<PAGE> 1
As filed with the Securities and Exchange Commission on June 27, 1997
Registration Nos. 2-81110/811-4293
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Post-Effective Amendment No. 58 |X|
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. 60 |X|
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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)
[X] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has registered an indefinite number of its shares under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940, as amended. The Registrant has filed its Rule 24f-2 Notice relating to
such shares for Registrant's most recent fiscal year on April 29, 1997.
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<PAGE> 2
PACIFIC HORIZON FUNDS, INC.
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
Y Shares of the
Prime Fund and Treasury Fund
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Form N-1A Item Prospectus Caption
- -------------- ------------------
Part A
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; Special Management
Services Plan; Distribution
and Services Plan; Management
of the Funds; Shareholder
Services; Performance
Calculations
8. Redemption or Repurchase................. Redemption of Shares;
Shareholder Services; Special
Management Services Plan;
Distribution and Services Plan
9. Pending Legal Proceedings................ *
* Item inapplicable or answer negative.
<PAGE> 3
? DRAFT OF: JUNE 27, 1997
THE INFORMATION CONTAINED
IN THIS DOCUMENT IS
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CONFIDENTIAL
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<TABLE>
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SEE ? ABOVE FOR MARKING (BLACKLINING)
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*** EDGAR ALERT ***
As of May 6th, 1996, ALL domestic filings with the Securities and Exchange
Commission MUST
be submitted via the E.D.G.A.R. system. Careful planning -- especially
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Please contact your
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(LOGO)
[ ] Bowne of Cleveland (216) 621-8384 FAX (216) 621-1132
[ ] Bowne of Columbus (614) 221-8384 FAX (614) 221-8427
[ ] Bowne of Cincinnati (513) 621-8384 FAX (513) 621-2901
[ ] Bowne of Pittsburgh (412) 281-3838 FAX (412) 281-4546
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<TABLE>
<S> <C>
PROSPECTUS Horizon Shares and Horizon Service Shares of
JUNE 16, 1997 the
PRIME FUND
TREASURY FUN
GOVERNMENT FUND
TREASURY ONLY FUND
TAX-EXEMPT MONEY FUND
CALIFORNIA TAX-EXEMPT MONEY MARKET FUND
PROSPECTUS Y Shares of the
JUNE 29, 1997 PRIME FUND
TREASURY FUND
Investment Portfolios Offered by Pacific
Horizon Funds, Inc.
</TABLE>
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THIS PROSPECTUS APPLIES TO THE Y SHARES, HORIZON SHARES AND HORIZON SERVICE
SHARES OF THE PRIME FUND AND TREASURY FUND AND THE HORIZON SHARES AND HORIZON
SERVICE SHARES OF THE GOVERNMENT FUND, TREASURY ONLY FUND, TAX-EXEMPT MONEY FUND
AND CALIFORNIA TAX-EXEMPT MONEY MARKET FUND (COLLECTIVELY, THE "FUNDS"), SIX
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
INSTITUTIONAL INVESTORS WITH DAILY LIQUIDITY. THE PRIME, TREASURY, GOVERNMENT,
TREASURY ONLY AND TAX EXEMPT-MONEY FUND EACH IS A DIVERSIFIED INVESTMENT
PORTFOLIO AND THE CALIFORNIA TAX-EXEMPT MONEY MARKET FUND IS A NON-DIVERSIFIED
INVESTMENT PORTFOLIO.
- --------------------------------------------------------------------------------
THE INVESTMENT OBJECTIVES OF THE PRIME FUND AND TREASURY FUND ARE TO SEEK HIGH
CURRENT INCOME AND STABILITY OF PRINCIPAL. 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 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 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, CONTAINED
IN A STATEMENT OF ADDITIONAL INFORMATION DATED JUNE 16, 1997 AND JUNE 29, 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. THE SECURITIES AND EXCHANGE COMMISSION MAINTAINS A WEBSITE
(HTTP://WWW.SEC.GOV) THAT CONTAINS THE STATEMENT OF ADDITIONAL INFORMATION
MATERIAL INCORPORATED BY REFERENCE, AND OTHER INFORMATION REGARDING REGISTRANTS
THAT FILE ELECTRONICALLY WITH THE SECURITIES AND EXCHANGE COMMISSION.
(Continued next page)
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
<PAGE> 5
- - 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 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.
- - The TAX-EXEMPT MONEY FUND seeks to achieve its objective by investing
primarily in U.S. dollar-denominated obligations the interest on which is
exempt from regular federal income tax.
- - The CALIFORNIA TAX-EXEMPT MONEY MARKET FUND seeks to achieve its objective by
investing primarily in U.S. dollar-denominated obligations the interest on
which is exempt from regular federal income tax and taxation under the laws or
constitution of California.
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.
Y SHARES ARE AVAILABLE TO INSTITUTIONAL INVESTORS 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 OR BROKERAGE 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' Y SHARES. BANK OF AMERICA OR SERVICE ORGANIZATIONS, AS APPLICABLE, ARE
RESPONSIBLE FOR PROVIDING INSTITUTIONS INVESTING IN Y 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.
<PAGE> 6
CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SUMMARY 2
EXPENSE INFORMATION 6
FINANCIAL HIGHLIGHTS 8
INVESTMENT OBJECTIVES AND
POLICIES 22
MUNICIPAL SECURITIES 26
COMMON INVESTMENT POLICIES 28
SPECIAL CONSIDERATIONS AND RISKS 30
MANAGEMENT OF THE FUNDS 35
PURCHASE AND REDEMPTION OF SHARES 39
REDEMPTION OF SHARES 40
ADDITIONAL SHAREHOLDER SERVICES 42
DIVIDENDS AND DISTRIBUTIONS 42
TAXES 42
DESCRIPTION OF SHARES 44
- ------------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 7
SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information included elsewhere in the Prospectus.
Y SHARES, HORIZON SHARES AND
HORIZON SERVICE SHARES: The Prime Fund and Treasury Fund each issue Y Shares,
and each of the Funds issues Horizon Shares and
Horizon Service Shares. Y Shares, Horizon Shares and
Horizon Service Shares each represent interests in a
particular Fund's investment portfolio. Y Shares,
Horizon Shares and Horizon Service Shares are
identical in all respects except that: 1) Y 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 Y 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, Y 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 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.
The investment objective of the Tax-Exempt Money Fund
is to provide as high a level of current interest
income exempt from federal income
2
<PAGE> 8
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. Each of these two
Funds seeks to achieve its 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.
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 eleven U.S. states as well as corporate
banking, business credit and thrift offices in major
U.S. cities and branches, corporate offices and
representative offices in 37 countries and
territories. 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 $50
billion under
3
<PAGE> 9
management, including over $14 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: Y Shares of the Prime and Treasury Funds are
available to institutional investors who purchase
such shares through cash management services, such as
a Sweep Account offered by Bank of America, any of
its banking or brokerage affiliates and certain
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' Y Shares. Y 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 Y 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. Purchase
orders for the California Tax-Exempt Money Market
Fund that are received by the transfer agent before
10:30 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. Purchase orders for the Tax-Exempt Money Fund
that are received by the transfer agent before
4
<PAGE> 10
12:00 noon 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 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 Y Shares of the Prime and Treasury
Funds, if withdrawals and charges to your Sweep
Account exceed deposits and credits, Bank of America,
any of its banking or brokerage affiliates 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 Y 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, before 11:30
a.m. Eastern time with respect to the Treasury Only
Fund, and before 12:00 noon Eastern time with respect
to the Tax-Exempt Money and California Tax-Exempt
Money Market Funds 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.
5
<PAGE> 11
EXPENSE INFORMATION
The following table sets forth certain information regarding the shareholder
transaction expenses imposed by Y Shares of the Prime and Treasury Funds and
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 and the annual operating expenses: 1) expected to
be incurred by the Y Shares of the Prime and Treasury Funds during the current
fiscal year; and 2) incurred by Horizon Shares and Horizon Service Shares of
each of the Funds during the last fiscal year. Actual expenses may vary.
Hypothetical examples based on the table are also shown.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
PRIME TREASURY GOVERNMENT
------------------------------- ------------------------------- -------
HORIZON HORIZON
Y HORIZON SERVICE Y HORIZON SERVICE HORIZON
SHARES(1) SHARES SHARES(2) SHARES(1) SHARES SHARES(2) SHARES
----------- ------- --------- ----------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases........ None None None None None None None
Maximum Sales Load Imposed on Reinvested
Dividends..................................... None None None None None None None
Maximum Deferred Sales Load.................... None None None None None None None
Maximum Redemption Fees(3)..................... None None None None None None None
Exchange Fees.................................. None None None None None None None
<CAPTION>
CALIFORNIA TAX-
EXEMPT
TREASURY ONLY TAX-EXEMPT MONEY MONEY MARKET
---------------- ------------------ ------------------
HORIZON HORIZON HORIZON HORIZON
SERVICE HORIZON SERVICE HORIZON SERVICE HORIZON SERVICE
SHARES(2) SHARES SHARES SHARES SHARES(2) SHARES SHARES(2)
--------- ------- ------- ------- --------- ------- ---------
<S> <<C> <C> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases........ None None None None None None None
Maximum Sales Load Imposed on Reinvested
Dividends..................................... None None None None None None None
Maximum Deferred Sales Load.................... None None None None None None None
Maximum Redemption Fees(3)..................... None None None None None None None
Exchange Fees.................................. None None None None None None None
</TABLE>
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees(4)
(After Fee Waivers)........................... .19%(5) .19%(5) .19%(5) .20% .20% .20% .15%(6)
Rule 12b-1 Fees(7)............................. .75% 0% 0% .75% 0% 0% 0%
Shareholder Services Fees...................... .25% 0% .25% .25% 0% .25% 0%
All Other Expenses............................. .04% .04% .04% .05% .05% .05% .07%
----- ------- --------- ----- ------- --------- -------
Total Operating Expenses....................... 1.23% .23% .48% 1.25% .25% .50% .22%(6)
<CAPTION>
<S> <<C> <C> <C> <C> <C> <C> <C>
Management Fees(4)
(After Fee Waivers)........................... .15%(6) .20% .20% .20% .20% .20% .20%
Rule 12b-1 Fees(7)............................. 0% 0% 0% 0% 0% 0% 0%
Shareholder Services Fees...................... .25% 0% .25% 0% .25% 0% .25%
All Other Expenses............................. .08% .07% .08% .08% .08% .05% .05%
--------- ------- ------- ------- --------- ------- ---------
Total Operating Expenses....................... .48%(6) .27% .53% .28% .53% .25% .50%
</TABLE>
- ---------------
(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
Services 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
proceeds.
(4) 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) Due to established breakpoints, management fees decrease as the Fund's
assets increase. The effective advisory fee is .19% of the Fund's average
net assets.
(6) Absent fee waivers, Management Fees and Total Operating Expenses would have
been .20% and .27%, respectively, with respect to Horizon Shares of the
Government Fund and .20% and .53%, respectively, with respect to Horizon
Service Shares of the Government Fund.
(7) Because of the Distribution Plan Payment paid by Y Shares of the Prime and
Treasury Funds as shown in the above table, long-term Class Y shareholders
may pay more than the economic equivalent of the maximum front-end sales
charge permitted by the NASD Regulations, Inc.
6
<PAGE> 12
- --------------------------------------------------------------------------------
<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
Y Shares..................................................... $ 13 $39 $68 $149
Horizon Shares............................................... $ 2 $ 7 $13 $ 29
Horizon Service Shares....................................... $ 5 $15 $27 $ 60
Treasury Fund
Y Shares..................................................... $ 13 $40 $69 $151
Horizon Shares............................................... $ 3 $ 8 $19 $ 32
Horizon Service Shares....................................... $ 5 $16 $28 $ 63
Government Fund
Horizon Shares............................................... $ 2 $ 7 $12 $ 28
Horizon Service Shares....................................... $ 5 $15 $27 $ 60
Treasury Only Fund
Horizon Shares............................................... $ 3 $ 9 $15 $ 34
Horizon Service Shares....................................... $ 5 $17 $30 $ 66
Tax-Exempt Money Fund
Horizon Shares............................................... $ 3 $ 9 $16 $ 36
Horizon Service Shares....................................... $ 5 $17 $30 $ 66
California Tax-Exempt Money Market Fund
Horizon Shares............................................... $ 3 $ 8 $14 $ 32
Horizon Service Shares....................................... $ 5 $16 $28 $ 63
</TABLE>
- --------------------------------------------------------------------------------
The foregoing Expense Summary and Example are intended to assist investors in Y
Shares of the Prime and Treasury Funds and Horizon Shares and Horizon Service
Shares of the Prime, Treasury, Government, Treasury Only, Tax-Exempt Money and
California Tax-Exempt Money Market 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.
7
<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
July 22, 1996 the Company began offering X Shares in the Prime and Treasury
Funds. The Company began offering S Shares in the Prime and Treasury Funds on
April 7, 1997. The Company has also classified a Y Share class of the Prime and
Treasury Funds. Pacific Horizon Shares, S Shares and X Shares of the Prime and
Treasury Funds are offered through other prospectuses. 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. Y 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 Y
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 and Treasury 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, Y Shares and X
Shares, including differences related to expenses. As of the date of this
prospectus, the Company has not yet issued Y Shares.
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 five
fiscal years in the five year period ended February 28, 1997 has been audited by
Price Waterhouse LLP, 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.
8
<PAGE> 14
Selected Data for a Horizon Share Outstanding Throughout Each of the Periods
Indicated:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRIME FUND++
----------------------------------------------------------------------------------------------
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> <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
-------- -------- -------- -------- -------- -------- -------- --------
Income From Investment
Operations:
Net investment income........... 0.0524 0.0571 0.0461 0.0319 0.0372 0.0590 0.0794 0.0085
Net realized gain (loss) on
securities.................... 0.0000 0.0004 (0.0232) (0.0016) 0.0000 0.0005 (0.0001) 0.0000
-------- -------- -------- -------- -------- -------- -------- --------
Total income from investment
operations.................... 0.0524 0.0575 0.0229 0.0303 0.0372 0.0595 0.0793 0.0085
Less Dividends:
Dividends from net investment
income........................ (0.0522) (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 0.0000 0.0233 0.0000 0.0000 0.0000 0.0000 0.0000
-------- -------- -------- -------- -------- -------- -------- --------
Net change in net asset value per
share........................... 0.0002 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 $ 1.00
========== ========== ========== ========== ========== ========== ========== ==========
Total return..................... 5.34% 5.86% 4.63%*** 3.24% 3.78% 6.06% 8.23% 0.90%P
Ratios/Supplemental Data:
Net assets, end of period
(millions).................... $ 1,710 $ 1,651 $ 622 $ 3,840 $ 10,301 $ 2,855 $ 487 $ 405
Ratio of expenses to average net
assets........................ 0.23%* 0.23%** 0.16%** 0.20%** 0.23% 0.24% 0.24% 0.28%+
Ratio of net investment income
to average net assets......... 5.24%* 5.69%** 4.11%** 3.19%** 3.59% 5.59% 7.91% 8.09%+
<CAPTION>
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%P 8.61% 5.72%P
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 assets......... 9.04%+** 8.47%** 6.90%+**
</TABLE>
- ---------------
<TABLE>
<S> <C>
* 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. For the year
ended February 28, 1997, fees paid by third parties had no effect on the ratios.
*** 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.
++ 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.
P Not annualized.
</TABLE>
9
<PAGE> 15
Selected Data for a Horizon Service Share Outstanding Throughout Each of the
Periods Indicated:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRIME FUND++
----------------------------------------------------------------------------------------------
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> <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
-------- -------- -------- -------- -------- -------- -------- --------
Income From Investment
Operations:
Net investment income........... 0.0499 0.0546 0.0431 0.0294 0.0345 0.0565 0.0769 0.0082
Net realized gain (loss) on
securities.................... 0.0000 0.0004 (0.0227) (0.0016) 0.0000 0.0005 (0.0001) 0.0000
-------- -------- -------- -------- -------- -------- -------- --------
Total income from investment
operations.................... 0.0499 0.0550 0.0204 0.0278 0.0345 0.0570 0.0768 0.0082
Less Dividends:
Dividends from net investment
income........................ (0.0497) (0.0546) (0.0429) (0.0294) (0.0347) (0.0564) (0.0769) (0.0082)
Increase due to voluntary capital
contribution from investment
adviser......................... 0.0000 0.0000 0.0233 0.0000 0.0000 0.0000 0.0000 0.0000
-------- -------- -------- -------- -------- -------- -------- --------
Net change in net asset value per
share........................... 0.0002 0.0004 0.0008 (0.0016) (0.0002) 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 $ 1.00
========== ========== ========== ========== ========== ========== ========== ==========
Total return..................... 5.08% 5.60% 4.37%*** 2.98% 3.53% 5.79% 7.96% 0.87%P
Ratios/Supplemental Data:
Net assets, end of period
(millions).................... $ 2,945 $ 1,561 $ 864 $ 839 $ 793 $ 859 $ 560 $ 330
Ratio of expenses to average net
assets........................ 0.48%** 0.48%** 0.44%** 0.45%** 0.48% 0.49% 0.49% 0.53%+
Ratio of net investment income
to average net assets......... 5.00%** 5.44%** 4.31%** 2.94%** 3.49% 5.58% 7.64% 7.84%+
<CAPTION>
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........... 0.0636 0.0804 0.0128
Net realized gain (loss) on
securities.................... 0.0000 0.0000 0.0000
-------- --------- ---------
Total income from investment
operations.................... 0.0636 0.0804 0.0128
Less Dividends:
Dividends from net investment
income........................ (0.0636) (0.0804) (0.0128)
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..................... 6.50%P 8.35% 1.28%P
Ratios/Supplemental Data:
Net assets, end of period
(millions).................... $ 321 $ 164 $ 3
Ratio of expenses to average net
assets........................ 0.45%+** 0.45%** 0.45%+**
Ratio of net investment income
to average net assets......... 8.74%+** 8.63%** 6.49%+**
</TABLE>
- ---------------
<TABLE>
<S> <C>
* 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. For the year ended February 28, 1997, fees paid by third parties had
no effect on the ratios.
*** 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.
++ 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.
P Not annualized.
</TABLE>
10
<PAGE> 16
Selected Data for a Horizon Share Outstanding Throughout Each of the Periods
Indicated:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TREASURY FUND++
---------------------------------------------------------------------------------------------------
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> <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
-------- -------- -------- -------- -------- -------- -------- --------
Income From Investment
Operations:
Net investment
income............... 0.0509 0.0559 0.0437 0.0294 0.0341 0.0543 0.0764 0.0082
Net realized gain
(loss) on
securities........... 0.0000 0.0011 0.0001 (0.0002) 0.0002 0.0003 0.0005 --
-------- -------- -------- -------- -------- -------- -------- --------
Total income from
investment
operations........... 0.0509 0.0570 0.0438 0.0292 0.0343 0.0546 0.0769 0.0082
Less Dividends:
Dividends from net
investment income.... (0.0509) (0.0559) (0.0437) (0.0294) (0.0343) (0.0545) (0.0765) (0.0082)
-------- -------- -------- -------- -------- -------- -------- --------
Net change in net asset
value per share........ 0.0000 0.0011 0.0001 (0.0002) 0.0000 0.0001 0.0004 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
======== ======== ======== ======== ======== ======== ======== ========
Total return............ 5.21% 5.73% 4.46% 2.98% 3.48% 5.59% 7.92% 0.87%
Ratios/Supplemental
Data:
Net assets, end of
period (millions).... $ 618 $ 722 $ 469 $ 487 $ 598 $ 432 $ 455 $ 257
Ratio of expenses to
average net assets... 0.25%** 0.25%** 0.23% 0.23% 0.24% 0.24% 0.23% 0.27%+
Ratio of net investment
income to average net
assets............... 5.09%** 5.56%** 4.36% 2.94% 3.38% 5.44% 7.57% 7.94%+
<CAPTION>
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............... 0.0631 0.0792 0.0527
Net realized gain
(loss) on
securities........... -- -- --
-------- --------- ---------
Total income from
investment
operations........... 0.0631 0.0792 0.0527
Less Dividends:
Dividends from net
investment income.... (0.0631) (0.0792) (0.0527
-------- --------- ---------
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............ 6.44%P 8.21% 5.39%P
Ratios/Supplemental
Data:
Net assets, end of
period (millions).... $ 292 $ 239 $ 133
Ratio of expenses to
average net assets... 0.20%+** 0.21%** 0.20%+**
Ratio of net investment
income to average net
assets............... 8.65%+** 8.07%** 6.57%+**
</TABLE>
- ---------------
<TABLE>
<C> <S>
* 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. For the year ended February 28, 1997, fees paid by third parties had no effect on the ratios.
+ 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.
++ 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.
P Not annualized.
</TABLE>
11
<PAGE> 17
Selected Data for a Horizon Service Share Outstanding Throughout Each of the
Periods Indicated:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TREASURY FUND++
----------------------------------------------------------------------------------------------------
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> <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
-------- -------- -------- -------- -------- -------- -------- --------
Income From Investment
Operations:
Net investment income.... 0.0484 0.0534 0.0412 0.0269 0.0316 0.0517 0.0739 0.0080
Net realized gain (loss)
on securities.......... 0.0000 0.0011 0.0001 (0.0002) 0.0002 0.0004 0.0005 --
-------- -------- -------- -------- -------- -------- -------- --------
Total income from
investment operations.. 0.0484 0.0545 0.0413 0.0267 0.0318 0.0521 0.0744 0.0080
Less Dividends:
Dividends from net
investment income...... (0.0484) (0.0534) (0.0412) (0.0269) (0.0318) (0.0520) (0.0740) (0.0080)
-------- -------- -------- -------- -------- -------- -------- --------
Net change in net asset
value per share.......... 0.000 0.0011 0.0001 (0.0002) 0.0000 0.0001 0.0004 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
======== ======== ======== ======== ======== ======== ======== ========
Total return.............. 4.97% 5.47% 4.20% 2.72% 3.23% 5.33% 7.65% 0.84%P
Ratios/Supplemental Data:
Net assets, end of period
(millions)............. $ 1,557 $ 1,031 $ 364 $ 541 $ 369 $ 381 $ 304 $ 157
Ratio of expenses to
average net assets..... 0.50%** 0.50%** 0.48% 0.48% 0.49% 0.49% 0.48% 0.52%+
Ratio of net investment
income to average net
assets................. 4.84%** 5.31%** 4.01% 2.69% 3.28% 5.13% 7.31% 7.70%+
<CAPTION>
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.... 0.0613 0.0767 0.0122
Net realized gain (loss)
on securities.......... -- -- --
-------- --------- ---------
Total income from
investment operations.. 0.0613 0.0767 0.0122
Less Dividends:
Dividends from net
investment income...... (0.0613) (0.0767) (0.0122)
-------- --------- ---------
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.............. 6.25%P 7.94% 1.52%P
Ratios/Supplemental Data:
Net assets, end of period
(millions)............. $ 166 $ 239 $ 133
Ratio of expenses to
average net assets..... 0.45%+** 0.46%** 0.45%+**
Ratio of net investment
income to average net
assets................. 8.31%+** 8.44%** 6.27%+**
</TABLE>
- ---------------
<TABLE>
<C> <S>
* 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. For the year ended February 28, 1997, fees paid by third parties had no effect on the ratios.
+ 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.
++ 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.
P Not annualized.
</TABLE>
12
<PAGE> 18
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 Price
Waterhouse LLP, 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.
13
<PAGE> 19
Selected Data for a Horizon Share Outstanding Throughout Each of the Periods
Indicated:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOVERNMENT FUND
--------------------------------------------------------------------
FOR THE
PERIOD
JUNE 14, 1993
(INITIAL ISSUANCE
YEAR ENDED OF SHARES)
---------------------------------------------- THROUGH
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1997 1996 1995 1994
------------ ------------ ------------ -----------------
<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................... 0.0513 0.0600 0.0454 0.0227
Net realized loss on securities......... 0.0000 (0.0042)*** (0.0092) (0.0006)
------ ------- -------- --------
Total income from investment
operations........................... 0.0513 0.0558 0.0362 0.0221
Less Dividends:
Dividends from net investment income.... (0.0512) (0.0556) (0.0452) (0.0227)
------ ------- -------- --------
Increase due to voluntary capital
contribution from investment adviser.... 0.0000 0.0000 0.0085 0.0000
------ ------- -------- --------
Net change in net asset value per share... 0.0001 0.0002 (0.0005) (0.0006)
------ ------- -------- --------
Net asset value per share, end of
period.................................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ======= ======== ========
Total return.............................. 5.25% 5.71% 4.61%** 2.29%P
Ratios/Supplemental Data:
Net assets, end of period (millions).... $ 61 $ 55 $ 235 $ 370
Ratio of expenses to average net
assets*.............................. 0.22% 0.24% 0.17% 0.28%+
Ratio of net investment income to
average net assets*.................. 5.15% 5.66% 4.67% 3.17%+
</TABLE>
- ---------------
<TABLE>
<C> <S>
* 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%, 0.06%, 0.08% and 0.002%
(annualized) for the years ended February 28, 1997, February 29, 1996 and February 28, 1995 and the period ended
February 28, 1994, respectively. For the year ended February 28, 1997, fees paid by third parties had no effect on
the ratios.
** 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.
P Not annualized.
</TABLE>
14
<PAGE> 20
Selected Data for a Horizon Service Share Outstanding Throughout Each of the
Periods Indicated:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, FEBRUARY 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 $ 1.00
-------- -------- -------- -------- -------- -------- --------
Income From
Investment
Operations:
Net investment
income........ 0.0488 0.0537 0.0429 0.0300 0.0303 0.0507 0.0599
Net realized
loss on
securities.... 0.0000 (0.0004)*** (0.0092) (0.0006) 0.0000 0.0000 0.0000
-------- -------- -------- -------- -------- -------- --------
Total income
from
investment
operations.... 0.0488 0.0533 0.0337 0.0294 0.0303 0.0507 0.0599
Less Dividends:
Dividends from
net investment
income........ (0.0487) (0.0531) (0.0427) (0.0300) (0.0303) (0.0507) (0.0599)
-------- -------- -------- -------- -------- -------- --------
Increase due to
voluntary
capital
contribution
from investment
adviser......... 0.0000 0.0000 0.0085 0.0000 0.0000 0.0000 0.0000
-------- -------- -------- -------- -------- -------- --------
Net change in net
asset value per
share........... 0.0001 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 $ 1.00
======== ======== ======== ======== ======== ======== ========
Total return...... 4.98% 5.44% 4.35%** 3.04% 3.07%P 5.19% 6.15%P
Ratios/Supplemental
Data:
Net assets, end
of period
(millions).... $ 263 $ 213 $ 289 $ 326 $ 229 $ 117 $ 327
Ratio of
expenses to
average net
assets*....... 0.48% 0.49% 0.43% 0.48% 0.46%+ 0.46% 0.46%+
Ratio of net
investment
income to
average net
assets*....... 4.89% 5.41% 4.32% 2.99% 3.22%+ 5.27% 6.67%+
</TABLE>
- ---------------
<TABLE>
<C> <S>
* 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%, 0.07%, 0.08% and 0.05%
for the years ended February 28, 1997, 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. For the year ended February 28, 1997, fees paid by third
parties had no effect on the ratios.
** 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.
P Not annualized.
</TABLE>
15
<PAGE> 21
Selected Data for a Horizon Share Outstanding Throughout Each of the Periods
Indicated:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TREASURY ONLY FUND
---------------------------------
PERIOD SEPT. 20,
1995
(INCEPTION DATE)
YEAR ENDED THROUGH
FEB. 28, FEB. 29,
1997 1996
------------ -----------------
<S> <C> <C>
HORIZON SHARES:
Net asset value per share, beginning of period........................ $ 1.00 $ 1.00
-------- --------
Income From Investment Operations:
Net investment income............................................... 0.0490 0.0227
Net realized gain/(loss) on securities.............................. 0.0001 (0.0001)
-------- --------
Total income from investment operations............................. 0.0491 0.0226
Less Dividends:
Dividends from net investment income................................ (0.0490) (0.0227)
-------- --------
Net change in net asset value per share............................... 0.0001 (0.0001)
-------- --------
Net asset value per share, end of period.............................. $ 1.00 $ 1.00
======== ========
Total return.......................................................... 5.02% 2.30%P
Ratios/Supplemental Data:
Net assets, end of period (millions)................................ $ 30 $ 7
Ratio of expenses to average net assets............................. 0.27%++ 0.70%+*
Ratio of net investment income to average net assets................ 4.94%++ 11.88%+*
</TABLE>
- ---------------
<TABLE>
<C> <S>
* There were no fee waivers or expense reimbursements during the period.
+ Annualized.
++ During the period, certain fees were reduced and/or reimbursed. Fees paid by third parties, however, had no effect
on the ratios.
P Not annualized.
</TABLE>
16
<PAGE> 22
Selected Data for a Horizon Service Share Outstanding Throughout Each of the
Periods Indicated:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PREDECESSOR TREASURY ONLY FUND
TREASURY ONLY FUND ---------------------------------------------------------
------------------------------------------ MARCH 1, 1993 JUNE 4, 1990
(COMMENCEMENT (COMMENCEMENT
YEAR ENDED OF OF
------------------------------------------ OPERATIONS) 11 MONTH OPERATIONS)
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 $ 1.00
-------- -------- -------- -------- -------- -------- --------
Income From Investment
Operations:
Net investment
income............... 0.0465 0.0502 0.0391 0.0273 0.0279 0.0486 0.0571
Net realized gain
(loss) on
securities........... 0.0001 0.0003 (0.0002) (0.0002) -- -- --
-------- -------- -------- -------- -------- -------- --------
Total income from
investment
operations........... 0.0466 0.0505 0.0389 0.0271 0.0279 0.0486 0.0571
Less Dividends:
Dividends from net
investment income.... (0.0465) (0.0502) (0.0391) (0.0273) (0.0279) (0.0486) (0.0571)
-------- -------- -------- -------- -------- -------- --------
Net change in net asset
value per share........ 0.0001 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 $ 1.00
======== ======== ======== ======== ======== ======== ========
Total return............. 4.75% 5.14% 3.98% 2.76% 2.83%P 4.96% 5.86%P
Ratios/Supplemental Data:
Net assets, end of
period (millions).... $ 260 $ 186 $ 194 $ 272 $ 124 $ 155 $ 129
Ratio of expenses to
average net
assets*.............. 0.53% 0.56% 0.55% 0.39% 0.36%+ 0.36% 0.35%+
Ratio of net investment
income to average net
assets*.............. 4.66% 5.01% 3.86% 2.73% 3.10%+ 4.74% 6.57%+
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Includes fee waivers and/or 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% 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. For the year ended February 28, 1997, fees paid by third parties had
no effect on the ratios. 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.
P Not annualized.
</TABLE>
17
<PAGE> 23
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. On
October 2, 1996, the California Tax-Exempt Money Market Fund began offering an X
Share class. The Company has also classified a Horizon 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 28, 1997. The information contained in the Financial
Highlights for the five years ended February 28, 1997 has been audited by Price
Waterhouse LLP, independent accountants for the Predecessor Tax-Exempt Fund, the
Tax-Exempt Money Fund and the California Tax-Exempt Money Market Fund. Price
Waterhouse LLP'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 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.
18
<PAGE> 24
Selected Data for a Horizon Share Outstanding Throughout Each of the Periods
Indicated:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TAX-EXEMPT MONEY FUND++++
----------------------------------------------------------------------------------------------
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 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............... 0.0322 0.0359 0.0285 0.0225 0.0269 0.0410 0.0557
Less dividends from net
investment income...... (0.0322) (0.0359) (0.0285) (0.0225) (0.0269) (0.0410) (0.0557)
-------- -------- -------- -------- -------- -------- --------
Net change in net asset
value per share........ 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
======== ======== ======== ======== ======== ======== ========
Total return............. 3.27% 3.65% 2.89% 2.27% 2.72% 4.18% 5.71%
Ratios/Supplemental Data:
Net assets, end of
period (millions).... $ 264 $ 303 $ 382 $ 515 $ 384 $ 345 $ 428
Ratio of expenses to
average net assets... 0.28% 0.31% 0.28% 0.28%** 0.28% 0.28% 0.27%**
Ratio of net investment
income to average net
assets............... 3.22% 3.58% 2.81% 2.25%** 2.69% 4.12% 5.54%**
<CAPTION>
MAY 1,
1989 YEAR PERIOD
THROUGH ENDED ENDED
FEB. 28, 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............... 0.0503 0.0577 0.0392
Less dividends from net
investment income...... (0.0503) (0.0577) (0.0389)
-------- -------- --------
Net change in net asset
value per share........ 0.0000 0.0000 0.0003
-------- -------- --------
Net asset value per
share, end of period... $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total return............. 5.15%P 5.93% 3.92%P
Ratios/Supplemental Data:
Net assets, end of
period (millions).... $ 356 $ 179 $ 104
Ratio of expenses to
average net assets... 0.21%**+ 0.21%** 0.20%**+
Ratio of net investment
income to average net
assets............... 5.96%**+ 5.84%** 5.17%**+
</TABLE>
- ---------------
<TABLE>
<C> <S>
* 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.
++++ 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.
P Not annualized.
</TABLE>
19
<PAGE> 25
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
--------------------------------------------------------------------------------- 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> <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
-------- -------- -------- -------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income......... 0.0297 0.0334 0.0260 0.0200 0.0244 0.0385 0.0532 0.0482
Less dividends from net
investment income........... (0.0297) (0.0334) (0.0260) (0.0200) (0.0244) (0.0385) (0.0532) (0.0482)
-------- -------- -------- -------- -------- -------- -------- --------
Net change in net asset value
per share................... 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
======== ======== ======== ======== ======== ======== ======== ========
Total return.................. 3.01% 3.39% 2.63% 2.02% 2.47% 3.92% 5.45% 4.93%
Ratios/Supplemental Data:
Net assets, end of period
(millions)................ $ 169 $ 35 $ 39 $ 48 $ 50 $ 47 $ 54 $ 37
Ratio of expenses to average
net assets................ 0.53% 0.56% 0.53% 0.53%** 0.53% 0.53% 0.52%** 0.46%**+
Ratio of net investment
income to average net
assets.................... 2.98% 3.34% 2.57% 2.04%** 2.42% 3.88% 5.29%** 5.73%**+
<CAPTION>
YEAR PERIOD
ENDED ENDED
APRIL 30, APRIL 30,
1989++ 1988*++
--------- ---------
<S> <C> <C>
HORIZON SERVICE SHARES
Net asset value per share,
beginning of period......... $ 1.00 $ 1.00
-------- --------
Income from Investment
Operations:
Net investment income......... 0.0552 0.0090
Less dividends from net
investment income........... (0.0552) (0.0090)
-------- --------
Net change in net asset value
per share................... 0.0000 0.0000
-------- --------
Net asset value per share, end
of period................... $ 1.00 $ 1.00
======== ========
Total return.................. 5.66% 0.90%
Ratios/Supplemental Data:
Net assets, end of period
(millions)................ $ 179 $ 104
Ratio of expenses to average
net assets................ 0.46%** 0.45%**+
Ratio of net investment
income to average net
assets.................... 5.70%** 4.54%**+
</TABLE>
- ---------------
<TABLE>
<C> <S>
* 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.
++++ 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>
20
<PAGE> 26
Selected Data for a Horizon Service Share Outstanding Throughout Each of the
Periods Indicated:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALIFORNIA TAX-EXEMPT MONEY MARKET FUND
---------------------------------------------------------
YEAR ENDED
---------------------------------------------------------
FEB. 28, FEB. 29, FEB. 28, FEB. 28,
1997 1996 1995 1994
------------ ------------ ------------ ------------
<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......................... 0.0291 0.0331 0.0256 0.0198
Net realized loss on securities............... 0.0000 0.0001 (0.0001) (0.0001)
-------- -------- -------- --------
Total income from investment operations......... 0.0291 0.0332 0.0255 0.0197
Less dividends from net investment income....... (0.0291) (0.0331) (0.0256) (0.0198)
-------- -------- -------- --------
Net change in net asset value per share......... 0.0000 0.0001 (0.0001) (0.0001)
-------- -------- -------- --------
Net asset value per share, end of period........ $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total Return.................................... 2.95% 3.36% 2.59% 2.00%
Ratios/Supplemental Data:
Net assets, end of period (millions).......... $ 472 $ 203 $ 88 $ 124
Ratio of expenses to average net assets....... 0.50%* 0.55%** 0.55% 0.53%***
Ratio of net investment income to average net
assets..................................... 2.92%* 3.43%** 2.50% 1.98%***
</TABLE>
- ---------------
<TABLE>
<C> <S>
* For the year ended February 28, 1997, fees paid by third parties had no effect on the ratios.
** 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>
21
<PAGE> 27
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," 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. 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 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 IBC Financial Data, Inc.'s ("IBC") Tax-Free
Money Fund Average and IBC Money Fund Averages, which are averages compiled by
IBC 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. Securities
acquired by the Tax-Exempt Money Fund, under normal circumstances, will be First
Tier Securities 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,
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however, the Tax-Exempt Money Fund may also acquire "Eligible Securities" (as
defined by the Securities and Exchange Commission) 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
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"), Thomson BankWatch, Inc.
("Thomson's") or Fitch Investors Service, Inc. ("Fitch") or are 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 NRSRO's, 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 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
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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.
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
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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.
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
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(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
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 Tax-Exempt Money and the California Tax-Exempt Money Market Funds (the
"Tax-Exempt 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
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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
Tax-Exempt 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 Tax-Exempt 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 Tax-Exempt 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
Tax-Exempt 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 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 Tax-Exempt Funds nor their investment adviser will review the
proceedings relating to the issuance of
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Municipal Securities or the basis for such opinions.
COMMON INVESTMENT POLICIES
GOVERNMENT OBLIGATIONS. The Prime Fund, Government Fund, Tax-Exempt Money Fund
and California Tax-Exempt Money Market 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.
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 agree-
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ments 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. Neither
the Tax-Exempt Money Fund nor the California Tax-Exempt Money Market Fund will
purchase securities while it has borrowings (including reverse repurchase
agreements) outstanding.
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 the Prime, Treasury,
Government and Treasury Only Funds 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
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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.
The Prime, Treasury, Government and Treasury Only Funds 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.
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
portfolio securities which are acquired subject to the commitment (thus reducing
the yield to maturity otherwise available for the same securities).
SPECIAL CONSIDERATIONS AND RISKS
In seeking to achieve their respective investment objectives the Tax-Exempt
Money and California Tax-Exempt Money Market 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
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federal alternative minimum tax. See "Taxes." Investments in such securities,
however, will not exceed under normal market conditions 20% of such Fund's total
assets when added together with any taxable investments held by such Fund.
Moreover, although these 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.
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
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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 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 objectives of the Prime, Treasury
Tax-Exempt Money and California Tax-Exempt Money Market 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
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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
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 (taken at
cost). This 10% limitation is not a fundamental investment limitation of the
Government or Treasury Only Funds.
TAX-EXEMPT MONEY FUND. 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
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<PAGE> 39
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).
CALIFORNIA TAX-EXEMPT MONEY MARKET FUND. 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 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
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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 eleven U.S. states as well as corporate
banking offices, in major U.S. cities and branches, corporate offices and
representative offices in 37 countries and territories. 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 $50 billion under management, including over $14 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, Treasury Only Fund, Tax-Exempt Money Fund and California
Tax-Exempt Money Market Fund paid the Investment Adviser advisory fees at the
effective annual rates of .09%, .10%, .05%, .10%, .10% and .10% of such Funds'
respective average daily net assets, and the Investment Adviser waived advisory
fees at the effective annual rates of .05% 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' Y Shares. Bank of America and Service Organizations may
receive fees charged directly to their customers' accounts in connection with
investments in Y 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.
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 150 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 (the "Prior 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 of the Fund 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
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<PAGE> 41
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 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. 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, Treasury Only Fund, Tax-Exempt Money Fund
and California Tax-Exempt Money Market Fund paid the Administrator
administration fees at the effective annual rates of .10%, .10%, .10%, .10%,
.10% and .10% of such Funds' 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 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, 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
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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, Pacific
Horizon Shares, X Shares, S Shares or Y Shares. During the fiscal year ended
February 28, 1997, the Prime, Treasury, Government, Treasury Only, Tax-Exempt
Money and California Tax-Exempt Money Market Funds made payments under the Plan
at an effective annual rate of .25% 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
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
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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' Y Shares and for shareholder
servicing expenses. Such distribution expenses include expenses incurred in
connection with advertising and marketing each Fund's Class Y Shares; payments
to Service Organizations for assistance in connection with the distribution of Y
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 Y
Shares, such as establishing and maintaining accounts and records relating to
their clients who invest in Y 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' Y 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, Treasury and
California Tax-Exempt Money Market Funds, the S Shares of the Tax-Exempt Money
and the Y Shares of the Prime and Treasury Funds and are not paid with respect
to such Funds' other series of shares. As of the fiscal year ended February 29,
1997 no Y Shares were outstanding.
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
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.
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PURCHASE AND REDEMPTION OF SHARES
HOW Y SHARES ARE PURCHASED. Y Shares of the Prime and Treasury Funds are
offered by this Prospectus to institutional customers of Bank of America, its
banking or brokerage affiliates or Service Organizations that establish cash
management services, such as a Sweep Account with Bank of America, its banking
or brokerage affiliates, 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
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.
Y Shares may be purchased on any Business Day (as defined below) that Bank of
America, its banking or brokerage affiliates, and 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 Funds'
custodian and the New York Stock Exchange (the "Exchange") are open for business
(a "Business Day") and that Bank of America, its banking or brokerage
affiliates, or a Service Organization is open for business, Bank of America, its
banking or brokerage affiliates, 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 its Sweep Account procedures (the "Net
Sweep Amount"). If deposits and credits exceed withdrawals and charges, you
authorize Bank of America, its banking or brokerage affiliates, 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, its banking or
brokerage affiliates, or a Service Organization. Your purchase order will be
made effective and full and fractional Y 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, its banking or brokerage affiliates, or a
Service Organization to transmit orders for the purchases of Y 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, its banking or brokerage affiliates, or a
Service Organization are executed only on Business Days that Bank of America,
its banking or brokerage affiliates, or a Service Organization, respectively, is
open for business. Contact Bank of America, its banking or brokerage affiliates,
or your Service Organization for additional information about Bank of America's,
its banking or brokerage affiliates', 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.
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. Purchase orders for the Treasury Only Fund, California Tax-Exempt
Money Market Fund and
39
<PAGE> 45
Tax-Exempt Money Fund that are received before 11:30 a.m. Eastern time, 10:30
a.m. Eastern time and 12:00 noon Eastern time, respectively, on a Business Day
will be executed at such respective 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.
REDEMPTION OF SHARES
HOW Y SHARES ARE REDEEMED. If, on any Business Day that Bank of America, its
banking or brokerage affiliates, 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, Bank of
America, its banking or brokerage affiliates, 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 Bank of America, its banking or
brokerage affiliates, or a Service Organization, as applicable, is closed as
described in the Sweep Materials, Bank of America, its banking or brokerage
affiliates, or the Service Organization, as applicable, transmits a redemption
request on your behalf to the appropriate Fund for the balance of Y 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 Bank
of America, its banking or brokerage affiliates, 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, its banking or brokerage affiliates, 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
40
<PAGE> 46
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 2:30 p.m. Eastern time with respect to the Prime Fund, Treasury
Fund or Government Fund, before 11:30 a.m. Eastern time with respect to the
Treasury Only Fund, before 10:30 a.m. Eastern time with respect to the
California Tax-Exempt Money Market Fund, or before 12:00 noon Eastern time with
respect to the Tax-Exempt Money 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 -- Y 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 Y Shares,
Horizon Shares or Horizon Service Shares are redeemed.
NET ASSET VALUE. The net asset value per share of the Y 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
particu-
41
<PAGE> 47
lar 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. The net asset value per share of the California Tax-Exempt
Money Market Fund is determined on such Business Days as of 10:30 a.m. Eastern
time. The net asset value per share of the Tax-Exempt Money Fund is determined
on such Business Days 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 of that for other portfolios of
the Company.
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 X, S, Y, Horizon or Horizon Service Shares of any of the
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. If you elect
to receive distributions in cash, and if your checks (1) are returned and marked
as "undeliverable" or (2) remain uncashed for six months, your cash election
will be changed automatically and your future dividend and capital gains
distributions will be reinvested in the Fund at the per share net asset value
determined as of the date of payment of the distribution. In addition, any
undeliverable checks or checks that remain uncashed for six months will be
canceled and will be reinvested in the Fund at the per share net asset value
determined as of the date of cancellation. 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 182090,
Columbus, Ohio 43218-2090, 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
42
<PAGE> 48
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 distributing
to its shareholders at least 90% of its investment company taxable income for
each taxable year. An investor of the Prime, Treasury, Government Treasury Only
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 such Funds is expected to
be derived from earned interest, it is anticipated that all dividends paid by
the Prime, Treasury, Government or Treasury Only 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 such Funds will be eligible for the
dividends received deduction for corporations. The policy of the Tax-Exempt
Money and California Tax-Exempt Money Market Funds is to distribute to its
respective 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.
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
administrative actions. 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. 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.
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
43
<PAGE> 49
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.
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.
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, 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.
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. The Predecessor Tax-Exempt Fund
originally commenced operations on July 10, 1987 as a separate portfolio 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 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 March 1, 1993 the California Tax-Exempt Money Market
Fund began offering Horizon Service Shares. On July 22, 1996, the Company began
offering X Shares in the Prime
44
<PAGE> 50
and Treasury Funds, and on October 2, 1996 the Company began offering X Shares
in the California Tax-Exempt Money Market Fund. 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 Tax-Exempt Money Fund and the California Tax-Exempt
Money Market Fund, and a Y Share class of the Prime and Treasury Funds. 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 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. S Shares are offered to customers who purchase such
shares through a sweep account offered by Bank of America, any of its banking or
brokerage affiliates or certain Service Organizations.
The Company's charter authorizes the Board of Directors to issue up to four
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
(except for the California Tax-Exempt Money Market Fund, which is
nondiversified) of which is classified as a diversified company under the
Investment Company Act of 1940: twenty billion X Shares, twenty billion S
Shares, twenty billion Y Shares, twenty billion Horizon Shares, twenty billion
Horizon Service Shares and twenty billion Pacific Horizon Shares representing
interests in the Prime Fund; ten billion X Shares, ten billion S Shares, ten
billion Y Shares, ten billion Horizon Shares, ten billion Horizon Service Shares
and ten billion Pacific Horizon Shares representing interests in the Treasury
Fund; ten billion Horizon Shares, ten billion Horizon Service Shares and ten
billion Pacific Horizon Shares representing interests in the Government Fund;
ten billion Horizon Shares, ten billion Horizon Service Shares and ten billion
Pacific Horizon Shares representing interests in the Treasury Only Fund; ten
billion Horizon Shares, ten billion Horizon Service Shares, ten billion Pacific
Horizon Shares and ten billion S Shares representing interests in the Tax-Exempt
Money Fund; and ten billion Horizon Shares, ten billion Horizon Service Shares,
ten billion Pacific Horizon Shares, ten billion S Shares and ten billion X
Shares representing interests in the California Tax-Exempt Money Market Fund.
Pacific Horizon Shares of the Funds, S Shares of the Prime, Treasury, Tax-Exempt
Money and California Tax-Exempt Money Market Funds and X Shares of the Prime,
Treasury and California Tax-Exempt Money Market Funds 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 Horizon
Shares and Horizon Service Shares of the Funds and Y 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, X
Share and Y 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 Y 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 Funds' S and X Shares bear the fees described in the
prospectuses relating to such shares that are
45
<PAGE> 51
paid to the Distributor and Service Organizations 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, S and Y 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
Funds' Pacific Horizon Shares bear the fees described in the Prospectuses for
such shares that are paid to Shareholder Organizations by such Funds 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. 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' Y Shares generally will be approximately
.68% lower than the yield on the same Funds' Pacific Horizon Shares (.65% lower
than the California Tax Exempt Money Market Fund), .75% lower than the yield on
the same Funds' Horizon Service Shares, 1.00% lower than the yield on the same
Funds' Horizon Shares, .45% lower than the yield on the same Fund's X Shares and
equal to the yield on the same Fund's S 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 (.35% higher than the California Tax-Exempt Money Market Fund),
.55% higher than the yield on the same Funds' X Shares, and 1.00% higher than
the yield on the same Funds' S Shares and Y Shares; 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 (.10% higher than the California Tax-Exempt Money Market
Fund), .30% higher than the yield on the same Fund's X Shares, and .75% higher
than the yield on the same Fund's S Shares and Y Shares each. 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 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, X and Y 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. 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
46
<PAGE> 52
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.
47
<PAGE> 53
P A C I F I C H O R I Z O N M U T U A L F U N D S
Y SHARES
OF THE
PRIME FUND
TREASURY FUND
HORIZON SHARES
AND
HORIZON SERVICE
SHARES
OF THE
PRIME FUND
TREASURY FUND
GOVERNMENT FUND
TREASURY ONLY FUND
TAX-EXEMPT MONEY FUND
CALIFORNIA TAX-EXEMPT
MONEY MARKET FUND
PROSPECTUS
JULY 1, 1997
NOT FDIC INSURED
<PAGE> 54
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
Y Shares of the
Prime Fund and Treasury 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> 55
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
June 16, 1997
Y Shares
of the
Prime Fund and Treasury Fund
June 29, 1997
Statement Of Additional Information
-1-
<PAGE> 56
TABLE OF CONTENTS
PAGE
The Company................................................................ 3
Investment Objectives and Policies......................................... 3
Purchase and Redemption of Shares.......................................... 38
MANAGEMENT OF THE FUNDS.................................................... 47
TAXES...................................................................... 67
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, the S Shares of the
Prime Fund, Treasury Fund, Tax-Exempt Money Fund and California Tax-Exempt Money
Market Fund and the Y Shares of the Prime Fund and Treasury Fund (each a "Fund"
and collectively 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 June 16, 1997 with respect to the Horizon and Horizon
Shares of the Funds and June 29, 1997 with respect to the Y Shares of the Prime
and Treasury Funds, 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, S Shares and Y 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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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, which 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, S Shares of the Treasury Fund, the Tax-Exempt Money Fund and
the California Tax-Exempt Money Market Fund and Y Shares of the Prime Fund and
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 October 2, 1996, the California Tax-Exempt Money
Market Fund began offering X Shares. On April 7, 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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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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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:
Repurchase Agreement with Dean Witter, Reynolds, Inc. in the principal amount of
$125,000,000; and Repurchase Agreement with Goldman Sachs & Co. in the principal
amount of $453,423,000; (b) the Government Fund held the following security:
Repurchase Agreement with Dean Witter Reynolds, Inc. in the principal amount of
$50,000,000; (c) the Prime Fund held the following securities, Merrill Lynch &
Co., Inc. commercial paper in the principal amount of $50,000,000; Bear Stearns
Cos., Inc. commercial paper in the principal amount of $25,000,000; Merrill
Lynch & Co., Inc. corporate debt in the principal amount of $25,000,000; Merrill
Lynch & Co., Inc. weekly variable rate obligation in the principal amount of
$50,000,000; Merrill Lynch & Co., Inc. weekly variable rate obligation in the
principal amount of $50,000,000; Merrill Lynch & Co., Inc. quarterly variable
rate obligation in the principal amount of $50,000,000; Dean Witter Discover &
CoMonthly Variable Rate Obligation in the principal amount of $25,000,000; Dean
Witter Discover & Co. corporate obligation in the principal amount of
$15,000,000; Goldman Sachs Group L.P. master note in the principal amount of
$300,000,000; Dean Witter Discover and Co., commercial paper in the principal
amount of $25,000,000, Dean Witter Discover and Co., commercial paper in the
principal amount of $50,000,000; Morgan Stanley Group, Inc. master note in the
principal amount of $250,000,000, Bear Stearns Companies, Inc. monthly variable
rate obligation in the principal amount of $18,000,000; Bear Stearns Companies,
Inc. monthly variable rate note in the principal amount of $25,000,000; (d) the
Corporate Bond Fund held the following securities: Goldman Sachs Group corporate
obligation in the principal amount of $1,500,000; Lehman Brothers corporate
obligation in the principal amount of $1,000,000; Merrill Lynch & Co., Inc.
corporate debt obligation in the principal amount of $1,500,000; (e) the
Intermediate Bond Master Portfolio held the following security: Paine Webber
Group medium term note in the amount of $3,000,000 (f) the Asset Allocation
Master Portfolio held the following
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securities: Dean Witter common stock in the amount of $2,701,600, Lehman
Brothers corporate obligation in the principal amount of $1,000,000; Morgan
Stanley corporate debt obligation in the principal amount of $3,800,000; Paine
Webber Group medium term note in the principal amount of $2,500,000; (g) the
Capital Income Fund held the following security: Merrill Lynch & Co., Inc.
Structured Yield Product Exchangeable for Stock in the amount of $3,575,000; (h)
the Blue Chip Master Portfolio held the following security: Dean Witter common
stock in the amount of $6,220,588.
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
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 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
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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.
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,
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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 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
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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 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
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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, 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
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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 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
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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. Each Fund, except the Treasury Only 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 accrued
resale premium) provided in the agreement. The accrued resale premium shall be
the amount specified in the repurchase agreement or the daily amortization of
the difference between the purchase price and the resale price specified in the
repurchase agreement. If the seller defaulted on its repurchase obligation, the
Fund holding the 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
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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
When-Issued Securities, Forward Commitments and Delayed Settlements.
The Funds may purchase securities on a "whenissued," "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 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 whenissued 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
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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.
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
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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 (331/3% 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, 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).
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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. Beginning with the 1990-91 Fiscal Year and for
several years thereafter, the budget required multi-billion dollar actions to
bring projected revenues and expenditures into balance. During this period,
expenditures exceeded revenues in four out of six years, and the State
accumulated and sustained a budget deficit in the Special Fund -approaching $2.8
billion at its peak on June 30, 1993.
By the 1993-94 Fiscal Year, the accumulated deficit was too large to
be prudently retired in one year and a two-year program was implemented. This
program used revenue anticipation warrants to carry a portion of the deficit
over to the end of the fiscal year.
The 1994-95 Budget Act projected General Fund revenues and transfers
of $41.9 billion. Expenditures were projected to be $40.9 billion -- an increase
of $1.6 billion over the prior year. As a result of the improving economy,
however, the fiscal year ultimately produced revenues and transfers of $42.7
billion
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which more than offset expenditures of $42.0 billion and thereby reduced the
accumulated budget deficit.
With strengthening revenues and reduced caseload growth driven by 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. The 1995-96
Budget Act projected General Fund revenues and transfers of $44.1 billion, a 3.5
percent increase from the prior year, and expenditures were budgeted at $43.4
billion. In addition, 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 as of June 30, 1996.
1996-97 Fiscal Year.
The 1996-97 Governor's Budget, released January 10, 1996, projected
General Fund revenues and transfers of $45.6 billion, a 1.3% increase over
1995-96. The Governor's budget proposed two major initiatives, a 15% personal
and corporate income tax cuts and a revision of the trial court funding program,
which would have the effect of reducing General Fund revenues. The Governor's
Budget proposed General Fund expenditures of $45.2 billion. The Governor's
Budget also proposed Special Fund revenues equal to expenditures, at a level of
$13.3 billion.
The May Revision of the Governor's Budget, released on May 21, 1996
("The May Revision"), updated revenue estimates for the 1996-97 Fiscal Year,
reflecting stronger economic activity in the State and thus greater revenue
growth. The revised estimate was for $47.1 billion of revenues, still assuming
the Governor's tax cut would be enacted, and $46.5 billion of expenditures.
1996-97 Budget Act
The 1996-97 Budget Act was signed by the Governor on July 15, 1996,
along with various implementing bills. The Governor vetoed about $82 million of
appropriations (both General Fund and Special Fund). With the signing of the
Budget Act, the State implemented its regular cash flow borrowing program with
the issuance of $3.0 billion of Revenue Anticipation Notes to mature on June 30,
1997. The Budget Act appropriates a budget reserve in the Special Fund of $305
million, as of June 30, 1997. The Department of Finance projects that, on June
30, 1997, the State's available borrowable (cash) resources will be $2.9
billion, after payment of all obligations due by that date, so that no
cross-fiscal year borrowing is anticipated.
Revenues - The Legislature rejected the Governor's proposed 15% cut
in personal income taxes (to be phased in over three years), approved a 5% cut
in bank and corporation taxes, to be effective for income years commencing on
January 1, 1997. As
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a result of the Legislature's failure to enact the personal income tax cut,
revenues for the Fiscal Year are estimated to be $550 million higher than
projected in the May Revision, and are now estimated to total $47.643 billion, a
3.3 percent increase over the final estimated 1995-96 revenues. Special Fund
revenues are estimated to be $13.3 billion.
Expenditures - The Budget Act contains General Fund appropriations
totaling $47.251 billion, a 4.0 percent increase over the final estimated
1995-96 expenditures. Special Fund expenditures are budgeted at $12.6 billion.
The following are principal features of the 1996-97 Budget Act:
1. Proposition 98 funding for schools and community college
districts increased by almost $1.6 billion (General Fund) and $1.65 billion
above revised 1995-96 levels. Almost half of this money was budgeted to fund
class-size reductions in kindergarten and grades 1-3. Also, for the second
consecutive year, the full cost of living allowance (3.2 percent) was funded.
Proposition 98 increases have brought K-12 expenditures to almost $4,800 per
pupil (also called ADA, or Average Daily Attendance), an almost 15% increase
over the level prevailing during the recession years. Out of this $1.6 billion
total community colleges will receive an increase in funding of $157 million for
1996-97.
Due to higher than projected revenues in 1995-96, an additional $1.1
billion ($190 per K-12 ADA and $145 million for community colleges) was
appropriated and retroactively applied towards the 1995-96 Proposition 98
guarantee, bringing K-12 expenditures in that year to over $4,600 per ADA.
Similar retroactive increases totaling $230 million, based on final figures on
revenues and State population growth, were made to the 1991-92 and the 1994-95
Proposition 98 guarantees, most of which was allocated to each school site.
2. The Budget Act assumed savings of approximately $660 million in
health and welfare costs which required changes in federal law, including
federal welfare reform. The Budget Act further assumed federal law changes in
August 1996 which would allow welfare cash grant levels to be reduced by October
1, 1996. These cuts totaled approximately $163 million of the anticipated $660
million savings. See "Federal Welfare Reform".
3. A 4.9 percent increase in funding for the University of
California ($130 million General Fund) and the California State University
system ($101 million General Fund), with no increases in student fees.
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4. The Budget Act assumed the federal government will provide
approximately $700 million in new aid for incarceration and health care costs of
illegal immigrants. These funds reduce appropriations in these categories that
would otherwise have to be paid from the General Fund. (For purposes of cash
flow projections, the Department of Finance expects $540 million of this amount
to be received during the 1996-97 fiscal year.)
5. General Fund support for the Department of Corrections was
increased by about 7 percent over the prior year, reflecting estimates of
increased prison population.
6. With respect to aid to local governments, the principal new
programs included in the Budget Act are $100 million in grants to cities and
counties for law enforcement purposes, and budgeted $50 million for competitive
grants to local governments for programs to combat juvenile crime.
The Budget Act did not contain any tax increases. As noted, there
was a reduction in bank and corporate taxes. In addition, the Legislature
approved another one-year suspension of the Renters Tax Credit, saving $520
million in expenditures.
Federal Welfare Reform - Following enactment of the 1996-97 Budget
Act, Congress passed and the President signed (on August 22, 1996) the Personal
Responsibility and Work Opportunity Act of 1996 (P.L. 104-193, the "Law") making
a fundamental reform of the current welfare system. Among many provisions, the
Law includes: (i) conversion of Aid to Families with Dependent Children from an
entitlement program to a block grant titled Temporary Assistance for Needy
Families (TANF), with lifetime time limits on TANF recipients, work requirements
and other changes; (ii) provisions denying certain federal welfare and public
benefits to legal noncitizens, allowing states to elect to deny additional
benefits (including TANF) to legal noncitizens, and generally denying almost all
benefits to illegal immigrants; and (iii) changes in the Food Stamp program,
including reducing maximum benefits and imposing work requirements.
The Law requires states to implement the new TANF program not later
than July 1, 1997 and provides California approximately $3.7 billion in block
grant funds for FY 1996-97. States are allowed to implement TANF as soon as
possible and will receive a prorated block grant effective the date of
application. The California State Plan is to be submitted in time to allow grant
reductions to be implemented effective January 1, 1997 (allowing $92 million of
the $163 million referred to in paragraph 2 above to be saved) and to allow the
State to capture approximately $267 million in additional federal block grant
funds over the currently budgeted level. None of the other
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federal changes needed to achieve the balance of the $660 million cost savings
were enacted. Thus in lieu of the $660 million savings initially assumed to be
saved, it is now projected that savings will total approximately $360 million.
A preliminary analysis of the Law by the Legislative Analyst's
Office indicated that an overall assessment of how these changes will affect the
State's General Fund will not be known for some time, and will depend on how the
State implements the Law. There are many choices including how quickly the State
implements the Law; the degree to which the State elects to make up for cuts in
federal aid; provide more aid to counties, or cut some of its own existing
programs for noncitizens; and the State's ability to avoid certain penalties
written into the Law.
1997-98 Fiscal Year Proposed Budget.
On January 9, 1997, the Governor released his proposed budget for
the 1997-98 Fiscal Year (the "Governor's Budget"). The Governor's Budget
projects General Fund revenues and transfers in 1997-98 of $50.7 billion, a 4.6%
increase from revised 1996-97 figures. The Governor proposes expenditures of
$50.3 billion, a 3.9% increase from 1996-97. The Governor's Budget projects a
balance in the SFEU of $553 million on June 30, 1998. The Governor's Budget also
anticipates about $3 billion of external borrowing for cash flow purposes during
the year, with no requirement for cross-fiscal year borrowing.
Among the major initiatives and features of the Governor's Budget
are the following:
1. A proposed 10% cut in the Bank and Corporation Tax rate, to be
phased in over two years.
2. Proposition 98 funding for K-14 schools will be increased again,
as a result of stronger revenues. Per-pupil funding for K-12 schools will reach
$5,010, compared to $4,220 as recently as the 1993-94 Fiscal Year. Part of the
new funding is proposed to be dedicated to the completion of the current program
to reduce class size to 20 pupils in lower elementary grades, and to expand the
program by one grade, so that it will cover K-3rd grade.
3. Funding for higher education will be increased consistent with a
four-year "compact" established in 1995-96. There is not projected to be any
increase in student fees at any of the three levels of the State higher
education system.
4. The 1997-98 proposed Governor's Budget assumes approximately $500
million in savings contingent upon federal action. The Budget assumes that
federal law will be enacted to
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remove the maintenance-of-effect requirement for Supplemental Security Income
(SSI) payments, thereby enabling the state to reduce grant levels pursuant to
previously enacted state law ($279 million). The Budget also assumes the federal
government will fund $216 million in costs of health care for illegal
immigrants.
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. The subsequent restructuring led
to the sale of substantially all of the Pool's portfolio and resulted in losses
estimated to be approximately $1.7 billion (or approximately 22% of amounts
deposited by the Pool investors). Approximately 187 California public entities
- -- substantially all of which are public agencies within the county -- had
various bonds, notes or other forms of indebtedness outstanding. In some
instances the proceeds of such indebtedness were invested in the Pool.
In April, 1996, the County emerged from bankruptcy after closing on
a $900 million recovery bond transaction. At that time, the County and its
financial advisors stated that the County had emerged from the bankruptcy
without any structural fiscal problems and assured that the County would not
slip back into bankruptcy. However, for many of the cities, schools and special
districts that lost money in the County portfolio, repayment remains contingent
on the outcome of litigation which is pending against investment firms and other
finance professionals. Thus, it is impossible to determine the ultimate impact
of the bankruptcy and its aftermath on these various agencies and their claims.
Constitutional, Legislative and Other Factors.
Certain California constitutional amendments, legislative measures,
executive orders, administrative regulations and voter initiatives could produce
the adverse effects described below, among others.
Revenue Distribution. Certain Debt Obligations in the Portfolio 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 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.
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Health Care Legislation. Certain Debt Obligations in the Portfolio
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 Debt Obligations.
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 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
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base, but may result in reduced payment and lower net income to the contracting
hospitals.
These Debt Obligations 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 Debt Obligations, 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 Debt Obligations in the Portfolio 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
statutes 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 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 judgment may be ordered against the debtor.
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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 Debt Obligations in the Portfolio 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 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
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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.
Proposition 13. Certain of the Debt Obligations 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.
Section 1 of Article XIIIA, as amended, limits the maximum ad
valorem tax on real property to 1% of full cash value to be collected by the
counties and apportioned according to law. The 1% limitation does not apply to
ad valorem taxes or special assessments to pay the interest and redemption
charges on any bonded indebtedness for the acquisition or improvement of real
property approved 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 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.
Legislation enacted by the California Legislature to implement
Article XIIIA 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.
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
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"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
services provided by these entities. Article XIIIB also provides 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.
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 XIII B
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 capita
General Fund revenue growth exceeds per capita personal income growth.
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 XIII B limit to
K-14 schools.
During the recession years of the early 1990s, 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
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intended that the "extra" payments would not be included in the Proposition 98
"base" for calculating future years' entitlements. In 1992, a lawsuit was filed,
California Teachers' Association v. Gould, which challenged the validity of
these off-budget loans. During the course of this litigation, a trial court
determined that almost $2 billion in "loans" which had been provided to school
districts during the recession violated the constitutional protection of support
for public education. A settlement was reached on April 12, 1996 which ensures
that future school funding will not be in jeopardy over repayment of these
so-called loans.
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
recalculated spending limits for the State and for local governments, allowed
greater annual increases in the limits, allowed the averaging of two years' tax
revenues before requiring action regarding excess tax revenues, reduced 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), removed the provision of Proposition 98 which included
excess moneys transferred to school districts and community college districts in
the base calculation for the next year, limited the amount of State tax revenue
over the limit which would be transferred to school districts and community
college districts, and exempted increased gasoline taxes and truck weight fees
from the State appropriations limit. Additionally, Proposition 111 exempted 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 provided the
following:
1. 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;
2. 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;
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3. Restricts the use of revenues from a special tax to the purposes
or for the service for which the special tax was imposed;
4. Prohibits the imposition of ad valorem taxes on real property by
local governmental entities except as permitted by Article XIIIA;
5. Prohibits the imposition of transaction taxes and sales taxes on
the sale of real property by local governments;
6. 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;
7. 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
8. 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
impossible 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. The
California Court of Appeal in City of Woodlake v. Logan, (1991) 230 Cal.App.3d
1058, subsequently held that Proposition 62's popular vote requirements for
future local taxes also provided for an unconstitutional referenda. The
California Supreme Court declined to review both the City of Westminster and the
City of Woodlake decisions.
In Santa Clara Local Transportation Authority v. Guardino, (Sept.
28, 1995) 11 Cal.4th 220, reh'g denied, modified (Dec. 14, 1995) 12 Cal.4th
344e, the California Supreme Court upheld the constitutionality of Proposition
62's popular vote requirements for future taxes, and specifically disapproved of
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the City of Woodlake decision as erroneous. The Court did not determine the
correctness of the City of Westminster decision, because that case appeared
distinguishable, was not relied on by the parties in Guardino, and involved
taxes not likely to still be at issue. It is impossible to predict the impact of
the Supreme Court's decision on charter cities or on taxes imposed in reliance
on the City of Woodlake case.
Senate Bill 1590 (O'Connell), introduced February 16, 1996, would
make the Guardino decision inapplicable to any tax first imposed or increased by
an ordinance or resolution adopted before December 14, 1995. The California
State Senate passed the Bill on May 16, 1996 and it is currently pending in the
California State Assembly. It is not clear whether the Bill, if enacted, would
be constitutional as a non-voted amendment to Proposition 62 or as a non-voted
change to Proposition 62's operative date.
Proposition 218. On November 5, 1996,the voters of the State
approved Proposition 218, a constitutional initiative, entitled the "Right to
Vote on Taxes Act" ("Proposition 218"). Proposition 218 adds Articles XIII C and
XIII D to the California Constitution and contains a number of interrelated
provisions affecting the ability of local governments to levy and collect both
existing and future taxes, assessments, fees and charges. Proposition 218 became
effective on November 6, 1996. The Sponsors are unable to predict whether and to
what extent Proposition 218 may be held to be constitutional or how its terms
will be interpreted and applied by the courts. However, if upheld, Proposition
218 could substantially restrict certain local governments' ability to raise
future revenues and could subject certain existing sources of revenue to
reduction or repeal, and increase local government costs to hold elections,
calculate fees and assessments, notify the public and defend local government
fees and assessments in court.
Article XIII C of Proposition 218 requires majority voter approval
for the imposition, extension or increase of general taxes and two-thirds voter
approval for the imposition, extension or increase of special taxes, including
special taxes deposited into a local government's general fund. Proposition 218
also provides that any general tax imposed, extended or increased without voter
approval by any local government on or after January 1, 1995 and prior to
November 6, 1996 shall continue to be imposed only if approved by a majority
vote in an election held within two years of November 6, 1996.
Article XIII C of Proposition 218 also expressly extends the
initiative power to give voters the power to reduce or repeal local taxes,
assessments, fees and charges, regardless of the date such taxes, assessments,
fees or charges were
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imposed. This extension of the initiative power to some extent
constitutionalizes the March 6, 1995 State Supreme Court decision in Rossi v.
Brown, which upheld an initiative that repealed a local tax and held that the
State constitution does not preclude the repeal, including the prospective
repeal, of a tax ordinance by an initiative, as contrasted with the State
constitutional prohibition on referendum powers regarding statutes and
ordinances which impose a tax. Generally, the initiative process enables
California voters to enact legislation upon obtaining requisite voter approval
at a general election. Proposition 218 extends the authority stated in Rossi v.
Brown by expanding the initiative power to include reducing or repealing
assessments, fees and charges, which had previously been considered
administrative rather than legislative matters and therefore beyond the
initiative power.
The initiative power granted under Article XIII C of Proposition
218, by its terms, applies to all local taxes, assessments, fees and charges and
is not limited to local taxes, assessments, fees and charges that are property
related.
Article XIII D of Proposition 218 adds several new requirements
making it generally more difficult for local agencies to levy and maintain
"assessments" for municipal services and programs. "Assessment" is defined to
mean any levy or charge upon real property for a special benefit conferred upon
the real property.
Article XIII D of Proposition 218 also adds several provisions
affecting "fees" and "charges" which are defined as "any levy other than an ad
valorem tax, a special tax, or an assessment, imposed by a local government upon
a parcel or upon a person as an incident of property ownership, including a user
fee or charge for a property related service." All new and, after June 30, 1997,
existing property related fees and charges must conform to requirements
prohibiting, among other things, fees and charges which (i) generate revenues
exceeding the funds required to provide the property related service, (ii) are
used for any purpose other than those for which the fees and charges are
imposed, (iii) are for a service not actually used by, or immediately available
to, the owner of the property in question, or (iv) are used for general
governmental services, including police, fire or library services, where the
service is available to the public at large in substantially the same manner as
it is to property owners. Further, before any property related fee or charge may
be imposed or increased, written notice must be given to the record owner of
each parcel of land affected by such fee or charges. The local government must
then hold a hearing upon the proposed imposition or increase of such property
based fee, and if written protests against the proposal are presented by a
majority of the owners of the identified parcels, the local
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government may not impose or increase the fee or charge. Moreover, except for
fees or charges for sewer, water and refuse collection services, no property
related fee or charge may be imposed or increased without majority approval by
the property owners subject to the fee or charge or, at the option of the local
agency, two-thirds voter approval by the electorate residing in the affected
area.
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 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.
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.
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
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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 (except the Government Fund and the
Treasury Only Fund) set 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 will 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 Treasury Fund may not:
1. 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
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assets in a corresponding investment company with the same investment objective
and policies.
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).
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
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<PAGE> 89
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).
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.
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<PAGE> 90
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.
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
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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.
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 P. 1 relating to the Prime
Fund in this Statement of Additional Information, Investment Limitation P. 6
relating to the Government Fund and Treasury Only Fund in this Statement of
Additional Information, Investment Limitation P. 9 relating to the Tax-Exempt
Money Fund in this Statement of Additional Information and Investment Limitation
P. 5 relating to the California Tax-Exempt Money Market Fund only in this
Statement of Additional Information, these
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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 P. 6 of this Statement of
Additional Information with respect to the Prime Fund, Treasury Fund, and
California Tax-Exempt Money Market Fund, Investment Limitation P. 3 of this
Statement of Additional Information with respect to the Government Fund and
Treasury Only Fund and Investment Limitation P. 8 of this Statement of
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.
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.
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<PAGE> 93
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 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 class's net asset value per share is calculated by
dividing the total value of the assets attributable to the class, less the value
of any liabilities applicable to the class, by the total number of outstanding
shares of that class. Each class's net asset value is calculated separately from
each of the other of the Company's class'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
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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 Bank of America and
BA Investment Services, Inc. ("BAIS"), that are borne solely by Pacific Horizon
Shares, X Shares, Y Shares and S Shares and Rule 12b-1 fees that are borne
solely by X Shares, Y 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 1997 the holidays on which the 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, except for certain qualifying variable or floating rate
instruments whose maturities may be longer. The Company's
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<PAGE> 95
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 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
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<PAGE> 96
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.
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
- 42 -
<PAGE> 97
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 18290, Columbus, Ohio 43218-2090. 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,
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
- 43 -
<PAGE> 98
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 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.
- 44 -
<PAGE> 99
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 (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
- 45 -
<PAGE> 100
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.
Pacific Horizon Shares, X Shares, Y 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 purchasing X Shares through Bank
of America's 401(k) Program should contact their representative. Persons wishing
to establish a Sweep Account at BAIS, with respect to X Shares, a Sweep Account
at Bank of America or its banking or brokerage affiliates, with respect to S
Shares or Y Shares or at certain other Service Organizations, with respect to X
Shares, Y Shares and S Shares, should contact BAIS, Bank of America, its banking
or brokerage affiliates or a Service Organization directly for appropriate
instructions. Depending on the terms of the Sweep Account, Bank of America, its
banking or brokerage affiliates, or BAIS 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, its banking or brokerage affiliates, 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
- 46 -
<PAGE> 101
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.
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:
Position with
Name and Address Age Company Principal Occupations
- ---------------- --- ------- ---------------------
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,
- 47 -
<PAGE> 102
Position with
Name and Address Age Company Principal Occupations
- ---------------- --- ------- ---------------------
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 April 1997;
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, (registered
Newport Beach, CA investment advisor) 1991
92660-2629 to date; Partner,
Newport Partners
(private venture
capital firm), 1981
to date; Chairman of
the Board and Chief
Executive Officer,
First Pacific
Advisors, Inc.
(registered
investment adviser)
and seven investment
companies under its
management, prior to
1983; former Allied
Member, New York
Stock Exchange;
Chairman of the
Board of FPA
Paramount Fund, Inc.
through 1984;
Director, TIS
Mortgage Investment
Company (real estate
investment trust);
Trustee and former
Vice Chairman of the
Board, Claremont
McKenna College;
Chartered Financial
Analyst.
- 48 -
<PAGE> 103
Position with
Name and Address Age Company Principal Occupations
- ---------------- --- ------- ---------------------
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
February 1997
(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, Pacific Rim
Bankers Program (a
non-profit
educational
institution); Dean
Emeritus, 1981 to
date, Dean, 1964-81,
Graduate School of
Business
Administration,
University of
Washington;
Director, Washington
Federal Savings &
Loan Association;
Trustee, Seafirst
Retirement Funds
(since 1993)
(registered
investment company).
- 49 -
<PAGE> 104
Position with
Name and Address Age Company Principal Occupations
- ---------------- --- ------- ---------------------
Cornelius J. Pings* 67 Chairman of President, Association
Association of American the Board and of American Universi-
Universities President ties, February 1993 to
1200 New York Avenue, NW date; Provost, 1982 to
Suite 550 January 1993, Senior
Washington, DC 20005 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 February
1997).
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, and
Seafirst Retirement
Funds (since 1996)
Master Investment
Trust Series II
(1996 February
1997).
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.
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, Series II
and Seafirst
Retirement Funds
(since 1993); Master
Investment Trust
(1993 - February
1997), Regional Vice
President,
Continental
Equities, June 1987
to November 1988;
Assistant
Wholesaler, VMS
Realty Partners (a
real estate
- 50 -
<PAGE> 105
Position with
Name and Address Age Company Principal Occupations
- ---------------- --- ------- ---------------------
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
(since 1996) and
Master Investment
Trust, Series II
(1993 February
1997); 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 (since 1996)
and Master
Investment Trust,
Series II (1996
February 1997)
Senior Audit
Manager, Ernst &
Young LLP (1984 to
February 1996).
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
(1996 February 1997)
and Seafirst
Retirement Funds
(since 1996);
employee, Federated
Investors, October
1982 to November
1995.
- 51 -
<PAGE> 106
Position with
Name and Address Age Company Principal Occupations
- ---------------- --- ------- ---------------------
W. Bruce McConnel, III 54 Secretary Partner of the law firm
1345 Chestnut Street of Drinker Biddle &
Philadelphia National Reath LLP.
Bank
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 (since 1995)
and Master
Investment Trust,
Series II (1995 -
February 1997);
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.
- ----------
* Mr. Pings is an "interested director" of the Company as defined in the
1940 Act.
The Audit Committee of the Board is comprised of all directors and
is chaired by Dr. 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
- 52 -
<PAGE> 107
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. 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. Mr. Collins, the former President and
Chairman of the Company, received an additional $40,000 per year through
February 28, 1997 in recognition of his years of service. 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 $316,500. Of that amount, $148,436, $78,691, $18,169,
$11,974, $12,997 and $19,418 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 LLP,
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 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.
- 53 -
<PAGE> 108
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 Company as directors and/or
officers of the Company and as directors and/or trustees of the Fund Complex:
- 54 -
<PAGE> 109
<TABLE>
<CAPTION>
==========================================================================================
TOTAL
COMPENSATION
PENSION OR FROM
RETIREMENT ESTIMATED REGISTRANT
AGGREGATE BENEFITS ANNUAL AND FUND
COMPENSATION ACCRUED AS BENEFITS COMPLEX**
NAME OF PERSON/ FROM THE PART OF FUND UPON PAID TO
POSITION COMPANY EXPENSES* RETIREMENT DIRECTORS
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Thomas M. Collins $76,000 $14,074 $31,293 $86,125
Director
- ------------------------------------------------------------------------------------------
Douglas B. Fletcher $37,000 $11,410 $24,680 $37,000
Vice Chairman of
the Board
- ------------------------------------------------------------------------------------------
Robert E. Greeley $33,000 $8,992 $17,905 $51,625
Director
- ------------------------------------------------------------------------------------------
Kermit O. Hanson $35,000 $12,664 $26,722 $43,000
Director
- ------------------------------------------------------------------------------------------
Kenneth J. Trefftzs $78,500 $18,500 -- $78,500
Director Emeritus
- ------------------------------------------------------------------------------------------
Cornelius J. Pings $57,000 $10,133 $22,561 $68,125
President and
Chairman of the
Board
==========================================================================================
</TABLE>
- ----------
* For the fiscal year ended February 28, 1997, the Company accrued on the
part of all of the directors an aggregate of $57,273 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.
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 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
- 55 -
<PAGE> 110
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 $5,792,971, respectively, by the Prime
Fund, $2,140,125, $2,446,958 and $2,861,734, respectively, by the Treasury Fund
and $501,956, $439,603 and $444,648, 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 $849,799, 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 $0, and the Tax-Exempt Money Fund, in the amount of
$11,611, $0 and $0, 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 TaxExempt
Money Market Fund in the amount of $0, $0 and $153,004, 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 (net of fee waivers and expense reimbursements) of $539,047 and $487,156,
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 $539,047 and $487,156, respectively. For that same period,
Bank of America waived fees of $335,332 and $0 for the Government Fund and
Treasury Only Fund, respectively.
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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 national bank from operating a fund for the
collective investment of managing agency accounts. Subsequently, the Board of
Governors of the Federal Reserve System (the "Board") issued a regulation and
interpretation to the effect that the Glass-Steagall Act and such decision
forbid a bank holding company registered under the Federal Bank Holding Company
Act of 1956 (the "Holding Company Act") or any non-bank affiliate thereof from
sponsoring, organizing or controlling a registered, open-end investment company
continuously engaged in the issuance of its shares, but do not prohibit such a
holding company or affiliate from acting as investment adviser, transfer agent
and custodian to such an investment company. In 1981, the United States Supreme
Court held in Board of Governors of the Federal Reserve System v. Investment
Company Institute that the Board did not exceed its authority under the Holding
Company Act when it adopted its regulation and interpretation authorizing bank
holding companies and their non-bank affiliates to act as investment advisers to
registered closed-end investment companies.
Bank of America believes that if the 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 national 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.
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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 150
Clove Road, Little Falls, New Jersey 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
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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 $6,236,990, respectively, by the Prime Fund, $2,140,125,
$2,447,372 and $2,863,262, respectively, by the Treasury Fund and $501,956,
$439,603 and $444,648, 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 $849,799,
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 operating expenses of $95,000 and $0 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 $0 and $11,611, $0 and $0, 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 $0,
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 $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, $539,047 and $487,156,
respectively.
The Administrator will bear all expenses in connection with the
performance of its services under its Basic Administrative Services
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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
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
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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.
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
$7,225,077, respectively, of which $65,326, $68,810 and $48,060, respectively,
were earned by the Administrator, $18,906, $4,193,897 and $37,933, respectively,
were earned by Bank of America, $268,593, $633,935 and $828,637, respectively,
were earned by affiliates of the Administrator, and $3,112,159, $348,052 and
$6,358,507, respectively, were earned by affiliates of Bank of America; and the
Treasury Fund incurred expenses of $3,830,002, $3,781,235 and $2,600,002,
respectively, of which $28,381, $30,679 and $17,372, respectively, were earned
by the Administrator, $9,031, $3,250,931 and $0, respectively, were earned by
Bank of America, $40,665, $294,175 and $1,580,540, respectively, were earned by
affiliates of the Administrator, and $3,751,925, $205,450 and $1,019,462,
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 $187,663, respectively, of which $8,273, $5,115 and $5,303,
respectively, were earned by the Administrator, $1,062, $145,543 and $0,
respectively, were earned by Bank of America, $125,664, $0 and $153,076,
respectively, were earned by affiliates of Bank of America and $0, $470 and
$34,587, 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 $1,785,019,
respectively, of which $9,701, $10,928 and $7,814,
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respectively, were earned by the Administrator, $21,474, $49,396 and $318,263,
respectively, were earned by affiliates of the Administrator, $2,892, $959,655
and $0, respectively were earned by Bank of America and $605,436, $0 and
$1,466,756, 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 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 $720,909 and $854,818, respectively,
under the Agreement, of which $32,071 and $7,006, respectively were earned by
Bank of America; $396 and $637, respectively, were earned by the Administrator;
$652,101 and $626,411, respectively, were earned by affiliates of Bank of
America and $36,737 and $221,401, respectively, were earned by affiliates of the
Administrator.
Fee Waivers and Expense Reimbursements
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 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
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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, S Shares and Y 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, S Shares and Y Shares; (b)
expenses incurred in connection with preparing, printing, mailing, and
distributing or publishing advertisements and sales literature for X Shares, S
Shares and Y Shares; (c) expenses incurred in connection with printing and
mailing Prospectuses and Statements of Additional Information to other than
current X, S or Y 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, S Shares and Y Shares beneficially owned by customers for whom the
Distribution Organization is the Distribution Organization of record or holder
of record of such X Shares, S Shares or Y 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, S Shares and Y 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
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to its Clients showing their positions in X Shares, S Shares and Y Shares; (iii)
arranging for bank wires; (iv) responding to routine Client inquiries concerning
their investment in X Shares, S Shares and Y 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, S
Shares and Y 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, S Shares and Y Shares provides that the
Distributor is entitled to receive payments on a monthly basis at an annual rate
not exceeding 0.55%, 1.00% and 1.00% of the average daily net assets during such
month of the outstanding X Shares, S Shares and Y 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, S and Y
shareholders and/or the maintenance of such shareholders' accounts and not more
than 0.30%, 0.75% and 0.75% of such net assets of the X, S and Y 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.
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
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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, S
and Y 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, S Shares or Y 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 NonInterested Plan Directors, by vote of
the holders of a majority of the outstanding X Shares, S Shares or Y 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, 12b-1 fee payments to
Shareholder Organization totalled $147,984, $4,111, and $22,455 with respect to
X Shares of the Prime Fund, Treasury Fund and California Tax-Exempt Money Market
Fund, respectively and represented the total of payments made under the 12b-1
Plan. For the fiscal year ended February 28, 1997 shareholder service fee
payments to Shareholder Organization totalled $123,320, $3,425, and $18,713 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,
$270,960, $7,529 and $41,168 was paid to Bank of America affiliates with respect
to X Shares of the Prime Fund, Treasury Fund and California TaxExempt Money
Market Fund. As of February 28, 1997, no S or Y 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
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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.
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
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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 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 marginal 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%.
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.
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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 $3,470,138 (of
which $744,962 will expire in fiscal 2002 and $2,725,176 will expire in fiscal
2003), $47,456 (which will expire in fiscal 2002), $939,079 (which will expire
in fiscal 2003), $23,969 (which will expire in fiscal 2003), $188,027 (of which
$16,664 will expire in fiscal 1998, $14,011 will expire in fiscal 2000, $71,218
will expire in fiscal 2002, $19,132 will expire in fiscal 2003, $36,425 will
expire in fiscal 2004 and $30,577 will expire in fiscal 2005) and $4,266 (which
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 TaxExempt 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
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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 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
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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.
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 exemptinterest 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
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ordinary or capital gains dividends to such 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 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
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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 TaxExempt 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 --
5.23% (5.37%); Prime Fund - Horizon Service Shares -- 4.98% (5.11%); Prime Fund
- - Pacific Horizon Shares -- 4.91% (5.03%); Prime Fund - X Shares 4.68% (4.79%);
Treasury Fund - Horizon Shares -- 5.09% (5.22%); Treasury Fund - Horizon Service
Shares -- 4.84% (4.96%); Treasury Fund - Pacific Horizon Shares -- 4.89%
(4.77%); Treasury Fund - X Shares 4.65% (4.54%); Government Fund - Horizon
Shares -- 5.12% (5.25%); Government Fund Horizon Service Shares -- 4.87%
(4.98%); Government Fund - Pacific Horizon Shares -- 4.80% (4.91%); Treasury
Only Fund - Horizon Service Shares -- 4.68% (4.79%); Treasury Only Fund -
Pacific Horizon Shares -- 4.61% (4.72%); Treasury Only Fund - Horizon Shares --
4.93% (5.05%); Tax-Exempt Money Fund - Horizon Shares -- 3.19% (3.25%); and
Tax-Exempt Money Fund - Horizon Service Shares -- 2.94% (2.99%); Tax-Exempt
Money Fund - Pacific Horizon Shares -- 2.87% (2.92%). For the same period, the
tax-equivalent yield for the Tax-Exempt Money Fund was 5.23%, 4.82% and 4.70%
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
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seven-day 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 2.92%, 2.96%, 4.47%,
and 2.85%, and 2.89%, 4.36%, 2.62%, and 2.65%, respectively for the 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 Tax-Exempt Money Fund, and Y Shares of
the Prime and Treasury Funds 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 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.
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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 four hundred billion full and fractional
shares of capital stock. The Board of Directors has authorized the issuance of
seventy-one classes of stock Classes A through W, Common Stock representing
interests in twenty 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, the S Shares of the Prime, Treasury, Tax-Exempt
Money and California TaxExempt Money Market Funds and the Y Shares of the Prime
and Treasury 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.
The Funds' Pacific Horizon Shares, Horizon Shares, Horizon Service
Shares, X Shares, S Shares and Y 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 and Y Shares bear the
fees payable under the Distribution and Services Plan that has been adopted for
such shares, which are payable at the
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rate of up to 1.00% (on an annualized basis) of the average daily net asset
value of the S Shares and Y 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, S and Y 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, S Shares and Y Shares of a Fund will be entitled to vote on matters
submitted to a vote of shareholders pertaining to those shares' 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, 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.
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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 $6,017,363,
respectively, with respect to the Horizon Service Shares of the Prime Fund,
$989,269, $1,703,233 and $3,451,084, respectively, with respect to Horizon
Service Shares of the Treasury Fund, and $103,606, $113,492 and $276,447,
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
$5,113,436, respectively, $224,434, $1,639,415 and $3,115,516, respectively, and
$28,442, $108,762 and $274,174, 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 $15,122, $6,746 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 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 $621,036 and $448,350, respectively with
respect to the Horizon Service Shares of the Government Fund and Treasury Only
Fund. Of these amounts, $609,891 and $416,253, respectively was paid by the
Government Fund and Treasury Only Fund to Bank of America and/or its affiliates,
and $396 and $637, respectively was paid by the Government Fund and Treasury
Only Fund to the Administrator and/or its affiliates.
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
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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 $830,774 with respect to the Horizon Service Shares of the California
Tax-Exempt Money Market Fund. Of this amount $760,334 was paid to Bank of
America and/or its affiliates, and $0 was paid to the Administrator and/or its
affiliates.
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 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
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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.
Counsel
Drinker Biddle & Reath LLP (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.
O'Melveney & Myers LLP, 400 South Hope Street, Los Angeles, California 90071
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
Price Waterhouse LLP, with offices at 1177 Avenue of the Americas,
New York, New York 10036, has been selected as independent accountants of each
Fund 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
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(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 May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Pacific
Horizon Shares of the Treasury Only Fund were as follows: BA Securities Inc.,
185 Berry Street, 3rd Floor, San Francisco, CA 94107, 68,019,301.47 shares
(32.37%); BA Investment Services, Inc., For the Benefit of Clients, Attn: Unit
#7852 - Bob Santilli, P.O. Box 7042, San Francisco, CA 94120, 115,811,976.99
shares (55.11%); Hare & Co., Bank of New York and Short-Term Investment Funds,
Attn: Bimal Saha, One Wall Street, New York, NY 10286, 18,564,856.67 shares
(8.83%); Bank of America National Trust and Savings Association, The Private
Bank, Attn: Common Trust Funds, Unit 38329, P.O. Box 513577, Terminal Annex, Los
Angeles, CA 90051-1577, 14,665,058.13 shares (63.88%); and City of Hope, Attn:
Corporate Accounting; 1500 East Duarte Road, Duarte, CA 91010, 1,952,348.83
shares (8.50%); and City and County of San Francisco, Mayor's Office of
Community Development (MOCD), Attn: Pricilla Watts, 25 Van Ness Avenue, Suite
700, San Francisco, CA 94102, 4,902,943.68 shares (21.36%).
At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Horizon
Service Shares of the Treasury Only Fund were as follows: Omnibus Account for
the Shareholder Accounts Maintained By Concord Financial Services, Inc., Attn:
Linda Zerbe, 100 First Avenue, Suite 300, Pittsburgh, PA 15222, 42,378,318.42
shares (21.13%); Omnibus Account for the Shareholder Accounts Maintained By
Concord Financial Services, Inc., Attn: Linda Zerbe, 100 First Avenue, Suite
300, Pittsburgh, PA 15222, 64,192,825.27 shares (32.01%); Bank of America
National Trust and Savings Association, The Private Bank, Attn: Common Trust
Funds, Unit 38329, P.O. Box 513577, Terminal Annex, Los Angeles, CA 90051-1577,
62,881,591.27 shares (59.00%); BA Investment Services, Inc., Attn: Bob Santilli,
185 Berry Street, 3rd Floor, Unit 7852, San Francisco, CA 94107, 34,843,296.47
shares (32.70%); and Security Pacific Cash Management, c/o Bank of America -
6PO. M/C 5533, Attn: Regina Olsen, 1850 Gateway Blvd., Concord, CA 94520,
211,718,600.00 shares (33.22%); and Bank of America Southern Comm. Bank, Attn:
Cindy 2964, P.O. Box 98600, Las Vegas, NV 89193-8600, 147,702,252.22 shares
(23.18%).
At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Pacific
Horizon Shares of the Treasury Fund were as follows: Hare & Co., Bank of New
York and Short Term Investment Funds, Attn: Bimal Saha, One Wall Street, New
York, NY 10286, 69,602,119.63 shares (20.13%); BA Investment Services, Inc., For
the Benefit of Clients, Attn: Unit #7852 - Bob Santilli, P.O. Box 7042, San
Francisco, CA 94120, 223,833,671.16 shares (64.75%); Bank of America National
Trust and Savings Association, The Private Bank, Attn: Common Trust Funds, Unit
38329, P.O. Box
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513577, Terminal Annex, Los Angeles, CA 90051-1577, 218,751,508.19 shares
(39.77%); Hare and Co., c/o Bank of New York, Attn: Frank Notaro Spec. Proc.
Dep., One Wail Street, 5th Floor, New York, NY 10286,88,408,186.13 shares
(16.07%); and Clark Company Nevada & Tr., Attn: Mark Aston, Treasurer, 520 South
Grand Central Parkway, Las Vegas, NV 89155-1220, 30,000,000.00 shares (5.46%).
At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Horizon
Service Shares of the Treasury Fund were as follows: BISYS Fund Services, Inc.
Pittsburgh, fbo Sweep Customers, Attn: Linda Zerbe, 100 First Avenue, Suite 300,
Pittsburgh, PA 15222, 172,238,456.01 shares (11.43%); and BISYS Fund Services,
Inc. Pittsburgh, fbo Sweep Customers, Attn: Linda Zerbe, 100 First Avenue, Suite
300, Pittsburgh, PA 15222, 465,104,543.34 shares (30.85%); and Bank of America
National Trust and Savings Association, The Private Bank, Attn: Common Trust
Funds, Unit 38329, P.O. Box 513577, Terminal Annex, Los Angeles, CA 90051-1577,
219,164,704.13 shares (34.39%);
At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Class X
Shares of the Treasury Fund were as follows: BA Investment Services, Inc., fbo
Clients, Attn: Unit 7852- Dan Spillane, P.O. Box 7042, San Francisco, CA 94120,
10,739,687.25 shares (99.99%);
At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Pacific
Horizon Shares of the Government Fund were as follows: BA Investment Services,
Inc., For the Benefit of Clients, Attn: Unit #7852 - Bob Santilli, P.O. Box
7042, San Francisco, CA 94120, 75,391,887.45 shares (47.32%); BA Securities,
Inc., 185 Berry Street, 3rd Floor, San Francisco, CA 94107, 30,015,417.74 shares
(18.84%); WALL Data Incorporated, 11332 NE 122nd Way, Kirkland, WA 98034,
15,984,662.30 shares (10.03%); Bank of America National Trust and Savings
Association, The Private Bank, Attn: Common Trust Funds, Unit 38329, P.O. Box
513577, Terminal Annex, Los Angeles, CA 90051-1577, 3,711,365.97 shares (8.37%);
Sunquest Information Systems, Inc., Attn: Trena Couch, 1407 Eisenhower
Boulevard, Johnstown, PA 15904-3217, 16,600,997.97 shares (37.47%); First Trust,
NA as Escrow Agent, FBO Kaiser Aluminum & Chemical Corporation, Dept. of Labor,
AC#98925410, P.O. Box 64010, St. Paul, MN 55164-0010, 7,198,000.00 shares
(16.23%); Skinner Corporation, Attn: Debbie Sokvitne, 1326 Fifth Avenue, Suite
711, Seattle, WA 98101, 3,173,621.30 shares (7.16%); and Statek Corporation,
Attn: Brian McCarthy, 512 N. Main Street, Orange, CA 92868, 3,251,044.76 shares
(7.33%).
At May 30, 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: Omnibus Account for the
Shareholder Accounts Maintained By Concord Financial Services, Inc., Attn: Linda
Zerbe, First and Market Building, 100 First Avenue, Suite 300, Pittsburgh, PA
15222, 34,261.567.41 shares (14.32%); Omnibus Account for the Shareholder
Accounts Maintained by Concord Financial Services, Inc., Attn: Linda Zerbe,
First and Market Building, 100 First Avenue, Suite 300, Pittsburgh, PA 15222,
34,736,091.09 (14.51%); Viejas Bond of Kumeyaay Indians, a Federally recognized
Indian
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tribe, 5000 Willows Road, Alpine, CA 91901, 15,497,635.34 share (6.48%); Bank of
America National Trust and Savings Association, The Private Bank, Attn: Common
Trust Funds, Unit 38329, P.O. Box 513577, Terminal Annex, Los Angeles, CA
90051-1577, 27,977,885.64 shares (40.55%); and Bank of Nevada Southern Comm
Bank, Attn: Cindy 2964, P.O. Box 98600, Las Vegas, NV 89193-8600, 29,467,772.62
shares (42.71%).
At May 30, 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: Hare & Co, Bank of New York
and Short Term investment Funds, Attn: Binal Saha, One Wall Street, New York, NY
10286, 149,394,037.41 shares (6.78%); BA Investment Services, Inc. For the
Benefit of Clients, Attn: Unit 7852 Bob Santilli, P.O. Box 7042, San Francisco,
CA 94120, 1,749,802,842.05 shares (79.43%); and BA Securities, Inc., 185 Berry
Street, 3rd Floor, San Francisco, CA 94107, 201,016,335.34 shares (9.12%).
At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Horizon
Service Shares of the Prime Fund were as follows: BISYS Fund Services, Inc.
Pittsburgh, fbo Sweep Customers, Attn: Linda Zerbe, 100 First Avenue, Suite 300,
Pittsburgh, PA 15222, 1,346,839,017.87 shares (46.24%); and BISYS Fund Services,
Inc. Pittsburgh, fbo Sweep Customers, Attn: Linda Zerbe, 100 First Avenue, Suite
300, Pittsburgh, PA 15222, 319,718,303.80 shares (10.98%).
At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Class X
Shares of the Prime Fund were as follows: BA Investment Services, Inc., fbo
Clients, Attn: Unit 7852- Dan Spillane, P.O. Box 7042, San Francisco, CA 94120,
302,342,053.89 shares (99.44%).
At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Pacific
Horizon Shares of the Tax-Exempt Money Fund were as follows: BA Investment
Services, Inc., For the Benefit of Clients, Attn: Unit #7852 - Bob Santilli,
P.O. Box 7042, San Francisco, CA 94120, 86,159,563.09 shares (93.62%); and Bank
of America National Trust and Savings Association, The Private Bank, Attn:
Common Trust Funds, Unit 38329, P.O. Box 513577, Terminal Annex, Los Angeles, CA
90051-1577, 250,784,940.81 shares (97.77%).
At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Horizon
Shares of the Tax-Exempt Money Fund were as follows: BISYS Fund Services, Inc.
Pittsburgh, fbo Sweep Customers, Attn: Linda Zerbe, 100 First Avenue, Suite 300,
Pittsburgh, PA 15222, 22,522,433.57 shares (13.92%); and BISYS Fund Services,
Inc. Pittsburgh, fbo Sweep Customers, Attn: Linda Zerbe, 100 First Avenue, Suite
300, Pittsburgh, PA 15222, 115,386,215.41 shares (71.30%).
At May 30, 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: Bank of America National
Trust and Savings Association, The Private Bank, Attn: Common Trust Funds, Unit
38329, P.O. Box 513577, Terminal Annex, Los
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Angeles, CA 90051-1577, 115,386,215.41 shares (83.67%); and BA Investment
Services, Inc., Attn: Bob Santilli, 185 Berry St, 3rd Floor, Unit 7852, San
Francisco, CA 94107, 21,291,069.77 shares (15.44%).
At May 30, 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 California Tax-Exempt Money market Fund were as follows: BISYS
Fund Services, Inc., Pittsburgh, fbo our sweep customers, First and Market
Building, Attn: Linda Zerbe, 100 First Avenue, Suite 300, Pittsburgh, PA 15222,
169,545,900.04 shares (36.95%); and BISYS Fund Services, Inc. Pittsburgh, fbo
our customers, Attn: Linda Zerbe, 100 First Avenue, Suite 300, Pittsburgh, PA
15222, 213,083,138.26 shares (46.44%).
At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Pacific
Horizon Shares of the California Tax-Exempt Money Market Fund were as follows:
BA Securities, Inc., 185 Berry Street, 3rd Floor, San Francisco, CA 94107,
201,984,699.03 shares (44.18%); BA Investment Services, Inc., For the Benefit of
Clients, Attn: Unit #7852 - Bob Santilli, P.O. Box 7042, San Francisco, CA
94120, 237,034,467.39 shares (51.85%).
At May 30, 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:
Bank of America National Trust and Savings Association, The Private Bank, Attn:
Common Trust Funds, Unit 38329, P.O. Box 513577, Terminal Annex, Los Angeles, CA
90051-1577, 577,212,706,197.26 shares (55.59%); and BA Investment Services,
Inc., Attn: Bob Santilli, 185 Berry Street, 3rd Floor, Unit 7852, San Francisco,
CA 94107, 138,830,382.32 shares (36.28%).
At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Class X
Shares of the California Tax-Exempt Money Market Fund were as follows: BA
Investment Services, Inc., For the Benefit of Clients, Attn: Unit #7852- Dan
Spillane, P.O. Box 7042, San Francisco, CA 94120, 36,250,280.71 shares (100%).
At May 30, 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 California Tax-Exempt Bond Fund were as follows: Bank of America
National Trust and Savings Association, The Private Bank, Attn: Common Trust
Funds Unit #38329, P.O. Box 3577, Terminal Annex, Los Angeles, CA 90051,
2,174,529.37 shares (7.35%).
At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding A Shares of
the Corporate Bond Fund were as follows: Bank of America National Trust and
Savings Association, The Private Bank, Attn: Common Trust Funds, Unit 38329,
P.O. Box 3577 Terminal Annex, Los Angeles, CA 90051, 409,252.52 shares (18.32%).
At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding
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Class K Shares of the Corporate Bond Fund were as follows: Corelink Financial
Inc., P.O. Box 4054, Concord, CA 94524, 14,251.35 shares (99.53%).
At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Class A
Shares of the National Municipal Bond Fund were as follows: BA Investment
Services, Inc., fbo 421981352, 185 Berry Street, 3rd Floor, Suite 2640, San
Francisco, CA 94104, 80,975.44 shares (6.21%).
At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Class K
Shares of the National Municipal Bond Fund were as follows: BISYS Fund Services,
Inc., 3435 Stelzer Road, Suite 100, Columbus, Ohio 43219, 104,764 shares (100%).
At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Class A
Shares of the International Equity Fund were as follows: PACO, Attn: Mutual
Funds, P.O. Box 3577, Terminal Annex, Los Angeles, CA 90051, 427,589.93 shares
(18.72%); and PACO, Attn: Mutual Funds, P.O. Box 3577, Terminal Annex, Los
Angeles, CA 90051, 542,804.32 shares (23.76%); and Bank of America National
Trust and Savings Association, The Private Bank, Attn: Common Trust Funds, Unit
38329, P.O. Box 3577, Terminal Annex, Los Angeles, CA 90051, 681,085.08 shares
(29.82%).
At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Class K
Shares of the International Equity Fund were as follows: Corelink Financial
Inc., P.O. Box 4054, Concord, CA 94524, 22,466.70 shares (99.55%).
At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Class K
Shares of the Aggressive Growth Fund were as follows: Corelink Financial Inc.,
P.O. Box 4054, Concord, CA 94524, 37,286.30 shares (99.86%).
At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Class A
Shares of the Intermediate Bond Fund were as follows: PACO, Attn: Mutual Funds,
P.O. Box 3577 Terminal Annex, Los Angeles, CA 90051, 187,640.73 shares (6.32%);
Bank of America National Trust and Savings Association, The Private Bank, Attn:
Common Trust Funds Unit 38329, P.O. Box 3577, Terminal Annex, Los Angeles, CA
90051, 1,623,599.96 shares (54.65%).
At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Class K
Shares of the Intermediate Bond Fund were as follows: Corelink Financial Inc.,
P.O. Box 4054, Concord, CA 94524, 43,333.53 shares (99.75%).
At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Class A
Shares of the Blue Chip Fund were as follows: Bank of America
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National Trust and Savings Association, The Private Bank, Attn: Common Trust
Funds Unit 38329, P.O. Box 3577, Terminal Annex, Los Angeles, CA 90051,
688,814.59 shares (10.26%).
At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Class K
Shares of the Blue Chip Fund were as follows: Corelink Financial Inc., P.O. Box
4054, Concord, CA 94524, 81,570.10 shares (99.94%).
At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Class K
Shares of the Capital Income Fund were as follows: BA Investment Services, Inc.,
fbo 426275621, 185 Berry Street, 3rd Floor, Suite 2640, San Francisco, CA 94104,
5,831.48 shares (8.01%); Corelink Financial Inc., P.O. Box 4054, Concord, CA
94524, 65,302.16 shares (89.71%).
At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Class K
Shares of the California Tax-Exempt Bond Fund were as follows: BISYS Fund
Services, Inc., Attn: Regulation and Compliance Department, 3435 Stelzer Road,
Suite 1000, Columbus, Ohio 43219, 144.47 shares (100%).
At May 30, 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 Asset Allocation Fund were as follows: Corelink Financial Inc.,
P.O. Box 4054, Concord, CA 94524, 114,739.11 shares (6.13%).
At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Class K
Shares of the Asset Allocation Fund were as follows: Corelink Financial Inc.,
P.O. Box 4054, Concord, CA 94524, 42,234.07 shares (99.86%).
At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Class K
Shares of the U.S. Government Securities Fund were as follows: Corelink
Financial Inc., P.O. Box 4054, Concord, CA 94524, 48,196.66 shares (99.76%).
At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Class A
Shares of the Short-Term Government Fund were as follows: Bank of America
National Trust and Savings Association, The Private Bank, Attn: Common Trust
Funds, Unit 38329, P.O. Box 3577 Terminal Annex, Los Angeles, CA 90051,
2,075,151.21 shares (97.15%).
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, S Shares and Y Shares
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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.
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 Price
Waterhouse LLP, whose report thereon also appears in each Annual Report and is
also incorporated herein by reference. No other parts of the Annual Reports are
incorporated by reference herein. Such financial statements have been
incorporated herein in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
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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-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.
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"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.
"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:
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"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-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.
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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.
"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.
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"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
"BB" - Debt has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
"B" - Debt has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"BB" or "BB-" rating.
"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
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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 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.
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(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.
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, 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.
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"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one of
these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree of
speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating to
denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely repayment
of principal or interest over the term to maturity of long term debt and
preferred stock which are issued by United States commercial banks, thrifts and
non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk compared
to issues rated in the highest category.
"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned by
Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of 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
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<PAGE> 149
A Standard and Poor's rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" - Loans bearing this designation are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high
quality, with margins of protection ample although not so large as in the
preceding group.
"MIG-3"/"VMIG-3" - Loans bearing this designation are of favorable
quality, with all security elements accounted for but lacking the undeniable
strength of the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well established.
"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) Included in Part A hereof:
Financial Highlights for:
Prime Fund
Tax-Exempt Money Fund
California Tax-Exempt Money Market
Fund
Treasury Fund
Treasury Only Fund
Government Fund
(2) Incorporated by reference in Part B hereof:
- The Audited Financial Statements and related notes
thereto as well as the Auditor's reports thereon for
each of the Prime, Tax-Exempt Money, California
TaxExempt Money Market, Treasury, Treasury Only,
Government Funds for the fiscal year ended February 28,
1997 as filed with the Securities and Exchange
Commission on May 8, 1997 pursuant to Rule 30b2-1 of the
Investment Company Act of 1490 (Nos. 2-81110 and
811-4293).
(b) Exhibits:
(1) (a) Restated Articles of Incorporation filed
November 22, 1983 are incorporated by reference to
Exhibit 1(a) to Post-Effective Amendment No. 45
to the Registration Statement of the Registrant on
Form N-1A (Nos. 2-81110/811-4293) filed February
23, 1996 ("Post-Effective Amendment No. 45").
(b) Articles Supplementary filed January 9, 1986 are
incorporated by reference to Exhibit 1(b) to
Post-Effective Amendment No. 45.
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<PAGE> 151
(c) Articles Supplementary to increase authorized
capital stock filed August 31, 1989 are
incorporated by reference to Exhibit 1(c) to Post-
Effective Amendment No. 45.
(d) Articles Supplementary classifying shares filed
August 31, 1989 are incorporated by reference to
Exhibit 1(d) to Post-Effective Amendment No. 45.
(e) Articles Supplementary classifying shares filed
June 3, 1991 are incorporated by reference to
Exhibit 1(e) to Post-Effective Amendment No. 45.
(f) Articles Supplementary classifying and
reclassifying shares filed August 1, 1991 are
incorporated by reference to Exhibit 1(f) to
Post-Effective Amendment
No. 45.
(g) Articles Supplementary to increase authorized
capital stock filed August 16, 1991 are
incorporated by reference to Exhibit 1(g) to
Post-Effective Amendment No. 45.
(h) Articles Supplementary classifying shares filed
August 16, 1991 are incorporated by reference to
Exhibit 1(h) to Post-Effective Amendment No. 45.
(i) Articles Supplementary classifying shares filed
November 25, 1991 are incorporated by reference to
Exhibit 1(i) to Post-Effective Amendment No. 45.
(j) Articles Supplementary classifying shares filed
May 11, 1992 are incorporated by reference to
Exhibit 1(j) to Post-Effective Amendment No. 45.
(k) Articles Supplementary reclassifying shares filed
May 15, 1992 are incorporated by reference to
Exhibit 1(k) to Post-Effective Amendment No. 45.
(l) Articles Supplementary classifying shares filed
July 20, 1992 are incorporated by reference to
Exhibit 1(l) to Post-Effective Amendment No. 45.
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(m) Articles Supplementary to increase authorized
capital stock filed August 6, 1992 are
incorporated by reference to Exhibit 1(m) to
Post-Effective Amendment No. 45.
(n) Articles Supplementary classifying shares filed
August 6, 1992 are incorporated by reference to
Exhibit 1(n) to Post-Effective Amendment No. 45.
(o) Articles Supplementary classifying shares filed
March 3, 1993 are incorporated by reference to
Exhibit 1(o) to Post-Effective Amendment No. 45.
(p) Articles Supplementary reclassifying shares filed
May 12, 1993 are incorporated by reference to
Exhibit 1(p) to Post-Effective Amendment No. 45.
(q) Articles of Amendment eliminating restriction on
number of classes of shares filed May 8, 1990 are
incorporated by reference to Exhibit 1(q) to
Post-Effective Amendment No. 45.
(r) Articles of Amendment reclassifying shares filed
on July 9, 1993 are incorporated by reference to
Exhibit 1(r) to Post-Effective Amendment No. 45.
(s) Articles Supplementary classifying shares filed
November 18, 1993 are incorporated by reference to
Exhibit 1(s) to Post-Effective Amendment No. 45.
(t) Articles Supplementary reclassifying shares filed
November 18, 1993 are incorporated by reference to
Exhibit 1(t) to Post-Effective Amendment No. 45.
(u) Articles Supplementary reclassifying shares filed
January 21, 1994 are incorporated by reference to
Exhibit 1(u) to Post-Effective Amendment No. 45.
(v) Articles Supplementary classifying shares filed
October 30, 1995 are incorporated by reference to
Exhibit 1(v) to Post-Effective Amendment No. 47 to
the Registration Statement of the
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<PAGE> 153
Registrant on Form N-1A (Nos. 2-81110/811-4293)
filed April 30, 1996 ("Post-Effective Amendment
No. 47").
(w) Articles of Amendment cancelling shares
filed on January 26, 1996 are
incorporated by reference to Exhibit
1(v) to Post-Effective Amendment No. 45.
(x) Articles Supplementary classifying shares filed on
January 26, 1996 are incorporated by reference to
Exhibit 1(w) to Post-Effective Amendment No. 45.
(y) Articles Supplementary reclassifying shares filed
on January 26, 1996 are incorporated by reference
to Exhibit 1(x) to Post-Effective Amendment No.
45.
(z) Articles Supplementary reclassifying
shares filed on April 12, 1996 are
incorporated by reference to Exhibit
1(z) to Post-Effective Amendment No. 51
to the Registration Statement of the
Registrant on Form N-1A (Nos. 2-
81110/811-4293) filed November 13, 1996
("Post-Effective Amendment No. 51").
(aa) Articles Supplementary reclassifying shares filed
on June 25, 1996 are incorporated by reference to
Exhibit 1(z) to Post-Effective Amendment No. 50 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 are incorporated by reference to
Exhibit
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<PAGE> 154
1(dd) to Post-Effective Amendment No. 54
to the Registration Statement of the
Registrant on Form N-1A (Nos. 2-
81110/811-4293) filed April 16, 1997
("Post-Effective Amendment No. 54.").
(ee) Articles Supplementary reclassifying shares filed
on April 11, 1997 are incorporated by reference to
Exhibit 1(ee) to Post-Effective Amendment No. 54.
(ff) Articles Supplementary to increase authorized
capital stock filed on June 11, 1997 are
incorporated by reference to Exhibit 1(ff) to
Post-Effective Amendment No. 56 to the
Registration Statement of the Registrant on Form
N-1A (Nos. 2-81110/811-4293) filed June 16, 1997
("Post-Effective Amendment No. 56).
(gg) Articles Supplementary reclassifying shares filed
on June 11, 1997 are incorporated by reference to
Exhibit 1(gg) to Post-Effective Amendment No. 56.
(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
PostEffective 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
PostEffective 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)
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<PAGE> 155
is incorporated by reference to Exhibit 5(a) to
Post-Effective Amendment No. 45.
(b) Investment Advisory Agreement dated as of April
22, 1992 between Registrant and Bank of America
National Trust and Savings Association (Non-Money
Market Funds) is incorporated by reference to
Exhibit 5(b) to Post-Effective Amendment No. 45.
(c) Addendum to Investment Advisory Agreement dated as
of March 1, 1993 between Registrant and Bank of
America National Trust and Savings Association
(Money Market Funds - Prime Value Fund) is
incorporated by reference to Exhibit 5(c) to
Post-Effective Amendment No. 45.
(d) Addendum to Investment Advisory Agreement dated as
of March 1, 1993 between Registrant and Bank of
America National Trust and Savings Association
(Money Market Funds - Government and Treasury Only
Funds) is incorporated by reference to Exhibit
5(d) to Post- Effective Amendment No. 45.
(e) Investment Advisory Agreement dated November 1,
1994 between Registrant and Bank of America
National Trust & Savings Association with respect
to the Capital Income Fund is incorporated by
reference to Exhibit 5(e) to Post-Effective
Amendment No. 45.
(f) Investment Advisory Agreement dated as of July 1,
1996 between Registrant and Bank of America
National Trust & Savings Association with respect
to the National Municipal Bond Fund is
incorporated by reference to Exhibit 5(f) to
PostEffective 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.
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<PAGE> 156
(h) Investment Advisory Agreement dated as of
September 1, 1996 between Registrant and Bank of
America National Trust & Savings Association with
respect to the Corporate Bond Fund is incorporated
by reference to Exhibit 5(h) to Post-Effective
Amendment No. 52 to the Registration Statement of
the Registrant on Form N-1A (Nos.
2-81110/811-4293) filed January 31, 1997
("Post-Effective Amendment No. 52").
(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.
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<PAGE> 157
(b) Form of Broker/Dealer Agreement is incorporated by
reference to Exhibit 6(c) to Post-Effective
Amendment No. 45.
(c) Form of Bank Agreement is incorporated by
reference to Exhibit 6(d) to Post-Effective
Amendment No. 45.
(7) Board Guidelines on Significant Governance Issues
(which includes a description of the Board of
Director's retirement policy and benefit) are
incorporated by reference to Exhibit 7 to
Post-Effective Amendment No. 45.
(8) (a) Custody Agreement between Registrant and The
Bank of New York dated as of April 3, 1989 is
incorporated by reference to Exhibit 8(a) to
PostEffective 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
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<PAGE> 158
incorporated by reference to Exhibit 8(c) to
Post-Effective Amendment No. 45.
(g) Transfer Agency Agreement between Registrant and
BISYS Fund Services, Inc. is incorporated by
reference to Exhibit 8(d) to Post-Effective
Amendment No. 47.
(h) Amendment No. 1 to Transfer Agency Agreement
between Registrant and BISYS Fund Services, Inc.
is incorporated by reference to Exhibit 8(h) to
Post-Effective Amendment No. 52.
(i) Sub-Custodian Agreement between Registrant, The
Bank of New York, and Security Pacific National
Bank is incorporated by reference to Exhibit 8(e)
to Post-Effective Amendment No. 45.
(j) Sub-Custodian Agreement between The Bank of New
York and Citibank, N.A. dated May 18, 1988 is
incorporated by reference to Exhibit 8(f) to Post-
Effective Amendment No. 45.
(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 is
9
<PAGE> 159
incorporated by reference to Exhibit 9(c) to
Post-Effective Amendment No. 54.
(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 PostEffective
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.
(10)(1) Opinion of counsel that shares are validly issued,
fully paid and non-assessable.
(11) (a) Consent of Drinker Biddle &
Reath LLP.
(b) Consent of Price Waterhouse LLP.
(c) Consent of O'Melveny & Myers 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
- --------
(1) Filed with the Securities and Exchange Commission ("SEC") on April 29,
1997 under Rule 24f-2 as part of Registrant's 24f-2 Notice.
10
<PAGE> 160
reference to Exhibit 13(b) to Post-Effective
Amendment No. 45.
(c) Investment Letter of Concord Financial Group, Inc.
to The Horizon Funds is incorporated by reference
to Exhibit 13(c) to Post-Effective Amendment No.
45.
(d) Purchase Agreement between Pacific Horizon
Tax-Exempt Money Market Portfolio, Inc. and
Hambrecht & Quist Group, Inc. is incorporated by
reference to Exhibit 13(d) to Post-Effective
Amendment No. 45.
(e) Purchase Agreement between Pacific Horizon
Tax-Exempt Money Market Portfolio, Inc. and
Pacific Horizon Tax-Exempt Funds, Inc. is
incorporated by reference to Exhibit 13(e) to
Post-Effective Amendment No. 45.
(f) Purchase Agreement between Pacific Horizon
Tax-Exempt Money Market Portfolio, Inc. and The
Dreyfus Corporation is incorporated by reference
to Exhibit 13(f) to Post-Effective Amendment No.
45.
(g) Purchase Agreement between Pacific Horizon
California Tax-Exempt Bond Portfolio, Inc. and
Hambrecht & Quist Group, Inc. is incorporated by
reference to Exhibit 13(g) to Post-Effective
Amendment No. 45.
(h) Purchase Agreement between Pacific Horizon
California Tax-Exempt Bond Portfolio, Inc. and The
Dreyfus Corporation is incorporated by reference
to Exhibit 13(h) to Post-Effective Amendment No.
45.
(i) Purchase Agreement between Pacific Horizon
California Tax-Exempt Bond Portfolio, Inc. and
Pacific Horizon Tax-Exempt Funds, Inc. is
incorporated by reference to Exhibit 13(i) to
Post-Effective Amendment No. 45.
11
<PAGE> 161
(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 PostEffective
Amendment No. 45.
(c) Revised Shareholder Servicing Agreement is
incorporated by reference to Exhibit 15(c) to
Post-Effective Amendment No. 45.
(d) Revised Shareholder Service Agreement as modified
by Registrant's Board of Directors on January 29,
1993 is incorporated by reference to Exhibit 15(d)
to Post-Effective Amendment No. 45.
(e) Revised Shareholder Servicing Agreement for
Non-Money Market Funds is incorporated by
reference to Exhibit 15(e) to Post-Effective
Amendment No. 45.
(f) Special Management Services Plan and related
Special Management Services
12
<PAGE> 162
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,
"X" Shares and "Y" Shares is incorporated by
reference to Exhibit 15(h) to Post-Effective
Amendment No. 56.
(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.
(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 Treasury Fund,
Prime Fund, Government Fund, Treasury Only Fund,
Tax-Exempt Money Fund and California Tax-Exempt
Money Market Fund are incorporated by reference to
Exhibit 16 to Post-Effective Amendment No. 56.
13
<PAGE> 163
(b) Schedule for Computation of Performance Quotations
with respect to the Corporate Bond Fund,
Intermediate Bond Fund (formerly known as the
Flexible Bond Fund), Blue Chip Fund, Asset
Allocation Fund and National Municipal Bond Fund
is incorporated by reference to Exhibit 16(c) to
Post-Effective Amendment No. 45.
(d) Schedule for Computation of Performance Quotations
with respect to the International Equity Fund is
incorporated by reference to Exhibit 16(d) to
Post-Effective Amendment No. 51.
(e) Schedule for Computation of Performance Quotations
with respect to the Short-Term Government Fund is
incorporated by reference to Exhibit 16(e) to
Post-Effective Amendment No. 52.
(17) Financial Data Schedules with respect to the
Prime Fund, Treasury Fund, Government Fund,
Treasury Only Fund, Tax-Exempt Money Fund and
California Tax-Exempt Money Market Fund
(18) Amended and Restated Plan Pursuant to Rule 18f-3
for Operation of a Multi-Class System is
incorporated by reference to Exhibit 18 to Post-
Effective Amendment No. 56.
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 May 30, 1997
-------------- ----------------
Class A Common Stock 337
Class A Common Stock -
Special Series 1 1206
Class A Common Stock -
14
<PAGE> 164
Number of Record
Holders as of
Title of Class May 30, 1997
-------------- ----------------
Special Series 2 70
Class A Common Stock -
Special Series 3 0
Class A Common Stock -
Special Series 4 2
Class B Common Stock 1564
Class B Common Stock -
Special Series 1 2219
Class B Common Stock -
Special Series 2 277
Class B Common Stock -
Special Series 3 2
Class B Common Stock -
Special Series 4 7
Class D Common Stock 16501
Class D Common Stock -
Special Series 3 0
Class D Common Stock -
Special Series 5 2
Class E Common Stock 2541
Class E Common Stock -
Special Series 3 0
Class E Common Stock -
Special Series 5 2
Class F Common Stock 18374
Class F Common Stock -
Special Series 3 0
Class F Common Stock -
Special Series 5 4
Class G Common Stock 3902
Class G Common Stock -
Special Series 3 0
Class G Common Stock -
Special Series 5 1
Class H Common Stock 0
Class I Common Stock 140
Class I Common Stock -
Special Series 1 46
Class I Common Stock -
Special Series 2 11
Class J Common Stock 224
Class J Common Stock -
Special Series 1 313
Class J Common Stock -
Special Series 2 5
Class J Common Stock -
Special Series 4 2
Class K Common Stock 57
15
<PAGE> 165
Number of Record
Holders as of
Title of Class May 30, 1997
-------------- ----------------
Class K Common Stock -
Special Series 1 1241
Class K Common Stock -
Special Series 2 19
Class L Common Stock 114
Class L Common Stock -
Special Series 1 207
Class L Common Stock -
Special Series 2 30
Class M Common Stock 521
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 12212
Class N Common Stock -
Special Series 3 0
Class N Common Stock -
Special Series 5 2
Class N Common Stock -
Special Series 7 0
Class O Common Stock 2240
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 378
Class Q Common Stock -
Special Series 3 0
Class Q Common Stock -
Special Series 5 1
Class R Common Stock 0
Class R Common Stock -
Special Series 3 0
Class R Common Stock -
Special Series 5 0
Class S Common Stock 0
Class S Common Stock -
Special Series 3 0
Class S Common Stock -
Special Series 5 0
Class T Common Stock 733
Class T Common Stock -
Special Series 3 0
16
<PAGE> 166
Number of Record
Holders as of
Title of Class May 30, 1997
-------------- ----------------
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 2432
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
be subject by reason of his willful misfeasance, bad faith or
17
<PAGE> 167
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.
18
<PAGE> 168
Position with
Bank of America
National Trust
and Savings Principal Type of
Association Name Occupation Business
- --------------- ---- ---------- --------
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..........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 Company
Director..........Frank L. Hope, Jr. Consulting Architectural
Architect and Engineering
Consulting
Director..........Walter E. Massey, President, Higher
Ph.D. Morehouse Education
College
Director..........John M. Richman Of Counsel, Law firm
Wachtell, Lipton,
Rosen & Katz
19
<PAGE> 169
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
(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 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.
20
<PAGE> 170
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 SubCustodian for the Funds it services).
(7) The Bank of New York, 90 Washington Street, New York, New York
10286 (records relating to the custodian for the Funds it
services).
(8) BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus, Ohio
43219 (records relating to the transfer agent for the Funds it
services).
(9) Drinker Biddle & Reath 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).
21
<PAGE> 171
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.
22
<PAGE> 172
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certified that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and 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 27th day of June, 1997.
PACIFIC HORIZON FUNDS, INC.
Registrant
/s/ 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.
Signature Title Date
- --------- ----- ----
/s/ Cornelius John Pings Chairman of the June 27, 1997
- ---------------------- Board and President
Cornelius John Pings
/s/ Kevin L. Martin Treasurer (Chief June 27, 1997
- ---------------------- Accounting and
Kevin L. Martin Financial Officer)
/s/ Thomas M. Collins Director June 27, 1997
- ----------------------
Thomas M. Collins
/s/ Douglas B. Fletcher Director June 27, 1997
- ----------------------
Douglas B. Fletcher
/s/ Robert E. Greeley Director June 27, 1997
- ----------------------
Robert E. Greeley
/s/ Kermit O. Hanson Director June 27, 1997
- ----------------------
Kermit O. Hanson
*By: /s/ W. Bruce McConnel, III
--------------------------
W. Bruce McConnel, III
Attorney-in-fact
23
<PAGE> 173
PACIFIC HORIZON FUNDS, INC.
POWER OF ATTORNEY
Cornelius John Pings, whose signature appears below, does hereby
constitute and appoint W. Bruce McConnel, III, his true and lawful attorney and
agent, with power of substitution or resubstitution, to do any and all acts and
things and to execute any and all instruments which said attorney and agent may
deem necessary or advisable or which may be required to enable Pacific Horizon
Funds, Inc. (the "Fund"), to comply with the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
amendments (including post-effective amendments) to the Fund's Registration
Statement pursuant to said Acts, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a director and/or officer of the Fund any and
all such amendments filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney and agent
shall do or cause to be done by virtue hereof.
/s/ Cornelius John Pings
--------------------------
Cornelius John Pings
Date: December 6, 1995
<PAGE> 174
PACIFIC HORIZON FUNDS, INC.
POWER OF ATTORNEY
Thomas M. Collins, whose signature appears below, does hereby constitute
and appoint Cornelius John Pings and W. Bruce McConnel, III, and either of them
his true and lawful attorneys and agents, with power of substitution or
resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorneys and agents, or either of them, may deem
necessary or advisable or which may be required to enable Pacific Horizon Funds,
Inc. (the "Fund"), to comply with the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
amendments (including post-effective amendments) to the Fund's Registration
Statement pursuant to said Acts, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a director and/or officer of the Fund any and
all such amendments filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
/s/ Thomas M. Collins
---------------------
Thomas M. Collins
Date: December 7, 1995
<PAGE> 175
PACIFIC HORIZON FUNDS, INC.
POWER OF ATTORNEY
Douglas B. Fletcher, whose signature appears below, does hereby constitute
and appoint Cornelius John Pings and W. Bruce McConnel, III, and either of them
his true and lawful attorneys and agents, with power of substitution or
resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorneys and agents, or either of them, may deem
necessary or advisable or which may be required to enable Pacific Horizon Funds,
Inc. (the "Fund"), to comply with the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
amendments (including post-effective amendments) to the Fund's Registration
Statement pursuant to said Acts, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a director and/or officer of the Fund any and
all such amendments filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
/s/ Douglas B. Fletcher
-----------------------
Douglas B. Fletcher
Date: December 7, 1995
<PAGE> 176
PACIFIC HORIZON FUNDS, INC.
POWER OF ATTORNEY
Robert E. Greeley, whose signature appears below, does hereby constitute
and appoint Cornelius John Pings and W. Bruce McConnel, III, and either of them
his true and lawful attorneys and agents, with power of substitution or
resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorneys and agents, or either of them, may deem
necessary or advisable or which may be required to enable Pacific Horizon Funds,
Inc. (the "Fund"), to comply with the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
amendments (including post-effective amendments) to the Fund's Registration
Statement pursuant to said Acts, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a director and/or officer of the Fund any and
all such amendments filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
/s/ Robert E. Greeley
---------------------
Robert E. Greeley
Date: December 7, 1995
<PAGE> 177
PACIFIC HORIZON FUNDS, INC.
POWER OF ATTORNEY
Kermit O. Hanson, whose signature appears below, does hereby constitute
and appoint Cornelius John Pings and W. Bruce McConnel, III, and either of them
his true and lawful attorneys and agents, with power of substitution or
resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorneys and agents, or either of them, may deem
necessary or advisable or which may be required to enable Pacific Horizon Funds,
Inc. (the "Fund"), to comply with the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended (Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
amendments (including post-effective amendments) to the Fund's Registration
Statement pursuant to said Acts, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a director and/or officer of the Fund any and
all such amendments filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
/s/ Kermit O. Hanson
--------------------
Kermit O. Hanson
Date: December 6, 1995
<PAGE> 178
PACIFIC HORIZON FUNDS, INC.
Certificate of Secretary
The following resolution was duly adopted by the Board of Directors
of Pacific Horizon Funds, Inc. on April 30, 1997 and remains in effect on the
date hereof:
FURTHER RESOLVED, that the directors and officers of Pacific
Horizon who may be required to execute any amendments to Pacific
Horizon's Registration Statement be, and each hereby is, authorized
to execute a power of attorney appointing W. Bruce McConnel, III and
Cornelius J. Pings their true and lawful attorney or attorneys, to
execute in their name, place and stead, in their capacity as
director or officer, or both, of Pacific Horizon any and all
amendments to the Registration Statement, and all instruments
necessary or incidental in connection therewith, and to file the
same with the SEC; and either of said attorneys shall have the power
to act thereunder with or without the other said attorney and shall
have full power of substitution and resubstitution; and to do in the
name and on behalf of said directors and officers, or any or all of
them, in any and all capacities, every act whatsoever requisite or
necessary to be done in the premises, as fully and to all intents
and purposes as each of said directors or officers, or any or all of
them, might or could do in person, said acts of said attorneys,
being hereby ratified and approved.
IN WITNESS WHEREOF, I have hereunto set my hand this 27th day of
June, 1997.
PACIFIC HORIZON FUNDS, INC.
/s/ W. Bruce McConnel III
-------------------------
W. Bruce McConnel, III
Secretary
<PAGE> 179
EXHIBIT INDEX
Exhibits
11 (a) Consent of Drinker Biddle & Reath LLP.
11 (b) Consent of Price Waterhouse LLP.
11 (c) Consent of O'Melveny & Myers LLP.
17 Financial Data Schedules.
<PAGE> 1
EXHIBIT 11 (a)
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the reference to our
Firm under the caption "Counsel" in the Statements of Additional Information
that are included in Post-Effective Amendment No. 57 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
June 27, 1997
<PAGE> 1
EXHIBIT 11(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 58 to the registration statement on Form N-1A (the "Registration
Statement") of our reports dated April 21, 1997, relating to the financial
statements and financial highlights appearing in the February 28, 1997 Annual
Report to Shareholders of the Pacific Horizon Prime Fund, Pacific Horizon
Treasury Fund, Pacific Horizon Treasury Only Fund, Pacific Horizon Government
Fund, Pacific Horizon Tax-Exempt Money Fund, and Pacific Horizon California
Tax-Exempt Money Market Fund, six of the portfolios comprising the Pacific
Horizon Funds, Inc., which are also incorporated by reference into the
Registration Statement. We also consent to the references to us under the
heading "Financial Highlights" in the Prospectus and under the headings
"Independent Accountants" and "Financial Statements and Experts" in the
Statement of Additional Information.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
New York, New York
June 25, 1997
<PAGE> 1
Exhibit 11(c)
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
included in Post-Effective Amendment No. 58 to the Registration Statement (No.
2-81110) on Form N-1A under the Securities Act of 1933, as amended, of Pacific
Horizon Funds, Inc.
/s/ O'Melveny & Myers
-----------------------------
O'MELVENY & MYERS LLP
Los Angeles, California
June 25, 1997
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<NAME> CALIFORNIA TAX-EXEMPT MONEY MARKET
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<F1>Pacific Horizon Shares
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<NAME> PACIFIC HORIZON FUNDS
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<NAME> CALIFORNIA TAX-EXEMPT MONEY MARKET
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<F1>HORIZON SERVICE SHARES
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<CIK> 0000711663
<NAME> PACIFIC HORIZON FUNDS
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<NAME> CALIFORNIA TAX-EXEMPT MONEY MARKET
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<F1>X Shares
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<CIK> 0000711663
<NAME> PACIFIC HORIZON FUNDS
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<NUMBER> 081
<NAME> PACIFIC HORIZON TAX-EXEMPT MONEY FUND
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<FN>
<F1>Pacific Horizon Shares
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</TABLE>
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<CIK> 0000711663
<NAME> PACIFIC HORIZON FUNDS
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<NAME> PACIFIC HORIZON TAX-EXEMPT MONEY FUND
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<FN>
<F1>Horizon Shares
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</TABLE>
<TABLE> <S> <C>
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<CIK> 0000711663
<NAME> PACIFIC HORIZON FUNDS
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<NUMBER> 083
<NAME> PACIFIC HORIZON TAX-EXEMPT MONEY FUND
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<FN>
<F1>Horizon Service Shares
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</TABLE>
<TABLE> <S> <C>
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<CIK> 0000711663
<NAME> PACIFIC HORIZON FUNDS
<SERIES>
<NUMBER> 101
<NAME> GOVERNMENT FUND
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<FN>
<F1>Pacific Horizon Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000711663
<NAME> PACIFIC HORIZON FUNDS
<SERIES>
<NUMBER> 102
<NAME> GOVERNMENT FUND
<S> <C>
<PERIOD-TYPE> YEAR
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<FN>
<F1>Horizon Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000711663
<NAME> PACIFIC HORIZON FUNDS
<SERIES>
<NUMBER> 103
<NAME> GOVERNMENT FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1997
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<PER-SHARE-NAV-END> 1.00<F1>
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<AVG-DEBT-OUTSTANDING> 0<F1>
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<FN>
<F1>Horizon Service Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000711663
<NAME> PACIFIC HORIZON FUNDS
<SERIES>
<NUMBER> 111
<NAME> TREASURY ONLY FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
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<FN>
<F1>Pacific Horizon Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000711663
<NAME> PACIFIC HORIZON FUNDS
<SERIES>
<NUMBER> 112
<NAME> TREASURY ONLY FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> FEB-28-1997
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<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>Horizon Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000711663
<NAME> PACIFIC HORIZON FUNDS
<SERIES>
<NUMBER> 113
<NAME> TREASURY ONLY FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> FEB-28-1997
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<GROSS-EXPENSE> 2,651,213
<AVERAGE-NET-ASSETS> 179,345,676<F1>
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<PER-SHARE-NAV-END> 1.00<F1>
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<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>Horizon Service Shares
</FN>
</TABLE>
