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PACIFIC HORIZON GROWTH FUNDS
PACIFIC HORIZON GROWTH FUNDS
ANNUAL REPORT
FEBRUARY 28, 1997
AGGRESSIVE GROWTH FUND
BLUE CHIP FUND
INVESTING FOR ALL
THE TIMES OF YOUR LIFE
NOT FDIC INSURED
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PACIFIC HORIZON FUNDS, INC.
3435 Stelzer Road, Columbus, OH 43219
1-800-332-3863
INVESTMENT ADVISER
Bank of America National Trust
and Savings Association
555 California Street
San Francisco, CA 94104
ADMINISTRATOR
The BISYS Group, Inc.
3435 Stelzer Road
Columbus, OH 43219
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
FUND COUNSEL
Drinker Biddle & Reath LLP
1345 Chestnut Street
Philadelphia, PA 19107
DISTRIBUTOR
Concord Financial Group, Inc.
3435 Stelzer Road
Columbus, OH 43219
FUND SHARES ARE NOT FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF, OR
OTHERWISE ENDORSED BY THE U.S. GOVERNMENT, THE FDIC, THE FEDERAL RESERVE BOARD,
OR ANY OTHER GOVERNMENTAL AGENCY.
The Pacific Horizon Funds, Inc. are sponsored and distributed by Concord
Financial Group, Inc., which is unaffiliated with Bank of America. Bank of
America serves as investment adviser and receives fees for such services. From
time to time, Bank of America may provide other services to the Funds for
additional fees, as disclosed in the Funds' prospectuses.
This material must be preceded or accompanied by a current prospectus.
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INVESTMENTS IN PACIFIC HORIZON FUNDS, INC. ARE NOT
BANK DEPOSITS AND ARE NOT OBLIGATIONS OF, OR
GUARANTEED BY, BANK OF AMERICA OR ANY AFFILIATES. AN
INVESTMENT IN MUTUAL FUNDS INVOLVES INVESTMENT RISKS, NOT
INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT FDIC
INVESTED. INSURED
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Contents
<TABLE>
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FUND FACTS 2-3
UNDERSTANDING YOUR SHAREHOLDER REPORT 4-6
ECONOMIC REVIEW FROM THE INVESTMENT
ADVISER 8-9
FUND OVERVIEW AND INTERVIEW
WITH YOUR INVESTMENT MANAGER 10-20
PACIFIC HORIZON AGGRESSIVE
GROWTH FUND
Portfolio of Investments 21-24
Statement of Assets
and Liabilities 25
Statement of Operations 26
Statements of Changes
in Net Assets 27
PACIFIC HORIZON BLUE CHIP FUND
Statement of Assets
and Liabilities 28
Statement of Operations 29
Statements of Changes
in Net Assets 30
NOTES TO FINANCIAL
STATEMENTS 31-37
FINANCIAL HIGHLIGHTS 38-41
REPORT OF INDEPENDENT ACCOUNTANTS 42
MASTER INVESTMENT TRUST, SERIES
I -- BLUE CHIP PORTFOLIO
Portfolio of Investments 43-46
Statement of Assets
and Liabilities 47
Statement of Operations 48
Statements of Changes
in Net Assets 49
Notes to Financial
Statements 50-52
Supplementary Data 53
Report of Independent Accountants 54
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PACIFIC HORIZON FUND FACTS
The Pacific Horizon Family of Funds offers a variety of mutual funds with
different investment objectives to help you diversify your portfolio and meet
your investment goals. Some Funds offer greater growth potential, while others
such as the money market funds, strive to maintain a stable net asset value, but
offer no growth potential.
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FUND NAME INVESTMENT OBJECTIVE
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International Equity Long-Term Capital Growth
.....................................................................................
Aggressive Growth Maximum Capital Appreciation
.....................................................................................
Blue Chip Long-Term Capital Appreciation
.....................................................................................
Capital Income Total Investment Return
.....................................................................................
Asset Allocation Long-Term Growth
.....................................................................................
Corporate Bond High Current Income
.....................................................................................
Intermediate Bond Income and Capital Appreciation
.....................................................................................
U.S. Government Securities High Level of Current Income
.....................................................................................
Short-Term Government High Current Income with Relative
Stability of Principal
.....................................................................................
National Municipal Bond* High Level of Federal Tax-Free
Current Income
.....................................................................................
California Tax-Exempt Bond* High Level of Federal and California
Tax-Free Current Income
.....................................................................................
Money Market Funds+ High Current Income Plus Principal
- Prime Stability
- Treasury
- Government
- Treasury Only
.....................................................................................
Tax-Exempt Money Market Funds*+
- Tax-Exempt Money High Level of Federal Tax-Free Current
Income Plus Principal Stability
- California Tax-Exempt Money Market High Level of Federal and California
Tax-Free Current Income Plus Principal
Stability
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* Certain investors may be subject to the federal Alternative Minimum Tax (AMT)
and to certain state and local taxes.
+ There can be no assurance that the Funds will be able to maintain a stable net
asset value of $1.00 per share. Fund shares are not insured or guaranteed by
the U.S. Government.
2
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With the help of an investment professional, you can develop a strategy tailored
to meet your goals. To receive any of the Funds' prospectuses, which include
more complete information such as charges and expenses, call your Investment
Specialist or the Pacific Horizon Funds. Read the prospectus carefully before
investing or sending money.
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PORTFOLIO CONSISTS PRIMARILY OF ... APPROPRIATE FOR INVESTORS WHO SEEK
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<S> <C>
Foreign Equity Securities Diversification into foreign equity markets with
associated risk.
................................................................................................
Small Capitalization Stocks Higher-than-average long-term growth potential with
higher-than-average risk.
................................................................................................
Blue Chip Stocks Long-term growth potential from investments in the
stocks of well-established companies.
................................................................................................
Convertible Bonds and Convertible Combined potential for current income and capital
Preferred Stocks appreciation.
................................................................................................
Stocks, Bonds and Cash Equivalents Long-term growth potential and current income from
stocks and bonds.
................................................................................................
Investment-Grade Corporate Debt High monthly income potential with reasonable
investment risk.
................................................................................................
Investment-Grade Corporate and U.S. Regular monthly income from a diversified portfolio
Government Securities of investment-grade securities.
................................................................................................
GNMAs and Other U.S. Government High monthly income potential and low credit risk.
Securities
................................................................................................
U.S. Government and Government Agency Monthly income and relative stability of investment.
Securities
................................................................................................
Investment-Grade Municipal Debt Monthly tax-free income.
Securities
................................................................................................
Investment-Grade California High monthly double tax-free income.
Municipal Securities
................................................................................................
High-Quality Corporate and/or U.S. A flexible, convenient way to manage or accumulate
Government Short-Term Obligations cash while waiting for other investment
opportunities.
................................................................................................
Short-Term Municipal Obligations A tax-free way to manage or accumulate cash while
waiting for other investment opportunities.
................................................................................................
Short-Term California Municipal A tax-free way to manage or accumulate cash while
Obligations waiting for other investment opportunities.
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3
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UNDERSTANDING YOUR SHAREHOLDER REPORT
As a mutual fund shareholder, you receive two financial reports a year that
contain important information about your investment. The Financial Statements
and Financial Highlights included in annual reports are audited by an
independent public accounting firm and cover the activity for the past fiscal
year. The independent public accountant provides an opinion letter in each
audited report. A semi-annual report is a six-month interim report that includes
financial statements that are generally not audited by an independent public
accounting firm.
This guide will help you extract the information from
the report.
The TABLE OF CONTENTS helps
you locate the information you
want.
The ECONOMIC REVIEW FROM THE
INVESTMENT ADVISER provides a
brief overview of the economy
and how it affects the
financial markets.
The FUND OVERVIEW AND
INTERVIEW WITH YOUR INVESTMENT
MANAGER enables you to gain
insight into the Fund's
investments and learn more
about the Fund manager's
strategies.
Because a picture or chart can help clarify the
text, the investment management team may have
illustrated the most important features of the Fund.
The illustrations may represent the portfolio
composition, the largest holdings or a
simplification of the investment adviser's
investment style.
LOGO LOGO
<PAGE> 7
The financial statements summarize and describe the Fund's financial
transactions. They are broken down into four different statements, which are
illustrated below:
The PORTFOLIO OF INVESTMENTS lists each investment holding in the Fund as of the
date of the report. Investments may be grouped by category (by industry or
security type, for example). The percentage of the Fund's net assets represented
by these groupings is also disclosed.
TYPE OF SECURITY
INDUSTRY SECTOR AND PERCENTAGE OF THE FUND'S
NET ASSETS REPRESENTED BY INVESTMENTS IN THAT
SECTOR (IF APPLICABLE)
ACTUAL PORTFOLIO HOLDINGS WITH SHARES AND
MARKET VALUE AS OF REPORT DATE
The STATEMENT OF ASSETS AND LIABILITIES lists all the assets and liabilities of
the Fund as of the date of the statement. This is an individual fund's "balance
sheet." Also disclosed in this statement are the Fund's net asset value per
share and its maximum offering price per share as of the date of the statement.
The statement also lists the accounts that comprise the Fund's
net assets (capital stock, undistributed
income, etc.).
SUMMARY OF THE FUND'S INVESTMENTS AND ALL
OTHER ASSETS OWNED BY THE FUND, INCLUDING
AMOUNTS OWED TO THE FUND BY OUTSIDE PARTIES
SUMMARY OF ALL AMOUNTS OWED TO OUTSIDE PARTIES
BY THE FUND
NET RESULTS OF ASSETS LESS LIABILITIES
THE MARKET VALUE OF THE FUND'S TOTAL NET
ASSETS DIVIDED BY THE NUMBER OF SHARES
OUTSTANDING
THE CURRENT NET ASSET VALUE PER SHARE PLUS SALES CHARGE, IF ANY
LOGO
LOGO
<PAGE> 8
The STATEMENT OF OPERATIONS shows the amount of dividend and interest income
earned from the Fund's investments, the expenses incurred by the Fund from its
operations and any
gains or losses realized and not yet realized
by the Fund from holding and/or selling any
investments.
ANY INCOME EARNED FROM THE FUND'S INVESTMENTS
OPERATING EXPENSES INCURRED BY THE FUND DURING
THE PERIOD
GAINS OR LOSSES REALIZED UPON THE SALE OF THE
FUND'S INVESTMENTS AND ANY CHANGE IN
UNREALIZED GAINS OR LOSSES ON FUND HOLDINGS
DURING THE PERIOD
NET CHANGE IN NET ASSETS DUE TO FUND
OPERATIONS
The STATEMENTS OF CHANGES IN NET ASSETS shows the changes in the net assets of
the Fund during each of the two most recent reporting periods. The changes in
net assets are generally
broken down into four distinct sections:
OPERATIONS: SEE STATEMENT OF OPERATIONS
DIVIDENDS TO SHAREHOLDERS: TOTAL INCOME
DIVIDENDS PAID TO SHAREHOLDERS DURING THE
PERIODS
DISTRIBUTIONS TO SHAREHOLDERS: TOTAL REALIZED
GAINS DISTRIBUTED TO SHAREHOLDERS DURING THE
PERIODS
FUND SHARE TRANSACTIONS: DOLLAR VALUE OF FUND
SHARES PURCHASED, REDEEMED OR REINVESTED
DURING THE PERIODS
The NOTES TO FINANCIAL STATEMENTS are footnotes to the statements listed above.
These notes include information on accounting methods used by the Fund,
contractual arrangements between the Fund and its service providers, certain
transactions effected by the Fund and other general information about the Fund.
The FINANCIAL HIGHLIGHTS shows, for a single share outstanding throughout each
period presented, the net investment income, the realized and unrealized gains
and losses and the dividends and distributions of the Fund. It also shows key
data and ratios, such as the total investment return for each period, the
portfolio turnover rate for Funds other than money market mutual funds, the
ratio of expenses to average net assets and the ratio of net investment income
to average net assets.
LOGO
LOGO
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[This page intentionally left blank.]
7
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ECONOMIC REVIEW
FROM THE INVESTMENT ADVISER
The Standard & Poor's Stock Index posted a total return of 26.18% during the 12
month period ended February 28, 1997, amply rewarding long-term investors who
rode out volatility early in the period.* The best performers were concentrated
among shares of large company stocks, which significantly outpaced shares of
smaller firms.
At the end of this period, however, the markets began to give serious
consideration to a possible tightening of monetary policy following Federal
Reserve Chairman Alan Greenspan's Humphrey-Hawkins testimony. Chairman
Greenspan's comments focused on current high levels of consumer confidence and
the potential for inflationary pressures to surface. His comments fueled renewed
volatility in the fixed-income markets, and the bellwether 30-year Treasury bond
ended the period with a 0.36% total return.**
THE CASE FOR
STOCKS AND BONDS
The stock market's gain raises some important issues. Late in the period, there
was considerable discussion concerning Federal Reserve Chairman Alan Greenspan's
comments of "irrational exuberance" in his reflections on the state of the U.S.
equity markets. Other observers felt that investors should be optimistic based
on the healthy business climate in the U.S., the moderate economic policies of
the current administration and the focus in Washington on balanced budgets.
Overall, the U.S. economy seems poised for continued moderate growth, which is
good news for stocks. The stock market's current price-to-earnings (P/E) ratio
of 17.8 times our 1997 earnings estimates is within the 16 to 19 times range of
the 1960s when we had similar inflation levels. We think it is reasonable to
expect P/E ratios to stay at current levels. That gives an estimated market
return over the next 12 months of 10% (8% from earnings growth and 2% from
dividend yield).
Congress and the Clinton Administration continue to entertain the prospect of a
Balanced Budget Amendment, mandating the end of federal deficits within five to
seven years. While an agreement has not passed to date, this shift in attitude
bodes well for both stocks and bonds, as a balanced budget facilitates lower
interest rates, encouraging earnings growth.
POTENTIAL RISKS
Given the length of the current economic expansion, history tells us that the
bulls will run out of steam. Slowing economic growth is a double-edged sword as
lower corporate earnings lead to both a decline in prices and a reallocation of
savings. Companies with disappointing earnings may quickly fall into disfavor.
Broad equity indices may then decline as investors reallocate their assets into
more stable stocks.
The U.S. bond market and, indirectly, the U.S. equity market have benefited from
strong purchases of U.S. Treasuries by foreign investors. Supported by an
appreciating dollar, foreign purchases of U.S. Treasuries in 1996 were $265
billion compared to $118 billion in net sales by domestic investors (for four
quarters ended December 31, 1996).*** If the dollar should decline, there would
be less incentive to buy dollar denominated assets.
LOOKING FORWARD
In our view, investors should approach the remainder of 1997 with rational
exuberance tempered by a knowledge of history. Under the best case scenario, the
U.S. economy will see a move toward sustainable growth, higher real interest
rates and an anticipated 8% to 9% increase in corporate profits. Given these
projections, most investment professionals expect equities to perform well in
1997, although below 1996 levels. Bonds at this juncture seem attractive,
especially given the recommended revisions to real rates of inflation and the
trend toward a balanced federal budget.
8
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History, however, usually repeats itself, and we would not be surprised to see
some corrections ahead. Thus, investors may want to review their portfolios,
bearing in mind the importance of diversification in controlling risk. We see
the most value in equities characterized by growth at reasonable P/E multiples,
and find relative value in intermediate-term bonds, rather than long duration
plays. Investors seeking long-term growth after inflation and taxes should
remain biased toward stocks and positive on bonds.
Sincerely,
Kirk Hartman
Kirk Hartman
Chief Investment Officer,
Bank of America NT&SA,
Investment Adviser to the
Pacific Horizon Funds
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* The S&P 500 is an index that is representative of the large capitalization
U.S. equity market as a whole, and cannot be invested in directly.
** Source: Bloomberg using Merrill Lynch Taxable Bond Indices which reflects
the 30-year Treasury bond return.
*** Source: ISI Group
9
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PACIFIC HORIZON
AGGRESSIVE GROWTH FUND
======================
SCOTT A. BILLEADEAU
Senior Portfolio Manager
Bank of America NT&SA
GOAL:
The Pacific Horizon Aggressive Growth Fund seeks to maximize capital
appreciation.
INVESTMENTS:
The Fund invests primarily in a diversified portfolio of common stocks and
securities convertible into common stocks of smaller-capitalized domestic
companies deemed to have potential for above-average growth in revenues and
earnings.
APPROPRIATE FOR:
Investors who are interested in long-term capital appreciation and can assume
above-average investment risk. The Fund is designed to help investors benefit
from the long-term upward potential in stock prices through a diversified
portfolio.
INCEPTION:
March 31, 1984
SIZE OF FUND AS OF
FEBRUARY 28, 1997:
Over $202 million
Q
WHAT FACTORS AFFECTED THE FUND'S PERFORMANCE DURING THE 12 MONTHS ENDED
FEBRUARY 28, 1997?
A
Small-company growth stocks performed well in the early period compared to
shares of larger firms. Despite this, prices of small-company growth stocks fell
sharply in June after inflationary fears and some earnings disappointments
caused investors to behave defensively. Investors favored shares of larger
companies with greater liquidity and more value-oriented stocks, while
small-company growth stocks languished throughout the remainder of the period.
The Fund returned 9.13% (without the sales charge) on A Shares for the 12 months
ended February 28, 1997.* In addition, during the 12 months ended February 28,
1997, the Fund introduced K Shares, which are primarily offered to Daily
Advantage 401(k) plan participants, although they are available to certain other
eligible individuals, as outlined in the prospectus. For the year ended February
28, 1997, K Shares returned 8.83%.** By comparison, the Fund's benchmark, the
Russell 2000 Index, returned 12.56% for the same period.***
Q
HOW DID YOU MANAGE THE FUND IN THAT ENVIRONMENT?
A
We did not alter the Fund's sector weighting greatly. Instead, we actively
rotated the types of stocks that made up those sector holdings. Specifically, we
tried to reduce risk by selling stocks of the most rapidly-growing firms when in
our opinion, their valuations became too high, and used the proceeds to purchase
stocks with lower valuations relative to growth rates.
As a rule, we like to invest in companies that are trading at or below their
forecasted
10
<PAGE> 13
growth rates over the next three to five years. We refrained from purchasing
overvalued stocks that carry relatively high risk. For example, during the
period we avoided shares of certain semiconductor capital equipment companies
that were trading at high valuations.
The Fund underperformed the Russell 2000 Index in part because of the types of
stocks it holds. We focused on companies in rapidly-growing industries such as
technology, telecommunications, consumer cyclicals and business services.
Investors favored more value-oriented small firms during the period, in
industries such as financial services. We were not well-represented in such
sectors because they typically do not fit in with the Fund's aggressive
investment approach.
Q
WHAT WERE SOME OF THE INDIVIDUAL HOLDINGS THAT AFFECTED THE FUND'S
PERFORMANCE?
A
We held stocks in the telecommunications equipment industry that performed
extremely well during the period. They included Remec, Inc. (1.78% of net assets
as of February 28, 1997), TriQuint Semiconductor (position sold on February 17,
1997) and Gilat Satellite Networks (2.09% of net assets as of February 28,
1997). The energy sector was also strong as demonstrated by our holdings in
Aquilla Gas Pipeline (1.73% of net assets as of February 28, 1997), Flores and
Rucks, Inc. (1.00% of net assets as of February 28, 1997) and Ensco
International (position sold on 12/16/96).****
Q
WHAT ARE THE FUND'S PROSPECTS DURING THE COMING QUARTER?
A
We're coming off the third consecutive year of underperformance of small-
company stocks in the marketplace. Investors have flocked to larger company
stocks because they have provided significant profit growth. In particular, the
stocks in the S&P 500 have posted just over 20% compounded annual earnings
growth during the last three years.***** Not surprisingly, investors have chosen
to focus on larger companies rather than assuming more risk and investing in
smaller company stocks that did not provide superior relative earnings growth
rates.
We feel large companies' earnings growth rates will start to slow this year.
Many of these firms have cut costs about as much as they can, and will find it
more difficult to keep up their recent earnings growth levels. Shares of small
companies that can deliver steady earnings growth are likely to benefit in such
an environment.
We will continue to buy such shares at reasonable prices before other investors
discover them -- an approach that may offer the Fund's investors the potential
for superior long-term growth. Finally, it's important to note that
small-company stocks often perform differently than shares of larger firms,
offering diversification benefits to equity investors.
- ---------------
Note: Small-company funds typically carry additional risks since smaller
companies generally have a higher company-specific risk, and historically, their
stocks have experienced a greater degree of market volatility than
larger-company stocks on average.
* Return figures for the Fund include change in share price, reinvestment of
dividends and capital gain distributions. Performance figures do not reflect
the maximum 4.50% front-end sales load, which applies to some investors. Fund
performance with the 4.50% maximum sales charge was 4.21% for the period.
11
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** The inception date of the K Shares (the date K Shares were initially funded)
was July 22, 1996. The K Shares did not commence operations until October 25,
1996. For this reason, the performance results for K Shares are those of A
Shares without the sales charge for the period from March 1, 1996 through
October 24, 1996 combined with actual K Share performance from October 25,
1996 through February 28, 1997. The performance results for K Shares included
in the Financial Highlights table in the financial statements represent
actual performance from the inception date of the K Shares.
*** Source: Ibbotson Associates, 1997. The Russell 2000 and the S&P 500 are
unmanaged indicies generally representative of the small capitalization
equity market and the large capitalization equity market respectively, and
cannot be invested in directly.
**** The composition of the Fund's holdings is subject to change.
***** Source: Ibbotson Associates, 1997. Three-year annualized total return for
the S&P 500 Index.
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PACIFIC HORIZON
BLUE CHIP FUND
======================
JAMES D. MILLER, CFA
Chief Investment Officer
Bank of America Illinois
Investment Advisers Division
Mr. Miller is head of the investment management team for the Blue Chip Fund.
GOAL:
The Pacific Horizon Blue Chip Fund seeks long-term capital appreciation.
INVESTMENTS:
The Fund invests primarily in a diversified portfolio of "blue chip" common
stocks, which are included in either the Dow Jones Industrial Average or the
Standard & Poor's 500 Index.
APPROPRIATE FOR:
Investors who want to participate in the growth potential of some of America's
major companies. The Fund is a diversified equity product that can be used as
part of many investment strategies.
INCEPTION:
January 13, 1994
SIZE OF FUND AS OF
FEBRUARY 28, 1997:
Over $154 million
Q
WHAT FACTORS AFFECTED THE FUND'S PERFORMANCE DURING THE RECENT PERIOD?
A
The market, aided by slow economic growth and low inflation, experienced a
phenomenal run during the past 12 months. The Fund posted a total return of
27.01%* (without the sales charge) for A Shares, compared to 26.18%** for the
Standard & Poor's 500 Stock Index for the 12 months ended February 28, 1997. In
addition, during the period, the Fund introduced K Shares, which are primarily
offered to Daily Advantage 401(k) plan participants, although they are available
to certain other eligible individuals, as outlined in the prospectus. For the
year ended February 28, 1997, K Shares returned 26.84%.***
Investors were particularly drawn to large company stocks, which outpaced stocks
of small companies. The stocks of five blue chip firms accounted for 20% of the
returns of the S&P 500. Those companies were Microsoft Corporation, Intel
Corporation, General Electric, Coca-Cola Company, and IBM.**** In addition,
there was heavy rotation between market sectors. For example, technology was the
leader in 1996 and has lagged the market in early 1997. During the second half
of 1996, there was a shift away from stocks of companies with strong earnings
momentum towards stocks investors perceive to be undervalued.
Q
HOW DID YOU MANAGE THE FUND IN THAT ENVIRONMENT?
A
We stayed neutral to the market capitalization of the benchmark, which is
around $45 billion. ***** But as always, we focused on individual stock
selection. Our stock selection is based on a number of different factors, with
the heaviest weighting given to those that are having the great-
13
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est impact at a given time. During the recent period, we focused on stocks with
a combination of "earnings certainty," "rising earnings expectations" and value
factors such as low price-to-earnings ratios. Companies with high earnings
certainty are those that have similar earnings estimates from different
analysts. Firms with rising earnings expectations are those that have
experienced the biggest increases in analysts' earnings estimates.
Q
WHAT ARE SOME STOCKS OR SECTORS THAT PERFORMED WELL FOR THE FUND DURING THE
YEAR?
A
The technology sector was the best performing sector in the market for the
12 month period ended February 28, 1997. Our holdings included companies such as
Intel Corp. (3.0% of net assets as of February 28, 1997) which gained 141%
during the period. Other large, widely recognized companies that performed well
were in retail and financial services -- companies such as Citicorp (0.85% of
net assets as of February 28, 1997) and T.J.X. Companies, Inc. (0.83% of net
assets as of February 28, 1997), which operate T.J. Maxx and Marshalls
stores.******
Q
WHAT'S AHEAD FOR THE FUND?
A
We will continue to maintain a portfolio broadly diversified among market
sectors according to the benchmark that we use to compare our Fund's
performance. At the same time, we will add value by choosing stocks of companies
that offer a combination of growth, value and earnings momentum. Our philosophy
will not change based on short-term trends or conditions in the market. Instead,
we will remain focused on meeting the goals of long-term investors, while
attempting to outperform the S&P 500 on a consistent basis.
- ---------------
* Return figures for the Fund include change in share price, reinvestment
of dividends and capital gains distributions. Performance figures do not
reflect the maximum 4.50% front-end sales load, which applies to some
investors. Performance figures with the maximum 4.50% sales charge would
have been 21.29% for the period. The Fund is currently waiving a portion
of the advisory, administrative and/or shareholder servicing fee. This
voluntary waiver may be modified or terminated at any time, which would
reduce the Fund's performance.
** Source: Ibbotson Associates, 1997. The S&P 500 is an unmanaged index
generally representative of the equity market as a whole, and cannot be
invested in directly.
*** The inception date of the K Shares (the date K Shares were initially
funded) was July 22, 1996. The K Shares did not commence operations until
November 11, 1996. For this reason, the performance results for K Shares
are those of A Shares without the sales charge for the period from March
1, 1996 through November 10, 1996 combined with actual K Share
performance from November 11, 1996 through February 28, 1997. The
performance results for K Shares included in the Financial Highlights
table in the financial statements represent actual performance from the
inception date of the K Shares.
**** Source: Standard & Poor's Composite, 1996 "Performance Attribution,"
Prudential Securities by Melissa Brown, 1/6/97.
***** Source: BARRA, February 28, 1997.
****** The composition of the Fund's holdings is subject to change.
14
<PAGE> 17
PACIFIC HORIZON
AGGRESSIVE GROWTH FUND
(AS OF FEBRUARY 28, 1997)
GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)
<TABLE>
<CAPTION>
LIPPER
CAPITAL
APPRECIATION
MEASUREMENT PERIOD FUNDS
(FISCAL YEAR COVERED) A SHARES K SHARES AVERAGE RUSSELL 2000
<S> <C> <C> <C> <C>
2/28/87 9551.50 10000.00 10000 10000.00
2/29/88 7792.08 8157.96 9154.79 8572.00
2/28/89 8419.63 8814.98 10089.57 9905.00
2/28/90 9976.89 10445.35 11473.41 10296.00
2/28/91 13669.45 14311.30 12557.05 10678.00
2/29/92 19288.65 20194.34 15969.36 14313.00
2/28/93 17598.20 18424.51 16759.46 15383.00
2/28/94 19453.87 20367.30 19818.19 18611.00
2/28/95 18754.58 19653.17 19631.22 18287.00
2/29/96 26421.67 27662.22 25733.57 23524.00
2/28/97 28833.99 30105.03 28940.76 26490.00
</TABLE>
HOW PERFORMANCE COMPARES
As the chart indicates, the Pacific
Horizon Aggressive Growth Fund has
consistently outperformed the market,
as measured by the Russell 2000, a
widely used unmanaged index which
measures the performance of small
capitalization stocks. An initial
$10,000 investment made for the ten
year period commencing on February
28, 1987 would now be worth $28,834
for A Shares. The same investment
made in the Russell
2000, representing a broader market, would now be worth $26,490.
Correspondingly, a $10,000 investment in K Shares for the same period would now
be worth $30,105.*
The Fund fared well relative to other capital appreciation funds. The average of
capital appreciation funds reported by Lipper Analytical Services, Inc. measures
the performance of other funds with investment objectives and policies similar
to those of the Pacific Horizon Aggressive Growth Fund. The Lipper Capital
Appreciation Funds Average on the same $10,000 investment over the same period
would have been $28,941.
SEE INVESTMENT MANAGER INTERVIEW FOR FACTORS AFFECTING FUND PERFORMANCE:
Investment return and principal value are historical and will vary with market
conditions, so an investor's shares, when redeemed, may be worth more or less
than their original cost. Return figures for the Fund include change in share
price, reinvestment of dividends, and capital gains distributions, if any, and
the effect of the maximum 4.50% sales charge.
*The inception date of the K Shares (the date K Shares were initially funded)
was July 22, 1996. The K Shares did not commence operations until October 25,
1996. For this reason, the performance results for K Shares are those of A
Shares without the sales charge for the period from March 1, 1996 through
October 24, 1996 combined with actual K Share performance from October 25, 1996
through February 28, 1997. The performance
<TABLE>
<CAPTION>
--------------------------------------
AGGRESSIVE GROWTH FUND
AVERAGE ANNUAL RETURN
---------------------------------------
A SHARES K SHARES*
Without With
Sales Sales
Charge Charge
---------------------------------------
<S> <C> <C> <C>
1 year: 9.13% 4.21% 8.83%
......................................
5 years: 8.37% 7.38% 8.31%
......................................
10 years: 11.68% 11.17% 11.65%
---------------------------------------
</TABLE>
<PAGE> 18
results for K Shares included in the Financial Highlights table in the financial
statements represent actual performance from the inception date of the K Shares.
K Shares, unlike A Shares, are sold without a front-end sales load but have an
ongoing .75% distribution or administrative services fee (of which .25% are
currently being waived), which would have reduced prior performance.
Lipper Analytical Services, Inc. is an independent mutual fund-monitoring
organization. Neither Lipper Capital Appreciation Funds Average, nor the Russell
2000 may be invested in directly. The hypothetical investment in the Russell
2000 Index does not reflect any sales or management fees that would be incurred
if an investor were to actually purchase individual securities or mutual funds,
while the performance of the Fund reflects all expenses and management fees and
the effect of the maximum sales charge.
16
<PAGE> 19
PACIFIC HORIZON
AGGRESSIVE GROWTH FUND
(AS OF FEBRUARY 28, 1997)
PORTFOLIO COMPOSITION*
The Pacific Horizon Aggressive Growth
Fund invests in those sectors of the
small-capitalization universe that the
adviser believes will generate superior
long-term growth. The adviser currently
expects the technology, health-care and
consumer sectors to provide the
greatest potential for capital
appreciation during this decade and
beyond.
<TABLE>
<S> <C> <C> <C> <C>
Technology 24.6
Consumer Cylicals 19.7
Health Care 10.4
Basics 0.8
Capital Goods 17.9
Utilities/Wireless 7.1
Finance 8.3
Consumer Staples 4.3
Transportation 1.7
Energy 5.3
</TABLE>
GROWTH
The Pacific Horizon
Aggressive Growth Fund seeks
to provide long-term growth
of investment capital. The
Fund employs a highly
disciplined approach
focusing on
smaller-capitalization
growth stocks. Our strategy
is to invest in companies
that are in the early stages
of their economic life
cycle -- the time when their
fundamentals typically
generate maximum
acceleration in revenue and
earnings growth, and long
before they are generally
recognized by the greater
investing public. The Fund
utilizes extensive research to identify companies displaying earnings momentum,
positive estimated growth-rate trends, rising relative price momentum and
attractive valuation relative to growth prospects.
<TABLE>
<CAPTION>
TOP TEN HOLDINGS*
------------------------------------------------
PERCENT OF
COMPANY NET ASSETS
<S> <C>
------------------------------------------------
Imperial Credit Industries,
Inc. 2.47%
................................................
Team Rental Group, Inc. 2.24%
................................................
WMS Industries, Inc. 2.19%
................................................
Tadiran Ltd. 2.13%
................................................
Tracor, Inc. 2.12%
................................................
ECI Telecommunications
Limited Designs 2.10%
................................................
Gilat Satellite Networks
Ltd. 2.09%
................................................
SEI Corp. 1.97%
................................................
Youth Services
International, Inc. 1.90%
................................................
Accustaff, Inc. 1.90%
------------------------------------------------
TOTAL 21.11%
-------------------------------------------------
</TABLE>
* The composition of the Fund's
holdings is subject to
change.
<PAGE> 20
PACIFIC HORIZON
BLUE CHIP FUND
(AS OF FEBRUARY 28, 1997)
GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)
<TABLE>
<CAPTION>
LIPPER
MEASUREMENT PERIOD GROWTH FUNDS
(FISCAL YEAR COVERED) A SHARES K SHARES AVERAGE S&P 500
<S> <C> <C> <C> <C>
1/13/94 9551.50 10000.00 10000 10000.00
2/28/94 9530.90 9980.00 9844.07 9729.00
8/31/94 9871.39 10336.54 9814.06 10046.00
2/28/95 10254.93 10738.15 9941.24 10444.00
8/31/95 11929.12 12491.22 11855.52 12197.00
2/29/96 13678.80 14323.35 13066.27 14064.00
8/31/96 14073.43 14736.58 13396.59 14481.00
2/28/97 17373.06 18167.77 15454.30 17741.00
</TABLE>
HOW PERFORMANCE COMPARES
The chart compares the performance of
the Pacific Horizon Blue Chip Fund to
the S&P 500, which is an unmanaged
index typically used as a performance
benchmark for equity investments. As
illustrated, the Fund has fared well
compared to other growth funds. The
average of growth funds as tracked by
Lipper Analytical Services, Inc.
measures the performance of other
funds with investment objectives and
policies similar to those of the
Pacific Horizon Blue Chip Fund.
An initial $10,000 investment in the Fund made on January 13, 1994, would now be
worth $17,373 for A Shares. The same investment made in the Lipper Growth Funds
Average, would now be worth only $15,454. Correspondingly, a $10,000 investment
in K Shares for the same period would now be worth $18,168.*
SEE INVESTMENT MANAGER INTERVIEW FOR FACTORS AFFECTING FUND PERFORMANCE.
Investment return and principal value are historical and will vary with market
conditions, so an investor's shares, when redeemed, may be worth more or less
than their original cost. Return figures for the Fund include change in share
price, reinvestment of dividends, and capital gain distributions, if any, and
the effect of the maximum 4.50% sales charge.
*The inception date of the K Shares (the date K Shares were initially funded)
was July 22, 1996. The K Shares did not commence operations until November 11,
1996. For this reason, the performance results for K Shares are those of A
Shares without the sales charge for the period from March 1, 1996 through
November 10, 1996 combined with actual K Share performance from November 11,
1996 through February 28, 1997. The performance results for K Shares included in
the Financial Highlights table in the financial statements represent actual
performance from the inception date of the K Shares. K Shares, unlike A Shares,
are sold without a front-end sales load but have an ongoing
<TABLE>
<CAPTION>
---------------------------------------
BLUE CHIP FUND
AVERAGE ANNUAL RETURN
---------------------------------------
A SHARES K SHARES
Without With
Sales Sales
Charge Charge
---------------------------------------
<S> <C> <C> <C>
1 year: 27.01% 21.29% 26.84%
......................................
3 years: 22.13% 20.27% 22.08%
......................................
Since
inception:
1/13/94 21.08% 19.31% 21.03%
---------------------------------------
</TABLE>
<PAGE> 21
.50% distribution or administrative services fee, which would have reduced prior
performance.
Lipper Analytical Services, Inc., is an independent mutual fund-monitoring
organization. Neither Lipper Growth Funds Average or the S&P 500 can be invested
in directly. The hypothetical investment in the S&P 500 does not reflect any
sales or management fees that would be incurred in an investor were to actually
purchase individual securities or mutual funds, while the performance of the
Fund reflects all expenses and management fees and the effect of the maximum
sales charge.
19
<PAGE> 22
PACIFIC HORIZON
BLUE CHIP FUND
(AS OF FEBRUARY 28, 1997)
PORTFOLIO COMPOSITION
FUND QUALITY
A Strategy for Long-Term Capital
Appreciation
The Fund maintains a "quality"
investment orientation by placing an
emphasis on the securities of
well-known established companies.
This "blue chip" approach may be
appropriate for investors seeking
long-term growth of capital. At
least 80% of the Fund's assets are
normally invested in blue chip
stocks. To meet the criteria set by
the Fund's investment objectives,
these stocks must be components of
the Dow Jones Industrial Average or
the Standard & Poor's 500 Index.
- --------------------------------------------------------------------------------
The Fund adviser's research
orientation seeks to
identify individual stocks,
within the sector
allocations mirroring those
of the S&P 500, with the
greatest potential for
long-term growth. The Fund's
primary emphasis is on
stocks that, in the opinion
of the Fund's adviser, have
the greatest potential of
superior performance with
the least amount of risk.
<TABLE>
<CAPTION>
TOP TEN HOLDINGS*
-----------------------------------------------------
PERCENT OF
COMPANY NET ASSETS
------------------------------------------------------
<S> <C>
Coca-Cola Co. 3.10%
......................................................
Intel Corp. 3.00%
......................................................
Merck & Co., Inc. 2.98%
......................................................
Microsoft Corp. 2.84%
......................................................
General Electric Co. 2.76%
......................................................
Phillip Morris Cos, Inc. 2.26%
......................................................
E.I. Du Pont de Nemours & Co. 2.13%
......................................................
Exxon Corp. 1.98%
......................................................
Proctor & Gamble 1.91%
......................................................
Johnson & Johnson 1.88%
------------------------------------------------------
TOTAL 24.84%
------------------------------------------------------
</TABLE>
A RESEARCH-DRIVEN APPROACH*
<TABLE>
<S> <C>
Utilities 10.3
Finance 15.4
Consumer Suplies 12.7
Health Care 11.3
Technology 13.3
Capital Goods 9.5
Energy 8.5
Basics 5.6
Transportation 1.3
Consumer Cyclicals 12.1
</TABLE>
* THE COMPOSITION OF THE FUND'S HOLDINGS IS SUBJECT TO CHANGE.
<PAGE> 23
PACIFIC HORIZON AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- ------------------------------------------------------------------------- ------- -------------
<S> <C> <C>
COMMON STOCKS -- 97.9%
AEROSPACE & DEFENSE -- 4.8%
BE Aerospace, Inc.*..................................................... 72,750 $1,764,187
Remec, Inc.*............................................................ 132,000 3,597,000
Tracor, Inc.*........................................................... 180,000 4,297,500
---------
9,658,687
---------
APPAREL -- 4.8%
Farah, Inc.*............................................................ 75,800 739,050
Kenneth Cole Productions, Inc.*......................................... 165,500 3,247,938
Quiksilver, Inc.*....................................................... 150,500 3,762,500
Warnaco Group, Inc., Class A............................................ 65,000 2,071,875
---------
9,821,363
---------
BIOTECHNOLOGY -- 4.6%
Algos Pharmaceuticals Corp.*............................................ 146,200 2,631,600
Genome Therapeutics Corp.*.............................................. 149,700 1,403,438
Protein Design Labs, Inc.*.............................................. 100,000 3,750,000
SEQUUS Pharmaceuticals, Inc.*........................................... 129,600 1,490,400
---------
9,275,438
---------
COMMERCIAL SERVICES -- 9.2%
Accustaff, Inc.*........................................................ 185,000 3,838,750
Equity Corp. International*............................................. 120,000 2,370,000
Nuco2, Inc.*............................................................ 133,000 1,662,500
PMT Services, Inc.*..................................................... 160,500 2,066,437
Select Appointments Holdings Public Limited Company ADR*................ 135,500 1,524,375
Volt Information Sciences, Inc.*........................................ 75,500 3,378,625
Youth Services International, Inc.*..................................... 256,000 3,840,000
---------
18,680,687
---------
COMPUTERS, SOFTWARE & PERIPHERALS -- 7.0%
3D Labs Inc., Ltd.*..................................................... 155,350 3,495,375
Cimatron Ltd.*.......................................................... 475,000 2,671,875
Computervision Corp.*................................................... 175,000 1,028,125
Dataworks Corp.*........................................................ 109,900 1,840,825
Diamond Multimedia Systems, Inc.*....................................... 208,800 2,623,050
Gandalf Technologies, Inc.*............................................. 150,000 403,125
Rogue Wave Software*.................................................... 184,400 2,143,650
---------
14,206,025
---------
</TABLE>
- ---------------
See Notes to Financial Statements.
21
<PAGE> 24
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- ------------------------------------------------------------------------- ---------
<S> <C> <C>
ENVIRONMENTAL & POLLUTION CONTROLS -- 4.3%
Air & Water Technologies Corp.*......................................... 491,000 $2,792,563
Culligan Water Technologies*............................................ 85,000 3,315,000
Osmonics, Inc.*......................................................... 83,550 1,608,338
United States Filter Corp.*............................................. 27,500 962,500
---------
8,678,401
---------
ENTERTAINMENT -- 6.4%
Family Golf Centers, Inc.*.............................................. 69,500 $1,911,250
Gaylord Entertainment Co................................................ 63,000 1,275,750
Iwerks Entertainment, Inc.*............................................. 372,850 1,910,856
Morrow Snowboards, Inc.*................................................ 119,800 718,800
Sodak Gaming, Inc.*..................................................... 102,100 1,467,687
Spectrum Holobyte, Inc.*................................................ 160,300 1,322,475
WMS Industries, Inc.*................................................... 223,000 4,432,125
---------
13,038,943
---------
FINANCIAL SERVICES -- 6.9%
Consumer Portfolio Services, Inc.*...................................... 213,200 2,158,650
Credit Acceptance Corp.*................................................ 26,750 568,438
Credit Management Solutions, Inc.*...................................... 98,500 1,625,250
Delta Financial Corp.*.................................................. 28,000 588,000
Imperial Credit Industries, Inc.*....................................... 207,000 4,993,875
SEI Corp................................................................ 180,000 3,982,500
---------
13,916,713
---------
FOOD & BEVERAGES -- 2.1%
Northland Cranberries, Inc.............................................. 143,000 2,466,750
Unimark Group, Inc.*.................................................... 217,000 1,736,000
---------
4,202,750
---------
HEALTHCARE PRODUCTS & SERVICES -- 5.9%
Emeritus Corp.*......................................................... 148,150 1,796,319
Envoy Corp.*............................................................ 90,000 2,160,000
Medpartners, Inc.*...................................................... 121,000 2,662,000
Orthodontic Centers of America, Inc.*................................... 98,400 1,463,700
Quadramed Corp.*........................................................ 63,000 704,812
Seamed Corp.*........................................................... 187,000 3,085,500
---------
11,872,331
---------
HOUSEHOLD PRODUCTS -- 1.2%
Lifetime Hoan Corp.*.................................................... 212,850 2,341,350
---------
MEDIA -- BROADCASTING -- 3.2%
All American Communications, Class B*................................... 174,600 1,920,600
Cablevision Systems Corp., Class A*..................................... 44,500 1,451,812
Spelling Entertainment Group, Inc.*..................................... 125,000 781,250
United International Holdings, Inc., Class A*........................... 228,250 2,339,562
---------
6,493,224
---------
</TABLE>
- ---------------
See Notes to Financial Statements.
22
<PAGE> 25
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- ------------------------------------------------------------------------- ---------
<S> <C> <C>
OIL & GAS PRODUCTION & SERVICES -- 5.0%
Aquila Gas Pipeline Corp................................................ 267,000 $3,504,375
Costilla Energy, Inc.*.................................................. 189,500 2,274,000
Flores & Rucks, Inc.*................................................... 45,000 2,025,000
United Meridian Corp.*.................................................. 79,600 2,397,950
---------
10,201,325
---------
RESTAURANTS -- 1.0%
Daka International, Inc.*............................................... 114,000 826,500
Landry's Seafood Restaurants, Inc.*..................................... 64,000 1,152,000
---------
1,978,500
---------
RETAIL -- SPECIALTY STORES -- 5.5%
Consolidated Stores Corp.*.............................................. 92,500 3,249,063
Egghead, Inc.*.......................................................... 233,500 1,196,688
Petco Animal Supplies, Inc.*............................................ 129,000 3,563,625
RDO Equipment Co., Class A*............................................. 69,700 1,211,037
Stage Stores, Inc.*..................................................... 92,000 1,955,000
---------
11,175,413
---------
SEMICONDUCTORS -- 2.9%
Actel Corp.*............................................................ 82,500 1,608,750
Dallas Semiconductor Corp............................................... 75,000 1,950,000
International Rectifier Corp.*.......................................... 170,000 2,295,000
---------
5,853,750
---------
TELECOMMUNICATION EQUIPMENT -- 12.5%
Antec Corp.*............................................................ 292,000 2,482,000
C-Cor Electronics, Inc.*................................................ 195,000 2,681,250
ECI Telecommunications Limited Designs.................................. 178,700 4,244,125
Gilat Satellite Networks Ltd.*.......................................... 144,900 4,220,212
Harmonic Lightwaves, Inc.*.............................................. 175,000 2,931,250
Nice Systems Ltd. ADR*.................................................. 132,500 2,881,875
Ortel Corp.*............................................................ 118,950 1,546,350
Tadiran Ltd............................................................. 156,000 4,309,500
---------
25,296,562
---------
TELECOMMUNICATION SERVICES -- 5.6%
American Paging, Inc.*.................................................. 300,000 1,387,500
Arch Communications Group, Inc.*........................................ 179,500 1,312,594
Brooks Fiber Properties, Inc.*.......................................... 66,200 1,406,750
LCC International, Inc., Class A*....................................... 115,000 1,121,250
Millicom International Cellular, S.A.*.................................. 50,900 1,959,650
Teleport Communications Group, Inc.*.................................... 84,950 2,548,500
United States Cellular Corp.*........................................... 64,000 1,680,000
---------
11,416,244
---------
TOYS -- 1.1%
Toy Biz, Inc., Class A*................................................. 121,900 2,148,488
---------
</TABLE>
- ---------------
See Notes to Financial Statements.
23
<PAGE> 26
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- ------------------------------------------------------------------------- ---------
<S> <C> <C>
TRANSPORTATION -- 3.9%
Airways Corp.*.......................................................... 112,500 $478,125
Mesaba Holdings, Inc.*.................................................. 219,500 2,798,625
Team Rental Group, Inc.*................................................ 161,000 4,528,125
------------
7,804,875
------------
Total Common Stocks (cost $192,809,543).................................. 198,061,069
------------
WARRANTS -- 0.0%
Sound Advice+........................................................... 15 0
------------
Total Warrants (cost $0)................................................. 0
------------
TOTAL INVESTMENTS -- 97.9%
(cost $192,809,543) (a)................................................. 198,061,069
Other assets in excess of liabilities -- 2.1%........................... 4,185,694
------------
NET ASSETS -- 100%....................................................... $202,246,763
============
</TABLE>
- ---------------
Percentages indicated are based on net assets of $202,246,763.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation................................. $35,513,507
Unrealized depreciation................................. (31,090,957)
-----------
Net unrealized appreciation............................. $ 4,422,550
===========
</TABLE>
* Non-income producing security.
+ Fair valued as determined by the Board of Directors.
ADR -- American Depositary Receipt.
See Notes to Financial Statements.
24
<PAGE> 27
PACIFIC HORIZON AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
February 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (cost $192,809,543)............. $198,061,069
Cash................................................................ 3,209,415
Dividends receivable................................................ 30,925
Receivable for investment securities sold........................... 2,912,129
Receivable for capital shares sold.................................. 330,269
Prepaid expenses.................................................... 4,022
------------
Total Assets.......................................................... 204,547,829
------------
LIABILITIES:
Payable for investment securities purchased......................... 1,659,557
Payable for capital shares redeemed................................. 226,021
Investment advisory fees payable.................................... 99,620
Administration fees payable......................................... 49,810
Shareholder service fees payable (A and K Shares)................... 41,508
12b-1 fees payable (K Shares)....................................... 121
Transfer agent fees payable......................................... 136,648
Legal fees payable.................................................. 2,593
Other accrued expenses.............................................. 85,188
------------
Total Liabilities..................................................... 2,301,066
------------
NET ASSETS............................................................ $202,246,763
============
Net Assets:
A Shares............................................................ $201,906,794
K Shares............................................................ 339,969
------------
Total................................................................. $202,246,763
============
Shares Outstanding ($0.001 par value, 1.05 billion shares authorized):
A Shares............................................................ 10,303,402
K Shares............................................................ 17,409
------------
Total................................................................. 10,320,811
============
NET ASSET VALUE
A Shares -- redemption price per share.............................. $19.60
=====
Maximum Sales Charge (A Shares)..................................... 4.50%
Maximum Offering Price (A Shares) (Net Asset Value of A
Shares/(100%-Maximum Sales Charge))............................... $20.52
=====
K Shares -- offering price per share................................ $19.53
=====
COMPOSITION OF NET ASSETS:
Shares of common stock, at par...................................... $ 10,321
Additional paid-in capital.......................................... 188,363,378
Accumulated undistributed net investment (loss)..................... (1,417)
Accumulated net realized gains on investment transactions........... 8,622,955
Net unrealized appreciation on investments.......................... 5,251,526
------------
NET ASSETS, FEBRUARY 28, 1997......................................... $202,246,763
============
</TABLE>
- ---------------
See Notes to Financial Statements.
25
<PAGE> 28
PACIFIC HORIZON AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the year ended February 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividend (net of foreign withholding tax of $9,140)................ $ 245,805
Interest........................................................... 93,579
Total Income......................................................... 339,384
EXPENSES:
Investment advisory fees........................................... 1,239,652
Administration fees................................................ 619,826
Shareholder service fees (A Shares)................................ 516,392
Shareholder service fees (K Shares)................................ 138
12b-1 fees (K Shares).............................................. 415
Custodian and fund accounting fees................................. 82,298
Transfer agent fees................................................ 368,073
Legal fees......................................................... 2,084
Other expenses..................................................... 145,654
Total Expenses................................................... 2,974,532
Less: Fee waivers.................................................... (138)
Expenses paid by third parties.................................. (36,153)
Total Net Expenses................................................... 2,938,241
NET INVESTMENT LOSS.................................................. (2,598,857)
NET REALIZED/UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gain on investment transactions....................... 53,488,080
Net change in unrealized appreciation on investments............... (30,785,939)
Net realized/unrealized gains on investments......................... 22,702,141
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS..................... $ 20,103,284
</TABLE>
- ---------------
See Notes to Financial Statements.
26
<PAGE> 29
PACIFIC HORIZON AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------
FEBRUARY 28, FEBRUARY 29,
1997 1996
------------ ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment (loss)............................. $ (2,598,857) $ (2,105,712)
Net realized gains on investment transactions..... 53,488,080 31,636,853
Net change in unrealized appreciation
on investments.................................. (30,785,939) 24,124,656
---------------- ----------------
- -
Change in net assets resulting from operations...... 20,103,284 53,655,797
---------------- ----------------
- -
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gains from investment transactions
A Shares........................................ (48,764,827) (33,681,224)
K Shares (a).................................... (22,851) --
---------------- ----------------
- -
Change in net assets from shareholder
distributions..................................... (48,787,678) (33,681,224)
---------------- ----------------
- -
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued....................... 554,405,607 344,733,316
Dividends reinvested.............................. 46,851,878 32,628,136
Cost of shares redeemed........................... (550,673,264) (348,867,889)
---------------- ----------------
- -
Change in net assets from capital share
transactions...................................... 50,584,221 28,493,563
---------------- ----------------
- -
Change in net assets................................ 21,899,827 48,468,136
NET ASSETS:
Beginning of year................................. 180,346,936 131,878,800
---------------- ----------------
- -
End of year....................................... $202,246,763 $180,346,936
================= =================
</TABLE>
- ---------------
(a) Period from July 22, 1996 (inception date) to February 28, 1997.
See Notes to Financial Statements.
27
<PAGE> 30
PACIFIC HORIZON BLUE CHIP FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
February 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investment in Master Investment Trust, Series I--
Blue Chip Portfolio, at value..................................... $154,349,853
Deferred organization costs......................................... 13,146
Prepaid expenses.................................................... 7,312
------------
Total Assets.......................................................... 154,370,311
------------
LIABILITIES:
Transfer agent fees payable......................................... 51,959
Shareholder service fees payable (A and K Shares)................... 30,573
Reports to shareholders expense payable............................. 31,687
Audit fees payable.................................................. 11,465
Fund accounting fees and expenses payable........................... 13,494
Legal fees payable.................................................. 8,578
Other accrued expenses.............................................. 20,982
------------
Total Liabilities..................................................... 168,738
------------
NET ASSETS............................................................ $154,201,573
============
Net Assets:
A Shares............................................................ $152,747,859
K Shares............................................................ 1,453,714
------------
Total................................................................. $154,201,573
============
Shares Outstanding
($0.001 par value, 150 million shares authorized):
A Shares............................................................ 6,056,570
K Shares............................................................ 57,695
------------
Total................................................................. 6,114,265
============
NET ASSET VALUE
A Shares -- redemption price per share.............................. $25.22
=====
Maximum Sales Charge (A Shares)..................................... 4.50%
Maximum Offering Price (A Shares)
(Net Asset Value of A Shares/(100%--Maximum Sales Charge)).......... $26.41
=====
K Shares -- offering price per share................................ $25.20
=====
COMPOSITION OF NET ASSETS:
Shares of common stock, at par...................................... $ 6,114
Additional paid-in capital.......................................... 123,368,562
Accumulated undistributed net investment income..................... 178,145
Accumulated net realized gains on investment transactions........... 12,059,468
Net unrealized appreciation on investments.......................... 18,589,284
------------
NET ASSETS, FEBRUARY 28, 1997......................................... $154,201,573
============
</TABLE>
- ---------------
See Notes to Financial Statements.
28
<PAGE> 31
PACIFIC HORIZON BLUE CHIP FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the year ended February 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Investment Income from Master Investment Trust, Series I--Blue Chip
Portfolio:
Dividend income..................................................... $ 2,173,241
Interest income..................................................... 176,152
-----------
2,349,393
Expenses............................................................ 933,194
Less: Fee waivers and expense reimbursements........................ (290,375)
-----------
642,819
Net Investment Income from Master Investment Trust, Series I--Blue
Chip Portfolio...................................................... 1,706,574
EXPENSES:
Shareholder service fees (A Shares)................................. 256,504
Shareholder service fees (K Shares)................................. 632
12b-1 fees (K Shares)............................................... 1,242
Administration fees................................................. 153,571
Transfer agent fees................................................. 166,371
Registration fees................................................... 45,455
Reports to shareholders............................................. 64,232
Fund accounting fees and expenses................................... 36,010
Amortization of organization costs.................................. 28,125
Audit fees.......................................................... 13,156
Legal fees.......................................................... 8,128
Directors' fees..................................................... 2,779
Other expenses...................................................... 62,345
-----------
Total Expenses.................................................... 838,550
Less: Fee waivers and expense reimbursements.......................... (154,457)
-----------
Total Net Expense................................................. 684,093
-----------
NET INVESTMENT INCOME................................................. 1,022,481
REALIZED/UNREALIZED GAINS ON INVESTMENTS FROM MASTER INVESTMENT TRUST,
SERIES I -- BLUE CHIP PORTFOLIO:
Net realized gains on investment transactions....................... 14,059,189
Net change in unrealized appreciation on investments................ 12,101,556
-----------
Net realized/unrealized gains on investments from Master Investment
Trust Series I--Blue Chip Portfolio................................. 26,160,745
-----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...................... $27,183,226
===========
</TABLE>
- ---------------
See Notes to Financial Statements.
29
<PAGE> 32
PACIFIC HORIZON BLUE CHIP FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------
FEBRUARY 28, FEBRUARY 29,
1997 1996
------------ ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income............................. $ 1,022,481 $ 489,988
Net realized gains on investment transactions..... 14,059,189 1,358,263
Net change in unrealized appreciation on
investments..................................... 12,101,556 6,093,194
------------ -----------
Change in net assets resulting from operations...... 27,183,226 7,941,445
------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
A Shares........................................ (980,276) (375,867)
K Shares (a).................................... (998) --
Net realized gains from investment transactions:
A Shares........................................ (2,731,645) (570,774)
K Shares (a).................................... (8,357) --
------------ -----------
Change in net assets from shareholder
distributions..................................... (3,721,276) (946,641)
------------ -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued....................... 87,766,406 59,881,212
Dividends reinvested.............................. 3,417,983 903,918
Cost of shares redeemed........................... (27,378,220) (6,848,470)
------------ -----------
Change in net assets from capital share
transactions...................................... 63,806,169 53,936,660
------------ -----------
Change in net assets................................ 87,268,119 60,931,464
------------ -----------
NET ASSETS:
Beginning of year................................. 66,933,454 6,001,990
------------ -----------
End of year....................................... $154,201,573 $ 66,933,454
============ ===========
</TABLE>
- ---------------
(a) Period from July 22, 1996 (inception date) to February 28, 1997.
See Notes to Financial Statements.
30
<PAGE> 33
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 -- ORGANIZATION
Pacific Horizon Funds, Inc. (the "Company"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended (the "Act"), as
an open-end management investment company. At February 28, 1997, the Company
operated as a series company comprised of seventeen funds. The accompanying
financial statements and notes are those of the Pacific Horizon Aggressive
Growth Fund (the "Aggressive Growth Fund") and the Pacific Horizon Blue Chip
Fund (the "Blue Chip Fund"), collectively the "Funds", individually the "Fund".
The Funds offer A Shares and effective July 22, 1996 began offering K Shares. A
Shares have a Shareholder Services Plan while K Shares have a Distribution Plan
and Administrative and Shareholder Services Plan.
The Aggressive Growth Fund seeks to maximize capital appreciation through
investments in common stocks and convertible securities. The Blue Chip Fund
seeks to achieve its investment objective by investing substantially all of its
assets in the Blue Chip Portfolio (the "Portfolio") of the Master Investment
Trust, Series I (the "Trust"), an open-end management company that has the same
investment objective as that of the Blue Chip Fund. The value of the Blue Chip
Fund's investment in the Portfolio included in the accompanying Statement of
Assets and Liabilities reflects the Fund's proportionate beneficial interest in
the net assets of the Portfolio (32.4% at February 28, 1997). The financial
statements of the Portfolio, including its portfolio of investments, are
included elsewhere within this report and should be read in conjunction with the
Blue Chip Fund's financial statements.
Bank of America National Trust and Savings Association ("Bank of America"),
a subsidiary of BankAmerica Corporation, serves as the Aggressive Growth Fund's
investment adviser. The BISYS Group, Inc. ("BISYS"), through its wholly-owned
subsidiary BISYS Fund Services, Limited Partnership, serves as the Funds'
administrator. Concord Financial Group, Inc. (the "Distributor"), an indirect,
wholly-owned subsidiary of BISYS, serves as the distributor of the Funds'
shares. BISYS Fund Services, Inc. ("BISYS Ohio"), also a wholly-owned subsidiary
of BISYS, serves as transfer and dividend disbursing agent of the Funds.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Funds in the preparation of their financial statements. The policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
31
<PAGE> 34
PORTFOLIO VALUATIONS:
The Aggressive Growth Fund values portfolio securities (other than debt
securities with remaining maturities of 60 days or less) at the last reported
sales price on the securities exchange on which such securities are primarily
traded or at the last reported sales price on the NASDAQ National Securities
Market. Securities not listed on an exchange or the NASDAQ National Securities
Market or securities for which there were no transactions are valued at the mean
between the current quoted bid and ask prices on the date of valuation. Bid
price is used when no ask price is available. The Fund may also use an
independent pricing service, approved by the Board of Directors, to value
certain of their securities. Such prices reflect market values which may be
established through the use of electronic data processing techniques and matrix
systems. Restricted securities and securities for which market quotations are
not readily available, if any, are valued at fair value using methods approved
by the Board of Directors. Debt securities with remaining maturities of 60 days
or less are valued at amortized cost, which approximates market value.
The valuation of securities of the Blue Chip Fund's investment in the
Portfolio is discussed in Note 2 of the Portfolio's financial statements.
SECURITIES TRANSACTIONS AND RELATED INCOME:
The Aggressive Growth Fund records security transactions on a trade date
basis. Interest income, including accretion of discount and amortization of
premium, is accrued daily. Dividend income is recognized on the ex-dividend
date. Realized gains and losses from security transactions are recorded on an
identified cost basis.
The Blue Chip Fund records its share of the investment income, expenses and
realized and unrealized gains and losses recorded by the Portfolio on a daily
basis. The investment income, expenses and realized and unrealized gains and
losses are allocated daily to investors in the Portfolio based upon the value of
their investments in the Portfolio. Such investments are adjusted on a daily
basis.
EXPENSES:
The Company accounts separately for the assets, liabilities and operations
of each fund. Direct expenses of a fund are charged to that fund while general
Company expenses are allocated among the Company's respective portfolios.
The investment income and expenses of a fund (other than class specific
expenses) and realized and unrealized gains and losses on investments of a fund
are allocated to each class of shares based upon their relative net asset value
on the date income is earned or expenses and realized and unrealized gains and
losses are incurred.
The Blue Chip Fund incurred certain costs in connection with its
organization. Such costs have been deferred and are being amortized on a
straight-line basis over five years.
32
<PAGE> 35
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
The Funds' net investment income, if any, is declared and paid as a dividend
to shareholders of record at the close of business on record date at least
annually for the Aggressive Growth Fund and quarterly for the Blue Chip Fund.
Net realized gains on portfolio securities, if any, are distributed at least
annually. However, to the extent that net realized gains of the Funds can be
offset by capital loss carryovers of the Funds, such gains will not be
distributed. Dividends and distributions are recorded by the Funds on the
ex-dividend date.
The amount of dividends from net investment income and of distributions from
net realized gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the composition of net assets based on their federal
tax-basis treatment; temporary differences do not require reclassification.
Dividends and distributions to shareholders which exceed net investment income
and net realized capital gains for financial reporting purposes but not for tax
purposes are reported as dividends in excess of net investment income or
distributions in excess of net realized gains. To the extent they exceed net
investment income and net realized gains for tax purposes, they are reported as
distributions of capital.
As of February 28, 1997, the following reclassifications have been made to
increase (decrease) such accounts with offsetting adjustments made to paid-in
capital:
<TABLE>
<CAPTION>
ACCUMULATED NET REALIZED
ACCUMULATED UNDISTRIBUTED GAIN/(LOSS) ON
NET INVESTMENT INCOME INVESTMENTS
------------------------- ------------------------
<S> <C> <C>
Aggressive Growth Fund....... $ 2,598,657 $ (2,588,091)
Blue Chip Fund............... -- 72
</TABLE>
FEDERAL INCOME TAXES:
It is the Funds' policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
timely, all of its net investment company taxable income and net capital gains
to shareholders. Therefore, no federal income tax provision is required.
OTHER:
The Aggressive Growth Fund maintains a cash balance with its custodian and
receives a reduction of its custody fees and expenses for the amount of interest
earned on such uninvested cash balances. For financial reporting purposes for
the year ended February 28, 1997, custodian fees and expenses paid by third
parties were increased by $36,153. There was no effect on net investment income.
The Fund could have invested such cash amounts in an
33
<PAGE> 36
income producing asset if it had not agreed to a reduction of fees or expenses
under the expense offset arrangement with its custodian.
Effective October 1, 1996 the earnings credit account for the Aggressive
Growth Fund converted to an interest bearing account. Earnings credit balances
are available until February 28, 1998.
NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
The Aggressive Growth Fund has an Investment Advisory Agreement with Bank of
America and the Funds have an Administration Agreement with BISYS and a
Distribution Agreement with the Distributor. Pursuant to the terms of the
Investment Advisory Agreement, Bank of America is entitled to a fee from the
Aggressive Growth Fund, which is accrued daily and payable monthly, at an annual
rate of 0.60% of the Fund's average daily net assets. Pursuant to the terms of
the Administration Agreement, BISYS is entitled to a fee which is accrued daily
and payable monthly, at an annual rate of 0.30% and 0.15% of the average daily
net assets of the Aggressive Growth Fund and Blue Chip Fund, respectively. For
the year ended February 28, 1997, BISYS agreed to waive $153,571 of its fee as
Administrator for the Blue Chip Fund. For the year ended February 28, 1997,
BISYS reimbursed $303 of operating expenses of the Blue Chip Fund.
For the year ended February 28, 1997, the Distributor advised the Funds that
it retained $120,955 and $268,770 from commissions earned on sales of the
Aggressive Growth Fund's and Blue Chip Fund's shares, respectively. For the same
period, Bank of America and its affiliates advised the Funds that they retained
$938,206 and $2,128,530 from commissions earned on sales of shares of the
Aggressive Growth Fund and Blue Chip Fund, respectively.
The Funds have a Shareholder Services Plan (the "Plan") under which each
Fund pays the Distributor for shareholder servicing expenses incurred in
connection with A Shares of each Fund. Under the Plan, payments for shareholder
servicing expenses may not exceed 0.25% of each Fund's average daily net assets
for A Shares. For the year ended February 28, 1997, the Aggressive Growth Fund
and Blue Chip Fund incurred charges of $516,392 and $256,504, respectively,
pursuant to the Plan. The Funds were advised that of these amounts, the
Distributor retained $308,283 and $19,012 from the Aggressive Growth Fund and
Blue Chip Fund, respectively, and affiliates of Bank of America retained
$182,530 and $230,703, respectively. The Plan provides that if, in any month,
the fees paid to the Distributor are less than the costs incurred by the
Distributor, the excess costs will be included in future computations of the
fee, provided that any excess costs will not be carried forward beyond the end
of the fiscal year in which such excess costs were incurred.
The Funds have adopted a Distribution Plan and an Administrative and
Shareholder Services Plan (the "Administrative Plan") with respect to K Shares
of the Funds. Under the Distribution Plan, the Funds pay the Distributor for
expenses primarily intended to result in
34
<PAGE> 37
the sale of the Funds' K Shares. Under the Distribution Plan, payments by the
Funds for distribution expenses may not exceed 0.75% of the average daily net
assets of each Fund's K Shares. Payments for distribution expenses under the
Distribution Plan are subject to Rule 12b-1 under the Act. Under the
Administrative Plan, the Funds pay for 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 beneficial
owners of K Shares. Under the Administrative Plan, payments for shareholder
services and administrative services may not exceed 0.25% and 0.75%,
respectively, of the average daily net assets of each Fund's K Shares. The total
of all payments under the Distribution Plan and the Administrative Plan may not
exceed, in the aggregate, the annual rate of 1.00% of the average daily net
assets of each Fund's K Shares. For the year ended February 28, 1997, the
Distributor waived $138 and $583 for the Aggressive Growth and Blue Chip Funds,
respectively.
BISYS Ohio serves the Funds as transfer agent and dividend disbursing agent.
In these capacities, BISYS Ohio earned $368,073 and $166,371 from the Aggressive
Growth Fund and Blue Chip Fund, respectively, for the year ended February 28,
1997. For the period January 1, 1996 to December 31, 1996, BISYS Ohio agreed to
voluntarily limit aggregate transfer agency fees. Absent this voluntary limit
the Funds would have incurred additional costs of $94,159 and $49,959 for the
Aggressive Growth Fund and Blue Chip Fund, respectively.
For the year ended February 28, 1997, the Aggressive Growth Fund and Blue
Chip Fund incurred legal charges totaling $2,084 and $8,128, respectively, which
were earned by a law firm, a partner of which serves as Secretary of the
Company.
Certain officers of the Company are affiliated with BISYS. Such persons are
not paid directly by the Company for serving in these capacities.
NOTE 4 -- DIRECTORS' COMPENSATION
Each Director of the Company is entitled to an annual retainer of $25,000,
plus $1,000 for each day the director participates in all or part of a Board or
Committee meeting, and the Chairman of each Committee receives a retainer of
$1,000 for services as Chairman of the Committee. In addition, the Company's
President is entitled to an annual salary of $20,000 for services as President.
The former President and Chairman of the Company received an additional $40,000
per year through February 28, 1997 in consideration of his years of service.
The Board has also established a retirement plan (the "Retirement Plan") for
the Directors. The Retirement Plan provides that each Director who dies or
resigns after five years of service as a director will be entitled to receive
ten annual payments each equal to the greater of: (i) 50% of the annual
Director's retainer that was payable during the year of that director's death or
resignation, or (ii) 50% of the annual Director's retainer then in effect for
Directors of the Company during the year of such payment. A Director who dies or
resigns
35
<PAGE> 38
after nine years of service as a director will be entitled to receive ten annual
payments equal to the greater of: (i) 100% of the annual Director's retainer
that was payable during the year of that Director's death or resignation, or
(ii) 100% of the annual Director's retainer then in effect for Directors of the
Company during the year of such payment. In addition, the amount payable each
year to a Director who dies or resigns shall be increased by $1,000 for each
year of service that the Director served as Chairman of the Board. Each Director
may receive any benefits payable under the Retirement Plan, at his or her
election, either in one lump sum payment or ten annual installments. A
Director's years of service for the purpose of calculating the payments
described above shall be based upon service as a Director or Chairman after
February 28, 1994. Aggregate costs pursuant to the Retirement Plan amounted to
$1,460 and $22 for the Aggressive Growth Fund and Blue Chip Fund, respectively,
for the year ended February 28, 1997.
NOTE 5 -- SECURITIES TRANSACTIONS
For the year ended February 28, 1997, the cost of purchases and the proceeds
from sales of the Aggressive Growth Fund's portfolio securities (excluding
short-term investments) amounted to $195,515,762 and $197,403,997, respectively.
NOTE 6 -- CAPITAL SHARE TRANSACTIONS
Transactions in shares of common stock of the Funds are summarized below:
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH FUND
------------------------------------------------
YEAR ENDED YEAR ENDED
FEBRUARY 28, 1997 FEBRUARY 29, 1996
---------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
------- ---------- ------- ---------
<S> <C> <C> <C> <C>
A SHARES (000's)
Issued................................ 22,844 $ 554,053 15,721 $ 344,733
Reinvested............................ 2,367 46,829 1,418 32,628
Redeemed.............................. (22,585) (550,667) (15,862) (348,868)
------- ---------- ------- ---------
Net increase............................ 2,626 $ 50,215 1,277 $ 28,493
======= ========== ======= =========
K SHARES(a)
Issued................................ 16,509 $ 352,493 -- $ --
Reinvested............................ 1,198 22,851 -- --
Redeemed.............................. (298) (6,029) -- --
------- ---------- ------- ---------
Net increase............................ 17,409 $ 369,315 -- $ --
======= ========== ======= =========
</TABLE>
- ---------------
(a) Period from July 22, 1996 (inception date) to February 28, 1997.
36
<PAGE> 39
<TABLE>
<CAPTION>
BLUE CHIP FUND
------------------------------------------------
YEAR ENDED YEAR ENDED
FEBRUARY 28, 1997 FEBRUARY 29, 1996
---------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
------- ---------- ------- ---------
<S> <C> <C> <C> <C>
A SHARES (000's)
Issued................................ 3,838 $ 86,308 3,204 $ 59,881
Reinvested............................ 152 3,409 47 904
Redeemed.............................. (1,193) (27,364) (371) (6,848)
------ ---------- ----- -------
Net increase............................ 2,797 $ 62,353 2,880 $ 53,937
====== ========== ===== =======
K SHARES (a)
Issued................................ 57,851 $1,458,223 -- $ --
Reinvested............................ 405 9,313 -- --
Redeemed.............................. (561) (13,822) -- --
------ ---------- ----- -------
Net increase............................ 57,695 $1,453,714 -- $ --
====== ========== ===== =======
</TABLE>
- ---------------
(a) Period from July 22, 1996 (inception date) to February 28, 1997.
NOTE 7 -- FEDERAL INCOME TAX INFORMATION (UNAUDITED)
During the year ended February 28, 1997, the Funds declared long-term
capital distributions in the following amounts:
<TABLE>
<S> <C>
Aggressive Growth....................................................... $17,865,129
Blue Chip............................................................... 2,213,226
</TABLE>
For the taxable year ended February 28, 1997, the following percentage of
income dividends paid by the Funds qualify for the dividends received deduction
available to corporations:
<TABLE>
<CAPTION>
QUALIFIED
DIVIDEND INCOME
---------------
<S> <C>
Aggressive Growth.................................................. 0.44%
Blue Chip.......................................................... 51.56%
</TABLE>
37
<PAGE> 40
PACIFIC HORIZON AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1997(A) 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
A SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR................. $ 23.49 $ 20.61 $ 25.70 $ 24.68 $ 27.93
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment (loss)............. (0.25) (0.27) (0.22) (0.37) (0.26)
Net realized and unrealized gains
(losses) on investment
transactions.................... 2.26 8.35 (0.95) 3.02 (2.26)
-------- -------- -------- -------- --------
Total income (loss) from investment
operations........................ 2.01 8.08 (1.17) 2.65 (2.52)
Less Dividends and Distributions:
Dividends to shareholders from net
realized gains on investment
transactions.................... (5.90) (5.20) (3.92) (1.63) (0.73)
-------- -------- -------- -------- --------
Net change in net asset value per
share............................. (3.89) 2.88 (5.09) 1.02 (3.25)
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END OF
YEAR.............................. $ 19.60 $ 23.49 $ 20.61 $ 25.70 $ 24.68
======== ======== ======== ======== ========
Total return (excludes sales
charge)........................... 9.13% 40.88% (3.59%) 10.54% (8.76%)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions)...................... $ 202 $ 180 $ 132 $ 158 $ 160
Ratio of expenses to average net
assets.......................... 1.42% 1.51% 1.46% 1.52% 1.49%
Ratio of net investment income
(loss) to average net assets.... (1.26%) 1.35% 1.04% 1.20% 1.15%
Ratio of expenses to average net
assets*......................... 1.44%** 1.64%** (b) (b) 1.51%
Ratio of net investment income to
average net assets*............. (b) (b) (b) (b) 1.13%
Portfolio turnover rate........... 99% 93% 92% 43% 43%
Average commission rate paid (c).. $ 0.0312 $ -- $ -- $ -- $ --
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
** During the years ended February 28, 1997 and February 29, 1996, the Portfolio
received credits from its custodian for interest earned on uninvested
balances which were used to offset custodian fees and expenses. If such
credits had not occurred, the expense ratios would have been as indicated.
The ratio of net investment income was not affected.
(a) As of July 22, 1996, the Portfolio designated the existing series of shares
as "A" Shares.
(b) There were no waivers or reimbursements during the period.
(c) Represents the dollar amount of commissions paid on Portfolio transactions
divided by the total number of shares purchased or sold for which
commissions were charged and is calculated on the basis of the Portfolio as
a whole without distinguishing between the classes of shares issued.
Disclosure is not required for prior periods.
See Notes to Financial Statements.
38
<PAGE> 41
PACIFIC HORIZON AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD
ENDED
FEBRUARY
28,
1997(A)
---------
<S> <C>
K SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD...................... $ 24.20
-------
Income from Investment Operations:***
Net investment (loss)............................................. (0.06)
Net realized and unrealized gains on investment transactions...... 1.29
-------
Total income from investment operations............................. 1.23
Less Dividends and Distributions:
Dividends from to shareholders from net realized gains on
investment transactions......................................... (5.90)
-------
Net change in net asset value per share............................. (4.67)
-------
NET ASSET VALUE PER SHARE, END OF PERIOD............................ 19.53
=======
Total return........................................................ 5.65%(c)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year (000)................................... $ 340
Ratio of expenses to average net assets........................... 1.95%(d)
Ratio of net investment income to average net assets.............. (1.78%)(d)
Ratio of expenses to average net assets*.......................... 2.22%(d)**
Ratio of net investment income to average net assets*............. (2.03%)(d)
Portfolio turnover rate........................................... 99%
Average commission rate paid (b).................................. $0.0312
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
** During the year ended February 28, 1997, the Portfolio received credits from
its custodian for interest earned on uninvested balances which were used to
offset custodian fees and expenses. If such credits had not occurred, the
expense ratios would have been as indicated. The ratio of net investment
income was not affected.
(a) Period from July 22, 1996 (inception date) to February 28, 1997.
(b) Represents the dollar amount of commissions paid on Portfolio transactions
divided by the total number of shares purchased or sold for which
commissions were charged and is calculated on the basis of the Portfolio as
a whole without distinguishing between the classes of shares issued.
(c) Not annualized.
(d) Annualized.
See Notes to Financial Statements.
39
<PAGE> 42
PACIFIC HORIZON BLUE CHIP FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
FEBRUARY FEBRUARY FEBRUARY FEBRUARY
28, 29, 28, 28,
1997(a) 1996 1995 1994(b)
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
A SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF
YEAR....................................... $ 20.53 $ 15.81 $ 14.97 $ 15.00
-------- -------- ------- -------
Income from Investment Operations:
Net investment income...................... 0.23 0.26 0.31 0.02
Net realized and unrealized gains (loss) on
investment transactions.................. 5.21 4.96 0.80 (0.05)
-------- -------- ------- -------
Total income (loss) from investment
operations................................. 5.44 5.22 1.11 (0.03)
-------- -------- ------- -------
Less Dividends and Distributions:
Dividends to shareholders from net
investment income........................ (0.22) (0.28) (0.27) --
Distributions to shareholders from net
realized gains on investment
transactions............................. (0.53) (0.22) -- --
-------- -------- ------- -------
Total Dividends and Distributions........... (0.75) (0.50) (0.27) --
-------- -------- ------- -------
Net change in net asset value per share..... 4.69 4.72 0.84 (0.03)
-------- -------- ------- -------
NET ASSET VALUE PER SHARE, END OF YEAR...... $ 25.22 $ 20.53 $ 15.81 $ 14.97
======== ======== ======= =======
Total return (excludes sales charge)........ 27.01% 33.39% 7.60% (0.20%)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (millions)......... $ 153 $ 67 $ 6 $ 1
Ratio of expenses to average net assets.... 1.28% 0.83% 0.00% 0.00%+
Ratio of net investment income to average
net assets............................... 0.99% 1.63% 2.46% 2.92%+
Ratio of expenses to average net assets
(*)...................................... 1.71% 2.28% 6.32% 55.00%+
Ratio of net investment income to average
net assets (*)........................... 0.56% 0.18% (3.86%) (52.08%)+
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced and expenses
reimbursed. If such voluntary fee reductions and expense reimbursements had
not occurred, the ratios would have been as indicated.
+ Annualized.
++ Not annualized.
(a) As of July 22, 1996 the Fund designated the existing series of shares as "A"
shares.
(b) Period from January 13, 1994 (inception date) to February 28, 1994.
See Notes to Financial Statements.
40
<PAGE> 43
PACIFIC HORIZON BLUE CHIP FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD
ENDED
FEBRUARY
28,
1997(A)
---------
<S> <C>
K SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD............................. $20.38
------
Income from Investment Operations:
Net investment income..................................................... 0.07
Net realized and unrealized gain on investment transactions............... 5.35
------
Total income from investment operations.................................... 5.42
------
Less Dividends and Distributions:
Dividends to shareholders from net investment income...................... (0.07)
Distributions to shareholders from net realized gains on investment
transactions............................................................ (0.53)
------
Total Dividends and Distributions.......................................... (0.60)
------
Net change in net asset value per share.................................... 4.82
------
NET ASSET VALUE PER SHARE, END OF PERIOD................................... $25.20
======
Total return............................................................... 26.96%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........................................... $1,454
Ratio of expenses to average net assets................................... 1.92%+
Ratio of net investment income to average net assets...................... 0.45%+
Ratio of expenses to average net assets*.................................. 2.12%+
Ratio of net investment income to average net assets*..................... 0.25%+
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced and expenses
reimbursed. If such voluntary fee reductions and expense reimbursements had
not occurred, the ratios would have been as indicated.
+ Annualized.
++ Not annualized.
(a) Period from July 22, 1996 (inception date) to February 28, 1997.
See Notes to Financial Statements.
41
<PAGE> 44
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors
and Shareholders of
Pacific Horizon Funds, Inc.
In our opinion, the accompanying statements of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Pacific Horizon Aggressive Growth
Fund and Pacific Horizon Blue Chip Fund (two of the portfolios constituting the
Pacific Horizon Funds, Inc., hereafter referred to as the "Funds") at February
28, 1997, the results of each of their operations for the year then ended, the
changes in each of their net assets for each of the two years in the period then
ended and the financial highlights for each of the periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Funds' management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at February 28, 1997 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide
a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
April 21, 1997
42
<PAGE> 45
MASTER INVESTMENT TRUST SERIES I --
BLUE CHIP PORTFOLIO
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- ------------------------------------------------------------------------ ------- -----------
<S> <C> <C>
COMMON STOCKS -- 97.2%
AEROSPACE/DEFENSE -- 1.7%
Lockheed Martin Corp. ................................................. 49,500 $ 4,380,750
Rockwell International ................................................ 55,600 3,600,100
7,980,850
AIRLINES -- 0.3%
Delta Airlines ........................................................ 17,900 1,440,950
APPAREL -- 0.9%
Nike, Inc. ............................................................ 57,600 4,140,000
AUTOMOBILES -- 1.8%
Chrysler Corp. ........................................................ 132,900 4,501,988
General Motors Corp. .................................................. 67,100 3,883,412
8,385,400
BANKS -- 9.3%
Bank of Boston Corp. .................................................. 102,800 7,748,550
Barnett Banks, Inc. ................................................... 74,600 3,450,250
Chase Manhattan Corp. ................................................. 73,600 7,369,200
Citicorp .............................................................. 34,600 4,039,550
Comerica .............................................................. 88,600 5,327,075
First Union Corp. ..................................................... 83,900 7,362,225
Mellon Bank Corp. ..................................................... 67,700 5,441,388
Nations Bank Corp. .................................................... 61,000 3,652,375
44,390,613
BEVERAGES-SOFT DRINKS -- 3.1%
Coca-Cola Co. ......................................................... 242,400 14,786,400
BROKERAGE -- 1.3%
Dean Witter ........................................................... 162,100 6,220,588
BUILDING MATERIALS -- 0.4%
Armstrong World Industries ............................................ 28,400 1,956,050
CHEMICALS -- 2.1%
E.I. Du Pont de Nemours & Co. ......................................... 94,500 10,135,125
COMPUTERS -- 10.0%
Compaq Computer Corp.** ............................................... 86,000 6,815,500
Computer Associates ................................................... 49,200 2,140,200
Dell Computer ** ...................................................... 89,900 6,394,138
Intel Corp. ........................................................... 100,700 14,286,813
Microsoft Corp. ....................................................... 138,800 13,533,000
Seagate Technology ** ................................................. 47,200 2,230,200
Sun Microsystems, Inc.** .............................................. 71,800 2,216,825
47,616,676
ELECTRICAL EQUIPMENT -- 0.3%
Applied Materials, Inc.** ............................................. 27,500 1,392,183
</TABLE>
- ---------------
See Notes to Financial Statements.
43
<PAGE> 46
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- ------------------------------------------------------------------------ ------ --------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
FOOD -- 2.4%
Conagra, Inc. ......................................................... 82,400 $ 4,367,200
Hershey Foods Corp. ................................................... 70,000 3,193,750
Sara Lee Corp. ........................................................ 105,600 4,092,000
11,652,950
FOREST PRODUCTS -- 1.1%
Bemis Co., Inc. ....................................................... 45,200 1,870,150
James River Corp. ..................................................... 103,800 3,399,450
5,269,600
HEALTHCARE -- 0.9%
Tenet Healthcare ** ................................................... 155,900 4,228,788
HOUSEHOLD PRODUCTS -- GENERAL -- 4.1%
Avon Products, Inc. ................................................... 105,400 6,139,550
Clorox ................................................................ 34,800 4,158,600
Proctor & Gamble ...................................................... 75,700 9,093,463
19,391,613
INSURANCE -- 4.6%
Aetna Life & Casualty Co. ............................................. 15,322 1,269,811
Allstate .............................................................. 65,997 4,182,560
Cigna ................................................................. 36,200 5,534,075
Conseco, Inc. ......................................................... 88,400 3,469,700
General Re Corp.** .................................................... 18,000 3,053,250
Travellers Group ...................................................... 83,100 4,456,238
21,965,634
LEISURE -- 2.2%
Walt Disney Co. ....................................................... 75,878 5,633,942
King World Productions, Inc.** ........................................ 31,700 1,176,863
Hospitality Franchise** ............................................... 51,200 3,507,200
10,318,005
MACHINERY & EQUIPMENT -- 1.0%
Caterpillar, Inc. ..................................................... 31,500 2,468,813
Ingersoll Rand Co. .................................................... 45,300 2,151,750
4,620,563
MANUFACTURING -- DIVERSE -- 4.0%
Air Products & Chemicals, Inc. ........................................ 51,200 3,795,200
General Electric Co. .................................................. 127,800 13,147,425
Johnson Controls, Inc. ................................................ 27,100 2,283,175
19,225,800
MANUFACTURING TOYS -- 0.4%
Hasbro, Inc. .......................................................... 48,500 2,073,375
MEDIA -- PUBLISHING -- 0.9%
New York Times Co. .................................................... 101,100 4,498,950
METALS -- 1.4%
Phelps Dodge Corp. .................................................... 52,500 3,753,750
USX-Steel Group. ...................................................... 89,900 2,820,613
6,574,363
MULTI-INDUSTRY -- 2.7%
Anheuser Busch Companies, Inc. ........................................ 54,800 2,438,600
Honeywell, Inc. ....................................................... 83,400 5,931,820
Tyco Labs, Inc. ....................................................... 77,900 4,596,100
12,966,520
</TABLE>
- ---------------
See Notes to Financial Statements.
44
<PAGE> 47
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- ------------------------------------------------------------------------ ------- -----------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
OFFICE EQUIPMENT -- 2.5%
Cisco Systems** ....................................................... 105,000 $ 5,840,625
Emc Corp/Mass** ....................................................... 71,400 2,570,400
Harris Corp. .......................................................... 46,800 3,451,500
11,862,525
OIL -- 8.2%
Amoco Corp. ........................................................... 36,600 3,092,700
Exxon Corp. ........................................................... 94,400 9,428,200
Mobil Corp. ........................................................... 48,200 5,916,550
Phillips Petroleum Co. ................................................ 67,700 2,801,088
Royal Dutch Pete Co. ADR + ............................................ 27,300 4,722,900
Schlumberger Ltd. ..................................................... 45,000 4,528,125
Texaco, Inc. .......................................................... 57,100 5,645,763
USX Marathon Group .................................................... 124,800 3,322,800
39,458,126
PHARMACEUTICALS -- 9.9%
Abbott Laboratories ................................................... 95,100 5,349,375
Bristol-Meyers ........................................................ 63,400 8,273,700
Johnson & Johnson ..................................................... 155,700 8,972,213
Merck & Co., Inc. ..................................................... 154,400 14,204,800
Pfizer, Inc. .......................................................... 47,500 4,352,188
Schering Plough Corp. ................................................. 75,900 5,815,839
46,968,115
RAILROAD -- 1.0%
Norfolk Southern Corp. ................................................ 53,100 4,838,738
RETAIL -- 4.7%
American Stores Co. ................................................... 108,500 4,855,375
Gap, Inc. ............................................................. 154,900 5,111,700
Home Depot, Inc. ...................................................... 52,900 2,883,050
Sears Roebuck & Co. ................................................... 103,700 5,625,725
TJX Cos, Inc. ......................................................... 94,300 3,937,025
22,412,875
TECHNOLOGY -- 1.7%
United Technologies Corp. ............................................. 104,700 7,878,675
TOBACCO -- 2.3%
Philip Morris Cos, Inc. ............................................... 79,700 10,769,463
UTILITIES-ELECTRIC -- 2.9%
Consolidated Edison Co. ............................................... 192,400 5,940,350
FPL Group, Inc. ....................................................... 58,900 2,679,950
General Public Utilities, Inc. ........................................ 151,900 5,316,500
13,936,800
UTILITIES -- GAS -- 0.7%
Pacific Enterprises ................................................... 110,100 3,358,050
UTILITIES -- TELECOMMUNICATIONS -- 6.4%
Ameritech Corp. ....................................................... 103,600 6,604,500
AT&T .................................................................. 95,100 3,792,114
Bell Atlantic ......................................................... 43,800 3,027,675
Bellsouth Corp. ....................................................... 143,600 6,731,250
GTE Corp. ............................................................. 141,700 6,624,475
Nynex Corp. ........................................................... 71,500 3,682,250
30,462,264
TOTAL COMMON STOCKS -- 97.2%
(cost $390,585,504) ................................................... 463,176,627
</TABLE>
- ---------------
See Notes to Financial Statements.
45
<PAGE> 48
<TABLE>
<CAPTION>
MATURITY PRINCIPAL VALUE
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
- ------------------------------------------- ---- -------- ---------- ------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS -- 3.8%
U.S. Treasury Bill........................ 4.96%* 03/20/97 $ 465,000 $ 463,758
U.S. Treasury Bill........................ 4.97%* 04/03/97 4,597,000 4,575,456
U.S. Treasury Bill........................ 5.00%* 04/03/97 180,000 179,157
U.S. Treasury Bill........................ 4.98%* 04/03/97 461,000 458,840
U.S. Treasury Bill........................ 4.93%* 04/03/97 379,000 377,287
U.S. Treasury Bill........................ 4.98%* 05/08/97 748,000 740,803
U.S. Treasury Bill........................ 4.97%* 05/08/97 417,000 412,988
U.S. Treasury Bill........................ 4.97%* 05/08/97 317,000 313,950
U.S. Treasury Bill........................ 4.98%* 05/08/97 606,000 600,169
U.S. Treasury Bill........................ 5.00%* 05/08/97 2,068,000 2,048,102
U.S. Treasury Bill........................ 4.98%* 05/08/97 907,000 898,273
U.S. Treasury Bill........................ 4.93%* 05/08/97 585,000 579,371
U.S. Treasury Bill........................ 4.90%* 05/08/97 399,000 395,161
U.S. Treasury Bill........................ 4.89%* 05/08/97 621,000 615,025
U.S. Treasury Bill........................ 4.88%* 05/08/97 560,000 554,612
U.S. Treasury Bill........................ 4.87%* 05/08/97 752,000 744,764
U.S. Treasury Bill........................ 4.90%* 05/08/97 1,023,000 1,013,157
U.S. Treasury Bill........................ 4.98%* 05/08/97 3,176,000 3,145,442
Total U.S. Government Obligations
(cost $18,120,273)............................................................ 18,116,315
TOTAL INVESTMENTS -- 101.0%
(cost $408,705,777) (a)....................................................... 481,292,942
Liabilities in excess of other assets -- (1.0)%................................ (4,726,372)
NET ASSETS -- 100.0% ............ $476,566,570
</TABLE>
- ---------------
Percentages indicated are based on net assets of $476,566,570.
(a) Represents cost for federal income tax and book purposes and differs from
value by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.......................................... $75,273,544
Unrealized depreciation.......................................... (2,686,379)
----------
Net unrealized appreciation...................................... $72,587,165
==========
ADR -- American Depository Receipt
+ Foreign issuer
* Effective yield
** Non-income producing security
</TABLE>
SCHEDULE OF OPEN FINANCIAL FUTURES CONTRACTS PURCHASED
<TABLE>
<CAPTION>
NET UNREALIZED
EXPIRATION NUMBER OF CONTRACT DEPRECIATION
DATE CONTRACTS CONTRACTS VALUE OF CONTRACTS
- ---------- --------- --------------------- ---------- --------------
<S> <C> <C> <C> <C>
S&P 500 -- March
03/21/97 20 1997................. $7,925,000 $(21,000)
S&P 500 -- March
03/21/97 5 1997................. 1,982,750 (5,250)
--------
Net unrealized depreciation on Open Futures Contracts........... $(26,250)
========
</TABLE>
- ---------------
See Notes to Financial Statements.
46
<PAGE> 49
MASTER INVESTMENT TRUST, SERIES I --
BLUE CHIP PORTFOLIO
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
February 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (cost $408,705,777)............. $481,292,942
Receivable for investment securities sold........................... 386,641
Contribution receivable............................................. 2,680,008
Dividends receivable................................................ 960,007
Deferred organization costs......................................... 24,305
Prepaid expenses.................................................... 1,120
------------
Total Assets.......................................................... 485,345,023
============
LIABILITIES:
Withdrawal payable.................................................. 1,025,347
Payable for investment securities purchased......................... 7,349,877
Cash overdraft...................................................... 23,721
Variation margin payable on futures contracts....................... 26,250
Advisory fees payable............................................... 203,561
Audit fees payable.................................................. 30,207
Fund accounting fees payable........................................ 33,348
Custodian fees payable.............................................. 26,438
Legal fees payable.................................................. 15,415
Administration fees payable......................................... 13,588
Other accrued expenses.............................................. 30,701
------------
Total Liabilities..................................................... 8,778,453
------------
NET ASSETS, FEBRUARY 28, 1997......................................... $476,566,570
============
</TABLE>
- ---------------
See Notes to Financial Statements.
47
<PAGE> 50
MASTER INVESTMENT TRUST, SERIES I --
BLUE CHIP PORTFOLIO
- --------------------------------------------------------------------------------
Statement of Operations
For the year ended February 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income....................................................... $ 619,448
Dividend income (net of foreign withholding tax $141,881)............. 7,463,844
------------
Total Income........................................................ 8,083,292
------------
EXPENSES:
Advisory fees......................................................... 2,701,648
Administration fees................................................... 180,110
Fund accounting fees and expenses..................................... 195,906
Audit fees............................................................ 34,644
Custodian fees and expenses........................................... 64,109
Legal fees............................................................ 36,994
Trustees' fees........................................................ 17,115
Amortization of organization costs.................................... 13,848
Other operating expenses.............................................. 18,057
------------
Total Expenses.................................................... 3,262,431
Less: Fee waivers..................................................... (1,025,006)
------------
Total Net Expenses...................................................... 2,237,425
------------
NET INVESTMENT INCOME................................................... 5,845,867
------------
NET REALIZED/UNREALIZED GAINS ON INVESTMENTS:
Net realized gains on investment transactions......................... 62,491,398
Net change in unrealized appreciation on investments.................. 26,358,970
------------
Net realized/unrealized gains on investments............................ 88,850,368
------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $94,696,235
============
</TABLE>
- ---------------
See Notes to Financial Statements.
48
<PAGE> 51
MASTER INVESTMENT TRUST, SERIES I --
BLUE CHIP PORTFOLIO
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 29,
1997 1996
------------ ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income.................................... $ 5,845,867 $ 4,528,400
Net realized gains on investment transactions............ 62,491,398 21,310,546
Net change in unrealized appreciation on investments..... 26,358,970 34,689,746
------------ ------------
Change in net assets resulting from operations............ 94,696,235 60,528,692
------------ ------------
TRUST SHARE TRANSACTIONS:
Contributions............................................ 176,422,520 96,776,148
Withdrawals.............................................. (70,074,459) (39,120,232)
------------ ------------
Change in net assets resulting from trust
share transactions....................................... 106,348,061 57,655,916
------------ ------------
Change in net assets...................................... 201,044,296 118,184,608
NET ASSETS
Beginning of year........................................ 275,522,274 157,337,666
------------ ------------
End of year.............................................. $476,566,570 $275,522,274
============ ============
</TABLE>
- ---------------
See Notes to Financial Statements.
49
<PAGE> 52
MASTER INVESTMENT TRUST, SERIES I --
BLUE CHIP PORTFOLIO
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 -- ORGANIZATION
Master Investment Trust, Series I (the "Trust"), a Delaware business trust,
is registered under the Investment Company Act of 1940, as amended (the "Act"),
as an open-end management investment company. At February 28, 1997, the Trust
consisted of three portfolios. The accompanying financial statements and notes
are those of the Blue Chip Portfolio (the "Portfolio") only.
The investment objective of the Portfolio is long term capital appreciation
through investments in blue chip stocks.
Bank of America National Trust and Savings Association ("Bank of America"),
a subsidiary of BankAmerica Corporation, serves as the Portfolio's investment
adviser. The BISYS Group, Inc. ("BISYS"), through its wholly owned subsidiary,
BISYS Fund Services, Limited Partnership serves as the Portfolio's
administrator.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Portfolio in the preparation of its financial statements. The policies are
in conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
PORTFOLIO VALUATIONS:
Securities for which market quotations are readily available (other than
debt securities with remaining maturities of 60 days or less) are valued at the
last reported sales price on the securities exchange on which such securities
are primarily traded or at the last reported sales price on the NASDAQ National
Securities Market. Securities not listed on an exchange or the NASDAQ National
Securities Market, or securities for which there were no transactions on the day
of valuation, are valued at the mean of the most recent bid and ask prices. Bid
price is used when no ask price is available. The Portfolio may use an
independent pricing service, approved by the Board of Trustees, to value certain
of its securities. Such prices reflect market values which may be established
through the use of electronic data processing techniques and matrix systems.
Restricted securities and securities for which market quotations are not readily
available, if any, are valued at fair value using methods approved by the Board
of Trustees.
Debt securities with remaining maturities of 60 days or less are valued at
amortized cost, which approximates market value.
50
<PAGE> 53
FUTURES:
A futures contract is an agreement to purchase or sell a specified quantity
of an underlying instrument at a specified future date or to make or receive a
cash payment based on the value of a securities index. The price at which the
purchase and sale will take place is fixed when the Portfolio enters into the
contract. Upon entering into such a contract the Portfolio is required to pledge
to the broker an amount of cash and/or securities equal to the minimum "initial
margin" requirements of the exchange. Pursuant to the contract, the Portfolio
agrees to receive from or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are known as
"variation margin" and are recorded by the Portfolio as unrealized gains or
losses. When the contract is closed, the Portfolio records a realized gain or
loss equal to the difference between the value of the contract at the time it
was opened and the value at the time when it was closed. The Portfolio invests
in futures contracts solely for the purpose of hedging its existing portfolio
securities, or securities the Portfolio intends to purchase, against
fluctuations in value caused by changes in prevailing market interest rates. The
use of futures transactions involves the risk of imperfect correlation in
movements in the price of futures contracts, interest rates and the underlying
hedged assets, and the possible inability of counterparties to meet the terms of
their contracts. The summary of open financial futures contracts at February 28,
1997, is included in the Portfolio's Schedule of Investments which is included
elsewhere in this report.
SECURITIES TRANSACTIONS AND RELATED INCOME:
Securities transactions are accounted for on a trade date basis. Interest
income, including accretion of discount and amortization of premium, is accrued
daily. Dividend income is recorded on the ex-dividend date. Realized gains and
losses on securities transactions are determined on the identified cost basis.
EXPENSES:
Expenses directly attributable to a Portfolio are charged to that Portfolio,
while general Trust expenses are allocated among the respective portfolios of
the Trust.
FEDERAL INCOME TAXES:
The Portfolio will be treated as a partnership for federal income tax
purposes. As such, each investor in the Portfolio will be taxed on its share of
the Portfolio's ordinary income and capital gains. It is intended that the
Portfolio will be managed in such a way that an investor will be able to satisfy
the requirements of the Internal Revenue Code applicable to regulated investment
companies.
NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
The Portfolio has an Investment Advisory Agreement with Bank of America and
an Administration Agreement with BISYS.
51
<PAGE> 54
As Adviser, Bank of America is responsible for managing the investment of
the assets of the Portfolio in conformity with the stated objectives and
policies of the Portfolio. Pursuant to the terms of the Investment Advisory
Agreement, Bank of America is entitled to a fee, which is accrued daily and
payable monthly, at an annual rate of 0.75% of the average daily net assets of
the Portfolio. For the year ended February 28, 1997, Bank of America waived
$961,001 in fees as Adviser of the Portfolio.
As Administrator, BISYS assists in supervising the operations of the
Portfolio. Pursuant to the terms of the Administration Agreement, BISYS is
entitled to a fee which is accrued daily and payable monthly, at an annual rate
of 0.05% of the Portfolio's average daily net assets. For the year ended
February 28, 1997, BISYS waived $64,005 in fees as Administrator of the
Portfolio.
For services provided to all three of the portfolios constituting the Trust,
each Trustee receives an annual fee of $3,000 and a meeting fee of $500.
For the period ended February 28, 1997, the Portfolio incurred legal
expenses of $36,994, which were earned by a law firm, a partner of which serves
as Secretary of the Trust.
Certain officers of the Trust are affiliated with BISYS. Such persons are
not paid directly by the Trust for serving in these capacities.
NOTE 4 -- SECURITIES TRANSACTIONS
During the year ended February 28, 1997, the Portfolio purchased and sold
portfolio securities, excluding short-term securities, in the following amounts:
<TABLE>
<CAPTION>
PURCHASES SALES
------------- -------------
<S> <C> <C>
Total Common Stocks............................................... $412,047,868 $316,168,358
</TABLE>
52
<PAGE> 55
MASTER INVESTMENT TRUST SERIES I --
BLUE CHIP PORTFOLIO
- --------------------------------------------------------------------------------
Supplementary Data
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FOR THE YEAR PERIOD
YEAR ENDED YEAR ENDED ENDED ENDED
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1997 1996 1995 1994*
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Ratio of expenses to
average net assets....... 0.62% 0.31% 0.17% 0.27%**
Ratio of net investment
income to average net
assets................... 1.62% 2.16% 2.30% 1.97%**
Ratio of expenses to
average net assets (a)... 0.90% 0.90% 0.97% 1.07%**
Ratio of net investment
income to average net
assets (a)............... 1.34% 1.57% 1.50% 1.17%**
Portfolio Turnover......... 91% 108% 44% 86%
Average Commission rate
paid (b)................. $0.053 -- -- --
</TABLE>
- ---------------
<TABLE>
<C> <S>
(a) During the period, certain fees were voluntarily reduced and expenses
reimbursed. If such voluntary fee reductions and expense reimbursements had not
occurred, the ratios would have been as indicated.
(b) Represents the dollar amount of commissions paid on Portfolio transactions
divided by the total number of shares purchased and sold for which commissions
were charged.
* For the period December 6, 1993 ( commencement of operations) through February
28, 1994.
** Annualized.
</TABLE>
See Notes to Financial Statements.
53
<PAGE> 56
MASTER INVESTMENT TRUST, SERIES I
- --------------------------------------------------------------------------------
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Trustees
and Investors of
Master Investment Trust, Series I
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the supplementary data present fairly, in all material
respects, the financial position of Master Investment Trust, Series I -- Blue
Chip Portfolio (the "Portfolio") at February 28, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the supplementary data for each of
the periods presented, in conformity with generally accepted accounting
principles. These financial statements and supplementary data (hereafter
referred to as "financial statements") are the responsibility of the Portfolio's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at February 28, 1997 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
April 21, 1997
54
<PAGE> 57
For more information, complete the following form and mail it to:
Pacific Horizon Funds
1230 Columbia Street, Suite 500
San Diego, CA 92101
...............................................................................
First Name Last Name
...............................................................................
Street Address
...............................................................................
City State Zip Code
...............................................................................
Area Code and Telephone Number
PLEASE CHECK ONE OF THE TWO BOXES BELOW SO WE CAN BETTER MEET YOUR NEED FOR
SERVICE.
[ ] A broker assisted me with the purchase of my Pacific Horizon Fund.
...............................................................................
Name of Broker
...............................................................................
Name of Brokerage Firm
[ ] I purchased my Pacific Horizon Fund without the assistance of a broker.
Please send me a free investing kit on the Pacific Horizon Fund(s) checked
below. The kit includes a prospectus, which has more complete information on
the Fund(s) such as charges and expenses. Read the prospectus carefully
before investing or sending money.
PACIFIC HORIZON FUNDS
<TABLE>
<S> <C>
[ ] International Equity Fund [ ] Intermediate Bond Fund
[ ] Aggressive Growth Fund [ ] U.S. Government Securities Fund
[ ] Blue Chip Fund [ ] Short-Term Government Fund
[ ] Capital Income Fund [ ] National Municipal Bond Fund
[ ] Asset Allocation Fund [ ] California Tax-Exempt Bond Fund
[ ] Corporate Bond Fund
Money Market Funds
[ ] Prime Fund [ ] Treasury Only Fund
[ ] Treasury Fund [ ] Tax-Exempt Money Fund
[ ] Government Fund [ ] California Tax-Exempt Money Market Fund
</TABLE>
Additional Comments:
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
NOT FDIC INSURED - NO BANK GUARANTEE - MAY LOSE VALUE
<PAGE> 58
Bulk Rate
U.S. Postage
PAID
Cleveland, OH
Permit No. 1
[LOGO]
PACIFIC HORIZON FUNDS
Concord Financial Group, Inc., Distributor
GRW-0005 4/97
