<PAGE> 1
As filed with the Securities and Exchange Commission on January 31, 1997
Registration Nos. 2-81110/811-4293
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
Post-Effective Amendment No. 52 /x/
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. 54 /x/
----------------------------
PACIFIC HORIZON FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road
Columbus, OH 43219
(Address of Principal Executive Offices)
Registrant's Telephone Number, including area code: (800) 332-3863
W. Bruce McConnel, III
Drinker Biddle & Reath
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107-3496
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box)
[X] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE> 2
Registrant has registered an indefinite number of its shares under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940, as amended. The Registrant has filed its Rule 24f-2 Notice relating to
such shares for Registrant's most recent fiscal year on April 29, 1996.
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<PAGE> 3
PACIFIC HORIZON FUNDS, INC.
SHORT TERM GOVERNMENT FUND
CROSS REFERENCE SHEET
--------------------------------
<TABLE>
<CAPTION>
FORM N-1A ITEM PROSPECTUS CAPTION
- -------------- ------------------
PART A
- ------
<S> <C> <C>
1. Cover Page................................................. Cover Page
2. Synopsis................................................... Expense Summary
3. Condensed Financial Information............................ Financial Highlights
4. General Description of Registrant.......................... Cover Page; Description of
Shares; Fund Investments
5. Management of the Fund..................................... The Business of the Fund
5.A. Management's Discussion of
Fund Performance......................................... *
6. Capital Stock and Other
Securities............................................... Description of Shares;
Dividend and Distribution
Policies; Tax Information
7. Purchase of Securities Being
Offered................................................... How to Buy Shares; Shareholder
Services; The Business of the
Fund; Measuring Performance;
Plan Payments
8. Redemption or Repurchase................................... How to Sell Shares;
Shareholder Services; Plan
Payments
9. Pending Legal Proceedings.................................. *
</TABLE>
- ----------
* Item inapplicable or answer negative.
<PAGE> 4
PACIFIC HORIZON FUNDS, INC.
PACIFIC HORIZON SHORT-TERM GOVERNMENT FUND
(THE "FUND")
SUPPLEMENT DATED JANUARY 31, 1997
TO THE
PROSPECTUS DATED JULY 30, 1996
This Supplement provides new and additional information beyond that
contained in the Prospectus and should be retained and read in conjunction with
the Prospectus.
1. FINANCIAL HIGHLIGHTS
The table below shows certain information concerning the investment
results for the Fund for the period indicated. The Fund commenced operations on
August 2, 1996 by offering a single series of shares known as A Shares. During
the period shown, the Fund did not offer B Shares.
The financial data included in this table has been derived from
unaudited financial statements and notes which are incorporated by reference
into the Statement of Additional Information. The Financial Highlights should be
read in conjunction with such financial statements and notes thereto. Further
information about the performance of the Fund is available in the semi-annual
report to shareholders. Both the Statement of Additional Information and the
semi-annual report to shareholders may be obtained from the Fund free of charge
by calling 800-332-3863.
<PAGE> 5
Selected data for an A Share of common stock outstanding throughout the period
indicated:
<TABLE>
<CAPTION>
PERIOD ENDED
AUGUST 31, 1996(a)
(UNAUDITED)
------------------
<S> <C>
Net asset value per share, beginning
of period.......................................................... $10.00
------
Income from Investment Operations:
Net investment income.............................................. 0.05
Net realized and unrealized
losses on securities............................................. (0.02)
------
Total income from investment
operations....................................................... 0.03
------
Less dividends and distributions:
Dividends from net
investment income................................................ (0.05)
------
Net change in net asset value per share.............................. (0.02)
------
Net asset value per share, end of period............................. $9.98
======
Total return......................................................... 0.26%+
Ratios/Supplemental Data:
Net assets, end of period (000)...................................... $2,959
Ratio of expenses to average net assets.............................. 0.00%++
Ratio of net investment income to
average net assets................................................. 6.04%++
Ratio of expenses to average net assets*............................. 22.11%++
Ratio of net investment loss to average net assets*.................. (16.08%)++
Portfolio turnover rate.............................................. 5%
</TABLE>
(a) For the period August 2, 1996 (commencement of operations) through
August 31, 1996.
+ Not annualized and does not include the effect of the maximum 4.50%
sales charge.
++ Annualized.
* 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.
-2-
<PAGE> 6
2. The following exemption is added to the types of transactions exempt
from the front-end sales load applicable with respect to A Shares below the
heading "SHAREHOLDER GUIDE - HOW TO BUY SHARES - HOW ARE SHARES PRICED? - WHEN
NO FRONT-END SALES LOAD IS APPLIED" in the Prospectus:
- any purchase of shares by eligible deferred compensation plans
under Section 457 of the Internal Revenue Code of 1986, as
amended.
3. The following exemptions are added to the list of individuals exempt
from the front-end sales load applicable with respect to A Shares below the
heading "SHAREHOLDER GUIDE - HOW TO BUY SHARES - HOW ARE SHARES PRICED? - WHEN
NO FRONT-END SALES LOAD IS APPLIED" in the Prospectus:
- purchases by former members of the Company's Board of
Directors with the designation of director emeritus.
- purchases by Lucky Stores Cardholders during periodic
promotions under the Periodic No-Load to Lucky Stores
Cardholders Program (the "Program") (initial purchase only;
a front-end sales load will apply to any other purchases
unless another exemption is available). (Promotional material
will delineate the beginning and ending date during which
shares of the Fund may be purchased without a front-end
sales load pursuant to the Program).
4. Effective November 1, 1996, The BISYS Group, Inc. ("BISYS"), through
its wholly-owned subsidiary BISYS Fund Services, L.P., serves as administrator
of the Fund pursuant to the terms of an Administration Agreement between the
Company and BISYS (the "New Administration Agreement"). BISYS has replaced the
Fund's prior administrator, Concord Holding Corporation ("Concord"), an
indirect, wholly-owned subsidiary of BISYS. BISYS has offices at 3435 Stelzer
Road, Columbus, Ohio 43219 and 150 Clove Road, Little Falls, New Jersey 07424.
The terms and conditions of the New Administration Agreement are
substantially the same as the prior administration agreement with Concord,
including the administration fee payable by the Fund.
-3-
<PAGE> 7
PROSPECTUS
July 30, 1996
PACIFIC HORIZON SHORT-TERM GOVERNMENT FUND
An Investment Portfolio Offered by Pacific Horizon Funds, Inc.
The PACIFIC HORIZON SHORT-TERM GOVERNMENT FUND (the "Fund") is a diversified
mutual fund whose investment objective is to provide high current income
consistent with relative stability of principal. The Fund seeks to achieve its
objective through investment primarily in securities issued or guaranteed by the
U.S. Government, its agencies, instrumentalities or sponsored enterprises.
This Prospectus describes two classes of shares. A Shares are sold with a
front-end sales load. B Shares are sold with a contingent deferred sales charge.
The Fund is offered by Pacific Horizon Funds, Inc. (the "Company"), an open-end,
series management investment company. Bank of America National Trust and Savings
Association ("Bank of America" or the "investment adviser") serves as the Fund's
investment adviser. Based in San Francisco, California, Bank of America and its
affiliates have over $48 billion under management, including over $12 billion in
mutual funds.
This Prospectus describes concisely the information about the Fund and the
Company that you should know before investing. Please read it carefully and
retain it for future reference.
More information about the Fund is contained in a Statement of Additional
Information that has been filed with the Securities and Exchange Commission. To
obtain a free copy, call 800-332- 3863. The Statement of Additional Information,
as it may be revised from time to time, is dated July 30, 1996 and is
incorporated by reference into this Prospectus.
Shares of the Fund are not bank deposits or obligations of, or guaranteed or
endorsed by, Bank of America or any of its affiliates and are not federally
insured by, guaranteed by, obligations of or otherwise supported by the U.S.
Government, the Federal Deposit Insurance Corporation, the Federal Reserve Board
or any other governmental agency. Investment in the Fund involves investment
risk, including the possible loss of principal.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE
<PAGE> 8
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This Prospectus is part of a Registration Statement that has been filed with the
Securities and Exchange Commission in Washington, D.C. under the Securities Act
of 1933.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, in the Statement
of Additional Information and the Fund's official sales literature in connection
with the offering of the Fund's shares and, if given or made, such information
or representations must not be relied upon as having been authorized by the
Company or its distributor. This Prospectus does not constitute an offer by the
Fund or by the distributor to sell, or a solicitation of any offer to buy, any
of the securities hereby in any jurisdiction to any person to whom it is
unlawful for the Fund or the distributor to make such offer in such
jurisdiction.
<PAGE> 9
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
EXPENSE SUMMARY......................................................................................... 5
FUND INVESTMENTS........................................................................................ 7
INVESTMENT OBJECTIVE .......................................................................... 7
DURATION AND MATURITY.......................................................................... 7
TYPES OF INVESTMENTS .......................................................................... 7
FUNDAMENTAL LIMITATIONS ....................................................................... 9
OTHER INVESTMENT PRACTICES AND CONSIDERATIONS.................................................. 9
SHAREHOLDER GUIDE....................................................................................... 13
HOW TO BUY SHARES.............................................................................. 13
What Is My Minimum Investment In The Fund?............................................ 13
What Alternative Sales Arrangements Are Available?.................................... 14
How Are Shares Priced?................................................................ 14
How Do I Decide Whether To Buy A or B Shares?......................................... 20
How Can I Buy Shares?................................................................. 22
What Price Will I Receive When I Buy Shares?.......................................... 23
What Else Should I Know To Make A Purchase?........................................... 24
HOW TO SELL SHARES............................................................................. 24
How Do I Redeem My Shares?............................................................ 24
What NAV Will I Receive For Shares I Want To Sell?.................................... 26
What Kind of Paperwork Is Involved In Selling Shares?................................. 27
How Quickly Can I Receive My Redemption Proceeds?..................................... 27
Do I Have Any Reinstatement Privileges After I Have
Redeemed Shares?..................................................................... 28
DIVIDEND AND DISTRIBUTION POLICIES...................................................................... 28
SHAREHOLDER SERVICES.................................................................................... 29
CAN I USE THE FUND IN MY RETIREMENT PLAN?...................................................... 29
CAN I EXCHANGE MY INVESTMENT FROM ONE FUND TO ANOTHER?......................................... 29
WHAT IS TELETRADE?............................................................................. 31
CAN I ARRANGE TO HAVE AUTOMATIC INVESTMENTS MADE ON A
REGULAR BASIS?................................................................................ 31
WHAT IS DOLLAR COST AVERAGING AND HOW CAN I IMPLEMENT IT?...................................... 32
CAN I ARRANGE PERIODIC WITHDRAWALS?............................................................ 32
CAN MY DIVIDENDS FROM THE FUND BE INVESTED IN OTHER FUNDS?..................................... 33
IS THERE A SALARY DEDUCTION PLAN AVAILABLE?.................................................... 33
THE BUSINESS OF THE FUND................................................................................ 34
FUND MANAGEMENT................................................................................ 34
Expenses.............................................................................. 34
Service Providers..................................................................... 34
Fee Waivers........................................................................... 36
TAX INFORMATION......................................................................................... 36
MEASURING PERFORMANCE................................................................................... 38
DESCRIPTION OF SHARES................................................................................... 39
PLAN PAYMENTS........................................................................................... 40
</TABLE>
3
<PAGE> 10
- --------------------------------------------------------------------------------
Distributor: Investment Adviser:
Concord Financial Group, Inc. Bank of America National Trust and
3435 Stelzer Road Savings Association
Columbus, OH 43219-3035 555 California Street
San Francisco, CA 94104
- --------------------------------------------------------------------------------
4
<PAGE> 11
EXPENSE SUMMARY
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when buying or selling
shares of the Fund. The Fund offers two classes of shares. A Shares are offered
at net asset value plus a front-end sales load (see page 14 of the Prospectus
for an explanation of net asset value per share) and are subject to a
shareholder servicing fee. B Shares are offered at net asset value without a
front-end sales load but are subject to a contingent deferred sales charge plus
distribution and shareholder servicing fees. B Shares of the Fund held for 8
years will convert to A Shares of the Fund.
ANNUAL FUND OPERATING EXPENSES include payments by the Fund for portfolio
management, maintenance of shareholder accounts, general administration,
distribution (in the case of B Shares only), shareholder servicing, accounting
and other services.
Below is a summary of the shareholder transaction expenses imposed by the Fund
for A and B Shares and their estimated operating expenses expected to be
incurred during the first twelve months of operations. Actual expenses may vary.
A hypothetical example based on the summary is also shown.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES A Shares B Shares
-------- --------
<S> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) 4.50% None
Sales Load Imposed on Reinvested Dividends None None
Maximum Contingent Deferred Sales Load
(as a percentage of original purchase
price or redemption proceeds, whichever
is lower) None(1) 5.00%
Redemption Fees None None
Exchange Fee None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (After Fee Waivers)+ 0.0 % 0.0 %
12b-1 Fee* 0 % 0.75%
Shareholder Services Fee* 0.25% 0.25%
Other Expenses (After Expense Reimbursements)+ 0.60% 0.60%
Total Operating Expenses (After Fee Waivers and
Expense Reimbursements)+ 0.85% 1.60%
</TABLE>
1. There is no front-end sales load on A Shares you purchase if you have
either a combined purchase of A Shares of the Company of $1,000,000 or
more or if the aggregate value of A Shares that you beneficially own in
any Pacific Horizon Fund or Time Horizon Fund, another open-end
investment company managed by Bank of America (a "Time Horizon Fund"),
equals or exceeds $1,000,000 ("Large Purchase Exemption"). A Shares
purchased under the Large Purchase Exemption (except A Shares purchased
under the Daily Advantage(R) or Advantage Plus(TM) Programs) are
subject to a contingent deferred sales charge of 1.00% and 0.50%,
respectively, on redemptions within one and two years after purchase.
The contingent deferred sales charge is paid to Concord Financial
Group, Inc. (the "Distributor"). A Shares cannot be purchased under the
Large Purchase Exemption if there is another no-load exemption
available. Accordingly, A Shares purchased under another no-load
exemption are not subject to a contingent deferred sales charge.
Although no front-end sales load will be paid on shares purchased under
the Large Purchase Exemption, the Distributor will compensate brokers
whose customers purchase such shares at the following rates: 1.00% of
the amount under $3 million, 0.50% of the next $47 million and 0.25%
thereafter.
+ Management intends to waive fees and reimburse certain "Other Expenses"
on behalf of the Fund. Absent fee waivers and/or expense reimbursement,
management fees would be 0.45% of the average net assets (annualized);
"Other Expenses" for the Fund's A and B Shares (based on estimates for
the first twelve months of operations) would be 1.79% and 1.79%,
respectively,
5
<PAGE> 12
of average net assets (annualized); and "Total Operating Expenses" for
the Fund's A and B Shares would be 2.49% and 3.24% of average net
assets (annualized), respectively.
* Because of the Rule 12b-1 and shareholder services fees paid by the
Fund as shown in the above table, long-term B shareholders may pay more
than the economic equivalent of the maximum front-end sales load
permitted by the National Association of Securities Dealers, Inc. For a
further description of shareholder transaction expenses and the Fund's
operating expenses, see the sections entitled "Shareholder Guide," "The
Business of the Fund" and "Plan Payments" below.
EXAMPLE: Assume the annual return is 5% and operating expenses are the
same as those stated above. For every $1,000 you invest, here is how
much you would have paid in total expenses if you closed your account
after the number of years indicated:
<TABLE>
<CAPTION>
After 1 Yr After 3 Yrs
---------- -----------
<S> <C> <C>
A Shares(1) $53 $71
B Shares
Assuming complete
redemption at
end of period(2) $66 $80
Assuming no redemption $16 $50
</TABLE>
(1) Assumes deduction at time of purchase of maximum applicable front-end sales
load but does not assume deduction at redemption of maximum applicable
contingent deferred sales charge under the Large Purchase Exemption.
(2) Assumes deduction at redemption of maximum applicable contingent deferred
sales charge.
Note: The preceding operating expenses and example should not be considered a
representation of future investment returns and operating expenses. The Short
Term Government Fund is new and the above figures are based on estimates of
expenses expected during its first twelve months of operation. Actual investment
returns and operating expenses may be more or less than those shown.
This expense information is provided to help you understand the expenses you
would bear either directly (as with transaction expenses) or indirectly (as with
annual operating expenses) as a Fund shareholder.
Absent fee waivers and/or expense reimbursement, management fees consist of:
- an investment advisory fee payable at the annual rate of 0.25%
of the Fund's average daily net assets; and
- an administration fee payable at the annual rate of 0.20% of
the Fund's average daily net assets.
Currently, the most restrictive expense limitation limits the Fund's aggregate
annual expenses (including management fees) to 2.5% of the first $30 million of
the Fund's average daily net assets, 2% of the next $70 million and 1.5% of the
Fund's remaining average daily net assets.
The alternative sales arrangements permit you to choose the method of purchasing
shares that is most beneficial given the amount of the purchase, the length of
time you expect to hold the shares and other circumstances. You should determine
whether under your particular circumstances it is more
6
<PAGE> 13
advantageous to incur a front-end sales load and thereafter be subject to annual
fees under a Shareholder Services Plan with respect to A Shares; or have the
entire initial purchase price invested in the Fund with the investment
thereafter being subject to annual fees under a Distribution and Services Plan
and a contingent deferred sales charge upon redemption within the first six
years of investment, with respect to B Shares. See the section entitled "How To
Buy Shares" below.
FUND INVESTMENTS
INVESTMENT OBJECTIVE
THE PACIFIC HORIZON SHORT-TERM GOVERNMENT FUND SEEKS HIGH CURRENT INCOME
CONSISTENT WITH RELATIVE STABILITY OF PRINCIPAL. THE FUND SEEKS THIS OBJECTIVE
THROUGH INVESTING PRIMARILY IN SECURITIES ISSUED OR GUARANTEED BY THE U.S.
GOVERNMENT, ITS AGENCIES, INSTRUMENTALITIES OR SPONSORED ENTERPRISES.
THE FUND MAY BE APPROPRIATE FOR INVESTORS WHO WANT:
- INCOME FROM SECURITIES ISSUED OR GUARANTEED BY THE U.S.
GOVERNMENT, ITS AGENCIES, INSTRUMENTALITIES AND SPONSORED
ENTERPRISES; AND
- RELATIVE STABILITY OF INVESTMENT BUT ARE WILLING TO ACCEPT
SOME PRICE AND YIELD VARIATIONS.
DURATION AND MATURITY
Under normal market and interest rate conditions, the investment
adviser expects that the Fund's average portfolio duration generally will be
approximately the same as a one-year U.S. Treasury bill (approximately one
year). This means that the Fund's net asset value fluctuation is expected to be
similar to the price fluctuation of a one-year U.S. Treasury bill. Under normal
market and interest rate conditions, the investment adviser does not expect the
Fund's average portfolio duration to exceed that of a two-year U.S. Treasury
note (approximately 1.9 years). However, there is no limitation on duration.
Under normal circumstances, it is expected that the average weighted maturity of
the Fund's investments will not exceed two years. Unlike maturity which
indicates when a security repays principal, "duration" incorporates the cash
flows of all interest and principal payments and the proceeds from calls and
redemptions over the life of a security. These payments are multiplied by the
number of years over which they are received to produce a value that is
expressed in years (i.e., duration).
TYPES OF INVESTMENTS
IN GENERAL. The Fund has a policy that it will invest primarily in securities
issued or guaranteed by the U.S. Government, its agencies, instrumentalities or
sponsored enterprises, including, but not limited
7
<PAGE> 14
to, direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
certificates of indebtedness, notes and bonds, and in repurchase agreements
involving such securities. Other types of U.S. Government obligations that the
Fund may hold include obligations of U.S. Government agencies, instrumentalities
or sponsored enterprises including, but not limited to, Federal Home Loan Banks,
Federal National Mortgage Association, Government National Mortgage Association,
Tennessee Valley Authority, Export-Import Bank of the United States, Commodity
Credit Corporation, Federal Financing Bank, Student Loan Marketing Association,
or Federal Home Loan Mortgage Corporation. Obligations of some of these
agencies, instrumentalities and sponsored enterprises, such as the Small
Business Administration or the Maritime Administration, are supported by the
full faith and credit of the U.S. Treasury; others, such as those of the
Export-Import Bank of the United States, are supported by the right of the
issuer to borrow from the Treasury; others, like the Federal National Mortgage
Association, are backed by the discretionary authority of the U.S. Government to
purchase the agency's obligations; and still others, including the Student Loan
Marketing Association, are supported by the credit of the instrumentality. There
is no assurance that the U.S. Government would support a U.S. Government-
sponsored entity if it was not required to do so by law.
Guarantees of the Fund's investment securities by the U.S. Government, its
agencies, instrumentalities or sponsored enterprises assure only the payment of
principal and interest on the guaranteed securities, and do not guarantee the
securities' yield or value, or the yield or value of the Fund's shares. U.S.
Government obligations ordinarily carry lower rates of interest income than debt
securities of other issuers with similar maturities.
The market value of debt securities, and thus the Fund's net asset value per
share, is expected to vary with changes in interest rates. The value of the
Fund's investments will normally fall when prevailing interest rates rise and
rise when interest rates fall. Interest rate fluctuations can be expected to
affect the Fund's earnings. In an effort to preserve the capital of the Fund
when interest rates are generally rising, Bank of America may shorten the
average weighted maturity of the Fund's investments. Because the principal
values of the securities with shorter maturities are less affected by rising
interest rates, a portfolio with a shorter average weighted maturity will
generally diminish less in value during such periods than a portfolio with a
longer average weighted maturity. Because securities with shorter maturities,
however, generally have a lower yield to maturity, the Fund's current return
based on its net asset value generally will be lower as a result of such action
than it would have been had such action not been taken.
MORTGAGE-RELATED SECURITIES GENERALLY. The Fund may invest in U.S. Government
securities which are collateralized by or represent interests in real estate
mortgages. The types of mortgage securities in which the Fund may invest include
the following: (i) adjustable rate mortgage securities; (ii) collateralized
mortgage obligations; (iii) real estate mortgage investment conduits; and (iv)
other securities collateralized by or representing interests in real estate
mortgages whose interest rates reset at periodic intervals and are issued or
guaranteed by the U.S. Government, its agencies, instrumentalities or sponsored
enterprises.
The Fund may also invest in mortgage-related securities which are
issued by private entities such as investment banking firms and companies
related to the construction industry. The privately issued
8
<PAGE> 15
mortgage-related securities in which the Fund may invest include but are not
limited to: (i) privately issued securities which are collateralized by pools of
mortgages in which such mortgages are guaranteed as to payment of principal and
interest by an agency, instrumentality or sponsored enterprise of the U.S.
Government; (ii) privately issued securities which are collateralized by pools
of mortgages in which such mortgages are guaranteed as to the payment of
principal and interest by the issuer and such guarantee is collateralized by
U.S. Government securities; and (iii) other privately issued securities in which
the proceeds of the issuance are invested in mortgage-backed securities and
which mortgage-related securities are supported as to the payment of the
principal and interest by the credit of any agency, instrumentality or sponsored
enterprise of the U.S. Government.
The privately issued mortgage-related securities provide for periodic
payments consisting of both interest and principal. The interest portion of
these payments will be distributed by the Fund as income, and the principal
portion will be reinvested.
FUNDAMENTAL LIMITATIONS
The investment objective of the Fund may not be changed without a vote by the
holders of a majority of the outstanding shares of the Fund. Policies requiring
such a vote to effect a change are known as "fundamental." A number of the other
fundamental investment limitations are summarized below. The Fund may not:
1. Borrow money for the purpose of obtaining investment leverage
or issue senior securities (as defined in the Investment
Company Act of 1940), provided that the Fund may borrow from
banks for temporary purposes in an amount not exceeding 10% of
the value of the total assets of the Fund; or mortgage, pledge
or hypothecate any assets, except in connection with any such
borrowing and in amounts not in excess of the lesser of the
dollar amounts borrowed or 10% of the value of its total
assets at the time of such borrowing. This restriction shall
not apply to (a) the sale of portfolio securities accompanied
by a simultaneous agreement as to their repurchase, or (b)
transactions in currency, options, futures contracts and
options on futures contracts, or forward commitment
transactions.
2. Make loans, except investments in debt securities, repurchase
agreements and securities loans.
A complete list of the Fund's fundamental investment limitations is set out in
the Statement of Additional Information.
OTHER INVESTMENT PRACTICES AND CONSIDERATIONS
MORTGAGE-RELATED SECURITIES. The Fund may invest in mortgage-related securities.
Purchasable mortgage-related securities are represented by pools of mortgage
loans assembled for sale to investors by various governmental agencies such as
the Government National Mortgage Association ("GNMA") and government-related
organizations such as the Federal National Mortgage Association ("FNMA")
9
<PAGE> 16
and the Federal Home Loan Mortgage Corporation ("FHLMC"), as well as by private
issuers such as commercial banks, savings and loan institutions, mortgage
bankers and private mortgage insurance companies. Although certain
mortgage-related securities are guaranteed by a third party or are otherwise
similarly secured, the market value of the security, which may fluctuate, is not
so secured. If the Fund purchases a mortgage-related security at a premium, the
portion may be lost if there is a decline in the market value of the security,
whether resulting from increases in interest rates or prepayment of the
underlying mortgage collateral. As with other interest-bearing securities, the
prices of such securities are inversely affected by changes in interest rates.
However, though the value of a mortgage-related security may decline when
interest rates rise, the converse is not necessarily true because mortgages
underlying securities are prone to prepayment in periods of declining interest
rates. For this and other reasons, a mortgage-related security's maturity may be
shortened by unscheduled prepayments on underlying mortgages and, therefore, it
is not possible to accurately predict the security's return to the Fund.
Mortgage-related securities provide regular payments consisting of interest and
principal. No assurance can be given as to the return the Fund will receive when
these amounts are reinvested.
Mortgage-related securities acquired by the Fund may include
collateralized mortgage obligations ("CMOs"), a type of derivative, issued by
FNMA, FHLMC or other U.S. Government agencies, instrumentalities or sponsored
enterprises, as well as by private issuers. CMOs provide an investor with a
specified interest in the cash flow of a pool of underlying mortgage or other
mortgage-related securities. Issuers of CMOs frequently elect to be taxed as
pass-through entities known as real estate mortgage investment conduits
("REMICs"). CMOs are issued in multiple classes, each with a specified fixed or
floating interest rate and a final distribution date. The relative payment
rights of the various CMO classes may be structured in many ways. Generally,
payments of principal are applied to the CMO classes in the order of their
respective stated maturities, so that no principal payments will be made on a
CMO class until all other classes having an earlier stated maturity date are
paid in full. Sometimes, however, CMO classes are "parallel pay," i.e. payments
of principal are made to two or more classes concurrently.
CMOs may involve additional risks other than those found in other types
of mortgage-related obligations. CMOs may exhibit more price volatility and
interest rate risk than other types of mortgage-related obligations. During
periods of rising interest rates, CMOs may lose their liquidity as CMO market
makers may choose not to repurchase, or may offer prices, based on current
market conditions, which are unacceptable to a Fund based on the Fund's analysis
of the market value of the security.
Privately issued mortgage-related securities generally offer a higher
yield than mortgage-related securities issued by governmental agencies,
instrumentalities or sponsored enterprises because of the absence of any direct
or indirect government or agency payment guarantees. However, timely payment of
interest and principal on mortgage loans in these pools may be supported by
various forms of insurance or guarantees, including individual loan, pool and
hazard insurance, subordination and letters of credit. The insurance and
guarantees are issued by government entities, private insurers, banks and
mortgage poolers. Although the market for such securities is becoming
increasingly liquid, some mortgage-related securities issued by private
organizations may not be readily marketable.
10
<PAGE> 17
REPURCHASE AGREEMENTS. The Fund may buy securities subject to the seller's
agreement to repurchase them at an agreed upon time and price. These
transactions are known as repurchase agreements. The Fund will enter into
repurchase agreements only with financial institutions (such as banks and
broker-dealers) deemed creditworthy by Bank of America, under guidelines
approved by the Company's Board of Directors. It is intended that such
agreements will not have maturities longer than 60 days. During the term of any
repurchase agreement, the seller must maintain the value of the securities
subject to the agreement in an amount that is greater than the repurchase price.
Bank of America then continually monitors that value. Nonetheless, should the
seller default on its obligations under the agreement, the Fund would be exposed
to possible loss due to adverse market activity or delays connected with the
disposition of the underlying obligations. Repurchase agreements are considered
to be loans under the Investment Company Act of 1940 (the "1940 Act").
WHEN-ISSUED PURCHASES, FORWARD COMMITMENTS AND DELAYED SETTLEMENTS. The Fund may
purchase securities on a "when-issued" basis and purchase or sell securities on
a "forward commitment" basis. Additionally, the Fund may purchase or sell
securities on a "delayed settlement" basis. When-issued and forward commitment
transactions, which involve a commitment by the Fund to purchase or sell
particular securities with payment and delivery taking place at a future date
(perhaps one or two months later), permit the Fund to lock in a price or yield
on a security it owns or intends to purchase, regardless of future changes in
interest rates. Delayed settlement refers to a transaction in the secondary
market that will settle some time in the future. These transactions involve the
risk that the price or yield obtained may be less favorable than the price or
yield available when the delivery takes place. The Fund will set aside in a
segregated account cash or liquid securities equal to the amount of any
when-issued, forward commitment or delayed settlement transactions. When-issued
purchases, forward commitments and delayed settlements are not expected to
exceed 25% of the value of the Fund's total assets under normal circumstances.
These transactions will not be entered into for speculative purposes, but
primarily in order to hedge against anticipated changes in interest rates.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. To assist in reducing
fluctuations in net asset value, the Fund may enter into contracts for the
purchase or sale for future delivery of U.S. Government securities,
mortgage-related securities or Euro-dollar securities or may purchase put and
call options to buy or sell futures contracts. The Fund will engage in futures
and related options transactions only for bona fide hedging purposes.
A "sale" of a futures contract means the acquisition of a contractual obligation
to deliver the securities called for by the contract at a specified price on a
specified date. A "purchase" of a futures contract means the incurring of a
contractual obligation to acquire the securities called for by the contract at a
specified price on a specified date. These investment techniques would be used
to hedge against anticipated future changes in interest which otherwise might
either adversely affect the value of the Fund's securities. The Fund may not
purchase or sell a futures contract or purchase a related option unless
immediately after any such transaction the sum of the aggregate amount of margin
deposits on its existing futures positions and the amount of premiums paid for
related options does not exceed 5% of the Fund's total assets (after taking into
account certain technical adjustments). In order to prevent leverage in
connection with the purchase of futures contracts or call options thereon by the
Fund, an amount of cash, cash equivalents or liquid high grade debt securities
equal to the market value of the
11
<PAGE> 18
obligation under the futures contracts (less any related margin deposits) will
be maintained in a segregated account with the custodian. Furthermore, the
Fund's ability to engage in options and futures transactions may be limited by
tax considerations.
While transactions in futures contracts and options on futures contracts may
reduce certain risks, such transactions themselves entail certain other risks.
Thus, while the Fund may benefit from the use of futures and options on futures
contracts, unanticipated changes in interest rates and securities prices may
result in a poorer overall performance than if the Fund had not entered into any
futures contracts or options transactions. Because perfect correlation between a
futures position and portfolio position that is intended to be protected is
impossible to achieve, the desired protection may not be obtained and the Fund
may be exposed to risk of loss. The loss incurred by the Fund in entering into
futures contracts and in writing call options on futures contracts is
potentially unlimited and may exceed the amount of the premium received. Futures
markets are highly volatile and the use of futures may increase the volatility
of the Fund's net asset value. In addition, because of the low margin deposits
normally required in futures trading, a relatively small price movement in a
futures contract may result in substantial losses to the Fund. Further, futures
contracts and options on futures contracts may be illiquid, and exchanges may
limit fluctuations in futures contract prices during a single day. More
information about futures contracts and related options may be found in the
Statement of Additional Information and Appendix A to the Statement of
Additional Information.
PORTFOLIO TRANSACTIONS. Investment decisions for the Fund are made independently
from those for other investment companies and accounts managed by Bank of
America and its affiliated entities. Such other investment companies and
accounts may also invest in the same securities as the Fund. When a purchase or
sale of the same security is made at substantially the same time on behalf of
the Fund and another investment company or account, available investments or
opportunities for sales will be equitably allocated pursuant to procedures of
Bank of America. In some instances, this investment procedure may adversely
affect the price paid or received by the Fund or the size of the position
obtained or sold by the Fund.
In allocating purchase and sale orders for investment securities (involving the
payment of brokerage commissions or dealer concessions), Bank of America may
consider the sale of Fund shares by broker-dealers and other financial
institutions (including affiliates of Bank of America and the Fund's distributor
to the extent permitted by law), provided it believes the quality of the
transaction and the price to the Fund are not less favorable than what they
would be with any other qualified firm.
PORTFOLIO TURNOVER. Although no commissions are paid on bond transactions,
purchases and sales are at net prices which reflect dealers' mark-ups and
mark-downs, and a higher portfolio turnover rate for bond investments will
result in the payment of more dealer mark-ups and mark-downs than would
otherwise be the case. Turnover may impose other transaction costs and could
increase substantially the amount of income received by the Fund that
constitutes taxable capital gains. To the extent capital gains are realized,
distributions from those gains may be ordinary income for federal tax purposes
(see "Tax Information"). The Fund's annual portfolio turnover is not expected to
exceed 400%, although the Fund's annual portfolio turnover rate will not be a
limiting factor in making investment decisions.
12
<PAGE> 19
- --------------------------------------------------------------------------------
SHAREHOLDER GUIDE
THE FOLLOWING SECTION WILL PROVIDE YOU WITH ANSWERS TO
SOME OF THE MOST OFTEN-ASKED QUESTIONS REGARDING BUYING
AND SELLING THE FUND'S SHARES AND
REGARDING THE FUND'S DIVIDENDS.
- --------------------------------------------------------------------------------
HOW TO BUY SHARES
WHAT IS MY MINIMUM INVESTMENT IN THE FUND?
Generally, there is a minimum investment requirement of $500 for initial
purchases and $50 for subsequent purchases, although these amounts may be
altered in certain circumstances as shown below.
- --------------------------------------------------------------------------------
INVESTMENT MINIMUMS FOR SPECIFIC TYPES OF ACCOUNTS
<TABLE>
<CAPTION>
INITIAL INVESTMENT SUBSEQUENT INVESTMENT
------------------ ---------------------
<S> <C> <C>
REGULAR ACCOUNT $500* $50
AUTOMATIC INVESTMENT PLAN $50 $50
IRAS, SEP-IRAS (ONE PARTICIPANT) $500 No minimum
SPOUSAL IRAS** $250 No minimum
SEP-IRAS
(MORE THAN ONE PARTICIPANT) $2,500 No minimum
</TABLE>
* The minimum investment is $100 for purchases made through Bank of America's
trust and agency accounts or a Service Organization (defined below) whose
clients have made aggregate minimum purchases of $1,000,000. The minimum
investment is $200 for BankAmericard holders with an appropriate award
certificate from BankAmeriChoice Program.
** A regular IRA must be opened in conjunction with this account.
- --------------------------------------------------------------------------------
13
<PAGE> 20
WHAT ALTERNATIVE SALES ARRANGEMENTS ARE AVAILABLE?
The Fund issues two classes of shares. A Shares are sold to investors choosing
the front-end sales load alternative unless an exemption to the sales load is
otherwise available. B Shares are sold to investors choosing the deferred sales
charge alternative. The two classes of shares in the Fund represent interests in
the same portfolio of investments of the Fund, have the same rights and are
identical in all respects except as discussed below. A Shares bear the expenses
of a Shareholder Services Plan. B Shares bear the expenses of a Distribution and
Services Plan and have exclusive voting rights with respect to the Distribution
and Services Plan. B Shares also bear the expenses of the deferred sales charge
arrangements and any expenses resulting from such arrangements. The two classes
also have different exchange privileges, as described below. The net income
attributable to A and B Shares and the dividends payable on A and B Shares will
be reduced by the amount of the: (a) Shareholder Services Plan fees attributable
to A Shares, (b) Distribution and Services Plan fees attributable to B Shares,
and (c) the incremental expenses associated with such Plans. Lastly, B Shares of
the Fund held for 8 years will automatically convert into A Shares of the Fund.
HOW ARE SHARES PRICED?
Shares are purchased at their public offering price, which is based upon each
class' net asset value per share plus a front-end sales load on A Shares. Each
class calculates its net asset value ("NAV") as follows:
NAV = (Value of Assets Attributable to the Class) -
(Liabilities Attributable to the Class)
---------------------------------------------
Number of Outstanding Shares of the Class
Net asset value is determined as of the end of regular trading hours on the New
York Stock Exchange (the "Exchange") (currently 4:00 p.m. Eastern time) on days
the Exchange is open.
The Fund's investments are valued at market value or, where market quotations
are not readily available, at fair value as determined in good faith by the Fund
pursuant to procedures adopted by the Company's Board of Directors. Short-term
debt securities are valued at amortized cost, which approximates market value.
For further information about valuing securities, see the Statement of
Additional Information. For price and yield information call (800) 346-2087.
The per share net asset values of A and B Shares will diverge due to the
different distribution and other expenses borne by the classes.
A SHARES SALES LOAD. The front-end sales load ("front-end sales load" or "sales
load") for the A Shares of the Fund begins at 4.50% and may decrease as the
amount you invest increases, as shown in the following chart:
14
<PAGE> 21
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
As a % of As a % of Dealer's
offering net asset Reallowance
price value as a % of
Amount of Transaction offering price*
<S> <C> <C> <C>
Less than $100,000 4.50 4.71 4.00
$100,000 but less than $250,000 3.75 3.90 3.35
$250,000 but less than $500,000 2.50 2.56 2.20
$500,000 but less than $750,000 2.00 2.04 1.75
$750,000 but less than $1,000,000 1.00 1.01 0.90
$1,000,000 or more** 0.00 0.00 0.00
</TABLE>
* Dealer's reallowance may be changed periodically.
** See "Large Purchase Exemption" below for a description of the contingent
deferred sales charge.
From time to time, the Fund's distributor will make or allow additional payments
or promotional incentives in the form of cash or other compensation such as
trips to sales seminars, tickets to sporting and other entertainment events and
gifts of merchandise to firms that sell shares of the Fund.
- --------------------------------------------------------------------------------
LARGE PURCHASE EXEMPTION. The contingent deferred sales charge discussed under
the Large Purchase Exemption does not apply to A Shares purchased under the
Daily Advantage(R) or Advantage Plus(TM) programs. To the extent that no other A
Share no-load exemption is available, the foregoing schedule of sales loads does
not apply to purchases of A Shares of $1,000,000 or more, or to purchases of A
Shares if the aggregate value of the A Shares that you beneficially own in any
Pacific Horizon Fund or Time Horizon Fund equals or exceeds $1,000,000. If you
accumulate $1,000,000 or more of A Shares, on any additional purchase of A
Shares, the contingent deferred sales charge described below will apply to such
A Shares when they are redeemed. In addition, if a customer purchases $1,000,000
or more of A Shares and redeems such shares, a contingent deferred sales charge
will be imposed as follows:
<TABLE>
<CAPTION>
Number of Years Applicable Contingent
Elapsed Since Purchase Deferred Sales Charge
---------------------- ---------------------
<S> <C>
1 year 1.0%
2 years 0.5%
3 years None
</TABLE>
The contingent deferred sales charge is imposed on the lesser of the current
market value or the cost of the shares being redeemed. This means that this
charge will not be imposed upon increases in net asset value above the initial
purchase price or upon reinvested dividends. In determining whether a contingent
deferred sales charge is applicable to a redemption of such shares, the
calculation will be
15
<PAGE> 22
made in a manner that results in the lowest possible rate. It will be assumed
that the redemption is made first of amounts representing shares acquired
pursuant to the reinvestment of dividends and distributions; then of amounts
representing the increase in net asset value of your holdings of shares above
the total amount of payments for the purchase of shares during the preceding 2
years; then of amounts representing the cost of shares held beyond the
applicable contingent deferred sales charge period; and finally, of amounts
representing the cost of the shares held for the longest period of time. In
addition, no contingent deferred sales charge will be imposed on redeemed A
Shares if a front-end sales load had been previously imposed on such shares.
Although no front-end sales load will be paid on Large Purchase Exemptions, the
Distributor will compensate brokers whose customers purchase shares at the
following rates: 1.00% of the amount under $3 million, 0.50% of the next $47
million and 0.25% thereafter.
B SHARES CONTINGENT DEFERRED SALES CHARGE. B Shares may be purchased at net
asset value per share without the imposition of a sales charge at the time of
purchase. The Fund's distributor compensates broker-dealers that have entered
into a selling agreement with the distributor from its own funds at the time the
shares are purchased. The proceeds of the contingent deferred sales charges and
the ongoing distribution and services plan fees described below are used to
reimburse the Fund's distributor for its expenses, including the compensation of
broker-dealers.
B Shares that are redeemed within 6 years of purchase are subject to the
contingent deferred sales charge at the rates set forth below, charged as a
percentage of the lesser of the current market value or the cost of the shares
being redeemed. Accordingly, no sales charge will be imposed on increases in net
asset value above the initial purchase price. In addition, no charge will be
assessed on shares derived from reinvestment of dividends or capital gains
distributions. B Shares will convert to A Shares on the first business day of
the month following the eighth anniversary of the date of purchase unless the B
Shares have been exchanged for Pacific Horizon Shares of the Pacific Horizon
Prime Fund.
16
<PAGE> 23
<TABLE>
<CAPTION>
Contingent Deferred
Sales Charge (as a
Number of Years percentage of dollar amount
Elapsed Since Purchase* subject to the charge)
- ----------------------- ---------------------------
<S> <C>
Less than one............................................ 5.0%
More than one, but less
than or equal to two................................... 4.0%
More than two, but less
than or equal to three................................. 3.0%
More than three, but less
than or equal to four.................................. 3.0%
More than four, but less
than or equal to five.................................. 2.0%
More than five, but less
than or equal to six................................... 1.0%
After six years.......................................... None
</TABLE>
- ---------------------------------
* The time period during which Pacific Horizon Shares of the Pacific
Horizon Prime Fund acquired through an exchange are held is not
included when the amount of the contingent deferred sales charge is
calculated.
In determining whether a contingent deferred sales charge is applicable to a
redemption of B Shares, the calculation will be made in a manner that results in
the lowest possible rate. It will be assumed that the redemption is made first
of amounts representing B Shares acquired pursuant to the reinvestment of
dividends and distributions; then of amounts representing the increase in net
asset value of your holdings of B Shares above the total amount of payments for
the purchase of B Shares during the preceding 6 years; then of amounts
representing the cost of B Shares held beyond the applicable contingent deferred
sales charge period; and finally, of amounts representing the cost of the B
Shares held for the longest period of time.
As an example, assume that you purchased 100 shares at $10 per share (at a cost
of $1,000), that you have not exchanged for Pacific Horizon Shares of the
Pacific Horizon Prime Fund, that in the third year after purchase the net asset
value per share is $12, and that during the three-year period you had acquired
10 additional shares through dividend reinvestment. If at such time you make
your first redemption of 50 shares (proceeds of $600), 10 shares will not be
subject to the charge because of dividend reinvestment. With respect to the
remaining 40 shares, the charge is applied only to the original cost of $10 per
share and not to the increase in net asset value of $2 per share. Therefore,
$400 of the $600 redemption proceeds will be charged at a rate of 3.00% (the
applicable rate in the third year after purchase).
17
<PAGE> 24
WHEN NO FRONT-END SALES LOAD IS APPLIED. You pay no front-end sales load on the
following types of transactions:
- - reinvestment of dividends or distributions;
- - any purchase of shares by a registered investment adviser purchasing shares
for its own account or for an account for which it is authorized to make
investment decisions;
- - accounts opened by a bank, trust company or thrift institution, acting as a
fiduciary, provided appropriate notification of such status is given at the time
of investment;
- - any purchase of shares by clients of The Private Bank of Bank of America
Illinois or by Private Banking clients of Seattle-First National Bank or by or
on behalf of agency accounts administered by any bank or trust company affiliate
of Bank of America;
- - any purchase of shares through a discount broker-dealer that imposes a
transaction charge with respect to such purchase, provided you were the
beneficial owner of shares of the Fund (or any other fund in the Pacific Horizon
Family of Funds) prior to July 1, 1992, so long as your account remains open on
the Company's books;
- - accounts open as of July 1, 1996, which were exempt from front-end sales loads
at the time the accounts were opened and where those exemptions are no longer
available for new account holders, so long as the accounts remain open on the
Company's books;
- - any purchase of shares pursuant to the Reinstatement Privilege described
below; and
- - any purchase of shares pursuant to the Directed Distribution Plan described
below.
Additionally, some individuals are not required to pay a front-end sales load
when purchasing Fund shares, including:
- - members of the Company's Board of Directors;
- - U.S.-based employees and retirees (including employees who are U.S. citizens
but work abroad and retirees who are U.S. citizens but worked abroad) of Bank of
America or any of its affiliates, and their parents, spouses, minor children and
grandchildren, as well as members of the Board of Directors of Bank of America
or any of its affiliates;
- - registered representatives or full-time employees of broker-dealers having
agreements with the Fund's distributor pertaining to the sale of Fund shares
(and their spouses and minor children) to the extent permitted by such
organizations; and
- - holders of the BankAmericard with an appropriate award certificate from the
BankAmeriChoice Program (initial award only; a front-end sales load will apply
to subsequent purchases).
18
<PAGE> 25
WHEN NO CONTINGENT DEFERRED SALES CHARGE IS APPLIED. To receive one of the first
three exemptions listed below, you must explain the status of your redemption at
the time you redeem your shares. The contingent deferred sales charge with
respect to B Shares or A Shares purchased under the Large Purchase Exemption is
not charged on (1) exchanges described under "Shareholder Services - Can I
Exchange My Investment From One Fund to Another?"; (2) redemptions in connection
with minimum required distributions from IRA accounts due to a shareholder
reaching age 70-1/2; (3) redemptions in connection with a shareholder's death or
disability (as defined in the Internal Revenue Code); and (4) involuntary
redemptions as a result of an account's net asset value remaining below $500
after sixty days' written notice. In addition, no contingent deferred sales
charge is charged on shares acquired through the reinvestment of dividends or
distributions.
RIGHTS OF ACCUMULATION. When buying A Shares in Pacific Horizon Funds, your
current aggregate investment determines the front-end sales load that you pay.
Your current aggregate investment is the accumulated combination of your
immediate investment along with the shares that you beneficially own in any
Pacific Horizon or Time Horizon Fund on which you paid a front-end sales load
(including shares that carry no sales load but were obtained through an exchange
and can be traced back to shares that were acquired with a sales load). You may
also aggregate your investment in Pacific Horizon Funds and Time Horizon Funds
in order to qualify for the Large Purchase Exemption.
To qualify for a reduced sales load on A Shares, you or your Service
Organization (which is an institution such as a bank or broker-dealer that has
entered into a selling and/or servicing agreement with the Fund's distributor)
must notify the Fund's transfer agent at the time of investment that a quantity
discount is applicable. Use of this service is subject to a check of appropriate
records, after which you will receive the lowest applicable sales charge. If you
want to participate you can so indicate on your Account Application or make a
subsequent written request to the Transfer Agent.
Example: Suppose you beneficially own A Shares carrying a sales load of the
Fund, the Pacific Horizon California Tax-Exempt Bond Fund, the Pacific Horizon
U.S. Government Securities Fund, the Pacific Horizon Capital Income Fund and
shares of the Company's money market funds that can be traced back to the
purchase of shares carrying a sales load (or any combination thereof) with an
aggregate current value of $90,000. If you subsequently purchase additional A
Shares of the Fund carrying a sales load with a current value of $10,000, the
sales load applicable to the subsequent purchase would be reduced to 3.75% of
the offering price.
LETTER OF INTENT. You may also obtain a reduced sales charge on A Shares by
means of a written Letter of Intent, which expresses your non-binding commitment
to invest in the aggregate $100,000 or more in shares of any Pacific Horizon
Fund within a period of 13 months, beginning up to 90 days prior to the date of
the Letter's execution. A Shares carrying a sales load purchased during that
period count as a credit toward completion of the Letter of Intent. Any
investments you make during the period receive the discounted sales load based
on the full amount of your investment commitment. When your commitment is
fulfilled, an adjustment will be made to reflect any reduced sales load
applicable to shares purchased during the 90-day period prior to the submission
of your Letter of Intent. Shares of Time Horizon Funds may be included when
determining reduced sales loads under the letter of intent program.
19
<PAGE> 26
While signing a Letter of Intent does not bind you to purchase, or the Company
to sell, the full amount indicated at the sales load in effect at the time of
signing, you must complete the intended purchase to obtain the reduced sales
load. When you sign a Letter of Intent, the Company holds in escrow shares
purchased by you in an amount equal to 5% of the total amount of your
commitment. After you fulfill the terms of the Letter of Intent, the escrow will
be released.
If your aggregate investment exceeds the amount indicated in your Letter of
Intent, you will receive an adjustment which reflects the further reduced sales
load applicable to your excess investment. It will be in the form of additional
shares credited to your account at the then current offering price applicable to
a single purchase of the total amount of the total purchase.
If your aggregate investment is less than the amount you committed, you will be
requested to remit an amount equal to the difference between the sales load
actually paid and the sales load applicable to the aggregate purchases actually
made. If such remittance is not received within 20 days, the Transfer Agent will
redeem an appropriate number of shares held in escrow to realize the difference.
If you would like to participate, complete the Letter of Intent on your Account
Application. If you have any questions regarding the Letter of Intent, call
800-332-3863. Please read it carefully, as you will be bound by its terms.
HOW DO I DECIDE WHETHER TO BUY A OR B SHARES?
The alternative sales arrangements of the Fund permits you to choose the method
of purchasing shares that is most beneficial given the amount of the purchase,
the length of time you expect to hold the shares and other relevant
circumstances. You should determine whether under your particular circumstances
it is more advantageous to invest in A Shares and incur a front-end sales load
and an ongoing Shareholder Services Plan fee; or invest in B Shares and have the
entire initial purchase price invested in the Fund with the investment
thereafter being subject to a contingent deferred sales charge and ongoing
distribution and services plan fees.
As an illustration, investors who qualify for a significantly reduced sales
load, as described above, might elect the front-end sales load alternative (A
Shares) because similar sales load reductions are not available for purchases
under the contingent deferred sales charge alternative (B Shares). Moreover, A
Shares would not be subject to ongoing distribution and services plan fees, as
described below. However, because front-end sales loads are deducted at the time
of purchase, such investors who pay a front-end sales load would not have all
their funds invested initially. The Company will not accept any order for B
Shares from an investor who is eligible to purchase A Shares without a sales
load.
Investors not qualifying for a reduced front-end sales load who expect to
maintain their investment in the Fund for an extended period of time might also
elect the front-end sales load alternative because over time the accumulated
continuing Distribution and Services Plan fees related to B Shares may exceed
the front-end sales load and ongoing Shareholder Services Plan fees related to A
Shares. However, such investors must weigh this consideration against the fact
that not all their funds will be invested initially. Furthermore, the ongoing
distribution and services plan fees may be offset to the
20
<PAGE> 27
extent any return is realized on the additional funds initially invested under
the contingent deferred sales charge alternative.
Certain investors might determine it to be more advantageous to have all their
funds invested initially in B Shares, although subject to continuing
distribution and services plan fees and to a contingent deferred sales charge
for a 6-year period of time.
21
<PAGE> 28
HOW CAN I BUY SHARES?
The chart below provides more information regarding some of the different
methods for investing in the Fund.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
TO BUY SHARES
- ------------------------------------------------------------------------------------------------------------------
OPENING AN ACCOUNT Adding to an Account
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
THROUGH BANK OF AMERICA, YOUR BROKER OR ANOTHER SERVICE ORGANIZATION
(ORDERS ARE NOT EFFECTIVE UNTIL RECEIVED BY THE FUND'S TRANSFER AGENT)
Contact them directly Contact them directly
for instructions. for instructions.
- ------------------------------------------------------------------------------------------------------------------
THROUGH THE DISTRIBUTOR
(IF YOU ARE OR WILL BE THE SHAREHOLDER OF RECORD ON THE COMPANY'S BOOKS)
BY MAIL Complete Account Mail all subsequent
Application and mail investments to:
it with a check
(payable to Pacific Pacific Horizon Funds,
Horizon Short-Term Inc.
Government Fund) to File No. 54634
the address on the Los Angeles, CA 90074-
Account Application. 4634
- ------------------------------------------------------------------------------------------------------------------
IN PERSON Deliver Account Deliver your payment
Application and your directly to the address
BISYS Fund Services, Inc. payment directly to on the left.
3435 Stelzer Road the address on the
Columbus, OH 43219-3035 left.
- ------------------------------------------------------------------------------------------------------------------
BY WIRE Initial purchases of Contact the Fund's
shares into a new transfer agent at 800-
account may not be 346-2087 for complete
made by wire. wiring instructions.
Instruct your bank to
transmit immediately
available funds for
purchase of Fund
shares in your name.
Be sure to include your
name and your Fund
account number.
Consult your bank for information on remitting
funds by wire and any associated bank charges.
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 29
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
TO BUY SHARES
- -------------------------------------------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
<S> <C> <C>
BY TELETRADE TeleTrade Privileges Purchases may be made
(a service permitting may not be used to in the minimum amount
transfers of money from your make an initial of $500 and the maximum
checking, NOW or bank money purchase. amount of $50,000 per
market account) transaction as soon as
appropriate information
regarding your bank
account has been
established on your
Fund account. This
information may be
provided on the Account
Application or in a
signature guaranteed
letter of instruction
to the Transfer Agent.
Signature guarantees
are discussed under
"How to Sell Shares."
Call 800-346-2087 to
make your purchase.
You should refer to the "Shareholder Services"
section for additional important information
about the TeleTrade Privilege.
YOU MAY USE OTHER INVESTMENT OPTIONS, INCLUDING AUTOMATIC INVESTMENTS
AND EXCHANGES, TO INVEST IN YOUR FUND ACCOUNT.
PLEASE REFER TO THE SECTION ENTITLED "SHAREHOLDER SERVICES"
FOR MORE INFORMATION.
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
WHAT PRICE WILL I RECEIVE WHEN I BUY SHARES?
Your shares will be purchased at the Fund's public offering price calculated at
the next close of regular trading on the Exchange (currently 4:00 p.m. Eastern
time) after your purchase order is received in proper form by the Fund's
transfer agent, BISYS Fund Services, Inc. (the "Transfer Agent"), at its
Columbus office.
If you purchase shares through Bank of America, your broker or another Service
Organization, the entity involved is responsible for transmitting your order and
required funds to the Transfer Agent on a timely basis in accordance with the
procedures in this Prospectus. Share purchases (and redemptions) executed
through Bank of America or a Service Organization are executed only on days on
which the particular institution and the Fund are open for business. Purchase
orders received by a Service Organization in proper form by 4:00 p.m. Eastern
time on a business day will be effected at the public offering price calculated
at 4:00 p.m. Eastern time on that day, if the Service Organization transmits
your order to the Transfer Agent by the end of the Transfer Agent's business
day. Except as provided in the following two sentences, if the order is not
received in proper form by a Service Organization by 4:00 p.m. Eastern time or
not received by the Transfer Agent by the close of the Transfer Agent's business
day, the order will be based upon the next determined purchase price. The
Company may from time to time in its
23
<PAGE> 30
sole discretion appoint one or more entities as the Fund's agent to receive
irrevocable purchase and redemption orders and to transmit them on a net basis
to the Transfer Agent. In these instances orders received by the entity by 4:00
p.m. Eastern time on a business day will be effected as of 4:00 p.m. Eastern
time that day if the order is actually received by the Transfer Agent not later
than the next business morning accompanied by payment in federal funds.
WHAT ELSE SHOULD I KNOW TO MAKE A PURCHASE?
You must specify at the time of investment whether you are purchasing A or B
Shares. Certificates for shares will not be issued.
Federal regulations require you to provide a certified taxpayer identification
number upon opening or reopening an account.
If your check used for investment does not clear, a fee may be imposed by the
Transfer Agent. All payments should be in U.S. dollars and, to avoid fees and
delays, should be drawn only on U.S. banks. Please remember that the Company
reserves the right to reject any purchase order.
You should note that Bank of America, Service Organizations and registered
investment advisers may charge a separate fee or transaction charge to their
clients for providing them with administrative services related to their
investment in Fund shares. These fees could constitute a substantial portion of
smaller accounts and may not be in an investor's best interest. Bank of America
and Service Organizations may also impose minimum customer account and other
requirements in addition to those imposed by the Fund. If you purchase or redeem
shares directly from the Fund, you may do so without incurring any charges other
than those described in this Prospectus.
HOW TO SELL SHARES
HOW DO I REDEEM MY SHARES?
Pacific Horizon Funds, Inc. makes it easy to sell, or "redeem," shares. The
value of the shares you redeem may be more or less than your cost, depending on
the Fund's current net asset value.
If you purchased your shares through an account at Bank of America, your Broker
or another Service Organization, you may redeem all or part of your shares in
accordance with the instructions pertaining to that account. If you are also the
shareholder of record on the Company's books, you may redeem shares in
accordance with the procedures described in the chart below as well as those of
your account. To use the redemption methods described below, you must arrange
with Bank of America or your Service Organization for delivery of the required
application(s) to the Transfer Agent.
24
<PAGE> 31
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
TO SELL SHARES
- -------------------------------------------------------------------------------------------------------
Through Bank of America, your Broker or another Service Organization
(ORDERS ARE NOT EFFECTIVE UNTIL RECEIVED BY THE TRANSFER AGENT)
Contact them directly for instructions.
- -------------------------------------------------------------------------------------------------------
THROUGH THE DISTRIBUTOR
(IF YOU ARE A SHAREHOLDER OF RECORD ON THE COMPANY'S BOOKS)
- -------------------------------------------------------------------------------------------------------
<S> <C>
BY MAIL
Pacific Horizon Send a signed, written request (each owner, including each
Short-Term joint owner, must sign) to the Transfer Agent.
Government Fund
c/o Pacific Horizon
Funds, Inc.
P.O. Box 80221
Los Angeles, CA
90080-9909
- -------------------------------------------------------------------------------------------------------
IN PERSON
BISYS Fund Deliver your signed, written request (each owner, including
Services, Inc. each joint owner, must sign) to the address on the left.
3435 Stelzer Road
Columbus, OH
43219-3035
- -------------------------------------------------------------------------------------------------------
BY WIRE As soon as appropriate information regarding your bank
account has been established on your Fund account, you may
write, telephone or telegraph redemption requests to the
Transfer Agent, and redemption proceeds will be wired in
federal funds to the commercial bank you have specified.
Information regarding your bank account may be provided on
the Account Application or in a signature guaranteed letter
of instruction to the Transfer Agent. Signature guarantee
requirements are discussed in the section entitled "What
Kind Of Paperwork Is Involved In Selling Shares?".
Redemption proceeds will normally be wired the business day
after your request and any other necessary documents have
been received by the Transfer Agent.
Wire Privileges apply automatically unless you indicate on
the Account Application or in a subsequent written notice
to the Transfer Agent that you do not wish to have them.
Requests must be for at least $1,000 and may be subject to
limits on frequency and amount.
Wire Privileges may be modified or suspended at any time,
and are not available for shares issued in certificate
form.
Contact your bank for information on any charges imposed by
the bank in connection with receipt of redemptions by wire.
- -------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE> 32
- --------------------------------------------------------------------------------
TO SELL SHARES
- --------------------------------------------------------------------------------
BY CHECK You may write Redemption Checks
("Checks") payable to any payee from your
Fund account in the amount of $500 or more.
The Transfer Agent (as your agent) will
redeem the necessary number of shares to
cover the Check when it is presented for
payment.
You will continue earning dividends on
shares redeemed in this manner until the
Check actually clears the Transfer Agent.
You may request this Privilege on an Account
Application that has been signed by the
registered owner(s) and a set of Checks will
then be sent to the registered owner(s) at
the address of record.
There is no charge for the use of Checks,
although the Transfer Agent will charge for
any "stop payment" requests made by you, or
if a Check cannot be honored due to
insufficient funds or for other valid
reasons.
- --------------------------------------------------------------------------------
BY TELETRADE You may redeem Fund shares (minimum of $500
(a service and maximum of $50,000 per transaction) by
permitting telephone after appropriate information
transfers of money regarding your bank account has been
to your checking, established on your Fund account. This
NOW or bank money information may be provided on the Account
market account) Application or in a signature guaranteed
letter of instruction to the Transfer Agent.
Signature guarantee requirements are
discussed in the section entitled "What Kind
Of Paperwork Is Involved In Selling
Shares?".
Redemption orders may be placed by calling
800-346-2087.
TeleTrade Privileges apply automatically
unless you indicate on the Account
Application or in a subsequent written
notice to the Transfer Agent that you do not
wish to have them.
You should refer to the "Shareholder
Services" section for additional important
information about the TeleTrade Privilege.
OTHER REDEMPTION OPTIONS, INCLUDING EXCHANGES AND
AUTOMATIC WITHDRAWALS, ARE ALSO AVAILABLE. PLEASE REFER TO
THE SECTION ENTITLED "SHAREHOLDER SERVICES" FOR MORE INFORMATION.
- --------------------------------------------------------------------------------
WHAT NAV WILL I RECEIVE FOR SHARES I WANT TO SELL?
Redemption orders are effected at the net asset value per share next determined
after receipt of the order in proper form by the Transfer Agent at its Columbus
office. Although the Fund itself imposes no charge when A Shares are redeemed
(except pursuant to the Large Purchase Exemption described above), if you
purchase shares through Bank of America or a Service Organization, they may
charge a fee for providing certain services in connection with investments in
Fund shares.
26
<PAGE> 33
When you redeem your B Shares within 6 years of purchase (or longer if your
shares have been exchanged for Pacific Horizon Shares of the Pacific Horizon
Prime Fund), you may be subject to a contingent deferred sales charge as
described above.
The Company reserves the right to redeem accounts (other than 401(k), IRA and
non-working spousal IRA accounts) involuntarily if, after sixty days' written
notice, the account's net asset value remains below a $500 minimum balance. The
contingent deferred sales charge will not be imposed upon such involuntary
redemptions.
WHAT KIND OF PAPERWORK IS INVOLVED IN SELLING SHARES?
Redemption requests must be signed by each shareholder, including each joint
owner. When redeeming shares, you should indicate whether you are redeeming A or
B Shares. If you own both A and B Shares of the Fund, A Shares will be redeemed
first unless you request otherwise. Certain types of redemption requests will
need to include a signature guarantee. Signature guarantees must accompany
redemption requests for (i) an amount in excess of $50,000 per day, (ii) any
amount if the redemption proceeds are to be sent somewhere other than the
address of record on the Company's books, or (iii) an amount of $50,000 or less
if the address of record has not been on the Company's books for sixty days.
You may obtain a signature guarantee from: (i) a bank which is a member of the
FDIC; (ii) a trust company; (iii) a member firm of a national securities
exchange; or (iv) another eligible guarantor institution. Guarantees must be
signed by an authorized signatory of the guarantor institution and be
accompanied by the words "Signature Guaranteed." The Transfer Agent will not
accept guarantees from notaries public.
HOW QUICKLY CAN I RECEIVE MY REDEMPTION PROCEEDS?
The Company will make payment for all shares redeemed after the Transfer Agent
receives a request in proper form, except as provided by the rules of the
Securities and Exchange Commission. If the shares to be redeemed have been
purchased by check or by TeleTrade, the Company will, upon the clearance of the
purchase check or TeleTrade payment, mail the redemption proceeds within seven
business days. This does not apply to situations where the Fund receives payment
in cash or immediately available funds for the purchase of shares. The Company
may suspend the right of redemption or postpone the date of payment upon
redemption (as well as suspend the recordation of the transfer of shares) for
such periods as are permitted under the 1940 Act.
Bank of America and the Service Organizations are responsible for transmitting
redemption orders and crediting their customers' accounts with redemption
proceeds on a timely basis.
27
<PAGE> 34
DO I HAVE ANY REINSTATEMENT PRIVILEGES AFTER I HAVE REDEEMED SHARES?
You may reinvest all or any portion of your redemption proceeds in shares of the
Fund, in shares of the same class of the Fund out of which you redeemed, in like
shares of another Fund in the Pacific Horizon Family of Funds or in like shares
of any investment portfolio of Time Horizon Funds within 90 days of your
redemption trade date without paying a sales load. Upon such a reinvestment, the
Fund's distributor will credit to your account any contingent deferred sales
charge imposed on any redeemed B Shares, A Shares subject to the Large Purchase
Exemption or any Pacific Horizon Shares of the Pacific Horizon Prime Fund.
Shares so reinvested will be purchased at a price equal to the net asset value
next determined after the Transfer Agent receives a reinstatement request and
payment in proper form.
If you wish to use this Privilege, you must submit a written reinstatement
request to the Transfer Agent stating that you are eligible to use the
Privilege. The reinstatement request and payment must be received within 90 days
of the trade date of the redemption. Currently, there are no restrictions on the
number of times you may use this Privilege.
Generally, exercising the Reinstatement Privilege will not affect the character
of any gain or loss realized on redemption for federal income tax purposes.
However, if a redemption results in a loss, the reinstatement may result in the
loss being disallowed under IRS "wash sale" rules.
- --------------------------------------------------------------------------------
DIVIDEND AND DISTRIBUTION POLICIES
- --------------------------------------------------------------------------------
Shareholders of the Fund are entitled to dividends and distributions arising
from the Fund's net investment income and net realized gains, if any. The Fund's
net realized gains (after reduction for capital loss carryforwards, if any) are
distributed at least annually. Dividends from the Fund's net investment income
are declared daily and paid no later than the fifth business day of the month
next following the month in which it was declared.
You will automatically receive dividends and capital gain distributions in
additional shares of the same class of shares of the Fund for which the dividend
was declared without a sales load unless you: (i) elect in writing to receive
payment in cash; or (ii) elect to participate in the Directed Distribution Plan
described in the section entitled "Can My Dividends From A Fund Be Invested In
Other Funds?"
To elect to receive payment in cash, or to revoke such election, you must do so
in writing to the Transfer Agent, at P.O. Box 80221, Los Angeles, California
90080-9909. The election or revocation will become effective with respect to
dividends paid after it is received and processed by the Transfer Agent.
28
<PAGE> 35
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICES
PACIFIC HORIZON FUNDS, INC. PROVIDES A VARIETY OF WAYS TO MAKE MANAGING YOUR
INVESTMENTS MORE CONVENIENT.
- --------------------------------------------------------------------------------
Some or all of the following services and privileges as well as others described
in this Prospectus may not be available for, or may have different conditions
imposed on them than as described in this Prospectus with respect to, certain
clients of Bank of America and particular Service Organizations. Consult these
entities for more information.
CAN I USE THE FUND IN MY RETIREMENT PLAN?
The Company makes available Individual Retirement Accounts ("IRAs"), including
IRAs set up under a Simplified Employee Pension Plan ("SEP-IRAs") and IRA
"Rollover Accounts."
YOUR INVESTMENTS GROW TAX DEFERRED UNTIL WITHDRAWAL AT RETIREMENT AND IN MANY
CASES THE INITIAL INVESTMENT IS TAX DEDUCTIBLE.
The contingent deferred sales charge with respect to B Shares and A Shares
subject to the Large Purchase Exemption will not be charged on redemptions in
connection with minimum required distributions from an IRA due to a shareholder
having reached age 70-1/2. For details, contact the Fund's distributor at
800-332-3863. Investors should also read the IRA Disclosure Statement and the
Bank Custodial Agreement for further details on eligibility, service fees and
tax implications, and should consult their tax advisers.
CAN I EXCHANGE MY INVESTMENT FROM ONE
FUND TO ANOTHER?
As a shareholder, you have the privilege of exchanging your shares for: like
shares of another Pacific Horizon Fund, or like shares of any Time Horizon Fund,
provided that such other shares may be legally sold in your state of residence.
Specifically, A Shares may be exchanged for other A Shares, and B Shares may be
exchanged for other B Shares. NO ADDITIONAL SALES LOAD WILL BE INCURRED WHEN
EXCHANGING A SHARES PURCHASED WITH A SALES LOAD FOR A SHARES OF ANOTHER LOAD
FUND OF THE COMPANY OR TIME HORIZON FUNDS. B SHARES MAY ALSO BE EXCHANGED FOR
PACIFIC HORIZON SHARES OF THE PACIFIC HORIZON PRIME FUND WITHOUT THE PAYMENT OF
ANY CONTINGENT DEFERRED SALES CHARGE AT THE TIME THE EXCHANGE IS MADE. IN
ADDITION, PACIFIC HORIZON SHARES OF THE PACIFIC HORIZON PRIME FUND THAT WERE
ACQUIRED THROUGH AN EXCHANGE OF B SHARES MAY BE EXCHANGED FOR B SHARES WITHOUT
THE PAYMENT OF ANY CONTINGENT DEFERRED SALES CHARGE AT THE TIME THE EXCHANGE IS
MADE. IN DETERMINING THE HOLDING PERIOD FOR CALCULATING THE CONTINGENT DEFERRED
SALES CHARGE PAYABLE UPON
29
<PAGE> 36
REDEMPTION OF B SHARES, THE HOLDING PERIOD OF THE SHARES ORIGINALLY HELD WILL BE
ADDED TO THE HOLDING PERIOD OF THE SHARES ACQUIRED THROUGH THE EXCHANGE UNLESS
THE SHARES ACQUIRED THROUGH THE EXCHANGE ARE PACIFIC HORIZON SHARES OF THE
PACIFIC HORIZON PRIME FUND. THE TIME PERIOD DURING WHICH PACIFIC HORIZON SHARES
OF THE PACIFIC HORIZON PRIME FUND ACQUIRED THROUGH AN EXCHANGE ARE HELD IS NOT
INCLUDED WHEN THE AMOUNT OF THE CONTINGENT DEFERRED SALES CHARGE IS CALCULATED.
Neither a contingent deferred sales charge nor a front-end sales load will be
imposed if a shareholder who has entered a Fund under the Large Purchase
Exemption exchanges shares between Funds of the Company or Time Horizon Funds.
However, shares acquired in the exchange will remain subject to the contingent
deferred sales charge discussed above. The contingent deferred sales charge is
calculated as a percentage of the lesser of the current market value or the cost
of the shares being redeemed. This means that this charge will not be imposed
upon increases in net asset value above the initial purchase price or upon
reinvested dividends. In determining whether a contingent deferred sales charge
is applicable to a redemption of such shares, the calculation will be made in a
manner that results in the lowest possible rate. It will be assumed that the
redemption is made first of amounts representing shares acquired pursuant to the
reinvestment of dividends and distributions; then of amounts representing the
increase in net asset value of your holdings of shares above the total amount of
payments for the purchase of shares during the preceding 2 years; then of
amounts representing the cost of shares held beyond the applicable contingent
deferred sales charge period; and finally, of amounts representing the cost of
the shares held for the longest period of time.
An investment in the Fund automatically entitles you to use this Privilege,
unless you indicate on the Account Application or in a subsequent letter to the
Transfer Agent that you do not wish to use this Privilege.
Fund shares being exchanged must have a current value of at least $500 and are
subject to the minimum initial investment requirements of the particular fund
into which the exchange is being made. You may obtain prospectuses regarding the
funds into which you wish to make an exchange from your Service Organization or
the Fund's distributor.
You may provide exchange instructions by telephone by calling the Transfer Agent
at 800-346-2087. (See the section below entitled "What Is TeleTrade?" for a
description of the Company's policy regarding responsibility for telephone
instructions.) You may also send exchange instructions in writing by following
directions set forth previously under "How to Sell Shares."
An exchange is considered a sale of shares of a Fund and the purchase of shares
of another Fund and may result in a capital gain or loss for federal income tax
purposes.
If you would like more information on making an exchange, please read the
Statement of Additional Information and consult your Service Organization or the
Fund's distributor.
30
<PAGE> 37
The Fund reserves the right to reject any exchange request and the Exchange
Privilege may be modified or terminated at any time. At least 60 days' notice of
any material modification to or termination of the Exchange Privilege will be
given to shareholders except where notice is not required under the regulations
of the Securities and Exchange Commission.
WHAT IS TELETRADE?
TELETRADE IS A SERVICE WHICH ALLOWS YOU TO AUTHORIZE ELECTRONIC TRANSFERS OF
MONEY TO PURCHASE SHARES IN OR REDEEM SHARES FROM AN ESTABLISHED FUND ACCOUNT.
THE SERVICE MAY BE USED LIKE AN "ELECTRONIC CHECK" TO MOVE MONEY BETWEEN AN
ACCOUNT AT A FINANCIAL INSTITUTION AND A FUND ACCOUNT WITH A SINGLE TELEPHONE
CALL.
Purchase and redemption proceeds with respect to TeleTrade transactions will be
transferred between your Fund account and the checking, NOW or bank money market
account designated by you. Only an account maintained at a domestic financial
institution that is an Automated Clearing House member may be so designated.
TeleTrade purchases will be effected at the public offering price next
determined after the Transfer Agent receives payment for the transaction.
Redemption proceeds will be on deposit in your account at your financial
institution generally two business days after the redemption request is received
by the Transfer Agent. You may also request receipt of your redemption proceeds
by check, which will only be payable to the registered owners of your Fund
account and will be sent only to the address of record.
You should note that the Transfer Agent may act upon a telephone redemption
request (including a telephone wire redemption request) from any person
representing himself or herself to be you and reasonably believed by the
Transfer Agent to be genuine. Neither the Company nor any of its service
contractors will be liable for any loss or expense caused by acting upon
telephone instructions that are reasonably believed to be genuine. In attempting
to confirm that telephone instructions are genuine, the Company will use such
procedures as are considered reasonable, including requesting certain personal
or account information to confirm the identity of the shareholder. If you should
experience difficulty in contacting the Transfer Agent to place telephone
redemptions (including telephone wire redemptions), for example because of
unusual market activity, you are urged to consider redeeming your shares by mail
or in person.
The Company may modify the TeleTrade Privilege at any time or charge a service
fee upon notice to shareholders. No such fee currently is contemplated.
CAN I ARRANGE TO HAVE AUTOMATIC INVESTMENTS
MADE ON A REGULAR BASIS?
YOU MAY ARRANGE, THROUGH THE AUTOMATIC INVESTMENT PROGRAM, FOR SYSTEMATIC
INVESTMENTS IN YOUR FUND ACCOUNT IN AMOUNTS OF $50 OR MORE BY DIRECTLY DEBITING
YOUR ACCOUNT AT YOUR FINANCIAL INSTITUTION. At your option, your checking, NOW
or bank money market account
31
<PAGE> 38
designated by you will be debited in the specified amount, and Fund shares will
be purchased, once a month, on either the first or fifteenth day, or twice a
month, on both days. Only accounts maintained at a domestic financial
institution which permits automatic withdrawals and is an Automated Clearing
House member are eligible. The Automatic Investment Program is one means by
which you may use Dollar Cost Averaging in making investments.
WHAT IS DOLLAR COST AVERAGING
AND HOW CAN I IMPLEMENT IT?
DOLLAR COST AVERAGING INVOLVES INVESTING A FIXED DOLLAR AMOUNT AT REGULAR
PREDETERMINED INTERVALS. BECAUSE MORE SHARES ARE BOUGHT DURING PERIODS WITH
LOWER SHARE PRICES AND FEWER SHARES ARE BOUGHT WHEN THE PRICE IS HIGHER, YOUR
AVERAGE COST PER SHARE MAY BE REDUCED. You may also implement Dollar Cost
Averaging on your own initiative or through other entities.
In order to be effective, Dollar Cost Averaging should be followed on a
sustained, consistent basis. You should be aware, however, that shares bought
using Dollar Cost Averaging are made without regard to their price on the day of
investment or to market trends. In addition, while you may find Dollar Cost
Averaging to be beneficial, it will not prevent a loss if you ultimately redeem
your shares at a price that is lower than their purchase price.
To establish an Automatic Investment Account that uses the Dollar Cost Averaging
method, check the appropriate box and supply the necessary information on the
Account Application or in a subsequent written request to the Transfer Agent.
You may cancel this Privilege or change the amount of purchase at any time by
mailing written notification to the Transfer Agent.
Notification will be effective three business days following receipt. The Fund
may modify or terminate this Privilege at any time or charge a service fee,
although no such fee currently is contemplated.
CAN I ARRANGE PERIODIC WITHDRAWALS?
IF YOU ARE A SHAREHOLDER WITH A FUND ACCOUNT VALUED AT $5,000 OR MORE, YOU MAY
WITHDRAW AMOUNTS IN MULTIPLES OF $50 FROM YOUR ACCOUNT ON A MONTHLY, QUARTERLY,
SEMI-ANNUAL OR ANNUAL BASIS THROUGH THE AUTOMATIC WITHDRAWAL PLAN.
At your option, monthly, quarterly, semi-annual or annual withdrawals will be
made on either the first or fifteenth day of the particular month selected. To
participate in this Plan, check the appropriate box and supply the necessary
information on the Account Application or in a subsequent signature guaranteed
written request to the Transfer Agent. Purchases of additional
32
<PAGE> 39
shares concurrently with withdrawals are ordinarily not advantageous because of
the Fund's sales load. Use of this Plan may also be disadvantageous for B Shares
or A Shares subject to the Large Purchase Exemption due to the potential need to
pay a contingent deferred sales charge.
CAN MY DIVIDENDS FROM THE FUND BE INVESTED
IN OTHER FUNDS?
You may elect to have your dividends, capital gains distributions, or both
("distribution proceeds") received from a non-retirement Fund account
automatically invested in shares of any other investment portfolio of the
Company, or in like shares of any Time Horizon Fund, provided such shares are
held in a non-retirement account. To participate in this program, known as the
Directed Distribution Plan, check the appropriate box and supply the necessary
information on the Account Application or subsequently send a written request to
the Transfer Agent. Participants in the Directed Distribution Plan are subject
to the minimum initial investment requirements of the particular fund involved.
Investments will be made at a price equal to the net asset value of the
purchased shares next determined after receipt of the distribution proceeds by
the Transfer Agent.
There are no subsequent investment requirements for accounts to which
distribution proceeds are directed nor are service fees currently charged for
effecting these transactions.
IS THERE A SALARY DEDUCTION PLAN AVAILABLE?
YOU MAY PURCHASE FUND SHARES BY HAVING PAYMENTS AUTOMATICALLY DEPOSITED INTO
YOUR FUND ACCOUNT (MINIMUM OF $50 AND MAXIMUM OF $50,000 PER TRANSACTION) IF YOU
RECEIVE A FEDERAL SALARY, SOCIAL SECURITY OR CERTAIN VETERAN'S, MILITARY OR
OTHER PAYMENTS FROM THE FEDERAL GOVERNMENT. Subject to these limitations, you
may deposit as much of your payments as you wish.
For instructions on how to enroll in this Direct Deposit Program, call the
Transfer Agent at 800-346-2087.
Note: Death or legal incapacity will terminate participation in the Program. You
may also choose at any time to terminate your participation by notifying the
appropriate federal agency in writing. Further, the Fund may terminate your
participation after 30 days' notice.
33
<PAGE> 40
- --------------------------------------------------------------------------------
THE BUSINESS OF THE FUND
- --------------------------------------------------------------------------------
FUND MANAGEMENT
The business affairs of Pacific Horizon Funds, Inc. are managed under the
general supervision of its Board of Directors. Information about the Directors
and Officers of the Company is included in the Statement of Additional
Information under "Management."
EXPENSES
Operating expenses borne by the Fund include taxes, fees and expenses of the
directors and officers, administration, custodial and transfer agency fees,
certain insurance premiums, outside auditing and legal expenses, cost of
shareholder reports and meetings and any extraordinary expenses. Fund expenses
also include Securities and Exchange Commission fees, state securities
qualification fees, cost of preparing and printing prospectuses and statements
of additional information for regulatory purposes and for distribution to
existing shareholders, and certain shareholder servicing fees. Except as noted
in this Prospectus, the service contractors bear all expenses in connection with
the performance of their services, and the Fund bears the expenses incurred in
its operations.
SERVICE PROVIDERS
INVESTMENT ADVISER
Bank of America serves as Investment Adviser of the Fund. Bank of America is a
subsidiary of BankAmerica Corporation, a registered bank holding company. Its
principal offices are located at 555 California Street, San Francisco,
California 94104.
Formed in 1904, Bank of America is a national banking association that provides
commercial banking and trust business through an extensive system of branches
across the western United States. Bank of America's principal banking affiliates
operate branches in ten U.S. states as well as corporate banking, business
credit and thrift offices in major U.S. cities. In addition, it has branches,
corporate offices and representative offices in 36 foreign countries.
In its advisory agreement, Bank of America has agreed to manage the Fund's
investments and to be responsible for, place orders for, and make decisions with
respect to, all purchases and sales of the Fund's securities. The advisory
agreement also provides that Bank of America may,
34
<PAGE> 41
in its discretion, provide advisory services through its own employees or
employees of one or more of its affiliates that are under the common control of
Bank of America's parent, BankAmerica Corporation, provided such employees are
under the management of Bank of America. Bank of America may also employ a
sub-adviser provided that Bank of America remains fully responsible to the Fund
for the acts and omissions of the sub-adviser.
Portfolio management services for the Fund are conducted by the Fixed Income
Division of the Investment Management Services Group of Bank of America, and no
one person is primarily responsible for making recommendations to that
Committee.
For the services provided and expenses assumed under the advisory agreement,
Bank of America is entitled to receive a fee at the annual rate of 0.25% of the
Fund's average daily net assets. This amount may be reduced pursuant to
undertakings by Bank of America. (See the information below under "Fee
Waivers").
In addition, Bank of America and its affiliates may be entitled to fees under
the Shareholder Services Plan, and Distribution and Services Plan as described
under "Plan Payments" below, and may receive fees charged directly to their
accounts in connection with investments in Fund shares.
ADMINISTRATOR
Concord Holding Corporation ("Concord") serves as Administrator of the Fund.
Concord is an indirect, wholly owned subsidiary of The BISYS Group, Inc. Its
offices are located at 3435 Stelzer Road, Columbus, OH 43219-3035.
Under its administration agreements with the Company, Concord has agreed to: pay
the costs of maintaining the offices of the Company; provide a facility to
receive purchase and redemption orders; provide statistical and research data,
data processing services and clerical services; coordinate the preparation of
reports to shareholders of the Fund and the Securities and Exchange Commission;
prepare tax returns; maintain the registration or qualification of the Fund's
shares for sale under state securities laws; maintain books and records of the
Fund; calculate the net asset value of the Fund; calculate the dividends and
capital gains distributions paid to shareholders; and generally assist in all
aspects of the operations of the Fund.
For its services as administrator, Concord is entitled to receive an
administration fee from the Fund at the annual rate of 0.20% of the Fund's
average daily net assets. These amounts may be reduced pursuant to undertakings
by Concord. (See the information below under "Fee Waivers".)
35
<PAGE> 42
DISTRIBUTOR
The Fund's shares are sold on a continuous basis by Concord Financial Group,
Inc. (the "Distributor"). The Distributor is an indirect, wholly owned
subsidiary of The BISYS Group, Inc. and is located at 3435 Stelzer Road,
Columbus, OH 43219-3035.
CUSTODIAN AND TRANSFER AGENT
PNC Bank, National Association, Broad and Chestnut Streets, Philadelphia, PA
19101 serves as the Custodian of the Fund. BISYS Fund Services, Inc. is the
transfer and dividend disbursing agent of the Fund and is located at 3435
Stelzer Road, Columbus, OH 43219-3035.
FEE WAIVERS
Except as noted in this Prospectus, the service contractors bear all expenses in
connection with the performance of their services, and the Fund bears the
expenses incurred in its operations. Expenses can be reduced by voluntary fee
waivers and expense reimbursements by Bank of America and other service
providers as well as by certain expense limitations imposed by state securities
regulators. Periodically, during the course of the Fund's fiscal year, Bank of
America, Concord and/or the Distributor may prospectively choose not to receive
fee payments and/or may assume certain Fund expenses as a result of competitive
pressures and in order to preserve and protect the business and reputation of
Concord and Bank of America. However, the service providers retain the ability
to discontinue such fee waivers and/or expense reimbursements at any time.
- --------------------------------------------------------------------------------
TAX INFORMATION
YOU WILL BE ADVISED AT LEAST ANNUALLY REGARDING
THE FEDERAL INCOME TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
MADE TO YOU. YOU SHOULD SAVE YOUR ACCOUNT STATEMENTS BECAUSE THEY
CONTAIN INFORMATION YOU WILL NEED TO CALCULATE YOUR CAPITAL GAINS OR
LOSSES UPON YOUR ULTIMATE SALE OR EXCHANGE OF SHARES IN THE FUND.
- --------------------------------------------------------------------------------
As with any investment, you should consider the tax implications of an
investment in the Fund. The following is only a brief summary of some of the
important tax considerations generally affecting the Fund and its shareholders.
Consult your tax adviser with specific reference to your own tax situation.
FEDERAL TAXES
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code, as amended (the "Code"), for the current taxable year, as
well as in future years as long
36
<PAGE> 43
as such qualification is in the best interests of its shareholders. As a result
of this qualification, the Fund generally is not required to pay federal income
taxes to the extent its earnings are distributed in accordance with the Code.
Distributions (whether received in cash or additional shares) derived from
ordinary income and/or the excess of net short-term capital gains over net
long-term capital loss are taxable to you as ordinary income. It is not
anticipated that any such distribution from the Fund will qualify for the
dividends received deduction allowed to corporations.
Any distribution you receive comprised of the excess of net long-term capital
gains over net short-term capital losses ("capital gain dividend") will be taxed
as a long-term capital gain no matter how long you have held Fund shares.
A distribution paid to you by the Fund in January of a particular year will be
deemed for tax purposes to have been received by you on December 31 of the
preceding year, if the dividend was declared and payable to shareholders of
record on a specified date in October, November or December of that preceding
year. If you are considering buying shares of the Fund on or just before the
record date of a dividend, you should be aware that the amount of the
forthcoming dividend payment, although in effect a return of capital, will be
taxable to you.
You may realize a taxable capital gain (or loss) upon redemption or exchange of
Fund shares, depending upon the tax basis of your shares and their price at the
time of such redemption or exchange. If you hold Fund shares for six months or
less and during that time receive a capital gain dividend on those shares, any
loss realized on the sale or exchange of those shares will be treated as a
long-term capital loss to the extent of the capital gain dividend.
Generally, you may include sales loads incurred in the purchase of Fund shares
in your tax basis when determining your gain (or loss) on a redemption or
exchange of these shares. However, if you exchange such shares for shares of
another investment portfolio of the Company within 90 days of the purchase and
are able to reduce the sales load on the new shares through the Exchange
Privilege, the reduction may not be included in the tax basis of your exchanged
shares for the purpose of calculating your gain or loss from the exchange. It
may be included in the tax basis of the new shares, subject to this same
limitation.
STATE AND LOCAL TAXES
A substantial portion of the dividends that you receive are derived from the
Fund's investments in U.S. Government obligations. These dividends may not be
entitled to the same exemptions from state and local taxes that would have been
available if you had purchased U.S.Government obligations directly. Because
state and local taxes may be different from the federal taxes described above,
you should consult your tax adviser regarding these taxes.
37
<PAGE> 44
- --------------------------------------------------------------------------------
MEASURING PERFORMANCE
THE FUND'S PERFORMANCE MAY BE QUOTED IN TERMS OF AVERAGE ANNUAL TOTAL RETURN,
AGGREGATE TOTAL RETURN AND YIELD. PERFORMANCE INFORMATION IS HISTORICAL AND IS
NOT INTENDED TO INDICATE FUTURE RESULTS.
- --------------------------------------------------------------------------------
Average annual total return reflects the average annual percentage change in
value of an investment in the Fund over the period being measured, while
aggregate total return reflects the total percentage change in value over the
period being measured. Yield measures the net income of the Fund over a
specified 30-day period.
Periodically, the Fund's total return (calculated on an average annual total
return and/or an aggregate total return basis for various periods) and yield may
be quoted in advertisements or in communications to shareholders. Both methods
of calculating total return assume dividends and capital gains distributions
made by the Fund during the period are reinvested in Fund shares, and include
the maximum front-end sales load for A Shares and the applicable contingent
deferred sales charge for B Shares. The Fund may also advertise total return
data without reflecting the sales load imposed on the purchase of Fund shares in
accordance with the rules of the Securities and Exchange Commission. Quotations
that do not reflect the sales load will, of course, be higher than quotations
that do reflect sales loads.
The Fund calculates its yield by dividing its net income per share (which may
differ from the net income per share used for accounting purposes) during a
30-day (or one month) period by the maximum offering price per share on the last
day of the measuring period, and then annualizing the result on a semi-annual
basis. The 30-day or one month measuring period will be identified along with
any yield quotation to which it relates.
The Fund may compare its total return and yield to that of other mutual funds
with similar investment objectives and to bond and other relevant indices or to
rankings prepared by independent services or other financial or industry
publications that monitor mutual fund performance. For example, the Fund's total
return may be compared to data prepared by: Lipper Analytical Services, Inc.;
Donoghue's Money Fund Report; Mutual Fund Forecaster; Morningstar; Micropal;
Wiesenberger Investment Companies Services; or CDA Investment Technologies, Inc.
Total return data as reported in national financial publications such as Money,
Forbes, Barron's, The Wall Street Journal and The New York Times, or in local or
regional publications, may also be used in comparing Fund performance. The
Fund's total return also may be compared to indices such as: the Dow Jones
Industrial Average; the Standard & Poor's 500 Stock Index; the Shearson Lehman
Bond Indexes; or the Consumer Price Index.
38
<PAGE> 45
Since the Fund's performance will fluctuate, it should not be compared with bank
deposits, savings accounts and similar investments that often provide an agreed
or guaranteed fixed yield for a stated period of time. Performance is generally
a function of the kind and quality of the instruments in a portfolio, portfolio
maturity, operating expenses and market conditions. Not included in the Fund's
calculations of total return and yield are fees charged by Bank of America and
Service Organizations directly to their customer accounts in connection with
investments in the Fund (e.g. account maintenance fees, compensating balance
requirements or fees based upon account transactions, assets or income).
- --------------------------------------------------------------------------------
DESCRIPTION OF SHARES
THE COMPANY IS A MARYLAND CORPORATION THAT WAS ORGANIZED ON OCTOBER 27, 1982.
- --------------------------------------------------------------------------------
ABOUT THE COMPANY
THE COMPANY'S CHARTER AUTHORIZES THE BOARD OF DIRECTORS TO ISSUE UP TO TWO
HUNDRED BILLION FULL AND FRACTIONAL SHARES OF CAPITAL STOCK ($.001 PAR VALUE PER
SHARE) AND TO CLASSIFY AND RECLASSIFY ANY AUTHORIZED AND UNISSUED SHARES INTO
ONE OR MORE CLASSES OF SHARES.
The Board of Directors has authorized the issuance of 40 million shares of Class
U Common Stock, 60 million shares of Class U -- Special Series 3 Common Stock,
representing interests in the Fund; and 50 million shares of Class U -- Special
Series 5 Common Stock and additional classes of shares representing interests in
other investment portfolios of the Company. Class U Common Stock are "A" Shares,
Class U -- Special Series 3 Common Stock are "B" Shares and Class U -- Special
Series 5 Common Stock are "K" shares. As of the date of this prospectus, K
shares have not been offered to the public. The Board of Directors may similarly
classify or reclassify any class of shares (including unissued Class U Common
Stock or Class U -- Special Series 3 Common Stock) into one or more series. For
more information about the Company's other portfolios, contact the Company at
the telephone number listed on the inside cover page.
Shares representing interests in the Fund are entitled to participate in the
dividends and distributions declared by the Board of Directors and in the net
distributable assets of the Fund upon liquidation. Fund shares have no
preemptive rights and only such conversion and exchange rights as the Board may
grant in its discretion. When issued for payment as described in this
Prospectus, Fund shares will be fully paid and non-assessable.
39
<PAGE> 46
VOTING RIGHTS
SHAREHOLDERS ARE ENTITLED TO ONE VOTE FOR EACH FULL SHARE HELD AND FRACTIONAL
VOTES FOR FRACTIONAL SHARES HELD. Fund shares have cumulative voting rights to
the extent that may be required by applicable law. Additionally, shareholders
will vote in the aggregate and not by class or series, except as required by law
(or when permitted by the Board of Directors). Only A Shares will vote on
matters relating solely to A Shares, and B Shares will vote on matters relating
solely to B Shares. The Fund does not presently intend to hold annual meetings
of shareholders to elect directors or for other business unless and until such
time as less than a majority of the directors holding office has been elected by
the shareholders. At that time, the directors then in office will call a
shareholders' meeting for the election of directors. Under certain
circumstances, however, shareholders have the right to call a shareholder
meeting to consider the removal of one or more directors. Such meetings will be
held when requested by the shareholders of 10% or more of the Company's
outstanding shares of common stock. The Fund will assist in shareholder
communications in such matters to the extent required by law and the Company's
undertaking with the Securities and Exchange Commission.
- --------------------------------------------------------------------------------
PLAN PAYMENTS
THE COMPANY HAS ADOPTED A SHAREHOLDER SERVICES PLAN (THE "PLAN")
FOR A SHARES AND A DISTRIBUTION AND SERVICES PLAN FOR B SHARES.
- --------------------------------------------------------------------------------
The Company has adopted a Shareholder Services Plan for A Shares, under which
the A Shares of the Fund reimburse the Distributor for shareholder servicing
fees the Distributor pays to Service Organizations. The Company has also adopted
a Distribution and Services Plan pursuant to Rule 12b-1 under the 1940 Act,
under which the B Shares of the Fund reimburse the Distributor for services
rendered and costs incurred in connection with distribution of the B Shares and
for shareholder servicing fees the Distributor pays to Service Organizations.
SHAREHOLDER SERVICES PLAN
Shareholder servicing expenses include expenses incurred in connection with
shareholder services provided by the Distributor and payments to Service
Organizations for support services for the beneficial owners of Fund shares,
such as: establishing and maintaining accounts and records relating to the
Service Organization's clients who invest in Fund shares; assisting those
clients in processing exchange and redemption requests and in changing dividend
options and account designations; and responding to inquiries from clients
concerning their investments.
Under the Plan, payments by the Fund for shareholder servicing expenses may not
exceed 0.25% (annualized) of the average daily net assets of the Fund's A
Shares. Excluded from this calculation, however, are all shares acquired via a
transfer of assets from trust and agency accounts at Bank of America. This
amount may be reduced pursuant to undertakings by the Distributor.
40
<PAGE> 47
If in any month the Distributor is due more monies than are immediately payable
because of the percentage limitation described above, the unpaid amount is
"carried forward" from month to month while the Plan is in effect until such
time when it may be paid. However, any "carried forward" amounts will not be
payable beyond the fiscal year during which the amounts are accrued. No
interest, carrying or other finance charge is borne by the Fund with respect to
the amount "carried forward."
The Glass-Steagall Act and other applicable laws, among other things, prohibit
banks from engaging in the business of underwriting securities. If a bank were
prohibited from acting as a Service Organization, its shareholder clients would
be permitted to remain Company shareholders and alternative means for continuing
the servicing of such shareholders would be sought. In such event, changes in
the operation of the Company might occur and a shareholder serviced by such bank
might no longer be able to avail itself of the automatic investment or other
services then being provided by the bank. It is not expected that shareholders
would suffer any adverse financial consequences as a result of any of these
occurrences.
DISTRIBUTION AND SERVICES PLAN
Under the Distribution and Services Plan, the Fund pays the Distributor for
distribution expenses primarily intended to result in the sale of the Fund's B
Shares and for shareholder servicing expenses. Such distribution expenses
include expenses incurred in connection with advertising and marketing the
Fund's B Shares; payments to Service Organizations for assistance in connection
with the distribution of B Shares; and expenses incurred in connection with
preparing, printing and distributing prospectuses for the Fund (except those
used for regulatory purposes, for solicitation or distribution to existing or
potential A shareholders, or for distribution to existing B shareholders of the
Fund) and in implementing and operating the Distribution and Services Plan.
Shareholder servicing expenses under the Distribution and Services Plan include,
but are not limited to, expenses incurred in connection with shareholder
services provided by the Distributor and payments to Service Organizations for
the provision of support services with respect to the beneficial owners of B
Shares, such as assisting clients in processing exchange and redemption requests
and in changing dividend options and account descriptions and responding to
client inquiries concerning their investments.
Under the Distribution and Services Plan, payments by the Fund for distribution
expenses may not exceed 0.75% (annualized), of the average daily net assets of
the Fund's B Shares. Under the Distribution and Services Plan, payments for
shareholder servicing expenses may not exceed 0.25% (annualized) of the average
daily net assets of the Fund's B Shares. These amounts may be reduced pursuant
to undertakings by the Distributor. Payments for distribution expenses under the
Distribution and Services Plan are subject to Rule 12b-1 under the 1940 Act.
41
<PAGE> 48
The Company will obtain a representation from the Service Organizations (and
from Bank of America and Concord) that they are or will be licensed as dealers
as required by applicable law or will not engage in activities which would
require them to be so licensed.
----------------------------------------------------
42
<PAGE> 49
PACIFIC HORIZON FUNDS, INC.
SHORT TERM GOVERNMENT FUND
CROSS REFERENCE SHEET
--------------------------------
<TABLE>
<CAPTION>
PART B
ITEM NO. HEADING
- -------- -------
<S> <C>
10. Cover Page................................................. Cover Page
11. Table of Contents.......................................... Table of Contents
12. General Information and History............................ The Company
13. Investment Objectives and Policies......................... Investment Objectives and
Policies
14. Management of the Fund..................................... Management
15. Control Persons and Principal Holders
of Securities............................................. Management ; General
Information
16. Investment Advisory and Other Services .................... Management ; General
Information
17. Brokerage Allocation and Other Practices................... Investment Objective and
Policies - Portfolio
Transactions
18. Capital Stock and Other Securities......................... General Information -
Description of Shares
19. Purchase, Redemption and Pricing of
Securities Being Offered................................... Additional Purchase and
Redemption Information
20. Tax Status................................................. Additional Information
Concerning Taxes
21. Underwriters............................................... Management - Distributor and
Plan Payments
22. Calculation of Performance Data............................ Performance Information
</TABLE>
Part C
Information to be included in Part C is set forth under the appropriate Item, so
numbered in Part C to this Registration Statement.
<PAGE> 50
PACIFIC HORIZON FUNDS, INC.
(THE "COMPANY")
PART B
STATEMENT OF ADDITIONAL INFORMATION
FOR
SHORT-TERM GOVERNMENT FUND
January 31, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE COMPANY............................................................. 2
INVESTMENT OBJECTIVE AND POLICIES....................................... 2
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.......................... 14
ADDITIONAL INFORMATION CONCERNING TAXES................................. 22
MANAGEMENT.............................................................. 25
PERFORMANCE INFORMATION................................................. 40
GENERAL INFORMATION..................................................... 45
FINANCIAL STATEMENTS.................................................... 55
APPENDIX A.............................................................. A-1
</TABLE>
This Statement of Additional Information applies to the A and B Shares
of the Pacific Horizon Short-Term Government Fund (the "Fund") of the Company.
This Statement of Additional Information is meant to be read in conjunction with
the Prospectus dated July 30, 1996, as it may from time to time be revised (the
"Prospectus"), and is incorporated by reference in its entirety into the
Prospectus. Because this Statement of Additional Information is not itself a
prospectus, no investment in either A or B Shares of the Fund should be made
solely upon the information contained herein. Copies of the Prospectus relating
to the Fund may be obtained by calling Concord Financial Group, Inc. at
800-332-3863. Capitalized terms used but not defined herein have the same
meaning as in the Prospectus.
<PAGE> 51
THE COMPANY
The Company was organized on October 27, 1982 as a Maryland
corporation. The Fund commenced operations on August 2, 1996 by offering a
single series of shares known as A Shares. As of the date of this Statement of
Additional Information, no B Shares were issued or outstanding.
The Company also offers other investment portfolios which are
described in separate Prospectuses and Statements of Additional Information. For
information concerning these other portfolios contact the Distributor at the
telephone number stated on the cover page of this Statement of Additional
Information.
INVESTMENT OBJECTIVE AND POLICIES
The Prospectus describes the investment objective of the Fund.
The following information supplements and should be read in conjunction with the
descriptions of the investment objective and policies in the Prospectus.
PORTFOLIO TRANSACTIONS
The portfolio turnover rate described in the Prospectus is
calculated by dividing the lesser of purchases or sales of portfolio securities
for the year by the monthly average value of the portfolio securities. The
calculation excludes all securities whose maturities at the time of acquisition
were one year or less. Portfolio turnover may vary greatly from year to year as
well as within a particular year, and may also be affected by cash requirements
for redemptions of shares and by requirements which enable the Company to
receive certain favorable tax treatment. Portfolio turnover will not be a
limiting factor in making portfolio decisions.
Subject to the general control of the Company's Board of
Directors, Bank of America National Trust and Savings Association ("Bank of
America" or the "investment adviser") is responsible for, makes decisions with
respect to, and places orders for, all purchases and sales of portfolio
securities for the Fund.
There is generally no stated commission in the case of
securities traded in the over-the-counter market, but the price includes an
undisclosed commission or mark-up. The cost of securities purchased from
underwriters includes an underwriting commission or concession, and the prices
at which securities are purchased from and sold to dealers include a dealer's
mark-up or mark-down. Purchases and sales of portfolio securities for the Fund
are normally principal transactions without brokerage commissions.
-2-
<PAGE> 52
In executing portfolio transactions and selecting brokers or
dealers, it is the Fund's policy to seek the best overall terms available. The
Investment Advisory Agreement between the Fund and Bank of America provides
that, in assessing the best overall terms available for any transaction, Bank of
America shall consider factors it deems relevant, including the breadth of the
market in the security, the price of the security, the financial condition and
execution capability of the broker or dealer, and the reasonableness of the
commission, if any, for the specific transaction and on a continuing basis. In
addition, the Investment Advisory Agreement authorizes Bank of America, subject
to the approval of the Board , to cause the Fund to pay a broker-dealer which
furnishes brokerage and research services a higher commission than that which
might be charged by another broker-dealer for effecting the same transaction,
provided that such commission is deemed reasonable in terms of either that
particular transaction or the overall responsibilities of Bank of America to the
Fund or the Company. Brokerage and research services may include: (1) advice as
to the value of securities, the advisability of investing in, purchasing or
selling securities and the availability of securities or purchasers or sellers
of securities; and (2) analyses and reports concerning industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts.
It is possible that certain of the brokerage and research
services received will primarily benefit one or more other investment companies
or other accounts for which investment discretion is exercised. Conversely, the
Company or the Fund may be the primary beneficiary of the brokerage or research
services received as a result of portfolio transactions effected for such other
accounts or investment companies.
Brokerage and research services so received are in addition to
and not in lieu of services required to be performed by Bank of America and do
not reduce the advisory fee payable to Bank of America. Such services may be
useful to Bank of America in serving both the Company, the Fund and other
clients and, conversely, services obtained by the placement of business of other
clients may be useful to Bank of America in carrying out its obligations to the
Company and the Fund. In connection with its investment management services with
respect to the Fund, Bank of America will not acquire certificates of deposit or
other securities issued by it or its affiliates, and will give no preference to
certificates of deposit or other securities issued by Service Organizations. In
addition, portfolio securities in general will be purchased from and sold to
affiliates of the Company, the Fund, Bank of America, the Distributor and their
affiliates acting as principal, underwriter, syndicate member, market-maker,
dealer, broker or in any similar capacity, provided such purchase, sale or
dealing is permitted under the Investment Company Act of 1940 (the "1940 Act")
and the rules thereunder.
-3-
<PAGE> 53
The Fund may participate, if and when practicable, in bidding
for the purchase of securities of the U.S. Government, its agencies,
instrumentalities or sponsored enterprises directly from an issuer in order to
take advantage of the lower purchase price available to members of a bidding
group. The Fund will engage in this practice only when Bank of America, in its
sole discretion, subject to guidelines adopted by the Board of Directors of the
Company, believes such practice to be in the interest of the Fund.
To the extent permitted by law, Bank of America may aggregate
the securities to be sold or purchased on behalf of the Fund with those to be
sold or purchased for other investment companies or common trust funds in order
to obtain best execution.
The Company is required to identify any securities of its
regular brokers or dealers (as defined in Rule 10b-1 under the 1940 Act) or
their parents held by the Company as of the close of its most recent fiscal
year. As of February 29, 1996: (a) the Treasury Fund held the following
securities, Repurchase Agreement with Dean Witter, Reynolds, Inc. in the
principal amount of $130,000,000; Repurchase Agreement with Goldman Sachs & Co.
in the principal amount of $375,000,000; Repurchase Agreement with Merrill Lynch
& Co., Inc. in the principal amount of $130,000,000; and Repurchase Agreement
with Morgan Stanley, Inc. in the principal amount of $130,000,000; (b) the
Government Fund held the following securities, Repurchase Agreement with Morgan
Stanley Group in the principal amount of $20,000,000; (c) the Prime Fund held
the following securities, Merrill Lynch & Co., Inc. commercial paper in the
principal amount of $50,000,000; Bear Stearns Cos., Inc. monthly variable rate
obligation in the principal amount of $100,000,000; Merrill Lynch & Co., Inc.
monthly variable rate obligation in the principal amount of $50,000,000; Merrill
Lynch & Co., Inc. quarterly variable rate obligation in the principal amount of
$50,000,000; Merrill Lynch & Co., Inc. quarterly variable rate obligation in the
principal amount of $50,000,000; Dean Witter Discover & Co. quarterly variable
rate obligation in the principal amount of $50,000,000; Goldman Sachs Group L.P.
master note in the principal amount of $220,000,000; Morgan Stanley Group, Inc.
master note in the principal amount of $200,000,000, Repurchase Agreement with
Dean Witter Reynolds, Inc. in the principal amount of $105,000,000; Repurchase
Agreement with Morgan Stanley Group, Inc. in the principal amount of
$105,000,000; Repurchase Agreement with Morgan Stanley Group, Inc. in the
principal amount of $105,000,000; (d) the U.S. Government Securities Fund held
the following securities, Merrill Lynch & Co., Inc. commercial paper in the
principal amount of $3,000,000; (e) the Corporate Bond master portfolio held the
following securities, Goldman Sachs Group LP corporate obligation in the
principal amount of $1,500,000; and Lehman Brothers corporate obligation in the
-4-
<PAGE> 54
principal amount of $1,000,000; (f) the Intermediate Bond master portfolio held
the following securities, Morgan Stanley Group medium term note in the amount of
$2,000,000 and Merrill Lynch Mtg. Inv. Inc. $16,000; (g) the Blue Chip master
portfolio held the following securities, Dean Witter common stock in the
principal amount of $2,821,875; and (h) the Asset Allocation master portfolio
held the following securities, Dean Witter common stock in the principal amount
of $1,085,750; Lehman Brothers corporate obligations in the principal amount of
$1,000,000; Morgan Stanley Group medium term note in the principal amount of
$1,500,000; Merrill Lynch & Co., Inc. collateralized mortgage obligation in the
principal amount of $8,000; and Merrill Lynch commercial paper in the principal
amount of $3,500,000.
Merrill Lynch & Co., Inc., Goldman, Sachs & Co., Bear Stearns
Co., Inc., Morgan Stanley & Co. Incorporated, Lehman Brothers, Inc., Dean Witter
Reynolds, Inc. and Paine Webber are considered to be regular brokers and dealers
of the Company.
TYPES OF OBLIGATIONS, INVESTMENT RISKS, AND OTHER INVESTMENT
INFORMATION
The following discussion supplements the descriptions of such
investments in the Prospectus.
REPURCHASE AGREEMENTS. The Fund is permitted to enter into repurchase
agreements with respect to its portfolio securities. Pursuant to such
agreements, the Fund acquires securities from financial institutions such as
banks and broker-dealers as are deemed to be creditworthy subject to the
seller's agreement to repurchase and the agreement of the Fund to resell such
securities at a mutually agreed upon date and price. Repurchase agreements
maturing in more than seven days are considered illiquid investments and
investments in such repurchase agreements along with any other illiquid
securities will not exceed 10% of the value of the net assets of the Fund.
Although securities subject to a repurchase agreement may bear maturities
exceeding ten years, the Fund intends to only enter into repurchase agreements
having maturities not exceeding 60 days. The Fund is not permitted to enter into
repurchase agreements with Bank of America or its affiliates, and will give no
preference to repurchase agreements with Service Organizations. The repurchase
price generally equals the price paid by the Fund plus interest negotiated on
the basis of current short-term rates (which may be more or less than the rate
on the underlying portfolio security). Securities subject to repurchase
agreements will be held by the Fund's custodian or sub-custodian or in the
Federal Reserve/Treasury Book-Entry System. The seller under a repurchase
agreement will be required to deliver instruments the value of which is 102% of
the repurchase price (excluding accrued interest), provided that notwithstanding
such requirement, the
-5-
<PAGE> 55
investment adviser shall require that the value of the collateral, after
transaction costs (including loss of interest) reasonably expected to be
incurred on a default, shall be equal to or greater than the resale price
(including interest) provided in the agreement. If the seller defaulted on its
repurchase obligation, the Fund would suffer a loss because of adverse market
action or to the extent that the proceeds from a sale of the underlying
securities were less than the repurchase price under the agreement. Bankruptcy
or insolvency of such a defaulting seller may cause the Fund's rights with
respect to such securities to be delayed or limited. Repurchase agreements are
considered to be loans by the Fund under the 1940 Act.
U.S. GOVERNMENT OBLIGATIONS. The Fund makes investments in U.S.
Government obligations. Treasury bills have maturities of one year or less,
Treasury notes have maturities of one to ten years and Treasury bonds generally
have maturities of more than ten years.
WHEN-ISSUED SECURITIES, FORWARD COMMITMENTS AND DELAYED SETTLEMENTS.
The Fund may agree to purchase securities on a "when-issued," and "forward
commitment" or "delayed settlement" basis. When the Fund agrees to purchase
securities on a "when issued," forward commitment or delayed settlement basis,
its custodian will set aside cash or liquid portfolio securities equal to the
amount of the commitment in a separate account. Normally, the custodian will set
aside portfolio securities to satisfy a purchase commitment. In such a case, the
Fund may be required subsequently to place additional assets in the separate
account in order to assure that the value of the account remains equal to the
amount of the commitment. It may be expected that the net assets of the Fund
will fluctuate to a greater degree when it sets aside portfolio securities to
cover such purchase commitments than when it sets aside cash. The Fund does not
intend to engage in these transactions for speculative purposes but primarily in
order to hedge against anticipated changes in interest rates. Because the Fund
will set aside cash or liquid portfolio securities to satisfy its purchase
commitments in the manner described, its liquidity and the ability of the
investment adviser to manage it may be affected in the event the forward
commitments, commitments to purchase when-issued securities and delayed
settlements ever exceeded 25% of the value of the Fund's assets.
The Fund will purchase securities on a when-issued, forward
commitment or delayed settlement basis only with the intention of completing the
transaction. If deemed advisable as a matter of investment strategy, however,
the Fund may dispose of or renegotiate a commitment after it is entered into,
and may sell securities it has committed to purchase before those securities are
delivered to the Fund on the settlement date. In these cases the Fund may
realize a taxable capital gain or loss.
-6-
<PAGE> 56
When the Fund engages in when-issued, forward commitment and
delayed settlement transactions, it relies on the other party to consummate the
trade. Failure of such party to do so may result in the Fund's incurring a loss
or missing an opportunity to obtain a price considered to be advantageous.
The market value of the securities underlying a when issued
purchase, forward commitment to purchase securities, or a delayed settlement and
any subsequent fluctuations in their market value is taken into account when
determining the market value of the Fund starting on the day the Fund agrees to
purchase the securities. The Fund does not earn interest on the securities it
has committed to purchase until they are paid for and delivered on the
settlement date.
FUTURES. The Fund may purchase and sell futures contracts on U.S.
Government Securities, mortgage-related securities and Euro-dollar securities
(as well as purchase related options). A futures contract is a bilateral
agreement pursuant to which two parties agree to take or make delivery of an
amount of cash equal to a specified dollar amount times the difference between
the value of a specified obligation at the close of the last trading day of the
contract and the price at which the futures contract is originally struck. No
physical delivery of the underlying securities is normally made. The Fund may
not purchase or sell futures contracts and purchase related options unless
immediately after any such transaction the aggregate initial margin that is
required to be posted by the Fund under the rules of the exchange on which the
futures contract (or futures option) is traded, plus any premiums paid by the
Fund on its open futures options positions, does not exceed 5% of the Fund's
total assets, after taking into account any unrealized profits and losses on the
Fund's open contracts and excluding the amount that a futures option is
"in-the-money" at the time of purchase. An option to buy a futures contract is
"in-the-money" if the then current purchase price of the contract that is
subject to the option is less than the exercise or strike price; an option to
sell a futures contract is "in-the-money" if the exercise or strike price
exceeds the then current purchase price of the contract that is the subject of
the option. In connection with a futures transaction, unless the transaction is
covered in accordance with SEC positions, the Fund will maintain a segregated
account with its custodian or sub-custodian consisting of cash or liquid high
grade debt securities equal to the entire amount at risk (less margin deposits)
on a continuous basis.
Successful use of futures contracts by the Fund is subject to
Bank of America's ability to predict correctly movements in the direction of
interest rates. There are several risks in connection with the use of futures
contracts by the Fund as a hedging device. One risk arises because of the
imperfect correlation between movements in the price of the futures
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<PAGE> 57
contract and movements in the price of the securities which are the subject of
the hedge. The price of the futures contract may move more than or less than the
price of the securities being hedged. If the price of the futures contract moves
less than the price of the securities which are the subject of the hedge, the
hedge will not be fully effective but, if the price of the securities being
hedged has moved in an unfavorable direction, the Fund would be in a better
position than if it had not hedged at all. If the price of the securities being
hedged has moved in a favorable direction, this advantage will be partially
offset by the loss on the futures contract. If the price of the futures contract
moves more than the price of the hedged securities, the Fund involved will
experience either a loss or gain on the futures contract which will not be
completely offset by movements in the price of the securities which are the
subject of the hedge.
It is also possible that, where the Fund has sold futures
contracts to hedge its portfolio against a decline in the market, the market may
advance and the value of securities held in the Fund may decline. If this
occurred, the Fund would lose money on the futures contract and also experience
a decline in value in its portfolio securities.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures contract
and the securities being hedged, the price of futures contracts may not
correlate perfectly with movement in the cash market due to certain market
distortions. Due to the possibility of price distortion in the futures market,
and because of the imperfect correlation between the movement in the cash market
and movements in the price of futures contracts, a correct forecast of general
market trends or interest rate movements by Bank of America may still not result
in a successful hedging transaction over a short time frame.
Positions in futures contracts may be closed out only on an
exchange or board of trade which provides a secondary market for such futures
contracts. Although the Fund intends to purchase or sell futures contracts only
on exchanges or boards of trade where there appear to be active secondary
markets, there is no assurance that a liquid secondary market on any exchange or
board of trade will exist for any particular contract or at any particular time.
In such event, it may not be possible to close a futures investment position,
and in the event of adverse price movements, the Fund would continue to be
required to make daily cash payments of variation margin. The liquidity of a
secondary market in a futures contract may in addition be adversely affected by
"daily price fluctuation limits" established by commodity exchanges which limit
the amount of fluctuation in a futures contract price during a single trading
day. Once the daily limit has been reached in the contract, no trades may be
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<PAGE> 58
entered into at a price beyond the limit, thus preventing the liquidation of
open futures positions.
Options on Futures Contracts. The acquisition of put and call
options on a futures contract will give the Fund the right (but not the
obligation), for a specified price, to sell or to purchase, respectively, the
underlying futures contract at any time during the option period. As the
purchaser of an option on a futures contract, the Fund obtains the benefit of
the futures position if prices move in a favorable direction but limits its risk
of loss in the event of an unfavorable price movement to the loss of the premium
and transaction costs.
The Fund will engage in the purchase and sale of futures
contracts and options on such futures contracts primarily to hedge its portfolio
against changes in interest rates. The Fund may buy adjustable rate mortgage
securities ("ARMs") which frequently have embedded caps which limit how high the
interest rates of the ARMs may rise over periods of time. In order to hedge
against changes in market value caused by the embedded caps in the ARMs, the
Fund may engage in futures and related options contracts.
For additional information concerning Futures and options
thereon, please see Appendix A to this Statement of Additional Information.
MORTGAGE-RELATED SECURITIES. The Fund may purchase
mortgage-backed securities that are secured by entities, including but not
limited to, the Government National Mortgage Association ("GNMA"), Federal
National Mortgage Association ("FNMA"), Federal Home Loan Mortgage Corporation
("FHLMC"), commercial banks, trusts, financial companies, finance subsidiaries
of industrial companies, savings and loan associations, mortgage banks and
investment banks.
There are a number of important differences among the
agencies, instrumentalities and sponsored enterprises of the U.S. Government
that issue mortgage-related securities and among the securities that they issue.
Mortgage-related securities guaranteed by GNMA include GNMA Mortgage
Pass-Through Certificates (also known as "Ginnie Maes") which are guaranteed as
to the timely payment of principal and interest by GNMA and such guarantee is
backed by the full faith and credit of the United States. GNMA is a wholly-owned
U.S. Government corporation within the Department of Housing and Urban
Development. GNMA certificates also are supported by the authority of GNMA to
borrow funds from the U.S. Treasury to make payments under its guarantee.
Mortgage-related securities issued by FNMA include FNMA guaranteed Mortgage
Pass-Through
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<PAGE> 59
Certificates (also known as "Fannie Maes") which are solely the obligations of
FNMA, are not backed by or entitled to the full faith and credit of the United
States and are supported by the right of the issuer to borrow from the Treasury.
FNMA is a government-sponsored organization owned entirely by private
stockholders. Fannie Maes are guaranteed as to timely payment of principal and
interest by FNMA. Mortgage-related securities issued by the Federal Home Loan
Mortgage Corporation ("FHLMC") include FHLMC Mortgage Participation Certificates
(also known as "Freddie Macs" or "Pcs"). FHLMC is a corporate instrumentality of
the United States, created pursuant to an Act of Congress, which is owned
entirely by Federal Home Loan Banks. Freddie Macs are not guaranteed by the
United States or by any Federal Home Loan Banks and do not constitute a debt or
obligation of the United States or of any Federal Home Loan Bank. Freddie Macs
entitle the holder to timely payment of interest, which is guaranteed by FHLMC.
FHLMC guarantees either ultimate collection or timely payment of all principal
payments on the underlying mortgage loans. When FHLMC does not guarantee timely
payment of principal, FHLMC may remit the amount due on account of its guarantee
of ultimate payment of principal at any time after default on an underlying
mortgage, but in no event later than one year after it becomes payable.
The Fund may invest in multiple class pass-through securities,
including collateralized mortgage obligations ("CMOs") and real estate mortgage
investment conduits ("REMIC") pass-through or participation certificates ("REMIC
Certificates"). These multiple class securities may be issued by U.S. Government
agencies, instrumentalities or sponsored enterprises, including FNMA and FHLMC,
or by trusts formed by private originators of, or investors in, mortgage loans.
In general, CMOs and REMICs are debt obligations of a legal entity that are
collateralized by, and multiple class pass-through securities represent direct
ownership interests in, a pool of residential mortgage loans or mortgage
pass-through securities (the "Mortgage Assets"), the payments on which are used
to make payments on the CMOs or multiple pass-through securities. Investors may
purchase beneficial interests in REMICs, which are known as "regular" interests
or "residual" interests. The Fund does not intend to purchase residual
interests.
Each class of CMOs or REMIC Certificates, often referred to as
a "tranche," is issued at a specific adjustable or fixed interest rate and must
be fully retired no later than its final distribution date. Principal
prepayments on the Mortgage Assets underlying the CMOs or REMIC Certificates may
cause some or all of the classes of CMOs or REMIC Certificates to be retired
substantially earlier than their final distribution dates. Generally, interest
is paid or accrues on all classes of CMOs or REMIC Certificates on a monthly
basis.
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<PAGE> 60
The principal of and interest on the Mortgage Assets may be
allocated among the several classes of CMOs or REMIC Certificates in various
ways. In certain structures (known as "sequential pay" CMOs or REMIC
Certificates), payments of principal, including any principal prepayments, on
the Mortgage Assets generally are applied to the classes of CMOs or REMIC
Certificates in the order of their respective final distribution dates. Thus no
payment of principal will be made on any class of sequential pay CMOs or REMIC
Certificates until all other classes having an earlier final distribution date
have been paid in full.
Additional structures of CMOs or REMIC Certificates include,
among others, "parallel pay" CMOs and REMIC Certificates. Parallel pay CMOs or
REMIC Certificates are those which are structured to apply principal payments
and prepayments of the Mortgage Assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
A wide variety of REMIC Certificates may be issued in the
parallel pay or sequential pay structures. These securities include accrual
certificates (also known as "Z-Bonds"), which only accrue interest at a
specified rate until all other certificates having an earlier final distribution
date have been retired and are converted thereafter to an interest-paying
security, and planned amortization class ("PAC") certificates, which are
parallel pay REMIC Certificates which generally require that specified amounts
of principal be applied on each payment date to one or more classes of REMIC
Certificates (the "PAC Certificates"), even though all other principal payments
and prepayments of the Mortgage Assets are then required to be applied to one or
more other classes of the Certificates. The scheduled principal payments for the
PAC Certificates generally have the highest priority on each payment date after
interest due has been paid to all classes entitled to receive interest
currently. Shortfalls, if any, are added to the amount payable on the next
payment date. The PAC Certificate payment schedule is taken into account in
calculating the final distribution date of each class of PAC. In order to create
PAC tranches, one or more tranches generally must be created that absorb most of
the volatility in the underlying Mortgage Assets. These tranches tend to have
market prices and yields that are much more volatile than the PAC classes.
FNMA REMIC Certificates are issued and guaranteed as to timely
distribution of principal and interest by FNMA. In addition, FNMA will be
obligated to distribute on a timely basis to holders of FNMA REMIC Certificates
required installments of principal and interest and to distribute the principal
balance of each class of REMIC Certificates in full, whether or not sufficient
funds are otherwise available.
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<PAGE> 61
For FHLMC REMIC Certificates, FHLMC guarantees the timely
payment of interest, and also guarantees the ultimate payment of principal as
payments are required to be made on the underlying mortgage participation
certificates ("Pcs"). Pcs represent undivided interests in specified level
payment, residential mortgages or participation therein purchased by FHLMC and
placed in a PC pool. With respect to principal payments on Pcs, FHLMC generally
guarantees ultimate collection of all principal of the related mortgage loans
without offset or deduction. FHLMC also guarantees timely payment of principal
on certain Pcs, referred to as "Gold Pcs."
ADDITIONAL INFORMATION
The investment adviser's own investment portfolios may include
bank certificates of deposit, bankers' acceptances, corporate debt obligations,
equity securities and other investments any of which may also be purchased by
the Fund. The Fund may also invest in securities, interests or obligations of
companies or entities which have a deposit, loan, commercial banking or other
business relationship with Bank of America or any of its affiliates (including
outstanding loans to such issuers which may be repaid in whole or in part with
the proceeds of securities purchased by the Fund).
OTHER INVESTMENT LIMITATIONS
The investment objective of the Fund is fundamental. The Prospectus for
the Fund sets forth certain fundamental policies that may not be changed with
respect to the Fund without the affirmative vote of the holders of the majority
of the Fund's outstanding shares (as defined below under "GENERAL INFORMATION
- -Miscellaneous"). The following is a complete list of fundamental policies which
may not be changed for the Fund without such a vote of shareholders.
THE FUND MAY NOT:
1. Purchase securities (except securities issued by the
U.S. Government, its agencies or instrumentalities) if, as a result more than 5%
of its total assets will be invested in the securities of any one issuer, except
that up to 25% of its total assets may be invested without regard to this 5%
limitation; provided that all of the assets of the Fund may be invested in
another investment company.
2. Underwrite the securities of other issuers, provided
that all of the assets of the Fund may be invested in another investment
company.
3. Purchase or sell real estate, except that the Fund
may, to the extent appropriate to its investment objective,
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<PAGE> 62
invest in securities and instruments guaranteed by agencies or instrumentalities
of the U.S. Government, and securities issued by companies which invest in real
estate or interests therein.
4. Purchase securities on margin (except for such
short-term credits as may be necessary for the clearance of transactions), make
short sales of securities or maintain a short position. For this purpose, the
deposit or payment by the Fund for initial or maintenance margin in connection
with futures contracts is not considered to be the purchase or sale of a
security on margin.
5. Purchase or sell commodities or commodity contracts,
or invest in oil, gas or mineral exploration or development programs. This
restriction shall not apply to securities issued by companies which purchase or
sell commodities or commodity contracts or which invest in such programs, or to
futures contracts or options on futures contracts.
6. Purchase securities of other investment companies to
the extent prohibited by the 1940 Act.
7. Purchase any securities which would cause 25% or more
of the value of its total assets at the time of such purchase to be invested in
the securities of one or more issuers conducting their principal business
activities in the same industry; provided, however, that (a) there is no
limitation with respect to investments in obligations issued or guaranteed by
the federal government and its agencies or instrumentalities; (b) each utility
(such as gas, gas transmission, electric and telephone service) will be
considered a single industry for purposes of this policy; and (c) wholly-owned
finance companies will be considered to be in the industries of their parents if
their activities are primarily related to financing the activities of their
parents.
8. Purchase securities of any issuer if as a result it
would own more than 10% of the voting securities of such issuer; provided that
all of the assets of the Fund may be invested in another investment company.
9. Borrow money for the purpose of obtaining investment
leverage or issue senior securities (as defined in the 1940 Act), provided that
the Fund may borrow from banks for temporary purposes in an amount not exceeding
10% of the value of the total assets of the Fund; or mortgage, pledge or
hypothecate any assets, except in connection with any such borrowing and in
amounts not in excess of the lesser of the dollar amounts borrowed or 10% of the
value of its total assets at the time of such borrowing. This restriction shall
not apply to (a) the sale of portfolio securities accompanied by a simultaneous
agreement as to their repurchase, or (b) transactions in currency, options,
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futures contracts and options on futures contracts, or forward commitment
transactions.
10. Make loans, except investments in debt securities and
repurchase agreements.
* * *
If a percentage restriction is satisfied at the time of
investment, a later increase or decrease in such percentage resulting from a
change in asset value will not constitute a violation of such restriction.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Information on how to purchase and redeem Fund shares, and how
such shares are priced, is included in the Prospectus. Additional information is
contained below.
Portfolio securities for which market quotations are readily
available (other than debt securities with remaining maturities of 60 days or
less) are valued at the last reported sale price or (if none is available) the
mean between the current quoted bid and asked prices provided by investment
dealers. Other securities and assets for which market quotations are not readily
available are valued at their fair value using methods determined under the
supervision of the Board . Debt securities with remaining maturities of 60 days
or less are valued on an amortized cost basis unless the Board determines that
such basis does not represent fair value at the time. Under this method such
securities are valued initially at cost on the date of purchase or, in the case
of securities purchased with more than 60 days to maturity, are valued at their
market or fair value each day until the 61st day prior to maturity. Thereafter,
absent unusual circumstances, a constant proportionate amortization of any
discount or premium is assumed until maturity of the security.
A pricing service may be used to value certain portfolio
securities where the prices provided are believed to reflect the fair value of
such securities. In valuing securities the pricing service would normally take
into consideration such factors as yield, risk, quality, maturity, type of
issue, trading characteristics, special circumstances and other factors it deems
relevant in determining valuations for normal institutional-sized trading units
of debt securities and would not rely on quoted prices. The methods used by the
pricing service and the valuations so established will be utilized under the
general supervision of the Board.
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<PAGE> 64
SUPPLEMENTARY PURCHASE INFORMATION
For the purpose of applying the Right of Accumulation or
Letter of Intent privileges available to certain shareholders as described in
the Prospectus, the scale of sales loads applies to purchases made by any
"purchaser," which term includes an individual and/or spouse purchasing
securities for his, her or their own account or for the account of any minor
children; or a trustee or other fiduciary account (including a pension,
profit-sharing or other employee benefit trust created pursuant to a plan
qualified under Section 401 of the Internal Revenue Code) although more than one
beneficiary is involved; or "a qualified group" which has been in existence for
more than six months and has not been organized for the purpose of buying
redeemable securities of a registered investment company at a discount, provided
that the purchases are made through a central administrator or a single dealer,
or by other means which result in economy of sales effort or expense. A
"qualified group" must have more than 10 members, must be available to arrange
for group meetings between representatives of the Fund and the members, and must
be able to arrange for mailings to members at reduced or no cost to the
Distributor. The value of shares eligible for the Right of Accumulation
privilege may also be used as a credit toward completion of the Letter of Intent
privilege. Such shares will be valued at their offering price prevailing on the
date of submission of the Letter of Intent. Distributions on shares held in
escrow pursuant to the Letter of Intent privilege will be credited to the
shareholder, but such shares are not eligible for the Fund's Exchange Privilege.
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<PAGE> 65
The computation of the hypothetical offering price per share
of an A Share for the Fund based on the value of the Fund's net assets on August
31, 1996 and the Fund's A Shares outstanding on such date is as follows:
SHORT-TERM GOVERNMENT FUND
<TABLE>
<CAPTION>
A SHARES
--------
<S> <C>
Net Assets $ 2,958,856
Outstanding Securities 296,406
Net Asset Value Per Share $ 9.98
Sales Load, 4.50 percent
of offering price (4.71 percent
of net asset value per share) $ 0.47
Maximum Offering Price to Public $ 10.45
</TABLE>
On August 31, 1996, no B Shares of the Fund were issued and
outstanding.
SUPPLEMENTARY REDEMPTION INFORMATION
Shares in the Fund for which orders for wire redemption are
received on a business day before the close of regular trading hours on the New
York Stock Exchange (currently 4:00 p.m. Eastern time) will be redeemed as of
the close of regular trading hours on such Exchange and the proceeds of
redemption (less any applicable contingent deferred sales charge on B Shares or
A Shares subject to the Large Purchase Exemption) will normally be wired in
federal funds on the next business day to the commercial bank specified by the
investor on the Account Application (or other bank of record on the investor's
file with the Transfer Agent). To qualify to use the wire redemption privilege,
the payment for Fund shares must be drawn on, and redemption proceeds paid to,
the same bank and account as designated on the Account Application (or other
bank of record as described above). If the proceeds of a particular redemption
are to be wired to another bank, the request must be in writing and signature
guaranteed. Shares for which orders for wire redemption are received after the
close of regular trading hours on the New York Stock Exchange or on a
non-business day will be redeemed as of the close of regular trading hours on
such Exchange on the next day on which shares of the Fund are priced and the
proceeds (less any applicable contingent deferred sales charge on B Shares or A
Shares subject to the Large Purchase Exemption) will normally be wired in
federal funds on the next business day thereafter. Redemption proceeds (less any
applicable contingent deferred
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<PAGE> 66
sales charge on B Shares or A Shares subject to the Large Purchase Exemption)
will be wired to a correspondent member bank if the investor's designated bank
is not a member of the Federal Reserve System. Immediate notification by the
correspondent bank to the investor's bank is necessary to avoid a delay in
crediting the funds to the investor's bank account. Proceeds of less than $1,000
will be mailed to the investor's address.
To change the commercial bank or account designated to receive
redemption proceeds, a written request must be sent to the Company, c/o Pacific
Horizon Funds, Inc., P.O. Box 80221, Los Angeles, California 90080-9909. Such
request must be signed by each shareholder, with each signature guaranteed as
described in the Prospectus. Guarantees must be signed by an authorized
signatory and "signature guaranteed" must appear with the signature. The
Transfer Agent may request further documentation from corporations, executors,
administrators, trustees or guardians, and will accept other suitable
verification arrangements from foreign investors, such as consular verification.
SUPPLEMENTARY PURCHASE AND REDEMPTION INFORMATION
IN GENERAL. As described in the Prospectus, both A and B
Shares may be purchased directly by the public, by clients of Bank of America
through their qualified trust and agency accounts, or by clients of securities
dealers, financial institutions (including banks) and other industry
professionals, such as investment advisers, accountants and estate planning
firms that have entered into service and/or selling agreements with the
Distributor. (The Distributor, such institutions and professionals are
collectively referred to as "Service Organizations.") Bank of America and
Service Organizations may impose minimum customer account and other requirements
in addition to those imposed by the Fund and described in the Prospectus.
Purchase orders will be effected only on business days.
A Shares in the Fund are sold with a sales load, except for
such exemptions as noted in the Prospectus. A Shares which are subject to the
Large Purchase Exemption are subject to a contingent deferred sales charge. The
contingent deferred sales charge discussed under the Large Purchase Exemption
does not apply to A Shares under the Daily Advantage(R) or Advantage Plus(TM)
Programs. These exemptions to the imposition of a sales load on A Shares are due
to the nature of the investors and/or the reduced sales efforts that will be
necessary in obtaining such investments. A Shares are also subject to a
shareholder servicing fee. B Shares are sold without a front-end sales load, but
are subject to a contingent deferred sales charge and an ongoing distribution
and shareholder servicing fee. Service Organizations may be paid by the
Distributor at the Company's
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<PAGE> 67
expense for shareholder services. Depending on the terms of the particular
account, Bank of America, its affiliates, and Service Organizations also may
charge their customers fees for automatic investment, redemption and other
services provided. Such fees may include, for example, account maintenance fees,
compensating balance requirements or fees based upon account transactions,
assets or income. Bank of America or the particular Service Organization is
responsible for providing information concerning these services and any charges
to any customer who must authorize the purchase of Fund shares prior to such
purchase.
Persons or organizations wishing to purchase Company shares
through their accounts at Bank of America or a Service Organization should
contact such entity directly for appropriate instructions.
Initial purchases of shares into a new account may not be made
by wire. However, persons wishing to make a subsequent purchase of Company
shares into an already existing account by wire should telephone the Transfer
Agent at (800) 346-2087. The investor's bank must be instructed to wire federal
funds to the Transfer Agent, referring in the wire to the particular fund in
which such investment is to be made; the investor's portfolio account number;
and the investor's name.
The Transfer Agent may charge a fee to act as Custodian for
IRAs, payment of which could require the liquidation of shares. B Shares and A
Shares subject to the Large Purchase Exemption liquidated by the Transfer Agent
as fees for custodial services to IRA accounts will not be subject to the
contingent deferred sales charge. All fees charged are described in the
appropriate form. Shares may be purchased in connection with these plans only by
direct remittance to the Transfer Agent. Purchases for IRA accounts will be
effective only when payments received by the Transfer Agent are converted into
federal funds. Purchases for these plans may not be made in advance of receipt
of funds.
For processing redemptions, the Transfer Agent may request
further documentation from corporations, executors, administrators, trustees or
guardians. The Transfer Agent will accept other suitable verification
arrangements from foreign investors, such as consular verification.
Investors should be aware that if they have selected the
TeleTrade Privilege, any request for a wire redemption will be effected as a
TeleTrade transaction through the Automated Clearing House (ACH) system unless
more prompt transmittal is specifically requested. Redemption proceeds of a
TeleTrade transaction will be on deposit in the investor's account at the ACH
member bank normally two business days after receipt of the redemption request.
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<PAGE> 68
EXCHANGE PRIVILEGE. Shareholders in the Pacific Horizon Family
of Funds have an exchange privilege whereby they may exchange all or part of
their shares for like shares of another investment portfolio in the Pacific
Horizon Family of Funds or for like shares of an investment portfolio of Time
Horizon Funds. In addition, shareholders of the Fund may exchange B Shares for
Pacific Horizon Shares of the Pacific Horizon Prime Fund without the payment of
any contingent deferred sales charge at the time the exchange is made. By use of
the exchange privilege, the investor authorizes the Transfer Agent to act on
telephonic, telegraphic or written exchange instructions from any person
representing himself or herself to be the investor and believed by the Transfer
Agent to be genuine. The Transfer Agent's records of such instructions are
binding. The exchange privilege may be modified or terminated at any time upon
notice to shareholders. For federal income tax purposes, exchange transactions
are treated as sales on which a purchaser will realize a capital gain or loss
depending on whether the value of the shares exchanged is more or less than his
basis in such shares at the time of the transaction.
Exchange transactions described in Paragraphs A, B, C, D, E, F
and G below will be made on the basis of the relative net asset values per share
of the investment portfolios involved in the transaction.
A. A Shares of any investment portfolio purchased with a sales
load, as well as additional shares acquired through
reinvestment of dividends or distributions on such shares, may
be exchanged without a sales load for other A Shares of any
other investment portfolio in the Pacific Horizon Family of
Funds or for like shares of Time Horizon Funds.
B. B Shares acquired pursuant to an exchange transaction will
continue to be subject to a contingent deferred sales charge.
However, B Shares that had been acquired through an exchange
of B Shares may be exchanged for other B Shares or for like
shares of Time Horizon Funds without the payment of a
contingent deferred sales charge at the time of exchange.
Except as noted in D below, in determining the holding period
for calculating the contingent deferred sales charge payable
on redemption of B Shares, the holding period of the shares
originally held will be added to the holding period of the
shares acquired through exchange.
C. A Shares subject to the Large Purchase Exemption acquired
pursuant to an exchange transaction will continue to be
subject to any applicable contingent deferred sales charge.
However, A Shares subject to the Large Purchase Exemption that
have been acquired
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<PAGE> 69
through an exchange of A Shares may be exchanged for other A
Shares or for like shares of Time Horizon Funds without the
payment of a contingent deferred sales charge at the time of
exchange. In determining the holding period for calculating
the contingent deferred sales charge payable on redemption of
A Shares, the holding period of the shares originally held
will be added to the holding period of the shares acquired
through exchange.
D. B Shares may be exchanged for Pacific Horizon Shares of the
Pacific Horizon Prime Fund ("Prime Shares") without paying a
contingent deferred sales charge. At the time of such an
exchange, a shareholder's holding period for calculating the
contingent deferred sales charge payable on redemption of B
Shares of a Fund will cease to accumulate. If the shareholder
subsequently exchanges the shares back into B Shares of a
Fund, the holding period accumulation on the shares will
resume as of the time when the exchange was made into the
Prime Shares. In the event that a shareholder wishes to redeem
Prime Shares acquired by exchange for B Shares of a Fund, the
contingent deferred sales charge applicable to the accumulated
B Shares of a Fund holding period prior to the exchange into
the Prime Shares will be charged.
E. A or B Shares of any investment portfolio in the Pacific
Horizon Family of Funds or like shares of the Time Horizon
Funds acquired by a previous exchange transaction involving
shares on which a sales load has directly or indirectly been
paid (e.g. A Shares purchased with a sales load or issued in
connection with an exchange transaction involving A Shares
that had been purchased with a sales load), as well as
additional shares acquired through reinvestment of dividends
or distributions on such shares, may be redeemed and the
proceeds used to purchase without a sales load A or B Shares,
as the case may be, of any other investment portfolio within
90 days of your redemption trade date. To accomplish an
exchange transaction under the provisions of this paragraph,
investors must notify the Transfer Agent of their prior
ownership of shares and their account number.
F. A Shares of any investment portfolio in the Pacific Horizon
Family of Funds may be exchanged without a sales load for
shares of any other investment portfolio in the Pacific
Horizon Family of Funds that is offered without a sales load.
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<PAGE> 70
G. A Shares of any investment portfolio in the Pacific Horizon
Family of Funds purchased without a sales load may be
exchanged without a sales load for A Shares in any other
portfolio in the Pacific Horizon Family of Funds.
Except as stated above, a sales load will be imposed when
shares of any investment portfolio in the Pacific Horizon Family of Funds that
were purchased or otherwise acquired without a sales load are exchanged for A
Shares of another investment portfolio in the Pacific Horizon Family or for like
shares of Time Horizon Funds which are sold with a sales load.
Exchange requests received on a business day prior to the time
shares of the investment portfolios involved in the request are priced will be
processed on the date of receipt. "Processing" a request means that shares in
the investment portfolio from which the shareholder is withdrawing an investment
will be redeemed at the net asset value per share next determined on the date of
receipt. Shares of the new investment portfolio into which the shareholder is
investing will also normally be purchased at the net asset value per share next
determined coincident to or after the time of redemption. Exchange requests
received on a business day after the time shares of the investment portfolios
involved in the request are priced will be processed on the next business day in
the manner described above.
MISCELLANEOUS. Certificates for shares will not be issued.
Depending on the terms of the customer account at Bank of
America or a Service Organization, certain purchasers may arrange with the
Company's custodian for sub-accounting services paid by the Company without
direct charge to the purchaser.
A "business day" for purposes of processing share purchases
and redemptions received by the Transfer Agent at its Columbus office is a day
on which the New York Stock Exchange is open for trading. In 1997, the holidays
on which the New York Stock Exchange is closed are: New Year's Day, Presidents'
Day, Good Friday, Memorial Day (observed), Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
The Company may suspend the right of redemption or postpone
the date of payment for shares during any period when (a) trading on the New
York Stock Exchange is restricted by applicable rules and regulations of the
SEC; (b) the New York Stock Exchange is closed for other than customary weekend
and holiday closings; (c) the SEC has by order permitted such suspension; or (d)
an emergency exists as determined by the SEC. (The Company may also suspend or
postpone the recordation of the
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<PAGE> 71
transfer of its shares upon the occurrence of any of the foregoing conditions.)
The Company's Charter permits its Board of Directors to
require a shareholder to redeem involuntarily shares in the Fund if the balance
held of record by the shareholder drops below $500 and such shareholder does not
increase such balance to $500 or more upon 60 days' notice. The contingent
deferred sales charge with respect to B Shares or A Shares subject to the Large
Purchase Exemption is not charged on involuntary redemptions. The Company will
not require a shareholder to redeem shares of the Fund if the balance held of
record by the shareholder is less than $500 solely because of a decline in the
net asset value of the Fund's shares. The Company may also redeem shares
involuntarily if such redemption is appropriate to carry out the Company's
responsibilities under the 1940 Act.
If the Company's Board of Directors determines that conditions
exist which make payment of redemption proceeds wholly in cash unwise or
undesirable, the Company may make payment wholly or partly in securities or
other property. In such an event, a shareholder would incur transaction costs in
selling the securities or other property. The Company has committed that it will
pay all redemption requests by a shareholder of record in cash, limited in
amount with respect to each shareholder during any ninety-day period to the
lesser of $250,000 or 1% of the net asset value at the beginning of such period.
ADDITIONAL INFORMATION CONCERNING TAXES
FEDERAL
The Fund will be treated as a separate corporate entity under
the Internal Revenue Code of 1986, as amended (the "Code"), and intends to
qualify as a "regulated investment company." By following this policy, the Fund
expects to eliminate or reduce to a nominal amount the federal income taxes to
which it may be subject. If for any taxable year the Fund does not qualify for
the special federal tax treatment afforded regulated investment companies, all
of the Fund's taxable income would be subject to tax at regular corporate rates
(without any deduction for distributions to shareholders). In such event, the
Fund's dividend distributions to shareholders would be taxable as ordinary
income to the extent of the current and accumulated earnings and profits of the
Fund and would be eligible for the dividends received deduction in the case of
corporate shareholders.
Qualification as a regulated investment company under the Code
requires, among other things, that the Fund distribute to its shareholders an
amount equal to at least the sum of 90% of its investment company taxable income
, if any, and 90% of its
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<PAGE> 72
tax-exempt income , if any, net of certain deductions for each taxable year. In
general, the Fund's investment company taxable income will be its taxable
income, including dividends and interest, and the excess of net short-term
capital gain over net long-term capital loss , if any, subject to certain
adjustments and excluding the excess of net long-term capital gain for the
taxable year over the net short-term capital loss for such year , if any. The
Fund will be taxed on its undistributed investment company taxable income, if
any. As stated, the Fund intends to distribute at least 90% of its investment
company taxable income , if any, for each taxable year. To the extent the Fund
distributes such income (whether in cash or additional shares), it will be
taxable to shareholders as ordinary income.
The Fund will not be treated as a regulated investment company
under the Code if 30% or more of the Fund's gross income for a taxable year is
derived from gains realized on the sale or other disposition of the following
investments held for less than three months: (1) stock and securities (as
defined in section 2(a)(36) of the 1940 Act); (2) options, futures and forward
contracts other than those on foreign currencies; and (3) foreign currencies
(and options, futures and forward contracts on foreign currencies) that are not
directly related to the Fund's principal business of investing in stock and
securities (and options and futures with respect to stocks and securities) (the
"Short-Short Test"). Interest (including original issue discount and accrued
market discount) received by the Fund upon maturity or disposition of a security
held for less than three months will not be treated as gross income derived from
the sale or other disposition of such security within the meaning of this
requirement. However, any other income that is attributable to realized market
appreciation will be treated as gross income from the sale or other disposition
of securities for this purpose.
Any distribution of the excess of net long-term capital gain
over net short-term capital loss is taxable to shareholders as long-term capital
gain, regardless of how long the shareholder has held Fund shares and whether
such gain is received in cash or additional Fund shares. The Fund will designate
such a distribution as a capital gain dividend in a written notice mailed to
shareholders after the close of the Fund's taxable year. It should be noted
that, upon the sale or exchange of Fund shares, if the shareholder has not held
such shares for longer than six months, any loss on the sale or exchange of
those shares will be treated as long-term capital loss to the extent of the
capital gain dividends received with respect to those shares.
Ordinary income of individuals is taxable at a maximum
marginal rate of 39.6%, but because of limitations on itemized deductions
otherwise allowable and the phase-out of personal
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<PAGE> 73
exemptions, the maximum effective marginal rate of tax for some taxpayers may be
higher. An individual's long-term capital gain is taxable at a maximum nominal
rate of 28%. For corporations, long-term capital gains and ordinary income are
both taxable at a maximum nominal rate of 35% .
A 4% non-deductible excise tax is imposed on regulated
investment companies that fail to currently distribute specific percentages of
their ordinary taxable income and capital gain net income (excess of net capital
gain over net capital loss). The Fund intends to make sufficient distributions
or deemed distributions of its ordinary taxable income and any capital gain net
income prior to the end of each calendar year to avoid liability for this excise
tax.
The Company will be required in certain cases to withhold and
remit to the United States Treasury 31% of taxable dividends or 31% of gross
sale proceeds paid to shareholders (i) who have failed to provide a correct tax
identification number in the manner required, (ii) who are subject to
withholding by the Internal Revenue Service for failure to properly include on
their return payments of taxable interest or dividends or (iii) who have failed
to certify to the Company when required to do so either that they are subject to
backup withholding or that they are "exempt recipients."
OTHER INFORMATION
Depending upon the extent of activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located or in which it is otherwise deemed to be
conducting business, the Fund may be subject to the tax laws of such states or
localities.
Income distributions may be taxable to shareholders under
state or local law as dividend income even though all or a portion of such
distributions may be derived from interest on U.S. government obligations which,
if realized directly, would be exempt from such income taxes. Shareholders are
advised to consult their tax advisers concerning the application of state and
local taxes.
The foregoing discussion is based on tax laws and regulations
which are in effect on the date of this Statement of Additional Information.
Such laws and regulations may be changed by legislative or administrative
action. This discussion is only a summary of some of the important tax
considerations generally affecting purchasers of Fund shares. No attempt is made
to present a detailed explanation of the federal income tax treatment of the
Fund or its shareholders, and this discussion is not intended as a substitute
for careful tax planning. Accordingly, potential purchasers of Fund shares
should consult
-24-
<PAGE> 74
their tax advisers with specific reference to their own tax situation.
MANAGEMENT
DIRECTORS AND OFFICERS OF THE COMPANY
The directors and officers of the Company, their addresses,
and principal occupations during the past five years are:
<TABLE>
<CAPTION>
Position with
Name and Address Age Company Principal Occupations
- ---------------- --- ------- ---------------------
<S> <C> <C> <C>
Thomas M. Collins 62 Director Of counsel, law firm of
McDermott & Trayner McDermott & Trayner;
225 S. Lake Avenue Partner of the law firm
Suite 410 of Musick, Peeler & Garrett
Pasadena, CA 91101-3005 (until April, 1993);
Chairman of the Board and
Trustee, Master Investment
Trust, Series I (registered
investment company) (since
1993); President and Chairman
of the Board of Pacific
Horizon Funds, Inc. (1982
to August 31, 1995); former
Trustee, Master Investment
Trust, Series II (registered
investment company) 1993
to October 1996; former
Director, Bunker Hill
Income Securities, Inc.
(registered investment
company) through 1991.
Douglas B. Fletcher 70 Vice Chairman Chairman of the Board and
Fletcher Capital of the Board Chief Executive Officer,
Advisors Incorporated Fletcher Capital Advisor,
4 Upper Newport Plaza Incorporated, (registered
Suite 100 investment advisor) 1991 to
Newport Beach, CA 92660-2629 date; Partner, Newport
Partners (private venture
capital firm), 1981 to
date; Chairman of the
Board and Chief Executive
Officer, First Pacific Advisors,
Inc. (registered investment
adviser) and seven investment
companies under its management,
prior to 1983; former Allied
Member, New York Stock Exchange;
Chairman of the Board of FPA
Paramount Fund, Inc. through
1984; Director, TIS Mortgage
Investment Company (real estate
investment trust); Trustee and
former Vice
</TABLE>
-25-
<PAGE> 75
<TABLE>
<CAPTION>
Position with
Name and Address Age Company Principal Occupations
- ---------------- --- ------- ---------------------
<S> <C> <C> <C>
Chairman of the Board,
Claremont McKenna College;
Chartered Financial Analyst.
Robert E. Greeley 64 Director Chairman, Page Mill Asset
Page Mill Asset Management (a private
Management investment company) since
433 California Street 1991; Manager, Corporate
Suite 900 Investments, Hewlett Packard
San Francisco, CA 94104 Company from 1979 to 1991;
Trustee, Master Investment
Trust, Series I (since 1993);
Director, Morgan Grenfell
Small Cap Fund (since 1986);
former Director, Bunker Hill
Income Securities, Inc. (since
1989) ; former Trustee, SunAmerica
Fund Group (previously Equitec
Siebel Fund Group) from 1984 to
1992; former Trustee, Master
Investment Trust, Series II
from 1993 to October 1996
(registered investment companies).
Kermit O. Hanson 79 Director Vice Chairman of the
17760 14th Ave., N.W. Advisory Board, 1988 to
Shoreline, WA 98177 date, Executive Director,
1977 to 1988, Pacific Rim
Bankers Program (a non-
profit educational
institution); Dean Emeritus,
1981 to date, Dean, 1964-81,
Graduate School of Business
Administration, University
of Washington; Director,
Washington Federal Savings &
Loan Association; Trustee,
Seafirst Retirement Funds
(since 1993) (registered
investment company).
Cornelius J. Pings* 66 Chairman of President, Association
Association of American the Board and of American Universities,
Universities President February 1993 to date;
One DuPont Circle Provost, 1982 to January
Suite 730 1993, Senior Vice President
Washington, DC 20036 for Academic Affairs, 1981
to January 1993, University
of Southern California;
Trustee, Master Investment
Trust, Series I (since
1995); former Trustee,
Master Investment Trust,
Series II (October 1995 to
October 1996).
</TABLE>
-26-
<PAGE> 76
<TABLE>
<CAPTION>
Position with
Name and Address Age Company Principal Occupations
- ---------------- --- ------- ---------------------
<S> <C> <C> <C>
J. David Huber 49 Executive Employee of BISYS Fund
BISYS Fund Services Vice President Services, Inc., June 1987
3435 Stelzer Road to present; President of
Columbus, OH 43219 Master Investment Trust,
Series I, Master Investment
Trust Series II and Seafirst
Retirement Funds (since 1996).
Michael Brascetta 37 Vice President Senior Vice President
BISYS Fund Services of Shareholder Services,
3435 Stelzer Road BISYS Fund Services, Inc.,
Columbus, OH 43219 April 1996 to present;
Employee, The Vanguard
Group, 1981 to April 1996.
Irimga McKay 35 Vice Senior Vice President,
1230 Columbia Street President July 1993 to date, prior
5th Floor thereto First Vice President
La Jolla, CA 92037 of the Administrator and
Distributor, November 1988
to July 1993; Vice President,
Master Investment Trust,
Series II and Seafirst Retirement
Funds (since 1993); Regional
Vice President, Continental
Equities, June 1987 to November
1988; Assistant Wholesaler,
VMS Realty Partners (a real
estate limited partnership),
May 1986 to June 1987.
Stephanie L. Blaha 37 Vice Director of Client Services
BISYS Fund Services President of the Administrator,
3435 Stelzer Road March 1995 to date, prior
Columbus, OH 43219 thereto Assistant Vice
President of the Administrator
and Distributor, October 1991
to March 1995; Vice President,
Seafirst Retirement Funds,
Master Investment Trust, Series
I and Master Investment Trust,
Series II (since 1996); Account
Manager, AT&T American Transtech,
Mutual Fund Division, July 1989
to October 1991.
</TABLE>
-27-
<PAGE> 77
<TABLE>
<CAPTION>
Position with
Name and Address Age Company Principal Occupations
- ---------------- --- ------- ---------------------
<S> <C> <C> <C>
Kevin L. Martin 35 Treasurer Vice President, Fund
BISYS Fund Services Accounting BISYS Fund
3435 Stelzer Road Services, Inc. February
Columbus, OH 43219 1996 to Present; Treasurer,
Seafirst Retirement Funds
and Master Investment Trust,
Series II (since 1996) Senior
Audit Manager, Ernst & Young
LLP (1984 to February 1996).
Lisa Ling 36 Assistant Employee, BISYS Fund
BISYS Fund Services Treasurer Services, Inc., November
3435 Stelzer Road 1995 to present; Assistant
Columbus, OH 43219 Treasurer, Master Investment
Trust Series II and Seafirst
Retirement Funds (since 1996);
employee, Federated Investors,
October 1982 to November 1995.
W. Bruce McConnel, III 53 Secretary Partner of the law firm
1345 Chestnut Street of Drinker Biddle &
Philadelphia National Bank Reath.
Building, Suite 1100
Philadelphia, PA 19107
George O. Martinez 36 Assistant Senior Vice President and
BISYS Fund Services Secretary Director of Administrative
3435 Stelzer Road and Regulatory Services,
Columbus, OH 43219 of the Administrator, since
April 1995; Assistant Secretary,
Seafirst Retirement Funds and
Master Investment Trust, Series
II (since 1995); prior thereto,
Vice President and Associate
General Counsel, Alliance
Capital Management, L.P.
Alaina V. Metz 28 Assistant Chief Administrator,
BISYS Fund Services Secretary Administrative and
3435 Stelzer Road Regulatory Services, BISYS
Columbus, OH 43219 Fund Services, Inc., June
1995 to present; Assistant
Secretary of Seafirst Retirement
Funds (since 1996); Supervisor,
Mutual Fund Legal Department,
Alliance Capital Management,
May 1989 to June 1995.
</TABLE>
- ----------
* Dr. Pings is an "interested director" of the Company as defined in the
1940 Act.
-28-
<PAGE> 78
The Audit Committee of the Board is comprised of all directors
and is chaired by Dr. Hanson. The Board does not have an Executive Committee.
Each director is entitled to receive an annual fee of $25,000
plus $1,000 for each day that a director participates in all or a part of a
Board meeting; the President receives an additional $20,000 per annum for his
services as President; Mr. Collins, in recognition of his years of service as
President and Chairman of the Board, receives an additional $40,000 per annum
until February 28, 1997; each member of a Committee of the Board is entitled to
receive $1,000 for each Committee meeting they participate in (whether or not
held on the same day as a Board meeting); and each Chairman of a Committee of
the Board shall be entitled to receive an annual retainer of $1,000 for his
services as Chairman of the Committee. The Fund, and each other fund of the
Company, pays its proportionate share of these amounts based on relative net
asset values.
For the fiscal year ended February 29, 1996, the Company paid
or accrued for the account of its directors as a group for services in all
capacities a total of $388,155; none of this amount was allocated to the Fund.
Each director is also reimbursed for out-of-pocket expenses incurred as a
director. Drinker Biddle & Reath, of which Mr. McConnel is a partner, receives
legal fees as counsel to the Company. As of the date of this Statement of
Additional Information, the directors and officers of the Company, as a group,
own less than 1% of the outstanding shares of each of the Company's investment
portfolios.
Under a retirement plan approved by the Board , including a
majority of its directors who are not "interested persons" of the Company, a
director who dies or resigns after five years of service is entitled to receive
ten annual payments each equal to the greater of: (i) 50% of the annual
director's retainer that was payable by the Company during the year of his/her
death or resignation, or (ii) 50% of the annual director's retainer then in
effect for directors of the Company during the year of such payment. A director
who dies or resigns after nine years of service is entitled to receive ten
annual payments each equal to the greater of: (i) 100% of the annual director's
retainer that was payable by the Company during the year of his/her death or
resignation, or (ii) 100% of the annual director's retainer then in effect for
directors of the Company during the year of such payment. Further, the amount
payable each year to a director who dies or resigns is increased by $1,000 for
each year of service that the director served as Chairman of the Board.
Years of service for purposes of calculating the benefit
described above are based upon service as a director or
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<PAGE> 79
Chairman after February 28, 1994. Retirement benefits in which a director has
become vested may not be reduced by later Board action.
In lieu of receiving ten annual payments, a director may elect
to receive substantially equivalent benefits through a single-sum cash payment
of the present value of such benefits paid by the Company within 45 days of the
death or resignation of the director. The present value of such benefits is to
be calculated (i) based on the retainer that was payable by the Company during
the year of the director's death or resignation (and not on any retainer payable
to directors thereafter), and (ii) using the interest rate in effect as of the
date of the director's death or resignation by the Pension Benefit Guaranty
Corporation (or any successor thereto) for valuing immediate annuities under
terminating defined benefit pension plans. A director's election to receive a
single sum must be made in writing within the 30 calendar days after the date
the individual is first elected as a director.
In addition to the foregoing, the Board of Directors may, in
its discretion and in recognition of a director's period of service before March
1, 1994 as a director and possibly as Chairman, authorize the Company to pay a
retirement benefit following the director's death or resignation (unless the
director has vested benefits as a result of completing nine years of service).
Any such action shall be approved by the Board and by a majority of the
directors who are not "interested persons" of the Company within 120 days
following the director's death or resignation and may be authorized as a single
sum cash payment or as not more than ten annual payments (beginning the first
anniversary of the director's date of death or resignation and continuing for
one or more anniversary date(s) thereafter). On August 31, 1996, Dr. Kenneth L.
Trefftzs retired from the Board of Directors. In honor of his years of service
to the Company, the Board of Directors designated Dr. Trefftzs as a "director
emeritus" of the Company. Additionally, in recognition of Dr. Trefftzs' years of
service to the Company prior to March 1, 1994 as director and Chairman of the
Company's Audit Committee, the Board of Directors, including a majority of the
directors who are not "interested persons" of the Company, authorized a single
sum cash payment retirement benefit of $60,000 payable January 1, 1997.
The obligation of the Company to pay benefits to a former
director is neither secured nor funded by the Company but shall be binding upon
its successors in interest. The payment of benefits under the retirement plan
has no priority or preference over the lawful claims of the Company's creditors
or shareholders, and the right to receive such payments is not assignable or
transferable by a director (or former director)
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<PAGE> 80
other than by will, by the laws of descent and distribution, or by the
director's written designation of a beneficiary.
The following chart provides certain information for the fiscal year ended
February 29, 1996 about the fees received by directors of the Company as
directors and/or officers of the Company and as directors and/or trustees of the
Fund Complex:
<TABLE>
<CAPTION>
TOTAL
COMPENSATION
PENSION OR FROM
RETIREMENT ESTIMATED REGISTRANT
AGGREGATE BENEFITS ANNUAL AND FUND
COMPENSATION ACCRUED AS BENEFITS COMPLEX**
NAME OF PERSON/ FROM THE PART OF FUND UPON PAID TO
POSITION COMPANY EXPENSES* RETIREMENT DIRECTORS
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Thomas M. Collins $76,215 $0 $0 $85,000
Director+
- -----------------------------------------------------------------------------------------------------
Douglas B. Fletcher $28,555 $0 $0 $29,055
Vice Chairman of
the Board
- -----------------------------------------------------------------------------------------------------
Robert E. Greeley $31,395 $0 $0 $44,055
Director
- -----------------------------------------------------------------------------------------------------
Kermit O. Hanson $27,485 $0 $0 $32,055
Director
- -----------------------------------------------------------------------------------------------------
Cornelius J. Pings $29,555 $0 $0 $30,055
President and
Chairman of the
Board++
- -----------------------------------------------------------------------------------------------------
Kenneth L. Trefftzs $28,555 $0 $0 $29,055
Director+++
- -----------------------------------------------------------------------------------------------------
</TABLE>
- ------------------------------
* For the fiscal year ended February 29, 1996, the Company accrued on the
part of all of the directors an aggregate of $65,739 in retirement
benefits.
** The "Fund Complex" consists of the Company, Seafirst Retirement Funds,
Master Investment Trust, Series I, Master Investment Trust, Series II,
Time Horizon Funds and World Horizon Funds.
+ Mr. Collins was President and Chairman of the Board of the Company
until August 31, 1995.
++ Dr . Pings became President and Chairman of the Board of the Company
effective September 1, 1995. At February 29, 1996, $10,000, $3,500 and
$3,500 in deferred compensation was payable to Dr. Pings for services
as President of the Company, trustee of Master Investment Trust, Series
I and Master Investment Trust, Series II, respectively.
+++ Dr. Trefftzs retired from the Board of the Company on August 31, 1996.
INVESTMENT ADVISER
Bank of America is the successor by merger to Security Pacific
National Bank ("Security Pacific"), which previously
-31-
<PAGE> 81
served as investment adviser to the Company since the commencement of its
operations. In the Investment Advisory Agreement with the Company, Bank of
America has agreed to provide investment advisory services as described in the
Prospectus. Bank of America has also agreed to pay all expenses incurred by it
in connection with its activities under its agreement other than the cost of
securities, including brokerage commissions, if any, purchased for the Fund. In
rendering its advisory services, Bank of America may utilize Bank officers from
one or more of the departments of the Bank which are authorized to exercise the
fiduciary powers of Bank of America with respect to the investment of trust
assets. In some cases, these officers may also serve as officers, and utilize
the facilities, of wholly-owned subsidiaries and other affiliates of Bank of
America or its parent corporation. In addition, the Investment Advisory
Agreement provides that Bank of America may, in its discretion, provide advisory
services through its own employees or employees of one or more of its affiliates
that are under the common control of Bank of America's parent, BankAmerica
Corporation; provided such employees are under the management of Bank of
America.
For the services provided and expenses assumed pursuant to the
Investment Advisory Agreement, the Fund has agreed to pay Bank of America fees,
accrued daily and payable monthly, at the annual rate of 0.25% of the average
daily net assets of the Fund. The fees payable to Bank of America are not
subject to reduction as the value of the Fund's net assets increases. From time
to time, Bank of America may prospectively waive fees or reimburse the Fund for
expenses voluntarily or as required by certain state securities laws. See
"Management -- Administrator" for instances where Bank of America is required to
make expense reimbursements to the Fund.
The Investment Advisory Agreement between Bank of America and
the Company will be in effect until October 31, 1997, and will continue in
effect from year to year thereafter only so long as such continuation is
approved at least annually by (i) the Board of Directors of the Company or the
vote of a "majority," as defined in the 1940 Act, of the outstanding voting
securities of the Fund, and (ii) a majority of those directors of the Company
who are not "interested persons," as defined in the 1940 Act, of any party to
the Investment Advisory Agreement, acting in person at a meeting called for the
purpose of voting on such approval. The Investment Advisory Agreement will
terminate automatically in the event of its "assignment," as defined in the 1940
Act. In addition, the Investment Advisory Agreement is terminable with respect
to the Fund at any time without penalty upon 60 days' written notice by the
Board of Directors of the Company, by vote of the holders of a majority of the
Fund's outstanding voting securities, or by Bank of America.
-32-
<PAGE> 82
The Investment Advisory Agreement provides that Bank of
America shall not be liable for any error of judgment or mistake of law or for
any loss suffered in connection with the performance of the Investment Advisory
Agreement, except a loss resulting from a breach of fiduciary duty with respect
to the receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or negligence in the performance of its duties or from
reckless disregard by it of its duties and obligations thereunder.
THE GLASS-STEAGALL ACT AND PROPOSED LEGISLATION
The Glass-Steagall Act, among other things, prohibits banks
from engaging in the business of underwriting securities, although national and
state-chartered banks generally are permitted to purchase and sell securities
upon the order and for the account of their customers. In 1971, the United
States Supreme Court held in Investment Company Institute v. Camp that the
Glass-Steagall Act prohibits a national bank from operating a fund for the
collective investment of managing agency accounts. Subsequently, the Board of
Governors of the Federal Reserve System (the "Board of Governors") issued a
regulation and interpretation to the effect that the Glass-Steagall Act and such
decision forbid a bank holding company registered under the Federal Bank Holding
Company Act of 1956 (the "Holding Company Act") or any non-bank affiliate
thereof from sponsoring, organizing or controlling a registered, open-end
investment company continuously engaged in the issuance of its shares, but do
not prohibit such a holding company or affiliate from acting as investment
adviser, transfer agent and custodian to such an investment company. In 1981,
the United States Supreme Court held in Board of Governors of the Federal
Reserve System v. Investment Company Institute that the Board of Governors did
not exceed its authority under the Holding Company Act when it adopted its
regulation and interpretation authorizing bank holding companies and their
non-bank affiliates to act as investment advisers to registered closed-end
investment companies.
Bank of America believes that if the questions were properly
presented, a court should hold that Bank of America may perform the services for
the Fund contemplated by the Investment Advisory Agreement, the Prospectus, and
this Statement of Additional Information without violation of the Glass-Steagall
Act or other applicable banking laws or regulations. It should be noted,
however, that there have been no cases deciding whether a national bank may
perform services comparable to those performed by Bank of America and that
future changes in either federal or state statutes and regulations relating to
permissible activities of banks or trust companies and their subsidiaries or
affiliates, as well as further judicial or administrative decisions or
interpretations of present and future statutes and
-33-
<PAGE> 83
regulations, could prevent Bank of America from continuing to perform such
services for the Fund or from continuing to purchase Fund shares for the
accounts of its customers. (For a discussion of the Glass Steagall Act in
connection with the Fund's Shareholder Service Plan, see "Plan Payments" in the
Fund's Prospectus.)
On the other hand, as described herein, the Fund is currently
distributed by Concord Financial Group, Inc. The BISYS Group, Inc., its parent,
provides the Fund with administrative services. If current restrictions under
the Glass-Steagall Act preventing a bank from sponsoring, organizing,
controlling, or distributing shares of an investment company were relaxed, the
Company expects that Bank of America would consider the possibility of offering
to perform some or all of the services now provided by The BISYS Group, Inc. or
Concord Financial Group, Inc. From time to time, legislation modifying such
restriction has been introduced in Congress which, if enacted, would permit a
bank holding company to establish a non-bank subsidiary having the authority to
organize, sponsor and distribute shares of an investment company. If this or
similar legislation were enacted, the Company expects that Bank of America's
parent bank holding company would consider the possibility of one of its
non-bank subsidiaries offering to perform some or all of the services now
provided by The BISYS Group, Inc. or Concord Financial Group, Inc. It is not
possible, of course, to predict whether or in what form such legislation might
be enacted or the terms upon which Bank of America or such a non-bank affiliate
might offer to provide services for consideration by the Company's Board of
Directors.
ADMINISTRATOR
The BISYS Group, Inc. through its wholly-owned subsidiary
BISYS Fund Services, L.P. (the "Administrator" or "BISYS"), with offices at 150
Clove Road, Little Falls, New Jersey 07424 and 3435 Stelzer Road, Columbus, Ohio
43219 , respectively, serves as administrator. The Administrator also serves as
administrator to several other investment companies. Prior to November 1, 1996,
Concord Holding Corporation, an indirect wholly-owned subsidiary of BISYS served
as the Fund's Administrator.
The Administrator provides administrative services to the Fund
as described in the Fund's Prospectus pursuant to the Administration Agreement
for the Fund. The Company's Administration Agreement will continue in effect
until October 31, 1997 and thereafter will be extended for successive periods of
one year, provided that each such extension is specifically approved by (a) a
vote of a majority of those members of the Company's Board of Directors who are
not interested persons of any party to the agreement, cast in person
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at a meeting called for the purpose of voting on such approval, and (b) the
Company's Board of Directors or by vote of a majority of the outstanding voting
securities of the Fund. The agreement is terminable at any time without penalty
by the Company's Board of Directors or by a vote of a majority of the
outstanding securities upon 60 days' notice to the Administrator, or by the
Administrator upon 90 days' notice to the Company.
The Company has agreed to pay the Administrator a fee for its
services as administrator, accrued daily and payable monthly, at the annual rate
of 0.20% of the average daily net assets of the Fund. The fees payable to the
Administrator are not subject to reduction as the value of the Fund's net assets
increases. From time to time, the Administrator may waive fees or reimburse the
Fund for expenses, either voluntarily or as required by certain state securities
laws.
If total expenses borne (directly or indirectly) by the Fund
in any fiscal year exceed the expense limitations imposed by applicable state
securities regulations, the Company may deduct from the payments to be made with
respect to the Fund, to Bank of America and the Administrator, respectively, or
Bank of America and the Administrator each will bear, the amount of such excess
to the extent required by such regulations in proportion to the fee otherwise
payable for such year. Such amount, if any, will be estimated, reconciled and
effected or paid, as the case may be, on a monthly basis. During the course of
the Company's fiscal year, the Administrator and Bank of America may
prospectively waive payment of fees and/or assume certain expenses of the Fund
as a result of competitive pressures and in order to preserve and protect the
business and reputation of the Administrator and Bank of America. This will have
the effect of increasing yield to investors at the time such fees are not
received or amounts are assumed and decreasing yield when such fees or amounts
are reimbursed.
The Administrator will bear all expenses in connection with
the performance of its services under the Administration Agreement with the
exception of the fees charged by PFPC Inc. ("PFPC") for certain fund accounting
services which are borne by the Fund. See "GENERAL INFORMATION--Custodian,
Accounting Agent and Transfer Agent" below.
The Administration Agreement provides that BISYS shall not be
liable for any error of judgment or mistake of law or any loss suffered by the
Company or the Fund in connection with the performance of the Administration
Agreement, except a loss resulting from willful misfeasance, bad faith or
negligence in the performance of its duties or from the reckless disregard by it
of its obligations and duties thereunder.
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DISTRIBUTOR AND PLAN PAYMENTS
Concord Financial Group, Inc. (the "Distributor"), an
indirect, wholly-owned subsidiary of The BISYS Group, Inc., acts as distributor
of the shares of the Company. Shares are sold on a continuous basis by the
Distributor. The Distributor has agreed to use its best efforts to solicit
orders for the sale of the Company's shares although it is not obliged to sell
any particular amount of shares. The distribution agreement shall continue in
effect with respect to the Fund until October 31, 1997. Thereafter, if not
terminated, the distribution agreement shall continue automatically for
successive terms of one year, provided that such continuance is specifically
approved at least annually by (a) a vote of a majority of those members of the
Board of Directors of the Company who are not parties to the distribution
agreement or "interested persons" of any such party, cast in person at a meeting
called for the purpose of voting on such approval, and (b) by the Board of
Directors of the Company or by vote of a "majority of the outstanding voting
securities" of the Fund as to which the distribution agreement is effective;
provided, however, that the distribution agreement may be terminated by the
Company at any time, without the payment of any penalty, by vote of a majority
of the entire Board of Directors of the Company or by a vote of a "majority of
the outstanding voting securities" of the Fund on 60 days' written notice to the
Distributor, or by the Distributor at any time, without the payment of any
penalty, on 90 days' written notice to the Company. The agreement will
automatically and immediately terminate in the event of its "assignment."
THE SHAREHOLDER SERVICES PLAN. In addition to the sales loads
described above, the Distributor is entitled to payment by the Company for
certain shareholder servicing expenses in addition to the sales loads on A
Shares described above and in the Prospectus under the Shareholder Services Plan
(the "Plan") adopted by the Company for its A Shares. Under the Plan for A
Shares, the Company pays the Distributor, with respect to the Fund, for (a)
non-distribution shareholder services provided by the Distributor to Service
Organizations and/or the beneficial owners of Fund shares, including, but not
limited to shareholder servicing provided by the Distributor at facilities
dedicated for Company use, provided such shareholder servicing is not
duplicative of the servicing otherwise provided on behalf of the Fund, and (b)
fees paid to Service Organizations (which may include the Distributor itself)
for the provision of support services for shareholders for whom the Service
Organization is the dealer of record or holder of record or with whom the
Service Organization has a servicing relationship ("Clients").
Support services provided by Service Organizations may
include, among other things: (i) establishing and maintaining accounts and
records relating to Clients that invest in Fund
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shares; (ii) processing dividend and distribution payments from the Fund on
behalf of Clients; (iii) providing information periodically to Clients regarding
their positions in shares; (iv) arranging for bank wires; (v) responding to
Client inquiries concerning their investments in Fund shares; (vi) providing the
information to the Fund necessary for accounting or subaccounting; (vii) if
required by law, forwarding shareholder communications from the Fund (such as
proxies, shareholder reports, annual and semi-annual financial statements and
dividend, distribution and tax notices) to Clients; (viii) assisting in
processing exchange and redemption requests from Clients; (ix) assisting Clients
in changing dividend options, account designations and addresses; and (x)
providing such other similar services.
The Plan provides that the Distributor is entitled to receive
payments for expenses on a monthly basis, at an annual rate not exceeding 0.25%
of the average daily net assets of the A Shares of the Fund during such month
for shareholder servicing expenses. The calculation of the Fund's average daily
net assets for these purposes does not include assets held in accounts opened
via a transfer of assets from trust and agency accounts of Bank of America.
Further, payments made out of or charged against the assets of the Fund must be
in payment for expenses incurred on behalf of the Fund.
If in any month the Distributor expends or is due more monies
than can be immediately paid due to the percentage limitations described above,
the unpaid amount is carried forward from month to month while the Plan is in
effect until such time, if ever, when it can be paid in accordance with such
percentage limitations. Conversely, if in any month the Distributor does not
expend the entire amount then available under the Plan, and assuming that no
unpaid amounts have been carried forward and remain unpaid, then the amount not
expended will be a credit to be drawn upon by the Distributor to permit future
payment. However, any unpaid amounts or credits due under the Plan may not be
"carried forward" beyond the end of the fiscal year in which such amounts or
credits due are accrued.
Payments for shareholder service expenses under the Plan are
not subject to Rule 12b-1 (the "Rule") under the 1940 Act. Pursuant to the Plan,
the Distributor provides that a report of the amounts expended under the Plan,
and the purposes for which such expenditures were incurred, will be made to the
Board of Directors for its review at least quarterly. In addition, the Plan
provides that the selection and nomination of the directors of the Company who
are not "interested persons" thereof have been committed to the discretion of
the directors who are neither "interested persons" (as defined in the 1940 Act)
of the Company nor have any direct or indirect financial interest
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in the operation of the Plan (or related servicing agreements) (the
"Non-Interested Plan Directors").
The Company understands that Bank of America and/or some
Service Organizations may charge their clients a direct fee for administrative
and shareholder services in connection with the holding of A Shares. These fees
would be in addition to any amounts which might be received under the Plan.
Small, inactive long-term accounts involving such additional charges may not be
in the best interest of shareholders.
The Company's Board of Directors has concluded that the Plan
will benefit the Fund and its A shareholders. The Plan is subject to annual
reapproval by a majority of the Non-Interested Plan Directors and is terminable
at any time with respect to the Fund by a vote of a majority of such Directors
or by vote of the holders of a majority of the A Shares of the Fund. Any
agreement entered into pursuant to the Plan with a Service Organization is
terminable with respect to the Fund without penalty, at any time, by vote of a
majority of the Non-Interested Plan Directors, by vote of the holders of a
majority of the A Shares of the Fund, by the Distributor or by the Service
Organization. Each agreement will also terminate automatically in the event of
its assignment.
THE DISTRIBUTION AND SERVICES PLAN. The Distributor is also
entitled to payment from the Company for distribution and services fees pursuant
to the Distribution and Services Plan adopted on behalf of the B Shares. Under
the Distribution and Services Plan the Company may pay the Distributor for: (a)
direct out-of-pocket promotional expenses incurred by the Distributor in
advertising and marketing B Shares; (b) expenses incurred in connection with
preparing, printing, mailing, and distributing or publishing advertisements and
sales literature for B Shares; expenses incurred in connection with printing and
mailing Prospectuses and Statements of Additional Information to other than
current B shareholders; (c) periodic payments or commissions to one or more
securities dealers, brokers, financial institutions or other industry
professionals, such as investment advisors, accountants, and estate planning
firms (severally, "a Distribution Organization") with respect to the Fund's B
Shares beneficially owned by customers for whom the Distribution Organization is
the Distribution Organization of record or holder of record of such B Shares;
(d) the direct or indirect cost of financing the payments or expenses included
in (a) and (c) above; or (e) for such other services as may be construed, by any
court or governmental agency or commission, including the SEC, to constitute
distribution services under the 1940 Act or rules and regulations thereunder.
Pursuant to the Distribution and Services Plan, the Company
may also pay securities dealers, brokers, financial institutions or other
industry professionals, such as investment
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advisors, accountants, and estate planning firms (severally, a "Service
Organization") for support services provided with respect to its Client's B
Shares. Administrative and shareholder services provided may include some or all
of the following: (i) processing dividend and distribution payments from a Fund
on behalf of its Clients; (ii) providing statements periodically to its Clients
showing their positions in B Shares; (iii) arranging for bank wires; (iv)
responding to routine Client inquiries concerning their investment; (v)
providing the information to the Fund necessary for accounting or
sub-accounting; (vi) if required by law, forwarding shareholder communications
from the Fund (such as proxies, shareholder reports, annual and semi-annual
financial statements and dividend, distribution and tax notices) to its Clients;
(vii) aggregating and processing purchase, exchange, and redemption requests
from its Clients and placing net purchase, exchange, and redemption orders for
its Clients; (viii) providing Clients with a service that invests the assets of
their accounts pursuant to specific or pre-authorized instructions; (ix)
establishing and maintaining accounts and records relating to Clients; (x)
assisting Clients in changing dividend options, account designations and
addresses; or (xi) other similar services if requested by the Company.
The Distribution and Services Plan provides that the
Distributor is entitled to receive payments on a monthly basis at an annual rate
not exceeding 1.00% of the average daily net assets during such month of the
outstanding B Shares. Not more than 0.25% of such net assets will be used to
compensate Service Organizations for personal services provided to B
shareholders, and/or the maintenance of such shareholders' accounts and not more
than 0.75% of such net assets of B Shares will be used for promotional and other
primary distribution activities.
Payments made out of or charged against the assets of a
particular class of shares of the Fund must be in payment for expenses incurred
on behalf of that class.
Payments for distribution expenses under the Distribution Plan
(the "12b-1 Plan") are subject to Rule 12b-1 (the "Rule") under the 1940 Act.
The Rule defines distribution expenses to include the cost of "any activity
which is primarily intended to result in the sale of [Company] shares." The Rule
provides, among other things, that an investment company may bear such expenses
only pursuant to a plan adopted in accordance with the Rule. In accordance with
the Rule, the 12b-1 Plan provides that a written report of the amounts expended
under the 12b-1 Plan, and the purposes for which such expenditures were
incurred, will be made to the Board of Directors for its review at least
quarterly. In addition, the 12b-1 Plan provides that it may not be amended to
increase materially the costs which the Fund may bear for distribution pursuant
to the 12b-1 Plan without shareholder approval and that other material
amendments of the
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12b-1 Plan must be approved by a majority of the Board of Directors, and by a
majority of the directors who are neither "interested persons" (as defined in
the 1940 Act) of the Company nor have any direct or indirect financial interest
in the operation of the 12b-1 Plan, or in any agreements entered into in
connection with the 12b-1 Plan, by vote cast in person at a meeting called for
the purpose of considering such amendments (the "Non-Interested Plan
Directors"). The selection and nomination of the directors of the Company who
are not "interested persons" of the Company have been committed to the
discretion of the Non-Interested Plan Directors.
The Company's Board of Directors has concluded that there is a
reasonable likelihood that the 12b-1 Plan will benefit the Fund and its B
shareholders. The 12b-1 Plan is subject to annual reapproval by a majority of
the Company's Board of Directors, including a majority of the Non-Interested
Plan Directors and is terminable without penalty at any time with respect to the
Fund by a vote of a majority of the Non-Interested Plan Directors or by vote of
the holders of a majority of the outstanding B Shares of the Fund. Any agreement
entered into pursuant to the 12b-1 Plan with a Service Organization is
terminable with respect to the Fund without penalty, at any time, by vote of a
majority of the Non-Interested Plan Directors, by vote of the holders of a
majority of the outstanding B Shares of the Fund, or by the Service
Organization. Each agreement will also terminate automatically in the event of
its assignment.
PERFORMANCE INFORMATION
YIELD AND TOTAL RETURN
From time to time, the yield and the total return of the Fund
may be quoted in and compared to other mutual funds with similar investment
objectives in advertisements, shareholder reports or other communications to
shareholders. The Fund may also include calculations in such communications that
describe hypothetical investment results. (Such performance examples will be
based on an express set of assumptions and are not indicative of the performance
of the Fund.) Such calculations may from time to time include discussions or
illustrations of the effects of compounding in advertisements. "Compounding"
refers to the fact that, if dividends or other distributions on the Fund
investment are reinvested by being paid in additional Fund shares, any future
income or capital appreciation of the Fund would increase the value, not only of
the original Fund investment, but also of the additional Fund shares received
through reinvestment. As a result, the value of the Fund investment would
increase more quickly than if dividends or other distributions had been paid in
cash. The Fund may also include discussions or illustrations of the potential
investment goals of a prospective investor
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(including but not limited to tax and/or retirement planning), investment
management techniques, policies or investment suitability of the Fund, economic
conditions, legislative developments (including pending legislation), the
effects of inflation and historical performance of various asset classes,
including but not limited to stocks, bonds and Treasury bills. From time to time
advertisements or communications to shareholders may summarize the substance of
information contained in shareholder reports (including the investment
composition of the Fund), as well as the views of the investment adviser as to
current market, economic, trade and interest rate trends, legislative,
regulatory and monetary developments, investment strategies and related matters
believed to be of relevance to the Fund. The Fund may also include in
advertisements charts, graphs or drawings which illustrate the potential risks
and rewards of investment in various investment vehicles, including but not
limited to stocks, bonds, Treasury bills and shares of the Fund. In addition,
advertisements or shareholder communications may include a discussion of certain
attributes or benefits to be derived by an investment in the Fund. Such
advertisements or communications may include symbols, headlines or other
material which highlight or summarize the information discussed in more detail
therein. From time to time, the investment adviser may enter into alliances with
retirement plan sponsors, including The Legend Group, and the Fund may in its
advertisements and sales literature include a discussion of certain attributes
and benefits to be derived from its relationship with such retirement plan
sponsors. With proper authorization, the Fund may reprint articles (or excerpts)
written regarding the Fund and provide them to prospective shareholders.
Performance information with respect to the Fund is generally available by
calling (800) 346-2087.
YIELD CALCULATIONS. The yield for the respective share classes
of the Fund is calculated by dividing the net investment income per share (as
described below) earned by the Fund during a 30-day (or one month) period by the
maximum offering price per share (including the maximum front-end sales load of
an A Share) on the last day of the period and annualizing the result on a
semi-annual basis by adding one to the quotient, raising the sum to the power of
six, subtracting one from the result and then doubling the difference. The
Fund's net investment income per share earned during the period with respect to
a particular class is based on the average daily number of shares outstanding in
the class during the period entitled to receive dividends and includes dividends
and interest earned during the period
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attributable to that class minus expenses accrued for the period attributable to
that class, net of reimbursements. This calculation can be expressed as follows:
a-b
Yield = 2 [(----- + 1)(6) - 1]
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = maximum offering price per share on the last day of the
period.
For the purpose of determining net investment income earned
during the period (variable "a" in the formula), dividend income on equity
securities is recognized by accruing 1/360 of the stated dividend rate of the
security each day. Except as noted below, interest earned on debt obligations is
calculated by computing the yield to maturity of each obligation based on the
market value of the obligation (including actual accrued interest) at the close
of business on the last business day of each month, or, with respect to
obligations purchased during the month, the purchase price (plus actual accrued
interest), and dividing the result by 360 and multiplying the quotient by the
market value of the obligation (including actual accrued interest) in order to
determine the interest income on the obligation for each day of the subsequent
month that the obligation is held. For purposes of this calculation, it is
assumed that each month contains 30 days. The maturity of an obligation with a
call provision is the next call date on which the obligation reasonably may be
expected to be called or, if none, the maturity date. With respect to debt
obligations purchased at a discount or premium, the formula generally calls for
amortization of the discount or premium. The amortization schedule will be
adjusted monthly to reflect changes in the market values of such debt
obligations.
Interest earned on tax-exempt obligations that are issued
without original issue discount and have a current market discount is calculated
by using the coupon rate of interest instead of the yield to maturity. In the
case of tax-exempt obligations that are issued with original issue discount but
which have discounts based on current market value that exceed the
then-remaining portion of the original issue discount (market
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discount), the yield to maturity is the imputed rate based on the original issue
discount calculation. On the other hand, in the case of tax-exempt obligations
that are issued with original issue discount but which have the discounts based
on current market value that are less than the then-remaining portion of the
original issue discount (market premium), the yield to maturity is based on the
market value.
With respect to mortgage or other receivables-backed
obligations which are expected to be subject to monthly payments of principal
and interest ("pay downs"), (a) gain or loss attributable to actual monthly pay
downs are accounted for as an increase or decrease to interest income during the
period; and (b) the Fund may elect either (i) to amortize the discount and
premium on the remaining security, based on the cost of the security, to the
weighted average maturity date, if such information is available, or to the
remaining term of the security, if any, if the weighted average maturity date is
not available, or (ii) not to amortize discount or premium on the remaining
security.
Undeclared earned income will be subtracted from the maximum
offering price per share (variable "d" in the formula). Undeclared earned income
is the net investment income which, at the end of the base period, has not been
declared as a dividend, but is reasonably expected to be and is declared and
paid as a dividend shortly thereafter. The Fund's maximum offering price per
share for purposes of the formula includes the maximum sales load imposed by the
Fund on A Shares -- currently 4.50% of the per share offering price.
TOTAL RETURN CALCULATIONS. The Fund computes its average
annual total returns separately for its separate share classes by determining
the average annual compounded rates of return during specified periods that
equate the initial amount invested in a particular share class to the ending
redeemable value of such investment in the class. This is done by dividing the
ending redeemable value of a hypothetical $1,000 initial payment by $1,000 and
raising the quotient to a power equal to one divided by the number of years (or
fractional portion thereof) covered by the computation and subtracting one from
the result. This calculation can be expressed as follows:
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ERV 1/n
T = [(-----) - 1]
P
Where: T = average annual total return.
ERV = ending redeemable value at the end
of the period covered by the
computation of a hypothetical $1,000
payment made at the beginning of the period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation,
expressed in terms of years.
The Fund computes its aggregate total returns separately for
its separate share classes by determining the aggregate rates of return during
specified periods that likewise equate the initial amount invested in a
particular share class to the ending redeemable value of such investment in the
class. The formula for calculating aggregate total return is as follows:
ERV
aggregate total return = [(----- - 1)]
P
The calculations of average annual total return and aggregate
total return assume the reinvestment of all dividends and capital gain
distributions on the reinvestment dates during the period. The ending redeemable
value (variable "ERV" in each formula) is determined by assuming complete
redemption of the hypothetical investment and the deduction of all nonrecurring
charges at the end of the period covered by the computations. In addition, the
Fund's average annual total return and aggregate total return quotations reflect
the deduction of the maximum front-end sales load charged in connection with the
purchase of A Shares and the deduction of any applicable contingent deferred
sales charge with respect to B Shares.
Based on the foregoing calculations, the aggregate total
return for the A Shares of the Fund for the period from August 2, 1996
(commencement of operations) through August 31, 1996 was (4.24)%. No B Shares of
the Fund were issued or outstanding during this period.
The Fund may also advertise total return data without
reflecting sales charges in accordance with the rules of the SEC. Quotations
which do not reflect the sales load will, of course, be higher than quotations
which do.
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GENERAL INFORMATION
DESCRIPTION OF SHARES
The Company is an open-end management investment company organized as a
Maryland corporation on October 27, 1982. The Company's Charter authorizes the
Board of Directors to issue up to two hundred billion full and fractional common
shares. Pursuant to the authority granted in the Charter, the Board of Directors
has authorized the issuance of twenty-two classes of stock, Classes A through W
Common Stock, $.001 par value per share, representing interests in twenty-two
separate investment portfolios. Class U represents interests in the A Shares of
the Fund , Class U -- Special Series 3 represents interests in the B Shares of
the Fund and Class U -- Special Series 5 represents interests in the K Shares of
the Fund. The Company's charter also authorizes the Board of Directors to
classify or reclassify any particular class of the Company's shares into one or
more series.
Shares have no preemptive rights and only such conversion or exchange
rights as the Board may grant in its discretion. When issued for payment as
described in the Prospectus, the Company's shares will be fully paid and
non-assessable. For information concerning possible restrictions upon the
transferability of the Company's shares and redemption provisions with respect
to such shares, see "Additional Purchase and Redemption Information."
Shareholders are entitled to one vote for each full share held, and
fractional votes for fractional shares held, and will vote in the aggregate and
not by class or series except as otherwise required by the 1940 Act or other
applicable law or when permitted by the Board of Directors. Shares have
cumulative voting rights to the extent they may be required by applicable law.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Company shall not be deemed to have been effectively acted
upon unless approved by a majority of the outstanding shares of each fund
affected by the matter. The Fund is affected by a matter unless it is clear that
the interests of each of the Company's funds in the matter are substantially
identical or that the matter does not affect any interest of the Fund. Under
Rule 18f-2 the approval of an investment advisory agreement or 12b-1
distribution plan or any change in a fundamental investment policy would be
effectively acted upon with respect to the Fund only if approved by a majority
of the outstanding shares of the Fund. However, the rule also provides that the
ratification of independent public accountants, the approval of principal
underwriting contracts and
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the election of directors may be effectively acted upon by shareholders of the
Company voting without regard to particular Funds.
Notwithstanding any provision of Maryland law requiring a greater vote
of the Company's common stock (or of the shares of the Fund voting separately as
a class) in connection with any corporate action, unless otherwise provided by
law (for example, by Rule 18f-2 discussed above) or by the Company's Charter,
the Company may take or authorize such action upon the favorable vote of the
holders of more than 50% of the outstanding common stock of the Company voting
without regard to class.
CUSTODIAN, ACCOUNTING AGENT AND TRANSFER AGENT
PNC Bank, National Association ("PNC"), Broad and Chestnut Streets,
Philadelphia, PA 19101 has been appointed custodian for the Fund. PFPC provides
the Fund with certain accounting services pursuant to a Fund Accounting Services
Agreement with the Administrator. Both PFPC, which is located at Bellevue Park
Corporate Center, 400 Bellevue Parkway, Wilmington, DE 19809, and PNC are wholly
owned subsidiaries of PNC Bancorp, Inc., a bank holding company. Pursuant to the
Fund Accounting Services Agreement, PFPC has agreed to provide certain
accounting, bookkeeping, pricing, dividends and distribution calculation
services with respect to the Fund. The monthly fees charged by PFPC under the
Fund Accounting Agreement are borne by the Fund. As custodian, PNC maintains a
separate account or accounts in the name of the Fund, holds and disburses
portfolio securities, makes receipts and disbursements of money, collects and
receives income and other payments and distributions on account of portfolio
securities, responds to correspondence from security brokers and others relating
to their respective duties and makes periodic reports concerning their duties.
BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus, Ohio 43219
serves as transfer and dividend disbursing agent for the Fund. BISYS Fund
Services, Inc. is a wholly-owned subsidiary of The BISYS Group, Inc., and an
affiliate of the Administrator and Distributor. For its services as transfer and
dividend disbursing agent for the Fund, the Fund pays BISYS Fund Services, Inc.
a fee at the annual rate of $17.75 per open account and $3 per closed account
with a minimum annual fee of $10,000 per year. BISYS Fund Services, Inc. is also
reimbursed for out-of-pocket expenses.
COUNSEL
Drinker Biddle & Reath (of which W. Bruce McConnel, III, Secretary of
the Company, is a partner), 1345 Chestnut Street, Suite 1100, Philadelphia,
Pennsylvania 19107, serves as
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counsel to the Company and will pass upon the legality of the shares offered
hereby.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, with offices at 1177 Avenue of the Americas, New
York, New York 10036, has been selected as the Fund's independent accountants
for the fiscal period ended February 28, 1997.
REPORTS
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations, and annual financial statements together with the
reports of the independent accountants of the Fund.
MISCELLANEOUS
As used in the Prospectus and this Statement of Additional Information,
a "vote of a majority" of the outstanding shares of the Fund or a particular
class of shares means the affirmative vote of the lesser of (a) more than 50% of
the outstanding shares of the Fund or class of shares, or (b) 67% of the shares
of the Fund or class of shares present at a meeting at which more than 50% of
the outstanding shares of the Fund or class of shares are represented in person
or by proxy.
At January 17, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Pacific
Horizon Shares of the Treasury Only Fund were as follows: BA Investment
Services, Inc., For the Benefit of Clients, Attn: Unit #7852 - Bob Santilli,
P.O. Box 7042, San Francisco, CA 94120, 126,915,035.89 shares (58.20%); BA
Securities, Inc., 185 Berry Street, 3rd Floor, San Francisco, CA 94107,
68,598,778.77 shares (31.46%); and Hare & Co., Bank of New York and Short-Term
Investment Funds, Attn: Bimal Saha, One Wall Street, New York, NY 10286,
13,226,723.61 shares (6.07%).
At January 17, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Horizon
Service Shares of the Treasury Only Fund were as follows: Omnibus Account for
the Shareholder Accounts Maintained By Concord Financial Services, Inc., Attn:
Linda Zerbe, First and Market Building, 100 First Avenue, Suite 300, Pittsburgh,
PA 15222, 41,122,167.83 shares (21.40%); Comcare, Inc., 4001 North Third Street,
Suite 120, Phoenix, AZ 85012, 13,816,969.71 shares (7.20%); and Omnibus Account
for the Shareholder Accounts Maintained by Concord Financial Services, Inc.,
Attn: Linda Zerbe, 100 First Avenue, Suite 300, Pittsburgh, PA 15222,
43,115,349.41 shares (22.41%).
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At January 16, 1997, the name, address and share ownership of the
entities which held as beneficial owners more than 5% of the outstanding Horizon
Shares of the Treasury Only Fund were as follows: Centinela Healthcare
Foundation, c/o Allan C. Shubin, City of Hope, 1500 East Duarte, Duarte, CA
91010, 1,912,695.64 shares (5.67%); Bank of America Illinois/Treas Slam, Attn:
Jewel James, 231 LaSalle Street, Chicago, IL 60697, 5,196,437.50 shares
(15.41%); Bank of America NT&SA TTEE/Cus, Attn: Common Trust Funds Unit 38329,
P.O. Box 513577, Terminal Annex, Los Angeles, CA 90051-1577, 13,973,087.38
shares (41.44%); Cable Design Technologies, Inc., Attn: Ken Hale, Foster Plaza
7,661 Anderson Drive, Pittsburgh, PA 15220 3,686,462.62 shares (10.93%); and
City and County of San Francisco, Mayor's Office of Community Development
(MOCD), Attn: Priscilla Watts, 25 Van Ness Avenue, Suite 700, San Francisco, CA
94102, 8,029,482.67 shares (23.81%).
At January 16, 1997, the name, address and share ownership of the
entities which held as beneficial owners more than 5% of the outstanding
Horizon Service Shares of the Treasury Only Fund were as follows: Bank of
America NT&SA TTEE/Cus, Attn: Common Trust Funds Unit 38329, P.O. Box 513577,
Terminal Annex, Los Angeles, CA 90051-1577, 37,600,696.83 shares (19.54%); and
BA Investment Services, Inc., Attn: Bob Santilli, 185 Berry Street, 3rd Floor,
Unit 7852, San Francisco, CA 94107, 32,306,705.83 shares (16.79%).
At January 17, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Pacific
Horizon Shares of the Treasury Fund were as follows: Hare & Co., Bank of New
York and Short Term Investment Funds, Attn: Bimal Saha, One Wall Street, New
York, NY 10286, 107,055,740.91 shares (21.56%); BA Investment Services, Inc.,
For the Benefit of Clients, Attn: Unit #7852 - Bob Santilli, P.O. Box 7042, San
Francisco, CA 94120, 202,977,365.10 shares (40.87%); Hellman & Friedman Capital
Partners III, Limited Partnership, 1 Maritime Plaza, 12th Floor, San Francisco,
CA 94111, 30,252,068.66 shares (6.09%) and VAR & Co., Attn: Linda Frintz, 180 E.
5th Street, 4th Floor, St. Paul, MN 55101, 93,131,870.00 shares (8.75%).
At January 17, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Horizon
Service Shares of the Treasury Fund were as follows: BISYS Fund Services, Inc.
Pittsburgh, FBO Sweep Customers, Attn: Linda Zerbe, 100 First Avenue, Suite 300,
Pittsburgh, PA 15222, 178,639.074.83 shares (12.38%); and BISYS Fund Services,
Inc. Pittsburgh, FBO Sweep Customers, Attn: Linda Zerbe, 100 First Avenue, Suite
300, Pittsburgh, PA 15222, 483,752,664.42 shares (33.51%).
At January 16, 1997, the name, address and share ownership of the
entities which held as beneficial owners more than 5% of the outstanding
Horizon Shares of the Treasury Fund were as follows: Bank of America NT&SA, The
Private Bank, Attn: Common Trust Funds, Unit 38329, P.O. Box 513577, Terminal
Annex, Los Angeles, CA 90051-1577, 244,930,192.81 shares (38.82%); Central
Garden & Pet Company, Attn: Lewis R. Volls, 3697 Mt. Diablo Blvd. #310,
Lafayette, CA 94549, 54,646,103.60 shares (8.66%); Hare & Co., c/o Bank of New
York, Attn: Frank Notaro Spec. Proc. Dep., One Wall Street, 5th Floor, New
York, NY 10286, 85,587,252.27 shares (13.57%); and Raymond Hickey as Trustee
for Raymond Hickey Revocable Trust as Amended 703 Broadway, Suite 600,
Vancouver, WA 98660, 40,407,107.11 shares (6.40%)
At January 16, 1997, the name, address and share ownership of the
entities which held as beneficial owners more than 5% of the outstanding
Horizon Service Shares of the Treasury Fund were as follows: BofA Nevada
Southern Comm. Bank, Attn: Cindy 2964, P.O. Box 98600, Las Vegas, NV
89193-8600, 151,223,491.86 shares (10.48%); Security Pacific Cash Management,
c/o Bank of America-GPO M/C 5533, Attn: Regina Olsen, 1850 Gateway Boulevard,
Concord, CA 94520, 166,890,200.00 shares (11.56%); Bank of America FM & TS
Operat CA, Attn: Common Trust Funds Unit 38329, P.O. Box 513577, Terminal
Annex, Los Angeles, CA 90051-1577, 270,479,864.52 shares (18.74%).
At January 17, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Class X
Shares of the Treasury Fund were as follows: BA Investment Services, Inc., FBO
Clients, Attn: Unit 7852- Dan Spillane, P.O. Box 7042, San Francisco, CA 94120,
3,532,607.80 shares (99.97%);
At January 17, 1997, the name, address and share ownership of the
entities which held as record owners more than
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5% of the outstanding Pacific Horizon Shares of the Government Fund were as
follows: BA Investment Services, Inc., For the Benefit of Clients, Attn: Unit
#7852 - Bob Santilli, P.O. Box 7042, San Francisco, CA 94120, 67,476,016.22
shares (40.33%); BA Securities, Inc., 185 Berry Street, 3rd Floor, San
Francisco, CA 94107, 51,958,875.16 shares (31.06%); Hare & Co., Bank of New York
and Short Term Investment Funds, Attn: Bimal Saha, One Wall Street, New York, NY
10286, 11,242,817.21 shares (6.72%).
At January 17, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Horizon
Service Shares of the Government Fund were as follows: Omnibus Account for the
Shareholder Accounts Maintained By Concord Financial Services, Inc., Attn: Linda
Zerbe, First and Market Building, 100 First Avenue, Suite 300, Pittsburgh, PA
15222, 47,936,871.20 shares (16.12%); Omnibus Account for the Shareholder
Accounts Maintained by Concord Financial Services,Inc., Attn: Linda Zerbe, First
and Market Building, 100 First Avenue, Suite 300, Pittsburgh, PA 15222,
42,391,382.81 (14.25%); Viejas Bond of Kumeyaay Indians, a Federally recognized
Indian tribe, 5000 Willows Road, Alpine, CA 91901, 17,823,280.06 shares (5.99%);
Good Health Plan of WA, Attn: Linda Lam Ha, 1501 4th Avenue, Suite 500, Seattle,
WA 98101 15,252,859.49 shares (5.13%); Lone Star Northwest, Inc., Attn: Krisky
Vasquez, P.O. Box 1730, Seattle, WA 98111, 15,730,448.71 shares (5.29%); and
Providence Healthcare Attn: Linda Lam Ha, 1501 4th Avenue, Suite 500, Seattle,
WA 98101-1621, 15,004,725.82 shares (5.05%).
At January 16, 1997, the name, address and share ownership of the
entities which held as beneficial owners more than 5% of the outstanding Horizon
Shares of the Government Fund were as follows: Sunquest Information Systems,
Inc., Attn: Trena Couch, 1407 Eisenhower Boulevard, Johnstown, PA 15904-3217,
28,582,372.49 shares (40.21%); First Trust, NA as Escrow Agent, FBO Kaiser
Aluminum & Chemical Corp. Dept. of Labor, AC #98925410, P.O. Box 64010, St.
Paul, MN 55164-0010, 7,198,000.00 shares (10.13%); San Diego Regional Transport
Com, Attn: Andre Douzdjian, 401 B Street, San Diego, CA 92101, 8,524,973.33
shares (12.00%); Skinner Corporation, Attn: Debbie Sokvilne, 1326 Fifth Avenue,
Ste 711, Seattle, WA 98101, 5,081,286.67 shares (7.15%); and Imperial Thrift
and Loan Assoc., Attn: Steve Cooper, 700 N. Central Avenue, Suite 600,
Glendale, CA 91203, 8,304,781.65 shares (11.69%).
At January 16, 1997, the name, address and share ownership of the
entities which held as beneficial owners more than 5% of the outstanding
Horizon Service Shares of the Government Fund were as follows: Bank of America
NT&SA, Financial Management & Trust Services, Attn: Common Trust Funds Unit
38329, P.O. Box 513577, Terminal Annex, Los Angeles, CA 90051-1577,
42,932,778.28 shares (14.44%); and BofA Nevada Southern Comm. Bank, Attn: Cindy
2964, P.O. Box 98600, Las Vegas, NV 89193-8600, 39,962,243.73 shares (13.44%).
At January 17, 1997 , the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Horizon
Service Shares of the Prime Fund were as follows: BISYS Fund Services, Inc.
Pittsburgh, FBO Sweep Customers, Attn: Linda Zerbe, 100 First Avenue, Suite 300,
Pittsburgh, PA 15222, 1,518,412,454.25 shares (51.12%); and BISYS Fund Services,
Inc. Pittsburgh, FBO Sweep Customers, Attn: Linda Zerbe, 100 First Avenue, Suite
300, Pittsburgh, PA 15222, 345,369,548.92 shares (11.63%).
At January 16, 1997, the name, address and share ownership of the
entities which held as beneficial owners more than 5% of the outstanding Horizon
Shares of the Prime Fund were as follows: Bank of America NT&SA, The Private
Bank, Attn: Common Trust Funds Unit 38329, Terminal Annex, Los Angeles, CA
90051-1577, 601,768,725.22 shares (34.13%); Hare & Co., c/o The Bank of New
York, Attn: Frank Notaro Spec. Proc. Dep., One Wall Street, 5th Floor, New
York, NY 10286, 112,025,304.13 shares (6.35%); and Williams-Sonoma, Inc., Attn:
Anne Willis, 100 North Point St., San Francisco, CA 94133, 95,846,682.04 shares
(5.44%).
At January 16, 1997, the name, address and share ownership of the
entities which held as beneficial owners more than 5% of the outstanding Horizon
Service Shares of the Prime Fund were as follows: Bank of America NT&SA
Financial Management & Trust Securities, Attn: Common Trust Funds Unit 38329,
P.O. Box 513577, Terminal Annex, Los Angeles, CA 90051-1577, 774,557,020.40
shares (26.08%); BA Investment Services, Inc., Attn: Bob Santill:, 185 Berry
Street, 3rd Floor, Unit 7852, San Francisco, CA 94107, 215,048,397.20 shares
(7.24%); and Security Pacific Cash Management, c/o Bank of America-GPO M/C 5533,
Attn: Regina Olsen, 1850 Gateway Blvd., Concord, CA 94520, 623,555,100.00 shares
(20.99%).
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At January 17, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Class X
Shares of the Prime Fund were as follows: BA Investment Services, Inc., FBO
Clients, Attn: Unit 7852- Dan Spillane, P.O. Box 7042, San Francisco, CA 94120,
182,122,939.79 shares (99.93%);
At January 17, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Pacific
Horizon Shares of the Tax-Exempt Money Fund were as follows: BA Investment
Services, Inc., For the Benefit of Clients, Attn: Unit #7852 - Bob Santilli,
P.O. Box 7042, San Francisco, CA 94120, 70,078,022.430 shares (86.13%); BA
Securities, Inc., 185 Berry Street, San Francisco, CA 94107, 8,946,080.940
shares (11.00%).
At January 17, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Horizon
Shares of the Tax-Exempt Money Fund were as follows: BISYS Fund Services, Inc.
Pittsburgh, FBO Sweep Customers, Attn: Linda Zerbe, 100 First Avenue, Suite 300,
Pittsburgh, PA 15222, 127,407,819.400 shares (75.58%); and BISYS Fund Services,
Inc. Pittsburgh, FBO Sweep Customers, Attn: Linda Zerbe, 100 First Avenue, Suite
300, Pittsburgh, PA 15222, 25,509,587,090 shares (15.13%).
At January 16, 1997, the name, address and share ownership of the
entities which held as beneficial owners more than 5% of the outstanding
Horizon Shares of the Tax-Exempt Money Fund were as follows: Bank of
America NT&SA, The Private Bank, Attn: Common Trust Funds Unit 38329, P.O. Box
513577, Terminal Annex, Los Angeles, CA 90051-1577, 277,671,104.36 shares
(98.02%).
At January 16, 1997, the name, address and share ownership of the
entities which held as beneficial owners more than 5% of the outstanding
Horizon Service Shares of the Tax-Exempt Money Fund were as follows:
BA Investment Services, Inc., Attn: Bob Santilli, 185 Berry St., 3rd Floor,
Unit 7852, San Francisco, CA 94107, 24,291,230.92 shares (14.41%); and Bank of
America FM&TS Oper. CA, Attn: Common Trust Funds Unit 38329, P.O. Box 513577,
Terminal Annex, Los Angeles, CA 90051-1577, 127,407,819.40 shares (75.58%).
At January 17, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Pacific
Horizon Shares of the California Tax-Exempt Money Market Fund were as follows:
BA Securities, Inc., 185 Berry Street, 3rd Floor, San Francisco, CA 94107,
199,716,452.460 shares (41.24%); BA Investment Services, Inc., For the Benefit
of Clients, Attn: Unit #7852 - Bob Santilli, P.O. Box 7042, San Francisco, CA
94120, 270,828,273.620 shares (55.93%).
At January 16, 1997, the name, address and share ownership of the
entities which held as beneficial owners more than 5% of the outstanding
Horizon Service Shares of the California Tax-Exempt Money Market Fund were
as follows: BA Investment Services, Inc., Attn: Bob Santilli, 185 Berry St.,
3rd Floor, Unit 7852, San Francisco, CA 94107, 109,455,388.64 shares
(23.81%); and Bank of America NT&SA TTEE/Cus, Attn: Common Trust Funds
Unit 38329, P.O. Box 513577, Terminal Annex, Los Angeles, CA 90051-1577,
198,047,795.49 shares (43.09%).
At January 17, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Class X
Shares of the California Tax-Exempt Money Market Fund were as follows: BA
Investment Services, Inc., For the Benefit of Clients, Attn: Unit #7852- Dan
Spillane, P.O. Box 7042, San Francisco, CA 94120, 23,643,642.410 shares (100%).
At January 17, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding A Shares of
the Corporate Bond Fund
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were as follows: Bank of America National Trust and Savings Association, The
Private Bank, Attn: Common Trust Funds, Unit 38329, P.O. Box 3577 Terminal
Annex, Los Angeles, CA 90051, 251,255.44 shares (12.34%).
At January 17, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Class K
Shares of the Corporate Bond Fund were as follows: Corelink Financial Inc., P.O.
Box 4054, Concord, CA 94524, 11,694.177 shares (99.44%).
At January 17, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Class A
Shares of the National Municipal Bond Fund were as follows: BA Investment
Services, Inc., FBO 421981352, 185 Berry Street, 3rd Floor 2640, San Francisco,
CA 94104, 79,473.387 shares (5.34%); and BA Investment Services, Inc., FBO
405084421, 555 California Street, 4th Floor 2640, San Francisco, CA 94104,
90,141.644 shares (6.06%).
At January 17, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Class K
Shares of the National Municipal Bond Fund were as follows: BISYS Fund Services,
Inc., 3435 Stelzer Road, Suite 100, Columbus, Ohio 43219, 102.732 shares (100%).
At January 17, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Class A
Shares of the International Equity Fund were as follows: PACO, Attn: Mutual
Funds , P.O. Box 3577, Terminal Annex, Los Angeles, CA 90051, 216,572,540 shares
(15.56%); and PACO, Attn: Mutual Funds, P.O. Box 3577, Terminal Annex, Los
Angeles, CA 90051, 406,657,130 shares (29.22%); and Bank of America National
Trust and Savings Association, The Private Bank, Attn: Common Trust Funds, Unit
38329, P.O. Box 3577, Terminal Annex, Los Angeles, CA 90051, 417,172.137 shares
(29.98%).
At January 17, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Class K
Shares of the International Equity Fund were as follows: Corelink Financial
Inc., P.O. Box 4054, Concord, CA 94524, 10,729.796 shares (99.06%).
At January 17, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Class A
Shares of the Aggressive Growth Fund were as follows: Charles Schwabb & Co.,
Inc., Reinvest Account, Attn: Mutual Fund Department, 101 Montgomery Street, San
Francisco, CA 94104, 664,279.549 shares (6.30%).
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At January 17, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Class K
Shares of the Aggressive Growth Fund were as follows: Corelink Financial Inc.,
P.O. Box 4054, Concord, CA 94524, 11,482.539 shares (99.53%).
At January 17, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Class A
Shares of the Intermediate Bond Fund were as follows: Bank of America National
Trust and Savings Association, The Private Bank, Attn: Common Trust Funds Unit
38329, P.O. Box 3577, Terminal Annex, Los Angeles, CA 90051, 934,163.859 shares
(41.55%).
At January 17, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Class K
Shares of the Intermediate Bond Fund were as follows: Corelink Financial Inc.,
P.O. Box 4054, Concord, CA 94524, 33,424.373 shares (99.68%).
At January 17, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Class A
Shares of the Blue Chip Fund were as follows: Bank of America National Trust and
Savings Association, The Private Bank, Attn: Common Trust Funds Unit 38329, P.O.
Box 3577, Terminal Annex, Los Angeles, CA 90051, 437,870.491 shares (7.65%).
At January 17, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Class K
Shares of the Blue Chip Fund were as follows: Corelink Financial Inc., P.O. Box
4054, Concord, CA 94524, 41,926.034 shares (99.88%).
At January 17, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Class K
Shares of the Capital Income Fund were as follows: Corelink Financial Inc., P.O.
Box 4054, Concord, CA 94524, 31,671.008 shares (94.91%).
At January 17, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Class K
Shares of the California Tax-Exempt Bond Fund were as follows: BISYS Fund
Services, Inc., Attn: Regulation and Compliance Department, 3435 Stelzer Road,
Suite 1000, Columbus, Ohio 43219, 141.651 shares (100%).
At January 17, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Class K
Shares of the Asset Allocation Fund were as follows: Corelink Financial Inc.,
P.O. Box 4054, Concord, CA 94524, 36,492.589 shares (99.83%).
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At January 17, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Class K
Shares of the U.S. Government Securities Fund were as follows: Corelink
Financial Inc., P.O. Box 4054, Concord, CA 94524, 21,757.224 shares (99.50%).
At January 17, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Class A
Shares of the Short-Term Government Fund were as follows: Bank of America
National Trust and Savings Association, The Private Bank, Attn: Common Trust
Funds, Unit 38329, P.O. Box 3577 Terminal Annex, Los Angeles, CA 90051,
1,273,707.695 shares (96.07%).
At such dates, no other person was known by the Company to hold of
record or beneficially more than 5% of the outstanding shares of any investment
portfolio of the Company.
The Prospectus relating to the Fund and this Statement of Additional
Information omit certain information contained in the Company's registration
statement filed with the SEC. Copies of the registration statement, including
items omitted herein, may be obtained from the SEC by paying the charges
prescribed under its rules and regulations.
FINANCIAL STATEMENTS
The financial statements and notes thereto in the Semi-Annual Report
for the Fund for the period August 2, 1996 (commencement of operations) through
August 31, 1996 are incorporated in this Statement of Additional Information by
reference. No other parts of the Semi-Annual Report are incorporated by
referenced herein.
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APPENDIX A
As stated in the Prospectus, the Fund may enter into futures contracts
and options for hedging purposes. Such transactions are described in this
Appendix.
I. INTEREST RATE FUTURES CONTRACTS
Use of Interest Rate Futures Contracts. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the future
for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, the Fund may use interest rate futures
as a defense, or hedge, against anticipated interest rate changes and not for
speculation. As described below, this would include the use of futures contract
sales to protect against expected increases in interest rates and futures
contract purchases to offset the impact of interest rate declines.
The Fund presently could accomplish a similar result to that which it
hopes to achieve through the use of futures contracts by selling bonds with long
maturities and investing in bonds with short maturities when interest rates are
expected to increase, or conversely, selling short-term bonds and investing in
long-term bonds when interest rates are expected to decline. However, because of
the liquidity that is often available in the futures market the protection is
more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by the Fund, through using futures contracts.
Description of Interest Rate Futures Contracts. An interest rate
futures contract sale would create an obligation by the Fund, as seller, to
deliver the specific type of financial instrument called for in the contract at
a specific future time for a specified price. A futures contract purchase would
create an obligation by the Fund, as purchaser, to take delivery of the specific
type of financial instrument at a specific future time at a specific price. The
specific securities delivered or taken, respectively, at settlement date, would
not be determined until at or near that date. The determination would be in
accordance with the rules of the exchange on which the futures contract sale or
purchase was made.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most
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cases the contracts are closed out before the settlement date without the making
or taking of delivery of securities. Closing out a futures contract sale is
effected by the Fund's entering into a futures contract purchase for the same
aggregate amount of the specific type of financial instrument and the same
delivery date. If the price in the sale exceeds the price in the offsetting
purchase, the Fund is paid the difference and thus realizes a gain. If the
offsetting purchase price exceeds the sale price, the Fund pays the difference
and realizes a loss. Similarly, the closing out of a futures contract purchase
is effected by the Fund's entering into a futures contract sale. If the
offsetting sale price exceeds the purchase price, the Fund realizes a gain, and
if the purchase price exceeds the offsetting sale price, the Fund realizes a
loss.
Interest rate futures contracts are traded in an auction environment on
the floors of several exchanges -principally, the Chicago Board of Trade and the
Chicago Mercantile Exchange. The Fund would deal only in standardized contracts
on recognized exchanges. Each exchange guarantees performance under contract
provisions through a clearing corporation, a nonprofit organization managed by
the exchange membership.
A public market now exists in futures contracts covering various
financial instruments including long-term United States Treasury bonds and
notes; Government National Mortgage Association (GNMA) modified pass-through
mortgage-backed securities; three-month United States Treasury bills; and
ninety-day commercial paper. The Fund may trade in any futures contract for
which there exists a public market, including, without limitation, the foregoing
instruments.
Examples of Futures Contract Sale. The Fund would engage in an interest
rate futures contract sale to maintain the income advantage from continued
holding of a long-term bond while endeavoring to avoid part or all of the loss
in market value that would otherwise accompany a decline in long-term securities
prices. Assume that the market value of a certain security in the Fund tends to
move in concert with the futures market prices of long-term United States
Treasury bonds ("Treasury bonds"). The investment adviser wishes to fix the
current market value of this portfolio security until some point in the future.
Assume the portfolio security has a market value of 100, and the investment
adviser believes that, because of an anticipated rise in interest rates, the
value will decline to 95. The Fund might enter into futures contract sales of
Treasury bonds for an equivalent of 98. If the market value of the portfolio
security does indeed decline from 100 to 95, the equivalent futures market price
for the Treasury bonds might also decline from 98 to 93.
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In that case, the five-point loss in the market value of the portfolio
security would be offset by the five-point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the imperfect
correlation between cash and futures prices mentioned below.
The investment adviser could be wrong in its forecast of interest rates
and the equivalent futures market price could rise above 98. In this case, the
market value of the portfolio securities, including the portfolio security being
protected, would increase. The benefit of this increase would be reduced by the
loss realized on closing out the futures contract sale.
If interest rate levels did not change, the Fund in the above example
might incur a loss of 2 points (which might be reduced by an off-setting
transaction prior to the settlement date). In each transaction, transaction
expenses would also be incurred.
Examples of Futures Contract Purchase. The Fund would engage in an
interest rate futures contract purchase when it is not fully invested in
long-term bonds but wishes to defer for a time the purchase of long-term bonds
in light of the availability of advantageous interim investments, e.g.,
shorter-term securities whose yields are greater than those available on
long-term bonds. The Fund's basic motivation would be to maintain for a time the
income advantage from investing in the short-term securities; the Fund would be
endeavoring at the same time to eliminate the effect of all or part of an
expected increase in market price of the long-term bonds that the Fund may
purchase.
For example, assume that the market price of a long-term bond that the
Fund may purchase, currently yielding 10%, tends to move in concert with futures
market prices of Treasury bonds. The investment adviser wishes to fix the
current market price (and thus 10% yield) of the long-term bond until the time
(four months away in this example) when it may purchase the bond. Assume the
long-term bond has a market price of 100, and the investment adviser believes
that, because of an anticipated fall in interest rates, the price will have
risen to 105 (and the yield will have dropped to about 9 1/2%) in four months.
The Fund might enter into futures contracts purchases of Treasury bonds for an
equivalent price of 98. At the same time, the Fund would assign a pool of
investments in short-term securities that are either maturing in four months or
earmarked for sale in four months, for purchase of the long-term bond at an
assumed market price of 100. Assume these short-term securities are yielding
15%. If the market price of the long-term bond does indeed rise from 100 to 105,
the equivalent futures market price for Treasury bonds might also rise from 98
to 103. In that case, the 5-point increase in the price that the Fund pays for
the long-term bond
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would be offset by the 5-point gain realized by closing out the futures contract
purchase.
The investment adviser could be wrong in its forecast of interest
rates; long-term interest rates might rise to above 10%; and the equivalent
futures market price could fall below 98. If short-term rates at the same time
fall to 10% or below, it is possible that the Fund would continue with its
purchase program for long-term bonds. The market price of available long-term
bonds would have decreased. The benefit of this price decrease, and thus yield
increase, will be reduced by the loss realized on closing out the futures
contract purchase.
If, however, short-term rates remained above available long-term rates,
it is possible that the Fund would discontinue its purchase program for
long-term bonds. The yield on short-term securities in the portfolio, including
those originally in the pool assigned to the particular long-term bond, would
remain higher than yields on long-term bonds. The benefit of this continued
incremental income will be reduced by the loss realized on closing out the
futures contract purchase. In each transaction, expenses would also be incurred.
II. MARGIN PAYMENTS
Unlike when the Fund purchases or sells a security, no price is paid or
received by the Fund upon the purchase or sale of a futures contract. Initially,
the Fund will be required to deposit with the broker or in a segregated account
with the Fund's custodian an amount of cash or cash equivalents, the value of
which may vary but is generally equal to 10% or less of the value of the
contract. This amount is known as initial margin. The nature of initial margin
in futures transactions is different from that of margin in security
transactions in that futures contract margin does not involve the borrowing of
funds by the customer to finance the transactions. Rather, the initial margin is
in the nature of a performance bond or good faith deposit on the contract which
is returned to the Fund upon termination of the futures contract assuming all
contractual obligations have been satisfied. Subsequent payments, called
variation margin, to and from the broker, will be made on a daily basis as the
price of the underlying instruments fluctuates making the long and short
positions in the futures contract more or less valuable, a process known as
marking-to-market. For example, when the Fund has purchased a futures contract
and the price of the contract has risen in response to a rise in the underlying
instruments, that position will have increased in value and the Fund will be
entitled to receive from the broker a variation margin payment equal to that
increase in value. Conversely, where the Fund has purchased a futures contract
and the price of the future contract has declined in response to a decrease in
the underlying instruments, the position would be less valuable and the Fund
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would be required to make a variation margin payment to the broker. At any time
prior to expiration of the futures contract, the investment advisor may elect to
close the position by taking an opposite position, subject to the availability
of a secondary market, which will operate to terminate the Fund's position in
the futures contract. A final determination of variation margin is then made,
additional cash is required to be paid by or released to the Fund, and the Fund
realizes a loss or gain.
III. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS
There are several risks in connection with the use of futures in the
Fund as a hedging device. One risk arises because of the imperfect correlation
between movements in the price of the future and movements in the price of the
securities which are the subject of the hedge. The price of the future may move
more than or less than the price of the securities being hedged. If the price of
the future moves less than the price of the securities which are the subject of
the hedge, the hedge will not be fully effective but, if the price of the
securities being hedged has moved in an unfavorable direction, the Fund would be
in a better position than if it had not hedged at all. If the price of the
securities being hedged has moved in a favorable direction, this advantage will
be partially offset by the loss on the future. If the price of the future moves
more than the price of the hedged securities, the Fund involved will experience
either a loss or gain on the future which will not be completely offset by
movements in the price of the securities which are the subject of the hedge. To
compensate for the imperfect correlation of movements in the price of securities
being hedged and movements in the price of futures contracts, the Fund may buy
or sell futures contracts in a greater dollar amount than the dollar amount of
securities being hedged if the volatility over a particular time period of the
prices of such securities has been greater than the volatility over such time
period of the future, or if otherwise deemed to be appropriate by the investment
adviser. Conversely, the Fund may buy or sell fewer futures contracts if the
volatility over a particular time period of the prices of the securities being
hedged is less than the volatility over such time period of the futures contract
being used, or if otherwise deemed to be appropriate by the adviser. It is also
possible that, where the Fund has sold futures to hedge its portfolio against a
decline in the market, the market may advance and the value of securities held
in the Fund may decline. If this occurred, the Fund would lose money on the
future and also experience a decline in value in its portfolio securities.
Where futures are purchased to hedge against a possible increase in the
price of securities before the Fund is able to invest its cash (or cash
equivalents) in securities (or options) in an orderly fashion, it is possible
that the market may decline instead; if the Fund then concludes not to invest in
securities
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or options at that time because of concern as to possible further market decline
or for other reasons, the Fund will realize a loss on the futures contract that
is not offset by a reduction in the price of securities purchased.
In instances involving the purchase of futures contracts by the Fund,
an amount of cash and cash equivalents, equal to the market value of the futures
contracts, will be deposited in a segregated account with the Fund's custodian
and/or in a margin account with a broker to collateralize the position and
thereby insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
securities being hedged, the price of futures may not correlate perfectly with
movement in the cash market due to certain market distortions. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through off-setting transactions which could distort the normal
relationship between the cash and futures markets. Second, with respect to
financial futures contracts, the liquidity of the futures market depends on
participants entering into off-setting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced thus producing distortions. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price distortion in the
futures market, and because of the imperfect correlation between the movements
in the cash market and movements in the price of futures, a correct forecast of
general market trends or interest rate movements by the adviser may still not
result in a successful hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Fund
intends to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a liquid
secondary market on any exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be possible to
close a futures investment position, and in the event of adverse price
movements, the Fund would continue to be required to make daily cash payments of
variation margin. However, in the event futures contracts have been used to
hedge portfolio securities, such securities will not be sold until the futures
contract can be terminated. In such circumstances, an increase in the price of
the securities, if
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any, may partially or completely offset losses on the futures contract. However,
as described above, there is no guarantee that the price of the securities will
in fact correlate with the price movements in the futures contract and thus
provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary market in
a futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
futures contract price during a single trading day. Once the daily limit has
been reached in the contract, no trades may be entered into at a price beyond
the limit, thus preventing the liquidation of open futures positions.
Successful use of futures by the Fund is also subject to the investment
adviser's ability to predict correctly movements in the direction of the market.
For example, if the Fund has hedged against the possibility of a decline in the
market adversely affecting securities held by it and securities prices increase
instead, the Fund will lose part of all of the benefit to the increased value of
its securities which it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if the Fund has insufficient
cash, it may have to sell securities to meet daily variation margin
requirements. Such sales of securities may be, but will not necessarily be, at
increased prices which reflect the rising market. The Fund may have to sell
securities at a time when it may be disadvantageous to do so.
IV. OPTIONS ON FUTURES CONTRACTS
The Fund may purchase options on the futures contracts described above.
A futures option gives the holder, in return for the premium paid, the right to
buy (call) from or sell (put) to the writer of the option a futures contract at
a specified price at any time during the period of the option. Upon exercise,
the writer of the option is obligated to pay the difference between the cash
value of the futures contract and the exercise price. Like the buyer or seller
of a futures contract, the holder, or writer, of an option has the right to
terminate its position prior to the scheduled expiration of the option by
selling, or purchasing, an option of the same series, at which time the person
entering into the closing transaction will realize a gain or loss.
Investments in futures options involve some of the same considerations
that are involved in connection with investments in futures contracts (for
example, the existence of a liquid secondary market). In addition, the purchase
of an option also entails the risk that changes in the value of the underlying
futures contract will not be fully reflected in the value of the
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option purchased. Depending on the pricing of the option compared to either the
futures contract upon which it is based, or upon the price of the securities
being hedged, an option may or may not be less risky than ownership of the
futures contract or such securities. In general, the market prices of options
can be expected to be more volatile than the market prices on the underlying
futures contract. Compared to the purchase or sale of futures contracts,
however, the purchase of call or put options on futures contracts may frequently
involve less potential risk to the Fund because the maximum amount at risk is
the premium paid for the options (plus transaction costs). Although permitted by
its fundamental investment policies, the Fund does not currently intend to write
futures options, and will not do so in the future absent any necessary
regulatory approvals.
V. OTHER HEDGING TRANSACTIONS
The Fund presently intends to use interest rate futures contracts in
connection with its hedging activities. Nevertheless, the Fund is authorized to
enter into hedging transactions in any other futures or options contracts which
are currently traded or which may subsequently become available for trading.
Such instruments may be employed in connection with the Fund's hedging
strategies if, in the judgment of the investment adviser, transactions therein
are necessary or advisable.
VI. ACCOUNTING AND TAX TREATMENT
Accounting for futures contracts and related options will be in
accordance with generally accepted accounting principles.
Generally, futures contracts and options on futures contracts held by
the Fund at the close of the Fund's taxable year will be treated for federal
income tax purposes as sold for their fair market value on the last business day
of such year, a process known as "marking-to-market." Forty percent of any gain
or loss resulting from such constructive sale will be treated as short-term
capital gain or loss and 60% of such gain or loss will be treated as long-term
capital gain or loss without regard to the length of time the Fund holds the
futures contract or option ("the 40%-60% rule"). The amount of any capital gain
or loss actually realized by the Fund in a subsequent sale or other disposition
of those futures contracts or options will be adjusted to reflect any capital
gain or loss taken into account by the Fund in a prior year as a result of the
constructive sale of the contracts or options. With respect to futures contracts
to sell, which will be regarded as parts of a "mixed straddle" because their
values fluctuate inversely to the values of specific securities held by the
Fund, losses as to such contracts to sell will be subject to certain loss
deferral rules which limit the amount of loss currently deductible on either
part of
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the straddle to the amount thereof which exceeds the unrecognized gain (if any)
with respect to the other part of the straddle, and to certain wash sales
regulations. Under short sales rules, which also will be applicable, the holding
period of the securities forming part of the straddle (if they have not been
held for the long-term holding period) will be deemed not to begin prior to
termination of the straddle. With respect to certain futures contracts and
related options, deductions for interest and carrying charges will not be
allowed. Notwithstanding the rules described above, with respect to futures
contracts to sell which are properly identified as such, the Fund may make an
election which will exempt (in whole or in part) those identified futures
contracts from being treated for federal income tax purposes as sold on the last
business day of the Fund's taxable year, but gains and losses will be subject to
such short sales, wash sales and loss deferral rules and the requirement to
capitalize interest and carrying charges. Under Temporary Regulations, the Fund
would be allowed (in lieu of the foregoing) to elect either (1) to offset gains
or losses from portions which are part of a mixed straddle by separately
identifying each mixed straddle to which such treatment applies, or (2) to
establish a mixed straddle account for which gains and losses would be
recognized and offset on a periodic basis during the taxable year. Under either
election, the 40%-60% rule will apply to the net gain or loss attributable to
the futures contracts, but in the case of a mixed straddle account election, not
more than 50 percent of any net gain may be treated as long-term and no more
than 40 percent of any net loss may be treated as short-term.
Qualification as a regulated investment company under the Code requires
that each Fund satisfy certain requirements with respect to the source of its
income during a taxable year. At least 90% of the gross income of each Fund must
be derived from dividends, interests, payments with respect to securities loans,
gains from the sale or other disposition of stock, securities or foreign
currencies, and other income (including, but not limited to, gains from options,
futures, or forward contracts) derived with respect to the Fund's business of
investing in such stock, securities or currencies. The Treasury Department may
by regulation exclude from qualifying income foreign currency gains which are
not directly related to a Fund's principal business of investing in stock or
securities, or options and futures with respect to stock or securities. Any
income derived by a Fund from a partnership or trust is treated for this purpose
as derived with respect to the Fund's business of investing in stock, securities
or currencies only to the extent that such income is attributable to items of
income which would have been qualifying income if realized by the Fund in the
same manner as by the partnership or trust.
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An additional requirement for qualification as a regulated investment
company under the Code is that less than 30% of a Fund's gross income must be
derived from gains realized on the sale or other disposition of the following
investments held for less than three months: (1) stock and securities (as
defined in section 2(a)(36) of the 1940 Act); (2) options, futures and forward
contracts other than those on foreign currencies; and (3) foreign currencies
(and options, futures and forward contracts on foreign currencies) that are not
directly related to a Fund's principal business of investing in stock and
securities (and options and futures with respect to stocks and securities).
With respect to futures contracts and other financial instruments
subject to the mark-to-market rules, the Internal Revenue Service has ruled in
private letter rulings that a gain realized from such a futures contract or
financial instrument will be treated as being derived from a security held for
three months or more (regardless of the actual period for which the contract or
instrument is held) if the gain arises as a result of a constructive sale under
the marking-to-market rules, and will be treated as being derived from a
security held for less than three months only if the contract or instrument is
terminated (or transferred) during the taxable year (other than by reason of
marking-to-market) and less than three months have elapsed between the date the
contract or instrument is acquired and the termination date. In determining
whether the Short-Short test is met for a taxable year, increases and decreases
in the value of each Fund's futures contracts and other investments that qualify
as part of a "designated hedge," as defined in the Code, may be netted.
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FORM N-1A
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
(1) Included in Part A hereof:
Financial Highlights for the:
Short-Term Government Fund
(2) Incorporated by reference in Part B hereof:
The unaudited Financial Statements and related notes
thereto for the Short-Term Government Fund for the
period ended August 31, 1996 as filed with the
Securities and Exchange Commission on November 12,
1996 pursuant to Rule 30b2-1 of the Investment
Company Act of 1940 (Nos. 2-8110 and 811-4293).
(b) Exhibits:
(1) (a) Restated Articles of Incorporation filed November
22, 1983 are incorporated by reference to Exhibit
1(a) to Post-Effective Amendment No. 45 to the
Registration Statement of the Registrant on Form N-1A
(Nos. 2-81110/811-4293) filed February 23, 1996
("Post-Effective Amendment No. 45").
(b) Articles Supplementary filed January 9, 1986 are
incorporated by reference to Exhibit 1(b) to
Post-Effective Amendment No. 45.
(c) Articles Supplementary to increase authorized capital
stock filed August 31, 1989 are incorporated by
reference to Exhibit 1(c) to Post-Effective Amendment
No. 45.
(d) Articles Supplementary classifying shares filed
August 31, 1989 are incorporated by reference to
Exhibit 1(d) to Post-Effective Amendment No. 45.
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<PAGE> 114
(e) Articles Supplementary classifying shares filed June
3, 1991 are incorporated by reference to Exhibit 1(e)
to Post-Effective Amendment No. 45.
(f) Articles Supplementary classifying and reclassifying
shares filed August 1, 1991 are incorporated by
reference to Exhibit 1(f) to Post-Effective Amendment
No. 45.
(g) Articles Supplementary to increase authorized capital
stock filed August 16, 1991 are incorporated by
reference to Exhibit 1(g) to Post-Effective Amendment
No. 45.
(h) Articles Supplementary classifying shares filed
August 16, 1991 are incorporated by reference to
Exhibit 1(h) to Post-Effective Amendment No. 45.
(i) Articles Supplementary classifying shares filed
November 25, 1991 are incorporated by reference to
Exhibit 1(i) to Post-Effective Amendment No. 45.
(j) Articles Supplementary classifying shares filed May
11, 1992 are incorporated by reference to Exhibit
1(j) to Post-Effective Amendment No. 45.
(k) Articles Supplementary reclassifying shares filed May
15, 1992 are incorporated by reference to Exhibit
1(k) to Post-Effective Amendment No. 45.
(l) Articles Supplementary classifying shares filed July
20, 1992 are incorporated by reference to Exhibit
1(l) to Post-Effective Amendment No. 45.
(m) Articles Supplementary to increase authorized capital
stock filed August 6, 1992 are incorporated by
reference to Exhibit 1(m) to Post-Effective Amendment
No. 45.
(n) Articles Supplementary classifying shares filed
August 6, 1992 are incorporated by reference to
Exhibit 1(n) to Post-Effective Amendment No. 45.
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<PAGE> 115
(o) Articles Supplementary classifying shares filed March
3, 1993 are incorporated by reference to Exhibit 1(o)
to Post-Effective Amendment No. 45.
(p) Articles Supplementary reclassifying shares filed May
12, 1993 are incorporated by reference to Exhibit
1(p) to Post-Effective Amendment No. 45.
(q) Articles of Amendment eliminating restriction on
number of classes of shares filed May 8, 1990 are
incorporated by reference to Exhibit 1(q) to
Post-Effective Amendment No. 45.
(r) Articles of Amendment reclassifying shares filed on
July 9, 1993 are incorporated by reference to Exhibit
1(r) to Post-Effective Amendment No. 45.
(s) Articles Supplementary classifying shares filed
November 18, 1993 are incorporated by reference to
Exhibit 1(s) to Post-Effective Amendment No. 45.
(t) Articles Supplementary reclassifying shares filed
November 18, 1993 are incorporated by reference to
Exhibit 1(t) to Post-Effective Amendment No. 45.
(u) Articles Supplementary reclassifying shares filed
January 21, 1994 are incorporated by reference to
Exhibit 1(u) to Post-Effective Amendment No. 45.
(v) Articles Supplementary classifying shares filed
October 30, 1995 are incorporated by reference to
Exhibit 1(v) to Post-Effective Amendment No. 47 to
the Registration Statement of the Registrant on Form
N-1A (Nos. 2-81110/811-4293) filed April 30, 1996
("Post-Effective Amendment No. 47").
(w) Articles of Amendment cancelling shares filed on
January 26, 1996 are incorporated by reference to
Exhibit 1(v) to Post-Effective Amendment No. 45.
(x) Articles Supplementary classifying shares filed on
January 26, 1996 are incorporated by reference to
Exhibit 1(w) to Post-Effective Amendment No. 45.
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<PAGE> 116
(y) Articles Supplementary reclassifying shares filed on
January 26, 1996 are incorporated by reference to
Exhibit 1(x) to Post-Effective Amendment No. 45.
(z) Articles Supplementary reclassifying shares filed on
April 12, 1996 are incorporated by reference to
Exhibit 1(z) to Post-Effective Amendment No. 51 to
the Registration Statement of the Registrant on Form
N-1A (Nos. 2-81110/811-4293) filed November 13, 1996
("Post-Effective Amendment No. 51") .
(aa) Articles Supplementary reclassifying shares filed on
June 25, 1996 are incorporated by reference to
Exhibit 1(z) to Post-Effective Amendment No. 50 to
the Registration Statement of the Registrant on Form
N-1A (Nos. 2-81110/811-4293) filed July 29, 1996
("Post-Effective Amendment No. 50.").
(bb) Articles Supplementary reclassifying shares filed on
June 25, 1996 are incorporated by reference to
Exhibit 1(aa) to Post-Effective Amendment No. 50.
(cc) Articles Supplementary reclassifying shares filed on
June 25, 1996 are incorporated by reference to
Exhibit 1(bb) to Post-Effective Amendment No. 50.
(2) (a) Amended and Restated By-Laws as approved by
Registrant's Board of Directors on July 23, 1996 are
incorporated by reference to Exhibit 2(f) to
Post-Effective Amendment No. 50.
(3) None.
(4) See Article VI, Section (2) of Article VII, Article
VIII and Section (2) and (4) of Article X of the
Restated Articles of Incorporation incorporated by
reference to Exhibit 1(a) of Post-Effective Amendment
No. 45 and Article I, Section 1 and 10 of Article II,
Article IV and Section 1 of Article VI of the Amended
and Restated By-laws incorporated by reference to
Exhibit 2(f) of Post-Effective Amendment No. 50.
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<PAGE> 117
(5) (a) Investment Advisory Agreement dated as of April
22, 1992 between Registrant and Bank of America
National Trust and Savings Association (Money Market
Funds) is incorporated by reference to Exhibit 5(a)
to Post-Effective Amendment No. 45.
(b) Investment Advisory Agreement dated as of April 22,
1992 between Registrant and Bank of America National
Trust and Savings Association (Non-Money Market
Funds) is incorporated by reference to Exhibit 5(b)
to Post-Effective Amendment No. 45.
(c) Addendum to Investment Advisory Agreement dated as of
March 1, 1993 between Registrant and Bank of America
National Trust and Savings Association (Money Market
Funds - Prime Value Fund) is incorporated by
reference to Exhibit 5(c) to Post-Effective Amendment
No. 45.
(d) Addendum to Investment Advisory Agreement dated as of
March 1, 1993 between Registrant and Bank of America
National Trust and Savings Association (Money Market
Funds - Government and Treasury Only Funds) is
incorporated by reference to Exhibit 5(d) to
Post-Effective Amendment No. 45.
(e) Investment Advisory Agreement dated November 1, 1994
between Registrant and Bank of America National Trust
& Savings Association with respect to the Capital
Income Fund is incorporated by reference to Exhibit
5(e) to Post-Effective Amendment No. 45.
(f) Investment Advisory Agreement dated as of July 1,
1996 between Registrant and Bank of America National
Trust & Savings Association with respect to the
National Municipal Bond Fund is incorporated by
reference to Exhibit 5(f) to Post-Effective Amendment
No. 51.
(g) Investment Advisory Agreement dated as of July 30,
1996 between Registration and Bank of America
National Trust and Savings Association with respect
to the International Equity and Short-Term Government
Funds is incorporated by
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<PAGE> 118
reference to Exhibit 5(g) to Post-Effective Amendment
No. 51.
(h) Investment Advisory Agreement dated as of September
1, 1996 between Registrant and Bank of America
National Trust & Savings Association with respect to
the Corporate Bond Fund.
(i) Amended and Restated Investment Advisory Agreement
dated as of January 1, 1997 between Registrant and
Bank of America National Trust & Savings Association
with respect to the International Equity Fund.
(j) Sub-Investment Advisory Agreement dated as of January
1, 1997 between Bank of America National Trust &
Savings Association and Wellington Management
Company, LLP with respect to the International Equity
Fund.
(6) (a) Amended and Restated Distribution Agreement
between the Registrant and Concord Financial Group,
Inc. is incorporated by reference to Exhibit 6(a) to
Post-Effective Amendment No. 51.
(b) Form of Broker/Dealer Agreement is incorporated by
reference to Exhibit 6(c) to Post-Effective Amendment
No. 45.
(c) Form of Bank Agreement is incorporated by reference
to Exhibit 6(d) to Post-Effective Amendment No. 45.
(7) Board Guidelines on Significant Governance Issues
(which includes a description of the Board of
Director's retirement policy and benefit) are
incorporated by reference to Exhibit 7 to Post-
Effective Amendment No. 45.
(8) (a) Custody Agreement between Registrant and The Bank of
New York dated as of April 3, 1989 is incorporated by
reference to Exhibit 8(a) to Post-Effective Amendment
No. 45.
(b) Amendment No. 1 to Custody Agreement between Registrant
and The Bank of New York dated as of March 30, 1990 is
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<PAGE> 119
incorporated by reference to Exhibit 8(b) to
Post-Effective Amendment No. 45.
(c) Amendment No. 2 to Custody Agreement between
Registrant and The Bank of New York dated as of
February 26, 1993 is incorporated by reference to
Exhibit 8(c) to Post-Effective Amendment No. 49 to
the Registration Statement of the Registrant on Form
N-1A (Nos. 2-81110/811-4293) filed June 28, 1996
("Post-Effective Amendment No. 49").
(d) Amendment No. 3 to Custody Agreement between
Registrant and The Bank of New York dated as of April
24, 1996 is incorporated by reference to Exhibit 8(d)
to Post-Effective Amendment No. 49.
(e) Amendment No. 4 to Custody Agreement between
Registrant and The Bank of New York dated as of July
1, 1996 is incorporated by reference to Exhibit 8(e)
to Post-Effective Amendment No. 51.
(f) Custodian Services Agreement between Registrant and
PNC Bank, N.A is incorporated by reference to Exhibit
8(c) to Post-Effective Amendment No. 45.
(g) Transfer Agency Agreement between Registrant and
BISYS Fund Services, Inc. is incorporated by
reference to Exhibit 8(d) to Post-Effective Amendment
No. 47.
(h) Amendment No. 1 to Transfer Agency Agreement between
Registrant and BISYS Fund Services, Inc.
(i) Sub-Custodian Agreement between Registrant, The Bank
of New York, and Security Pacific National Bank is
incorporated by reference to Exhibit 8(e) to
Post-Effective Amendment No. 45.
(j) Sub-Custodian Agreement between The Bank of New York
and Citibank, N.A. dated May 18, 1988 is incorporated
by reference to Exhibit 8(f) to Post-Effective
Amendment No. 45.
(k) Form of Sub-Custody Agreement between The Bank of New
York and Bank of America National Trust and Savings
Association is incorporated by reference to Exhibit
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<PAGE> 120
(8)(i) to Post-Effective Amendment No. 37.
(9) (a) Basic Administrative Services Agreement between
Registrant and The BISYS Group, Inc. (Money Market
Funds) dated as of November 1, 1996 .
(b) Administration Agreement between Registrant and the
BISYS Group, Inc. (Non-Money Market Funds) dated as
of November 1, 1996.
(c) Cash Management and Related Services Agreement
between Registrant and The Bank of New York (Horizon
Shares and Horizon Service Shares) dated as of May 1,
1990 is incorporated by reference to Exhibit 9(s) to
Post-Effective Amendment No. 45.
(d) Amendment to Cash Management and Related Services
Agreement between Registrant and The Bank of New York
dated as of June 21, 1993 is incorporated by
reference to Exhibit 9(t) to Post-Effective Amendment
No. 45.
(e) Accounting Services Agreement between the Registrant
and Provident Financial Processing Corp is
incorporated by reference to Exhibit 9(u) to
Post-Effective Amendment No. 45.
(10)(1) Opinion of counsel that shares are validly issued,
fully paid and non-assessable.
(11) (a) Consent of Drinker Biddle & Reath.
(b) Consent of Price Waterhouse LLP.
(12) None
(13) (a) Purchase Agreement between Registrant and The Dreyfus
Corporation is
- -------------------------
(1) Filed with the Securities and Exchange Commission ("SEC") on April 29,
1996 under Rule 24f-2 as part of Registrant's 24f-2 Notice.
8
<PAGE> 121
incorporated by reference to Exhibit 13(a) to
Post-Effective Amendment No. 45.
(b) Purchase Agreement between Registrant and Hambrecht &
Quist Group, Inc. dated March 31, 1988 is incorporated
by reference to Exhibit 13(b) to Post-Effective
Amendment No. 45.
(c) Investment Letter of Concord Financial Group, Inc. to
The Horizon Funds is incorporated by reference to
Exhibit 13(c) to Post-Effective Amendment No. 45.
(d) Purchase Agreement between Pacific Horizon Tax-Exempt
Money Market Portfolio, Inc. and Hambrecht & Quist
Group, Inc. is incorporated by reference to Exhibit
13(d) to Post-Effective Amendment No. 45.
(e) Purchase Agreement between Pacific Horizon Tax-Exempt
Money Market Portfolio, Inc. and Pacific Horizon
Tax-Exempt Funds, Inc. is incorporated by reference
to Exhibit 13(e) to Post-Effective Amendment No. 45.
(f) Purchase Agreement between Pacific Horizon Tax-Exempt
Money Market Portfolio, Inc. and The Dreyfus
Corporation is incorporated by reference to Exhibit
13(f) to Post-Effective Amendment No. 45.
(g) Purchase Agreement between Pacific Horizon California
Tax-Exempt Bond Portfolio, Inc. and Hambrecht & Quist
Group, Inc. is incorporated by reference to Exhibit
13(g) to Post-Effective Amendment No. 45.
(h) Purchase Agreement between Pacific Horizon California
Tax-Exempt Bond Portfolio, Inc. and The Dreyfus
Corporation is incorporated by reference to Exhibit
13(h) to Post-Effective Amendment No. 45.
(i) Purchase Agreement between Pacific Horizon California
Tax-Exempt Bond Portfolio, Inc. and Pacific Horizon
Tax-Exempt Funds, Inc. is incorporated by
9
<PAGE> 122
reference to Exhibit 13(i) to Post-Effective Amendment
No. 45.
(j) Investment Letter of Concord Financial Group, Inc. to
The Horizon Capital Funds is incorporated by
reference to Exhibit 13(j) to Post-Effective
Amendment No. 45.
(14) (a) Individual Retirement Account and accompanying
Custodial Agreement, Disclosure Statement, IRA
Application and IRA Transfer/Rollover Request Form is
incorporated by reference to Exhibit 14(a) to
Post-Effective Amendment No. 45.
(b) Appointment of Successor Custodian for Individual
Retirement Account dated as of August 3, 1990 is
incorporated by reference to Exhibit 14(b) to
Post-Effective Amendment No. 45.
(15) (a) Shareholder Services Plan for Non-Money Market
Funds is incorporated by reference to Exhibit 15(a)
to Post-Effective Amendment No. 45.
(b) Shareholder Services Plan for Horizon Service Shares
as modified by Registrant's Board of Directors on
January 29, 1993 is incorporated by reference to
Exhibit 15(b) to Post-Effective Amendment No. 45.
(c) Revised Shareholder Servicing Agreement is
incorporated by reference to Exhibit 15(c) to
Post-Effective Amendment No. 45.
(d) Revised Shareholder Service Agreement as modified by
Registrant's Board of Directors on January 29, 1993
is incorporated by reference to Exhibit 15(d) to
Post-Effective Amendment No. 45.
(e) Revised Shareholder Servicing Agreement for Non-Money
Market Funds is incorporated by reference to Exhibit
15(e) to Post-Effective Amendment No. 45.
10
<PAGE> 123
(f) Special Management Services Plan and related Special
Management Services Agreement for Pacific Horizon
Shares of Registrant's Money Market Funds is
incorporated by reference to Exhibit 15(f) to
Post-Effective Amendment No. 51 .
(g) Distribution and Services Plan and related
Administrative Servicing Agreement and Distribution
Agreement with respect to Registrant's "B" Shares is
incorporated by reference to Exhibit 15(g) to
Post-Effective Amendment No. 51 .
(h) Distribution and Services Plan and related
Distribution and Administrative Servicing Agreement
with respect to Registrant's "S" Shares and "X"
Shares is incorporated by reference to Exhibit 15(f)
to Post-Effective Amendment No. 47.
(i) Distribution Plan and related Distribution Agreement
with respect to Registrant's "K" Shares is
incorporated by reference to Exhibit 15(i) to
Post-Effective Amendment No. 51.
(j) Administrative and Shareholder Services Plan and
related Administrative and Shareholder Services
Agreement with respect to Registrant's "K" Shares is
incorporated by reference to Exhibit 15(j) to
Post-Effective Amendment No. 51 .
(16) (a) Schedule for Computation of Performance
Quotations with respect to the Prime Fund, Treasury
Fund, Tax-Exempt Money Fund, Tax-Exempt Money Market
Fund, California Tax-Exempt Money Market Fund,
Aggressive Growth Fund, California Tax-Exempt Bond
Fund, U.S. Government Securities Fund (formerly known
as the GNMA Extra Fund) and Capital Income Fund
(formerly known as the Convertible Securities Fund)
is incorporated by reference to Exhibit 16(a) to
Post-Effective Amendment No. 45.
(b) Schedule for Computation of Performance Quotations
with respect to the Government Fund, Treasury Only
Fund and
11
<PAGE> 124
Prime Value Fund is incorporated by reference to
Exhibit 16(b) to Post-Effective Amendment No. 45.
(c) Schedule for Computation of Performance Quotations
with respect to the Corporate Bond Fund, Intermediate
Bond Fund (formerly known as the Flexible Bond Fund),
Blue Chip Fund, Asset Allocation Fund and National
Municipal Bond Fund is incorporated by reference to
Exhibit 16(c) to Post-Effective Amendment No. 45.
(d) Schedule for Computation of Performance Quotations
with respect to the International Equity Fund is
incorporated by reference to Exhibit 16(d) to
Post-Effective Amendment No. 51.
(e) Schedule for Computation of Performance Quotations
with respect to the Short-Term Government Fund.
(17) Financial Data Schedule.
(18) Amended and Restated Plan Pursuant to Rule 18f-3 for
Operation of a Multi-Class System is incorporated by
reference to Exhibit 18 to Post-Effective Amendment
No. 50.
12
<PAGE> 125
ITEM 25. PERSONS CONTROLLED BY OR UNDER
COMMON CONTROL WITH REGISTRANT
Registrant is controlled by its Board of Directors.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
<TABLE>
<CAPTION>
NUMBER OF RECORD
HOLDERS AS OF
TITLE OF CLASS DECEMBER 31, 1996
-------------- -----------------
<S> <C>
Class A Common Stock 365
Class A Common Stock -
Special Series 1 1300
Class A Common Stock -
Special Series 2 104
Class A Common Stock -
Special Series 3 0
Class A Common Stock -
Special Series 4 2
Class B Common Stock 1703
Class B Common Stock -
Special Series 1 2012
Class B Common Stock -
Special Series 2 398
Class B Common Stock -
Special Series 3 0
Class B Common Stock -
Special Series 4 4
Class D Common Stock 16712
Class D Common Stock -
Special Series 3 0
Class D Common Stock -
Special Series 5 2
Class E Common Stock 3842
Class E Common Stock -
Special Series 3 0
Class E Common Stock -
Special Series 5 2
Class F Common Stock 17551
Class F Common Stock -
Special Series 3 0
Class F Common Stock -
Special Series 5 3
Class G Common Stock 4149
Class G Common Stock -
Special Series 3 0
Class G Common Stock -
Special Series 5 1
Class H Common Stock 0
Class I Common Stock 155
Class I Common Stock -
Special Series 1 55
</TABLE>
13
<PAGE> 126
<TABLE>
<CAPTION>
NUMBER OF RECORD
HOLDERS AS OF
TITLE OF CLASS DECEMBER 31, 1996
-------------- -----------------
<S> <C>
Class I Common Stock -
Special Series 2 20
Class J Common Stock 240
Class J Common Stock -
Special Series 1 333
Class J Common Stock -
Special Series 2 5
Class J Common Stock -
Special Series 4 2
Class K Common Stock 64
Class K Common Stock -
Special Series 1 1578
Class K Common Stock -
Special Series 2 18
Class L Common Stock 121
Class L Common Stock -
Special Series 1 193
Class L Common Stock -
Special Series 2 49
Class M Common Stock 569
Class M Common Stock -
Special Series 3 0
Class M Common Stock -
Special Series 5 2
Class N Common Stock 9978
Class N Common Stock -
Special Series 3 0
Class N Common Stock -
Special Series 5 2
Class O Common Stock 2121
Class O Common Stock -
Special Series 3 0
Class O Common Stock -
Special Series 5 2
Class Q Common Stock 406
Class Q Common Stock -
Special Series 3 0
Class Q Common Stock -
Special Series 5 1
Class R Common Stock 0
Class R Common Stock -
Special Series 3 0
Class R Common Stock -
Special Series 5 0
Class S Common Stock 0
Class S Common Stock -
Special Series 3 0
Class S Common Stock -
Special Series 5 0
Class T Common Stock 327
Class T Common Stock -
Special Series 3 0
</TABLE>
14
<PAGE> 127
<TABLE>
<CAPTION>
NUMBER OF RECORD
HOLDERS AS OF
TITLE OF CLASS DECEMBER 31, 1996
-------------- -----------------
<S> <C>
Class T Common Stock -
Special Series 5 2
Class U Common Stock 6
Class U Common Stock -
Special Series 3 0
Class U Common Stock -
Special Series 5 0
Class V Common Stock 0
Class V Common Stock -
Special Series 3 0
Class V Common Stock -
Special Series 5 0
Class W Common Stock 2508
Class W Common Stock -
Special Series 3 0
Class W Common Stock -
Special Series 5 2
</TABLE>
ITEM 27. INDEMNIFICATION
Article VII, Section 3, of Registrant's Restated Articles of
Incorporation, incorporated herein by reference as Exhibit (1)(a) hereto, and
Article VI, Section 2, of Registrant's Amended and Restated By-Laws,
incorporated herein by reference as Exhibit (2)(a) hereto, provide for the
indemnification of Registrant's directors and officers. Indemnification of the
Fund's sub-adviser, principal underwriter, custodians, sub-custodians, transfer
agent and sub-transfer agent is provided for, respectively, in Section 8 of the
Sub-Advisory Agreement included herewith as Exhibit (5)(j), Article V of the
Amended and Restated Distribution Agreement, incorporated herein by reference as
Exhibit (6)(a), Article XV, Section 15 of the Custody Agreement incorporated
herein by reference as Exhibit (8)(a) hereto, Article XII, Section 14 of the
Sub-Custodian Agreement incorporated herein by reference as Exhibit (8)(i)
hereto, Article III, Section 4 of the Sub-Custodian Agreement incorporated
herein by reference as Exhibit (8)(j) hereto, Section 8 of the form of
Sub-Custody Agreement incorporated herein by reference as Exhibit (8)(k),
Article VII, Section 7, of the Transfer Agency Agreement incorporated herein by
reference as Exhibit (8)(g), and Article VI, Section 3, of the Cash Management
and Related Services Agreement incorporated herein by reference as Exhibit
(9)(c) hereto. Registrant has obtained from a major insurance carrier a
directors and officers' liability policy covering certain types of errors and
omissions. In no event will Registrant indemnify any of its directors, officers,
employees or agents against any liability to which such person would otherwise
be subject by reason of his willful misfeasance, bad faith or gross negligence
in the performance of his duties or by reason of his reckless disregard of the
duties involved in the conduct of his office or under his agreement with
Registrant. Registrant will comply with Rule 484 under the Securities Act of
1933 and
15
<PAGE> 128
Release 11330 under the Investment Company Act of 1940 in connection with any
indemnification.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
Registrant pursuant to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a director, officer or controlling person of Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 28. (a) BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Bank of America National Trust and Savings Association ("Bank of
America") performs investment advisory services for Registrant. Bank of America
and its predecessors have been in the business of managing the investments of
fiduciary and other accounts since 1904. In addition to its trust business, Bank
of America provides commercial and consumer banking services.
To the knowledge of Registrant, none of the directors or officers of
Bank of America, except those set forth below, is or has been, at any time
during the past two calendar years, engaged in any other business, profession,
vocation or employment of a substantial nature, except that certain directors
and officers of Bank of America also hold various positions with, and engage in
business for, BankAmerica Corporation, which owns all the outstanding stock of
Bank of America, or other subsidiaries of BankAmerica Corporation. Set forth
below are the names and principal businesses of the directors of Bank of America
and the directors and certain of the senior executive officers of Bank of
America who are engaged in any other business, profession, vocation or
employment of a substantial nature, other than with BankAmerica Corporation.
16
<PAGE> 129
<TABLE>
<CAPTION>
POSITION WITH
BANK OF AMERICA
NATIONAL TRUST
AND SAVINGS PRINCIPAL TYPE OF
ASSOCIATION NAME OCCUPATION BUSINESS
- --------------- ---- ---------- --------
<S> <C> <C> <C>
Director .......... Joseph F. Alibrandi Chairman of the Manufacturer of
Board and CEO, Aerospace and
Whittaker Communication
Corporation Products
Director .......... Jill Elikann Barad President and Chief Toy Manufacturer
Executive Officer, and Distributor
Mattel, Inc.
Director .......... Peter B. Bedford Chairman and CEO, California based
Bedford Property Real Estate
Investors, Inc. Investment
Trust
- -----
Director .......... Andrew F. Brimmer President, Consulting
Brimmer & Co., Inc.
Director .......... Richard A. Clarke Retired Chairman of Utility Company
the Board, Pacific
Gas and Electric
Company
Chairman .......... David A. Coulter Chairman of the Banking
Board, Chief
Executive Officer
and President, Bank
America Corporation
and Bank of
America National
Trust & Savings
Association
Director .......... Timm F. Crull Chairman, International
Hallmark Greeting Cards
Director .......... Kathleen Feldstein President, Economic
Economics Consulting
Studies, Inc.
Director .......... Donald E. Guinn Chairman Emeritus, Telecommuni-
Pacific Telesis cations and
Group Diversified
Holding Com-
pany
Director .......... Frank L. Hope, Jr. Consulting Architectural
Architect and Engineering
Consulting
Director .......... Ignacio E. Lozano, Chairman, Newspaper
Jr. "La Opinion" Publishing
Director .......... Walter E. Massey, President, Higher
Ph.D. Morehouse Education
College
</TABLE>
17
<PAGE> 130
<TABLE>
<CAPTION>
POSITION WITH
BANK OF AMERICA
NATIONAL TRUST
AND SAVINGS PRINCIPAL TYPE OF
ASSOCIATION NAME OCCUPATION BUSINESS
- --------------- ---- ---------- --------
<S> <C> <C> <C>
Director .......... John M. Richman Of Counsel, Law firm
Wachtell, Lipton,
Rosen & Katz
Director .......... Richard M. Rosenberg Retired; Chairman Banking
of the Board and
CEO, Bank America
Corporation and
Bank of America
National Trust &
Savings Association
Director .......... A. Michael Spence Dean of the Higher
Graduate School of Education
Business, Stanford
University
Director .......... Solomon D. Trujillo President and CEO, Telecommunica-
U.S. West tions
Communications
Group
</TABLE>
(b) BUSINESS AND OTHER CONNECTIONS OF SUB-ADVISER
Wellington Management Corporation, LLP, ("Wellington") is an investment
adviser registered under the Investment Advisers Act of 1940 (the "Advisers
Act").
The list required by this Item 28 of the partners of Wellington,
together with information as to any business profession, vocation or employment
of substantial nature engaged in by such partners during the past two years, is
incorporated herein by references to Schedules A and D of Form ADV filed by
Wellington pursuant to the Advisers Act (SEC File No. 801-15908).
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Principal underwriter (exclusive distributor) also acts as
principal underwriter or exclusive distributor for The Infinity Funds, Inc., The
Pilot Funds, Seafirst Retirement Funds and Time Horizon Funds.
(b) For information as to the business, profession, vocation or
employment of a substantial nature of each of the principal underwriter, its
officers and directors, reference is made to their Form BD File No. 8-37601
filed by the principal underwriter. For information, as to the positions or
offices of each of the principal underwriter, its officers and directors,
reference is made to the section entitled "Management" in the Statement of
Additional Information. Both the principal
18
<PAGE> 131
underwriter's Form BD and the Registrants Statements of Additional Information
are incorporated herein by reference.
(c) Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
(1) The BISYS Group, Inc., 150 Clove Road, Little Falls, New Jersey
07424 (records relating to the administrator).
(2) Concord Financial Group, Inc., 3435 Stelzer Road, Columbus, Ohio
43219 (records relating to the distributor).
(3) Concord Management (Ireland) Limited, Floor 2, Block 2, Harcourt
Centre, Dublin 2, Ireland (records relating to the administrator
for the Funds it services).
(4) Bank of America National Trust and Savings Association, 555
California Street, San Francisco, California 94104 (records
relating to the investment adviser).
(5) Wellington Management Company, LLP, 75 State Street, Boston,
Massachusetts 02109 (records relating to the investment
sub-adviser for the International Equity Fund)
(6) Bank of America National Trust and Savings Association, 555
California Street, San Francisco, California 94104 (records
relating to the Sub-Custodian for the Funds it services).
(7) The Bank of New York, 90 Washington Street, New York, New York
10286) (records relating to the custodian for the Funds it
services).
(8) BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus, Ohio 43219
(records relating to the transfer agent for the Funds it
services).
(9) Drinker Biddle & Reath, Philadelphia National Bank Building, 1345
Chestnut Street, Philadelphia, Pennsylvania 19107-3496
(Registrant's Charter, By-Laws and Minute Books).
(10) PNC Bank, National Association, 1600 Market Street, 28th Floor,
Philadelphia, PA 19103, (records relating to the custodian for the
Funds it services).
19
<PAGE> 132
(11) PFPC, Inc. 103 Bellevue Parkway, Wilmington, DE 19809, (records
relating to the sub-administrator for the Funds it services).
ITEM 31. MANAGEMENT SERVICES
Inapplicable.
ITEM 32. UNDERTAKINGS
Registrant hereby undertakes to comply with the provisions of Section
16(c) of the Investment Company Act of 1940, as amended, as though such
provisions were applicable to it.
Registrant hereby undertakes to furnish its Annual Report to
Shareholders upon request and without charge to any person to whom a prospectus
is delivered.
20
<PAGE> 133
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Amendment
to its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Philadelphia, and the Commonwealth of
Pennsylvania, on this 30th day of January, 1997.
PACIFIC HORIZON FUNDS, INC.
Registrant
*/Cornelius John Pings
------------------------------------
Cornelius John Pings
President
(Signature and Title)
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
*/Cornelius John Pings Chairman of the
- ------------------------- Board and President January 30, 1997
Cornelius John Pings
/s/ Kevin L. Martin Treasurer (Chief
- ------------------------- Accounting and
Kevin L. Martin Financial Officer) January 30, 1997
*/Thomas M. Collins Director January 30, 1997
- -------------------------
Thomas M. Collins
*/Douglas B. Fletcher Director January 30, 1997
- -------------------------
Douglas B. Fletcher
*/Robert E. Greeley Director January 30, 1997
- -------------------------
Robert E. Greeley
*/Kermit O. Hanson Director January 30, 1997
- -------------------------
Kermit O. Hanson
*By: /s/ W. Bruce McConnel, III
----------------------------------
W. Bruce McConnel, III
Attorney-in-fact
21
<PAGE> 134
PACIFIC HORIZON FUNDS, INC.
Certificate of Secretary
The following resolution was duly adopted by the Board of Directors of
Pacific Horizon Funds, Inc. on January 28, 1997 and remains in effect on the
date hereof:
FURTHER RESOLVED, that the directors and officers of Pacific
Horizon who may be required to execute any amendments to Pacific
Horizon's Registration Statement be, and each hereby is, authorized to
execute a power of attorney appointing W. Bruce McConnel, III and
Cornelius J. Pings their true and lawful attorney or attorneys, to
execute in their name, place and stead, in their capacity as director
or officer, or both, of Pacific Horizon any and all amendments to the
Registration Statement, and all instruments necessary or incidental in
connection therewith, and to file the same with the SEC; and either of
said attorneys shall have the power to act thereunder with or without
the other said attorney and shall have full power of substitution and
resubstitution; and to do in the name and on behalf of said directors
and officers, or any or all of them, in any and all capacities, every
act whatsoever requisite or necessary to be done in the premises, as
fully and to all intents and purposes as each of said directors or
officers, or any or all of them, might or could do in person, said acts
of said attorneys, being hereby ratified and approved.
IN WITNESS WHEREOF, I have hereunto set my hand this 28th day of
January, 1997.
PACIFIC HORIZON FUNDS, INC.
/s/ W. Bruce McConnel, III
-------------------------------
W. Bruce McConnel, III
Secretary
<PAGE> 135
PACIFIC HORIZON FUNDS, INC.
POWER OF ATTORNEY
Cornelius John Pings, whose signature appears below, does hereby
constitute and appoint W. Bruce McConnel, III, his true and lawful attorney and
agent, with power of substitution or resubstitution, to do any and all acts and
things and to execute any and all instruments which said attorney and agent may
deem necessary or advisable or which may be required to enable Pacific Horizon
Funds, Inc. (the "Fund"), to comply with the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
amendments (including post-effective amendments) to the Fund's Registration
Statement pursuant to said Acts, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a director and/or officer of the Fund any and
all such amendments filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney and agent
shall do or cause to be done by virtue hereof.
/s/ Cornelius John Pings
------------------------------
Cornelius John Pings
Date: December 6, 1995
<PAGE> 136
PACIFIC HORIZON FUNDS, INC.
POWER OF ATTORNEY
Thomas M. Collins, whose signature appears below, does hereby
constitute and appoint Cornelius John Pings and W. Bruce McConnel, III, and
either of them his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, or either of them, may
deem necessary or advisable or which may be required to enable Pacific Horizon
Funds, Inc. (the "Fund"), to comply with the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
amendments (including post-effective amendments) to the Fund's Registration
Statement pursuant to said Acts, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a director and/or officer of the Fund any and
all such amendments filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
/s/ Thomas M. Collins
------------------------------
Thomas M. Collins
Date: December 7, 1995
<PAGE> 137
PACIFIC HORIZON FUNDS, INC.
POWER OF ATTORNEY
Douglas, B. Fletcher, whose signature appears below, does hereby
constitute and appoint Cornelius John Pings and W. Bruce McConnel, III, and
either of them his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, or either of them, may
deem necessary or advisable or which may be required to enable Pacific Horizon
Funds, Inc. (the "Fund"), to comply with the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
amendments (including post-effective amendments) to the Fund's Registration
Statement pursuant to said Acts, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a director and/or officer of the Fund any and
all such amendments filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
/s/ Douglas B. Fletcher
------------------------------
Douglas B. Fletcher
Date: December 7, 1995
<PAGE> 138
PACIFIC HORIZON FUNDS, INC.
POWER OF ATTORNEY
Robert E. Greeley, whose signature appears below, does hereby
constitute and appoint Cornelius John Pings and W. Bruce McConnel, III, and
either of them his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, or either of them, may
deem necessary or advisable or which may be required to enable Pacific Horizon
Funds, Inc. (the "Fund"), to comply with the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
amendments (including post-effective amendments) to the Fund's Registration
Statement pursuant to said Acts, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a director and/or officer of the Fund any and
all such amendments filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
/s/ Robert E. Greeley
------------------------------
Robert E. Greeley
Date: December 7, 1995
<PAGE> 139
PACIFIC HORIZON FUNDS, INC.
POWER OF ATTORNEY
Kermit O. Hanson, whose signature appears below, does hereby constitute
and appoint Cornelius John Pings and W. Bruce McConnel, III, and either of them
his true and lawful attorneys and agents, with power of substitution or
resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorneys and agents, or either of them, may deem
necessary or advisable or which may be required to enable Pacific Horizon Funds,
Inc. (the "Fund"), to comply with the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
amendments (including post-effective amendments) to the Fund's Registration
Statement pursuant to said Acts, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a director and/or officer of the Fund any and
all such amendments filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
/s/ Kermit O. Hanson
------------------------------
Kermit O. Hanson
Date: December 6, 1995
<PAGE> 140
EXHIBIT INDEX
EXHIBITS
5(h) Investment Advisory Agreement dated as of September 1, 1996
between Registrant and Bank of America National Trust & Savings
Association with respect to the Corporate Bond Fund.
5(i) Amended and Restated Investment Advisory Agreement dated as of
January 1, 1997 between Registrant and Bank of America National
Trust & Savings Association with respect to the International
Equity Fund.
5(j) Sub-Investment Advisory Agreement dated as of January 1, 1997
between Bank of America National Trust & Savings Association and
Wellington Management Company, LLP with respect to the
International Equity Fund.
8(h) Amendment No. 1 to Transfer Agency Agreement between
Registrant and BISYS Fund Services, Inc.
9(a) Basic Administrative Services Agreement between Registrant and
The BISYS Group, Inc. (Money Market Funds) dated as of November
1, 1996.
9(b) Administration Agreement between Registrant and The BISYS Group,
Inc. (Non-Money Market Funds) dated as of November 1, 1996.
11(a) Consent of Drinker Biddle & Reath
11(b) Consent of Price Waterhouse, LLP
16(e) Schedule for Computation of Performance Quotations with Respect
to the Short-Term Government Fund.
17 Financial Data Schedule
<PAGE> 1
EXHIBIT 5(h)
INVESTMENT ADVISORY AGREEMENT
(CORPORATE BOND FUND)
THIS AGREEMENT is made as of September 1, 1996 between Pacific Horizon
Funds, Inc., a Maryland corporation (the "Company"), and Bank of America
National Trust and Savings Association (the "Advisor").
WHEREAS, the Company is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Company desires to retain the Adviser to
furnish investment advisory services to the Company;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT.
(a) The Company hereby appoints the Adviser to act as
investment adviser to the Corporate Bond Fund (the "Fund") for the period and on
the terms set forth in this Agreement. The Adviser accepts such appointment and
agrees to furnish the services herein set forth for the compensation herein
provided.
(b) In the event that the Company establishes one or more
investment portfolios other than the Fund with respect to which it desires to
retain the Adviser to act as investment adviser hereunder, it shall notify the
Adviser in writing. If the Adviser is willing to render such services under this
Agreement it shall so notify the Company in writing, whereupon such investment
portfolio shall become a "Fund" (as defined below) hereunder and shall be
subject to the provisions of this Agreement to the same extent as the Fund
except to the extent that said provisions (including those relating to the
compensation payable by the Fund to the Adviser) are modified with respect to
such Fund in writing by the Company and the Adviser at the time. The Fund and
any additional investment portfolio added hereunder in accordance with this
paragraph are sometimes collectively referred to herein as the "Funds" and
individually as a "Fund."
2. SERVICES. Subject to the supervision of the Company's
Board of Directors (the "Board"), the Adviser, in consultation
with any Sub-Adviser appointed pursuant to Section 3 hereof with
respect to a particular Fund, will provide a continuous
investment program for each of the Funds, including investment
research and management with respect to all securities and
<PAGE> 2
investments and cash equivalents in the Funds. The Adviser will determine from
time to time what securities and other investments will be purchased, retained
or sold by the Company with respect to each Fund. The Adviser will provide the
services under this Agreement in accordance with each Fund's investment
objective, policies and restrictions as stated in the Fund's registration
statement, as from time to time amended, and resolutions of the Board. The
Adviser further agrees that it:
(a) Will conform with all applicable rules and regulations of
the Securities and Exchange Commission and will in addition conduct its
activities under this Agreement in accordance with other applicable law,
including but not limited to banking law.
(b) Will review, monitor and report to the Board of Directors
regarding the performance and investment procedures of any Sub-Adviser.
(c) Will assist and consult with any Sub-Adviser appointed
with respect to a particular Fund in connection with that Fund's continuous
investment program.
(d) Will place all orders for the purchase and sale of
portfolio securities for the account of each Fund with brokers or dealers
selected by the Adviser. In executing portfolio transactions and selecting
brokers or dealers, the Adviser will use its best efforts to seek on behalf of
the Company and each Fund the best overall terms available. In assessing the
best overall terms available for any transaction the Adviser shall consider all
factors it deems relevant, including the breadth of the market in the security,
the price of the security, the financial condition and execution capability of
the broker or dealer, and the reasonableness of the commission, if any, both for
the specific transaction and on a continuing basis. In evaluating the best
overall terms available, and in selecting the broker or dealer to execute a
particular transaction, the Adviser may also consider the brokerage and research
services (as those terms are defined in Section 28(e) of the Securities Exchange
Act of 1934, as amended) provided to any Fund and/or other accounts over which
the Adviser or any affiliate of the Adviser exercises investment discretion. The
Adviser is authorized, subject to the prior approval of the Board, to pay to a
broker or dealer who provides such brokerage and research services a commission
for executing a portfolio transaction for any Fund which is in excess of the
amount of commission another broker or dealer would have charged for effecting
that transaction if, but only if, the Adviser determines in good faith that such
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer viewed in terms of that particular
transaction or in terms of the overall responsibilities of the Adviser to the
particular Fund and to the
<PAGE> 3
Company. In no instance will portfolio securities be purchased from or sold to
the Adviser, any Sub-Adviser or Concord Holding Corporation, the Company's
administrator (the "Administrator"), or an affiliated person of any of them
acting as principal or as broker, except as permitted by law. In executing
portfolio transactions for any Fund, the Adviser may, but shall not be obligated
to, to the extent permitted by applicable laws and regulations, aggregate the
securities to be sold or purchased with those of other Funds and its other
clients where such aggregation is not inconsistent with the policies set forth
in the Company's registration statement. In such event, the Adviser will
allocate the securities so purchased or sold, and the expenses incurred in the
transaction, in the manner it considers to be the most equitable and consistent
with its fiduciary obligations to the Funds and such other clients.
In performing the investment services for the Funds, the Adviser is
authorized to purchase, sell or otherwise deal with securities or other
instruments for which (a) Bank of America National Trust and Savings
Association, (b) any affiliate of Bank of America National Trust and Savings
Association, (c) an entity in which Bank of America National Trust and Savings
Association has a direct or indirect interest, or (d) another member of a
syndicate or other intermediary (where an entity referred to in (a), (b) or (c)
above was a member of the syndicate), has acted, now acts or in the future will
act as an underwriter, syndicate member, market-maker, dealer, broker or in any
other similar capacity, whether the purchase, sale or other dealing occurs
during the life of the syndicate or after the close of the syndicate, provided
such purchase, sale or dealing is permitted under the 1940 Act and the rules
thereunder. Insofar, as permitted by law any rules of or under applicable law
prohibiting or restricting in any way an agent or fiduciary from dealing with
itself or from dealing with respect to any matter in which it may or does have
personal interest shall not apply to the Adviser, to the extent its actions are
authorized under this paragraph.
(e) Will maintain all books and records with respect to the
securities transactions of the Funds, keep books of account with respect to such
Funds and furnish the Board such periodic special reports as the Board may
request.
(f) Will maintain a policy and practice of conducting its
investment advisory operations independently of its commercial banking
operations. When the Adviser makes investment recommendations for a Fund, its
investment advisory personnel will not inquire or take into consideration
whether the issuer of securities proposed for purchase or sale for the Fund's
account are customers of its commercial department. In dealing with commercial
customers, the Adviser's commercial department will not inquire or take into
consideration whether securities of those customers are held by the Funds.
<PAGE> 4
(g) Will treat confidentially and as proprietary information
of the Company all records and other information relative to the Company and
prior or present Company shareholders or those persons or entities who respond
to inquiries concerning investment in the Company, and will not use such records
and information for any purpose other than the performance of its
responsibilities and duties hereunder or under any other agreement with the
Company except after prior notification to and approval in writing by the
Company, which approval shall not be unreasonably withheld and may not be
withheld where the Adviser may be exposed to civil or criminal contempt
proceedings for failure to comply, when requested to divulge such information by
duly constituted authorities, or when so requested by the Company. Nothing
contained herein, however, shall prohibit the Adviser from advertising to or
soliciting the public generally with respect to other products or services,
including, but not limited to, any advertising or marketing via radio,
television, newspapers, magazines or direct mail solicitation, regardless of
whether such advertisement or solicitation may coincidentally include prior or
present Company shareholders or those persons or entities who have responded to
inquiries regarding the Company.
3. SUB-ADVISER. It is understood that the Adviser may from time to time
employ or associate with itself such person or persons as the Adviser believes
to be fitted to assist it in the performance of this Agreement (each a
"Sub-Adviser"); provided, however, that the compensation of such person or
persons shall be paid by the Adviser and that the Adviser shall be as fully
responsible to the Company for the acts and omissions of any such person as it
is for its own acts and omissions; and provided further, that the retention of
any Sub-Adviser shall be approved as may be required by the 1940 Act.
4. SERVICES NOT EXCLUSIVE. The Adviser will for all purposes herein be
deemed to be an independent contractor and will, unless otherwise expressly
provided herein or authorized by the Board from time to time, have no authority
to act for or represent the Company in any way or otherwise be deemed its agent.
The investment management services furnished by the Adviser hereunder are not
deemed exclusive, and the Adviser will be free to furnish similar services to
others so long as its services under this Agreement are not impaired thereby.
5. BOOKS AND RECORDS. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Adviser hereby agrees that all records which it
maintains for the Company are the property of the Company and further agrees to
surrender promptly to the Company any such records upon the Company's request.
The Adviser further agrees to preserve for the periods prescribed by Rule 31a-2
under the 1940 Act the records required to be maintained by Rule 31a-3 under the
1940 Act.
<PAGE> 5
6. EXPENSES. During the term of this Agreement, the Adviser will pay
all expenses incurred by it in connection with its activities under this
Agreement other than the cost of securities (including brokerage commissions, if
any) purchased for the Company.
7. COMPENSATION. For the services provided and the expenses assumed
pursuant to this Agreement, the Company will pay the Adviser and the Adviser
will accept as full compensation therefor a fee, computed daily and paid monthly
(in arrears), at an annual rate of .45% of the average net assets of the Fund.
Such fee as is attributable to a Fund will be a separate charge to each such
Fund and will be the several (and not joint or joint and several) obligation of
each such Fund.
If in any fiscal year the aggregate expenses of any Fund (as
defined under the securities regulations of any state having jurisdiction over
the Fund) exceed the expense limitations of any such state, the Adviser will
reimburse the Fund to the extent necessary to reduce such Fund's expenses below
such expense limitation. The obligation of the Adviser to reimburse any Fund
hereunder is limited in any fiscal year to the amount of its fee hereunder for
such fiscal year with respect to such Fund; provided, however, that
notwithstanding the foregoing, the Adviser will reimburse any Fund for excess
expenses regardless of the amount of fees paid to it during such fiscal year to
the extent that the securities regulations of any state having jurisdiction over
the Fund so require. Such expense reimbursement, if any, will be estimated and
accrued daily and paid on a monthly basis.
8. LIMITATION OF LIABILITY. Subject to the provisions of Section 3
hereof concerning the Adviser's responsibility for the acts and omissions of
persons employed by or associated with the Adviser, the Adviser will not be
liable for any error of judgement or mistake of law or for any loss suffered by
the Company in connection with the performance of this Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith or negligence on the part of the Adviser in the performance of its duties
or from reckless disregard by it of its obligations and duties under this
Agreement.
9. DURATION AND TERMINATION. This Agreement will become effective with
respect to the Fund on the date first written above. This Agreement will become
effective with respect to any additional Fund on the date of receipt by the
Company of notice from the Adviser in accordance with Section 1(b) hereof that
the Adviser is willing to serve as investment adviser with respect to such Fund,
provided that this Agreement (as supplemented by the terms specified in any
notice and agreement pursuant to Section
<PAGE> 6
1(b) hereof) shall have been approved by the shareholders of the Fund in
accordance with the requirements of the 1940 Act.
Unless sooner terminated as provided herein, this Agreement will
continue in effect until October 31, 1996. Thereafter, if not terminated, this
Agreement shall continue in effect as to a particular Fund for successive annual
periods, provided such continuance is specifically approved at least annually
(a) by the vote of a majority of those members of the Board who are not
interested persons of any party to this Agreement, cast in person at a meeting
called for the purpose of voting on such approval, and (b) by the Board or by
vote of a majority of the outstanding voting securities of such Fund.
Notwithstanding the foregoing, this Agreement may be terminated as to any Fund
at any time, without the payment of any penalty, by the Company (by vote of the
Board or by vote of a majority of the outstanding voting securities of such
Fund), or by the Adviser, on sixty days' written notice. This Agreement will
immediately terminate in the event of its assignment. (As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"interested persons" and "assignment" shall have the same meaning as the meaning
of such terms in the 1940 Act.)
10. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought. No amendment of this Agreement will be
effective as to a particular Fund until approved by vote of a majority of the
outstanding voting securities of such Fund.
11. NOTICES. Notices of any kind to be given to the Adviser hereunder
by the Company will be in writing and will be duly given if mailed or delivered
to the Adviser at 555 South Flower Street, 5th Floor, Los Angeles, California
90071, Attention: Sandra C. Brown, or at such other address or to such
individual as will be so specified by the Adviser to the Company. Notices of any
kind to be given to the Company hereunder by the Adviser will be in writing and
will be duly given if mailed or delivered to the Company at 3435 Stelzer Road,
Columbus, Ohio 43219, Attention: J. David Huber (with a copy to Association of
American Universities, One DuPont Circle, Suite 730, Washington, DC 20036,
Attention: Cornelius J. Pings, President), or at such other address or to such
individual as will be so specified by the Company to the Adviser.
12. MISCELLANEOUS. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement will not be affected
<PAGE> 7
thereby. This Agreement will be binding upon and will inure to the benefit of
the parties hereto and their respective successors and will be governed by the
internal laws, and not the law of conflicts, of the State of Maryland; provided
that nothing herein will be construed in a manner inconsistent with the 1940
Act, the Investment Advisers Act of 1940, as amended, or any rule or regulation
of the Securities and Exchange Commission thereunder. This Agreement may be
executed in two or more parts which together shall constitute a single
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
PACIFIC HORIZON FUNDS, INC.
By: /s/ Cornelius J. Pings
----------------------------------
Name:Cornelius J. Pings
Title:President
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATIONS
By: /s/ Kirk D. Hartman
----------------------------------
Name: Kirk D. Hartman
Title: Chief Investment Officer
<PAGE> 1
EXHIBIT 5(i)
AMENDED AND RESTATED
INVESTMENT ADVISORY AGREEMENT
(INTERNATIONAL EQUITY FUND)
THIS AGREEMENT is made as of January 1, 1997 between PACIFIC HORIZON
FUNDS, INC., a Maryland corporation (herein called the "Company"), and Bank of
America National Trust and Savings Association (the "Adviser").
WHEREAS, the Company is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Company desires to retain the Adviser to furnish
investment advisory services to the Company's International Equity Fund (the
"Fund");
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT.
(a) The Company hereby appoints the Adviser to act as
investment adviser to the Fund for the period and on the terms set forth in this
Agreement. The Adviser accepts such appointment and agrees to furnish the
services herein set forth for the compensation herein provided. The Adviser may,
in its discretion, provide such services through its own employees or the
employees of one or more affiliated companies that are qualified to act as
investment adviser to the Company under applicable law and are under the common
control of BankAmerica Corporation provided (i) that all persons, when providing
services hereunder, are functioning as part of an organized group of persons,
and (ii) that such organized group of persons is managed at all times by
authorized officers of the Adviser.
(b) In the event that the Company establishes one or more
investment portfolios other than the Fund with respect to which it desires to
retain the Adviser to act as investment adviser hereunder, it shall notify the
Adviser in writing. If the Adviser is willing to render such services under this
Agreement it shall so notify the Company in writing whereupon such investment
portfolio shall become a "Fund" hereunder and shall be subject to the provisions
of this Agreement to the same extent as the Fund except to the extent that said
provisions (including those relating to the compensation payable by the Fund to
the Adviser) are modified with respect to such Fund in writing by the Company
and the Adviser at the time. The Fund and any additional investment portfolios
established hereunder in accordance with this paragraph are sometimes
collectively referred to herein as the "Funds" and individually as a "Fund."
<PAGE> 2
2. SERVICES. Subject to the supervision of the Company's Board of
Directors (the "Board"), the Adviser, in consultation with any Sub-Adviser
appointed pursuant to Section 3 hereof with respect to a particular Fund, will
provide a continuous investment program for each of the Funds, including
investment research and management with respect to all securities and
investments and cash equivalents in the Funds. The Adviser will determine from
time to time what securities and other investments will be purchased, retained
or sold by the Company with respect to each Fund. The Adviser will provide the
services under this Agreement in accordance with each Fund's investment
objective, policies and restrictions as stated in the Fund's registration
statement, as from time to time amended, and resolutions of the Board. The
Adviser further agrees that it:
(a) Will conform with all applicable rules and regulations of
the Securities and Exchange Commission and will in addition conduct its
activities under this Agreement in accordance with other applicable law,
including but not limited to banking law.
(b) Will review, monitor and report to the Board of Directors
regarding the performance and investment procedures of any Sub-Adviser (as
defined in Section 3 of this Agreement).
(c) Will assist and consult with any Sub-Adviser appointed
with respect to a particular Fund in connection with that Fund's continuous
investment program (as defined in Section 3 of this Agreement).
(d) Will place all orders for the purchase and sale of
portfolio securities for the account of each Fund with brokers or dealers
selected by the Adviser. In executing portfolio transactions and selecting
brokers or dealers, the Adviser will use its best efforts to seek on behalf of
the Company and each Fund the best overall terms available. In assessing the
best overall terms available for any transaction the Adviser shall consider all
factors it deems relevant, including the breadth of the market in the security,
the price of the security, the financial condition and execution capability of
the broker or dealer, and the reasonableness of the commission, if any, both for
the specific transaction and on a continuing basis. In evaluating the best
overall terms available, and in selecting the broker or dealer to execute a
particular transaction, the Adviser may also consider the brokerage and research
services (as those terms are defined in Section 28(e) of the Securities Exchange
Act of 1934, as amended) provided to any Fund and/or other accounts over which
the Adviser or any affiliate of the Adviser exercises investment discretion. The
Adviser is authorized, subject to the prior approval of the Board, to pay to a
broker or dealer who provides such brokerage and research services a commission
for executing a portfolio transaction for any Fund which is in excess of the
-2-
<PAGE> 3
amount of commission another broker or dealer would have charged for effecting
that transaction if, but only if, the Adviser determines in good faith that such
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer viewed in terms of that particular
transaction or in terms of the overall responsibilities of the Adviser to the
particular Fund and to the Company. No prior approval by the Board, however,
shall be required so long as the broker or dealer selected by the Adviser
obtains best price and execution on a particular transaction. In no instance
will portfolio securities be purchased from or sold to the Adviser, any
Sub-Adviser or Concord Holding Corporation, the Company's administrator (the
"Administrator"), or an affiliated person of any of them acting as principal or
as broker, except as permitted by law. In executing portfolio transactions for
any Fund, the Adviser may, but shall not be obligated to, to the extent
permitted by applicable laws and regulations, aggregate the securities to be
sold or purchased with those of other Funds and its other clients where such
aggregation is not inconsistent with the policies set forth in the Company's
registration statement. In such event, the Adviser will allocate the securities
so purchased or sold, and the expenses incurred in the transaction, in the
manner it considers to be the most equitable and consistent with its fiduciary
obligations to the Funds and such other clients.
In performing the investment advisory services hereunder, the Adviser
is authorized to purchase, sell or otherwise deal with securities or other
instruments for which (a) Bank of America National Trust and Savings
Association, (b) any affiliate of Bank of America National Trust and Savings
Association, (c) an entity in which Bank of America National Trust and Savings
Association has a direct or indirect interest, or (d) another member of a
syndicate or other intermediary (where an entity referred to in (a), (b) or (c)
above was a member of the syndicate), has acted, now acts or in the future will
act as an underwriter, syndicate member, market-maker, dealer, broker or in any
other similar capacity, whether the purchase, sale or other dealing occurs
during the life of the syndicate or after the close of the syndicate, provided
such purchase, sale or dealing is permitted under the 1940 Act and the rules
thereunder. Insofar as permitted by law any rules of or under applicable law
prohibiting or restricting in any way an agent or fiduciary from dealing with
itself or from dealing with respect to any matter in which it may or does have a
personal interest shall not apply to the Adviser, to the extent its actions are
authorized under this paragraph.
(e) Will maintain all books and records with respect to the
securities transactions for the Funds, keep books of account with respect to
such Funds and furnish the Board such periodic special reports as the Board may
request.
-3-
<PAGE> 4
(f) Will maintain a policy and practice of conducting its
investment advisory operations independently of its commercial banking
operations. When the Adviser makes investment recommendations for a Fund, its
investment advisory personnel will not inquire or take into consideration
whether the issuer of securities proposed for purchase or sale for the Fund's
account are customers of its commercial department. In dealing with commercial
customers, the Adviser's commercial department will not inquire or take into
consideration whether securities of those customers are held by the Funds.
(g) Will treat confidentially and as proprietary information
of the Company all records and other information relative to the Company and
prior or present Company shareholders or those persons or entities who respond
to inquiries concerning investment in the Company, and will not use such records
and information for any purpose other than performance of its responsibilities
and duties hereunder or under any other agreement with the Company except after
prior notification to and approval in writing by the Company, which approval
shall not be unreasonably withheld and may not be withheld where the Adviser may
be exposed to civil or criminal contempt proceedings for failure to comply, when
requested to divulge such information by duly constituted authorities, or when
so requested by the Company. Nothing contained herein, however, shall prohibit
the Adviser from advertising to or soliciting the public generally with respect
to other products or services, including, but not limited to, any advertising or
marketing via radio, television, newspapers, magazines or direct mail
solicitation, regardless of whether such advertisement or solicitation may
coincidentally include prior or present Company shareholders or those persons or
entities who have responded to inquiries regarding the Company.
3. SUB-ADVISER. It is understood that the Adviser may from time to time
employ or associate with itself such person or persons as the Adviser believes
to be fitted to assist it in the performance of this Agreement (each a
"Sub-Adviser"); provided, however, that the compensation of such person or
persons shall be paid by the Adviser and that the Adviser shall be as fully
responsible to the Company for the acts and omissions of any such person as it
is for its own acts and omissions; and provided further, that the retention of
any Sub-Adviser shall be approved as may be required by the 1940 Act.
Notwithstanding any such employment or association, the Adviser shall itself (a)
establish and monitor general investment criteria and policies for the Fund, (b)
review and analyze on a periodic basis the Fund's portfolio holdings and
transactions in order to determine their appropriateness in light of the Fund's
shareholder base, and (c) review and analyze on a periodic basis the policies
established by any Sub-Adviser for the Fund with respect to the placement of
orders for the purchase and sale of portfolio securities. In the event that any
Sub-Adviser appointed hereunder is terminated, the
-4-
<PAGE> 5
Adviser may provide investment advisory services pursuant to this Agreement to
the Funds without further shareholder approval.
4. SERVICES NOT EXCLUSIVE. The Adviser will for all purposes herein be
deemed to be an independent contractor and will, unless otherwise expressly
provided herein or authorized by the Board from time to time, have no authority
to act for or represent the Company in any way or otherwise be deemed its agent.
The investment management services furnished by the Adviser hereunder are not
deemed exclusive, and the Adviser will be free to furnish similar services to
others so long as its services under this Agreement are not impaired thereby.
5. BOOKS AND RECORDS. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Adviser hereby agrees that all records which it
maintains for the Company are the property of the Company and further agrees to
surrender promptly to the Company any such records upon the Company's request.
The Adviser further agrees to preserve for the periods prescribed by Rule 31a-2
under the 1940 Act the records required to be maintained by Rule 31-1 under the
1940 Act.
6. EXPENSES. During the term of this Agreement, the Adviser will pay
all expenses incurred by it in connection with its activities under the
Agreement other than the cost of securities (including brokerage commissions, if
any) purchased for the Company.
7. COMPENSATION. For the services provided and the expenses assumed
pursuant to this Agreement, the Company will pay the Adviser and the Adviser
will accept as full compensation therefor a fee, computed daily and paid monthly
(in arrears), at an annual rate of .75% of the net assets of the International
Equity Fund. Such fee as is attributable to a Fund will be a separate charge to
each such Fund and will be the several (and not joint or joint and several)
obligation of each such Fund.
If in any fiscal year the aggregate expenses of any Fund (as defined
under the securities regulations of any state having jurisdiction over the Fund)
exceed the expense limitations of any such state, the Adviser will reimburse the
Fund to the extent necessary to reduce such Fund's expenses below such expense
limitation. The obligation of the Adviser to reimburse any Fund hereunder is
limited in any fiscal year to the amount of its fee hereunder for such fiscal
year with respect to such Fund; provided, however, that notwithstanding the
foregoing, the Adviser will reimburse any Fund for excess expenses regardless of
the amount of fees paid to it during such fiscal year to the extent that the
securities regulations of any state having jurisdiction over the Fund so
require. Such expense reimbursement, if any, will be estimated and accrued daily
and paid on a monthly basis.
-5-
<PAGE> 6
8. LIMITATION OF LIABILITY. Subject to the provisions of Section 3
hereof concerning the Adviser's responsibility for the acts and omissions of
persons employed by or associated with the Adviser, the Adviser will not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Company in connection with the performance of this Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith or negligence on the part of the Adviser in the performance of its duties
or from reckless disregard by it of its obligations and duties under this
Agreement.
9. DURATION AND TERMINATION. This Agreement will become effective with
respect to the International Equity Fund as of the date first above written,
provided that the shareholders of such Fund have previously approved the
Agreement in accordance with the requirements of the 1940 Act. This Agreement
will become effective with respect to any additional Fund on the date of receipt
by the Company of notice from the Adviser in accordance with Section 1(b) hereof
that the Adviser is willing to serve as investment adviser with respect to such
Fund, provided that this Agreement (as supplemented by the terms specified in
any notice and agreement pursuant to Section 1(b) hereof) shall have been
approved by the shareholders of such Fund in accordance with the requirements of
the 1940 Act.
Unless sooner terminated as provided herein, this Agreement will
continue in effect until October 31, 1997. Thereafter, if not terminated, this
Agreement shall continue in effect as to a particular Fund for successive annual
periods, provided such continuance is specifically approved at least annually
(a) by the vote of a majority of those members of the Board who are not
interested persons of any party to this Agreement, cast in person at a meeting
called for the purpose of voting on such approval, and (b) by the Board or by
vote of a majority of the outstanding voting securities of such Fund.
Notwithstanding the foregoing, this Agreement may be terminated as to any Fund
at any time, without the payment of any penalty, by the Company (by vote of the
Board or by vote of a majority of the outstanding voting securities of such
Fund), or by the Adviser, on sixty days' written notice. This Agreement will
immediately terminate in the event of its assignment. (As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"interested persons" and "assignment" shall have the same meaning as the meaning
of such terms in the 1940 Act.)
10. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought. No amendment of this Agreement will be
effective as to
-6-
<PAGE> 7
a particular Fund until approved by vote of a majority of the outstanding voting
securities of such Fund.
11. NOTICES. Notices of any kind to be given to the Adviser hereunder
by the Company will be in writing and will be duly given if mailed or delivered
to the Adviser at 555 South Flower Street, 5th Floor, Los Angeles, California
90071, Attention: Sandra C. Brown, or at such other address or to such
individuals as will be so specified by the Adviser to the Company. Notices of
any kind to be given to the Company hereunder by the Adviser will be in writing
and will be duly given if mailed or delivered to the Company at 3435 Stelzer
Road, Columbus, Ohio 43219, Attention: J. David Huber (with a copy to
Association of American Universities, One DuPont Circle, Suite 730, Washington,
DC 20036, Attention: Cornelius J. Pings, President), or at such other address or
to such individual as will be so specified by the Company to the Adviser.
12. MISCELLANEOUS. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement will not be affected
thereby. This Agreement will be binding upon and will inure to the benefit of
the parties hereto and their respective successors and will be governed by the
internal laws, and not the law of conflicts, of the State of Maryland; provided
that nothing herein will be construed in a manner inconsistent with the 1940
Act, the Investment Advisers Act of 1940, as amended, or any rule or regulation
of the Securities and Exchange Commission thereunder. This Agreement may be
executed in two or more parts which together shall constitute a single
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
PACIFIC HORIZON FUNDS, INC.
By: /s/ Cornelius J. Pings
-----------------------------------
Name: Cornelius J. Pings
Title: President
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By: /s/ Kirk D. Hartman
-----------------------------------
Name: Kirk D. Hartman
Title: Chief Investment Officer
-7-
<PAGE> 1
EXHIBIT 5(j)
SUB-ADVISORY AGREEMENT
AGREEMENT made as of January 1, 1997 between Bank of America National
Trust and Savings Association, a national banking association (herein called the
"Adviser"), and Wellington Management Company, LLP, a Massachusetts limited
liability partnership (herein called the "Sub-Adviser").
WHEREAS, Pacific Horizon Funds, Inc., a Maryland corporation
(hereinafter called the "Company"), is registered as an open-end, management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, pursuant to an Investment Advisory Agreement dated as of July
30, 1996 (hereinafter called the "Investment Advisory Agreement"), by and
between the Company and the Adviser, the Adviser has agreed to furnish
investment advisory services to the Company with respect to its International
Equity Fund (the "Fund"); and
WHEREAS, the Investment Advisory Agreement specifically authorizes the
Adviser to sub-contract investment advisory services on behalf of the Fund to a
sub-adviser pursuant to a sub-advisory agreement agreeable to the Company and
approved in accordance with the provisions of the 1940 Act; and
WHEREAS, the Board of Directors of the Company and the shareholders of
the Fund approved this Agreement, and the Sub- Adviser is willing to furnish
such services upon the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained and intending to be legally bound hereby, it is agreed between
the parties hereto as follows:
1. APPOINTMENT.
The Adviser hereby appoints the Sub-Adviser to act as sub- investment
adviser with respect to the Fund, for the period and on the terms set forth in
this Agreement. The Sub-Adviser accepts such appointment and agrees to furnish
the services herein set forth for the compensation herein provided.
2. SERVICES OF SUB-ADVISER.
Subject to the oversight and supervision of the Adviser and the
Company's Board of Directors, the Sub-Adviser will provide a continuous
investment program for the Fund, including investment research and management
with respect to all securities and investments and cash equivalents in the Fund.
The Sub-Adviser will determine from time to time what securities and other
<PAGE> 2
investments will be purchased, retained or sold by the Fund. The Sub-Adviser
will provide the services rendered by it under this Agreement in accordance with
the investment criteria and policies established from time to time for the Fund
by the Adviser, the investment objective, policies and restrictions as stated in
the Company's currently effective Registration Statement with respect to the
Fund, and resolutions of the Company's Board of Directors. Without limiting the
generality of the foregoing, the Sub-Adviser further agrees that it will
maintain such books and records regarding the securities transactions with
respect to the Fund as may be required or otherwise requested by the Company and
its Board of Directors and the Sub-Adviser will also supply the Company and its
Board of Directors with reports, statistical data and economic information as
requested.
3. OTHER COVENANTS.
The Sub-Adviser agrees that it:
(a) will conform with all applicable Rules and Regulations of
the Securities and Exchange Commission and will in addition conduct its
activities under this Agreement in accordance with other applicable law;
(b) will use the same skill and care in providing services
under this Agreement as it uses in providing services to fiduciary accounts for
which it has investment responsibilities;
(c) will place orders pursuant to its investment
determinations with respect to the Fund with brokers or dealers in accordance
with the policy set forth in the Fund's Registration Statement or as the Adviser
or Board of Directors may direct from time to time. In executing portfolio
transactions and selecting brokers or dealers, the Sub-Adviser will use its best
efforts to seek on behalf of the Fund the best overall terms available. In
assessing the best overall terms available for any transaction, the Sub-Adviser
shall consider all factors that it deems relevant, including the breadth of the
market in the security, the price of the security, the financial condition and
execution capability of the broker or dealer, and the reasonableness of the
commission, if any, both for specific transactions and on a continuing basis. In
evaluating the best overall terms available, and in selecting the broker-dealer
to execute a particular transaction, the Sub-Adviser may also consider the
brokerage and research services (as those terms are defined in Section 28(e) of
the Securities Exchange Act of 1934, as amended) provided with respect to the
Fund, other investment portfolios or other accounts over which the Sub-Adviser
or an affiliate of the Sub-Adviser exercises investment discretion. The
Sub-Adviser is authorized, subject to the prior approval of the Adviser and the
Company's Board of Directors, to pay to a broker or dealer who provides such
brokerage and research
-2-
<PAGE> 3
services a commission for executing a portfolio transaction with respect to the
Fund that is in excess of the amount of commission another broker or dealer
would have charged for effecting that transaction if, but only if, the
Sub-Adviser determines in good faith that such commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker or dealer -- viewed in terms of that particular transaction or in terms
of the overall responsibilities of the Sub-Adviser to the Fund and to the
Company. No prior approval by the Adviser or the Company's Board of Directors,
however, shall be required so long as the broker or dealer selected by the Sub-
Adviser obtains best price and execution on a particular transaction. In no
instance will portfolio securities be purchased from or sold to the Adviser, the
Sub-Adviser, or Concord Holding Corporation, or any affiliated person of the
Adviser, the Sub-Adviser, or Concord Holding Corporation acting as principal or
broker, except as permitted by law. In executing portfolio transactions with
respect to the Fund, the Sub-Adviser may, but is not obligated to, to the extent
permitted by applicable laws and regulations, aggregate the securities to be
sold or purchased with those of its other clients where such aggregation is not
inconsistent with the policies set forth in the Company's currently effective
Registration Statement. In such event the Sub-Adviser will allocate the
securities so purchased or sold, and the expenses incurred in the transaction,
in the manner it considers to be most equitable and consistent with its
fiduciary obligations to the Fund, such other portfolios and such other clients.
(d) will treat confidentially and as proprietary information
of the Company all records and other information relative to the Company and
prior or present Company shareholders ("Investors") or those persons or entities
who respond to inquiries concerning investment in the Company, and will not use
such records and information for any purpose other than performance of its
responsibilities and duties hereunder or under any other agreement with the
Company except after prior notification to and approval in writing by the
Company, which approval shall not be unreasonably withheld and may not be
withheld where the Sub-Adviser may be exposed to civil or criminal contempt
proceedings for failure to comply, when requested to divulge such information by
duly constituted authorities, or when so requested by the Company. Nothing
contained herein, however, shall prohibit the Sub-Adviser from advertising to or
soliciting the public generally with respect to other procedures or services,
including but not limited to, any advertising or marketing via radio,
television, newspapers, magazines or direct mail solicitation, regardless of
whether such advertisement or solicitation may coincidentally include prior or
present Investors or those persons or entities who have responded to inquiries
regarding the Company.
-3-
<PAGE> 4
(e) will not purchase any securities from or sell any
securities to the Adviser, the Company's administrator or either of their
affiliates on behalf of the Fund except as permitted by law. Nothing in this
subsection shall in any way prohibit the Sub-Adviser or any of its affiliates
from purchasing securities from, selling securities to or engaging in any other
financial transactions with the Adviser or any of its affiliates on behalf of
any other accounts managed by the Sub-Adviser.
(f) will provide the Fund's Custodian on each business day
with information relating to all transactions concerning the Fund's assets and
shall provide the Adviser with such information upon request.
(g) on a monthly basis, will provide information regarding
investment strategy to be employed by the Sub-Adviser on behalf of the Fund and
information regarding the Fund's performance against its benchmark and will
provide such other information as the Adviser may reasonably request from time
to time.
4. SERVICES NOT EXCLUSIVE.
The services furnished by the Sub-Adviser hereunder are deemed not to
be exclusive, and the Sub-Adviser shall be free to furnish similar services to
others so long as its services under this Agreement are not impaired thereby.
The Sub-Adviser will for all purposes herein be deemed to be an independent
contractor and will, unless otherwise expressly authorized by the Board from
time to time, have no authority to act for or represent the Company or the
Adviser in any way or otherwise be deemed their agent.
5. BOOKS AND RECORDS.
In compliance with the requirements of Rule 31a-3 under the 1940 Act,
the Sub-Adviser hereby agrees that all records that it maintains with respect to
the Fund are the property of the Company and further agrees to surrender
promptly to the Company any of such records upon the Company's request; provided
however that the Sub-Adviser may retain a copy of such records. The Sub- Adviser
further agrees to preserve for the periods prescribed by Rule 31a-2 under the
1940 Act the records required to be maintained by Rule 31a-1 under the 1940 Act.
6. EXPENSES.
During the term of this Agreement, the Sub-Adviser will pay all
expenses incurred by it in connection with its activities under this Agreement
other than the cost of securities (including brokerage commissions and other
transaction costs, if any) purchased or sold with respect to the Fund.
-4-
<PAGE> 5
7. COMPENSATION.
For the services provided and the expenses assumed pursuant to this
Agreement, the Adviser will pay the Sub-Adviser, and the Sub-Adviser will accept
as full compensation therefor, a fee, payable quarterly (in arrears), at the
following annual rates based on the average month-end net assets of the Fund as
follows:
<TABLE>
<CAPTION>
FUND ASSETS RATE OF SUB-ADVISORY FEE
<S> <C>
First $50 million 0.40%
Next $100 million 0.30%
Next $350 million 0.25%
Over $500 million 0.20%
</TABLE>
The Sub-Adviser acknowledges that it shall not be entitled to any further
compensation from the Adviser in respect of the services provided and expenses
assumed by it under this Agreement. The Sub-Adviser understands and agrees that
the Company and the Fund shall have no liability for payment of the
Sub-Adviser's fees hereunder, and that the Sub-Adviser's sole recourse for
payment of such fees shall be to the Adviser.
8. LIMITATION OF LIABILITY.
The Sub-Adviser shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Company in connection with the
performance of this Agreement, except that the Sub-Adviser shall be liable to
the Company and the Adviser for any loss resulting from a breach of fiduciary
duty with respect to the receipt of compensation for services or any loss
resulting from willful misfeasance, bad faith or negligence on the part of the
Sub-Adviser in the performance of its duties or from reckless disregard by it of
its obligations and duties under this Agreement. The Sub-Adviser acknowledges
and agrees that the performance of this Agreement is for the benefit of the
Company, that the Sub-Adviser is therefore directly liable and responsible to
the Company for the performance of its obligations hereunder, and that the
Company may enforce in its own name and for itself such liability and
responsibility.
9. DURATION AND TERMINATION.
This Agreement will become effective as of the date hereof and, unless
sooner terminated as provided herein, shall continue in effect until October 31,
1998. Thereafter, if not terminated, this Agreement shall continue in effect for
successive annual periods ending on October 31, provided such continuance is
specifically approved at least annually (a) by the vote of a majority of those
members of the Company's Board of Directors who
-5-
<PAGE> 6
are not interested persons of any party to this Agreement, cast in person at a
meeting called for the purpose of voting on such approval, and (b) by the
Company's Board of Directors or by vote of a majority of the outstanding voting
securities of the Fund. Notwithstanding the foregoing, this Agreement may be
terminated at any time, without the payment of any penalty, by the Adviser or by
the Company (in the case of the Company, by vote of the Company's Board of
Directors or by vote of a majority of the outstanding voting securities of the
Fund) on sixty days' written notice to the Sub-Adviser, or by the Sub-Adviser,
on sixty days' written notice to the Company, provided that in each such case,
notice shall be given simultaneously to the Adviser. In addition,
notwithstanding anything herein to the contrary, in the event of the termination
of the Investment Advisory Agreement with respect to the Fund for any reason
(whether by the Company, by the Adviser or by operation of law) this Agreement
shall terminate upon the effective date of such termination of the Investment
Advisory Agreement. This Agreement will immediately terminate in the event of
its assignment. (As used in this Agreement, the terms "majority of the
outstanding voting securities," "interested persons" and "assignment" shall have
the same meanings as such terms have in the 1940 Act.)
10. AMENDMENT OF THIS AGREEMENT.
No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought. No amendment of this Agreement shall be effective until approved by vote
of a majority of the outstanding voting securities of the Fund.
11. MISCELLANEOUS.
The captions in the Agreement are included for convenience of reference
only and in no way define or limit any of the provisions hereof or otherwise
affect their construction or effect. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby. This Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective successors and shall be governed by the internal laws, and not the
law of conflicts, of the State of Maryland; provided that nothing herein will be
construed in a manner inconsistent with the 1940 Act, the Investment Advisers
Act of 1940, as amended, or any rule or regulation of the Securities and
Exchange Commission thereunder.
This Agreement may be executed in two or more parts which together
shall constitute a single Agreement.
-6-
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/ Kirk D. Hartman
-------------------------------
Name: Kirk D. Hartman
Title: Chief Investment Officer
WELLINGTON MANAGEMENT COMPANY, LLP
By: /s/ Robert W. Doran
-------------------------------
Name: Robert W. Doran
Title: Chairman
-7-
<PAGE> 1
EXHIBIT 8(h)
AMENDMENT NO. 1 TO THE TRANSFER AGENCY AGREEMENT
This Agreement is made as of December 12, 1995 between Pacific
Horizon Funds, Inc., a Maryland corporation (the "Company"), having its
principal office and place of business at 3435 Stelzer Road, Columbus, Ohio
43219-3035; and BISYS Fund Services, Inc., a Delaware corporation ("BISYS"),
having its principal office and place of business at 3435 Stelzer Road,
Columbus, Ohio 43219-3035.
WITNESSETH:
WHEREAS, the Company entered into a Transfer Agency Agreement dated as
of December 11, 1995 with BISYS (the "Agreement") on behalf of all of the
Company's investment portfolios;
WHEREAS, the Company and BISYS wish to amend such Agreement;
NOW THEREFORE, in consideration of the mutual promises hereinafter set
forth and intending to be legally bound hereby, the parties agree as follows:
1. Article IV is hereby amended by adding a Paragraph 15:
"15. Any interest or other earnings on bank cash balances or
otherwise in connection with purchases or redemptions of
Shares, dividends payable with respect to Shares or on any
other "float" with respect to the Company shall be for the
benefit and account of the Company."
2. Capitalized terms not defined herein are defined in the
Agreement.
3. Except as specifically set forth herein, all other
provisions of the Agreement shall remain in full force and
effective.
4. The Agreement and Amendment No. 1 to the Agreement
supersedes any prior agreement relating to the subject matter of
the Agreement and Amendment No. 1 to the Agreement.
5. This Amendment No. 1 to the Agreement may be executed
in any number of counterparts each of which shall be deemed to be
an original; but such counterparts shall, together, constitute
only one instrument.
Pacific Horizon Funds, Inc.
By: /s/ Cornelius J. Pings
-------------------------
BISYS Fund Services, Inc.
By: /s/ Stephen G. Mintos
-------------------------
<PAGE> 1
Exhibit 9 (a)
BASIC ADMINISTRATIVE SERVICES AGREEMENT
This Agreement is made as of this 1st day of November, 1996
between PACIFIC HORIZON FUNDS, INC., a Maryland corporation (the "Company"), and
The BISYS GROUP, INC.
WHEREAS, the Company is an open-end management investment
company and is so registered under the Investment Company Act of 1940 ("1940
Act"); and
WHEREAS, the Company offers and maintains the following
investment portfolios: Prime Fund, Treasury Fund, Tax-Exempt Money Fund,
California Tax-Exempt Money Market Fund, Government Fund and Treasury Only Fund
(the "Funds"); and
WHEREAS, the Company offers for sale separate series of shares
of beneficial interest in each Fund (the "Shares"); and
WHEREAS, pursuant to an Amended and Restated Distribution
Agreement dated September 1, 1995 (the "Distribution Agreement") between the
Company and Concord Financial Group, Inc. ("Concord Financial"), the Company has
retained Concord Financial as its Distributor to provide for the sale and
distribution of the Shares; and
WHEREAS, the Company desires to retain The BISYS Group, Inc.
as its Administrator to provide it with administrative services for the Funds
and The BISYS Group, Inc. is willing to provide such services for the Funds;
NOW, THEREFORE, in consideration of the premises and mutual
covenants set forth herein, the parties hereto agree as follows:
I. ADMINISTRATION
1. APPOINTMENT OF ADMINISTRATOR. The Company hereby
appoints The BISYS Group, Inc. as Administrator of each Fund on the terms and
for the period set forth in this Agreement, and The BISYS Group, Inc. hereby
accepts such appointment and agrees to have the services and duties set forth in
this Section I performed for the compensation provided in this Section. The
Company understands that the services and duties set forth in this Section I
will be performed by BISYS Fund Services, L.P., a wholly-owned subsidiary of The
BISYS Group, Inc. (hereafter, BISYS Fund Services, L.P. and The BISYS Group,
Inc., collectively "BISYS"). Notwithstanding anything herein to the contrary,
The BISYS Group, Inc. shall be as fully responsible to the Company for the acts
or omissions of BISYS Fund Services, L.P. and any
<PAGE> 2
other affiliate of The BISYS Group, Inc. as The BISYS Group, Inc. is for its own
acts or omissions. The Company further understands that BISYS now acts and will
continue to act as administrator of various investment companies and fiduciary
of other managed accounts, and the Company has no objection to BISYS' so acting.
In addition, it is understood that the persons employed by BISYS to assist in
the performance of its duties hereunder will not devote their full time to such
services and nothing herein contained shall be deemed to limit or restrict the
right of BISYS or any affiliate of BISYS to engage in and devote time and
attention to other businesses or to render services of whatever kind or nature.
2. SERVICES AND DUTIES.
(a) Subject to the supervision and control of the
Company's Board of Directors, BISYS will provide facilities, equipment and
personnel to carry out those administrative services that are for the benefit of
all series of Shares in each of the Funds, provided that such services will not
include those investment advisory functions which are to be performed by the
Company's Investment Adviser, the services of Concord Financial as Distributor
pursuant to the Distribution Agreement, those services to be performed by The
Bank of New York and PNC Bank, National Association ("PNC") pursuant to the
Company's Custody Agreements, those services to be performed by BISYS Fund
Services, Inc. ("Transfer Agent") pursuant to the Company's Transfer Agency
Agreement and those services normally performed by the Company's counsel and
auditors.
(b) The responsibilities of BISYS include, without
limitation, the following services:
(i) Participation in the periodic
updating of the prospectuses and statements of additional information for the
Funds (the "Prospectuses") and accumulation of information for and, subject to
approval by the Company's Treasurer and legal counsel, coordination of the
preparation, filing, printing and dissemination of reports to the Funds'
shareholders and the Securities and Exchange Commission (the "Commission"),
including but not limited to annual reports and semi-annual reports on Form
N-SAR, notices pursuant to Rule 24f-2 and proxy materials;
(ii) Computation of each Fund's net asset
value per share on each business day and determination of the variance of each
Fund's amortized cost value per share from its market value per share;
(iii) Calculation of the expenses,
dividends and capital gain distributions of each Fund;
-2-
<PAGE> 3
(iv) Payment of all expenses of
maintaining the offices of the Company, wherever located, and arrangement for
payment by the Company of all expenses payable by the Funds;
(v) Determination, after consultation
with legal counsel for the Company, of the jurisdictions in which Shares for
sale to institutional investors are to be registered or qualified for sale and,
in connection therewith, responsibility for the maintenance of the registration
or qualification of the Shares for sale under the securities laws of such
jurisdictions;
(vi) Provision of the services of persons
who may be appointed as officers of the Company by the Company's Board of
Directors;
(vii) Preparation and filing of the
Company's federal, state and local income tax returns;
(viii) Preparation and, subject to
approval of the Company's Treasurer, dissemination of the Company's and each
Fund's quarterly financial statements and schedules of investments to the
Company's directors, and preparation of such other reports relating to the
business and affairs of the Company and each Fund as the officers and directors
of the Company may from time to time reasonably request; and
(ix) Provision of internal legal and
accounting compliance services.
(c) In addition, BISYS shall provide the following
services with respect to all shareholders in the Funds (regardless of the class
of Shares held) who have made a minimum initial purchase of at least $500,000:
(i) Providing and supervising a facility
to receive purchase and redemption orders via toll-free IN-WATS telephone lines;
(ii) Providing for the preparing,
supervising and mailing of confirmations for all purchase and redemption orders;
(iii) Providing and supervising the
operation of an automated data processing system to process purchase and
redemption orders received by BISYS (BISYS assumes responsibility for the
accuracy of the data transmitted for processing or storage);
-3-
<PAGE> 4
(iv) Overseeing the performance of The
Bank of New York, PNC and Transfer Agent under the Custody Agreements and
Transfer Agency Agreement including a review of all correspondence from the
transfer agent to shareholders for accuracy and timeliness in handling inquiries
and review of dividend checks, statements and purchase and redemption orders for
proper turn-around;
(v) Making available information
concerning each Fund to shareholders; distributing written communications to
each Fund's shareholders such as periodic listings of each Fund's portfolio
securities, annual and semi-annual reports, and Prospectuses and supplements
thereto; and handling shareholder problems and calls relating to administrative
matters;
(vi) Providing and supervising the
services of employees ("relationship coordinators") whose principal
responsibility and function will be to preserve and strengthen each Fund's
relationships with its shareholders;
(vii) Assuring that persons are available
to transmit redemption requests to the Company's transfer agent as promptly as
practicable;
(viii) Assuring that persons are
available to transmit orders accepted for the purchase of Shares to the transfer
agent of the Company as promptly as practicable;
(ix) Preparing regular reports for
internal use and for distribution to the Company's Board of Directors concerning
shareholder activity; and
(x) Responding to shareholder inquiries
sent to the Company.
(d) BISYS shall oversee the maintenance by The Bank
of New York, PNC and Transfer Agent of the books and records required under the
1940 Act in connection with performance of the Custody Agreements and Transfer
Agency Agreement, and shall maintain (or oversee the maintenance by such other
persons as may from time to time be approved by the Company's Board of
Directors) such other books and records (other than those required to be
maintained by the Funds' investment adviser) as may be required by law or may be
required for the proper operation of the business and affairs of the Funds. In
compliance with the requirements of Rule 31a-3 under the 1940 Act, BISYS agrees
that all such books and records which it maintains, or is responsible for
maintaining, for the Company and the Funds are the property of the Company and
further agrees to surrender promptly to the Company any of such books and
records upon the Company's request. BISYS further agrees to preserve for
-4-
<PAGE> 5
the periods prescribed by Rule 31a-2 under the 1940 Act said books and records
required to be maintained by Rule 31a-1 under said Act.
(e) In performing its services and duties hereunder
as Administrator for the Funds, BISYS will act in conformity with the Company's
Charter, Bylaws and Prospectuses and with the instructions and directions of the
Board of Directors of the Company, and will conform to and comply with the
requirements of the 1940 Act and all other applicable federal or state laws and
regulations.
3. SUBCONTRACTORS. It is understood that BISYS may from time
to time employ or associate with itself such person or persons as BISYS may
believe to be particularly fitted to assist in the performance of this
Agreement; provided, however, that the compensation of such person or persons
shall be paid by BISYS and that notwithstanding anything herein to the contrary
The BISYS Group, Inc. shall be as fully responsible to the Company for the acts
and omissions of any subcontractor as The BISYS Group, Inc. is for its own acts
and omissions. Without limiting the generality of the foregoing, it is
understood that BISYS, an affiliate of BISYS or a subcontractor has entered into
an agreement with PFPC, Inc. under which said institution will provide certain
accounting, bookkeeping, pricing and dividend and distribution calculation
services with respect to the Funds at the expense of the Funds.
4. EXPENSES ASSUMED AS ADMINISTRATOR. Except as otherwise
stated in this subsection 4, BISYS shall pay all expenses incurred by it in
performing its services and duties hereunder as Administrator including the cost
of any independent pricing service used in connection with the Funds. Other
expenses to be incurred in the operation of the Funds (other than those borne by
the Company's investment adviser) including taxes, interest, brokerage fees and
commissions, if any, fees of directors who are not officers, directors,
partners, employees or holders of 5 percent or more of the outstanding voting
securities of the Company's investment adviser or BISYS or any of their
affiliates, Securities and Exchange Commission fees and state blue sky
registration and qualification fees, advisory fees, fees payable to shareholder
organizations, fees for special management services, charges of custodians,
transfer and dividend disbursing agents' fees, certain insurance premiums,
outside auditing and legal expenses, costs of maintaining corporate existence,
costs attributable to shareholder services, including without limitation
telephone and personnel expenses, costs of preparing and printing Prospectuses,
or any supplement or amendment thereto, necessary for the continued effective
registration of the Shares under the 1933 Act or state securities laws, costs of
printing and distributing any Prospectus, supplement or amendment thereto for
existing shareholders of the Fund described therein,
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<PAGE> 6
costs of shareholder reports and corporate meetings and any extraordinary
expenses will be borne by the Funds.
5. COMPENSATION. For the services provided and the expenses
assumed as Administrator pursuant to Section I of this Agreement, the Company
will pay The BISYS Group, Inc. a fee, computed daily and payable monthly, based
on the net assets of the Prime Fund, Treasury Fund, Tax-Exempt Money Fund,
California Tax-Exempt Money Market Fund, Government Fund and Treasury Only Fund
considered separately on a per Fund basis at the following annual rates: .10% of
the first $7 billion of each Fund's net assets, plus .09% of the next $3 billion
of each Fund's net assets, plus .08% of each Fund's net assets over $10 billion.
Such fee as is attributable to each Fund shall be a separate charge to each such
Fund and shall be the several (and not joint and several) obligation of each
such Fund. Notwithstanding anything to the contrary herein, if in any fiscal
year the aggregate expenses of any Fund (as defined under the securities
regulations of any state having jurisdiction over such Fund) exceed the expense
limitations of any such state, The BISYS Group, Inc. will reimburse the Fund for
one-half of such excess expenses unless the Fund's investment adviser reimburses
the Fund for more than one-half of such excess expenses, in which case The BISYS
Group, Inc. will reimburse the Fund for the difference between the amount of
such excess expenses less the amount of the investment adviser's reimbursement
to the Fund. The obligations of The BISYS Group, Inc. to reimburse any Fund
hereunder is limited in any fiscal year to the amount of its fee hereunder for
such fiscal year with respect to such Fund; provided, however, that
notwithstanding the foregoing, The BISYS Group, Inc. shall reimburse any Fund
for such proportion of such excess expenses regardless of the amount of fees
paid to it during such fiscal year to the extent that the securities regulations
of any state having jurisdiction over the Fund so require. Such expense
reimbursement, if any, will be estimated and accrued daily and paid on a monthly
basis.
II. CONFIDENTIALITY
BISYS will treat confidentially and as proprietary information
of the Company all records and other information relative to the Company and the
Funds and prior or present shareholders or those persons or entities who respond
to Concord Financial's inquiries concerning investment in the Company, and will
not use such records and information for any purpose other than performance of
its responsibilities and duties hereunder or under any other agreement with the
Company, except after prior notification to and approval in writing by the
Company, which approval shall not be unreasonably withheld and may not be
withheld where BISYS may be exposed to civil or criminal contempt proceedings
for failure to comply, when requested to divulge such
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<PAGE> 7
information by duly constituted authorities, or when so requested by the
Company.
III. LIMITATIONS OF LIABILITY
Neither The BISYS Group, Inc. nor BISYS Fund Services, L.P.
shall be liable for any error of judgment or mistake of law or for any loss
suffered by the Company or by any Fund in connection with the matters to which
this Agreement relates, except a loss resulting from willful misfeasance, bad
faith or negligence on its part in the performance of its duties or from
reckless disregard by it of its obligations and duties under this Agreement. Any
person, even though also an officer, director, partner, employee or agent of
BISYS, who may be or become an officer, director, employee or agent of the
Company, shall be deemed, when rendering services to the Company or to any Fund
or acting on any business of the Company or of any Fund (other than services or
business in connection with BISYS duties as Administrator hereunder or under any
other agreement with the Company) to be rendering such services to or acting
solely for the Company or Fund and not as an officer, director, partner,
employee or agent or one under the control or direction of BISYS even though
paid by BISYS.
IV. DURATION AND TERMINATION
This Agreement shall become effective November 1, 1996 and,
unless sooner terminated as provided herein, shall continue until October 31,
1997. Thereafter, if not terminated, this Agreement shall continue automatically
as to a particular Fund for successive terms of one year, provided that such
continuance is specifically approved at least annually (a) by a vote of a
majority of those members of the Board of Directors of the Company who are not
parties to this Agreement or "interested persons" of any such party, cast in
person at a meeting called for the purpose of voting on such approval, and (b)
by the Board of Directors of the Company or by vote of a "majority of the
outstanding voting securities" of such Fund; provided, however, that this
Agreement may be terminated by the Company at any time with respect to any Fund,
without cause and without the payment of any penalty, by vote of a majority of
the entire Board of Directors of the Company or by a vote of a "majority of the
outstanding voting securities" of such Fund on 60 days' written notice to The
BISYS Group, Inc., or by The BISYS Group, Inc. at any time, without the payment
of any penalty, on 90 days' written notice to the Company. This Agreement will
immediately terminate in the event of its "assignment." (As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"interested person" and "assignment" shall have the same meaning as such terms
have in the 1940 Act.)
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<PAGE> 8
V. AMENDMENT OF THIS AGREEMENT
No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which an enforcement of the change, waiver, discharge or
termination is sought.
VI. NOTICES
Notices of any kind to be given to the Company hereunder by
BISYS shall be in writing and shall be duly given if mailed or delivered to the
Company at Association of American University, One Dupont Circle, Suite 730,
Washington, D.C. 20036, Attention: Dr. Cornelius J. Pings, President, or at such
other address or to such individual as shall be so specified by the Company to
BISYS. Notices of any kind to be given to BISYS hereunder by the Company shall
be in writing and shall be duly given if mailed or delivered to BISYS at 150
Clove Road, Little Falls, New Jersey 07424, Attention: Kevin J. Dell, General
Counsel, or at such other address or to such individual as shall be so specified
by BISYS to the Company.
VII. MISCELLANEOUS
The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may be signed in
one or more counterparts, each of which shall be an original and all of which
together shall be deemed one and the same document. If any provision of this
Agreement shall be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby.
Subject to the provisions of Section IV hereof, this Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and shall be governed by New York law; provided, however, that
nothing herein shall be construed in a manner inconsistent with the 1940 Act or
any rule or regulation of the Commission thereunder.
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<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as of the day and
year first above written.
PACIFIC HORIZON FUNDS, INC.
By:/s/ Cornelius J. Pings
-----------------------------------
Cornelius J. Pings
President
Attest:/s/ W. Bruce McConnel, III
----------------------------
W. Bruce McConnel, III
Secretary
THE BISYS GROUP, INC.
By:/s/ Robert J. McMullan
-----------------------------------
Name: Robert J. McMullan
Title: Executive Vice President
and Chief Financial Officer
Attest:/s/ Kevin J. Dell
----------------------------
Name: Kevin J. Dell
Title: Vice President,
General Counsel and
Secretary
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<PAGE> 1
EXHIBIT 9 (b)
ADMINISTRATION AGREEMENT
NON-MONEY MARKET FUNDS
This Administration Agreement is made as of this 1st day of
November, 1996 between PACIFIC HORIZON FUNDS, INC., a Maryland corporation
(herein called the "Company"), and The BISYS GROUP, INC.
WHEREAS, the Company is a Maryland corporation which is an
open-end management investment company and is so registered under the Investment
Company Act of 1940 (the "1940 Act"); and
WHEREAS, the Company will offer and maintain the following
investment portfolios: Utilities Fund, Growth and Income Fund, International
Bond Fund, Blue Chip Fund, Intermediate Bond Fund and Asset Allocation Fund
(collectively, the "Feeder Funds") and Aggressive Growth Fund, Capital Income
Fund, U.S. Government Securities Fund, California Tax-Exempt Bond Fund, National
Municipal Bond Fund, Short-Term Government Fund, International Equity Fund and
Corporate Bond Fund (collectively, the "Managed Funds" and collectively with the
Feeder Funds, the "Funds"); and
WHEREAS, pursuant to an Amended and Restated Distribution
Agreement dated September 1, 1995 (the "Distribution Agreement") between the
Company and Concord Financial Group, Inc. ("Concord Financial"), the Company has
retained Concord Financial as its Distributor to provide for the sale and
distribution of shares of common stock of each Fund, each such share having a
par value of $.001 (herein collectively called "Shares"); and
WHEREAS, the Company desires to retain The BISYS Group, Inc.
as its Administrator to provide it with administrative services for the Funds
and The BISYS Group, Inc. is willing to provide such services for the Funds;
NOW, THEREFORE, in consideration of the premises and mutual
covenants set forth herein, the parties hereto agree as follows:
I. ADMINISTRATION
1. APPOINTMENT OF ADMINISTRATOR. The Company hereby appoints
The BISYS Group, Inc. as Administrator of each Fund on the terms and for the
period set forth in this Agreement, and The BISYS Group, Inc. hereby accepts
such appointment and agrees to
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<PAGE> 2
have the services and duties set forth in this Section I performed for the
compensation provided in this Section. The Company understands that the services
and duties set forth in this Section I will be performed by BISYS Fund Services,
L.P., a wholly-owned subsidiary of The BISYS Group, Inc. (hereafter, BISYS Fund
Services, L.P. and The BISYS Group, Inc., collectively "BISYS"). Notwithstanding
anything herein to the contrary, The BISYS Group, Inc. shall be as fully
responsible to the Company for the acts or omissions of BISYS Fund Services,
L.P. and any other affiliate of The BISYS Group, Inc. as The BISYS Group, Inc.
is for its own acts or omissions. The Company further understands that BISYS now
acts and will continue to act as administrator of various investment companies
and fiduciary of other managed accounts, and the Company has no objection to
BISYS' so acting. In addition, it is understood that the persons employed by
BISYS to assist in the performance of its duties hereunder will not devote their
full time to such services and nothing herein contained shall be deemed to limit
or restrict the right of BISYS or any affiliate of BISYS to engage in and devote
time and attention to other businesses or to render services of whatever kind or
nature.
2. SERVICES AND DUTIES.
(A) Subject to the supervision and control of the Company's
Board of Directors, BISYS will provide facilities, equipment, statistical and
research data, clerical, accounting and bookkeeping services, internal auditing
and legal services, and personnel to carry out all administrative services
required for operation of the business and affairs of the Funds, other than
those investment advisory functions which are to be performed by the Company's
Investment Adviser, the services of Concord Financial as Distributor pursuant to
the Distribution Agreement, those services to be performed by The Bank of New
York and PNC Bank, National Association pursuant to the Company's Custody
Agreements, those services to be performed by BISYS Fund Services, Inc. (the
"Transfer Agent") pursuant to the Company's Transfer Agency Agreement and those
services normally performed by the Company's counsel and auditors. The
responsibilities of BISYS include without limitation the following services:
(1) Providing a facility to receive purchase
and redemption orders for Shares via toll-free IN-WATS
telephone lines;
(2) Providing for the preparing, supervising
and mailing of confirmations for all purchase and redemption
orders for Shares;
(3) Providing and supervising the operation
of an automated data processing system to process purchase and
redemption orders for Shares received by
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<PAGE> 3
BISYS (BISYS assumes responsibility for the accuracy of
the data transmitted for processing or storage);
(4) Overseeing the performance of The Bank
of New York, PNC Bank, National Association and Transfer Agent
under the Custody Agreements and Transfer Agency Agreement
with respect to the Funds;
(5) Making available information concerning
each Fund to its shareholders; distributing written
communications to each Fund's shareholders such as periodic
listings of each Fund's securities, annual and semi-annual
reports, and prospectuses and supplements thereto; and
handling shareholder problems and calls relating to
administrative matters; and
(6) Providing and supervising the services
of employees ("relationship coordinators") whose principal
responsibility and function shall be to preserve and
strengthen each Fund's relationships with its shareholders.
(B) BISYS shall assure that persons are available to
transmit redemption requests for Shares to the Company's transfer agent as
promptly as practicable.
(C) BISYS shall assure that persons are available to
transmit orders accepted for the purchase of Shares to the transfer agent of the
Company as promptly as practicable.
(D) BISYS shall participate in the periodic updating
of the Funds' prospectuses and statements of additional information and shall
accumulate information for and, subject to approval by the Company's Treasurer
and legal counsel, coordinate the preparation, filing, printing and
dissemination of reports to the Funds' shareholders and the Commission,
including but not limited to annual reports and semi-annual reports on Form
N-SAR, notices pursuant to Rule 24f-2 and proxy materials pertaining to the
Funds.
(E) BISYS shall compute each Fund's net asset value
per share on each business day.
(F) BISYS shall calculate dividends and capital gain
distributions to be paid to each Fund's shareholders in conformity with
subchapter M of the Internal Revenue Code.
(G) BISYS shall pay all costs and expenses of
maintaining the offices of the Company, wherever located, and shall arrange for
payment by the Company of all expenses payable by the Company.
-3-
<PAGE> 4
(H) BISYS, after consultation with legal counsel for
the Company, shall determine the jurisdictions in which the Shares shall be
registered or qualified for sale and, in connection therewith, shall be
responsible for the maintenance of the registration or qualification of the
Shares for sale under the securities laws of any state. Payment of Share
registration fees and any fees for qualifying or continuing the qualification of
the Company shall be made by the Company.
(I) BISYS shall provide the services of certain
persons who may be appointed as officers of the Company by the Company's Board
of Directors.
(J) BISYS shall oversee the maintenance by The Bank
of New York, PNC Bank, National Association and Transfer Agent of the books and
records pertaining to the Funds required under the 1940 Act in connection with
the performance of the Custody Agreements and Transfer Agency Agreement, and
shall maintain such other books and records with respect to the Funds (other
than those required to be maintained by the Company's Investment Adviser) as may
be required by law or may be required for the proper operation of the business
and affairs of the Funds. Without limiting the foregoing, BISYS shall obtain
from the Company's prior administrator all books and records pertaining to the
Funds that are required to be maintained under the 1940 Act and that are in the
prior administrator's possession, and shall be responsible for the proper
maintenance of such records throughout the term of this Agreement. In compliance
with the requirements of Rule 31a-3 under the 1940 Act, BISYS agrees that all
such books and records which it maintains, or is responsible for maintaining,
for the Company and the Funds are the property of the Company and further agrees
to surrender promptly to the Company any of such books and records upon the
Company's request. BISYS further agrees to preserve for the periods prescribed
by Rule 31a-2 under the 1940 Act said books and records required to be
maintained by Rule 31a-1 under said Act.
(K) BISYS shall prepare the Funds' federal, state and
local income tax returns.
(L) BISYS shall prepare and, subject to approval of
the Company's Treasurer, disseminate to the Company's directors each Fund's
quarterly financial statements and schedules of investments, and shall prepare
such other reports relating to the business and affairs of the Funds (not
otherwise appropriately prepared by the Company's Investment Adviser, counsel or
auditors) as the officers and directors of the Company may from time to time
reasonably request in connection with performance of their duties.
-4-
<PAGE> 5
(M) BISYS shall assist The Bank of New York, PNC
Bank, National Association and Transfer Agent and the Company's Investment
Adviser, counsel and auditors as required to carry out the business and
operations of the Funds.
(N) In performing its duties as Administrator for the
Funds, BISYS will act in conformity with the Company's Charter, By-laws,
prospectuses and statements of additional information, and the instructions and
directions of the Board of Directors of the Company. In addition, BISYS will
conform to and comply with the requirements of the 1940 Act and all other
applicable federal or state laws and regulations.
3. SUBCONTRACTORS. It is understood that BISYS may from time
to time employ or associate with itself such person or persons as BISYS may
believe to be particularly fitted to assist in the performance of this
Agreement; provided, however, that the compensation of such person or persons
shall be paid by BISYS and that notwithstanding anything herein to the contrary
The BISYS Group, Inc. shall be as fully responsible to the Company for the acts
and omissions of any subcontractor as The BISYS Group, Inc. is for its own acts
and omissions. Without limiting the generality of the foregoing, it is
understood that BISYS, an affiliate of BISYS or a subcontractor has entered into
an agreement with PFPC, Inc. under which said institution will provide certain
accounting, bookkeeping, pricing and dividend and distribution calculation
services with respect to the Funds at the expense of the Funds.
4. EXPENSES ASSUMED AS ADMINISTRATOR. Except as otherwise
stated in this subsection 4, BISYS shall pay all expenses incurred by it in
performing its services and duties hereunder as Administrator including the cost
of any independent pricing service used in connection with the Funds. Other
expenses to be incurred in the operation of the Funds (other than those borne by
the Company's Investment Adviser) including taxes, interest, brokerage fees and
commissions, if any, fees of directors who are not officers, directors,
partners, employees or holders of 5 percent or more of the outstanding voting
securities of the Company's Investment Adviser or BISYS or any of their
affiliates, Securities and Exchange Commission fees and state blue sky
registration and qualification fees, advisory fees, charges of custodians,
transfer and dividend disbursing agents' fees, certain insurance premiums,
outside auditing and legal expenses, costs of maintaining corporate existence,
costs attributable to shareholder services, including without limitation
telephone and personnel expenses, costs of preparing and printing prospectuses
or any supplement or amendment thereto, necessary for the continued effective
registration of the Shares under federal or state securities laws, costs of
printing and distributing any prospectus, supplement or amendment thereto for
existing shareholders of the Fund described therein, costs of
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<PAGE> 6
shareholders' reports and corporate meetings and any extraordinary expenses will
be borne by the Funds. It is understood that certain advertising, marketing,
shareholder servicing, administration and/or distribution expenses to be
incurred in connection with the Shares may be paid by the Company as provided in
any Plan which may in the sole discretion of the Company be adopted in
accordance with Rule 12b-1 under the 1940 Act, and that such expenses will be
paid apart from any fees paid under this Agreement.
5. COMPENSATION. For the services provided and the expenses
assumed as Administrator pursuant to Section I of this Agreement, the Company
will pay The BISYS Group, Inc. a fee, computed daily and payable monthly, at the
annual rate of: .15 percent of the average net assets of the Blue Chip Fund,
Intermediate Bond Fund, Asset Allocation Fund, Utilities Fund, Growth and Income
Fund and International Bond Fund; .20 percent of the average net assets of the
National Municipal Bond Fund, U.S. Government Securities Fund, Capital Income
Fund, Short-Term Government Fund, Corporate Bond Fund and International Equity
Fund; and .30 percent of the average net assets of the Aggressive Growth and
California Tax-Exempt Bond Funds. Such fee as is attributable to each Fund shall
be a separate (and not joint or joint and several) obligation of each such Fund.
The parties understand that each Feeder Fund will seek to
achieve its investment objective by investing all of its assets in an open-end
management investment company (a "Portfolio") having the same investment
objective as that of the Fund, and that The BISYS Group, Inc. will receive
administration fees from the Portfolios. If in any fiscal year the aggregate of
the (i) pro rata share of the total expenses of a Portfolio that are borne by a
Feeder Fund (as such expenses are defined under the securities regulations of
any state having jurisdiction over such Fund), plus (ii) the expenses borne by
such Fund in connection with such Fund's own operations as a registered
investment company (as defined under such regulations), exceed the expense
limitations of any such state, The BISYS Group, Inc. will reimburse the Feeder
Fund for a portion of such excess expenses equal to such excess times the ratio
of (a) the sum of the administration fees otherwise payable with respect to such
Fund and Portfolio to The BISYS Group, Inc. hereunder and under the
administration agreement between The BISYS Group, Inc. and the Portfolio (the
"Portfolio Administration Agreement"), to (b) the aggregate of such
administration fees otherwise payable with respect to such Fund and Portfolio to
The BISYS Group, Inc. plus the advisory fees otherwise payable by the Portfolio
under its investment advisory agreement with Bank of America N.T.S.A. The
obligation of The BISYS Group, Inc. to reimburse any Feeder Fund hereunder is
limited in any fiscal year to the amount of its fees hereunder and under the
Portfolio Administration Agreement for such fiscal year with respect to such
Fund and the Portfolio in
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<PAGE> 7
which the Feeder Fund's assets are invested; provided, however, that
notwithstanding the foregoing, The BISYS Group, Inc. will reimburse any Feeder
Fund for such proportion of such excess expenses regardless of the amount of
fees paid to it during such fiscal year to the extent that the securities
regulations of any state having jurisdiction over the Feeder Fund so require.
Such expense reimbursement, if any, will be estimated and accrued daily and paid
on a monthly basis.
Notwithstanding anything to the contrary herein, if in any
fiscal year the aggregate expenses of any Managed Fund (as defined under the
securities regulations of any state having jurisdiction over such Fund) exceed
the expense limitations of any such state, the Company may deduct from the fees
to be paid hereunder, or The BISYS Group, Inc. will bear, to the extent required
by state law, that portion of such excess which bears the same relation to the
total of such excess as The BISYS Group Inc.'s fee hereunder with respect to
such Fund bears to the total fees otherwise payable for the fiscal year with
respect to such Fund pursuant to this Agreement and the investment advisory
agreement then in effect for such Fund. The BISYS Group, Inc.'s obligation is
not limited to the amount of its fees hereunder. Such deduction or payment, if
any, will be estimated and accrued daily and paid on a monthly basis.
II. CONFIDENTIALITY
BISYS will treat confidentially and as proprietary information
of the Company all records and other information relative to the Company and the
Funds and prior or present shareholders or those persons or entities who respond
to Concord Financial's inquiries concerning investment in the Company, and will
not use such records and information for any purpose other than performance of
its responsibilities and duties hereunder or under any other agreement with the
Company, except after prior notification to and approval in writing by the
Company, which approval shall not be unreasonably withheld and may not be
withheld where BISYS may be exposed to civil or criminal contempt proceedings
for failure to comply, when BISYS is requested to divulge such information by
duly constituted authorities, or when BISYS is so requested by the Company.
III. LIMITATIONS OF LIABILITY
Neither The BISYS Group, Inc. nor BISYS Fund Services, L.P.
shall be liable for any error of judgment or mistake of law or for any loss
suffered by the Company or by any Fund in connection with the matters to which
this Agreement relates, except a loss resulting from willful misfeasance, bad
faith or negligence on its part in the performance of its duties or from
reckless disregard by it of its obligations and duties under this Agreement. Any
person, even though also an officer, director,
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<PAGE> 8
partner, employee or agent of BISYS, who may be or become an officer, director,
employee or agent of the Company, shall be deemed, when rendering services to
the Company or to any Fund, or acting on any business of the Company or of any
Fund (other than services or business in connection with BISYS's duties as
Administrator hereunder or under any other agreement with the Company) to be
rendering such services to or acting solely for the Company or Fund and not as
an officer, director, partner, employee or agent or one under the control or
direction of BISYS even though paid by BISYS.
IV. DURATION AND TERMINATION
This Agreement shall become effective November 1, 1996, unless
sooner terminated as provided herein, shall continue until October 31, 1997.
Thereafter, if not terminated, this Agreement shall continue automatically as to
a particular Fund for successive terms of one year, provided that such
continuance is specifically approved at least annually (a) by a vote of a
majority of those members of the Board of Directors of the Company who are not
parties to this Agreement or "interested persons" of any such party, cast in
person at a meeting called for the purpose of voting on such approval, and (b)
by the Board of Directors of the Company or by vote of a "majority of the
outstanding voting securities" of such Fund; provided, however, that this
Agreement may be terminated by the Company at any time with respect to any Fund,
without cause and without the payment of any penalty, by vote of a majority of
the entire Board of Directors of the Company or by a vote of a "majority of the
outstanding voting securities" of such Fund on 60 days' written notice to The
BISYS Group, Inc., or by The BISYS Group, Inc. at any time, without payment of
any penalty, on 90 days' written notice to the Company. This Agreement will
automatically and immediately terminate in the event of its "assignment." (As
used in this Agreement, the terms "majority of the outstanding voting
securities," "interested person" and "assignment" shall have the same meaning as
such terms have in the 1940 Act.)
V. AMENDMENT OF THIS AGREEMENT
No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which an enforcement of the change, waiver, discharge or
termination is sought.
VI. NOTICES
Notices of any kind to be given to the Company hereunder by
BISYS shall be in writing and shall be duly given if mailed or delivered to the
Company at Association of American Universities, One Dupont Circle, Suite 730,
Washington, D.C. 20036, Attention: Dr. Cornelius J. Pings, President, or at such
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<PAGE> 9
other address or to such individual as shall be so specified by the Company to
BISYS. Notices of any kind to be given to BISYS hereunder by the Company shall
be in writing and shall be duly given if mailed or delivered to BISYS at 150
Clove Road, Little Falls, New Jersey 07424, Attention: Kevin J. Dell, General
Counsel, or at such other address or to such individual as shall be so specified
by BISYS to the Company.
VII. MISCELLANEOUS
The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may be signed in
one or more counterparts, each of which shall be an original and all of which
together shall be deemed one and the same document. If any provision of this
Agreement shall be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby.
Subject to the provisions of Section IV hereof, this Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and shall be governed by New York law; provided, however, that
nothing herein shall be construed in a manner inconsistent with the 1940 Act or
any rule or regulation of the Commission thereunder.
-9-
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as of the day and
year first above written.
PACIFIC HORIZON FUNDS, INC.
By: /s/ Cornelius J. Pings
-----------------------------
Cornelius J. Pings
President
Attest: /s/ W. Bruce McConnel, III
--------------------------------
W. Bruce McConnel, III
Secretary
THE BISYS GROUP, INC.
By: /s/ Robert J. McMullan
-----------------------------
Name: Robert J. McMullan
Title: Executive Vice
President and Chief
Financial Officer
Attest: /s/ Kevin J. Dell
--------------------------------
Name: Kevin J. Dell
Title: Vice President,
General Counsel and
Secretary
-10-
<PAGE> 1
EXHIBIT 11 (a)
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the reference
to our Firm under the caption "Counsel" in the Statement of Additional
Information that is included in Post- Effective Amendment No. 52 to the
Registration Statement (No. 2- 81110) on Form N-1A under the Securities Act of
1933 and the Investment Company Act of 1940, as amended, of Pacific Horizon
Funds, Inc. This consent does not constitute a consent under section 7 of the
Securities Act of 1933, and in consenting to the use of our name and the
references to our Firm under such caption we have not certified any part of the
Registration Statement and do not otherwise come within the categories of
persons whose consent is required under said section 7 or the rules and
regulations of the Securities and Exchange Commission thereunder.
/S/ DRINKER BIDDLE & REATH
--------------------------
DRINKER BIDDLE & REATH
Philadelphia, Pennsylvania
January 28, 1997
<PAGE> 1
Exhibit 11 (b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the reference to us under the heading "Independent
Accountants" in the Statement of Additional Information constituting parts of
this Post-Effective Amendment No. 52 to the registration statement on Form N-1A.
/s/ Price Waterhouse LLP
- -------------------------------
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
January 27, 1997
<PAGE> 1
EXHIBIT 16 (e)
PACHORIZON SHORT-TERM GOVERNMENT FUND (A SHARES)
EXHIBIT 16
TOTAL RETURN
Date as of: 08/31/96
Inception date of fund: 08/02/96
AGGREGATE TOTAL RETURN
T=(ERV/P)-1
WHERE: T = TOTAL RETURN
ERV = REDEEMABLE VALUE AT THE END OF THE PERIOD
OF A HYPOTHETICAL $1,000 INVESTMENT MADE AT
THE BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL INVESTMENT OF $1,000.
No load
<TABLE>
<S> <C> <C>
SINCE INCEPTION: ( 08/02/96 to 08/31/96 ):
( 1,002.57/1,000)-1 = 0.26%
YEAR TO DATE: ( 08/02/96 to 08/31/96 ):
( 1,002.57/1,000)-1 = 0.26%
</TABLE>
Load
<TABLE>
<S> <C> <C>
SINCE INCEPTION: ( 08/02/96 to 08/31/96 ):
( 957.57/1,000)-1 = -4.24%
YEAR TO DATE: ( 08/02/96 TO 08/31/96 ):
( 957.57/1,000)-1 = -4.24%
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000711663
<NAME> PACIFIC HORIZON FUNDS, INC.
<SERIES>
<NUMBER> 181
<NAME> PACIFIC HORIZON SHORT-TERM GOVERNMENT FUND
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> AUG-02-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 2889292
<INVESTMENTS-AT-VALUE> 2884735
<RECEIVABLES> 132250
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3016985
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 58129
<TOTAL-LIABILITIES> 58129
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2963484
<SHARES-COMMON-STOCK> 296406
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 71
<ACCUM-APPREC-OR-DEPREC> (4557)
<NET-ASSETS> 2958856
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9247
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 9247
<REALIZED-GAINS-CURRENT> (71)
<APPREC-INCREASE-CURRENT> (4557)
<NET-CHANGE-FROM-OPS> 4619
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 9247
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 330511
<NUMBER-OF-SHARES-REDEEMED> 296406
<SHARES-REINVESTED> 34105
<NET-CHANGE-IN-ASSETS> 2958856
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 390
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 33876
<AVERAGE-NET-ASSETS> 1869069
<PER-SHARE-NAV-BEGIN> 10.000
<PER-SHARE-NII> .050
<PER-SHARE-GAIN-APPREC> (.020)
<PER-SHARE-DIVIDEND> .050
<PER-SHARE-DISTRIBUTIONS> .000
<RETURNS-OF-CAPITAL> .000
<PER-SHARE-NAV-END> 9.980
<EXPENSE-RATIO> .000
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
