business Day as of 10:30 a.m. Eastern time and 12:00 noon Eastern time,
respectively. Each Fund seeks to maintain a net asset value of $1.00 per share
for purposes of purchases and redemptions. In computing net asset value, each
Fund values its portfolio securities on the basis of amortized cost (as
described in the Statement of Additional Information under "Additional Purchase
and Redemption Information--Valuation.") There can be no assurance that either
Fund will be able to maintain a net asset value of $1.00 per share. The net
asset value per share for purposes of pricing purchase and redemption orders for
each Fund is determined independently of that for other portfolios of the
Company. For voice recorded price and yield information call (800) 346-2087.
Federal regulations require that each investor provide a certified Taxpayer
Identification Number upon opening or reopening an account. See the Account
Application for Pacific Horizon Shares of the Funds and the Sweep Account
Application for X Shares of the California Tax-Exempt Money Market Fund for
further information about this requirement.
The Company will obtain a representation from Service Organizations (as well as
from Bank of America and the Distributor) that they will be licensed as dealers
as required by applicable law or will not engage in activities which would
require them to be so licensed.
REDEMPTION OF SHARES
HOW X SHARES ARE REDEEMED
If, on any Business Day that BAIS or the particular Service Organization is open
for business, withdrawals from and charges to your Sweep Account, including
without limitation check transactions, exceed deposits and credits, BAIS or the
particular Service Organization, as applicable, will transmit a redemption order
on your behalf to the California Tax-Exempt Money Market Fund in the dollar
amount of that day's Net Sweep Amount. If your Sweep Account with BAIS or a
Service Organization, as applicable, is closed as described in the Sweep
Materials, BAIS or the Service Organization, as applicable, transmits a
redemption request on your behalf to the appropriate Fund for the balance of X
Shares of such Fund held through your Sweep Account. It is the responsibility of
BAIS or the particular Service Organization to transmit the redemption order and
credit its customer's Transaction Account with the redemption proceeds on a
timely basis. BAIS or the Service Organization may withhold redemption proceeds
pending check collection or processing or for other reasons all as set forth
more fully in the Sweep Materials.
HOW PACIFIC HORIZON SHARES ARE REDEEMED
Investors whose Pacific Horizon Shares are purchased through accounts at Bank of
America or a Service Organization may redeem all or part of such shares in
accordance with the instructions pertaining to such accounts. If such investors
are also the shareholders of record of those accounts on the books of the
Transfer Agent, they may redeem shares in accordance with the procedures
described below under "Regular Redemption." Such investors wishing to use other
redemption methods must arrange with Bank of America or a Service Organization
for delivery of the required application(s) to the Transfer Agent. Redemption
orders are effected on a Business Day at the net asset value per share next
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determined after receipt of the order by the Transfer Agent. It is the
responsibility of Bank of America or the Service Organization to transmit the
redemption order and credit its customer's account with the redemption proceeds
on a timely basis. Other investors may redeem all or part of their shares in
accordance with any of the following procedures.
REGULAR REDEMPTION. An investor may redeem Pacific Horizon Shares in any amount
by sending a written request to the Tax-Exempt Money Fund or California
Tax-Exempt Money Market Fund, c/o Pacific Horizon Funds, P.O. Box 80221, Los
Angeles, CA 90080-9909. Redemption orders are effected upon receipt by the
Transfer Agent at its Columbus office. Redemption requests delivered to the
Company other than by mail must be delivered to the offices of the Transfer
Agent at 3435 Stelzer Road, Columbus, OH 43219. While the Company no longer
issues share certificates, Pacific Horizon Shares for which certificates
previously had been issued may not be redeemed unless the certificates have been
submitted to the Transfer Agent and endorsed for transfer.
Redemption requests must be signed by each shareholder, including each joint
owner on redemption requests for joint accounts. A redemption request for (i) an
amount in excess of $50,000 per day (ii) any amount if the proceeds are to be
sent elsewhere than to the address of record, and (iii) an amount of $50,000 or
less if the address of record has not been on file with the Transfer Agent for a
period of 60 days, must be accompanied by a signature guarantee. The guarantor
of a signature must be a bank that is a member of the FDIC, a trust company, a
member firm of a national securities exchange or other eligible guarantor
institution. The Transfer Agent will not accept guarantees from notaries public.
Signatures on endorsed certificates submitted for redemption must also be
guaranteed. Guarantees must be signed by an authorized signatory of the
guarantor institution and "Signature Guaranteed" must appear with the signature.
TELETRADE. An investor may redeem Pacific Horizon Shares in the same manner and
subject to the same limitations as described under "Purchases of Shares--How
Pacific Horizon Shares Are Purchased--TeleTrade" above. Redemption proceeds will
be on deposit in the investor's account at a domestic financial institution
which is an Automated Clearing House member bank ordinarily two business days
after receipt of the redemption request. An investor may also request that
redemption proceeds be sent by check. Checks will be sent only to the registered
owner(s) and only to the address of record. An investor who has selected the
TeleTrade Privilege may request TeleTrade redemptions by telephoning the
Transfer Agent at (800) 346-2087. Pacific Horizon Shares issued in certificate
form are not eligible for this Privilege. Neither the Company nor any of its
service contractors will be liable for any loss or expense for acting upon any
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.
WIRE REDEMPTION. An investment in Pacific Horizon Shares of a Fund automatically
entitles an investor to redeem shares by wire unless he indicates on the Account
Application or in a subsequent signature guaranteed written notice to the
Transfer Agent that he does not wish to use this method of redemption.
Appropriate information concerning the investor's bank must be provided on the
Account Application or in a subsequent signature guaranteed letter of
instruction to the Transfer Agent before shares may be redeemed by wire.
Shareholders may instruct the Transfer Agent to redeem shares in a Fund on
written, telegraphic, or telephone instructions from any person representing
himself to be the investor and believed by the Transfer Agent to be genuine. The
responsibility of the Transfer Agent and certain other parties for telephonic
instructions believed to be genuine is discussed in the preceding paragraph. The
proceeds of redemption will normally be wired in federal funds to the commercial
bank specified by the investor on the Account Application. Redemption proceeds
must be in an amount of at least $1,000, and may be subject to limits as to
frequency and overall
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amount. Wire redemptions may be terminated or modified by a Fund at any time.
Pacific Horizon Shares issued in certificate form are not eligible for wire
redemption. A shareholder should contact his bank for information on any charges
imposed by the bank in connection with the receipt of redemption proceeds by
wire. During periods of substantial economic or market change, telephone wire
redemptions may be difficult to implement. If an investor is unable to contact
the Transfer Agent by telephone, shares may also be redeemed by delivering the
redemption request in person to the Transfer Agent or by mail as described above
under "Regular Redemption." For additional information concerning wire
redemptions, see the Statement of Additional Information and the Funds' Account
Application.
CHECK REDEMPTION. An or in Pacific Horizon Shares may request on the
Account Application that the Company provide Redemption Checks ("Checks") drawn
on a Fund. Checks will be sent only to the registered owner(s) and only to the
address of record. The Account Application must be manually signed by the
registered owner(s). Checks may be made payable to the order of any person in
the amount of $500 or more. Dividends are earned until the Check clears the
Transfer Agent. When a Check is presented to the Transfer Agent for payment, the
Transfer Agent, as the investor's agent, will cause the Fund involved to redeem
a sufficient number of the investor's Pacific Horizon Shares to cover the amount
of the Check. There is no charge to the investor for the use of the Checks;
however, the Transfer Agent will impose a charge for stopping payment of a Check
upon the request of the investor, or if the Transfer Agent cannot honor a Check
due to insufficient funds or other valid reasons. Because dividends accrue
daily, Checks should not be used to close an account. Pacific Horizon Shares for
which stock certificates have been issued may not be redeemed by Check.
OTHER REDEMPTION INFORMATION--X SHARES AND PACIFIC HORIZON SHARES. Redemption
orders are effected on a Business Day at the net asset value per share next
determined after receipt of the order by the Transfer Agent. The Funds will make
payment for all shares redeemed after receipt by the Transfer Agent of a request
in proper form, except as provided by the rules of the Securities and Exchange
Commission. If the shares to be redeemed have been purchased by check or
TeleTrade, the Company will, upon the clearance of the purchase check or
TeleTrade payment, mail the redemption proceeds within seven business days.
Where redemption is requested other than by mail, shares purchased by check or
by TeleTrade will not be redeemed for a period of seven business days after
their purchase. This procedure does not apply to situations where the Fund
receives payment in cash or immediately available funds for the purchase of
shares. The Company may suspend the right of redemption or postpone the date of
payment upon redemption (as well as suspend the recordation of the transfer of
shares) for such periods as are permitted under the 1940 Act. During the period
prior to the time the shares are redeemed, dividends on such shares will accrue
and be payable, and an investor will be entitled to exercise all other rights of
beneficial ownership.
The Funds impose no charge when X Shares or Pacific Horizon Shares are redeemed.
However, if Pacific Horizon Shares have been purchased through Bank of America
or a Service Organization, Bank of America or the Service Organization may
charge a fee for providing administrative services in connection with
investments in shares. The Funds reserve the right to redeem Pacific Horizon
Share accounts involuntarily, upon sixty days' written notice, if the account's
net asset value falls below the $500 minimum balance.
SHAREHOLDER SERVICES
The services and privileges described under this heading are available only to
holders of the Funds' Pacific Horizon Shares and are not available to persons
who invest directly in Horizon or Horizon Service Shares of the Funds or in X
Shares of the California Tax-Exempt Money Market Fund. Additionally, these
services and privileges may not be available to certain clients of Bank of
America and
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particular Service Organizations. Bank of America and some Service Organizations
may impose conditions on their clients which are different from those described
in this Prospectus. You should consult Bank of America or your Service
Organization in this regard.
EXCHANGES. The Exchange Privilege enables an investor to exchange Pacific
Horizon Shares of a Fund for: like shares in another portfolio of the Company,
or like shares of any investment portfolio of Time Horizon Funds (an open-end
investment company managed by Bank of America), provided that such other shares
may legally be sold in the state of the investor's residence. An investment in
Pacific Horizon Shares of a Fund automatically entitles an investor to use this
Privilege unless he indicates on the Account Application or in a subsequent
written notice to the Transfer Agent that he does not wish to use this
Privilege. The shares that are exchanged must have a current value of at least
$500; furthermore, in establishing a new account through use of this Privilege,
the shares being exchanged must have a value at least equal to the minimum
initial investment required by the particular portfolio into which the exchange
is being made. Prospectuses for portfolios of the Company (as well as
prospectuses for investment portfolios of Time Horizon Funds) into which an
exchange is being made may be obtained from the investor's Service Organization
or the Distributor. A shareholder may telephone instructions by calling the
Transfer Agent at (800) 346-2087. See "Redemption of Shares--TeleTrade" for a
description of the Company's policy regarding responsibility for telephone
instructions.
When Fund shares are exchanged for shares of another portfolio in the Company
(or for shares of an investment portfolio of Time Horizon Funds) which are sold
with a sales load, the applicable sales load, if any, will be deducted. An
investor desiring to use the Exchange Privilege should read the Statement of
Additional Information and consult his or her Service Organization or the
Distributor for further information applicable to use of the Exchange Privilege.
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
will be given to shareholders of any material modification or termination except
where notice is not required under the regulations of the Securities and
Exchange Commission.
AUTOMATIC INVESTMENT PROGRAM. The Automatic Investment Program permits an
investor to purchase Pacific Horizon Shares (minimum $50 per transaction) at
regular intervals selected by the investor. Provided the investor's financial
institution allows automatic withdrawals, shares are purchased by transferring
funds from an investor's checking, bank money market or NOW account designated
by the investor. At the investor's option, the account designated will be
debited in the specified amount, and shares will be purchased, once a month, on
either the first or fifteenth day, or twice a month, on both days. Only an
account maintained at a domestic financial institution which is an Automated
Clearing House member may be so designated. The minimum initial investment
requirement for investors establishing an Automatic Investment account is $50.
To establish an Automatic Investment account, an investor must check the
appropriate box and supply the necessary information on the Account Application
or subsequently file a written request with the Transfer Agent. Such
applications are available from the Distributor. An investor may cancel this
Privilege or change the amount of purchase at any time by mailing written
notification to the Transfer Agent at P.O. Box 80221, Los Angeles, California
90080-9909 and notification will be effective three business days following
receipt. The Company may modify or terminate this Privilege at any time or
charge a service fee, although no such fee currently is contemplated.
DIRECT DEPOSIT PROGRAM. If an investor receives federal salary, social
security, or certain veteran's, military or other payments from the federal
government, he is eligible for the Direct Deposit Program. With this Program,
an investor may purchase Pacific Horizon Shares (minimum of $50 and maximum of
$50,000 per transaction) by having these payments automatically deposited into
his Fund account. An investor may deposit as much of such payments as he
elects. For
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instructions on how to enroll in the Direct Deposit Program, an investor should
call the Transfer Agent at (800) 346-2087. Death or legal incapacity will
terminate an investor's participation in the Program. An investor may elect at
any time to terminate his participation by notifying the appropriate federal
agency. Further, the Company may terminate an investor's participation upon 30
days' notice to the investor.
AUTOMATIC WITHDRAWAL PLAN. Investors having a $5,000 minimum account may request
withdrawal of a dollar amount in multiples of $50 on a monthly, quarterly,
semi-annual or annual basis. At the investor's option, monthly withdrawals will
be made on either the first or fifteenth day of the month and quarterly,
semi-annual or annual withdrawals will be made on either the first or fifteenth
day of the month selected. To participate in the automatic withdrawal plan, an
investor must check the appropriate box and supply the necessary information on
the Account Application which may be obtained from the Distributor or
subsequently file a signature guaranteed written request with the Transfer
Agent.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS. The Shareholders of a Fund are entitled to
dividends and distributions arising from the net investment income and net
realized gains, if any, earned on the investments held by the Fund involved.
Generally each Fund's net income is declared daily as a dividend. Shares begin
accruing dividends on the day the purchase order for the shares is executed and
continue to accrue dividends through and including the day before the redemption
order for the shares is executed. Dividends are paid within five business days
after the end of each month. Although the Funds do not expect to realize net
long-term capital gains, any such capital gains as may be realized will be
distributed no more than twice a year after reduction for any available capital
loss carry-forward.
Dividends are paid in the form of additional full and fractional shares of the
same series as the shares on which the dividends are declared at the net asset
value of such shares on the payment date. However, holders of the Funds' Pacific
Horizon shares may elect to receive dividends in cash. Reinvested dividends
receive the same tax treatment as dividends paid in cash. Such election or any
revocation thereof must be made in writing to the Transfer Agent at P.O. Box
80221, Los Angeles, California 90080-9909, and will become effective with
respect to dividends paid after its receipt by the dividend disbursing agent.
TAXES. During the most recent taxable year, each Fund qualified separately as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"), and each Fund intends to so qualify in future years, as
long as such qualification is in the best interest 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. The policy of each Fund is to pay to shareholders at least 90% of its
exempt-interest income, net of certain deductions, for each taxable year.
Dividends derived from interest on Municipal Securities (known as
exempt-interest dividends) and paid to shareholders typically will not be
subject to regular federal income tax.
With respect to the California Tax-Exempt Money Market Fund, if, at the close of
each quarter of its taxable year, at least 50% of the value of the Fund's total
assets consists of California Exempt Securities and if the Fund qualifies as a
regulated investment company under the Code, then the Fund will be qualified to
pay dividends exempt from California state personal income tax to its
shareholders. If the Fund so qualifies, dividends derived from interest
attributable to California Exempt Securities will be exempt from California
state personal income tax. (Such treatment may not apply, however, to investors
who are "substantial users" or "related persons" with respect to facilities
financed by portfolio securities held by the California Tax-Exempt Money Market
Fund.) Any
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dividends paid to shareholders subject to California state franchise tax or
California state corporate income tax may be taxed as ordinary dividends to such
shareholders notwithstanding that all or a portion of such dividends are exempt
from California state personal income tax.
To the extent, if any, that dividends paid to shareholders are derived from
taxable interest or from capital gains, such dividends will be subject to
federal income tax and California state personal income tax, whether or not such
dividends are reinvested.
The portion of dividends (if any) attributable to interest on certain private
activity bonds issued after August 7, 1986 must be included by shareholders as
an item of tax preference for purposes of determining liability (if any) for the
26% to 28% federal alternative minimum tax applicable to individuals and the 20%
federal alternative minimum tax applicable to corporations. Corporate
shareholders also must take all exempt-interest dividends into account in
determining certain adjustments for federal alternative minimum tax purposes.
Shareholders receiving Social Security benefits should note that all
exempt-interest dividends will be taken into account in determining the tax
liability of such benefits.
Dividends declared in October, November or December of any calendar year payable
to shareholders of record on a specified date in December will be deemed for
federal tax purposes to have been paid by a Fund and received by its
shareholders on December 31 of such year, if such dividends are paid during
January of the following year.
A shareholder will recognize a taxable capital gain or loss when redeeming or
exchanging shares, to the extent of any difference between the price at which
the shares are sold or exchanged and the price or prices at which the shares
were originally purchased. If you hold shares for six months or less and during
that time receive an exempt-interest dividend attributable to those shares, any
loss realized on the sale or exchange of those shares will be disallowed to the
extent of the exempt-interest dividend.
OTHER STATE AND LOCAL TAXES. Investors are advised to consult their tax advisers
concerning the application of state and local taxes generally, which may have
different consequences from those of the federal income tax and, with respect to
the California Tax-Exempt Money Market Fund, the California state personal
income tax described above. Exempt-interest dividends generally will be exempt
from state and local taxes as well. However, except as noted with respect to
California state personal income tax, dividends paid by the Funds may be taxable
to investors under state or local law as dividend income even though all or a
portion of such dividends may be derived from interest on obligations that, if
realized directly, would be exempt from such taxes.
GENERAL. Shareholders will be advised at least annually as to the federal income
tax and, with respect to the California Tax-Exempt Money Market Fund, the
California state personal income tax consequences of dividends and distributions
made each year.
The foregoing is only a brief summary of some of the important tax
considerations generally affecting the Funds and their shareholders, and is
based on tax laws and regulations in effect as of the date of this Prospectus.
Such laws and regulations may be changed by legislative or administrative
action. Additional tax information of relevance to particular investors,
including investors who may be "substantial users" or "related persons" with
respect to facilities financed by Municipal Securities, is contained in the
Statement of Additional Information. Potential investors in the Funds should
consult their tax advisers with specific reference to their own tax situation.
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DESCRIPTION OF SHARES
The Company was organized on October 27, 1982 as a Maryland corporation, and is
registered under the Investment Company Act of 1940 as an open-end management
investment company. The Predecessor Tax-Exempt Fund originally commenced
operations on July 10, 1987 as a separate portfolio of The Horizon Funds, a
Massachusetts business trust. On January 10, 1990 the Predecessor Tax-Exempt
Fund was reorganized as the Tax-Exempt Money Fund of the Company and prior to
July 9, 1993 had offered only two series of shares, Horizon Shares and Horizon
Service Shares. On July 9, 1993, all assets and liabilities of the Company's
Tax-Exempt Money Market Fund were transferred to the Tax-Exempt Money Fund as
Pacific Horizon Shares. The California Tax-Exempt Money Market Fund commenced
operations on December 6, 1989 as a portfolio of the Company with a single
series of shares, Pacific Horizon Shares. On September 2, 1996, the Company
began offering X Shares in the California Tax-Exempt Money Market Fund. The
Company has also classified an S Share class, a Horizon Share class and a
Horizon Service Share class of the Tax-Exempt Money Fund and the California
Tax-Exempt Money Market Fund. Horizon Shares and Horizon Service Shares may be
purchased by institutional investors for accounts maintained by individuals, but
may not be purchased by individuals directly.
The Company's charter authorizes the Board of Directors to issue up to two
hundred billion full and fractional shares of capital stock, and to classify and
reclassify any authorized and unissued shares into one or more classes of
shares. The Board of Directors may similarly classify or reclassify any class of
shares into one or more series. Pursuant to such authority, the Board of
Directors has authorized the issuance of one billion, 500 million Pacific
Horizon Shares, three billion Horizon Shares, three billion Horizon Service
Shares and 10 billion S Shares representing interests in the Tax-Exempt Money
Fund, and one billion Pacific Horizon Shares, 500 million Horizon Shares, 500
million Horizon Service Shares, 10 billion S Shares and 1 billion X Shares and
representing interests in the California Tax-Exempt Money Market Fund. Horizon
Service Shares, Horizon Shares and S Shares of the Tax-Exempt Money Fund and
California Tax-Exempt Money Market Fund are described in a separate Prospectus
available from the Distributor at the telephone number on the cover of this
Prospectus. The Board of Directors has also authorized the issuance of
additional classes and series of shares and series of shares representing
interests in other investment portfolios of the Company, which are likewise
described in separate prospectuses available from the Distributor. This
Prospectus relates primarily to the X Shares of the California Tax-Exempt Money
Market Fund and Pacific Horizon Shares of the Tax-Exempt Money Fund and
California Tax-Exempt Money Market Fund and describes only the investment
objective, policies, operations and contracts relating to such shares.
Each X Share, S Share, Pacific Horizon Share, Horizon Share and Horizon Service
Share in a Fund has a par value of $.001, and, except as noted below, is
entitled to participate equally in the dividends and distributions declared by
the Board of Directors with respect to such Fund and in the net distributable
assets of such Fund on liquidation. Holders of S Shares of the Tax-Exempt Money
Fund and X Shares and S Shares of the California Tax-Exempt Money Market Fund
bear the fees described in this Prospectus that are paid to the Distributor and
Service Organizations by such Funds under the Company's Distribution and
Services Plan. The fees paid under the Distribution and Services Plan are for
distribution and shareholder services paid to the Distributor and Service
Organizations in connection with X Shares of the California Tax-Exempt Money
Market Fund and S Shares of both of the Funds, and are not paid by such Fund's
Horizon, Horizon Service or Pacific Horizon Shares. Holders of a Fund's Pacific
Horizon Shares bear the fees described in this Prospectus that are paid to
Shareholder Organizations by the Fund under the Company's Special Management
Services Plan for Pacific Horizon Shares. The fees paid under the Special
Management Services Plan are for services provided by Shareholder Organizations
to holders of the Funds' Pacific Horizon Shares and are not borne by the Funds'
Horizon Shares, Horizon Service Shares or S Shares of the Funds or X Shares of
the California
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Tax-Exempt Money Market Fund. Holders of a Fund's Horizon Service Shares bear
the fees described in the Prospectus for such shares that are paid to
shareholder organizations by a Fund under the Company's Shareholder Services
Plan. The fees paid under the Shareholder Services Plan are for services
provided by shareholder organizations to their customers in connection with
Horizon Service Shares, and are not paid by a Fund's Horizon Shares, Pacific
Horizon Shares, X Shares or S Shares. As a result of the different fees borne by
various series of shares of a Fund, at any given time, absent waivers of any
class-specific fees or expenses, the net yield on a) the California Tax-Exempt
Money Market Fund's X Shares generally will be approximately 0.23% lower than
the yield on the same Fund's Pacific Horizon Shares, 0.55% lower than the yield
on the same Fund's Horizon Shares, 0.30% lower than the yield on the same Fund's
Horizon Services Shares and 0.45% higher than the yield on the same Fund's S
Shares, b) the Tax-Exempt Money Fund's Pacific Horizon Shares generally will be
approximately 0.32% lower than the yield on the same Fund's Horizon Shares,
0.07% lower than the yield on the same Fund's Horizon Service Shares and 0.68%
higher than the yield on the same Fund's S Shares, and c) the California
Tax-Exempt Money Market Fund's Pacific Horizon Shares generally will be
approximately 0.32% lower than the yield on the same Fund's Horizon Shares,
0.07% lower than the yield on the same Fund's Horizon Service Shares, 0.23%
higher than the yield on the same Fund's X Shares, and 0.68% higher than the
yield on the same Fund's S Shares. Standardized yield quotations will be
computed separately for each series of shares.
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 law or when class voting is permitted
by the Board of Directors. It is contemplated that all shareholders of a Fund
will vote together as a single class on matters relating to the Fund's
investment advisory agreement and on any change in its fundamental investment
limitations. Only holders of Pacific Horizon Shares will be entitled to vote on
matters submitted to a vote of shareholders pertaining to the Fund's Special
Management Services Agreement. Only holders of Horizon Service Shares will be
entitled to vote on matters submitted to a vote of shareholders pertaining to
the Funds' Shareholder Services Plan. Only holders of particular S and X Shares,
if affected by changes to such Plan, will be entitled to vote on matters
submitted to a vote of shareholders pertaining to the Distribution and Services
Plan relating to the particular series. Fund shares have no preemptive rights
and only such conversion and exchange rights as the Board may grant at its
discretion. When issued for payment as described in this Prospectus, shares will
be fully paid and non-assessable. Certificates for shares will not be issued.
The Company does not presently intend to hold annual meetings of shareholders
for the election of directors and other business unless and until such time as
less than a majority of the directors holding office have been elected by the
shareholders of the Company, at which 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 meeting of
shareholders to consider the removal of one or more directors and such meetings
will be called when requested by the holders of record of 10% or more of the
Company's outstanding shares of common stock. To the extent required by law and
the Company's undertaking with the Securities and Exchange Commission, the
Company will assist in shareholder communications in such matters. Shares have
cumulative voting rights to the extent that may be required by applicable law.
PERFORMANCE CALCULATIONS
From time to time, a Fund may quote its "yield," "effective yield" and
"tax-equivalent yield" in advertisements or in communications to shareholders.
Each yield figure is based on historical earnings and is not intended to
indicate future performance. The "yield" of a Fund refers to the income
generated by an investment in the Fund over a seven-day period (which period
will be identified in the advertisement or report). This income is then
"annualized"--that is, the
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amount of income generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a percentage of the
investment. The "effective yield" of a Fund is calculated similarly but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of the assumed reinvestment. A Fund's
"tax-equivalent yield" shows the level of taxable yield needed to produce an
after-tax equivalent to the Fund's tax-free yield. This is done by increasing
the Fund's yield (calculated as above) by the amount necessary to reflect the
payment of federal, and in the case of the California Tax-Exempt Money Market
Fund, California income tax, at a stated tax rate. A Fund's "tax-equivalent
yield" will always be higher than its yield.
Additionally, the yields of a Fund may be compared to those of other mutual
funds with similar investment objectives and to other relevant indices or to
rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
Funds' yields may be compared to Donoghue's Money Fund Averages and Donoghue's
Tax-Free Money Fund Average, which are averages compiled by Donoghue's Money
Fund Report. Yield data as reported in national financial publications,
including Money, Forbes, Barron's, The Wall Street Journal and The New York
Times, or in publications of a local or regional nature, may also be used in
comparing the yields of a Fund. A complete listing of the indices, rankings and
publications discussed above is contained in the Statement of Additional
Information.
Since yields fluctuate, yield data cannot necessarily be used to compare an
investment in shares of a Fund with bank deposits, savings accounts and similar
investment alternatives which often provide an agreed or guaranteed fixed yield
for a stated period of time. Shareholders should remember that yield is
generally a function of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses and market conditions. Any
fees charged by Bank of America or other institutional investors directly to
their customer accounts in connection with investments in shares of a Fund
(which fees may include, for example, account maintenance fees, compensating
balance requirements or fees based upon account transactions, assets or income)
will not be included in the Fund's calculations of yield.
Shareholder inquiries should be addressed to the Distributor at the address or
telephone numbers stated on the inside cover page of this Prospectus.
31
<PAGE> 113
PACIFIC HORIZON MUTUAL FUNDS
32
<PAGE> 114
Tax-Exempt Money Fund
California Tax-Exempt
Money Market Fund
PROSPECTUS
_________ __, 1997
NOT FDIC INSURED
33
<PAGE> 115
PACIFIC HORIZON FUNDS, INC.
Horizon Shares, Horizon Service Shares and S Shares of the
Tax-Exempt Money Fund and California Tax-Exempt Money Market Fund
<TABLE>
<CAPTION>
Form N-1A Item Prospectus Caption
- -------------- ------------------
Part A
- ------
<S> <C> <C>
1. Cover Page................................................. Cover Page
2. Synopsis................................................... Expense Information
3. Condensed Financial Information............................ Financial Highlights
4. General Description of Registrant.......................... Description of Shares; Cover
Page; Investment Objectives
and Policies; Other Investment
Practices; Special
Considerations and Risks;
Investment Limitations
5. Management of the Fund..................................... Management of the Funds
5A. Management's Discussion of
Fund Performance......................................... *
6. Capital Stock and Other
Securities............................................... Description of Shares;
Dividends and Distributions;
Taxes
7. Purchase of Securities Being
Offered................................................... Purchase and Redemption of
Shares; Management of the
Funds; Additional Shareholder
Services; Shareholder Services
Plan
8. Redemption or Repurchase................................... Purchase and Redemption of
Shares; Management of the
Funds; Additional Shareholder
Services; Shareholder Services
Plan
9. Pending Legal Proceedings.................................. *
- ------------
* Item inapplicable or answer negative.
</TABLE>
<PAGE> 116
PROSPECTUS
_______, 1997
S Shares,
Horizon Shares and
Horizon Service Shares of the
TAX-EXEMPT MONEY FUND AND THE
CALIFORNIA TAX-EXEMPT MONEY MARKET FUND
Investment Portfolios Offered by Pacific Horizon Funds, Inc.
THIS PROSPECTUS APPLIES TO THE S SHARES, HORIZON SHARES AND HORIZON SERVICE
SHARES OF THE TAX-EXEMPT MONEY FUND AND THE CALIFORNIA TAX-EXEMPT MONEY MARKET
FUND (THE "FUNDS"), TWO NO-LOAD TAX-EXEMPT INVESTMENT PORTFOLIOS OFFERED BY
PACIFIC HORIZON FUNDS, INC. (THE "COMPANY"). THE COMPANY IS REGISTERED UNDER THE
INVESTMENT COMPANY ACT OF 1940 AS AN OPEN-END MANAGEMENT INVESTMENT COMPANY. THE
FUNDS ARE DESIGNED TO PROVIDE INSTITUTIONS WITH DAILY LIQUIDITY. THE TAX-EXEMPT
MONEY FUND IS A DIVERSIFIED INVESTMENT PORTFOLIO AND THE CALIFORNIA TAX-EXEMPT
MONEY MARKET FUND IS A NON-DIVERSIFIED INVESTMENT PORTFOLIO.
THE INVESTMENT OBJECTIVE OF THE TAX-EXEMPT MONEY FUND IS TO PROVIDE AS HIGH A
LEVEL OF CURRENT INTEREST INCOME EXEMPT FROM FEDERAL INCOME TAXES AS IS
CONSISTENT WITH RELATIVE STABILITY OF PRINCIPAL. THE INVESTMENT OBJECTIVE OF THE
CALIFORNIA TAX-EXEMPT MONEY MARKET FUND IS TO SEEK AS HIGH A LEVEL OF CURRENT
INTEREST INCOME FREE OF FEDERAL INCOME TAX AND CALIFORNIA STATE PERSONAL INCOME
TAX AS IS CONSISTENT WITH THE PRESERVATION OF CAPITAL AND RELATIVE STABILITY OF
PRINCIPAL. THE FUNDS SEEK TO ACHIEVE THEIR OBJECTIVES BY INVESTING PRIMARILY IN
U.S. DOLLAR-DENOMINATED OBLIGATIONS THE INTEREST ON WHICH IS EXEMPT FROM REGULAR
FEDERAL INCOME TAX, AND IN THE CASE OF THE CALIFORNIA TAX-EXEMPT MONEY MARKET
FUND, IS ALSO EXEMPT FROM TAXATION UNDER THE LAWS OR CONSTITUTION OF CALIFORNIA.
THE CALIFORNIA TAX-EXEMPT MONEY MARKET FUND IS, AND THE TAX-EXEMPT MONEY FUND
MAY BE, CONCENTRATED IN SECURITIES ISSUED BY THE STATE OF CALIFORNIA OR ENTITIES
WITHIN THE STATE OF CALIFORNIA, AND THE CALIFORNIA TAX-EXEMPT MONEY MARKET FUND
MAY INVEST A SIGNIFICANT PERCENTAGE OF ITS ASSETS IN A SINGLE ISSUER. THEREFORE,
INVESTMENT IN THE FUNDS MAY BE RISKIER THAN AN INVESTMENT IN OTHER TYPES OF
MONEY MARKET FUNDS.
THIS PROSPECTUS BRIEFLY SETS FORTH CERTAIN INFORMATION ABOUT THE FUNDS DESCRIBED
HEREIN THAT INVESTORS SHOULD KNOW BEFORE INVESTING. IT SHOULD BE READ CAREFULLY
AND RETAINED FOR FUTURE REFERENCE. ADDITIONAL INFORMATION ABOUT THE FUNDS IS
CONTAINED IN A STATEMENT OF ADDITIONAL INFORMATION DATED _______, 1997, THAT HAS
BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND IS AVAILABLE TO
INVESTORS UPON REQUEST AND WITHOUT CHARGE BY CALLING THE FUNDS' DISTRIBUTOR AT
(800) 426-3863. THE STATEMENT OF ADDITIONAL INFORMATION, AS IT MAY FROM TIME TO
TIME BE REVISED, IS INCORPORATED IN ITS ENTIRETY BY REFERENCE INTO THIS
PROSPECTUS.
(Continued next page)
Shares of the Funds are not bank deposits or obligations of or guaranteed or
endorsed by, Bank of America National Trust and Savings Association or any of
its affiliates and are not federally insured by, guaranteed by, obligations of
or otherwise supported by the U.S. Government, the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other governmental agency. Each
Fund seeks to maintain its net asset value per share at $1.00 for purposes of
purchases and redemptions, although there can be no assurance that it will be
able to do so on a continuous basis. Investment in the Funds involves investment
risk, including the possible loss of principal amount invested.
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
1
<PAGE> 117
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus, in the Statement
of Additional Information and the 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 its 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.
S SHARES ARE AVAILABLE TO CUSTOMERS WHO PURCHASE SUCH SHARES THROUGH CASH
MANAGEMENT SERVICES, SUCH AS A SWEEP ACCOUNT ("SWEEP ACCOUNT") OFFERED BY BANK
OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, ANY OF ITS BANKING AFFILIATES
("BANK OF AMERICA") AND CERTAIN OTHER FINANCIAL SERVICE ORGANIZATIONS, SUCH AS
BANKS OR BROKER-DEALERS ("SERVICE ORGANIZATIONS"). A SWEEP ACCOUNT COMBINES A
DEPOSIT ACCOUNT (THE "TRANSACTION ACCOUNT") WITH A DAILY SWEEP OF BALANCES TO OR
FROM THE TAX-EXEMPT MONEY OR CALIFORNIA TAX-EXEMPT MONEY MARKET FUNDS' S SHARES.
BANK OF AMERICA OR SERVICE ORGANIZATIONS, AS APPLICABLE, ARE RESPONSIBLE FOR
PROVIDING PERSONS INVESTING IN S SHARES THROUGH A SWEEP ACCOUNT WITH SWEEP
ACCOUNT MATERIALS (THE "SWEEP MATERIALS") DESCRIBING THE VARIOUS FEATURES AND
OPERATIONS OF THE SWEEP ACCOUNT. THE SWEEP MATERIALS SHOULD BE REVIEWED IN
CONJUNCTION WITH THIS PROSPECTUS.
HORIZON SHARES AND HORIZON SERVICE SHARES MAY NOT BE PURCHASED BY INDIVIDUALS
DIRECTLY, BUT INSTITUTIONAL INVESTORS MAY PURCHASE HORIZON AND HORIZON SERVICE
SHARES FOR ACCOUNTS MAINTAINED BY INDIVIDUALS.
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION ("BANK OF AMERICA"), SAN
FRANCISCO, CALIFORNIA ACTS AS INVESTMENT ADVISER TO THE FUNDS. CONCORD FINANCIAL
GROUP, INC. (THE "DISTRIBUTOR") SPONSORS THE FUNDS AND ACTS AS THEIR DISTRIBUTOR
AND THE BISYS GROUP, INC. ACTS AS THEIR ADMINISTRATOR, NEITHER OF WHICH IS
AFFILIATED WITH BANK OF AMERICA.
PORTFOLIO SECURITIES HELD BY EACH FUND HAVE REMAINING MATURITIES OF THIRTEEN
MONTHS OR LESS FROM THE DATE OF PURCHASE BY THE FUND. PORTFOLIO SECURITIES WHICH
HAVE CERTAIN PUT OR DEMAND FEATURES EXERCISABLE BY A FUND WITHIN THIRTEEN MONTHS
(AS WELL AS CERTAIN U.S. GOVERNMENT OBLIGATIONS WITH FLOATING OR VARIABLE
INTEREST RATES) AND SECURITIES HELD AS COLLATERAL FOR REPURCHASE AGREEMENTS MAY
HAVE LONGER MATURITIES.
2
<PAGE> 118
CONTENTS
PAGE
----
EXPENSE INFORMATION 4
FINANCIAL HIGHLIGHTS 5
INVESTMENT OBJECTIVES AND POLICIES 10
MUNICIPAL SECURITIES 12
OTHER INVESTMENT PRACTICES 13
SPECIAL CONSIDERATIONS AND RISKS 14
INVESTMENT LIMITATIONS 16
INVESTMENT DECISIONS 17
MANAGEMENT OF THE FUNDS 17
PURCHASE AND REDEMPTION OF SHARES 19
DIVIDENDS, DISTRIBUTIONS AND TAXES 22
DESCRIPTION OF SHARES 24
<TABLE>
<CAPTION>
DISTRIBUTOR: INVESTMENT ADVISER:
<S> <C>
Concord Financial Group, Inc. Bank of America National Trust and Savings Association
3435 Stelzer Road 555 California Street
Columbus, OH 43219 San Francisco, California 94104
</TABLE>
FOR PURCHASE AND REDEMPTION ORDERS, YIELD INFORMATION AND OTHER FUND
INFORMATION
CALL (800) 426-3863
3
<PAGE> 119
EXPENSE INFORMATION
The following table sets forth certain information regarding the shareholder
transaction expenses imposed by each Fund and (i) the annual operating expenses
expected to be incurred by each Fund with respect to its S Shares for the first
twelve months of operation, (ii) the annual operating expenses incurred by the
Tax-Exempt Money Fund with respect to its Horizon and Horizon Service Shares
during its last fiscal year, and (iii) the annual operating expenses incurred by
the California Tax-Exempt Money Market Fund with respect to its Horizon and
Horizon Service Shares during its last fiscal year. Actual expenses may vary.
Hypothetical examples based on the table are also shown.
<TABLE>
<CAPTION>
CALIFORNIA
TAX-EXEMPT MONEY TAX-EXEMPT
MARKET FUND MONEY MARKET FUND
------------------------------------- ------------------------------------
HORIZON HORIZON
S HORIZON SERVICE S HORIZON SERVICE
SHARES(1) SHARES SHARES(2) SHARES(1) SHARES SHARES(2)
--------- ------ --------- --------- ------ ---------
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C> <C> <C> <C> <C>
Sales Load
Imposed on Purchases None None None None None None
Sales Load
Imposed on Reinvested
Dividends None None None None None None
Deferred Sales Load None None None None None None
Redemption
Fees(3) None None None None None None
Exchange Fees None None None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees(4)................ . % . % % . % . % . %
--- --- - ---- --- ---
Rule 12b-1 Fees(5)................ . % . % . % . % . % . %
--- --- --- ---- --- ---
Shareholder Service
Payments........................ . % . % . % . % . % . %
--- --- --- ---- --- ---
All Other Expenses(2)............. . % . % . % . % . % . %
--- --- --- --- --- ---
Total Operating
Expenses . % . % . % . % . % . %
==== ==== === ==== === ===
<FN>
(1) Additional fees charged by Bank of America or Service Organizations
related to the Sweep Account are not included in this table. For
additional information with respect to Sweep Account fees and charges,
including a description of the services available to Sweep Account
holders, you should refer to the Sweep Materials.
(2) The Company understands that institutions that enter into agreements
("Shareholder Service Agreements") with the Company ("Shareholder
Organizations") under the Company's Shareholder Services Plan (the
"Plan") may charge fees to their Customers who are the beneficial
owners of Horizon Service Shares in connection with their accounts.
Each Fund's Horizon Service Shares bear fees paid to Shareholder
Organizations under the Plan at the annual rate of up to .25% of the
average daily net asset value of each Fund's Horizon Service Shares.
(3) The Company reserves the right to impose a charge for wiring redemption
fees.
(4) Without fee waivers and expense reimbursements, the Funds incur an
investment advisory fee and an administration fee, each payable at a
maximum annual rate of .10% of each Fund's average daily net asset
value.
</TABLE>
4
<PAGE> 120
(5) Because of the Distribution Plan Payment paid by S Shares as shown in
the above table, long-term Class S shareholders may pay more than the
economic equivalent of the maximum front-end sales charge permitted by
the National Association of Securities Dealers, Inc.
EXAMPLES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
You would pay the following expenses on a $1,000 investment, assuming (1) a 5%
annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
TAX-EXEMPT MONEY FUND
<S> <C> <C> <C> <C>
S Shares $____ $____ $____ $____
Horizon Shares $____ $____ $____ $____
Horizon Service Shares $____ $____ $____ $____
CALIFORNIA TAX-EXEMPT MONEY MARKET FUND
S Shares $____
Horizon Shares $____ $____ $____ $____
Horizon Service Shares $____ $____ $____ $____
</TABLE>
The foregoing Expense Summary and Example are intended to assist investors in S
Shares, Horizon Shares and Horizon Service Shares in understanding the various
shareholder transaction and operating expenses of each class that investors bear
either directly or indirectly. Investors bear operating expenses indirectly
since they reduce the amount of income paid by the Funds to investors as
dividends. From time to time, the investment adviser and administrator may
prospectively waive a portion of their respective fees and/or assume certain
expenses of the Funds. This waiver or assumption of expenses may be modified or
terminated at any time. See "Management of the Funds" and "Description of
Shares" for more complete descriptions of the various expenses referred to
above.
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
INVESTMENT RETURN AND OPERATING EXPENSES. ACTUAL INVESTMENT RETURNS AND
OPERATING EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
The Tax-Exempt Money Fund commenced operations on July 10, 1987 as a
separate investment portfolio (the "Predecessor Tax-Exempt Fund") of The Horizon
Funds. On January 19, 1990, the Predecessor Tax-Exempt Fund was reorganized as a
new portfolio of the Company. The Company has classified a Pacific Horizon Share
Class, Horizon Share Class, Horizon Service Share Class and S Share Class of the
Tax-Exempt Money Fund.
The California Tax-Exempt Money Market Fund commenced operations on
December 6, 1989 as a portfolio of the Company with a single series of shares,
Pacific Horizon Shares. On March 1, 1993, the California Tax-Exempt Money Market
Fund began offering a second series of shares known as the Horizon Service
Shares. The Company has also classified a Horizon Share Class, X Share Class and
S Share Class of the California Tax-Exempt Money Market Fund.
The tables below show the following information concerning the
investment results for Horizon Shares and Horizon Service Shares: (i) the
investment results of the Predecessor Tax-Exempt Fund for the periods ended on
or before April 30, 1989; (ii) the combined investment results of the
Predecessor Tax-Exempt Fund and the Tax-Exempt Money Fund for the period May 1,
1989 through February 28, 1990; and (iii) the investment results of the
Tax-Exempt Money Fund for the fiscal years ended February 28, 1991, February 29,
1992, February 28, 1993, February 28, 1994, February 28, 1995, February 29, 1996
and February 28, 1997. The tables below also show certain information concerning
the investment results for Horizon Service Shares of the California Tax-Exempt
Money Market Fund for the fiscal years ended February 28, 1994, February 28,
1995, February 29, 1996 and February
5
<PAGE> 121
28, 1997. The information contained in the Financial Highlights for the six
years ended February 28, 1997 has been audited by [ ], independent accountants
for the Predecessor Tax-Exempt Fund, the Tax-Exempt Money Fund and the
California Tax-Exempt Money Market Fund. [ 's] unqualified report on the
financial statements containing such information is incorporated by reference
into the Statement of Additional Information. During the periods shown, the
Funds did not offer S Shares and the California Tax-Exempt Money Market Fund did
not offer Horizon Shares.
The Financial Highlights should be read in conjunction with the
financial statements and notes thereto and the unqualified report of the
independent accountants thereon which are incorporated by reference in the
Statement of Additional Information. Further information about the performance
of the Funds is available in the annual report to shareholders. Both the
Statement of Additional Information and the annual report to shareholders may be
obtained free of charge by calling 800-332-3863.
6
<PAGE> 122
Selected data for a Horizon Share outstanding throughout each of the periods
indicated:
<TABLE>
<CAPTION>
TAX-EXEMPT MONEY FUND
------------------------------------------------------------------------------------------------------------------
MAY 1,
YEAR ENDED 1989 YEAR PERIOD
---------------------------------------------------------------------------- THROUGH ENDED ENDED
FEB. 28, FEB. 29, FEB. 28, FEB. 28, FEB. 28, FEB. 29, FEB. 28, FEB. 28, APRIL 30, APRIL 30,
1997oo 1996oo 1995oo 1994oo 1993oo 1992 1991 1990 1989++ 1988*++
------ ------ ------ ------ ------ ---- ---- ---- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HORIZON SHARES
Net asset value per
share, beginning
of period......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income from
Investment
Operations:
Net investment
income............ 0.0359 0.0285 0.0225 0.0269 0.0410 0.0557 0.0503 0.0577 0.0392
Less dividends
from net
investment
income............ (0.0359) (0.0285) (0.0225) (0.0269) (0.0410) (0.0557) (0.0503) (0.0577) (0.0389)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net change in net
asset value
per share......... 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0003
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value
per share,
end of period..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== ======== ======== ========
Total return........ 3.65% 2.89% 2.27% 2.72% 4.18% 5.71% 5.15%o 5.93% 3.92%o
Ratios/Supplemental
Data:
Net assets, end of
period (000)...... $302,704 $381,811 $514,663 $383,848 $345,221 $428,127 $355,656 $178,586 $104,358
Ratio of expenses
to average net
assets............ 0.31% 0.28% 0.28%** 0.28% 0.28% 0.27%** 0.21%**+ 0.21%** 0.20%**+
Ratio of net
investment
income to
average net
assets............ 3.58% 2.81% 2.25%** 2.69% 4.12% 5.54%** 5.96%**+ 5.84%** 5.17%**+
<FN>
* For the period July 10, 1987 (commencement of operations) through April
30, 1988.
** Includes fee waivers and expense reimbursements. 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 0.01% , 0.02%, 0.07%
(annualized), 0.19% and 0.23% (annualized) for the years or periods
ended February 28, 1994, February 28, 1991, February 28, 1990, April
30, 1989 and April 30, 1988, respectively.
+ Annualized.
++ This information represents the results of operations of the former
Horizon Tax-Exempt Money Fund, the assets and liabilities of which were
transferred to the Pacific Horizon Funds, Inc.--Tax-Exempt Money Fund
on January 19, 1990. See Note 1 to the financial statements which are
incorporated by reference into the Statement of Additional Information.
oo Security Pacific National Bank served as investment adviser through
April 21, 1992. Bank of America National Trust and Savings Association
served as investment adviser commencing April 22, 1992.
o Not annualized.
</TABLE>
7
<PAGE> 123
Selected data for a Horizon Service Share outstanding throughout each of the
periods indicated:
<TABLE>
<CAPTION>
TAX-EXEMPT MONEY FUND
------------------------------------------------------------------------------------------------------------------
MAY 1,
YEAR ENDED 1989 YEAR PERIOD
----------------------------------------------------------------------------- THROUGH ENDED ENDED
FEB. 28, FEB. 29, FEB. 28, FEB. 28, FEB. 28, FEB. 29, FEB. 28, FEB. 28, APRIL 30, APRIL 30,
1997oo 1996oo 1995oo 1994oo 1993oo 1992 1991 1990 1989++ 1988*++
------ ------ ------ ------ ------ ---- ---- ---- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HORIZON SERVICE
SHARES
Net asset value
per share,
beginning of
period........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- ------- ------- -------- --------
Income from
Investment
Operations:
Net investment
income........... 0.0334 0.0260 0.0200 0.0244 0.0385 0.0532 0.0482 0.0552 0.0090
Less dividends
from net
investment
income........... (0.0334) (0.0260) (0.0200) (0.0244) (0.0385) (0.0532) (0.0482) (0.0552) (0.0090)
Net change in net
asset value
per share........ (0.0000) 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
------- ------- ------- ------- ------- ------- ------- -------- --------
Net asset value
per share,
end of period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= ======= ======= ======== ========
Total return....... 3.39% 2.63% 2.02% 2.47% 3.92% 5.45% 4.93% 5.66% 0.90%
Ratios/Supplemental
Data:
Net assets, end of
period (000)..... $34,684 $39,158 $48,328 $49,695 $47,230 $53,732 $ 36,538 $178,586 $104,358
Ratio of expenses
to average net
assets........... 0.56% 0.53% 0.53%** 0.53% 0.53% 0.52%** 0.46%**+ 0.46%** 0.45%**+
Ratio of net
investment income
to average net
assets........... 3.34% 2.57% 2.04%** 2.42% 3.88% 5.29%** 5.73%**+ 5.70%** 4.54%**+
<FN>
* For the period February 18, 1988 (initial offering day) through April
30, 1988.
** Includes fee waivers and expense reimbursements. 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 0.04%, 0.02%, 0.07% (annualized), 0.19% and
0.16% (annualized) for the years or periods ended February 28, 1994,
February 28, 1991, February 28, 1990, April 30, 1989 and April 30,
1988, respectively.
+ Annualized.
++ This information represents the results of operations of the former
Horizon Tax-Exempt Money Fund, the assets and liabilities of which were
transferred to the Pacific Horizon Funds, Inc.--Horizon Tax-Exempt
Money Fund on January 19, 1990.
oo Security Pacific National Bank served as investment adviser through
April 21, 1992. Bank of America National Trust and Savings Association
served as investment adviser commencing April 22, 1992.
</TABLE>
8
<PAGE> 124
Selected data for a Horizon Service Share outstanding throughout each of the
periods indicated:
<TABLE>
<CAPTION>
CALIFORNIA TAX-EXEMPT MONEY MARKET FUND
--------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1997 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C>
HORIZON SERVICE SHARES
Net asset value per share, beginning
of period $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Income from Investment Operations:
Net investment income 0.0331 0.0256 0.0198
Net realized loss on securities 0.0001 (0.0001) (0.0001)
-------- -------- --------
Total income from investment operations 0.0332 0.0255 0.0197
Less dividends from net investment income (0.0331) (0.0256) (0.0198)
Net change in net asset value per share 0.0001 (0.0001) (0.0001)
-------- -------- --------
Net asset value per share, end of period $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total Return 3.36% 2.59% 2.00%
Ratios/Supplemental Data:
Net assets, end of period (000) $203,388 $ 88,003 $123,746
Ratio of expenses to average net assets 0.55%* 0.55% 0.53%**
Ratio of net investment income to
average net assets 3.43%* 2.50% 1.98%**
<FN>
* Includes fee waivers and expense reimbursements. Such fee waivers and
expense reimbursements had the effect of increasing the ratio of net
investment income to average net assets by 0.01% for the fiscal year
ended February 29, 1996. During the same period, the Fund received
credits from its custodian for interest earned on uninvested cash
balances which were used to offset custodian fees and expenses. If
such credits had not occurred, the ratio of expenses to average net
assets (without fee waivers and/or expense reimbursements) would have
been 0.55%. The ratio of net investment income to average net assets
was not affected.
** Includes fee waivers and expense reimbursements. 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 0.07% for the fiscal year
ended February 28, 1994.
</TABLE>
YIELD INFORMATION. From time to time a Fund may quote its "yield," "effective
yield" and "tax-equivalent yield" in advertisements or in communications to
shareholders. Each yield figure is based on historical earnings and is not
intended to indicate future performance. The "yield" of a Fund refers to the
income generated by an investment in the Fund over a seven-day period (which
period will be identified in the advertisement or report). This income is then
"annualized"--that is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The "effective yield" of a Fund is
calculated similarly but, when annualized, the income earned by an investment in
the Fund is assumed to be reinvested. The "effective yield" will be slightly
higher than the "yield" because of the compounding effect of this assumed
reinvestment. A Fund's "tax-equivalent yield" shows the level of taxable yield
needed to produce an after-tax equivalent to the Fund's tax-free yield. This is
done by increasing the Fund's yield (calculated as above) by the amount
necessary to reflect the payment of federal, and in the case of the California
Tax-Exempt Money Market Fund, California income tax at a stated tax rate. A
Fund's "tax-equivalent yield" will always be higher than its yield.
Additionally, the yields of a Fund may be compared to those of other mutual
funds with similar investment objectives and to other relevant indices or to
rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
Funds' yields may be compared to Donoghue's Tax-Free Money Fund Average and
Donoghue's Money Fund Averages, which are averages compiled by Donoghue's Money
Fund Report. Yield data as reported in national financial publications,
including Money, Forbes, Barron's, The Wall Street Journal and The New York
Times, or in publications of a local or regional nature, may also be used in
comparing the yields of a Fund.
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A complete listing of the indices, rankings and publications discussed above is
contained in the Statement of Additional Information.
Since yields fluctuate, yield data cannot necessarily be used to compare an
investment in the shares of a Fund with bank deposits, savings accounts and
similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that yield
is generally a function of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses and market conditions. Any
fees charged by Bank of America or Shareholder Organizations (defined below)
directly to their customer accounts in connection with investments in shares of
a Fund (which fees may include, for example, account maintenance fees,
compensating balance requirements or fees based upon account transactions,
assets or income) will not be included in the Fund's calculations of yield.
INVESTMENT OBJECTIVES AND POLICIES
IN GENERAL
This section describes the investment objectives and policies of the Funds.
Assets of the Funds will be invested in dollar-denominated debt securities with
remaining maturities of thirteen months or less as defined by the Securities and
Exchange Commission (the "SEC"), and the dollar-weighted average portfolio
maturity of each Fund will not exceed 90 days. All securities acquired by the
Funds will be determined by the investment adviser, under guidelines established
by the Company's Board of Directors, to present minimal credit risks. Securities
acquired by the Tax-Exempt Money Fund will, under normal market conditions, be
"First Tier Securities" (as defined by the SEC), of the types defined below.
During temporary defensive periods or if in the investment adviser's opinion
suitable First Tier Securities are not available for investment, however, the
Tax-Exempt Money Fund may also acquire "Eligible Securities" (as defined by the
SEC) of the types defined below. Securities acquired by the California
Tax-Exempt Money Market Fund will be Eligible Securities. First Tier Securities
consist of instruments that are rated at the time of purchase in the top rating
category by one (if rated by only one) or more unaffiliated nationally
recognized statistical rating organizations ("NRSROs") including Standard and
Poor's Ratings Group, Division of McGraw-Hill ("Standard & Poor's"), Moody's
Investors Service, Inc. ("Moody's"), Duff & Phelps Credit Co. ("Duff & Phelps")
or Fitch Investors Service, Inc. ("Fitch") or issued by issuers with such
ratings. Eligible Securities consist either of instruments that are rated at the
time of purchase in the top two rating categories by one or more NRSROs, or are
issued by issuers with such ratings. The Appendix to the Statement of Additional
Information includes a description of the applicable NRSRO ratings. Unrated
instruments (including instruments with long-term but not short-term ratings)
purchased by a particular Fund will be of comparable quality to the rated
instruments that the Fund may purchase, as determined by the Funds' investment
adviser pursuant to guidelines approved by the Board of Directors.
TAX-EXEMPT MONEY FUND. The Tax-Exempt Money Fund's investment objective is to
provide as high a level of current interest income exempt from federal income
taxes as is consistent with relative stability of principal. The Fund invests
substantially all of its assets in a diversified portfolio of U.S.
dollar-denominated short-term obligations issued by or on behalf of states,
territories and possessions of the United States, the District of Columbia and
their political subdivisions, agencies, instrumentalities and authorities, the
interest on which, in the opinion of bond counsel to the issuer, is exempt from
regular federal income tax ("Municipal Securities"). Portfolio securities held
by the Fund have remaining maturities of thirteen months or less from the date
of purchase by the Fund. (Portfolio securities which have certain put or demand
features exercisable by the Fund within thirteen months or are subject to
repurchase agreements may have longer maturities.)
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As a matter of fundamental policy, under normal market conditions at least 80%
of the Fund's total assets will be invested in Municipal Securities (other than
private activity bonds, the interest on which is treated as a specific tax
preference item under the federal alternative minimum tax). The Fund may also
invest in taxable obligations and may hold uninvested cash reserves pending
investment, during temporary defensive periods or if, in the opinion of the
Fund's investment adviser, suitable tax-exempt obligations are not available.
Uninvested cash reserves will not earn income. Taxable obligations acquired by
the Fund will not exceed under normal market conditions 20% of the Fund's total
assets at the time of purchase. Such taxable obligations include obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
(some of which may be subject to repurchase agreements), certificates of deposit
and bankers' acceptances of selected banks and commercial paper. Because the
Fund may invest in securities backed by banks and other financial institutions,
changes in the credit quality of these institutions could cause losses to the
Fund and affect its share price. These obligations are described further in the
Statement of Additional Information.
CALIFORNIA TAX-EXEMPT MONEY MARKET FUND. The California Tax-Exempt Money Market
Fund's investment objective is to seek as high a level of current interest
income free of federal income tax and California state personal income tax as is
consistent with the preservation of capital and relative stability of principal.
The Fund's assets are primarily invested in Municipal Securities issued by or on
behalf of the State of California and other governmental issuers. Municipal
Securities acquired by the Fund will generally have remaining maturities of
thirteen months or less.
As a matter of fundamental policy, under normal market conditions at least 80%
of the Fund's net assets will be invested in Municipal Securities the interest
on which is exempt from taxation under the California Constitution or the laws
of California ("California Municipal Securities"). So long as at least 50% of
the Fund's total assets are invested in debt obligations the interest on which
is exempt from taxation by the state of California ("California Exempt
Securities," which generally are limited to California Municipal Securities and
certain U.S. Government and U.S. Possession obligations) as of the end of each
quarter, dividends paid by the Fund which are derived from interest on
California Exempt Securities will be exempt from California state personal
income tax; if this policy is not achieved, no portion of the Fund's dividends
will be exempt from California state personal income tax. Dividends derived from
interest on Municipal Securities other than California Municipal Securities will
be subject to California state personal income tax. See "Taxes."
The Fund may hold uninvested cash reserves pending investment, during temporary
defensive periods, or if, in the opinion of the Fund's investment adviser,
suitable tax-exempt obligations are unavailable. In accordance with the Fund's
investment objective, and subject to the Fund's fundamental policy that under
normal market conditions 80% of its net assets be invested in California
Municipal Securities, investments may be made in taxable obligations of up to
thirteen months in maturity if, for example, suitable tax-exempt obligations are
unavailable or if acquisition of U.S. Government or other taxable securities is
deemed appropriate for temporary defensive purposes. Such taxable obligations
include, without limitation, obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (some of which may be subject to
repurchase agreements), certificates of deposit and bankers' acceptances of
selected banks and commercial paper. Because the California Tax-Exempt Money
Market Fund may invest in securities backed by banks and other financial
institutions, changes in the credit quality of these institutions could cause
losses to the Fund and affect its share price. These obligations are further
described in the Statement of Additional Information. Under normal market
conditions, the Fund anticipates that not more than 5% of its net assets will be
invested in any one category of taxable securities. Additionally, the Fund will
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not invest more than 10% of its net assets in securities that are illiquid
because of the absence of a readily available market or otherwise, including
repurchase agreements providing for settlement more than seven days after
notice.
MUNICIPAL SECURITIES
The two principal classifications of Municipal Securities which may be held by
the Funds 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 Funds are in most cases revenue
securities, which are not payable from the unrestricted revenues of the issuers.
Consequently, the credit quality of such private activity bonds is usually
directly related to the credit ratings of the users of the facility involved.
The Funds may also acquire "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.
Municipal Securities include debt obligations issued by governmental entities 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 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. Municipal Securities also include short-term tax anticipation notes,
bond anticipation notes, revenue anticipation notes and other forms of
short-term loan obligations. 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. The Funds may also purchase tax-exempt commercial paper.
Securities acquired by the Funds may be in the form of custodial receipts
evidencing rights to receive a specific future interest payment, principal
payment or both on certain Municipal Securities. Such obligations are held in
custody by a bank on behalf of holders of the receipts. These custodial receipts
are known by various names, including "Municipal Receipts," "Municipal
Certificates of Accrual on Tax-Exempt Securities" ("M-CATS") and "Municipal
Zero-Coupon Receipts." A Fund may also purchase from time to time participation
interests in debt securities held by trusts or financial institutions. A
participation interest gives a Fund involved an undivided interest (up to 100%)
in the underlying obligation. Participation interests purchased by a Fund may
have fixed, floating or variable rates of interest, and will have remaining
maturities of thirteen months or less as determined in accordance with the
regulations of the Securities and Exchange Commission (although the securities
held by the issuer may have longer maturities). If a participation interest is
unrated, the investment adviser will have determined that the interest is of
comparable quality to those instruments in which the Fund involved may invest
pursuant to guidelines approved by the Company's Board of Directors. For certain
participation interests, the Fund involved will have the right to demand
payment, on not more than 30 days' notice, for all or any part of such
participation interest, plus accrued interest. As to these instruments, the
Funds intend to exercise their right to demand payment as needed to provide
liquidity, to maintain or improve the quality of their respective investment
portfolios or upon a default (if permitted under the terms of the instrument).
Although a
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participation interest may be sold by a Fund under normal circumstances they
will be held until maturity.
Opinions relating to the validity of Municipal Securities and to the exemption
of interest thereon from regular federal income tax (and, with respect to
California Municipal Securities, California state personal income tax) are
rendered by bond counsel to the respective issuers at the time of issuance.
Neither the Funds nor their investment adviser will review the proceedings
relating to the issuance of Municipal Securities or the basis for such opinions.
OTHER INVESTMENT PRACTICES
VARIABLE AND FLOATING RATE INSTRUMENTS. Securities purchased by the Funds may
include variable and floating rate instruments, which may have a stated maturity
in excess of the Funds' maturity limitations but which will, in such event and
except with respect to certain U.S. Government obligations purchased by the
Tax-Exempt Money Fund, permit the Fund involved to demand payment of the
principal of the instrument at least once every thirteen months upon not more
than thirty days' notice. Such instruments may include variable amount master
demand notes that permit the indebtedness thereunder to vary, in addition to
providing for periodic adjustments in the interest rate. There may be no active
secondary market with respect to a particular variable or floating rate
instrument. Nevertheless, the periodic readjustments of their interest rates
tend to assure that their value to a Fund will approximate their par value.
Illiquid variable and floating rate instruments (instruments which are not
payable upon seven days notice and do not have an active trading market) that
are acquired by a Fund are subject to a Fund's percentage limitations on
illiquid investments. The creditworthiness of the issuers of such instruments
and their ability to repay principal and interest will be continuously monitored
by a Fund's investment adviser.
WHEN-ISSUED PURCHASES, FORWARD COMMITMENTS AND DELAYED SETTLEMENTS. The Funds
may purchase securities on a "when-issued" basis and may purchase or sell
securities on a "forward commitment" or "delayed settlement" basis. When-issued
and forward commitment transactions, which involve a commitment by a Fund to
purchase or sell particular securities with payment and delivery taking place at
a future date (perhaps one or two months later), permit the Fund to lock in a
price or yield on a security it owns or intends to purchase, regardless of
future changes in interest rates. Delayed settlement describes securities
transactions in the secondary market for which settlement will occur sometime in
the future. When-issued, forward commitment and delayed settlement transactions
involve the risk, however, that the yield or price obtained in a transaction may
be less favorable than the yield or price available in the market when the
securities delivery takes place. A Fund's forward commitments, when-issued
purchases and delayed settlements are not expected to exceed 25% of the value of
its total assets absent unusual market conditions. A Fund's liquidity and the
ability of the investment adviser to manage its portfolio may be adversely
affected in the event its forward commitments, commitments to purchase
when-issued securities and delayed settlements ever exceed 25% of the value of
its total assets. The Funds do not intend to engage in these transactions for
speculative purposes but only in furtherance of their respective investment
objectives.
STAND-BY COMMITMENTS. The Funds may acquire "stand-by commitments" with respect
to Municipal Securities held in their respective portfolios. Under a stand-by
commitment, a dealer agrees to purchase at a Fund's option specified Municipal
Securities at a specified price. The Funds will acquire stand-by commitments
solely to facilitate portfolio liquidity and do not intend to exercise their
rights thereunder for trading purposes. The Funds expect that "stand-by
commitments" will generally be available without the payment of any direct or
indirect consideration. However, if necessary or advisable, a Fund may pay for a
"stand-by commitment" either separately in cash or by paying a higher price for
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portfolio securities which are acquired subject to the commitment (thus reducing
the yield to maturity otherwise available for the same securities).
REPURCHASE AGREEMENTS. The Funds may agree to purchase securities from financial
institutions, such as banks and broker-dealers, as are deemed creditworthy by
the investment adviser under guidelines approved by the Board of Directors,
subject to the seller's agreement to repurchase them at an agreed upon time and
price ("repurchase agreements"). Although the securities subject to a repurchase
agreement may bear maturities exceeding thirteen months, the Funds intend only
to enter into repurchase agreements having maturities not exceeding 60 days.
Securities subject to repurchase agreements are held either by the Company's
custodian, or sub-custodian, or in the Federal Reserve/Treasury Book-Entry
System. The seller under a repurchase agreement will be required to deliver
instruments the value of which is greater than the repurchase price. Default by
the seller would, however, expose the Fund involved to possible loss because of
adverse market action or delay in connection with the disposition of the
underlying obligations. Repurchase agreements are considered to be loans under
the Investment Company Act of 1940.
REVERSE REPURCHASE AGREEMENTS. The Funds may borrow monies for temporary
purposes by entering into reverse repurchase agreements in accordance with the
investment restrictions described below. Pursuant to such agreements, a Fund
would sell portfolio securities to financial institutions and agree to
repurchase them at an agreed upon date and price. At the time a Fund enters into
a reverse repurchase agreement, it will place in a segregated custodial account
liquid assets or high grade debt securities having a value equal to or greater
than the repurchase price and the investment adviser will continuously monitor
the account to ensure that the value is maintained. A Fund would only enter into
reverse repurchase agreements to avoid otherwise selling securities during
unfavorable market conditions to meet redemptions. Reverse repurchase agreements
involve the risk that the market value of the portfolio securities sold by the
Fund involved may decline below the price of the securities the Fund is
obligated to repurchase. Interest paid by a Fund in connection with a reverse
repurchase agreement will reduce the net investment income of the Fund. Reverse
repurchase agreements are considered to be borrowings under the Investment
Company Act of 1940. A Fund will not purchase securities while it has borrowings
(including reverse repurchase agreements) outstanding.
SPECIAL CONSIDERATIONS AND RISKS
In seeking to achieve their respective investment objectives the Funds may
invest in Municipal Securities that are private activity bonds the interest on
which, although exempt from regular federal income tax, may constitute an item
of tax preference for purposes of the federal alternative minimum tax. See
"Taxes." Investments in such securities, however, will not exceed under normal
market conditions 20% of a Fund's total assets when added together with any
taxable investments held by a Fund. Moreover, although the Funds do not
presently intend to do so on a regular basis, they may invest more than 25% of
their respective assets in Municipal Securities the interest on which is paid
solely from revenues of similar projects if such investment is deemed necessary
or appropriate by the investment adviser. Additionally, although the Tax-Exempt
Money Fund may invest more than 25% of its assets in Municipal Securities the
issuers of which are located in the same state, it does not presently intend to
do so on a regular basis other than issuers located in California. To the extent
a Fund's assets are concentrated in Municipal Securities payable from revenues
on similar projects or issued by issuers located in the same state, the Fund
will be subject to the peculiar economic, political and business risks presented
by the laws and economic conditions relating to such states and projects to a
greater extent than it would be if its assets were not so concentrated.
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The California Tax-Exempt Money Market Fund is classified as a non-diversified
investment company under the Investment Company Act of 1940. Investment return
on a non-diversified portfolio typically is dependent upon the performance of a
smaller number of securities relative to the number held in a diversified
portfolio. Consequently, the change in value of any one security may affect the
overall value of a non-diversified portfolio more than it would a diversified
portfolio, and thereby subject the market-based net asset value per share of the
non-diversified portfolio to greater fluctuations. In addition, a
non-diversified portfolio may be more susceptible to economic, political and
regulatory developments than a diversified investment portfolio with similar
objectives may be.
The California Tax-Exempt Money Market Fund is, and the Tax-Exempt Money Fund
may be, concentrated in securities issued by the State of California or entities
within the State of California, and the California Tax-Exempt Money Market Fund
may invest a significant percentage of its assets in a single issuer. Therefore,
investment in the Funds may be riskier than an investment in other types of
money market funds.
The concentration in California Municipal Securities by the California
Tax-Exempt Money Market Fund and the Tax-Exempt Money Fund raises additional
considerations. Payment of the interest on and the principal of these
obligations is dependent upon the continuing ability of California issuers
and/or obligors of state, municipal and public authority debt obligations to
meet their obligations thereunder. Investors should consider the greater risk
inherent in a Fund's concentration in such obligations versus the safety that
comes with a less geographically concentrated investment portfolio and should
compare the yield available on a portfolio of California issues with the yield
of a more diversified portfolio including non-California issues before making an
investment decision.
Many of the Funds' Municipal Securities are likely to be obligations of
California governmental issuers which rely in whole or in part, directly or
indirectly, on real property taxes as a source of revenue. "Proposition
Thirteen" and similar California constitutional and statutory amendments and
initiatives in recent years have restricted the ability of California taxing
entities to increase real property tax revenues. Other initiative measures
approved by California voters in recent years, through limiting various other
taxes, have resulted in a substantial reduction in state revenues. Decreased
state revenues may result in reductions in allocations of state revenues to
local governments.
Because of the complex nature of the various initiatives mentioned above and
certain possible ambiguities and inconsistencies in their terms and the scope of
various exemptions and exceptions, as well as the impossibility of predicting
the level of future appropriations for state and local California governmental
entities, it is not presently possible to determine the impact of these
initiatives and related measures on the ability of California governmental
issuers to pay interest or repay principal on their obligations. There have,
however, been certain adverse developments with respect to Municipal Securities
of California governmental issuers over the past several years.
In addition to the various initiatives discussed above, economic factors such as
the reduction in defense spending, a decline in tourism and high levels of
unemployment have had an adverse impact on the economy of California. In recent
years, these economic factors reduced revenues to the state government at a time
when expenses of state government such as education costs, various welfare costs
and other expenses were rising. Such economic factors adversely impacted the
ability of state and local California governmental entities to repay debt, and
these factors, and others that cannot be predicted, may have an adverse impact
in the future.
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In addition to the risk of nonpayment of state and local California governmental
debt, if such debt declines in quality and is downgraded by the NRSROs, it may
become ineligible for purchase by the Funds pursuant to current Securities and
Exchange Commission regulations. Since there are large numbers of buyers of such
debt that are similarly restricted, the supply of Eligible Securities (as
defined above) could become inadequate at certain times. A more detailed
description of special factors affecting investments in California Municipal
Securities, of which investors should be aware, is set forth in the Statement of
Additional Information.
INVESTMENT LIMITATIONS
The investment objective of each Fund is fundamental and may not be changed
without a vote of the holders of a majority of the particular Fund's outstanding
shares (as defined in the Investment Company Act of 1940). A Fund's policies may
be changed by the Company's Board of Directors without the affirmative vote of
the holders of a majority of such Fund's outstanding shares, except that the
following investment limitations may not be changed without such a vote of
shareholders. A description of certain other fundamental investment limitations
is contained in the Statement of Additional Information.
The Tax-Exempt Money Fund may not:
1. Under normal circumstances invest less than 80% of its total assets in
Municipal Securities (other than private activity bonds the interest on
which may be subject to the federal alternative minimum tax).
2. Purchase any securities which would cause 25% or more of the value of
its total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry; provided, however, that (a) there is
no limitation with respect to investments in Municipal Securities or
obligations issued or guaranteed by the Federal Government and its
agencies and instrumentalities; (b) although there is no limitation
with respect to investments in certificates of deposit and bankers'
acceptances issued by domestic branches of United States banks, no more
than 10% of the total value of the Fund's assets at the time of
purchase may be invested in certificates of deposit and bankers'
acceptances issued by domestic branches of foreign banks and no more
than 25% of the total value of the Fund's assets at the time of
purchase may be invested in certificates of deposit and bankers'
acceptances issued by domestic branches of foreign banks and foreign
branches of domestic banks; (c) each utility service (such as gas, gas
transmission, electric and telephone service) will be considered a
single industry for purposes of this policy; and (d) wholly-owned
finance companies will be considered to be in the industries of their
parents if their activities are primarily related to financing the
activities of their parents.
3. Borrow money except from banks for temporary purposes and in amounts
not in excess of 10% of the value of the Fund's total assets at the
time of such borrowing, or mortgage, pledge or hypothecate any assets
except in connection with any such borrowing and in amounts not in
excess of the lesser of the dollar amounts borrowed or 10% of the value
of the Fund's total assets at the time of such borrowing. (This
borrowing provision is not for investment leverage, but solely to
facilitate management of the Fund's portfolio by enabling the Fund to
meet redemption requests when the liquidation of portfolio securities
is deemed to be disadvantageous or inconvenient. The Fund will not
purchase any securities while borrowings are outstanding. Interest paid
on borrowed funds will reduce the net investment income of the Fund.)
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4. Invest more than 10% of the value of its total assets in securities
with legal or contractual restrictions on resale (including repurchase
agreements with terms greater than seven days).
The California Tax-Exempt Money Market Fund may not:
1. Under normal market conditions invest less than 80% of its net assets
in California Municipal Securities.
2. Purchase the securities of any issuer if as a result more than 5% of
the value of the Fund's total assets would be invested in the
securities of such issuer, except that (a) up to 50% of the value of
the Fund's total assets may be invested without regard to this 5%
limitation provided that no more than 25% of the value of the Fund's
total assets are invested in the securities of any one issuer and (b)
this 5% limitation does not apply to securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities.
3. Borrow money or issue senior securities, except that the Fund may
borrow from banks or enter into reverse repurchase agreements to meet
redemptions or for other temporary purposes in amounts up to 10% of its
total assets at the time of such borrowing; or mortgage, pledge or
hypothecate any assets except in connection with any such borrowing and
in amounts not in excess of the lesser of the dollar amounts borrowed
or 10% of its total assets at the time of such borrowing.
INVESTMENT DECISIONS
Investment decisions for each Fund are made independently from those for other
investment companies and accounts managed by Bank of America and its affiliated
entities. Such other investment companies and accounts may also invest in the
same securities as a Fund. When a purchase or sale of the same security is made
at substantially the same time on behalf of a Fund and another investment
company or account, available investments or opportunities for sales will be
allocated in a manner which Bank of America believes to be equitable. In some
instances, this investment procedure may adversely affect the price paid or
received by a Fund or the size of the position obtained or sold by a Fund. In
addition, in allocating purchase and sale orders for portfolio securities
(involving the payment of brokerage commissions or dealer concessions), Bank of
America may take into account the sale of shares of a Fund by broker-dealers and
other financial institutions (including affiliates of Bank of America and the
Funds' distributor), provided Bank of America believes that the quality of the
transaction and the amount of the commission are not less favorable than what
they would be with any other unaffiliated qualified firm.
MANAGEMENT OF THE FUNDS
BOARD OF DIRECTORS. The business of the Company is managed under the direction
of its Board of Directors. Information about the Directors and Officers of the
Company is included in the Statement of Additional Information.
INVESTMENT ADVISER. Bank of America serves as the Funds' investment adviser.
Bank of America, which has its principal offices at 555 California Street, San
Francisco, California 94104 is a national banking association formed in 1904
which 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. Bank of America is the successor by merger to Security Pacific
National Bank ("Security Pacific"), which previously served as investment
adviser
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to the Company since it commenced operations in 1984. Bank of America and its
affiliates have over $__ billion under management, including over $__ billion in
mutual funds. Bank of America is a subsidiary of BankAmerica Corporation, a
registered bank holding company.
As investment adviser, Bank of America manages the Funds' investments and is
responsible for all purchases and sales of the Funds' portfolio securities. For
its investment advisory services Bank of America is entitled to receive a fee
accrued daily and payable monthly at the following annual rates: .10% of the
first $3 billion of each Fund's average daily net assets, plus .09% of the next
$2 billion of each Fund's average daily net assets, plus .08% of each Fund's
average daily net assets over $5 billion. For the fiscal year ended February 28,
1997, the Tax-Exempt Money Fund and the California Tax-Exempt Money Market Fund
paid Bank of America advisory fees at the effective annual rates of .__% of
their respective average daily net assets.
In addition, Bank of America may receive fees under the Company's Shareholder
Services Plan with respect to the Funds' Horizon Service Shares and may receive
fees pursuant to the Distribution and Services Plan with respect to the Funds' S
Shares. Bank of America and Service Organizations may receive fees charged
directly to their customers' accounts in connection with investments in S Shares
of the Funds, and Bank of America and Shareholder Organizations may receive fees
charged directly to their customers' accounts in connection with investments in
Horizon Service Shares of the Funds.
ADMINISTRATOR. The BISYS Group, Inc. (the "Administrator"), through its
wholly-owned subsidiary BISYS Fund Services, L.P., serves as the Company's
administrator and assists generally in supervising the Funds' operations. Their
offices are located at 50 Clove Road, Little Falls, New Jersey 07424 and 3435
Stelzer Road, Columbus, Ohio 43219-3035. Prior to November 1, 1996, Concord
Holding Company, Inc., an indirect, wholly-owned subsidiary of the current
Administrator, served as administrator.
Under its basic administrative services agreement for the Funds, the
Administrator has agreed to: provide the facilities, equipment and personnel
necessary to carry out administrative services for the benefit of all series in
the Funds; including coordination of the preparation of reports to shareholders
of the Funds and the Securities and Exchange Commission; calculation of the net
asset value of the Funds' shares; calculation of the dividends and capital gains
distributions to shareholders; payment of the costs of maintaining the Funds'
offices; preparation of tax returns; provision of internal legal and accounting
compliance services; maintain (or oversight of the maintenance by others
approved by the Board of Directors) of the Funds' books and records; and
provision of various services for shareholders (such as the provision of a
facility to receive purchase and redemption orders) for shareholders who have
made a minimum investment of at least $500,000.
For its administrative services, the Administrator is entitled to receive an
administration fee computed daily and payable monthly at the following annual
rates: .10% of the first $7 billion of each Fund's average daily net assets,
plus .09% of the next $3 billion of each Fund's average daily net assets, plus
.08% of each Fund's average daily net assets over $10 billion. For the fiscal
year ended February 28, 1997, the California Tax-Exempt Money Market Fund and
the Tax-Exempt Money Fund paid the Administrator administration fees at the
effective annual rates of .__% of their respective average daily net assets.
Pursuant to the authority granted in its agreement with the Company, the
Administrator has entered into an agreement with The Bank of New York under
which the bank performs certain of the services listed above--e.g. calculating
the net asset value of the Funds' shares and dividends paid to shareholders and
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maintaining the Funds' books and records. The Funds bear all fees and expenses
charged by The Bank of New York for these services.
DISTRIBUTOR. Concord Financial Group, Inc. (the "Distributor") is the principal
underwriter and distributor of shares of the Funds. The Distributor is an
indirect, wholly-owned subsidiary of the Administrator, organized to distribute
shares of mutual funds to institutional and retail investors. Its offices are
located at 3435 Stelzer Road, Columbus, Ohio 43219-3035.
The Distributor makes a continuous offering of the Funds' shares and bears the
costs and expenses of printing and distributing to selected dealers and
prospective investors copies of any prospectuses, statements of additional
information and annual and interim reports of the Funds (after such items have
been prepared and set in type by the Funds) that are used in connection with the
offering of shares, and the costs and expenses of preparing, printing and
distributing any other literature used by the Distributor or furnished by it for
use by selected dealers in connection with the offering of the Funds' shares for
sale to the public.
CUSTODIAN AND TRANSFER AGENT. The Bank of New York, located at 90 Washington
Street, New York, New York 10286, serves as the Funds' custodian. BISYS Fund
Services, Inc. (the "Transfer Agent"), a wholly-owned subsidiary of the
Administrator, 3435 Stelzer Road, Columbus, Ohio 43219-3035, serves as transfer
agent and dividend disbursing agent. The Company has also entered into a Cash
Management and Related Services Agreement with The Bank of New York pursuant to
which The Bank of New York receives and disburses funds in connection with the
purchase and redemption of, and the payment of dividends and other distributions
with respect to, the Funds' shares.
FEE WAIVERS. Except as noted in this Prospectus and the Statement of Additional
Information, the Funds' service contractors bear all expenses in connection with
the performance of their services and the Funds bear the expenses incurred in
their operations. Expenses can be reduced by voluntary fee waivers and expense
reimbursements by Bank of America and other service providers, as well as by
certain expense limitations imposed by state securities regulators. From time to
time, during the course of each Fund's fiscal year, Bank of America and/or the
Administrator may prospectively waive payments of fees and/or reimburse certain
expenses of the Funds as a result of competitive pressures and in order to
preserve and protect the business and reputation of Bank of America and the
Administrator. This will have the effect of lowering the overall expense ratio
of such Fund and of increasing such Fund's yield to investors at the time such
fees are waived or expenses reimbursed, and of increasing the overall expense
ratio of such Fund and of decreasing yield to investors when such fees are not
waived or expenses not reimbursed.
PURCHASE AND REDEMPTION OF SHARES
HOW S SHARES ARE PURCHASED. S Shares of the Funds are offered by this Prospectus
to customers of Bank of America or Service Organizations that establish cash
management services, such as a Sweep Account with Bank of America or a Service
Organization. Each Sweep Account combines a Transaction Account with a periodic
sweep of balances to or from the Funds. Investors may open a Sweep Account by
completing and signing the appropriate Sweep Materials. The Sweep Materials
contain important information about the various features and operations of the
Sweep Account and should be reviewed in conjunction with this Prospectus.
S Shares may be purchased on any Business Day (as defined below) that Bank of
America and the particular Service Organization are open for business by making
a deposit into your Transaction Account. On each day that both the Funds'
custodian and the New York Stock Exchange (the "Exchange") are open for business
(a "Business Day") and Bank of America and a Service Organization is open for
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business, Bank of America or a Service Organization computes the net amount of
all deposits, withdrawals, charges and credits made to and from a Transaction
Account in accordance with their Sweep Account procedures (the "Net Sweep
Amount"). If deposits and credits exceed withdrawals and charges, you authorize
Bank of America or a Service Organization, on your behalf, to transmit a
purchase order to the Fund designated in your Sweep Account in the amount of
that day's Net Sweep Amount in accordance with the Sweep Account procedures of
Bank of America or a Service Organization. Your purchase order will be made
effective and full and fractional S Shares will be purchased at the net asset
value per share next determined after receipt by the Transfer Agent. It is the
responsibility of Bank of America or a Service Organization to transmit orders
for the purchases of S Shares by its customers to the Transfer Agent and deliver
required funds on a timely basis, in accordance with the procedures stated
above. Share purchases and redemptions executed through Bank of America or a
Service Organization are executed only on Business Days that Bank of America or
a Service Organization, respectively, is open for business. Contact Bank of
America or your Service Organization for additional information about Bank of
America's or the Service Organization's Sweep Account procedures.
HOW HORIZON AND HORIZON SERVICE SHARES ARE PURCHASED. Horizon and Horizon
Service Shares of the Funds are sold at the net asset value per share next
determined after receipt of a purchase order by the Transfer Agent. Purchase
orders placed directly with the Transfer Agent without the assistance of a
broker-dealer or other person are without charge. Broker-dealers (other than the
Distributor) and others who process purchase orders on behalf of customers may
charge a fee for their services.
Purchase orders for the Funds that are received by the Transfer Agent before
10:30 a.m. Eastern time (with respect to the California Tax-Exempt Money Market
Fund), or 12:00 noon Eastern time (with respect to the Tax-Exempt Money Fund) on
a Business Day will be executed at such time on that day if payment is received
by 4:00 p.m. Eastern time on such Business Day. Orders received after 10:30 a.m.
Eastern time (with respect to the California Tax-Exempt Money Market Fund), or
12:00 noon Eastern time (with respect to the Tax-Exempt Money Fund) on a
Business Day, and orders for which payment has not been received by 4:00 p.m.
Eastern time, will not be accepted. A Fund may in its discretion reject any
order for shares. Payment for orders which are not received or paid for in a
timely manner or are not accepted by a Fund will be returned after prompt
notification to the sending institution.
Payment for shares may be made only in Federal funds or other funds immediately
available to the Transfer Agent. The minimum initial investment for Horizon
Shares and Horizon Service Shares in a Fund is $500,000 (although broker-dealers
and other institutional investors may set a higher minimum for their customers)
and there is no minimum subsequent investment. The Funds reserve the right to
suspend the sale of shares to the public at any time, in response to conditions
in the securities markets or otherwise.
Federal regulations require that each investor provide a certified Taxpayer
Identification Number upon opening or reopening an account.
HOW S SHARES ARE REDEEMED. If, on any Business Day Bank of America and the
particular Service Organization are open for business, withdrawals and charges
to your Sweep Account, including without limitation check transactions, exceed
deposits and credits, Bank of America or the particular Service Organization, as
applicable, will transmit a redemption order on your behalf to the Fund in the
dollar amount of that day's Net Sweep Amount. If your Sweep Account with Bank of
America or the particular Service Organization, as applicable, is closed as
described in the Sweep Materials, Bank of America or the particular Service
Organization, as applicable, will normally transmit a redemption request on your
behalf to the Fund for the balance of the S Shares of the Fund held through your
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Sweep Account. Redemptions are effected by the Company on a Business Day at the
net asset value per share next determined after receipt of the redemption order
by the Transfer Agent. It is the responsibility of Bank of America or the
particular Service Organization to transmit the redemption order and credit its
customer's Transaction Account with the redemption proceeds on a timely basis.
Bank of America or the Service Organization may withhold redemption proceeds
pending check collection or processing or for other reasons all as set forth
more fully in the Sweep Materials.
HOW HORIZON AND HORIZON SERVICE SHARES ARE REDEEMED. Redemption orders for
Horizon Shares and Horizon Service Shares must be transmitted to the Transfer
Agent by telephone c/o the Distributor or terminal access in the manner
described above under "Purchase and Redemption of Shares--How Horizon and
Horizon Service Shares Are Purchased." While the Company no longer issues share
certificates, Horizon and Horizon Service Shares for which certificates
previously had been issued may not be redeemed unless the certificates have been
submitted to the Transfer Agent and endorsed for transfer. While each Fund seeks
to maintain its net asset value per share at $1.00 there can be no assurance
that it will be able to do so, and the proceeds paid upon redemption may be more
or less than the amount invested depending upon a share's net asset value at the
time of redemption.
Redemption orders submitted directly to the Transfer Agent without the
assistance of a broker-dealer or other person, and orders submitted by the
Distributor for its own brokerage customers, are processed without charge.
Broker-dealers (other than the Distributor) and others who process redemption
orders on behalf of their customers may charge a fee for their services.
Redemption orders are effected on a Business Day at the net asset value per
share next determined after receipt of the order by the Transfer Agent. Payment
for redeemed shares for which a redemption order is received by the Transfer
Agent prior to 12:00 noon Eastern time on a Business Day is normally made in
Federal funds wired to the redeeming shareholder on the same Business Day.
Payment for redeemed shares for which a redemption order is received after 12:00
noon Eastern Time on a Business Day is normally made in Federal funds wired to
the redeeming shareholder on the next Business Day following redemption. In
order to allow Bank of America to most effectively manage the Funds' portfolios,
investors are urged to initiate redemptions of shares as early in the day as
possible and to notify the Transfer Agent at least one day in advance of
redemptions in excess of $5 million. Each Fund reserves the right to wire
redemption proceeds up to seven days after receiving the redemption order if, in
the judgment of the investment adviser, an earlier payment could adversely
affect the Fund. In making redemption requests the names of the registered
shareholders and their account numbers must be supplied. An investment in
Horizon Shares and Horizon Service Shares automatically entitles the investor to
redeem shares, without charge, by telephone unless the investor indicates
through a written notice to the Transfer Agent that they do not wish to use this
telephone privilege. Neither the Funds, the Distributor nor the Transfer Agent
will be responsible for any loss or expense for acting upon any 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.
OTHER REDEMPTION INFORMATION--S SHARES AND HORIZON AND HORIZON SERVICE SHARES.
Redemption orders are effected on a Business Day at the net asset value per
share next determined after receipt of the order by the Transfer Agent. The
Funds will make payment for all shares redeemed after receipt by the Transfer
Agent of a request in proper form, except as provided by the rules of the
Securities and Exchange Commission. A Fund may suspend the right of redemption
or postpone the date of payment upon redemption (as well as suspend or postpone
the recordation
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of the transfer of its shares) for such periods as are permitted under the
Investment Company Act of 1940. During the period prior to the time shares are
redeemed dividends on such shares will accrue and be payable, and an investor
will be entitled to exercise all other rights of beneficial ownership.
Each Fund reserves the right to redeem Horizon and Horizon Service Shares in any
account at their net asset value if the value of the account is less than $500
as a result of redemptions. The shareholder having the account will first be
notified in writing that its account has a value of less than $500 and will be
allowed 60 days to make additional investments to bring the value of its account
to $500 before the redemption is processed by a Fund. In addition, a Fund may
redeem Horizon and Horizon Service Shares involuntarily under certain special
circumstances described in the Statement of Additional Information under
"Purchase and Redemption of Shares." The Funds impose no charge when S Shares,
Horizon Shares or Horizon Service Shares are redeemed.
NET ASSET VALUE. The net asset value per share of the S Shares and Horizon and
Horizon Service Shares of each Fund is the value of all securities and other
assets owned by a Fund that are allocable a particular class, less the
liabilities charged to such class, divided by the number of outstanding shares
of such class. The net asset value per share of each Fund is determined on each
Business Day as of 12:00 noon Eastern time. In computing net asset value, each
Fund uses the amortized cost method of valuation as described in the Statement
of Additional Information under "Purchase and Redemption of Shares." The net
asset value per share for each Fund for purposes of pricing purchase and
redemption orders is determined independently.
ADDITIONAL SHAREHOLDER SERVICES
Certain optional services available to persons who invest directly in Pacific
Horizon Shares of a Fund, including but not limited to certain exchange
privileges which allow shareholders to exchange their Fund shares for shares of
other funds in the Company, an automatic investment program, automatic
withdrawal program, and direct deposit program, are not available to persons who
invest directly in Horizon or Horizon Service Shares of the Funds or in X Shares
or S Shares of the Funds.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS. The shareholders of a Fund are entitled to
dividends and distributions arising from the net investment income and net
realized gains, if any, earned on investments held by the Fund involved.
Generally, each Fund's net income is declared daily as a dividend. Shares begin
accruing dividends on the day the purchase order for the shares is executed and
continue to accrue dividends through and including the day before the redemption
order for the shares is executed. Dividends are paid within five business days
after the end of each month. Although the Funds do not expect to realize net
long-term capital gains, any such capital gains as may be realized will be
distributed no more than twice a year after reduction for any available capital
loss carry forward.
Dividends are paid in the form of additional full and fractional shares of the
same series as the shares on which the dividends are declared at the net asset
value of such shares on the payment date, unless the shareholder elects to
receive dividends in cash. Reinvested dividends receive the same tax treatment
as dividends paid in cash. Such election or any revocation thereof must be made
in writing to the Transfer Agent at P.O. Box 80221, Los Angeles, California
90080-9909, and will become effective with respect to dividends paid after its
receipt by the dividend disbursing agent.
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TAXES. During its most recent taxable year, each Fund qualified separately as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"), and the Funds intend that they will each 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. The policy of each Fund is to pay to shareholders
at least 90% of its exempt-interest income, net of certain deductions, for each
taxable year. Dividends derived from interest on Municipal Securities (known as
exempt-interest dividends) and paid to shareholders typically will not be
subject to regular federal income tax.
With respect to the California Tax-Exempt Money Market Fund, if, at the close of
each quarter of its taxable year, at least 50% of the value of the Fund's total
assets consists of California Exempt Securities and if the Fund qualifies as a
regulated investment company under the Code, then the Fund will be qualified to
pay dividends exempt from California state personal income tax to its
shareholders. If the Fund so qualifies, dividends derived from interest
attributable to California Exempt Securities will be exempt from California
state personal income tax. (Such treatment may not apply, however, to investors
who are "substantial users" or "related persons" with respect to facilities
financed by portfolio securities held by the California Tax-Exempt Money Market
Fund.) Any dividends paid to shareholders subject to California state franchise
tax or California state corporate income tax may be taxed as ordinary dividends
to such shareholders notwithstanding that all or a portion of such dividends are
exempt from California state personal income tax.
To the extent, if any, that dividends paid to shareholders are derived from
taxable interest or from capital gains, such dividends will be subject to
federal income tax and California state personal income tax, whether or not such
dividends are reinvested.
The portion of dividends (if any) attributable to interest on certain private
activity bonds issued after August 7, 1986 must be included by shareholders as
an item of tax preference for purposes of determining liability (if any) for the
26% to 28% federal alternative minimum tax applicable to individuals and the 20%
federal alternative minimum tax applicable to corporations. Corporate
shareholders also must take all exempt-interest dividends into account in
determining certain adjustments for federal alternative minimum tax purposes.
Shareholders receiving Social Security benefits should note that all
exempt-interest dividends will be taken into account in determining the tax
liability on such benefits.
Dividends declared in October, November or December of any calendar year payable
to shareholders of record on a specified date in December will be deemed for
federal tax purposes to have been paid by a Fund and received by its
shareholders on December 31 of such year, if such dividends are paid during
January of the following year.
OTHER STATE AND LOCAL TAXES. Investors are advised to consult their tax advisers
concerning the application of state and local taxes generally, which may have
different consequences from those of the federal income tax and, with respect to
the California Tax-Exempt Money Market Fund, the California state personal
income tax described above. Exempt-interest dividends generally will be exempt
from state and local taxes as well. However, except as noted with respect to
California state personal income tax, dividends paid by the Funds may be taxable
to investors under state or local law as dividend income even though all or a
portion of such dividends may be derived from interest on obligations that, if
realized directly, would be exempt from such taxes.
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GENERAL. Shareholders will be advised at least annually as to the federal income
tax and, with respect to the California Tax-Exempt Money Market Fund, the
California state personal income tax consequences of dividends and distributions
made each year. The foregoing is only a brief summary of some of the important
tax considerations generally affecting the respective Funds and their
shareholders, and is based on tax laws and regulations in effect as of the date
of this Prospectus. Such laws may be changed by administrative or legislative
action. Additional tax information of relevance to particular investors,
including investors who may be "substantial users" or "related persons" with
respect to facilities financed by Municipal Securities, is contained in the
Statement of Additional Information. Potential investors in the Funds should
consult their tax advisers with specific reference to their own tax situation.
DESCRIPTION OF SHARES
The Company was organized on October 27, 1982 as a Maryland corporation, and is
registered under the Investment Company Act of 1940 as an open-end management
investment company. The Predecessor Tax-Exempt Fund originally commenced
operations on July 10, 1987 as a separate portfolio of The Horizon Funds, a
Massachusetts business trust. On January 19, 1990, the Predecessor Tax-Exempt
Fund was reorganized as the Tax-Exempt Money Fund of the Company and prior to
July 9, 1993 had offered only two series of shares, Horizon Shares and Horizon
Service Shares. On July 9, 1993, all assets and liabilities of the Company's
Predecessor Tax-Exempt Fund were transferred to the Tax-Exempt Money Fund as
Pacific Horizon Shares. The California Tax-Exempt Money Market Fund commenced
operations on December 6, 1989 as a portfolio of the Company with a single
series of shares, Pacific Horizon Shares. On ____________, 19__ and March 1,
1993 the California Tax-Exempt Money Market Fund began offering Horizon and
Horizon Service Shares, respectively. The Company has also classified an X Share
class and an S Share class of the California Tax-Exempt Money Market Fund and an
S Share class of the Tax-Exempt Fund.
The Company's charter authorizes the Board of Directors to issue up to two
hundred billion full and fractional shares of capital stock, and to classify and
reclassify any authorized and unissued shares into one or more classes of
shares. The Board of Directors may similarly classify or reclassify any class of
shares into one or more series. Pursuant to such authority, the Board of
Directors has authorized the issuance of the following series of shares
representing interests in the Tax-Exempt Money Fund: three billion Horizon
Shares, three billion Horizon Service Shares, one billion, 500 million Pacific
Horizon Shares and one billion S Shares and the following series of shares
representing interests in the California Tax-Exempt Money Market Fund: five
hundred million Horizon Shares, five hundred million Horizon Service Shares, one
billion Pacific Horizon Shares, one billion S Shares and one billion X Shares.
Pacific Horizon Shares of the Funds and X Shares of the California Tax-Exempt
Money Market Fund are described in a separate Prospectus available from the
Distributor at the telephone number on the cover of this Prospectus. The Board
of Directors has also authorized the issuance of additional classes and series
of shares representing interests in other investment portfolios of the Company,
which are likewise described in separate Prospectuses available from the
Distributor. This Prospectus relates primarily to the S Shares, Horizon Shares
and Horizon Service Shares of the Funds and describes only the investment
objectives and policies, operations, contracts and other matters relating to
such shares.
Each Horizon Share, Horizon Service Share, Pacific Horizon Share, S Share and X
Share in a Fund has a par value of $.001, and, except as noted below, is
entitled to participate equally in the dividends and distributions declared by
the Board of Directors with respect to such Fund and in the net distributable
assets of such Fund on liquidation. Holders of S Shares bear the fees described
in this Prospectus that are paid to the Distributor and Service Organizations by
the Funds under the Company's Distribution and Services Plan. Similarly, holders
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of the Fund's X Shares bear the fees described in the prospectus relating to
such shares that are paid to the Distributor and Service Organization by such
Fund or by the same Plan. The fees paid under the Distribution and Services Plan
are for distribution and shareholder services and are paid to the Distributor
and Shareholder Service Organizations in connection with X and S Shares of the
Funds, and are not paid by the Funds' Horizon, Horizon Service or Pacific
Horizon Shares. Holders of a Fund's Horizon Service Shares bear the fees
described in this Prospectus that are paid to Shareholder Organizations by the
Fund under the Company's Shareholder Services Plan. Similarly, holders of the
Fund's X Shares bear the fees described in the Prospectuses for such shares that
are paid to Shareholder Organizations by the Fund under the Company's Special
Management Services Plan for Pacific Horizon Shares. Holders of Horizon Shares
are not subject to fees such as those paid under the Shareholder Services Plan
or the Special Management Services Plan. Holders of the California Tax-Exempt
Money Market Fund's X Shares bear the fees as described in the Prospectus for
such shares that are paid to the Distributor and service organizations by the
Fund under the Company's Distribution and Services Plan.
As a result of the different fees borne by various series of shares of a Fund,
at any given time, absent waivers of any class-specific fees or expenses, the
net yields on the Fund's Horizon Shares are expected to be approximately .25%
higher than the yield on the Horizon Service Shares; .32% higher than the yield
on the Pacific Horizon Shares; 1.00% higher than the yield on the S Shares, and
.55% higher than the yield on the X Shares. In addition the net yield on a
Horizon Service Share generally will be .25% lower than the yield on a Fund's
Horizon Share; 0.07% higher than the yield on the same Fund's Pacific Horizon
Shares, 0.75% higher than the yield on the S Shares, and 0.30% higher than the
yield on a Fund's X Shares. The net yield on an S Share generally will be 1.00%
lower than the yield on a Horizon Share; 0.75% lower than the yield on the same
Fund's Horizon Service Shares; 0.68% lower than the yield on the same Fund's
Pacific Horizon Shares; and 0.45% lower than the yield on the same Fund's X
Shares. Standardized yield quotations will be computed separately for each
series of shares.
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 law or when class voting is
permitted by the Board of Directors. It is contemplated that all shareholders of
a Fund will vote together as a single class on matters relating to the Fund's
investment advisory agreement and on any change in its fundamental investment
limitations, and that only holders of Horizon Service Shares of a Fund will be
entitled to vote on matters submitted to a vote of shareholders pertaining to
the Fund's Shareholder Services Plan. Only holders of Pacific Horizon Shares of
the Fund will be entitled to vote on matters submitted to a vote of shareholders
pertaining to the Fund's Special Management Services Plan. Only holders of S
Shares and X Shares, will be entitled to vote on matters submitted to a vote of
shareholders pertaining to the Fund's Distribution and Services Plan relating to
the particular series. Fund shares have no preemptive rights and only such
conversion and exchange rights as the Board may grant at its discretion. When
issued for payment as described in this Prospectus, shares will be fully paid
and non-assessable. Certificates for shares will not be issued.
The Company does not presently intend to hold annual meetings of shareholders
for the election of directors and other business unless and until such time as
less than a majority of the directors holding office have been elected by the
shareholders of the Company, at which 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 meeting of
shareholders to consider the removal of one or more directors and such meetings
will be called when requested by the holders of record of 10% or more of the
Company's outstanding shares of common stock. To the extent required by law and
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the Company's undertaking with the Securities and Exchange Commission, the
Company will assist in shareholder communications in such matters. Shares have
cumulative voting rights to the extent that may be required by applicable law.
SHAREHOLDER SERVICES PLAN. The Company has adopted the Plan pursuant to which
Horizon Service Shares are sold to Shareholder Organizations that enter into
Shareholder Service Agreements with the Company pursuant to the Plan. Such
Shareholder Organizations may include Bank of America, the Administrator and
their affiliates. The Shareholder Service Agreements require the Shareholder
Organizations to provide support services to their customers ("Customers") who
are beneficial owners of Horizon Service Shares in return for payment by the
respective Fund of up to .25% (on an annualized basis) of the average daily net
asset value of the Horizon Service Shares beneficially owned by Customers of the
Shareholder Organizations. Holders of a Fund's Horizon Service Shares will bear
all fees paid to Shareholder Organizations for their services with respect to
such shares. Such fees are not paid to Shareholder Organizations with respect to
a Fund's Horizon Shares, Pacific Horizon Shares, S Shares or X Shares. During
the fiscal year ended February 28, 1997, the Tax-Exempt Money Fund and the
California Tax-Exempt Money Market Fund made payments under the Plan at the
effective annual rates of .__% of the average daily net asset value of the
Horizon Service Shares.
The services provided by Shareholder Organizations may include the following:
aggregating and processing purchase and redemption requests from Customers for
Horizon Service Shares and placing net purchase and redemption orders with the
Distributor; providing Customers with a service that invests the assets of their
accounts in Horizon Service Shares pursuant to specific or preauthorized
instructions; processing dividend payments from a Fund on behalf of Customers;
providing information periodically to Customers regarding their position in
Horizon Service Shares; arranging for bank wires; responding to Customer
inquiries regarding services performed by the Shareholder Organizations;
providing sub-accounting with respect to Horizon Service Shares beneficially
owned by Customers or the information necessary for sub-accounting; forwarding
shareholder communications from a Fund to Customers; and other similar services
if requested by a Fund.
Each Fund will accrue payments made pursuant to the Plan daily. The Funds will
receive an undertaking from each Shareholder Organization waiving a portion of
any payment such Organization is entitled to receive pursuant to the Plan to the
extent necessary to assure that the payments made pursuant to the Plan which are
required to be accrued to the respective Fund's Horizon Service Shares on any
day do not exceed the income to be accrued to such shares on that day.
The Company understands that Shareholder Organizations may charge fees to their
Customers who are the beneficial owners of Horizon Service Shares in connection
with their Customer accounts. These fees would be in addition to any amounts
which may be received by a Shareholder Organization under a Shareholder Service
Agreement. Under the terms of the Shareholder Service Agreements, Shareholder
Organizations are required to disclose the compensation payable to them by the
Company and any other compensation payable by their Customers in connection with
the investment of their assets in the Funds. Customers of Shareholder
Organizations should read this Prospectus in light of the terms governing their
accounts with their Shareholder Organizations.
Conflict-of-interest restrictions may apply to an institution's receipt of
compensation paid by a Fund in connection with the investment of fiduciary funds
in Horizon Service Shares. Institutions, including banks regulated by the
Comptroller of the Currency, the Federal Reserve Board or the Federal Deposit
Insurance Corporation, and investment advisers and other money managers subject
to the jurisdiction of the Securities and Exchange Commission, the Department of
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Labor or state securities commissions, are urged to consult their legal advisers
before investing fiduciary funds in Horizon Service Shares.
BANKS MAY ACT AS SHAREHOLDER ORGANIZATIONS. The Glass-Steagall Act and other
applicable laws, among other things, prohibit banks from engaging in the
business of underwriting securities. If a bank were prohibited from acting as a
Shareholder Organization, its shareholder clients would be permitted by the
Company to remain shareholders of the Funds and alternative means for continuing
the servicing of such shareholders would be sought. In such event, changes in
the operation of the Funds might occur and a shareholder serviced by such bank
might no longer be able to avail itself of any 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.
The Company will obtain a representation from Shareholder Organizations (as well
as from Bank of America and the Administrator) that they are or will be licensed
as dealers as required by applicable law or will not engage in activities which
would require them to be so licensed.
DISTRIBUTION AND SERVICES PLAN. Under the Distribution and Services Plan, the
Funds pay the Distributor for distribution expenses primarily intended to result
in the sale of such Funds' S Shares and for shareholder servicing expenses. Such
distribution expenses include expenses incurred in connection with advertising
and marketing each Fund's Class S Shares; payments to Service Organizations for
assistance in connection with the distribution of S Shares; and expenses
incurred in connection with preparing, printing and distributing prospectuses
for the Funds (except those used for regulatory purposes or for distribution to
existing shareholders of the Funds) and in implementing and operating the
Distribution and Services Plan. Shareholder servicing expenses include expenses
incurred in connection with shareholder services provided by the Distributor and
payments to Service Organizations for the provision of support services with
respect to the beneficial owners of S Shares, such as establishing and
maintaining accounts and records relating to their clients who invest in S
Shares, assisting clients in processing exchange and redemption requests,
developing, maintaining and supporting systems necessary to support cash
management services, such as Sweep Accounts and/or in changing dividend options
and account descriptions and responding to client inquiries concerning their
investments.
Under the Distribution and Services Plan, payments by the Tax-Exempt Money and
California Tax-Exempt Money Market Funds for distribution expenses and
shareholder servicing expenses may not exceed the annual rate of up to ___% and
___%, respectively of the average daily net assets of such Funds' S Shares.
These amounts may be reduced pursuant to undertakings by the Distributor.
Payments for distribution expenses under the Distribution and Services Plan are
subject to Rule 12b-1 under the 1940 Act. As stated below under "Description of
Shares," fees pursuant to the Distribution and Services Plan are borne by the S
and X Shares of the Funds and are not paid with respect to such Funds' other
series of shares.
The Company will obtain a representation from the Service Organizations (and
from Bank of America and the Distributor) that they are or will be licensed as
dealers as required by applicable law or will not engage in activities which
would require them to be so licensed.
27
<PAGE> 143
PACIFIC HORIZON MUTUAL FUNDS
S SHARES,
HORIZON SHARES
AND
HORIZON SERVICE SHARES
OF THE
TAX-EXEMPT MONEY FUND
AND THE
CALIFORNIA TAX-EXEMPT
MONEY MARKET FUND
PROSPECTUS
__________, 1997
NOT FDIC INSURED
28
<PAGE> 144
PACIFIC HORIZON FUNDS, INC.
Pacific Horizon Shares of the
Prime Fund
<TABLE>
<CAPTION>
Form N-1A Item Prospectus Caption
- -------------- ------------------
Part A
- ------
<S> <C> <C>
1. Cover Page................................................. Cover Page
2. Synopsis................................................... Expense Summary
3. Condensed Financial Information............................ Financial Highlights;
Performance Calculations
4. General Description of Registrant.......................... Description of Shares; Cover
Page; Investment Objective and
Policies
5. Management of the Fund..................................... Management of the Fund
5A. Management's Discussion of
Fund Performance......................................... *
6. Capital Stock and Other
Securities............................................... Description of Shares;
Dividends, Distributions and
Taxes
7. Purchase of Securities Being
Offered................................................... Purchases of Shares;
Management of the Fund;
Performance Calculations;
Shareholder Services
8. Redemption or Repurchase................................... Redemption of Shares;
Shareholder Services
9. Pending Legal Proceedings.................................. *
- ------------
* Item inapplicable or answer negative.
</TABLE>
<PAGE> 145
PROSPECTUS
_______ __, 1997
PRIME FUND
An investment Portfolio Offered by Pacific Horizon Funds, Inc.
This Prospectus applies to the Pacific Horizon Shares of the Prime Fund
(the "Fund"), a no-load diversified investment portfolio offered by Pacific
Horizon Funds, Inc. (the "Company"). The Company is registered under the
Investment Company Act of 1940 as an open-end management investment company. The
Fund is designed to provide investors with daily liquidity.
The investment objective of the Fund is to seek high current income and
stability of principal. The Fund seeks to achieve its investment objective by
investing substantially all of its assets in a diversified portfolio of U.S.
dollar-denominated "money market" instruments such as bank certificates of
deposit and bankers' acceptances, commercial paper and repurchase agreements, in
addition to obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
Portfolio securities held by the Fund have remaining maturities of
thirteen months or less from the date of purchase by the Fund. Portfolio
securities which have certain put or demand features exercisable by the Fund
within thirteen months (as well as certain U.S. Government obligations with
floating or variable interest rates) and securities held as collateral for
repurchase agreements may have longer maturities.
Pacific Horizon Shares may be purchased directly from Concord Financial
Group, Inc., by clients of Bank of America National Trust and Savings
Association through their qualified trust and agency accounts or by clients of
certain other financial service organizations, such as banks or broker-dealers
("Service Organizations").
Bank of America National Trust and Savings Association ("Bank of
America"), San Francisco, California, acts as investment adviser to the Fund.
Concord Financial Group, Inc. (the "Distributor") sponsors the Fund and acts as
its distributor and The BISYS Group, Inc. acts as its administrator, neither of
which is affiliated with Bank of America.
This Prospectus briefly sets forth certain information about the Fund
that you should know before investing. It should be read and retained for future
reference. Additional information about the Fund, contained in a Statement of
Additional Information dated _______ __, 1997 has been filed with the Securities
and Exchange Commission and is available to investors upon request and without
charge by calling the Fund's distributor at (800) 332-3863. The Statement of
Additional Information, as it may from time to time be revised, is incorporated
in its entirety by reference into this prospectus and discusses certain subjects
in this Prospectus further as well as other matters which may be of interest to
investors.
Shares of the Fund are not bank deposits or obligations of, or
guaranteed or endorsed by, Bank of America National Trust and Savings
Association or any of its affiliates and are not federally insured by,
guaranteed by, obligations of or otherwise supported by the U.S. Government, the
Federal Deposit Insurance Corporation, the Federal Reserve Board or any other
governmental agency. The Fund seeks to maintain its net asset value per share at
$1.00 for purposes of purchases and redemptions, although there can be no
assurance that it will be able to do so on a continuous basis. Investment in the
Fund involves investment risk, including the possible loss of principal amount
invested.
No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus, in the Statement
of Additional Information and the Fund's official sales literature, in
connection with the offering of the Fund's shares and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or its distributor. This prospectus does not constitute an offer
by the Fund or by the distributor to sell, or a solicitation of any offer to
buy, any
1
<PAGE> 146
of the securities offered hereby in any jurisdiction to any person to whom it is
unlawful for the Fund or the distributor to make such offer in such
jurisdiction.
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.
2
<PAGE> 147
<TABLE>
<CAPTION>
CONTENTS
Page No.
--------
<S> <C>
Expense Summary 2
Financial Highlights 3
Investment Objective and Policies 4
Management of the Fund 8
Purchases of Shares 10
Redemption of Shares 12
Shareholder Services 14
Dividends, Distributions and Taxes 16
Description of Shares 17
Performance Calculations 19
</TABLE>
Distributor: Investment Adviser:
Concord Financial Group, Inc. Bank of America National Trust
3435 Stelzer Road and Savings Association
Columbus, OH 43219-3035 555 California Street
San Francisco, CA 94104
3
<PAGE> 148
EXPENSE SUMMARY
The following table sets forth certain information regarding the
shareholder transaction expenses imposed by the Fund with respect to Pacific
Horizon Shares and the annual operating expenses incurred by the Fund's Pacific
Horizon Shares during its last fiscal year. Actual expenses may vary. A
hypothetical example based on the table is also shown.
<TABLE>
<CAPTION>
PRIME
FUND
-----
<S> <C>
Shareholder Transaction Expenses
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load(1) None
Redemption Fees None
Exchange Fee None
Annual Fund Operating Expenses (as a percentage of average
net assets)
Management Fees .__%
Special Management Services Fee .__%
All Other Expenses .__%
Total Operating Expenses .__%
</TABLE>
(1) No contingent deferred sales load is charged, except that Pacific
Horizon Shares of the Prime Fund acquired through an exchange of shares
("B Shares") of the Time Horizon Funds (an open-end investment company
managed by Bank of America) offered with a contingent deferred sales
charge ("CDSC") will be subject to a CDSC of up to a maximum of 5% upon
redemption in accordance with the prospectus for the particular B
Shares. See "Shareholder Services--Exchanges."
<TABLE>
<CAPTION>
Example 1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming (1) a 5%
annual return and (2) redemption at the
end of each time period:* $__ $__ $__ $__
</TABLE>
* Example does not include deduction at redemption of a CDSC for Pacific
Horizon Shares of the Prime Fund acquired through exchange of B Shares
of the Time Horizon Funds.
The foregoing Expense Summary and Example are intended to assist
investors in Pacific Horizon Shares in understanding the various shareholder
transaction and operating expenses of the class that investors bear either
directly or indirectly. Investors bear operating expenses indirectly since they
reduce the amount of income paid by the Fund to investors as dividends. From
time to time, the investment adviser and administrator may prospectively waive a
portion of their respective fees and/or assume certain expenses of the Fund. See
"Management of the Fund" and "Description of Shares" for a more complete
description of the expenses referred to above.
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RETURN AND OPERATING EXPENSES. ACTUAL INVESTMENT
RETURN AND OPERATING EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
4
<PAGE> 149
FINANCIAL HIGHLIGHTS
On March 30, 1984, the Company commenced its public sale of shares
(Pacific Horizon Shares) in the Prime Fund, which was originally called the
"Money Market Portfolio." On January 19, 1990, the Prime Fund of The Horizon
Funds (the "Predecessor Prime Fund") was combined with the Money Market
Portfolio of the Company; the Company changed the name of its resulting
portfolio to "Prime Fund;" and, in addition to continuing its offering of
Pacific Horizon Shares in such Fund and began offering Horizon Shares and
Horizon Service Shares of the Prime Fund. The Company has also classified an X
and S Share class of the Prime Fund. Horizon Shares, Horizon Service Shares, X
Shares and S Shares are described in separate prospectuses. The shares of each
class of the Fund represent equal pro rata interests in the Fund, except that
they bear different expenses which reflect the difference in the range of
services provided to them. Pacific Horizon Shares bear the expenses of a special
management services plan at an annual rate not to exceed 0.32% of the average
daily net asset value of the Prime Fund's outstanding Pacific Horizon Shares.
See "Description of Shares" below for certain differences among the Pacific
Horizon Shares, Horizon Shares, Horizon Service Shares, S Shares and X Shares,
including differences relating to expenses.
The table below sets forth certain information concerning the
investment results of Pacific Horizon Shares of the Fund for the periods
indicated. The information contained in the Financial Highlights insofar as it
pertains to each of the five fiscal years in the five year period ended February
28, 1997 has been audited by [ ], independent accountants
of the Fund, whose unqualified report on the financial statements containing
such information is incorporated by reference into the Statement of Additional
Information, which may be obtained upon request. The information contained in
the Financial Highlights for each of the three years in the period ended
February 28, 1989 was audited by other independent accountants whose report
dated April 20, 1989 expressed an unqualified opinion on the statements
containing such information. The Financial Highlights should be read in
conjunction with the financial statements and notes thereto and the unqualified
report of independent accountants which are incorporated by reference into the
Statement of Additional Information.
5
<PAGE> 150
Selected data for a Pacific Horizon Share outstanding throughout each of the
periods indicated+:
<TABLE>
<CAPTION>
Year Ended
----------
Feb. 28, Feb. 29, Feb. 28, Feb. 28, Feb. 28, Feb. 29,
1997 1996 1995 1994 1993 1992
-------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value per share,
Beginning of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- -------
Income from Investment
Operations
Net Investment Income 0.0539 0.0424 0.0287 0.0340 0.0558
Net Realized Gain (Loss)
on Securities 0.0004 (0.0227) (0.0016) 0.0000 0.0005
------- ------- ------- ------- -------
Total Income from Investment
Operations 0.0543 0.0197 0.0271 0.0340 0.0563
Less Dividends from Net
Investment Income (0.0539) (0.0422) (0.0287) (0.0341) (0.0557)
Increase Due to Voluntary
Capital Contribution from
Investment Advisor 0.0000 0.0233 0.0000 0.0000 0.0000
------- ------- ------- ------- -------
Net Change in Net Asset
Value per share 0.0004 0.0008 (0.0016) (0.0001) 0.0006
------- ------- ------- ------- -------
Net Asset Value per share,
End of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
Total Return 5.53% 4.30%* 2.91% 3.45% 5.72%
Ratios/Supplemental Data
Net Assets, End of Year
(millions) $2,200 $1,129 $ 1,216 $ 992 $ 1,413
Ratio of Expenses to
Average Net Assets 0.55%** 0.51%** 0.52%** 0.55% 0.56%
Ratio of Net Investment
Income to Average Net
Assets 5.37%** 4.19%** 2.86%** 3.42% 5.51%
Feb. 28, Feb. 28, Feb. 28, Feb. 29,
1991 1990 1989 1988
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Asset Value per share,
Beginning of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- -------
Income from Investment
Operations
Net Investment Income 0.0762 0.0855 .0738 0.0643
Net Realized Gain (Loss)
on Securities (0.0001) 0.0001 (0.0002) 0.0003
------- ------- ------- -------
Total Income from Investment
Operations 0.0761 0.0856 0.0736 0.0646
Less Dividends from Net
Investment Income (0.0762) (0.0855) (0.0738) (0.0643)
Increase Due to Voluntary
Capital Contribution from
Investment Advisor 0.0000 0.0000 0.0000 0.0000
------- ------- ------- -------
Net Change in Net Asset
Value per share (0.0001) 0.0001 (0.0002) 0.0003
------- ------- ------- -------
Net Asset Value per share,
End of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= =======
Total Return 7.89% 8.90% 7.63%++ 6.62%++
Ratios/Supplemental Data
Net Assets, End of Year
(millions) $ 1,086 $ 890 $ 921 $ 957
Ratio of Expenses to
Average Net Assets 0.56% 0.63% 0.63% 0.58%
Ratio of Net Investment
Income to Average Net
Assets 7.61% 8.52% 7.38% 6.42%
</TABLE>
* Total return includes the effect of a voluntary capital contribution
from the investment adviser. Without this capital contribution, the
total return would have been lower.
** Includes fee waivers and expense reimbursements which had the effect of
reducing the ratio of expenses to average net assets and increasing the
ratio of net investment income to average net assets by 0.01%, 0.05%
and 0.01% for the years ended February 29, 1996, February 28, 1995 and
February 28, 1994, respectively.
+ Security Pacific National Bank served as investment adviser through
April 21, 1992. Bank of America National Trust and Savings Association
served as investment adviser commencing April 22, 1992.
++ Unaudited.
6
<PAGE> 151
INVESTMENT OBJECTIVE AND POLICIES
In General. The Fund's investment objective is to seek high current
income and stability of principal. It seeks to achieve its investment objective
by investing in dollar-denominated debt securities with remaining maturities of
thirteen months or less as defined by the Securities and Exchange Commission,
and the dollar-weighted average portfolio maturity of the Fund will not exceed
90 days. All securities acquired by the Fund will be determined by the
investment adviser, under guidelines established by the Company's Board of
Directors, to present minimal credit risks. Securities acquired by the Fund will
be U.S. Government securities or other "First Tier Securities" as defined by the
Securities and Exchange Commission. First Tier Securities consist of instruments
that are either rated at the time of purchase in the top rating category by one
(if rated by only one) or more unaffiliated nationally recognized statistical
rating organizations ("NRSROs") including Standard and Poor's Ratings Group,
Division of McGraw-Hill ("Standard & Poor's"), Moody's Investors Service, Inc.
("Moody's"), Duff & Phelps Credit Co. ("Duff & Phelps") or Fitch Investors
Service, Inc. ("Fitch") or are issued by issuers with such ratings. The Appendix
to the Statement of Additional Information includes a description of the
applicable NRSRO ratings. Unrated instruments (including instruments with
long-term but no short-term ratings) purchased by the Fund will be of comparable
quality to the rated instruments that the Fund may purchase, as determined by
the Fund's investment adviser pursuant to guidelines approved by the Board of
Directors.
The Fund invests substantially all of its assets in a diversified
portfolio of U.S. dollar-denominated money market instruments, such as bank
certificates of deposit and bankers' acceptances, commercial paper (including
variable and floating rate instruments) and repurchase agreements, in addition
to obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. Portfolio securities held by the Fund have remaining
maturities of thirteen months or less from the date of purchase by the Fund.
(Portfolio securities which are subject to repurchase agreements or have certain
put or demand features exercisable by the Fund within thirteen months, as well
as certain U.S. Government obligations with floating or variable interest rates,
may have longer maturities.)
In pursuing its investment objective, the Fund invests in a broad range
of government, bank and commercial obligations that may be available in the
money markets. The money market instruments in which the Fund invests will
generally have neither as much risk nor as high a return as longer-term or
lower-rated instruments. In accordance with current regulations of the
Securities and Exchange Commission, the Fund intends to limit its investments in
the securities of any single issuer (other than securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities) to not more than 5%
of the Fund's total assets at the time of purchase, provided that the Fund may
invest up to 25% of its total assets in the securities of any one issuer for a
period of up to three business days.
The Fund may purchase bank obligations such as certificates of deposit
and bankers' acceptances issued or supported by the credit of domestic banks,
foreign branches of domestic banks ("Euro CDs") or domestic branches of foreign
banks ("Yankee CDs" and "Yankee BAs") or foreign branches of foreign banks
("Yankee Euros"). Such banks must have total assets at the time of purchase in
excess of $2.5 billion. No more than 25% of the Prime Fund's total assets at the
time of purchase may be invested in Yankee CDs and BAs, Euro CDs and Yankee
Euros. The Fund may also make interest-bearing savings deposits in such
commercial banks in amounts not in excess of 5% of the Fund's total assets.
The Fund may be subject to additional investment risks because it may
hold securities issued by foreign branches of domestic banks, domestic branches
of
7
<PAGE> 152
foreign banks and foreign branches of foreign banks (and, as described below,
commercial paper issued by foreign issuers). These risks are different in some
respects from those incurred by a fund which invests 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 branch 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. In addition, foreign branches of domestic
banks, domestic branches of foreign banks and foreign branches of foreign banks
are not necessarily subject to the same regulatory requirements that apply to
domestic branches of domestic banks (such as reserve requirements, loan
limitations, examinations, accounting, auditing and recordkeeping requirements,
and public availability of information) and the Fund may experience difficulties
in obtaining or enforcing a judgment against the issuing bank.
The Fund may purchase commercial paper, short-term notes and corporate
bonds that meet the Fund's maturity limitations. Commercial paper purchased by
the Fund may include instruments issued by foreign issuers, such as Canadian
Commercial Paper ("CCP"), which is U.S. dollar-denominated commercial paper
issued by a Canadian corporation or a Canadian counterpart of a U.S.
corporation, and Europaper, which is U.S. dollar-denominated commercial paper of
a foreign issuer.
The Fund may also invest in commercial paper issued in reliance on the
so-called "private placement" exemption from registration afforded by Section
4(2) of the Securities Act of 1933 ("Section 4(2) paper"). Section 4(2) paper is
restricted as to disposition under the Federal securities laws and generally is
sold to institutional investors such as the Fund that agree that they are
purchasing the paper for investment and not with a view to public distribution.
Any resale by the purchaser must be in an exempt transaction. Section 4(2) paper
normally is resold to other institutional investors like the Fund through or
with the assistance of the issuer or investment dealers that make a market in
Section 4(2) paper. Section 4(2) paper will not be subject to the Fund's 10%
limitation on illiquid securities set forth below where the Board of Directors
or Bank of America (pursuant to guidelines adopted by the Board) determines that
a liquid trading market exists.
OTHER INVESTMENT PRACTICES
GOVERNMENT OBLIGATIONS. The Fund may purchase obligations issued or
guaranteed by the U.S. Government or its agencies and instrumentalities.
Obligations of certain agencies and instrumentalities of the U.S. Government,
such as the Small Business Administration, are backed by the full faith and
credit of the United States. Others are backed by the right of the issuer to
borrow from the U.S. Treasury (such as obligations of the Federal Home Loan
Bank), by the discretionary authority of the U.S. Government to purchase the
agency's obligations (such as obligations of the Federal National Mortgage
Association), or only by the credit of the agency or instrumentality issuing the
obligation (such as the Student Loan Marketing Association). Securities issued
or guaranteed by the U.S. Government and its agencies and instrumentalities have
historically involved little risk of loss of principal if held to maturity.
However, no assurance can be given that the U.S. Government would provide
financial support to any agency or instrumentality if it is not obligated to do
so by law.
Certain securities issued or guaranteed by all governmental agencies
may be prepaid by the issuer without penalty. Thus, when prevailing interest
rates decline, the value of these securities is not likely to rise on a
comparable basis with other debt securities that are not so prepayable. The
proceeds of prepayments and scheduled payments of principal of these securities
will be
8
<PAGE> 153
reinvested by the Fund at then-prevailing interest rates, which may be lower
than the rate of interest on the securities on which these payments were
received.
"STRIPPED" SECURITIES. The Fund may invest in "stripped" securities,
which are U.S. Treasury bonds and notes the unmatured interest coupons of which
have been separated from the underlying principal obligation. Stripped
securities are zero coupon obligations that are normally issued at a discount to
their "face value," and may exhibit greater price volatility than ordinary debt
securities because of the manner in which their principal and interest are
returned to investors. A number of securities firms and banks have stripped the
interest coupons and resold them in custodian receipt programs with different
names such as Treasury Income Growth Receipts ("TIGRs") and Certificates of
Accrual on Treasuries ("CATS"). Privately-issued stripped securities such as
TIGRs and CATS are not themselves guaranteed by the U.S. Government, but the
future payment of principal or interest on U.S. Treasury obligations which they
represent is so guaranteed.
REPURCHASE AGREEMENTS. The Fund may agree to purchase securities from
financial institutions, such as banks and broker-dealers, as are deemed
creditworthy by the Company's investment adviser under guidelines approved by
the Board of Directors, subject to the seller's agreement to repurchase them at
an agreed upon time and price ("repurchase agreements"). Although the securities
subject to a repurchase agreement may bear maturities exceeding thirteen months,
the Fund intends only to enter into repurchase agreements having maturities not
exceeding 60 days. Securities subject to repurchase agreements are held either
by the Company's custodian or sub-custodian, or in the Federal Reserve/Treasury
Book-Entry System. The seller, under a repurchase agreement, will be required to
deliver instruments the value of which is greater than the repurchase price.
Default by the seller would, however, expose the Fund to possible loss because
of adverse market action or delay in connection with the disposition of the
underlying obligations. Repurchase agreements are considered to be loans under
the Investment Company Act of 1940.
REVERSE REPURCHASE AGREEMENTS. The Fund may borrow monies for temporary
purposes by entering into reverse repurchase agreements in accordance with the
investment restrictions described below. Pursuant to such agreements, the Fund
would sell portfolio securities to banks and other financial institutions, and
agree to repurchase them at an agreed upon date and price. At the time the Fund
enters into a reverse repurchase agreement, it will place in a segregated
custodial account liquid assets or high grade debt securities having a value
equal to or greater than the repurchase price and the Company's investment
adviser will continuously monitor the account to ensure that the value is
maintained. The Fund would only enter into reverse repurchase agreements to
avoid otherwise selling securities during unfavorable market conditions to meet
redemptions. Reverse repurchase agreements involve the risk that the market
value of the portfolio securities sold by the Fund may decline below the price
of the securities the Fund is obligated to repurchase. Interest paid by the Fund
in connection with a reverse repurchase agreement will reduce the net investment
income of the Fund. Reverse repurchase agreements are considered to be
borrowings under the Investment Company Act of 1940.
VARIABLE AND FLOATING RATE INSTRUMENTS. Securities purchased by the
Fund may include variable and floating rate instruments, which may have a stated
maturity in excess of the Fund's maturity limitations but which will, except for
certain U.S. Government obligations, permit the Fund to demand payment of the
principal of the instrument at least once every thirteen months upon not more
than thirty days' notice. Variable and floating rate instruments may include
variable amount master demand notes that permit the indebtedness thereunder to
vary in addition to providing for periodic adjustments in the interest rate.
There may be no active secondary market with respect to a particular variable or
floating rate instrument. Nevertheless, the periodic readjustments of their
interest rates tend to assure that their value to the Fund will approximate
their
9
<PAGE> 154
par value. Illiquid variable and floating rate instruments (instruments which
are not payable upon seven days notice and do not have an active trading market)
that are acquired by the Fund are subject to the Fund's percentage limitations
regarding securities that are illiquid or not readily marketable. The Fund's
investment adviser will continuously monitor the creditworthiness of issuers of
variable and floating rate instruments in which the Fund invests, and their
ability to repay principal and interest.
Variable and floating rate instruments purchased by the Fund may
include participation certificates issued by trusts or financial institutions in
variable and floating rate obligations owned by such issuers or affiliated
organizations. A participation certificate gives the Fund a specified undivided
interest (up to 100%) in the underlying obligation and the right to demand
payment of the unpaid principal balance plus accrued interest on the
participation interest from the institution upon a specified number of days'
notice. If the credit of the obligor is of minimal credit risk, no credit
support from a bank or other financial institution will be necessary. In other
circumstances, the participation certificate will be backed by an irrevocable
letter of credit or guarantee of a bank, or will be insured by an insurer, that
the Fund's investment adviser has determined meets the quality standards for the
Fund. If a participation interest is backed by an irrevocable letter of credit
or guarantee of a bank or is insured as described above, the Fund will usually
have the right to sell the interest back to the institution or draw on the
letter of credit or insurance policy on demand after a specified notice period,
for all or any part of the principal amount of the participation interest plus
accrued interest. Although a participation interest may be sold by the Fund,
under normal circumstances they will be held until maturity.
The Fund may also invest in obligations which provide for a variable or
floating interest rate which is determined through a periodic "auction process."
From time to time, holders of the obligations have the right to tender any such
obligations to a remarketing agent which then remarkets the obligations which
have been tendered and thereby determines a new interest rate for the following
period.
WHEN-ISSUED PURCHASES, FORWARD COMMITMENTS AND DELAYED SETTLEMENTS. The
Fund may purchase securities on a "when-issued" basis and may purchase or sell
securities on a "forward commitment" or "delayed settlement" basis. When-issued
and forward commitment transactions, which involve a commitment by the Fund to
purchase or sell particular securities with payment and delivery taking place at
a future date (perhaps one or two months later), permit the Fund to lock in a
price or yield on a security it owns or intends to purchase or sell, regardless
of future changes in interest rates. Delayed settlement describes a securities
transaction in a secondary market for which settlement will occur sometime in
the future. When-issued, forward commitment and delayed settlement transactions
involve the risk, however, that the yield or price obtained in a transaction may
be less favorable than the yield or price available in the market when the
securities delivery takes place. The Fund's forward commitments, when-issued
purchases and delayed settlements are not expected to exceed 25% of the value of
its total assets absent unusual market conditions. The Fund's liquidity and the
ability of its investment adviser to manage its portfolio may be adversely
affected in the event the Fund's forward commitments, commitments to purchase
when-issued securities and delayed settlements ever exceed 25% of the value of
its total assets. The Fund does not intend to engage in these transactions for
speculative purposes but only in furtherance of their investment objectives.
INVESTMENT LIMITATIONS. The Fund's investment objective is a
fundamental policy that may not be changed without a vote of the holders of a
majority of the Fund's outstanding shares (as defined in the Investment Company
Act of 1940). The Fund's policies may be changed by the Company's Board of
Directors without the affirmative vote of the holders of a majority of the
Fund's outstanding shares, except that the investment limitations set forth
below may not be changed
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without such a vote of shareholders. A description of certain other fundamental
investment limitations is contained in the Statement of Additional Information.
The Fund may not:
1. Purchase any securities which would cause 25% or more of
the Fund's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry, provided that (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities or domestic bank
certificates of deposit, bankers' acceptances and repurchase agreements
secured by instruments of domestic branches of U.S. banks or
obligations of the U.S. Government, its agencies or instrumentalities;
(b) wholly-owned finance companies will be considered to be in the
industries of their parents if their activities are primarily related
to financing the activities of the parents; and (c) the industry
classification of utilities will be determined according to their
service. For example, gas, gas transmission, electric and gas, electric
and telephone will each be considered a separate industry.
2. Borrow money or issue senior securities, except that the
Fund may borrow from banks or enter into reverse repurchase agreements
to meet redemptions or for other temporary purposes in amounts up to
10% of its total assets at the time of such borrowing; or mortgage,
pledge or hypothecate any assets except in connection with any such
borrowing and in amounts not in excess of the lesser of the dollar
amount borrowed or 10% of its total assets at the time of such
borrowing; or purchase securities at any time after such borrowings
(including reverse repurchase agreements) have been entered into and
before they are repaid.
3. Purchase securities without available market quotations
which cannot be sold without registration or the filing of a
notification under federal or state securities laws; enter into
repurchase agreements providing for settlement more than seven days
after notice; or purchase any other securities deemed illiquid by the
Directors if, as a result, such securities and repurchase agreements
would exceed 10% of the Fund's total assets.
The Fund intends that, except as stated above under "Other Investment
Practices--Variable and Floating Rate Instruments," variable amount master
demand notes with maturities of nine months or less as well as any investments
in securities that are not registered under the Securities Act of 1933 but that
may be purchased by institutional buyers under Rule 144A and for which a liquid
trading market exists as determined by the Board of Directors or Bank of America
(pursuant to guidelines adopted by the Board) will not be subject to the 10%
limitation on illiquid securities set forth in Investment Limitation No. 2
above.
INVESTMENT DECISIONS. Investment decisions for the Fund are made
independently from those for other portfolios of the Company and other
investment companies and common trust funds managed by Bank of America and its
affiliated entities. Such other investment companies and common trust funds may
also invest in the same securities as the Fund. When a purchase or sale of the
same security is made at substantially the same time on behalf of the Fund and
another portfolio, investment company or account, available investments or
opportunities for sales will be allocated in a manner which Bank of America
believes to be equitable. In some instances, this investment procedure may
adversely affect the price paid or received by the Fund or the size of the
position obtained or sold by the Fund. In addition, in allocating purchase and
sale orders for portfolio securities (involving the payment of brokerage
commissions or dealer concessions), Bank of America may take into account the
sale of shares of the
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Fund by broker-dealers and other financial institutions (including affiliates of
Bank of America and the Distributor), provided Bank of America believes that the
quality of the transaction and the amount of the commission are not less
favorable than what they would be with any other unaffiliated qualified firm.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS. The business of the Company is managed under the
direction of its Board of Directors. Information about the Directors and
officers of the Company is included in the Statement of Additional Information.
INVESTMENT ADVISER. Bank of America serves as the Fund's investment
adviser. Bank of America, which has principal offices at 555 California Street,
San Francisco, California 94104, is a national banking association formed in
1904 which 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. 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 it commenced operations in 1984. Bank of America
and its affiliates have over $__ billion under management, including over $__
billion in mutual funds. Bank of America is a subsidiary of BankAmerica
Corporation, a registered bank holding company.
As investment adviser Bank of America manages the investments of the
Fund and is responsible for all purchases and sales of the Fund's portfolio
securities. For its investment advisory services Bank of America is entitled to
receive a fee accrued daily and payable monthly at the following annual rates:
.10% of the first $3 billion of the Fund's net assets, plus .09% of the next $2
billion of the Fund's net assets, plus .08% of the Fund's net assets over $5
billion. For the fiscal year ended February 28, 1997, the Fund paid Bank of
America advisory fees at the effective annual rate of .__% of the Fund's average
daily net assets. This amount may be reduced pursuant to certain undertakings by
Bank of America described below under "Fee Waivers."
In addition, Bank of America is entitled to fees under the Company's
Special Management Services Plan with respect to the Fund's Pacific Horizon
Shares. Bank of America and Service Organizations may also receive fees charged
directly to their customers' accounts in connection with investments in Pacific
Horizon shares of the Fund.
ADMINISTRATOR. The BISYS Group, Inc. (the "Administrator"), through its
wholly-owned subsidiary BISYS Fund Services, L.P., serves as the Company's
administrator and assists generally in supervising the Fund's operations. Their
offices are located at 50 Clove Road, Little Falls, New Jersey 07424 and 3435
Stelzer Road, Columbus, Ohio 43219. Prior to November 1, 1996, Concord Holding
Corporation, an indirect, wholly-owned subsidiary of the current Administrator,
served as Administrator.
Under its Basic Administrative Services Agreement for the Fund, the
Administrator has agreed to provide facilities, equipment and personnel to carry
out administrative services that are for the benefit of all series of shares in
the Fund, including coordination of reports to shareholders and reports to the
Securities and Exchange Commission; calculation of the net asset value of Fund
shares and dividends and capital gains distributions to shareholders; payment of
the costs of maintaining the Fund's offices; preparation of tax returns;
provision of internal legal and accounting compliance services; maintenance (or
oversight of the maintenance by others approved by the Board of Directors) of
the Fund's books and records; and the provision of various services for
shareholders who have made a minimum initial investment of at least $500,000,
including the
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provision of a facility to receive purchase and redemption orders for the
accounts of such shareholders.
For its administrative services the Administrator is entitled to
receive an administration fee computed daily and payable monthly at the
following annual rates: .10% of the first $7 billion of the Fund's net assets,
plus .09% of the next $3 billion of the Fund's net assets, plus .08% of the
Fund's net assets over $10 billion. For the fiscal year ended February 28, 1997,
the Fund paid the Administrator administration fees at the effective annual rate
of .__% of the Fund's average daily net assets.
Pursuant to the authority granted in its agreement with the Company,
the Administrator has entered into an agreement with The Bank of New York under
which the bank performs certain of the services listed above--e.g., calculating
the net asset value of Fund shares and dividends to shareholders and maintaining
the Fund's books and records. The Fund bears all fees and expenses charged by
The Bank of New York for these services.
DISTRIBUTOR. Concord Financial Group, Inc. (the "Distributor") is the
principal underwriter and distributor of shares of the Fund. The Distributor is
an indirect, wholly-owned subsidiary of the Administrator organized to
distribute shares of mutual funds to institutional and retail investors. Its
offices are located at 3435 Stelzer Road, Columbus, Ohio 43219.
The Distributor makes a continuous offering of the Fund's shares and
bears the costs and expenses of printing and distributing to selected dealers
and prospective investors copies of any prospectuses, statements of additional
information and annual and interim reports of the Fund (after such items have
been prepared and set in type by the Fund) which are used in connection with the
offering of shares, and the costs and expenses of preparing, printing and
distributing any other literature used by the Distributor or furnished by it for
use by selected dealers in connection with the offering of the Fund's shares for
sale to the public.
CUSTODIAN AND TRANSFER AGENT. The Bank of New York, located at 90
Washington Street, New York, New York 10286, serves as custodian for the Fund
and Bank of America serves as the Fund's sub-custodian. BISYS Fund Services,
Inc., 3435 Stelzer Road, Columbus, OH 43219 (the "Transfer Agent"), a
wholly-owned subsidiary of the Administrator, serves as the Fund's transfer
agent and dividend disbursing agent. The Company has also entered into a Cash
Management and Related Services Agreement with The Bank of New York pursuant to
which The Bank of New York receives and disburses funds in connection with wire
purchases and wire redemptions of and the payment of dividends and other
distributions with respect to the Fund's shares.
SPECIAL MANAGEMENT SERVICES PLAN. The Company has adopted a Special
Management Services Plan pursuant to which Pacific Horizon Shares are sold to
securities dealers, financial institutions and other industry professionals that
are shareholders or dealers of record or which have a servicing relationship
("Shareholder Organizations") with beneficial owners of the Fund's Pacific
Horizon Shares that enter into a Special Management Services Agreement with the
Company pursuant to the Plan. Under the Special Management Services Shareholders
Organization Plan, Shareholder Organizations have agreed to provide the
following support services to their clients: aggregating and processing purchase
and redemption requests for Pacific Horizon Shares and placing net purchase and
redemption orders; providing a service that invests the assets of shareholder
accounts in Pacific Horizon Shares pursuant to specific or pre-authorized
instructions; processing dividend payments; providing statements periodically to
shareholders showing their positions in Pacific Horizon Shares; providing
subaccounting or the information necessary for subaccounting; if required by
law, forwarding shareholder communications (such as proxies, shareholder
reports, annual and semi-annual financial statements and dividend, distribution
and tax
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notices) to shareholders; forwarding to shareholders proxy statements and
proxies containing any proposals regarding the Special Management Services Plan
or related agreements; developing and monitoring investor programs offered from
time to time; providing dedicated walk-in and telephone facilities to handle
shareholder inquiries and serve shareholder needs; providing and maintaining
specialized systems for automatic investments; maintaining the registration or
qualification of Pacific Horizon Shares for sale under state securities laws;
paying for the operation of arrangements that facilitate same-day purchases by
shareholders; assuming the expenses of payments made to third parties for
services provided in connection with the investments of their customers in
Pacific Horizon Shares; and 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.
In consideration of the services provided pursuant to the Special
Management Services Plan, Shareholder Organizations are entitled to receive a
fee, computed daily and payable monthly at the annual rate of up to 0.32% of the
average daily net asset value of the Fund's Pacific Horizon Shares beneficially
owned by clients of such Shareholder Organizations. The fees paid under the
Special Management Services Plan are for services provided by Shareholder
Organizations to their clients who beneficially own Pacific Horizon Shares of
the Fund and are not borne by the Fund's other series of shares. For the fiscal
year ended February 28, 1997, the Prime Fund paid aggregate fees pursuant to the
Special Management Services Plan at the effective annual rate of .__% of the
average net assets of its Pacific Horizon Shares.
FEE WAIVERS. Except as noted in this Prospectus and the Statement of
Additional Information, the Fund's service contractors bear all expenses in
connection with the performance of their services and the Fund bears the
expenses incurred in its operations. From time to time during the course of the
Fund's fiscal year, Bank of America and/or the Administrator may prospectively
waive payment of fees and/or assume certain expenses of the Fund as a result of
competitive pressures and in order to protect the business and reputation of
Bank of America and the Administrator. This will have the effect of lowering the
overall expense ratio of the Fund and of increasing the Fund's yield to
investors at the time such fees are not received or amounts are assumed and of
increasing the overall expense ratio of the Fund and of decreasing yield to
investors when such fees are not waived or amounts are not reimbursed.
PURCHASES OF SHARES
Pacific Horizon Shares may be purchased directly from the Distributor,
by clients of Bank of America through their qualified trust and agency accounts
or by clients of Service Organizations without a charge imposed by the Fund,
although Bank of America and Service Organizations may charge a fee for
providing administrative services in connection with investments in shares of
the Fund. The minimum initial investment is $500, except for purchases through
Bank of America's trust and agency accounts or through a Service Organization
whose clients have made aggregate minimum purchases of $1,000,000, in which
event the minimum initial investment is $100, or as otherwise described below
under "Shareholder Services." The minimum subsequent investment is $50, except
for investments arising from automatic investment transactions on behalf of Bank
of America's trust and agency accounts, as to which there is no minimum. Bank of
America and Service Organizations may impose minimum customer account and other
requirements in addition to those imposed by the Fund. The Fund reserves the
right to reject any purchase order. Persons wishing to purchase shares through
their accounts at Bank of America or a Service Organization should contact such
entity directly for appropriate instructions. Other investors may purchase
shares in the manner described below.
An investor desiring to make an initial purchase of shares by mail
should complete an Account Application and mail the Application and a check
payable to
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"Pacific Horizon Prime Fund" to the address on the Account Application. All
subsequent purchases of shares made by mail should be delivered to Pacific
Horizon Funds, Inc., File No. 54634, Los Angeles, California 90074-4634. Initial
purchases of shares into a new account may not be made by wire. However, an
investor desiring to make a subsequent purchase of shares into an already
existing account by wire should contact the Transfer Agent at (800) 346-2087 for
complete wiring instructions and request his bank to transmit immediately
available funds by wire for purchase of shares in the investor's name. It is
important that the wire include the investor's name and Fund account number. An
investor should contact his bank for information on remitting funds in this
manner, including any charges imposed by the bank for wiring funds. Payments
which are hand delivered must be delivered directly to the Transfer Agent at
3435 Stelzer Road, Columbus, OH 43219.
A fee will be imposed by the Transfer Agent if any check used for
investment in an account does not clear. All payments should be in U.S. dollars.
Purchase orders in proper form are effected on a day on which both the Fund's
custodian and the New York Stock Exchange (the "Exchange") are open for business
(a "Business Day") at the net asset value per share next determined after
receipt by the Transfer Agent at its Columbus office of both an order and
federal funds. Purchases will not be effected until payments made in other than
federal funds are converted to federal funds, which is ordinarily within two
business days of receipt. Purchase orders effected through automatic investment
transactions on behalf of Bank of America's trust and agency accounts are
received by Bank of America as sub-custodian for the Fund before 12:00 noon
(Pacific time) and are effected as of 4:00 p.m. (Eastern time) on the same day.
It is the responsibility of Bank of America or the Service Organization involved
to transmit orders for the purchases of shares by its customers to the Transfer
Agent and deliver required funds on a timely basis, in accordance with the
procedures stated above. Share purchases and redemptions executed through Bank
of America or a Service Organization are executed only on days on which the
particular institution and the Fund are open for business.
The net asset value per share of the Pacific Horizon Shares of the
Prime Fund is the value of all securities and other assets owned by the Fund
that are allocable to such class, less the liabilities charged to such class,
divided by the number of outstanding shares of such class. The net asset value
per share of the Fund is determined on each Business Day as of 2:30 p.m. Eastern
time and the close of regular trading hours on the Exchange (or 4:00 p.m.
Eastern time if the Exchange is closed). In computing net asset value, the Fund
uses the amortized cost method of valuation as described in the Statement of
Additional Information under "Additional Purchase and Redemption
Information--Valuation." The net asset value per share for purposes of pricing
purchase and redemption orders for the Fund is determined independently of that
for other portfolios of the Company. For price and yield information call (800)
346-2087.
Federal regulations require that each investor provide a certified
Taxpayer Identification Number upon opening or reopening an account. See the
Fund's Account Application for further information about this requirement.
The Company will obtain a representation from Service Organizations (as
well as from Bank of America and the Administrator) that they will be licensed
as dealers as required by applicable law or will not engage in activities which
would require them to be so licensed.
TELETRADE. Although the privilege may not be used to make an initial
purchase, an investment in Pacific Horizon Shares of the Fund entitles an
investor to purchase Fund shares (minimum of $500 and maximum of $50,000 per
transaction) without charge by telephone unless he indicates on the Account
Application or in a subsequent written notice to the Transfer Agent that he does
not wish to use the TeleTrade Privilege. Appropriate information concerning the
investor's bank must be provided on the Account Application or in a subsequent
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signature guaranteed letter of instruction to the Transfer Agent before the
TeleTrade Privilege may be used. The proceeds will be transferred between the
checking, NOW or bank money market account designated in one of these documents
and the investor's Fund account. Only an account maintained at a domestic
financial institution which is an Automated Clearing House member may be so
designated. TeleTrade purchases will be effected at the net asset value next
determined after receipt of payment by the Fund's Transfer Agent. The Company
may modify this Privilege at any time or charge a service fee upon notice to
shareholders. No such fee currently is contemplated.
An investor who has selected the TeleTrade Privilege may request
TeleTrade purchases by telephoning the Transfer Agent at (800) 346-2087. The
TeleTrade Privilege may not be available to certain clients of Bank of America
or particular institutional investors.
REDEMPTION OF SHARES
Investors whose shares are purchased through accounts at Bank of
America or a Service Organization may redeem all or part of their Pacific
Horizon Shares in accordance with the instructions pertaining to such accounts.
If such investors are also the shareholders of record of those accounts on the
books of the Transfer Agent, they may redeem shares in accordance with the
procedures described below under "Regular Redemption." Such investors wishing to
use the other redemption methods must arrange with Bank of America or a Service
Organization for delivery of the required application(s) to the Transfer Agent.
Redemption orders are effected on a Business Day at the net asset value per
share next determined after receipt of the order by the Transfer Agent. Pacific
Horizon Shares of the Fund acquired through exchange of B Shares of the Time
Horizon Funds are subject to a CDSC upon redemption in accordance with the
prospectus for the particular B Shares. 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 Fund. It is the responsibility of Bank of America or the
Service Organization to transmit the redemption order and credit its customer's
account with the redemption proceeds on a timely basis. Other investors may
redeem all or part of their shares in accordance with one of the following
procedures.
REGULAR REDEMPTION. An investor may redeem shares in any amount by
sending a written request to the Prime Fund, c/o Pacific Horizon Funds, Inc.,
P.O. Box 80221, Los Angeles, CA 90080-9909. Redemption orders are effected upon
receipt by the Transfer Agent at its Columbus office. Redemption requests
delivered to the Company other than by mail must be delivered to the offices of
the Transfer Agent at 3435 Stelzer Road, Columbus, OH 43219. While the Company
no longer issues share certificates, shares for which certificates previously
had been issued may not be redeemed unless the certificates have been submitted
to the Transfer Agent and endorsed for transfer.
Redemption requests must be signed by each shareholder, including each
joint owner on redemption requests for joint accounts. A redemption request for
(i) an amount in excess of $50,000 per day, (ii) any amount if the proceeds are
to be sent elsewhere than the address of record and (iii) an amount of $50,000
or less if the address of record has not been on file with the Transfer Agent
for a period of 60 days, must be accompanied by a signature guarantee. The
guarantor of a signature must be a bank that is a member of the FDIC, a trust
company, a member firm of a national securities exchange or other eligible
guarantor institution. The Transfer Agent will not accept guarantees from
notaries public. Signatures on endorsed certificates submitted for redemption
must also be guaranteed. Guarantees must be signed by an authorized signatory of
the guarantor institution and "Signature Guaranteed" must appear with the
signature.
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TELETRADE. An investor may redeem shares in the same manner and subject
to the same limitations as described under "Purchases of Shares -- TeleTrade"
above. Redemption proceeds will be on deposit in the investor's account at a
domestic financial institution which is an Automated Clearing House member bank
ordinarily two business days after receipt of the redemption request. An
investor may also request that redemption proceeds be sent by check. Checks will
be sent only to the registered owner(s) and only to the address of record. An
investor who has selected the TeleTrade Privilege may request TeleTrade
redemptions by telephoning the Transfer Agent at (800) 346-2087. Shares issued
in certificate form are not eligible for this Privilege. Neither the Company nor
any of its service contractors will be liable for any loss or expense for acting
upon any 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.
WIRE REDEMPTION. An investment in Pacific Horizon Shares of the Fund
automatically entitles an investor to redeem shares by wire unless he has
indicated on the Account Application or in a subsequent signature guaranteed
written notice to the Transfer Agent that he does not wish to use this method of
redemption. Appropriate information concerning the investor's bank must be
provided on the Account Application or in a subsequent signature guaranteed
letter of instruction to the Transfer Agent before shares may be redeemed by
wire. Shareholders may instruct the Transfer Agent to redeem shares in the Fund
on written, telegraphic, or telephone instructions from any person representing
himself to be the investor and believed by the Transfer Agent to be genuine. The
responsibility of the Transfer Agent and certain other parties for telephonic
instructions believed to be genuine is discussed in the preceding paragraph. The
proceeds of redemption will normally be wired in federal funds to the commercial
bank specified by the investor on the Account Application. Redemption proceeds
must be in an amount of at least $1,000, and may be subject to limits as to
frequency and overall amount. Wire redemptions may be terminated or modified by
the Fund at any time. Shares issued in certificate form are not eligible for
wire redemption. A shareholder should contact his bank for information on any
charges imposed by the bank in connection with the receipt of redemption
proceeds by wire. During periods of substantial economic or market change,
telephone wire redemptions may be difficult to implement. If an investor is
unable to contact the Transfer Agent by telephone, shares may also be redeemed
by delivering the redemption request in person to the Transfer Agent or by mail
as described above under "Regular Redemption." For additional information
concerning wire redemptions, see the Statement of Additional Information and the
Fund's Account Application.
CHECK REDEMPTION. An investor may request on the Account Application
that the Company provide Redemption Checks ("Checks") drawn on the Fund. Checks
will be sent only to the registered owner(s) and only to the address of record.
The Account Application must be manually signed by the registered owner(s).
Checks may be made payable to the order of any person in the amount of $500 or
more. Dividends are earned until the Check clears the Transfer Agent. When a
Check is presented to the Transfer Agent for payment, the Transfer Agent, as the
investor's agent, will cause the Fund to redeem a sufficient number of the
investor's shares to cover the amount of the Check and any applicable CDSC.
There is no charge to the investor for the use of the Checks; however, the
Transfer Agent will impose a charge for stopping payment of a Check upon the
request of the investor, or if the Transfer Agent cannot honor a Check due to
insufficient funds or other valid reason. Because dividends accrue daily and
because a CDSC may be applicable, Checks should not be used to close an account.
Shares for which stock certificates have been issued may not be redeemed by
Check.
OTHER REDEMPTION INFORMATION. Redemption orders are effected on a
Business Day at the net asset value per share next determined after receipt of
the order
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by the Transfer Agent. The Fund ordinarily will make payment for all shares
redeemed after receipt by the Transfer Agent of a request in proper form, except
as provided by the rules of the Securities and Exchange Commission. If the
shares to be redeemed have been purchased by check or TeleTrade, the Company
will, upon the clearance of the purchase check or TeleTrade payment, mail the
redemption proceeds within seven business days. Where redemption is requested
other than by mail, shares purchased by check or by TeleTrade will not be
redeemed for a period of seven business days after their purchase. This
procedure does not apply to situations where the Fund receives payment in cash
or immediately available funds for the purchase of shares. The Company may
suspend the right of redemption or postpone the date of payment upon redemption
(as well as suspend the recordation of the transfer of shares) for such periods
as are permitted under the 1940 Act. During the period prior to the time the
shares are redeemed, dividends on such shares will accrue and be payable, and an
investor will be entitled to exercise all other rights of beneficial ownership.
The Fund imposes no charge when shares are redeemed unless the shares
have been acquired through exchange of B Shares of the Time Horizon Funds, in
which case any applicable CDSC will be charged in accordance with the prospectus
for the particular B Shares. Additionally, if shares have been purchased through
Bank of America or a Service Organization, Bank of America or the Service
Organization may charge a fee for providing administrative services in
connection with investments in shares. The Fund reserves the right to redeem
accounts (other than non-working spousal IRA accounts) involuntarily, upon sixty
days' written notice, if the account's net asset value falls below the $500
minimum balance. A CDSC will not be imposed upon such involuntary redemptions.
SHAREHOLDER SERVICES
The services and privileges described under this heading are available
only to holders of the Fund's Pacific Horizon Shares and are not available to
persons who invest directly in Horizon Shares, Horizon Service Shares, X Shares
or S Shares of the Fund. Additionally, these services and privileges may not be
available to certain clients of Bank of America and particular Service
Organizations. Bank of America and some Service Organizations may impose
conditions on their clients which are different from those described in this
Prospectus. You should consult Bank of America or your Service Organization in
this regard.
INDIVIDUAL RETIREMENT ACCOUNTS ("IRAs"). The Company makes available
IRAs, including IRAs set up under a Simplified Employee Pension Plan
("SEP-IRAs") and IRA "Rollover Accounts." For details contact the Distributor at
(800) 332-3863. The minimum initial investment for SEP-IRAs with more than one
participant is $2,500, with no minimum on subsequent purchases. The minimum
initial investment for IRAs and SEP-IRAs with only one participant is normally
$500, with no minimum on subsequent purchases. Individuals who open an IRA may
also open a non-working spousal IRA with a minimum investment of $250. The CDSC
with respect to Pacific Horizon Shares acquired through exchange of B Shares
will not be charged on redemptions in connection with minimum required
distributions from an IRA due to the shareholder having reached age 70 1/2. The
investor should read the IRA Disclosure Statement and the Bank Custodial
Agreement for further details as to eligibility, service fees and tax
implications, and should consult a tax adviser.
EXCHANGES. The Exchange Privilege enables an investor to exchange
Pacific Horizon Shares of the Fund for: like shares in another portfolio of the
Company, or like shares of any investment portfolio of Time Horizon Funds
provided that (i) Pacific Horizon Shares of the Prime Fund acquired through an
exchange of B Shares of an investment portfolio of the Time Horizon Funds may
only be exchanged for B Shares of an investment portfolio of the Time Horizon
Funds, and (ii) such other shares may legally be sold in the state of the
investor's residence. An investment in Pacific Horizon Shares of the Fund
automatically entitles an investor to use this Privilege unless he has indicated
on the Account Application
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or in a subsequent written notice to the Transfer Agent that he does not wish to
use this Privilege. The shares that are exchanged must have a current value of
at least $500; furthermore, in establishing a new account through use of this
Privilege, the shares being exchanged must have a value at least equal to the
minimum initial investment required by the particular portfolio into which the
exchange is being made. Prospectuses for portfolios of the Company (as well as
prospectuses for investment portfolios of Time Horizon Funds) into which an
exchange is being made may be obtained from the investor's Service Organization
or the Distributor. B Shares of the Time Horizon Funds offered with a CDSC may
be exchanged for Pacific Horizon Shares of the Prime Fund. Such
exchange-acquired Pacific Horizon Shares of the Fund will be subject to a CDSC
upon redemption in accordance with the prospectus for the particular B Shares.
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 Fund. A shareholder
may telephone instructions by calling the Transfer Agent at (800) 346-2087. See
"Redemption of Shares -- TeleTrade" for a description of the Company's policy
regarding responsibility for telephone instructions.
When Fund shares are exchanged for shares of another portfolio in the
Company (or for shares of an investment portfolio of Time Horizon Funds) which
are sold with a front-end sales load, the applicable front-end sales load, if
any, will be deducted. An investor desiring to use the Exchange Privilege should
read the Statement of Additional Information and consult his or her Service
Organization or the Distributor for further information applicable to use of the
Exchange Privilege. 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 will be given to shareholders of any material modification
or termination except where notice is not required under the regulations of the
Securities and Exchange Commission.
AUTOMATIC INVESTMENT PROGRAM. The Automatic Investment Program permits
an investor to purchase Pacific Horizon Shares (minimum $50 per transaction) at
regular intervals selected by the investor. Provided the investor's financial
institution allows automatic withdrawals, shares are purchased by transferring
funds from an investor's checking, bank money market or NOW account designated
by the investor. At the investor's option, the account designated will be
debited in the specified amount, and shares will be purchased, once a month, on
either the first or fifteenth day, or twice a month, on both days. Only an
account maintained at a domestic financial institution which is an Automated
Clearing House member may be so designated. The minimum initial investment
requirement for investors establishing an Automatic Investment account is $50.
To establish an Automatic Investment account, an investor must check the
appropriate box and supply the necessary information on the Account Application
or subsequently file a written request with the Transfer Agent. Such
applications are available from the Distributor. An investor may cancel this
Privilege or change the amount of purchase at any time by mailing written
notification to the Transfer Agent at P.O. Box 80221, Los Angeles, California
90080-9909 and notification will be effective three business days following
receipt. The Company may modify or terminate this Privilege at any time or
charge a service fee, although no such fee currently is contemplated.
DIRECT DEPOSIT PROGRAM. If an investor receives federal salary, social
security, or certain veteran's, military or other payments from the federal
government, he is eligible for the Direct Deposit Program. With this Program, an
investor may purchase Pacific Horizon Shares (minimum of $50 and maximum of
$50,000 per transaction) by having these payments automatically deposited into
his Fund account. An investor may deposit as much of such payments as he elects.
For instructions on how to enroll in the Direct Deposit Program, an investor
should call the Transfer Agent at (800) 346-2087. Death or legal incapacity will
terminate an investor's participation in the Program. An investor may elect at
any time to terminate his participation by notifying the appropriate federal
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<PAGE> 164
agency. Further, the Company may terminate an investor's participation upon
30 days' notice to the investor.
AUTOMATIC WITHDRAWAL PLAN. Investors having a $5,000 minimum account
may request withdrawal of a dollar amount in multiples of $50 on a monthly,
quarterly, semi-annual or annual basis. At the investor's option, monthly
withdrawals will be made on either the first or fifteenth day of the month and
quarterly, semi-annual or annual withdrawals will be made on either the first or
fifteenth day of the month selected. To participate in the automatic withdrawal
plan, an investor must check the appropriate box and supply the necessary
information on the Account Application which may be obtained from the
Distributor or subsequently file a signature guaranteed written request with the
Transfer Agent. Use of this Plan may be disadvantageous for shares acquired
through exchange of B Shares due to the potential need to pay a CDSC.
REINSTATEMENT PRIVILEGES. An investor may reinvest all or any portion
of his redemption proceeds received from the redemption of Pacific Horizon
Shares of the Prime Fund, which were acquired through exchange of B Shares of
the Time Horizon Funds, within 90 days of the redemption trade date. Such
reinvestment must be made in B Shares of an investment portfolio of the Time
Horizon Funds. Upon such a reinvestment, the distributor will credit to an
investor's account any contingent deferred sales charge imposed on any redeemed
shares. For purposes of computing the CDSC upon redemption of shares reinvested
through this Privilege, 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. Shares so reinvested
will be purchased at a price equal to the net asset value next determined after
the Transfer Agent receives a reinstatement request and payment in proper form.
If an investor wishes to use this Privilege, he must submit a written
request to the Transfer Agent stating that he is eligible to use the Privilege.
The reinstatement request and payment must be received within 90 days of the
trade date of the redemption. Currently, there are no restrictions on the number
of times an investor may use this Privilege.
Generally, exercising the Reinstatement Privilege will not affect the
character of any gain or loss realized on redemption for federal income tax
purposes. However, if a redemption results in a loss, the reinstatement may
result in the loss being disallowed under IRS "wash sale" rules.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends and Distributions. The shareholders of the Fund are entitled
to dividends and distributions arising from the net investment income and net
realized gains, if any, earned on investments held by the Fund. Generally, the
Fund's net income is declared daily as a dividend. Shares begin accruing
dividends on the day the purchase order for the shares is executed and continue
to accrue dividends through and including the day before the redemption order
for the shares is executed. Dividends are paid within five business days after
the end of each month. Although the Fund does not expect to realize net
long-term capital gains, any such capital gains as may be realized will be
distributed no more than twice a year after reduction for any available capital
loss carry-forward.
Dividends are paid in the form of additional full and fractional shares
of the same series as the shares on which the dividends are declared at the net
asset value of such shares on the payment date, unless the shareholder elects to
receive dividends in cash. Reinvested dividends receive the same tax treatment
as dividends paid in cash. Such election or any revocation thereof must be made
in writing to the Transfer Agent at P.O. Box 80221, Los Angeles, California
90080-9909, and will become effective with respect to dividends paid after its
receipt by the dividend disbursing agent.
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<PAGE> 165
FEDERAL TAXES. During its most recent taxable year, the Fund qualified
as a "regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"), and the Fund intends to so qualify in future years, as
long as such qualification is in the best interest of its shareholders. As a
result of this qualification, the Fund generally is not required to pay federal
income taxes to the extent its earnings are distributed in accordance with the
Code.
In connection with such tax qualification, the Fund contemplates
declaring as dividends at least 90% of its investment company taxable income for
each taxable year. An investor of the Fund who receives a dividend derived from
investment company taxable income (including any excess of net short-term
capital gain over net long-term capital loss) treats it as a receipt of ordinary
income in the computation of his gross income, whether such dividend is paid in
the form of cash or additional shares of the Fund. Because all of the net
investment income of the Fund is expected to be derived from earned interest, it
is anticipated that all dividends paid by the Fund will be taxable as ordinary
income to shareholders who are not exempt from federal income taxes and that no
part of any distribution paid by the Fund will be eligible for the dividends
received deduction for corporations.
Although the Fund anticipates that it will not have net long-term
capital gain, any distribution of the Fund's excess of net long-term capital
gain over its net short-term capital loss will be taxable to shareholders of the
Fund as long-term capital gain, regardless of how long the shareholder has held
shares of the Fund.
Dividends declared in October, November or December of any calendar
year payable to shareholders of record on a specified date in such month will be
deemed for federal tax purposes to have been paid by the Funds and received by
the shareholders on December 31 of such year, as long as such dividends are paid
during January of the following year.
The foregoing is only a brief summary of some of the important federal
income tax considerations generally affecting the Fund and its shareholders, and
is based on federal tax laws and regulations which are in effect as of the date
of this Prospectus. Such laws and regulations may be changed by legislative or
administrative actions.
Potential investors in the Fund should consult their tax advisers with
specific reference to their own tax situation. Additional tax information of
relevance to particular investors is contained in the Statement of Additional
Information. Shareholders will be advised at least annually as to the federal
income tax consequences of distributions made each year.
STATE AND LOCAL TAXES. Investors are advised to consult their tax
advisers concerning the application of state and local taxes, which may have
different consequences from those of the federal income tax law described above.
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<PAGE> 166
DESCRIPTION OF SHARES
The Company was organized on October 27, 1982 as a Maryland
corporation. On March 30, 1984 the Company commenced its public sale of shares
(Pacific Horizon Shares) in the Prime Fund, which was originally called "Money
Market Portfolio." The Predecessor Prime Fund originally commenced operations on
July 10, 1987 as a separate portfolio of The Horizon Funds, a Massachusetts
business trust. On January 19, 1990, the Prime Fund of The Horizon Funds was
combined with the Money Market Portfolio of the Company; the Company changed the
name of its resulting portfolio to "Prime Fund"; and, in addition to continuing
its offering of Pacific Horizon Shares in such Fund, the Company began offering
Horizon Shares and Horizon Service Shares in the Fund. On July 22, 1996, the
Company bean offering X Shares in the Prime Fund and on April 7, 1997 began
offering S Shares in the Prime Fund. S Shares are offered to customers who
purchase such shares through cash management services such as a sweep account
offered by Bank of America, any of its banking affiliates and certain other
Service Organizations. X Shares are available only to qualified retail customers
who purchase such shares through a sweep account offered by BA Investment
Services, Inc. and certain other Service Organizations. Horizon and Horizon
Service Shares may be purchased by institutional investors for accounts
maintained by individuals, but may not be purchased by individuals directly.
The Company's charter authorizes the Board of Directors to issue up to
two hundred billion full and fractional shares of capital stock, and to classify
and reclassify any authorized and unissued shares into one or more classes of
shares. The Board of Directors may similarly classify or reclassify any class of
shares into one or more series.
Pursuant to such authority, the Board of Directors has authorized the
issuance of the following series of shares representing interests in the Fund,
which is classified as a diversified company under the Investment Company Act of
1940: ten billion X Shares, ten billion S Shares, ten billion Pacific Horizon
Shares, eighteen billion Horizon Shares and ten billion Horizon Service Shares.
Horizon Shares, Horizon Service Shares, X Shares and S Shares of the Fund are
described in separate Prospectuses available from the Distributor at the
telephone number on the cover of this Prospectus. The Board of Directors has
also authorized the issuance of additional classes of shares representing
interests in other investment portfolios of the Company, which are likewise
described in separate Prospectuses available from the Distributor. This
Prospectus relates primarily to the Pacific Horizon Shares of the Fund and
describes only the investment objective and policies, operations, contracts and
other matters relating to such Shares.
Each X Share, S Share, Pacific Horizon Share, Horizon Share and Horizon
Service Share in the Fund has a par value of $.001, and, except as noted below,
is entitled to participate equally in the dividends and distributions declared
by the Board of Directors with respect to the Fund and in the net distributable
assets of such Fund on liquidation. Holders of X Shares of the Fund bear the
fees described in the Prospectus relating to such shares that are paid to the
Distributor and Service Organizations by the Fund under the Company's
Distribution and Services Plan. Similarly, holders of the Fund's S Shares bear
the fees described in the Prospectus relating to such shares that are paid to
the Distributor and Service Organizations by the Fund under the same plan. The
fees paid under the Distribution and Services Plan are for distribution and
shareholder services paid to the Distributor and Service Organizations in
connection with S and X Shares of the Fund, and are not paid by the Fund's
Horizon, Horizon Service or Pacific Horizon Shares. Holders of the Fund's
Pacific Horizon Shares bear the fees described in this Prospectus that are paid
to Bank of America and the Administrator by the Fund under the Company's Special
Management Services Plan for Pacific Horizon Shares. Similarly, holders of
Horizon Service Shares bear the fees described in the Prospectus relating to
such
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<PAGE> 167
shares that are paid to shareholder organizations by the Fund under the
Company's Shareholder Services Plan. The fees paid under the Special Management
Services Plan are for services provided by Shareholder Organizations to holders
of the Fund's Pacific Horizon Shares and are not borne by the Fund's Horizon
Shares, Horizon Service Shares, X Shares or S Shares. The fees paid under the
Shareholder Services Plan are for services provided by shareholder organizations
to their customers in connection with Horizon Service Shares, and shareholder
organizations do not receive similar fees with respect to the Fund's X Shares, S
Shares, Horizon Shares or Pacific Horizon Shares. As a result of the different
fees borne by the various series of shares in the Fund, at any given time,
absent waivers of any class-specific fees or expenses, the net yield on the
Fund's Pacific Horizon Shares generally will be approximately 0.32% lower than
the yield on the Fund's Horizon Shares, 0.07% lower than the yield on the Fund's
Horizon Service Shares, 0.23% higher than the yield on the Fund's X Shares and
0.68% higher than the yield on the Fund's S Shares. Standardized yield
quotations will be computed separately for each series of Shares.
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 law or when class voting
is permitted by the Board of Directors. It is contemplated that all shareholders
of the Fund will vote together as a single class on matters relating to the
Fund's investment advisory agreement and on any change in its fundamental
investment limitations. Only holders of Pacific Horizon Shares will be entitled
to vote on matters submitted to a vote of shareholders pertaining to the Fund's
Special Management Service Plan. Only holders of Horizon Service Shares will be
entitled to vote on matters submitted to a vote of shareholders pertaining to
the Fund's Shareholder Service Plan. Only holders of particular S and X Shares,
if affected by changes to such Plan, will be entitled to vote on matters
submitted to a vote of shareholders pertaining to the Fund's Distribution and
Services Plan relating to the particular series. Shares have no pre-emptive
rights and only such conversion and exchange rights as the Board may grant at
its discretion. When issued for payment as described in this Prospectus, shares
will be fully paid and non-assessable. Certificates for shares will not be
issued.
The Company does not presently intend to hold annual meetings of
shareholders for the election of directors and other business unless and until
such time as less than a majority of the directors holding office have been
elected by the shareholders of the Company, at which 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 meeting of
shareholders to consider the removal of one or more directors and such meetings
will be called when requested by the holders of record of 10% or more of the
Company's outstanding shares of common stock. To the extent required by law and
the Company's undertaking with the Securities and Exchange Commission, the
Company will assist in shareholder communications in such matters. Shares have
cumulative voting rights to the extent that may be required by applicable law.
PERFORMANCE CALCULATIONS
From time to time the "yield" or "effective yield" of the Fund may be
quoted in advertisements or reports to shareholders. Both yield figures are
based on historical earnings and are not intended to indicate future
performance. The "yield" of the Fund refers to the income generated by an
investment in the Fund over a seven-day period (which period will be stated in
the advertisement or report). This income is then "annualized" -- that is, the
amount of income generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a percentage of the
investment. The "effective yield" is calculated similarly but, when annualized,
the income earned by an investment in the Fund is assumed to be slightly higher
than the "yield" because of the compounding effect of this assumed reinvestment.
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<PAGE> 168
Additionally, the yields may be compared to those of other mutual funds
with similar investment objectives and to other relevant indices or to rankings
prepared by independent services or other financial or industry publications
that monitor the performance of mutual funds. For example, the Fund's yields may
be compared to Donoghue's Money Fund Averages, which are averages compiled by
Donoghue's Money Fund Report. Yield data as reported in national financial
publications, including Money, Forbes, Barron's, The Wall Street Journal and The
New York Times, or in publications of a local or regional nature, may also be
used in comparing the yields of the Fund. A complete listing of the indices,
rankings and publications discussed above is contained in the Statement of
Additional Information.
Since yields fluctuate, yield data cannot necessarily be used to
compare an investment in the shares of the Fund with bank deposits, savings
accounts and similar investment alternatives which often provide an agreed or
guaranteed fixed yield for a stated period of time. Shareholders should remember
that yield is generally a function of the kind and quality of the instruments
held in a portfolio, portfolio maturity, operating expenses and market
conditions. Any fee charged by Bank of America or other institutional investors
directly to their customers in connection with investments in shares of the
Funds (which fees may include, for example, account maintenance fees,
compensating balance requirements or fees based upon account transactions,
assets or income) will not be included in the Fund's calculations of yield.
Shareholder inquires should be addressed to the Distributor at the
address or telephone numbers stated on the inside cover of this Prospectus.
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<PAGE> 169
PACIFIC HORIZON MUTUAL FUNDS
Prime Fund
PROSPECTUS
_______ __, 1997
NOT FDIC INSURED
25
<PAGE> 170
PACIFIC HORIZON FUNDS, INC.
Prime Fund, Treasury Fund, Government Fund,
Treasury only Fund, Tax-Exempt Money Fund and
California Tax-Exempt Money Market Fund
Cross Reference Sheet
----------------------------
Part B
Item No. Heading
- -------- -------
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; Administrator;
Distributor; Custodian;
Accounting Agent and Transfer
Agent
17. Brokerage Allocation and Other Practices.. Portfolio Transactions
18. Capital Stock and Other Securities........ General information;
Description of Shares
19. Purchase, Redemption and Pricing of....... Additional Purchase and
Securities Being Offered Redemption Information
20. Tax Status ............................... Additional Information
Concerning Taxes
21. Underwriters.............................. Management; Distributor
22. Calculation of Performance Data........... Yield, Tax-Equivalent Yield
and Total Return
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> 171
PACIFIC HORIZON FUNDS, INC.
PACIFIC HORIZON SHARES,
HORIZON SHARES,
HORIZON SERVICE SHARES, X SHARES AND S SHARES
OF THE
PRIME FUND, TREASURY FUND, GOVERNMENT FUND,
TREASURY ONLY FUND, TAX-EXEMPT MONEY FUND AND
CALIFORNIA TAX-EXEMPT MONEY MARKET FUND
____________, 1997
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
PAGE
The Company....................................................... 3
Investment Objectives and Policies................................ 3
Purchase and Redemption of Shares................................. 39
Management of the Funds........................................... 48
Taxes............................................................. 68
Yield Information................................................. 73
General Information............................................... 76
Appendix A........................................................ A-1
-------------------------
This Statement of Additional Information applies to the
Pacific Horizon Shares, Horizon Shares and Horizon Service Shares of the Prime
Fund, Treasury Fund, Government Fund, Treasury Only Fund, Tax-Exempt Money Fund
and California Tax-Exempt Money Market Fund, the X Shares of the Prime Fund,
Treasury Fund and California Tax-Exempt Money Market Fund and the S Shares of
the Prime Fund, Treasury Fund, Tax-Exempt Money Fund and California Tax-Exempt
Money Market Fund (the "Funds") of Pacific Horizon Funds, Inc. (the "Company").
This Statement of Additional Information is meant to be read in conjunction with
the Prospectuses dated ____________, 1997 with respect to the Funds,
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as the same may from time to time be revised (individually, a "Prospectus" and
collectively, the "Prospectuses"), and is incorporated by reference in its
entirety into each such Prospectus. Because this Statement of Additional
Information is not itself a Prospectus, no investment in shares of any Fund
should be made solely upon the information contained herein. Copies of the
Prospectuses relating to the Company's Pacific Horizon Shares, Horizon Shares,
Horizon Service Shares, X Shares and S Shares may be obtained by calling Concord
Financial Group, Inc. at (800) 332-3863. Capitalized terms used but not defined
herein have the same meanings as in the Prospectuses.
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<PAGE> 173
THE COMPANY
The Company was organized on October 27, 1982 as a Maryland
corporation and commenced its public sale of shares (Pacific Horizon Shares) on
March 30, 1984 in each of the Prime Fund and Treasury Fund, which were
originally called "Money Market Portfolio" and "Government Money Market
Portfolio," respectively. On January 19, 1990 the Prime Fund and Treasury Fund
of The Horizon Funds, a Massachusetts business trust (sometimes called the
"Predecessor Prime Fund" and "Predecessor Treasury Fund," respectively), were
combined with the Money Market Portfolio and Government Money Market Portfolio,
respectively, of the Company; the Company changed the names of its resulting
portfolios to "Prime Fund" and "Treasury Fund"; and the Company began offering
Horizon Shares and Horizon Service Shares in such Funds. On January 19, 1990 the
Tax-Exempt Money Fund of The Horizon Funds (the "Predecessor Tax-Exempt Fund")
was reorganized as a new portfolio of the Company. Each of these three
Predecessor Funds originally commenced operations on July 10, 1987. The
California Tax-Exempt Money Market Fund commenced its initial public offering of
shares on December 6, 1989 by offering a single series of shares known as
Pacific Horizon Shares, began offering Horizon Service Shares on March 1, 1993.
As of the date of this Statement of Additional Information, the Company has
classified but not yet offered Horizon Shares of the California Tax-Exempt Money
Market Fund and S Shares of the Treasury Fund. The Government Fund and Treasury
Only Fund commenced operations on June 4, 1990 as separate investment portfolios
(the "Predecessor Government Funds" and "Predecessor Treasury Only Funds,"
respectively) of First Cash Funds of America and First Funds of America, which
were organized as Massachusetts business trusts. On March 1, 1993, the
Predecessor Government Funds and Predecessor Treasury Only Funds were
reorganized as new portfolios of the Company. Prior to this reorganization,
these Predecessor Funds offered and sold shares of beneficial interest that were
similar to the Company's Horizon Service and Pacific Horizon Shares. On July 22,
1996, the Prime Fund and Treasury Fund began offering X Shares. On September __,
1996, the California Tax-Exempt Money Market Fund began offering X Shares. On
April __, 1997, the Prime Fund began offering S Shares.
INVESTMENT OBJECTIVES AND POLICIES
The Prospectus for each Fund describes the investment
objective of the Fund to which it applies. The following information supplements
the descriptions of the investment objective and policies in the Prospectuses
for the Funds.
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PORTFOLIO TRANSACTIONS
Subject to the general control of the Company's Board of
Directors, Bank of America National Trust and Savings Association ("Bank of
America") is responsible for, makes decisions with respect to and places orders
for all purchases and sales of portfolio securities for each Fund. Securities
purchased and sold by each Fund are generally traded in the over-the-counter
market on a net basis (i.e., without commission) through dealers, or otherwise
involve transactions directly with the issuer of an instrument. During their
last three fiscal periods, the Prime Fund, Treasury Fund, Government Fund,
Treasury Only Fund, Tax-Exempt Money Fund and California Tax-Exempt Money Market
Fund did not pay any brokerage commissions. The cost of securities purchased by
the Funds from underwriters generally includes an underwriting commission or
concession, and the prices at which securities are purchased from and sold to
dealers include a dealer's mark-up or mark-down.
In executing portfolio transactions and selecting brokers or
dealers, it is the Company's policy to seek the best overall terms available.
The investment advisory agreement between the Company and Bank of America
provides that, in assessing the best overall terms available for any
transaction, Bank of America shall consider factors it deems relevant, including
the breadth of the market in the security, the price of the security, the
financial condition and execution capability of the broker or dealer, and the
reasonableness of the commission, if any, for the specific transaction and on a
continuing basis. In addition, the investment advisory agreement authorizes Bank
of America, subject to the approval of the Company's Board of Directors, to
cause the Company 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 Fund and the
Company. Brokerage and research services may include: (1) advice as to the value
of securities, the advisability of investing in, purchasing or selling
securities and the availability of securities or purchasers or sellers of
securities, and (2) analyses and reports concerning industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts.
The Directors will periodically review the commissions paid by
the Company to consider whether the commissions, if any, paid over
representative periods of time appear to be reasonable in relation to the
benefits inuring to the Company. It is possible that certain of the
supplementary research or other services received will primarily benefit one or
more other
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<PAGE> 175
investment companies or other accounts for which investment discretion is
exercised. Conversely, the Company or any given Fund may be the primary
beneficiary of the research or services received as a result of portfolio
transactions effected for such other accounts or investment companies.
Brokerage or 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 by the Company. Such
services may be useful to Bank of America in serving both the Company and other
clients and, conversely, supplemental information obtained by the placement of
business of other clients may be useful to Bank of America in carrying out its
obligations to the Company. The Company will not acquire certificates of deposit
or other securities issued by Bank of America or its affiliates, and will give
no preference to certificates of deposit or other securities issued by
Shareholder Service or Distribution Organizations (as defined below). In
addition, portfolio securities in general will be purchased from and sold to
Bank of America, Concord Financial Group, Inc. (the "Distributor") and their
affiliates acting as principal underwriter, syndicate member, market-maker,
dealer, broker or in any other 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 Fund's annual portfolio turnover rate is calculated by
dividing the lesser of purchases or sales of portfolio securities for the year
by the monthly average value of the Fund's portfolio securities. The calculation
excludes all securities the maturities of which at the time of acquisition were
thirteen months or less. There is not expected to be any portfolio turnover for
the Funds for regulatory reporting purposes.
A Fund may participate, if and when practicable, in bidding
for the purchase of securities directly from an issuer in order to take
advantage of the lower purchase price available to members of a bidding group.
Any such Fund will engage in this practice only when Bank of America, in its
sole discretion, subject to guidelines adopted by the Board of Directors,
believes such practice to be in the Fund's interest.
Subsequent to its purchase by a Fund, an issue of securities
may cease to be rated or its rating may be reduced below the minimum rating
required for purchase by the Fund. The Board of Directors or Bank of America,
pursuant to guidelines established by the Board, will promptly consider such an
event in determining whether the Fund involved should continue to hold the
obligation, but will only continue to hold the obligation if retention is in
accordance with the interests of the Fund and
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<PAGE> 176
applicable regulations of the SEC. In addition, it is possible that unregistered
securities purchased by a Fund in reliance upon Rule 144A under the Securities
Act of 1933 (the "1933 Act") could have the effect of increasing the level of
the Fund's illiquidity to the extent that qualified institutional buyers become,
for a period, uninterested in purchasing these securities.
To the extent permitted by law, Bank of America may aggregate
the securities to be sold or purchased for a Fund with those to be sold or
purchased for other investment companies or common trust funds in order to
obtain best execution.
The Company is required to identify any securities of its
regular brokers or dealers (as defined in Rule 10b-1 under the 1940 Act) or
their parents held by the Company as of the close of its most recent fiscal
year. As of February 28, 1997: (a) the Treasury Fund held the following
securities: [ ]; (b) the Government Fund held the following securities: [ ] (c)
the Prime Fund held the following securities: [ ] (d) the U.S. Government
Securities Fund held the following securities: [ ] (e) the Corporate Bond Fund
held the following securities: [ ] (f) the Intermediate Bond Master Portfolio
held the following securities: [ ] (g) the Blue Chip Master Portfolio held the
following securities: [ ] and (h) the Asset Allocation Master Portfolio held the
following securities: [ ]
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.
PORTFOLIO INSTRUMENTS
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CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES, COMMERCIAL
PAPER AND SHORT-TERM NOTES. Certificates of deposit are negotiable certificates
issued against funds deposited in a commercial bank for a definite period of
time and earning a specific return. Bankers' acceptances are negotiable deposits
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 at
maturity). Certificates of deposit and bankers' acceptances acquired by a Fund
will be dollar-denominated obligations of domestic or foreign banks having total
assets at the time of purchase (including assets of both domestic and foreign
branches) in excess of $2.5 billion. Commercial paper consists of unsecured
promissory notes issued by corporations. Short-term notes acquired by a Fund may
be issued by commercial or investment banking firms, financing companies or
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industrial or manufacturing concerns. Commercial paper and short-term notes,
except for variable and floating rate instruments, will normally have maturities
of nine months or less and fixed rates of return, although such instruments may
have maturities of up to thirteen months. Commercial paper and short-term notes
will consist of issues which, with respect to the Prime, Treasury and Tax-Exempt
Money Funds are "First Tier Securities" as defined by the SEC and, with respect
to the California Tax-Exempt Money Market Fund are "Eligible Securities" as
defined by the SEC. During temporary defensive periods or if in the investment
adviser's opinion suitable First Tier Securities are not available for
investment, the Tax-Exempt Money Fund may also acquire "Eligible Securities" as
defined by the SEC. First Tier Securities consist of instruments that are either
rated at the time of purchase in the top rating category by one or more
unaffiliated nationally recognized statistical rating organizations ("NRSROs")
or issued by issuers with such ratings. Eligible Securities consist of
instruments that are either rated at the time of purchase in the top two rating
categories by one or more unaffiliated NRSROs or issued by issuers with such
ratings. See the Appendix to this statement of additional information for a
description of the applicable NRSRO ratings. Unrated instruments (including
instruments with long-term but no short-term ratings) purchased by a Fund will
be of comparable quality as determined by Bank of America pursuant to guidelines
approved by the Board of Directors and Bank of America.
Holding Euro CDs, Yankee CDs, Yankee BAs, Yankee Euros,
commercial paper or other obligations of foreign issuers may subject a Fund to
investment risks that are different in some respects from those incurred by a
Fund which invests only in obligations of domestic issuers. Such risks include
future political and economic developments, the possible imposition of
withholding taxes by the particular country in which the issuer is located on
interest income payable on the securities, the possible seizure or
nationalization of foreign deposits, the possible establishment of exchange
controls or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on these securities.
Domestic banks and foreign banks are subject to different
governmental regulations with respect to the amount and types of loans which may
be made and interest rates which may be charged. In addition, the profitability
of the banking industry is dependent largely upon the availability and cost of
funds for the purpose of financing lending operations under prevailing money
market conditions. General economic conditions as well as exposure to credit
losses arising from possible financial difficulties of borrowers play an
important part in the operations of the banking industry.
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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 the Euro CDs, Yankee CDs,
Yankee BAs, Yankee Euros and other foreign bank obligations that a Fund may
acquire.
U.S. GOVERNMENT OBLIGATIONS. Obligations of the U.S.
Government and its agencies and instrumentalities include Treasury bills,
certificates of indebtedness, notes and bonds, Treasury strips, and issues of
such entities as the Federal Home Loan Banks, Federal Land Banks, Federal
Housing Administration, Farmers Home Administration, Export-Import Bank of the
United States, Small Business Administration, Government National Mortgage
Association, General Services Administration, Student Loan Marketing
Association, Central Bank for Cooperatives, Federal Home Loan Mortgage
Corporation, Federal Intermediate Credit Banks, Maritime Administration,
Resolution Funding Corporation, Tennessee Valley Authority and Federal National
Mortgage Association. The Prime, Treasury, Tax-Exempt Money and California
Tax-Exempt Money Market Funds will not acquire obligations issued by the
International Bank for Reconstruction and Development, the Asian Development
Bank or the Inter-American Development Bank; however, the Government and
Treasury Only Funds may acquire such obligations in accordance with their
investment policies.
Government National Mortgage Association ("GNMA") certificates
are U.S. Government agency mortgage-backed securities representing part
ownership of a pool of mortgage loans. These loans, issued by lenders such as
mortgage bankers, commercial banks and savings and loan associations, are either
insured by the Federal Housing Administration or guaranteed by the Veterans
Administration. A "pool" or group of such mortgages is assembled and, after
being approved by GNMA, is offered to investors through securities dealers. Once
approved by GNMA, the timely payment of interest and principal on each mortgage
is guaranteed by GNMA and backed by the full faith and credit of the U.S.
Government. GNMA certificates differ from bonds in that principal is paid back
monthly by the borrower over the term of the loan rather than returned in a lump
sum at maturity. GNMA certificates are called "pass-through" securities because
both interest and principal payments (including prepayments) are passed through
to the holder of the certificate. In addition to GNMA certificates,
mortgage-backed securities issued by the Federal National Mortgage Association
("FNMA") and by the Federal Home Loan Mortgage Corporation ("FHLMC") may also be
acquired. Securities issued and guaranteed by FNMA and FHLMC are not backed by
the full faith and credit of the United States. If either
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fixed or variable rate pass-through securities issued by the U.S. Government or
its agencies or instrumentalities are developed in the future, the Prime,
Government, Tax-Exempt Money and California Tax-Exempt Money Market Funds
reserve the right to invest in them, after making appropriate disclosure to
investors. Certain securities issued by all governmental agencies may be
prepaid. Prepayment of mortgages underlying most mortgage-backed securities may
reduce their current yield and total return. During periods of declining
interest rates, such prepayments can be expected to accelerate and the Funds
would be required to reinvest the proceeds at the lower interest rates then
available.
VARIABLE AND FLOATING RATE INSTRUMENTS. The Funds may acquire
variable and floating rate instruments as described in their Prospectuses.
Variable and floating rate instruments are frequently not rated by credit rating
agencies; however, unrated variable and floating rate instruments purchased by a
Fund will be determined by the investment adviser under guidelines established
by the Company's Board of Directors to be of comparable quality at the time of
purchase to rated instruments eligible for purchase by such Fund. In making such
determinations, the investment adviser will consider the earning power, cash
flows and other liquidity ratios of the issuers of such instruments (such
issuers include financial, merchandising, bank holding and other companies) and
will continuously monitor their financial condition. There may not be an active
secondary market with respect to a particular variable or floating rate
instrument purchased by a Fund. The absence of such an active secondary market
could make it difficult for a Fund to dispose of the variable or floating rate
instrument involved. In the event the issuer of the instrument defaulted on its
payment obligations, the Fund involved could, for this or other reasons, suffer
a loss to the extent of the default. Variable and floating rate instruments may
be secured by bank letters of credit and may have maturities of more than
thirteen months. In determining a Fund's average weighted maturity and whether a
variable or floating rate instrument has a remaining maturity of thirteen months
or less, each variable rate instrument having a demand feature that entitles the
Fund to receive the principal amount thereof at any time, or at specified
intervals not exceeding thirteen months, in each case on not more than thirty
days' notice, shall be deemed by the Company to have a maturity equal to the
longer of the period remaining until its next interest rate adjustment or the
period remaining until the principal amount can be recovered through demand;
each variable rate instrument not having such a demand feature but having a
stated maturity of thirteen months or less or issued or guaranteed by the U.S.
Government or its agencies will be deemed to have a maturity equal to the period
remaining until the next interest rate adjustment; each floating rate instrument
having a demand feature that entitles the Fund to receive the principal
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amount thereof at any time, or at specified intervals not exceeding thirteen
months, in each case on not more than thirty days' notice, shall be deemed to
have a maturity equal to the period of time remaining until the principal amount
owed can be recovered through demand. Variable and floating rate instruments
which are not payable upon seven days' notice and which do not have an active
trading market are considered illiquid securities.
RATINGS AND ISSUER'S OBLIGATIONS. The ratings of Moody's
Investors Service, Inc. ("Moody's"), Standard & Poor's Ratings Group, Division
of McGraw Hill ("S&P"), Duff & Phelps Credit Rating Co. ("D&P"), Fitch Investors
Service, Inc. ("Fitch"), Thomson Bankwatch, Inc. ("Thomson") and IBCA Limited
and IBCA Inc. ("IBCA") represent their opinions as to the quality of debt
securities. However, ratings are general and are not absolute standards of
quality, and debt securities with the same maturity, interest rate and rating
may have different yields while debt securities of the same maturity and
interest rate with different ratings may have the same yield.
An issuer's obligations under its debt 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 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 or, in the case of governmental entities, upon
the ability of such entities to levy taxes. The power or ability of an issuer to
meet its obligations for the payment of interest on, and principal of, its debt
securities may be materially adversely affected by litigation or other
conditions.
MUNICIPAL SECURITIES. Substantially all of the assets of the
Tax-Exempt Money Fund and primarily all of the assets of the California
Tax-Exempt Money Market Fund are invested in "Municipal Securities" (securities
issued by or on behalf of states, territories and possessions of the United
States, the District of Columbia and their political subdivisions, authorities,
agencies and instrumentalities, the interest on which is exempt from regular
Federal income tax in the opinion of bond counselor to the issuer). The
Tax-Exempt Money Fund may concentrate more than 25% of its assets in California
Municipal Securities and the California Tax-Exempt Money Market Fund intends
that under normal market conditions at least 80% of its net assets will be
invested in California Municipal Securities. Although the Prime Fund is also
authorized to invest in Municipal Securities under certain circumstances, no
more than 5% of the value of such Fund's net assets will be so invested at any
one time. (The purchase of Municipal Securities by the Prime Fund may be
advantageous when, as a result of prevailing economic,
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regulatory or other circumstances, the yield on such securities, on a pre-tax
basis, is comparable to that of other short-term money market instruments that
the Fund may purchase. Dividends paid by the Prime Fund that are derived from
interest on Municipal Securities would be taxable to the Fund's shareholders for
federal income tax purposes.)
Municipal Securities include debt obligations issued by
governmental entities 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 are issued by or on behalf of public authorities to
finance various privately-operated facilities. Municipal Securities also include
short-term tax anticipation notes, bond anticipation notes, revenue anticipation
notes and other forms of short-term loan obligations. 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.
There are variations in the quality of Municipal Securities
between classifications (such as general obligation, revenue and moral
obligation issues) and within a particular classification, 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. 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), that 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.
The payment of principal and interest on most Municipal
Securities purchased by the Funds will depend upon the ability of the issuers to
meet their obligations. The District of Columbia, each state, each of their
political subdivisions, agencies, instrumentalities and authorities and each
multi-state agency of which a state is a member is a separate "issuer" as that
term is used in this Statement of Additional Information and the Prospectuses.
The non-governmental user of facilities financed by private activity bonds is
also considered to be an "issuer."
From time to time proposals have been introduced before
Congress for the purpose of restricting or eliminating the federal income tax
exemption for interest on Municipal Securities. For example, pursuant to federal
tax legislation
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passed in 1986, interest on certain private activity bonds must be included in
an investor's federal alternative minimum taxable income, and corporate
investors must include all tax-exempt interest in their federal alternative
minimum taxable income. (See the relevant Funds' Prospectuses under "Dividends,
Distributions and Taxes.") The Funds cannot predict what legislation, if any,
may be proposed in Congress or in the California legislature in the future as
regards the federal and California state personal income tax status of interest
on Municipal Securities in general, or California Municipal Securities in
particular, or which proposals, if any, might be enacted. Such proposals, if
enacted, might materially adversely affect the availability of Municipal
Securities (and California Municipal Securities) for investment by the
Tax-Exempt Money Fund and the California Tax-Exempt Money Market Fund and the
liquidity and value of such Funds' portfolios. In such an event the Board of
Directors would reevaluate the Funds' investment objectives and policies and
consider changes in their structure or possible dissolution.
REPURCHASE AGREEMENTS. The Prime Fund, Treasury Fund,
Government Fund, Tax-Exempt Money Fund and California Tax-Exempt Money Market
Fund may enter into repurchase agreements with respect to their portfolio
securities as indicated in their Prospectuses. Pursuant to such agreements, a
Fund purchases securities from financial institutions such as banks and
broker-dealers which are deemed to be creditworthy by the investment adviser
under guidelines approved by the Board of Directors, subject to the seller's
agreement to repurchase and the Fund's agreement to resell such securities at a
specified date and price. No Fund will enter into repurchase agreements with
Bank of America or Bank of America's affiliates, nor will any Fund give
preference to repurchase agreements with Distribution Organizations (as defined
below), Shareholder Organizations or Service Organizations. The repurchase price
generally equals the price paid by the Fund plus interest negotiated on the
basis of current short-term rates (which may be more or less than the rate on
the underlying portfolio security). Securities subject to repurchase agreements
will be held by the Funds' custodian or a sub-custodian or in the Federal
Reserve/Treasury book-entry system, and a Fund will make payment for such
securities only upon receipt of evidence of physical delivery of the securities
or of such book entry. 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, the Fund holding the
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repurchase agreement would suffer a loss 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 Fund's rights with respect to such securities to be delayed or
limited. Repurchase agreements are considered to be loans by a Fund under the
1940 Act.
REVERSE REPURCHASE AGREEMENTS. The Funds may also enter into
reverse repurchase agreements with respect to their securities. Whenever a Fund
enters into a reverse repurchase agreement, it will place in a segregated
account maintained with its custodian cash, U.S. Government securities and other
liquid high-grade debt securities having a value equal to the repurchase price
(including accrued interest) and will subsequently monitor the account for
maintenance of such equivalent value. Reverse repurchase agreements are
considered to be borrowings by a Fund under the Investment Company Act of 1940.
INVESTMENT PRACTICES
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WHEN-ISSUED SECURITIES, FORWARD COMMITMENTS AND DELAYED
SETTLEMENTS. The Funds may purchase securities on a "when-issued," "forward
commitment" or "delayed" settlement basis (I.E., for delivery beyond the normal
settlement date at a stated price and yield). When a Fund agrees to purchase
securities on a when-issued, forward commitment or delayed settlement basis, its
custodian will set aside cash or liquid portfolio securities equal to the amount
of the commitment in a separate account. Normally the custodian will set aside
portfolio securities to satisfy a purchase commitment, and in such a case a Fund
may be required subsequently to place additional assets (cash or liquid
securities) in the separate account so that the value of the account remains
equal to the amount of such Fund's commitment. The Funds do not intend to engage
in these transactions for speculative purposes but only in furtherance of their
investment objectives. Because a Fund will set aside cash or liquid investments
to satisfy its purchase commitments in the manner described, the Fund's
liquidity and the ability of the investment adviser to manage it may be affected
in the event the Fund's forward commitments, commitments to purchase when-issued
securities and delayed settlements ever exceeded 25% of the value of its assets.
A Fund will purchase securities on a when-issued, forward
commitment or delayed settlement basis only with the intention of completing the
transaction. If deemed advisable as a matter of investment strategy, however, a
Fund may dispose of or renegotiate a commitment after it is entered into, and
may sell securities it has committed to purchase before those
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securities are delivered to the Fund on the settlement date. In these cases the
Fund may realize a taxable capital gain or loss.
When a Fund engages in when-issued, forward commitment and
delayed settlement transactions, it relies on the other party to consummate the
trade. Failure of such party to do so may result in the Fund's incurring a loss
or missing an opportunity to obtain a price considered to be advantageous.
The market value of the securities underlying a when- issued
purchase, a forward commitment to purchase securities, or a delayed settlement
and any subsequent fluctuations in their market value is taken into account when
determining the market value of a Fund starting on the day the Fund agrees to
purchase the securities. The Fund does not earn interest on the securities it
has committed to purchase until they are paid for and delivered on the
settlement date.
STAND-BY COMMITMENTS. The Tax-Exempt Money Fund and California
Tax-Exempt Money Market Fund may acquire "stand-by commitments" with respect to
Municipal Securities held in their respective portfolios. Under a "stand-by
commitment," a dealer agrees to purchase from a Fund, at the Fund's option,
specified Municipal Securities at a specified price.
The amount payable to the Tax-Exempt Money Fund or the
California Tax-Exempt Money Market Fund upon its exercise of a "stand-by
commitment" is normally the amortized cost of the underlying instruments plus
accrued interest, if any. "Stand-by commitments" can be acquired when the
remaining maturity of the underlying Municipal Securities is not greater than
thirteen months, and are exercisable by a Fund at any time before the maturity
of such obligations. In determining net asset value, a Fund values Municipal
Securities on the basis of amortized cost without reference to the presence of
the "stand-by commitment," as described below. A "stand-by commitment" may be
sold, transferred or assigned by a Fund only with the instrument involved.
The Tax-Exempt Money Fund and California Tax-Exempt Money
Market Fund expect that "stand-by commitments" will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, a Fund may pay for a "stand-by commitment" either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid in either
manner for outstanding "stand-by commitments" held by a Fund will not exceed 1/2
of 1% of the value of its total assets calculated immediately after each
"stand-by commitment" is acquired.
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The Tax-Exempt Money Fund and California Tax-Exempt Money
Market Fund intend to enter into "stand-by commitments" only with dealers, banks
and broker-dealers which, in the investment adviser's opinion, present minimal
credit risks. A Fund's reliance upon the credit of these dealers, banks and
broker-dealers is secured by the value of the underlying Municipal Securities
that are subject to a commitment.
The Tax-Exempt Money Fund or California Tax-Exempt Money
Market Fund would acquire "stand-by commitments" solely to facilitate portfolio
liquidity and do not intend to exercise their rights thereunder for trading
purposes. The acquisition of a "stand-by commitment" would not affect the
valuation or assumed maturity of the underlying Municipal Securities, which
would continue to be valued at amortized cost in accordance with the ordinary
method of valuation employed by a Fund. "Stand-by commitments" which would be
acquired by a Fund would be valued at zero in determining net asset value. Where
a Fund paid any consideration directly or indirectly for a "stand-by
commitment," its cost would be reflected as unrealized depreciation for the
period during which the commitment was held by the Fund. "Stand-by commitments"
would not affect a Fund's average weighted maturity.
LOANS OF SECURITIES. The Prime Fund, Government Fund and
Treasury Only Fund may lend their securities to brokers, dealers and financial
institutions, provided (1) the loan is secured continuously by collateral
consisting of U.S. Government securities (U.S. Treasury securities with respect
to the Treasury Only Fund) or cash or letters of credit which is marked to the
market daily to ensure that each loan is fully collateralized at all times; (2)
the Fund involved may at any time call the loan and obtain the return of the
securities loaned within five business days; (3) the Fund will receive any
interest or dividends paid on the securities loaned; and (4) the aggregate
market value of securities loaned will not at any time exceed 30% of the total
assets of the Fund (33 1/3% with respect to the Treasury Only Fund).
A Fund will earn income for lending its securities because
cash collateral pursuant to these loans will be invested in short term money
market instruments. In connection with lending securities, a Fund may pay
reasonable finders, administrative and custodial fees. Loans of securities
involve a risk that the borrower may fail to return the securities or may fail
to provide additional collateral.
ADDITIONAL INFORMATION
- ----------------------
The investment adviser's own investment portfolios may include
bank certificates of deposit, bankers' acceptances,
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corporate debt obligations, equity securities and other investments any of which
may also be purchased by a fund of the Company. The Fund may also invest in
securities, interests or obligations of companies or entities which have a
deposit, loan, commercial banking or other business relationship with Bank of
America or any of its affiliates (including outstanding loans to such issuers
which may be repaid in whole or in part with the proceeds of securities
purchased by a fund of the Company).
SPECIAL CONSIDERATIONS RELATING TO CALIFORNIA MUNICIPAL SECURITIES
- ------------------------------------------------------------------
This summary does not purport to be a comprehensive
description of all relevant facts. Although the Company has no reason to believe
that the information summarized herein is not correct in all material respects,
this information has not been independently verified for accuracy or
thoroughness by the Company. Rather, the information presented herein has been
culled from official statements and prospectuses issued in connection with
various securities offerings of the State of California and local agencies in
California, available as of the date of this Statement of Additional
Information. Further, the estimates and projections presented herein should not
be construed as statements of fact. They are based upon assumptions which may be
affected by numerous factors and there can be no assurance that target levels
will be achieved.
ECONOMIC FACTORS. Fiscal Years Prior to 1996-97. By the close
of the 1989-90 Fiscal Year California's revenues had fallen below projections,
so that the State's budget reserve, the Special Fund for Economic Uncertainties
(the "Special Fund") was fully depleted by June 30, 1990. A recession which had
begun in mid-1990, combined with higher health and welfare costs driven by the
State's rapid population growth, adversely affected General Fund revenues, and
raised expenditures above initial budget appropriations.
As a result of these factors and others, the State confronted
a period of budget imbalance lasting from the late 1980's through 1992-93.
During this difficult period, expenditures exceeded revenues in four out of six
years, and the State accumulated and sustained a budget deficit in the Special
Fund of approaching $2.8 billion at its peak on June 30, 1993. Thus, beginning
with the 1990-91 Fiscal Year and for each fiscal year thereafter, each budget
required multibillion dollar actions to bring projected revenues and
expenditures into balance. In this context, the Legislature and Governor agreed
on the following principal steps to produce Budget Acts in the years 1991-92 to
1993-94:
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1. Significant cuts in health and welfare program
expenditures;
2. Transfers of program responsibilities and funding from the
State to local governments (referred to as "realignment"), coupled with some
reduction in mandates on local government;
3. Transfer of about $3.6 billion in local property tax
revenues from cities, counties, redevelopment agencies and some other districts
to local school districts, thereby reducing State funding for schools under
Proposition 98;
4. Reduction in growth of support for higher education
programs, coupled with increases in student fees;
5. Revenue increases (particularly in the 1991-92 Fiscal Year
budget), most of which were for a short duration;
6. Increased reliance on aid from the federal government to
offset the costs of incarcerating, educating and providing health and welfare
services to illegal immigrants; and
7. Various one-time adjustments and accounting changes.
Despite these budget actions, the recession still produced
large, unanticipated deficits in the Special Fund. By the 1993-94 Fiscal Year,
the accumulated deficit was too large to be prudently retired in one year, so a
two-year program was implemented which used revenue anticipation warrants to
carry a portion of the deficit over the end of the fiscal year. When the economy
failed to recover sufficiently in 1993-94, a second two-year plan had to be
implemented in 1994-95.
Along with other factors such as the disbursement of funds to
local school districts "borrowed" from future fiscal years and hence not shown
in the annual budget, another consequence of the accumulated budget deficits was
to significantly reduce the State's cash resources available to pay its ongoing
obligations. When the Legislature and the Governor failed to adopt a budget for
the 1992-93 Fiscal Year which would have allowed the State to carry out its
normal annual cash flow borrowing to replenish its cash reserves, the State
Controller issued registered warrants to pay a variety of obligations
representing prior years' or continuing appropriations, and mandates from court
orders. Available funds were used to make constitutionally-mandated payments,
such as debt service on bonds and warrants. Between July 1 and September 4, 1992
the State Controller issued a total of approximately $3.8 billion of registered
warrants. After that date, all remaining outstanding
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registered warrants (about $2.9 billion) were called for redemption from
proceeds of the issuance of 1992 Interim Notes.
In late spring of 1992, the State Controller issued revenue
anticipation warrants maturing in the following fiscal year in order to pay the
State's continuing obligations. The State was forced to rely increasingly on
external debt markets to meet its cash needs, consequently, a succession of
notes and warrants were issued in the period from June 1992 to July 1994 to pay
previously maturing notes or warrants. These borrowings were used in part to
spread out the repayment of the accumulated budget deficit over the end of a
fiscal year.
A key feature of the 1993-94 Budget Act was a plan to retire
the $2.8 billion budget deficit which had been accumulated by June 30, 1993 (the
"Deficit Retirement Plan"). This 18-month plan used existing statutory authority
to borrow $2.8 billion externally. The 1993-94 Budget Act provided that $1.6
billion of the deficit elimination loan would be repaid by December 23, 1993
from a portion of the proceeds of the $2.0 billion 1993 Revenue Anticipation
Warrants issued on June 23, 1993. Legislation enacted with the 1993-94 Budget
Act directed the State Controller to issue $1.2 billion of registered
reimbursement warrants in the 1993-94 Fiscal Year to fund the balance of the
accumulated deficit. Pursuant to this directive, the State issued $1.2 billion
of 1994 Revenue Anticipation Warrants, Series A (the "Series A Warrants") in
February 1994, which matured on December 21, 1994. The legislation also created
a Deficit Retirement Fund within the State Treasury and the State Controller
transferred $1.2 billion from the General Fund to the Deficit Retirement Fund to
retire the Series A Warrants.
The Deficit Retirement Plan was designed to balance the budget
over the 1993-94 and 1994-95 Fiscal Years, and projected a General Fund balance
of $260 million by June 30, 1995. However, fiscal conditions did not improve as
projected and the revenue assumptions of the Deficit Retirement Plan could not
be met. Accordingly, the 1994-95 Budget Act anticipated deferring retirement of
about $1 billion of the carryover budget deficit to the 1995-96 Fiscal Year.
This 22-month Deficit Reduction Plan relied on existing statutory authority to
borrow $4 billion externally, including approximately $1 billion as carryover
budget deficit. In addition, Chapter 136, Statutes of 1994, created in the
Warrant Payment Fund according to which the State Controller was directed to
transfer from the General Fund to the Warrant Payment Fund in four equal
installments the amount necessary to retire the $4.0 billion of revenue
anticipation warrants maturing on April 25, 1996.
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1994-95 Fiscal Year. The 1994-95 Budget Act, signed by the
Governor on July 8, 1994, projected General Fund revenues and transfers of $41.9
billion -- $2.1 billion more than actual revenues received in 1993-94 -- and
expenditures of $40.9 billion which represented an increase of $1.6 billion over
the prior year.
As a result of the improving economy, the Department of
Finance's final estimates for the fiscal year showed revenues and transfers of
$42.7 billion and expenditures of $42.0 billion, thus reducing the accumulated
budget deficit to about $600 million and reflecting the Administration's
forecast of an improving economy.
The principal features of the 1994-95 Budget Act were as
follows:
1. Receipt of additional federal aid of about $760 million for
costs of refugee assistance and costs of incarceration and medical care
for illegal immigrants. Only about $33 million of this amount was
received, with about another $98 million scheduled to be received in
the 1995-96 Fiscal Year;
2. Reductions of approximately $1.1 billion in health and
welfare costs. A 2.3% reduction in Aid to Family with Dependent
Children payments (equal to about $56 million for the entire fiscal
year) has been temporarily suspended by court order pending appeal;
3. A General Fund increase of approximately $38 million in
support for the University of California and $65 million for California
State University, accompanied by student fee increases for both the
University of California and California State University;
4. Proposition 98 funding for K-14 schools was increased by
$526 million from 1993-94 Fiscal Year levels, representing an increase
for enrollment growth and inflation. Consistent with previous budget
agreements, Proposition 98 funding provided approximately $4,217 per
student for K-12 schools, equal to the level in the prior three years;
and
5. Additional miscellaneous cuts ($500 million), fund
transfers ($255 million), and adjustment to prior years' legislation
concerning property tax shifts for local governments ($300 million).
The 1994-95 Budget Act contained no tax increases. Under
legislation enacted for the 1993-94 Budget Act, the
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renters' tax credit was suspended for two years (1993 and 1994). The Legislature
enacted a further one-year suspension of the renters' tax credit, for 1995,
saving about $390 million in the 1995-96 Fiscal Year.
The State's cash flow management plan for the 1994-95 Fiscal
Year included the issuance of $4.0 billion of Revenue Anticipation Warrants,
Series C and D, to mature on April 25, 1996, as part of a two-year plan to
retire the accumulated State budget deficit. To assure repayment of these
warrants, the Legislature enacted a backup mechanism which could result in
automatic expenditure cuts if projected revenues did not meet certain targets
(the "Budget Adjustment Law").
The third and last step in the Budget Adjustment Law process
occurred on OCTOBER 16, 1995, when the State Controller issued a report (the
"October Trigger Report") reviewing the estimated cash condition of the General
Fund for the 1995-96 Fiscal Year. The State Controller estimated that the
General Fund would have at least $1.4 billion of internal cash resources on June
30, 1996. Put another way, external borrowing would not be needed on June 30,
1996. As a result of this finding, certain provisions of the Budget Adjustment
Law, which could have ultimately led to automatic, across-the-board cuts in the
General Fund budget, will not have to be implemented. Likewise, an earlier
report issued on November 15, 1994, avoided implementation of any automatic
budget cuts in the 1994-95 fiscal year.
1995-96 Fiscal Year. With strengthening revenues and reduced
caseload growth based on an improving economy, the State entered the 1995-96
Fiscal Year budget negotiations with the smallest nominal "budget gap" to be
closed in many years. Nonetheless, serious policy differences between the
Governor and Legislature prevented timely enactment of the budget. The 1995-96
Budget Act was signed by the Governor on August 3, 1995, 34 days after the start
of the fiscal year. The Budget Act projected General Fund revenues and transfers
of $44.1 billion, a 3.5 percent increase from the prior year. Expenditures were
budgeted at $43.4 billion, a 4 percent increase. The Department of Finance
projected that after repaying the last of the carryover budget deficit, there
would be a positive balance of $28 million in the budget reserve on June 30,
1996. The Budget Act also projected Special Fund revenues of $12.7 billion and
appropriated Special Fund expenditures of $13.0 billion.
The following are the principal features of the 1995-96 Budget
Act:
1. Proposition 98 funding for schools and community colleges
was originally budgeted to increase by about $1.0
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billion (General Fund) and $1.2 billion total above revised 1994-95
levels. Because of higher than projected revenues in 1994-95, an
additional $543 million ($91 per K-12 ADA) was appropriated to the
1994-95 Proposition 98 entitlement. A large part of this is a block
grant of about $54 per pupil for any onetime purpose. For the first
time in several years, a full 2.7 percent cost of living allowance was
funded. The budget compromise anticipates a settlement of the CTA V.
GOULD litigation (discussed below). The Governor's 1996-97 Budget
indicates that, with revenues even higher than projected, Proposition
98 apportionments will exceed the amounts originally budgeted, reaching
a level of $4,500 per ADA;
2. Cuts in health and welfare costs totaling about $0.9
billion. Some of these cuts (totaling about $500 million) require
federal legislative or administrative approval, which was still pending
as of January 1996.
3. A 3.5 percent increase in funding for the University of
California ($90 million General Fund) and the California State
University system ($24 million General Fund), with no increases in
student fees;
4. The Budget assumed receipt of $473 million in new federal
aid for costs of illegal immigrants, above commitments already made by
the federal government. In the Governor's 1996-97 Budget, the
Administration revised this figure downward to $278 million; and
5. General Fund support for the Department of Corrections is
increased by about eight percent over the prior year, reflecting
estimates of increased prison population, but funding is less than
proposed in the 1995 Governor's Budget.
The Governor's Budget for the 1996-97 Fiscal Year, released on
January 10, 1996, updated the current year projections, so that revenues and
transfers are estimated to be $45.0 billion, and expenditures to be $44.2
billion. The Special Fund was projected to have a positive balance of about $50
million at June 30, 1996, and on that date available internal borrowable
resource (available cash, after payment of all obligations due) will be about
$2.2 billion. The Administration projected it would issue up to $2.0 billion of
revenue anticipation notes to mature by June 30, 1996 to assist in cash flow
management for the final two months of the year.
1996-97 Fiscal Year. On January 10, 1996, the Governor
released his proposed budget for the next fiscal year (the "1996-97 Budget").
Based on projected revenues and transfers of about
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$45.6 billion, the Governor requested total General Fund appropriations of about
$45.2 billion which would create a $400 million budget reserve in the Special
Fund at June 30, 1997. The Governor renewed a proposal for a 15 percent phased
cut in individual and corporate tax rates over three years (the budget proposal
assumes this will be enacted, reducing revenues in 1996-97 by about $600
million). There was also a proposal to restructure trial court funding in a way
which would result in a $300 million decrease in General Fund revenues. The
Governor requested legislation to make permanent a moratorium on cost of living
increases for welfare payments, and suspension of a renters tax credit, which
otherwise would go back into effect in the 1996-97 Fiscal Year. He further
proposed additional costs in certain health and welfare programs, and assumed
that costs previously approved by the Legislature will receive federal approval.
The Governor's Budget proposed increases in funding for K-12 schools under
Proposition 98, for State higher education systems (with a second year of no
student fee increases), and for corrections. The Governor's Budget projects
external cash flow borrowing of up to $3.2 billion, to mature by June 30, 1997.
The Orange County Bankruptcy. On December 6, 1994, Orange
County, California and its Investment Pool (the "Pool") filed for bankruptcy
under Chapter 9 of the United States Bankruptcy Code. Approximately 187
California public entities, substantially all of which are public agencies
within the County, invested funds in the Pool. Many of the agencies have various
bonds, notes or other forms of indebtedness outstanding, in some instances the
proceeds of which were invested in the Pool. Various investment advisors were
employed by the County to restructure the Pool. Such restructuring led to the
sale of substantially all of the Pool's portfolio, resulting in losses estimated
to be approximately $1.7 billion or approximately 22% of amounts deposited by
the Pool investors, including the County. It is anticipated that such losses may
result in delays or failures of the County as well as investors in the Pool to
make scheduled debt service payments. Further, the County expects substantial
budget deficits to occur in Fiscal Year 1995 with possibly similar effects upon
operations of investors in the Pool.
Investor access to monies in the Pool subsequent to the filing
was pursuant to Court order only and severely limited. On May 2, 1995, the
Bankruptcy Court approved a comprehensive settlement agreement (the "CSA")
between the County and Pool investors which, among other things, (i) established
a formula for distribution of all available cash and securities from the Pool to
the Pool investors, including the County, (ii) established formulas for
distribution among certain settling Pool investors of several tranches of new
County obligations to be payable from, and in some instances secured by, certain
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designated sources of potential recoveries on Pool related claims, and (iii)
designated certain outstanding short term note obligations of the County to be
senior to or on a parity with certain of the new County obligations. By order
dated May 22, 1995, following distribution of all available cash and securities
from the Pool to the Pool investors, including the County, the Bankruptcy Court
dismissed the bankruptcy filing of the Pool based upon the Court's finding that
the Pool was not eligible for relief under Chapter 9 of the Bankruptcy Code
because it is not a municipality and it has not been specifically authorized to
file under Chapter 9 as required by the Bankruptcy Code.
On or about June 12, 1996 a plan of adjustment previously
confirmed by the bankruptcy court became effective for the County. Pursuant to
the plan, publicly held debt is to be paid in full, with municipal investors in
the Pool retaining an interest in litigation claims against third parties. The
plan was funded in substantial part by the sale of $900 million in new County
securities, securitizing substantially all unencumbered assets previously held
by the County.
Both S&P and Moody's have suspended or downgraded ratings on
various debt securities of the County and certain of the investors in the Pool
and, following the defeat of the proposition submitted to the voters on June 27,
1996, announced their intention to downgrade the County's debt to default
status, regardless of whether the Stipulation and Extension Agreement receives
approval by holders of the Note Debt. On July 18, 1995, S&P declared the Note
Debt in default in spite of the approval of the Stipulation and Extension
Agreement. S&P further stated that it had no reason to believe that the County
would be able to fulfill the terms of the Stipulation and Extension Agreement on
June 30, 1996. Such suspensions or downgradings could affect both price and
liquidity of the County's securities. The Fund is unable to predict (i) the
occurrence of covenant and/or payment defaults with respect to obligations of
the County and/or investors in the Pool or (ii) the financial impact of any such
defaults or credit rating suspensions or downgradings upon the value or
liquidity of such securities.
CONSTITUTIONAL, LEGISLATIVE AND OTHER FACTORS. Certain
California constitutional amendments, legislative measures, executive orders,
administrative regulations and voter initiatives could result in the adverse
effects described below.
Revenue Distribution. Certain California Municipal Securities
in the California Tax-Exempt Money Market Fund may be obligations of issuers
which rely in whole or in part on California State revenues for payment of these
obligations. Property tax revenues and a portion of the State's general fund
surplus are distributed to counties, cities and their various
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taxing entities and the State assumes certain obligations theretofore paid out
of local funds. Whether and to what extent a portion of the State's general fund
will be distributed in the future to counties, cities and their various entities
is unclear.
Senate Bill 671. In 1988, California enacted legislation
providing for a water's-edge combined reporting method if an election fee was
paid and other conditions met. On October 6, 1993, the Governor signed Senate
Bill 671 (Alquist) which modifies the unitary tax law by deleting the
requirements that a taxpayer electing to determine its income on a water's-edge
basis pay a fee and file a domestic disclosure spreadsheet and instead requiring
an annual information return. Significantly, the Franchise Tax Board can no
longer disregard a taxpayer's election. The Franchise Tax Board is reported to
have estimated state revenue losses from the Legislation as growing from $27
million in 1993-94 to $616 million in 1999-2000, but others, including Assembly
Speaker Willie Brown, disagreed with that estimate and asserted that more
revenue will be generated for California, rather than less, because of an
anticipated increase in economic activity and additional revenue generated by
the incentives in the Legislation.
Proposition 13. Certain California Municipal Securities in the
California Tax-Exempt Money Market Fund may be obligations of issuers who rely
in whole or in part on ad valorem real property taxes as a source of revenue. On
June 6, 1978, California voters approved an amendment to the California
Constitution known as Proposition 13, which added Article XIIIA to the
California Constitution. The effect of Article XIIIA was to limit ad valorem
taxes on real property and to restrict the ability of taxing entities to
increase real property tax revenues. On November 7, 1978, California voters
approved Proposition 8, and on June 3, 1986, the California voters approved
Proposition 46, both of which amended Article XIIIA.
Section 1 of Article XIIIA limits the maximum ad valorem tax
on real property to 1% of full cash value (as defined in Section 2), to be
collected by the counties and apportioned according to law; provided that the 1%
limitation does not apply to ad valorem taxes or special assessments to pay the
interest and redemption charges on (i) any indebtedness approved by the voters
prior to July 1, 1978, or (ii) any bonded indebtedness for the acquisition or
improvement of real property approved on or after July 1, 1978, by two-thirds of
the votes cast by the voters voting on the proposition. Section 2 of Article
XIIIA defines "full cash value" to mean "the County Assessor's valuation of real
property as shown on the 1975/76 tax bill under `full cash value' or,
thereafter, the appraised value of real property when purchased, newly
constructed, or a change in ownership has occurred after the 1975 assessment."
The full cash value may be
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adjusted annually to reflect inflation at a rate not to exceed 2% per year, or
reduction in the consumer price index or comparable local data, or reduced in
the event of declining property value caused by damage, destruction or other
factors. The California State Board of Equalization has adopted regulations,
binding on county assessors, interpreting the meaning of "change in ownership"
and "new construction" for purposes of determining full cash value of property
under Article XIIIA.
Legislation enacted by the California Legislature to implement
Article XIIIA (Statutes of 1978, Chapter 292, as amended) provides that
notwithstanding any other law, local agencies may not levy any ad valorem
property tax except to pay debt service on indebtedness approved by the voters
prior to July 1, 1978, and that each county will levy the maximum tax permitted
by Article XIIIA of $4.00 per $100 assessed valuation (based on the former
practice of using 25%, instead of 100%, of full cash value as the assessed value
for tax purposes). The legislation further provided that, for the 1978/79 fiscal
year only, the tax levied by each county was to be apportioned among all taxing
agencies within the county in proportion to their average share of taxes levied
in certain previous years. The apportionment of property taxes for fiscal years
after 1978/79 has been revised pursuant to Statutes of 1979, Chapter 282, which
provides relief funds from State moneys beginning in fiscal year 1979/80 and is
designed to provide a permanent system for sharing State taxes and budget funds
with local agencies. Under Chapter 282, cities and counties receive more of the
remaining property tax revenues collected under Proposition 13 instead of direct
State aid. School districts receive a correspondingly reduced amount of property
taxes, but receive compensation directly from the State and are given additional
relief. Chapter 282 does not affect the derivation of the base levy ($4.00 per
$100 assessed valuation) and the bonded debt tax rate.
Proposition 9. On November 6, 1979, an initiative known as
"Proposition 9" or the "Gann Initiative" was approved by the California voters,
which added Article XIIIB to the California Constitution. Under Article XIIIB,
State and local governmental entities have an annual "appropriations limit" and
are not allowed to spend certain moneys called "appropriations subject to
limitation" in an amount higher than the "appropriations limit." Article XIIIB
does not affect the appropriation of moneys which are excluded from the
definition of "appropriations subject to limitation," including debt service on
indebtedness existing or authorized as of January 1, 1979, or bonded
indebtedness subsequently approved by the voters. In general terms, the
"appropriations limit" is required to be based on certain 1978/79 expenditures,
and is to be adjusted annually to reflect changes in consumer prices, population
and certain service provided by these entities. Article XIIIB also provides
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that if these entities' revenues in any year exceed the amounts permitted to be
spent, the excess is to be returned by revising tax rates or fee schedules over
the subsequent two years.
Article XIIIB, like Article XIIIA, may require further
interpretation by both the Legislature and the courts to determine its
applicability to specific situations involving the State and local taxing
authorities. Depending upon the interpretation, Article XIIIB may limit
significantly a governmental entity's ability to budget sufficient funds to meet
debt service on bonds and other obligations.
Proposition 98. On November 8, 1988, voters of the State
approved Proposition 98, a combined initiative constitutional amendment and
statute called the "Classroom Instructional Improvement and Accountability Act."
Proposition 98 changed State funding of public education below the university
level and the operation of the State Appropriations Limit, primarily by
guaranteeing K-14 schools a minimum share of General Fund revenues. Under
Proposition 98 (modified by Proposition 111 as discussed below), K-14 schools
are guaranteed the greater of (a) in general, a fixed percent of General Fund
revenues ("Test 1"), (b) the amount appropriated to K-14 schools in the prior
year, adjusted for changes in the cost of living (measured as in Article XIIIB
by reference to State per capita personal income) and enrollment ("Test 2"), or
(c) a third test, which would replace Test 2 in any year when the percentage
growth in per capita General Fund revenues from the prior year plus one half of
one percent is less than the percentage growth in State per capita personal
income ("Test 3"). Under Test 3, schools would receive the amount appropriated
in the prior year adjusted for changes in enrollment and per capita General Fund
revenues, plus an additional small adjustment factor. If Test 3 is used in any
year, the difference between Test 3 and Test 2 would become a "credit" to
schools which would be the basis of payments in future years when per capital
General Fund revenue growth exceeds per capita personal income growth.
Legislation adopted prior to the end of the 1988-89 Fiscal Year, implementing
Proposition 98, determined the K-14 schools' funding guarantee under Test 1 to
be 40.3 percent of the General Fund tax revenues, based on 1986-87
appropriations. However, that percent has been adjusted to approximately 35
percent to account for a subsequent redirection of local property taxes, since
such redirection directly affects the share of General Fund revenues to schools.
Proposition 98 permits the Legislature by two-thirds vote of
both houses, with the Governor's concurrence, to suspend the K-14 schools'
minimum funding formula for a one-year period. Proposition 98 also contains
provisions transferring certain State tax revenues in excess of the Article
XIIIB limit to K-14 schools.
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During the recent recession, General Fund revenues for several
years were less than originally projected, so that the original Proposition 98
appropriations turned out to be higher than the minimum percentage provided in
the law. The Legislature responded to these developments by designating the
"extra" Proposition 98 payments in one year as a "loan" from future years'
Proposition 98 entitlements, and also intended that the "extra" payments would
not be included in the Proposition 98 "base" for calculating future years'
entitlements. By implementing these actions, per-pupil funding from Proposition
98 sources stayed almost constant at approximately $4,220 from Fiscal Year
1991-92 to Fiscal Year 1993-94.
In 1992, a lawsuit was filed, CALIFORNIA TEACHERS' ASSOCIATION
V. GOULD, which challenged the validity of these off-budget loans. As part of
the negotiations leading to the 1995-96 Budget Act, an oral agreement was
reached to settle this case. It is expected that a formal settlement reflecting
these conditions will be entered into in the near future.
The oral agreement provides that both the State and K-14
schools share in the repayment of prior years' emergency loans to schools. Of
the total $1.76 billion in loans, the State will repay $935 million, while
schools will repay $825 million. The State share of the repayment will be
reflected as expenditures above the current Proposition 98 base circulation. The
schools' share of the repayment will count as appropriations that count toward
satisfying the Proposition 98 guarantee, or from "below" the current base.
Repayments are spread over the eight-year period of 1994-95 through 2001-02 to
mitigate any adverse fiscal impact. Once a court settlement is reached, and the
Director of Finance certifies that such a settlement has occurred, approximately
$377 million in appropriations from the 1995-96 Fiscal Year to schools will be
disbursed in August 1996.
Proposition 111. On June 30, 1989, the California Legislature
enacted Senate Constitutional Amendment 1, a proposed modification of the
California Constitution to alter the spending limit and the education funding
provisions of Proposition 98. Senate Constitutional Amendment 1, on the June 5,
1990 ballot as Proposition 111, was approved by the voters and took effect on
July 1, 1990. Among a number of important provisions, Proposition 111
recalculates spending limits for the State and for local governments, allows
greater annual increases in the limits, allows the averaging of two years' tax
revenues before requiring action regarding excess tax revenues, reduces the
amount of the funding guarantee in recession years for school districts and
community college districts (but with a floor of 40.9 percent of State general
fund tax revenues), removes the provision of Proposition 98 which included
excess moneys transferred to school districts and community college districts
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in the base calculation for the next year, limits the amount of State tax
revenue over the limit which would be transferred to school districts and
community college districts, and exempts increased gasoline taxes and truck
weight fees from the State appropriations limit. Additionally, Proposition 111
exempts from the State appropriations limit funding for capital outlays.
Proposition 62. On November 4, 1986, California voters
approved an initiative statute known as Proposition 62. This initiative provides
the following: (i) requires that any tax for general governmental purposes
imposed by local governments be approved by resolution or ordinance adopted by a
two-thirds vote of the governmental entity's legislative body and by a majority
vote of the electorate of the governmental entity, (ii) requires that any
special tax (defined as taxes levied for other than general governmental
purposes) imposed by a local governmental entity be approved by a two-thirds
vote of the voters within that jurisdiction, (iii) restricts the use of revenues
from a special tax to the purposes or for the service for which the special tax
was imposed, (iv) prohibits the imposition of ad valorem taxes on real property
by local governmental entities except as permitted by Article XIIIA, (v)
prohibits the imposition of transaction taxes and sales taxes on the sale of
real property by local governments, (vi) requires that any tax imposed by a
local government on or after August 1, 1985 be ratified by a majority vote of
the electorate within two years of the adoption of the initiative or be
terminated by November 15, 1988, (vii) requires that, in the event a local
government fails to comply with the provisions of this measure, a reduction in
the amount of property tax revenue allocated to such local government occurs in
an amount equal to the revenues received by such entity attributable to the tax
levied in violation of the initiative, and (viii) permits these provisions to be
amended exclusively by the voters of the State of California.
In September 1988, the California Court of Appeal in CITY OF
WESTMINSTER V. COUNTY OF ORANGE, 204 Cal. App. 3d 623, 215 Cal. Rptr. 511 (Cal.
Ct. App. 1988), held that Proposition 62 is unconstitutional to the extent that
it requires a general tax by a general law city, enacted on or after August 1,
1985 and prior to the effective date of Proposition 62, to be subject to
approval by a majority of voters. The Court held that the California
Constitution prohibits the imposition of a requirement that local tax measures
be submitted to the electorate by either referendum or initiative. It is not
possible to predict the impact of this decision on charter cities, on special
taxes or on new taxes imposed after the effective date of Proposition 62.
Proposition 87. On November 8, 1988, California voters
approved Proposition 87. Proposition 87 amended Article XVI, Section 16, of the
California Constitution by authorizing the
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California Legislature to prohibit redevelopment agencies from receiving any of
the property tax revenue raised by increased property tax rates levied to repay
bonded indebtedness of local governments which is approved by voters on or after
January 1, 1989. It is impossible to predict whether the California Legislature
will enact such a prohibition nor is it possible to predict the impact of
Proposition 87 on redevelopment agencies and their ability to make payments on
outstanding debt obligations.
Health Care Legislation. Certain California Municipal
Securities held by the California Tax-Exempt Money Market Fund may be
obligations which are payable solely from the revenues of health care
institutions. Certain provisions under California law may adversely affect these
revenues and, consequently, payment on those Municipal Securities.
The Federally sponsored Medicaid program for health care
services to eligible welfare beneficiaries in California is known as the
Medi-Cal program. Historically, the Medi-Cal program has provided for a
cost-based system of reimbursement for inpatient care furnished to Medi-Cal
beneficiaries by any hospital wanting to participate in the Medi-Cal program,
provided such hospital met applicable requirements for participation. California
law now provides that the State of California shall selectively contract with
hospitals to provide acute inpatient services to Medi-Cal patients. Medi-Cal
contracts currently apply only to acute inpatient services. Generally, such
selective contracting is made on a flat per diem payment basis for all services
to Medi-Cal beneficiaries, and generally such payment has not increased in
relation to inflation, costs or other factors. Other reductions or limitations
may be imposed on payment for services rendered to Medi-Cal beneficiaries in the
future.
Under this approach, in most geographical areas of California,
only those hospitals which enter into a Medi-Cal contract with the State of
California will be paid for non-emergency acute inpatient services rendered to
Medi-Cal beneficiaries. The State may also terminate these contracts without
notice under certain circumstances and is obligated to make contractual payments
only to the extent the California legislature appropriates adequate funding
therefor.
California enacted legislation in 1982 that authorizes private
health plans and insurers to contract directly with hospitals for services to
beneficiaries on negotiated terms. Some insurers have introduced plans known as
"preferred provider organizations" ("PPOs"), which offer financial incentives
for subscribers who use only the hospitals which contract with the plan. Under
an exclusive provider plan, which includes most
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health maintenance organizations ("HMOs"), private payors limit coverage to
those services provided by selected hospitals. Discounts offered to HMOs and
PPOs may result in payment to the contracting hospital of less than actual cost
and the volume of patients directed to a hospital under an HMO or PPO contract
may vary significantly from projections. Often, HMO or PPO contracts are
enforceable for a stated term, regardless of provider losses or of bankruptcy of
the respective HMO or PPO. It is expected that failure to execute and maintain
such PPO and HMO contracts would reduce a hospital's patient base or gross
revenues. Conversely, participation may maintain or increase the patient base,
but may result in reduced payment and lower net income to the contracting
hospitals.
These California Municipal Securities may also be insured by
the State of California pursuant to an insurance program implemented by the
Office of Statewide Health Planning and Development for health facility
construction loans. If a default occurs on insured California Municipal
Securities, the State Treasurer will issue debentures payable out of a reserve
fund established under the insurance program or will pay principal and interest
on an unaccelerated basis from unappropriated State funds. At the request of the
Office of Statewide Health Planning and Development, Arthur D. Little, Inc.
prepared a study in December 1983, to evaluate the adequacy of the reserve fund
established under the insurance program and based on certain formulations and
assumptions found the reserve fund substantially underfunded. In September of
1986, Arthur D. Little, Inc. prepared an update of the study and concluded that
an additional 10% reserve be established for "multi-level" facilities. For the
balance of the reserve fund, the update recommended maintaining the current
reserve calculation method. In March of 1990, Arthur D. Little, Inc. prepared a
further review of the study and recommended that separate reserves continue to
be established for "multi-level" facilities at a reserve level consistent with
those that would be required by an insurance company.
Mortgages and Deeds. Certain California Municipal Securities
in the California Tax-Exempt Money Market Fund may be obligations which are
secured in whole or in part by a mortgage or deed of trust on real property.
California has five principal statutory provisions which limit the remedies of a
creditor secured by a mortgage or deed of trust. Two provisions limit the
creditor's right to obtain a deficiency judgment, one limitation being based on
the method of foreclosure and the other on the type of debt secured. Under the
former, a deficiency judgment is barred when the foreclosure is accomplished by
means of a nonjudicial trustee's sale. Under the latter, a deficiency judgment
is barred when the foreclosed mortgage or deed of trust secures certain purchase
money obligations. Another California
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statute, commonly known as the "one form of action" rule, requires creditors
secured by real property to exhaust their real property security by foreclosure
before bringing a personal action against the debtor. The fourth statutory
provision limits any deficiency judgment obtained by a creditor secured by real
property following a judicial sale of such property to the excess of the
outstanding debt over the fair value of the property at the time of the sale,
thus preventing the creditor from obtaining a large deficiency judgment against
the debtor as the result of low bids at a judicial sale. The fifth statutory
provision gives the debtor the right to redeem the real property from any
judicial foreclosure sale as to which a deficiency judgement may be ordered
against the debtor.
Upon the default of a mortgage or deed of trust with respect
to California real property, the creditor's nonjudicial foreclosure rights under
the power of sale contained in the mortgage or deed of trust are subject to the
constraints imposed by California law upon transfers of title to real property
by private power of sale. During the three-month period beginning with the
filing of a formal notice of default, the debtor is entitled to reinstate the
mortgage by making any overdue payments. Under standard loan servicing
procedures, the filing of the formal notice of default does not occur unless at
least three full monthly payments have become due and remain unpaid. The power
of sale is exercised by posting and publishing a notice of sale for at least 20
days after expiration of the three-month reinstatement period. The debtor may
reinstate the mortgage, in the manner described above, up to five business days
prior to the scheduled sale date. Therefore, the effective minimum period for
foreclosing on a mortgage could be in excess of seven months after the initial
default. Such time delays in collections could disrupt the flow of revenues
available to an issuer for the payment of debt service on the outstanding
obligations if such defaults occur with respect to a substantial number of
mortgages or deeds of trust securing an issuer's obligations.
In addition, a court could find that there is sufficient
involvement of the issuer in the nonjudicial sale of property securing a
mortgage for such private sale to constitute "state action," and could hold that
the private-right-of-sale proceedings violate the due process requirements of
the Federal or State Constitutions, consequently preventing an issuer from using
the nonjudicial foreclosure remedy described above.
Certain California Municipal Securities in the California
Tax-Exempt Money Market Fund may be obligations which finance the acquisition of
single family home mortgages for low and moderate income mortgagors. These
obligations may be payable solely from revenues derived from the home mortgages,
and are subject to California's statutory limitations described above
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applicable to obligations secured by real property. Under California
antideficiency legislation, there is no personal recourse against a mortgagor of
a single family residence purchased with the loan secured by the mortgage,
regardless of whether the creditor chooses judicial or nonjudicial foreclosure.
Under California law, mortgage loans secured by single-family
owner-occupied dwellings may be prepaid at any time. Prepayment charges on such
mortgage loans may be imposed only with respect to voluntary prepayments made
during the first five years during the term of the mortgage loan, and then only
if the borrower prepays an amount in excess of 20% of the original principal
amount of the mortgage loan in a 12-month period; a prepayment charge cannot in
any event exceed six months' advance interest on the amount prepaid during the
12-month period in excess of 20% of the original principal amount of the loan.
This limitation could affect the flow of revenues available to an issuer for
debt service on the outstanding debt obligations which financed such home
mortgages.
Other Investment Information. The investment adviser believes
that it is likely that sufficient California Municipal Securities will be
available to satisfy the investment objective, policies and limitations of the
California Tax-Exempt Money Market Fund, and to enable the Fund to invest at
least 50% of its total assets in California Municipal Securities at the close of
each of its fiscal quarters. In meeting this investment policy the Fund may
invest in Municipal Securities which are private activity bonds (including
industrial development bonds under prior law) the interest on which is subject
to the 26% to 28% federal alternative minimum tax applicable to individuals and
the 20% federal alternative minimum tax and the environmental tax applicable to
corporations. The environmental tax applicable to corporations is imposed at the
rate of .12% on the excess of the corporations modified federal alternative
minimum taxable income over $2,000,000. Investments in such securities, however,
will not exceed under normal market conditions 20% of the Fund's total assets
when added together with any taxable investments held by the Fund. Moreover,
although the Fund does not presently intend to do so on a regular basis, it may
invest more than 25% of its assets in Municipal Securities the interest on which
is paid solely from revenues of similar projects if such investment is deemed
necessary or appropriate by the Fund's investment adviser in light of the Fund's
investment objective and policies. To the extent that the Fund's assets are
concentrated in Municipal Securities payable from revenues on similar projects,
the Fund will be subject to the peculiar risks presented by such projects to a
greater extent than it would be if the Fund's assets were not so concentrated.
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If Pacific Horizon's Board of Directors, after consultation
with the investment adviser, should for any reason determine that it is
impracticable to invest at least 50% of the California Tax-Exempt Money Market
Fund's total assets in California Municipal Securities at the close of each
quarter of the California Tax-Exempt Money Market Fund's taxable year, the Board
would re-evaluate the Fund's investment objective and policies and consider
changes in its structure and name or possible dissolution.
INVESTMENT LIMITATIONS
- ----------------------
The Prospectuses for each Fund sets forth certain fundamental
policies that may not be changed with respect to such Fund without the
affirmative vote of the holders of the majority of the Fund's outstanding shares
(as defined below under "Miscellaneous"). Similarly, the following enumerated
additional fundamental policies may not be changed with respect to a Fund
without such a vote of shareholders.
THE PRIME FUND MAY NOT:
1. Purchase securities of any one issuer (other than
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities) if immediately thereafter more than 15% of its total assets
would be invested in certificates of deposit or bankers' acceptances of any one
bank, or more than 5% of its total assets would be invested in other securities
of any one bank or the securities of any other issuer (except that up to 25% of
the Fund's total assets may be invested without regard to this limitation).
In accordance with current regulations of the SEC,
the Prime Fund presently intends to limit its investments in the securities of
any single issuer (other than securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities) to not more than 5% of the Fund's
total assets at the time of purchase, provided that the Fund may invest up to
25% of its total assets in the securities of any one issuer for a period that
does not exceed three business days. This intention is not, however, a
fundamental policy of the Fund.
THE PRIME FUND, TREASURY FUND AND CALIFORNIA TAX-EXEMPT MONEY MARKET FUND MAY
NOT:
1. Purchase or sell real estate (however, a Fund may, to the
extent appropriate to its investment objective, purchase securities issued by
companies investing in real estate or interests therein and the California
Tax-Exempt Money Market Fund may purchase Municipal Securities secured by real
estate or interests therein).
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2. Underwrite the securities of other issuers.
3. Purchase securities of companies for the purpose of
exercising control.
4. Purchase securities on margin, make short sales of
securities or maintain a short position.
5. Acquire any other investment company or investment company
security except in connection with a merger, consolidation, reorganization or
acquisition of assets.
6. Make loans except that (i) a Fund may purchase or hold debt
instruments and enter into repurchase agreements pursuant to its investment
objective and policies, and (ii) the Prime Fund may lend portfolio securities.
NEITHER THE GOVERNMENT FUND NOR THE TREASURY ONLY FUND MAY:
1. Purchase any security or evidence of interest therein on
margin, except that a Fund may obtain such short term credit as may be necessary
for the clearance of purchases and sales of securities.
2. Underwrite securities issued by other persons, except that
all of the assets of a Fund may be invested in a corresponding investment
company with the same investment objective and policies and except insofar as a
Fund may technically be deemed an underwriter under the 1933 Act in selling a
security.
3. Make loans to other persons except (a) through the lending
of securities held by a Fund, (b) through the use of fixed time deposits or
repurchase agreements or the purchase of short term obligations, or (c) by
purchasing all or a portion of an issue of debt securities of types commonly
distributed privately to financial institutions; for purposes of this investment
restriction the purchase of short-term commercial paper or a portion of an issue
of debt securities which are part of an issue to the public shall not be
considered the making of a loan.
4. Purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts in
the ordinary course of business (each Fund reserves the freedom of action to
hold and to sell real estate acquired as a result of the ownership of securities
by such Fund).
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5. Issue any senior security (as that term is defined in the
1940 Act) if such issuance is specifically prohibited by the 1940 Act or the
rules and regulations promulgated thereunder, except as appropriate to evidence
a debt incurred without violating Investment Restriction No. 2 as stated in the
Funds' Prospectus regarding borrowing.
6. Concentrate its investments in any particular industry
(excluding obligations of the U.S. Government, obligations of domestic banks,
and repurchase agreements), but if it is deemed appropriate for the achievement
of its investment objective, up to 25% of the assets of the Fund (taken at
market value at the time of each investment) may be invested in any one
industry; provided, that nothing in this investment restriction shall affect the
Fund's ability to invest a portion or all of its assets in a corresponding
investment company with the same investment objective and policies.
THE TAX-EXEMPT MONEY FUND MAY NOT:
1. Purchase the securities of any issuer if as a result more
than 5% of the value of the Fund's total assets would be invested in the
securities of such issuer, except that up to 25% of the value of the Fund's
total assets may be invested without regard to this 5% limitation. Securities
issued or guaranteed by the United States Government or its agencies or
instrumentalities are not subject to this investment limitation. For purposes of
this limitation and the Fund's policy on concentration of investments set forth
in the Prospectus, a governmental agency, authority, instrumentality or other
political subdivision is deemed to be an issuer, separate from the government
creating such subdivision, if the security issued by such subdivision is backed
only by the assets and revenues of the subdivision, and a guarantee of a
security is not deemed to be a security issued by the guarantor, provided that
no more than 10% of the value of the Fund's total assets is invested in
securities issued or guaranteed by such guarantor.
2. Underwrite any issue of securities, except to the extent
that the purchase of securities directly from the issuer thereof in accordance
with the Fund's investment objective, policies and limitations may be deemed to
be underwriting.
3. Purchase or sell real estate, except that the Fund may, to
the extent appropriate to its investment objective, invest in securities issued
by companies which invest in real estate or interests therein.
4. Purchase securities on margin, make short sales of
securities or maintain a short position.
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5. Write or sell puts, calls, straddles, spreads or
combinations thereof.
6. Purchase or sell commodities or commodity contracts, or
invest in oil, gas or mineral exploration or development programs, except that
the Fund may, to the extent appropriate to its investment objective, invest in
securities issued by companies which purchase or sell commodities or commodity
contracts or which invest in such programs.
7. Purchase securities of other investment companies, except
in connection with a merger, consolidation, acquisition or reorganization.
8. Make loans, except that the Fund may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations, and may enter into repurchase agreements with respect to
securities.
9. Purchase any securities which would cause 25% or more of
the value of its total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal business activities
in the same industry; provided, however, that (a) there is no limitation with
respect to investments in Municipal Securities or obligations issued or
guaranteed by the Federal Government and its agencies and instrumentalities; (b)
although there is no limitation with respect to investments in certificates of
deposit and bankers' acceptances issued by domestic branches of United States
banks, no more than 10% of the total value of the Fund's assets at the time of
purchase may be invested in certificates of deposit and bankers' acceptances
issued by domestic branches of foreign banks and no more than 25% of the total
value of the Fund's assets at the time of purchase may be invested in
certificates of deposit and bankers' acceptances issued by domestic branches of
foreign banks and foreign branches of domestic banks; (c) each utility service
(such as gas, gas transmission, electric and telephone service) will be
considered a single industry for purposes of this policy; and (d) wholly-owned
finance companies will be considered to be in the industries of their parents if
their activities are primarily related to financing the activities of their
parents.
THE CALIFORNIA TAX-EXEMPT MONEY MARKET FUND MAY NOT:
1. Invest in industrial revenue bonds where the payment of
principal and interest are the responsibility of a company (including its
predecessors) with less than three years of continuous operation.
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2. Purchase or sell commodity contracts, or invest in oil, gas
or mineral exploration or development programs (however, the Fund may, to the
extent appropriate to its investment objective, purchase publicly traded
securities of companies engaging in whole or in part in such activities).
3. Purchase securities while its borrowings (including reverse
repurchase agreements) are outstanding.
4. Write or sell puts, calls, straddles, spreads, or
combinations thereof except that the Fund may acquire stand-by commitments with
respect to its Municipal Securities.
5. Purchase any securities which would cause 25% or more of
the Fund's total assets at the time of purchase to be invested in the securities
of one or more issuers conducting their principal business activities in the
same industry, provided that this limitation shall not apply to Municipal
Securities or governmental guarantees of Municipal Securities; and provided,
further, that for the purpose of this limitation only, industrial development
bonds that are backed only by the assets and revenues of a non-governmental user
shall not be deemed to be Municipal Securities.
* * *
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 purposes of Investment Limitation Paragraph 1 relating to
the Prime Fund in this Statement of Additional Information, Investment
Limitation Paragraph 6 relating to the Government Fund and Treasury Only Fund in
this Statement of Additional Information, Investment Limitation Paragraph 9
relating to the Tax-Exempt Money Fund in this Statement of Additional
Information and Investment Limitation Paragraph 5 relating to the California
Tax-Exempt Money Market Fund only in this Statement of Additional Information,
these 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 industry and each
foreign government (and all of its agencies) as a separate industry.
For purposes of Investment Limitation Paragraph 6 of this
Statement of Additional Information with respect to the Prime Fund, Treasury
Fund, and California Tax-Exempt Money Market Fund, Investment Limitation
Paragraph 3 of this Statement of Additional Information with respect to the
Government Fund and Treasury Only Fund and Investment Limitation Paragraph 8 of
this Statement of
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Additional Information with respect to the Tax-Exempt Money Fund, the Funds may
hold debt instruments whether such instruments are part of a public offering or
privately negotiated.
In order to permit the sale of shares in certain states, a
Fund may make commitments more restrictive than the investment policies and
limitations described above. To permit the sale of the shares of the Funds in
Texas, the Company has agreed to the following additional restrictions:
1. The Funds will not invest in oil, gas or mineral
leases.
2. The Funds will not invest more than 5% of their net assets
in warrants (valued at the lower of cost or market), of which not more than 2%
may be warrants which are not listed on the New York or American Stock
Exchanges.
3. The Funds will not purchase or sell real property,
including limited partnership interests.
4. Any Horizon Shares of the Funds offered for sale to Texas
residents will generally be issued for cash only. Transactions involving the
issuance of Horizon Shares of such Funds for securities or assets other than
cash will meet the requirements of Section 123.2(4) of the Texas Blue Sky
Regulations.
5. The Funds will not purchase or retain the securities of any
issuer if the Officers or Directors of the Company 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 Funds will not invest more than 5% of their total
assets in the securities of issuers which together with any predecessors have a
record of less than three years continuous operation.
7. The Funds will not invest more than 15% of their total
assets in the securities of issuers which together with any predecessors have a
record of less than three years continuous operation or securities of issuers
which are restricted as to disposition.
Should a Fund determine that these commitments or any other
commitments are no longer in the best interests of the Fund, it will revoke such
commitments by terminating sales of its shares in the state involved.
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PURCHASE AND REDEMPTION OF SHARES
IN GENERAL
- ----------
The Company or its transfer agent may require any information
reasonably necessary to evidence that a redemption has been duly authorized.
Under the 1940 Act any of the Funds may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the New
York Stock Exchange is closed (other than customary weekend and holiday
closings), during which trading on such Exchange is restricted, during which an
emergency exists (as determined by the SEC by rule or regulation) as a result of
which disposal or valuation of portfolio securities is not reasonably
practicable or for such other periods as the SEC may permit. A Fund may also
suspend or postpone the recordation of the transfer of its shares upon the
occurrence of any of the foregoing conditions.
In addition a Fund may redeem shares involuntarily in certain
instances if such redemption is appropriate to carry out the Company's
responsibilities under the 1940 Act. If the Board of Directors determines that
conditions exist which make payment of redemption proceeds wholly in cash unwise
or undesirable, a Fund may make payment wholly or partly in readily-marketable
securities or other property. In such an event a shareholder would incur
transaction costs in selling the securities or other property. See "Net Asset
Value" below for an example of when such form of payment might be appropriate.
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
Company's net asset value at the beginning of such period.
Any institution purchasing shares on behalf of separate
accounts will be required to hold the shares in a single nominee name (a "Master
Account"). Institutions investing in more than one Fund offered by the Company
must maintain a separate Master Account for each Fund. Institutions may arrange
with the Funds' transfer agent for certain sub-accounting services (such as
purchase, redemption and dividend record keeping).
NATIONAL BANKING REGULATIONS
- ----------------------------
The Comptroller of the Currency has ruled that a national bank
may invest in shares of an investment company to the extent that the portfolio
of such company consists of investments in which the bank might invest directly.
As a national bank could invest directly without limitation in general
obligations of the U.S. Treasury and the portfolios of the Treasury Fund and
Treasury Only Fund are limited to such
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investments, national banks may acquire shares of the Treasury Fund and Treasury
Only Fund without limitation.
In addition, the regulations of the Comptroller of the
Currency provide that funds held in a fiduciary capacity by a national bank
approved by the Comptroller to exercise fiduciary powers must be invested in
accordance with the instrument establishing the fiduciary relationship and local
law. In the opinion of the Company's counsel, the purchase of shares of the
Funds by such national banks acting on behalf of their fiduciary accounts is not
contrary to applicable regulations if consistent with the particular account and
proper under the law governing the administration of the account. Prospective
investors should consult their advisers regarding the law applicable to their
purchase of shares.
NET ASSET VALUE
- ---------------
IN GENERAL. Each Fund's net asset value per share is
calculated by dividing the total value of the assets belonging to the Fund, less
the value of any liabilities applicable to the Fund, by the total number of
outstanding shares of that Fund. Each Fund's net asset value is calculated
separately from each of the other of the Company's Fund's net asset value.
"Assets belonging to" a Fund consist of the consideration received upon the
issuance of shares representing interests in the Fund together with all income,
earnings, profits and proceeds derived from the investment thereof, any proceeds
from the sale, exchange or liquidation of such investments, any funds or
payments derived from any re-investment of such proceeds, and a portion of any
general assets of the Company not belonging to a particular Fund. Each Fund is
charged with the direct expenses of that Fund and with a share of the general
expenses of the Company. The determinations by the Board of Directors as to
direct and allocable expenses and the allocable portion of general assets with
respect to the various portfolios are conclusive. The expenses that are charged
to a Fund are borne equally by each share of the Fund except for payments to
Shareholder Organizations that are borne solely by Horizon Service Shares and
certain payments to Distribution or Service Organizations, including BA
Investment Services, Inc. ("BAIS"), that are borne solely by Pacific Horizon
Shares, X Shares and S Shares and Rule 12b-1 fees that are borne solely by X
Shares and S Shares of the Funds, as described in the Prospectuses for such
Shares.
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 both the Funds' custodian and the New York Stock Exchange are open for
trading, except a "business day" does not include Martin Luther King, Jr. Day,
Columbus Day or Veteran's Day. In 1996 the holidays on which the
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New York Stock Exchange is closed are: New Year's Day, President's Day, Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
AMORTIZED COST METHOD. The Funds use the amortized cost method
of valuation in computing the net asset value of their shares for purposes of
sales and redemptions. Under this method a Fund values each of its portfolio
securities at cost on the date of purchase and thereafter assumes a constant
proportionate amortization of any discount or premium until maturity of the
security. As a result the value of a portfolio security for purposes of
determining net asset value normally does not change in response to fluctuating
interest rates. While the amortized cost method seems to provide certainty in
portfolio valuation it may result in periods during which values, as determined
by amortized cost, are higher or lower than the amount such Fund would receive
if it sold its portfolio securities. The market value of the securities in the
Funds can be expected to vary inversely with changes in prevailing interest
rates. Thus, if interest rates have increased from the time a security was
purchased, such security, if sold, might be sold at a price less than its
amortized cost. Similarly, if interest rates have declined from the time a
security was purchased, such security, if sold, might be sold at a price greater
than its amortized cost. In either instance, if the security is held to
maturity, no gain or loss will be realized.
In connection with their use of amortized cost valuation, the
Funds limit the dollar-weighted average maturity of their portfolios to not more
than 90 days and do not purchase any instrument with a remaining maturity of
greater than 397 calendar days. The Company's Board of Directors has also
established, pursuant to rules promulgated by the SEC, procedures that are
intended to stabilize each Fund's net asset value per share for purposes of
sales and redemptions at $1.00. Such procedures include the determination, at
such intervals as the Board deems appropriate, of the extent, if any, to which a
Fund's net asset value per share calculated by using available market quotations
deviates from $1.00 per share. In the event such deviation exceeds 1/2 of 1% the
Board will promptly consider what action, if any, should be initiated. If the
Board believes that the amount of any deviation may result in material dilution
or other unfair results to investors or existing shareholders, it will take such
steps as it considers appropriate to eliminate or reduce to the extent
reasonably practicable any such dilution or unfair results. These steps may
include selling portfolio instruments prior to maturity, shortening a Fund's
average portfolio maturity, withholding or reducing dividends, reducing the
number of a Fund's outstanding shares without monetary consideration or
determining net asset value per share by using available market quotations. If a
Fund reduces the number of its
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outstanding shares without monetary consideration it will mail written notice to
shareholders at least three business days before the redemption and in the
notice will state the reason for the redemption and the fact that the redemption
may result in a capital loss to shareholders.
The Funds' administrator, the BISYS Group, Inc. (the
"Administrator"), may use a pricing service to value certain portfolio
securities where the prices provided are believed by the Administrator pursuant
to guidelines adopted by the Board of Directors to reflect the fair value of
such securities. In valuing a Fund's securities, the pricing service would
normally take into consideration such factors as yield, risk, quality, maturity,
type of issue, trading characteristics, special circumstances and other factors
it deems relevant in determining valuations for normal institutional-sized
trading units of debt securities and would not rely on quoted prices. The
methods used by the pricing service and the valuations so established will be
utilized under the general supervision of the Company's Board of Directors.
Additionally, in determining market-based net asset value per share all
portfolio securities for which market quotations (or appropriate substitutes
that reflect current market conditions) are not readily available shall be
valued at their fair value as determined by the valuation committee in
accordance with procedures established by the Board of Directors.
SUPPLEMENTARY PURCHASE INFORMATION: PACIFIC HORIZON SHARES
- -----------------------------------------------------------
Initial purchases of Pacific Horizon Shares into a new account
may not be made by wire. However, persons wishing to make a subsequent purchase
of Pacific Horizon Shares into an already existing account by wire should
telephone the Transfer Agent at (800) 346-2087. The investor's bank must be
instructed to wire federal funds to the Transfer Agent, referring in the wire to
the particular Fund in which such investment is to be made; the investor's
portfolio account number; and the investor's name.
Shares may be purchased in connection with IRAs only by direct
remittance to the Transfer Agent. Purchases for IRA accounts will be effective
only when payments received by the Transfer Agent are converted into federal
funds. Purchases for these plans may not be made in advance of receipt of funds.
The Transfer Agent may charge a fee to act as custodian for IRAs, payment of
which could require the liquidation of shares. Pacific Horizon Shares of the
Prime Fund acquired through an exchange of Class B shares of an investment
portfolio of the Time Horizon Funds liquidated by the Transfer Agent as fees for
custodial services to IRA accounts will not be subject to the contingent
deferred sales load. All fees charged are described in the appropriate form.
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SUPPLEMENTARY REDEMPTION INFORMATION: PACIFIC HORIZON SHARES
- -------------------------------------------------------------
Pacific Horizon Shares for which orders for wire redemption
are received on a business day before 2:30 p.m. (Eastern Time) with respect to
the Prime Fund, Treasury Fund or Government Fund, 11:30 a.m. (Eastern Time) with
respect to the Treasury Only Fund, 10:30 a.m. (Eastern Time) with respect to the
California Tax-Exempt Money Market Fund or 12:00 noon (Eastern time) with
respect to the Tax-Exempt Money Fund, will be redeemed as of such time and the
proceeds of redemption (less any applicable contingent deferred sales load
charged on Pacific Horizon Shares of the Prime Fund acquired through an exchange
of Class B shares of an investment portfolio of the Time Horizon Funds) will
normally be wired in Federal funds on the same business day to the commercial
bank specified by the investor on the Account Application (or other bank of
record on the investor's file with the Transfer Agent). To qualify to use the
wire redemption privilege, payment for shares must be drawn on, and redemption
proceeds paid to, the same bank and account as designated on the Account
Application (or other bank of record as described above). If the proceeds of a
particular redemption are to be wired to another bank, the request must be in
writing and signature guaranteed. Pacific Horizon Shares for which orders for
wire redemption are received on a business day after the respective times stated
above or on a non-business day will be redeemed as of the next determination of
net asset value for the Fund involved and the proceeds of redemption (less any
applicable contingent deferred sales load charged on Pacific Horizon Shares of
the Prime Fund acquired through an exchange of Class B shares of an investment
portfolio of the Time Horizon Funds) will normally be wired in federal funds on
the next business day after receipt of the redemption request. Redemption
proceeds (less any applicable contingent deferred sales load charged on Pacific
Horizon Shares of the Prime Fund acquired through an exchange of Class B shares
of an investment portfolio of the Time Horizon Funds) will be wired to a
correspondent member bank if the investor's designated bank is not a member of
the Federal Reserve System. Immediate notification by the correspondent bank to
the investor's bank is necessary to avoid a delay in crediting the funds to the
investor's bank account. Proceeds of less than $1,000 will be mailed to the
investor's address.
To change the commercial bank or account designated to receive
redemption proceeds, a written request must be sent to the Company, c/o Pacific
Horizon Funds, Inc., P.O. Box 80221, Los Angeles, California 90080-9909. Such
request must be signed by each shareholder, with each signature guaranteed as
described in the Funds' Prospectuses. Guarantees must be signed by an authorized
signatory and "signature guaranteed" must appear with the signature. The
Transfer Agent may request further documentation from corporations, executors,
administrators,
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trustees or guardians, and will accept other suitable verification arrangements
from foreign investors, such as consular verification.
Investors redeeming by Check generally will be subject to the
same rules and regulations that commercial banks apply to checking accounts,
although the election of this privilege creates only a shareholder-transfer
agent relationship with the Transfer Agent. An investor may deliver Checks
directly to the Transfer Agent, BISYS Fund Services, Inc., 3435 Stelzer Road,
Columbus, Ohio 43219-3035, in which case the proceeds will be mailed, wired or
made available at the Transfer Agent on the next business day. The Check
delivered to the Transfer Agent must be accompanied by a properly executed stock
power form on which the investor's signature is guaranteed as described in the
Funds' Prospectuses.
Because dividends accrue daily and because a contingent
deferred sales load may be applicable, Checks should not be used to close an
account. Check redemption may be modified or terminated at any time by the
Company or the Transfer Agent upon notice to shareholders.
For processing redemptions, the Transfer Agent may request
further documentation from corporations, executors, administrators, trustees or
guardians. The Transfer Agent will accept other suitable verification
arrangements from foreign investors, such as consular verification.
Investors should be aware that if they have selected the
TeleTrade Privilege, any request for a wire redemption will be effected as a
TeleTrade transaction through the Automated Clearing House (ACH) system unless
more prompt transmittal specifically is requested. Redemption proceeds of a
TeleTrade transaction will be on deposit in the investor's account at the ACH
member bank normally two business days after receipt of the redemption request.
Pacific Horizon Shares of the Prime Fund acquired through an
exchange of Class B shares of an investment portfolio of the Time Horizon Funds
are subject to a contingent deferred sales load upon redemption. For purposes of
computing the contingent deferred sales load, the length of time of ownership
will be measured from the date of the original purchase of Class B shares and
will not include any period of ownership of the Pacific Horizon Shares of the
Prime Fund.
EXCHANGE PRIVILEGE. Shareholders in the Pacific Horizon Family
of Funds have an exchange privilege whereby they may exchange all or part of
their Pacific Horizon Shares for shares of other investment portfolios in the
Pacific Horizon
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Family of Funds or for like shares of any investment portfolio of Time Horizon
Funds. In addition, holders of Class B shares of an investment portfolio of Time
Horizon Funds may exchange such Class B shares for Pacific Horizon Shares of the
Pacific Horizon Prime Fund without the payment of any contingent deferred sales
load at the time the exchange is made. By use of the exchange privilege, the
investor authorizes the Transfer Agent to act on telephonic, telegraphic or
written exchange instructions from any person representing himself to be the
investor and believed by the Transfer Agent to be genuine. The Transfer Agent's
records of such instructions are binding. The exchange privilege may be modified
or terminated at any time upon notice to shareholders. For federal income tax
purposes, exchange transactions are treated as sales on which a purchaser will
realize a capital gain or loss depending on whether the value of the shares
exchanged is more or less than his basis in such shares at the time of the
transaction.
Exchange transactions described in Paragraphs A, B, C, D and E
below will be made on the basis of the relative net asset values per share of
the investment portfolios involved in the transaction.
A. Shares of any investment portfolio purchased with a sales
load, as well as additional shares acquired through
reinvestment of dividends or distributions on such shares, may
be exchanged without a sales load for shares of any other
investment portfolio in the Pacific Horizon Family of Funds or
Time Horizon Funds.
B. Pacific Horizon Shares of the Prime Fund ("Prime
Shares") acquired pursuant to an exchange transaction
with Class B shares of an investment portfolio of Time
Horizon Funds will continue to be subject to a
contingent deferred sales load. However, Prime Shares
that had been acquired through an exchange of Class B
shares of an investment portfolio of the Time Horizon
Funds may be exchanged for other Class B shares without
the payment of a contingent deferred sales load at the
time of exchange. In determining the holding period
for calculating the contingent deferred sales load
payable on redemption of Class B shares, the holding
period of the shares originally held will be added to
the holding period of the shares acquired through
exchange unless the Class B shares have been exchanged
for Prime Shares.
C. Shares of any investment portfolio in the Pacific
Horizon Family of Funds or Time Horizon Funds acquired
by a previous exchange transaction involving shares on
which a sales load has directly or indirectly been paid
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<PAGE> 216
(e.g. shares purchased with a sales load or issued in
connection with an exchange transaction involving shares that
had been purchased with a sales load), as well as additional
shares acquired through reinvestment of dividends or
distributions on such shares, may be redeemed and the proceeds
used to purchase without a sales load shares of any other
investment portfolio. To accomplish an exchange transaction
under the provisions of this Paragraph, investors must notify
the Transfer Agent of their prior ownership of shares and
their account number.
D. Shares of any investment portfolio in the Pacific Horizon
Family of Funds may be exchanged without a sales load for
shares of any other investment portfolio in the Family that is
offered without a sales load.
E. Shares of any investment portfolio in the Pacific
Horizon Family of Funds purchased without a sales load
may be exchanged without a sales load for shares in any
other portfolio where the investor involved maintained
an account in the Pacific Horizon Family of Funds
before April 20, 1987 or was the beneficial owner of
shares of Bunker Hill Income Securities, Inc. on the
date of its reorganization into the Company's Corporate
Bond Fund.
Except as stated above, a sales load will be imposed when
shares of any investment portfolio in the Pacific Horizon Family of Funds that
were purchased or otherwise acquired without a sales load are exchanged for
shares of another investment portfolio in the Pacific Horizon Family (or for
shares of any investment portfolio of Time Horizon Funds) which are sold with a
sales load.
Exchange requests received on a business day prior to the time
shares of the investment portfolios involved in the request are priced will be
processed on the date of receipt. "Processing" a request means that shares in
the investment portfolio from which the shareholder is withdrawing an investment
will be redeemed at the net asset value per share next determined on the date of
receipt. Shares of the new investment portfolio into which the shareholder is
investing will also normally be purchased at the net asset value per share next
determined coincident to or after the time of redemption. Exchange requests
received on a business day after the time shares of the investment portfolios
involved in the request are priced will be processed on the next business day in
the manner described above.
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<PAGE> 217
PACIFIC HORIZON SHARES, X SHARES AND S SHARES
- ---------------------------------------------
Persons wishing to purchase Pacific Horizon Shares through
their accounts at Bank of America or a Service Organization should contact such
entity directly for appropriate instructions. Persons wishing to establish a
Sweep Account at BAIS, with respect to X Shares, a Sweep Account at Bank of
America, with respect to S Shares or at certain other Service Organizations,
with respect to both X Shares and S Shares, should contact BAIS, Bank of America
or a Service Organization directly for appropriate instructions. Depending on
the terms of the Sweep Account, Bank of America, BAIS or its affiliates and or
their affiliates 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, BAIS or the particular
Service Organization is responsible for providing information concerning these
services and any charges to any customers who must authorize the purchase of
shares prior to such purchase.
MISCELLANEOUS. Certificates for shares will not be
issued.
The Company may suspend the right of redemption or postpone
the date of payment for shares during any period when (a) trading on the New
York Stock Exchange is restricted by applicable rules and regulations of the
SEC; (b) the New York Stock Exchange is closed for other than customary weekend
and holiday closings; (c) the SEC has by order permitted such suspension; or (d)
an emergency exists as determined by the SEC. (The Company may also suspend or
postpone the recordation of the transfer of its shares upon the occurrence of
any of the foregoing conditions.)
The Company's Charter permits its Board of Directors to
require a shareholder to redeem involuntarily shares in a Fund if the balance
held of record by the shareholder drops below $500 and such shareholder does not
increase such balance to $500 or more upon 60 days' notice. The contingent
deferred sales load with respect to Pacific Horizon Shares of the Prime Fund
acquired through an exchange of B Shares of an investment portfolio of the Time
Horizon Funds is not charged on involuntary redemptions. The Company will not
require a shareholder to redeem shares of a Fund if the balance held of record
by the shareholder is less than $500 solely because of a decline in the net
asset value of the shares. The Company may also redeem shares involuntarily if
such redemption is appropriate to carry out the Company's responsibilities under
the Investment Company Act of 1940.
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<PAGE> 218
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 readily marketable
securities or other property. In such an event, a shareholder would incur
transaction costs in selling the securities or other property. The Company has
committed that it 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.
MANAGEMENT OF THE FUNDS
Directors and Officers
- ----------------------
The directors and officers of the Company, their addresses,
ages, and principal occupations during the past five years are:
<TABLE>
<CAPTION>
Position with
-------------
Name and Address Age Company Principal Occupations
- ---------------- --- ------- ---------------------
<S> <C> <C> <C>
Thomas M. Collins 62 Director Of counsel, law firm of
McDermott & Trayner McDermott & Trayner;
225 S. Lake Avenue Partner of the law firm
Suite 410 of Musick, Peeler &
Pasadena, CA 91101-3005 Garrett (until April,
1993); Chairman of the
Board and Trustee,
Master Investment Trust,
Series I (registered
investment company)
(since 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 October 1996; former
Director, Bunker Hill
Income Securities, Inc.
(registered investment
company) through 1991.
Douglas B. Fletcher 71 Vice Chairman Chairman of the Board
Fletcher Capital of the Board and Chief Executive
Advisors Incorporated Officer, Fletcher
4 Upper Newport Plaza Capital Advisor,
Suite 100 Incorporated, (regis-
Newport Beach, CA 92660-2629 tered investment
advisor) 1991 to date;
Partner, Newport
</TABLE>
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<PAGE> 219
<TABLE>
<CAPTION>
Position with
-------------
Name and Address Age Company Principal Occupations
- ---------------- --- ------- ---------------------
<S> <C> <C> <C>
Partners (private
venture capital firm),
1981 to date; Chairman
of the Board and Chief
Executive Officer, First
Pacific Advisors, Inc.
(registered investment
adviser) and seven
investment companies
under its management,
prior to 1983; former
Allied Member, New York
Stock Exchange; Chairman
of the Board of FPA
Paramount Fund, Inc.
through 1984; Director,
TIS Mortgage Investment
Company (real estate
investment trust);
Trustee and former Vice
Chairman of the Board,
Claremont McKenna
College; Chartered
Financial Analyst.
Robert E. Greeley 64 Director Chairman, Page Mill
Page Mill Asset Asset Management (a
Management private investment
433 California Street company) since 1991;
Suite 900 Manager, Corporate
San Francisco, CA 94104 Investments, Hewlett
Packard Company from
1979 to 1991; Trustee,
Master Investment Trust,
Series I (since 1993);
Director, Morgan
Grenfell Small Cap Fund
(since 1986); former
Director, Bunker Hill
Income Securities, Inc.
(since 1989); former
Trustee, SunAmerica Fund
Group (previously
Equitec Siebel Fund
Group) from 1984 to
1992; former Trustee,
Master Investment Trust,
Series II from 1993 to
October 1996 (registered
investment companies).
Kermit O. Hanson 80 Director Vice Chairman of the
17760 14th Ave., N.W. Advisory Board, 1988 to
Shoreline, WA 98177 date, Executive
Director, 1977 to 1988,
</TABLE>
-49-
<PAGE> 220
<TABLE>
<CAPTION>
Position with
-------------
Name and Address Age Company Principal Occupations
- ---------------- --- ------- ---------------------
<S> <C> <C> <C>
Pacific Rim Bankers
Program (a non-profit
educational
institution); Dea
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* 67 Chairman of President, Association
Association of American the Board and of American Universi-
Universities President ties, February 1993 to
One DuPont Circle date; Provost, 1982 to
Suite 730 January 1993, Senior
Washington, DC 20036 Vice President for
Academic Affairs, 1981
to January 1993,
University of Southern
California; Trustee,
Master Investment Trust,
Series I (since 1995);
former Trustee, Master
Investment Trust, Series
II (October 1995 to
October 1996).
J. David Huber 49 Executive Employee of BISYS Fund
BISYS Fund Services Vice President Services, Inc.,
3435 Stelzer Road June 1987 to present;
Columbus, OH 43219 President of Master
Investment Trust, Series
I, Master Investment
Trust Series II and
Seafirst Retirement
Funds (since 1996).
Michael Brascetta 37 Vice President Senior Vice President
BISYS Fund Services of Shareholder Services,
3435 Stelzer Road BISYS Fund Services,
Columbus, OH 43219 Inc., April 1996 to
present; Employee, The
Vanguard Group, 1981 to
April 1996.
</TABLE>
-50-
<PAGE> 221
<TABLE>
<CAPTION>
Position with
-------------
Name and Address Age Company Principal Occupations
- ---------------- --- ------- ---------------------
<S> <C> <C> <C>
Irimga McKay 36 Vice Senior Vice President,
1230 Columbia Street President July 1993 to date, prior
5th Floor thereto First Vice
La Jolla, CA 92037 President of the
Administrator and
Distributor, November
1988 to July 1993; Vice
President, Master
Investment Trust, Series
II and Seafirst
Retirement Funds (since
1993); Regional Vice
President, Continental
Equities, June 1987 to
November 1988; Assistant
Wholesaler, VMS Realty
Partners (a real estate
limited partnership),
May 1986 to June 1987.
Stephanie L. Blaha 37 Vice Director of Client
BISYS Fund Services President Services of the
3435 Stelzer Road Administrator, March
Columbus, OH 43219 1995 to date, prior
thereto Assistant Vice
President of the
Administrator and
Distributor, October
1991 to March 1995; Vice
President, Seafirst
Retirement Funds, Master
Investment Trust, Series
I and Master Investment
Trust, Series II (since
1996); Account Manager,
AT&T American Transtech,
Mutual Fund Division,
July 1989 to October
1991.
Kevin L. Martin 35 Treasurer Vice President, Fund
BISYS Fund Services Accounting BISYS Fund
3435 Stelzer Road Services, Inc.
Columbus, OH 43219 February 1996 to
Present; Treasurer,
Seafirst Retirement
Funds and Master
Investment Trust, Series
II (since 1996) Senior
Audit Manager, Ernst &
Young LLP (1984 to
February 1996).
</TABLE>
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<PAGE> 222
<TABLE>
<CAPTION>
Position with
-------------
Name and Address Age Company Principal Occupations
- ---------------- --- ------- ---------------------
<S> <C> <C> <C>
Lisa Ling 36 Assistant Employee, BISYS Fund
BISYS Fund Services Treasurer Services, Inc., November
3435 Stelzer Road 1995 to present;
Columbus, OH 43219 Assistant Treasurer,
Master Investment Trust
Series II and Seafirst
Retirement Funds (since
1996); employee,
Federated Investors,
October 1982 to November
1995.
W. Bruce McConnel, III 54 Secretary Partner of the law firm
1345 Chestnut Street of Drinker Biddle &
Philadelphia National Bank Reath.
Building, Suite 1100
Philadelphia, PA 19107
George O. Martinez 36 Assistant Senior Vice President
BISYS Fund Services Secretary and Director of
3435 Stelzer Road Administrative and
Columbus, OH 43219 Regulatory Services, of
the Administrator, since
April 1995; Assistant
Secretary, Seafirst
Retirement Funds and
Master Investment Trust,
Series II (since 1995);
prior thereto, Vice
President and Associate
General Counsel,
Alliance Capital
Management, L.P.
Alaina V. Metz 28 Assistant Chief Administrator,
BISYS Fund Services Secretary Administrative and
3435 Stelzer Road Regulatory Services,
Columbus, OH 43219 BISYS Fund Services,
Inc., June 1995 to
present; Assistant
Secretary of Seafirst
Retirement Funds (since
1996); Supervisor,
Mutual Fund Legal
Department, Alliance
Capital Management, May
1989 to June 1995.
</TABLE>
- --------------
* Mr. Pings is an "interested director" of the Company as defined in the
1940 Act.
-52-
<PAGE> 223
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; 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. Effective September 1, 1996, Kenneth L.
Trefftz, a former director of the Company, became a director emeritus of the
Company and received a retirement benefit of $60,000 on January 1, 1997. The
Funds, and each other fund of the Company, pays its proportionate share of these
amounts based on relative net asset values.
For the fiscal year ended February 28, 1997, the Company paid
or accrued for the account of its directors as a group for services in all
capacities a total of $________. Of that amount, $______, $______, $______,
$______, $______ and $______ of directors' compensation were allocated to the
Prime, Treasury, Government, Treasury Only, Tax-Exempt Money and California
Tax-Exempt Money Market 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, own less than 1% of the outstanding shares
of each of the Company's investment portfolios.
Under a retirement plan approved by the Board of Directors,
including a majority of its directors who are not "interested persons" of the
Company, a director who dies or resigns after five years of service is entitled
to receive ten annual payments each equal to the greater of: (i) 50% of the
annual director's retainer that was payable by the Company during the year of
his/her death or resignation, or (ii) 50% of the annual director's retainer then
in effect for directors of the Company during the year of such payment. A
director who dies or resigns after nine years of service is entitled to receive
ten annual payments each equal to the greater of: (i) 100% of the annual
director's retainer that was payable by the Company during the year of his/her
death or resignation, or (ii) 100% of the annual director's retainer then in
effect for directors of the Company during the year of such payment. Further,
the amount payable each year to a director who dies or resigns is increased
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<PAGE> 224
by $1,000 for each year of service that the director served as Chairman of the
Board.
Years of service for purposes of calculating the benefit
described above are based upon service as a director or Chairman after February
28, 1994. Retirement benefits in which a director has become vested may not be
reduced by later Board action.
In lieu of receiving ten annual payments, a director may elect
to receive substantially equivalent benefits through a single-sum cash payment
of the present value of such benefits paid by the Company within 45 days of the
death or resignation of the director. The present value of such benefits is to
be calculated (i) based on the retainer that was payable by the Company during
the year of the director's death or resignation (and not on any retainer payable
to directors thereafter), and (ii) using the interest rate in effect as of the
date of the director's death or resignation by the Pension Benefit Guaranty
Corporation (or any successor thereto) for valuing immediate annuities under
terminating defined benefit pension plans. A director's election to receive a
single sum must be made in writing within the 30 calendar days after the date
the individual is first elected as a director.
In addition to the foregoing, the Board of Directors may, in
its discretion and in recognition of a director's period of service before March
1, 1994 as a director and possibly as Chairman, authorize the Company to pay a
retirement benefit following the director's death or resignation (unless the
director has vested benefits as a result of completing nine years of service).
Any such action shall be approved by the Board and by a majority of the
directors who are not "interested persons" of the Company within 120 days
following the director's death or resignation and may be authorized as a single
sum cash payment or as not more than ten annual payments (beginning the first
anniversary of the director's date of death or resignation and continuing for
one or more anniversary date(s) thereafter).
The obligation of the Company to pay benefits to a former
director is neither secured nor funded by the Company but shall be binding upon
its successors in interest. The payment of benefits under the retirement plan
has no priority or preference over the lawful claims of the Company's creditors
or shareholders, and the right to receive such payments is not assignable or
transferable by a director (or former director) other than by will, by the laws
of descent and distribution, or by the director's written designation of a
beneficiary.
The following chart provides certain information as of
February 28, 1997 about the fees received by directors of the
-54-
<PAGE> 225
Company as directors and/or officers of the Company and as directors and/or
trustees of the Fund Complex:
<TABLE>
<CAPTION>
================================================================================================================================
TOTAL
COMPENSATION
PENSION OR FROM
RETIREMENT ESTIMATED REGISTRANT
AGGREGATE BENEFITS ANNUAL AND FUND
COMPENSATION ACCRUED AS BENEFITS COMPLEX**
NAME OF PERSON/ FROM THE PART OF FUND UPON PAID TO
POSITION COMPANY EXPENSES* RETIREMENT DIRECTORS
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Thomas M. Collins $ $ $ $
Director+
- --------------------------------------------------------------------------------------------------------------------------------
Douglas B. Fletcher $ $ $ $
Vice Chairman of
the Board
- --------------------------------------------------------------------------------------------------------------------------------
Robert E. Greeley++ $ $ $ $
Director
- --------------------------------------------------------------------------------------------------------------------------------
Kermit O. Hanson $ $ $ $
Director
- --------------------------------------------------------------------------------------------------------------------------------
Cornelius J. Pings $ $ $ $
President and
Chairman of the
Board+++
================================================================================================================================
<FN>
- ------------------------------
* For the fiscal year ended February 28, 1997, the Company accrued on the
part of all of the directors an aggregate of $______ in retirement
benefits.
** The "Fund Complex" consists of the Company, Seafirst Retirement Funds, Master
Investment Trust, Series I, Master Investment Trust, Series II, Time Horizon
Funds and World Horizon Funds.
+ Mr. Collins was President and Chairman of the Board of the Company until
August 31, 1995.
++ Mr. Greeley became a director of the Company on April 25, 1994.
+++ Mr. Pings became President and Chairman of the Board of the Company
effective September 1, 1995.
</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 each of the Funds, other than the Government and Treasury Only Funds,
since the commencement of their operations. In the investment advisory
agreement, Bank of America has agreed to provide investment advisory services as
described in the Prospectuses. Bank of America has also agreed to pay all
expenses incurred by it in connection with its activities under its agreement
other than the cost of securities, including brokerage commissions, if any,
purchased for the
-55-
<PAGE> 226
Company. 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 or other affiliates of Bank
of America or its parent corporation. For the services provided and expenses
assumed pursuant to the investment advisory agreement, the Company has agreed to
pay Bank of America fees, accrued daily and payable monthly, at the following
annual rates: .10% of the first $3 billion of each Fund's net assets, plus .09%
of the next $2 billion of each Fund's net assets, plus .08% of each Fund's net
assets over $5 billion. From time to time, Bank of America may waive fees or
reimburse the Company for expenses voluntarily or as required by certain state
securities laws.
For the fiscal years ended February 28, 1995, February 29,
1996 and February 28, 1997, Bank of America was paid in the aggregate, pursuant
to the investment advisory agreements applicable to them, advisory fees (net of
waivers) of $2,330,203, $3,964,899 and $_________, respectively, by the Prime
Fund, $2,140,125, $2,446,958 and $_________, respectively, by the Treasury Fund
and $501,956, $439,603 and $_________, respectively, by the Tax-Exempt Money
Fund. For the fiscal years ended February 28, 1995, February 29, 1996 and
February 28, 1997, Bank of America was paid in the aggregate, pursuant to the
investment advisory agreements applicable to it, advisory fees (net of waivers
and expense reimbursements) of $301,964, $508,348 and $______, respectively, by
the California Tax-Exempt Money Market Fund. For the fiscal years ended February
28, 1995, February 29, 1996 and February 28, 1997, Bank of America did not
effect any fee waivers or expense reimbursements with respect to the Treasury
Fund but did reimburse expenses or waive fees to the Prime Fund, in the
aggregate, in the amount of $920,627, $0 and $_______, and the Tax-Exempt Money
Fund, in the amount of $11,611, $0 and $_______, respectively. For the fiscal
years ended February 28, 1995, February 29, 1996 and February 28, 1997, Bank of
America, in the aggregate, waived fees and reimbursed expenses with respect to
the California Tax-Exempt Money Market Fund in the amount of $0, $0 and $______,
respectively.
For the fiscal year ended February 28, 1995, the Government
Fund and Treasury Only Fund paid Bank of America investment advisory fees (net
of fee waivers or expense reimbursements) of $321,634 and $293,305,
respectively. For that same period, Bank of America waived fees of $8,313 for
the Treasury Only Fund and waived fees of $313,740 and reimbursed expenses to
the Government Fund in the amount of $14,000. For the fiscal year ended February
29, 1996, the Government Fund and Treasury Only Fund paid Bank of America
investment advisory fees
-56-
<PAGE> 227
(net of fee waivers and expense reimbursements) of $390,929 and $341,008,
respectively. For that same period, Bank of America waived fees of $276,490 and
reimbursed expenses of $4,778 with respect to the Government Fund. For the
fiscal year ended February 28, 1997, the Government Fund and Treasury Only Fund
paid Bank of America investment advisory fees (net of fee waivers and expense
reimbursements) of $______ and $______, respectively. For that same period, Bank
of America waived fees of $______ and $______ for the Government Fund and
Treasury Only Fund, respectively, and reimbursed expenses to the Government Fund
and Treasury Only Fund of $______ and $______, respectively.
The Company's investment advisory agreement for the Funds
provides that Bank of America shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Company in connection with the
performance of the investment advisory agreement, except a loss resulting from a
breach of fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad faith or negligence
in the performance of its duties or from reckless disregard by it of its duties
and obligations thereunder.
THE GLASS-STEAGALL ACT AND PROPOSED LEGISLATION
- -----------------------------------------------
The Glass-Steagall Act, among other things, prohibits banks
from engaging in the business of underwriting securities, although national and
state-chartered banks generally are permitted to purchase and sell securities
upon the order and for the account of their customers. In 1971, the United
States Supreme Court held in INVESTMENT COMPANY INSTITUTE V. CAMP that the
Glass-Steagall Act prohibits a bank from operating a fund for the collective
investment of managing agency accounts. Subsequently, the Board of Governors of
the Federal Reserve System (the "Board") issued a regulation and interpretation
to the effect that the Glass-Steagall Act and such decision forbid a bank
holding company registered under the Federal Bank Holding Company Act of 1956
(the "Holding Company Act") or any non-bank affiliate thereof from sponsoring,
organizing or controlling a registered, open-end investment company continuously
engaged in the issuance of its shares, but do not prohibit such a holding
company or affiliate from acting as investment adviser, transfer agent and
custodian to such an investment company. In 1981, the United States Supreme
Court held in BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM V. INVESTMENT
COMPANY INSTITUTE that the Board did not exceed its authority under the Holding
Company Act when it adopted its regulation and interpretation authorizing bank
holding companies and their non-bank affiliates to act as investment advisers to
registered closed-end investment companies.
-57-
<PAGE> 228
Bank of America believes that if the question was properly
presented, a court should hold that Bank of America may perform the services for
the Company contemplated by the investment advisory agreement, the Prospectuses,
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 bank may
perform services comparable to those performed by Bank of America and 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 Company or from
continuing to purchase Company shares for the accounts of its customers.
For a discussion of the Glass-Steagall Act in connection with
the Company's Shareholder Services Plan, see "Shareholder Services Plan" in the
Prospectuses for Horizon Service Shares.
On the other hand, as described herein, the Funds are
currently distributed by the Distributor, and the Administrator, its parent,
provides the Company with administrative services. If current restrictions under
the Glass-Steagall Act preventing a bank from sponsoring, organizing,
controlling or distributing shares of an investment company were relaxed, the
Company expects that Bank of America would consider the possibility of offering
to perform some or all of the services now provided by the Administrator or the
Distributor. 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 was
enacted, the Company expects that Bank of America's parent bank holding company
would consider the possibility of one of its non-bank subsidiaries offering to
perform some or all of the services now provided by the Administrator of
Distributor. It is not possible, of course, to predict whether or in what form
such legislation might be enacted or the terms upon which Bank of America or
such a non-bank affiliate might offer to provide services for consideration by
the Company's Board of Directors.
ADMINISTRATOR
- -------------
The BISYS Group, Inc. (the "Administrator"), through its
wholly-owned subsidiary BISYS Fund Services, L.P., with principal offices at 50
Clove Road, Little Falls, New Jersey
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<PAGE> 229
07424 and 3435 Stelzer Road, Columbus, Ohio 43219, is the Company's
administrator. The Administrator also serves as administrator to several other
investment companies. Prior to November 1, 1996, Concord Holding Corporation
("Concord") an indirect, wholly-owned subsidiary of BISYS served as
administrator and references to the Administrator with respect to periods prior
to November 1, 1996 shall mean Concord.
The Administrator provides administrative services for the
Funds as described in their Prospectuses pursuant to a Basic Administrative
Services Agreement. The agreement will continue in effect with respect to each
Fund 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 (a) by 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 cause and without penalty by the Company's Board of Directors
or by a vote of a majority of a Fund's outstanding shares upon 60 days' notice
to the Administrator, or by the Administrator upon 90 days' notice to the
Company.
For its services under the Basic Administrative Services
Agreement, the Administrator is entitled to receive an administration fee,
accrued daily and payable monthly, at the following annual rates: .10% of the
first $7 billion of each Fund's net assets, plus .09% of the next $3 billion of
each Fund's net assets, plus .08% of each Fund's net assets over $10 billion.
From time to time, the Administrator may waive fees or reimburse the Company for
expenses, either voluntarily or as required by certain state securities laws.
For the fiscal years ended February 28, 1995, February 29,
1996 and February 28, 1997, the Administrator was paid, pursuant to the
administration agreement then in effect, administration fees (net of waivers) of
$2,366,035, $4,062,578 and $______, respectively, by the Prime Fund, $2,140,125,
$2,447,372 and $______, respectively, by the Treasury Fund and $501,956,
$439,603 and $______, respectively, by the Tax-Exempt Money Fund. For the fiscal
years ended February 28, 1995, February 29, 1996 and February 28, 1997, the
Administrator was paid, pursuant to the administration agreement then in effect,
administrative fees (net of waivers) of $301,964, $508,348 and $______,
respectively, by the California Tax-Exempt Money Market Fund. For the fiscal
years ended February 28, 1995, February 29, 1996, and February 28, 1997, the
Administrator did not effect any fee waivers with respect to the Treasury Fund,
but reimbursed
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operating expenses of $95,000 and $_________ for the fiscal years ended February
29, 1996 and February 28, 1997. For the fiscal years ended February 28, 1995,
February 29, 1996 and February 28, 1997, the Administrator reimbursed the Prime
Fund and Tax-Exempt Money Fund for expenses or waived fees in the amount of
$949,233, $235,000 and $______ and $11,611, $0 and $______, respectively. For
the fiscal years ended February 28, 1995, February 29, 1996 and February 28,
1997, aggregate fee waivers and expense reimbursements by the Administrator with
respect to the California Tax-Exempt Money Market Fund were $0, $5,000 and
$______, respectively.
For the fiscal year ended February 28, 1995, the Government
Fund and Treasury Only Fund paid the Administrator (net of fee waivers),
$463,641 and $293,305, respectively. For this same period the Administrator
waived fees due from the Government Fund and Treasury Only Fund in the amounts
of $185,733 and $8,313, respectively and reimbursed the Funds $0 and $0,
respectively. For the fiscal year ended February 29, 1996, the Government Fund
and Treasury Only Fund paid the Administrator (net of fee waivers), $489,935 and
$341,008, respectively. For this same period, the Administrator waived fees due
from the Government Fund in the amount of $182,262. For the fiscal year ended
February 28, 1997, the Government Fund and the Treasury Only Fund paid the
Administrator (net of fee waivers), $______ and $______, respectively. For this
same period, the Administrator waived fees due from the Government Fund and
Treasury Only Fund in the amounts of $______ and $______, respectively and
reimbursed the Funds $______ and $______, respectively.
The Administrator will bear all expenses in connection with
the performance of its services under its Basic Administrative Services
Agreement for the Funds with the exception of fees charged by The Bank of New
York for certain fund accounting services which are borne by the Funds. See
"Custodian and Transfer Agent" below. Expenses borne by the Company include
taxes, interest, brokerage fees and commissions, if any, fees of directors who
are not officers, directors, partners, employees or holders of 5% or more of the
outstanding voting securities of Bank of America or the Administrator or any of
their affiliates, SEC fees and state securities qualification fees, advisory
fees, fees payable under the Basic Administrative Services Agreement and Special
Management Services Plan, fees payable to Shareholder, Distribution and Service
Organizations, 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
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regulatory purposes, cost of shareholders' reports and corporate meetings and
any extraordinary expenses.
The Basic Administrative Services Agreement provides that the
Administrator shall not be liable for any error of judgment or mistake of law or
any loss suffered by any Fund in connection with the matters to which the
agreement relates, except a loss resulting from willful misfeasance, bad faith
or negligence in the performance of the Administrator's duties or from the
reckless disregard by the Administrator of its obligations and duties
thereunder.
SPECIAL MANAGEMENT SERVICES PLAN
- --------------------------------
Effective January 1997, the Special Management Services Agreement with
respect to the Funds' Pacific Horizon Shares was terminated and replaced by the
Special Management Services Plan. Fees payable by the Funds' Pacific Horizon
Shares pursuant to the Special Management Services Plan are the same as those
payable pursuant to the Special Management Services Agreement. Shareholder
Organizations provide services to their clients who beneficially own Pacific
Horizon Shares of the Funds as described in the prospectuses pursuant to the
Special Management Services Plan.
Unless sooner terminated, the Special Management Services Plan (and any
agreement entered into pursuant to such Plan) will continue until October 31,
1997 and thereafter shall continue automatically for successive annual periods
provided such continuance is approved at least annually by a majority of the
Board of Directors, including a majority of the directors who are not
"interested persons" (as defined in the 1940 Act) of the Company and have no
direct or indirect financial interest in the operation of the Special Management
Services Plan or in any agreement related to such Plan (the "Disinterested
Directors") by vote cast in person at a meeting called for such purpose. The
selection and nomination of the directors who are not "interested persons" of
the Company shall be committed to such Disinterested Directors. In addition, any
material amendment to the terms of the Special Management Services Plan shall
become effective only upon the approval of a majority of the Disinterested
Directors. The Special Management Services Plan is terminable at any time with
respect to Pacific Horizon Shares of any Fund by vote of a majority of the
Disinterested Directors. Any agreement entered into pursuant to the Special
Management Services Plan is terminable with respect to Pacific Horizon Shares of
any Fund without penalty at any time by the Company (which termination may be by
vote of a majority of the Disinterested Directors) or by a Shareholder
Organization upon notice to the Company.
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In consideration of the services provided pursuant to the Special
Management Services Plan, Shareholder Organizations are entitled to receive a
fee, computed daily and payable monthly at the annual rate of up to 0.32% of the
average daily net asset value of each Fund's Pacific Horizon Shares (0.35% for
the California Tax-Exempt Money Market Fund) beneficially owned by clients of
such Shareholder Organizations. The Special Management Services Plan provides
that a written report of the amounts expended under such Plan, and the purposes
for which such expenditures were incurred, will be made to the Board of
Directors for its review at least quarterly.
For the fiscal years ended February 28, 1995, February 29,
1996 and February 28, 1997, the Prime Fund incurred expenses under either the
previous Special Management Services Agreement or the new Special Management
Services Plan (January 1, 1997 through February 28, 1997) of $3,464,984,
$5,244,694 and $______, respectively, of which $65,326, $68,810 and $______,
respectively, were earned by the Administrator, $18,906, $4,193,897 and $______,
respectively, were earned by Bank of America, $268,593, $633,935 and
$__________, respectively, were earned by affiliates of the Administrator, and
$3,112,159, $348,052 and $______, respectively, were earned by affiliates of
Bank of America; and the Treasury Fund incurred expenses of $3,830,002,
$3,781,235 and $______, respectively, of which $28,381, $30,679 and $______,
respectively, were earned by the Administrator, $9,031, $3,250,931 and $______,
respectively, were earned by Bank of America, $40,665, $294,175 and $______,
respectively, were earned by affiliates of the Administrator, and $3,751,925,
$205,450 and $_______, respectively, were earned by affiliates of Bank of
America. For the fiscal years ended February 28, 1995, February 29, 1996 and
February 28, 1997, the Tax-Exempt Money Fund incurred expenses under the Plan
(before fee waivers) of $135,034, $151,128 and $______, respectively, of which
$8,273, $5,115 and $______, respectively, were earned by the Administrator,
$1,062, $145,543 and $______, respectively, were earned by Bank of America,
$125,664, $0 and $______, respectively, were earned by affiliates of Bank of
America and $0, $470 and $______, respectively, were earned by affiliates of the
Administrator. For the fiscal years ended February 28, 1995, February 29, 1996
and February 28, 1997, the California Tax- Exempt Money Market Fund incurred
expenses under the Agreement (before fee waivers) of $639,503, $1,181,258 and
$______, respectively, of which $9,701, $10,928 and $______, respectively, were
earned by the Administrator, $21,474, $49,396 and $______, respectively, were
earned by affiliates of the Administrator, $2,892, $959,655 and $______,
respectively were earned by Bank of America and $605,436, $0 and $______,
respectively, were earned by affiliates of Bank of America. For the fiscal years
ended February 28, 1995, February 29, 1996 and February 28, 1997, Bank of
America and the Administrator, and their respective
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affiliates, did not waive any Special Management Services fees with respect to
the Prime Fund, Treasury Fund, California Tax- Exempt Money Market Fund, or
Tax-Exempt Money Fund.
For the fiscal year ended February 28, 1995, the Government
Fund and Treasury Only Fund incurred expenses of $774,259 and $191,572,
respectively, under the Agreement, of which $0 and $1,581, respectively, were
earned by Bank of America; $135 and $1,779, respectively, were earned by the
Administrator; $774,124 and $187,925, respectively, were earned by affiliates of
Bank of America; and $0 and $287, respectively, were earned by affiliates of the
Administrator. For the fiscal year ended February 29, 1996, the Government Fund
and Treasury Only Fund incurred expenses of $993,425 and $613,759, respectively,
under the Agreement, of which, $686,425 and $434,890, respectively, were earned
by Bank of America; $182 and $5,540, respectively, were earned by the
Administrator; $299,463 and $134,307, respectively, were earned by affiliates of
Bank of America; and $7,355 and $39,022 were earned by affiliates of the
Administrator. For the fiscal year ended February 28, 1997, the Government Fund
and Treasury Only Fund incurred expenses of $______ and $______, respectively,
under the Agreement, of which $______ and $______, respectively were earned by
Bank of America; $______ and $______, respectively, were earned by the
Administrator; $______ and $______, respectively, were earned by affiliates of
Bank of America and $______ and $______, respectively, were earned by affiliates
of the Administrator.
FEE WAIVERS AND EXPENSE REIMBURSEMENTS
- --------------------------------------
If total expenses borne by any Fund in any fiscal year exceed
the expense limitations imposed by applicable state securities regulations, the
Company may deduct from the payments to be made with respect to such Fund to
Bank of America and the Administrator, respectively, or Bank of America and the
Administrator each will bear, the amount of such excess to the extent required
by such regulations. Such amount, if any, will be estimated and accrued daily
and paid on a monthly basis. As of the date of this Statement of Additional
Information, the most restrictive expense limitation that may be applicable to
the Company limits aggregate annual expenses with respect to a Fund, including
management and advisory fees but excluding interest, taxes, brokerage
commissions, and certain other expenses, to 2- 1/2% of the first $30 million of
its average daily net assets, 2% of the next $70 million and 1-1/2% of its
remaining average daily net assets. During the course of the Company's fiscal
year, the Administrator and Bank of America may prospectively waive payment of
fees and/or assume certain expenses of one or more of the Company's funds, as a
result of competitive pressures and in order to preserve and protect the
business and reputation of the Administrator and Bank of America. This will have
the effect of
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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.
DISTRIBUTOR
- -----------
The Distributor acts as the exclusive distributor of the
shares of each of the Funds pursuant to a distribution agreement with the
Company. Shares are sold on a continuous basis by the Distributor as agent,
although the Distributor is not obliged to sell any particular amount of shares.
No compensation is payable by the Funds to the Distributor for its distribution
services. 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 the Board of Directors of the
Company who are not parties to the distribution agreement or "interested
persons" of any such party, cast in person at a meeting called for the purpose
of voting on such approval, and (b) by the Board of Directors of the Company or
by vote of a "majority of the outstanding voting securities" of the Funds as to
which the distribution agreement is effective; provided, however, that the
distribution agreement may be terminated by the Company at any time, without the
payment of any penalty, by vote of a majority of the entire Board of Directors
of the Company or by a vote of a "majority of the outstanding voting securities"
of 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 the Company. This Agreement will automatically and immediately
terminate in the event of its "assignment."
THE DISTRIBUTION AND SERVICES PLAN. The Distributor is also
entitled to payment from the Company for distribution and service fees pursuant
to the Distribution and Services Plan (the "12b-1 Plan") adopted on behalf of
the X Shares and S Shares. Under the 12b-1 Plan, the Company may pay the
Distributor for: (a) direct out-of-pocket promotional expenses incurred by the
Distributor in advertising and marketing X Shares and S Shares; (b) expenses
incurred in connection with preparing, printing, mailing, and distributing or
publishing advertisements and sales literature for X Shares and S Shares; (c)
expenses incurred in connection with printing and mailing Prospectuses and
Statements of Additional Information to other than current X or S shareholders;
(d) periodic payments or commissions to one or more securities dealers, brokers,
financial institutions or other industry professionals, such as investment
advisors, accountants, and estate planning firms (severally, "a Distribution
Organization") with respect to a Fund's X Shares and S Shares
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<PAGE> 235
beneficially owned by customers for whom the Distribution Organization is the
Distribution Organization of record or holder of record of such X Shares or S
Shares; (e) the direct or indirect cost of financing the payments or expenses
included in (a) and (d) above; or (f) for such other services as may be
construed, by any court or governmental agency or commission, including the
Securities and Exchange Commission, to constitute distribution services under
the 1940 Act or rules and regulations thereunder.
Pursuant to the 12b-1 Plan, the Company may also pay for
administrative support services provided with respect to a Distribution
Organizations customers ("clients") X Shares and S Shares. Administrative
services provided may include some or all of the following: (i) processing
dividend and distribution payments from a Fund on behalf of its Clients; (ii)
providing information periodically to its Clients showing their positions in X
Shares and S Shares; (iii) arranging for bank wires; (iv) responding to routine
Client inquiries concerning their investment in X Shares and 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 X Shares
and 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.
The 12b-1 Plan for X Shares and S Shares provides that the
Distributor is entitled to receive payments on a monthly basis at an annual rate
not exceeding 0.55% and 1.00% of the average daily net assets during such month
of the outstanding X Shares and S Shares, respectively, to which such 12b-1 Plan
relates. Not more than 0.25% of such net assets will be used to compensate
Service Organizations for personal services provided to X and S shareholders
and/or the maintenance of such shareholders' accounts and not more than 0.30%
and 0.75% of such net assets of the X and S shareholders, respectively, will be
used for promotional and other primary distribution activities.
Payments made out of or charged against the assets of a
particular class of shares of a particular Fund must be in payment for expenses
incurred on behalf of that class.
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Payments for distribution expenses under the 12b-1 Plan are
subject to Rule 12b-1 (the "Rule") under the 1940 Act. The Rule defines
distribution expenses to include the cost of "any activity which is primarily
intended to result in the sale of [Company] shares." The Rule provides, among
other things, that an investment company may bear such expenses only pursuant to
a plan adopted in accordance with the Rule. In accordance with the Rule, the
12b-1 Plan provides that a written report of the amounts expended under the
12b-1 Plan, and the purposes for which such expenditures were incurred, will be
made to the Board of Directors for its review at least quarterly. In addition,
the 12b-1 Plan provides that it may not be amended to increase materially the
costs which shares of a Fund may bear for distribution pursuant to the 12b-1
Plan without shareholder approval and that other material amendments of the
12b-1 Plan must be approved by a majority of the Board of Directors, and by a
majority of the directors who are neither "interested persons" (as defined in
the 1940 Act) of the Company nor have any direct or indirect financial interest
in the operation of the 12b-1 Plan, or in any agreements entered into in
connection with the 12b-1 Plan, by vote cast in person at a meeting called for
the purpose of considering such amendments (the "Non-Interested Plan
Directors"). The selection and nomination of the directors of the Company who
are not "interested persons" of the Company have been committed to the
discretion of the Non-Interested Plan Directors.
The Company's Board of Directors has concluded that there is a
reasonable likelihood that the 12b-1 Plan will benefit the Funds and their X and
S shareholders. The 12b-1 Plan is subject to annual reapproval by a majority of
the Company's Board of Directors, including a majority of the Non-Interested
Plan Directors and is terminable without penalty at any time with respect to any
Fund by a vote of a majority of the Non-Interested Plan Directors or by vote of
the holders of a majority of the outstanding X Shares or S Shares of the Fund
involved. Any agreement entered into pursuant to the 12b-1 Plan with a Service
Organization is terminable with respect to any Fund without penalty, at any
time, by vote of a majority of the Non-Interested Plan Directors, by vote of the
holders of a majority of the outstanding X Shares or S Shares of such Fund, or
by the Service Organization. Each agreement will also terminate automatically in
the event of its assignment.
For the fiscal year ended February 28, 1997 payments to
Shareholder Organization totalled $________, $________, and $________ with
respect to X Shares of the Prime Fund, Treasury Fund and California Tax-Exempt
Money Market Fund, respectively. Of these amounts, for the fiscal year ended,
$________, $________ and $________ was paid to Bank of America affiliates and
$________, $________ and $________ was paid to the
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Administrator's affiliates with respect to X Shares of the Prime Fund, Treasury
Fund and California Tax-Exempt Money Market Fund. As of February 28, 1997, no S
Shares were outstanding.
CUSTODIAN AND TRANSFER AGENT
- ----------------------------
The Company has appointed The Bank of New York, 90 Washington
Street, New York, New York 10286, as custodian for the Funds. Additionally,
BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus, Ohio 43219-3035, a
wholly-owned subsidiary of the Administrator, has been appointed as transfer and
dividend disbursing agent for the Company. As transfer and dividend disbursing
agent for each Fund, BISYS Fund Services, Inc. has agreed to provide services
including (1) issuing and redeeming shares of the Funds, and (ii) making
dividend and other distributions to shareholders of the Fund. The Bank of New
York also provides the Company with certain accounting, bookkeeping, pricing,
and dividend and distribution calculation services pursuant to a fund accounting
services agreement with the Administrator. The monthly fees charged by the bank
under the fund accounting agreement are borne by the Funds. The Company and The
Bank of New York have appointed Bank of America to act as sub-custodian pursuant
to a Sub-Custodian Agreement. As sub-custodian of the Company's assets, Bank of
America (i) maintains a separate account or accounts in the name of the Company,
(ii) holds and disburses portfolio securities on account of the Company, (iii)
makes receipts and disbursements of money on behalf of the Company, (iv)
collects and receives all income and other payments and distributions on account
of the Company's portfolio securities held by Bank of America, (v) responds to
correspondence from security brokers and others relating to its duties, and (vi)
makes periodic reports to the Company's Board of Directors concerning its duties
thereunder. Under the Sub- Custodian Agreement, the Company will reimburse Bank
of America for its costs and expenses in providing services thereunder. Bank of
America is the successor to Security Pacific under the Sub-Custodian Agreement.
For the fiscal years ended February 28, 1995, February 29, 1996 and February 28,
1997, Bank of America, in its capacity as sub-custodian, did not hold any of the
Company's assets and, accordingly, received no fees. For its services as
transfer and dividend disbursing agent to the Prime, Treasury, Government,
Treasury Only, Tax-Exempt Money and California Tax-Exempt Money Market Funds,
BISYS Fund Services, Inc. receives a fee, payable monthly, at the annual rate of
$10,000 per Fund. Each Fund also reimburses BISYS Fund Services, Inc. for any
out-of-pocket expenses incurred as transfer agent.
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TAXES
The following is only a summary of certain additional
considerations generally affecting the Funds and their shareholders that are not
described in the Prospectuses for the Funds. No attempt is made to present a
detailed explanation of the tax treatment of the Funds or their shareholders,
and the discussion here and in the Prospectuses is not intended as a substitute
for careful tax planning. Investors are advised to consult their tax advisers
with specific reference to their own tax situations.
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 would be subject to tax at regular corporate rates
(without any deduction for distributions to shareholders). In such event, the
Fund's dividend distributions (including amounts derived from interest on
Municipal Securities in the case of the Tax-Exempt Money Fund and California
Tax-Exempt Money Market Fund) to shareholders would be taxable as ordinary
income to the extent of the current and accumulated earnings and profits of the
particular Fund and would be eligible for the dividends received deduction in
the case of corporate shareholders.
Qualification as a regulated investment company under the Code
requires, among other things, that 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, subject to certain adjustments and excluding the excess
of any net long-term capital gain for the taxable year over the net short-term
capital loss, if any, for such year. A Fund will be taxed on its undistributed
investment company taxable income, if any.
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 securities and
certain other investments held for less than three months (the "short-short
test"). Interest (including original issue and accrued market discount) received
by a Fund upon maturity or disposition of a security
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held for less than three months will not be treated as gross income derived from
the sale or other disposition of such security within the meaning of this
requirement. However, any other income that is attributable to realized market
appreciation will be treated as gross income from the sale or other disposition
of securities for this purpose.
Any distribution of the excess of net long-term capital gains
over net short-term capital losses is taxable to shareholders as long-term
capital gains, regardless of how long the shareholder has held the distributing
Fund's shares and whether such gains are received in cash or additional Fund
shares. The Fund will designate such a distribution as a capital gain dividend
in a written notice mailed to shareholders after the close of the Fund's taxable
year.
Ordinary income of individuals is taxable at a maximum nominal
rate of 39.6%; however, because of limitations on itemized deductions otherwise
allowable and the phase-out of personal exemptions, the maximum effective
marginal rate of tax for some taxpayers may be higher. An individual's long-term
capital gains are taxable at a maximum nominal rate of 28%. For corporations,
long-term capital gains and ordinary income are both taxable at a maximum
nominal rate of 35% (or at a maximum effective marginal rate of 39% in the case
of corporations having taxable income between $100,000 and $335,000).
A 4% non-deductible excise tax is imposed on regulated
investment companies that fail to currently distribute specific percentages of
their ordinary taxable income for each calendar year and capital gain net income
(excess of capital gains over capital losses). 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.
The Company will be required in certain cases to withhold and
remit to the United States Treasury 31% of taxable dividends or 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."
At February 28, 1997, the Prime Fund, Treasury Fund,
Government Fund, Treasury Only Fund, Tax-Exempt Money Fund and California
Tax-Exempt Money Market Fund, had unused capital loss carryovers of
approximately $_________ (of which $_______ will expire in fiscal 2002 and
$__________ will expire in fiscal
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2003), $_______ (which will expire in fiscal 2002), $_______ (of which $______
will expire in fiscal 2002 and $_______ will expire in fiscal 2003), $______
(which will expire in fiscal 2003), $______ (of which $______ will expire in
fiscal 1997, $______ will expire in fiscal 1998, $______ will expire in fiscal
2000, $_______ will expire in fiscal 2002, $______ will expire in fiscal 2003
and $______ will expire in fiscal 2004) and $______ (of which $______ will
expire in fiscal 2001, $______ will expire in fiscal 2002 and $______ will
expire in fiscal 2004), respectively, available for federal income tax purposes
to be applied against future capital gains, if any.
FEDERAL - TAX-EXEMPT MONEY FUND AND CALIFORNIA TAX-EXEMPT MONEY MARKET FUND
- ---------------------------------------------------------------------------
The policy of the Tax-Exempt Money Fund and the California
Tax-Exempt Money Market Fund is to pay each year as exempt-interest dividends
substantially all the respective Fund's Municipal Securities interest income net
of certain deductions. An exempt-interest dividend is any dividend or part
thereof (other than a capital gains dividend) paid by a Fund and designated as
an exempt-interest dividend in a written notice mailed to shareholders after the
close of the Fund's taxable year. However, the aggregate amount of dividends so
designated by the Fund cannot exceed the excess of the amount of interest exempt
from tax under Section 103 of the Code received by the Fund during the taxable
year over any amounts disallowed as deductions under Sections 265 and 171(a)(2)
of the Code. The percentage of total dividends paid for any taxable year which
qualifies as exempt-interest dividends will be the same for all shareholders
receiving dividends from the Fund for such year. In order for the Tax-Exempt
Money Fund and California Tax-Exempt Money Market Fund to pay exempt-interest
dividends for any taxable year, at the close of each quarter of each Fund's
taxable year at least 50% of the aggregate value of each Fund's assets must
consist of exempt-interest obligations.
Exempt-interest dividends may be treated by shareholders of
the Tax-Exempt Money Fund and the California Tax- Exempt Money Market Fund as
items of interest excludable from their gross income under Section 103(a) of the
Code. However, each shareholder is advised to consult his or her tax adviser
with respect to whether exempt-interest dividends would retain the exclusion
under Section 103(a) if such shareholder would be treated as a "substantial
user" or a "related person" to such user with respect to facilities financed
through any of the tax-exempt obligations held by the respective Funds. A
"substantial user" is defined under U.S. Treasury Regulations to include a
non-exempt person who both (1) regularly uses a part of such facilities in his
or her trade or business and (2) whose gross revenues derived with respect to
the facilities financed by the
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issuance of bonds are more than 5% of the total revenues derived by all users of
such facilities, who occupies more than 5% of the usable area of such facilities
or for whom such facilities or a part thereof were specifically constructed,
reconstructed or acquired. A "related person" includes certain related natural
persons, affiliated corporations, partners and partnerships and S corporations
and their shareholders. Interest on indebtedness incurred by a shareholder to
purchase or carry shares of a Fund generally is not deductible for federal
income tax purposes.
Income itself exempt from federal income taxation will be
considered in addition to adjusted gross income when determining whether Social
Security payments received by a shareholder are subject to federal income
taxation.
CALIFORNIA - CALIFORNIA TAX-EXEMPT MONEY MARKET FUND
- ----------------------------------------------------
As a regulated investment company, the California Tax- Exempt
Money Market Fund will be relieved of liability for California state franchise
and corporate income tax to the extent its taxable income is distributed to its
shareholders. The California Tax-Exempt Money Market Fund will be taxed on its
undistributed taxable income. If for any year the California Tax-Exempt Money
Market Fund does not qualify as a regulated investment company, all of its
taxable income (including interest income on California Municipal Securities for
franchise tax purposes only) may be subject to California state franchise or
income tax at regular corporate rates.
If, at the close of each quarter of its taxable year, at least
50% of the value of the total assets of a regulated investment company, or
series thereof, consists of obligations the interest on which, if held by an
individual, is exempt from taxation by California ("California Exempt
Securities"), then the regulated investment company, or series of that company,
will be qualified to pay dividends exempt from California state personal income
tax to its non-corporate shareholders (hereinafter referred to as "California
exempt-interest dividends"). For this purpose, California Exempt Securities are
generally limited to California Municipal Securities and certain U.S. Government
and U.S. Possession obligations. "Series" of a regulated investment company is
defined as a segregated portfolio of assets, the beneficial interest in which is
owned by the holders of an exclusive class or series of stock of the company.
The California Tax-Exempt Money Market Fund intends to qualify under the above
requirements so that it can pay California exempt-interest dividends. If the
California Tax-Exempt Money Market Fund does not so qualify, no part of its
respective dividends to shareholders will be exempt from the California state
personal income tax.
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Within sixty days after the close of its taxable year, the
California Tax-Exempt Money Market Fund will notify its respective shareholders
of the portion of the dividends paid by the Fund to each shareholder with
respect to such taxable year which is exempt from California state personal
income tax. The total amount of California exempt-interest dividends paid by the
California Tax-Exempt Money Market Fund with respect to any taxable year cannot
exceed the excess of the amount of interest received by the California
Tax-Exempt Money Market Fund for such year on California Exempt Securities over
any amounts that, if the California Tax-Exempt Money Market Fund were treated as
an individual, would be considered expenses related to tax exempt income or
amortizable bond premium and would thus not be deductible under federal income
or California state personal income tax law. The percentage of total dividends
paid for any taxable year which qualifies as California exempt-interest
dividends will be the same for all shareholders receiving dividends from the
Fund for such year.
In cases where shareholders are "substantial users" or
"related persons" with respect to California Exempt Securities held by the
California Tax-Exempt Money Market Fund, such shareholders should consult their
tax advisers to determine whether California exempt-interest dividends paid by
the Fund with respect to such obligations retain California state personal
income tax exclusion. In this connection rules similar to those regarding the
possible unavailability of federal exempt-interest dividend treatment to
"substantial users" are applicable for California state tax purposes. See
"Additional Information Concerning Taxes - Federal - Tax-Exempt Money Fund and
California Tax-Exempt Money Market Fund" above. Interest on indebtedness
incurred by a shareholder to purchase or carry California Tax-Exempt Money
Market Fund shares is not deductible for California state personal income tax
purposes if the California Tax-Exempt Money Market Fund distributes California
exempt- interest dividends during the shareholder's taxable year.
The foregoing is only a summary of some of the important
California state personal income tax considerations generally affecting the
California Tax-Exempt Money Market Fund and its shareholders. No attempt is made
to present a detailed explanation of the California state personal income tax
treatment of the California Tax-Exempt Money Market Fund or its shareholders,
and this discussion is not intended as a substitute for careful planning.
Further, it should be noted that the portion of any California Tax-Exempt Money
Market Fund dividends constituting California exempt-interest dividends is
excludable from income for California state personal income tax purposes only.
Any dividends paid to shareholders subject to California state franchise tax or
California state corporate income tax may therefore be taxed as ordinary or
capital gains dividends to such
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purchasers notwithstanding that all or a portion of such dividends is exempt
from California state personal income tax. Accordingly, potential investors in
the California Tax-Exempt Money Market Fund, including, in particular, corporate
investors which may be subject to either California franchise tax or California
corporate income tax, should consult their tax advisers with respect to the
application of such taxes to the receipt of California Tax-Exempt Money Market
Fund dividends and as to their own California state tax situation, in general.
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, a Fund may be subject to the tax laws of such states or
localities.
Exempt-interest dividends generally will be exempt from state
and local taxes as well. However, except as noted above with respect to
California state personal income tax, in some situations income distributions
may be taxable to shareholders under state or local law as dividend income even
though all or a portion of such distributions may be derived from interest on
tax-exempt obligations or U.S. Government obligations which, if realized
directly, would be exempt from such income taxes. Shareholders are advised to
consult their tax advisers concerning the application of state and local taxes.
The foregoing discussion is based on tax laws and regulations
which are in effect on the date of this Statement of Additional Information.
Such laws and regulations may be changed by legislative or administrative
action.
YIELD INFORMATION
The "yields" and "effective yields" of each Fund are
calculated according to formulas prescribed by the SEC. The standardized
seven-day yield for each Fund's series of shares is computed separately for each
series by determining the net change, exclusive of capital changes, in the value
of a hypothetical pre-existing account in the particular Fund involved having a
balance of one share at the beginning of the period, dividing the net change in
account value by the value of the account at the beginning of the base period to
obtain the base period return, and multiplying the base period return by
(365/7). The net change in the value of an account in a Fund includes the value
of additional shares purchased with dividends from the original share, and
dividends declared on both the original share and any such additional shares,
net of all fees, other than
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nonrecurring account or sales charges, that are charged to all shareholder
accounts in proportion to the length of the base period and the Fund's average
account size. The capital changes to be excluded from the calculation of the net
change in account value are realized gains and losses from the sale of
securities and unrealized appreciation and depreciation. The effective
annualized yields for each Fund are computed by compounding a particular Fund's
unannualized base period returns (calculated as above) by adding 1 to the base
period returns, raising the sums to a power equal to 365 divided by 7, and
subtracting 1 from the results. In addition, the Tax-Exempt Money Fund and
California Tax-Exempt Money Market Fund may quote a standardized "tax-equivalent
yield" for each of its series of shares which is computed by: (a) dividing the
portion of the Fund's yield (as calculated above) for such series that is exempt
from federal, or in the case of the California Tax-Exempt Money Market Fund both
federal and California state, income tax by one minus a stated federal, or in
the case of the California Tax-Exempt Money Market Fund a combined federal and
California state, income tax rate; (b) with respect to the California Tax-Exempt
Money Market Fund dividing the portion of that Fund's yield (as calculated
above) that is exempt from federal income tax only by one minus a federal income
tax rate, and (c) adding the figure resulting from (a) above (with respect to
the Tax-Exempt Money Fund) or from (a) and (b) above (with respect to the
California Tax-Exempt Money Market Fund) to that portion, if any, of the Fund's
yield for such series of shares that is not exempt from federal income tax. The
fees which may be imposed by institutional investors directly on their customers
for cash management services are not reflected in the Funds' calculations of
yields. The current yields for the Funds may be obtained by calling (800)
227-1545
Based on the foregoing calculations, for the seven-day period
ended February 28, 1997, the yield (and effective yield) for Horizon Shares,
Horizon Service Shares, Pacific Horizon Shares and X Shares (Prime and Treasury
Funds only) of the Prime Fund, Treasury Fund, Government Fund, Treasury Only
Fund, and Tax-Exempt Money Fund after fee waivers and/or expense reimbursements
by Bank of America and the Administrator, were as follows: Prime Fund - Horizon
Shares -- ____% (____%); Prime Fund - Horizon Service Shares -- ____% (____%);
Prime Fund - Pacific Horizon Shares -- ____% (____%); Prime Fund - X Shares
_____% (____%); Treasury Fund - Horizon Shares -- ____% (____%); Treasury Fund -
Horizon Service Shares -- ____% (____%); Treasury Fund - Pacific Horizon Shares
- -- ____% (____%); Treasury Fund - X Shares ____% (____%); Government Fund -
Horizon Shares -- ____% (____%); Government Fund - Horizon Service Shares --
____% (____%); Government Fund - Pacific Horizon Shares -- ____% (____%);
Treasury Only Fund - Horizon Service Shares -- ____% (____%); Treasury Only Fund
- - Pacific Horizon Shares -- ____% (____%); Treasury Only Fund - Horizon Shares
- -- ____% (____%);
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Tax-Exempt Money Fund - Horizon Shares -- ____% (____%); and Tax-Exempt Money
Fund - Horizon Service Shares -- ____% (____%); Tax-Exempt Money Fund - Pacific
Horizon Shares -- ____% (____%). For the same period, the tax-equivalent yield
for the Tax-Exempt Money Fund was ____%, ____% and ____% for Horizon Shares,
Horizon Service Shares and Pacific Horizon Shares, respectively. The federal
income tax rate used in calculating the tax-equivalent yields of the Tax-Exempt
Money Fund was 31%. The annualized yield, effective yield and tax-equivalent
yield (after fee waivers and expense reimbursements) for Horizon Service Shares,
Pacific Horizon Shares and X Shares of the California Tax-Exempt Money Market
Fund was ____%, ____%, ____%, and ____%, and ____%, ____%, ____%, and ____%,
respectively for the seven-day period ended February 28, 1997. The combined
federal and California income tax rate used in calculating the foregoing
tax-equivalent yields was 34.7%. As of February 28, 1997, Horizon Shares and S
Shares of the California Tax-Exempt Money Market Fund, S Shares of the Treasury
Fund, and S Shares of the Tax-Exempt Market Fund were not offered and
accordingly, no yield information is available.
From time to time, the yields 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 of a Fund would increase the value of the Fund investment 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. 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), 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
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rewards of investment in various investment vehicles. In addition,
advertisements or shareholder communications may include a discussion of certain
attributes or benefits to be derived by an investment in a Fund and may include
testimonials as to the investment adviser's capabilities by clients. Such
advertisements or communications may include symbols, headlines or other
material which highlight or summarize the information discussed in more detail
therein. With proper authorization, 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.
In addition to the publications listed in the Funds'
Prospectuses, yield data as reported in the following publications may be used
in comparing the yields of the Funds to those of other mutual funds with similar
investment objectives: BUSINESS WEEK, INVESTOR'S BUSINESS DAILY, KIPLINGER, U.S.
NEWS, FINANCIAL WORLD, USA TODAY, MORNINGSTAR, MUTUAL FUND MONITOR, AND AMERICAN
BANKER.
GENERAL INFORMATION
Description of Shares
- ---------------------
The Company is an open-end management investment company
organized as a Maryland corporation on October 27, 1982. The Fund's Charter
authorizes the Board of Directors to issue up to two hundred billion full and
fractional shares of capital stock. The Board of Directors has authorized the
issuance of twenty-two classes of stock - Classes A through W, Common Stock
representing interests in twenty-two separate investment portfolios. Each share
of capital stock has a par value of $.001. This Statement of Additional
Information describes the Pacific Horizon Shares, Horizon Shares and Horizon
Service Shares of the Prime, Treasury, Government, Treasury Only, Tax-Exempt
Money and California Tax-Exempt Money Market Funds, the X Shares of the Prime
Fund, Treasury Fund and California Tax-Exempt Money Market Fund and the S Shares
of the Prime, Treasury, Tax-Exempt Money and California Tax-Exempt Money Market
Funds.
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 its Prospectuses, the Company's shares will be fully
paid and non-assessable. For information concerning possible restrictions upon
the transferability of the Company's shares and redemption provisions with
respect to such shares, see "Purchase and Redemption Information" in this
Statement of Additional Information.
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<PAGE> 247
The Funds' Pacific Horizon Shares, Horizon Shares, Horizon
Service Shares, X Shares and S Shares differ in the following respects. Pacific
Horizon Shares beneficially owned by clients of Shareholder Organizations bear
the fees payable under a Special Management Services Plan, which are payable at
the annual rate of up to 0.32% of the average daily net asset value of each
Fund's Pacific Horizon Shares (0.35% with respect to the California Tax-Exempt
Money Market Fund). Horizon Service Shares bear the fees payable under a
Shareholder Services Plan that are payable at the rate of up to .25% (on an
annualized basis) of the average daily net asset value of the Horizon Service
Shares that are outstanding from time to time. X Shares bear the fees payable
under the Distribution and Services Plan that has been adopted for X Shares that
are outstanding from time to time. S Shares bear the fees payable under the
Distribution and Services Plan that has been adopted for S Shares, which are
payable at the rate of up to 1.00% (on an annualized basis) of the average daily
net asset value of the S Shares that are outstanding from time to time. Only
Horizon Service Shares bear the fees payable under the Shareholder Services
Plan. Only Pacific Horizon Shares beneficially owned by clients of Shareholder
Organizations bear the fees payable under the Special Management Services Plan.
Only X and S Shares bear the fees payable under their respective Distribution
and Services Plan. Due to the different expenses borne by the respective classes
of the Company, net yield for each class will vary.
Holders of all outstanding shares of a particular Fund will
vote together in the aggregate and not by class on all matters, except that only
X Shares and S Shares of a Fund will be entitled to vote on matters submitted to
a vote of shareholders pertaining to their respective Distribution and Services
Plans, only Horizon Service Shares of a Fund will be entitled to vote on matters
submitted to a vote of shareholders pertaining to the Horizon Service Shares'
Shareholder Services Plan, and only Pacific Horizon Shares of a Fund will be
entitled to vote on matters submitted to a vote of shareholders pertaining to
the Pacific Horizon Funds' Special Management Services Plan. Further,
shareholders of all of the Funds, as well as those of any other investment
portfolio now or hereafter offered by the Company, will vote together in the
aggregate and not separately on a Fund-by-Fund basis, except as otherwise
required by law or when permitted by the Board of Directors. Rule 18f-2 under
the 1940 Act provides that any matter required to be submitted to the holders of
the outstanding voting securities of an investment company such as the Company
shall not be deemed to have been effectively acted upon unless approved by a
majority of the outstanding shares of each Fund affected by the matter. 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 the Rule,
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the approval of an investment advisory agreement 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 the Company voting in the aggregate
without regard to particular Funds.
Notwithstanding any provision of Maryland law requiring a
greater vote of the Company's common stock (or of the shares of 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 the Company's
Charter, the Company may take or authorize such action upon the favorable vote
of the holders of more than 50% of the outstanding common stock of the Company
voting without regard to class.
HORIZON SERVICE SHARES
As stated in the Prospectuses for such Shares, Horizon Service
Shares are sold to Shareholder Organizations which enter into service agreements
requiring them to provide support services to their customers who beneficially
own Horizon Service Shares in consideration of the Funds' payment of up to .25%
(on an annualized basis) of the average daily net asset value of the Horizon
Service Shares beneficially owned by the customers. For the fiscal years ended
February 28, 1995, February 29, 1996 and February 28, 1997, payments to
Shareholder Organizations totalled $2,115,780, $3,119,024 and $______,
respectively, with respect to the Horizon Service Shares of the Prime Fund,
$989,269, $1,703,233 and $______, respectively, with respect to Horizon Service
Shares of the Treasury Fund, and $103,606, $113,492 and $______, respectively,
with respect to the Horizon Service Shares of the Tax-Exempt Money Fund. Of
these amounts, for the fiscal years indicated, $391,875, $3,065,147 and $______,
respectively, $224,434, $1,639,415 and $______, respectively, and $28,442,
$108,762 and $______, respectively, were paid to Bank of America and/or its
affiliates with respect to the Prime Fund, Treasury Fund and Tax-Exempt Money
Fund, respectively, and $0 was paid to the Administrator and/or its affiliates
with respect to the Prime Fund, Treasury Fund and Tax-Exempt Money Fund,
respectively.
For the fiscal year ended February 28, 1995, payments to
Shareholder Organizations totaled $590,188 and $604,380, respectively, with
respect to the Horizon Service Shares of the Government Fund and Treasury Only
Fund. Of these amounts, $132,934 and $569,889, respectively, were paid by the
Government Fund and Treasury Only Fund to Bank of America and/or its affiliates,
and $0 was paid by the Government Fund and the
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Treasury Only Fund to the Administrator and/or its affiliates. For the fiscal
year ended February 29, 1996, payments to Shareholder Organizations totalled
$608,863 and $369,104, respectively, with respect to the Horizon Service Shares
of the Government Fund and Treasury Only Fund. Of these amounts $602,557 and
$361,220, respectively, were paid by the Government Fund and Treasury Only Fund
to affiliates of Bank of America, and $0 was paid by the Government Fund and
Treasury Only Fund to the Administrator and/or its affiliates. For the fiscal
year ended February 28, 1997, payments to Shareholder Organizations totaled
$_______ and $_______, respectively with respect to the Horizon Service Shares
of the Government Fund and Treasury Only Fund. Of these amounts, $_______ and
$_______, respectively was paid by the Government Fund and Treasury Only Fund to
Bank of America and/or its affiliates, and $__ and $__, respectively was paid by
the Government Fund and Treasury Only Fund to the Administrator and/or its
affiliates. In addition, during the same period, Bank of America, the
Administrator and Shareholder Organizations waived fees totalling $______ for
the Horizon Service Shares of the Government Fund and $______ for the Treasury
Only Fund.
For the fiscal year ended February 28, 1995, payments to
Shareholder Organizations totalled $255,299 with respect to the Horizon Service
Shares of the California Tax-Exempt Money Market Fund. Of this amount, $251,505
was paid to Bank of America and/or its affiliates, and $0 was paid to the
Administrator and/or its affiliates. For the fiscal year ended February 29,
1996, payments to Shareholder Organizations totalled $348,568 with respect to
the Horizon Service Shares of the California Tax-Exempt Money Market Fund. Of
this amount, $346,675 was paid to affiliates of Bank of America, and $0 was paid
to the Administrator and/or its affiliates. For the fiscal year ended February
28, 1997, payments to Shareholder Organizations totalled $_______ with respect
to the Horizon Service Shares of the California Tax-Exempt Money Market Fund. Of
this amount $_______ was paid to Bank of America and/or its affiliates, and $__
was paid to the Administrator and/or its affiliates. In addition, Bank of
America, the Administrator and/or its affiliates waived fees totalling $_______.
Services provided by Shareholder Organizations under service
agreements may include: (i) aggregating and processing purchase and redemption
requests for Horizon Service Shares from customers 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 Shares pursuant to
specific or pre-authorized instructions; (iii) processing dividend payments on
behalf of customers; (iv) providing information periodically to customers
showing their positions in Horizon Service Shares; (v) arranging for bank wires;
(vi) responding to customer inquiries relating to the services
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performed by the Shareholder Organizations; (vii) providing subaccounting with
respect to Horizon Service Shares beneficially owned by customers or providing
the information to the Company necessary for subaccounting; (viii) 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 customers; (ix) forwarding to customers proxy
statements and proxies containing any proposals regarding the Company's
arrangements with Shareholder Organizations; and (x) providing such other
similar services as requested by the Funds.
The Company's agreements with Shareholder Organizations are
governed by a Plan (called a "Shareholder Services Plan"). The Shareholder
Services Plan has been approved by the Board of Directors of the Company,
including a majority of the Directors who are not "interested persons" of the
Company as defined in the 1940 Act and have no direct or indirect financial
interest in the Shareholder Services Plan or any related service agreement (the
"Disinterested Directors"). In approving the Shareholder Services Plan, the
Directors determined that there was a reasonable likelihood that it would be
beneficial to each Fund and to the holders of its Horizon Service Shares. The
Shareholder Services Plan will continue with respect to each Fund until October
31, 1997, unless earlier terminated in accordance with its terms, and thereafter
it will continue in effect indefinitely provided that the Directors approve the
Shareholder Services Plan at least annually in the manner described above.
Under the Shareholder Services Plan, the Board of Directors
must be provided with and must review, at least quarterly, a written report of
all amounts expended pursuant to the Shareholder Services Plan. The Shareholder
Services Plan and any service agreements implementing the Shareholder Services
Plan must be in writing. The Shareholder Services Plan may be terminated at any
time with respect to any Fund by a vote of the majority of the Disinterested
Directors. Each service agreement under the Shareholder Services Plan is also
terminable at any time without payment of any penalty by a vote of a majority of
the Disinterested Directors. Any material amendment of the Shareholder Services
Plan must be approved by a majority vote of the Board of Directors and of the
Disinterested Directors cast in person at a meeting called for the purpose of
voting on the amendment.
With respect to the purchase or sale of portfolio securities
and the execution of portfolio transactions, no Fund will give preference to
Shareholder Organizations with which the Fund enters into service agreements.
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COUNSEL
- -------
Drinker Biddle & Reath (of which W. Bruce McConnel, III,
Secretary of the Company, is a partner), 1345 Chestnut Street, Philadelphia
National Bank Building, Philadelphia, Pennsylvania 19107, serves as counsel to
the Company and will pass upon the legality of the shares offered hereby. [ ]
acts as special California counsel for the Company and has reviewed the portions
of the Prospectus and Statement of Additional Information for the California
Tax-Exempt Money Market Fund concerning California taxes and the description of
the special considerations relating to California Municipal Securities.
INDEPENDENT ACCOUNTANTS
- -----------------------
[ ] with offices at [ ] has been selected as independent
accountants of each Fund for the fiscal year ending February 28, 1997.
REPORTS
- -------
Each Fund will send its shareholders unaudited semi-annual
reports including a description of the Fund's investments, and annual financial
statements together with a report of independent accountants.
MISCELLANEOUS
- -------------
As used in the Prospectuses and this Statement of Additional
Information, a "vote of a majority" of the outstanding shares of a Fund or a
particular series means, with respect to the approval of an investment advisory
agreement, a distribution plan or a change in a fundamental investment policy,
the affirmative vote of the lesser of (a) more than 50% of the outstanding
shares of the Fund or of the series, or (b) 67% of the shares of the Fund or of
the series present at a meeting at which more than 50% of the outstanding shares
of the Fund or series are represented in person or by proxy.
At ____________, 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:
At ____________, 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:
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At ____________, 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:
At ____________, 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:
At ____________, 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 Fund were as follows:
At ____________, 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 Treasury Fund were as follows:
At ____________, 1997, the name, address and share ownership
of the entities which held as record owners more than 5% of the outstanding X
Shares of the Treasury Fund were as follows:
At ____________, 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:
At ____________, 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 Government Fund were as follows:
At ____________, 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:
At ____________, 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 Government Fund were as follows:
At ____________, 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 Prime Fund were as follows:
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At ____________, 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:
At ____________, 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:
At ____________, 1997, the name, address and share ownership
of the entities which held as beneficial owners more than 5% of the outstanding
X Shares of the Prime Fund were as follows:
At ____________, 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:
At ____________, 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 Tax-Exempt Money Fund were as follows:
At ____________, 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:
At ____________, 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:
At ____________, 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:
At ____________, 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 California Tax-Exempt Money Market Fund were as
follows:
At ____________, 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:
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At ____________, 1997, the name, address and share ownership
of the entities which held as beneficial owners more than 5% of the outstanding
X Shares of the California Tax-Exempt Money Market Fund were as follows:
At ____________, 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:
At ____________, 1997, the name, address and share ownership
of the entities which held as record owners more than 5% of the outstanding K
Shares of the Corporate Bond Fund were as follows:
At ____________, 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:
At ____________, 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:
At ____________, 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:
At ____________, 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:
At such date, no other person was known by the Company to hold
of record or beneficially more than 5% of the outstanding shares of any
investment portfolio of the Company.
The Prospectuses relating to the Pacific Horizon Shares,
Horizon Shares, Horizon Service Shares, X Shares and S Shares and this Statement
of Additional Information omit certain information contained in the Company's
registration statement filed with the SEC. Copies of the registration statement,
including items omitted herein, may be obtained from the Commission by paying
the charges prescribed under its rules and regulations.
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FINANCIAL STATEMENTS AND EXPERTS
- --------------------------------
The Annual Reports for each Fund for their fiscal year ended
February 28, 1997 (the "Annual Reports") accompany this Statement of Additional
Information. The financial statements and notes thereto in each Annual Report
are incorporated into this Statement of Additional Information by reference. The
financial statements and notes in each Annual Report have been audited by [ ],
whose report thereon also appears in each Annual Report and is also incorporated
herein by reference. No other parts of the Annual Reports are incorporated by
reference herein. Such financial statements have been incorporated herein in
reliance on the report of [ ], independent accountants, given on the authority
of said firm as experts in auditing and accounting.
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<PAGE> 256
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.
"Prime-2" - Issuer or related supporting institutions
are considered to have a strong capacity for repayment of short-
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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 factors are larger
and subject to more variation. Nevertheless, timely payment is expected.
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"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, thrifts and non-bank banks; non-United States banks;
and broker-
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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 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, although such capacity may be susceptible to adverse
changes in business, economic or financial conditions.
"A3" - Obligations are supported by a satisfactory capacity
for timely repayment. Such capacity is more susceptible to adverse changes in
business, economic or financial conditions than for obligations in higher
categories.
"B" - Obligations for which the capacity for timely repayment
is susceptible to adverse changes in business, economic or financial conditions.
"C" - Obligations for which there is an inadequate capacity to
ensure timely repayment.
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"D" - Obligations which have a high risk of default or which
are currently in default.
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
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used for debt subordinated to senior debt that is assigned an actual or implied
"BB" or "BB-" rating.
"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 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 principal is secure. While the various protective elements are
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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 occur in the legal documents or the
underlying credit quality of the bonds.
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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.
"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+."
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"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.
"BB," "B," "CCC," "CC," "C," "DDD," "DD," and "D" Bonds that
possess one of these ratings are considered by Fitch to be speculative
investments. The ratings "BB" to "C" represent Fitch's assessment of 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.
To provide more detailed indications of credit quality, the
Fitch ratings from and including "AA" to "C" 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. 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,
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economic or financial conditions may lead to increased investment
risk.
"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.
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"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 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.
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"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.
"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.
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FORM N-1A
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
(1) To be filed by Amendment.
(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
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<PAGE> 269
to Exhibit 1(g) to Post-Effective
Amendment No. 45.
(h) Articles Supplementary classifying
shares filed August 16, 1991 are
incorporated by reference to Exhibit
1(h) to Post-Effective Amendment No. 45.
(i) Articles Supplementary classifying
shares filed November 25, 1991 are
incorporated by reference to Exhibit
1(i) to Post-Effective Amendment No. 45.
(j) Articles Supplementary classifying
shares filed May 11, 1992 are
incorporated by reference to Exhibit
1(j) to Post-Effective Amendment No. 45.
(k) Articles Supplementary reclassifying
shares filed May 15, 1992 are
incorporated by reference to Exhibit
1(k) to Post-Effective Amendment No. 45.
(l) Articles Supplementary classifying
shares filed July 20, 1992 are
incorporated by reference to Exhibit
1(l) to Post-Effective Amendment No. 45.
(m) Articles Supplementary to increase
authorized capital stock filed August 6,
1992 are incorporated by reference to
Exhibit 1(m) to Post-Effective Amendment
No. 45.
(n) Articles Supplementary classifying
shares filed August 6, 1992 are
incorporated by reference to Exhibit
1(n) to Post-Effective Amendment No. 45.
(o) Articles Supplementary classifying
shares filed March 3, 1993 are
incorporated by reference to Exhibit
1(o) to Post-Effective Amendment No. 45.
(p) Articles Supplementary reclassifying
shares filed May 12, 1993 are
incorporated by reference to Exhibit
1(p) to Post-Effective Amendment No. 45.
(q) Articles of Amendment eliminating
restriction on number of classes of
shares filed May 8, 1990 are
incorporated by reference to Exhibit
1(q) to Post-Effective Amendment No. 45.
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<PAGE> 270
(r) Articles of Amendment reclassifying
shares filed on July 9, 1993 are
incorporated by reference to Exhibit
1(r) to Post-Effective Amendment No. 45.
(s) Articles Supplementary classifying
shares filed November 18, 1993 are
incorporated by reference to Exhibit
1(s) to Post-Effective Amendment No. 45.
(t) Articles Supplementary reclassifying
shares filed November 18, 1993 are
incorporated by reference to Exhibit
1(t) to Post-Effective Amendment No. 45.
(u) Articles Supplementary reclassifying
shares filed January 21, 1994 are
incorporated by reference to Exhibit
1(u) to Post-Effective Amendment No. 45.
(v) Articles Supplementary classifying
shares filed October 30, 1995 are
incorporated by reference to Exhibit
1(v) to Post-Effective Amendment No. 47
to the Registration Statement of the
Registrant on Form N-1A (Nos. 2-
81110/811-4293) filed April 30, 1996
("Post-Effective Amendment No. 47").
(w) Articles of Amendment cancelling shares
filed on January 26, 1996 are
incorporated by reference to Exhibit
1(v) to Post-Effective Amendment No. 45.
(x) Articles Supplementary classifying
shares filed on January 26, 1996 are
incorporated by reference to Exhibit
1(w) to Post-Effective Amendment No. 45.
(y) Articles Supplementary reclassifying
shares filed on January 26, 1996 are
incorporated by reference to Exhibit
1(x) to Post-Effective Amendment No. 45.
(z) 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
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<PAGE> 271
incorporated by reference to Exhibit
1(z) to Post-Effective Amendment No. 50
to the Registration Statement of the
Registrant on Form N-1A (Nos. 2-
81110/811-4293) filed July 29, 1996
("Post-Effective Amendment No. 50.").
(bb) Articles Supplementary reclassifying
shares filed on June 25, 1996 are
incorporated by reference to Exhibit
1(aa) to Post-Effective Amendment
No. 50.
(cc) Articles Supplementary reclassifying
shares filed on June 25, 1996 are
incorporated by reference to Exhibit
1(bb) to Post-Effective Amendment
No. 50.
(dd) Articles Supplementary reclassifying
shares filed on March 5, 1997.
(ee) Articles Supplementary classifying
shares filed on April 11, 1997.
(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
4
<PAGE> 272
Savings Association (Non-Money Market
Funds) is incorporated by reference to
Exhibit 5(b) to Post-Effective Amendment
No. 45.
(c) Addendum to Investment Advisory
Agreement dated as of March 1, 1993
between Registrant and Bank of
America National Trust and Savings
Association (Money Market Funds -
Prime Value Fund) is incorporated by
reference to Exhibit 5(c) to
Post-Effective Amendment No. 45.
(d) Addendum to Investment Advisory
Agreement dated as of March 1, 1993
between Registrant and Bank of America
National Trust and Savings Association
(Money Market Funds - Government and
Treasury Only Funds) is incorporated by
reference to Exhibit 5(d) to Post-
Effective Amendment No. 45.
(e) Investment Advisory Agreement dated
November 1, 1994 between Registrant
and Bank of America National Trust &
Savings Association with respect to
the Capital Income Fund is
incorporated by reference to Exhibit
5(e) to Post-Effective Amendment No.
45.
(f) Investment Advisory Agreement dated
as of July 1, 1996 between
Registrant and Bank of America
National Trust & Savings Association
with respect to the National
Municipal Bond Fund 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
5
<PAGE> 273
on Form N-1A (Nos. 2-81110/811-4293)
filed January 31, 1997 ("Post-Effective
Amendment No. 52").
(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 is
incorporated by reference to Exhibit
5(k) to Post-Effective Amendment No. 53
to the Registration Statement on Form N-
1A (Nos. 2-81110/811-4293) filed
February 7, 1997 ("Post-Effective
Amendment No. 53").
(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.
6
<PAGE> 274
(8) (a) Custody Agreement between Registrant and
The Bank of New York dated as of
April 3, 1989 is incorporated by
reference to Exhibit 8(a) to Post-
Effective Amendment No. 45.
(b) Amendment No. 1 to Custody Agreement
between Registrant and The Bank of New
York dated as of March 30, 1990 is
incorporated by reference to Exhibit
8(b) to Post-Effective Amendment No. 45.
(c) Amendment No. 2 to Custody Agreement
between Registrant and The Bank of New
York dated as of February 26, 1993 is
incorporated by reference to Exhibit
8(c) to Post-Effective Amendment No. 49
to the Registration Statement of the
Registrant on Form N-1A (Nos. 2-
81110/811-4293) filed June 28, 1996
("Post-Effective Amendment No. 49").
(d) Amendment No. 3 to Custody Agreement
between Registrant and The Bank of New
York dated as of April 24, 1996 is
incorporated by reference to Exhibit
8(d) to Post-Effective Amendment No. 49.
(e) Amendment No. 4 to Custody Agreement
between Registrant and The Bank of New
York dated as of July 1, 1996 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.
7
<PAGE> 275
(j) Sub-Custodian Agreement between The Bank
of New York and Citibank, N.A. dated
May 18, 1988 is incorporated by
reference to Exhibit 8(f) to Post-
Effective Amendment No. 45.
(k) Form of Sub-Custody Agreement between
The Bank of New York and Bank of America
National Trust and Savings Association
is incorporated by reference to Exhibit
(8)(i) to Post-Effective Amendment No.
37.
(9) (a) 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) Amendment No. 1 to the Administration
Agreement between Registrant and The
BISYS Group, Inc. (Asset Allocation
Fund) dated as of November 1, 1996.
(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.
8
<PAGE> 276
(10)(1) Opinion of counsel that shares are validly
issued, fully paid and non-assessable.
(11) Consent of Drinker Biddle & Reath 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.
9
<PAGE> 277
(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
10
<PAGE> 278
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.
11
<PAGE> 279
(k) Shareholder Service Plan and related
Shareholder Servicing Agreement for SRF
Shares is incorporated by reference to
Exhibit 15(k) to Post-Effective
Amendment No. 53.
(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) To be filed by amendment.
(18) Amended and Restated Plan Pursuant to
Rule 18f-3 for Operation of a Multi-
Class System is incorporated by
12
<PAGE> 280
reference to Exhibit 18 to Post-
Effective Amendment No. 53.
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
NUMBER OF RECORD
HOLDERS AS OF
TITLE OF CLASS APRIL 1, 1997
-------------- ----------------
Class A Common Stock 347
Class A Common Stock -
Special Series 1 1236
Class A Common Stock -
Special Series 2 224
Class A Common Stock -
Special Series 3 0
Class A Common Stock -
Special Series 4 2
Class B Common Stock 1611
Class B Common Stock -
Special Series 1 2128
Class B Common Stock -
Special Series 2 864
Class B Common Stock -
Special Series 3 0
Class B Common Stock -
Special Series 4 6
Class D Common Stock 16666
Class D Common Stock -
Special Series 3 0
Class D Common Stock -
Special Series 5 2
Class E Common Stock 3656
Class E Common Stock -
Special Series 3 0
Class E Common Stock -
Special Series 5 2
Class F Common Stock 18009
Class F Common Stock -
Special Series 3 0
Class F Common Stock -
Special Series 5 3
Class G Common Stock 4021
Class G Common Stock -
Special Series 3 0
Class G Common Stock -
Special Series 5 1
Class H Common Stock 0
13
<PAGE> 281
NUMBER OF RECORD
HOLDERS AS OF
TITLE OF CLASS APRIL 1, 1997
-------------- ----------------
Class I Common Stock 142
Class I Common Stock -
Special Series 1 55
Class I Common Stock -
Special Series 2 40
Class J Common Stock 233
Class J Common Stock -
Special Series 1 317
Class J Common Stock -
Special Series 2 5
Class J Common Stock -
Special Series 4 2
Class K Common Stock 58
Class K Common Stock -
Special Series 1 1236
Class K Common Stock -
Special Series 2 37
Class L Common Stock 116
Class L Common Stock -
Special Series 1 194
Class L Common Stock -
Special Series 2 98
Class M Common Stock 536
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 11193
Class N Common Stock -
Special Series 3 0
Class N Common Stock -
Special Series 5 1
Class N Common Stock -
Special Series 7 0
Class O Common Stock 2198
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 397
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
14
<PAGE> 282
NUMBER OF RECORD
HOLDERS AS OF
TITLE OF CLASS APRIL 1, 1997
-------------- -----------------
Class S Common Stock -
Special Series 3 0
Class S Common Stock -
Special Series 5 0
Class T Common Stock 527
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 2487
Class W Common Stock -
Special Series 3 0
Class W Common Stock -
Special Series 5 2
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
15
<PAGE> 283
be subject by reason of his willful misfeasance, bad faith or gross negligence
in the performance of his duties or by reason of his reckless disregard of the
duties involved in the conduct of his office or under his agreement with
Registrant. Registrant will comply with Rule 484 under the Securities Act of
1933 and Release 11330 under the Investment Company Act of 1940 in connection
with any indemnification.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of Registrant pursuant to the foregoing provisions, or otherwise,
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Registrant of expenses
incurred or paid by a director, officer or controlling person of Registrant in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
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.
16
<PAGE> 284
<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, Hallmark Greeting cards
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>
17
<PAGE> 285
<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.
18
<PAGE> 286
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 LLP, 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).
19
<PAGE> 287
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.
20
<PAGE> 288
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 16th day of April, 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
- ------------------------------------ Board and President April 16, 1997
Cornelius John Pings
/s/ KEVIN L. MARTIN Treasurer (Chief
- ------------------------------------ Accounting and
Kevin L. Martin Financial Officer) April 14, 1997
*/Thomas M. Collins Director April 16, 1997
- ------------------------------------
Thomas M. Collins
*/Douglas B. Fletcher Director April 16, 1997
- ------------------------------------
Douglas B. Fletcher
*/Robert E. Greeley Director April 16, 1997
- ------------------------------------
Robert E. Greeley
*/Kermit O. Hanson Director April 16, 1997
- ------------------------------------
Kermit O. Hanson
*By: /s/ W. BRUCE MCCONNEL, III
-----------------------------
W. Bruce McConnel, III
Attorney-in-fact
</TABLE>
21
<PAGE> 289
EXHIBIT INDEX
EXHIBITS
1(dd) Articles Supplementary reclassifying shares.
1(ee) Articles Supplementary classifying shares.
9(c) Amendment No. 1 to the Administration Agreement between
Registrant and The BISYS Group, Inc. (Asset Allocation
Fund) dated as of November 1, 1996.
11(a) Consent of Drinker Biddle & Reath LLP.
<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>
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>
<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 4th day of March, 1997.
PACIFIC HORIZON FUNDS, INC.
[SEAL] By:/s/ J. David Huber
-------------------------
Name: J. David Huber
Title: Vice President
Attest:
/s/ W. Bruce McConnel, III
- ----------------------------
W. Bruce McConnel, III
Secretary
-6-
<PAGE> 7
CERTIFICATE
-----------
THE UNDERSIGNED, 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: March 4, 1997 /s/ J. David Huber
----------------------
Name: J. David Huber
Title: Vice President
<PAGE> 1
EXHIBIT 1(ee)
ARTICLES SUPPLEMENTARY
OF
PACIFIC HORIZON FUNDS, INC.
PACIFIC HORIZON FUNDS, INC., a Maryland corporation having its
principal office in the City of Baltimore, Maryland (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
CLASS J COMMON STOCK-SPECIAL SERIES 1
-------------------------------------
FIRST: Pursuant to Section 2-208 of the Maryland General
Corporation Law, the Board of Directors of the Corporation has classified Five
Hundred Million (500,000,000) shares of authorized, unissued and unclassified
capital stock of the Corporation (par value One Mill ($0.001) per share) as
Class J Common Stock-Special Series 1 (par value One Mill ($0.001) per share),
such that there now exists a total of One Billion (1,000,000,000) shares of
capital stock of the Corporation classified as Class J Common Stock-Special
Series 1, pursuant to the following resolution adopted by a Unanimous Consent of
the Board of Directors of the Corporation dated April 8, 1997:
RESOLVED, that pursuant to Article VI of the Charter
of the Corporation Five Hundred Million (500,000,000) authorized,
unissued and unclassified shares of capital stock of the Corporation
(of the par value of One Mill ($0.001) per share and of the aggregate
par value of Five Hundred Thousand Dollars ($500,000)) be, and hereby
are, divided into and classified as Class J Common Stock-Special Series
1, with all of the preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption set forth in the Charter of the
Corporation with respect to Class J Common Stock-Special Series 1.
<PAGE> 2
GENERAL
-------
SECOND: The shares of capital stock of the Corporation
classified pursuant to the resolution set forth in Article FIRST of these
Articles Supplementary have been classified by the Corporation's Board of
Directors under the authority contained in the Charter of the Corporation.
THIRD: These Articles Supplementary do not increase the
authorized number of shares of the Corporation or the aggregate par value
thereof. The total number of shares of capital stock which the Corporation is
presently authorized to issue remains Two Hundred Billion (200,000,000,000)
shares (of the par value of One Mill ($.001) each) and of the aggregate par
value of Two Hundred Million Dollars ($200,000,000) of Common Stock classified
as follows:
-2-
<PAGE> 3
<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 1,000,000,000
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>
-3-
<PAGE> 4
<TABLE>
<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 8,750,000,000
Total 200,000,000,000
</TABLE>
IN WITNESS WHEREOF, PACIFIC HORIZON FUNDS, INC. has caused
these presents to be signed in its name and on its behalf by its President and
its corporate seal to be hereunto affixed and attested by its Secretary on this
8th day of April, 1997.
PACIFIC HORIZON FUNDS, INC.
[SEAL] By: /S/ Cornelius J. Pings
----------------------------
Cornelius J. Pings
President
Attest:
/S/ W. Bruce McConnel, III
- -----------------------------
W. Bruce McConnel, III
Secretary
<PAGE> 5
CERTIFICATE
-----------
THE UNDERSIGNED, President of PACIFIC HORIZON FUNDS, INC., who
executed on behalf of said Corporation the attached Articles Supplementary of
said Corporation, of which this Certificate is made a part, hereby acknowledges,
in the name and on behalf of said Corporation, the attached Articles
Supplementary to be the corporate act of said Corporation, and certifies that to
the best of his knowledge, information and belief the matters and facts set
forth in the attached Articles Supplementary with respect to authorization and
approval are true in all material respects, under the penalties for perjury.
Dated: April 8, 1997 /s/ Cornelius J. Pings
------------------------
Cornelius J. Pings
President
<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:/s/ Cornelius J. Pings
----------------------
Name: Cornelius J. Pings
Title: President
The BISYS GROUP, INC.
By:/s/ Robert J. McMullan
-----------------------
Name: Robert J. McMullan
Title: Executive Vice President
and Chief Financial
Officer
-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. 54 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 LLP
------------------------------
DRINKER BIDDLE & REATH LLP
Philadelphia, Pennsylvania
April 16, 1997
