<PAGE> 1
As filed with the Securities and Exchange Commission on June 16, 1997
Registration Nos. 2-81110/811-4293
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]
Post-Effective Amendment No. 56 [x]
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 58 [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.
Registrant has registered an indefinite number of its shares under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940, as amended. The Registrant has filed its Rule 24f-2 Notice relating to
such shares for Registrant's most recent fiscal year on April 29, 1997.
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<PAGE> 2
PACIFIC HORIZON FUNDS, INC.
Pacific Horizon Shares of the
Tax-Exempt Money Fund and California Tax-Exempt Money Market Fund
and
X Shares of the
California Tax-Exempt Money Market Fund
--------------------
Form N-1A Item Prospectus Caption
- -------------- ------------------
Part A
- ------
1. Cover Page............................... Cover Page
2. Synopsis................................. Expense Summary
3. Condensed Financial Information.......... Financial Highlights;
Performance Calculations
4. General Description of Registrant........ Description of Shares; Cover
Page; Investment Objectives
and Policies; Investment
Limitations; Other Investment
Practices; Special
Considerations and Risks
5. Management of the Fund................... Management of the Funds
5.A. Management's Discussion of
Fund Performance....................... *
6. Capital Stock and Other
Securities............................. Description of Shares;
Dividends; Distributions and
Taxes
7. Purchase of Securities Being
Offered................................. Purchase of Shares; Redemption
of Shares; Special Management
Services Plan; Distribution
and Services Plan; Management
of the Funds; Shareholder
Services; Performance
Calculations
8. Redemption or Repurchase................. Redemption of Shares;
Shareholder Services; Special
Management Services Plan;
Distribution and Services Plan
9. Pending Legal Proceedings................ *
- ----------
* Item inapplicable or answer negative.
<PAGE> 3
PROSPECTUS
JUNE 16, 1997
Pacific Horizon Shares of the
TAX-EXEMPT MONEY FUND
CALIFORNIA TAX-EXEMPT
MONEY MARKET FUND
X Shares of the
CALIFORNIA TAX-EXEMPT MONEY MARKET FUND
Investment Portfolios Offered by Pacific Horizon Funds, Inc.
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THIS PROSPECTUS APPLIES TO THE X SHARES OF THE CALIFORNIA TAX-EXEMPT MONEY
MARKET FUND AND PACIFIC HORIZON SHARES OF THE TAX-EXEMPT MONEY FUND AND THE
CALIFORNIA TAX-EXEMPT MONEY MARKET FUND (THE "FUNDS"), TWO TAX-EXEMPT INVESTMENT
PORTFOLIOS OFFERED BY PACIFIC HORIZON FUNDS, INC. (THE "COMPANY"). THE FUNDS ARE
DESIGNED TO PROVIDE INVESTORS WITH DAILY LIQUIDITY. THE COMPANY IS REGISTERED
UNDER THE INVESTMENT COMPANY ACT OF 1940 AS AN OPEN-END MANAGEMENT INVESTMENT
COMPANY. THE TAX-EXEMPT MONEY FUND IS A DIVERSIFIED INVESTMENT PORTFOLIO AND THE
CALIFORNIA TAX-EXEMPT MONEY MARKET FUND IS A NON-DIVERSIFIED INVESTMENT
PORTFOLIO.
THE INVESTMENT OBJECTIVE OF THE TAX-EXEMPT MONEY FUND IS TO PROVIDE AS HIGH A
LEVEL OF CURRENT INTEREST INCOME EXEMPT FROM FEDERAL INCOME TAXES AS IS
CONSISTENT WITH RELATIVE STABILITY OF PRINCIPAL. THE INVESTMENT OBJECTIVE OF THE
CALIFORNIA TAX-EXEMPT MONEY MARKET FUND IS TO SEEK AS HIGH A LEVEL OF CURRENT
INTEREST INCOME FREE OF FEDERAL INCOME TAX AND CALIFORNIA STATE PERSONAL INCOME
TAX AS IS CONSISTENT WITH THE PRESERVATION OF CAPITAL AND RELATIVE STABILITY OF
PRINCIPAL. THE FUNDS SEEK TO ACHIEVE THEIR OBJECTIVES BY INVESTING PRIMARILY IN
U.S. DOLLAR-DENOMINATED OBLIGATIONS THE INTEREST ON WHICH IS EXEMPT FROM REGULAR
FEDERAL INCOME TAX, AND IN THE CASE OF THE CALIFORNIA TAX-EXEMPT MONEY MARKET
FUND, IS ALSO EXEMPT FROM TAXATION UNDER THE LAWS OR CONSTITUTION OF CALIFORNIA.
THE CALIFORNIA TAX-EXEMPT MONEY MARKET FUND IS, AND THE TAX-EXEMPT MONEY FUND
MAY BE, CONCENTRATED IN SECURITIES ISSUED BY THE STATE OF CALIFORNIA OR ENTITIES
WITHIN THE STATE OF CALIFORNIA AND THE CALIFORNIA TAX-EXEMPT MONEY MARKET FUND
MAY INVEST A SIGNIFICANT PERCENTAGE OF ITS ASSETS IN A SINGLE ISSUER. THEREFORE,
INVESTMENT IN THE FUNDS MAY BE RISKIER THAN AN INVESTMENT IN OTHER TYPES OF
MONEY MARKET FUNDS.
(Continued next page)
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Shares of the Funds are not bank deposits or obligations of, or guaranteed or
endorsed by, Bank of America National Trust and Savings Association or any of
its affiliates and are not federally insured by, guaranteed by, obligations of
or otherwise supported by the U.S. Government, the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other governmental agency. Each
Fund seeks to maintain its net asset value per share at $1.00 for purposes of
purchases and redemptions, although there can be no assurance that it will be
able to do so on a continuous basis. Investment in the Funds involves investment
risk, including the possible loss of principal amount invested.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus, in the Statement
of Additional Information and the Funds' official sales literature, in
connection with the offering of the Funds' shares and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or its distributor. This Prospectus does not constitute an offer
by the Funds or by the distributor to sell, or a solicitation of any offer to
buy, any of the securities offered hereby in any jurisdiction to any person to
whom it is unlawful for the Funds or the distributor to make such offer in such
jurisdiction.
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<PAGE> 4
THIS PROSPECTUS BRIEFLY SETS FORTH CERTAIN INFORMATION ABOUT THE FUNDS DESCRIBED
HEREIN THAT INVESTORS SHOULD KNOW BEFORE INVESTING. IT SHOULD BE READ AND
RETAINED FOR FUTURE REFERENCE. ADDITIONAL INFORMATION ABOUT THE FUNDS IS
CONTAINED IN A STATEMENT OF ADDITIONAL INFORMATION DATED JUNE 16, 1997 THAT HAS
BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND IS AVAILABLE UPON
REQUEST AND WITHOUT CHARGE BY CALLING THE FUND'S DISTRIBUTOR AT (800) 332-3863.
THE STATEMENT OF ADDITIONAL INFORMATION, AS IT MAY FROM TIME TO TIME BE REVISED,
IS INCORPORATED IN ITS ENTIRETY BY REFERENCE INTO THIS PROSPECTUS. THE
SECURITIES AND EXCHANGE COMMISSION MAINTAINS A WEB SITE (HTTP://WWW.SEC.GOV)
THAT CONTAINS THE STATEMENT OF ADDITIONAL INFORMATION, MATERIAL INCORPORATED BY
REFERENCE, AND OTHER INFORMATION REGARDING REGISTRANTS THAT FILE ELECTRONICALLY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
CURRENTLY, X SHARES ARE AVAILABLE ONLY TO QUALIFIED RETAIL CUSTOMERS WHO
PURCHASE SUCH SHARES THROUGH A SWEEP ACCOUNT ("SWEEP ACCOUNT") OFFERED BY BA
INVESTMENT SERVICES, INC. ("BAIS") AND CERTAIN OTHER FINANCIAL SERVICE
ORGANIZATIONS, SUCH AS BANKS OR BROKER-DEALERS ("SERVICE ORGANIZATIONS") AND
THROUGH BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION'S 401(K) PROGRAM.
A SWEEP ACCOUNT COMBINES A BROKERAGE ACCOUNT (THE "TRANSACTION ACCOUNT") WITH A
DAILY SWEEP OF BALANCES TO OR FROM THE CALIFORNIA TAX-EXEMPT MONEY MARKET FUND'S
X SHARES. BAIS OR SERVICE ORGANIZATIONS, AS APPLICABLE, ARE RESPONSIBLE FOR
PROVIDING PERSONS INVESTING IN X SHARES THROUGH A SWEEP ACCOUNT WITH SWEEP
ACCOUNT MATERIALS (THE "SWEEP MATERIALS") DESCRIBING THE VARIOUS FEATURES AND
OPERATIONS OF THE SWEEP ACCOUNT. THE SWEEP MATERIALS SHOULD BE REVIEWED IN
CONJUNCTION WITH THIS PROSPECTUS.
PACIFIC HORIZON SHARES MAY BE PURCHASED DIRECTLY FROM CONCORD FINANCIAL GROUP,
INC., BY CLIENTS OF BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
THROUGH THEIR QUALIFIED TRUST AND AGENCY ACCOUNTS OR BY CLIENTS OF SERVICE
ORGANIZATIONS.
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION ("BANK OF AMERICA"), SAN
FRANCISCO, CALIFORNIA, ACTS AS INVESTMENT ADVISER TO THE FUNDS. CONCORD
FINANCIAL GROUP, INC. SPONSORS THE FUNDS AND ACTS AS THEIR DISTRIBUTOR AND THE
BISYS GROUP, INC. ACTS AS THEIR ADMINISTRATOR, NEITHER OF WHICH IS AFFILIATED
WITH BANK OF AMERICA.
PORTFOLIO SECURITIES HELD BY EACH FUND HAVE REMAINING MATURITIES OF THIRTEEN
MONTHS OR LESS FROM THE DATE OF PURCHASE BY THE FUND. PORTFOLIO SECURITIES WHICH
HAVE CERTAIN PUT OR DEMAND FEATURES EXERCISABLE BY A FUND WITHIN THIRTEEN MONTHS
(AS WELL AS CERTAIN U.S. GOVERNMENT OBLIGATIONS WITH FLOATING OR VARIABLE
INTEREST RATES) AND SECURITIES HELD AS COLLATERAL FOR REPURCHASE AGREEMENTS MAY
HAVE LONGER MATURITIES.
<PAGE> 5
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EXPENSE SUMMARY 2
FINANCIAL HIGHLIGHTS 4
INVESTMENT OBJECTIVES AND
POLICIES 7
MANAGEMENT OF THE FUNDS 15
PURCHASE OF SHARES 18
REDEMPTION OF SHARES 21
SHAREHOLDER SERVICES 23
DIVIDENDS, DISTRIBUTIONS AND
TAXES 25
DESCRIPTION OF SHARES 27
PERFORMANCE CALCULATIONS 29
- ------------------------------------------------------------------------------------------------------------------------
DISTRIBUTOR: INVESTMENT ADVISER:
Concord Financial Group, Inc. Bank of America National Trust and Savings Association
3435 Stelzer Road 555 California Street
Columbus, OH 43219-3035 San Francisco, CA 94104
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 6
EXPENSE SUMMARY
The following table sets forth certain information regarding the shareholder
transaction expenses imposed by X Shares of the California Tax-Exempt Money
Market Fund and Pacific Horizon Shares of the Tax-Exempt Money Fund and
California Tax-Exempt Money Market Fund and the annual operating expenses
incurred by X Shares of the California Tax-Exempt Money Market Fund, and the
Pacific Horizon Shares of the California Tax-Exempt Money Market Fund and
Tax-Exempt Money Fund during the last fiscal year. Actual expenses may vary.
Hypothetical examples based on the summary are also shown.
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<TABLE>
<CAPTION>
TAX-EXEMPT CALIFORNIA TAX-EXEMPT MONEY
MONEY FUND MARKET
-------------- ----------------------------
PACIFIC PACIFIC
HORIZON SHARES X SHARES(1) HORIZON SHARES
-------------- ----------- --------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases......................... None None None
Maximum Sales Load Imposed on
Reinvested Dividends.......................................... None None None
Maximum Deferred Sales Load..................................... None None None
Redemption Fees(2).............................................. None None None
Exchange Fee.................................................... None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees................................................. .20% .20% .20%
Rule 12b-1 Fees................................................. 0% .30%(3) 0%
Special Management or Shareholder Services Fees (after
waivers)...................................................... .32% .25% .32%(4)
All Other Expenses (after waivers).............................. .08% .05% .05%
-------- ------ --------
Total Operating Expenses (after waivers)(4)..................... .60% .80% .57%(4)
======== ====== ========
</TABLE>
- ---------------
(1) Additional fees charged by BAIS or Service Organizations related to the
Sweep Account are not included in this table. For additional information
with respect to Sweep Account fees and charges, including a description of
the services available to Sweep Account holders, you should refer to the
Sweep Materials.
(2) The Company reserves the right to impose a charge for wiring redemption
proceeds.
(3) Because of the Distribution Plan payments paid by X Shares of the California
Tax-Exempt Money Market Fund as shown in the above table, long-term Class X
shareholders may pay more than the economic equivalent of the maximum
front-end sales charge permitted by NASD Regulation, Inc.
(4) Absent fee waivers, Special Management Fees and Total Operating Expenses
would have been .35% and .60%, respectively, with respect to Pacific Horizon
Shares of the California Tax-Exempt Money Market Fund.
2
<PAGE> 7
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<TABLE>
<CAPTION>
EXAMPLES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- -------- -------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) a 5% annual return and (2) redemption at the end
of each time period:
Tax-Exempt Money Fund
Pacific Horizon Shares......................................... $6 $19 $33 $ 75
California Tax-Exempt Money Market
Pacific Horizon Shares......................................... $6 $18 $32 $ 71
X Shares....................................................... $8 $26 $44 $ 99
</TABLE>
- --------------------------------------------------------------------------------
The foregoing Expense Summary and Example are intended to assist investors in X
Shares of the California Tax-Exempt Money Market Fund and Pacific Horizon Shares
of the Tax-Exempt Money Fund and California Tax-Exempt Money Market Fund in
understanding the various shareholder transaction and operating expenses of each
class that investors bear either directly or indirectly. Investors bear
operating expenses indirectly since they reduce the amount of income paid by the
Funds to investors as dividends. From time to time, the investment adviser and
administrator may prospectively waive a portion of their respective fees and/or
assume certain expenses of the Funds. See "Management of the Funds" and
"Description of Shares" for more complete descriptions of the various expenses
referred to above.
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RETURN AND OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND
OPERATING EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
3
<PAGE> 8
FINANCIAL HIGHLIGHTS
The Tax-Exempt Fund commenced operations on July 10, 1987 as a separate
investment portfolio (the "Predecessor Tax-Exempt Fund") of The Horizon Funds.
On January 19, 1990, the Predecessor Tax-Exempt Fund was reorganized as the
Tax-Exempt Money Fund of the Company and had previously offered only two series
of shares -- Horizon Shares and Horizon Service Shares. The Company first
offered Pacific Horizon Shares of the Tax-Exempt Money Fund on July 9, 1993.
Pacific Horizon Shares bear the expense of a Special Management Services Plan at
an annual rate not to exceed 0.32% of the average daily net asset value of the
Tax-Exempt Money Fund's Pacific Horizon Shares. See "Description of Shares"
below for certain differences among the Pacific Horizon Shares, Horizon Shares
and Horizon Service Shares, including differences relating to expenses.
The table below sets forth certain information concerning the investment results
for Pacific Horizon Shares of the Tax-Exempt Money Fund for the periods
indicated. The information for the years and periods indicated contained in the
Financial Highlights has been audited by Price Waterhouse LLP independent
accountants of the Tax-Exempt Money Fund, whose unqualified report on the
financial statements containing such information for the four years in the
periods ended February 28, 1997 is incorporated by reference into the Statement
of Additional Information, which may be obtained upon request. The Financial
Highlights should be read in conjunction with the financial statements and notes
thereto and the unqualified report of the independent accountants which are
incorporated by reference in the Statement of Additional Information.
Selected Data for a Pacific Horizon Share Outstanding Throughout Each of the
Periods Indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TAX-EXEMPT MONEY FUND
------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1997 1996 1995 1994*
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
PACIFIC HORIZON SHARES:
Net asset value per share, beginning of
period................................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
Income from Investment Operations:
Net investment income.................... 0.0290 0.0327 0.0253 0.0124
Less Dividends:
Dividends from net investment income..... (0.0290) (0.0327) (0.0253) (0.0124)
-------- -------- -------- --------
Net change in net asset value per share.... 0.0000 0.0000 0.0000 0.0000
-------- -------- -------- --------
Net asset value per share, end of period... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total return............................... 2.94% 3.32% 2.56% 1.25%P
Ratios/Supplemental Data:
Net assets, end of period (millions)..... $ 86 $ 50 $ 37 $ 50
Ratio of expenses to average net
assets................................ 0.60% 0.63% 0.60% 0.60%+**
Ratio of net investment income to average
net assets............................ 2.91% 3.26% 2.47% 1.95%+**
</TABLE>
- ---------------
* For the period July 9, 1993 (initial offering date) through February 28,
1994.
** Includes fees waived by the Adviser and Administrator which had the effect of
reducing the ratio of expenses to average net assets and increasing the ratio
of net investment income to average net assets by 0.01% (annualized).
+ Annualized.
P Not annualized.
4
<PAGE> 9
The California Tax-Exempt Money Market Fund commenced operations on December 6,
1989 as a portfolio of the Company with a single series of shares, Pacific
Horizon Shares. On March 1, 1993 the California Tax-Exempt Money Market Fund
began offering a second series of shares known as the Horizon Service Shares. On
September 2, 1996, the California Tax-Exempt Money Market Fund began offering an
X Share class. The Company has also classified an S Share class and a Horizon
Share class of the California Tax-Exempt Money Market Fund. Horizon Shares,
Horizon Service Shares, and S Shares of the Tax-Exempt Money and California
Tax-Exempt Money Market Fund are offered through another prospectus. The shares
of each class in the California Tax-Exempt Money Market Fund represent equal pro
rata interests in such Fund, except that they bear different expenses which
reflect the difference in the range of services provided to them. X Shares bear
the expense of a distribution and services plan (the "Distribution and Services
Plan") at annual rates not to exceed 0.55% of the average daily net asset value
on the Fund's respective outstanding X Shares. Pacific Horizon Shares bear the
expense of a special management services plan at an annual rate not to exceed
0.35% of the average daily net asset value of the California Tax-Exempt Money
Market Fund's outstanding Pacific Horizon Shares. See "Description of Shares"
below for certain differences among the Pacific Horizon Shares, Horizon Shares,
Horizon Service Shares and X Shares, including differences relating to expenses.
The tables below set forth certain information concerning the investment results
for Pacific Horizon Shares and X Shares of the California Tax-Exempt Money
Market Fund for the periods indicated. The information contained in the (i)
Financial Highlights relating to the Pacific Horizon Shares insofar as it
pertains to each of the five fiscal years in the five year period ended February
28, 1997 and (ii) Financial Highlights relating to X Shares insofar as it
pertains to the fiscal period ended February 28, 1997 has been audited by Price
Waterhouse LLP, independent accountants of the California Tax-Exempt Money
Market Fund, whose unqualified report on the financial statements containing
such information is incorporated by reference in the Statement of Additional
Information, which may be obtained upon request. The Financial Highlights should
be read in conjunction with the financial statements and notes thereto and the
unqualified report of the independent accountants which are incorporated by
reference in the Statement of Additional Information.
5
<PAGE> 10
Selected Data for a Pacific Horizon Share Outstanding Throughout Each of the
Periods Indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALIFORNIA TAX-EXEMPT MONEY MARKET FUND+
-------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD
------------------------------------------------------------------------------------ ENDED
FEB. 28, FEB. 29, FEB. 28, FEB. 28, FEB. 28, FEB. 29, FEB. 28, FEB. 28,
1997 1996 1995 1994 1993 1992 1991 1990*
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PACIFIC HORIZON SHARES:
Net asset value per share,
beginning of period........ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income....... 0.0284 0.0324 0.0249 0.0186 0.0224 0.0364 0.0495 0.0118
Net realized gain (loss) on
securities................ 0.0000 (0.0001) (0.0001) 0.0002 (0.0002) 0.0000 (0.0001) 0.0000
-------- -------- -------- -------- -------- -------- -------- --------
Total income from investment
operations.................. 0.0284 0.0323 0.0248 0.0188 0.0222 0.0364 0.0494 0.0118
Less Dividends:
Dividends from net investment
income...................... (0.0284) (0.0324) (0.0249) (0.0186) (0.0224) (0.0364) (0.0495) (0.0118)
-------- -------- -------- -------- -------- -------- -------- --------
Net change in net asset value
per share................... 0.0000 (0.0001) (0.0001) 0.0002 (0.0002) 0.0000 (0.0001) 0.0000
-------- -------- -------- -------- -------- -------- -------- --------
Net asset value per share, end
of period................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= ========= ========= ========= =========
Total return.................. 2.88% 3.29% 2.52% 1.88% 2.27% 3.70% 5.06% 1.18%a
Ratios/supplemental data:
Net assets, end of period
(millions).................. $ 493 $ 528 $ 187 $ 204 $ 128 $ 107 $ 119 $ 51
Ratio of expenses to average
net assets.................. 0.57%** 0.62% 0.62% 0.66%** 0.66%** 0.57%** 0.55%** 0.49%++**
Ratio of net investment income
to average net assets....... 2.83% 3.35% 2.48% 1.86%** 2.21%** 3.62%** 4.81%** 5.10%++**
</TABLE>
- ---------------
* For the period December 6, 1989 (commencement of operations)
through February 28, 1990.
** Includes fee waivers and expense reimbursements by the Adviser and the
Administrator which had the effect of reducing the ratio of expenses to
average net assets and increasing the ratio of net investment income to
average net assets by 0.03%, 0.02%, 0.08%, 0.13% and 0.22% for the years
ended February 28, 1997, February 28, 1994, February 28, 1993, February 29,
1992 and February 28, 1991, respectively, and 0.49% (annualized) for the
period ended February 28, 1990. For the fiscal years ended February 28, 1997
and February 29, 1996, the Fund received credits from its custodian for
interest earned on uninvested cash balances which were used to offset
custodian fees and expenses. If such credits had not occurred, the ratio of
expenses to average net assets (without fee waivers and/or expense
reimbursements) would have been 0.63% and 0.60%, respectively. The ratio of
net investment income to average net assets was not affected by credits
received from its custodian.
+ Security Pacific National Bank served as investment adviser through April
21, 1992. Bank of America National Trust and Savings Association served as
investment adviser commencing April 22, 1992.
++ Annualized.
a Not annualized.
6
<PAGE> 11
PACIFIC HORIZON CALIFORNIA TAX-EXEMPT MONEY FUND
FINANCIAL HIGHLIGHTS
Selected Data for an X Share Outstanding Throughout Each of the Periods
Indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
OCTOBER 2, 1996 THROUGH
FEBRUARY 28, 1997(a)
-----------------------
<S> <C>
X SHARES
Net asset value per share, beginning of period.............................. $ 1.00
-------
Income from Investment Operations:
Net investment income..................................................... 0.0107
Total income from investment operations..................................... 0.0107
Less dividends to shareholders from net investment income................... (0.0107)
-------
Net change in net asset value per share..................................... 0.0000
-------
Net asset value per share, end of period.................................... $ 1.00
=======
Total Return................................................................ 1.09%(b)
Ratios/Supplemental Data:
Net assets, end of year (millions)........................................ $ 29
Ratio of expenses to average net assets................................... 0.80%#
Ratio of net investment income to average net assets...................... 2.66%#
</TABLE>
- ---------------
<TABLE>
<C> <S>
(a) Period from inception date of share class
# Annualized. During the period, certain fees were voluntarily reduced and/or reimbursed. Fees paid by third parties, however,
had no effect on the ratios.
(b) Not annualized.
</TABLE>
INVESTMENT OBJECTIVES AND
POLICIES
IN GENERAL
This section describes the investment objectives and policies of the Funds.
Assets of the Funds will be invested in dollar-denominated debt securities with
remaining maturities of thirteen months or less as defined by the Securities and
Exchange Commission (the "SEC"), and the dollar-weighted average portfolio
maturity of each Fund will not exceed 90 days. All securities acquired by the
Funds will be determined by the investment adviser, under guidelines established
by the Company's Board of Directors, to present minimal credit risks. Securities
acquired by the Tax-Exempt Money Fund will, under normal market conditions, be
"First Tier Securities," (as defined by the SEC) of the types described below.
During temporary defensive periods or if in the investment adviser's opinion
suitable First Tier Securities are not available for investment, however, the
Tax-Exempt Money Fund may also acquire "Eligible Securities" (as defined by the
SEC) of the types described below. Securities acquired by the California
Tax-Exempt Money Market Fund will be Eligible Securities. First Tier Securities
consist of instruments that are rated at the time of purchase in the top rating
category by one (if rated by only one) or more unaffiliated nationally
recognized statistical rating organizations ("NRSROs") including Standard and
Poor's Ratings Group, Division of McGraw-Hill ("Standard & Poor's"), Moody's
Investors Service, Inc. ("Moody's"), Duff & Phelps Credit Co. ("Duff and
Phelps"), Thomson BankWatch, Inc. ("Thomson's") or Fitch Investors Service, Inc.
("Fitch") or issued by issuers with such ratings. Eligible Securities consist
either of instruments that are rated at the time of purchase in the top two
ratings categories by one or more NRSROs,
7
<PAGE> 12
or are issued by issuers with such ratings. The Appendix to the Statement of
Additional Information includes a description of the applicable NRSRO ratings.
Unrated instruments (including instruments with long-term but not short-term
ratings) purchased by a particular Fund will be of comparable quality to the
rated instruments that the Fund may purchase, as determined by the Funds'
investment adviser pursuant to guidelines approved by the Board of Directors.
TAX-EXEMPT MONEY FUND. The Tax-Exempt Money Fund's investment objective is to
provide as high a level of current interest income exempt from federal income
taxes as is consistent with relative stability of principal. The Fund invests
substantially all of its assets in a diversified portfolio of U.S.
dollar-denominated short-term obligations issued by or on behalf of states,
territories and possessions of the United States, the District of Columbia and
their political subdivisions, agencies, instrumentalities and authorities, the
interest on which, in the opinion of bond counsel to the issuer, is exempt from
regular federal income tax ("Municipal Securities"). Portfolio securities held
by the Fund have remaining maturities of thirteen months or less from the date
of purchase by the Fund. (Portfolio securities which have certain put or demand
features exercisable by the Fund within thirteen months or are subject to
repurchase agreements may have longer maturities.)
As a matter of fundamental policy, under normal market conditions at least 80%
of the Fund's total assets will be invested in Municipal Securities (other than
private activity bonds the interest on which is treated as a specific tax
preference item under the federal alternative minimum tax). The Fund may also
invest in taxable obligations and may hold uninvested cash reserves pending
investment, during temporary defensive periods or if, in the opinion of the
Fund's investment adviser, suitable tax-exempt obligations are not available.
Uninvested cash reserves will not earn income. Taxable obligations acquired by
the Fund will not exceed under normal market conditions 20% of the Fund's total
assets at the time of purchase. Such taxable obligations include obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
(some of which may be subject to repurchase agreements), certificates of deposit
and bankers' acceptances of selected banks and commercial paper. Because the
Fund may invest in securities backed by banks and other financial institutions,
changes in the credit quality of these institutions could cause losses to the
Fund and affect its share price. These obligations are described further in the
Statement of Additional Information.
CALIFORNIA TAX-EXEMPT MONEY MARKET FUND. The California Tax-Exempt Money Market
Fund's investment objective is to seek as high a level of current interest
income free of federal income tax and California state personal income tax as is
consistent with the preservation of capital and relative stability of principal.
The Fund's assets are primarily invested in Municipal Securities issued by or on
behalf of the State of California and other governmental issuers. Municipal
Securities acquired by the Fund will generally have remaining maturities of
thirteen months or less.
As a matter of fundamental policy, under normal market conditions at least 80%
of the Fund's net assets will be invested in Municipal Securities the interest
on which is exempt from taxation under the California Constitution or the laws
of California ("California Municipal Securities"). So long as at least 50% of
the Fund's total assets are invested in debt obligations the interest on which
is exempt from taxation by California ("California Exempt Securities," which
generally are limited to California Municipal Securities and certain U.S.
Government and U.S. Possession obligations) as of the end of each quarter,
dividends paid by the Fund which are derived from interest on California Exempt
Securities will be exempt from California state personal income tax; if this
policy is not achieved, no portion of the Fund's dividends will be exempt from
California state personal income tax. Dividends derived from interest on
Municipal Securities other than California Municipal Securities will be subject
to California state
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personal income tax. See "Dividends, Distributions and Taxes."
The Fund may hold uninvested cash reserves pending investment, during temporary
defensive periods, or if, in the opinion of the Fund's investment adviser,
suitable tax-exempt obligations are unavailable. In accordance with the Fund's
investment objective, and subject to the Fund's fundamental policy that under
normal market conditions 80% of its net assets be invested in California
Municipal Securities, investments may be made in taxable obligations of up to
thirteen months in maturity if, for example, suitable tax-exempt obligations are
unavailable or if acquisition of U.S. Government or other taxable securities is
deemed appropriate for temporary defensive purposes. Such taxable obligations
include, without limitation, obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (some of which may be subject to
repurchase agreements), certificates of deposit and bankers' acceptances of
selected banks and commercial paper. Because the California Tax-Exempt Money
Market Fund may invest in securities backed by banks and other financial
institutions, changes in the credit quality of these institutions could cause
losses to the Fund and affect its share price. These obligations are further
described in the Statement of Additional Information. Under normal market
conditions, the Fund anticipates that not more than 5% of its net assets will be
invested in any one category of taxable securities. Additionally, the Fund will
not invest more than 10% of its net assets in securities that are illiquid
because of the absence of a readily available market or otherwise, including
repurchase agreements providing for settlement more than seven days after
notice.
MUNICIPAL SECURITIES
The two principal classifications of Municipal Securities which may be held by
the Funds are "general obligation" securities and "revenue" securities. General
obligation securities are secured by the issuer's pledge of its full faith,
credit and taxing power for the payment of principal and interest. Revenue
securities are payable only from the revenues derived from a particular facility
or class of facilities or, in some cases, from the proceeds of a special excise
tax or other specific revenue source such as the user of the facility being
financed. Private activity bonds held by the Funds are in most cases revenue
securities which are not payable from the unrestricted revenues of the issuer.
Consequently, the credit quality of such private activity bonds is usually
directly related to the credit ratings of the users of the facility involved.
The Funds may also require "moral obligation" securities, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
securities is unable to meet its debt service obligations from current revenues,
it may draw on a reserve fund, the restoration of which is a moral commitment
but not a legal obligation of the state or municipality which created the
issuer.
Municipal Securities include debt obligations issued by governmental entities to
obtain funds for various public purposes, including the construction of a wide
range of public facilities, the refunding of outstanding obligations, the
payment of general operating expenses and the extension of loans to public
institutions and facilities. In addition, certain types of private activity
bonds are issued by or on behalf of public authorities to finance various
privately-operated facilities. Such obligations are included within the term
Municipal Securities if the interest paid thereon is exempt from regular federal
income tax. Municipal Securities also include short-term tax anticipation notes,
bond anticipation notes, revenue anticipation notes and other forms of
short-term loan obligations. Such notes are issued with a short-term maturity in
anticipation of the receipt of tax funds, the proceeds of bond placements or
other revenues. The Funds may also purchase tax-exempt commercial paper.
Securities acquired by the Funds may be in the form of custodial receipts
evidencing rights to receive a specific future interest payment, principal
payment or both on certain Municipal Securi-
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ties. Such obligations are held in custody by a bank on behalf of holders of the
receipts. These custodial receipts are known by various names, including
"Municipal Receipts," "Municipal Certificates of Accrual on Tax-Exempt
Securities" ("M-CATS") and "Municipal Zero-Coupon Receipts." A Fund may also
purchase from time to time participation interests in debt securities held by
trusts or financial institutions. A participation interest gives a Fund an
undivided interest (up to 100%) in the underlying obligation. Participation
interests purchased by a Fund may have fixed, floating or variable rates of
interest, and will have remaining maturities of thirteen months or less as
determined in accordance with the regulations of the Securities and Exchange
Commission (although the securities held by the issuer may have longer
maturities). If a participation interest is unrated, the investment adviser will
have determined that the interest is of comparable quality to those instruments
in which the Fund involved may invest pursuant to guidelines approved by the
Company's Board of Directors. For certain participation interests, the Fund
involved will have the right to demand payment, on not more than 30 days'
notice, for all or any part of such until maturity participation interest, plus
accrued interest. As to these instruments, the Funds intend to exercise their
right to demand payment as needed to provide liquidity, to maintain or improve
the quality of their respective investment portfolios or upon a default (if
permitted under the terms of the instrument). Although a participation interest
may be sold by a Fund under normal circumstances, they will be held.
Opinions relating to the validity of Municipal Securities and to the exemption
of interest thereon from regular federal income tax (and, with respect to
California Municipal Securities, California state personal income tax) are
rendered by bond counsel to the respective issuers at the time of issuance.
Neither the Funds nor their investment adviser will review the proceedings
relating to the issuance of Municipal Securities or the basis for such opinions.
OTHER INVESTMENT PRACTICES
VARIABLE AND FLOATING RATE INSTRUMENTS. Securities purchased by the Funds may
include variable and floating rate instruments, which may have a stated maturity
in excess of the Funds' maturity limitations but which will, in such event and
except with respect to certain U.S. Government obligations purchased by the
Tax-Exempt Money Fund, permit the Fund involved to demand payment of the
principal of the instrument at least once every thirteen months upon not more
than thirty days' notice. Such instruments may include variable amount master
demand notes that permit the indebtedness thereunder to vary in addition to
providing for periodic adjustments in the interest rate. There may be no active
secondary market with respect to a particular variable or floating rate
instrument. Nevertheless, the periodic re-adjustments of their interest rates
tend to assure that their value to a Fund will approximate their par value.
Illiquid variable and floating rate instruments (instruments which are not
payable upon seven days notice and do not have an active trading market) that
are acquired by a Fund are subject to a Fund's percentage limitations on
illiquid investments. The creditworthiness of the issuers of such instruments
and their ability to repay principal and interest will be continuously monitored
by a Fund's investment adviser.
WHEN-ISSUED PURCHASES, FORWARD COMMITMENTS AND DELAYED SETTLEMENTS. The Funds
may purchase securities on a "when-issued" basis and may purchase or sell
securities on a "forward commitment" or "delayed settlement" basis. When-issued
and forward commitment transactions, which involve a commitment by a Fund to
purchase or sell particular securities with payment and delivery taking place at
a future date (perhaps one or two months later), permit the Fund to lock in a
price or yield on a security it owns or intends to purchase, regardless of
future changes in interest rates. Delayed settlement describes a securities
transaction in the secondary market for which settlement will occur sometime in
the future. When-issued, forward
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commitment and delayed settlement transactions involve the risk, however, that
the yield or price obtained in a transaction may be less favorable than the
yield or price available in the market when the securities delivery take place.
A Fund's forward commitments, when-issued purchases and delayed settlements are
not expected to exceed 25% of the value of its total assets absent unusual
market conditions. A Fund's liquidity and the ability of the investment adviser
to manage its portfolios may be adversely affected in the event its forward
commitments, when-issued purchases and delayed settlements ever exceeded 25% of
the value of its total assets. The Funds do not intend to engage in these
transactions for speculative purposes but only in furtherance of their
respective investment objectives.
STAND-BY COMMITMENTS. The Funds may acquire "stand-by commitments" with respect
to Municipal Securities held in their respective portfolios. Under a stand-by
commitment, a dealer agrees to purchase at a Fund's option specified Municipal
Securities at a specified price. The Funds will acquire stand-by commitments
solely to facilitate portfolio liquidity and do not intend to exercise their
rights thereunder for trading purposes. The California Tax-Exempt Money Market
Fund expects that "stand-by commitments" will generally be available without the
payment of any direct or indirect consideration. However, if necessary or
advisable, the Fund may pay for a "stand-by commitment" either separately in
cash or by paying a higher price for portfolio securities which are acquired
subject to the commitment (thus reducing the yield to maturity otherwise
available for the same securities).
REPURCHASE AGREEMENTS. The Funds may agree to purchase securities from
financial institutions, such as banks and broker-dealers as are deemed
creditworthy by the investment adviser under guidelines approved by the Board of
Directors, subject to the seller's agreement to repurchase them at an agreed
upon time and price ("repurchase agreements"). Although the securities subject
to a repurchase agreement may bear maturities exceeding thirteen months, the
Funds intend only to enter into repurchase agreements with maturities of 60 days
or less. Securities subject to repurchase agreements are held either by the
Company's custodian, or sub-custodian, or in the Federal Reserve/Treasury
Book-Entry System. The seller under a repurchase agreement will be required to
deliver instruments the value of which is greater than the repurchase price.
Default by the seller would, however, expose the Fund involved to possible loss
because of adverse market action or delay in connection with the disposition of
the underlying obligations. Repurchase agreements are considered to be loans
under the Investment Company Act of 1940.
REVERSE REPURCHASE AGREEMENTS. The Funds may borrow monies for temporary
purposes by entering into reverse repurchase agreements in accordance with the
investment restrictions described below. Pursuant to such agreements, a Fund
would sell portfolio securities to financial institutions and agree to
repurchase them at an agreed upon date and price. At the time a Fund enters into
a reverse repurchase agreement, it will place in a segregated custodial account
liquid assets or high grade debt securities having a value equal to or greater
than the repurchase price and the investment adviser will continuously monitor
the account to ensure that the value is maintained. A Fund would only enter into
reverse repurchase agreements to avoid otherwise selling securities during
unfavorable market conditions to meet redemptions. Reverse repurchase agreements
involve the risk that the market value of the portfolio securities sold by the
Fund involved may decline below the price of the securities the Fund is
obligated to repurchase. Interest paid by a Fund in connection with a reverse
repurchase agreement will reduce the net investment income of the Fund. Reverse
repurchase agreements are considered to be borrowings under the Investment
Company Act of 1940. A Fund will not purchase securities while it has borrowings
(including reverse repurchase agreements) outstanding.
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SPECIAL CONSIDERATIONS AND RISKS
The California Tax-Exempt Money Market Fund is, and the Tax-Exempt Money Fund
may be, concentrated in securities issued by the State of California or entities
within the State of California and the California Tax-Exempt Money Market Fund
may invest a significant percentage of its assets in a single issuer. Therefore,
investment in the Funds may be riskier than an investment in other types of
money market funds.
In seeking to achieve their respective investment objectives the Funds may
invest in Municipal Securities that are private activity bonds the interest on
which, although exempt from regular federal income tax, may constitute an item
of tax preference for purposes of the federal alternative minimum tax. See
"Dividends, Distributions and Taxes." Investments in such securities, however,
will not exceed under normal market conditions 20% of a Fund's total assets when
added together with any taxable investments held by a Fund. Moreover, although
the Funds do not presently intend to do so on a regular basis, they may invest
more than 25% of their respective assets in Municipal Securities the interest on
which is paid solely from revenues of similar projects if such investment is
deemed necessary or appropriate by the Funds' investment adviser. Additionally,
although the Tax-Exempt Money Fund may invest more than 25% of its assets in
Municipal Securities the issuers of which are located in the same state, it does
not presently intend to do so on a regular basis other than issuers located in
California. To the extent a Fund's assets are concentrated in Municipal
Securities payable from revenues on similar projects or issued by issuers
located in the same state, the Fund will be subject to the peculiar economic,
political and business risks presented by the laws and economic conditions
relating to such states and projects to a greater extent than it would be if its
assets were not so concentrated.
The California Tax-Exempt Money Market Fund is classified as a non-diversified
investment company under the Investment Company Act of 1940. Investment return
on a non-diversified portfolio typically is dependent upon the performance of a
smaller number of securities relative to the number held in a diversified
portfolio. Consequently, the change in value of any one security may affect the
overall value of a non-diversified portfolio more than it would a diversified
portfolio, and thereby subject the market-based net asset value per share of the
non-diversified portfolio to greater fluctuations. In addition, a
non-diversified portfolio may be more susceptible to economic, political and
regulatory developments than a diversified investment portfolio with similar
objectives may be.
The concentration in California Municipal Securities by the California
Tax-Exempt Money Market Fund and Tax-Exempt Money Fund raises additional
considerations. Payment of the interest on and the principal of these
obligations is dependent upon the continuing ability of California issuers
and/or obligors of state, municipal and public authority debt obligations to
meet their obligations thereunder. Investors should consider the greater risk
inherent in a Fund's concentration in such obligations versus the safety that
comes with a less geographically concentrated investment portfolio and should
compare the yield available on a portfolio of California issues with the yield
of a more diversified portfolio including non-California issues before making an
investment decision.
Many of the Funds' Municipal Securities are likely to be obligations of
California governmental issuers which rely in whole or in part, directly or
indirectly, on real property taxes as a source of revenue. "Proposition
Thirteen" and similar California constitutional and statutory amendments and
initiatives in recent years have restricted the ability of California taxing
entities to increase real property tax revenues. Other initiative measures
approved by California voters in recent years, through limiting various other
taxes, have resulted in a substantial reduction in state revenues. Decreased
state revenues may result in reductions in allocations of state revenues to
local governments.
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Because of the complex nature of the various initiatives mentioned above and
certain possible ambiguities and inconsistencies in their terms and the scope of
various exemptions and exceptions, as well as the impossibility of predicting
the level of future appropriations for state and local California governmental
entities, it is not presently possible to determine the impact of these
initiatives and related measures on the ability of California governmental
issuers to pay interest or repay principal on their obligations. There have,
however, been certain adverse developments with respect to Municipal Securities
of California governmental issuers over the past several years.
In addition to the various initiatives discussed above, economic factors such as
the reduction in defense spending, a decline in tourism and high levels of
unemployment have had an adverse impact on the economy of California. In recent
years, these economic factors reduced revenues to the state government at a time
when expenses of state government such as education costs, various welfare costs
and other expenses were rising. Such economic factors adversely impacted the
ability of state and local California governmental entities to repay debt and
these factors, and others that cannot be predicted, may have an adverse impact
in the future.
In addition to the risk of nonpayment of state and local California governmental
debt, if such debt declines in quality and is downgraded by the NRSROs, it may
become ineligible for purchase by the Funds pursuant to current SEC regulations.
Since there are large numbers of buyers of such debt that are similarly
restricted, the supply of Eligible Securities (as defined above) could become
inadequate at certain times. A more detailed description of special factors
affecting investments in California Municipal Securities, of which investors
should be aware, is set forth in the Statement of Additional Information.
INVESTMENT LIMITATIONS
The investment objective of each Fund is fundamental and may not be changed
without a vote of the holders of a majority of the particular Fund's outstanding
shares (as defined in the Investment Company Act of 1940). A Fund's policies may
be changed by the Company's Board of Directors without the affirmative vote of
the holders of a majority of such Fund's outstanding shares, except that the
following investment limitations may not be changed without such a vote of
shareholders. A description of certain other fundamental investment limitations
is contained in the Statement of Additional Information.
The Tax-Exempt Money Fund may not:
1. Under normal circumstances invest less than 80% of its total assets in
Municipal Securities (other than private activity bonds the interest on which
may be subject to the federal alternative minimum tax).
2. Purchase any securities which would cause 25% or more of the value of its
total assets at the time of such purchase to be invested in the securities of
one or more issuers conducting their principal business activities in the
same industry; provided, however, that (a) there is no limitation with
respect to investments in Municipal Securities or obligations issued or
guaranteed by the Federal Government and its agencies and instrumentalities;
(b) although there is no limitation with respect to investments in
certificates of deposit and bankers' acceptances issued by domestic branches
of United States banks, no more than 10% of the total value of the Fund's
assets at the time of purchase may be invested in certificates of deposit and
bankers' acceptances issued by domestic branches of foreign banks and no more
than 25% of the total value of the Fund's assets at the time of purchase may
be invested in certificates of deposit and bankers' acceptances issued by
domestic branches of foreign banks and foreign branches of domestic banks;
(c) each
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<PAGE> 18
utility service (such as gas, gas transmission, electric and telephone
service) will be considered a single industry for purposes of this policy;
and (d) wholly-owned finance companies will be considered to be in the
industries of their parents if their activities are primarily related to
financing the activities of their parents.
3. Borrow money except from banks for temporary purposes and in amounts not in
excess of 10% of the value of the Fund's total assets at the time of such
borrowing, or mortgage, pledge or hypothecate any assets except in connection
with any such borrowing and in amounts not in excess of the lesser of the
dollar amounts borrowed or 10% of the value of the Fund's total assets at the
time of such borrowing. (This borrowing provision is not for investment
leverage, but solely to facilitate management of the Fund's portfolio by
enabling the Fund to meet redemption requests when the liquidation of
portfolio securities is deemed to be disadvantageous or inconvenient. The
Fund will not purchase any securities while borrowings are outstanding.
Interest paid on borrowed funds will reduce the net investment income of the
Fund.)
4. Invest more than 10% of the value of its total assets in securities with
legal or contractual restrictions on resale (including repurchase agreements
with terms greater than seven days).
The California Tax-Exempt Money Market Fund may not:
1. Under normal market conditions invest less than 80% of its net assets in
California Municipal Securities.
2. Purchase the securities of any issuer if as a result more than 5% of the
value of the Fund's total assets would be invested in the securities of such
issuer, except that (a) up to 50% of the value of the Fund's total assets may
be invested without regard to this 5% limitation provided that no more than
25% of the value of the Fund's total assets are invested in the securities of
any one issuer, and (b) this 5% limitation does not apply to securities
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
3. Borrow money or issue senior securities, except that the Fund may borrow from
banks or enter into reverse repurchase agreements to meet redemptions or for
other temporary purposes in amounts up to 10% of its total assets at the time
of such borrowing; or mortgage, pledge or hypothecate any assets except in
connection with any such borrowing and in amounts not in excess of the lesser
of the dollar amounts borrowed or 10% of its total assets at the time of such
borrowing.
INVESTMENT DECISIONS
Investment decisions for each Fund are made independently from those for other
investment companies and common trust funds managed by Bank of America and its
affiliated entities. Such other investment companies and common trust funds may
also invest in the same securities as a Fund. When a purchase or sale of the
same security is made at substantially the same time on behalf of a Fund and
another investment company or account, available investments or opportunities
for sales will be allocated in a manner which Bank of America believes to be
equitable. In some instances, this investment procedure may adversely affect the
price paid or received by a Fund or the size of the position obtained or sold by
a Fund. In addition, in allocating purchase and sale orders for portfolio
securities (involving the payment of brokerage commissions or dealer
concessions), Bank of America may take into account the sale of shares of a Fund
by broker-dealers and other financial institutions (including affiliates of Bank
of America and the Funds' distributor), provided Bank of America believes that
the quality of the transaction and the amount of the commission are not less
favorable than what they would be with any other unaffiliated qualified firm.
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<PAGE> 19
MANAGEMENT OF THE FUNDS
BOARD OF DIRECTORS. The business of the Company is managed under the direction
of its Board of Directors. Information about the Directors and Officers of the
Company is included in the Statement of Additional Information.
INVESTMENT ADVISER. Bank of America serves as the Funds' investment adviser.
Bank of America, which has principal offices at 555 California Street, San
Francisco, California 94104, is a national banking association formed in 1904
which provides commercial banking and trust business through an extensive system
of branches across the western United States. Bank of America's principal
banking affiliates operate branches in eleven U.S. states as well as corporate
offices in major U.S. cities and branches, and corporate offices and
representative offices in 37 foreign countries and territories. Bank of America
is the successor by merger to Security Pacific National Bank ("Security
Pacific"), which previously served as investment adviser to the Company since it
commenced operations in 1984. Bank of America and its affiliates have over $50
billion under management, including over $14 billion in mutual funds. Bank of
America is a subsidiary of BankAmerica Corporation, a registered bank holding
company.
As investment adviser, Bank of America manages the Funds' investments and is
responsible for all purchases and sales of the Funds' portfolio securities. For
its investment advisory services Bank of America is entitled to receive a fee
accrued daily and payable monthly at the following annual rates: .10% of the
first $3 billion of each Fund's net assets, plus .09% of the next $2 billion of
each Fund's net assets, plus .08% of each Fund's net assets over $5 billion. For
the fiscal year ended February 28, 1997, the Tax-Exempt Money Fund and the
California Tax-Exempt Money Market Fund paid Bank of America advisory fees at
the effective annual rates of .10% and .10% of their respective average daily
net assets.
In addition, Bank of America is also entitled to fees under the Company's
Special Management Services Plan with respect to the Funds' Pacific Horizon
Shares and may receive fees pursuant to the Distribution and Services Plan with
respect to X Shares of the California Tax-Exempt Money Market Fund. Bank of
America and Service organizations may receive fees charged directly to their
customers' accounts in connection with investments in X Shares and/or Pacific
Horizon Shares of the Funds.
ADMINISTRATOR. The BISYS Group, Inc. (the "Administrator"), through its
wholly-owned subsidiary BISYS Fund Services, L.P., serves as the Company's
administrator and assists generally in supervising the Funds' operations. Their
offices are located at 150 Clove Road, Little Falls, New Jersey 07424 and 3435
Stelzer Road, Columbus, Ohio 43219, respectively. Prior to November 1, 1996,
Concord Holding Corporation, an indirect, wholly-owned subsidiary of the current
Administrator served as administrator (the "Prior Administrator").
Under its basic administrative services agreement for the Funds, the
Administrator has agreed to: provide facilities, equipment and personnel to
carry out administrative services for the benefit of all series in the Funds,
including coordination of the preparation of reports to shareholders of the Fund
and the Securities and Exchange Commission; calculation of the net asset value
of the Funds' shares; calculation of dividends and capital gains distributions
to shareholders; payment of the costs of maintaining the Funds' offices;
preparation of tax returns; provision of internal legal and accounting
compliance services; maintenance (or oversight of the maintenance by others
approved by the Board of Directors) of the Funds' books and records; and the
provision of various services (such as the provision of a facility to receive
purchase and redemption orders for the accounts of such shareholders) for
shareholders who have made a minimum initial investment of at least $500,000.
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<PAGE> 20
For its administrative services the Administrator is entitled to receive an
administration fee computed daily and payable monthly at the following annual
rates: .10% of the first $7 billion of each Fund's average daily net assets,
plus .09% of the next $3 billion of each Fund's average daily net assets, plus
.08% of each Fund's average daily net assets over $10 billion. For the fiscal
year ended February 28, 1997, the California Tax-Exempt Money Market Fund and
the Tax-Exempt Money Fund paid the Administrator or Prior Administrator
administration fees at the effective annual rates of .10% and .10% of their
respective average daily net assets.
Pursuant to the authority granted in its agreement with the Company, the
Administrator has entered into an agreement with The Bank of New York under
which the bank performs certain of the services listed above -- e.g.,
calculating the net asset value of the Funds' shares and dividends paid to
shareholders and maintaining the Funds' books and records. The Funds bear all
fees and expenses charged by The Bank of New York for these services.
DISTRIBUTOR. Concord Financial Group, Inc. (the "Distributor") is the principal
underwriter and distributor of shares of the Funds. The Distributor is an
indirect, wholly-owned subsidiary of the Administrator organized to distribute
shares of mutual funds to institutional and retail investors. Its offices are
located at 3435 Stelzer Road, Columbus, Ohio 43219-3035.
The Distributor makes a continuous offering of the Funds' shares and bears the
costs and expenses of printing and distributing to selected dealers and
prospective investors copies of any prospectuses, statements of additional
information and annual and interim reports of the Funds (after such items have
been prepared and set in type by the Funds) that are used in connection with the
offering of shares, and the costs and expenses of preparing, printing and
distributing any other literature used by the Distributor or furnished by it for
use by selected dealers in connection with the offering of the Funds' shares for
sale to the public.
CUSTODIAN AND TRANSFER AGENT. The Bank of New York, located at 90 Washington
Street, New York, New York 10286, serves as the Fund's custodian. BISYS Fund
Services, Inc. (the "Transfer Agent"), 3435 Stelzer Road, Columbus, OH 43219, a
wholly-owned subsidiary of the Administrator, serves as the Funds' transfer
agent and dividend disbursing agent. The Company has also entered into a Cash
Management and Related Services Agreement with The Bank of New York pursuant to
which The Bank of New York receives and disburses funds in connection with the
purchase and redemption of and payment of dividends and other distributions with
respect to the Funds' shares.
DISTRIBUTION AND SERVICES PLAN. Under the Distribution and Services Plan, the
California Tax-Exempt Money Market Fund pays the Distributor for distribution
expenses primarily intended to result in the sale of such Fund's X Shares and
for shareholder servicing expenses. Such distribution expenses include expenses
incurred in connection with advertising and marketing the California Tax-Exempt
Money Market Fund's X Shares; payments to Service Organizations for assistance
in connection with the distribution of X Shares; and expenses incurred in
connection with preparing, printing and distributing prospectuses for the
California Tax-Exempt Money Market Fund (except those used for regulatory
purposes, or for distribution to existing shareholders of the Fund) and in
implementing and operating the Distribution and Services Plan. Shareholder
servicing expenses include expenses incurred in connection with shareholder
services provided by the Distributor and payments to Service Organizations for
the provision of support services with respect to the beneficial owners of X
Shares, such as establishing and maintaining accounts and records relating to
their clients who invest in X Shares, assisting clients in processing exchange
and redemption requests, developing, maintaining and supporting systems
necessary to support Sweep Accounts and in changing divi-
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<PAGE> 21
dend options and account descriptions, and responding to client inquiries
concerning their investments.
Under the Distribution and Services Plan, payments by the California Tax-Exempt
Money Market Fund for distribution expenses and shareholder servicing expenses
may not exceed the annual rate of 0.30% and 0.25%, respectively, of the average
daily net assets of such Fund's X Shares. For the fiscal year ended February 28,
1997, the California Tax-Exempt Money Market Fund made payments under the
Distribution and Services Plan at the effective annual rate of .55% of the X
Shares of the Fund's average daily net assets. These amounts may be reduced
pursuant to undertakings by the Distributor. Payments for distribution expenses
under the Distribution and Services Plan are subject to Rule 12b-1 under the
1940 Act. As stated below under "Description of Shares," fees pursuant to the
Distribution and Services Plan are borne by X Shares of the California
Tax-Exempt Money Market Fund and are not paid with respect to such Fund's other
series of shares.
The Company will obtain a representation from the Service Organizations (and
from Bank of America and the Distributor) that they are or will be licensed as
dealers as required by applicable law or will not engage in activities which
would require them to be so licensed.
SPECIAL MANAGEMENT SERVICES PLAN. The Company has adopted a Special Management
Services Plan pursuant to which Pacific Horizon Shares are sold to securities
dealers, financial institutions and other industry professionals that are
shareholders or dealers of record or which have a servicing relationship
("Shareholder Organizations") with beneficial owners of the Funds' Pacific
Horizon Shares that enter into a Special Management Services Agreement with the
Company pursuant to the Plan. Under the Special Management Services Plan,
Shareholder Organizations have agreed to provide the following support services
to their clients: aggregating and processing purchase and redemption requests
for Pacific Horizon Shares and placing net purchase and redemption orders;
providing a service that invests the assets of shareholder accounts in Pacific
Horizon Shares pursuant to specific or pre-authorized instructions; processing
dividend payments; providing statements periodically to shareholders showing
their positions in Pacific Horizon Shares; providing subaccounting or the
information necessary for subaccounting; if required by law, forwarding
shareholder communications (such as proxies, shareholder reports, annual and
semi-annual financial statements and dividend, distribution and tax notices) to
shareholders; forwarding to shareholders proxy statements and proxies containing
any proposals regarding the Special Management Services Plan or related
agreements; developing and monitoring investor programs offered from time to
time; providing dedicated walk-in and telephone facilities to handle shareholder
inquiries and serve shareholder needs; providing and maintaining specialized
systems for automatic investments; maintaining the registration or qualification
of Pacific Horizon Shares for sale under state securities laws; paying for the
operation of arrangements that facilitate same-day purchases by shareholders;
assuming the expenses of payments made to third parties for services provided in
connection with the investments of their customers in Pacific Horizon Shares;
and providing various other services (such as the provision of a facility to
receive purchase and redemption orders) for shareholders who have made a minimum
initial investment of less than $500,000.
In consideration of the services provided pursuant to the Special Management
Services Plan, Shareholder Organizations are entitled to receive a fee, computed
daily and payable monthly at the annual rate of up to 0.32% of the average daily
net asset value of the Tax-Exempt Money Fund's Pacific Horizon Shares and 0.35%
of the average daily net asset value of the California Tax-Exempt Money Market
Fund's Pacific Horizon Shares (.03% of which is being voluntarily waived by the
Distributor) beneficially owned by
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clients of such Shareholder Organizations. For the fiscal year ended February
28, 1997, the Tax Exempt Money and California Tax Exempt Money Market Funds made
payments under the Special Management Services Plan at the effective annual rate
of .32% and .32% of the Pacific Horizon Shares of the Tax Exempt Money and
California Tax Exempt Money Market Fund. The fees paid under the Special
Management Services Plan are for services provided by Shareholder Organizations
to their clients who beneficially own Pacific Horizon Shares of the Funds and
are not borne by the Funds' Horizon Shares or Horizon Service Shares, by X
Shares or S Shares of the California Tax-Exempt Money Market Fund or by S Shares
of the Tax-Exempt Money Fund.
FEE WAIVERS. Except as noted in this Prospectus and the Statement of Additional
Information, the Funds' service contractors bear all expenses in connection with
the performance of their services, and the Funds bear the expenses incurred in
their operations. Expenses can be reduced by voluntary fee waivers and expense
reimbursements by Bank of America and other service providers. From time to time
during the course of each Funds' fiscal year, Bank of America and/or the
Administrator may prospectively waive payment of fees and/or reimburse certain
expenses of a Fund as a result of competitive pressures and in order to protect
the business and reputation of Bank of America and the Administrator. This will
have the effect of lowering the overall expense ratio of the Fund involved and
of increasing such Fund's yield to investors at the time such fees are waived or
expenses are reimbursed and of increasing the overall expense ratio of such Fund
and of decreasing yield to investors when such fees are not waived or amounts
not reimbursed.
BANKING LAWS. Banking laws and regulations currently prohibit a bank holding
company registered under the Federal Bank Holding Company Act of 1986 or any
bank or non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from underwriting securities, but such banking laws and regulations do not
prohibit such a holding company or affiliate or banks generally from acting as
investment adviser, administrator or custodian to such an investment company, or
from purchasing shares of such a company as agent for and upon the order of
customers. Bank of America is subject to such banking laws and regulations.
Bank of America believes it may perform the services for the Funds contemplated
by its agreements without violation of applicable banking laws or regulations.
It should be noted, however, that there have been no cases deciding whether bank
and non-bank subsidiaries of a registered bank holding company may perform
services comparable to those that are to be performed by Bank of America, and
future changes in either federal or state statutes and regulations relating to
permissible activities of banks and their subsidiaries or affiliates, as well as
future judicial or administrative decisions or interpretations of current and
future statutes and regulations, could prevent Bank of America from continuing
to perform such services for the Funds.
Should future legislative, judicial or administrative action prohibit or
restrict the activities of Bank of America in connection with the provision of
services on behalf of a Fund, such Fund might be required to alter materially or
discontinue its arrangements with Bank of America and change its method of
operations. It is not anticipated, however, that any change in such Fund's
method of operations would affect its net asset value per share or result in a
financial loss to any shareholder.
PURCHASE OF SHARES
HOW X SHARES ARE PURCHASED. X Shares of the California Tax-Exempt Money Market
Fund are offered by this Prospectus to customers of BAIS or Service
Organizations that establish a Sweep Account with BAIS or a Service Organization
or through Bank of America's 401(k) program. Each
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<PAGE> 23
Sweep Account combines a Transaction Account with a periodic sweep of balances
to or from the California Tax-Exempt Money Market Fund. Investors may open a
Sweep Account by completing and signing the Sweep Materials. The Sweep Materials
contain important information about the various features and operations of the
Sweep Account and should be reviewed in conjunction with this Prospectus.
X Shares may be purchased on any Business Day (as defined below) that BAIS or
the particular Service Organization are open for business by making a deposit
into your Transaction Account. On each day that both the California Tax-Exempt
Money Market Fund's custodian and the New York Stock Exchange (the "Exchange")
are open for business (a "Business Day") and that BAIS or a Service Organization
is open for business, BAIS or a Service Organization computes the net amount of
all deposits, withdrawals, charges and credits made to and from a Transaction
Account in accordance with their Sweep Account procedures (the "Net Sweep
Amount"). If deposits and credits exceed withdrawals and charges, you authorize
BAIS or a Service Organization, on your behalf, to transmit a purchase order to
the Fund designated in your Sweep Account in the amount of that day's Net Sweep
Amount in accordance with the Sweep Account procedures of Bank of America or a
Service Organization. Your purchase order will be made effective and full and
fractional X Shares will be purchased at the net asset value per share next
determined after receipt by the Transfer Agent. It is the responsibility of BAIS
or a Service Organization to transmit orders for the purchases of X Shares by
its customers to the Transfer Agent and deliver required funds on a timely
basis, in accordance with the procedures stated above. Share purchases and
redemptions executed through BAIS or a Service Organization are executed only on
Business Days that BAIS or a Service Organization, respectively, is open for
business. Contact BAIS or your Service Organization for additional information
about BAIS's or the Service Organization's Sweep Account procedures.
HOW PACIFIC HORIZON SHARES ARE PURCHASED
Pacific Horizon Shares may be purchased directly from the Distributor, by
clients of Bank of America through their qualified trust and agency accounts or
by clients of Service Organizations without a charge imposed by the Funds,
although Bank of America and Service Organizations may charge a fee for
providing administrative services in connection with investments in Pacific
Horizon Shares of the Funds. The minimum initial investment is $500, except for
purchases through Bank of America's trust and agency accounts or through a
Service Organization whose clients have made aggregate minimum purchases of
$1,000,000, in which event the minimum initial investment is $100, or as
otherwise described below under "Shareholder Services." The minimum subsequent
investment is $50, except for investments arising from automatic investment
transactions on behalf of Bank of America's trust and agency accounts, as to
which there is no minimum. Bank of America and Service Organizations may impose
minimum customer account and other requirements in addition to those imposed by
the Funds. The Funds reserve the right to reject any purchase order. Persons
wishing to purchase Pacific Horizon Shares through their accounts at Bank of
America or a Service Organization should contact such entity directly for
appropriate instructions. Other investors may purchase Pacific Horizon Shares in
the manner described below.
An investor desiring to make an initial purchase of Pacific Horizon Shares by
mail should complete an Account Application and mail the Application and a check
payable to the appropriate Fund of Pacific Horizon to the address on the Account
Application. All subsequent purchases of Pacific Horizon Shares of a Fund made
by mail should be delivered to Pacific Horizon Funds, Inc., P.O. Box 182090,
Columbus, Ohio 43218-2090. Initial purchases of Pacific Horizon shares into a
new account may not be made by
19
<PAGE> 24
wire. However, an investor desiring to make a subsequent purchase of Pacific
Horizon shares of a Fund into an already existing account by wire should contact
the Transfer Agent at (800) 346-2087 for complete wiring instructions and
request his bank to transmit immediately available funds by wire for purchase of
Pacific Horizon shares in the investor's name. It is important that the wire
include the investor's name and Fund account number. An investor should contact
his bank for information on remitting funds in this manner, including any
charges imposed by the bank for wiring funds. Payments which are hand delivered
must be delivered directly to the Transfer Agent at 3435 Stelzer Road, Columbus,
OH 43219.
A fee will be imposed by the Transfer Agent if any check used for investment in
an account does not clear. All payments should be in U.S. dollars. The Company
will not accept third party checks for investment in Pacific Horizon shares.
Purchase orders in proper form are effected on each Business Day at the net
asset value per share next determined after receipt by the Transfer Agent at its
Columbus office of both an order and federal funds. Purchases will not be
effected until payments made in other than federal funds are converted to
federal funds, which is ordinarily within two business days of receipt. If an
order is received by the Transfer Agent before 10:30 a.m. Eastern time (with
respect to the California Tax-Exempt Money Market Fund) or 12:00 noon Eastern
time (with respect to the Tax-Exempt Money Fund) on a Business Day and Federal
Funds are received by 4:00 p.m. the same Business Day, Pacific Horizon Shares
will be purchased at the net asset value next determined after receipt on that
day. Otherwise Fund shares will be purchased at the net asset value next
determined on the next Business Day. It is the responsibility of Bank of America
or the Service Organization involved to transmit orders for the purchases of
Pacific Horizon Shares by its customers to the Transfer Agent and deliver
required funds on a timely basis, in accordance with the procedures stated
above. Share purchases and redemptions executed through Bank of America or a
Service Organization are executed only on days on which the particular
institution and the Fund are open for business.
TELETRADE. Although the privilege may not be used to make an initial purchase,
an investment in Pacific Horizon Shares of a Fund entitles an investor to
purchase Fund shares (minimum of $500 and maximum of $50,000 per transaction)
without charge by telephone unless he indicates on the Account Application or in
a subsequent written notice to the Transfer Agent that he does not wish to use
the TeleTrade privilege. Appropriate information concerning the investor's bank
must be provided on the Account Application or in a subsequent signature
guaranteed letter of instruction to the Transfer Agent before the TeleTrade
Privilege may be used. The proceeds will be transferred between the checking,
NOW or bank money market account designated in one of these documents and the
investor's Fund account. Only an account maintained at a domestic financial
institution which is an Automated Clearing House member may be so designated.
TeleTrade purchases will be effected at the net asset value next determined
after receipt of payment by the Funds' Transfer Agent. The Company may modify
this Privilege at any time or charge a service fee upon notice to shareholders.
No such fee currently is contemplated.
An investor who has selected the TeleTrade Privilege may request TeleTrade
purchases by telephoning the Transfer Agent at (800)346-2087. The TeleTrade
Privilege may not be available to certain clients of Bank of America or
particular institutional investors.
NET ASSET VALUE
The net asset value per share of the X Shares of the California Tax-Exempt Money
Market Fund and Pacific Horizon Shares of each Fund is the value of all
securities and other assets owned by a Fund that are allocable to a particular
class less the liabilities charged to such class, divided by the number of
outstanding shares of such class.
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The net asset value per share of the California Tax-Exempt Money Market Fund and
Tax-Exempt Money Fund is determined on each Business Day as of 10:30 a.m.
Eastern time and 12:00 noon Eastern time, respectively. Each Fund seeks to
maintain a net asset value of $1.00 per share for purposes of purchases and
redemptions. In computing net asset value, each Fund values its portfolio
securities on the basis of amortized cost (as described in the Statement of
Additional Information under "Additional Purchase and Redemption
Information -- Valuation.") There can be no assurance that either Fund will be
able to maintain a net asset value of $1.00 per share. The net asset value per
share for purposes of pricing purchase and redemption orders for each Fund is
determined independently of that for other portfolios of the Company. For voice
recorded price and yield information call (800) 346-2087.
Federal regulations require that each investor provide a certified Taxpayer
Identification Number upon opening or reopening an account. See the Account
Application for Pacific Horizon Shares of the Funds and the Sweep Account
Application for X Shares of the California Tax-Exempt Money Market Fund for
further information about this requirement.
The Company will obtain a representation from Service Organizations (as well as
from Bank of America and the Distributor) that they will be licensed as dealers
as required by applicable law or will not engage in activities which would
require them to be so licensed.
REDEMPTION OF SHARES
HOW X SHARES ARE REDEEMED
If, on any Business Day that BAIS or the particular Service Organization is open
for business, withdrawals from and charges to your Sweep Account, including
without limitation check transactions, exceed deposits and credits, BAIS or the
particular Service Organization, as applicable, will transmit a redemption order
on your behalf to the California Tax-Exempt Money Market Fund in the dollar
amount of that day's Net Sweep Amount. If your Sweep Account with BAIS or a
Service Organization, as applicable, is closed as described in the Sweep
Materials, BAIS or the Service Organization, as applicable, transmits a
redemption request on your behalf to the appropriate Fund for the balance of X
Shares of such Fund held through your Sweep Account. It is the responsibility of
BAIS or the particular Service Organization to transmit the redemption order and
credit its customer's Transaction Account with the redemption proceeds on a
timely basis. BAIS or the Service Organization may withhold redemption proceeds
pending check collection or processing or for other reasons all as set forth
more fully in the Sweep Materials.
HOW PACIFIC HORIZON SHARES ARE REDEEMED
Investors whose Pacific Horizon Shares are purchased through accounts at Bank of
America or a Service Organization may redeem all or part of such shares in
accordance with the instructions pertaining to such accounts. If such investors
are also the shareholders of record of those accounts on the books of the
Transfer Agent, they may redeem shares in accordance with the procedures
described below under "Regular Redemption." Such investors wishing to use other
redemption methods must arrange with Bank of America or a Service Organization
for delivery of the required application(s) to the Transfer Agent. Redemption
orders are effected on a Business Day at the net asset value per share next
determined after receipt of the order by the Transfer Agent. It is the
responsibility of Bank of America or the Service Organization to transmit the
redemption order and credit its customer's account with the redemption proceeds
on a timely basis. Other investors may redeem all or part of their shares in
accordance with any of the following procedures.
REGULAR REDEMPTION. An investor may redeem Pacific Horizon Shares in any amount
by sending a written request to the Tax-Exempt Money Fund or California
Tax-Exempt Money Market Fund,
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<PAGE> 26
c/o Pacific Horizon Funds, P.O. Box 182090, Columbus, Ohio 43218-2090.
Redemption orders are effected upon receipt by the Transfer Agent at its
Columbus office. Redemption requests delivered to the Company other than by mail
must be delivered to the offices of the Transfer Agent at 3435 Stelzer Road,
Columbus, OH 43219. While the Company no longer issues share certificates,
Pacific Horizon Shares for which certificates previously had been issued may not
be redeemed unless the certificates have been submitted to the Transfer Agent
and endorsed for transfer.
Redemption requests must be signed by each shareholder, including each joint
owner on redemption requests for joint accounts. A redemption request for (i) an
amount in excess of $50,000 per day (ii) any amount if the proceeds are to be
sent elsewhere than to the address of record, and (iii) an amount of $50,000 or
less if the address of record has not been on file with the Transfer Agent for a
period of 60 days, must be accompanied by a signature guarantee. The guarantor
of a signature must be a bank that is a member of the FDIC, a trust company, a
member firm of a national securities exchange or other eligible guarantor
institution. The Transfer Agent will not accept guarantees from notaries public.
Signatures on endorsed certificates submitted for redemption must also be
guaranteed. Guarantees must be signed by an authorized signatory of the
guarantor institution and "Signature Guaranteed" must appear with the signature.
TELETRADE. An investor may redeem Pacific Horizon Shares in the same manner and
subject to the same limitations as described under "Purchases of Shares -- How
Pacific Horizon Shares Are Purchased -- TeleTrade" above. Redemption proceeds
will be on deposit in the investor's account at a domestic financial institution
which is an Automated Clearing House member bank ordinarily two business days
after receipt of the redemption request. An investor may also request that
redemption proceeds be sent by check. Checks will be sent only to the registered
owner(s) and only to the address of record. An investor who has selected the
TeleTrade Privilege may request TeleTrade redemptions by telephoning the
Transfer Agent at (800) 346-2087. Pacific Horizon Shares issued in certificate
form are not eligible for this Privilege. Neither the Company nor any of its
service contractors will be liable for any loss or expense for acting upon any
telephone instructions that are reasonably believed to be genuine. In attempting
to confirm that telephone instructions are genuine, the Company will use such
procedures as are considered reasonable, including requesting certain personal
or account information to confirm the identity of the shareholder.
WIRE REDEMPTION. An investment in Pacific Horizon Shares of a Fund
automatically entitles an investor to redeem shares by wire unless he indicates
on the Account Application or in a subsequent signature guaranteed written
notice to the Transfer Agent that he does not wish to use this method of
redemption. Appropriate information concerning the investor's bank must be
provided on the Account Application or in a subsequent signature guaranteed
letter of instruction to the Transfer Agent before shares may be redeemed by
wire. Shareholders may instruct the Transfer Agent to redeem shares in a Fund on
written, telegraphic, or telephone instructions from any person representing
himself to be the investor and believed by the Transfer Agent to be genuine. The
responsibility of the Transfer Agent and certain other parties for telephonic
instructions believed to be genuine is discussed in the preceding paragraph. The
proceeds of redemption will normally be wired in federal funds to the commercial
bank specified by the investor on the Account Application or in a subsequent
signature guaranteed letter of instruction to the Transfer Agent. Redemption
proceeds must be in an amount of at least $1,000, and may be subject to limits
as to frequency and overall amount. Wire redemptions may be terminated or
modified by a Fund at any time. Pacific Horizon Shares issued in certificate
form are not eligible for wire redemption. A shareholder
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<PAGE> 27
should contact his bank for information on any charges imposed by the bank in
connection with the receipt of redemption proceeds by wire. During periods of
substantial economic or market change, telephone wire redemptions may be
difficult to implement. If an investor is unable to contact the Transfer Agent
by telephone, shares may also be redeemed by delivering the redemption request
in person to the Transfer Agent or by mail as described above under "Regular
Redemption." For additional information concerning wire redemptions, see the
Statement of Additional Information and the Funds' Account Application.
CHECK REDEMPTION. An investor in Pacific Horizon Shares may request on the
Account Application that the Company provide Redemption Checks ("Checks") drawn
on a Fund. Checks will be sent only to the registered owner(s) and only to the
address of record. The Account Application must be manually signed by the
registered owner(s). Checks may be made payable to the order of any person in
the amount of $500 or more. Dividends are earned until the Check clears the
Transfer Agent. When a Check is presented to the Transfer Agent for payment, the
Transfer Agent, as the investor's agent, will cause the Fund involved to redeem
a sufficient number of the investor's Pacific Horizon Shares to cover the amount
of the Check. There is no charge to the investor for the use of the Checks;
however, the Transfer Agent will impose a charge for stopping payment of a Check
upon the request of the investor, or if the Transfer Agent cannot honor a Check
due to insufficient funds or other valid reasons. Because dividends accrue
daily, Checks should not be used to close an account. Pacific Horizon Shares for
which stock certificates have been issued may not be redeemed by Check.
OTHER REDEMPTION INFORMATION -- X SHARES AND PACIFIC HORIZON SHARES. Redemption
orders are effected on a Business Day at the net asset value per share next
determined after receipt of the order by the Transfer Agent. The Funds will make
payment for all shares redeemed after receipt by the Transfer Agent of a request
in proper form, except as provided by the rules of the Securities and Exchange
Commission. If the shares to be redeemed have been purchased by check or
TeleTrade, the Company will, upon the clearance of the purchase check or
TeleTrade payment, mail the redemption proceeds within seven business days.
Where redemption is requested other than by mail, shares purchased by check or
by TeleTrade will not be redeemed for a period of ten calendar days after their
purchase. This procedure does not apply to situations where the Fund receives
payment in cash or immediately available funds for the purchase of shares. The
Company may suspend the right of redemption or postpone the date of payment upon
redemption (as well as suspend the recordation of the transfer of shares) for
such periods as are permitted under the 1940 Act. During the period prior to the
time the shares are redeemed, dividends on such shares will accrue and be
payable, and an investor will be entitled to exercise all other rights of
beneficial ownership.
The Funds impose no charge when X Shares or Pacific Horizon Shares are redeemed.
However, if Pacific Horizon Shares have been purchased through Bank of America
or a Service Organization, Bank of America or the Service Organization may
charge a fee for providing administrative services in connection with
investments in shares. The Funds reserve the right to redeem Pacific Horizon
Share accounts involuntarily, upon sixty days' written notice, if the account's
net asset value falls below the $500 minimum balance.
SHAREHOLDER SERVICES
The services and privileges described under this heading are available only to
holders of the Funds' Pacific Horizon Shares and are not available to persons
who invest directly in Horizon or Horizon Service Shares of the Funds or in X
Shares of the California Tax-Exempt Money Market Fund. Additionally, these
services and privileges may not be available to certain clients of
23
<PAGE> 28
Bank of America and particular Service Organizations. Bank of America and some
Service Organizations may impose conditions on their clients which are different
from those described in this Prospectus. You should consult Bank of America or
your Service Organization in this regard.
EXCHANGES. The Exchange Privilege enables an investor to exchange Pacific
Horizon Shares of a Fund for: like shares in another portfolio of the Company,
or like shares of any investment portfolio of Time Horizon Funds (an open-end
investment company managed by Bank of America), provided that such other shares
may legally be sold in the state of the investor's residence. An investment in
Pacific Horizon Shares of a Fund automatically entitles an investor to use this
Privilege unless he indicates on the Account Application or in a subsequent
written notice to the Transfer Agent that he does not wish to use this
Privilege. The shares that are exchanged must have a current value of at least
$500; furthermore, in establishing a new account through use of this Privilege,
the shares being exchanged must have a value at least equal to the minimum
initial investment required by the particular portfolio into which the exchange
is being made. Prospectuses for portfolios of the Company (as well as
prospectuses for investment portfolios of Time Horizon Funds) into which an
exchange is being made may be obtained from the investor's Service Organization
or the Distributor. A shareholder may telephone instructions by calling the
Transfer Agent at (800) 346-2087. See "Redemption of Shares--TeleTrade" for a
description of the Company's policy regarding responsibility for telephone
instructions.
When Fund shares are exchanged for shares of another portfolio in the Company
(or for shares of an investment portfolio of Time Horizon Funds) which are sold
with a sales load, the applicable sales load, if any, will be deducted. An
investor desiring to use the Exchange Privilege should read the Statement of
Additional Information and consult his or her Service Organization or the
Distributor for further information applicable to use of the Exchange Privilege.
The Company reserves the right to reject any exchange request and the Exchange
Privilege may be modified or terminated at any time. At least 60 days' notice
will be given to shareholders of any material modification or termination except
where notice is not required under the regulations of the Securities and
Exchange Commission.
AUTOMATIC INVESTMENT PROGRAM. The Automatic Investment Program permits an
investor to purchase Pacific Horizon Shares (minimum $50 per transaction) at
regular intervals selected by the investor. Provided the investor's financial
institution allows automatic withdrawals, shares are purchased by transferring
funds from an investor's checking, bank money market or NOW account designated
by the investor. At the investor's option, the account designated will be
debited in the specified amount, and shares will be purchased, once a month, on
either the first or fifteenth day, or twice a month, on both days. Only an
account maintained at a domestic financial institution which is an Automated
Clearing House member may be so designated. The minimum initial investment
requirement for investors establishing an Automatic Investment account is $50.
To establish an Automatic Investment account, an investor must check the
appropriate box and supply the necessary information on the Account Application
or subsequently file a written request with the Transfer Agent. Such
applications are available from the Distributor. An investor may cancel this
Privilege or change the amount of purchase at any time by mailing written
notification to the Transfer Agent at P.O. Box 182090, Columbus, Ohio 43218-2090
and notification will be effective three business days following receipt. The
Company may modify or terminate this Privilege at any time or charge a service
fee, although no such fee currently is contemplated.
DIRECT DEPOSIT PROGRAM. If an investor receives federal salary, social
security, or certain veteran's, military or other payments from the federal
government, he is eligible for the Direct Deposit Program. With this Program, an
investor may purchase Pacific Horizon Shares (minimum of
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<PAGE> 29
$50 and maximum of $50,000 per transaction) by having these payments
automatically deposited into his Fund account. An investor may deposit as much
of such payments as he elects. For instructions on how to enroll in the Direct
Deposit Program, an investor should call the Transfer Agent at (800) 346-2087.
Death or legal incapacity will terminate an investor's participation in the
Program. An investor may elect at any time to terminate his participation by
notifying the appropriate federal agency. Further, the Company may terminate an
investor's participation upon 30 days' notice to the investor.
AUTOMATIC WITHDRAWAL PLAN. Investors having a $5,000 minimum account may
request withdrawal of a dollar amount in multiples of $50 on a monthly,
quarterly, semi-annual or annual basis. At the investor's option, monthly
withdrawals will be made on either the first or fifteenth day of the month and
quarterly, semi-annual or annual withdrawals will be made on either the first or
fifteenth day of the month selected. To participate in the automatic withdrawal
plan, an investor must check the appropriate box and supply the necessary
information on the Account Application which may be obtained from the
Distributor or subsequently file a signature guaranteed written request with the
Transfer Agent.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS. The Shareholders of a Fund are entitled to
dividends and distributions arising from the net investment income and net
realized gains, if any, earned on the investments held by the Fund involved.
Generally each Fund's net income is declared daily as a dividend. Shares begin
accruing dividends on the day the purchase order for the shares is executed and
continue to accrue dividends through and including the day before the redemption
order for the shares is executed. Dividends are paid within five business days
after the end of each month. Although the Funds do not expect to realize net
long-term capital gains, any such capital gains as may be realized will be
distributed no more than twice a year after reduction for any available capital
loss carry-forward.
Dividends are paid in the form of additional full and fractional shares of the
same series as the shares on which the dividends are declared at the net asset
value of such shares on the payment date. However, holders of the Funds' Pacific
Horizon shares may elect to receive dividends in cash. If you elect to receive
distributions in cash, and if your checks (1) are returned and marked as
"undeliverable" or (2) remain uncashed for six months, your cash election will
be changed automatically and your future dividend and capital gains
distributions will be reinvested in the Fund at the per share net asset value
determined as of the date of payment of the distribution. In addition, any
undeliverable checks or checks that remain uncashed for six months will be
cancelled and will be reinvested in the Fund at the per share net asset value
determined as of the date of cancellation. Reinvested dividends receive the same
tax treatment as dividends paid in cash. Such election or any revocation thereof
must be made in writing to the Transfer Agent at P.O. Box 182090, Columbus, Ohio
43218-2090, and will become effective with respect to dividends paid after its
receipt by the dividend disbursing agent.
TAXES. During the most recent taxable year, each Fund qualified separately as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"), and each Fund intends to so qualify in future years, as
long as such qualification is in the best interest of its shareholders. As a
result of this qualification, each Fund generally is not required to pay federal
income taxes to the extent its earnings are distributed in accordance with the
Code. The policy of each Fund is to pay to shareholders at least 90% of its
exempt-interest income, net of certain deductions, for each taxable year.
Dividends derived from interest on Municipal Securities (known as
exempt-interest dividends) and paid to shareholders typically will not be
subject to regular federal income tax.
25
<PAGE> 30
With respect to the California Tax-Exempt Money Market Fund, if, at the close of
each quarter of its taxable year, at least 50% of the value of the Fund's total
assets consists of California Exempt Securities and if the Fund qualifies as a
regulated investment company under the Code, then the Fund will be qualified to
pay dividends exempt from California state personal income tax to its
shareholders. If the Fund so qualifies, dividends derived from interest
attributable to California Exempt Securities will be exempt from California
state personal income tax. (Such treatment may not apply, however, to investors
who are "substantial users" or "related persons" with respect to facilities
financed by portfolio securities held by the California Tax-Exempt Money Market
Fund.) Any dividends paid to shareholders subject to California state franchise
tax or California state corporate income tax may be taxed as ordinary dividends
to such shareholders notwithstanding that all or a portion of such dividends are
exempt from California state personal income tax.
To the extent, if any, that dividends paid to shareholders are derived from
taxable interest or from capital gains, such dividends will be subject to
federal income tax and California state personal income tax, whether or not such
dividends are reinvested.
The portion of dividends (if any) attributable to interest on certain private
activity bonds issued after August 7, 1986 must be included by shareholders as
an item of tax preference for purposes of determining liability (if any) for the
26% to 28% federal alternative minimum tax applicable to individuals and the 20%
federal alternative minimum tax applicable to corporations. Corporate
shareholders also must take all exempt-interest dividends into account in
determining certain adjustments for federal alternative minimum tax purposes.
Shareholders receiving Social Security benefits should note that all
exempt-interest dividends will be taken into account in determining the tax
liability of such benefits.
Dividends declared in October, November or December of any calendar year payable
to shareholders of record on a specified date in December will be deemed for
federal tax purposes to have been paid by a Fund and received by its
shareholders on December 31 of such year, if such dividends are paid during
January of the following year.
A shareholder will recognize a taxable capital gain or loss when redeeming or
exchanging shares, to the extent of any difference between the price at which
the shares are sold or exchanged and the price or prices at which the shares
were originally purchased. If you hold shares for six months or less and during
that time receive an exempt-interest dividend attributable to those shares, any
loss realized on the sale or exchange of those shares will be disallowed to the
extent of the exempt-interest dividend.
OTHER STATE AND LOCAL TAXES. Investors are advised to consult their tax
advisers concerning the application of state and local taxes generally, which
may have different consequences from those of the federal income tax and, with
respect to the California Tax-Exempt Money Market Fund, the California state
personal income tax described above. Exempt-interest dividends generally will be
exempt from state and local taxes as well. However, except as noted with respect
to California state personal income tax, dividends paid by the Funds may be
taxable to investors under state or local law as dividend income even though all
or a portion of such dividends may be derived from interest on obligations that,
if realized directly, would be exempt from such taxes.
GENERAL. Shareholders will be advised at least annually as to the federal
income tax and, with respect to the California Tax-Exempt Money Market Fund, the
California state personal income tax consequences of dividends and distributions
made each year.
The foregoing is only a brief summary of some of the important tax
considerations generally affecting the Funds and their shareholders, and is
26
<PAGE> 31
based on tax laws and regulations in effect as of the date of this Prospectus.
Such laws and regulations may be changed by legislative or administrative
action. Additional tax information of relevance to particular investors,
including investors who may be "substantial users" or "related persons" with
respect to facilities financed by Municipal Securities, is contained in the
Statement of Additional Information. Potential investors in the Funds should
consult their tax advisers with specific reference to their own tax situation.
DESCRIPTION OF SHARES
The Company was organized on October 27, 1982 as a Maryland corporation, and is
registered under the Investment Company Act of 1940 as an open-end management
investment company. The Predecessor Tax-Exempt Fund originally commenced
operations on July 10, 1987 as a separate portfolio of The Horizon Funds, a
Massachusetts business trust. On January 10, 1990 the Predecessor Tax-Exempt
Fund was reorganized as the Tax-Exempt Money Fund of the Company and prior to
July 9, 1993 had offered only two series of shares, Horizon Shares and Horizon
Service Shares. On July 9, 1993, all assets and liabilities of the Company's
Tax-Exempt Money Market Fund were transferred to the Tax-Exempt Money Fund as
Pacific Horizon Shares. The California Tax-Exempt Money Market Fund commenced
operations on December 6, 1989 as a portfolio of the Company with a single
series of shares, Pacific Horizon Shares. On September 2, 1996, the Company
began offering X Shares in the California Tax-Exempt Money Market Fund. The
Company has also classified an S Share class, a Horizon Share class and a
Horizon Service Share class of the Tax-Exempt Money Fund and the California
Tax-Exempt Money Market Fund. Horizon Shares and Horizon Service Shares may be
purchased by institutional investors for accounts maintained by individuals, but
may not be purchased by individuals directly. S Shares are offered to customers
who purchase such shares through cash management services such as sweep accounts
offered by Bank of America, any of its banking or brokerage affiliates and
service organizations.
The Company's charter authorizes the Board of Directors to issue up to four
hundred billion full and fractional shares of capital stock, and to classify and
reclassify any authorized and unissued shares into one or more classes of
shares. The Board of Directors may similarly classify or reclassify any class of
shares into one or more series. Pursuant to such authority, the Board of
Directors has authorized the issuance of ten billion Pacific Horizon Shares, ten
billion Horizon Shares, ten billion Horizon Service Shares and ten billion S
Shares representing interests in the Tax-Exempt Money Fund, and ten billion
Pacific Horizon Shares, ten billion Horizon Shares, ten billion Horizon Service
Shares, ten billion S Shares and ten billion X Shares and representing interests
in the California Tax-Exempt Money Market Fund. Horizon Service Shares, Horizon
Shares and S Shares of the Tax-Exempt Money Fund and California Tax-Exempt Money
Market Fund are described in a separate Prospectus available from the
Distributor at the telephone number on the cover of this Prospectus. The Board
of Directors has also authorized the issuance of additional classes and series
of shares and series of shares representing interests in other investment
portfolios of the Company, which are likewise described in separate prospectuses
available from the Distributor. This Prospectus relates primarily to the X
Shares of the California Tax-Exempt Money Market Fund and Pacific Horizon Shares
of the Tax-Exempt Money Fund and California Tax-Exempt Money Market Fund and
describes only the investment objective, policies, operations and contracts
relating to such shares.
Each X Share, S Share, Pacific Horizon Share, Horizon Share and Horizon Service
Share in a Fund has a par value of $.001, and, except as noted below, is
entitled to participate equally in the dividends and distributions declared by
the Board of Directors with respect to such Fund and in the net distributable
assets of such Fund on
27
<PAGE> 32
liquidation. Holders of S Shares of the Tax-Exempt Money Fund and X Shares and S
Shares of the California Tax-Exempt Money Market Fund bear the fees described in
this Prospectus that are paid to the Distributor and Service Organizations by
such Funds under the Company's Distribution and Services Plan. The fees paid
under the Distribution and Services Plan are for distribution and shareholder
services paid to the Distributor and Service Organizations in connection with X
Shares of the California Tax-Exempt Money Market Fund and S Shares of both of
the Funds, and are not paid by such Fund's Horizon, Horizon Service or Pacific
Horizon Shares. Holders of a Fund's Pacific Horizon Shares bear the fees
described in this Prospectus that are paid to Shareholder Organizations by the
Fund under the Company's Special Management Services Plan for Pacific Horizon
Shares. The fees paid under the Special Management Services Plan are for
services provided by Shareholder Organizations to holders of the Funds' Pacific
Horizon Shares and are not borne by the Funds' Horizon Shares, Horizon Service
Shares or S Shares of the Funds or X Shares of the California Tax-Exempt Money
Market Fund. Holders of a Fund's Horizon Service Shares bear the fees described
in the Prospectus for such shares that are paid to shareholder organizations by
a Fund under the Company's Shareholder Services Plan. The fees paid under the
Shareholder Services Plan are for services provided by shareholder organizations
to their customers in connection with Horizon Service Shares, and are not paid
by a Fund's Horizon Shares, Pacific Horizon Shares, X Shares or S Shares. As a
result of the different fees borne by various series of shares of a Fund, at any
given time, absent waivers of any class-specific fees or expenses, the net yield
on a) the California Tax-Exempt Money Market Fund's X Shares generally will be
approximately 0.20% lower than the yield on the same Fund's Pacific Horizon
Shares, 0.55% lower than the yield on the same Fund's Horizon Shares, 0.30%
lower than the yield on the same Fund's Horizon Services Shares and 0.45% higher
than the yield on the same Fund's S Shares, b) the Tax-Exempt Money Fund's
Pacific Horizon Shares generally will be approximately 0.32% lower than the
yield on the same Fund's Horizon Shares, 0.07% lower than the yield on the same
Fund's Horizon Service Shares and 0.68% higher than the yield on the same Fund's
S Shares, and c) the California Tax-Exempt Money Market Fund's Pacific Horizon
Shares generally will be approximately 0.35% lower than the yield on the same
Fund's Horizon Shares, 0.10% lower than the yield on the same Fund's Horizon
Service Shares, 0.20% higher than the yield on the same Fund's X Shares, and
0.65% higher than the yield on the same Fund's S Shares. Standardized yield
quotations will be computed separately for each series of shares.
Shareholders are entitled to one vote for each full share held and fractional
votes for fractional shares held and will vote in the aggregate and not by class
or series except as otherwise required by law or when class voting is permitted
by the Board of Directors. It is contemplated that all shareholders of a Fund
will vote together as a single class on matters relating to the Fund's
investment advisory agreement and on any change in its fundamental investment
limitations. Only holders of Pacific Horizon Shares will be entitled to vote on
matters submitted to a vote of shareholders pertaining to the Fund's Special
Management Services Plan. Only holders of Horizon Service Shares will be
entitled to vote on matters submitted to a vote of shareholders pertaining to
the Funds' Shareholder Services Plan. Only holders of particular S and X Shares,
if affected by changes to such Plan, will be entitled to vote on matters
submitted to a vote of shareholders pertaining to the Distribution and Services
Plan relating to the particular series. Fund shares have no preemptive rights
and only such conversion and exchange rights as the Board may grant at its
discretion. When issued for payment as described in this Prospectus, shares will
be fully paid and non-assessable. Certificates for shares will not be issued.
The Company does not presently intend to hold annual meetings of shareholders
for the election
28
<PAGE> 33
of directors and other business unless and until such time as less than a
majority of the directors holding office have been elected by the shareholders
of the Company, at which time the directors then in office will call a
shareholders' meeting for the election of directors. Under certain
circumstances, however, shareholders have the right to call a meeting of
shareholders to consider the removal of one or more directors and such meetings
will be called when requested by the holders of record of 10% or more of the
Company's outstanding shares of common stock. To the extent required by law and
the Company's undertaking with the Securities and Exchange Commission, the
Company will assist in shareholder communications in such matters. Shares have
cumulative voting rights to the extent that may be required by applicable law.
PERFORMANCE CALCULATIONS
From time to time, a Fund may quote its "yield," "effective yield" and
"tax-equivalent yield" in advertisements or in communications to shareholders.
Each yield figure is based on historical earnings and is not intended to
indicate future performance. The "yield" of a Fund refers to the income
generated by an investment in the Fund over a seven-day period (which period
will be identified in the advertisement or report). This income is then
"annualized" -- that is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The "effective yield" of a Fund is
calculated similarly but, when annualized, the income earned by an investment in
the Fund is assumed to be reinvested. The "effective yield" will be slightly
higher than the "yield" because of the compounding effect of the assumed
reinvestment. A Fund's "tax-equivalent yield" shows the level of taxable yield
needed to produce an after-tax equivalent to the Fund's tax-free yield. This is
done by increasing the Fund's yield (calculated as above) by the amount
necessary to reflect the payment of federal, and in the case of the California
Tax-Exempt Money Market Fund, California income tax, at a stated tax rate. A
Fund's "tax-equivalent yield" will always be higher than its yield.
Additionally, the yields of a Fund may be compared to those of other mutual
funds with similar investment objectives and to other relevant indices or to
rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
Funds' yields may be compared to IBC Financial Data, Inc.'s ("IBC") Money Fund
Averages and IBC's Tax-Free Money Fund Average, which are averages compiled by
IBC's Money Fund Report. Yield data as reported in national financial
publications, including Money, Forbes, Barron's, The Wall Street Journal and The
New York Times, or in publications of a local or regional nature, may also be
used in comparing the yields of a Fund. A complete listing of the indices,
rankings and publications discussed above is contained in the Statement of
Additional Information.
Since yields fluctuate, yield data cannot necessarily be used to compare an
investment in shares of a Fund with bank deposits, savings accounts and similar
investment alternatives which often provide an agreed or guaranteed fixed yield
for a stated period of time. Shareholders should remember that yield is
generally a function of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses and market conditions. Any
fees charged by Bank of America or other institutional investors directly to
their customer accounts in connection with investments in shares of a Fund
(which fees may include, for example, account maintenance fees, compensating
balance requirements or fees based upon account transactions, assets or income)
will not be included in the Fund's calculations of yield.
Shareholder inquiries should be addressed to the Distributor at the address or
telephone numbers stated on the inside cover page of this Prospectus.
29
<PAGE> 34
-------------------------------------------------
TAX-EXEMPT MONEY FUND
CALIFORNIA TAX-EXEMPT
MONEY MARKET FUND
PROSPECTUS
June 16, 1997
NOT FDIC INSURED
PACIFIC HORIZON MUTUAL FUNDS
TXM-0014
<PAGE> 35
PACIFIC HORIZON FUNDS, INC.
Pacific Horizon Shares of the
Prime Fund, Treasury Fund, Government Fund and Treasury Only Fund
and
X Shares of the
Prime Fund and Treasury Fund
--------------------
Form N-1A Item Prospectus Caption
- -------------- ------------------
Part A
- ------
1. Cover Page............................... Cover Page
2. Synopsis................................. Expense Summary
3. Condensed Financial Information.......... Financial Highlights;
Performance Calculations
4. General Description of Registrant........ Description of Shares; Cover
Page; Investment Objectives
and Policies
5. Management of the Fund................... Management of the Funds
5.A. Management's Discussion of
Fund Performance....................... *
6. Capital Stock and Other
Securities............................. Description of Shares;
Dividend, Distributions and
Taxes
7. Purchase of Securities Being
Offered................................. Purchase of Shares; Management
of the Funds; Performance
Calculations; Shareholder
Services; Special Management
Services Plan; Distribution
and Services Plan
8. Redemption or Repurchase................. Redemption of Shares;
Shareholder Services; Special
Management Services Plan;
Distribution and Services Plan
9. Pending Legal Proceedings................ *
- ----------
* Item inapplicable or answer negative.
<PAGE> 36
PROSPECTUS
JUNE 16, 1997
X Shares of the
PRIME FUND
TREASURY FUND
Pacific Horizon Shares of the
PRIME FUND
TREASURY FUND
GOVERNMENT FUND
TREASURY ONLY FUND
Investment Portfolios Offered by Pacific Horizon Funds, Inc.
- --------------------------------------------------------------------------------
THIS PROSPECTUS APPLIES TO THE X SHARES OF THE PRIME FUND AND TREASURY FUND AND
THE PACIFIC HORIZON SHARES OF THE PRIME FUND, TREASURY FUND, GOVERNMENT FUND AND
TREASURY ONLY FUND (THE "FUNDS"), FOUR DIVERSIFIED INVESTMENT PORTFOLIOS OFFERED
BY PACIFIC HORIZON FUNDS, INC. (THE "COMPANY"). THE COMPANY IS REGISTERED UNDER
THE INVESTMENT COMPANY ACT OF 1940 AS AN OPEN-END MANAGEMENT INVESTMENT COMPANY.
THE FUNDS ARE DESIGNED TO PROVIDE INVESTORS WITH DAILY LIQUIDITY.
THE INVESTMENT OBJECTIVES OF THE PRIME FUND AND TREASURY FUND ARE TO SEEK HIGH
CURRENT INCOME AND STABILITY OF PRINCIPAL. THE PRIME FUND SEEKS TO ACHIEVE ITS
INVESTMENT OBJECTIVE BY INVESTING SUBSTANTIALLY ALL OF ITS ASSETS IN A
DIVERSIFIED PORTFOLIO OF U.S. DOLLAR-DENOMINATED "MONEY MARKET" INSTRUMENTS SUCH
AS BANK CERTIFICATES OF DEPOSIT AND BANKERS' ACCEPTANCES, COMMERCIAL PAPER AND
REPURCHASE AGREEMENTS, IN ADDITION TO OBLIGATIONS ISSUED OR GUARANTEED BY THE
U.S. GOVERNMENT, ITS AGENCIES OR INSTRUMENTALITIES. THE TREASURY FUND SEEKS TO
ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING SOLELY IN DIRECT OBLIGATIONS
ISSUED BY THE U.S. TREASURY AND REPURCHASE AGREEMENTS RELATING TO SUCH TREASURY
OBLIGATIONS. THE INVESTMENT OBJECTIVES OF THE GOVERNMENT FUND AND THE TREASURY
ONLY FUND ARE TO PROVIDE LIQUIDITY AND AS HIGH A LEVEL OF CURRENT INCOME AS IS
CONSISTENT WITH THE PRESERVATION OF CAPITAL. THE GOVERNMENT FUND SEEKS TO
ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING IN SHORT-TERM DEBT OBLIGATIONS
ISSUED OR GUARANTEED AS TO INTEREST AND PRINCIPAL BY THE U.S. GOVERNMENT, ITS
AGENCIES, AUTHORITIES OR INSTRUMENTALITIES AND IN REPURCHASE AGREEMENTS WITH
RESPECT TO SUCH OBLIGATIONS. THE TREASURY ONLY FUND SEEKS TO ACHIEVE ITS
INVESTMENT OBJECTIVE BY INVESTING SOLELY IN OBLIGATIONS OF THE U.S. TREASURY.
THIS PROSPECTUS BRIEFLY SETS FORTH CERTAIN INFORMATION ABOUT THE FUNDS DESCRIBED
HEREIN THAT YOU SHOULD KNOW BEFORE INVESTING. IT SHOULD BE READ AND RETAINED FOR
FUTURE REFERENCE. ADDITIONAL INFORMATION ABOUT THE FUNDS, CONTAINED IN A
STATEMENT OF ADDITIONAL INFORMATION DATED JUNE 16, 1997 HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION AND IS AVAILABLE TO INVESTORS UPON REQUEST
AND WITHOUT CHARGE BY CALLING THE FUNDS' DISTRIBUTOR AT (800) 332-3863. THE
STATEMENT OF ADDITIONAL INFORMATION, AS IT MAY FROM TIME TO TIME BE REVISED, IS
INCORPORATED IN ITS ENTIRETY BY REFERENCE INTO THIS PROSPECTUS. THE SECURITIES
AND EXCHANGE COMMISSION MAINTAINS A WEB SITE (HTTP://WWW.SEC.GOV) THAT CONTAINS
THE STATEMENT OF ADDITIONAL INFORMATION, MATERIAL INCORPORATED BY REFERENCE, AND
OTHER INFORMATION REGARDING REGISTRANTS THAT FILE ELECTRONICALLY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
(Continued next page)
- --------------------------------------------------------------------------------
Shares of the Funds are not bank deposits or obligations of, or guaranteed or
endorsed by, Bank of America National Trust and Savings Association or any of
its affiliates and are not federally insured by, guaranteed by, obligations of
or otherwise supported by the U.S. Government, the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other governmental agency. Each
Fund seeks to maintain its net asset value per share at $1.00 for purposes of
purchases and redemptions, although there can be no assurance that it will be
able to do so on a continuous basis. Investment in the Funds involves investment
risk, including the possible loss of principal amount invested.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus, in the Statement
of Additional Information and the Funds' official sales literature, in
connection with the offering of the Funds' shares and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or its distributor. This Prospectus does not constitute an offer
by the Funds or by the distributor to sell, or a solicitation of any offer to
buy, any of the securities offered hereby in any jurisdiction to any person to
whom it is unlawful for the Funds or the distributor to make such offer in such
jurisdiction.
- --------------------------------------------------------------------------------
<PAGE> 37
CURRENTLY, X SHARES ARE AVAILABLE ONLY TO QUALIFIED RETAIL CUSTOMERS WHO
PURCHASE SUCH SHARES THROUGH A SWEEP ACCOUNT ("SWEEP ACCOUNT") OFFERED BY BA
INVESTMENT SERVICES, INC. ("BAIS") AND CERTAIN OTHER FINANCIAL SERVICE
ORGANIZATIONS, SUCH AS BANKS OR BROKER-DEALERS ("SERVICE ORGANIZATIONS") AND
THROUGH BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION'S 401(k) PROGRAM. A
SWEEP ACCOUNT COMBINES A BROKERAGE ACCOUNT (THE "TRANSACTION ACCOUNT") WITH A
DAILY SWEEP OF BALANCES TO OR FROM THE PRIME AND TREASURY FUNDS' X SHARES. BAIS
OR SERVICE ORGANIZATIONS, AS APPLICABLE, ARE RESPONSIBLE FOR PROVIDING PERSONS
INVESTING IN X SHARES THROUGH A SWEEP ACCOUNT WITH SWEEP ACCOUNT MATERIALS (THE
"SWEEP MATERIALS") DESCRIBING THE VARIOUS FEATURES AND OPERATIONS OF THE SWEEP
ACCOUNT. THE SWEEP MATERIALS SHOULD BE REVIEWED IN CONJUNCTION WITH THIS
PROSPECTUS.
PACIFIC HORIZON SHARES MAY BE PURCHASED DIRECTLY FROM CONCORD FINANCIAL GROUP,
INC., BY CLIENTS OF BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
THROUGH THEIR QUALIFIED TRUST AND AGENCY ACCOUNTS OR BY CLIENTS OF SERVICE
ORGANIZATIONS.
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION ("BANK OF AMERICA"), SAN
FRANCISCO, CALIFORNIA, ACTS AS INVESTMENT ADVISER TO THE FUNDS. CONCORD
FINANCIAL GROUP, INC. (THE "DISTRIBUTOR") SPONSORS THE FUNDS AND ACTS AS THEIR
DISTRIBUTOR AND THE BISYS GROUP, INC. ACTS AS THEIR ADMINISTRATOR, NEITHER OF
WHICH IS AFFILIATED WITH BANK OF AMERICA.
PORTFOLIO SECURITIES HELD BY EACH FUND HAVE REMAINING MATURITIES OF THIRTEEN
MONTHS OR LESS FROM THE DATE OF PURCHASE BY THE FUND. PORTFOLIO SECURITIES WHICH
HAVE CERTAIN PUT OR DEMAND FEATURES EXERCISABLE BY A FUND WITHIN THIRTEEN MONTHS
(AS WELL AS CERTAIN U.S. GOVERNMENT OBLIGATIONS WITH FLOATING OR VARIABLE
INTEREST RATES) AND SECURITIES HELD AS COLLATERAL FOR REPURCHASE AGREEMENTS MAY
HAVE LONGER MATURITIES.
<PAGE> 38
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EXPENSE SUMMARY 2
FINANCIAL HIGHLIGHTS 4
INVESTMENT OBJECTIVES AND
POLICIES 11
COMMON INVESTMENT POLICIES 14
MANAGEMENT OF THE FUNDS 18
PURCHASES OF SHARES 22
REDEMPTION OF SHARES 24
SHAREHOLDER SERVICES 27
DIVIDENDS, DISTRIBUTIONS AND
TAXES 29
DESCRIPTION OF SHARES 30
PERFORMANCE CALCULATIONS 33
- ------------------------------------------------------------------------------------------------------------------------
DISTRIBUTOR: INVESTMENT ADVISER:
Concord Financial Group, Inc. Bank of America National Trust and Savings Association
3435 Stelzer Road 555 California Street
Columbus, OH 43219 San Francisco, CA 94104
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 39
EXPENSE SUMMARY
The following table sets forth certain information regarding the shareholder
transaction expenses imposed by the X Shares of the Prime and Treasury Funds and
Pacific Horizon Shares of the Prime, Treasury, Government and Treasury Only
Funds and the annual operating expenses incurred by X Shares of the Prime and
Treasury Funds, and the Pacific Horizon Shares of the Prime, Treasury,
Government and Treasury Only Funds during the last fiscal year. Actual expenses
may vary. Hypothetical examples based on the table are also shown.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TREASURY
PRIME TREASURY GOVERNMENT ONLY
FUND FUND FUND FUND
----------------- ----------------- --------- ------
PACIFIC PACIFIC PACIFIC PACIFIC
X HORIZON X HORIZON HORIZON HORIZON
SHARES(1) SHARES SHARES(1) SHARES SHARES SHARES
-------- ------ -------- ------ ------ ------
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases................. None None None None None None
Maximum Sales Load Imposed on Reinvested Dividends...... None None None None None None
Maximum Deferred Sales Load(2).......................... None None None None None None
Redemption Fees(3)...................................... None None None None None None
Exchange Fees........................................... None None None None None None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<S> <C> <C> <C> <C> <C> <C>
Management Fees (after fee waivers)(4).................. .19%(5) .19%(5) .20% .20% .15%(6) .20%
Rule 12b-1 Fees......................................... .30%(7) 0% .30%(7) 0% 0% 0%
Special Management or Shareholder Services Fees......... .25% .32% .25% .32% .32% .32%
All Other Expenses...................................... .04% .04% .05% .05% .08% .08%
---- --- ---- --- ----- ----
Total Operating Expenses (after fee waivers)............ .78% .55% .80% .57% .55% .60%
==== === ==== === ===== ====
</TABLE>
- ---------------
(1) Additional fees charged by BAIS or Service Organizations related to the
holders of Sweep Accounts are not included in this table. For additional
information with respect to Sweep Account fees and charges, including a
description of the services available to Sweep Account holders, you should
refer to the Sweep Materials.
(2) No contingent deferred sales load is charged, except that Pacific Horizon
Shares of the Prime Fund acquired through an exchange of shares ("B Shares")
of the Time Horizon Funds (an open-end investment company managed by Bank of
America) offered with a contingent deferred sales charge ("CDSC") will be
subject to a CDSC of up to a maximum of 5% upon redemption in accordance
with the prospectus for the particular B Shares. See "Shareholder
Services--Exchanges."
(3) The Company reserves the right to impose a charge for wiring redemption
proceeds.
(4) The Funds incur an investment advisory fee and an administration fee, each
payable at a maximum annual rate of .10% of each Fund's average daily net
asset value.
(5) Due to established breakpoints, management fees decrease as the Fund's
assets increase. The effective advisory fee is .09% of the Fund's average
net assets.
(6) Absent fee waivers, Management Fees and Total Operating Expenses would have
been .20%, and .60%, respectively, with respect to Pacific Horizon Shares of
the Government Fund.
(7) Because of the Distribution Plan Payments paid by X Shares of the Prime and
Treasury Funds as shown in the above table, long-term Class X shareholders
may pay more than the economic equivalent of the maximum front-end sales
charge permitted by NASD Regulation, Inc.
2
<PAGE> 40
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- -------- -------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) a 5% annual return and (2) redemption at the end
of each time period:
Prime Fund
X Shares.................................................... $8 $25 $43 $ 97
Pacific Horizon Shares*..................................... $6 $18 $31 $ 69
Treasury Fund
X Shares.................................................... $8 $26 $44 $ 99
Pacific Horizon Shares...................................... $6 $18 $32 $ 71
Government Fund Pacific Horizon Shares......................... $6 $18 $31 $ 69
Treasury Only Fund Pacific Horizon Shares...................... $6 $19 $33 $ 75
</TABLE>
- ---------------
* Example does not include deduction at redemption of a CDSC for Pacific Horizon
Shares of the Prime Fund acquired through exchange of B Shares of the Time
Horizon Funds.
- --------------------------------------------------------------------------------
The foregoing Expense Summary and Example are intended to assist investors in X
Shares of the Prime and Treasury Funds and Pacific Horizon Shares of the Prime,
Treasury, Government and Treasury Only Funds in understanding the various
shareholder transaction and operating expenses of each class that investors bear
either directly or indirectly. Investors bear operating expenses indirectly
since they reduce the amount of income paid by the Funds to investors as
dividends. From time to time, the investment adviser and administrator may
prospectively waive a portion of their respective fees and/or assume certain
expenses of the Funds. See "Management of the Funds" and "Description of Shares"
for more complete descriptions of the various expenses referred to above.
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RETURN AND OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND
OPERATING EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
3
<PAGE> 41
FINANCIAL HIGHLIGHTS
On March 30, 1984, the Company commenced its public sale of shares (Pacific
Horizon Shares) in each of the Prime Fund and Treasury Fund, which were
originally called "Money Market Portfolio" and "Government Money Market
Portfolio," respectively. On January 19, 1990, the Prime Fund and Treasury Fund
of The Horizon Funds (the "Predecessor Prime Fund" and the "Predecessor Treasury
Fund") were combined with the Money Market Portfolio and Government Money Market
Portfolio of the Company; the Company changed the names of its resulting
portfolios to "Prime Fund" and "Treasury Fund"; and the Company began offering
Horizon Shares and Horizon Service Shares in the Prime and Treasury Funds. On
July 22, 1996, the Company began offering X Shares in the Prime and Treasury
Fund. On April 7, 1997, the Company began offering S Shares in the Prime and
Treasury Funds. Horizon Shares, Horizon Service Shares and S Shares of the Prime
and Treasury Funds are offered through another prospectus. The shares of each
class in a Fund represent equal pro rata interests in such Fund, except that
they bear different expenses which reflect the difference in the range of
services provided to them. X Shares bear the expense of a distribution and
services plan (the "Distribution and Services Plan") at an annual rate not to
exceed 0.55% of the average daily net asset value of the Prime and Treasury
Funds' outstanding X Shares. Pacific Horizon Shares bear the expense of a
special management services plan at an annual rate not to exceed 0.32% of the
average daily net asset value of the Prime and Treasury Funds' outstanding
Pacific Horizon Shares. See "Description of Shares" below for certain
differences among the Pacific Horizon Shares, Horizon Shares, Horizon Service
Shares, S Shares and X Shares, including differences related to expenses.
The tables below set forth certain information concerning the investment results
of Pacific Horizon Shares of the Prime Fund and Treasury Fund for the periods
indicated. The information contained in the Financial Highlights insofar as it
pertains to each of the five fiscal years in the five year period ended February
28, 1997 has been audited by Price Waterhouse LLP, independent accountants for
these two Funds, whose unqualified report on the financial statements containing
such information is incorporated by reference into the Statement of Additional
Information, which may be obtained upon request. The Financial Highlights should
be read in conjunction with the financial statements and notes thereto and the
unqualified report of independent accountants which are incorporated by
reference into the Statement of Additional Information.
4
<PAGE> 42
Selected Data for an X Share Outstanding Throughout the Period Indicated:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRIME FUND
-------------
PERIOD FROM
JULY 22, 1996
TO
FEBRUARY 28,
1997(a)
-------------
<S> <C>
X SHARES
Net asset value per share, beginning of period................................... $ 1.00
--------
Income from Investment Operations:
Net investment income.......................................................... 0.0282
Net realized and unrealized gains/(losses) on investment transactions.......... 0.0000
--------
Total income from investment operations........................................ 0.0282
Less dividends to shareholders from net investment income........................ (0.0281)
--------
Net change in asset value per share.............................................. 0.0001
--------
Net asset value per share, end of period......................................... $ 1.00
========
Total return..................................................................... 2.84%**
Ratios/supplemental data:
Net assets at end of year (millions)........................................... $ 204
Ratio of expenses to average net assets........................................ 0.78%#
Ratio of net investment income to average net assets........................... 4.73%#
</TABLE>
- ---------------
(a) Period from inception date of share class to February 28, 1997.
# Annualized. During the period, certain fees were voluntarily reduced and/or
reimbursed. Fees paid by third parties, however, had no effect on the ratio.
** Not Annualized.
5
<PAGE> 43
Selected Data for a Pacific Horizon Share Outstanding Throughout Each of the
Periods Indicated:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRIME FUND+
--------------------------------------------------------------------------------------
YEAR ENDED
--------------------------------------------------------------------------------------
FEB. 28, FEB. 29, FEB. 28, FEB. 28, FEB. 28, FEB. 29, FEB. 28,
1997 1996 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of year......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- ------- -------
Income from Investment
Operations:
Net investment income........... 0.0492 0.0539 0.0424 0.0287 0.0340 0.0558 0.0762
Net realized gain (loss) on
securities.................... 0.0000 0.0004 (0.0227) (0.0016) 0.0000 0.0005 (0.0001)
------- ------- ------- ------- ------- ------- -------
Total income from investment
operations.................... 0.0492 0.0543 0.0197 0.0271 0.0340 0.0563 0.0761
Less Distributions:
Dividends from net investment
income........................ (0.0490) (0.0539) (0.0422) (0.0287) (0.0341) (0.0557) (0.0762)
Increase due to voluntary
capital contribution from
investment adviser............ 0.0000 0.0000 0.0233 0.0000 0.0000 0.0000 0.0000
------- ------- ------- ------- ------- ------- -------
Net change in net asset value per
share........................... 0.0002 0.0004 0.0008 (0.0016) (0.0001) 0.0006 (0.0001)
------- ------- ------- ------- ------- ------- -------
Net asset value per share, end of
year............................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= ======= =======
Total return..................... 5.01% 5.53% 4.30%** 2.91% 3.45% 5.72% 7.89%
Ratios/supplemental data:
Net assets, end of year
(millions).................... $ 2,292 $ 2,200 $ 1,129 $ 1,216 $ 992 $ 1,413 $ 1,086
Ratio of expenses to average net
assets........................ 0.55% 0.55%* 0.51%* 0.52%* 0.55% 0.56% 0.56%
Ratio of net investment income
to average net assets......... 4.92% 5.37%* 4.19%* 2.86%* 3.42% 5.51% 7.61%
<CAPTION>
FEB. 28, FEB. 28, FEB. 29,
1990 1989 1988
-------- -------- --------
<S> <C> <C> <C>
Net asset value, beginning
of year......................... $ 1.00 $ 1.00 $ 1.00
------- ------- -------
Income from Investment
Operations:
Net investment income........... 0.0855 0.0738 0.0643
Net realized gain (loss) on
securities.................... 0.0001 (0.0002) 0.0003
------- ------- -------
Total income from investment
operations.................... 0.0856 0.0736 0.0646
Less Distributions:
Dividends from net investment
income........................ (0.0855) (0.0738) (0.0643)
Increase due to voluntary
capital contribution from
investment adviser............ 0.0000 0.0000 0.0000
------- ------- -------
Net change in net asset value per
share........................... 0.0001 (0.0002) 0.0003
------- ------- -------
Net asset value per share, end of
year............................ $ 1.00 $ 1.00 $ 1.00
======= ======= =======
Total return..................... 8.90% 7.63%++ 6.62%++
Ratios/supplemental data:
Net assets, end of year
(millions).................... $ 890 $ 921 $ 957
Ratio of expenses to average net
assets........................ 0.63% 0.63% 0.58%
Ratio of net investment income
to average net assets......... 8.52% 7.38% 6.42%
</TABLE>
- ---------------
* Includes fee waivers and expense reimbursements which had the effect of
reducing the ratio of expenses to average net assets and increasing the ratio
of net investment income to average net assets by 0.01%, 0.05% and 0.01% for
the years ended February 29, 1996, February 28, 1995 and February 28, 1994,
respectively. For the year ended February 28, 1997, fees paid by third
parties had no effect on the ratios.
** Total return includes the effect of a voluntary capital contribution from the
investment adviser. Without this capital contribution, the total return would
have been lower.
+ Security Pacific National Bank served as investment adviser through April 21,
1992. Bank of America National Trust and Savings Association served as
investment adviser commencing April 22, 1992.
++ Unaudited.
6
<PAGE> 44
Selected Data for an X Share Outstanding Throughout the Period Indicated:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TREASURY FUND
-------------
PERIOD FROM
JULY 22, 1996
TO
FEBRUARY 28,
1997(a)
-------------
<S> <C>
X SHARES
Net asset value per share, beginning of period...................................... $ 1.00
--------
Income from Investment Operations:
Net investment income............................................................. 0.0271
--------
Total income from investment operations........................................... 0.0271
Less dividends to shareholders from net investment income........................... (0.0271)
--------
Net change in asset value per share................................................. 0.0000
--------
Net asset value per share, end of period............................................ $ 1.00
========
Total return........................................................................ 2.74%
Ratios/supplemental data:
Net assets at end of year (millions).............................................. $ 6
Ratio of expenses to average net assets........................................... 0.81%#
Ratio of net investment income to average net assets.............................. 4.58%#
</TABLE>
- ---------------
<TABLE>
<C> <S>
(a) Period from inception date of share class to February 28, 1997.
# Annualized. During the period, certain fees were voluntarily reduced and/or reimbursed. Fees paid by third parties, however,
had no effect on the ratios.
</TABLE>
7
<PAGE> 45
Selected Data for a Pacific Horizon Share Outstanding Throughout Each of the
Periods Indicated:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TREASURY FUND+
--------------------------------------------------------------------------------------
YEAR ENDED
--------------------------------------------------------------------------------------
FEB. 28, FEB. 29, FEB. 28, FEB. 28, FEB. 28, FEB. 29, FEB. 28,
1997 1996 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
year........................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- ------- -------
Income from Investment
Operations:
Net investment income.......... 0.0477 0.0527 0.0405 0.0262 0.0309 0.0512 0.0731
Net realized gain (loss) on
securities................... 0.0000 0.0011 0.0001 (0.0002) 0.0000 0.0002 0.0006
------- ------- ------- ------- ------- ------- -------
Total income from investment
operations................... 0.0477 0.0538 0.0406 0.0260 0.0309 0.0514 0.0737
Less Dividends and
Distributions:
Dividends from net investment
income....................... (0.0477) (0.0527) (0.0405) (0.0262) (0.0311) (0.0513) (0.0733)
------- ------- ------- ------- ------- ------- -------
Net change in net asset value
per share...................... 0.0000 0.0011 0.0001 (0.0002) (0.0002) 0.0001 0.0004
------- ------- ------- ------- ------- ------- -------
Net asset value per share, end
of year........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= ======= =======
Total return.................... 4.87% 5.40% 4.13% 2.65% 3.15% 5.25% 7.58%
Ratios/supplemental data:
Net assets, end of year
(millions)................... $ 411 $ 1,091 $ 1,132 $ 1,577 $ 1,746 $ 2,300 $ 1,663
Ratio of expenses to average
net assets................... 0.57% 0.57%* 0.55% 0.55% 0.56% 0.56% 0.55%
Ratio of net investment income
to average net assets........ 4.76% 5.24%* 3.99% 2.62% 3.11% 5.07% 7.29%
<CAPTION>
FEB. 28, FEB. 28, FEB. 29,
1990 1989 1988
-------- -------- --------
<S> <C> <C> <C>
Net asset value, beginning of
year........................... $ 1.00 $ 1.00 $ 1.00
------- ------- -------
Income from Investment
Operations:
Net investment income.......... 0.0833 0.0712 0.0587
Net realized gain (loss) on
securities................... 0.0004 (0.0005) (0.0003)
------- ------- -------
Total income from investment
operations................... 0.0837 0.0707 0.0584
Less Dividends and
Distributions:
Dividends from net investment
income....................... (0.0830) (0.0709) (0.0587)
------- ------- -------
Net change in net asset value
per share...................... 0.0007 (0.0002) 0.0003
------- ------- -------
Net asset value per share, end
of year........................ $ 1.00 $ 1.00 $ 1.00
======= ======= =======
Total return.................... 8.62% 7.33%++ 6.08%++
Ratios/supplemental data:
Net assets, end of year
(millions)................... $ 1,144 $ 1,048 $ 947
Ratio of expenses to average
net assets................... 0.55% 0.54% 0.56%
Ratio of net investment income
to average net assets........ 8.33% 7.14% 5.90%
</TABLE>
- ---------------
+ Security Pacific National Bank served as investment adviser through April 21,
1992. Bank of America National Trust and Savings Association served as
investment adviser commencing April 22, 1992.
++ Unaudited.
* Includes fee waivers and expense reimbursements which had the effect of
reducing the ratio of expenses to average net assets and increasing the ratio
of net investment income to average net assets by 0.01% for the year ended
February 29, 1996. For the year ended February 28, 1997, fees paid by third
parties had no effect on the ratios.
8
<PAGE> 46
The Government Fund and the Treasury Only Fund commenced operations on June 4,
1990 as separate investment portfolios (the "Predecessor Government Funds" and
"Predecessor Treasury Only Funds," respectively) of First Funds of America and
First Cash Funds of America, which were organized as Massachusetts business
trusts. On March 1, 1993 the Predecessor Government Funds and Predecessor
Treasury Only Funds were reorganized as the Government Fund and Treasury Only
Fund, respectively, of the Company. Prior to this reorganization, these
Predecessor Funds offered and sold shares of beneficial interest that were
similar to the Company's Pacific Horizon Shares and Horizon Service Shares.
Horizon Shares and Horizon Service Shares of the Government and Treasury Only
Funds are described in a separate Prospectus available from the Distributor by
calling (800) 332-3863.
The tables below set forth certain information concerning the investment results
of: (i) Pacific Horizon Shares of the Government Fund and the Treasury Only Fund
for the four years ended February 28, 1997; and (ii) shares of the Predecessor
Government Fund and Predecessor Treasury Only Fund of First Funds of America,
which offered and sold shares of beneficial interest similar to the Company's
Pacific Horizon Shares for the 11 month period ended February 28, 1993, the
fiscal year ended March 31, 1992 and the fiscal period ended March 31, 1991. The
information about the Government Fund and Treasury Only Fund has been audited by
Price Waterhouse LLP, independent accountants for those two Funds, whose
unqualified report thereon is incorporated by reference into the Statement of
Additional Information, which may be obtained upon request. The information
about the Predecessor Government Fund and Predecessor Treasury Only Fund has
been audited by other independent accountants for these Predecessor Funds for
the periods indicated, whose unqualified report dated March 1, 1993 expressed an
unqualified opinion on such financial statements. The Financial Highlights
should be read in conjunction with the financial statements and notes thereto
and the unqualified reports of independent accountants which are incorporated by
reference into the Statement of Additional Information with respect to the
Government and Treasury Only Funds.
9
<PAGE> 47
Selected Data for a Pacific Horizon Share Outstanding Throughout Each of the
Periods Indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOVERNMENT FUND-PACIFIC HORIZON SHARE PREDECESSOR GOVERNMENT FUND
---------------------------------------------------------- ---------------------------------------------
MARCH 1, JUNE 4,
1993 1990
(COMMENCEMENT (COMMENCEMENT
OF 11 MONTH OF
YEAR ENDED YEAR ENDED YEAR ENDED OPERATIONS) PERIOD ENDED YEAR ENDED OPERATIONS)
FEB. 28, FEB. 29, FEB. 28, TO FEB. 28, FEB. 28, MARCH 31, TO MARCH 31,
1997 1996 1995 1994 1993 1992 1991
---------- ---------- ---------- ------------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value
per share,
beginning of
period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- --------
Income from
Investment
Operations:
Net investment
income........ 0.0481 0.0530 0.0421 0.0288 0.0275 0.0477 0.0575
Net realized
loss on
securities.... 0.0000 (0.0004)+ (0.0091) (0.0006) -- -- --
-------- -------- -------- -------- -------- -------- --------
Total income
from
investment
operations.... 0.0481 0.0526 0.0330 0.0282 0.0275 0.0477 0.0575
Less dividends
from net
investment
income.......... (0.0480) (0.0524) (0.0420) (0.0288) (0.0275) (0.0477) (0.0575)
Increase due to
voluntary
capital
contribution
from investment
adviser......... 0.0000 0.0000 0.0085 0.0000 0.0000 0.0000 0.0000
-------- -------- -------- -------- -------- -------- --------
Net change in net
asset value per
share........... 0.0001 0.0002 (0.0005) (0.0006) 0.0000 0.0000 0.0000
-------- -------- -------- -------- -------- -------- --------
Net asset value
per share,
end of period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== ========
Total return..... 4.91% 5.37% 4.28%*** 2.92% 2.79%P 4.88% 5.90%P
Ratios/supplemental
data:
Net assets, end
of period
(millions).... $ 192 $ 261 $ 355 $ 154 $ 103 $ 135 $ 145
Ratio of
expenses
to average
net assets*... 0.55% 0.56% 0.50% 0.60% 0.76%** 0.76% 0.74%**
Ratio of net
investment
income to
average net
assets*....... 4.82% 5.34% 4.27% 2.88% 3.03%** 4.76% 6.57%**
</TABLE>
- ---------------
<TABLE>
<C> <S>
* Includes fee waivers and expense reimbursements which had the effect of reducing the ratio of expenses to average net assets
and increasing the ratio of net investment income to average net assets by 0.06%, 0.07%, 0.08% and 0.002% for the years ended
February 28. 1997, February 29, 1996, February 28, 1995 and February 28, 1994, respectively. For the year ended February 28,
1997, however, fees paid by third parties had no effect on the ratios. Reflects the Predecessor Government Fund's share of
the expenses of the Government Money Trust, in which the assets of the Predecessor Government Fund were invested, as well as
a voluntary waiver of fees by affiliates of the Portfolio and Trust. If the voluntary expense waiver had not been in place
the annualized ratios of expenses to average net assets would have been 0.94%, 0.91% and 0.91% for the periods ended February
28, 1993, March 31, 1992 and March 31, 1991, respectively.
** Annualized.
*** Total return includes the effect of a voluntary capital contribution from the investment adviser. Without this capital
contribution, the total return would have been lower.
P Not annualized.
+ Net realized loss for the period is a direct result of a decrease in outstanding shares and the date of the gain realization.
</TABLE>
10
<PAGE> 48
Selected Data for a Pacific Horizon Share Outstanding Throughout Each of the
Periods Indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TREASURY ONLY FUND-
PACIFIC HORIZON SHARE PREDECESSOR TREASURY FUND
---------------------------------------------------------- ---------------------------------------------
MARCH 1, 1993 JUNE 4, 1990
(COMMENCEMENT 11 MONTH (COMMENCEMENT
YEAR ENDED YEAR ENDED YEAR ENDED OF OPERATION) PERIOD ENDED YEAR ENDED OF OPERATIONS)
FEB. 28, FEB. 29, FEB. 28, TO FEB. 28, FEB. 28, MARCH 31, TO MARCH 31,
1997 1996 1995 1994 1993 1992 1991
---------- ---------- ---------- ------------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value
per share,
beginning of
period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- --------
Income from
Investment
Operations:
Net investment
income........ 0.0458 0.0495 0.0384 0.0254 0.0264 0.0466 0.0554
Net realized
loss on
securities.... 0.0001 0.0003 (0.0002) (0.0002) -- -- --
-------- -------- -------- -------- -------- -------- --------
Total income
from
investment
operations.... 0.0459 0.0498 0.0382 0.0252 0.0264 0.0466 0.0554
Less Dividends:
Dividends from
net investment
income........ (0.0458) (0.0495) (0.0384) (0.0254) (0.0264) (0.0466) (0.0554)
-------- -------- -------- -------- -------- -------- --------
Net change in net
asset value per
share........... 0.0001 0.0003 (0.0002) (0.0002) 0.0000 0.0000 0.0000
-------- -------- -------- -------- -------- -------- --------
Net asset value
per share,
end of period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== ========
Total return..... 4.68% 5.06% 3.90% 2.57% 2.67%P 4.76% 5.68%P
Ratios/supplemental
data:
Net assets, end
of period
(millions).... $ 225 $ 274 $ 90 $ 72 $ 34 $ 42 $ 48
Ratio of
expenses
to average
net assets*... .60% 0.63% 0.62% 0.56% 0.56%** 0.56% 0.54%**
Ratio of net
investment
income to
average net
assets*....... 4.59% 4.94% 3.90% 2.54% 2.86%** 4.66% 6.34%**
</TABLE>
- ---------------
<TABLE>
<C> <S>
* Includes fee waivers which had the effect of reducing the ratio of expenses to average net assets and increasing the ratio of
net investment income to average net assets by 0.01% and 0.16% for the years ended February 28, 1995 and February 28, 1994,
respectively. There were no fee waivers or expense reimbursements during the fiscal years ended February 29, 1996 and
February 28, 1997. Reflects the Predecessor Treasury Only Fund's share of the expenses of the Treasury Money Trust, in which
the assets of the Predecessor Treasury Only Fund were invested, as well as a voluntary waiver of fees by affiliates of the
Portfolio and Trust. If the voluntary expense waiver had not been in place, the annualized ratios of expenses to average net
assets would have been 0.99%, 0.94% and 0.98% for the periods ended February 28, 1993, March 31, 1992 and March 31, 1991,
respectively.
** Annualized.
P Not annualized.
</TABLE>
INVESTMENT OBJECTIVES AND POLICIES
This section describes the investment objective and policies of each Fund.
Assets of the Funds will be invested in dollar-denominated debt securities with
remaining maturities of thirteen months or less as defined by the Securities and
Exchange Commission, and the dollar-weighted average portfolio maturity of each
Fund will not exceed 90 days. All securities acquired by the Funds will be
determined by the investment adviser, under guidelines established by the
Company's Board of Directors, to present minimal credit risks. Securities
acquired by the Prime, Treasury, Government and Treasury Only Funds
11
<PAGE> 49
will be U.S. Government securities or other "First Tier Securities" (as defined
by the Securities and Exchange Commission) of the types described below. First
Tier Securities consist of instruments that are either rated at the time of
purchase in the top rating category by one (if rated by only one) or more
unaffiliated nationally recognized statistical rating organizations ("NRSROs")
including Standard and Poor's Ratings Group, Division of McGraw-Hill ("Standard
& Poor's"), Moody's Investors Service, Inc. ("Moody's"), Duff & Phelps Credit
Co. ("Duff & Phelps"), Thomson BankWatch, Inc. ("Thomson's") or Fitch Investors
Service, Inc. ("Fitch") or are issued by issuers with such ratings. The Appendix
to the Statement of Additional Information includes a description of the
applicable NRSRO ratings. Unrated instruments (including instruments with
long-term but no short-term ratings) purchased by a particular Fund will be of
comparable quality to the rated instruments that the Fund may purchase, as
determined by the Funds' investment adviser pursuant to guidelines approved by
the Board of Directors.
PRIME FUND. The Prime Fund's investment objective is to seek high current
income and stability of principal. The Fund invests substantially all of its
assets in a diversified portfolio of U.S. dollar-denominated money market
instruments such as bank certificates of deposit and bankers' acceptances,
commercial paper (including variable and floating rate instruments) and
repurchase agreements, in addition to obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities. Portfolio securities held by
the Fund have remaining maturities of thirteen months or less from the date of
purchase by the Fund. (Portfolio securities which are subject to repurchase
agreements or have certain put or demand features exercisable by the Fund within
thirteen months, as well as certain U.S. Government obligations with floating or
variable interest rates, may have longer maturities.)
In pursuing its investment objective, the Prime Fund invests in a broad range of
government, bank and commercial obligations that may be available in the money
markets. The money market instruments in which the Fund invests will generally
have neither as much risk nor as high a return as longer-term or lower-rated
instruments. In accordance with current regulations of the Securities and
Exchange Commission, the Fund intends to limit its investments in the securities
of any single issuer (other than securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities) to not more than 5% of the Fund's
total assets at the time of purchase, provided that the Fund may invest up to
25% of its total assets in the securities of any one issuer for a period of up
to three business days.
The Prime Fund may purchase bank obligations such as certificates of deposit and
bankers' acceptances issued or supported by the credit of domestic banks,
foreign branches of domestic banks ("Euro CDs") or domestic branches of foreign
banks ("Yankee CDs" and "Yankee BAs") or foreign branches of foreign banks
("Yankee Euros"). Such banks must have total assets at the time of purchase in
excess of $2.5 billion. No more than 25% of the Prime Fund's total assets at the
time of purchase may be invested in Yankee CDs and BAs, Euro CDs and Yankee
Euros. The Fund may also make interest-bearing savings deposits in such
commercial banks in amounts not in excess of 5% of the Fund's total assets.
The Prime Fund may be subject to additional investment risks because the Fund
may hold securities issued by foreign branches of domestic banks, domestic
branches of foreign banks and foreign branches of foreign banks (and, as
described below, commercial paper issued by foreign issuers). These risks are
different in some respects from those incurred by a fund which invests only in
debt obligations of U.S. domestic issuers. Such risks include future political
and economic developments, the possible imposition of withholding taxes on
interest income payable on the securities by the particular country in which the
branch is located, the possible seizure or nationalization of foreign deposits,
the possible establishment of exchange controls or the
12
<PAGE> 50
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on these securities. In addition, foreign
branches of domestic banks, domestic branches of foreign banks and foreign
branches of foreign banks are not necessarily subject to the same regulatory
requirements that apply to domestic branches of domestic banks (such as reserve
requirements, loan limitations, examinations, accounting, auditing and
recordkeeping requirements, and public availability of information) and the Fund
may experience difficulties in obtaining or enforcing a judgment against the
issuing bank.
The Prime Fund may purchase commercial paper, short-term notes and corporate
bonds that meet the Fund's maturity limitations. Commercial paper purchased by
the Fund may include instruments issued by foreign issuers, such as Canadian
Commercial Paper ("CCP"), which is U.S. dollar-denominated commercial paper
issued by a Canadian corporation or a Canadian counterpart of a U.S.
corporation, and Europaper, which is U.S. dollar-denominated commercial paper of
a foreign issuer.
The Prime Fund may also invest in commercial paper issued in reliance on the
so-called "private placement" exemption from registration afforded by Section
4(2) of the Securities Act of 1933 ("Section 4(2) paper"). Section 4(2) paper is
restricted as to disposition under the Federal securities laws and generally is
sold to institutional investors such as the Prime Fund that agree that they are
purchasing the paper for investment and not with a view to public distribution.
Any resale by the purchaser must be part of an exempt transaction. Section 4(2)
paper normally is resold to other institutional investors like the Prime Fund
through or with the assistance of the issuer or investment dealers that make a
market in Section 4(2) paper. Section 4(2) paper will not be subject to the
Fund's 10% limitation on illiquid securities set forth below where the Board of
Directors or Bank of America (pursuant to guidelines adopted by the Board)
determines that a liquid trading market exists.
TREASURY FUND. The Treasury Fund's investment objective is to seek high current
income and stability of principal. The Fund invests solely in direct obligations
issued by the U.S. Treasury and repurchase agreements relating to such Treasury
obligations. Portfolio securities which are subject to repurchase agreements may
have remaining maturities of longer than thirteen months.
Examples of the types of U.S. Treasury obligations that may be held by the
Treasury Fund include U.S. Treasury Bills and Notes. Under normal market
conditions, 100% of the total assets of the Fund will be invested in direct
obligations of the U.S. Treasury and repurchase agreements relating to such
Treasury obligations. Securities issued by the U.S. Government have historically
involved little risk of loss of principal if held to maturity and, in general,
the instruments held by the Fund will have neither as much risk nor as high a
return as longer term or non-U.S. Government obligations.
GOVERNMENT FUND. The investment objective of the Government Fund is to provide
liquidity and as high a level of current income as is consistent with the
preservation of capital. The Government Fund seeks to achieve this objective by
investing in short-term debt obligations issued or guaranteed as to interest and
principal by the U.S. Government, its agencies, authorities or instrumentalities
and in repurchase agreements with respect to such obligations.
The Government Fund may purchase certain agency securities (such as guaranteed
notes of the Federal Aviation Administration, Department of Defense, Bureau of
Indian Affairs and Private Export Funding Corporation) which often provide
higher yields than are available from the more common types of government-backed
investments. However, such specialized investments may only be available from a
few sources, in limited amounts, or only in very large denominations; they may
also require specialized capability in portfolio servicing and in legal matters
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related to government guarantees. While frequently offering attractive yields,
the limited-activity markets of many of these securities means that if the
Government Fund were required to liquidate any of them it might not be able to
do so advantageously; accordingly, the Government Fund intends normally to hold
such securities to maturity or pursuant to repurchase agreements, and would
limit its investment in such securities (as well as repurchase agreements
maturing in more than seven days) to not more than 10% of the Fund's net assets.
TREASURY ONLY FUND. The investment objective of the Treasury Only Fund is to
provide liquidity and as high a level of current income as is consistent with
the preservation of capital. The Treasury Only Fund seeks to achieve this
objective by investing solely in obligations of the U.S. Treasury. U.S. Treasury
securities are backed by the "full faith and credit" of the U.S. Government.
U.S. Treasury securities include Treasury bills, Treasury notes and Treasury
bonds. While U.S. Treasury securities are guaranteed as to the timely payment of
principal and interest, the market value of such obligations is not guaranteed
and may rise and fall in response to changes in interest rates.
To increase income on portfolio securities, the Treasury Only Fund may lend its
portfolio securities to broker-dealers, banks and other institutional investors
pursuant to agreements requiring that the loans be continuously secured by
collateral equal at all times in value to at least the market value of the
securities loaned plus accrued interest. Collateral for such loans may include
cash or securities of the U.S. Treasury. Such loans will not be made if, as a
result, the aggregate of all outstanding loans of the Fund exceeds 33% of the
value of its total assets. There may be risks of delay in receiving additional
collateral or in recovering the securities loaned or even a loss of rights in
the collateral should the borrower of the securities fail financially. Loans
will be made only to borrowers deemed by the adviser to be of good standing and
when, in the adviser's judgment, the income to be earned from the loan justifies
the attendant risks.
COMMON INVESTMENT POLICIES
GOVERNMENT OBLIGATIONS. The Prime Fund and Government Fund may purchase
obligations issued or guaranteed by the U.S. Government or its agencies and
instrumentalities. Obligations of certain agencies and instrumentalities of the
U.S. Government, such as the Small Business Administration, are backed by the
full faith and credit of the United States. Others are backed by the right of
the issuer to borrow from the U.S. Treasury (such as obligations of the Federal
Home Loan Bank), by the discretionary authority of the U.S. Government to
purchase the agency's obligations (such as obligations of the Federal National
Mortgage Association), or only by the credit of the agency or instrumentality
issuing the obligation (such as the Student Loan Marketing Association).
Securities issued or guaranteed by the U.S. Government and its agencies and
instrumentalities have historically involved little risk of loss of principal if
held to maturity. However, no assurance can be given that the U.S. Government
would provide financial support to any agency or instrumentality if it is not
obligated to do so by law.
Certain securities issued or guaranteed by all governmental agencies may be
prepaid by the issuer without penalty. Thus, when prevailing interest rates
decline, the value of these securities is not likely to rise on a comparable
basis with other debt securities that are not so prepayable. The proceeds of
prepayments and scheduled payments of principal of these securities will be
reinvested by a Fund at then-prevailing interest rates, which may be lower than
the rate of interest on the securities on which these payments were received.
"STRIPPED" SECURITIES. Each Fund may invest in "stripped" securities, which are
U.S. Treasury bonds and notes the unmatured interest coupons of which have been
separated from the underlying principal obligation. Stripped securities are
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zero coupon obligations that are normally issued at a discount to their "face
value," and may exhibit greater price volatility than ordinary debt securities
because of the manner in which their principal and interest are returned to
investors. The Treasury and Treasury Only Funds may only invest in stripped
securities issued by the U.S. Treasury and recorded in the Federal Reserve
book-entry record-keeping system. The Government Fund may invest no more than
35% of its assets in stripped securities that have been stripped by their
holder, typically a custodian bank or investment brokerage firm. A number of
securities firms and banks have stripped the interest coupons and resold them in
custodian receipt programs with different names such as Treasury Income Growth
Receipts ("TIGRs") and Certificates of Accrual on Treasuries ("CATS"). The
Government Fund intends to rely on the opinions of counsel to the sellers of
these certificates or other evidences of ownership of U.S. Treasury obligations
that, for Federal tax and securities purposes, purchasers of such certificates
most likely will be deemed the beneficial holders of the underlying U.S.
Government obligations. Privately-issued stripped securities such as TIGRs and
CATS are not themselves guaranteed by the U.S. Government, but the future
payment of principal or interest on U.S. Treasury obligations which they
represent is so guaranteed.
REPURCHASE AGREEMENTS. Each Fund (other than the Treasury Only Fund) may agree
to purchase securities from financial institutions, such as banks and
broker-dealers, as are deemed creditworthy by the Company's investment adviser
under guidelines approved by the Board of Directors, subject to the seller's
agreement to repurchase them at an agreed upon time and price ("repurchase
agreements"). Although the securities subject to a repurchase agreement may bear
maturities exceeding thirteen months, each Fund intends only to enter into
repurchase agreements having maturities not exceeding 60 days. Securities
subject to repurchase agreements are held either by the Company's custodian or
sub-custodian, or in the Federal Reserve/Treasury Book-Entry System. The seller
under a repurchase agreement will be required to deliver instruments the value
of which is greater than the repurchase price. Default by the seller would,
however, expose a Fund to possible loss because of adverse market action or
delay in connection with the disposition of the underlying obligations.
Repurchase agreements are considered to be loans under the Investment Company
Act of 1940.
REVERSE REPURCHASE AGREEMENTS. The Funds may borrow monies for temporary
purposes by entering into reverse repurchase agreements in accordance with the
investment restrictions described below. Pursuant to such agreements, a Fund
would sell portfolio securities to banks, and with respect to the Prime and
Treasury Funds, other financial institutions, and agree to repurchase them at an
agreed upon date and price. At the time a Fund enters into a reverse repurchase
agreement, it will place in a segregated custodial account liquid assets or high
grade debt securities having a value equal to or greater than the repurchase
price and the Company's investment adviser will continuously monitor the account
to ensure that the value is maintained. A Fund would only enter into reverse
repurchase agreements to avoid otherwise selling securities during unfavorable
market conditions to meet redemptions. Reverse repurchase agreements involve the
risk that the market value of the portfolio securities sold by a Fund may
decline below the price of the securities such Fund is obligated to repurchase.
Interest paid by a Fund in connection with a reverse repurchase agreement will
reduce the net investment income of such Fund. Reverse repurchase agreements are
considered to be borrowings under the Investment Company Act of 1940.
VARIABLE AND FLOATING RATE INSTRUMENTS. Securities purchased by a Fund may
include variable and floating rate instruments, which may have a stated maturity
in excess of a Fund's maturity limitations but which will, except for certain
U.S. Government obligations, permit a Fund to
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<PAGE> 53
demand payment of the principal of the instrument at least once every thirteen
months upon not more than thirty days' notice. Variable and floating rate
instruments purchased by the Government Fund will be U.S. Government agency
securities with stated maturities of typically up to 10 years, although stated
maturities of up to 30 years are possible. Variable and floating rate
instruments may include variable amount master demand notes that permit the
indebtedness thereunder to vary in addition to providing for periodic
adjustments in the interest rate. There may be no active secondary market with
respect to a particular variable or floating rate instrument. Nevertheless, the
periodic readjustments of their interest rates tend to assure that their value
to a Fund will approximate their par value. Illiquid variable and floating rate
instruments (instruments which are not payable upon seven days notice and do not
have an active trading market) that are acquired by the Funds are subject to a
Fund's percentage limitations regarding securities that are illiquid or not
readily marketable. The Funds' investment adviser will continuously monitor the
creditworthiness of issuers of variable and floating rate instruments in which
the Funds invest, and their ability to repay principal and interest.
Variable and floating rate instruments purchased by a Fund may include
participation certificates issued by trusts or financial institutions in
variable and floating rate obligations owned by such issuers or affiliated
organizations. A participation certificate gives a Fund a specified undivided
interest (up to 100%) in the underlying obligation and the right to demand
payment of the unpaid principal balance plus accrued interest on the
participation interest from the institution upon a specified number of days'
notice. If the credit of the obligor is of minimal credit risk, no credit
support from a bank or other financial institution will be necessary. In other
circumstances, the participation certificate will be backed by an irrevocable
letter of credit or guarantee of a bank, or will be insured by an insurer, that
the Funds' investment adviser has determined meets the quality standards for the
Fund involved. If an interest is backed by an irrevocable letter of credit or
guarantee of a bank or is insured as described above, a Fund will usually have
the right to sell the interest back to the institution or draw on the letter of
credit or insurance policy on demand after a specified notice period, for all or
any part of the principal amount of the interest plus accrued interest. Although
a participation interest may be sold by a Fund, under normal circumstances they
will be held until maturity.
A Fund may also invest in obligations which provide for a variable or floating
interest rate which is determined through a periodic "auction process." From
time to time, holders of the obligations have the right to tender any such
obligations to a remarketing agent which then remarkets the obligations which
have been tendered and thereby determines a new interest rate for the following
period.
WHEN-ISSUED PURCHASES, FORWARD COMMITMENTS AND DELAYED SETTLEMENTS. The Funds
may purchase securities on a "when-issued" basis and may purchase or sell
securities on a "forward commitment" or "delayed settlement" basis. When-issued
and forward commitment transactions, which involve a commitment by a Fund to
purchase or sell particular securities with payment and delivery taking place at
a future date (perhaps one or two months later), permit a Fund to lock in a
price or yield on a security it owns or intends to purchase or sell, regardless
of changes in interest rates. Delayed settlement describes a securities
transaction in a secondary market for which settlement will occur sometime in
the future. When-issued, forward commitment and delayed settlement transactions
involve the risk, however, that the yield or price obtained in a transaction may
be less favorable than the yield or price available in the market when the
securities delivery takes place. The Funds' forward commitments, when-issued
purchases and delayed settlements are not expected to exceed 25% of the value of
the total assets of a particular Fund absent unusual market condi-
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tions. A Fund's liquidity and the ability of its investment adviser to manage
its portfolio may be adversely affected in the event a Fund's forward
commitments, commitments to purchase when-issued securities and delayed
settlements ever exceed 25% of the value of its total assets. The Funds do not
intend to engage in these transactions for speculative purposes but only in
furtherance of their investment objectives.
INVESTMENT LIMITATIONS. The investment objectives of the Prime and Treasury
Funds (but not the Government and Treasury Only Funds) are fundamental policies
that may not be changed without a vote of the holders of a majority of the
particular Fund's outstanding shares (as defined in the Investment Company Act
of 1940). A Fund's policies may be changed by the Company's Board of Directors
without the affirmative vote of the holders of a majority of such Fund's
outstanding shares, except that the investment limitations set forth below may
not be changed without such a vote of shareholders. A description of certain
other fundamental investment limitations is contained in the Statement of
Additional Information.
PRIME FUND. The Prime Fund may not:
1. Purchase any securities which would cause 25% or more of the Fund's total
assets at the time of purchase to be invested in the securities of one or
more issuers conducting their principal business activities in the same
industry, provided that (a) there is no limitation with respect to
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or domestic bank certificates of deposit, bankers'
acceptances and repurchase agreements secured by instruments of domestic
branches of U.S. banks or obligations of the U.S. Government, its agencies or
instrumentalities; (b) wholly-owned finance companies will be considered to
be in the industries of their parents if their activities are primarily
related to financing the activities of the parents; and (c) the industry
classification of utilities will be determined according to their service.
For example, gas, gas transmission, electric and gas, electric and telephone
will each be considered a separate industry.
PRIME FUND AND TREASURY FUND. Neither the Prime Fund nor the Treasury Fund may:
1. Borrow money or issue senior securities, except that each Fund may borrow
from banks or enter into reverse repurchase agreements to meet redemptions or
for other temporary purposes in amounts up to 10% of its total assets at the
time of such borrowing; or mortgage, pledge or hypothecate any assets except
in connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amount borrowed or 10% of its total assets at the time
of such borrowing; or purchase securities at any time after such borrowings
(including reverse repurchase agreements) have been entered into and before
they are repaid.
2. Purchase securities without available market quotations which cannot be sold
without registration or the filing of a notification under federal or state
securities laws, enter into repurchase agreements providing for settlement
more than seven days after notice, or purchase any other securities deemed
illiquid by the Directors if, as a result, such securities and repurchase
agreements would exceed 10% of the Fund's total assets.
The Prime Fund intends that, except as stated above under "Common Investment
Policies -- Variable and Floating Rate Instruments," variable amount master
demand notes with maturities of nine months or less, as well as any investments
in securities that are not registered under the Securities Act of 1933 but that
may be purchased by institutional buyers under Rule 144A and for which a liquid
trading market exists as determined by the Board of Directors or Bank of America
(pursuant to guidelines adopted by the Board) will not be subject to the 10%
limitation on illiquid securities set forth in Investment Limitation No. 2
above.
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GOVERNMENT FUND AND TREASURY ONLY FUND. Neither the Government Fund nor the
Treasury Only Fund may:
1. Invest more than 10% of the Fund's net assets in securities that are not
readily marketable (such as repurchase agreements maturing in more than seven
days). If changes in the markets of certain securities cause a Fund to exceed
such 10% limit, the Fund will take steps to bring the aggregate amount of its
illiquid securities back below 10% of its net assets.
2. Borrow money, except that as a temporary measure for extraordinary or
emergency purposes each Fund may borrow from banks in an amount not to exceed
1/3 of the value of its net assets, including the amount borrowed; moreover,
neither Fund may purchase any securities at any time at which borrowings
exceed 5% of the total assets of the Fund (taken at market value) (it is
intended that each Fund would borrow money only from banks and only to
accommodate requests for withdrawals while effecting an orderly liquidation
of securities).
Pursuant to certain regulatory requirements, with regard to Investment
Limitation No. 2, the Government and Treasury Only Funds intend not to borrow
money for any purpose in excess of 10% of the Fund's total assets. This 10%
limitation is not a fundamental investment limitation of the Government or
Treasury Only Funds.
INVESTMENT DECISIONS. Investment decisions for each Fund are made independently
from those for other portfolios of the Company and other investment companies
and common trust funds managed by Bank of America and its affiliated entities.
Such other investment companies and common trust funds may also invest in the
same securities as a Fund. When a purchase or sale of the same security is made
at substantially the same time on behalf of a Fund and another portfolio,
investment company or account, available investments or opportunities for sales
will be allocated in a manner which Bank of America believes to be equitable. In
some instances, this investment procedure may adversely affect the price paid or
received by a Fund or the size of the position obtained or sold by a Fund. In
addition, in allocating purchase and sale orders for portfolio securities
(involving the payment of brokerage commissions or dealer concessions), Bank of
America may take into account the sale of shares of a Fund by broker-dealers and
other financial institutions (including affiliates of Bank of America and the
Distributor), provided Bank of America believes that the quality of the
transaction and the amount of the commission are not less favorable than what
they would be with any other unaffiliated qualified firm.
MANAGEMENT OF THE FUNDS
BOARD OF DIRECTORS. The business of the Company is managed under the direction
of its Board of Directors. Information about the Directors and officers of the
Company is included in the Statement of Additional Information.
INVESTMENT ADVISER. Bank of America serves as the Funds' investment adviser.
Bank of America, which has principal offices at 555 California Street, San
Francisco, California 94104, is a national banking association formed in 1904
which provides commercial banking and trust business through an extensive system
of branches across the western United States. Bank of America's principal
banking affiliates operate branches in eleven U.S. states as well as corporate
banking offices in major U.S. cities and branches, and corporate offices and
representative offices in 37 foreign countries and territories. Bank of America
is the successor by merger to Security Pacific National Bank ("Security
Pacific"), which previously served as investment adviser to the Company since it
commenced operations in 1984. Bank of America and its affiliates have over $50
billion under management, including over $14 billion in mutual funds. Bank of
America is a subsidiary of BankAmerica Corporation, a registered bank holding
company.
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As investment adviser Bank of America manages the Funds' investments and is
responsible for all purchases and sales of the Funds' portfolio securities. For
its investment advisory services Bank of America is entitled to receive a fee
accrued daily and payable monthly at the following annual rates: .10% of the
first $3 billion of each Fund's net assets, plus .09% of the next $2 billion of
each Fund's net assets, plus .08% of each Fund's net assets over $5 billion. For
the fiscal year ended February 28, 1997, the Prime Fund, Treasury Fund,
Government Fund and the Treasury Only Fund paid Bank of America advisory fees at
the effective annual rates of .09%, .10%, .05% and .10% of such Funds'
respective average daily net assets, and Bank of America waived advisory fees at
the effective annual rate of .05% of the Government Fund's average daily net
assets.
In addition, Bank of America is also entitled to fees under the Company's
Special Management Services Plan with respect to the Funds' Pacific Horizon
Shares and may receive fees pursuant to the Distribution and Services Plan with
respect to the Prime and Treasury Funds' X Shares. Bank of America and Service
Organizations may also receive fees charged directly to their customers'
accounts in connection with investments in X Shares of the Prime and Treasury
Funds' and/or Pacific Horizon Shares of the Funds.
ADMINISTRATOR. The BISYS Group, Inc. (the "Administrator"), through its
wholly-owned subsidiary BISYS Fund Services, L.P., serves as the Company's
administrator and assists generally in supervising the Funds' operations. Their
offices are located at 150 Clove Road, Little Falls, New Jersey 07424 and 3435
Stelzer Road, Columbus, Ohio 43219, respectively. Prior to November 1, 1996,
Concord Holding Corporation, an indirect, wholly-owned subsidiary of the current
Administrator, served as administrator (the "Prior Administrator").
Under its basic administrative services agreement for the Funds, the
Administrator has agreed to provide facilities, equipment and personnel to carry
out administrative services that are for the benefit of all series of shares in
the Funds, including coordination of reports to shareholders of the Funds and
the Securities and Exchange Commission; calculation of the net asset value of
the Funds' shares and dividends and capital gains distributions to shareholders;
payment of the costs of maintaining the Funds' offices; preparation of tax
returns; provision of internal legal and accounting compliance services;
maintenance (or oversight of the maintenance by others approved by the Board of
Directors) of the Funds' books and records; and the provision of various
services for shareholders who have made a minimum initial investment of at least
$500,000, including the provision of a facility to receive purchase and
redemption orders for the accounts of such shareholders.
For its administrative services the Administrator is entitled to receive an
administration fee computed daily and payable monthly at the following annual
rates: .10% of the first $7 billion of each Fund's average daily net assets,
plus .09% of the next $3 billion of each Fund's average daily net assets, plus
.08% of each Fund's average daily net assets over $10 billion. For the fiscal
year ended February 28, 1997, the Prime Fund, Treasury Fund, Government Fund and
Treasury Only Fund paid the Administrator or Prior Administrator administration
fees at the effective annual rates of .10%, .10%, .10% and .10% of such Funds'
respective average daily net assets.
Pursuant to the authority granted in its agreement with the Company, the
Administrator has entered into an agreement with The Bank of New York under
which the bank performs certain of the services listed above -- e.g. calculating
the net asset value of the Funds' shares and dividends to shareholders and
maintaining the Funds' books and records. The Funds bear all fees and expenses
charged by The Bank of New York for these services.
DISTRIBUTOR. Concord Financial Group, Inc. (the "Distributor") is the principal
underwriter and distributor of shares of the Funds. The Distributor
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is an indirect, wholly-owned subsidiary of the Administrator organized to
distribute shares of mutual funds to institutional and retail investors. Its
offices are located at 3435 Stelzer Road, Columbus, Ohio 43219.
The Distributor makes a continuous offering of the Funds' shares and bears the
costs and expenses of printing and distributing to selected dealers and
prospective investors copies of any prospectuses, statements of additional
information and annual and interim reports of the Funds (after such items have
been prepared and set in type by the Funds) which are used in connection with
the offering of shares, and the costs and expenses of preparing, printing and
distributing any other literature used by the Distributor or furnished by it for
use by selected dealers in connection with the offering of the Funds' shares for
sale to the public.
CUSTODIAN AND TRANSFER AGENT. The Bank of New York, located at 90 Washington
Street, New York, New York 10286, serves as custodian for the Funds and Bank of
America serves as the Prime and Treasury Funds' sub-custodian. BISYS Fund
Services, Inc., 3435 Stelzer Road, Columbus, Ohio 43219 (the "Transfer Agent"),
a wholly-owned subsidiary of the Administrator, serves as the Funds' transfer
agent and dividend disbursing agent. The Company has also entered into a Cash
Management and Related Services Agreement with The Bank of New York pursuant to
which The Bank of New York receives and disburses funds in connection with the
purchase and redemption of, and the payment of dividends and other distributions
with respect to the Funds' shares.
DISTRIBUTION AND SERVICES PLAN. Under the Distribution and Services Plan, the
Prime and Treasury Funds pay the Distributor for distribution expenses primarily
intended to result in the sale of such Fund's X Shares and for shareholder
servicing expenses. Such distribution expenses include expenses incurred in
connection with advertising and marketing each Fund's X Shares; payments to
Service Organizations for assistance in connection with the distribution of X
Shares; and expenses incurred in connection with preparing, printing and
distributing prospectuses for the Funds (except those used for regulatory
purposes or for distribution to existing shareholders of the Funds) and in
implementing and operating the Distribution and Services Plan. Shareholder
servicing expenses include expenses incurred in connection with shareholder
services provided by the Distributor and payments to Service Organizations for
the provision of support services with respect to the beneficial owners of X
Shares, such as establishing and maintaining accounts and records relating to
their clients who invest in X Shares, assisting clients in processing exchange
and redemption requests, developing, maintaining and supporting systems
necessary to support Sweep Accounts and in changing dividend options and account
descriptions and responding to client inquiries concerning their investments.
Under the Distribution and Services Plan, payments by the Prime and Treasury
Funds for distribution expenses and shareholder servicing expenses may not
exceed the annual rate of 0.30% and 0.25%, respectively, of the average daily
net assets of such Fund's X Shares. These amounts may be reduced pursuant to
undertakings by the Distributor. Payments for distribution expenses under the
Distribution and Services Plan are subject to Rule 12b-1 under the 1940 Act. As
stated below under "Description of Shares," fees pursuant to the Distribution
and Services Plan are borne by the X and S Shares of the Prime and Treasury
Funds and are not paid with respect to such Funds' other series of shares. For
the fiscal year ended February 28, 1997, the Prime and Treasury Funds made
payments under the Distribution and Services Plan at the effective annual rate
of .55% and .55%, respectively, of the X Shares of Prime and Treasury Funds
respective average daily net assets.
The Company will obtain a representation from the Service Organizations (and
from Bank of America and the Distributor) that they are or will
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<PAGE> 58
be licensed as dealers as required by applicable law or will not engage in
activities which would require them to be so licensed.
SPECIAL MANAGEMENT SERVICES PLAN. The Company has adopted a Special Management
Services Plan pursuant to which Pacific Horizon Shares are sold to securities
dealers, financial institutions and other industry professionals that are
shareholders or dealers of record or which have a servicing relationship
("Shareholder Organizations") with beneficial owners of the Fund's Pacific
Horizon Shares that enter into a Special Management Services Agreement with the
Company pursuant to the Plan. Under the Special Management Services Plan,
Shareholder Organizations have agreed to provide the following support services
to their clients: aggregating and processing purchase and redemption requests
for Pacific Horizon Shares and placing net purchase and redemption orders;
providing a service that invests the assets of shareholder accounts in Pacific
Horizon Shares pursuant to specific or pre-authorized instructions; processing
dividend payments; providing statements periodically to shareholders showing
their positions in Pacific Horizon Shares; providing subaccounting or the
information necessary for subaccounting; if required by law, forwarding
shareholder communications (such as proxies, shareholder reports, annual and
semi-annual financial statements and dividend, distribution and tax notices) to
shareholders; forwarding to shareholders proxy statements and proxies containing
any proposals regarding the Special Management Services Plan or related
agreements; developing and monitoring investor programs offered from time to
time; providing dedicated walk-in and telephone facilities to handle shareholder
inquiries and serve shareholder needs; providing and maintaining specialized
systems for automatic investments; maintaining the registration or qualification
of Pacific Horizon Shares for sale under state securities laws; paying for the
operation of arrangements that facilitate same-day purchases by shareholders;
assuming the expenses of payments made to third parties for services provided in
connection with the investments of their customers in Pacific Horizon Shares;
and providing various other services (such as the provision of a facility to
receive purchase and redemption orders) for shareholders who have made a minimum
initial investment of less than $500,000.
In consideration of the services provided pursuant to the Special Management
Services Plan, Shareholder Organizations are entitled to receive a fee, computed
daily and payable monthly at the annual rate of up to 0.32% of the average daily
net asset value of each Fund's Pacific Horizon Shares beneficially owned by
clients of such Shareholder Organizations. For the fiscal year ended February
28, 1997, the Prime, Treasury, Government and Treasury Only Funds made payments
under the Special Management Services Plan (and its predecessor Special
Management Services Agreement) at the effective annual rate of .32%, .32%, .32%
and .32%, respectively, of Pacific Horizon Shares of the Prime, Treasury,
Government and Treasury Only Fund's respective average daily net assets. The
fees paid under the Special Management Services Plan are for services provided
by Shareholder Organizations to their clients who beneficially own Pacific
Horizon Shares of the Funds and are not borne by the Funds' Horizon Shares or
Horizon Service Shares, or by X Shares or S Shares of the Prime and Treasury
Funds.
FEE WAIVERS. Except as noted in this Prospectus and the Statement of Additional
Information, the Funds' service contractors bear all expenses in connection with
the performance of their services, and the Funds bear the expenses incurred in
their operations. From time to time during the course of the Funds' fiscal year,
Bank of America and/or the Administrator may prospectively waive payment of fees
and/or assume certain expenses of a Fund as a result of competitive pressures
and in order to protect the business and reputation of Bank of America and the
Administrator. This will have the effect of lowering the overall expense ratio
of the Fund involved and of increasing such Fund's yield to
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investors at the time such fees are not received or amounts are assumed and of
increasing the overall expense ratio of such Fund and of decreasing yield to
investors when such fees are not waived or amounts are not reimbursed.
PURCHASES OF SHARES
HOW X SHARES ARE PURCHASED. X Shares of the Prime and Treasury Funds are
offered by this Prospectus to customers of BAIS or Service Organizations that
establish a Sweep Account with BAIS or a Service Organization and through Bank
of America's 401(k) program. Each Sweep Account combines a Transaction Account
with a periodic sweep of balances to or from the Prime and Treasury Funds.
Investors may open a Sweep Account by completing and signing the Sweep
Materials. The Sweep Materials contain important information about the various
features and operations of the Sweep Account and should be reviewed in
conjunction with this Prospectus.
X Shares may be purchased on any Business Day (as defined below) that BAIS or
the particular Service Organization, as applicable, is open for business by
making a deposit into your Transaction Account. On each day that both the Prime
and Treasury Fund's custodian and the New York Stock Exchange (the "Exchange")
are open for business (a "Business Day") and that BAIS or a Service Organization
is open for business, BAIS or a Service Organization computes the net amount of
all deposits, withdrawals, charges and credits made to and from a Transaction
Account in accordance with their Sweep Account procedures (the "Net Sweep
Amount"). If deposits and credits exceed withdrawals and charges, you authorize
BAIS or a Service Organization, on your behalf, to transmit a purchase order to
the Fund designated in your Sweep Account in the amount of that day's Net Sweep
Amount in accordance with the Sweep Account procedures of Bank of America or a
Service Organization. Your purchase order will be made effective and full and
fractional X Shares will be purchased at the net asset value per share next
determined after receipt by the Transfer Agent. It is the responsibility of BAIS
or a Service Organization to transmit orders for the purchases of X Shares by
its customers to the Transfer Agent and deliver required funds on a timely
basis, in accordance with the procedures stated above. Share purchases and
redemptions executed through BAIS or a Service Organization are executed only on
Business Days that BAIS or a Service Organization, respectively, is open for
business. Contact BAIS or your Service Organization for additional information
about BAIS's or the Service Organization's Sweep Account procedures.
HOW PACIFIC HORIZON SHARES ARE PURCHASED
Pacific Horizon Shares may be purchased directly from the Distributor, by
clients of Bank of America through their qualified trust and agency accounts or
by clients of Service Organizations without a charge imposed by the Funds,
although Bank of America and Service Organizations may charge a fee for
providing administrative services in connection with investments in Pacific
Horizon Shares of the Funds. The minimum initial investment is $500, except for
purchases through Bank of America's trust and agency accounts or through a
Service Organization whose clients have made aggregate minimum purchases of
$1,000,000, in which event the minimum initial investment is $100, or as
otherwise described below under "Shareholder Services." The minimum subsequent
investment is $50, except for investments arising from automatic investment
transactions on behalf of Bank of America's trust and agency accounts, as to
which there is no minimum. Bank of America and Service Organizations may impose
minimum customer account and other requirements in addition to those imposed by
the Funds. The Funds reserve the right to reject any purchase order. Persons
wishing to purchase Pacific Horizon Shares through their accounts at Bank of
America or a Service Organization should contact such entity directly for
appropriate instructions. Other investors may
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purchase Pacific Horizon Shares in the manner described below.
An investor desiring to make an initial purchase of Pacific Horizon Shares by
mail should complete an Account Application and mail the Application and a check
payable to the appropriate Fund of Pacific Horizon to the address on the Account
Application. All subsequent purchases of Pacific Horizon Shares of a Fund made
by mail should be delivered to Pacific Horizon Funds, Inc., P.O. Box 182090,
Columbus, Ohio 43218-2090. Initial purchases of Pacific Horizon shares into a
new account may not be made by wire. However, an investor desiring to make a
subsequent purchase of Pacific Horizon shares of a Fund into an already existing
account by wire should contact the Transfer Agent at (800) 346-2087 for complete
wiring instructions and request his bank to transmit immediately available funds
by wire for purchase of Pacific Horizon shares in the investor's name. It is
important that the wire include the investor's name and Fund account number. An
investor should contact his bank for information on remitting funds in this
manner, including any charges imposed by the bank for wiring funds. Payments
which are hand delivered must be delivered directly to the Transfer Agent at
3435 Stelzer Road, Columbus, OH 43219.
A fee will be imposed by the Transfer Agent if any check used for investment in
an account does not clear. All payments should be in U.S. dollars. The Company
will not accept third party checks for investment in Pacific Horizon shares.
Purchase orders in proper form are effected on each Business Day at the net
asset value per share next determined after receipt by the Transfer Agent at its
Columbus office of both an order and federal funds. Purchases will not be
effected until payments made in other than federal funds are converted to
federal funds, which is ordinarily within two business days of receipt. Purchase
orders effected through automatic investment transactions on behalf of Bank of
America's trust and agency accounts are received by Bank of America as
sub-custodian for the Funds before 12:00 noon (Pacific time) and are effected as
of 4:00 p.m. (Eastern time) on the same day. It is the responsibility of Bank of
America or the Service Organization involved to transmit orders for the
purchases of Pacific Horizon Shares by its customers to the Transfer Agent and
deliver required funds on a timely basis, in accordance with the procedures
stated above. Share purchases and redemptions executed through Bank of America
or a Service Organization are executed only on days on which the particular
institution and the Fund are open for business.
TELETRADE. Although the privilege may not be used to make an initial purchase,
an investment in Pacific Horizon Shares of a Fund entitles an investor to
purchase Fund shares (minimum of $500 and maximum of $50,000 per transaction)
without charge by telephone unless he indicates on the Account Application or in
a subsequent written notice to the Transfer Agent that he does not wish to use
the TeleTrade privilege. Appropriate information concerning the investor's bank
must be provided on the Account Application or in a subsequent signature
guaranteed letter of instruction to the Transfer Agent before the TeleTrade
Privilege may be used. The proceeds will be transferred between the checking,
NOW or bank money market account designated in one of these documents and the
investor's Fund account. Only an account maintained at a domestic financial
institution which is an Automated Clearing House member may be so designated.
TeleTrade purchases will be effected at the net asset value next determined
after receipt of payment by the Funds' Transfer Agent. The Company may modify
this Privilege at any time or charge a service fee upon notice to shareholders.
No such fee currently is contemplated.
An investor who has selected the TeleTrade Privilege may request TeleTrade
purchases by telephoning the Transfer Agent at (800) 346-2087. The TeleTrade
Privilege may not be available to certain clients of Bank of America or
particular institutional investors.
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NET ASSET VALUE. The net asset value per share of the X Shares of the Prime and
Treasury Funds and Pacific Horizon Shares of each Fund is the value of all
securities and other assets owned by a Fund that are allocable to a particular
class, less the liabilities charged to such class, divided by the number of
outstanding shares of such class. The net asset value per share of the Prime
Fund, Treasury Fund and Government Fund is determined on each Business Day as of
2:30 p.m. Eastern time and the close of regular trading hours on the Exchange
(or 4:00 p.m. Eastern time if the Exchange is closed). The net asset value per
share of the Treasury Only Fund is determined on such Business Days as of 11:30
a.m. Eastern time. In computing net asset value, each Fund uses the amortized
cost method of valuation as described in the Statement of Additional Information
under "Additional Purchase and Redemption Information -- Valuation." The net
asset value per share for purposes of pricing purchase and redemption orders for
each Fund is determined independently of that for other portfolios of the
Company. For price and yield information call (800) 346-2087.
Federal regulations require that each investor provide a certified Taxpayer
Identification Number upon opening or reopening an account. See the Account
Application for Pacific Horizon Shares of the Funds and the Sweep Account
Application for X Shares of the Prime and Treasury Funds for further information
about this requirement.
The Company will obtain a representation from Service Organizations (as well as
from Bank of America and the Distributor) that they will be licensed as dealers
as required by applicable law or will not engage in activities which would
require them to be so licensed.
REDEMPTION OF SHARES
HOW X SHARES ARE REDEEMED. If, on any Business Day that BAIS or the particular
Service Organization is open for business, withdrawals from and charges to your
Sweep Account, including without limitation check transactions, exceed deposits
and credits, BAIS or the particular Service Organization, as applicable, will
transmit a redemption order on your behalf to the Prime or Treasury Fund, as
appropriate, in the dollar amount of that day's Net Sweep Amount. If your Sweep
Account with BAIS or a Service Organization, as applicable, is closed as
described in the Sweep Materials, BAIS or the Service Organization, as
applicable, transmits a redemption request on your behalf to the appropriate
Fund for the balance of X Shares of such Fund held through your Sweep Account.
Redemptions are effected by the Company on a Business Day at the net asset value
next determined after receipt of the redemption order by the Transfer Agent. It
is the responsibility of BAIS or the particular Service Organization to transmit
the redemption order and credit its customer's Transaction Account with the
redemption proceeds on a timely basis. BAIS or the Service Organization may
withhold redemption proceeds pending check collection or processing or for other
reasons all as set forth more fully in the Sweep Materials.
HOW PACIFIC HORIZON SHARES ARE REDEEMED
Investors whose Pacific Horizon Shares are purchased through accounts at Bank of
America or a Service Organization may redeem all or part of such shares in
accordance with the instructions pertaining to such accounts. If such investors
are also the shareholders of record of those accounts on the books of the
Transfer Agent, they may redeem shares in accordance with the procedures
described below under "Regular Redemption." Such investors wishing to use the
other redemption methods must arrange with Bank of America or a Service
Organization for delivery of the required application(s) to the Transfer Agent.
Redemption orders are effected on a Business Day at the net asset value per
share next determined after receipt of the order by the Transfer Agent. Pacific
Horizon Shares of the Prime Fund acquired through exchange of B Shares of the
Time Horizon Funds are subject
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to a CDSC upon redemption in accordance with the prospectus for the particular B
Shares. For purposes of computing the CDSC, the length of time of ownership will
be measured from the date of the original purchase of B Shares and will not
include any period of ownership of the Pacific Horizon Shares of the Prime Fund.
It is the responsibility of Bank of America or the Service Organization to
transmit the redemption order and credit its customer's account with the
redemption proceeds on a timely basis. Other investors may redeem all or part of
their shares in accordance with one of the following procedures.
REGULAR REDEMPTION. An investor in Pacific Horizon Shares may redeem Pacific
Horizon Shares in any amount by sending a written request to the Prime Fund,
Treasury Fund, Government Fund or Treasury Only Fund, c/o Pacific Horizon Funds,
Inc., P.O. Box 182090, Columbus, Ohio 43218-2090. Redemption orders are effected
upon receipt by the Transfer Agent at its Columbus office. Redemption requests
delivered to the Company other than by mail must be delivered to the offices of
the Transfer Agent at 3435 Stelzer Road, Columbus, OH 43219. While the Company
no longer issues share certificates, Pacific Horizon Shares for which
certificates previously had been issued may not be redeemed unless the
certificates have been submitted to the Transfer Agent and endorsed for
transfer.
Redemption requests must be signed by each shareholder, including each joint
owner on redemption requests for joint accounts. A redemption request for (i) an
amount in excess of $50,000 per day (ii) any amount if the proceeds are to be
sent elsewhere than to the address of record, and (iii) an amount of $50,000 or
less if the address of record has not been on file with the Transfer Agent for a
period of 60 days, must be accompanied by a signature guarantee. The guarantor
of a signature must be a bank that is a member of the FDIC, a trust company, a
member firm of a national securities exchange or other eligible guarantor
institution. The Transfer Agent will not accept guarantees from notaries public.
Signatures on endorsed certificates submitted for redemption must also be
guaranteed. Guarantees must be signed by an authorized signatory of the
guarantor institution and "Signature Guaranteed" must appear with the signature.
TELETRADE. An investor may redeem Pacific Horizon Shares in the same manner and
subject to the same limitations as described under "Purchases of Shares -- How
Pacific Horizon Shares Are Purchased -- TeleTrade" above. Redemption proceeds
will be on deposit in the investor's account at a domestic financial institution
which is an Automated Clearing House member bank ordinarily two business days
after receipt of the redemption request. An investor may also request that
redemption proceeds be sent by check. Checks will be sent only to the registered
owner(s) and only to the address of record. An investor who has selected the
TeleTrade Privilege may request TeleTrade redemptions by telephoning the
Transfer Agent at (800) 346-2087. Pacific Horizon Shares issued in certificate
form are not eligible for this Privilege. Neither the Company nor any of its
service contractors will be liable for any loss or expense for acting upon any
telephone instructions that are reasonably believed to be genuine. In attempting
to confirm that telephone instructions are genuine, the Company will use such
procedures as are considered reasonable, including requesting certain personal
or account information to confirm the identity of the shareholder.
WIRE REDEMPTION. An investment in Pacific Horizon Shares of a Fund
automatically entitles an investor to redeem shares by wire unless he indicates
on the Account Application or in a subsequent signature guaranteed written
notice to the Transfer Agent that he does not wish to use this method of
redemption. Appropriate information concerning the investor's bank must be
provided on the Account Application or in a subsequent signature guaranteed
letter of instruction to the Transfer Agent before shares may be redeemed by
wire. Shareholders may instruct the
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Transfer Agent to redeem shares in a Fund on written, telegraphic, or telephone
instructions from any person representing himself to be the investor and
believed by the Transfer Agent to be genuine. The responsibility of the Transfer
Agent and certain other parties for telephonic instructions believed to be
genuine is discussed in the preceding paragraph. The proceeds of redemption will
normally be wired in federal funds to the commercial bank specified by the
investor on the Account Application or in a subsequent signature guaranteed
letter of instruction to the Transfer Agent. Redemption proceeds must be in an
amount of at least $1,000, and may be subject to limits as to frequency and
overall amount. Wire redemptions may be terminated or modified by a Fund at any
time. Pacific Horizon Shares issued in certificate form are not eligible for
wire redemption. A shareholder should contact his bank for information on any
charges imposed by the bank in connection with the receipt of redemption
proceeds by wire. During periods of substantial economic or market change,
telephone wire redemptions may be difficult to implement. If an investor is
unable to contact the Transfer Agent by telephone, shares may also be redeemed
by delivering the redemption request in person to the Transfer Agent or by mail
as described above under "Regular Redemption." For additional information
concerning wire redemptions, see the Statement of Additional Information and the
Funds' Account Application.
CHECK REDEMPTION. An investor in Pacific Horizon Shares may request on the
Account Application that the Company provide Redemption Checks ("Checks") drawn
on a Fund. Checks will be sent only to the registered owner(s) and only to the
address of record. The Account Application must be manually signed by the
registered owner(s). Checks may be made payable to the order of any person in
the amount of $500 or more. Dividends are earned until the Check clears the
Transfer Agent. When a Check is presented to the Transfer Agent for payment, the
Transfer Agent, as the investor's agent, will cause the Fund involved to redeem
a sufficient number of the investor's Pacific Horizon Shares to cover the amount
of the Check and any applicable CDSC with respect to the Prime Fund. There is no
charge to the investor for the use of the Checks; however, the Transfer Agent
will impose a charge for stopping payment of a Check upon the request of the
investor, or if the Transfer Agent cannot honor a Check due to insufficient
funds or other valid reasons. Because dividends accrue daily and because a CDSC
may be applicable with respect to the Prime Fund, checks should not be used to
close an account. Pacific Horizon Shares for which stock certificates have been
issued may not be redeemed by Check.
OTHER REDEMPTION INFORMATION -- X SHARES AND PACIFIC HORIZON SHARES. Redemption
orders are effected on a Business Day at the net asset value per share next
determined after receipt of the order by the Transfer Agent. The Funds will make
payment for all shares redeemed after receipt by the Transfer Agent of a request
in proper form, except as provided by the rules of the Securities and Exchange
Commission. If the shares to be redeemed have been purchased by check or
TeleTrade, the Company will, upon the clearance of the purchase check or
TeleTrade payment, mail the redemption proceeds within seven business days.
Where redemption is requested other than by mail, shares purchased by check or
by TeleTrade will not be redeemed for a period of ten calendar days after their
purchase. This procedure does not apply to situations where the Fund receives
payment in cash or immediately available funds for the purchase of shares. The
Company may suspend the right of redemption or postpone the date of payment upon
redemption (as well as suspend the recordation of the transfer of shares) for
such periods as are permitted under the 1940 Act. During the period prior to the
time the shares are redeemed, dividends on such shares will accrue and be
payable, and an investor will be entitled to exercise all other rights of
beneficial ownership.
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The Funds impose no charge when X Shares or Pacific Horizon Shares are redeemed
unless Pacific Horizon Shares of the Prime Fund have been acquired through
exchange of B Shares of the Time Horizon Funds, in which case any applicable
CDSC will be charged in accordance with the prospectus for the particular B
Shares. Additionally, if Pacific Horizon Shares have been purchased through Bank
of America or a Service Organization, Bank of America or the Service
Organization may charge a fee for providing administrative services in
connection with investments in shares. The Funds reserve the right to redeem
Pacific Horizon Share accounts (other than non-working spousal IRA accounts)
involuntarily, upon sixty days' written notice, if the account's net asset value
falls below the $500 minimum balance. A CDSC will not be imposed upon such
involuntary redemptions with respect to the Prime Fund.
SHAREHOLDER SERVICES
The services and privileges described under this heading are available only to
holders of the Funds' Pacific Horizon Shares and are not available to persons
who invest directly in Horizon or Horizon Service Shares of the Funds or in X
Shares or S Shares of the Prime and Treasury Funds. Additionally, these services
and privileges may not be available to certain clients of Bank of America and
particular Service Organizations. Bank of America and some Service Organizations
may impose conditions on their clients which are different from those described
in this Prospectus. You should consult Bank of America or your Service
Organization in this regard.
INDIVIDUAL RETIREMENT ACCOUNTS ("IRAS"). The Company makes available IRAs,
including IRAs set up under a Simplified Employee Pension Plan ("SEP-IRAs") and
IRA "Rollover Accounts." For details contact the Distributor at (800) 332-3863.
The minimum initial investment for SEP-IRAs with more than one participant is
$2,500, with no minimum on subsequent purchases. The minimum initial investment
for IRAs and SEP-IRAs with only one participant is normally $500, with no
minimum on subsequent purchases. Individuals who open an IRA may also open a
non-working spousal IRA with a minimum investment of $250. The CDSC with respect
to Pacific Horizon Shares acquired through exchange of B Shares will not be
charged on redemptions in connection with minimum required distributions from an
IRA due to the shareholder having reached age 70. The investor should read the
IRA Disclosure Statement and the Bank Custodial Agreement for further details as
to eligibility, service fees and tax implications, and should consult a tax
adviser.
EXCHANGES. The Exchange Privilege enables an investor to exchange Pacific
Horizon Shares of a Fund for: like shares in another portfolio of the Company,
or like shares of any investment portfolio of Time Horizon Funds, provided that
(i) Pacific Horizon Shares of the Prime Fund acquired through an exchange of B
Shares of an investment portfolio of the Time Horizon Funds may only be
exchanged for B Shares of an investment portfolio of the Time Horizon Funds, and
(ii) such other shares may legally be sold in the state of the investor's
residence. An investment in Pacific Horizon Shares of a Fund automatically
entitles an investor to use this Privilege unless he indicates on the Account
Application or in a subsequent written notice to the Transfer Agent that he does
not wish to use this Privilege. The shares that are exchanged must have a
current value of at least $500; furthermore, in establishing a new account
through use of this Privilege, the shares being exchanged must have a value at
least equal to the minimum initial investment required by the particular
portfolio into which the exchange is being made. Prospectuses for portfolios of
the Company (as well as prospectuses for investment portfolios of Time Horizon
Funds) into which an exchange is being made may be obtained from the investor's
Service Organization or the Distributor. B Shares of the Time Horizon Funds
offered with a CDSC may be exchanged for Pacific Horizon Shares of the Prime
Fund. Such exchange-acquired Pacific
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Horizon Shares of the Prime Fund will be subject to a CDSC upon redemption in
accordance with the prospectus for the particular B Shares. For purposes of
computing the CDSC, the length of time of ownership will be measured from the
date of the original purchase of B shares and will not include any period of
ownership of the Pacific Horizon Shares of the Prime Fund. A shareholder may
telephone instructions by calling the Transfer Agent at (800) 346-2087. See
"Redemption of Shares -- TeleTrade" for a description of the Company's policy
regarding responsibility for telephone instructions.
When Fund shares are exchanged for shares of another portfolio in the Company
(or for shares of an investment portfolio of Time Horizon Funds) which are sold
with a front-end sales load, the applicable front-end sales load, if any, will
be deducted. An investor desiring to use the Exchange Privilege should read the
Statement of Additional Information and consult his or her Service Organization
or the Distributor for further information applicable to use of the Exchange
Privilege. The Company reserves the right to reject any exchange request and the
Exchange Privilege may be modified or terminated at any time. At least 60 days'
notice will be given to shareholders of any material modification or termination
except where notice is not required under the regulations of the Securities and
Exchange Commission.
AUTOMATIC INVESTMENT PROGRAM. The Automatic Investment Program permits an
investor to purchase Pacific Horizon Shares (minimum $50 per transaction) at
regular intervals selected by the investor. Provided the investor's financial
institution allows automatic withdrawals, shares are purchased by transferring
funds from an investor's checking, bank money market or NOW account designated
by the investor. At the investor's option, the account designated will be
debited in the specified amount, and shares will be purchased, once a month, on
either the first or fifteenth day, or twice a month, on both days. Only an
account maintained at a domestic financial institution which is an Automated
Clearing House member may be so designated. The minimum initial investment
requirement for investors establishing an Automatic Investment account is $50.
To establish an Automatic Investment account, an investor must check the
appropriate box and supply the necessary information on the Account Application
or subsequently file a written request with the Transfer Agent. Such
applications are available from the Distributor. An investor may cancel this
Privilege or change the amount of purchase at any time by mailing written
notification to the Transfer Agent at P.O. Box 182090, Columbus, Ohio,
43218-2090 and notification will be effective three business days following
receipt. The Company may modify or terminate this Privilege at any time or
charge a service fee, although no such fee currently is contemplated.
DIRECT DEPOSIT PROGRAM. If an investor receives federal salary, social
security, or certain veteran's, military or other payments from the federal
government, he is eligible for the Direct Deposit Program. With this Program, an
investor may purchase Pacific Horizon Shares (minimum of $50 and maximum of
$50,000 per transaction) by having these payments automatically deposited into
his Fund account. An investor may deposit as much of such payments as he elects.
For instructions on how to enroll in the Direct Deposit Program, an investor
should call the Transfer Agent at (800) 346-2087. Death or legal incapacity will
terminate an investor's participation in the Program. An investor may elect at
any time to terminate his participation by notifying the appropriate federal
agency. Further, the Company may terminate an investor's participation upon 30
days' notice to the investor.
AUTOMATIC WITHDRAWAL PLAN. Investors having a $5,000 minimum account may
request withdrawal of a dollar amount in multiples of $50 on a monthly,
quarterly, semi-annual or annual basis. At the investor's option, monthly
withdrawals will be made on either the first or fifteenth day of the month and
quarterly, semi annual or annual
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withdrawals will be made on either the first or fifteenth day of the month
selected. To participate in the automatic withdrawal plan, an investor must
check the appropriate box and supply the necessary information on the Account
Application which may be obtained from the Distributor or subsequently file a
signature guaranteed written request with the Transfer Agent. Use of this Plan
may be disadvantageous for Pacific Horizon Shares of the Prime Fund acquired
through exchange of B Shares due to the potential need to pay a CDSC.
REINSTATEMENT PRIVILEGES. An investor may reinvest all or any portion of his
redemption proceeds received from the redemption of Pacific Horizon Shares of
the Prime Fund, which were acquired through exchange of B Shares of the Time
Horizon Funds, within 90 days of the redemption trade date. Such reinvestment
must be made in B Shares of an investment portfolio of the Time Horizon Funds.
Upon such a reinvestment, the distributor will credit to an investor's account
any contingent deferred sales charge imposed on any redeemed shares. For
purposes of computing the CDSC upon redemption of shares reinvested through this
Privilege, the length of time of ownership will be measured from the date of the
original purchase of B Shares and will not include any period of ownership of
the Pacific Horizon Shares of the Prime Fund. Shares so reinvested will be
purchased at a price equal to the net asset value next determined after the
Transfer Agent receives a reinstatement request and payment in proper form.
If an investor wishes to use this Privilege, he must submit a written request to
the Transfer Agent stating that he is eligible to use the Privilege. The
reinstatement request and payment must be received within 90 days of the trade
date of the redemption. Currently, there are no restrictions on the number of
times an investor may use this Privilege.
Generally, exercising the Reinstatement Privilege will not affect the character
of any gain or loss realized on redemption for federal income tax purposes.
However, if a redemption results in a loss, the reinstatement may result in the
loss being disallowed under IRS "wash sale" rules.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS. The shareholders of a Fund are entitled to
dividends and distributions arising from the net investment income and net
realized gains, if any, earned on investments held by the Fund involved.
Generally, each Fund's net income is declared daily as a dividend. Shares begin
accruing dividends on the day the purchase order for the shares is executed and
continue to accrue dividends through and including the day before the redemption
order for the shares is executed. Dividends are paid within five business days
after the end of each month. Although the Funds do not expect to realize net
long-term capital gains, any such capital gains as may be realized will be
distributed no more than twice a year after reduction for any available capital
loss carry-forward.
Dividends are paid in the form of additional full and fractional shares of the
same series as the shares on which the dividends are declared at the net asset
value of such shares on the payment date. However, holders of the Funds' Pacific
Horizon Shares may elect to receive dividends in cash. If you elect to receive
distributions in cash, and if your checks (1) are returned and marked as
"undeliverable" or (2) remain uncashed for six months, your cash election will
be changed automatically and your future dividend and capital gains
distributions will be reinvested in the Fund at the per share net asset value
determined as of the date of payment of the distribution. In addition, any
undeliverable checks or checks that remain uncashed for six months will be
canceled and will be reinvested in the Fund at the per share net asset value
determined as of the date of cancellation. Reinvested dividends receive the same
tax treatment as dividends paid in cash. Such election or any
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revocation thereof must be made in writing to the Transfer Agent at P.O. Box
182090, Columbus, Ohio 43218-2090, and will become effective with respect to
dividends paid after its receipt by the dividend disbursing agent.
FEDERAL TAXES. During its most recent taxable year, each Fund qualified
separately as a "regulated investment company" under the Internal Revenue Code
of 1986, as amended (the "Code"), each Fund intends to so qualify in future
years, as long as such qualification is in the best interest of its
shareholders. As a result of this qualification, each Fund generally is not
required to pay federal income taxes to the extent its earnings are distributed
in accordance with the Code.
In connection with such tax qualification, each Fund contemplates distributing
to its shareholders at least 90% of its investment company taxable income for
each taxable year. An investor of any Fund who receives a dividend derived from
investment company taxable income (including any excess of net short-term
capital gain over net long-term capital loss) treats it as a receipt of ordinary
income in the computation of his gross income, whether such dividend is paid in
the form of cash or additional shares of a Fund. Because all of the net
investment income of the Funds is expected to be derived from earned interest,
it is anticipated that all dividends paid by the Funds will be taxable as
ordinary income to shareholders who are not exempt from federal income taxes and
that no part of any distribution paid by the Funds will be eligible for the
dividends received deduction for corporations.
Although the Funds anticipate that they will not have net long-term capital
gain, any distribution of a Fund's excess of net long-term capital gain over its
net short-term capital loss will be taxable to shareholders of that Fund as
long-term capital gain, regardless of how long the shareholder has held shares
of the Fund.
Dividends declared in October, November, or December of any calendar year
payable to shareholders of record on a specified date in December will be deemed
for federal tax purposes to have been paid by the Funds and received by the
shareholders on December 31 of such year, if such dividends are paid during
January of the following year.
The foregoing is only a brief summary of some of the important federal income
tax considerations generally affecting the Funds and their shareholders, and is
based on federal tax laws and regulations which are in effect as of the date of
this Prospectus. Such laws and regulations may be changed by legislative or
administrative actions. Additional tax information of relevance to particular
investors is contained in the Statement of Additional Information. Potential
investors in the Funds should consult their tax advisers with specific reference
to their own tax situation. Shareholders will be advised at least annually as to
the federal income tax consequences of distributions made each year.
STATE AND LOCAL TAXES. Investors are advised to consult their tax advisers
concerning the application of state and local taxes, which may have different
consequences from those of the federal income tax law described above.
DESCRIPTION OF SHARES
The Company was organized on October 27, 1982 as a Maryland corporation. On
March 30, 1984 the Company commenced its public sale of shares (Pacific Horizon
Shares) in each of the Prime Fund and Treasury Fund, which were originally
called "Money Market Portfolio" and "Government Money Market Portfolio,"
respectively. The Predecessor Prime Fund and Predecessor Treasury Fund
originally commenced operations on July 10, 1987 as separate portfolios of The
Horizon Funds, a Massachusetts business trust. On January 19, 1990, the
Predecessor Prime Fund and Predecessor Treasury Fund of The Horizon Funds were
combined with the Money Market Portfolio and Government Money Market Portfolio,
respectively, of the Company; the Company changed the names of its resulting
portfolios to "Prime Fund" and "Treasury Fund";
30
<PAGE> 68
and, in addition to continuing its offering of Pacific Horizon Shares in such
Funds, the Company began offering Horizon Shares and Horizon Service Shares in
the Prime and Treasury Funds. The Predecessor Government Funds and Predecessor
Treasury Only Funds commenced operations on June 4, 1990 as investment
portfolios of First Funds of America and First Cash Funds of America. On March
1, 1993, the Predecessor Government Funds and Predecessor Treasury Only Funds
were reorganized as new portfolios of the Company, offering Pacific Horizon
Shares and Horizon Service Shares; the Government Fund and Treasury Only Fund
began offering Horizon Shares on June 14, 1993 and September 20, 1995,
respectively. On July 22, 1996, the Company began offering X Shares in the Prime
and Treasury Funds and on April 7, 1997 began offering S Shares in the Prime and
Treasury Funds. The Company has classified but not yet issued a Y Share Class in
its Prime and Treasury Funds. S Shares are offered to customers who purchase
such shares through cash management services, such as a sweep account offered by
Bank of America, any of its banking affiliates and certain other Service
Organizations. Horizon and Horizon Service Shares may be purchased by
institutional investors for accounts maintained by individuals, but may not be
purchased by individuals directly. Y Shares are offered to institutional
investors who purchase such shares through sweep accounts offered by Bank of
America, any of its banking or brokerage affiliates and service organizations.
The Company's charter authorizes the Board of Directors to issue up to four
hundred billion full and fractional shares of capital stock, and to classify and
reclassify any authorized and unissued shares into one or more classes of
shares. The Board of Directors may similarly classify or reclassify any class of
shares into one or more series.
Pursuant to such authority, the Board of Directors has authorized the issuance
of the following series of shares representing interests in the Funds, each of
which is classified as a diversified company under the Investment Company Act of
1940: twenty billion X Shares, twenty billion S Shares, twenty billion Y Shares,
twenty billion Pacific Horizon Shares, twenty billion Horizon Shares and twenty
billion Horizon Service Shares representing interests in the Prime Fund; ten
billion X Shares, ten billion S Shares, ten billion Y Shares, ten billion
Pacific Horizon Shares, ten billion Horizon Shares and ten billion Horizon
Service Shares representing interests in the Treasury Fund; ten billion Pacific
Horizon Shares, ten billion Horizon Shares and ten billion Horizon Service
Shares representing interests in the Government Fund; and ten billion Pacific
Horizon Shares, ten billion Horizon Shares and ten billion Horizon Service
Shares representing interests in the Treasury Only Fund. Horizon Shares and
Horizon Service Shares of the Funds and S and Y Shares of the Prime and Treasury
Funds are described in a separate Prospectus available from the Distributor at
the telephone number on the cover of this Prospectus. The Board of Directors has
also authorized the issuance of additional classes of shares representing
interests in other investment portfolios of the Company, which are likewise
described in separate Prospectuses available from the Distributor. This
Prospectus relates primarily to the Pacific Horizon Shares of the Funds and X
Shares of the Prime and Treasury Funds and describes only the investment
objectives and policies, operations, contracts and other matters relating to
such Shares.
Each X Share, S Share, Y Share, Pacific Horizon Share, Horizon Share and Horizon
Service Share in a Fund has a par value of $.001, and, except as noted below, is
entitled to participate equally in the dividends and distributions declared by
the Board of Directors with respect to such Fund and in the net distributable
assets of such Fund on liquidation. Holders of X Shares of the Prime and
Treasury Funds bear the fees described in this Prospectus that are paid to the
Distributor and Service Organizations by such Funds under the Company's
Distribution and Services Plan. Similarly, holders of such Funds' S and Y Shares
bear the fees described in the Prospectus relating to
31
<PAGE> 69
such shares that are paid to the Distributor and Service Organizations by such
Funds under the same plan. The fees paid under the Distribution and Services
Plan are for distribution and shareholder services paid to the Distributor and
Service Organizations in connection with S and X Shares of the Prime and
Treasury Funds, and are not paid by such Funds' Horizon, Horizon Service or
Pacific Horizon Shares. Holders of a Fund's Pacific Horizon Shares bear the fees
described in this Prospectus that are paid to Shareholder Organizations by the
Fund under the Company's Special Management Services Plan for Pacific Horizon
Shares. Similarly, holders of Horizon Service Shares bear the fees described in
the Prospectus for such shares that are paid to shareholder organizations by a
Fund under the Company's Shareholder Services Plan. The fees paid under the
Special Management Services Plan are for services provided by Shareholder
Organizations to holders of the Funds' Pacific Horizon Shares and are not borne
by the Funds' Horizon Shares or Horizon Service Shares or by X Shares or S and Y
Shares of the Prime and Treasury Funds. The fees paid under the Shareholder
Services Plan are for services provided by shareholder organizations to their
customers in connection with Horizon Service Shares, and shareholder
organizations do not receive similar fees with respect to the Funds' Horizon
Shares or Pacific Horizon Shares or the X Shares, Y Shares or S Shares of the
Prime and Treasury Funds. As a result of the different fees borne by the various
series of shares in a Fund, at any given time, absent waivers of any
class-specific fees or expenses, the net yield on a) the Prime and Treasury
Funds' X Shares generally will be approximately 0.23% lower than the yield on
the same Fund's Pacific Horizon Shares, 0.30% lower than the yield on the same
Fund's Horizon Service Shares, 0.55% lower than the yield on the same Fund's
Horizon Shares and 0.45% higher than the yield on the same Fund's S and Y
Shares; and b) a Fund's Pacific Horizon Shares generally will be approximately
0.07% lower than the yield on the same Fund's Horizon Service Shares, 0.32%
lower than the yield on the same Fund's Horizon Shares, and 0.23% and 0.68%
higher than the yield on the same Fund's X Shares, Y Shares and S Shares,
respectively, with respect to the Prime and Treasury Funds. Standardized yield
quotations will be computed separately for each series of Shares.
Shareholders are entitled to one vote for each full share held and fractional
votes for fractional shares held, and will vote in the aggregate and not by
class or series except as otherwise required by law or when class voting is
permitted by the Board of Directors. It is contemplated that all shareholders of
a Fund will vote together as a single class on matters relating to the Fund's
investment advisory agreement and on any change in its fundamental investment
limitations. Only holders of Pacific Horizon Shares will be entitled to vote on
matters submitted to a vote of shareholders pertaining to the Funds' Special
Management Services Plan. Only holders of Horizon Service Shares will be
entitled to vote on matters submitted to a vote of shareholders pertaining to
the Funds' Shareholder Service Plan. Only holders of particular S, Y and X
Shares, if affected by changes to such Plan, will be entitled to vote on matters
submitted to a vote of shareholders pertaining to a Fund's Distribution and
Services Plan relating to the particular series. Shares have no preemptive
rights and only such conversion and exchange rights as the Board may grant at
its discretion. When issued for payment as described in this Prospectus, shares
will be fully paid and non-assessable. Certificates for shares will not be
issued.
The Company does not presently intend to hold annual meetings of shareholders
for the election of directors and other business unless and until such time as
less than a majority of the directors holding office have been elected by the
shareholders of the Company, at which time the directors then in office will
call a shareholders' meeting for the election of directors. Under certain
circumstances, however, shareholders have the right to call a meeting of
shareholders to consider the removal of one or more directors
32
<PAGE> 70
and such meetings will be called when requested by the holders of record of 10%
or more of the Company's outstanding shares of common stock. To the extent
required by law and the Company's undertaking with the Securities and Exchange
Commission, the Company will assist in shareholder communications in such
matters. Shares have cumulative voting rights to the extent that may be required
by applicable law.
PERFORMANCE CALCULATIONS
From time to time the "yield" or "effective yield" of a Fund may be quoted in
advertisements or reports to shareholders. Both yield figures are based on
historical earnings and are not intended to indicate future performance. The
"yield" of a Fund refers to the income generated by an investment in the Fund
over a seven-day period (which period will be stated in the advertisement or
report). This income is then "annualized" -- that is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly but, when annualized, the income
earned by an investment in the Fund is assumed to be reinvested. The "effective
yield" will be slightly higher than the "yield" because of the compounding
effect of this assumed reinvestment.
Additionally, the yields of each Fund may be compared to those of other mutual
funds with similar investment objectives and to other relevant indices or to
rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
Funds' yields may be compared to IBC Financial Data, Inc.'s ("IBC") Money Fund
Averages, which are averages compiled by IBC's Money Fund Report. Yield data as
reported in national financial publications, including Money, Forbes, Barron's,
The Wall Street Journal and The New York Times, or in publications of a local or
regional nature, may also be used in comparing the yields of the Funds. A
complete listing of the indices, rankings and publications discussed above is
contained in the Statement of Additional Information.
Since yields fluctuate, yield data cannot necessarily be used to compare an
investment in the shares of a Fund with bank deposits, savings accounts and
similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that yield
is generally a function of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses and market conditions. Any
fees charged by Bank of America or other institutional investors directly to
their customers in connection with investments in shares of the Funds (which
fees may include, for example, account maintenance fees, compensating balance
requirements or fees based upon account transactions, assets or income) will not
be included in the Funds' calculations of yield.
Shareholder inquiries should be addressed to the Distributor at the address or
telephone numbers stated on the inside cover of this Prospectus.
33
<PAGE> 71
PRIME FUND
TREASURY FUND
GOVERNMENT FUND
TREASURY ONLY FUND
PROSPECTUS
JUNE 16, 1997
NOT FDIC INSURED
PACIFIC HORIZON MUTUAL FUNDS
PRM-0027
<PAGE> 72
PACIFIC HORIZON FUNDS, INC.
X Shares, Horizon Shares and Horizon Service Shares of the
Prime Fund, Treasury Fund, and
California Tax-Exempt Money Market Fund
and
Horizon and Horizon Service Shares of the
Government Fund, Treasury Only Fund and Tax-Exempt Money Fund
--------------------
Form N-1A Item Prospectus Caption
- -------------- ------------------
Part A
- ------
1. Cover Page............................... Cover Page
2. Synopsis................................. Expense Information
3. Condensed Financial Information.......... Financial Highlights
4. General Description of Registrant........ Description of Shares; Cover
Page; Investment Objectives
and Policies; Common
Investment Policies;
Investment Limitations
5. Management of the Fund................... Management of the Funds
5.A. Management's Discussion of
Fund Performance....................... *
6. Capital Stock and Other
Securities............................. Description of Shares;
Dividends and Distributions;
Taxes
7. Purchase of Securities Being
Offered................................. Purchase and Redemption of
Shares; Management of the
Funds; Shareholder Services
Plan; Distribution and
Services Plan; Additional
Shareholder Services
8. Redemption or Repurchase................. Redemption of Shares;
Shareholder Services Plan;
Distribution and Services
Plan; Additional Shareholder
Services
9. Pending Legal Proceedings................ *
- ----------
* Item inapplicable or answer negative.
<PAGE> 73
PROSPECTUS
JUNE 16, 1997
X Shares, Horizon Shares
and Horizon Service Shares of the
PRIME FUND
TREASURY FUND
CALIFORNIA TAX-EXEMPT MONEY MARKET FUND
Horizon Shares and Horizon Service Shares of the
GOVERNMENT FUND
TREASURY ONLY FUND
TAX-EXEMPT MONEY FUND
Investment Portfolios Offered by Pacific Horizon Funds, Inc.
- -------------------------------------------------------------------------------
THIS PROSPECTUS APPLIES TO THE X SHARES, HORIZON SHARES AND HORIZON SERVICE
SHARES OF THE PRIME FUND, TREASURY FUND AND CALIFORNIA TAX-EXEMPT MONEY MARKET
FUND AND THE HORIZON SHARES AND HORIZON SERVICE SHARES OF THE GOVERNMENT FUND,
TREASURY ONLY FUND AND TAX-EXEMPT MONEY FUND (COLLECTIVELY, THE "FUNDS"), SIX
INVESTMENT PORTFOLIOS OFFERED BY PACIFIC HORIZON FUNDS, INC. (THE "COMPANY").
THE COMPANY IS REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940 AS AN
OPEN-END MANAGEMENT INVESTMENT COMPANY. THE FUNDS ARE DESIGNED TO PROVIDE
INSTITUTIONS WITH DAILY LIQUIDITY. THE PRIME, TREASURY, GOVERNMENT, TREASURY
ONLY AND TAX-EXEMPT MONEY FUNDS EACH IS A DIVERSIFIED INVESTMENT PORTFOLIO AND
THE CALIFORNIA TAX-EXEMPT MONEY MARKET FUND IS A NON-DIVERSIFIED INVESTMENT
PORTFOLIO.
(Continued next page)
- -------------------------------------------------------------------------------
THE INVESTMENT OBJECTIVES OF THE PRIME FUND AND TREASURY FUND ARE TO SEEK HIGH
CURRENT INCOME AND STABILITY OF PRINCIPAL.
THE INVESTMENT OBJECTIVES OF THE GOVERNMENT FUND AND TREASURY ONLY FUND ARE TO
PROVIDE LIQUIDITY AND AS HIGH A LEVEL OF CURRENT INCOME AS IS CONSISTENT WITH
THE PRESERVATION OF CAPITAL.
THE INVESTMENT OBJECTIVE OF THE TAX-EXEMPT MONEY FUND IS TO PROVIDE AS HIGH A
LEVEL OF CURRENT INTEREST INCOME EXEMPT FROM FEDERAL INCOME TAXES AS IS
CONSISTENT WITH RELATIVE STABILITY OF PRINCIPAL.
THE INVESTMENT OBJECTIVE OF THE CALIFORNIA TAX-EXEMPT MONEY MARKET FUND IS TO
SEEK AS HIGH A LEVEL OF CURRENT INTEREST INCOME FREE OF FEDERAL INCOME TAX AND
CALIFORNIA STATE PERSONAL INCOME TAX AS IS CONSISTENT WITH THE PRESERVATION OF
CAPITAL AND RELATIVE STABILITY OF PRINCIPAL.
THE CALIFORNIA TAX-EXEMPT MONEY MARKET FUND IS, AND THE TAX-EXEMPT MONEY FUND
MAY BE, CONCENTRATED IN SECURITIES ISSUED BY THE STATE OF CALIFORNIA OR ENTITIES
WITHIN THE STATE OF CALIFORNIA, AND THE CALIFORNIA TAX-EXEMPT MONEY MARKET FUND
MAY INVEST A SIGNIFICANT PERCENTAGE OF ITS ASSETS IN A SINGLE ISSUER. THEREFORE,
INVESTMENT IN THE FUNDS MAY BE RISKIER THAN AN INVESTMENT IN OTHER TYPES OF
MONEY MARKET FUNDS.
THIS PROSPECTUS BRIEFLY SETS FORTH CERTAIN INFORMATION ABOUT THE FUNDS DESCRIBED
HEREIN THAT INVESTORS SHOULD KNOW BEFORE INVESTING. IT SHOULD BE READ AND
RETAINED FOR FUTURE REFERENCE. ADDITIONAL INFORMATION ABOUT THE FUNDS, CONTAINED
IN A STATEMENT OF ADDITIONAL INFORMATION DATED JUNE 16, 1997, HAS BEEN FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION AND IS AVAILABLE TO INVESTORS UPON
REQUEST AND WITHOUT CHARGE BY CALLING THE FUNDS' DISTRIBUTOR AT (800) 426-3863.
THE STATEMENT OF ADDITIONAL INFORMATION, AS IT MAY FROM TIME TO TIME BE REVISED,
IS INCORPORATED IN ITS ENTIRETY BY REFERENCE INTO THIS PROSPECTUS. THE
SECURITIES AND EXCHANGE COMMISSION MAINTAINS A WEB SITE (HTTP://WWW.SEC.GOV)
THAT CONTAINS THE STATEMENT OF ADDITIONAL INFORMATION, MATERIAL INCORPORATED BY
REFERENCE, AND OTHER INFORMATION REGARDING REGISTRANTS THAT FILE ELECTRONICALLY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
Shares of the Funds are not bank deposits or obligations of, or guaranteed or
endorsed by, Bank of America National Trust and Savings Association or any of
its affiliates and are not federally insured by, guaranteed by, obligations of
or otherwise supported by the U.S. Government, the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other governmental agency. Each
Fund seeks to maintain its net asset value per share at $1.00 for purposes of
purchases and redemptions, although there can be no assurance that it will be
able to do so on a continuous basis. Investment in the Funds involves investment
risk, including the possible loss of principal amount invested.
- --------------------------------------------------------------------------------
No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus, in the Statement
of Additional Information and the Funds' official sales literature, in
connection with the offering of the Funds' shares and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or its distributor. This Prospectus does not constitute an offer
by the Funds or by the distributor to sell, or a solicitation of any offer to
buy, any of the securities offered hereby in any jurisdiction to any person to
whom it is unlawful for the Funds or the distributor to make such offer in such
jurisdiction.
- --------------------------------------------------------------------------------
<PAGE> 74
- - The PRIME FUND seeks to achieve its investment objective by investing
substantially all of its assets in a diversified portfolio of U.S.
dollar-denominated "money market" instruments such as bank certificates of
deposit and bankers' acceptances, commercial paper and repurchase agreements,
in addition to obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
- - The TREASURY FUND seeks to achieve its investment objective by investing
solely in direct obligations issued by the U.S. Treasury and repurchase
agreements relating to such Treasury obligations.
- - The GOVERNMENT FUND seeks to achieve its investment objective by investing in
short-term debt obligations issued or guaranteed as to interest and principal
by the U.S. Government, its agencies, authorities or instrumentalities and in
repurchase agreements with respect to such obligations.
- - The TREASURY ONLY FUND seeks to achieve its investment objective by investing
solely in obligations of the U.S. Treasury.
- - The TAX-EXEMPT MONEY FUND seeks to achieve its objective by investing
primarily in U.S. dollar-denominated obligations the interest on which is
exempt from regular federal income tax.
- - The CALIFORNIA TAX-EXEMPT MONEY MARKET FUND seeks to achieve its objective by
investing primarily in U.S. dollar-denominated obligations the interest on
which is exempt from regular federal income tax and taxation under the laws or
constitution of California.
PORTFOLIO SECURITIES HELD BY EACH FUND HAVE REMAINING MATURITIES OF THIRTEEN
MONTHS OR LESS FROM THE DATE OF PURCHASE BY THE FUND. PORTFOLIO SECURITIES WHICH
HAVE CERTAIN PUT OR DEMAND FEATURES EXERCISABLE BY A FUND WITHIN THIRTEEN MONTHS
(AS WELL AS CERTAIN U.S. GOVERNMENT OBLIGATIONS WITH FLOATING OR VARIABLE
INTEREST RATES) AND SECURITIES HELD AS COLLATERAL FOR REPURCHASE AGREEMENTS MAY
HAVE LONGER MATURITIES.
CURRENTLY, X SHARES ARE AVAILABLE ONLY TO QUALIFIED RETAIL CUSTOMERS WHO
PURCHASE SUCH SHARES THROUGH A SWEEP ACCOUNT ("SWEEP ACCOUNT") OFFERED BY BA
INVESTMENT SERVICES, INC. ("BAIS") AND CERTAIN OTHER FINANCIAL SERVICE
ORGANIZATIONS, SUCH AS BANKS OR BROKER-DEALERS ("SERVICE ORGANIZATIONS") AND
THROUGH BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION'S 401(K) PROGRAM.
A SWEEP ACCOUNT COMBINES A BROKERAGE ACCOUNT (THE "TRANSACTION ACCOUNT") WITH A
DAILY SWEEP OF BALANCES TO OR FROM THE PRIME, TREASURY AND CALIFORNIA TAX-EXEMPT
MONEY MARKET FUNDS' X SHARES. BAIS OR SERVICE ORGANIZATIONS, AS APPLICABLE, ARE
RESPONSIBLE FOR PROVIDING PERSONS INVESTING IN X SHARES THROUGH A SWEEP ACCOUNT
WITH SWEEP ACCOUNT MATERIALS (THE "SWEEP MATERIALS") DESCRIBING THE VARIOUS
FEATURES AND OPERATIONS OF THE SWEEP ACCOUNT. THE SWEEP MATERIALS SHOULD BE
REVIEWED IN CONJUNCTION WITH THIS PROSPECTUS.
HORIZON SHARES AND HORIZON SERVICE SHARES MAY NOT BE PURCHASED BY INDIVIDUALS
DIRECTLY, BUT INSTITUTIONAL INVESTORS MAY PURCHASE HORIZON AND HORIZON SERVICE
SHARES FOR ACCOUNTS MAINTAINED BY INDIVIDUALS.
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (THE "INVESTMENT ADVISER"
OR "BANK OF AMERICA") SAN FRANCISCO, CALIFORNIA ACTS AS INVESTMENT ADVISER TO
THE FUNDS. CONCORD FINANCIAL GROUP, INC. (THE "DISTRIBUTOR") SPONSORS THE FUNDS
AND ACTS AS THEIR DISTRIBUTOR AND THE BISYS GROUP, INC. ACTS AS THEIR
ADMINISTRATOR, NEITHER OF WHICH IS AFFILIATED WITH THE INVESTMENT ADVISER.
<PAGE> 75
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY 2
EXPENSE INFORMATION 7
FINANCIAL HIGHLIGHTS 9
INVESTMENT OBJECTIVES AND
POLICIES 26
MANAGEMENT OF THE FUNDS 39
PURCHASE AND REDEMPTION OF SHARES 43
ADDITIONAL SHAREHOLDER SERVICES 46
DIVIDENDS AND DISTRIBUTIONS 46
TAXES 46
DESCRIPTION OF SHARES 48
- ------------------------------------------------------------------------------------------------------------------------
DISTRIBUTOR: INVESTMENT ADVISER:
Concord Financial Group, Inc. Bank of America National Trust and Savings Association
3435 Stelzer Road 555 California Street
Columbus, OH 43219 San Francisco, CA 94104
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 76
SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information included elsewhere in the Prospectus.
X SHARES, HORIZON SHARES AND
HORIZON SERVICE SHARES: The Prime Fund, Treasury Fund and California
Tax-Exempt Money Market Fund each issue X Shares, and
each of the Funds issues Horizon Shares and Horizon
Service Shares. X Shares, Horizon Shares and Horizon
Service Shares each represent interests in a
particular Fund's investment portfolio. X Shares,
Horizon Shares and Horizon Service Shares are
identical in all respects except that: 1) X Shares of
the Prime, Treasury and California Tax-Exempt Money
Market Funds bear fees payable to the Distributor for
distribution expenses and shareholder servicing
expenses at the annual rates of up to 0.30% and
0.25%, respectively, of the average daily net assets
of such Fund's X Shares, and 2) Horizon Service
Shares bear fees payable by a Fund to institutional
investors ("Shareholder Organizations") at the annual
rate of up to 0.25% of the average daily net asset
value of such Fund's Horizon Service Shares for
support services provided by Shareholder
Organizations to the beneficial owners of such shares
pursuant to the Shareholder Services Plan. In
addition, X Shares of the Prime, Treasury and
California Tax-Exempt Money Market Funds have certain
exclusive voting rights on matters submitted to a
vote of shareholders pertaining to the Distribution
and Services Plan relating to a particular series of
such Funds, and Horizon Service Shares have certain
exclusive voting rights on matters relating to the
Shareholder Services Plan adopted with respect to
such shares. See "Description of Shares."
INVESTMENT OBJECTIVES AND
POLICIES: The investment objective of the Prime Fund and
Treasury Fund is to seek high current income and
stability of principal. The Prime Fund seeks to
achieve this objective by investing substantially all
of its assets in a diversified portfolio of U.S.
dollar-denominated "money market" instruments such as
bank certificates of deposit and bankers'
acceptances, commercial paper and repurchase
agreements, in addition to obligations issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities. The Treasury Fund seeks to achieve
this objective by investing solely in direct
obligations issued by the U.S. Treasury and
repurchase agreements relating to such Treasury
obligations.
The investment objective of the Government Fund and
Treasury Only Fund is to provide liquidity and as
high a level of current income as is consistent with
the preservation of capital. The Government Fund
seeks to achieve this objective by investing in
short-term debt obligations issued or guaranteed as
to interest and principal by the U.S. Government, its
agencies, authorities or instrumentalities and in
repurchase agreements with respect to such
obligations. The Treasury
2
<PAGE> 77
Only Fund seeks to achieve this objective by
investing solely in obligations of the U.S. Treasury.
The investment objective of the Tax-Exempt Money Fund
is to provide as high a level of current interest
income exempt from federal income taxes as is
consistent with relative stability of principal. The
investment objective of the California Tax-Exempt
Money Market Fund is to seek as high a level of
current interest income free of federal income tax
and California state personal income tax as is
consistent with the preservation of capital and
relative stability of principal. Each of these two
Funds seeks to achieve its objectives by investing
primarily in U.S. dollar-denominated obligations the
interest on which is exempt from regular federal
income tax, and in the case of the California Tax-
Exempt Money Market Fund, is also exempt from
taxation under the laws or constitution of
California.
Portfolio securities held by a Fund have remaining
maturities of thirteen months or less from the date
of purchase by the Fund. (Portfolio securities which
have certain put or demand features exercisable by a
Fund within thirteen months, as well as certain U.S.
Government obligations with floating or variable
interest rates, and securities held as collateral for
repurchase agreements may have longer maturities.)
There can be no assurance that the Funds will achieve
their investment objectives. The Funds' investments
are subject to certain investment risks including
default by the issuers of debt obligations and
parties with which a Fund may have in accordance with
its investment policies entered into repurchase and
reverse repurchase transactions. In addition,
investments of the Prime Fund in foreign commercial
paper and in securities issued by foreign branches of
domestic banks, domestic branches of foreign banks or
foreign branches of foreign banks are subject to
investment risks that differ from debt obligations of
domestic issuers. The market value of the Funds'
portfolio securities will normally vary inversely
with prevailing interest rates. See "Investment
Objectives and Policies."
NET ASSET VALUE: Each Fund seeks to maintain its net asset value per
share at $1.00, and values its portfolio securities
on the basis of amortized cost. The dollar weighted
average maturity of each Fund is 90 days or less. See
"Purchase and Redemption of Shares -- Net Asset
Value."
INVESTMENT ADVISER: Bank of America National Trust and Savings
Association (the "Investment Adviser") is the
investment adviser of each Fund. The Investment
Adviser is a national banking association formed in
1904 which provides commercial banking and trust
business through an extensive system of branches
across the western United States. The Investment
Adviser's principal banking affiliates operate
branches in eleven U.S. states as well as corporate
banking offices in major U.S. cities and
3
<PAGE> 78
branches, corporate offices and representative
offices in 37 countries and territories. The
Investment Adviser is the successor by merger to
Security Pacific National Bank ("Security Pacific"),
which previously served as investment adviser to the
Company since the commencement of its operations in
1984. The Investment Adviser and its affiliates have
over $50 billion under management, including over
$14 billion in mutual funds. See "Management of the
Funds."
DISTRIBUTOR AND
ADMINISTRATOR: Concord Financial Group, Inc. (the "Distributor")
sponsors the Funds and acts as their distributor. The
Distributor is an indirect, wholly-owned subsidiary
of The BISYS Group, Inc. (the "Administrator"), which
acts as the Funds' administrator. See "Management of
the Funds -- Administrator."
ADVISORY, ADMINISTRATION
AND DISTRIBUTION FEES: For their respective services the Investment Adviser
and the Administrator each receive fees at the
maximum annual rate of .10% of each Fund's net
assets. Due to established breakpoints, advisory and
administration fees are subject to decrease as the
net assets of the respective Funds increase. No fee
is payable by the Funds to the Distributor for its
distribution services. See "Management of the Funds."
INVESTING IN THE FUNDS: X Shares of the Prime, Treasury and California
Tax-Exempt Money Market Funds are available to
customers who purchase such shares through brokerage
services, such as a Sweep Account offered by BAIS and
certain Service Organizations and through Bank of
America's 401(k) program. A Sweep Account combines a
Transaction Account with a daily sweep of balances to
or from the Prime, Treasury and California Tax-Exempt
Money Market Funds' X Shares. X Shares may be
purchased on any Business Day (as defined below) that
BAIS and the particular Service Organization are open
for business by making a deposit into your
Transaction Account. All transaction orders are
processed by the Company at the net asset value next
determined after the order is received. See "Purchase
and Redemption of Shares -- How X Shares Are
Purchased."
Horizon and Horizon Service Shares of each Fund may
be purchased by institutional investors for accounts
maintained by individuals by telephone or terminal
access order at the next determined net asset value
without a sales charge. Purchase orders for Horizon
and Horizon Service Shares of the Prime Fund,
Treasury Fund and Government Fund that are received
by the transfer agent before 2:30 p.m. Eastern time
on a day on which both the Funds' custodian and the
New York Stock Exchange are open for business (a
"Business Day") will be executed as of 2:30 p.m.
Eastern time on such Business Day if payment is
received by 4:00 p.m. Eastern time on that day.
Purchase orders for the Treasury Only Fund that are
received by the transfer agent before 11:30 a.m.
Eastern time on a Business Day are executed
4
<PAGE> 79
at such time on the same day if payment is received
by 4:00 p.m. Eastern time on such Business Day.
Purchase orders for the California Tax-Exempt Money
Market Fund that are received by the transfer agent
before 10:30 a.m. Eastern time on a Business Day are
executed at such time on the same day if payment is
received by 4:00 p.m. Eastern time on such Business
Day. Purchase orders for the Tax-Exempt Money Fund
that are received by the transfer agent before 12:00
noon Eastern time on a Business Day are executed at
such time on the same day if payment is received by
4:00 p.m. Eastern time on such Business Day. Payment
for Fund shares may be made only in Federal funds or
other immediately available funds.
Each Fund requires a minimum initial investment of
$500,000 for Horizon Shares and Horizon Service
Shares; there is no subsequent minimum investment.
See "Purchase and Redemption of Shares -- How Horizon
and Horizon Service Shares are Purchased."
REDEMPTION OF INVESTMENT: With respect to X Shares of the Prime, Treasury and
California Tax-Exempt Money Market Funds, if
withdrawals and charges to your Sweep Account exceed
deposits and credits, BAIS or the particular Service
Organization, as applicable, will transmit a
redemption order on your behalf to the appropriate
Fund in the dollar amount of that day's Net Sweep
Amount. Redemptions are effected by the Company on a
Business Day at the net asset value per share next
determined after receipt of the redemption order by
the Transfer Agent. See "Purchase and Redemption of
Shares -- How X Shares Are Redeemed."
With respect to Horizon and Horizon Service Shares of
the Funds, investors may redeem all or any part of
the value of their accounts by instructing the proper
Fund to redeem shares. Redemptions may be requested
by telephone or by terminal access and are effected
at the net asset value per share next determined
after receipt of the request by the transfer agent.
Redemption proceeds will be wired to the investor's
designated bank account, and will be wired on the
same Business Day as the redemption is requested if
the request is received by the transfer agent before
2:30 p.m. Eastern time with respect to the Prime
Fund, Treasury Fund and Government Fund, before 11:30
a.m. Eastern time with respect to the Treasury Only
Fund, before 10:30 a.m. Eastern time with respect to
the California Tax-Exempt Money Market Fund and
before 12:00 noon Eastern time with respect to the
Tax-Exempt Money Fund on a Business Day. While the
Company no longer issues share certificates, Horizon
and Horizon Service Shares for which certificates
previously had been issued may not be redeemed unless
the certificates have been submitted to the transfer
agent and endorsed for transfer.
A Fund may redeem Horizon and Horizon Service Shares
in any account at net asset value, without the
investor's request, if the value
5
<PAGE> 80
of the account is less than $500 as a result of
redemptions. See "Purchase and Redemption of Shares
-- How Horizon and Horizon Service Shares Are
Redeemed."
CUSTODIAN AND TRANSFER
AGENT: The Bank of New York acts as custodian for the Funds,
and Bank of America National Trust and Savings
Association acts as sub-custodian for the Prime and
Treasury Funds. BISYS Fund Services, Inc. serves as
the Funds' transfer and dividend disbursing agent.
6
<PAGE> 81
EXPENSE INFORMATION
The following table sets forth certain information regarding the shareholder
transaction expenses imposed by X Shares of the Prime, Treasury and California
Tax-Exempt Money Market Funds and Horizon Shares and Horizon Service Shares of
the Prime Fund, Treasury Fund, Government Fund, Treasury Only Fund, Tax-Exempt
Money Fund and California Tax-Exempt Money Market Fund and the annual operating
expenses incurred by the X Shares, Horizon Shares and Horizon Service Shares of
the Funds during the last fiscal year. Actual expenses may vary. Hypothetical
examples based on the table are also shown.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
PRIME TREASURY GOVERNMENT
------------------------------- ------------------------------- ------------------
HORIZON HORIZON HORIZON
X HORIZON SERVICE X HORIZON SERVICE HORIZON SERVICE
SHARES(1) SHARES SHARES(2) SHARES(1) SHARES SHARES(2) SHARES SHARES(2)
----------- ------- --------- ----------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on
Purchases.......................... None None None None None None None None
Maximum Sales Load Imposed on
Reinvested Dividends............... None None None None None None None None
Maximum Deferred Sales Load......... None None None None None None None None
Redemption Fees(3).................. None None None None None None None None
Exchange Fees....................... None None None None None None None None
<CAPTION>
CALIFORNIA TAX-EXEMPT
TREASURY ONLY TAX-EXEMPT MONEY MONEY MARKET
---------------- ------------------ -------------------------------
HORIZON HORIZON HORIZON
HORIZON SERVICE HORIZON SERVICE X HORIZON SERVICE
SHARES SHARES SHARES SHARES(2) SHARES(1) SHARES SHARES(2)
------- ------- ------- --------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on
Purchases.......................... None None None None None None None
Maximum Sales Load Imposed on
Reinvested Dividends............... None None None None None None None
Maximum Deferred Sales Load......... None None None None None None None
Redemption Fees(3).................. None None None None None None None
Exchange Fees....................... None None None None None None None
</TABLE>
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
PRIME TREASURY GOVERNMENT
------------------------------- ------------------------------- ------------------
HORIZON HORIZON HORIZON
X HORIZON SERVICE X HORIZON SERVICE HORIZON SERVICE
SHARES(1) SHARES SHARES(2) SHARES(1) SHARES SHARES(2) SHARES SHARES(2)
----------- ------- --------- ----------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees(4) (After Fee
Waivers)........................... .19%(5) .19%(5) .19%(5) .20% .20% .20% .15%(6) .15%(6)
Rule 12b-1 Fees(7).................. .30% 0% 0% .30% 0% 0% 0% 0%
Shareholder Services Fees........... .25% 0% .25% .25% 0% .25% 0% .25%
All Other Expenses.................. .04% .04% .04% .05% .05% .05% .07% .08%
--- --- --- --- --- --- --- ---
Total Operating Expenses............ .78% .23% .48% .80% .25% .50% .22% .48%
=== === === === === === === ===
<CAPTION>
CALIFORNIA TAX-EXEMPT
TREASURY ONLY TAX-EXEMPT MONEY MONEY MARKET
---------------- ------------------ -------------------------------
HORIZON HORIZON HORIZON
HORIZON SERVICE HORIZON SERVICE X HORIZON SERVICE
SHARES SHARES SHARES SHARES(2) SHARES(1) SHARES SHARES(2)
------- ------- ------- --------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees(4) (After Fee
Waivers)........................... .20% .20% .20% .20% .20% .20% .20%
Rule 12b-1 Fees(7).................. 0% 0% 0% 0% .30% 0% 0%
Shareholder Services Fees........... 0% .25% 0% .25% .25% 0% .25%
All Other Expenses.................. .07% .08% .08% .08% .05% .05% .05%
--- --- --- --- --- --- ---
Total Operating Expenses............ .27% .53% .28% .53% .80% .25% .50%
=== === === === === === ===
</TABLE>
- ---------------
(1) Additional fees charged by Bank of America or Service Organizations related
to holders of Sweep Accounts are not included in this table. For additional
information with respect to Sweep Account fees and charges, including a
description of the services available to Sweep Account holders, you should
refer to the Sweep Materials.
(2) The Company understands that institutions that enter into agreements
("Shareholder Service Agreements") with the Company ("Shareholder
Organizations") under the Company's Shareholder Services Plan (the "Plan")
may charge fees to their Customers who are the beneficial owners of Horizon
Services Shares in connection with their accounts. Each Fund's Horizon
Service Shares bear fees paid to Shareholder Organizations under the Plan at
the annual rate of up to .25% of the average daily net asset value of each
Fund's Horizon Service Shares.
(3) The Company reserves the right to impose a charge for wiring redemption
proceeds.
(4) The Funds incur an investment advisory fee and an administration fee, each
payable at a maximum annual rate of .10% of each Fund's average daily net
asset value.
(5) Due to established breakpoints, management fees decrease as the Fund's
assets increase. The effective advisory fee is .09% of the Fund's average
net assets.
(6) Absent fee waivers, Management Fees and Total Operating Expenses would have
been .20% and .27%, respectively, with respect to Horizon Shares of the
Government Fund and .20% and .53%, respectively, with respect to Horizon
Service Shares of the Government Fund.
(7) Because of the Distribution Plan Payment paid by X Shares of the Prime,
Treasury and California Tax-Exempt Money Market Funds as shown in the above
table, long-term Class X shareholders may pay more than the economic
equivalent of the maximum front-end sales charge permitted by NASD
Regulation, Inc.
7
<PAGE> 82
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------ ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) a 5% annual return and (2) redemption at the end of
each time period:
Prime Fund
X Shares..................................................... $8 $25 $43 $ 97
Horizon Shares............................................... $2 $ 7 $13 $ 29
Horizon Service Shares....................................... $5 $15 $27 $ 60
Treasury Fund X Shares.......................................... $8 $26 $44 $ 99
Horizon Shares............................................... $3 $ 8 $19 $ 32
Horizon Service Shares....................................... $5 $16 $28 $ 63
Government Fund
Horizon Shares............................................... $2 $ 7 $12 $ 28
Horizon Service Shares....................................... $5 $15 $27 $ 60
Treasury Only Fund
Horizon Shares............................................... $3 $ 9 $15 $ 34
Horizon Service Shares....................................... $5 $17 $30 $ 66
Tax-Exempt Money Fund
Horizon Shares............................................... $3 $ 9 $16 $ 36
Horizon Service Shares....................................... $5 $17 $30 $ 66
California Tax-Exempt Money Market Fund
X Shares..................................................... $8 $26 $44 $ 99
Horizon Shares............................................... $3 $ 8 $14 $ 32
Horizon Service Shares....................................... $5 $16 $28 $ 63
</TABLE>
- --------------------------------------------------------------------------------
The foregoing Expense Summary and Example are intended to assist investors in X
Shares of the Prime, Treasury and California Tax-Exempt Money Market Funds and
Horizon Shares and Horizon Service Shares of the Prime, Treasury, Government,
Treasury Only, Tax-Exempt Money and California Tax-Exempt Money Market Funds in
understanding the various shareholder transaction and operating expenses of each
class that investors bear either directly or indirectly. Investors bear
operating expenses indirectly since they reduce the amount of income paid by the
Funds to investors as dividends. From time to time, the investment adviser and
administrator may prospectively waive a portion of their respective fees and/or
assume certain expenses of the Funds. See "Management of the Funds" and
"Description of Shares" for more complete descriptions of the various expenses
referred to above.
THE EXAMPLE SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RETURN AND OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND
OPERATING EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
8
<PAGE> 83
FINANCIAL HIGHLIGHTS
On March 30, 1984, the Company commenced its public sale of shares (Pacific
Horizon Shares) in each of the Prime Fund and Treasury Fund, which were
originally called "Money Market Portfolio" and "Government Money Market
Portfolio," respectively. On January 19, 1990, the Prime Fund and Treasury Fund
of The Horizon Funds (the "Predecessor Prime Fund" and the "Predecessor Treasury
Fund") were combined with the Money Market Portfolio and Government Money Market
Portfolio of the Company; the Company changed the names of its resulting
portfolios to "Prime Fund" and "Treasury Fund;" and the Company began offering
Horizon Shares and Horizon Service Shares in the Prime and Treasury Funds. On
July 22, 1996 the Company began offering X Shares in the Prime and Treasury
Funds. The Company began offering S Shares in the Prime and Treasury Funds on
April 7, 1997. The Company has also classified a Y Share class of the Prime and
Treasury Funds. Pacific Horizon Shares, S Shares and Y Shares of the Prime and
Treasury Funds are offered through other prospectuses. The shares of each class
in a Fund represent equal pro rata interests in such Fund, except that they bear
different expenses which reflect the difference in the range of services
provided to them. X Shares bear the expense of a distribution and services plan
(the "Distribution and Services Plan") at an annual rate not to exceed 0.55% of
the average daily net asset value of the Prime and Treasury Funds' outstanding X
Shares. Horizon Service Shares bear the expense of a Shareholder Services Plan
(the "Plan") at an annual rate not to exceed 0.25% of the average daily net
asset value of the Prime and Treasury Funds' outstanding Horizon Service Shares.
See "Description of Shares" below for certain differences among the Pacific
Horizon Shares, Horizon Shares, Horizon Service Shares, S Shares, Y Shares and X
Shares, including differences related to expenses.
The California Tax-Exempt Money Market Fund commenced operations on December 6,
1989 as a portfolio of the Company with a single series of shares, Pacific
Horizon Shares. On March 1, 1993, the California Tax-Exempt Money Market Fund
began offering a second series of shares known as the Horizon Service Shares. On
October 2, 1996, the California Tax-Exempt Money Market Fund began offering an X
Share class. The Company has also classified a Horizon Share Class and S Share
Class of the California Tax-Exempt Money Market Fund.
The tables below set forth certain information concerning (i) the investment
results for the Horizon Shares and the Horizon Service Shares of the Predecessor
Prime Fund and Predecessor Treasury Fund for the periods ended on or before
January 19, 1990, (ii) the investment results for the Horizon Shares and Horizon
Service Shares of the Prime Fund and Treasury Fund for the period January 20,
1990 through February 28, 1990 and for the fiscal years ended February 28, 1991,
February 29, 1992, February 28, 1993, February 28, 1994, February 28, 1995,
February 29, 1996 and February 28, 1997, and (iii) the investment results for
the X Shares of the Prime Fund and Treasury Fund for the period July 22, 1996
through February 28, 1997. The tables below also show certain information
concerning the investment results for (i) Horizon Service Shares of the
California Tax-Exempt Money Market Fund for the fiscal years ended February 28,
1994, February 28, 1995, February 29, 1996 and February 28, 1997; and (ii) X
Shares of the California Tax-Exempt Money Market Fund for the period October 2,
1996 though February 28, 1997. The information contained in the Financial
Highlights insofar as it pertains to each of the five fiscal years in the five
year period ended February 28, 1997 has been audited by Price Waterhouse LLP,
independent accountants for the Predecessor Prime Fund, Predecessor Treasury
Fund, the Prime Fund, Treasury Fund and the California Tax-Exempt Money Market
Fund, whose unqualified report on the financial statements containing such
information is incorporated by reference into the Statement of Additional
Information, which may be obtained upon request. The Financial Highlights should
be read in conjunction with the financial statements and notes thereto and the
unqualified report of independent accountants which are incorporated by
reference into the Statement of Additional Information.
9
<PAGE> 84
Selected Data for an X Share Outstanding Throughout the Period Indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRIME FUND
-------------
PERIOD FROM
JULY 22, 1996
TO
FEBRUARY 28,
1997(a)
-------------
<S> <C>
X SHARES:
Net asset value per share, beginning of period................................ $ 1.00
--------
Income from Investment Operations:
Net investment income....................................................... 0.0282
Net realized and unrealized gains/(losses) on investment transactions....... 0.0000
--------
Total income from investment operations....................................... 0.0282
Less dividends to shareholders from net investment income..................... (0.0281)
--------
Net change in asset value per share........................................... 0.0001
--------
Net asset value per share, end of period...................................... $ 1.00
========
Total return.................................................................. 2.84%(b)
Ratios/Supplemental Data:
Net assets at end of year (millions)........................................ 204
Ratio of expenses to average net assets..................................... 0.78%(c)
Ratio of net investment income to average net assets........................ 4.73%(c)
</TABLE>
- ---------------
(a) Period from inception date of share class to February 28, 1997.
(b) Not annualized.
(c) Annualized. During the period, certain fees were voluntarily reduced and/or
reimbursed. Fees paid by third parties, however, had no effect on the
ratios.
10
<PAGE> 85
Selected Data for a Horizon Share Outstanding Throughout Each of the Periods
Indicated:
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRIME FUND++
----------------------------------------------------------------------------------------------
JAN. 20,
YEAR ENDED 1990
----------------------------------------------------------------------------------- THROUGH
FEB. 28, FEB. 29, FEB. 28, FEB. 28, FEB. 28, FEB. 29, FEB. 28, FEB. 28,
1997 1996 1995 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HORIZON SHARES:
Net asset value per share, beginning
of period.......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- -------- --------
Income From Investment Operations:
Net investment income.............. 0.0524 0.0571 0.0461 0.0319 0.0372 0.0590 0.0794 0.0085
Net realized gain (loss)
on securities.................... 0.0000 0.0004 (0.0232) (0.0016) 0.0000 0.0005 (0.0001) 0.0000
-------- -------- -------- -------- -------- -------- -------- --------
Total income from investment
operations....................... 0.0524 0.0575 0.0229 0.0303 0.0372 0.0595 0.0793 0.0085
Less Dividends:
Dividends from net investment
income........................... (0.0522) (0.0571) (0.0454) (0.0319) (0.0372) (0.0589) (0.0794) (0.0085)
Increase due to voluntary capital
contribution from investment
adviser............................ 0.0000 0.0000 0.0233 0.0000 0.0000 0.0000 0.0000 0.0000
-------- -------- -------- -------- -------- -------- -------- --------
Net change in net asset value per
share.............................. 0.0002 0.0004 0.0008 (0.0016) 0.0000 0.0006 (0.0001) 0.0000
-------- -------- -------- -------- -------- -------- -------- --------
Net asset value per share, end of
period............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ========== ========== ========== ========
Total return........................ 5.34% 5.86% 4.63%*** 3.24% 3.78% 6.06% 8.23% 0.90%P
Ratios/Supplemental Data:
Net assets, end of period
(millions)....................... $ 1,710 $ 1,651 $ 622 $ 3,840 $ 10,301 $ 2,855 $ 487 $ 405
Ratio of expenses to average
net assets....................... 0.23%** 0.23%** 0.16%** 0.20%** 0.23% 0.24% 0.24% 0.28%+
Ratio of net investment income to
average net assets............... 5.24%** 5.69%** 4.11%** 3.19%** 3.59% 5.59% 7.91% 8.09%+
<CAPTION>
PRIME FUND++
------------------------------------
MAY 1,
1989 YEAR PERIOD
THROUGH ENDED ENDED
JAN. 19, APRIL 30, APRIL 30,
1990++ 1989++ 1988++*
-------- --------- ---------
<S> <C> <C> <C>
HORIZON SHARES:
Net asset value per share, beginning
of period.......................... $ 1.00 $ 1.00 $ 1.00
-------- --------- ---------
Income From Investment Operations:
Net investment income.............. 0.0655 0.0829 0.0557
Net realized gain (loss)
on securities.................... 0.0000 0.0000 0.0000
-------- --------- ---------
Total income from investment
operations....................... 0.0655 0.0829 0.0557
Less Dividends:
Dividends from net investment
income........................... (0.0655) (0.0829) (0.0557)
Increase due to voluntary capital
contribution from investment
adviser............................ 0.0000 0.0000 0.0000
-------- --------- ---------
Net change in net asset value per
share.............................. 0.0000 0.0000 0.0000
-------- --------- ---------
Net asset value per share, end of
period............................. $ 1.00 $ 1.00 $ 1.00
========== ========== ==========
Total return........................ 6.69%P 8.61% 5.72%P
Ratios/Supplemental Data:
Net assets, end of period
(millions)....................... $ 447 $ 303 $ 208
Ratio of expenses to average
net assets....................... 0.20%+** 0.20% ** 0.20%+**
Ratio of net investment income to
average net assets............... 9.04%+** 8.47%** 6.90%+**
</TABLE>
- ---------------
* For the period July 10, 1987 (commencement of operations) through
April 30, 1988.
** Includes fee waivers and/or expense reimbursements which had the effect
of reducing the ratio of expenses to average net assets and increasing
the ratio of net investment income to average net assets by 0.01%, 0.07%,
0.01%, 0.03% (annualized), 0.12% and 0.07% (annualized) for the years
or periods ended February 29, 1996, February 28, 1995, February 28, 1994,
January 19, 1990, April 30, 1989 and April 30, 1988, respectively. For
the year ended February 28, 1997, fees paid by third parties had no
effect on the ratios.
*** Total return includes the effect of a voluntary capital contribution
from the investment adviser. Without this capital contribution, the
total return would have been lower.
+ Annualized.
++ This information represents the results of operations of the Predecessor
Prime Fund, the former Horizon Prime Fund, the assets and liabilities
of which were transferred to the Pacific Horizon Prime Fund on
January 19, 1990.
++ Security Pacific National Bank served as investment adviser through
April 21, 1992. Bank of America National Trust and Savings Association
served as investment adviser commencing April 22, 1992.
P Not annualized.
11
<PAGE> 86
Selected Data for a Horizon Service Share Outstanding Throughout Each of the
Periods Indicated:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRIME FUND++
----------------------------------------------------------------------------------------------
JAN. 20,
YEAR ENDED 1990
----------------------------------------------------------------------------------- THROUGH
FEB. 28, FEB. 29, FEB. 28, FEB. 28, FEB. 28, FEB. 29, FEB. 28, FEB. 28,
1997 1996 1995 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HORIZON SERVICE SHARES:
Net asset value per share, beginning
of period.......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- ------- ------- -------
Income From Investment Operations:
Net investment income.............. 0.0499 0.0546 0.0431 0.0294 0.0345 0.0565 0.0769 0.0082
Net realized gain (loss) on
securities....................... 0.0000 0.0004 (0.0227) (0.0016) 0.0000 0.0005 (0.0001) 0.0000
------- ------- ------- ------- ------- ------- ------- -------
Total income from investment
operations....................... 0.0499 0.0550 0.0204 0.0278 0.0345 0.0570 0.0768 0.0082
Less Dividends:
Dividends from net investment
income........................... (0.0497) (0.0546) (0.0429) (0.0294) (0.0347) (0.0564) (0.0769) (0.0082)
Increase due to voluntary capital
contribution from investment
adviser............................ 0.0000 0.0000 0.0233 0.0000 0.0000 0.0000 0.0000 0.0000
------- ------- ------- ------- ------- ------- ------- -------
Net change in net asset value per
share.............................. 0.0002 0.0004 0.0008 (0.0016) (0.0002) 0.0006 (0.0001) 0.0000
------- ------- ------- ------- ------- ------- ------- -------
Net asset value per share, end of
period............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= ======= ======= =======
Total return........................ 5.08% 5.60% 4.37%*** 2.98% 3.53% 5.79% 7.96% 0.87%P
Ratios/Supplemental Data:
Net assets, end of period
(millions)....................... $ 2,945 $ 1,561 $ 864 $ 839 $ 793 $ 859 $ 560 $ 330
Ratio of expenses to average net
assets........................... 0.48%** 0.48%** 0.44%** 0.45%** 0.48% 0.49% 0.49% 0.53%+
Ratio of net investment income to
average net assets............... 5.00%** 5.44%** 4.31%** 2.94%** 3.49% 5.58% 7.64% 7.84%+
<CAPTION>
PRIME FUND++
-----------------------------------
MAY 1,
1989 YEAR PERIOD
THROUGH ENDED ENDED
JAN. 19, APRIL 30, APRIL 30,
1990++ 1989++ 1988++*
-------- --------- ---------
<S> <C> <C> <C>
HORIZON SERVICE SHARES:
Net asset value per share, beginning
of period.......................... $ 1.00 $ 1.00 $ 1.00
------- ------- -------
Income From Investment Operations:
Net investment income.............. 0.0636 0.0804 0.0128
Net realized gain (loss) on
securities....................... 0.0000 0.0000 0.0000
------- ------- -------
Total income from investment
operations....................... 0.0636 0.0804 0.0128
Less Dividends:
Dividends from net investment
income........................... (0.0636) (0.0804) (0.0128)
Increase due to voluntary capital
contribution from investment
adviser............................ 0.0000 0.0000 0.0000
------- ------- -------
Net change in net asset value per
share.............................. 0.0000 0.0000 0.0000
------- ------- -------
Net asset value per share, end of
period............................. $ 1.00 $ 1.00 $ 1.00
======= ======= =======
Total return........................ 6.50%P 8.35% 1.28%P
Ratios/Supplemental Data:
Net assets, end of period
(millions)....................... $ 321 $ 164 $ 3
Ratio of expenses to average net
assets........................... 0.45%+** 0.45%** 0.45%+**
Ratio of net investment income to
average net assets............... 8.74%+** 8.63%** 6.49%+**
</TABLE>
- ---------------
* For the period February 18, 1988 (initial offering date of Horizon
Service Shares) through April 30, 1988.
** Includes fee waivers and expense reimbursements which had the effect of
reducing the ratio of expenses to average net assets and increasing the
ratio of net investment income to average net assets by 0.01%, 0.04%,
0.01%, 0.08% (annualized), 0.12% and 0.08% (annualized) for the years
or periods ended February 29, 1996, February 28, 1995, February 28, 1994,
January 19, 1990, April 30, 1989 and April 30, 1988, respectively. For
the year ended February 28, 1997, fees paid by third parties had no
effect on the ratios.
*** Total return includes the effect of a voluntary capital contribution
from the investment adviser. Without this capital contribution, the
total return would have been lower.
+ Annualized.
++ This information represents the results of operations of the Predecessor
Prime Fund, the former Horizon Prime Fund, the assets and liabilities
of which were transferred to the Pacific Horizon Prime Fund on
January 19, 1990.
++ Security Pacific National Bank served as investment adviser through
April 21, 1992. Bank of America National Trust and Savings Association
served as investment adviser commencing April 22, 1992.
P Not annualized.
12
<PAGE> 87
Selected Data for an X Share Outstanding Throughout the Period Indicated:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TREASURY FUND
------------
PERIOD FROM
JULY 22, 1996
TO
FEBRUARY 28,
1997(a)
-------------
<S> <C>
X SHARES
Net asset value per share, beginning of period.................................... $ 1.00
Income from Investment Operations:
Net investment income........................................................... 0.0271
---------
Total income from investment operations........................................... 0.0271
Less dividends to shareholders from net investment income......................... (0.0271)
---------
Net change in asset value per share............................................... 0.0000
---------
Net asset value per share, end of period.......................................... $ 1.00
=========
Total return...................................................................... 2.74%(b)
Ratios/Supplemental Data:
Net assets at end of year (millions)............................................ $ 6
Ratio of expenses to average net assets......................................... 0.81%(c)
Ratio of net investment income to average net assets............................ 4.58%(c)
</TABLE>
- ---------------
(a) Period from inception date of share class to February 28, 1997.
(b) Not Annualized.
(c) Annualized. During the period, certain fees were voluntarily reduced and/or
reimbursed. Fees paid by third parties, however, had no effect on the
ratios.
13
<PAGE> 88
Selected Data for a Horizon Share Outstanding Throughout Each of the Periods
Indicated:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TREASURY FUND++
-----------------------------------------------------------------------------------
YEAR ENDED
-----------------------------------------------------------------------------------
FEB. 28, FEB. 29, FEB. 28, FEB. 28, FEB. 28, FEB. 29, FEB. 28,
1997 1996 1995 1994 1993++ 1992 1991
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
HORIZON SHARES:
Net asset value per share, beginning of
period................................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- --------
Income From Investment Operations:
Net investment income................. 0.0509 0.0559 0.0437 0.0294 0.0341 0.0543 0.0764
Net realized gain (loss) on
securities.......................... 0.0000 0.0011 0.0001 (0.0002) 0.0002 0.0003 0.0005
-------- -------- -------- -------- -------- -------- --------
Total income from investment
operations.......................... 0.0509 0.0570 0.0438 0.0292 0.0343 0.0546 0.0769
Less Dividends:
Dividends from net investment income.. (0.0509) (0.0559) (0.0437) (0.0294) (0.0343) (0.0545) (0.0765)
-------- -------- -------- -------- -------- -------- --------
Net change in net asset value per
share................................. 0.0000 0.0011 0.0001 (0.0002) 0.0000 0.0001 0.0004
-------- -------- -------- -------- -------- -------- --------
Net asset value per share, end of
period................................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== ========
Total return........................... 5.21% 5.73% 4.46% 2.98% 3.48% 5.59% 7.92%
Ratios/Supplemental Data:
Net assets, end of period
(millions).......................... $ 618 $ 722 $ 469 $ 487 $ 598 $ 432 $ 455
Ratio of expenses to average net
assets.............................. 0.25%** 0.25%** 0.23% 0.23% 0.24% 0.24% 0.23%
Ratio of net investment income to
average net assets.................. 5.09%** 5.56%** 4.36% 2.94% 3.38% 5.44% 7.57%
<CAPTION>
TREASURY FUND++
----------------------------------------------
JAN. 20, MAY 1,
1990 1989 YEAR PERIOD
THROUGH THROUGH ENDED ENDED
FEB. 28, JAN. 19, APRIL 30, APRIL 30,
1990 1990++ 1989++ 1988++*
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
HORIZON SHARES:
Net asset value per share, beginning of
period................................ $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
Income From Investment Operations:
Net investment income................. 0.0082 0.0631 0.0792 0.0527
Net realized gain (loss) on
securities.......................... -- -- -- --
-------- -------- -------- --------
Total income from investment
operations.......................... 0.0082 0.0631 0.0792 0.0527
Less Dividends:
Dividends from net investment income.. (0.0082) (0.0631) (0.0792) (0.0527)
-------- -------- -------- --------
Net change in net asset value per
share................................. 0.0000 0.0000 0.0000 0.0000
-------- -------- -------- --------
Net asset value per share, end of
period................................ $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total return........................... 0.87%P 6.44%P 8.21% 5.39%P
Ratios/Supplemental Data:
Net assets, end of period
(millions).......................... $ 257 $ 292 $ 239 $ 133
Ratio of expenses to average net
assets.............................. 0.27%+ 0.20%+** 0.21%** 0.20%+**
Ratio of net investment income to
average net assets.................. 7.94%+ 8.65%+** 8.07%** 6.57%+**
</TABLE>
- ---------------
* For the period July 10, 1987 (commencement of operations) through
April 30, 1988.
** Includes fee waivers and/or expense reimbursements which had the effect
of reducing the ratio of expenses to average net assets and increasing
the ratio of net investment income to average net assets by 0.01%, 0.12%
(annualized), 0.16% and 0.15% (annualized) for the years or periods
ended February 29, 1996, January 19, 1990, April 30, 1989 and
April 30, 1988, respectively. For the year ended February 28, 1997,
fees paid by third parties had no effect on the ratios.
+ Annualized.
++ This information represents the results of operations of the Predecessor
Treasury Fund, the former Horizon Treasury Fund, the assets and
liabilities of which were transferred to the Pacific Horizon Treasury
Fund on January 19, 1990.
++ Security Pacific National Bank served as investment adviser through
April 21, 1992. Bank of America National Trust and Savings Association
served as investment adviser commencing April 22, 1992.
P Not annualized.
14
<PAGE> 89
Selected Data for a Horizon Service Share Outstanding Throughout Each of the
Periods Indicated:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TREASURY FUND++
----------------------------------------------------------------------------------------------
JAN. 20,
YEAR ENDED 1990
----------------------------------------------------------------------------------- THROUGH
FEB. 28, FEB. 29, FEB. 28, FEB. 28, FEB. 28, FEB. 29, FEB. 28, FEB. 28,
1997 1996 1995 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HORIZON SERVICE SHARES:
Net asset value per share, beginning
of period.......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- -------- --------
Income From Investment Operations:
Net investment income.............. 0.0484 0.0534 0.0412 0.0269 0.0316 0.0517 0.0739 0.0080
Net realized gain (loss) on
securities....................... 0.0000 0.0011 0.0001 (0.0002) 0.0002 0.0004 0.0005 --
-------- -------- -------- -------- -------- -------- -------- --------
Total income from investment
operations....................... 0.0484 0.0545 0.0413 0.0267 0.0318 0.0521 0.0744 0.0080
Less Dividends:
Dividends from net investment
income........................... (0.0484) (0.0534) (0.0412) (0.0269) (0.0318) (0.0520) (0.0740) (0.0080)
-------- -------- -------- -------- -------- -------- -------- --------
Net change in net asset value per
share.............................. 0.000 0.0011 0.0001 (0.0002) 0.0000 0.0001 0.0004 0.0000
-------- -------- -------- -------- -------- -------- -------- --------
Net asset value per share, end of
period............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== ======== ========
Total return........................ 4.97% 5.47% 4.20% 2.72% 3.23% 5.33% 7.65% 0.84%P
Ratios/Supplemental Data:
Net assets, end of period
(millions)....................... $ 1,557 $ 1,031 $ 364 $ 541 $ 369 $ 381 $ 304 $ 157
Ratio of expenses to average net
assets........................... 0.50%** 0.50%** 0.48% 0.48% 0.49% 0.49% 0.48% 0.52%+
Ratio of net investment income to
average net assets............... 4.84%** 5.31%** 4.01% 2.69% 3.28% 5.13% 7.31% 7.70%+
<CAPTION>
TREASURY FUND++
-----------------------------------
MAY 1,
1989 YEAR PERIOD
THROUGH ENDED ENDED
JAN. 19, APRIL 30, APRIL 30,
1990++ 1989++ 1988++*
-------- --------- ---------
<S> <C> <C> <C>
HORIZON SERVICE SHARES:
Net asset value per share, beginning
of period.......................... $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Income From Investment Operations:
Net investment income.............. 0.0613 0.0767 0.0122
Net realized gain (loss) on
securities....................... -- -- --
-------- -------- --------
Total income from investment
operations....................... 0.0613 0.0767 0.0122
Less Dividends:
Dividends from net investment
income........................... (0.0613) (0.0767) (0.0122)
-------- -------- --------
Net change in net asset value per
share.............................. 0.0000 0.0000 0.0000
-------- -------- --------
Net asset value per share, end of
period............................. $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total return........................ 6.25%P 7.94% 1.52%P
Ratios/Supplemental Data:
Net assets, end of period
(millions)....................... $ 166 $ 239 $ 133
Ratio of expenses to average net
assets........................... 0.45%+** 0.46%** 0.45%+**
Ratio of net investment income to
average net assets............... 8.31%+** 8.44%** 6.27%+**
</TABLE>
- ------------
* For the period February 18, 1988 (initial offering date of Horizon
Service Shares) through April 30, 1988.
** Includes fee waivers and/or expense reimbursements which had the effect
of reducing the ratio of expenses to average net assets and increasing
the ratio of net investment income to average net assets by 0.01%, 0.12%
(annualized), 0.16% and 0.10% (annualized) for the years or periods ended
February 29, 1996, January 19, 1990, April 30, 1989 and April 30, 1988,
respectively. For the year ended February 28, 1997, fees paid by third
parties had no effect on the ratios.
+ Annualized.
++ This information represents the results of operations of the Predecessor
Treasury Fund, the former Horizon Treasury Fund, the assets and
liabilities of which were transferred to the Pacific Horizon Treasury
Fund on January 19, 1990.
++ Security Pacific National Bank served as investment adviser through
April 21, 1992. Bank of America National Trust and Savings Association
served as investment adviser commencing April 22, 1992.
P Not annualized.
15
<PAGE> 90
PACIFIC HORIZON CALIFORNIA TAX-EXEMPT MONEY FUND
FINANCIAL HIGHLIGHTS
Selected Data for an X Share Outstanding Throughout the Period Indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
OCTOBER 2, 1996 THROUGH
FEBRUARY 28, 1997(a)
-----------------------
<S> <C>
X SHARES
Net asset value per share, beginning of period
Income from Investment Operations:
Net investment income............................................... $ 1.00
---------
Total income from investment operations............................... 0.0107
Less dividends to shareholders from net investment income............. (0.0107)
---------
Net change in net asset value per share............................... 0.0000
---------
Net asset value per share, end of period.............................. $ 1.00
=========
Total Return.......................................................... 1.09%(b)
Ratios/Supplemental Data:
Net assets, end of year (millions).................................. $ 29
Ratio of expenses to average net assets............................. 0.80%(c)
Ratio of net investment income to average net assets................ 2.66%(c)
</TABLE>
- ---------------
(a) Period from inception date of share class
(b) Not annualized.
(c) Annualized. During the period, certain fees were voluntarily reduced and/or
reimbursed. Fees paid by third parties, however, had no effect on the
ratios.
16
<PAGE> 91
Selected Data for a Horizon Service Share Outstanding Throughout Each of the
Periods Indicated:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALIFORNIA TAX-EXEMPT MONEY MARKET FUND
------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1997 1996 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
HORIZON SERVICE SHARES
Net asset value per share, beginning of
period...................................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
Income from Investment Operations:
Net investment income....................... 0.0291 0.0331 0.0256 0.0198
Net realized loss on securities............. 0.0000 0.0001 (0.0001) (0.0001)
-------- -------- -------- --------
Total income from investment operations....... 0.0291 0.0332 0.0255 0.0197
Less dividends from net investment income..... (0.0291) (0.0331) (0.0256) (0.0198)
Net change in net asset value per share....... 0.0000 0.0001 (0.0001) (0.0001)
-------- -------- -------- --------
Net asset value per share, end of period...... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total Return.................................. 2.95% 3.36% 2.59% 2.00%
Ratios/Supplemental Data:
Net assets, end of period (millions)........ $ 472 $ 203 $ 88 $ 124
Ratio of expenses to average net assets..... 0.50%* 0.55%** 0.55% 0.53%***
Ratio of net investment income to average
net assets............................... 2.92%* 3.43%** 2.50% 1.98%***
</TABLE>
- ---------------
* For the year ended February 28, 1997, fees paid by third parties had no
effect on the ratios.
** Includes fee waivers and expense reimbursements. Such fee waivers and
expense reimbursements had the effect of increasing the ratio of net
investment income to average net assets by 0.01% for the fiscal year ended
February 29, 1996. During the same period, the Fund received credits from
its custodian for interest earned on uninvested cash balances which were
used to offset custodian fees and expenses. If such credits had not
occurred, the ratio of expenses to average net assets (without fee waivers
and/or expense reimbursements) would have been 0.55%. The ratio of net
investment income to average net assets was not affected.
*** Includes fee waivers and expense reimbursements. Such fee waivers and
expense reimbursements had the effect of reducing the ratio of expenses to
average net assets and increasing the ratio of net investment income to
average net assets by 0.07% for the fiscal year ended February 28, 1994.
17
<PAGE> 92
The Government Fund and the Treasury Only Fund commenced operations on June 4,
1990 as separate investment portfolios (the "Predecessor Government Funds" and
"Predecessor Treasury Only Funds," respectively) of First Cash Funds of America
and First Funds of America, which were organized as Massachusetts business
trusts. On March 1, 1993 the Predecessor Government Funds and Predecessor
Treasury Only Funds were reorganized as the Government Fund and Treasury Only
Fund, respectively, of the Company. Prior to this reorganization, these
Predecessor Funds offered and sold shares of beneficial interest that were
similar to the Company's Horizon Service and Pacific Horizon Shares. Pacific
Horizon Shares of the Funds are described in a separate Prospectus available
from the Distributor by calling (800) 332-3863.
The tables below set forth certain information concerning the investment results
of (i) Horizon Service Shares and Horizon Shares of the Government Fund and
Horizon Service Shares of the Treasury Only Fund for the years or period ended
February 28, 1994, February 28, 1995, February 29, 1996 and February 28, 1997;
(ii) shares of the Predecessor Government Fund and Predecessor Treasury Only
Fund of First Cash Funds of America, which offered and sold shares of beneficial
interest similar to the Company's Horizon Service Shares for the 11 month period
ended February 28, 1993, the fiscal year ended March 31, 1992 and the fiscal
period ended March 31, 1991; and (iii) Horizon Shares of the Treasury Only Fund
for the periods ended February 29, 1996 and February 28, 1997. The information
about the Government Fund and Treasury Only Fund has been audited by Price
Waterhouse LLP, independent accountants for these two Funds, whose unqualified
report thereon is incorporated by reference in the Statement of Additional
Information, which may be obtained upon request. The information about the
Predecessor Government Fund and Predecessor Treasury Only Fund has been audited
by other independent accountants for these Predecessor Funds for the periods
indicated, whose unqualified report dated March 1, 1993 expressed an unqualified
opinion on such financial statements. The Financial Highlights should be read in
conjunction with the financial statements and notes thereto and the unqualified
reports of the independent accountants which are incorporated by reference in
the Statement of Additional Information with respect to the Government and
Treasury Only Funds.
18
<PAGE> 93
Selected Data for a Horizon Share Outstanding Throughout Each of the Periods
Indicated:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOVERNMENT FUND
--------------------------------------------------------------------
FOR THE
PERIOD
JUNE 14, 1993
(INITIAL ISSUANCE
YEAR ENDED OF SHARES)
---------------------------------------------- THROUGH
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1997 1996 1995 1994
------------ ------------ ------------ -----------------
<S> <C> <C> <C> <C>
HORIZON SHARES:
Net asset value per share, beginning
of period......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- -------- -------- --------
Income From Investment Operations:
Net investment income............. 0.0513 0.0600 0.0454 0.0227
Net realized loss on securities... 0.0000 (0.0042)*** (0.0092) (0.0006)
------- -------- -------- --------
Total income from investment
operations..................... 0.0513 0.0558 0.0362 0.0221
Less Dividends:
Dividends from net investment
income......................... (0.0512) (0.0556) (0.0452) (0.0227)
------- -------- -------- --------
Increase due to voluntary capital
contribution from investment
adviser........................... 0.0000 0.0000 0.0085 0.0000
------- -------- -------- --------
Net change in net asset value per
share............................. 0.0001 0.0002 (0.0005) (0.0006)
------- -------- -------- --------
Net asset value per share, end of
period............................ $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======== ======== ========
Total return........................ 5.25% 5.71% 4.61%** 2.29%P
Ratios/Supplemental Data:
Net assets, end of period
(millions)..................... $ 61 $ 55 $ 235 $ 370
Ratio of expenses to average net
assets*........................ 0.22% 0.24% 0.17% 0.28%+
Ratio of net investment income to
average net assets*............ 5.15% 5.66% 4.67% 3.17%+
</TABLE>
- ---------------
* Includes fee waivers and expense reimbursements which had the effect of
reducing the ratio of expenses to average net assets and increasing the
ratio of net investment income to average net assets by 0.07%, 0.06%,
0.08% and 0.002% (annualized) for the years ended February 28, 1997,
February 29, 1996 and February 28, 1995 and the period ended
February 28, 1994, respectively. For the year ended February 28, 1997,
fees paid by third parties had no effect on the ratios.
** Total return includes the effect of a voluntary capital contribution from
the investment adviser. Without this capital contribution, the total
return would have been lower.
*** Net realized loss for the fiscal year ended February 29, 1996 is a direct
result of a decrease in outstanding shares between February 28, 1995 and
the date of the gain realization.
+ Annualized.
P Not annualized.
19
<PAGE> 94
Selected Data for a Horizon Service Share Outstanding Throughout Each of the
Periods Indicated:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOVERNMENT FUND PREDECESSOR GOVERNMENT FUND
------------------------------------------------------------ -----------------------------------------
MARCH 1, 1993 JUNE 4, 1990
(COMMENCEMENT (COMMENCEMENT
OF OF
OPERATIONS) 11 MONTH OPERATIONS)
YEAR ENDED YEAR ENDED YEAR ENDED TO PERIOD ENDED YEAR ENDED TO
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, MARCH 31, MARCH 31,
1997 1996 1995 1994 1993 1992 1991
------------ ------------ ------------ ------------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
HORIZON SERVICE SHARES:
Net asset value per
share, beginning of
period............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- --------
Income From Investment
Operations:
Net investment
income............. 0.0488 0.0537 0.0429 0.0300 0.0303 0.0507 0.0599
Net realized loss on
securities......... 0.0000 (0.0004)*** (0.0092) (0.0006) 0.0000 0.0000 0.0000
-------- -------- -------- -------- -------- -------- --------
Total income from
investment
operations......... 0.0488 0.0533 0.0337 0.0294 0.0303 0.0507 0.0599
Less Dividends:
Dividends from net
investment
income............. (0.0487) (0.0531) (0.0427) (0.0300) (0.0303) (0.0507) (0.0599)
-------- -------- -------- -------- -------- -------- --------
Increase due to
voluntary capital
contribution from
investment adviser... 0.0000 0.0000 0.0085 0.0000 0.0000 0.0000 0.0000
-------- -------- -------- -------- -------- -------- --------
Net change in net asset
value per share...... 0.0001 0.0002 (0.0005) (0.0006) 0.0000 0.0000 0.0000
-------- -------- -------- -------- -------- -------- --------
Net asset value per
share, end of
period............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== ========
Total return........... 4.98% 5.44% 4.35%** 3.04% 3.07%P 5.19% 6.15%P
Ratios/Supplemental
Data:
Net assets, end of
period
(millions)......... $ 263 $ 213 $ 289 $ 326 $ 229 $ 117 $ 327
Ratio of expenses to
average net
assets*............ 0.48% 0.49% 0.43% 0.48% 0.46%+ 0.46% 0.46%+
Ratio of net
investment income
to average net
assets*............ 4.89% 5.41% 4.32% 2.99% 3.22%+ 5.27% 6.67%+
</TABLE>
- ---------------
<TABLE>
<C> <S>
* Includes fee waivers and expense reimbursements which had the effect of reducing the ratio of expenses to average net assets
and increasing the ratio of net investment income to average net assets by 0.06%, 0.07%, 0.08% and 0.05% for the years ended
February 28, 1997, February 29, 1996, February 28, 1995 and February 28, 1994, respectively. Reflects the Predecessor
Government Fund's share of the expenses of the Government Money Trust, in which the assets of the Predecessor Government
Fund were invested, as well as a voluntary waiver of fees by affiliates of the Predecessor Government Fund and Trust. If the
voluntary expense waiver had not been in place, the annualized ratios of expenses to average net assets would have been
0.58%, 0.59% and 0.58% for the year or periods ended February 28, 1993, March 31, 1992 and March 31, 1991, respectively. For
the year ended February 28, 1997, fees paid by third parties had no effect on the ratios.
** Total return includes the effect of a voluntary capital contribution from the investment adviser. Without this capital
contribution, the total return would have been lower.
*** Net realized loss for the fiscal year ended February 29, 1996 is a direct result of a decrease in outstanding shares between
February 28, 1995 and the date of the gain realization.
+ Annualized.
P Not annualized.
</TABLE>
20
<PAGE> 95
Selected Data for a Horizon Share Outstanding Throughout Each of the Periods
Indicated:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TREASURY ONLY FUND
-----------------------------------
PERIOD
SEPTEMBER 20, 1995
YEAR ENDED (INCEPTION DATE
FEBRUARY 28, THROUGH
1997 FEBRUARY 29, 1996
------------ ------------------
<S> <C> <C>
HORIZON SHARES:
Net asset value per share, beginning of period....................................... $ 1.00 $ 1.00
-------- --------
Income from Investment Operations:
Net investment income.............................................................. 0.0490 0.0227
Net realized gain/(loss) on securities............................................. 0.0001 (0.0001)
-------- --------
Total income from investment operations............................................ 0.0491 0.0226
Less Dividends:
Dividends from net investment income............................................... (0.0490) (0.0227)
-------- --------
Net change in net asset value per share.............................................. 0.0001 (0.0001)
-------- --------
Net asset value per share, end of period............................................. $ 1.00 $ 1.00
======== ========
Total return......................................................................... 5.02% 2.30%P
Ratios/Supplemental Data:
Net assets, end of period (millions)............................................... $ 30 $ 7
Ratio of expenses to average net assets............................................ 0.27%++ 0.70%+*
Ratio of net investment income to average net assets............................... 4.94%++ 11.88%+*
</TABLE>
- ---------------
* There were no fee waivers or expense reimbursements during the period.
+ Annualized.
++ During the period, certain fees were voluntarily reduced and/or
reimbursed. Fees paid by third parties, however, had no effect on the
ratios.
P Not annualized.
21
<PAGE> 96
Selected Data for a Horizon Service Share Outstanding Throughout Each of the
Periods Indicated:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TREASURY ONLY FUND PREDECESSOR TREASURY ONLY FUND
---------------------------------------------------------- -----------------------------------------
MARCH 1, 1993 JUNE 4, 1990
(COMMENCEMENT (COMMENCEMENT
OF OF
YEAR ENDED OPERATIONS) 11 MONTH OPERATIONS)
------------------------------------------ TO PERIOD ENDED YEAR ENDED TO
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, MARCH 31, MARCH 31,
1997 1996 1995 1994 1993 1992 1991
------------ ------------ ------------ ------------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
HORIZON SERVICE SHARES:
Net asset value per
share, beginning of
period.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- --------
Income From Investment
Operations:
Net investment
income................ 0.0465 0.0502 0.0391 0.0273 0.0279 0.0486 0.0571
Net realized gain
(loss) on
securities............ 0.0001 0.0003 (0.0002) (0.0002) -- -- --
-------- -------- -------- -------- -------- -------- --------
Total income from
investment
operations............ 0.0466 0.0505 0.0389 0.0271 0.0279 0.0486 0.0571
Less Dividends:
Dividends from net
investment income..... (0.0465) (0.0502) (0.0391) (0.0273) (0.0279) (0.0486) (0.0571)
-------- -------- -------- -------- -------- -------- --------
Net change in net asset
value per share......... 0.0001 0.0003 (0.0002) (0.0002) 0.0000 0.0000 0.0000
-------- -------- -------- -------- -------- -------- --------
Net asset value per
share, end of period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== ========
Total return.............. 4.75% 5.14% 3.98% 2.76% 2.83%P 4.96% 5.86%P
Ratios/Supplemental Data:
Net assets, end of
period (millions)..... $ 260 $ 186 $ 194 $ 272 $ 124 $ 155 $ 129
Ratio of expenses to
average net assets*... 0.53% 0.56% 0.55% 0.39% 0.36%+ 0.36% 0.35%+
Ratio of net investment
income to average net
assets*............... 4.66% 5.01% 3.86% 2.73% 3.10%+ 4.74% 6.57%+
</TABLE>
- ---------------
* Includes fee waivers and/or reimbursements which had the effect of reducing
the ratio of expenses to average net assets and increasing the ratio of net
investment income to average net assets by 0.01% and 0.25% for the years
ended February 28, 1995 and February 28, 1994, respectively. For the year
ended February 28, 1997, fees paid by third parties had no effect on the
ratios. There were no fee waivers or expense reimbursements during the
fiscal year ended February 28, 1996. Reflects the Predecessor Treasury Only
Fund's share of the expenses of the Treasury Money Trust, in which the
assets of the Predecessor Treasury Only Fund were invested, as well as a
voluntary waiver of fees by affiliates of the Predecessor Treasury Only
Fund and Trust. If the voluntary expense waiver had not been in place, the
annualized ratios of expenses to average net assets would have been 0.61%,
0.60% and 0.64% for the year and periods ended February 28, 1993, March 31,
1992 and March 31, 1991, respectively.
+ Annualized.
P Not annualized.
22
<PAGE> 97
The Tax-Exempt Money Fund commenced operations on July 10, 1987 as a separate
investment portfolio (the "Predecessor Tax-Exempt Fund") of The Horizon Funds.
On January 19, 1990, the Predecessor Tax-Exempt Fund was reorganized as a new
portfolio of the Company. The Company has classified a Pacific Horizon Share
Class, Horizon Share Class, Horizon Service Share Class and S Share Class of the
Tax-Exempt Money Fund.
The tables below show the following information concerning the investment
results for Horizon Shares and Horizon Service Shares: (i) the investment
results of the Predecessor Tax-Exempt Fund for the periods ended on or before
April 30, 1989; (ii) the combined investment results of the Predecessor
Tax-Exempt Fund and the Tax-Exempt Money Fund for the period May 1, 1989 through
February 28, 1990; and (iii) the investment results of the Tax-Exempt Money Fund
for the fiscal years ended February 28, 1991, February 29, 1992, February 28,
1993, February 28, 1994, February 28, 1995, February 29, 1996 and February 28,
1997. The information contained in the Financial Highlights for the five years
ended February 28, 1997 has been audited by Price Waterhouse LLP, independent
accountants for the Predecessor Tax-Exempt Fund and the Tax-Exempt Money Fund.
Price Waterhouse LLP's unqualified report on the financial statements containing
such information is incorporated by reference into the Statement of Additional
Information. During the periods shown, the California Tax-Exempt Money Market
Fund did not offer Horizon Shares.
The Financial Highlights should be read in conjunction with the financial
statements and notes thereto and the unqualified report of the independent
accountants thereon which are incorporated by reference in the Statement of
Additional Information. Further information about the performance of the Funds
is available in the annual report to shareholders. Both the Statement of
Additional Information and the annual report to shareholders may be obtained
free of charge by calling 800-332-3863.
23
<PAGE> 98
Selected Data for a Horizon Share Outstanding Throughout Each of the Periods
Indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TAX-EXEMPT MONEY FUND++
-------------------------------------------------------------------------------
YEAR ENDED
-------------------------------------------------------------------------------
FEB. 28, FEB. 29, FEB. 28, FEB. 28, FEB. 28, FEB. 29, FEB. 28
1997 1996 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
HORIZON SHARES
Net asset value per share, beginning of period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income............................ 0.0322 0.0359 0.0285 0.0225 0.0269 0.0410 0.0557
Less dividends from net investment income........ (0.0322) (0.0359) (0.0285) (0.0225) (0.0269) (0.0410) (0.0557)
-------- -------- -------- -------- -------- -------- --------
Net change in net asset value per share.......... 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
-------- -------- -------- -------- -------- -------- --------
Net asset value per share, end of period ........ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== ========
Total return..................................... 3.27% 3.65% 2.89% 2.27% 2.72% 4.18% 5.71%
Ratios/Supplemental Data:
Net assets, end of period (millions)............. $ 264 $ 303 $ 382 $ 515 $ 384 $ 345 $ 428
Ratio of expenses to average net assets.......... 0.28% 0.31% 0.28% 0.28%** 0.28% 0.28% 0.27%**
Ratio of net investment income to average net
assets.......................................... 3.22% 3.58% 2.81% 2.25%** 2.69% 4.12% 5.54%**
<CAPTION>
TAX-EXEMPT MONEY FUND++
----------------------------------
MAY 1,
1989 YEAR PERIOD
THROUGH ENDED ENDED
FEB. 28, APRIL 30, APRIL 30,
1990 1989++ 1988++
-------- --------- ---------
<S> <C> <C> <C>
HORIZON SHARES
Net asset value per share, beginning of period... $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Income from Investment Operations:
Net investment income............................ 0.0503 0.0577 0.0392
Less dividends from net investment income........ (0.0503) (0.0577) (0.0389)
-------- -------- --------
Net change in net asset value per share.......... 0.0000 0.0000 0.0003
-------- -------- --------
Net asset value per share, end of period ........ $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total return..................................... 5.15%P 5.93% 3.92%P
Ratios/Supplemental Data:
Net assets, end of period (millions)............. $ 356 $ 179 $ 104
Ratio of expenses to average net assets.......... 0.21%**+ 0.21%** 0.20%**+
Ratio of net investment income to average net
assets.......................................... 5.96%**+ 5.84%** 5.17%**+
</TABLE>
- ---------------
* For the period July 10, 1987 (commencement of operations) through
April 30, 1988.
** Includes fee waivers and expense reimbursements. Such fee waivers and
expense reimbursements had the effect of reducing the ratio of expenses
to average net assets and increasing the ratio of net investment income
to average net assets by 0.01% , 0.02%, 0.07% (annualized), 0.19% and
0.23% (annualized) for the years or periods ended February 28, 1994,
February 28, 1991, February 28, 1990, April 30, 1989 and April 30, 1988,
respectively.
+ Annualized.
++ This information represents the results of operations of the former
Horizon Tax-Exempt Money Fund, the assets and liabilities of which were
transferred to the Pacific Horizon Funds, Inc.--Tax-Exempt Money Fund on
January 19, 1990. See Note 1 to the financial statements which are
incorporated by reference into the Statement of Additional Information.
++ Security Pacific National Bank served as investment adviser through
April 21, 1992. Bank of America National Trust and Savings Association
served as investment adviser commencing April 22, 1992.
P Not annualized.
24
<PAGE> 99
Selected Data for a Horizon Service Share Outstanding Throughout Each of the
Periods Indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TAX-EXEMPT MONEY FUND++
-------------------------------------------------------------------------------
YEAR ENDED
-------------------------------------------------------------------------------
FEB. 28, FEB. 29, FEB. 28, FEB. 28, FEB. 28, FEB. 29, FEB. 28,
1997 1996 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
HORIZON SERVICE SHARES
Net asset value per share,
beginning of period........................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income......................... 0.0297 0.0334 0.0260 0.0200 0.0244 0.0385 0.0532
Less dividends from net
investment income............................. (0.0297) (0.0334) (0.0260) (0.0200) (0.0244) (0.0385) (0.0532)
Net change in net asset
value per share............................... 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
-------- -------- -------- -------- -------- -------- --------
Net asset value per share,
end of period................................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== ========
Total return................................... 3.01% 3.39% 2.63% 2.02% 2.47% 3.92% 5.45%
Ratios/supplemental data:
Net assets, end of period (millions).......... $ 169 $ 35 $ 39 $ 48 $ 50 $ 47 $ 54
Ratio of expenses to
average net assets.......................... 0.53% 0.56% 0.53% 0.53%** 0.53% 0.53% 0.52%**
Ratio of net investment income
to average net assets....................... 2.98% 3.34% 2.57% 2.04%** 2.42% 3.88% 5.29%**
<CAPTION>
TAX-EXEMPT MONEY FUND++
----------------------------------
MAY 1,
1989 YEAR PERIOD
THROUGH ENDED ENDED
FEB. 28, APRIL 30, APRIL 30,
1990 1989++ 1988*++
-------- --------- ---------
<S> <C> <C> <C>
HORIZON SERVICE SHARES
Net asset value per share,
beginning of period........................... $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Income from Investment Operations:
Net investment income......................... 0.0482 0.0552 0.0090
Less dividends from net
investment income............................. (0.0482) (0.0552) (0.0090)
Net change in net asset
value per share............................... 0.0000 0.0000 0.0000
-------- -------- --------
Net asset value per share,
end of period................................. $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total return................................... 4.93% 5.66% 0.90%
Ratios/supplemental data:
Net assets, end of period (millions).......... $ 37 $ 179 $ 104
Ratio of expenses to
average net assets.......................... 0.46%**+ 0.46%** 0.45%**+
Ratio of net investment income
to average net assets....................... 5.73%**+ 5.70%** 4.54%**+
</TABLE>
- ---------------
* For the period February 18, 1988 (initial offering day) through
April 30, 1988.
** Includes fee waivers and expense reimbursements. Such fee waivers and
expense reimbursements had the effect of reducing the ratio of expenses
to average net assets and increasing the ratio of net investment income
to average net assets by 0.04% , 0.02%, 0.07% (annualized), 0.19% and
0.16% (annualized) for the years or periods ended February 28, 1994,
February 28, 1991, February 28, 1990, April 30, 1989 and April 30, 1988,
respectively.
+ Annualized.
++ This information represents the results of operations of the former
Horizon Tax-Exempt Money Fund, the assets and liabilities of which were
transferred to the Pacific Horizon Funds, Inc. -- Horizon Tax-Exempt Money
Fund on January 19, 1990.
++ Security Pacific National Bank served as investment adviser through April
21, 1992. Bank of America National Trust and Savings Association served as
investment adviser commencing April 22, 1992.
25
<PAGE> 100
YIELD INFORMATION. From time to time the "yield" or "effective yield" of a Fund
may be quoted in advertisements or reports to shareholders. Both yield figures
are based on historical earnings and are not intended to indicate future
performance. The "yield" of a Fund refers to the income generated by an
investment in the Fund over a seven-day period (which period will be stated in
the advertisement or report). This income is then "annualized," that is, the
amount of income generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a percentage of the
investment. The "effective yield" is calculated similarly but, when annualized,
the income earned by an investment in the Fund is assumed to be reinvested. The
"effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment. A Fund's "tax-equivalent yield"
shows the level of taxable yield needed to produce an after-tax equivalent to
the Fund's tax-free yield. This is done by increasing the Fund's yield
(calculated as above) by the amount necessary to reflect the payment of federal,
and in the case of the California Tax-Exempt Money Market Fund, California
income tax at a stated tax rate. A Fund's "tax-equivalent yield" will always be
higher than its yield.
Additionally, the yields of each Fund may be compared to those of other mutual
funds with similar investment objectives and to other relevant indices or to
rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
Funds' yields may be compared to IBC Financial Data, Inc.'s ("IBC") Tax-Free
Money Fund Average and IBC's Money Fund Averages, which are averages compiled by
IBC's Money Fund Report.Yield data as reported in national financial
publications, including Money, Forbes, Barron's, The Wall Street Journal and The
New York Times, or in publications of a local or regional nature, may also be
used in comparing the yields of the Funds. A complete listing of the indices,
rankings and publications discussed above is contained in the Statement of
Additional Information.
Since yields fluctuate, yield data cannot necessarily be used to compare an
investment in the shares of a Fund with bank deposits, savings accounts and
similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that yield
is generally a function of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses and market conditions. Any
fees charged by the Investment Adviser or institutional investors directly to
their customer accounts in connection with investments in shares of the Funds
(which fees may include, for example, account maintenance fees, compensating
balance requirements or fees based upon account transactions, assets or income)
will not be included in the Funds' calculations of yield.
INVESTMENT OBJECTIVES AND POLICIES
This section describes the investment objective and policies of each Fund.
Assets of the Funds will be invested in dollar-denominated debt securities with
remaining maturities of thirteen months or less as defined by the Securities and
Exchange Commission, and the dollar-weighted average portfolio maturity of each
Fund will not exceed 90 days. All securities acquired by the Funds will be
determined by the investment adviser, under guidelines established by the
Company's Board of Directors, to present minimal credit risks. Securities
acquired by the Prime, Treasury, Government and Treasury Only Funds will be U.S.
Government securities or other "First Tier Securities" (as defined by the
Securities and Exchange Commission) of the types described below. Securities
acquired by the Tax-Exempt Money Fund, under normal circumstances, will be First
Tier Securities of the types defined below. During temporary defensive periods
or if in the investment adviser's opinion suitable First Tier Securities are not
available for investment,
26
<PAGE> 101
however, the Tax-Exempt Money Fund may also acquire "Eligible Securities" (as
defined by the Securities and Exchange Commission) of the types defined below.
Securities acquired by the California Tax-Exempt Money Market Fund will be
Eligible Securities. First Tier Securities consist of instruments that are
either rated at the time of purchase in the top rating category by one (if rated
by only one) or more unaffiliated nationally recognized statistical rating
organizations ("NRSROs") including Standard and Poor's Ratings Group, Division
of McGraw-Hill ("Standard & Poor's"), Moody's Investors Service, Inc.
("Moody's"), Duff & Phelps Credit Co. ("Duff & Phelps"), Thomson BankWatch, Inc.
("Thomson's") or Fitch Investors Service, Inc. ("Fitch") or are issued by
issuers with such ratings. Eligible Securities consist either of instruments
that are rated at the time of purchase in the top two rating categories by one
or more NRSRO's, or are issued by issuers with such ratings. The Appendix to the
Statement of Additional Information includes a description of the applicable
NRSRO ratings. Unrated instruments (including instruments with long-term but no
short-term ratings) purchased by a particular Fund will be of comparable quality
to the rated instruments that the Fund may purchase, as determined by the Funds'
investment adviser pursuant to guidelines approved by the Board of Directors.
PRIME FUND. The Prime Fund's investment objective is to seek high current
income and stability of principal. The Fund invests substantially all of its
assets in a diversified portfolio of U.S. dollar-denominated money market
instruments such as bank certificates of deposit and bankers' acceptances,
commercial paper (including variable and floating rate instruments) and
repurchase agreements, in addition to obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities. Portfolio securities held by
the Fund have remaining maturities of thirteen months or less from the date of
purchase by the Fund. (Portfolio securities which are subject to repurchase
agreements or have certain put or demand features exercisable by the Fund within
thirteen months, as well as certain U.S. Government obligations with floating or
variable interest rates, may have longer maturities.)
In pursuing its investment objective, the Prime Fund invests in a broad range of
government, bank and commercial obligations that may be available in the money
markets. The money market instruments in which the Fund invests will generally
have neither as much risk nor as high a return as longer-term or lower-rated
instruments. In accordance with current regulations of the Securities and
Exchange Commission, the Fund intends to limit its investments in the securities
of any single issuer (other than securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities) to not more than 5% of the Fund's
total assets at the time of purchase, provided that the Fund may invest up to
25% of its total assets in the securities of any one issuer for a period of up
to three business days.
The Prime Fund may purchase bank obligations such as certificates of deposit and
bankers' acceptances issued or supported by the credit of domestic banks,
foreign branches of domestic banks ("Euro CDs") or domestic branches of foreign
banks ("Yankee CDs" and "Yankee BAs") or foreign branches of foreign banks
("Yankee Euros"). Such banks must have total assets at the time of purchase in
excess of $2.5 billion. No more than 25% of the Prime Fund's total assets at the
time of purchase may be invested in Yankee CDs and BAs, Euro CDs and Yankee
Euros. The Fund may also make interest-bearing savings deposits in such
commercial banks in amounts not in excess of 5% of the Fund's total assets.
The Prime Fund may be subject to additional investment risks because the Fund
may hold securities issued by foreign branches of domestic banks, domestic
branches of foreign banks and foreign branches of foreign banks (and, as
described below, commercial paper issued by foreign issuers). These risks are
different in some respects from those incurred by a fund which
27
<PAGE> 102
invests only in debt obligations of U.S. domestic issuers. Such risks include
future political and economic developments, the possible imposition of
withholding taxes on interest income payable on the securities by the particular
country in which the branch is located, the possible seizure or nationalization
of foreign deposits, the possible establishment of exchange controls or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on these securities. In addition, foreign
branches of domestic banks, domestic branches of foreign banks and foreign
branches of foreign banks are not necessarily subject to the same regulatory
requirements that apply to domestic branches of domestic banks (such as reserve
requirements, loan limitations, examinations, accounting, auditing and
recordkeeping requirements, and public availability of information) and the Fund
may experience difficulties in obtaining or enforcing a judgment against the
issuing bank.
The Prime Fund may purchase commercial paper, short-term notes and corporate
bonds that meet the Fund's maturity limitations. Commercial paper purchased by
the Prime Fund may include instruments issued by foreign issuers, such as
Canadian Commercial Paper ("CCP"), which is U.S. dollar-denominated commercial
paper issued by a Canadian corporation or a Canadian counterpart of a U.S.
corporation, and Europaper, which is U.S. dollar-denominated commercial paper of
a foreign issuer.
The Prime Fund may also invest in commercial paper issued in reliance on the
so-called "private placement" exemption from registration afforded by Section
4(2) of the Securities Act of 1933 ("Section 4(2) paper"). Section 4(2) paper is
restricted as to disposition under the Federal securities laws and generally is
sold to institutional investors such as the Prime Fund that agree that they are
purchasing the paper for investment and not with a view to public distribution.
Any resale by the purchaser must be in an exempt transaction. Section 4(2) paper
normally is resold to other institutional investors like the Prime Fund through
or with the assistance of the issuer or investment dealers that make a market in
Section 4(2) paper. Section 4(2) paper will not be subject to the Fund's 10%
limitation on illiquid securities set forth below where the Board of Directors
or Bank of America (pursuant to guidelines adopted by the Board) determines that
a liquid trading market exists.
TREASURY FUND. The Treasury Fund's investment objective is to seek high current
income and stability of principal. The Fund invests solely in direct obligations
issued by the U.S. Treasury and repurchase agreements relating to such Treasury
obligations. Portfolio securities which are subject to repurchase agreements may
have remaining maturities of longer than thirteen months.
Examples of the types of U.S. Treasury obligations that may be held by the
Treasury Fund include U.S. Treasury bills and notes. Under normal market
conditions, 100% of the total assets of the Fund will be invested in direct
obligations of the U.S. Treasury and repurchase agreements relating to such
Treasury obligations. Securities issued by the U.S. Government have historically
involved little risk of loss of principal if held to maturity and, in general,
the instruments held by the Fund will have neither as much risk nor as high a
return as longer term or non-U.S. Government obligations.
GOVERNMENT FUND. The investment objective of the Government Fund is to provide
liquidity and as high a level of current income as is consistent with the
preservation of capital. The Government Fund seeks to achieve this objective by
investing in short-term debt obligations issued or guaranteed as to interest and
principal by the U.S. Government, its agencies, authorities or instrumentalities
and in repurchase agreements with respect to such obligations.
The Government Fund may purchase certain agency securities (such as guaranteed
notes of the Federal Aviation Administration, Department of Defense, Bureau of
Indian Affairs and Private Export Funding Corporation) which often provide
higher yields than are available from the
28
<PAGE> 103
more common types of government-backed investments. However, such specialized
investments may only be available from a few sources, in limited amounts, or
only in very large denominations; they may also require specialized capability
in portfolio servicing and in legal matters related to government guarantees.
While frequently offering attractive yields, the limited-activity markets of
many of these securities means that if the Government Fund were required to
liquidate any of them it might not be able to do so advantageously; accordingly,
the Government Fund intends normally to hold such securities to maturity or
pursuant to repurchase agreements, and would limit its investment in such
securities (as well as repurchase agreements maturing in more than seven days)
to not more than 10% of the Fund's net assets.
TREASURY ONLY FUND. The investment objective of the Treasury Only Fund is to
provide liquidity and as high a level of current income as is consistent with
the preservation of capital. The Treasury Only Fund seeks to achieve this
objective by investing solely in obligations of the U.S. Treasury. U.S. Treasury
securities are backed by the "full faith and credit" of the U.S. Government.
U.S. Treasury securities include Treasury bills, Treasury notes and Treasury
bonds. While U.S. Treasury securities are guaranteed as to the timely payment of
principal and interest, the market value of such obligations is not guaranteed
and may rise and fall in response to changes in interest rates.
To increase income on portfolio securities, the Treasury Only Fund may lend its
portfolio securities to broker-dealers, banks and other institutional investors
pursuant to agreements requiring that the loans be continuously secured by
collateral equal at all times in value to at least the market value of the
securities loaned plus accrued interest. Collateral for such loans may include
cash or securities of the U.S. Treasury. Such loans will not be made if, as a
result, the aggregate of all outstanding loans of the Fund exceeds 33% of the
value of its total assets. There may be risks of delay in receiving additional
collateral or in recovering the securities loaned or even a loss of rights in
the collateral should the borrower of the securities fail financially. Loans
will be made only to borrowers deemed by the adviser to be of good standing and
when, in the adviser's judgment, the income to be earned from the loan justifies
the attendant risks.
TAX-EXEMPT MONEY FUND. The Tax-Exempt Money Fund's investment objective is to
provide as high a level of current interest income exempt from federal income
taxes as is consistent with relative stability of principal. The Fund invests
substantially all of its assets in a diversified portfolio of U.S.
dollar-denominated short-term obligations issued by or on behalf of states,
territories and possessions of the United States, the District of Columbia and
their political subdivisions, agencies, instrumentalities and authorities, the
interest on which, in the opinion of bond counsel to the issuer, is exempt from
regular federal income tax ("Municipal Securities"). Portfolio securities held
by the Fund have remaining maturities of thirteen months or less from the date
of purchase by the Fund. Portfolio securities which have certain put or demand
features exercisable by the Fund within thirteen months or are subject to
repurchase agreements may have longer maturities.
As a matter of fundamental policy, under normal market conditions at least 80%
of the Fund's total assets will be invested in Municipal Securities (other than
private activity bonds, the interest on which is treated as a specific tax
preference item under the federal alternative minimum tax). The Fund may also
invest in taxable obligations and may hold uninvested cash reserves pending
investment, during temporary defensive periods or if, in the opinion of the
Fund's investment adviser, suitable tax-exempt obligations are not available.
Uninvested cash reserves will not earn income. Taxable obligations acquired by
the Fund will not exceed under normal market conditions 20% of the Fund's total
assets at the time of purchase. Such taxable obligations include obligations
issued or guaranteed by the
29
<PAGE> 104
U.S. Government, its agencies or instrumentalities (some of which may be subject
to repurchase agreements), certificates of deposit and bankers' acceptances of
selected banks and commercial paper. Because the Fund may invest in securities
backed by banks and other financial institutions, changes in the credit quality
of these institutions could cause losses to the Fund and affect its share price.
These obligations are described further in the Statement of Additional
Information.
CALIFORNIA TAX-EXEMPT MONEY MARKET FUND. The California Tax-Exempt Money Market
Fund's investment objective is to seek as high a level of current interest
income free of federal income tax and California state personal income tax as is
consistent with the preservation of capital and relative stability of principal.
The Fund's assets are primarily invested in Municipal Securities issued by or on
behalf of the State of California and other governmental issuers. Municipal
Securities acquired by the Fund will generally have remaining maturities of
thirteen months or less.
As a matter of fundamental policy, under normal market conditions at least 80%
of the Fund's net assets will be invested in Municipal Securities the interest
on which is exempt from taxation under the California Constitution or the laws
of California ("California Municipal Securities"). So long as at least 50% of
the Fund's total assets are invested in debt obligations the interest on which
is exempt from taxation by the state of California ("California Exempt
Securities," which generally are limited to California Municipal Securities and
certain U.S. Government and U.S. Possession obligations) as of the end of each
quarter, dividends paid by the Fund which are derived from interest on
California Exempt Securities will be exempt from California state personal
income tax; if this policy is not achieved, no portion of the Fund's dividends
will be exempt from California state personal income tax. Dividends derived from
interest on Municipal Securities other than California Municipal Securities will
be subject to California state personal income tax. See "Taxes."
The Fund may hold uninvested cash reserves pending investment, during temporary
defensive periods, or if, in the opinion of the Fund's investment adviser,
suitable tax-exempt obligations are unavailable. In accordance with the Fund's
investment objective, and subject to the Fund's fundamental policy that under
normal market conditions 80% of its net assets be invested in California
Municipal Securities, investments may be made in taxable obligations of up to
thirteen months in maturity if, for example, suitable tax-exempt obligations are
unavailable or if acquisition of U.S. Government or other taxable securities is
deemed appropriate for temporary defensive purposes. Such taxable obligations
include, without limitation, obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (some of which may be subject to
repurchase agreements), certificates of deposit and bankers' acceptances of
selected banks and commercial paper. Because the California Tax-Exempt Money
Market Fund may invest in securities backed by banks and other financial
institutions, changes in the credit quality of these institutions could cause
losses to the Fund and affect its share price. These obligations are further
described in the Statement of Additional Information. Under normal market
conditions, the Fund anticipates that not more than 5% of its net assets will be
invested in any one category of taxable securities. Additionally, the Fund will
not invest more than 10% of its net assets in securities that are illiquid
because of the absence of a readily available market or otherwise, including
repurchase agreements providing for settlement more than seven days after
notice.
MUNICIPAL SECURITIES
The two principal classifications of Municipal Securities which may be held by
the Tax-Exempt Money and the California Tax-Exempt Money Market Funds (the
"Tax-Exempt Funds") are "general obligation" securities and "revenue
securities". General obligation securities are secured by the issuer's pledge of
its full faith, credit and taxing power for the payment of
30
<PAGE> 105
principal and interest. Revenue securities are payable only from the revenues
derived from a particular facility or class of facilities or, in some cases,
from the proceeds of a special excise tax or other specific revenue source such
as the user of the facility being financed. Private activity bonds held by the
Tax-Exempt Funds are in most cases revenue securities, which are not payable
from the unrestricted revenues of the issuers. Consequently, the credit quality
of such private activity bonds is usually directly related to the credit ratings
of the users of the facility involved. The Tax-Exempt Funds may also acquire
"moral obligation" securities, which are normally issued by special purpose
public authorities. If the issuer of moral obligation securities is unable to
meet its debt service obligations from current revenues, it may draw on a
reserve fund, the restoration of which is a moral commitment but not a legal
obligation of the state or municipality which created the issuer.
Municipal Securities include debt obligations issued by governmental entities to
obtain funds for various public purposes, including the construction of a wide
range of public facilities, the refunding of outstanding obligations, the
payment of general operating expenses and the extension of loans to public
institutions and facilities. In addition, certain types of private activity
bonds are issued by or on behalf of public authorities to finance various
privately-operated facilities. Such obligations are included within the term
Municipal Securities if the interest paid thereon is exempt from regular federal
income tax. Municipal Securities also include short-term tax anticipation notes,
bond anticipation notes, revenue anticipation notes and other forms of
short-term loan obligations. Such notes are issued with a short-term maturity in
anticipation of the receipt of tax funds, the proceeds of bond placements or
other revenues. The Tax-Exempt Funds may also purchase tax-exempt commercial
paper.
Securities acquired by the Tax-Exempt Funds may be in the form of custodial
receipts evidencing rights to receive a specific future interest payment,
principal payment or both on certain Municipal Securities. Such obligations are
held in custody by a bank on behalf of holders of the receipts. These custodial
receipts are known by various names, including "Municipal Receipts," "Municipal
Certificates of Accrual on Tax-Exempt Securities" ("M-CATS") and "Municipal
Zero-Coupon Receipts." A Tax-Exempt Fund may also purchase from time to time
participation interests in debt securities held by trusts or financial
institutions. A participation interest gives a Fund involved an undivided
interest (up to 100%) in the underlying obligation. Participation interests
purchased by a Fund may have fixed, floating or variable rates of interest, and
will have remaining maturities of thirteen months or less as determined in
accordance with the regulations of the Securities and Exchange Commission
(although the securities held by the issuer may have longer maturities). If a
participation interest is unrated, the investment adviser will have determined
that the interest is of comparable quality to those instruments in which the
Tax-Exempt Fund involved may invest pursuant to guidelines approved by the
Company's Board of Directors. For certain participation interests, the
Tax-Exempt Fund involved will have the right to demand payment, on not more than
30 days' notice, for all or any part of such participation interest, plus
accrued interest. As to these instruments, the Tax-Exempt Funds intend to
exercise their right to demand payment as needed to provide liquidity, to
maintain or improve the quality of their respective investment portfolios or
upon a default (if permitted under the terms of the instrument). Although a
participation interest may be sold by a Fund under normal circumstances they
will be held until maturity.
Opinions relating to the validity of Municipal Securities and to the exemption
of interest thereon from regular federal income tax (and, with respect to
California Municipal Securities, California state personal income tax) are
rendered by bond counsel to the respective issuers at the time of issuance.
Neither the Tax-Exempt Funds nor their investment adviser will review the
proceedings relating to the issuance of
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Municipal Securities or the basis for such opinions.
COMMON INVESTMENT POLICIES
GOVERNMENT OBLIGATIONS. The Prime Fund, Government Fund, Tax-Exempt Money Fund
and California Tax-Exempt Money Market Fund may purchase obligations issued or
guaranteed by the U.S. Government or its agencies and instrumentalities.
Obligations of certain agencies and instrumentalities of the U.S. Government,
such as the Small Business Administration, are backed by the full faith and
credit of the United States. Others are backed by the right of the issuer to
borrow from the U.S. Treasury (such as obligations of the Federal Home Loan
Bank), by the discretionary authority of the U.S. Government to purchase the
agency's obligations (such as obligations of the Federal National Mortgage
Association), or only by the credit of the agency or instrumentality issuing the
obligation (such as the Student Loan Marketing Association). Securities issued
or guaranteed by the U.S. Government and its agencies and instrumentalities have
historically involved little risk of loss of principal if held to maturity.
However, no assurance can be given that the U.S. Government would provide
financial support to any agency or instrumentality if it is not obligated to do
so by law.
Certain securities issued or guaranteed by all governmental agencies may be
prepaid by the issuer without penalty. Thus, when prevailing interest rates
decline, the value of these securities is not likely to rise on a comparable
basis with other debt securities that are not so prepayable. The proceeds of
prepayments and scheduled payments of principal of these securities will be
reinvested by a Fund at then-prevailing interest rates, which may be lower than
the rate of interest on the securities on which these payments were received.
"STRIPPED" SECURITIES. Each Fund may invest in "stripped" securities, which are
U.S. Treasury bonds and notes the unmatured interest coupons of which have been
separated from the underlying principal obligation. Stripped securities are zero
coupon obligations that are normally issued at a discount to their "face value,"
and may exhibit greater price volatility than ordinary debt securities because
of the manner in which their principal and interest are returned to investors.
The Treasury and Treasury Only Funds may only invest in stripped securities
issued by the U.S. Treasury and recorded in the Federal Reserve book-entry
record-keeping system. The Government Fund may invest no more than 35% of its
assets in stripped securities that have been stripped by their holder, typically
a custodian bank or investment brokerage firm. A number of securities firms and
banks have stripped the interest coupons and resold them in custodian receipt
programs with different names such as Treasury Income Growth Receipts ("TIGRs")
and Certificates of Accrual on Treasuries ("CATS"). The Government Fund intends
to rely on the opinions of counsel to the sellers of these certificates or other
evidences of ownership of U.S. Treasury obligations that, for Federal tax and
securities purposes, purchasers of such certificates most likely will be deemed
the beneficial holders of the underlying U.S. Government obligations.
Privately-issued stripped securities such as TIGRs and CATS are not themselves
guaranteed by the U.S. Government, but the future payment of principal or
interest on U.S. Treasury obligations which they represent is so guaranteed.
REPURCHASE AGREEMENTS. Each Fund (other than the Treasury Only Fund) may agree
to purchase securities from financial institutions, such as banks and
broker-dealers, as are deemed creditworthy by the Company's investment adviser
under guidelines approved by the Board of Directors, subject to the seller's
agreement to repurchase them at an agreed upon time and price ("repurchase
agreements"). Although the securities subject to a repurchase agreement may bear
maturities exceeding thirteen months, each Fund intends only to enter into
repurchase agreements having maturities not exceeding 60 days. Securities
subject to repurchase agreements
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are held either by the Company's custodian or sub-custodian, or in the Federal
Reserve/Treasury Book-Entry System. The seller under a repurchase agreement will
be required to deliver instruments the value of which is greater than the
repurchase price. Default by the seller would, however, expose a Fund to
possible loss because of adverse market action or delay in connection with the
disposition of the underlying obligations. Repurchase agreements are considered
to be loans under the Investment Company Act of 1940.
REVERSE REPURCHASE AGREEMENTS. The Funds may borrow monies for temporary
purposes by entering into reverse repurchase agreements in accordance with the
investment restrictions described below. Pursuant to such agreements, a Fund
would sell portfolio securities to banks, and with respect to the Prime and
Treasury Funds, other financial institutions, and agree to repurchase them at an
agreed upon date and price. At the time a Fund enters into a reverse repurchase
agreement, it will place in a segregated custodial account liquid assets or high
grade debt securities having a value equal to or greater than the repurchase
price and the Company's investment adviser will continuously monitor the account
to ensure that the value is maintained. A Fund would only enter into reverse
repurchase agreements to avoid otherwise selling securities during unfavorable
market conditions to meet redemptions. Reverse repurchase agreements involve the
risk that the market value of the portfolio securities sold by a Fund may
decline below the price of the securities such Fund is obligated to repurchase.
Interest paid by a Fund in connection with a reverse repurchase agreement will
reduce the net investment income of such Fund. Reverse repurchase agreements are
considered to be borrowings under the Investment Company Act of 1940. Neither
the Tax-Exempt Money Fund nor the California Tax-Exempt Money Market Fund will
purchase securities while it has borrowings (including reverse repurchase
agreements) outstanding.
VARIABLE AND FLOATING RATE INSTRUMENTS. Securities purchased by a Fund may
include variable and floating rate instruments, which may have a stated maturity
in excess of a Fund's maturity limitations but which will, except for certain
U.S. Government obligations, permit a Fund to demand payment of the principal of
the instrument at least once every thirteen months upon not more than thirty
days' notice. Variable and floating rate instruments purchased by the Government
Fund will be U.S. Government agency securities with stated maturities of
typically up to 10 years, although stated maturities of up to 30 years are
possible. Variable and floating rate instruments may include variable amount
master demand notes that permit the indebtedness thereunder to vary in addition
to providing for periodic adjustments in the interest rate. There may be no
active secondary market with respect to a particular variable or floating rate
instrument. Nevertheless, the periodic readjustments of their interest rates
tend to assure that their value to a Fund will approximate their par value.
Illiquid variable and floating rate instruments (instruments which are not
payable upon seven days notice and do not have an active trading market) that
are acquired by the Funds are subject to a Fund's percentage limitations
regarding securities that are illiquid or not readily marketable. The Funds'
investment adviser will continuously monitor the creditworthiness of issuers of
variable and floating rate instruments in which the Funds invest, and their
ability to repay principal and interest.
Variable and floating rate instruments purchased by the Prime, Treasury,
Government and Treasury Only Funds may include participation certificates issued
by trusts or financial institutions in variable and floating rate obligations
owned by such issuers or affiliated organizations. A participation certificate
gives a Fund a specified undivided interest (up to 100%) in the underlying
obligation and the right to demand payment of the unpaid principal balance plus
accrued interest on the participation interest from the institution upon a
specified number of days' notice. If
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the credit of the obligor is of minimal credit risk, no credit support from a
bank or other financial institution will be necessary. In other circumstances,
the participation certificate will be backed by an irrevocable letter of credit
or guarantee of a bank, or will be insured by an insurer, that the Funds'
investment adviser has determined meets the quality standards for the Fund
involved. If an interest is backed by an irrevocable letter of credit or
guarantee of a bank or is insured as described above, a Fund will usually have
the right to sell the interest back to the institution or draw on the letter of
credit or insurance policy on demand after a specified notice period, for all or
any part of the principal amount of the interest plus accrued interest. Although
a participation interest may be sold by a Fund, under normal circumstances they
will be held until maturity.
The Prime, Treasury, Government and Treasury Only Funds may also invest in
obligations which provide for a variable or floating interest rate which is
determined through a periodic "auction process." From time to time, holders of
the obligations have the right to tender any such obligations to a remarketing
agent which then remarkets the obligations which have been tendered and thereby
determines a new interest rate for the following period.
WHEN-ISSUED PURCHASES, FORWARD COMMITMENTS AND DELAYED SETTLEMENTS. The Funds
may purchase securities on a "when-issued" basis and may purchase or sell
securities on a "forward commitment" or "delayed settlement" basis. When-issued
and forward commitment transactions, which involve a commitment by a Fund to
purchase or sell particular securities with payment and delivery taking place at
a future date (perhaps one or two months later), permit a Fund to lock in a
price or yield on a security it owns or intends to purchase or sell, regardless
of future changes in interest rates. Delayed settlement describes a securities
transaction in a secondary market for which settlement will occur sometime in
the future. When-issued, forward commitment and delayed settlement transactions
involve the risk, however, that the yield or price obtained in a transaction may
be less favorable than the yield or price available in the market when the
securities delivery takes place. The Funds' forward commitments, when-issued
purchases and delayed settlements are not expected to exceed 25% of the value of
the total assets of a particular Fund absent unusual market conditions. A Fund's
liquidity and the ability of its investment adviser to manage its portfolio may
be adversely affected in the event a Fund's forward commitments, commitments to
purchase when-issued securities and delayed settlements ever exceed 25% of the
value of its total assets. The Funds do not intend to engage in these
transactions for speculative purposes but only in furtherance of their
investment objectives.
STAND-BY COMMITMENTS. The Tax-Exempt Funds may acquire "stand-by commitments"
with respect to Municipal Securities held in their respective portfolios. Under
a stand-by commitment, a dealer agrees to purchase at a Fund's option specified
Municipal Securities at a specified price. The Funds will acquire stand-by
commitments solely to facilitate portfolio liquidity and do not intend to
exercise their rights thereunder for trading purposes. The Funds expect that
"stand-by commitments" will generally be available without the payment of any
direct or indirect consideration. However, if necessary or advisable, a Fund may
pay for a "stand-by commitment" either separately in cash or by paying a higher
price for portfolio securities which are acquired subject to the commitment
(thus reducing the yield to maturity otherwise available for the same
securities).
SPECIAL CONSIDERATIONS AND RISKS
In seeking to achieve their respective investment objectives the Tax-Exempt
Funds may invest in Municipal Securities that are private activity bonds the
interest on which, although exempt from regular federal income tax, may
constitute an item of tax preference for purposes of the federal alternative
minimum tax. See "Taxes." Investments in such securities, however, will not
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exceed under normal market conditions 20% of such Fund's total assets when added
together with any taxable investments held by such Fund. Moreover, although
these Funds do not presently intend to do so on a regular basis, they may invest
more than 25% of their respective assets in Municipal Securities the interest on
which is paid solely from revenues of similar projects if such investment is
deemed necessary or appropriate by the investment adviser. Additionally,
although the Tax-Exempt Money Fund may invest more than 25% of its assets in
Municipal Securities the issuers of which are located in the same state, it does
not presently intend to do so on a regular basis other than issuers located in
California. To the extent a Fund's assets are concentrated in Municipal
Securities payable from revenues on similar projects or issued by issuers
located in the same state, the Fund will be subject to the peculiar economic,
political and business risks presented by the laws and economic conditions
relating to such states and projects to a greater extent than it would be if its
assets were not so concentrated.
The California Tax-Exempt Money Market Fund is classified as a non-diversified
investment company under the Investment Company Act of 1940. Investment return
on a non-diversified portfolio typically is dependent upon the performance of a
smaller number of securities relative to the number held in a diversified
portfolio. Consequently, the change in value of any one security may affect the
overall value of a non-diversified portfolio more than it would a diversified
portfolio, and thereby subject the market-based net asset value per share of the
non-diversified portfolio to greater fluctuations. In addition, a
non-diversified portfolio may be more susceptible to economic, political and
regulatory developments than a diversified investment portfolio with similar
objectives may be.
The California Tax-Exempt Money Market Fund is, and the Tax-Exempt Money Fund
may be, concentrated in securities issued by the State of California or entities
within the State of California, and the California Tax-Exempt Money Market Fund
may invest a significant percentage of its assets in a single issuer. Therefore,
investment in the Funds may be riskier than an investment in other types of
money market funds.
The concentration in California Municipal Securities by the California
Tax-Exempt Money Market Fund and the Tax-Exempt Money Fund raises additional
considerations. Payment of the interest on and the principal of these
obligations is dependent upon the continuing ability of California issuers
and/or obligors of state, municipal and public authority debt obligations to
meet their obligations thereunder. Investors should consider the greater risk
inherent in a Fund's concentration in such obligations versus the safety that
comes with a less geographically concentrated investment portfolio and should
compare the yield available on a portfolio of California issues with the yield
of a more diversified portfolio including non-California issues before making an
investment decision.
Many of the Tax-Exempt Funds' Municipal Securities are likely to be obligations
of California governmental issuers which rely in whole or in part, directly or
indirectly, on real property taxes as a source of revenue. "Proposition
Thirteen" and similar California constitutional and statutory amendments and
initiatives in recent years have restricted the ability of California taxing
entities to increase real property tax revenues. Other initiative measures
approved by California voters in recent years, through limiting various other
taxes, have resulted in a substantial reduction in state revenues. Decreased
state revenues may result in reductions in allocations of state revenues to
local governments.
Because of the complex nature of the various initiatives mentioned above and
certain possible ambiguities and inconsistencies in their terms and the scope of
various exemptions and exceptions, as well as the impossibility of predicting
the level of future appropriations for state and local California governmental
entities, it is not presently possible to determine the impact of these
initiatives and related measures on the ability of
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California governmental issuers to pay interest or repay principal on their
obligations. There have, however, been certain adverse developments with respect
to Municipal Securities of California governmental issuers over the past several
years.
In addition to the various initiatives discussed above, economic factors such as
the reduction in defense spending, a decline in tourism and high levels of
unemployment have had an adverse impact on the economy of California. In recent
years, these economic factors reduced revenues to the state government at a time
when expenses of state government such as education costs, various welfare costs
and other expenses were rising. Such economic factors adversely impacted the
ability of state and local California governmental entities to repay debt, and
these factors, and others that cannot be predicted, may have an adverse impact
in the future.
In addition to the risk of nonpayment of state and local California governmental
debt, if such debt declines in quality and is downgraded by the NRSROs, it may
become ineligible for purchase by the Funds pursuant to current Securities and
Exchange Commission regulations. Since there are large numbers of buyers of such
debt that are similarly restricted, the supply of Eligible Securities (as
defined above) could become inadequate at certain times. A more detailed
description of special factors affecting investments in California Municipal
Securities, of which investors should be aware, is set forth in the Statement of
Additional Information.
INVESTMENT LIMITATIONS. The investment objectives of the Prime, Treasury,
Tax-Exempt Money and California Tax-Exempt Money Market Funds (but not the
Government and Treasury Only Funds) are fundamental policies that may not be
changed without a vote of the holders of a majority of the particular Fund's
outstanding shares (as defined in the Investment Company Act of 1940). A Fund's
policies may be changed by the Company's Board of Directors without the
affirmative vote of the holders of a majority of such Fund's outstanding shares,
except that the investment limitations set forth below may not be changed
without such a vote of shareholders. A description of certain other fundamental
investment limitations is contained in the Statement of Additional Information.
PRIME FUND. The Prime Fund may not:
1. Purchase any securities which would cause 25% or more of the Fund's total
assets at the time of purchase to be invested in the securities of one or
more issuers conducting their principal business activities in the same
industry, provided that (a) there is no limitation with respect to
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or domestic bank certificates of deposit, bankers'
acceptances and repurchase agreements secured by instruments of domestic
branches of U.S. banks or obligations of the U.S. Government, its agencies or
instrumentalities; (b) wholly-owned finance companies will be considered to
be in the industries of their parents if their activities are primarily
related to financing the activities of the parents; and (c) the industry
classification of utilities will be determined according to their service.
For example, gas, gas transmission, electric and gas, electric and telephone
will each be considered a separate industry.
PRIME FUND AND TREASURY FUND. Neither the Prime Fund nor the Treasury Fund may:
1. Borrow money or issue senior securities, except that each Fund may borrow
from banks or enter into reverse repurchase agreements to meet redemptions or
for other temporary purposes in amounts up to 10% of its total assets at the
time of such borrowing; or mortgage, pledge or hypothecate any assets except
in connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amount borrowed or 10% of its total assets at the time
of such borrowing; or purchase securities at any time after such borrowings
(including reverse repurchase agreements) have been entered into and before
they are repaid.
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2. Purchase securities without available market quotations which cannot be sold
without registration or the filing of a notification under federal or state
securities laws, enter into repurchase agreements providing for settlement
more than seven days after notice, or purchase any other securities deemed
illiquid by the Directors if, as a result, such securities and repurchase
agreements would exceed 10% of the Fund's total assets.
The Prime Fund intends that, except as stated above under "Common Investment
Policies -- Variable and Floating Rate Instruments," variable amount master
demand notes with maturities of nine months or less, as well as any investments
in securities that are not registered under the Securities Act of 1933 but that
may be purchased by institutional buyers under Rule 144A and for which a liquid
trading market exists as determined by the Board of Directors or the Investment
Adviser (pursuant to guidelines adopted by the Board) will not be subject to the
10% limitation on illiquid securities set forth in Investment Limitation No. 2
above.
GOVERNMENT FUND AND TREASURY ONLY FUND. Neither the Government Fund nor the
Treasury Only Fund may:
1. Invest more than 10% of the Fund's net assets in securities that are not
readily marketable (such as repurchase agreements maturing in more than seven
days). If changes in the markets of certain securities cause a Fund to exceed
such 10% limit, the Fund will take steps to bring the aggregate amount of its
illiquid securities back below 10% of its net assets.
2. Borrow money, except that as a temporary measure for extraordinary or
emergency purposes each Fund may borrow from banks in an amount not to exceed
1/3 of the value of its net assets, including the amount borrowed; moreover,
neither Fund may purchase any securities at any time at which borrowings
exceed 5% of the total assets of the Fund (taken at market value) (it is
intended that each Fund would borrow money only from banks and only to
accommodate requests for withdrawals while effecting an orderly liquidation
of securities).
Pursuant to certain regulatory requirements, with regard to Investment
Limitation No. 2, the Government and Treasury Only Funds intend not to borrow
money for any purpose in excess of 10% of the Fund's total assets (taken at
cost). This 10% limitation is not a fundamental investment limitation of the
Government or Treasury Only Funds.
TAX-EXEMPT MONEY FUND. The Tax-Exempt Money Fund may not:
1. Under normal circumstances invest less than 80% of its total assets in
Municipal Securities (other than private activity bonds the interest on which
may be subject to the federal alternative minimum tax).
2. Purchase any securities which would cause 25% or more of the value of its
total assets at the time of such purchase to be invested in the securities of
one or more issuers conducting their principal business activities in the
same industry; provided, however, that (a) there is no limitation with
respect to investments in Municipal Securities or obligations issued or
guaranteed by the Federal Government and its agencies and instrumentalities;
(b) although there is no limitation with respect to investments in
certificates of deposit and bankers' acceptances issued by domestic branches
of United States banks, no more than 10% of the total value of the Fund's
assets at the time of purchase may be invested in certificates of deposit and
bankers' acceptances issued by domestic branches of foreign banks and no more
than 25% of the total value of the Fund's assets at the time of purchase may
be invested in certificates of deposit and bankers' acceptances issued by
domestic branches of foreign banks and foreign branches of domestic banks;
(c) each utility service (such as gas, gas transmission, electric and
telephone service) will be consid-
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ered a single industry for purposes of this policy; and (d) wholly-owned
finance companies will be considered to be in the industries of their parents
if their activities are primarily related to financing the activities of
their parents.
3. Borrow money except from banks for temporary purposes and in amounts not in
excess of 10% of the value of the Fund's total assets at the time of such
borrowing, or mortgage, pledge or hypothecate any assets except in connection
with any such borrowing and in amounts not in excess of the lesser of the
dollar amounts borrowed or 10% of the value of the Fund's total assets at the
time of such borrowing. (This borrowing provision is not for investment
leverage, but solely to facilitate management of the Fund's portfolio by
enabling the Fund to meet redemption requests when the liquidation of
portfolio securities is deemed to be disadvantageous or inconvenient. The
Fund will not purchase any securities while borrowings are outstanding.
Interest paid on borrowed funds will reduce the net investment income of the
Fund.)
4. Invest more than 10% of the value of its total assets in securities with
legal or contractual restrictions on resale (including repurchase agreements
with terms greater than seven days).
CALIFORNIA TAX-EXEMPT MONEY MARKET FUND. The California Tax-Exempt Money Market
Fund may not:
1. Under normal market conditions invest less than 80% of its net assets in
California Municipal Securities.
2. Purchase the securities of any issuer if as a result more than 5% of the
value of the Fund's total assets would be invested in the securities of such
issuer, except that (a) up to 50% of the value of the Fund's total assets may
be invested without regard to this 5% limitation provided that no more than
25% of the value of the Fund's total assets are invested in the securities of
any one issuer and (b) this 5% limitation does not apply to securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities.
3. Borrow money or issue senior securities, except that the Fund may borrow from
banks or enter into reverse repurchase agreements to meet redemptions or for
other temporary purposes in amounts up to 10% of its total assets at the time
of such borrowing; or mortgage, pledge or hypothecate any assets except in
connection with any such borrowing and in amounts not in excess of the lesser
of the dollar amounts borrowed or 10% of its total assets at the time of such
borrowing.
INVESTMENT DECISIONS. Investment decisions for each Fund are made independently
from those for other Portfolios of the Company, other investment companies and
common trust funds managed by the Investment Adviser and its affiliated
entities. Such other investment companies and common trust funds may also invest
in the same securities as a Fund. When a purchase or sale of the same security
is made at substantially the same time on behalf of a Fund and another
portfolio, investment company or common trust fund, available investments or
opportunities for sales will be allocated in a manner which the Investment
Adviser believes to be equitable. In some instances, this investment procedure
may adversely affect the price paid or received by a Fund or the size of the
position obtained or sold by a Fund. In addition, in allocating purchase and
sale orders for portfolio securities (involving the payment of brokerage
commissions or dealer concessions), the Investment Adviser may take into account
the sale of shares of a Fund by broker-dealers and other financial institutions
(including affiliates of the Investment Adviser and the Distributor), provided
the Investment Adviser believes that the quality of the transaction and the
amount of the commission are not less favorable than what they would be with any
other unaffiliated qualified firm.
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MANAGEMENT OF THE FUNDS
BOARD OF DIRECTORS. The business of the Company is managed under the direction
of its Board of Directors. Information about the Directors and officers of the
Company is included in the Statement of Additional Information.
INVESTMENT ADVISER. Bank of America National Trust and Savings Association (the
"Investment Adviser") serves as investment adviser to each Fund. The Investment
Adviser, which has principal offices located at 555 California Street, San
Francisco, California 94104, is a national banking association formed in 1904
which provides commercial banking and trust business through an extensive system
of branches across the western United States. The Investment Adviser's principal
banking affiliates operate branches in eleven U.S. states as well as corporate
banking offices in major U.S. cities and branches, and corporate offices and
representative offices in 37 countries and territories. The Investment Adviser
is the successor by merger to Security Pacific National Bank ("Security
Pacific"), which previously served as investment adviser to the Company since it
commenced operations in 1984. The Investment Adviser and its affiliates have
over $50 billion under management, including over $14 billion in mutual funds.
Bank of America is a subsidiary of BankAmerica Corporation, a registered bank
holding company.
The Investment Adviser manages the investments of the Funds and is responsible
for all purchases and sales of the Funds' portfolio securities. For its
investment advisory services the Investment Adviser is entitled to receive a fee
accrued daily and payable monthly at the following annual rates: .10% of the
first $3 billion of each Fund's net assets, plus .09% of the next $2 billion of
each Fund's net assets, plus .08% of each Fund's net assets over $5 billion. For
the fiscal year ended February 28, 1997, the Prime Fund, Treasury Fund,
Government Fund, Treasury Only Fund, Tax-Exempt Money Fund and California
Tax-Exempt Money Market Fund paid the Investment Adviser advisory fees at the
effective annual rates of .09%, .10%, .05%, .10%, .10% and .10% of such Funds'
respective average daily net assets, and the Investment Adviser waived advisory
fees at the effective annual rates of .05% of the Government Fund's average
daily net assets.
In addition, Bank of America may receive fees under the Company's Shareholder
Services Plan with respect to the Funds' Horizon Service Shares and may receive
fees pursuant to the Distribution and Services Plan with respect to the Prime,
Treasury and California Tax-Exempt Money Market Funds' X Shares. BAIS and
Service Organizations may receive fees charged directly to their customers'
accounts in connection with investments in X Shares of the Prime, Treasury and
California Tax-Exempt Money Market Funds, and Bank of America and Shareholder
Organizations may receive fees charged directly to their customers' accounts in
connection with investments in Horizon Service Shares of the Funds.
ADMINISTRATOR. The BISYS Group, Inc. (the "Administrator"), through its
wholly-owned subsidiary BISYS Fund Services, L.P., serves as the Company's
administrator and assists generally in supervising the Funds' operations. Their
offices are located at 150 Clove Road, Little Falls, New Jersey 07424 and 3435
Stelzer Road, Columbus, Ohio 43219, respectively. Prior to November 1, 1996,
Concord Holding Corporation, an indirect, wholly-owned subsidiary of the current
Administrator, served as administrator (the "Prior Administrator").
Under its basic administrative services agreement for the Funds, the
Administrator has agreed to provide facilities, equipment and personnel to carry
out administrative services that are for the benefit of all series of shares in
the Funds, including coordination of reports to shareholders of the Fund and the
Securities and Exchange Commission; calculation of the net asset value of the
Funds' shares and dividends and capital gains distributions to shareholders;
payment of the costs of maintaining the Funds' offices; preparation of tax
returns; provision of internal legal and
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accounting compliance services; maintenance (or oversight of the maintenance by
others approved by the Board of Directors) of the Funds' books and records; and
the provision of various services for shareholders who have made a minimum
initial investment of at least $500,000, including the provision of a facility
to receive purchase and redemption orders for the accounts of such shareholders.
For its administrative services the Administrator is entitled to receive an
administration fee computed daily and payable monthly at the following annual
rates: .10% of the first $7 billion of each Fund's average daily net assets,
plus .09% of the next $3 billion of each Fund's average daily net assets, plus
.08% of each Fund's average daily net assets over $10 billion. For the fiscal
year ended February 28, 1997, the Prime Fund, Treasury Fund, Government Fund,
Treasury Only Fund, Tax-Exempt Money Fund and California Tax-Exempt Money Market
Fund paid the Administrator or Prior Administrator administration fees at the
effective annual rates of .10%, .10%, .10%, .10%, .10% and .10% of such Funds'
respective average daily net assets.
Pursuant to the authority granted in its agreement with the Company, the
Administrator has entered into an agreement with The Bank of New York under
which the bank performs certain of the services listed above -- e.g. calculating
the net asset value of the Funds' shares and dividends to shareholders and
maintaining the Funds' books and records. The Funds bear all fees and expenses
charged by The Bank of New York for these services.
DISTRIBUTOR. Concord Financial Group, Inc. (the "Distributor") is the principal
underwriter and distributor of shares of the Funds. The Distributor is an
indirect, wholly-owned subsidiary of the Administrator organized to distribute
shares of mutual funds to institutional and retail investors. Its offices are
located at 3435 Stelzer Road, Columbus, Ohio 43219.
The Distributor makes a continuous offering of the Funds' shares and bears the
costs and expenses of printing and distributing to selected dealers and
prospective investors copies of any prospectuses, statements of additional
information and annual and interim reports of the Funds (after such items have
been prepared and set in type by the Funds) which are used in connection with
the offering of shares, and the costs and expenses of preparing, printing and
distributing any other literature used by the Distributor or furnished by it for
use by selected dealers in connection with the offering of the Funds' shares for
sale to the public.
CUSTODIAN AND TRANSFER AGENT. The Bank of New York, located at 90 Washington
Street, New York, New York 10286, serves as custodian for the Funds and Bank of
America National Trust and Savings Association serves as the Prime and Treasury
Funds' sub-custodian. BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus, OH
43219 (the "Transfer Agent") a wholly-owned subsidiary of the Administrator,
serves as the Funds' transfer agent and dividend disbursing agent. The Company
has also entered into a Cash Management and Related Services Agreement with The
Bank of New York pursuant to which The Bank of New York receives and disburses
funds in connection with the purchase and redemption of, and the payment of
dividends and other distributions with respect to the Funds' shares.
SHAREHOLDER SERVICES PLAN. The Company has adopted the Plan pursuant to which
Horizon Service Shares are sold to Shareholder Organizations that enter into
Shareholder Service Agreements with the Company pursuant to the Plan. Such
Shareholder Organizations may include the Investment Adviser, the Administrator
and their affiliates. The Shareholder Service Agreements require the Shareholder
Organizations to provide support services to their customers ("Customers") who
are beneficial owners of Horizon Service Shares in return for payment by the
respective Fund of up to .25% (on an annualized basis) of the average daily net
asset value of the Horizon Service Shares beneficially owned by Customers of the
Shareholder Organizations.
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Holders of a Fund's Horizon Service Shares will bear all fees paid to
Shareholder Organizations for their services with respect to such shares. Such
fees are not paid to Shareholder Organizations with respect to Horizon Shares,
Pacific Horizon Shares, X Shares, S Shares or Y Shares. During the fiscal year
ended February 28, 1997, the Prime, Treasury, Government, Treasury Only,
Tax-Exempt Money and California Tax-Exempt Money Market Funds made payments
under the Plan at an effective annual rate of .25% of each Fund's average daily
net asset value.
The services provided by Shareholder Organizations may include the following:
aggregating and processing purchase and redemption requests from Customers for
Horizon Service Shares and placing net purchase and redemption orders with the
Distributor; providing Customers with a service that invests the assets of their
accounts in Horizon Service Shares pursuant to specific or preauthorized
instructions; processing dividend payments from a Fund on behalf of Customers;
providing information periodically to Customers regarding their position in
Horizon Service Shares; arranging for bank wires; responding to Customer
inquiries regarding services performed by the Shareholder Organizations;
providing sub-accounting with respect to Horizon Service Shares beneficially
owned by Customers or the information necessary for sub-accounting; forwarding
shareholder communications from a Fund to Customers; and other similar services
if requested by a Fund.
Each Fund will accrue payments made pursuant to the Plan daily. The Funds will
receive an undertaking from each Shareholder Organization waiving a portion of
any payment such Organization is entitled to receive pursuant to the Plan to the
extent necessary to assure that the payments made pursuant to the Plan which are
required to be accrued to the respective Fund's Horizon Service Shares on any
day do not exceed the income to be accrued to such shares on that day.
The Company understands that Shareholder Organizations may charge fees to their
Customers who are the beneficial owners of Horizon Service Shares in connection
with their Customer accounts. These fees would be in addition to any amounts
which may be received by a Shareholder Organization under a Shareholder Service
Agreement. Under the terms of the Shareholder Service Agreements, Shareholder
Organizations are required to disclose the compensation payable to them by the
Company and any other compensation payable by their Customers in connection with
the investment of their assets in the Funds. Customers of Shareholder
Organizations should read this Prospectus in light of the terms governing their
accounts with their Shareholder Organizations.
Conflict-of-interest restrictions may apply to an institution's receipt of
compensation paid by a Fund in connection with the investment of fiduciary funds
in Horizon Service Shares. Institutions, including banks regulated by the
Comptroller of the Currency, the Federal Reserve Board or the Federal Deposit
Insurance Corporation, and investment advisers and other money managers subject
to the jurisdiction of the Securities and Exchange Commission, the Department of
Labor or state securities commissions, are urged to consult their legal advisers
before investing fiduciary funds in Horizon Service Shares.
Banks may act as Shareholder Organizations. The Glass-Steagall Act and other
applicable laws, among other things, prohibit banks from engaging in the
business of underwriting securities. If a bank were prohibited from acting as a
Shareholder Organization, its shareholder clients would be permitted by the
Company to remain shareholders of the Funds and alternative means for continuing
the servicing of such shareholders would be sought. In such event, changes in
the operation of the Funds might occur and a shareholder serviced by such bank
might no longer be able to avail itself of any automatic 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.
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The Company will obtain representation from Shareholder Organizations (as well
as from the Investment Adviser and the Administrator) that they are or will be
licensed as dealers as required by applicable law or will not engage in
activities which would require them to be so licensed.
DISTRIBUTION AND SERVICES PLAN. Under the Distribution and Services Plan, the
Prime, Treasury and California Tax-Exempt Money Market Funds pay the Distributor
for distribution expenses primarily intended to result in the sale of such
Funds' X Shares and for shareholder servicing expenses. Such distribution
expenses include expenses incurred in connection with advertising and marketing
each Fund's Class X Shares; payments to Service Organizations for assistance in
connection with the distribution of X Shares; and expenses incurred in
connection with preparing, printing and distributing prospectuses for the Funds
(except those used for regulatory purposes or for distribution to existing
shareholders of the Funds) and in implementing and operating the Distribution
and Services Plan. Shareholder servicing expenses include expenses incurred in
connection with shareholder services provided by the Distributor and payments to
Service Organizations for the provision of support services with respect to the
beneficial owners of X Shares, such as establishing and maintaining accounts and
records relating to their clients who invest in X Shares, assisting clients in
processing exchange and redemption requests, developing, maintaining and
supporting systems necessary to support cash management services, such as Sweep
Accounts and/or in changing dividend options and account descriptions and
responding to client inquiries concerning their investments.
Under the Distribution and Services Plan, payments by the Prime, Treasury and
California Tax-Exempt Money Market Funds for distribution expenses and
shareholder servicing expenses may not exceed the annual rate of up to 0.30% and
0.25%, respectively, of the average daily net assets of such Funds' X Shares.
These amounts may be reduced pursuant to undertakings by the Distributor.
Payments for distribution expenses under the Distribution and Services Plan are
subject to Rule 12b-1 under the 1940 Act. As stated below under "Description of
Shares," fees pursuant to the Distribution and Services Plan are borne by the S
and X Shares of the Prime, Treasury and California Tax-Exempt Money Market
Funds, the S Shares of the Tax-Exempt Money and the Y Shares of the Prime and
Treasury Funds and are not paid with respect to such Funds' other series of
shares. For the fiscal year ended February 28, 1997 the Prime, Treasury and
California Tax-Exempt Money Market Fund made payments under the Distribution and
Services Plan at the effective annual rate of .55%, .55% and .55% respectively
of X Shares of the Prime, Treasury and California Tax Exempt Money Market Funds.
The Company will obtain a representation from the Service Organizations (and
from Bank of America and the Distributor) that they are or will be licensed as
dealers as required by applicable law or will not engage in activities which
would require them to be so licensed.
FEE WAIVERS. Except as noted in this Prospectus and the Statement of Additional
Information, the Funds' service contractors bear all expenses in connection with
the performance of their services and the Funds bear the expenses incurred in
their operations. From time to time during the course of the Funds' fiscal year,
the Administrator and/or the Investment Adviser may prospectively waive payment
of fees and/or assume certain expenses of a Fund as a result of competitive
pressures and in order to protect the business and reputation of the
Administrator and Investment Adviser. This will have the effect of lowering the
overall expense ratio of the Fund involved and of increasing such Fund's yield
to investors at the time such fees are not received or amounts are assumed and
of increasing the overall expense ratio of such Fund and of decreasing yield to
investors when such fees are not waived or amounts are not reimbursed.
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PURCHASE AND REDEMPTION OF SHARES
HOW X SHARES ARE PURCHASED. X Shares of the Prime, Treasury and California
Tax-Exempt Money Market Funds are offered by this Prospectus to customers of
BAIS or Service Organizations that establish a Sweep Account with BAIS or a
Service Organization and through Bank of America's 401(k) program. Each Sweep
Account combines a Transaction Account with a periodic sweep of balances to or
from the Prime, Treasury and California Tax-Exempt Money Market Funds. Investors
may open a Sweep Account by completing and signing the Sweep Materials. The
Sweep Materials contain important information about the various features and
operations of the Sweep Account and should be reviewed in conjunction with this
Prospectus.
X Shares may be purchased on any Business Day (as defined below) that BAIS or
the particular Service Organization, as applicable, is open for business by
making a deposit into your Transaction Account. On each day that both the Prime,
Treasury and California Tax-Exempt Money Market Funds' custodian and the New
York Stock Exchange (the "Exchange") are open for business (a "Business Day")
and that BAIS or a Service Organization is open for business, BAIS or a Service
Organization computes the net amount of all deposits, withdrawals, charges and
credits made to and from a Transaction Account in accordance with its Sweep
Account procedures (the "Net Sweep Amount"). If deposits and credits exceed
withdrawals and charges, you authorize BAIS or a Service Organization, on your
behalf, to transmit a purchase order to the Fund designated in your Sweep
Account in the amount of that day's Net Sweep Amount in accordance with the
Sweep Account procedures of Bank of America or a Service Organization. Your
purchase order will be made effective and full and fractional X Shares will be
purchased at the net asset value per share next determined after receipt by the
Transfer Agent. It is the responsibility of BAIS or a Service Organization to
transmit orders for the purchases of X Shares by its customers to the Transfer
Agent and deliver required funds on a timely basis, in accordance with the
procedures stated above. Share purchases and redemptions executed through BAIS
or a Service Organization are executed only on Business Days that BAIS or a
Service Organization, respectively, is open for business. Contact BAIS or your
Service Organization for additional information about BAIS's or the Service
Organization's Sweep Account procedures.
HOW HORIZON AND HORIZON SERVICE SHARES ARE PURCHASED. Horizon and Horizon
Service Shares of the Funds are sold at the net asset value per share next
determined after receipt of a purchase order by the Transfer Agent. Purchase
orders placed directly with the Transfer Agent without the assistance of a
broker-dealer or other person are without charge. Broker-dealers (other than the
Distributor) and others who process purchase orders on behalf of customers may
charge a fee for their services.
Purchase orders for Horizon and Horizon Service Shares are accepted by the Funds
only on Business Days, and must be transmitted to the Transfer Agent by
telephone c/o the Distributor (800-426-3863) or terminal access.
Purchase orders for Horizon and Horizon Service Shares of the Prime Fund,
Treasury Fund and Government Fund received by the Transfer Agent before 2:30
p.m. Eastern time on a Business Day will be executed as of 2:30 p.m. Eastern
time on such Business Day if payment is received by 4:00 p.m. Eastern time on
that day. Purchase orders for the Treasury Only Fund, California Tax-Exempt
Money Market Fund and Tax-Exempt Money Fund that are received before 11:30 a.m.
Eastern time, 10:30 a.m. Eastern time and 12:00 noon Eastern time, respectively,
on a Business Day will be executed at such respective time on that day if
payment is received by 4:00 p.m. Eastern time on such Business Day. Orders
received after the times specified, and orders for which payment has not
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been received by 4:00 p.m. Eastern time, will not be accepted. A Fund may in its
discretion reject any order for shares. Payment for orders which are not
received or paid for in a timely manner or are not accepted by a Fund will be
returned after prompt notification to the sending institution.
Payment for shares may be made only in Federal funds or other funds immediately
available to the Transfer Agent. The minimum initial investment for Horizon
Shares and Horizon Service Shares in any Fund is $500,000 (although
broker-dealers and other institutional investors may set a higher minimum for
their customers) and there is no minimum subsequent investment. The Funds
reserve the right to suspend the sale of shares to the public at any time, in
response to conditions in the securities markets or otherwise.
Federal regulations require that each investor provide a certified Taxpayer
Identification Number upon opening or reopening an account.
REDEMPTION OF SHARES
HOW X SHARES ARE REDEEMED. If, on any Business Day that BAIS or the particular
Service Organization is open for business, withdrawals from and charges to your
Sweep Account, including without limitation check transactions, exceed deposits
and credits, BAIS or the particular Service Organization, as applicable, will
transmit a redemption order on your behalf to the Prime, Treasury or California
Tax-Exempt Money Market Fund, as appropriate, in the dollar amount of that day's
Net Sweep Amount. If your Sweep Account with BAIS or a Service Organization, as
applicable, is closed as described in the Sweep Materials, BAIS or the Service
Organization, as applicable, transmits a redemption request on your behalf to
the appropriate Fund for the balance of X Shares of such Fund held through your
Sweep Account. Redemptions are effected by the Company on a business day at the
net asset value next determined after receipt of the redemption order by the
Transfer Agent. It is the responsibility of BAIS or the particular Service
Organization to transmit the redemption order and credit its customer's
Transaction Account with the redemption proceeds on a timely basis. BAIS or the
Service Organization may withhold redemption proceeds pending check collection
or processing or for other reasons all as set forth more fully in the Sweep
Materials.
HOW HORIZON AND HORIZON SERVICE SHARES ARE REDEEMED. Redemption orders for
Horizon Shares and Horizon Service Shares must be transmitted to the Transfer
Agent by telephone c/o the Distributor or terminal access in the manner
described above under "Purchase and Redemption of Shares -- How Horizon and
Horizon Service Shares Are Purchased." While the Company no longer issues share
certificates, Horizon and Horizon Service Shares for which certificates
previously had been issued may not be redeemed unless the certificates have been
submitted to the Transfer Agent and endorsed for transfer. While each Fund seeks
to maintain its net asset value per share at $1.00 there can be no assurance
that it will be able to do so, and the proceeds paid upon redemption may be more
or less than the amount invested depending upon a share's net asset value at the
time of redemption.
Redemption orders submitted directly to the Transfer Agent without the
assistance of a broker-dealer or other person, and orders submitted by the
Distributor for its own brokerage customers, are processed without charge.
Broker-dealers (other than the Distributor) and others who process redemption
orders on behalf of their customers may charge a fee for their services.
Redemption orders are effected on a Business Day at the net asset value per
share next determined after receipt of the order by the Transfer Agent. Payment
for redeemed shares for which a redemption order is received by the Transfer
Agent prior to 2:30 p.m. Eastern time with respect to the Prime Fund, Treasury
Fund or Government Fund, before 11:30 a.m. Eastern time with respect to the
Treasury Only Fund,
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before 10:30 a.m. Eastern time with respect to the California Tax-Exempt Money
Market Fund, or before 12:00 noon Eastern time with respect to the Tax-Exempt
Money Fund, on a Business Day is normally made in Federal funds wired to the
redeeming shareholder on the same Business Day. Payment for redeemed shares for
which a redemption order is received after the times stated above on a Business
Day is normally made in Federal funds wired to the redeeming shareholder on the
next Business Day following redemption. In order to allow Bank of America to
most effectively manage the Funds' portfolios, investors are urged to initiate
redemptions of shares as early in the day as possible and to notify the Transfer
Agent at least one day in advance of redemptions in excess of $5 million. Each
Fund reserves the right to wire redemption proceeds up to seven days after
receiving the redemption order if, in the judgment of the investment adviser, an
earlier payment could adversely affect the Fund. In making redemption requests
the names of the registered shareholders and their account numbers must be
supplied. Neither the Funds, the Distributor nor the Transfer Agent will be
responsible for any loss or expense for acting upon any telephone instructions
that are reasonably believed to be genuine. In attempting to confirm that
telephone instructions are genuine, the Company will use such procedures as are
considered reasonable, including requesting certain personal or account
information to confirm the identify of the shareholder.
OTHER REDEMPTION INFORMATION -- X SHARES AND HORIZON AND HORIZON SERVICE
SHARES. Redemption orders are effected on a Business Day at the net asset value
per share next determined after receipt of the order by the Transfer Agent. The
Funds will make payment for all shares redeemed after receipt by the Transfer
Agent of a request in proper form, except as provided by the rules of the
Securities and Exchange Commission. A Fund may suspend the right of redemption
or postpone the date of payment upon redemption (as well as suspend or postpone
the recordation of the transfer of its shares) for such periods as are permitted
under the Investment Company Act of 1940. During the period prior to the time
shares are redeemed dividends on such shares will accrue and be payable, and an
investor will be entitled to exercise all other rights of beneficial ownership.
Each Fund reserves the right to redeem Horizon and Horizon Service Shares in any
account at their net asset value if the value of the account is less than $500
as a result of redemptions. The shareholder having the account will first be
notified in writing that its account has a value of less than $500 and will be
allowed 60 days to make additional investments to bring the value of its account
to $500 before the redemption is processed by a Fund. In addition, a Fund may
redeem Horizon and Horizon Service Shares involuntarily under certain special
circumstances described in the Statement of Additional Information under
"Purchase and Redemption of Shares." The Funds impose no charge when X Shares,
Horizon Shares or Horizon Service Shares are redeemed.
NET ASSET VALUE. The net asset value per share of the X Shares of the Prime,
Treasury and California Tax-Exempt Money Market Funds and Horizon and Horizon
Service Shares of each Fund is the value of all securities and other assets
owned by a Fund that are allocable to a particular class, less the liabilities
charged to such class, divided by the number of outstanding shares of such
class. The net asset value per share of the Prime Fund, Treasury Fund and
Government Fund is determined on each Business Day as of 2:30 p.m. Eastern time
and the close of regular trading hours on the Exchange (or 4:00 p.m. Eastern
time if the Exchange is closed). The net asset value per share of the Treasury
Only Fund is determined on such Business Days as of 11:30 a.m. Eastern time. The
net asset value per share of the California Tax-Exempt Money Market Fund is
determined on such Business Days as of 10:30 a.m. Eastern time. The net asset
value per share of the Tax-Exempt Money Fund is determined on such Business Days
as of 12:00 noon Eastern time. In computing net asset
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value, each Fund uses the amortized cost method of valuation as described in the
Statement of Additional Information under "Purchase and Redemption of Shares."
The net asset value per share for each Fund for purposes of pricing purchase and
redemption orders is determined independently of that for other portfolios of
the Company.
ADDITIONAL SHAREHOLDER SERVICES
Certain optional services available to persons who invest directly in Pacific
Horizon Shares of a Fund, including but not limited to certain exchange
privileges which allow shareholders to exchange their Fund shares for shares of
other funds in the Company, an automatic investment program, automatic
withdrawal program, and direct deposit program, are not available to persons who
invest directly in X, S, Y, Horizon or Horizon Service Shares of any of the
Funds.
DIVIDENDS AND DISTRIBUTIONS
The shareholders of a Fund are entitled to dividends and distributions arising
from the net investment income and net realized gains, if any, earned on
investments held by the Fund involved. Generally, each Fund's net income is
declared daily as a dividend. Shares begin accruing dividends on the day the
purchase order for the shares is executed and continue to accrue dividends
through and including the day before the redemption order for the shares is
executed. Dividends are paid within five business days after the end of each
month. Although the Funds do not expect to realize net long-term capital gains,
any such capital gains as may be realized will be distributed no more than twice
a year after reduction for any available capital loss carry-forward.
Dividends are paid in the form of additional full and fractional shares of the
same series as the shares on which the dividends are declared at the net asset
value of such shares on the payment date. However, holders of the Funds Horizon
and Horizon Service Shares may elect to receive dividends in cash. If you elect
to receive distributions in cash, and if your checks (1) are returned and marked
as "undeliverable" or (2) remain uncashed for six months, your cash election
will be changed automatically and your future dividend and capital gains
distributions will be reinvested in the Fund at the per share net asset value
determined as of the date of payment of the distribution. In addition, any
undeliverable checks or checks that remain uncashed for six months will be
canceled and will be reinvested in the Fund at the per share net asset value
determined as of the date of cancellation. Reinvestment dividends receive the
same tax treatment as dividends paid in cash. Such election or any revocation
thereof must be made in writing to the Transfer Agent at P.O. Box 182090,
Columbus, Ohio 43218-2090, and will become effective with respect to dividends
paid after its receipt by the dividend disbursing agent.
TAXES
FEDERAL. During its most recent taxable year, each Fund qualified separately as
a "regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"), and each Fund intends to so qualify in future years, as
long as such qualification is in the best interest of its shareholders. As a
result of this qualification, each Fund generally is not required to pay federal
income taxes to the extent its earnings are distributed in accordance with the
Code.
In connection with such tax qualification, each of the Prime, Treasury,
Government and Treasury Only Funds contemplates distributing to its shareholders
at least 90% of its investment company taxable income for each taxable year. An
investor of the Prime, Treasury, Government Treasury Only Fund who receives a
dividend derived from investment company taxable income (including any excess of
net short-term capital gain over net long-term capital loss) treats it as a
receipt of ordinary income in the compu-
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tation of his gross income, whether such dividend is paid in the form of cash or
additional shares of a Fund. Because all of the net investment income of such
Funds is expected to be derived from earned interest, it is anticipated that all
dividends paid by the Prime, Treasury, Government or Treasury Only Funds will be
taxable as ordinary income to shareholders who are not exempt from federal
income taxes and that no part of any distribution paid by such Funds will be
eligible for the dividends received deduction for corporations. The policy of
the Tax-Exempt Money and California Tax-Exempt Money Market Funds is to
distribute to its respective shareholders at least 90% of its exempt-interest
income, net of certain deductions, for each taxable year. Dividends derived from
interest on Municipal Securities (known as exempt-interest dividends) and paid
to shareholders typically will not be subject to regular federal income tax.
Although the Funds anticipate that they will not have net long-term capital
gain, any distribution of a Fund's excess of net long-term capital gain over its
net short-term capital loss will be taxable to shareholders of that Fund as
long-term capital gain, regardless of how long the shareholder has held shares
of the Fund.
Dividends declared in October, November or December of any calendar year payable
to shareholders of record on a specified date in December will be deemed for
federal tax purposes to have been paid by the Funds and received by the
shareholders on December 31 of such year, if such dividends are paid during
January of the following year.
The foregoing is only a brief summary of some of the important federal income
tax considerations generally affecting the Funds and their shareholders, and is
based on federal tax laws and regulations which are in effect as of the date of
this Prospectus. Such laws and regulations may be changed by legislative or
administrative actions. Additional tax information of relevance to particular
investors, including investors who may be "substantial users" or "related
persons" with respect to facilities financed by Municipal Securities, is
contained in the Statement of Additional Information. Potential investors in the
Funds should consult their tax advisers with specific reference to their own tax
situation. Shareholders will be advised at least annually as to the federal
income tax and, with respect to the California Tax-Exempt Money Market Fund, the
California state personal income tax consequences of dividends and distributions
made each year.
With respect to the California Tax-Exempt Money Market Fund, if, at the close of
each quarter of its taxable year, at least 50% of the value of the Fund's total
assets consists of California Exempt Securities and if the Fund qualifies as a
regulated investment company under the Code, then the Fund will be qualified to
pay dividends exempt from California state personal income tax to its
shareholders. If the Fund so qualifies, dividends derived from interest
attributable to California Exempt Securities will be exempt from California
state personal income tax. (Such treatment may not apply, however, to investors
who are "substantial users" or "related persons" with respect to facilities
financed by portfolio securities held by the California Tax-Exempt Money Market
Fund.) Any dividends paid to shareholders subject to California state franchise
tax or California state corporate income tax may be taxed as ordinary dividends
to such shareholders notwithstanding that all or a portion of such dividends are
exempt from California state personal income tax.
The portion of dividends, if any, attributable to interest on certain private
activity bonds issued after August 7, 1986 must be included by shareholders as
an item of tax preference for purposes of determining liability, if any, for the
26% to 28% federal alternative minimum tax applicable to individuals and the 20%
federal alternative minimum tax applicable to corporations. Corporate
shareholders also must take all exempt-interest dividends into account in
determining certain adjustments for federal alternative minimum tax purposes.
Shareholders receiving
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Social Security benefits should note that all exempt-interest dividends will be
taken into account in determining the tax liability on such benefits.
STATE AND LOCAL. Investors are advised to consult their tax advisers concerning
the application of state and local taxes, which may have different consequences
from those of the federal income tax law, and, with respect to the California
Tax-Exempt Money Market Fund, the California state personal income tax described
above. Exempt-interest dividends generally will be exempt from state and local
taxes as well. However, except as noted with respect to California state
personal income tax, dividends paid by the Funds may be taxable to investors
under state or local law as dividend income even though all or a portion of such
dividends may be derived from interest on obligations that, if realized
directly, would be exempt from such taxes.
DESCRIPTION OF SHARES
The Company was organized on October 27, 1982 as a Maryland corporation, and is
registered under the Investment Company Act of 1940 as an open-end management
company. On March 30, 1984 the Company commenced its public sale of shares
(Pacific Horizon Shares) in each of the Prime Fund and Treasury Fund, which were
originally called "Money Market Portfolio" and "Government Money Market
Portfolio," respectively. The Predecessor Prime Fund and Predecessor Treasury
Fund originally commenced operations on July 10, 1987 as separate portfolios of
The Horizon Funds, a Massachusetts business trust. On January 19, 1990, the
Predecessor Prime Fund and the Predecessor Treasury Fund were combined with the
Money Market Portfolio and Government Money Market Portfolio, respectively, of
the Company; the Company changed the names of its resulting portfolios to "Prime
Fund" and "Treasury Fund"; and, in addition to continuing its offering of
Pacific Horizon Shares in such Funds, the Company began offering Horizon Shares
and Horizon Service Shares in the Prime and Treasury Funds. The Predecessor
Government Funds and Predecessor Treasury Only Funds commenced operations on
June 4, 1990 as investment portfolios of First Cash Funds of America and First
Funds of America. On March 1, 1993, the Predecessor Government Funds and
Predecessor Treasury Only Funds were reorganized as new portfolios of the
Company, offering Pacific Horizon Shares and Horizon Service Shares; the
Government Fund and Treasury Only Fund began offering Horizon Shares on June 14,
1993 and September 20, 1995, respectively. The Predecessor Tax-Exempt Fund
originally commenced operations on July 10, 1987 as a separate portfolio of The
Horizon Funds. On January 19, 1990, the Predecessor Tax-Exempt Fund was
reorganized as the Tax-Exempt Money Fund of the Company and prior to July 9,
1993 had offered only two series of shares, Horizon Shares and Horizon Service
Shares. On July 9, 1993, all assets and liabilities of the Company's Predecessor
Tax-Exempt Fund were transferred to the Tax-Exempt Money Fund as Pacific Horizon
Shares. The California Tax-Exempt Money Market Fund commenced operations on
December 6, 1989 as a portfolio of the Company with a single series of shares,
Pacific Horizon Shares. On March 1, 1993 the California Tax-Exempt Money Market
Fund began offering Horizon Service Shares. On July 22, 1996, the Company began
offering X Shares in the Prime and Treasury Funds, and on October 2, 1996 the
Company began offering X Shares in the California Tax-Exempt Money Market Fund.
On April 7, 1997, the Company began offering S Shares in the Prime Fund and
Treasury Fund. The Company has also classified an S Share class of the
Tax-Exempt Money Fund and the California Tax-Exempt Money Market Fund, a Y Share
class of the Prime and Treasury Funds and a Horizon Share class of the
California Tax-Exempt Money Market Fund. S Shares are offered to customers who
purchase such Shares through a sweep account offered by Bank of America, any of
its banking or brokerage affiliates or certain Service Organizations. Y Shares
are offered to institutional investors who purchase such shares
48
<PAGE> 123
through a sweep account offered by Bank of America, any of its banking or
brokerage affiliates and certain Service Organizations. Pacific Horizon Shares
may be purchased directly from the Distributor by clients of Bank of America
through their qualified trust and agency accounts or by clients of Service
Organizations.
The Company's charter authorizes the Board of Directors to issue up to four
hundred billion full and fractional shares of capital stock, and to classify and
reclassify any authorized and unissued shares into one or more classes of
shares. The Board of Directors may similarly classify or reclassify any class of
shares into one or more series.
Pursuant to such authority, the Board of Directors has authorized the issuance
of the following series of shares representing interests in the Funds, each
(except for the California Tax-Exempt Money Market Fund, which is
nondiversified) of which is classified as a diversified company under the
Investment Company Act of 1940: twenty billion X Shares, twenty billion S
Shares, twenty billion Y Shares, twenty billion Horizon Shares, twenty billion
Horizon Service Shares and twenty billion Pacific Horizon Shares representing
interests in the Prime Fund; ten billion X Shares, ten billion S Shares, ten
billion Y Shares, ten billion Horizon Shares, ten billion Horizon Service Shares
and ten billion Pacific Horizon Shares representing interests in the Treasury
Fund; ten billion Horizon Shares, ten billion Horizon Service Shares and ten
billion Pacific Horizon Shares representing interests in the Government Fund;
ten billion Horizon Shares, ten billion Horizon Service Shares and ten billion
Pacific Horizon Shares representing interests in the Treasury Only Fund; ten
billion Horizon Shares, ten billion Horizon Service Shares, ten billion Pacific
Horizon Shares and ten billion S Shares representing interests in the Tax-Exempt
Money Fund; and ten billion Horizon Shares, ten billion Horizon Service Shares,
ten billion Pacific Horizon Shares, ten billion S Shares and ten billion X
Shares representing interests in the California Tax-Exempt Money Market Fund.
Pacific Horizon Shares of the Funds, S Shares of the Prime, Treasury, Tax-Exempt
Money and California Tax-Exempt Money Market Funds and Y Shares of the Prime and
Treasury Funds are described in separate Prospectuses available from the
Distributor at the telephone number on the cover of this Prospectus. The Board
of Directors has also authorized the issuance of additional classes of shares
representing interests in other investment portfolios of the Company, which are
likewise described in separate Prospectuses available from the Distributor. This
Prospectus relates primarily to the Horizon Shares and Horizon Service Shares of
the Funds and X Shares of the Prime, Treasury and California Tax-Exempt Money
Market Funds and describes only the investment objectives and policies,
operations, contracts and other matters relating to such shares.
Each Horizon Share, Horizon Service Share, Pacific Horizon Share, S Share, X
Share and Y Share in a Fund has a par value of $.001, and, except as noted
below, is entitled to participate equally in the dividends and distributions
declared by the Board of Directors with respect to such Fund and in the net
distributable assets of such Fund on liquidation. Holders of X Shares bear the
fees described in this Prospectus that are paid to the Distributor and Service
Organizations by the Funds under the Company's Distribution and Services Plan.
Similarly, holders of the Funds' S and Y Shares bear the fees described in the
prospectuses relating to such shares that are paid to the Distributor and
Service Organizations by such Fund or by the same Plan. The fees paid under the
Distribution and Services Plan are for distribution and shareholder services and
are paid to the Distributor and Shareholder Service Organizations in connection
with X, S and Y Shares of the Funds, and are not paid by the Funds' Horizon,
Horizon Service or Pacific Horizon Shares. Holders of a Fund's Horizon Service
Shares bear the fees described in this Prospectus that are paid to Shareholder
Organizations by the Fund under the Company's Shareholder Services Plan.
Similarly, holders of the Funds' Pacific
49
<PAGE> 124
Horizon Shares bear the fees described in the Prospectuses for such shares that
are paid to Shareholder Organizations by such Funds under the Company's Special
Management Services Plan for Pacific Horizon Shares. Holders of Horizon Shares
are not subject to fees such as those paid under the Shareholder Services Plan
or the Special Management Services Plan.
As a result of the different fees borne by the various series of shares in a
Fund, at any given time, absent waivers of any class-specific fees or expenses,
the net yield on a) the Prime and Treasury Funds' X Shares generally will be
approximately .23% (.20% for the California Tax-Exempt Money Market Fund) lower
than the yield on the same Funds' Pacific Horizon Shares, .30% lower than the
yield on the same Funds' Horizon Service Shares, .55% lower than the yield on
the same Funds' Horizon Shares and .45% higher the yield on the same Fund's S or
Y Shares; b) a Fund's Horizon Shares generally will be approximately .25% higher
than the yield on the same Fund's Horizon Service Shares, .32% (.35% higher for
the California Tax-Exempt Money Market Fund) higher than the yield on the same
Fund's Pacific Horizon Shares, .55% higher than the yield on the same Funds' X
Shares, and 1.00% higher than the yield on the same Funds' S or Y Shares; and c)
a Fund's Horizon Service Shares generally will be approximately .25% lower than
the yield on the same Fund's Horizon Shares, .07% (.10% higher for the
California Tax-Exempt Money Market Fund) higher than the yield on the same
Fund's Pacific Horizon Shares, .30% higher than the yield on the same Fund's X
Shares, and .75% higher than the same fund's S or Y shares. Standardized yield
quotations will be computed separately for each series of shares.
Shareholders are entitled to one vote for each full share held and fractional
votes for fractional shares held, and will vote in the aggregate and not by
class or series except as otherwise required by law or when class voting is
permitted by the Board of Directors. It is contemplated that all shareholders of
a Fund will vote together as a single class on matters relating to the Fund's
investment advisory agreement and on any change in its fundamental investment
limitations. Only holders of Horizon Service Shares will be entitled to vote on
matters submitted to a vote of shareholders pertaining to the Funds' Shareholder
Services Plan. Only holders of particular S, X and Y Shares, if affected by
changes to such Plan, will be entitled to vote on matters submitted to a vote of
shareholders pertaining to a Fund's Distribution and Services Plan. Only holders
of Pacific Horizon Shares will be entitled to vote on matters submitted to a
vote of shareholders pertaining to the Funds' Special Management Services Plan.
Shares have no preemptive rights and only such conversion and exchange rights as
the Board may grant at its discretion. When issued for payment as described in
this Prospectus, shares will be fully paid and non-assessable. Certificates for
shares will not be issued.
The Company does not presently intend to hold annual meetings of shareholders
for the election of directors and other business unless and until such time as
less than a majority of the directors holding office have been elected by the
shareholders of the Company, at which time the directors then in office will
call a shareholders' meeting for the election of directors. Under certain
circumstances, however, shareholders have the right to call a meeting of
shareholders to consider the removal of one or more directors and such meetings
will be called when requested by the holders of record of 10% or more of the
Company's outstanding shares of common stock. To the extent required by law and
the Company's undertaking with the Securities and Exchange Commission, the
Company will assist in shareholder communications in such matters. Shares have
cumulative voting rights to the extent that may be required by applicable law.
50
<PAGE> 125
IST-0036
-------------------------------------------------
X SHARES
OF THE
PRIME FUND
TREASURY FUND
CALIFORNIA TAX-EXEMPT MONEY MARKET FUND
HORIZON SHARES
AND
HORIZON SERVICE
SHARES
OF THE
PRIME FUND
TREASURY FUND
GOVERNMENT FUND
TREASURY ONLY FUND
TAX-EXEMPT MONEY FUND
CALIFORNIA TAX-EXEMPT
MONEY MARKET FUND
PROSPECTUS
JUNE 16, 1997
NOT FDIC INSURED
- --------------------------------------------------------------------------------
PACIFIC HORIZON MUTUAL FUNDS
- --------------------------------------------------------------------------------
<PAGE> 126
PACIFIC HORIZON FUNDS, INC.
S Shares of the Prime Fund,
Tax-Exempt Money Fund and California Tax-Exempt Money Market Fund
--------------------
Form N-1A Item Prospectus Caption
- -------------- ------------------
Part A
- ------
1. Cover Page............................... Cover Page
2. Synopsis................................. Expense Information
3. Condensed Financial Information.......... Financial Highlights
4. General Description of Registrant........ Description of Shares; Cover
Page; Investment Objectives
and Policies; Other Investment
Practices; Special
Considerations and Risks;
Investment Limitations
5. Management of the Fund................... Management of the Funds
5A. Management's Discussion of
Fund Performance....................... *
6. Capital Stock and Other
Securities............................. Description of Shares;
Dividends and Distributions;
Taxes
7. Purchase of Securities Being
Offered................................. Purchase and Redemption of
Shares; Management of the
Funds; Additional Shareholder
Services; Distribution and
Services Plan
8. Redemption or Repurchase................. Purchase and Redemption of
Shares; Management of the
Funds; Addi basis. Investment
in the Fund involves investment
risk, including the possible
loss of principal amount
invested.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
1
<PAGE> 127
PROSPECTUS
JUNE 16, 1997
S Shares of the
PRIME FUND
TAX-EXEMPT MONEY FUND AND THE
CALIFORNIA TAX-EXEMPT MONEY MARKET FUND
Investment Portfolios Offered by Pacific Horizon Funds,
Inc.
- --------------------------------------------------------------------------------
THIS PROSPECTUS APPLIES TO THE S SHARES OF THE PRIME FUND, THE TAX-EXEMPT MONEY
FUND AND THE CALIFORNIA TAX-EXEMPT MONEY MARKET FUND (EACH A "FUND" AND
COLLECTIVELY, THE "FUNDS"), ONE DIVERSIFIED INVESTMENT PORTFOLIO, ONE
DIVERSIFIED TAX-EXEMPT INVESTMENT PORTFOLIO AND ONE NON-DIVERSIFIED, TAX-EXEMPT
INVESTMENT PORTFOLIO, RESPECTIVELY, EACH OFFERED BY PACIFIC HORIZON FUNDS, INC.
(THE "COMPANY"). THE COMPANY IS REGISTERED UNDER THE INVESTMENT COMPANY ACT OF
1940 AS AN OPEN-END MANAGEMENT INVESTMENT COMPANY. THE FUNDS ARE DESIGNED TO
PROVIDE INSTITUTIONS WITH DAILY LIQUIDITY.
THE INVESTMENT OBJECTIVE OF THE PRIME FUND IS TO SEEK HIGH CURRENT INCOME AND
STABILITY OF PRINCIPAL. THE PRIME FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE
BY INVESTING SUBSTANTIALLY ALL OF ITS ASSETS IN A DIVERSIFIED PORTFOLIO OF U.S.
DOLLAR-DENOMINATED "MONEY MARKET" INSTRUMENTS SUCH AS BANK CERTIFICATES OF
DEPOSIT AND BANKERS' ACCEPTANCES, COMMERCIAL PAPER AND REPURCHASE AGREEMENTS, IN
ADDITION TO OBLIGATIONS ISSUED OR GUARANTEED BY THE U.S. GOVERNMENT, ITS
AGENCIES OR INSTRUMENTALITIES.
THE INVESTMENT OBJECTIVE OF THE TAX-EXEMPT MONEY FUND IS TO PROVIDE AS HIGH A
LEVEL OF CURRENT INTEREST INCOME EXEMPT FROM FEDERAL INCOME TAXES AS IS
CONSISTENT WITH RELATIVE STABILITY OF PRINCIPAL.
THE INVESTMENT OBJECTIVE OF THE CALIFORNIA TAX-EXEMPT MONEY MARKET FUND IS TO
SEEK AS HIGH A LEVEL OF CURRENT INTEREST INCOME FREE OF FEDERAL INCOME TAX AND
CALIFORNIA STATE PERSONAL INCOME TAX AS IS CONSISTENT WITH THE PRESERVATION OF
CAPITAL AND RELATIVE STABILITY OF PRINCIPAL.
THE CALIFORNIA TAX-EXEMPT MONEY MARKET FUND IS, AND THE TAX-EXEMPT MONEY FUND
(COLLECTIVELY, THE "TAX-EXEMPT FUNDS") MAY BE, CONCENTRATED IN SECURITIES ISSUED
BY THE STATE OF CALIFORNIA OR ENTITIES WITHIN THE STATE OF CALIFORNIA, AND THE
CALIFORNIA TAX-EXEMPT MONEY MARKET FUND MAY INVEST A SIGNIFICANT PERCENTAGE OF
ITS ASSETS IN A SINGLE ISSUER. THEREFORE, INVESTMENT IN THE TAX-EXEMPT FUNDS MAY
BE RISKIER THAN AN INVESTMENT IN OTHER TYPES OF MONEY MARKET FUNDS.
THIS PROSPECTUS BRIEFLY SETS FORTH CERTAIN INFORMATION ABOUT THE FUNDS DESCRIBED
HEREIN THAT INVESTORS SHOULD KNOW BEFORE INVESTING. IT SHOULD BE READ CAREFULLY
AND RETAINED FOR FUTURE REFERENCE. ADDITIONAL INFORMATION ABOUT THE FUNDS IS
CONTAINED IN A STATEMENT OF ADDITIONAL INFORMATION DATED JUNE 16, 1997, THAT HAS
BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND IS AVAILABLE TO
INVESTORS UPON REQUEST AND WITHOUT CHARGE BY CALLING THE FUNDS' DISTRIBUTOR AT
(800) 426-3863. THE STATEMENT OF ADDITIONAL INFORMATION, AS IT MAY FROM TIME TO
TIME BE REVISED, IS INCORPORATED IN ITS ENTIRETY BY REFERENCE INTO THIS
PROSPECTUS. THE SECURITIES AND EXCHANGE COMMISSION MAINTAINS A WEB SITE
(HTTP.//WWW.SEC.GOV) THAT CONTAINS THE STATEMENT OF ADDITIONAL INFORMATION,
MATERIAL INCORPORATED BY REFERENCE, AND OTHER INFORMATION REGARDING REGISTRANTS
THAT FILE ELECTRONICALLY WITH THE SECURITIES AND EXCHANGE COMMISSION.
(Continued next page)
- --------------------------------------------------------------------------------
Shares of the Funds are not bank deposits or obligations of, or guaranteed or
endorsed by, Bank of America National Trust and Savings Association or any of
its affiliates and are not federally insured by, guaranteed by, obligations of
or otherwise supported by the U.S. Government, the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other governmental agency. Each
Fund seeks to maintain its net asset value per share at $1.00 for purposes of
purchases and redemptions, although there can be no assurance that it will be
able to do so on a continuous basis. Investment in the Funds involves investment
risk, including the possible loss of principal amount invested.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus, in the Statement
of Additional Information and the Funds' official sales literature, in
connection with the offering of the Funds' shares and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or its distributor. This Prospectus does not constitute an offer
by the Funds or by the distributor to sell, or a solicitation of any offer to
buy, any of the securities offered hereby in any jurisdiction to any person to
whom it is unlawful for the Funds or the distributor to make such offer in such
jurisdiction.
- --------------------------------------------------------------------------------
<PAGE> 128
THE TAX-EXEMPT FUNDS SEEK TO ACHIEVE THEIR OBJECTIVES BY INVESTING PRIMARILY IN
U.S. DOLLAR-DENOMINATED OBLIGATIONS THE INTEREST ON WHICH IS EXEMPT FROM REGULAR
FEDERAL INCOME TAX, AND IN THE CASE OF THE CALIFORNIA TAX-EXEMPT MONEY MARKET
FUND, IS ALSO EXEMPT FROM TAXATION UNDER THE LAWS OR CONSTITUTION OF CALIFORNIA.
S SHARES ARE AVAILABLE TO CUSTOMERS WHO PURCHASE SUCH SHARES THROUGH CASH
MANAGEMENT SERVICES, SUCH AS A SWEEP ACCOUNT ("SWEEP ACCOUNT") OFFERED BY BANK
OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, ANY OF ITS BANKING AFFILIATES
("BANK OF AMERICA") AND CERTAIN OTHER FINANCIAL SERVICE ORGANIZATIONS, SUCH AS
BANKS OR BROKER-DEALERS ("SERVICE ORGANIZATIONS"). A SWEEP ACCOUNT COMBINES A
DEPOSIT ACCOUNT (THE "TRANSACTION ACCOUNT") WITH A DAILY SWEEP OF BALANCES TO OR
FROM THE PRIME, TAX-EXEMPT MONEY OR CALIFORNIA TAX-EXEMPT MONEY MARKET FUNDS' S
SHARES. BANK OF AMERICA OR SERVICE ORGANIZATIONS, AS APPLICABLE, ARE RESPONSIBLE
FOR PROVIDING PERSONS INVESTING IN S SHARES THROUGH A SWEEP ACCOUNT WITH SWEEP
ACCOUNT MATERIALS (THE "SWEEP MATERIALS") DESCRIBING THE VARIOUS FEATURES AND
OPERATIONS OF THE SWEEP ACCOUNT. THE SWEEP MATERIALS SHOULD BE REVIEWED IN
CONJUNCTION WITH THIS PROSPECTUS.
BANK OF AMERICA, SAN FRANCISCO, CALIFORNIA ACTS AS INVESTMENT ADVISER TO THE
FUNDS. CONCORD FINANCIAL GROUP, INC. (THE "DISTRIBUTOR"), AN INDIRECT-WHOLLY
OWNED SUBSIDIARY OF THE BISYS GROUP, INC. SPONSORS THE FUNDS AND ACTS AS THEIR
DISTRIBUTOR AND THE BISYS GROUP, INC. ACTS AS THEIR ADMINISTRATOR, NEITHER OF
WHICH IS AFFILIATED WITH BANK OF AMERICA.
PORTFOLIO SECURITIES HELD BY EACH FUND HAVE REMAINING MATURITIES OF THIRTEEN
MONTHS OR LESS FROM THE DATE OF PURCHASE BY THE FUND. PORTFOLIO SECURITIES WHICH
HAVE CERTAIN PUT OR DEMAND FEATURES EXERCISABLE BY A FUND WITHIN THIRTEEN MONTHS
(AS WELL AS CERTAIN U.S. GOVERNMENT OBLIGATIONS WITH FLOATING OR VARIABLE
INTEREST RATES) AND SECURITIES HELD AS COLLATERAL FOR REPURCHASE AGREEMENTS MAY
HAVE LONGER MATURITIES.
<PAGE> 129
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EXPENSE INFORMATION 2
INVESTMENT OBJECTIVES AND
POLICIES 4
OTHER INVESTMENT PRACTICES 8
SPECIAL CONSIDERATIONS AND RISKS 10
INVESTMENT LIMITATIONS 12
INVESTMENT DECISIONS 14
MANAGEMENT OF THE FUNDS 14
PURCHASE AND REDEMPTION OF SHARES 16
DIVIDENDS, DISTRIBUTIONS AND
TAXES 17
DESCRIPTION OF SHARES 19
</TABLE>
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------
DISTRIBUTOR: INVESTMENT ADVISER:
Concord Financial Group, Inc. Bank of America National Trust and Savings Association
3435 Stelzer Road 555 California Street
Columbus, OH 43219 San Francisco, California 94104
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 130
EXPENSE INFORMATION
The following table sets forth certain information regarding the shareholder
transaction expenses imposed by each Fund and the annual operating expenses
expected to be incurred by each Fund with respect to its S Shares for the first
twelve months of operation. Actual expenses may vary. Hypothetical examples
based on the table are also shown.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CALIFORNIA
TAX-EXEMPT TAX-EXEMPT
PRIME MONEY MARKET MONEY MARKET
FUND FUND FUND
--------- ------------ ------------
S S S
SHARES(1) SHARES(1) SHARES(1)
--------- ------------ ------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases.................................................... None None None
Maximum Sales Load Imposed on Reinvested Dividends............. None None None
Maximum Deferred Sales Load.................................... None None None
Redemption Fees(2)............................................. None None None
Exchange Fees.................................................. None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees(3)............................................. .19%(4) .20% .20%
Rule 12b-1 Fees(5)............................................. .30% .30% .30%
Shareholder Service Fees....................................... .25% .25% .25%
All Other Expenses............................................. .04% .08% .05%
----- ------- -------
Total Operating Expenses....................................... .78% .83% .80%
===== ======= =======
</TABLE>
----------------
(1) Additional fees charged by Bank of America or Service Organizations
related to the Sweep Account are not included in this table. For
additional information with respect to Sweep Account fees and charges,
including a description of the services available to Sweep Account
holders, you should refer to the Sweep Materials.
(2) The Company reserves the right to impose a charge for wiring redemption
fees.
(3) The Funds incur an investment advisory fee and an administration fee, each
payable at a maximum annual rate of .10% of each Fund's average daily net
asset value.
(4) Due to established breakpoints, management fees decreases as the Fund's
assets increase. The effective advisory fee is .09% of the Fund's average
net assets.
(5) Absent fee waivers, Rule 12b-1 fees, would be 0.75% of average daily net
assets. Because of the Distribution Plan Payment paid by S Shares as shown
in the above table, long-term Class S shareholders may pay more than the
economic equivalent of the maximum front-end sales charge permitted by
NASD Regulations, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EXAMPLES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- -------- -------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) a 5% annual return and (2) redemption at the end
of each time period:
Prime Fund S Shares............................................ $8 $25 $43 $ 97
Tax-Exempt Money Fund S Shares................................. $8 $26 $46 $103
California Tax-Exempt Money Market Fund S Shares............... $8 $26 $44 $ 99
</TABLE>
- --------------------------------------------------------------------------------
2
<PAGE> 131
The foregoing Expense Summary and Example are intended to assist investors in S
Shares in understanding the various shareholder transaction and operating
expenses that investors bear either directly or indirectly. Investors bear
operating expenses indirectly since they reduce the amount of income paid by the
Funds to investors as dividends. From time to time, the investment adviser and
administrator may prospectively waive a portion of their respective fees and/or
assume certain expenses of the Funds. This waiver or assumption of expenses may
be modified or terminated at any time. See "Management of the Funds" and
"Description of Shares" for more complete descriptions of the various expenses
referred to above.
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
INVESTMENT RETURN AND OPERATING EXPENSES. ACTUAL INVESTMENT RETURNS AND
OPERATING EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
YIELD INFORMATION. From time to time a Fund may quote its "yield," "effective
yield" and "tax-equivalent yield" in advertisements or in communications to
shareholders. Each yield figure is based on historical earnings and is not
intended to indicate future performance. The "yield" of a Fund refers to the
income generated by an investment in the Fund over a seven-day period (which
period will be identified in the advertisement or report). This income is then
"annualized"-- that is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The "effective yield" of a Fund is
calculated similarly but, when annualized, the income earned by an investment in
the Fund is assumed to be reinvested. The "effective yield" will be slightly
higher than the "yield" because of the compounding effect of this assumed
reinvestment. A Fund's "tax-equivalent yield" shows the level of taxable yield
needed to produce an after-tax equivalent to the Fund's tax-free yield. This is
done by increasing the Fund's yield (calculated as above) by the amount
necessary to reflect the payment of federal, and in the case of the California
Tax-Exempt Money Market Fund, California income tax at a stated tax rate. A
Fund's "tax-equivalent yield" will always be higher than its yield.
Additionally, the yields of a Fund may be compared to those of other mutual
funds with similar investment objectives and to other relevant indices or to
rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
Funds' yields may be compared to IBC Financial Data, Inc.("IBC") Tax-Free Money
Fund Average and IBC Money Fund Averages, which are averages compiled by IBC
Money Fund Report. Yield data as reported in national financial publications,
including Money, Forbes, Barron's, The Wall Street Journal and The New York
Times, or in publications of a local or regional nature, may also be used in
comparing the yields of a Fund. A complete listing of the indices, rankings and
publications discussed above is contained in the Statement of Additional
Information.
Since yields fluctuate, yield data cannot necessarily be used to compare an
investment in the shares of a Fund with bank deposits, savings accounts and
similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that yield
is generally a function of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses and market conditions. Any
fees charged by Bank of America or Shareholder Organizations (defined below)
directly to their customer accounts in connection with investments in shares of
a Fund (which fees may include, for example, account maintenance fees,
compensating balance requirements or fees based upon account transactions,
assets or income) will not be included in the Fund's calculations of yield.
3
<PAGE> 132
INVESTMENT OBJECTIVES AND
POLICIES
IN GENERAL
This section describes the investment objectives and policies of the Funds.
Assets of the Funds will be invested in dollar-denominated debt securities with
remaining maturities of thirteen months or less as defined by the Securities and
Exchange Commission (the "SEC"), and the dollar-weighted average portfolio
maturity of each Fund will not exceed 90 days. All securities acquired by the
Funds will be determined by the investment adviser, under guidelines established
by the Company's Board of Directors, to present minimal credit risks. Securities
acquired by the Prime Fund will be U.S. Government Securities or other "First
Tier Securities" (as defined by the SEC) of the types described below.
Securities acquired by the Tax-Exempt Money Fund will, under normal market
conditions, be "First Tier Securities" (as defined by the SEC), of the types
defined below. During temporary defensive periods or if in the investment
adviser's opinion suitable First Tier Securities are not available for
investment, however, the Tax-Exempt Money Fund may also acquire "Eligible
Securities" (as defined by the SEC) of the types defined below. Securities
acquired by the California Tax-Exempt Money Market Fund will be Eligible
Securities. First Tier Securities consist of instruments that are rated at the
time of purchase in the top rating category by one (if rated by only one) or
more unaffiliated nationally recognized statistical rating organizations
("NRSROs") including Standard and Poor's Ratings Group, Division of McGraw-Hill
("Standard & Poor's"), Moody's Investors Service, Inc. ("Moody's"), Duff &
Phelps Credit Co. ("Duff & Phelps") , Thompson Bankwatch, Inc. ("Thompson's") or
Fitch Investors Service, Inc. ("Fitch") or issued by issuers with such ratings.
Eligible Securities consist either of instruments that are rated at the time of
purchase in the top two rating categories by one or more NRSROs, or are issued
by issuers with such ratings. The Appendix to the Statement of Additional
Information includes a description of the applicable NRSRO ratings. Unrated
instruments (including instruments with long-term but not short-term ratings)
purchased by a particular Fund will be of comparable quality to the rated
instruments that the Fund may purchase, as determined by the Funds' investment
adviser pursuant to guidelines approved by the Board of Directors.
PRIME FUND. The Prime Fund's investment objective is to seek high current
income and stability of principal. The Fund invests substantially all of its
assets in a diversified portfolio of U.S. dollar-denominated money market
instruments such as bank certificates of deposit and bankers' acceptances,
commercial paper (including variable and floating rate instruments) and
repurchase agreements, in addition to obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities. Portfolio securities held by
the Fund have remaining maturities of thirteen months or less from the date of
purchase by the Fund. (Portfolio securities which are subject to repurchase
agreements or have certain put or demand features exercisable by the Fund within
thirteen months, as well as certain U.S. Government obligations with floating or
variable interest rates, may have longer maturities.)
In pursuing its investment objective, the Prime Fund invests in a broad range of
government, bank and commercial obligations that may be available in the money
markets. The money market instruments in which the Fund invests will generally
have neither as much risk nor as high a return as longer-term or lower-rated
instruments. In accordance with current regulations of the Securities and
Exchange Commission, the Fund intends to limit its investments in the securities
of any single issuer (other than securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities) to not more than 5% of the Fund's
total assets at the time of purchase, provided that the Fund may invest up to
25% of its total assets in the securities of any one issuer for a period of up
to three business days.
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The Prime Fund may purchase bank obligations such as certificates of deposit and
bankers' acceptances issued or supported by the credit of domestic banks,
foreign branches of domestic banks ("Euro CDs") or domestic branches of foreign
banks ("Yankee CDs" and "Yankee BAs") or foreign branches of foreign banks
("Yankee Euros"). Such banks must have total assets at the time of purchase in
excess of $2.5 billion. No more than 25% of the Prime Fund's total assets at the
time of purchase may be invested in Yankee CDs and BAs, Euro CDs and Yankee
Euros. The Prime Fund may also make interest-bearing savings deposits in such
commercial banks in amounts not in excess of 5% of the Fund's total assets.
The Prime Fund may be subject to additional investment risks because the Prime
Fund may hold securities issued by foreign branches of domestic banks, domestic
branches of foreign banks and foreign branches of foreign banks (and, as
described below, commercial paper issued by foreign issuers). These risks are
different in some respects from those incurred by a fund which invests only in
debt obligations of U.S. domestic issuers. Such risks include future political
and economic developments, the possible imposition of withholding taxes on
interest income payable on the securities by the particular country in which the
branch is located, the possible seizure or nationalization of foreign deposits,
the possible establishment of exchange controls or the adoption of other foreign
governmental restrictions which might adversely affect the payment of principal
and interest on these securities. In addition, foreign branches of domestic
banks, domestic branches of foreign banks and foreign branches of foreign banks
are not necessarily subject to the same regulatory requirements that apply to
domestic branches of domestic banks (such as reserve requirements, loan
limitations, examinations, accounting, auditing and recordkeeping requirements,
and public availability of information) and the Fund may experience difficulties
in obtaining or enforcing a judgment against the issuing bank.
The Prime Fund may purchase commercial paper, short-term notes and corporate
bonds that meet the Prime Fund's maturity limitations. Commercial paper
purchased by the Prime Fund may include instruments issued by foreign issuers,
such as Canadian Commercial Paper ("CCP"), which is U.S. dollar-denominated
commercial paper issued by a Canadian corporation or a Canadian counterpart of a
U.S. corporation, and Europaper, which is U.S. dollar-denominated commercial
paper of a foreign issuer.
The Prime Fund may also invest in commercial paper issued in reliance on the
so-called "private placement" exemption from registration afforded by Section
4(2) of the Securities Act of 1933 ("Section 4(2) paper"). Section 4(2) paper is
restricted as to disposition under the Federal securities laws and generally is
sold to institutional investors such as the Prime Fund that agree that they are
purchasing the paper for investment and not with a view to public distribution.
Any resale by the purchaser must be in an exempt transaction. Section 4(2) paper
normally is resold to other institutional investors like the Prime Fund through
or with the assistance of the issuer or investment dealers that make a market in
Section 4(2) paper. Section 4(2) paper will not be subject to the Fund's 10%
limitation on illiquid securities set forth below where the Board of Directors
or Bank of America (pursuant to guidelines adopted by the Board) determines that
a liquid trading market exists.
TAX-EXEMPT MONEY FUND. The Tax-Exempt Money Fund's investment objective is to
provide as high a level of current interest income exempt from federal income
taxes as is consistent with relative stability of principal. The Tax-Exempt
Money Fund invests substantially all of its assets in a diversified portfolio of
U.S. dollar-denominated short-term obligations issued by or on behalf of states,
territories and possessions of the United States, the District of Columbia and
their political subdivisions, agencies, instrumentalities and authorities, the
interest on which, in the opinion of bond counsel to the issuer, is exempt from
regular federal income tax ("Municipal
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Securities"). Portfolio securities held by the Tax-Exempt Money Fund have
remaining maturities of thirteen months or less from the date of purchase by the
Fund. (Portfolio securities which have certain put or demand features
exercisable by the Tax-Exempt Money Fund within thirteen months or are subject
to repurchase agreements may have longer maturities.)
As a matter of fundamental policy, under normal market conditions at least 80%
of the Tax-Exempt Money Fund's total assets will be invested in Municipal
Securities (other than private activity bonds, the interest on which is treated
as a specific tax preference item under the federal alternative minimum tax).
The Tax-Exempt Money Fund may also invest in taxable obligations and may hold
uninvested cash reserves pending investment, during temporary defensive periods
or if, in the opinion of the Tax-Exempt Money Fund's investment adviser,
suitable tax-exempt obligations are not available. Uninvested cash reserves will
not earn income. Taxable obligations acquired by the Tax-Exempt Money Fund will
not exceed under normal market conditions 20% of the Fund's total assets at the
time of purchase. Such taxable obligations include obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities (some of
which may be subject to repurchase agreements), certificates of deposit and
bankers' acceptances of selected banks and commercial paper. Because the
Tax-Exempt Money Fund may invest in securities backed by banks and other
financial institutions, changes in the credit quality of these institutions
could cause losses to the Tax-Exempt Money Fund and affect its share price.
These obligations are described further in the Statement of Additional
Information.
CALIFORNIA TAX-EXEMPT MONEY MARKET FUND. The California Tax-Exempt Money Market
Fund's investment objective is to seek as high a level of current interest
income free of federal income tax and California state personal income tax as is
consistent with the preservation of capital and relative stability of principal.
The California Tax-Exempt Money Market Fund's assets are primarily invested in
Municipal Securities issued by or on behalf of the State of California and other
governmental issuers. Municipal Securities acquired by the California Tax-Exempt
Money Market Fund will generally have remaining maturities of thirteen months or
less.
As a matter of fundamental policy, under normal market conditions at least 80%
of the California Tax-Exempt Money Market Fund's net assets will be invested in
Municipal Securities the interest on which is exempt from taxation under the
California Constitution or the laws of California ("California Municipal
Securities"). So long as at least 50% of the California Tax-Exempt Money Market
Fund's total assets are invested in debt obligations the interest on which is
exempt from taxation by the state of California ("California Exempt Securities,"
which are generally limited to California Municipal Securities and certain U.S.
Government and U.S. Possession obligations) as of the end of each quarter,
dividends paid by the Fund which are derived from interest on California Exempt
Securities will be exempt from California state personal income tax; if this
policy is not achieved, no portion of the California Tax-Exempt Money Market
Fund's dividends will be exempt from California state personal income tax.
Dividends derived from interest on Municipal Securities other than California
Municipal Securities will be subject to California state personal income tax.
See "Taxes."
The California Tax-Exempt Money Market Fund may hold uninvested cash reserves
pending investment, during temporary defensive periods, or if, in the opinion of
the California Tax-Exempt Money Market Fund's investment adviser, suitable
tax-exempt obligations are unavailable. In accordance with the California
Tax-Exempt Money Market Fund's investment objective, and subject to the
California Tax-Exempt Money Market Fund's fundamental policy that under normal
market conditions 80% of its net assets be invested in California Municipal
Securities, investments may be made in taxable obligations of up to thirteen
months in maturity if, for example, suitable tax-exempt obligations are
unavailable or
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if acquisition of U.S. Government or other taxable securities is deemed
appropriate for temporary defensive purposes. Such taxable obligations include,
without limitation, obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities (some of which may be subject to repurchase
agreements), certificates of deposit and bankers' acceptances of selected banks
and commercial paper. Because the California Tax-Exempt Money Market Fund may
invest in securities backed by banks and other financial institutions, changes
in the credit quality of these institutions could cause losses to the Fund and
affect its share price. These obligations are further described in the Statement
of Additional Information. Under normal market conditions, the Fund anticipates
that not more than 5% of its net assets will be invested in any one category of
taxable securities. Additionally, the California Tax-Exempt Money Market Fund
will not invest more than 10% of its net assets in securities that are illiquid
because of the absence of a readily available market or otherwise, including
repurchase agreements providing for settlement more than seven days after
notice.
MUNICIPAL SECURITIES
The two principal classifications of Municipal Securities which may be held by
the Tax-Exempt Funds are "general obligation" securities and "revenue"
securities. General obligation securities are secured by the issuer's pledge of
its full faith, credit and taxing power for the payment of principal and
interest. Revenue securities are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise tax or other specific revenue source such as the user of the
facility being financed. Private activity bonds held by the Tax-Exempt Funds are
in most cases revenue securities, which are not payable from the unrestricted
revenues of the issuers. Consequently, the credit quality of such private
activity bonds is usually directly related to the credit ratings of the users of
the facility involved. The Tax-Exempt Funds may also acquire "moral obligation"
securities, which are normally issued by special purpose public authorities. If
the issuer of moral obligation securities is unable to meet its debt service
obligations from current revenues, it may draw on a reserve fund, the
restoration of which is a moral commitment but not a legal obligation of the
state or municipality which created the issuer.
Municipal Securities include debt obligations issued by governmental entities to
obtain funds for various public purposes, including the construction of a wide
range of public facilities, the refunding of outstanding obligations, the
payment of general operating expenses and the extension of loans to public
institutions and facilities. In addition, certain types of private activity
bonds are issued by or on behalf of public authorities to finance various
privately-operated facilities. Such obligations are included within the term
Municipal Securities if the interest paid thereon is exempt from regular federal
income tax. Municipal Securities also include short-term tax anticipation notes,
bond anticipation notes, revenue anticipation notes and other forms of
short-term loan obligations. Such notes are issued with a short-term maturity in
anticipation of the receipt of tax funds, the proceeds of bond placements or
other revenues. The Tax-Exempt Funds may also purchase tax-exempt commercial
paper.
Securities acquired by the Tax-Exempt Funds may be in the form of custodial
receipts evidencing rights to receive a specific future interest payment,
principal payment or both on certain Municipal Securities. Such obligations are
held in custody by a bank on behalf of holders of the receipts. These custodial
receipts are known by various names, including "Municipal Receipts," "Municipal
Certificates of Accrual on Tax-Exempt Securities" ("M-CATS") and "Municipal
Zero-Coupon Receipts." The Tax-Exempt Funds may also purchase from time to time
participation interests in debt securities held by trusts or financial
institutions. A participation interest gives a Tax-Exempt Fund involved an
undivided interest (up to 100%) in the underlying obligation. Participation
interests purchased by a Tax-Exempt Fund may have fixed, floating or variable
rates of
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interest, and will have remaining maturities of thirteen months or less as
determined in accordance with the regulations of the Securities and Exchange
Commission (although the securities held by the issuer may have longer
maturities). If a participation interest is unrated, the investment adviser will
have determined that the interest is of comparable quality to those instruments
in which the Tax-Exempt Fund involved may invest pursuant to guidelines approved
by the Company's Board of Directors. For certain participation interests, the
Tax-Exempt Fund involved will have the right to demand payment, on not more than
30 days' notice, for all or any part of such participation interest, plus
accrued interest. As to these instruments, the Tax-Exempt Funds intend to
exercise their right to demand payment as needed to provide liquidity, to
maintain or improve the quality of their respective investment portfolios or
upon a default (if permitted under the terms of the instrument). Although a
participation interest may be sold by a Fund, under normal circumstances they
will be held until maturity.
Opinions relating to the validity of Municipal Securities and to the exemption
of interest thereon from regular federal income tax (and, with respect to
California Municipal Securities, California state personal income tax) are
rendered by bond counsel to the respective issuers at the time of issuance.
Neither the Tax-Exempt Funds nor their investment adviser will review the
proceedings relating to the issuance of Municipal Securities or the basis for
such opinions.
OTHER INVESTMENT PRACTICES
GOVERNMENT OBLIGATIONS. The Prime Fund, Tax-Exempt Money Fund and California
Tax-Exempt Money Market Fund may purchase obligations issued or guaranteed by
the U.S. Government or its agencies and instrumentalities. Obligations of
certain agencies and instrumentalities of the U.S. Government, such as the Small
Business Administration, are backed by the full faith and credit of the United
States. Others are backed by the right of the issuer to borrow from the U.S.
Treasury (such as obligations of the Federal Home Loan Bank), by the
discretionary authority of the U.S. Government to purchase the agency's
obligations (such as obligations of the Federal National Mortgage Association),
or only by the credit of the agency or instrumentality issuing the obligation
(such as the Student Loan Marketing Association). Securities issued or
guaranteed by the U.S. Government and its agencies and instrumentalities have
historically involved little risk of loss of principal if held to maturity.
However, no assurance can be given that the U.S. Government would provide
financial support to any agency or instrumentality if it is not obligated to do
so by law.
Certain securities issued or guaranteed by all governmental agencies may be
prepaid by the issuer without penalty. Thus, when prevailing interest rates
decline, the value of these securities is not likely to rise on a comparable
basis with other debt securities that are not so prepayable. The proceeds of
prepayments and scheduled payments of principal of these securities will be
reinvested by a Fund at then-prevailing interest rates, which may be lower than
the rate of interest on the securities on which these payments were received.
"STRIPPED" SECURITIES. Each Fund may invest in "stripped" securities, which are
U.S. Treasury bonds and notes the unmatured interest coupons of which have been
separated from the underlying principal obligation. Stripped securities are zero
coupon obligations that are normally issued at a discount to their "face value,"
and may exhibit greater price volatility than ordinary debt securities because
of the manner in which their principal and interest are returned to investors.
VARIABLE AND FLOATING RATE INSTRUMENTS. Securities purchased by a Fund may
include variable and floating rate instruments, which may have a stated maturity
in excess of a Fund's maturity limitations but which will, except with respect
to certain U.S. Government obligations purchased by a Fund, permit the Fund
involved to demand payment of the principal of the instrument at
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least once every thirteen months upon not more than thirty days' notice. Such
instruments may include variable amount master demand notes that permit the
indebtedness thereunder to vary, in addition to providing for periodic
adjustments in the interest rate. There may be no active secondary market with
respect to a particular variable or floating rate instrument. Nevertheless, the
periodic readjustments of their interest rates tend to assure that their value
to a Fund will approximate their par value. Illiquid variable and floating rate
instruments (instruments which are not payable upon seven days notice and do not
have an active trading market) that are acquired by a Fund are subject to a
Fund's percentage limitations on illiquid investments. The creditworthiness of
the issuers of such instruments and their ability to repay principal and
interest will be continuously monitored by a Fund's investment adviser.
Variable and floating rate instruments purchased by the Prime Fund may include
participation certificates issued by trusts or financial institutions in
variable and floating rate obligations owned by such issuers or affiliated
organizations. A participation certificate gives the Prime Fund a specified
undivided interest (up to 100%) in the underlying obligation and the right to
demand payment of the unpaid principal balance plus accrued interest on the
participation interest from the institution upon a specified number of days'
notice. If the credit of the obligor is of minimal credit risk, no credit
support from a bank or other financial institution will be necessary. In other
circumstances, the participation certificate will be backed by an irrevocable
letter of credit or guarantee of a bank, or will be insured by an insurer, that
the Funds' investment adviser has determined meets the quality standards for the
Prime Fund. If an interest is backed by an irrevocable letter of credit or
guarantee of a bank or is insured as described above, the Prime Fund will
usually have the right to sell the interest back to the institution or draw on
the letter of credit or insurance policy on demand after a specified notice
period, for all or any part of the principal amount of the interest plus accrued
interest. Although a participation interest may be sold by the Prime Fund, under
normal circumstances they will be held until maturity.
The Prime Fund may also invest in obligations which provide for a variable or
floating interest rate which is determined through a periodic "auction process."
From time to time, holders of the obligations have the right to tender any such
obligations to a remarketing agent which then remarkets the obligations which
have been tendered and thereby determines a new interest rate for the following
period.
WHEN-ISSUED PURCHASES, FORWARD COMMITMENTS AND DELAYED SETTLEMENTS. The Funds
may purchase securities on a "when-issued" basis and may purchase or sell
securities on a "forward commitment" or "delayed settlement" basis. When-issued
and forward commitment transactions, which involve a commitment by a Fund to
purchase or sell particular securities with payment and delivery taking place at
a future date (perhaps one or two months later), permit the Fund to lock in a
price or yield on a security it owns or intends to purchase, regardless of
future changes in interest rates. Delayed settlement describes securities
transactions in the secondary market for which settlement will occur sometime in
the future. When-issued, forward commitment and delayed settlement transactions
involve the risk, however, that the yield or price obtained in a transaction may
be less favorable than the yield or price available in the market when the
securities delivery takes place. A Fund's forward commitments, when-issued
purchases and delayed settlements are not expected to exceed 25% of the value of
its total assets absent unusual market conditions. A Fund's liquidity and the
ability of the investment adviser to manage its portfolio may be adversely
affected in the event its forward commitments, commitments to purchase
when-issued securities and delayed settlements ever exceed 25% of the value of
its total assets. The Funds do not intend to engage in these transactions for
speculative purposes but
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only in furtherance of their respective investment objectives.
STAND-BY COMMITMENTS. The Tax-Exempt Funds may acquire "stand-by commitments"
with respect to Municipal Securities held in their respective portfolios. Under
a stand-by commitment, a dealer agrees to purchase at a Fund's option specified
Municipal Securities at a specified price. The Tax-Exempt Funds will acquire
stand-by commitments solely to facilitate portfolio liquidity and do not intend
to exercise their rights thereunder for trading purposes. The Tax-Exempt Funds
expect that "stand-by commitments" will generally be available without the
payment of any direct or indirect consideration. However, if necessary or
advisable, a Tax-Exempt Fund may pay for a "stand-by commitment" either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities).
REPURCHASE AGREEMENTS. The Funds may agree to purchase securities from
financial institutions, such as banks and broker-dealers, as are deemed
creditworthy by the investment adviser under guidelines approved by the Board of
Directors, subject to the seller's agreement to repurchase them at an agreed
upon time and price ("repurchase agreements"). Although the securities subject
to a repurchase agreement may bear maturities exceeding thirteen months, the
Funds intend only to enter into repurchase agreements having maturities not
exceeding 60 days. Securities subject to repurchase agreements are held either
by the Company's custodian, or sub-custodian, or in the Federal Reserve/Treasury
Book-Entry System. The seller under a repurchase agreement will be required to
deliver instruments the value of which is greater than the repurchase price.
Default by the seller would, however, expose the Fund involved to possible loss
because of adverse market action or delay in connection with the disposition of
the underlying obligations. Repurchase agreements are considered to be loans
under the Investment Company Act of 1940.
REVERSE REPURCHASE AGREEMENTS. The Funds may borrow monies for temporary
purposes by entering into reverse repurchase agreements in accordance with the
investment restrictions described below. Pursuant to such agreements, a Fund
would sell portfolio securities to financial institutions and agree to
repurchase them at an agreed upon date and price. At the time a Fund enters into
a reverse repurchase agreement, it will place in a segregated custodial account
liquid assets or high grade debt securities having a value equal to or greater
than the repurchase price and the investment adviser will continuously monitor
the account to ensure that the value is maintained. A Fund would only enter into
reverse repurchase agreements to avoid otherwise selling securities during
unfavorable market conditions to meet redemptions. Reverse repurchase agreements
involve the risk that the market value of the portfolio securities sold by the
Fund involved may decline below the price of the securities the Fund is
obligated to repurchase. Interest paid by a Fund in connection with a reverse
repurchase agreement will reduce the net investment income of the Fund. Reverse
repurchase agreements are considered to be borrowings under the Investment
Company Act of 1940. A Fund will not purchase securities while it has borrowings
(including reverse repurchase agreements) outstanding.
SPECIAL CONSIDERATIONS AND RISKS
In seeking to achieve their respective investment objectives the Tax-Exempt
Funds may invest in Municipal Securities that are private activity bonds the
interest on which, although exempt from regular federal income tax, may
constitute an item of tax preference for purposes of the federal alternative
minimum tax. See "Taxes." Investments in such securities, however, will not
exceed under normal market conditions 20% of a Tax-Exempt Fund's total assets
when added together with any taxable investments held by a Tax-Exempt Fund.
Moreover, although the Tax-
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Exempt Funds do not presently intend to do so on a regular basis, they may
invest more than 25% of their respective assets in Municipal Securities the
interest on which is paid solely from revenues of similar projects if such
investment is deemed necessary or appropriate by the investment adviser.
Additionally, although the Tax-Exempt Money Fund may invest more than 25% of its
assets in Municipal Securities the issuers of which are located in the same
state, it does not presently intend to do so on a regular basis other than
issuers located in California. To the extent a Tax-Exempt Fund's assets are
concentrated in Municipal Securities payable from revenues on similar projects
or issued by issuers located in the same state, the Fund will be subject to the
peculiar economic, political and business risks presented by the laws and
economic conditions relating to such states and projects to a greater extent
than it would be if its assets were not so concentrated.
The California Tax-Exempt Money Market Fund is classified as a non-diversified
investment company under the Investment Company Act of 1940. Investment return
on a non-diversified portfolio typically is dependent upon the performance of a
smaller number of securities relative to the number held in a diversified
portfolio. Consequently, the change in value of any one security may affect the
overall value of a non-diversified portfolio more than it would a diversified
portfolio, and thereby subject the market-based net asset value per share of the
non-diversified portfolio to greater fluctuations. In addition, a
non-diversified portfolio may be more susceptible to economic, political and
regulatory developments than a diversified investment portfolio with similar
objectives may be.
The California Tax-Exempt Money Market Fund is, and the Tax-Exempt Money Fund
may be, concentrated in securities issued by the State of California or entities
within the State of California, and the California Tax-Exempt Money Market Fund
may invest a significant percentage of its assets in a single issuer. Therefore,
investment in the Tax-Exempt Funds may be riskier than an investment in other
types of money market funds.
The concentration in California Municipal Securities by the California
Tax-Exempt Money Market Fund and the Tax-Exempt Money Fund raises additional
considerations. Payment of the interest on and the principal of these
obligations is dependent upon the continuing ability of California issuers
and/or obligors of state, municipal and public authority debt obligations to
meet their obligations thereunder. Investors should consider the greater risk
inherent in a Fund's concentration in such obligations versus the safety that
comes with a less geographically concentrated investment portfolio and should
compare the yield available on a portfolio of California issues with the yield
of a more diversified portfolio including non-California issues before making an
investment decision.
Many of the Tax-Exempt Funds' Municipal Securities are likely to be obligations
of California governmental issuers which rely in whole or in part, directly or
indirectly, on real property taxes as a source of revenue. "Proposition
Thirteen" and similar California constitutional and statutory amendments and
initiatives in recent years have restricted the ability of California taxing
entities to increase real property tax revenues. Other initiative measures
approved by California voters in recent years, through limiting various other
taxes, have resulted in a substantial reduction in state revenues. Decreased
state revenues may result in reductions in allocations of state revenues to
local governments.
Because of the complex nature of the various initiatives mentioned above and
certain possible ambiguities and inconsistencies in their terms and the scope of
various exemptions and exceptions, as well as the impossibility of predicting
the level of future appropriations for state and local California governmental
entities, it is not presently possible to determine the impact of these
initiatives and related measures on the ability of California governmental
issuers to pay interest or repay principal on their obligations. There have,
however, been certain adverse developments
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with respect to Municipal Securities of California governmental issuers over the
past several years.
In addition to the various initiatives discussed above, economic factors such as
the reduction in defense spending, a decline in tourism and high levels of
unemployment have had an adverse impact on the economy of California. In recent
years, these economic factors reduced revenues to the state government at a time
when expenses of state government such as education costs, various welfare costs
and other expenses were rising. Such economic factors adversely impacted the
ability of state and local California governmental entities to repay debt, and
these factors, and others that cannot be predicted, may have an adverse impact
in the future.
In addition to the risk of nonpayment of state and local California governmental
debt, if such debt declines in quality and is downgraded by the NRSROs, it may
become ineligible for purchase by the Funds pursuant to current Securities and
Exchange Commission regulations. Since there are large numbers of buyers of such
debt that are similarly restricted, the supply of Eligible Securities (as
defined above) could become inadequate at certain times. A more detailed
description of special factors affecting investments in California Municipal
Securities, of which investors should be aware, is set forth in the Statement of
Additional Information.
INVESTMENT LIMITATIONS
The investment objective of each Fund is fundamental and may not be changed
without a vote of the holders of a majority of the particular Fund's outstanding
shares (as defined in the Investment Company Act of 1940). A Fund's policies may
be changed by the Company's Board of Directors without the affirmative vote of
the holders of a majority of such Fund's outstanding shares, except that the
following investment limitations may not be changed without such a vote of
shareholders. A description of certain other fundamental investment limitations
is contained in the Statement of Additional Information.
The Prime Fund may not:
1. Purchase any securities which would cause 25% or more of the Fund's total
assets at the time of purchase to be invested in the securities of one or
more issuers conducting their principal business activities in the same
industry, provided that (a) there is no limitation with respect to
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or domestic bank certificates of deposit, bankers'
acceptances and repurchase agreements secured by instruments of domestic
branches of U.S. banks or obligations of the U.S. Government, its agencies or
instrumentalities; (b) wholly-owned finance companies will be considered to
be in the industries of their parents if their activities are primarily
related to financing the activities of the parents; and (c) the industry
classification of utilities will be determined according to their service.
For example, gas, gas transmission, electric and gas, electric and telephone
will each be considered a separate industry.
2. Borrow money or issue senior securities, except that each Fund may borrow
from banks or enter into reverse repurchase agreements to meet redemptions or
for other temporary purposes in amounts up to 10% of its total assets at the
time of such borrowing; or mortgage, pledge or hypothecate any assets except
in connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amount borrowed or 10% of its total assets at the time
of such borrowing; or purchase securities at any time after such borrowings
(including reverse repurchase agreements) have been entered into and before
they are repaid.
3. Purchase securities without available market quotations which cannot be sold
without registration or the filing of a notification under federal or state
securities laws, enter into repurchase agreements providing for settlement
more than seven days after notice, or purchase any other securities deemed
illiquid by the Directors if, as a result, such securities
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and repurchase agreements would exceed 10% of the Fund's total assets.
The Prime Fund intends that, except as stated above under "Common Investment
Policies -- Variable and Floating Rate Instruments," variable amount master
demand notes with maturities of nine months or less, as well as any investments
in securities that are not registered under the Securities Act of 1933 but that
may be purchased by institutional buyers under Rule 144A and for which a liquid
trading market exists as determined by the Board of Directors or the Investment
Adviser (pursuant to guidelines adopted by the Board) will not be subject to the
10% limitation on illiquid securities set forth in Investment Limitation No. 3
above.
The Tax-Exempt Money Fund may not:
1. Under normal circumstances invest less than 80% of its total assets in
Municipal Securities (other than private activity bonds the interest on which
may be subject to the federal alternative minimum tax).
2. Purchase any securities which would cause 25% or more of the value of its
total assets at the time of such purchase to be invested in the securities of
one or more issuers conducting their principal business activities in the
same industry; provided, however, that (a) there is no limitation with
respect to investments in Municipal Securities or obligations issued or
guaranteed by the Federal Government and its agencies and instrumentalities;
(b) although there is no limitation with respect to investments in
certificates of deposit and bankers' acceptances issued by domestic branches
of United States banks, no more than 10% of the total value of the Fund's
assets at the time of purchase may be invested in certificates of deposit and
bankers' acceptances issued by domestic branches of foreign banks and no more
than 25% of the total value of the Fund's assets at the time of purchase may
be invested in certificates of deposit and bankers' acceptances issued by
domestic branches of foreign banks and foreign branches of domestic banks;
(c) each utility service (such as gas, gas transmission, electric and
telephone service) will be considered a single industry for purposes of this
policy; and (d) wholly-owned finance companies will be considered to be in
the industries of their parents if their activities are primarily related to
financing the activities of their parents.
3. Borrow money except from banks for temporary purposes and in amounts not in
excess of 10% of the value of the Fund's total assets at the time of such
borrowing, or mortgage, pledge or hypothecate any assets except in connection
with any such borrowing and in amounts not in excess of the lesser of the
dollar amounts borrowed or 10% of the value of the Fund's total assets at the
time of such borrowing. (This borrowing provision is not for investment
leverage, but solely to facilitate management of the Fund's portfolio by
enabling the Fund to meet redemption requests when the liquidation of
portfolio securities is deemed to be disadvantageous or inconvenient. The
Fund will not purchase any securities while borrowings are outstanding.
Interest paid on borrowed funds will reduce the net investment income of the
Fund.)
4. Invest more than 10% of the value of its total assets in securities with
legal or contractual restrictions on resale (including repurchase agreements
with terms greater than seven days).
The California Tax-Exempt Money Market Fund may not:
1. Under normal market conditions invest less than 80% of its net assets in
California Municipal Securities.
2. Purchase the securities of any issuer if as a result more than 5% of the
value of the Fund's total assets would be invested in the securities of such
issuer, except that (a) up to 50% of the value of the Fund's total assets may
be invested without regard to this 5% limitation provided that no more than
25% of
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the value of the Fund's total assets are invested in the securities of any
one issuer and (b) this 5% limitation does not apply to securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
3. Borrow money or issue senior securities, except that the Fund may borrow from
banks or enter into reverse repurchase agreements to meet redemptions or for
other temporary purposes in amounts up to 10% of its total assets at the time
of such borrowing; or mortgage, pledge or hypothecate any assets except in
connection with any such borrowing and in amounts not in excess of the lesser
of the dollar amounts borrowed or 10% of its total assets at the time of such
borrowing.
INVESTMENT DECISIONS
Investment decisions for each Fund are made independently from those for other
Portfolios of the Company, other investment companies and common trust fund
managed by Bank of America and its affiliated entities. Such other investment
companies and accounts may also invest in the same securities as a Fund. When a
purchase or sale of the same security is made at substantially the same time on
behalf of a Fund and another investment company or common trust fund, available
investments or opportunities for sales will be allocated in a manner which Bank
of America believes to be equitable. In some instances, this investment
procedure may adversely affect the price paid or received by a Fund or the size
of the position obtained or sold by a Fund. In addition, in allocating purchase
and sale orders for portfolio securities (involving the payment of brokerage
commissions or dealer concessions), Bank of America may take into account the
sale of shares of a Fund by broker-dealers and other financial institutions
(including affiliates of Bank of America and the Funds' Distributor), provided
Bank of America believes that the quality of the transaction and the amount of
the commission are not less favorable than what they would be with any other
unaffiliated qualified firm.
MANAGEMENT OF THE FUNDS
BOARD OF DIRECTORS. The business of the Company is managed under the direction
of its Board of Directors. Information about the Directors and Officers of the
Company is included in the Statement of Additional Information.
INVESTMENT ADVISER. Bank of America serves as the Funds' investment adviser.
Bank of America, which has its principal offices at 555 California Street, San
Francisco, California 94104 is a national banking association formed in 1904
which provides commercial banking and trust business through an extensive system
of branches across the western United States. Bank of America's principal
banking affiliates operate branches in eleven U.S. states as well as corporate
banking offices in major U.S. cities and branches, corporate offices and
representative offices in 37 foreign countries and territories. Bank of America
is the successor by merger to Security Pacific National Bank ("Security
Pacific"), which previously served as investment adviser to the Company since it
commenced operations in 1984. Bank of America and its affiliates have over $50
billion under management, including over $14 billion in mutual funds. Bank of
America is a subsidiary of BankAmerica Corporation, a registered bank holding
company.
As investment adviser, Bank of America manages the Funds' investments and is
responsible for all purchases and sales of the Funds' portfolio securities. For
its investment advisory services Bank of America is entitled to receive a fee
accrued daily and payable monthly at the following annual rates: .10% of the
first $3 billion of each Fund's average daily net assets, plus .09% of the next
$2 billion of each Fund's average daily net assets, plus .08% of each Fund's
average daily net assets over $5 billion. For the fiscal year ended February 28,
1997, the Prime Fund, Tax-Exempt Money Fund and California Tax-Exempt Money
Market Fund paid Bank of America advisory fees at the effective annual rates of
.09%, .10%, .10%, of their respective average daily net assets.
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In addition, Bank of America may receive fees pursuant to the Distribution and
Services Plan with respect to the Funds' S Shares. Bank of America and Service
Organizations may receive fees charged directly to their customers' accounts in
connection with investments in S Shares of the Funds.
ADMINISTRATOR. The BISYS Group, Inc. (the "Administrator"), through its
wholly-owned subsidiary BISYS Fund Services, L.P., serves as the Company's
administrator and assists generally in supervising the Funds' operations. Their
offices are located at 150 Clove Road, Little Falls, New Jersey 07424 and 3435
Stelzer Road, Columbus, Ohio 43219-3035. Prior to November 1, 1996, Concord
Holding Company, Inc., an indirect, wholly-owned subsidiary of the current
Administrator, served as administrator (the "Prior Administrator").
Under its basic administrative services agreement for the Funds, the
Administrator has agreed to: provide the facilities, equipment and personnel
necessary to carry out administrative services for the benefit of all series of
shares in the Funds; including coordination of the preparation of reports to
shareholders of the Funds and the Securities and Exchange Commission;
calculation of the net asset value of the Funds' shares; calculation of the
dividends and capital gains distributions to shareholders; payment of the costs
of maintaining the Funds' offices; preparation of tax returns; provision of
internal legal and accounting compliance services; maintenance (or oversight of
the maintenance by others approved by the Board of Directors) of the Funds'
books and records; and provision of various services for shareholders (such as
the provision of a facility to receive purchase and redemption orders) for
shareholders who have made a minimum investment of at least $500,000.
For its administrative services, the Administrator is entitled to receive an
administration fee computed daily and payable monthly at the following annual
rates: .10% of the first $7 billion of each Fund's average daily net assets,
plus .09% of the next $3 billion of each Fund's average daily net assets, plus
.08% of each Fund's average daily net assets over $10 billion. This amount may
be reduced pursuant to certain undertakings by the Administrator described below
under "Fee Waivers." For the fiscal year ended February 28, 1997, the Prime
Fund, Tax-Exempt Money Fund and the California Tax-Exempt Money Market Fund paid
the Administrator or Prior Administrator administration fees at the effective
annual rates of .10% of their respective average daily net assets.
Pursuant to the authority granted in its agreement with the Company, the
Administrator has entered into an agreement with The Bank of New York under
which the bank performs certain of the services listed above -- e.g. calculating
the net asset value of the Funds' shares and dividends paid to shareholders and
maintaining the Funds' books and records. The Funds bear all fees and expenses
charged by The Bank of New York for these services.
DISTRIBUTOR. Concord Financial Group, Inc. (the "Distributor") is the principal
underwriter and distributor of shares of the Funds. The Distributor is an
indirect, wholly-owned subsidiary of the Administrator, organized to distribute
shares of mutual funds to institutional and retail investors. Its offices are
located at 3435 Stelzer Road, Columbus, Ohio 43219-3035.
The Distributor makes a continuous offering of the Funds' shares and bears the
costs and expenses of printing and distributing to selected dealers and
prospective investors copies of any prospectuses, statements of additional
information and annual and interim reports of the Funds (after such items have
been prepared and set in type by the Funds) that are used in connection with the
offering of shares, and the costs and expenses of preparing, printing and
distributing any other literature used by the Distributor or furnished by it for
use by selected dealers in connection with the offering of the Funds' shares for
sale to the public.
CUSTODIAN AND TRANSFER AGENT. The Bank of New York, located at 90 Washington
Street, New
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York, New York 10286, serves as the Funds' custodian and Bank of America serves
as the Prime Fund's sub-custodian. BISYS Fund Services, Inc. (the "Transfer
Agent"), a wholly-owned subsidiary of the Administrator, 3435 Stelzer Road,
Columbus, Ohio 43219-3035, serves as transfer agent and dividend disbursing
agent. The Company has also entered into a Cash Management and Related Services
Agreement with The Bank of New York pursuant to which The Bank of New York
receives and disburses funds in connection with the purchase and redemption of,
and the payment of dividends and other distributions with respect to the Funds'
shares.
FEE WAIVERS. Except as noted in this Prospectus and the Statement of Additional
Information, the Funds' service contractors bear all expenses in connection with
the performance of their services and the Funds bear the expenses incurred in
their operations. Expenses can be reduced by voluntary fee waivers and expense
reimbursements by Bank of America and other service providers. From time to
time, during the course of each Fund's fiscal year, Bank of America and/or the
Administrator may prospectively waive payments of fees and/or reimburse certain
expenses of the Funds as a result of competitive pressures and in order to
preserve and protect the business and reputation of Bank of America and the
Administrator. This will have the effect of lowering the overall expense ratio
of such Fund and of increasing such Fund's yield to investors at the time such
fees are waived or expenses reimbursed, and of increasing the overall expense
ratio of such Fund and of decreasing yield to investors when such fees are not
waived or expenses not reimbursed.
PURCHASE AND REDEMPTION OF SHARES
HOW S SHARES ARE PURCHASED. S Shares of the Funds are offered by this
Prospectus to customers of Bank of America, any of its banking affiliates or
Service Organizations that establish cash management services, such as a Sweep
Account with Bank of America, any of its banking affiliates or a Service
Organization. Each Sweep Account combines a Transaction Account with a periodic
sweep of balances to or from the Funds. Investors may open a Sweep Account by
completing and signing the appropriate Sweep Materials. The Sweep Materials
contain important information about the various features and operations of the
Sweep Account and should be reviewed in conjunction with this Prospectus.
S Shares may be purchased on any Business Day (as defined below) that Bank of
America, any of its banking affiliates and the particular Service Organization
are open for business by making a deposit into your Transaction Account. On each
day that both the Funds' custodian and the New York Stock Exchange (the
"Exchange") are open for business (a "Business Day") and Bank of America, any of
its banking affiliates and a Service Organization are open for business, Bank of
America, any of its banking affiliates or a Service Organization computes the
net amount of all deposits, withdrawals, charges and credits made to and from a
Transaction Account in accordance with their Sweep Account procedures (the "Net
Sweep Amount"). If deposits and credits exceed withdrawals and charges, you
authorize Bank of America, any of its banking affiliates or a Service
Organization, on your behalf, to transmit a purchase order to the Fund
designated in your Sweep Account in the amount of that day's Net Sweep Amount in
accordance with the Sweep Account procedures of Bank of America, any of its
banking affiliates or a Service Organization. Your purchase order will be made
effective and full and fractional S Shares will be purchased at the net asset
value per share next determined after receipt by the Transfer Agent. It is the
responsibility of Bank of America, any of its banking affiliates or a Service
Organization to transmit orders for the purchases of S Shares by its customers
to the Transfer Agent and deliver required funds on a timely basis, in
accordance with the procedures stated above. Share purchases and redemptions
executed through Bank of America, any of its banking affiliates or a Service
Organization are executed only on Busi-
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ness Days that Bank of America, any of its banking affiliates and a Service
Organization, respectively, are open for business. Contact Bank of America, any
of its banking affiliates or your Service Organization for additional
information about Bank of America's, any of its banking affiliates, or the
Service Organizations' Sweep Account procedures.
HOW S SHARES ARE REDEEMED. If, on any Business Day Bank of America, any of its
banking affiliates and the particular Service Organization are open for
business, withdrawals and charges to your Sweep Account, including without
limitation check transactions, exceed deposits and credits, Bank of America, any
of its banking affiliates or the particular Service Organization, as applicable,
will transmit a redemption order on your behalf to the Fund in the dollar amount
of that day's Net Sweep Amount. If your Sweep Account with Bank of America, any
of its banking affiliates or the particular Service Organization, as applicable,
is closed as described in the Sweep Materials, Bank of America, any of its
banking affiliates or the particular Service Organization, as applicable, will
normally transmit a redemption request on your behalf to the Fund for the
balance of the S Shares of the Fund held through your Sweep Account. Redemptions
are effected by the Company on a Business Day at the net asset value per share
next determined after receipt of the redemption order by the Transfer Agent. It
is the responsibility of Bank of America, any of its banking affiliates or the
particular Service Organization to transmit the redemption order and credit its
customer's Transaction Account with the redemption proceeds on a timely basis.
Bank of America, any of its banking affiliates or the Service Organization may
withhold redemption proceeds pending check collection or processing or for other
reasons all as set forth more fully in the Sweep Materials.
OTHER REDEMPTION INFORMATION -- S SHARES. Redemption orders are effected on a
Business Day at the net asset value per share next determined after receipt of
the order by the Transfer Agent. The Funds will make payment for all shares
redeemed after receipt by the Transfer Agent of a request in proper form, except
as provided by the rules of the Securities and Exchange Commission. A Fund may
suspend the right of redemption or postpone the date of payment upon redemption
(as well as suspend or postpone the recordation of the transfer of its shares)
for such periods as are permitted under the Investment Company Act of 1940.
During the period prior to the time shares are redeemed dividends on such shares
will accrue and be payable, and an investor will be entitled to exercise all
other rights of beneficial ownership. The Funds impose no charge when S Shares
are redeemed.
NET ASSET VALUE. The net asset value per share of the S Shares of each Fund is
the value of all securities and other assets owned by a Fund that are allocable
to the S Share class, less the liabilities charged to such class, divided by the
number of outstanding shares of such class. The net asset value per share of the
Prime Fund is determined on each Business Day as of 2:30 p.m. Eastern time and
the close of regular trading hours on the exchange (or 4:00 p.m. Eastern time if
the Exchange is closed). The net asset value per share of the Tax-Exempt Money
Fund is determined on each Business Day as of 12:00 noon Eastern time. The net
asset value per share of the California Tax-Exempt Money Market Fund is
determined on each Business Day as of 10:30 a.m. Eastern Time. In computing net
asset value, each Fund uses the amortized cost method of valuation as described
in the Statement of Additional Information under "Purchase and Redemption of
Shares." The net asset value per share for each Fund for purposes of pricing
purchase and redemption orders is determined independently.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS. The shareholders of a Fund are entitled to
dividends and distributions arising from the net investment income and net
realized gains, if any, earned on investments held by the Fund involved.
Generally, each
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Fund's net income is declared daily as a dividend. Shares begin accruing
dividends on the day the purchase order for the shares is executed and continue
to accrue dividends through and including the day before the redemption order
for the shares is executed. Dividends are paid within five business days after
the end of each month. Although the Funds do not expect to realize net long-term
capital gains, any such capital gains as may be realized will be distributed no
more than twice a year after reduction for any available capital loss carry
forward.
Dividends are paid in the form of additional full and fractional shares of the
same series as the shares on which the dividends are declared at the net asset
value of such shares on the payment date. If you elect to receive distributions
in cash, and if your checks (1) are returned and marked as "undeliverable" or
(2) remain uncashed for six months, your cash election will be changed
automatically and your future dividend and capital gains distributions will be
reinvested in the Fund at the per share net asset value determined as of the
date of payment of the distribution. In addition, any undeliverable checks or
checks that remain uncashed for six months will be canceled and will be
reinvested in the Fund at the per share net asset value determined as of the
date of cancellation. Reinvested dividends receive the same tax treatment as
dividends paid in cash. Such election or any revocation thereof must be made in
writing to the Transfer Agent at P.O. Box 182090, Columbus, Ohio, 43218-2090,
and will become effective with respect to dividends paid after its receipt by
the dividend disbursing agent.
TAXES. During its most recent taxable year, each Fund qualified separately as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"), and the Funds intend that they will each so qualify in
future years as long as such qualification is in the best interests of its
shareholders. As a result of this qualification, each Fund generally is not
required to pay federal income taxes to the extent its earnings are distributed
in accordance with the Code.
In connection with such tax qualification, the Prime Fund contemplates
distributing to its shareholders at least 90% of its investment company taxable
income for each taxable year. An investor of the Prime Fund who receives a
dividend derived from investment company taxable income (including any excess of
net short-term capital gain over net long-term loss) treats it as a receipt of
ordinary income in the computation of his gross income, whether such dividend is
paid in the form of cash or additional shares of the Fund. Because all of the
net investment income of the Fund is expected to be derived from earned
interest, it is anticipated that all dividends paid by the Fund will be taxable
as ordinary income to shareholders who are not exempt from federal income taxes
and that no part of any distribution paid by the Fund will be eligible for the
dividends received deduction for corporations.
Although each Fund anticipates that it will not have net long-term capital gain,
any distribution of the Fund's excess of net long-term capital gain over its net
short-term capital loss will be taxable to shareholders of the Fund as long-term
capital gain, regardless of how long the shareholders has held shares of the
Fund.
The policy of each Tax-Exempt Fund is to distribute to its shareholders at least
90% of its exempt-interest income, net of certain deductions, for each taxable
year. Dividends derived from interest on Municipal Securities (known as
exempt-interest dividends) and paid to shareholders typically will not be
subject to regular federal income tax.
With respect to the California Tax-Exempt Money Market Fund, if, at the close of
each quarter of its taxable year, at least 50% of the value of the Fund's total
assets consists of California Exempt Securities and if the Fund qualifies as a
regulated investment company under the Code, then the Fund will be qualified to
pay dividends exempt from California state
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personal income tax to its shareholders. If the Fund so qualifies, dividends
derived from interest attributable to California Exempt Securities will be
exempt from California state personal income tax. (Such treatment may not apply,
however, to investors who are "substantial users" or "related persons" with
respect to facilities financed by portfolio securities held by the California
Tax-Exempt Money Market Fund.) Any dividends paid to shareholders subject to
California state franchise tax or California state corporate income tax may be
taxed as ordinary dividends to such shareholders notwithstanding that all or a
portion of such dividends are exempt from California state personal income tax.
To the extent, if any, that dividends paid to shareholders of the Tax-Exempt
Funds are derived from taxable interest or from capital gains, such dividends
will be subject to federal income tax and California state personal income tax,
whether or not such dividends are reinvested.
The portion of dividends, if any, attributable to interest on certain private
activity bonds issued after August 7, 1986 must be included by shareholders as
an item of tax preference for purposes of determining liability, if any, for the
26% to 28% federal alternative minimum tax applicable to individuals and the 20%
federal alternative minimum tax applicable to corporations. Corporate
shareholders also must take all exempt-interest dividends into account in
determining certain adjustments for federal alternative minimum tax purposes.
Shareholders receiving Social Security benefits should note that all
exempt-interest dividends will be taken into account in determining the tax
liability on such benefits.
Dividends declared in October, November or December of any calendar year payable
to shareholders of record on a specified date in December will be deemed for
federal tax purposes to have been paid by a Fund and received by its
shareholders on December 31 of such year, if such dividends are paid during
January of the following year.
OTHER STATE AND LOCAL TAXES. Investors are advised to consult their tax
advisers concerning the application of state and local taxes generally, which
may have different consequences from those of the federal income tax and, with
respect to the California Tax-Exempt Money Market Fund, the California state
personal income tax described above. Exempt-interest dividends generally will be
exempt from state and local taxes as well. However, except as noted with respect
to California state personal income tax, dividends paid by the Funds may be
taxable to investors under state or local law as dividend income even though all
or a portion of such dividends may be derived from interest on obligations that,
if realized directly, would be exempt from such taxes.
GENERAL. Shareholders will be advised at least annually as to the federal
income tax and, with respect to the California Tax-Exempt Money Market Fund, the
California state personal income tax consequences of dividends and distributions
made each year. The foregoing is only a brief summary of some of the important
tax considerations generally affecting the respective Funds and their
shareholders, and is based on tax laws and regulations in effect as of the date
of this Prospectus. Such laws may be changed by administrative or legislative
action. Additional tax information of relevance to particular investors,
including investors who may be "substantial users" or "related persons" with
respect to facilities financed by Municipal Securities, is contained in the
Statement of Additional Information. Potential investors in the Funds should
consult their tax advisers with specific reference to their own tax situation.
DESCRIPTION OF SHARES
The Company was organized on October 27, 1982 as a Maryland corporation, and is
registered under the Investment Company Act of 1940 as an open-end management
investment company. On March 30, 1984 the Company commenced its public sale of
shares (Pacific Horizon Shares in the Prime Fund which was originally called
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"Money Market Portfolio"). The Predecessor Prime Fund and Tax-Exempt Fund
originally commenced operations on July 10, 1987 as a separate portfolios of The
Horizon Funds, a Massachusetts business trust. On January 19, 1990, the
Predecessor Prime Fund combined with the Money Market Portfolio of the Company;
the Company changed the names of its resulting portfolio to "Prime Fund"; and,
in addition to continuing its offering of Pacific Horizon Shares in such Fund,
the Company began offering Horizon Shares and Horizon Services Shares in the
Prime Fund. On July 22, 1996, the Company began offering X Shares in the Prime
Fund and on April 7, 1997, the Company began offering S Shares in the Prime
Fund. X Shares are offered to retail customers who purchase such shares through
a sweep account offered by BA Investment Services, Inc. and certain Service
Organizations or through Bank of America's 401(k) programs. Pacific Horizon
Shares may be purchased directly from the Distributor by clients of Bank of
America through their qualified trust and agency accounts or by clients of
Service Organizations. Horizon and Horizon Service Shares may not be purchased
by individuals directly, but institutional investors may purchase Horizon and
Horizon Service Shares for accounts maintained by individuals. Y Shares are
offered to institutional investors who purchase such shares through a sweep
account offered by Bank of America, any of its banking or brokerage affiliates
and Service Organizations. Also on January 19, 1990, the Predecessor Tax-Exempt
Fund was reorganized as the Tax-Exempt Money Fund of the Company and prior to
July 9, 1993 had offered only two series of shares, Horizon Shares and Horizon
Service Shares. On July 9, 1993, all assets and liabilities of the Company's
Predecessor Tax-Exempt Fund were transferred to the Tax-Exempt Money Fund as
Pacific Horizon Shares. The California Tax-Exempt Money Market Fund commenced
operations on December 6, 1989 as a portfolio of the Company with a single
series of shares, Pacific Horizon Shares. On March 1, 1993 the California
Tax-Exempt Money Market Fund began offering Horizon Service Shares. On October
2, 1996, the Company began offering X Shares in the California Tax-Exempt Money
Market Fund. The Company has also classified an S Share class of the California
Tax-Exempt Money Market Fund, an S Share class of the Tax-Exempt Fund and a Y
Share class of the Prime Fund.
The Company's charter authorizes the Board of Directors to issue up to four
hundred billion full and fractional shares of capital stock, and to classify and
reclassify any authorized and unissued shares into one or more classes of
shares. The Board of Directors may similarly classify or reclassify any class of
shares into one or more series. Pursuant to such authority, the Board of
Directors has authorized the issuance of the following series of shares
representing interests in the Prime Fund which is classified as a diversified
company under the Investment Company Act of 1940: twenty billion X Shares,
twenty billion S Shares, twenty billion Horizon Shares, twenty billion Horizon
Service Shares, twenty billion Pacific Horizon Shares, and twenty billion Y
Shares; the following series of shares representing interests in the Tax-Exempt
Money Fund: ten billion Horizon Shares, ten billion Horizon Service Shares, ten
billion, Pacific Horizon Shares and ten billion S Shares and the following
series of shares representing interests in the California Tax-Exempt Money
Market Fund: ten billion Horizon Shares, ten billion Horizon Service Shares, ten
billion Pacific Horizon Shares, ten billion S Shares and ten billion X Shares.
Horizon Shares, Horizon Service Shares and Pacific Horizon Shares of the Funds
and X Shares of the Prime Fund and California Tax-Exempt Money Market Fund are
described in a separate Prospectus available from the Distributor at the
telephone number on the cover of this Prospectus. The Board of Directors has
also authorized the issuance of additional classes and series of shares
representing interests in other investment portfolios of the Company, which are
likewise described in separate Prospectuses available from the Distributor. This
Prospectus relates primarily to the S Shares of the Funds and describes only
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the investment objectives and policies, operations, contracts and other matters
relating to such shares.
Each Horizon Share, Horizon Service Share, Pacific Horizon Share, S Share, Y
Share and X Share in a Fund has a par value of $.001, and, except as noted
below, is entitled to participate equally in the dividends and distributions
declared by the Board of Directors with respect to such Fund and in the net
distributable assets of such Fund on liquidation. Holders of S Shares bear the
fees described in this Prospectus that are paid to the Distributor and Service
Organizations by the Funds under the Company's Distribution and Services Plan.
Similarly, holders of a Fund's X and Y Shares bear the fees described in the
Prospectus relating to such shares that are paid to the Distributor and Service
Organization by such Fund or by the same Plan. The fees paid under the
Distribution and Services Plan are for distribution and shareholder services and
are paid to the Distributor and Shareholder Service Organizations in connection
with X, Y and S Shares of the Funds, and are not paid by the Funds' Horizon,
Horizon Service or Pacific Horizon Shares. Holders of a Fund's Horizon Service
Shares bear the fees described in the Prospectus relating to such shares that
are paid to Shareholder Organizations by the Fund under the Company's
Shareholder Services Plan. Similarly, holders of the Fund's Pacific Horizon
Shares bear the fees described in the Prospectuses for such shares that are paid
to Shareholder Organizations by the Fund under the Company's Special Management
Services Plan for Pacific Horizon Shares. Holders of Horizon Shares are not
subject to fees such as those paid under the Shareholder Services Plan or the
Special Management Services Plan.
As a result of the different fees borne by various series of shares of a Fund,
at any given time, absent waivers of any class-specific fees or expenses, the
net yield on an S Share generally will be equal to the yield on Y Share; 1.00%
lower than the yield on a Horizon Share; 0.75% lower than the yield on the same
Fund's Horizon Service Shares; 0.68% (.65% for the California Tax-Exempt Money
Market Fund) lower than the yield on the same Fund's Pacific Horizon Shares; and
0.45% lower than the yield on the same Fund's X Shares. Standardized yield
quotations will be computed separately for each series of shares.
Shareholders are entitled to one vote for each full share held and fractional
votes for fractional shares held, and will vote in the aggregate and not by
class or series except as otherwise required by law or when class voting is
permitted by the Board of Directors. It is contemplated that all shareholders of
a Fund will vote together as a single class on matters relating to the Fund's
investment advisory agreement and on any change in its fundamental investment
limitations, and that only holders of Horizon Service Shares of a Fund will be
entitled to vote on matters submitted to a vote of shareholders pertaining to
the Fund's Shareholder Services Plan. Only holders of Pacific Horizon Shares of
a Fund will be entitled to vote on matters submitted to a vote of shareholders
pertaining to the Fund's Special Management Services Plan. Only holders of S
Shares, Y Shares and X Shares, will be entitled to vote on matters submitted to
a vote of shareholders pertaining to the Fund's Distribution and Services Plan
relating to the particular series. Fund shares have no preemptive rights and
only such conversion and exchange rights as the Board may grant at its
discretion. When issued for payment as described in this Prospectus, shares will
be fully paid and non-assessable. Certificates for shares will not be issued.
The Company does not presently intend to hold annual meetings of shareholders
for the election of directors and other business unless and until such time as
less than a majority of the directors holding office have been elected by the
shareholders of the Company, at which time the directors then in office will
call a shareholders' meeting for the election of directors. Under certain
circumstances, however, shareholders have the right to call a meeting of
shareholders to consider the removal of one or more directors
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and such meetings will be called when requested by the holders of record of 10%
or more of the Company's outstanding shares of common stock. To the extent
required by law and the Company's undertaking with the Securities and Exchange
Commission, the Company will assist in shareholder communications in such
matters. Shares have cumulative voting rights to the extent that may be required
by applicable law.
DISTRIBUTION AND SERVICES PLAN. Under the Distribution and Services Plan, the
Funds pay the Distributor for distribution expenses primarily intended to result
in the sale of such Funds' S Shares and for shareholder servicing expenses. Such
distribution expenses include expenses incurred in connection with advertising
and marketing each Fund's Class S Shares; payments to Service Organizations for
assistance in connection with the distribution of S Shares; and expenses
incurred in connection with preparing, printing and distributing prospectuses
for the Funds (except those used for regulatory purposes or for distribution to
existing shareholders of the Funds) and in implementing and operating the
Distribution and Services Plan. Shareholder servicing expenses include expenses
incurred in connection with shareholder services provided by the Distributor and
payments to Service Organizations for the provision of support services with
respect to the beneficial owners of S Shares, such as establishing and
maintaining accounts and records relating to their clients who invest in S
Shares, assisting clients in processing exchange and redemption requests,
developing, maintaining and supporting systems necessary to support cash
management services, such as Sweep Accounts and/or in changing dividend options
and account descriptions and responding to client inquiries concerning their
investments.
Under the Distribution and Services Plan, payments by the Prime Fund, Tax-Exempt
Money and California Tax-Exempt Money Market Funds for distribution expenses and
shareholder servicing expenses may not exceed the annual rate of up to 0.75% and
.25%, respectively, of the average daily net assets of such Funds' S Shares.
These amounts may be reduced pursuant to undertakings by the Distributor.
Payments for distribution expenses under the Distribution and Services Plan are
subject to Rule 12b-1 under the 1940 Act. As stated below under "Description of
Shares," fees pursuant to the Distribution and Services Plan are borne by the S
and X Shares of the Funds and are not paid with respect to such Funds' other
series of shares. As of the fiscal year ended February 28, 1997, no S Shares
were outstanding.
The Company will obtain a representation from the Service Organizations (and
from Bank of America and the Distributor) that they are or will be licensed as
dealers as required by applicable law or will not engage in activities which
would require them to be so licensed.
22
<PAGE> 151
PACIFIC HORIZON MUTUAL FUNDS
MRA-0001
Ri-715-6/97
S SHARES
OF THE
PRIME FUND,
TAX-EXEMPT MONEY FUND
AND THE
CALIFORNIA TAX-EXEMPT
MONEY MARKET FUND
PROSPECTUS
June 16, 1997
NOT FDIC INSURED
<PAGE> 152
PACIFIC HORIZON FUNDS, INC.
S Shares of the
Treasury Fund
--------------------
<TABLE>
<CAPTION>
Form N-1A Item Prospectus Caption
- -------------- ------------------
Part A
- ------
<S> <C>
1. Cover Page................................................. Cover Page
2. Synopsis................................................... Expense Summary
3. Condensed Financial Information............................ *
4. General Description of Registrant.......................... Description of Shares; Cover
Page; Investment Objective and
Policies
5. Management of the Fund..................................... Management of the Fund
5A. Management's Discussion of
Fund Performance......................................... *
6. Capital Stock and Other
Securities............................................... Description of Shares;
Dividends, Distributions and
Taxes
7. Purchase of Securities Being
Offered................................................... Purchases of Shares;
Management of the Fund;
Distribution and Services
Plan; Shareholder Services
8. Redemption or Repurchase................................... Redemption of Shares;
Distribution and Services
Plan; Shareholder Services
9. Pending Legal Proceedings.................................. *
</TABLE>
* Item inapplicable or answer negative.
<PAGE> 153
PROSPECTUS
June 16, 1997
S Shares of the
Treasury Fund
An Investment Portfolio Offered by Pacific Horizon Funds, Inc.
This Prospectus applies to the S Shares of the Treasury Fund (the "Fund"), a
diversified investment portfolio offered by Pacific Horizon Funds, Inc. (the
"Company"). The Company is registered under the Investment Company Act of 1940
as an open-end management investment company. The Fund is designed to provide
institutions with daily liquidity.
The investment objective of the Fund is to seek high current income and
stability of principal. The Fund seeks to achieve its investment objective by
investing solely in direct obligations issued by the U.S. Treasury and
repurchase agreements relating to such Treasury obligations.
This Prospectus briefly sets forth certain information about the Fund described
herein that investors should know before investing. It should be read and
retained for future reference. Additional information about the Fund, contained
in a Statement of Additional Information dated June 16, 1997, has been filed
with the Securities and Exchange Commission and is available to investors upon
request and without charge by calling the Funds' Distributor at (800) 426-3863.
The Statement of Additional Information, as it may from time to time be revised,
is incorporated in its entirety by reference into this Prospectus.
Shares of the Fund are not bank deposits or obligations of, or guaranteed or
endorsed by, Bank of America National Trust and Savings Association or any of
its affiliates and are not federally insured by, guaranteed by, obligations of
or otherwise supported by the U.S. Government, the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other governmental agency. The
Fund seeks to maintain its net asset value per share at $1.00 for purposes of
purchases and redemptions, although there can be no assurance that it will be
able to do so on a continuous basis. Investment in the Fund involves investment
risk, including the possible loss of principal amount invested.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE> 154
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 offered hereby in any jurisdiction to any person to
whom it is unlawful for the Fund or the distributor to make such offer in such
jurisdiction.
S Shares are available to customers who purchase such shares through cash
management services, such as a sweep account ("Sweep Account") offered by Bank
of America National Trust and Savings Association, any of its banking affiliates
("Bank of America") and certain other financial service organizations, such as
banks or broker-dealers ("Service Organizations"). A Sweep Account combines a
deposit account (the "Transaction Account") with a daily sweep of balances to or
from the Fund's S Shares. Bank of America or Service Organizations, as
applicable, are responsible for providing persons investing in S Shares through
a Sweep Account with Sweep Account materials (the "Sweep Materials") describing
the various features and operations of the Sweep Account. The Sweep Materials
should be reviewed in conjunction with this Prospectus.
Bank of America National Trust and Savings Association (the "Investment
Adviser") San Francisco, California acts as investment adviser to the Fund.
Concord Financial Group, Inc. (the "Distributor") sponsors the Fund and acts as
its distributor and The BISYS Group, Inc. acts as its administrator, neither of
which is affiliated with the Investment Adviser.
Portfolio securities held by the Fund have remaining maturities of thirteen
months or less from the date of purchase by the Fund. Portfolio securities which
have certain put or demand features exercisable by the Fund within thirteen
months (as well as certain U.S. Government obligations with floating or variable
interest rates) and securities held as collateral for repurchase agreements may
have longer maturities.
2
<PAGE> 155
Contents
Summary
Expense Information
Financial Highlights
Investment Objectives and Policies
Management of the Funds
Purchase and Redemption of Shares
Additional Shareholder Services
Dividends and Distributions
Taxes
Description of Shares
<TABLE>
<S> <C>
Distributor: Investment Adviser:
Concord Financial Group, Inc. Bank of America National Trust and Savings Association
3435 Stelzer Road 555 California Street
Columbus, OH 43219 San Francisco, CA 94104
</TABLE>
For purchase and redemption orders, yield information and
other Fund information call (800) 426-3863
3
<PAGE> 156
Summary
The following summary is qualified in its entirety by reference to the more
detailed information included elsewhere in the Prospectus.
Investment Objective and
Policies: The investment objective of the Fund is to seek
high current income and stability of principal.
The Fund seeks to achieve this objective by
investing solely in direct obligations issued by
the U.S. Treasury and repurchase agreements
relating to such Treasury obligations.
Portfolio securities held by the Fund have
remaining maturities of thirteen months or less
from the date of purchase by the Fund. (Portfolio
securities which have certain put or demand
features exercisable by the Fund within thirteen
months, as well as certain U.S. Government
obligations with floating or variable interest
rates, and securities held as collateral for
repurchase agreements may have longer maturities.)
There can be no assurance that the Fund will
achieve its investment objective. The Fund's
investments are subject to certain investment
risks including default by the issuers of debt
obligations and parties with which the Fund may
have in accordance with its investment policies
entered into repurchase and reverse repurchase
transactions. The market value of the Fund's
portfolio securities will normally vary inversely
with prevailing interest rates. See "Investment
Objectives and Policies."
Net Asset Value: The Fund seeks to maintain its net asset value per
share at $1.00, and values its portfolio
securities on the basis of amortized cost. The
dollar weighted average maturity of the Fund is 90
days or less. See "Purchase and Redemption of
Shares--Net Asset Value."
Investment Adviser: Bank of America National Trust and Savings
Association (the "Investment Adviser") is the
investment adviser of the Fund. The Investment
Adviser is a national banking association formed
in 1904 which provides commercial banking and
trust business through an extensive system of
branches across the western United States. The
Investment Adviser's principal banking affiliates
operate branches in ten U.S. states as well as
corporate banking, business credit and thrift
offices in major U.S. cities. In addition, it has
branches, corporate offices and representative
offices in 37 countries and territories. The
Investment Adviser is the successor by merger to
Security Pacific National Bank ("Security
Pacific"), which previously served as investment
adviser to the Company since the commencement of
its operations in 1984. The Investment Adviser
and its affiliates have over $50 billion under
management,
4
<PAGE> 157
including over $14 billion in mutual funds. See
"Management of the Funds."
Distributor and
Administrator: Concord Financial Group, Inc. (the "Distributor")
sponsors the Fund and acts as its distributor.
The Distributor is an indirect, wholly-owned
subsidiary of The BISYS Group, Inc. (the
"Administrator"), which acts as the Fund's
administrator. See "Management of the Funds--
Administrator."
Advisory, Administration and
Distribution Fees: For their respective services the Investment
Adviser and the Administrator each receive fees at
the maximum annual rate of .10% of the Fund's net
assets. These fees are subject to decrease as the
net assets of the respective Funds increase. No
fee is payable by the Fund to the Distributor for
its distribution services. See "Management of the
Funds."
Investing in the Fund: S Shares of the Fund are available to customers
who purchase such shares through cash management
services, such as a sweep account ("Sweep
Account") offered by Bank of America National
Trust and Savings Association, any of its banking
affiliates ("Bank of America") and certain other
financial service organizations, such as
broker-dealers ("Service Organizations"). A Sweep
Account combines a deposit account (the
"Transaction Account") with a daily sweep of
balances to or from the Fund's S Shares. S Shares
may be purchased on any Business Day (as defined
below) that Bank of America and the particular
Service Organization are open for business by
making a deposit into your Transaction Account.
All transaction orders are processed by the
Company at the net asset value next determined
after the order is received. See "Purchase and
Redemption of Shares--How S Shares Are Purchased."
Redemption of Investment: With respect to S Shares of the Fund, if
withdrawals and charges to your Sweep Account
exceed deposits and credits, Bank of America or
the particular Service Organization, as
applicable, will transmit a redemption order on
your behalf to the Fund in the dollar amount of
that day's Net Sweep Amount. Redemptions are
effected by the Company on a Business Day at the
net asset value per share next determined after
receipt of the redemption order by the Transfer
Agent. See "Purchase and Redemption of Shares--
How S Shares Are Redeemed."
Custodian and
Transfer Agent: The Bank of New York acts as custodian for the
Fund, and Bank of America National Trust and
Savings Association acts as sub-custodian. BISYS
Fund Services, Inc. serves as the Fund's transfer
and dividend disbursing agent.
5
<PAGE> 158
Expense Information
The following table sets forth certain information regarding the shareholder
transaction expenses imposed by S Shares of the Fund and the annual operating
expenses expected to be incurred by S Shares of the Fund during its first twelve
months of operations. Actual expenses may vary. Hypothetical examples based on
the table are also shown.
Treasury
--------
S Shares(1)
-----------
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases None
Maximum Sales Load Imposed on Reinvested Dividends None
Maximum Deferred Sales Load None
Redemption Fees(2) None
Exchange Fees None
Annual Operating Expenses
(as a percentage of average net assets)
Management Fees(3) (After Fee Waivers) .20%
Rule 12b-1 Fees(4) .30%
Shareholder Services Fees .25%
All Other Expenses .05%
Total Operating Expenses .80%
- ----------
(1) Additional fees charged by Bank of America or Service Organizations
related to the Sweep Account are not included in this table. For
additional information with respect to Sweep Account fees and charges,
including a description of the services available to Sweep Account
holders, you should refer to the Sweep Materials.
(2) The Company reserves the right to impose a charge for wiring redemption
proceeds.
(3) Absent voluntary fee waivers 12b-1 fees would be 0.75% of the Fund's
average net assets.
(4) Because of the Distribution Plan Payment paid by S Shares of the Fund as
shown in the above table, long-term Class S shareholders may pay more than
the economic equivalent of the maximum front-end sales charge permitted by
the NASD Regulation, Inc.
6
<PAGE> 159
Example 1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
You would pay the following expenses on a $1,000 investment, assuming (1) a 5%
annual return and (2) redemption at the end of each time period:
Treasury Fund
S Shares $8 $26 $44 $99
The foregoing Expense Summary and Example are intended to assist investors in S
Shares of the Fund in understanding the various shareholder transaction and
operating expenses that investors bear either directly or indirectly. Investors
bear operating expenses indirectly since they reduce the amount of income paid
by the Fund to investors as dividends. From time to time, the investment adviser
and administrator may prospectively waive a portion of their respective fees
and/or assume certain expenses of the Fund. See "Management of the Funds" and
"Description of Shares" for more complete descriptions of the various expenses
referred to above.
THE EXAMPLE SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RETURN AND OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND
OPERATING EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
7
<PAGE> 160
Yield Information. From time to time the "yield" or "effective yield" of a Fund
may be quoted in advertisements or reports to shareholders. Both yield figures
are based on historical earnings and are not intended to indicate future
performance. The "yield" of the Fund refers to the income generated by an
investment in the Fund over a seven-day period (which period will be stated in
the advertisement or report). This income is then "annualized" that is, the
amount of income generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a percentage of the
investment. The "effective yield" is calculated similarly but, when annualized,
the income earned by an investment in the Fund is assumed to be reinvested. The
"effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment.
Additionally, the yield of the Fund may be compared to those of other mutual
funds with similar investment objectives and to other relevant indices or to
rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
Fund's yield may be compared to Donoghue's Money Fund Averages, which are
averages compiled by Donoghue's Money Fund Report. Yield data as reported in
national financial publications, including Money, Forbes, Barron's, The Wall
Street Journal and The New York Times, or in publications of a local or regional
nature, may also be used in comparing the yield of the Fund. A complete listing
of the indices, rankings and publications discussed above is contained in the
Statement of Additional Information.
Since yields fluctuate, yield data cannot necessarily be used to compare an
investment in the shares of the Fund with bank deposits, savings accounts and
similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that yield
is generally a function of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses and market conditions. Any
fees charged by the Investment Adviser or institutional investors directly to
their customer accounts in connection with investments in shares of the Fund
(which fees may include, for example, account maintenance fees, compensating
balance requirements or fees based upon account transactions, assets or income)
will not be included in the Fund's calculations of yield.
Investment Objective and Policies
This section describes the investment objective and policies of the Fund. Assets
of the Fund will be invested in dollar-denominated debt securities with
remaining maturities of thirteen months or less as defined by the Securities and
Exchange Commission, and the dollar-weighted average portfolio maturity of each
Fund will not exceed 90 days. All securities acquired by the Fund will be
determined by the investment adviser, under guidelines established by the
Company's Board of Directors, to present minimal credit risks. Securities
acquired by the Fund will be U.S. Government securities or other "First Tier
Securities" (as defined by the Securities and Exchange Commission) of the types
described below. First Tier Securities consist of instruments that are either
rated at the time of purchase in the top rating category by one (if rated by
only one) or more unaffiliated nationally recognized statistical rating
organizations ("NRSROs") including Standard and Poor's Ratings Group, Division
of McGraw-Hill ("Standard & Poor's"), Moody's Investors Service, Inc.
("Moody's"), Duff & Phelps Credit Co. ("Duff & Phelps") or Fitch Investors
Service, Inc. ("Fitch") or are issued by issuers with such ratings. The Appendix
to the Statement of Additional Information includes a description of the
applicable NRSRO ratings. Unrated instruments (including instruments with
long-term but no short-term ratings) purchased by the Fund will be of comparable
quality to the rated instruments that the Fund may purchase, as determined by
the Fund's investment adviser pursuant to guidelines approved by the Board of
Directors.
8
<PAGE> 161
The Fund's investment objective is to seek high current income and stability of
principal. The Fund invests solely in direct obligations issued by the U.S.
Treasury and repurchase agreements relating to such Treasury obligations.
Portfolio securities which are subject to repurchase agreements may have
remaining maturities of longer than thirteen months.
Examples of the types of U.S. Treasury obligations that may be held by the Fund
include U.S. Treasury bills and notes. Under normal market conditions, 100% of
the total assets of the Fund will be invested in direct obligations of the U.S.
Treasury and repurchase agreements relating to such Treasury obligations.
Securities issued by the U.S. Government have historically involved little risk
of loss of principal if held to maturity and, in general, the instruments held
by the Fund will have neither as much risk nor as high a return as longer term
or non-U.S. Government obligations.
Common Investment Policies
"Stripped" Securities. The Fund may invest in "stripped" securities, which
are U.S. Treasury bonds and notes the unmatured interest coupons of which have
been separated from the underlying principal obligation. Stripped securities are
zero coupon obligations that are normally issued at a discount to their "face
value," and may exhibit greater price volatility than ordinary debt securities
because of the manner in which their principal and interest are returned to
investors. The Fund may only invest in stripped securities issued by the U.S.
Treasury and recorded in the Federal Reserve book-entry record-keeping system.
Repurchase Agreements. The Fund may agree to purchase securities from
financial institutions, such as banks and broker-dealers, as are deemed
creditworthy by the Company's investment adviser under guidelines approved by
the Board of Directors, subject to the seller's agreement to repurchase them at
an agreed upon time and price ("repurchase agreements"). Although the securities
subject to a repurchase agreement may bear maturities exceeding thirteen months,
each Fund intends only to enter into repurchase agreements having maturities not
exceeding 60 days. Securities subject to repurchase agreements are held either
by the Company's custodian or sub-custodian, or in the Federal Reserve/Treasury
Book-Entry System. The seller under a repurchase agreement will be required to
deliver instruments the value of which is greater than the repurchase price.
Default by the seller would, however, expose a Fund to possible loss because of
adverse market action or delay in connection with the disposition of the
underlying obligations. Repurchase agreements are considered to be loans under
the Investment Company Act of 1940.
Reverse Repurchase Agreements. The Fund may borrow monies for temporary
purposes by entering into reverse repurchase agreements in accordance with the
investment restrictions described below. Pursuant to such agreements, the Fund
would sell portfolio securities to banks, other financial institutions, and
agree to repurchase them at an agreed upon date and price. At the time the Fund
enters into a reverse repurchase agreement, it will place in a segregated
custodial account liquid assets or high grade debt securities having a value
equal to or greater than the repurchase price and the Company's investment
adviser will continuously monitor the account to ensure that the value is
maintained. The Fund would only enter into reverse repurchase agreements to
avoid otherwise selling securities during unfavorable market conditions to meet
redemptions. Reverse repurchase agreements involve the risk that the market
value of the portfolio securities sold by the Fund may decline below the price
of the securities the Fund is obligated to repurchase. Interest paid by the Fund
in connection with a reverse repurchase agreement will reduce the net investment
income of the Fund. Reverse repurchase agreements are considered to be
borrowings under the Investment Company Act of 1940.
9
<PAGE> 162
Variable and Floating Rate Instruments. Securities purchased by the Fund
may include variable and floating rate instruments, which may have a stated
maturity in excess of the Fund's maturity limitations but which will, except for
certain U.S. Government obligations, permit the Fund to demand payment of the
principal of the instrument at least once every thirteen months upon not more
than thirty days' notice. Variable and floating rate instruments may include
variable amount master demand notes that permit the indebtedness thereunder to
vary in addition to providing for periodic adjustments in the interest rate.
There may be no active secondary market with respect to a particular variable or
floating rate instrument. Nevertheless, the periodic readjustments of their
interest rates tend to assure that their value to the Fund will approximate
their par value. Illiquid variable and floating rate instruments (instruments
which are not payable upon seven days notice and do not have an active trading
market) that are acquired by the Fund are subject to the Fund's percentage
limitations regarding securities that are illiquid or not readily marketable.
The Fund's investment adviser will continuously monitor the creditworthiness of
issuers of variable and floating rate instruments in which the Fund invests, and
their ability to repay principal and interest.
Variable and floating rate instruments purchased by the Fund may include
participation certificates issued by trusts or financial institutions in
variable and floating rate obligations owned by such issuers or affiliated
organizations. A participation certificate gives the Fund a specified undivided
interest (up to 100%) in the underlying obligation and the right to demand
payment of the unpaid principal balance plus accrued interest on the
participation interest from the institution upon a specified number of days'
notice. If the credit of the obligor is of minimal credit risk, no credit
support from a bank or other financial institution will be necessary. In other
circumstances, the participation certificate will be backed by an irrevocable
letter of credit or guarantee of a bank, or will be insured by an insurer, that
the Fund's investment adviser has determined meets the quality standards for the
Fund involved. If an interest is backed by an irrevocable letter of credit or
guarantee of a bank or is insured as described above, the Fund will usually have
the right to sell the interest back to the institution or draw on the letter of
credit or insurance policy on demand after a specified notice period, for all or
any part of the principal amount of the interest plus accrued interest. Although
a participation interest may be sold by the Fund, under normal circumstances
they will be held until maturity.
The Fund may also invest in obligations which provide for a variable or floating
interest rate which is determined through a periodic "auction process." From
time to time, holders of the obligations have the right to tender any such
obligations to a remarketing agent which then remarkets the obligations which
have been tendered and thereby determines a new interest rate for the following
period.
When-Issued Purchases, Forward Commitments and Delayed Settlements. The
Fund may purchase securities on a "when-issued" basis and may purchase or sell
securities on a "forward commitment" or "delayed settlement" basis. When-issued
and forward commitment transactions, which involve a commitment by the Fund to
purchase or sell particular securities with payment and delivery taking place at
a future date (perhaps one or two months later), permit the Fund to lock in a
price or yield on a security it owns or intends to purchase or sell, regardless
of future changes in interest rates. Delayed settlement describes a securities
transaction in a secondary market for which settlement will occur sometime in
the future. When-issued, forward commitment and delayed settlement transactions
involve the risk, however, that the yield or price obtained in a transaction may
be less favorable than the yield or price available in the market when the
securities delivery takes place. The Fund's forward commitments, when-issued
purchases and delayed settlements are not expected to exceed 25% of the value of
the total assets of the Fund absent unusual market conditions. A Fund's
liquidity and the ability of its investment adviser to manage its portfolio may
be adversely affected in the event the Fund's forward commitments, commitments
10
<PAGE> 163
to purchase when-issued securities and delayed settlements ever exceed 25% of
the value of its total assets. The Fund does not intend to engage in these
transactions for speculative purposes but only in furtherance of their
investment objectives.
Investment Limitations. The investment objectives of the Fund are fundamental
policies that may not be changed without a vote of the holders of a majority of
the Fund's outstanding shares (as defined in the Investment Company Act of
1940). The Fund's policies may be changed by the Company's Board of Directors
without the affirmative vote of the holders of a majority of the Fund's
outstanding shares, except that the investment limitations set forth below may
not be changed without such a vote of shareholders. A description of certain
other fundamental investment limitations is contained in the Statement of
Additional Information.
The Fund may not:
1. Borrow money or issue senior securities, except that the Fund may borrow
from banks or enter into reverse repurchase agreements to meet redemptions
or for other temporary purposes in amounts up to 10% of its total assets
at the time of such borrowing; or mortgage, pledge or hypothecate any
assets except in connection with any such borrowing and in amounts not in
excess of the lesser of the dollar amount borrowed or 10% of its total
assets at the time of such borrowing; or purchase securities at any time
after such borrowings (including reverse repurchase agreements) have been
entered into and before they are repaid.
2. Purchase securities without available market quotations which cannot be
sold without registration or the filing of a notification under federal or
state securities laws, enter into repurchase agreements providing for
settlement more than seven days after notice, or purchase any other
securities deemed illiquid by the Directors if, as a result, such
securities and repurchase agreements would exceed 10% of the Fund's total
assets.
Investment Decisions. Investment decisions for the Fund are made independently
from those for other Portfolios of the Company, other investment companies and
common trust funds managed by the Investment Adviser and its affiliated
entities. Such other investment companies and common trust funds may also invest
in the same securities as the Fund. When a purchase or sale of the same security
is made at substantially the same time on behalf of the Fund and another
portfolio, investment company or common trust fund, available investments or
opportunities for sales will be allocated in a manner which the Investment
Adviser believes to be equitable. In some instances, this investment procedure
may adversely affect the price paid or received by the Fund or the size of the
position obtained or sold by the Fund. In addition, in allocating purchase and
sale orders for portfolio securities (involving the payment of brokerage
commissions or dealer concessions), the Investment Adviser may take into account
the sale of shares of a Fund by broker-dealers and other financial institutions
(including affiliates of the Investment Adviser and the Distributor), provided
the Investment Adviser believes that the quality of the transaction and the
amount of the commission are not less favorable than what they would be with any
other unaffiliated qualified firm.
Management of the Fund
Board of Directors. The business of the Company is managed under the direction
of its Board of Directors. Information about the Directors and officers of the
Company is included in the Statement of Additional Information.
Investment Adviser. Bank of America National Trust and Savings Association (the
"Investment Adviser") serves as investment adviser to the Fund. The Investment
Adviser, which has principal offices located at 555 California Street, San
11
<PAGE> 164
Francisco, California 94104, is a national banking association formed in 1904
which provides commercial banking and trust business through an extensive system
of branches across the western United States. The Investment Adviser's principal
banking affiliates operate branches in ten U.S. states as well as corporate
banking, business credit and thrift offices in major U.S. cities. In addition,
it has branches, corporate offices and representative offices in 37 countries
and territories. The Investment Adviser is the successor by merger to Security
Pacific National Bank ("Security Pacific"), which previously served as
investment adviser to the Company since it commenced operations in 1984. The
Investment Adviser and its affiliates have over $14 billion under management,
including over $50 billion in mutual funds. Bank of America is a subsidiary of
BankAmerica Corporation, a registered bank holding company.
The Investment Adviser manages the investments of the Fund and is responsible
for all purchases and sales of the Fund's portfolio securities. For its
investment advisory services the Investment Adviser is entitled to receive a fee
accrued daily and payable monthly at the following annual rates: .10% of the
first $3 billion of the Fund's net assets, plus .09% of the next $2 billion of
the Fund's net assets, plus .08% of the Fund's net assets over $5 billion. For
the fiscal year ended February 28, 1997, the Fund paid the Investment Adviser
advisory fees at the effective annual rate of .10% of the Fund's respective
average daily net assets.
In addition, Bank of America may receive fees pursuant to the Distribution and
Services Plan with respect to the Fund's S Shares. Bank of America and Service
Organizations may receive fees charged directly to their customers' accounts in
connection with investments in S Shares of the Fund.
Administrator. The BISYS Group, Inc. (the "Administrator"), through its
wholly-owned subsidiary BISYS Fund Services, L.P., serves as the Company's
administrator and assists generally in supervising the Fund's operations. Their
offices are located at 150 Clove Road, Little Falls, New Jersey 07424 and 3435
Stelzer Road, Columbus, Ohio 43219. Prior to November 1, 1996, Concord Holding
Corporation, an indirect, wholly-owned subsidiary of the current Administrator,
served as administrator (the "Prior Administrator").
Under its basic administrative services agreement for the Fund, the
Administrator has agreed to provide facilities, equipment and personnel to carry
out administrative services that are for the benefit of all series of shares in
the Fund, including coordination of reports to shareholders and the Securities
and Exchange Commission; calculation of the net asset value of the Fund's shares
and dividends and capital gains distributions to shareholders; payment of the
costs of maintaining the Fund's offices; preparation of tax returns; provision
of internal legal and accounting compliance services; maintenance (or oversight
of the maintenance by others approved by the Board of Directors) of the Fund's
books and records; and the provision of various services for shareholders who
have made a minimum initial investment of at least $500,000, including the
provision of a facility to receive purchase and redemption orders for the
accounts of such shareholders.
For its administrative services the Administrator is entitled to receive an
administration fee computed daily and payable monthly at the following annual
rates: .10% of the first $7 billion of the Fund's average daily net assets, plus
.09% of the next $3 billion of the Fund's average daily net assets, plus .08% of
the Fund's average daily net assets over $10 billion. This amount may be reduced
pursuant to certain undertakings by the Administrator described below under "Fee
Waivers." For the fiscal year ended February 28, 1997, the Fund paid the
Administrator administration fees at the effective annual rate of .10% of the
Fund's respective average daily net assets.
Pursuant to the authority granted in its agreement with the Company, the
Administrator has entered into an agreement with The Bank of New York under
which
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<PAGE> 165
the bank performs certain of the services listed above--e.g. calculating the net
asset value of the Fund's shares and dividends to shareholders and maintaining
the Fund's books and records. The Fund bears all fees and expenses charged by
The Bank of New York for these services.
Distributor. Concord Financial Group, Inc. (the "Distributor") is the principal
underwriter and distributor of shares of the Fund. The Distributor is an
indirect, wholly-owned subsidiary of the Administrator organized to distribute
shares of mutual funds to institutional and retail investors. Its offices are
located at 3435 Stelzer Road, Columbus, Ohio 43219.
The Distributor makes a continuous offering of the Fund's shares and bears the
costs and expenses of printing and distributing to selected dealers and
prospective investors copies of any prospectuses, statements of additional
information and annual and interim reports of the Fund (after such items have
been prepared and set in type by the Fund) which are used in connection with the
offering of shares, and the costs and expenses of preparing, printing and
distributing any other literature used by the Distributor or furnished by it for
use by selected dealers in connection with the offering of the Fund's shares for
sale to the public.
Custodian and Transfer Agent. The Bank of New York, located at 90 Washington
Street, New York, New York 10286, serves as custodian for the Fund and Bank of
America National Trust and Savings Association serves as the Fund's
sub-custodian. BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus, OH 43219
(the "Transfer Agent") a wholly-owned subsidiary of the Administrator, serves as
the Fund's transfer agent and dividend disbursing agent. The Company has also
entered into a Cash Management and Related Services Agreement with The Bank of
New York pursuant to which The Bank of New York receives and disburses funds in
connection with the purchase and redemption of, and the payment of dividends and
other distributions with respect to the Fund's shares.
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 S Shares and for shareholder servicing expenses. Such
distribution expenses include expenses incurred in connection with advertising
and marketing the Fund's Class S Shares; payments to Service Organizations for
assistance in connection with the distribution of S Shares; and expenses
incurred in connection with preparing, printing and distributing prospectuses
for the Fund (except those used for regulatory purposes or for distribution to
existing shareholders of the Fund) and in implementing and operating the
Distribution and Services Plan. Shareholder servicing expenses include expenses
incurred in connection with shareholder services provided by the Distributor and
payments to Service Organizations for the provision of support services with
respect to the beneficial owners of S Shares, such as establishing and
maintaining accounts and records relating to their clients who invest in S
Shares, assisting clients in processing exchange and redemption requests,
developing, maintaining and supporting systems necessary to support cash
management services, such as Sweep Accounts and/or in changing dividend options
and account descriptions and responding to client inquiries concerning their
investments.
Under the Distribution and Services Plan, payments by the Fund for distribution
expenses and shareholder servicing expenses may not exceed the annual rate of up
to 0.75% and 0.25%, respectively of the average daily net assets of the Fund's S
Shares. These amounts may be reduced pursuant to undertakings by the
Distributor. Payments for distribution expenses under the Distribution and
Services Plan are subject to Rule 12b-1 under the 1940 Act. As stated below
under "Description of Shares," fees pursuant to the Distribution and Services
Plan are borne by the S and X Shares of the Fund and are not paid with respect
to the Fund's other series of shares. As of the fiscal year ended February 28,
1997, no S Shares were outstanding.
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<PAGE> 166
The Company will obtain a representation from the Service Organizations (and
from Bank of America and the Distributor) that they are or will be licensed as
dealers as required by applicable law or will not engage in activities which
would require them to be so licensed.
Fee Waivers. Except as noted in this Prospectus and the Statement of Additional
Information, the Fund's service contractors bear all expenses in connection with
the performance of their services and the Fund bears the expenses incurred in
their operations. From time to time during the course of the Fund's fiscal year,
the Administrator and/or the Investment Adviser may prospectively waive payment
of fees and/or assume certain expenses of a Fund as a result of competitive
pressures and in order to protect the business and reputation of the
Administrator and Investment Adviser. This will have the effect of lowering the
overall expense ratio of the Fund and of increasing the Fund's yield to
investors at the time such fees are not received or amounts are assumed and of
increasing the overall expense ratio of the Fund and of decreasing yield to
investors when such fees are not waived or amounts are not reimbursed.
Purchase and Redemption of Shares
How S Shares Are Purchased. S Shares of the Fund are offered by this Prospectus
to customers of Bank of America, any of its banking affiliates or Service
Organizations that establish cash management services, such as a Sweep Account
with Bank of America, any of its banking affiliates or a Service Organization.
Each Sweep Account combines a Transaction Account with a periodic sweep of
balances to or from the Fund. Investors may open a Sweep Account by completing
and signing the appropriate Sweep Materials. The Sweep Materials contain
important information about the various features and operations of the Sweep
Account and should be reviewed in conjunction with this Prospectus.
S Shares may be purchased on any Business Day (as defined below) that Bank of
America, any of its banking affiliates and the particular Service Organization
are open for business by making a deposit into your Transaction Account. On each
day that both the Fund's custodian and the New York Stock Exchange (the
"Exchange") are open for business (a "Business Day") and Bank of America, any of
its banking affiliates and a Service Organization are open for business, Bank of
America, any of its banking affiliates or a Service Organization computes the
net amount of all deposits, withdrawals, charges and credits made to and from a
Transaction Account in accordance with their Sweep Account procedures (the "Net
Sweep Amount"). If deposits and credits exceed withdrawals and charges, you
authorize Bank of America, any of its banking affiliates or a Service
Organization, on your behalf, to transmit a purchase order to the Fund
designated in your Sweep Account in the amount of that day's Net Sweep Amount in
accordance with the Sweep Account procedures of Bank of America, any of its
banking affiliates or a Service Organization. Your purchase order will be made
effective and full and fractional S Shares will be purchased at the net asset
value per share next determined after receipt by the Transfer Agent. It is the
responsibility of Bank of America, any of its banking affiliates or a Service
Organization to transmit orders for the purchases of S Shares by its customers
to the Transfer Agent and deliver required funds on a timely basis, in
accordance with the procedures stated above. Share purchases and redemptions
executed through Bank of America, any of its banking affiliates or a Service
Organization are executed only on Business Days that Bank of America, any of its
banking affiliates or a Service Organization, respectively, is open for
business. Contact Bank of America, any of its banking affiliates or your Service
Organization for additional information about Bank of America's, any of its
banking affiliates' or the Service Organizations' Sweep Account procedures.
How S Shares Are Redeemed. If, on any Business Day Bank of America, any of its
banking affiliates or the particular Service Organization, as applicable, is
open for business, withdrawals and charges to your Sweep Account, including
without limitation check transactions, exceed deposits and credits, Bank of
America, any
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<PAGE> 167
of its banking affiliates or the particular Service Organization, as applicable,
will transmit a redemption order on your behalf to the Fund in the dollar amount
of that day's Net Sweep Amount. If your Sweep Account with Bank of America, any
of its banking affiliates or the particular Service Organization, as applicable,
is closed as described in the Sweep Materials, Bank of America or the particular
Service Organization, as applicable, will normally transmit a redemption request
on your behalf to the Fund for the balance of the S Shares of the Fund held
through your Sweep Account. Redemptions are effected by the Company on a
Business Day at the net asset value per share next determined after receipt of
the redemption order by the Transfer Agent. It is the responsibility of Bank of
America, the particular banking affiliate or the particular Service Organization
to transmit the redemption order and credit its customer's Transaction Account
with the redemption proceeds on a timely basis. Bank of America, any of its
banking affiliates or the Service Organization may withhold redemption proceeds
pending check collection or processing or for other reasons all as set forth
more fully in the Sweep Materials.
Other Redemption Information--S Shares. Redemption orders are effected on a
Business Day at the net asset value per share next determined after receipt of
the order by the Transfer Agent. The Fund will make payment for all shares
redeemed after receipt by the Transfer Agent of a request in proper form, except
as provided by the rules of the Securities and Exchange Commission. The Fund may
suspend the right of redemption or postpone the date of payment upon redemption
(as well as suspend or postpone the recordation of the transfer of its shares)
for such periods as are permitted under the Investment Company Act of 1940.
During the period prior to the time shares are redeemed dividends on such shares
will accrue and be payable, and an investor will be entitled to exercise all
other rights of beneficial ownership. The Fund imposes no charge when S Shares
are redeemed.
Net Asset Value. The net asset value per share of the S Shares of the Fund is
the value of all securities and other assets owned by the Fund that are
allocable to a particular class, less the liabilities charged to such class,
divided by the number of outstanding shares of such class. The net asset value
per share of the Fund is determined on each Business Day as of 2:30 p.m. Eastern
time and the close of regular trading hours on the Exchange (or 4:00 p.m.
Eastern time if the Exchange is closed). In computing net asset value, the Fund
uses the amortized cost method of valuation as described in the Statement of
Additional Information under "Purchase and Redemption of Shares." The net asset
value per share for the Fund for purposes of pricing purchase and redemption
orders is determined independently of that for other portfolios of the Company.
Additional Shareholder Services
Certain optional services available to persons who invest directly in Pacific
Horizon Shares of a Fund, including but not limited to certain exchange
privileges which allow shareholders to exchange their Fund shares for shares of
other funds in the Company, an automatic investment program, automatic
withdrawal program, and direct deposit program, are not available to persons who
invest directly in Horizon, Horizon Service, X, Y or S Shares of the Fund.
Dividends and Distributions
The shareholders of the Fund are entitled to dividends and distributions arising
from the net investment income and net realized gains, if any, earned on
investments held by the Fund. Generally, the Fund's net income is declared daily
as a dividend. Shares begin accruing dividends on the day the purchase order for
the shares is executed and continue to accrue dividends through and including
the day before the redemption order for the shares is executed. Dividends are
paid within five business days after the end of each month. Although the Fund
does not expect to realize net long-term capital gains, any such capital gains
as may
15
<PAGE> 168
be realized will be distributed no more than twice a year after reduction for
any available capital loss carry-forward.
Dividends are paid in the form of additional full and fractional shares of the
same series as the shares on which the dividends are declared at the net asset
value of such shares on the payment date.
Taxes
Federal. During its most recent taxable year, the Fund qualified separately as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"), and the Fund intends to so qualify in future years, as
long as such qualification is in the best interest of its shareholders. As a
result of this qualification, the Fund generally is not required to pay federal
income taxes to the extent its earnings are distributed in accordance with the
Code.
In connection with such tax qualification, the Fund contemplates distributing to
its shareholders at least 90% of its investment company taxable income for each
taxable year. An investor of the Fund who receives a dividend derived from
investment company taxable income (including any excess of net short-term
capital gain over net long-term capital loss) treats it as a receipt of ordinary
income in the computation of his gross income, whether such dividend is paid in
the form of cash or additional shares of the Fund. Because all of the net
investment income of the Fund is expected to be derived from earned interest, it
is anticipated that all dividends paid by the Fund will be taxable as ordinary
income to shareholders who are not exempt from federal income taxes and that no
part of any distribution paid by the Funds will be eligible for the dividends
received deduction for corporations.
Although the Fund anticipates that it will not have net long-term capital gain,
any distribution of the Fund's excess of net long-term capital gain over its net
short-term capital loss will be taxable to shareholders of that Fund as
long-term capital gain, regardless of how long the shareholder has held shares
of the Fund.
Dividends declared in October, November or December of any calendar year payable
to shareholders of record on a specified date in December will be deemed for
federal tax purposes to have been paid by the Fund and received by the
shareholders on December 31 of such year, if such dividends are paid during
January of the following year.
The foregoing is only a brief summary of some of the important federal income
tax considerations generally affecting the Fund and its shareholders, and is
based on federal tax laws and regulations which are in effect as of the date of
this Prospectus. Such laws and regulations may be changed by legislative or
administrative actions. Additional tax information of relevance to particular
investors is contained in the Statement of Additional Information. Potential
investors in the Fund should consult their tax advisers with specific reference
to their own tax situation. Shareholders will be advised at least annually as to
the federal income tax consequences of dividends and distributions made each
year.
State and Local. Investors are advised to consult their tax advisers concerning
the application of state and local taxes, which may have different consequences
from those of the federal income tax law described above.
Description of Shares
The Company was organized on October 27, 1982 as a Maryland corporation, and is
registered under the Investment Company Act of 1940 as an open-end management
company. On March 30, 1984 the Company commenced its public sale of shares
(Pacific Horizon Shares) in the Treasury Fund, which was originally called
"Government Money Market Portfolio." The Predecessor Treasury Fund originally
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<PAGE> 169
commenced operations on July 10, 1987 as a separate portfolio of The Horizon
Funds, a Massachusetts business trust. On January 19, 1990, the Predecessor
Treasury Fund was combined with the Government Money Market Portfolio of the
Company; the Company changed the name of its resulting portfolio to "Treasury
Fund"; and, in addition to continuing its offering of Pacific Horizon Shares in
such Fund, the Company began offering Horizon Shares and Horizon Service Shares
in the Fund. On July 22, 1996, the Company began offering X Shares in the
Treasury Fund and on April 7, 1997, the Company began offering S Shares in the
Fund. X Shares are offered to retail customers who purchase such shares through
a sweep account offered by BA Investment Services, Inc. and certain Service
Organizations. Y Shares are offered to institutional investors who purchase such
shares through a sweep account offered by Bank of America, any of its banking or
brokerage affiliates or certain service organizations. Pacific Horizon Shares
may be purchased directly from the Distributor by clients of Bank of America
through their qualified trust and agency accounts or by clients of Service
Organizations. Horizon and Horizon Service Shares may not be purchased by
individuals directly, but institutional investors may purchase Horizon and
Horizon Service Shares for accounts maintained by individuals.
The Company's charter authorizes the Board of Directors to issue up to four
hundred billion full and fractional shares of capital stock, and to classify and
reclassify any authorized and unissued shares into one or more classes of
shares. The Board of Directors may similarly classify or reclassify any class of
shares into one or more series.
Pursuant to such authority, the Board of Directors has authorized the issuance
of the following series of shares representing interests in the Fund, each of
which is classified as a diversified company under the Investment Company Act of
1940: ten billion X Shares, ten billion S Shares, ten billion Horizon Shares,
ten billion Horizon Service Shares, ten billion Pacific Horizon Shares and ten
billion Y Shares representing interests in the Treasury Fund; Pacific Horizon
Shares, Horizon Shares, Horizon Service Shares, X Shares and Y Shares of the
Fund are described in separate Prospectuses available from the Distributor at
the telephone number on the cover of this Prospectus. The Board of Directors has
also authorized the issuance of additional classes of shares representing
interests in other investment portfolios of the Company, which are likewise
described in separate Prospectuses available from the Distributor. This
Prospectus relates primarily to the S Shares of the Fund and describes only the
investment objectives and policies, operations, contracts and other matters
relating to such shares.
Each Horizon Share, Horizon Service Share, Pacific Horizon Share, S Share, Y
Share and X Share in the Fund has a par value of $.001, and, except as noted
below, is entitled to participate equally in the dividends and distributions
declared by the Board of Directors with respect to the Fund and in the net
distributable assets of the Fund on liquidation. Holders of S Shares bear the
fees described in this Prospectus that are paid to the Distributor and Service
Organizations by the Fund under the Company's Distribution and Services Plan.
Similarly, holders of the Fund's X and Y Shares bear the fees described in the
prospectus relating to such shares that are paid to the Distributor and Service
Organization by the Fund or by the same Plan. The fees paid under the
Distribution and Services Plan are for distribution and shareholder services and
are paid to the Distributor and Shareholder Service Organizations in connection
with X, Y and S Shares of the Fund, and are not paid by the Fund's Horizon,
Horizon Service or Pacific Horizon Shares. Holders of the Fund's Horizon Service
Shares bear the fees described in a separate Prospectus that are paid to
Shareholder Organizations by the Fund under the Company's Shareholder Services
Plan. Similarly, holders of the Fund's Pacific Horizon Shares bear the fees
described in the Prospectuses for such shares that are paid to Shareholder
Organizations by the Fund under the Company's Special Management Services Plan
for Pacific Horizon Shares. Holders of Horizon Shares are not subject to fees
such as those paid under the Shareholder Services Plan or the Special Management
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<PAGE> 170
Services Plan. Holders of the Fund's X and Y Shares bear the fees as described
in the Prospectus for such shares that are paid to the Distributor and service
organizations by the Fund under the Company's Distribution and Services Plan.
As a result of the different fees borne by the various series of shares in the
Fund, at any given time, absent waivers of any class-specific fees or expenses,
the net yield on the Fund's S Shares generally will be equal to the Fund's Y
Shares, approximately 0.68% lower than the yield on the Fund's Pacific Horizon
Shares, 0.75% lower than the yield on the Fund's Horizon Service Shares, 1.00%
lower than the yield on the Fund's Horizon Shares and 0.45% lower than the yield
on the Fund's X Shares. Standardized yield quotations will be computed
separately for each series of shares.
Shareholders are entitled to one vote for each full share held and fractional
votes for fractional shares held, and will vote in the aggregate and not by
class or series except as otherwise required by law or when class voting is
permitted by the Board of Directors. It is contemplated that all shareholders of
the Fund will vote together as a single class on matters relating to the Fund's
investment advisory agreement and on any change in its fundamental investment
limitations. Only holders of Horizon Service Shares will be entitled to vote on
matters submitted to a vote of shareholders pertaining to the Fund's Shareholder
Services Plan. Only holders of particular S, Y and X Shares, if affected by
changes to such Plan, will be entitled to vote on matters submitted to a vote of
shareholders pertaining to the Fund's Distribution and Services Plan relating to
the particular series. Only holders of Pacific Horizon Shares will be entitled
to vote on matters submitted to a vote of shareholders pertaining to the Fund's
Special Management Services Plan. Shares have no preemptive rights and only such
conversion and exchange rights as the Board may grant at its discretion. When
issued for payment as described in this Prospectus, shares will be fully paid
and non-assessable. Certificates for shares will not be issued.
The Company does not presently intend to hold annual meetings of shareholders
for the election of directors and other business unless and until such time as
less than a majority of the directors holding office have been elected by the
shareholders of the Company, at which time the directors then in office will
call a shareholders' meeting for the election of directors. Under certain
circumstances, however, shareholders have the right to call a meeting of
shareholders to consider the removal of one or more directors and such meetings
will be called when requested by the holders of record of 10% or more of the
Company's outstanding shares of common stock. To the extent required by law and
the Company's undertaking with the Securities and Exchange Commission, the
Company will assist in shareholder communications in such matters. Shares have
cumulative voting rights to the extent that may be required by applicable law.
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<PAGE> 171
PACIFIC HORIZON MUTUAL FUNDS
S Shares of the
Treasury Fund
PROSPECTUS
June 16, 1997
NOT FDIC INSURED
19
<PAGE> 172
PACIFIC HORIZON FUNDS, INC.
Prime Fund, Treasury Fund, Government Fund,
Treasury Only Fund, Tax-Exempt Money Fund and
California Tax-Exempt Money Market Fund
Cross Reference Sheet
--------------------------------
Part B
Item No. Heading
- -------- -------
10. Cover Page............................... Cover Page
11. Table of Contents........................ Table of Contents
12. General Information and History.......... The Company
13. Investment Objectives and Policies....... Investment Objectives and
Policies
14. Management of the Fund................... Management
15. Control Persons and Principal Holders of Management; Miscellaneous
Securities
16. Investment Advisory and Other Services .. Management; Investment
Adviser; Administrator;
Distributor; Custodian;
Accounting Agent and Transfer
Agent
17. Brokerage Allocation and Other Practices Portfolio Transactions
18. Capital Stock and Other Securities....... General Information;
Description of Shares
19. Purchase, Redemption and Pricing of ..... Additional Purchase and
Securities Being Offered Redemption Information
20. Tax Status................................ Additional Information
Concerning Taxes
21. Underwriters.............................. Management; Distributor
22. Calculation of Performance Data........... Yield, Tax-Equivalent Yield
and Total Return
Part C
Information to be included in Part C is set forth under the appropriate Item, so
numbered in Part C to this Registration Statement.
<PAGE> 173
PACIFIC HORIZON FUNDS, INC.
Pacific Horizon Shares,
Horizon Shares,
Horizon Service Shares, X Shares and S Shares
of the
Prime Fund, Treasury Fund, Government Fund,
Treasury Only Fund, Tax-Exempt Money Fund and
California Tax-Exempt Money Market Fund
June 16, 1997
Statement Of Additional Information
TABLE OF CONTENTS
PAGE
The Company..................................................... 3
Investment Objectives and Policies.............................. 3
Purchase and Redemption of Shares............................... 39
Management of the Funds......................................... 48
Taxes........................................................... 68
Yield Information............................................... 73
General Information............................................. 76
Appendix A...................................................... A-1
-------------------------
This Statement of Additional Information applies to the Pacific
Horizon Shares, Horizon Shares and Horizon Service Shares of the Prime Fund,
Treasury Fund, Government Fund, Treasury Only Fund, Tax-Exempt Money Fund and
California Tax-Exempt Money Market Fund, the X Shares of the Prime Fund,
Treasury Fund and California Tax-Exempt Money Market Fund, the S Shares of the
Prime Fund, Treasury Fund, Tax-Exempt Money Fund and California Tax-Exempt Money
Market Fund (each a "Fund" and collectively the "Funds") of Pacific Horizon
Funds, Inc. (the "Company"). This Statement of Additional Information is meant
to be read in conjunction with the Prospectuses dated June 16, 1997 with
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<PAGE> 174
respect to the Funds, as the same may from time to time be revised
(individually, a "Prospectus" and collectively, the "Prospectuses"), and is
incorporated by reference in its entirety into each such Prospectus. Because
this Statement of Additional Information is not itself a Prospectus, no
investment in shares of any Fund should be made solely upon the information
contained herein. Copies of the Prospectuses relating to the Company's Pacific
Horizon Shares, Horizon Shares, Horizon Service Shares, X Shares and S Shares
may be obtained by calling Concord Financial Group, Inc. at (800) 332-3863.
Capitalized terms used but not defined herein have the same meanings as in the
Prospectuses.
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<PAGE> 175
THE COMPANY
The Company was organized on October 27, 1982 as a Maryland
corporation and commenced its public sale of shares (Pacific Horizon Shares) on
March 30, 1984 in each of the Prime Fund and Treasury Fund, which were
originally called "Money Market Portfolio" and "Government Money Market
Portfolio," respectively. On January 19, 1990 the Prime Fund and Treasury Fund
of The Horizon Funds, a Massachusetts business trust (sometimes called the
"Predecessor Prime Fund" and "Predecessor Treasury Fund," respectively), were
combined with the Money Market Portfolio and Government Money Market Portfolio,
respectively, of the Company; the Company changed the names of its resulting
portfolios to "Prime Fund" and "Treasury Fund"; and the Company began offering
Horizon Shares and Horizon Service Shares in such Funds. On January 19, 1990 the
Tax-Exempt Money Fund of The Horizon Funds (the "Predecessor Tax-Exempt Fund")
was reorganized as a new portfolio of the Company. Each of these three
Predecessor Funds originally commenced operations on July 10, 1987. The
California Tax-Exempt Money Market Fund, which commenced its initial public
offering of shares on December 6, 1989 by offering a single series of shares
known as Pacific Horizon Shares, began offering Horizon Service Shares on March
1, 1993. As of the date of this Statement of Additional Information, the Company
has classified but not yet offered Horizon Shares of the California Tax-Exempt
Money Market Fund, S Shares of the Treasury Fund, the Tax-Exempt Money Fund and
the California Tax-Exempt Money Market Fund. The Government Fund and Treasury
Only Fund commenced operations on June 4, 1990 as separate investment portfolios
(the "Predecessor Government Funds" and "Predecessor Treasury Only Funds,"
respectively) of First Cash Funds of America and First Funds of America, which
were organized as Massachusetts business trusts. On March 1, 1993, the
Predecessor Government Funds and Predecessor Treasury Only Funds were
reorganized as new portfolios of the Company. Prior to this reorganization,
these Predecessor Funds offered and sold shares of beneficial interest that were
similar to the Company's Horizon Service and Pacific Horizon Shares. On July 22,
1996, the Prime Fund and Treasury Fund began offering X Shares. On October 2,
1996, the California Tax-Exempt Money Market Fund began offering X Shares. On
April 7, 1997, the Prime Fund began offering S Shares.
INVESTMENT OBJECTIVES AND POLICIES
The Prospectus for each Fund describes the investment objective of
the Fund to which it applies. The following information supplements the
descriptions of the investment objective and policies in the Prospectuses for
the Funds.
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<PAGE> 176
Portfolio Transactions
Subject to the general control of the Company's Board of Directors,
Bank of America National Trust and Savings Association ("Bank of America") is
responsible for, makes decisions with respect to and places orders for all
purchases and sales of portfolio securities for each Fund. Securities purchased
and sold by each Fund are generally traded in the over-the-counter market on a
net basis (i.e., without commission) through dealers, or otherwise involve
transactions directly with the issuer of an instrument. During their last three
fiscal periods, the Prime Fund, Treasury Fund, Government Fund, Treasury Only
Fund, Tax-Exempt Money Fund and California Tax-Exempt Money Market Fund did not
pay any brokerage commissions. The cost of securities purchased by the Funds
from underwriters generally includes an underwriting commission or concession,
and the prices at which securities are purchased from and sold to dealers
include a dealer's mark-up or mark-down.
In executing portfolio transactions and selecting brokers or
dealers, it is the Company's policy to seek the best overall terms available.
The investment advisory agreement between the Company and Bank of America
provides that, in assessing the best overall terms available for any
transaction, Bank of America shall consider factors it deems relevant, including
the breadth of the market in the security, the price of the security, the
financial condition and execution capability of the broker or dealer, and the
reasonableness of the commission, if any, for the specific transaction and on a
continuing basis. In addition, the investment advisory agreement authorizes Bank
of America, subject to the approval of the Company's Board of Directors, to
cause the Company to pay a broker-dealer which furnishes brokerage and research
services a higher commission than that which might be charged by another
broker-dealer for effecting the same transaction, provided that such commission
is deemed reasonable in terms of either that particular transaction or the
overall responsibilities of Bank of America to the particular Fund and the
Company. Brokerage and research services may include: (1) advice as to the value
of securities, the advisability of investing in, purchasing or selling
securities and the availability of securities or purchasers or sellers of
securities, and (2) analyses and reports concerning industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts.
The Directors will periodically review the commissions paid by the
Company to consider whether the commissions, if any, paid over representative
periods of time appear to be reasonable in relation to the benefits inuring to
the Company. It is possible that certain of the supplementary research or other
services received will primarily benefit one or more other
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investment companies or other accounts for which investment discretion is
exercised. Conversely, the Company or any given Fund may be the primary
beneficiary of the research or services received as a result of portfolio
transactions effected for such other accounts or investment companies.
Brokerage or research services so received are in addition to and
not in lieu of services required to be performed by Bank of America and do not
reduce the advisory fee payable to Bank of America by the Company. Such services
may be useful to Bank of America in serving both the Company and other clients
and, conversely, supplemental information obtained by the placement of business
of other clients may be useful to Bank of America in carrying out its
obligations to the Company. The Company will not acquire certificates of deposit
or other securities issued by Bank of America or its affiliates, and will give
no preference to certificates of deposit or other securities issued by
Shareholder Service or Distribution Organizations (as defined below). In
addition, portfolio securities in general will be purchased from and sold to
Bank of America, Concord Financial Group, Inc. (the "Distributor") and their
affiliates acting as principal underwriter, syndicate member, market-maker,
dealer, broker or in any other similar capacity, provided such purchase, sale or
dealing is permitted under the Investment Company Act of 1940 (the "1940 Act")
and the rules thereunder.
A Fund's annual portfolio turnover rate is calculated by dividing
the lesser of purchases or sales of portfolio securities for the year by the
monthly average value of the Fund's portfolio securities. The calculation
excludes all securities the maturities of which at the time of acquisition were
thirteen months or less. There is not expected to be any portfolio turnover for
the Funds for regulatory reporting purposes.
A Fund may participate, if and when practicable, in bidding for the
purchase of securities directly from an issuer in order to take advantage of the
lower purchase price available to members of a bidding group. Any such Fund will
engage in this practice only when Bank of America, in its sole discretion,
subject to guidelines adopted by the Board of Directors, believes such practice
to be in the Fund's interest.
Subsequent to its purchase by a Fund, an issue of securities may
cease to be rated or its rating may be reduced below the minimum rating required
for purchase by the Fund. The Board of Directors or Bank of America, pursuant to
guidelines established by the Board, will promptly consider such an event in
determining whether the Fund involved should continue to hold the obligation,
but will only continue to hold the obligation if retention is in accordance with
the interests of the Fund and
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applicable regulations of the SEC. In addition, it is possible that unregistered
securities purchased by a Fund in reliance upon Rule 144A under the Securities
Act of 1933 (the "1933 Act") could have the effect of increasing the level of
the Fund's illiquidity to the extent that qualified institutional buyers become,
for a period, uninterested in purchasing these securities.
To the extent permitted by law, Bank of America may aggregate the
securities to be sold or purchased for a Fund with those to be sold or purchased
for other investment companies or common trust funds in order to obtain best
execution.
The Company is required to identify any securities of its regular
brokers or dealers (as defined in Rule 10b-1 under the 1940 Act) or their
parents held by the Company as of the close of its most recent fiscal year. As
of February 28, 1997: (a) the Treasury Fund held the following securities:
Repurchase Agreement with Dean Witter, Reynolds, Inc. in the principal amount of
$125,000,000; and Repurchase Agreement with Goldman Sachs & Co. in the principal
amount of $453,423,000; (b) the Government Fund held the following security:
Repurchase Agreement with Dean Witter Reynolds, Inc. in the principal amount of
$50,000,000; (c) the Prime Fund held the following securities, Merrill Lynch &
Co., Inc. commercial paper in the principal amount of $50,000,000; Bear Stearns
Cos., Inc. commercial paper in the principal amount of $25,000,000; Merrill
Lynch & Co., Inc. corporate debt in the principal amount of $25,000,000; Merrill
Lynch & Co., Inc. weekly variable rate obligation in the principal amount of
$50,000,000; Merrill Lynch & Co., Inc. weekly variable rate obligation in the
principal amount of $50,000,000; Merrill Lynch & Co., Inc. quarterly variable
rate obligation in the principal amount of $50,000,000; Dean Witter Discover &
Co-Monthly Variable Rate Obligation in the principal amount of $25,000,000; Dean
Witter Discover & Co. corporate obligation in the principal amount of
$15,000,000; Goldman Sachs Group L.P. master note in the principal amount of
$300,000,000; Morgan Stanley Group, Inc. master note in the principal amount of
$250,000,000, Bear Stearns Companies, Inc. monthly variable rate obligation in
the principal amount of $18,000,000; Bear Stearns Companies, Inc. monthly
variable rate not in the principal amount of $25,000,000; (d) the Corporate Bond
Fund held the following securities: Goldman Sachs Group corporate obligation in
the principal amount of $1,500,000; Lehman Brothers corporate obligation in the
principal amount of $1,000,000; Merrill Lynch & Co., Inc. corporate debt
obligation in the principal amount of $1,500,000; (e) the Intermediate Bond
Master Portfolio held the following security: Paine Webber Group medium term
note in the amount of $3,000,000 (f) the Asset Allocation Master Portfolio held
the following securities: Dean Witter common stock in the amount of $2,701,600,
Lehman Brothers corporate obligation in the principal amount of $1,000,000;
Morgan Stanley corporate debt
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obligation in the principal amount of $3,800,000; Paine Webber Group medium term
note in the principal amount of $2,500,000; (g) the Capital Income Fund held the
following security: Merrill Lynch & Co., Inc. Structured Yield Product
Exchangeable for Stock in the amount of $3,575,000; (h) the Blue Chip Master
Portfolio held the following security: Dean Witter common stock in the amount of
$6,220,588.
Merrill Lynch & Co., Inc., Goldman, Sachs & Co., Bear Stearns Co.,
Inc., Morgan Stanley & Co. Incorporated, Shearson Lehman Brothers, Inc., Dean
Witter Reynolds, Inc. and Paine Webber are considered to be regular brokers and
dealers of the Company.
Portfolio Instruments
Certificates of Deposit, Bankers' Acceptances, Commercial Paper and
Short-Term Notes. Certificates of deposit are negotiable certificates issued
against funds deposited in a commercial bank for a definite period of time and
earning a specific return. Bankers' acceptances are negotiable deposits or bills
of exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank (meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument at maturity).
Certificates of deposit and bankers' acceptances acquired by a Fund will be
dollar-denominated obligations of domestic or foreign banks having total assets
at the time of purchase (including assets of both domestic and foreign branches)
in excess of $2.5 billion. Commercial paper consists of unsecured promissory
notes issued by corporations. Short-term notes acquired by a Fund may be issued
by commercial or investment banking firms, financing companies or industrial or
manufacturing concerns. Commercial paper and short-term notes, except for
variable and floating rate instruments, will normally have maturities of nine
months or less and fixed rates of return, although such instruments may have
maturities of up to thirteen months. Commercial paper and short-term notes will
consist of issues which, with respect to the Prime, Treasury and Tax-Exempt
Money Funds are "First Tier Securities" as defined by the SEC and, with respect
to the California Tax-Exempt Money Market Fund are "Eligible Securities" as
defined by the SEC. During temporary defensive periods or if in the investment
adviser's opinion suitable First Tier Securities are not available for
investment, the Tax-Exempt Money Fund may also acquire "Eligible Securities" as
defined by the SEC. First Tier Securities consist of instruments that are either
rated at the time of purchase in the top rating category by one or more
unaffiliated nationally recognized statistical rating organizations ("NRSROs")
or issued by issuers with such ratings. Eligible Securities consist of
instruments that are
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either rated at the time of purchase in the top two rating categories by one or
more unaffiliated NRSROs or issued by issuers with such ratings. See the
Appendix to this statement of additional information for a description of the
applicable NRSRO ratings. Unrated instruments (including instruments with
long-term but no short-term ratings) purchased by a Fund will be of comparable
quality as determined by Bank of America pursuant to guidelines approved by the
Board of Directors and Bank of America.
Holding Euro CDs, Yankee CDs, Yankee BAs, Yankee Euros, commercial
paper or other obligations of foreign issuers may subject a Fund to investment
risks that are different in some respects from those incurred by a Fund which
invests only in obligations of domestic issuers. Such risks include future
political and economic developments, the possible imposition of withholding
taxes by the particular country in which the issuer is located on interest
income payable on the securities, the possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on these securities.
Domestic banks and foreign banks are subject to different
governmental regulations with respect to the amount and types of loans which may
be made and interest rates which may be charged. In addition, the profitability
of the banking industry is dependent largely upon the availability and cost of
funds for the purpose of financing lending operations under prevailing money
market conditions. General economic conditions as well as exposure to credit
losses arising from possible financial difficulties of borrowers play an
important part in the operations of the banking industry.
As a result of federal and state laws and regulations, domestic
banks are, among other things, required to maintain specified levels of
reserves, limited in the amount which they can loan to a single borrower, and
subject to other regulations designed to promote financial soundness. However,
such laws and regulations do not necessarily apply to the Euro CDs, Yankee CDs,
Yankee BAs, Yankee Euros and other foreign bank obligations that a Fund may
acquire.
U.S. Government Obligations. Obligations of the U.S. Government and
its agencies and instrumentalities include Treasury bills, certificates of
indebtedness, notes and bonds, Treasury strips, and issues of such entities as
the Federal Home Loan Banks, Federal Land Banks, Federal Housing Administration,
Farmers Home Administration, Export-Import Bank of the United States, Small
Business Administration, Government National Mortgage Association, General
Services Administration, Student
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Loan Marketing Association, Central Bank for Cooperatives, Federal Home Loan
Mortgage Corporation, Federal Intermediate Credit Banks, Maritime
Administration, Resolution Funding Corporation, Tennessee Valley Authority and
Federal National Mortgage Association. The Prime, Treasury, Tax-Exempt Money and
California Tax-Exempt Money Market Funds will not acquire obligations issued by
the International Bank for Reconstruction and Development, the Asian Development
Bank or the Inter-American Development Bank; however, the Government and
Treasury Only Funds may acquire such obligations in accordance with their
investment policies.
Government National Mortgage Association ("GNMA") certificates are
U.S. Government agency mortgage-backed securities representing part ownership of
a pool of mortgage loans. These loans, issued by lenders such as mortgage
bankers, commercial banks and savings and loan associations, are either insured
by the Federal Housing Administration or guaranteed by the Veterans
Administration. A "pool" or group of such mortgages is assembled and, after
being approved by GNMA, is offered to investors through securities dealers. Once
approved by GNMA, the timely payment of interest and principal on each mortgage
is guaranteed by GNMA and backed by the full faith and credit of the U.S.
Government. GNMA certificates differ from bonds in that principal is paid back
monthly by the borrower over the term of the loan rather than returned in a lump
sum at maturity. GNMA certificates are called "pass-through" securities because
both interest and principal payments (including prepayments) are passed through
to the holder of the certificate. In addition to GNMA certificates,
mortgage-backed securities issued by the Federal National Mortgage Association
("FNMA") and by the Federal Home Loan Mortgage Corporation ("FHLMC") may also be
acquired. Securities issued and guaranteed by FNMA and FHLMC are not backed by
the full faith and credit of the United States. If either fixed or variable rate
pass-through securities issued by the U.S. Government or its agencies or
instrumentalities are developed in the future, the Prime, Government, Tax-Exempt
Money and California Tax-Exempt Money Market Funds reserve the right to invest
in them, after making appropriate disclosure to investors. Certain securities
issued by all governmental agencies may be prepaid. Prepayment of mortgages
underlying most mortgage-backed securities may reduce their current yield and
total return. During periods of declining interest rates, such prepayments can
be expected to accelerate and the Funds would be required to reinvest the
proceeds at the lower interest rates then available.
Variable and Floating Rate Instruments. The Funds may acquire
variable and floating rate instruments as described in their Prospectuses.
Variable and floating rate instruments are frequently not rated by credit rating
agencies; however, unrated variable and floating rate instruments purchased by a
Fund will
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be determined by the investment adviser under guidelines established by the
Company's Board of Directors to be of comparable quality at the time of purchase
to rated instruments eligible for purchase by such Fund. In making such
determinations, the investment adviser will consider the earning power, cash
flows and other liquidity ratios of the issuers of such instruments (such
issuers include financial, merchandising, bank holding and other companies) and
will continuously monitor their financial condition. There may not be an active
secondary market with respect to a particular variable or floating rate
instrument purchased by a Fund. The absence of such an active secondary market
could make it difficult for a Fund to dispose of the variable or floating rate
instrument involved. In the event the issuer of the instrument defaulted on its
payment obligations, the Fund involved could, for this or other reasons, suffer
a loss to the extent of the default. Variable and floating rate instruments may
be secured by bank letters of credit and may have maturities of more than
thirteen months. In determining a Fund's average weighted maturity and whether a
variable or floating rate instrument has a remaining maturity of thirteen months
or less, each variable rate instrument having a demand feature that entitles the
Fund to receive the principal amount thereof at any time, or at specified
intervals not exceeding thirteen months, in each case on not more than thirty
days' notice, shall be deemed by the Company to have a maturity equal to the
longer of the period remaining until its next interest rate adjustment or the
period remaining until the principal amount can be recovered through demand;
each variable rate instrument not having such a demand feature but having a
stated maturity of thirteen months or less or issued or guaranteed by the U.S.
Government or its agencies will be deemed to have a maturity equal to the period
remaining until the next interest rate adjustment; each floating rate instrument
having a demand feature that entitles the Fund to receive the principal amount
thereof at any time, or at specified intervals not exceeding thirteen months, in
each case on not more than thirty days' notice, shall be deemed to have a
maturity equal to the period of time remaining until the principal amount owed
can be recovered through demand. Variable and floating rate instruments which
are not payable upon seven days' notice and which do not have an active trading
market are considered illiquid securities.
Ratings and Issuer's Obligations. The ratings of Moody's Investors
Service, Inc. ("Moody's"), Standard & Poor's Ratings Group, Division of McGraw
Hill ("S&P"), Duff & Phelps Credit Rating Co. ("D&P"), Fitch Investors Service,
Inc. ("Fitch"), Thomson Bankwatch, Inc. ("Thomson") and IBCA Limited and IBCA
Inc. ("IBCA") represent their opinions as to the quality of debt securities.
However, ratings are general and are not absolute standards of quality, and debt
securities with the same maturity, interest rate and rating may have different
yields
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while debt securities of the same maturity and interest rate with different
ratings may have the same yield.
An issuer's obligations under its debt securities are subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Code and laws which may be
enacted by federal or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations or, in the case of governmental entities, upon the ability
of such entities to levy taxes. The power or ability of an issuer to meet its
obligations for the payment of interest on, and principal of, its debt
securities may be materially adversely affected by litigation or other
conditions.
Municipal Securities. Substantially all of the assets of the
Tax-Exempt Money Fund and primarily all of the assets of the California
Tax-Exempt Money Market Fund are invested in "Municipal Securities" (securities
issued by or on behalf of states, territories and possessions of the United
States, the District of Columbia and their political subdivisions, authorities,
agencies and instrumentalities, the interest on which is exempt from regular
Federal income tax in the opinion of bond counselor to the issuer). The
Tax-Exempt Money Fund may concentrate more than 25% of its assets in California
Municipal Securities and the California Tax-Exempt Money Market Fund intends
that under normal market conditions at least 80% of its net assets will be
invested in California Municipal Securities. Although the Prime Fund is also
authorized to invest in Municipal Securities under certain circumstances, no
more than 5% of the value of such Fund's net assets will be so invested at any
one time. (The purchase of Municipal Securities by the Prime Fund may be
advantageous when, as a result of prevailing economic, regulatory or other
circumstances, the yield on such securities, on a pre-tax basis, is comparable
to that of other short-term money market instruments that the Fund may purchase.
Dividends paid by the Prime Fund that are derived from interest on Municipal
Securities would be taxable to the Fund's shareholders for federal income tax
purposes.)
Municipal Securities include debt obligations issued by governmental
entities to obtain funds for various public purposes, including the construction
of a wide range of public facilities, the refunding of outstanding obligations,
the payment of general operating expenses and the extension of loans to public
institutions and facilities. In addition, certain types of private activity
bonds are issued by or on behalf of public authorities to finance various
privately-operated facilities. Municipal Securities also include short-term tax
anticipation notes, bond anticipation notes, revenue anticipation notes and
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other forms of short-term loan obligations. Such notes are issued with a
short-term maturity in anticipation of the receipt of tax funds, the proceeds of
bond placements or other revenues.
There are variations in the quality of Municipal Securities between
classifications (such as general obligation, revenue and moral obligation
issues) and within a particular classification, and the yields on Municipal
Securities depend upon a variety of factors, including general money market
conditions, the financial condition of the issuer, general conditions of the
municipal bond market, the size of a particular offering, the maturity of the
obligation and the rating of the issue. It should also be noted, with respect to
all Municipal Securities issued after August 15, 1986 (August 31, 1986 in the
case of certain bonds), that the issuer must comply with certain rules formerly
applicable only to "industrial development bonds" which, if the issuer fails to
observe them, could cause interest on the Municipal Securities to become taxable
retroactive to the date of issue.
The payment of principal and interest on most Municipal Securities
purchased by the Funds will depend upon the ability of the issuers to meet their
obligations. The District of Columbia, each state, each of their political
subdivisions, agencies, instrumentalities and authorities and each multi-state
agency of which a state is a member is a separate "issuer" as that term is used
in this Statement of Additional Information and the Prospectuses. The
non-governmental user of facilities financed by private activity bonds is also
considered to be an "issuer."
From time to time proposals have been introduced before Congress for
the purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Securities. For example, pursuant to federal tax
legislation passed in 1986, interest on certain private activity bonds must be
included in an investor's federal alternative minimum taxable income, and
corporate investors must include all tax-exempt interest in their federal
alternative minimum taxable income. (See the relevant Funds' Prospectuses under
"Dividends, Distributions and Taxes.") The Funds cannot predict what
legislation, if any, may be proposed in Congress or in the California
legislature in the future as regards the federal and California state personal
income tax status of interest on Municipal Securities in general, or California
Municipal Securities in particular, or which proposals, if any, might be
enacted. Such proposals, if enacted, might materially adversely affect the
availability of Municipal Securities (and California Municipal Securities) for
investment by the Tax-Exempt Money Fund and the California Tax-Exempt Money
Market Fund and the liquidity and value of such Funds' portfolios. In such an
event the Board of Directors would reevaluate the Funds' investment objectives
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and policies and consider changes in their structure or possible dissolution.
Repurchase Agreements. Each Fund, except the Treasury Only Fund, may
enter into repurchase agreements with respect to their portfolio securities as
indicated in their Prospectuses. Pursuant to such agreements, a Fund purchases
securities from financial institutions such as banks and broker-dealers which
are deemed to be creditworthy by the investment adviser under guidelines
approved by the Board of Directors, subject to the seller's agreement to
repurchase and the Fund's agreement to resell such securities at a specified
date and price. No Fund will enter into repurchase agreements with Bank of
America or Bank of America's affiliates, nor will any Fund give preference to
repurchase agreements with Distribution Organizations (as defined below),
Shareholder Organizations or Service Organizations. The repurchase price
generally equals the price paid by the Fund plus interest negotiated on the
basis of current short-term rates (which may be more or less than the rate on
the underlying portfolio security). Securities subject to repurchase agreements
will be held by the Funds' custodian or a sub-custodian or in the Federal
Reserve/Treasury book-entry system, and a Fund will make payment for such
securities only upon receipt of evidence of physical delivery of the securities
or of such book entry. The seller under a repurchase agreement will be required
to deliver instruments the value of which is 102% of the repurchase price
(excluding accrued interest), provided that notwithstanding such requirement,
the adviser shall require that the value of the collateral, after transaction
costs (including loss of interest reasonably expected to be incurred on a
default), shall be equal to or greater than the resale price (including accrued
resale premium) provided in the agreement. The accrued resale premium shall be
the amount specified in the repurchase agreement or the daily amortization of
the difference between the purchase price and the resale price specified in the
repurchase agreement. If the seller defaulted on its repurchase obligation, the
Fund holding the repurchase agreement would suffer a loss to the extent that the
proceeds from a sale of the underlying securities were less than the repurchase
price under the agreement. Bankruptcy or insolvency of such a defaulting seller
may cause the particular Fund's rights with respect to such securities to be
delayed or limited. Repurchase agreements are considered to be loans by a Fund
under the 1940 Act.
Reverse Repurchase Agreements. The Funds may also enter into reverse
repurchase agreements with respect to their securities. Whenever a Fund enters
into a reverse repurchase agreement, it will place in a segregated account
maintained with its custodian cash, U.S. Government securities and other liquid
high-grade debt securities having a value equal to the repurchase price
(including accrued interest) and will subsequently monitor
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the account for maintenance of such equivalent value. Reverse repurchase
agreements are considered to be borrowings by a Fund under the Investment
Company Act of 1940.
Investment Practices
When-Issued Securities, Forward Commitments and Delayed Settlements.
The Funds may purchase securities on a "when-issued," "forward commitment" or
"delayed" settlement basis (i.e., for delivery beyond the normal settlement date
at a stated price and yield). When a Fund agrees to purchase securities on a
when-issued, forward commitment or delayed settlement basis, its custodian will
set aside cash or liquid portfolio securities equal to the amount of the
commitment in a separate account. Normally the custodian will set aside
portfolio securities to satisfy a purchase commitment, and in such a case a Fund
may be required subsequently to place additional assets (cash or liquid
securities) in the separate account so that the value of the account remains
equal to the amount of such Fund's commitment. The Funds do not intend to engage
in these transactions for speculative purposes but only in furtherance of their
investment objectives. Because a Fund will set aside cash or liquid investments
to satisfy its purchase commitments in the manner described, the Fund's
liquidity and the ability of the investment adviser to manage it may be affected
in the event the Fund's forward commitments, commitments to purchase when-issued
securities and delayed settlements ever exceeded 25% of the value of its assets.
A Fund will purchase securities on a when-issued, forward commitment
or delayed settlement basis only with the intention of completing the
transaction. If deemed advisable as a matter of investment strategy, however, a
Fund may dispose of or renegotiate a commitment after it is entered into, and
may sell securities it has committed to purchase before those securities are
delivered to the Fund on the settlement date. In these cases the Fund may
realize a taxable capital gain or loss.
When a Fund engages in when-issued, forward commitment and delayed
settlement transactions, it relies on the other party to consummate the trade.
Failure of such party to do so may result in the Fund's incurring a loss or
missing an opportunity to obtain a price considered to be advantageous.
The market value of the securities underlying a when-issued
purchase, a forward commitment to purchase securities, or a delayed settlement
and any subsequent fluctuations in their market value is taken into account when
determining the market value of a Fund starting on the day the Fund agrees to
purchase the securities. The Fund does not earn interest on the
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securities it has committed to purchase until they are paid for and delivered on
the settlement date.
Stand-By Commitments. The Tax-Exempt Money Fund and California
Tax-Exempt Money Market Fund may acquire "stand-by commitments" with respect to
Municipal Securities held in their respective portfolios. Under a "stand-by
commitment," a dealer agrees to purchase from a Fund, at the Fund's option,
specified Municipal Securities at a specified price.
The amount payable to the Tax-Exempt Money Fund or the California
Tax-Exempt Money Market Fund upon its exercise of a "stand-by commitment" is
normally the amortized cost of the underlying instruments plus accrued interest,
if any. "Stand-by commitments" can be acquired when the remaining maturity of
the underlying Municipal Securities is not greater than thirteen months, and are
exercisable by a Fund at any time before the maturity of such obligations. In
determining net asset value, a Fund values Municipal Securities on the basis of
amortized cost without reference to the presence of the "stand-by commitment,"
as described below. A "stand-by commitment" may be sold, transferred or assigned
by a Fund only with the instrument involved.
The Tax-Exempt Money Fund and California Tax-Exempt Money Market
Fund expect that "stand-by commitments" will generally be available without the
payment of any direct or indirect consideration. However, if necessary or
advisable, a Fund may pay for a "stand-by commitment" either separately in cash
or by paying a higher price for portfolio securities which are acquired subject
to the commitment (thus reducing the yield to maturity otherwise available for
the same securities). The total amount paid in either manner for outstanding
"stand-by commitments" held by a Fund will not exceed 1/2 of 1% of the value of
its total assets calculated immediately after each "stand-by commitment" is
acquired.
The Tax-Exempt Money Fund and California Tax-Exempt Money Market
Fund intend to enter into "stand-by commitments" only with dealers, banks and
broker-dealers which, in the investment adviser's opinion, present minimal
credit risks. A Fund's reliance upon the credit of these dealers, banks and
broker-dealers is secured by the value of the underlying Municipal Securities
that are subject to a commitment.
The Tax-Exempt Money Fund or California Tax-Exempt Money Market Fund
would acquire "stand-by commitments" solely to facilitate portfolio liquidity
and do not intend to exercise their rights thereunder for trading purposes. The
acquisition of a "stand-by commitment" would not affect the valuation or assumed
maturity of the underlying Municipal Securities, which would
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continue to be valued at amortized cost in accordance with the ordinary method
of valuation employed by a Fund. "Stand-by commitments" which would be acquired
by a Fund would be valued at zero in determining net asset value. Where a Fund
paid any consideration directly or indirectly for a "stand-by commitment," its
cost would be reflected as unrealized depreciation for the period during which
the commitment was held by the Fund. "Stand-by commitments" would not affect a
Fund's average weighted maturity.
Loans of Securities. The Prime Fund, Government Fund and Treasury
Only Fund may lend their securities to brokers, dealers and financial
institutions, provided (1) the loan is secured continuously by collateral
consisting of U.S. Government securities (U.S. Treasury securities with respect
to the Treasury Only Fund) or cash or letters of credit which is marked to the
market daily to ensure that each loan is fully collateralized at all times; (2)
the Fund involved may at any time call the loan and obtain the return of the
securities loaned within five business days; (3) the Fund will receive any
interest or dividends paid on the securities loaned; and (4) the aggregate
market value of securities loaned will not at any time exceed 30% of the total
assets of the Fund (331/3% with respect to the Treasury Only Fund).
A Fund will earn income for lending its securities because cash
collateral pursuant to these loans will be invested in short term money market
instruments. In connection with lending securities, a Fund may pay reasonable
finders, administrative and custodial fees. Loans of securities involve a risk
that the borrower may fail to return the securities or may fail to provide
additional collateral.
Additional Information
The investment adviser's own investment portfolios may include bank
certificates of deposit, bankers' acceptances, corporate debt obligations,
equity securities and other investments any of which may also be purchased by a
fund of the Company. The Fund may also invest in securities, interests or
obligations of companies or entities which have a deposit, loan, commercial
banking or other business relationship with Bank of America or any of its
affiliates (including outstanding loans to such issuers which may be repaid in
whole or in part with the proceeds of securities purchased by a fund of the
Company).
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Special Considerations Relating to California Municipal
Securities
This summary does not purport to be a comprehensive description of
all relevant facts. Although the Company has no reason to believe that the
information summarized herein is not correct in all material respects, this
information has not been independently verified for accuracy or thoroughness by
the Company. Rather, the information presented herein has been culled from
official statements and prospectuses issued in connection with various
securities offerings of the State of California and local agencies in
California, available as of the date of this Statement of Additional
Information. Further, the estimates and projections presented herein should not
be construed as statements of fact. They are based upon assumptions which may be
affected by numerous factors and there can be no assurance that target levels
will be achieved.
Economic Factors
Fiscal Years Prior to 1996-97. By the close of the 1989-90 Fiscal
Year, California's revenues had fallen below projections so that the State's
budget reserve, the Special Fund for Economic Uncertainties (the "Special
Fund"), was fully depleted by June 30, 1990. A recession which had begun in mid-
1990, combined with higher health and welfare costs driven by the State's rapid
population growth, adversely affected General Fund revenues and raised
expenditures above initial budget appropriations.
As a result of these factors and others, the State confronted a
period of budget imbalance. Beginning with the 1990-91 Fiscal Year and for
several years thereafter, the budget required multi-billion dollar actions to
bring projected revenues and expenditures into balance. During this period,
expenditures exceeded revenues in four out of six years, and the State
accumulated and sustained a budget deficit in the Special Fund -- approaching
$2.8 billion at its peak on June 30, 1993.
By the 1993-94 Fiscal Year, the accumulated deficit was too large to
be prudently retired in one year and a two-year program was implemented. This
program used revenue anticipation warrants to carry a portion of the deficit
over to the end of the fiscal year.
The 1994-95 Budget Act projected General Fund revenues and transfers
of $41.9 billion. Expenditures were projected to be $40.9 billion -- an increase
of $1.6 billion over the prior year. As a result of the improving economy,
however, the fiscal year ultimately produced revenues and transfers of
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$42.7 billion which more than offset expenditures of $42.0 billion and thereby
reduced the accumulated budget deficit.
With strengthening revenues and reduced caseload growth driven by
an improving economy, the State entered the 1995-96 Fiscal Year budget
negotiations with the smallest nominal "budget gap" to be closed in many years.
The 1995-96 Budget Act projected General Fund revenues and transfers of $44.1
billion, a 3.5 percent increase from the prior year, and expenditures were
budgeted at $43.4 billion. In addition, the Department of Finance projected that
after repaying the last of the carryover budget deficit, there would be a
positive balance of $28 million in the budget reserve as of June 30, 1996.
1996-97 Fiscal Year.
The 1996-97 Governor's Budget, released January 10, 1996, projected
General Fund revenues and transfers of $45.6 billion, a 1.3% increase over
1995-96. The Governor's budget proposed two major initiatives, a 15% personal
and corporate income tax cuts and a revision of the trial court funding program,
which would have the effect of reducing General Fund revenues. The Governor's
Budget proposed General Fund expenditures of $45.2 billion. The Governor's
Budget also proposed Special Fund revenues equal to expenditures, at a level of
$13.3 billion.
The May Revision of the Governor's Budget, released on May 21, 1996
("The May Revision"), updated revenue estimates for the 1996-97 Fiscal Year,
reflecting stronger economic activity in the State and thus greater revenue
growth. The revised estimate was for $47.1 billion of revenues, still assuming
the Governor's tax cut would be enacted, and $46.5 billion of expenditures.
1996-97 Budget Act
The 1996-97 Budget Act was signed by the Governor on July 15, 1996,
along with various implementing bills. The Governor vetoed about $82 million of
appropriations (both General Fund and Special Fund). With the signing of the
Budget Act, the State implemented its regular cash flow borrowing program with
the issuance of $3.0 billion of Revenue Anticipation Notes to mature on June 30,
1997. The Budget Act appropriates a budget reserve in the Special Fund of $305
million, as of June 30, 1997. The Department of Finance projects that, on June
30, 1997, the State's available borrowable (cash) resources will be $2.9
billion, after payment of all obligations due by that date, so that no
cross-fiscal year borrowing is anticipated.
Revenues - The Legislature rejected the Governor's proposed 15% cut
in personal income taxes (to be phased in over three years), approved a 5% cut
in bank and corporation taxes, to be effective for income years commencing on
January 1, 1997. As
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a result of the Legislature's failure to enact the personal income tax cut,
revenues for the Fiscal Year are estimated to be $550 million higher than
projected in the May Revision, and are now estimated to total $47.643 billion, a
3.3 percent increase over the final estimated 1995-96 revenues. Special Fund
revenues are estimated to be $13.3 billion.
Expenditures - The Budget Act contains General Fund appropriations
totaling $47.251 billion, a 4.0 percent increase over the final estimated
1995-96 expenditures. Special Fund expenditures are budgeted at $12.6 billion.
The following are principal features of the 1996-97 Budget Act:
1. Proposition 98 funding for schools and community college
districts increased by almost $1.6 billion (General Fund) and $1.65 billion
above revised 1995-96 levels. Almost half of this money was budgeted to fund
class-size reductions in kindergarten and grades 1-3. Also, for the second
consecutive year, the full cost of living allowance (3.2 percent) was funded.
Proposition 98 increases have brought K-12 expenditures to almost $4,800 per
pupil (also called ADA, or Average Daily Attendance), an almost 15% increase
over the level prevailing during the recession years. Out of this $1.6 billion
total community colleges will receive an increase in funding of $157 million for
1996-97.
Due to higher than projected revenues in 1995-96, an additional $1.1
billion ($190 per K-12 ADA and $145 million for community colleges) was
appropriated and retroactively applied towards the 1995-96 Proposition 98
guarantee, bringing K-12 expenditures in that year to over $4,600 per ADA.
Similar retroactive increases totaling $230 million, based on final figures on
revenues and State population growth, were made to the 1991-92 and the 1994-95
Proposition 98 guarantees, most of which was allocated to each school site.
2. The Budget Act assumed savings of approximately $660 million in
health and welfare costs which required changes in federal law, including
federal welfare reform. The Budget Act further assumed federal law changes in
August 1996 which would allow welfare cash grant levels to be reduced by October
1, 1996. These cuts totaled approximately $163 million of the anticipated $660
million savings. See "Federal Welfare Reform".
3. A 4.9 percent increase in funding for the University of
California ($130 million General Fund) and the California State University
system ($101 million General Fund), with no increases in student fees.
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4. The Budget Act assumed the federal government will provide
approximately $700 million in new aid for incarceration and health care costs of
illegal immigrants. These funds reduce appropriations in these categories that
would otherwise have to be paid from the General Fund. (For purposes of cash
flow projections, the Department of Finance expects $540 million of this amount
to be received during the 1996-97 fiscal year.)
5. General Fund support for the Department of Corrections was
increased by about 7 percent over the prior year, reflecting estimates of
increased prison population.
6. With respect to aid to local governments, the principal new
programs included in the Budget Act are $100 million in grants to cities and
counties for law enforcement purposes, and budgeted $50 million for competitive
grants to local governments for programs to combat juvenile crime.
The Budget Act did not contain any tax increases. As noted, there
was a reduction in bank and corporate taxes. In addition, the Legislature
approved another one-year suspension of the Renters Tax Credit, saving $520
million in expenditures.
Federal Welfare Reform - Following enactment of the 1996-97 Budget
Act, Congress passed and the President signed (on August 22, 1996) the Personal
Responsibility and Work Opportunity Act of 1996 (P.L. 104-193, the "Law") making
a fundamental reform of the current welfare system. Among many provisions, the
Law includes: (i) conversion of Aid to Families with Dependent Children from an
entitlement program to a block grant titled Temporary Assistance for Needy
Families (TANF), with lifetime time limits on TANF recipients, work requirements
and other changes; (ii) provisions denying certain federal welfare and public
benefits to legal noncitizens, allowing states to elect to deny additional
benefits (including TANF) to legal noncitizens, and generally denying almost all
benefits to illegal immigrants; and (iii) changes in the Food Stamp program,
including reducing maximum benefits and imposing work requirements.
The Law requires states to implement the new TANF program not later
than July 1, 1997 and provides California approximately $3.7 billion in block
grant funds for FY 1996-97. States are allowed to implement TANF as soon as
possible and will receive a prorated block grant effective the date of
application. The California State Plan is to be submitted in time to allow grant
reductions to be implemented effective January 1, 1997 (allowing $92 million of
the $163 million referred to in paragraph 2 above to be saved) and to allow the
State to capture approximately $267 million in additional federal block grant
funds over the currently budgeted level. None of the other
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federal changes needed to achieve the balance of the $660 million cost savings
were enacted. Thus in lieu of the $660 million savings initially assumed to be
saved, it is now projected that savings will total approximately $360 million.
A preliminary analysis of the Law by the Legislative Analyst's
Office indicated that an overall assessment of how these changes will affect the
State's General Fund will not be known for some time, and will depend on how the
State implements the Law. There are many choices including how quickly the State
implements the Law; the degree to which the State elects to make up for cuts in
federal aid; provide more aid to counties, or cut some of its own existing
programs for noncitizens; and the State's ability to avoid certain penalties
written into the Law.
1997-98 Fiscal Year Proposed Budget.
On January 9, 1997, the Governor released his proposed budget for
the 1997-98 Fiscal Year (the "Governor's Budget"). The Governor's Budget
projects General Fund revenues and transfers in 1997-98 of $50.7 billion, a 4.6%
increase from revised 1996-97 figures. The Governor proposes expenditures of
$50.3 billion, a 3.9% increase from 1996-97. The Governor's Budget projects a
balance in the SFEU of $553 million on June 30, 1998. The Governor's Budget also
anticipates about $3 billion of external borrowing for cash flow purposes during
the year, with no requirement for cross-fiscal year borrowing.
Among the major initiatives and features of the Governor's Budget
are the following:
1. A proposed 10% cut in the Bank and Corporation Tax rate, to be
phased in over two years.
2. Proposition 98 funding for K-14 schools will be increased again,
as a result of stronger revenues. Per-pupil funding for K-12 schools will reach
$5,010, compared to $4,220 as recently as the 1993-94 Fiscal Year. Part of the
new funding is proposed to be dedicated to the completion of the current program
to reduce class size to 20 pupils in lower elementary grades, and to expand the
program by one grade, so that it will cover K-3rd grade.
3. Funding for higher education will be increased consistent with a
four-year "compact" established in 1995-96. There is not projected to be any
increase in student fees at any of the three levels of the State higher
education system.
4. The 1997-98 proposed Governor's Budget assumes approximately $500
million in savings contingent upon federal action. The Budget assumes that
federal law will be enacted to
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remove the maintenance-of-effect requirement for Supplemental Security Income
(SSI) payments, thereby enabling the state to reduce grant levels pursuant to
previously enacted state law ($279 million). The Budget also assumes the federal
government will fund $216 million in costs of health care for illegal
immigrants.
The Orange County Bankruptcy. On December 6, 1994, Orange County,
California and its Investment Pool (the "Pool") filed for bankruptcy under
Chapter 9 of the United States Bankruptcy Code. The subsequent restructuring led
to the sale of substantially all of the Pool's portfolio and resulted in losses
estimated to be approximately $1.7 billion (or approximately 22% of amounts
deposited by the Pool investors). Approximately 187 California public entities
- -- substantially all of which are public agencies within the county -- had
various bonds, notes or other forms of indebtedness outstanding. In some
instances the proceeds of such indebtedness were invested in the Pool.
In April, 1996, the County emerged from bankruptcy after closing on
a $900 million recovery bond transaction. At that time, the County and its
financial advisors stated that the County had emerged from the bankruptcy
without any structural fiscal problems and assured that the County would not
slip back into bankruptcy. However, for many of the cities, schools and special
districts that lost money in the County portfolio, repayment remains contingent
on the outcome of litigation which is pending against investment firms and other
finance professionals. Thus, it is impossible to determine the ultimate impact
of the bankruptcy and its aftermath on these various agencies and their claims.
Constitutional, Legislative and Other Factors.
Certain California constitutional amendments, legislative measures,
executive orders, administrative regulations and voter initiatives could produce
the adverse effects described below, among others.
Revenue Distribution. Certain Debt Obligations in the Portfolio may
be obligations of issuers which rely in whole or in part on California State
revenues for payment of these obligations. Property tax revenues and a portion
of the State's general fund surplus are distributed to counties, cities and
their various taxing entities and the State assumes certain obligations
theretofore paid out of local funds. Whether and to what extent a portion of the
State's general fund will be distributed in the future to counties, cities and
their various entities is unclear.
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Health Care Legislation. Certain Debt Obligations in the Portfolio
may be obligations which are payable solely from the revenues of health care
institutions. Certain provisions under California law may adversely affect these
revenues and, consequently, payment on those Debt Obligations.
The Federally sponsored Medicaid program for health care services to
eligible welfare beneficiaries in California is known as the Medi-Cal program.
Historically, the Medi-Cal program has provided for a cost-based system of
reimbursement for inpatient care furnished to Medi-Cal beneficiaries by any
hospital wanting to participate in the Medi-Cal program, provided such hospital
met applicable requirements for participation. California law now provides that
the State of California shall selectively contract with hospitals to provide
acute inpatient services to Medi-Cal patients. Medi-Cal contracts currently
apply only to acute inpatient services. Generally, such selective contracting is
made on a flat per diem payment basis for all services to Medi-Cal
beneficiaries, and generally such payment has not increased in relation to
inflation, costs or other factors. Other reductions or limitations may be
imposed on payment for services rendered to Medi-Cal beneficiaries in the
future.
Under this approach, in most geographical areas of California, only
those hospitals which enter into a Medi-Cal contract with the State of
California will be paid for non-emergency acute inpatient services rendered to
Medi-Cal beneficiaries. The State may also terminate these contracts without
notice under certain circumstances and is obligated to make contractual payments
only to the extent the California legislature appropriates adequate funding
therefor.
California enacted legislation in 1982 that authorizes private
health plans and insurers to contract directly with hospitals for services to
beneficiaries on negotiated terms. Some insurers have introduced plans known as
"preferred provider organizations" ("PPOs"), which offer financial incentives
for subscribers who use only the hospitals which contract with the plan. Under
an exclusive provider plan, which includes most health maintenance organizations
("HMOs"), private payors limit coverage to those services provided by selected
hospitals. Discounts offered to HMOs and PPOs may result in payment to the
contracting hospital of less than actual cost and the volume of patients
directed to a hospital under an HMO or PPO contract may vary significantly from
projections. Often, HMO or PPO contracts are enforceable for a stated term,
regardless of provider losses or of bankruptcy of the respective HMO or PPO. It
is expected that failure to execute and maintain such PPO and HMO contracts
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would reduce a hospital's patient base or gross revenues. Conversely,
participation may maintain or increase the patient base, but may result in
reduced payment and lower net income to the contracting hospitals.
These Debt Obligations may also be insured by the State of
California pursuant to an insurance program implemented by the Office of
Statewide Health Planning and Development for health facility construction
loans. If a default occurs on insured Debt Obligations, the State Treasurer will
issue debentures payable out of a reserve fund established under the insurance
program or will pay principal and interest on an unaccelerated basis from
unappropriated State funds. At the request of the Office of Statewide Health
Planning and Development, Arthur D. Little, Inc. prepared a study in December
1983, to evaluate the adequacy of the reserve fund established under the
insurance program and based on certain formulations and assumptions found the
reserve fund substantially underfunded. In September of 1986, Arthur D. Little,
Inc. prepared an update of the study and concluded that an additional 10%
reserve be established for "multi-level" facilities. For the balance of the
reserve fund, the update recommended maintaining the current reserve calculation
method. In March of 1990, Arthur D. Little, Inc. prepared a further review of
the study and recommended that separate reserves continue to be established for
"multi-level" facilities at a reserve level consistent with those that would be
required by an insurance company.
Mortgages and Deeds. Certain Debt Obligations in the Portfolio may
be obligations which are secured in whole or in part by a mortgage or deed of
trust on real property. California has five principal statutory provisions which
limit the remedies of a creditor secured by a mortgage or deed of trust. Two
statutes limit the creditor's right to obtain a deficiency judgment, one
limitation being based on the method of foreclosure and the other on the type of
debt secured. Under the former, a deficiency judgment is barred when the
foreclosure is accomplished by means of a nonjudicial trustee's sale. Under the
latter, a deficiency judgment is barred when the foreclosed mortgage or deed of
trust secures certain purchase money obligations. Another California statute,
commonly known as the "one form of action" rule, requires creditors secured by
real property to exhaust their real property security by foreclosure before
bringing a personal action against the debtor. The fourth statutory provision
limits any deficiency judgment obtained by a creditor secured by real property
following a judicial sale of such property to the excess of the outstanding debt
over the fair value of the property at the time of the sale, thus preventing the
creditor from obtaining a large deficiency judgment against the debtor as the
result of low bids at a judicial sale. The fifth statutory provision gives the
debtor the right to redeem
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the real property from any judicial foreclosure sale as to which a deficiency
judgment may be ordered against the debtor.
Upon the default of a mortgage or deed of trust with respect to
California real property, the creditor's nonjudicial foreclosure rights under
the power of sale contained in the mortgage or deed of trust are subject to the
constraints imposed by California law upon transfers of title to real property
by private power of sale. During the three-month period beginning with the
filing of a formal notice of default, the debtor is entitled to reinstate the
mortgage by making any overdue payments. Under standard loan servicing
procedures, the filing of the formal notice of default does not occur unless at
least three full monthly payments have become due and remain unpaid. The power
of sale is exercised by posting and publishing a notice of sale for at least 20
days after expiration of the three-month reinstatement period. The debtor may
reinstate the mortgage, in the manner described above, up to five business days
prior to the scheduled sale date. Therefore, the effective minimum period for
foreclosing on a mortgage could be in excess of seven months after the initial
default. Such time delays in collections could disrupt the flow of revenues
available to an issuer for the payment of debt service on the outstanding
obligations if such defaults occur with respect to a substantial number of
mortgages or deeds of trust securing an issuer's obligations.
In addition, a court could find that there is sufficient involvement
of the issuer in the nonjudicial sale of property securing a mortgage for such
private sale to constitute "state action," and could hold that the
private-right-of-sale proceedings violate the due process requirements of the
Federal or State Constitutions, consequently preventing an issuer from using the
nonjudicial foreclosure remedy described above.
Certain Debt Obligations in the Portfolio may be obligations which
finance the acquisition of single family home mortgages for low and moderate
income mortgagors. These obligations may be payable solely from revenues derived
from the home mortgages, and are subject to California's statutory limitations
described above applicable to obligations secured by real property. Under
California antideficiency legislation, there is no personal recourse against a
mortgagor of a single family residence purchased with the loan secured by the
mortgage, regardless of whether the creditor chooses judicial or nonjudicial
foreclosure.
Under California law, mortgage loans secured by single-family
owner-occupied dwellings may be prepaid at any time. Prepayment charges on such
mortgage loans may be imposed only with respect to voluntary prepayments made
during the first five years during the term of the mortgage loan, and then only
if the
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borrower prepays an amount in excess of 20% of the original principal amount of
the mortgage loan in a 12-month period; a prepayment charge cannot in any event
exceed six months' advance interest on the amount prepaid during the 12-month
period in excess of 20% of the original principal amount of the loan. This
limitation could affect the flow of revenues available to an issuer for debt
service on the outstanding debt obligations which financed such home mortgages.
Proposition 13. Certain of the Debt Obligations may be obligations
of issuers who rely in whole or in part on ad valorem real property taxes as a
source of revenue. On June 6, 1978, California voters approved an amendment to
the California Constitution known as Proposition 13, which added Article XIIIA
to the California Constitution. The effect of Article XIIIA was to limit ad
valorem taxes on real property and to restrict the ability of taxing entities to
increase real property tax revenues.
Section 1 of Article XIIIA, as amended, limits the maximum ad
valorem tax on real property to 1% of full cash value to be collected by the
counties and apportioned according to law. The 1% limitation does not apply to
ad valorem taxes or special assessments to pay the interest and redemption
charges on any bonded indebtedness for the acquisition or improvement of real
property approved by two-thirds of the votes cast by the voters voting on the
proposition. Section 2 of Article XIIIA defines "full cash value" to mean "the
County Assessor's valuation of real property as shown on the 1975/76 tax bill
under 'full cash value' or, thereafter, the appraised value of real property
when purchased, newly constructed, or a change in ownership has occurred after
the 1975 assessment." The full cash value may be adjusted annually to reflect
inflation at a rate not to exceed 2% per year, or reduction in the consumer
price index or comparable local data, or reduced in the event of declining
property value caused by damage, destruction or other factors.
Legislation enacted by the California Legislature to implement
Article XIIIA provides that notwithstanding any other law, local agencies may
not levy any ad valorem property tax except to pay debt service on indebtedness
approved by the voters prior to July 1, 1978, and that each county will levy the
maximum tax permitted by Article XIIIA.
Proposition 9. On November 6, 1979, an initiative known as
"Proposition 9" or the "Gann Initiative" was approved by the California voters,
which added Article XIIIB to the California Constitution. Under Article XIIIB,
State and local governmental entities have an annual "appropriations limit" and
are not allowed to spend certain moneys called "appropriations
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subject to limitation" in an amount higher than the "appropriations limit."
Article XIIIB does not affect the appropriation of moneys which are excluded
from the definition of "appropriations subject to limitation," including debt
service on indebtedness existing or authorized as of January 1, 1979, or bonded
indebtedness subsequently approved by the voters. In general terms, the
"appropriations limit" is required to be based on certain 1978/79 expenditures,
and is to be adjusted annually to reflect changes in consumer prices,
population, and certain services provided by these entities. Article XIIIB also
provides that if these entities' revenues in any year exceed the amounts
permitted to be spent, the excess is to be returned by revising tax rates or fee
schedules over the subsequent two years.
Proposition 98. On November 8, 1988, voters of the State approved
Proposition 98, a combined initiative constitutional amendment and statute
called the "Classroom Instructional Improvement and Accountability Act."
Proposition 98 changed State funding of public education below the university
level and the operation of the State Appropriations Limit, primarily by
guaranteeing K-14 schools a minimum share of General Fund revenues. Under
Proposition 98 (modified by Proposition 111 as discussed below), K-14 schools
are guaranteed the greater of (a) in general, a fixed percent of General Fund
revenues ("Test 1"), (b) the amount appropriated to K-14 schools in the prior
year, adjusted for changes in the cost of living (measured as in Article XIII B
by reference to State per capita personal income) and enrollment ("Test 2"), or
(c) a third test, which would replace Test 2 in any year when the percentage
growth in per capita General Fund revenues from the prior year plus one half of
one percent is less than the percentage growth in State per capita personal
income ("Test 3"). Under Test 3, schools would receive the amount appropriated
in the prior year adjusted for changes in enrollment and per capita General Fund
revenues, plus an additional small adjustment factor. If Test 3 is used in any
year, the difference between Test 3 and Test 2 would become a "credit" to
schools which would be the basis of payments in future years when per capita
General Fund revenue growth exceeds per capita personal income growth.
Proposition 98 permits the Legislature -- by two-thirds vote of both
houses, with the Governor's concurrence -- to suspend the K-14 schools' minimum
funding formula for a one-year period. Proposition 98 also contains provisions
transferring certain State tax revenues in excess of the Article XIII B limit to
K-14 schools.
During the recession years of the early 1990s, General Fund revenues
for several years were less than originally projected, so that the original
Proposition 98 appropriations turned out to be higher than the minimum
percentage provided in
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the law. The Legislature responded to these developments by designating the
"extra" Proposition 98 payments in one year as a "loan" from future years'
Proposition 98 entitlements, and also intended that the "extra" payments would
not be included in the Proposition 98 "base" for calculating future years'
entitlements. In 1992, a lawsuit was filed, California Teachers' Association v.
Gould, which challenged the validity of these off-budget loans. During the
course of this litigation, a trial court determined that almost $2 billion in
"loans" which had been provided to school districts during the recession
violated the constitutional protection of support for public education. A
settlement was reached on April 12, 1996 which ensures that future school
funding will not be in jeopardy over repayment of these so-called loans.
Proposition 111. On June 30, 1989, the California Legislature
enacted Senate Constitutional Amendment 1, a proposed modification of the
California Constitution to alter the spending limit and the education funding
provisions of Proposition 98. Senate Constitutional Amendment 1 -- on the June
5, 1990 ballot as Proposition 111 -- was approved by the voters and took effect
on July 1, 1990. Among a number of important provisions, Proposition 111
recalculated spending limits for the State and for local governments, allowed
greater annual increases in the limits, allowed the averaging of two years' tax
revenues before requiring action regarding excess tax revenues, reduced the
amount of the funding guarantee in recession years for school districts and
community college districts (but with a floor of 40.9 percent of State general
fund tax revenues), removed the provision of Proposition 98 which included
excess moneys transferred to school districts and community college districts in
the base calculation for the next year, limited the amount of State tax revenue
over the limit which would be transferred to school districts and community
college districts, and exempted increased gasoline taxes and truck weight fees
from the State appropriations limit. Additionally, Proposition 111 exempted from
the State appropriations limit funding for capital outlays.
Proposition 62. On November 4, 1986, California voters approved an
initiative statute known as Proposition 62. This initiative provided the
following:
1. Requires that any tax for general governmental purposes imposed
by local governments be approved by resolution or ordinance adopted by a
two-thirds vote of the governmental entity's legislative body and by a
majority vote of the electorate of the governmental entity;
2. Requires that any special tax (defined as taxes levied for other
than general governmental purposes) imposed
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by a local governmental entity be approved by a two-thirds vote of the
voters within that jurisdiction;
3. Restricts the use of revenues from a special tax to the purposes
or for the service for which the special tax was imposed;
4. Prohibits the imposition of ad valorem taxes on real property by
local governmental entities except as permitted by Article XIIIA;
5. Prohibits the imposition of transaction taxes and sales taxes on
the sale of real property by local governments;
6. Requires that any tax imposed by a local government on or after
August 1, 1985 be ratified by a majority vote of the electorate within two
years of the adoption of the initiative;
7. Requires that, in the event a local government fails to comply
with the provisions of this measure, a reduction in the amount of property
tax revenue allocated to such local government occurs in an amount equal
to the revenues received by such entity attributable to the tax levied in
violation of the initiative; and
8. Permits these provisions to be amended exclusively by the voters
of the State of California.
In September 1988, the California Court of Appeal in City of
Westminster v. County of Orange, 204 Cal.App. 3d 623, 215 Cal.Rptr. 511
(Cal.Ct.App. 1988), held that Proposition 62 is unconstitutional to the extent
that it requires a general tax by a general law city, enacted on or after August
1, 1985 and prior to the effective date of Proposition 62, to be subject to
approval by a majority of voters. The Court held that the California
Constitution prohibits the imposition of a requirement that local tax measures
be submitted to the electorate by either referendum or initiative. It is
impossible to predict the impact of this decision on charter cities, on special
taxes or on new taxes imposed after the effective date of Proposition 62. The
California Court of Appeal in City of Woodlake v. Logan, (1991) 230 Cal.App.3d
1058, subsequently held that Proposition 62's popular vote requirements for
future local taxes also provided for an unconstitutional referenda. The
California Supreme Court declined to review both the City of Westminster and the
City of Woodlake decisions.
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In Santa Clara Local Transportation Authority v. Guardino, (Sept.
28, 1995) 11 Cal.4th 220, reh'g denied, modified (Dec. 14, 1995) 12 Cal.4th
344e, the California Supreme Court upheld the constitutionality of Proposition
62's popular vote requirements for future taxes, and specifically disapproved of
the City of Woodlake decision as erroneous. The Court did not determine the
correctness of the City of Westminster decision, because that case appeared
distinguishable, was not relied on by the parties in Guardino, and involved
taxes not likely to still be at issue. It is impossible to predict the impact of
the Supreme Court's decision on charter cities or on taxes imposed in reliance
on the City of Woodlake case.
Senate Bill 1590 (O'Connell), introduced February 16, 1996, would
make the Guardino decision inapplicable to any tax first imposed or increased by
an ordinance or resolution adopted before December 14, 1995. The California
State Senate passed the Bill on May 16, 1996 and it is currently pending in the
California State Assembly. It is not clear whether the Bill, if enacted, would
be constitutional as a non-voted amendment to Proposition 62 or as a non-voted
change to Proposition 62's operative date.
Proposition 218. On November 5, 1996,the voters of the State
approved Proposition 218, a constitutional initiative, entitled the "Right to
Vote on Taxes Act" ("Proposition 218"). Proposition 218 adds Articles XIII C and
XIII D to the California Constitution and contains a number of interrelated
provisions affecting the ability of local governments to levy and collect both
existing and future taxes, assessments, fees and charges. Proposition 218 became
effective on November 6, 1996. The Sponsors are unable to predict whether and to
what extent Proposition 218 may be held to be constitutional or how its terms
will be interpreted and applied by the courts. However, if upheld, Proposition
218 could substantially restrict certain local governments' ability to raise
future revenues and could subject certain existing sources of revenue to
reduction or repeal, and increase local government costs to hold elections,
calculate fees and assessments, notify the public and defend local government
fees and assessments in court.
Article XIII C of Proposition 218 requires majority voter approval
for the imposition, extension or increase of general taxes and two-thirds voter
approval for the imposition, extension or increase of special taxes, including
special taxes deposited into a local government's general fund. Proposition 218
also provides that any general tax imposed, extended or increased without voter
approval by any local government on or after January 1, 1995 and prior to
November 6, 1996 shall
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continue to be imposed only if approved by a majority vote in an election held
within two years of November 6, 1996.
Article XIII C of Proposition 218 also expressly extends the
initiative power to give voters the power to reduce or repeal local taxes,
assessments, fees and charges, regardless of the date such taxes, assessments,
fees or charges were imposed. This extension of the initiative power to some
extent constitutionalizes the March 6, 1995 State Supreme Court decision in
Rossi v. Brown, which upheld an initiative that repealed a local tax and held
that the State constitution does not preclude the repeal, including the
prospective repeal, of a tax ordinance by an initiative, as contrasted with the
State constitutional prohibition on referendum powers regarding statutes and
ordinances which impose a tax. Generally, the initiative process enables
California voters to enact legislation upon obtaining requisite voter approval
at a general election. Proposition 218 extends the authority stated in Rossi v.
Brown by expanding the initiative power to include reducing or repealing
assessments, fees and charges, which had previously been considered
administrative rather than legislative matters and therefore beyond the
initiative power.
The initiative power granted under Article XIII C of Proposition
218, by its terms, applies to all local taxes, assessments, fees and charges and
is not limited to local taxes, assessments, fees and charges that are property
related.
Article XIII D of Proposition 218 adds several new requirements
making it generally more difficult for local agencies to levy and maintain
"assessments" for municipal services and programs. "Assessment" is defined to
mean any levy or charge upon real property for a special benefit conferred upon
the real property.
Article XIII D of Proposition 218 also adds several provisions
affecting "fees" and "charges" which are defined as "any levy other than an ad
valorem tax, a special tax, or an assessment, imposed by a local government upon
a parcel or upon a person as an incident of property ownership, including a user
fee or charge for a property related service." All new and, after June 30, 1997,
existing property related fees and charges must conform to requirements
prohibiting, among other things, fees and charges which (i) generate revenues
exceeding the funds required to provide the property related service, (ii) are
used for any purpose other than those for which the fees and charges are
imposed, (iii) are for a service not actually used by, or immediately available
to, the owner of the property in question, or (iv) are used for general
governmental services, including police, fire or library services, where the
service is available to the public at large in substantially the same manner as
it is
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to property owners. Further, before any property related fee or charge may be
imposed or increased, written notice must be given to the record owner of each
parcel of land affected by such fee or charges. The local government must then
hold a hearing upon the proposed imposition or increase of such property based
fee, and if written protests against the proposal are presented by a majority of
the owners of the identified parcels, the local government may not impose or
increase the fee or charge. Moreover, except for fees or charges for sewer,
water and refuse collection services, no property related fee or charge may be
imposed or increased without majority approval by the property owners subject to
the fee or charge or, at the option of the local agency, two-thirds voter
approval by the electorate residing in the affected area.
Proposition 87. On November 8, 1988, California voters approved
Proposition 87. Proposition 87 amended Article XVI, Section 16, of the
California Constitution by authorizing the California Legislature to prohibit
redevelopment agencies from receiving any of the property tax revenue raised by
increased property tax rates levied to repay bonded indebtedness of local
governments which is approved by voters on or after January 1, 1989.
Other Investment Information. The investment adviser believes that
it is likely that sufficient California Municipal Securities will be available
to satisfy the investment objective, policies and limitations of the California
Tax-Exempt Money Market Fund, and to enable the Fund to invest at least 50% of
its total assets in California Municipal Securities at the close of each of its
fiscal quarters. In meeting this investment policy the Fund may invest in
Municipal Securities which are private activity bonds (including industrial
development bonds under prior law) the interest on which is subject to the 26%
to 28% federal alternative minimum tax applicable to individuals and the 20%
federal alternative minimum tax and the environmental tax applicable to
corporations. The environmental tax applicable to corporations is imposed at the
rate of .12% on the excess of the corporations modified federal alternative
minimum taxable income over $2,000,000. Investments in such securities, however,
will not exceed under normal market conditions 20% of the Fund's total assets
when added together with any taxable investments held by the Fund. Moreover,
although the Fund does not presently intend to do so on a regular basis, it may
invest more than 25% of its assets in Municipal Securities the interest on which
is paid solely from revenues of similar projects if such investment is deemed
necessary or appropriate by the Fund's investment adviser in light of the Fund's
investment objective and policies. To the extent that the Fund's assets are
concentrated in Municipal Securities payable from revenues on similar projects,
the Fund
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will be subject to the peculiar risks presented by such projects to a greater
extent than it would be if the Fund's assets were not so concentrated.
If Pacific Horizon's Board of Directors, after consultation with the
investment adviser, should for any reason determine that it is impracticable to
invest at least 50% of the California Tax-Exempt Money Market Fund's total
assets in California Municipal Securities at the close of each quarter of the
California Tax-Exempt Money Market Fund's taxable year, the Board would
re-evaluate the Fund's investment objective and policies and consider changes in
its structure and name or possible dissolution.
Investment Limitations
The Prospectuses for each Fund (except the Government Fund and the
Treasury Only Fund) set forth certain fundamental policies that may not be
changed with respect to such Fund without the affirmative vote of the holders of
the majority of the Fund's outstanding shares (as defined below under
"Miscellaneous"). Similarly, the following enumerated additional fundamental
policies may not be changed with respect to a Fund without such a vote of
shareholders.
The Prime Fund may not:
1. Purchase securities of any one issuer (other than obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities)
if immediately thereafter more than 15% of its total assets would be invested in
certificates of deposit or bankers' acceptances of any one bank, or more than 5%
of its total assets would be invested in other securities of any one bank or the
securities of any other issuer (except that up to 25% of the Fund's total assets
may be invested without regard to this limitation).
In accordance with current regulations of the SEC, the Prime
Fund presently intends to limit its investments in the securities of any single
issuer (other than securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities) to not more than 5% of the Fund's total assets at
the time of purchase, provided that the Fund may invest up to 25% of its total
assets in the securities of any one issuer for a period that does not exceed
three business days. This intention is not, however, a fundamental policy of the
Fund.
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The Prime Fund, Treasury Fund and California Tax-Exempt Money
Market Fund may not:
1. Purchase or sell real estate (however, a Fund may, to the extent
appropriate to its investment objective, purchase securities issued by companies
investing in real estate or interests therein and the California Tax-Exempt
Money Market Fund may purchase Municipal Securities secured by real estate or
interests therein).
2. Underwrite the securities of other issuers.
3. Purchase securities of companies for the purpose of exercising
control.
4. Purchase securities on margin, make short sales of securities or
maintain a short position.
5. Acquire any other investment company or investment company
security except in connection with a merger, consolidation, reorganization or
acquisition of assets.
6. Make loans except that (i) a Fund may purchase or hold debt
instruments and enter into repurchase agreements pursuant to its investment
objective and policies, and (ii) the Prime Fund may lend portfolio securities.
Neither the Government Fund nor the Treasury Only Fund may:
1. Purchase any security or evidence of interest therein on margin,
except that a Fund may obtain such short term credit as may be necessary for the
clearance of purchases and sales of securities.
2. Underwrite securities issued by other persons, except that all of
the assets of a Fund may be invested in a corresponding investment company with
the same investment objective and policies and except insofar as a Fund may
technically be deemed an underwriter under the 1933 Act in selling a security.
3. Make loans to other persons except (a) through the lending of
securities held by a Fund, (b) through the use of fixed time deposits or
repurchase agreements or the purchase of short term obligations, or (c) by
purchasing all or a portion of an issue of debt securities of types commonly
distributed privately to financial institutions; for purposes of this investment
restriction the purchase of short-term commercial paper or a portion of an issue
of debt securities which are part of an issue to the public shall not be
considered the making of a loan.
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4. Purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts in
the ordinary course of business (each Fund reserves the freedom of action to
hold and to sell real estate acquired as a result of the ownership of securities
by such Fund).
5. Issue any senior security (as that term is defined in the 1940
Act) if such issuance is specifically prohibited by the 1940 Act or the rules
and regulations promulgated thereunder, except as appropriate to evidence a debt
incurred without violating Investment Restriction No. 2 as stated in the Funds'
Prospectus regarding borrowing.
6. Concentrate its investments in any particular industry (excluding
obligations of the U.S. Government, obligations of domestic banks, and
repurchase agreements), but if it is deemed appropriate for the achievement of
its investment objective, up to 25% of the assets of the Fund (taken at market
value at the time of each investment) may be invested in any one industry;
provided, that nothing in this investment restriction shall affect the Fund's
ability to invest a portion or all of its assets in a corresponding investment
company with the same investment objective and policies.
The Tax-Exempt Money Fund may not:
1. Purchase the securities of any issuer if as a result more than 5%
of the value of the Fund's total assets would be invested in the securities of
such issuer, except that up to 25% of the value of the Fund's total assets may
be invested without regard to this 5% limitation. Securities issued or
guaranteed by the United States Government or its agencies or instrumentalities
are not subject to this investment limitation. For purposes of this limitation
and the Fund's policy on concentration of investments set forth in the
Prospectus, a governmental agency, authority, instrumentality or other political
subdivision is deemed to be an issuer, separate from the government creating
such subdivision, if the security issued by such subdivision is backed only by
the assets and revenues of the subdivision, and a guarantee of a security is not
deemed to be a security issued by the guarantor, provided that no more than 10%
of the value of the Fund's total assets is invested in securities issued or
guaranteed by such guarantor.
2. Underwrite any issue of securities, except to the extent that the
purchase of securities directly from the issuer thereof in accordance with the
Fund's investment objective, policies and limitations may be deemed to be
underwriting.
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3. Purchase or sell real estate, except that the Fund may, to the
extent appropriate to its investment objective, invest in securities issued by
companies which invest in real estate or interests therein.
4. Purchase securities on margin, make short sales of securities or
maintain a short position.
5. Write or sell puts, calls, straddles, spreads or combinations
thereof.
6. Purchase or sell commodities or commodity contracts, or invest in
oil, gas or mineral exploration or development programs, except that the Fund
may, to the extent appropriate to its investment objective, invest in securities
issued by companies which purchase or sell commodities or commodity contracts or
which invest in such programs.
7. Purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition or reorganization.
8. Make loans, except that the Fund may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations, and may enter into repurchase agreements with respect to
securities.
9. Purchase any securities which would cause 25% or more of the
value of its total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal business activities
in the same industry; provided, however, that (a) there is no limitation with
respect to investments in Municipal Securities or obligations issued or
guaranteed by the Federal Government and its agencies and instrumentalities; (b)
although there is no limitation with respect to investments in certificates of
deposit and bankers' acceptances issued by domestic branches of United States
banks, no more than 10% of the total value of the Fund's assets at the time of
purchase may be invested in certificates of deposit and bankers' acceptances
issued by domestic branches of foreign banks and no more than 25% of the total
value of the Fund's assets at the time of purchase may be invested in
certificates of deposit and bankers' acceptances issued by domestic branches of
foreign banks and foreign branches of domestic banks; (c) each utility service
(such as gas, gas transmission, electric and telephone service) will be
considered a single industry for purposes of this policy; and (d) wholly-owned
finance companies will be considered to be in the industries of their parents if
their activities are primarily related to financing the activities of their
parents.
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The California Tax-Exempt Money Market Fund may not:
1. Invest in industrial revenue bonds where the payment of principal
and interest are the responsibility of a company (including its predecessors)
with less than three years of continuous operation.
2. Purchase or sell commodity contracts, or invest in oil, gas or
mineral exploration or development programs (however, the Fund may, to the
extent appropriate to its investment objective, purchase publicly traded
securities of companies engaging in whole or in part in such activities).
3. Purchase securities while its borrowings (including reverse
repurchase agreements) are outstanding.
4. Write or sell puts, calls, straddles, spreads, or combinations
thereof except that the Fund may acquire stand-by commitments with respect to
its Municipal Securities.
5. Purchase any securities which would cause 25% or more of the
Fund's total assets at the time of purchase to be invested in the securities of
one or more issuers conducting their principal business activities in the same
industry, provided that this limitation shall not apply to Municipal Securities
or governmental guarantees of Municipal Securities; and provided, further, that
for the purpose of this limitation only, industrial development bonds that are
backed only by the assets and revenues of a non-governmental user shall not be
deemed to be Municipal Securities.
* * *
If a percentage restriction is satisfied at the time of investment,
a later increase or decrease in such percentage resulting from a change in asset
value will not constitute a violation of such restriction.
For purposes of Investment Limitation P. 1 relating to the Prime
Fund in this Statement of Additional Information, Investment Limitation P. 6
relating to the Government Fund and Treasury Only Fund in this Statement of
Additional Information, Investment Limitation P. 9 relating to the Tax-Exempt
Money Fund in this Statement of Additional Information and Investment Limitation
P. 5 relating to the California Tax-Exempt Money Market Fund only in this
Statement of Additional Information, these Funds treat, in accordance with the
current views of the staff of the SEC and as a matter of non-fundamental policy
that may be changed without a vote of shareholders, all supranational
organizations as a single industry and each foreign government (and all of its
agencies) as a separate industry.
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For purposes of Investment Limitation P. 6 of this Statement of
Additional Information with respect to the Prime Fund, Treasury Fund, and
California Tax-Exempt Money Market Fund, Investment Limitation P. 3 of this
Statement of Additional Information with respect to the Government Fund and
Treasury Only Fund and Investment Limitation P. 8 of this Statement of
Additional Information with respect to the Tax-Exempt Money Fund, the Funds may
hold debt instruments whether such instruments are part of a public offering or
privately negotiated.
PURCHASE AND REDEMPTION OF SHARES
In General
The Company or its transfer agent may require any information
reasonably necessary to evidence that a redemption has been duly authorized.
Under the 1940 Act any of the Funds may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the New
York Stock Exchange is closed (other than customary weekend and holiday
closings), during which trading on such Exchange is restricted, during which an
emergency exists (as determined by the SEC by rule or regulation) as a result of
which disposal or valuation of portfolio securities is not reasonably
practicable or for such other periods as the SEC may permit. A Fund may also
suspend or postpone the recordation of the transfer of its shares upon the
occurrence of any of the foregoing conditions.
In addition a Fund may redeem shares involuntarily in certain
instances if such redemption is appropriate to carry out the Company's
responsibilities under the 1940 Act. If the Board of Directors determines that
conditions exist which make payment of redemption proceeds wholly in cash unwise
or undesirable, a Fund may make payment wholly or partly in readily-marketable
securities or other property. In such an event a shareholder would incur
transaction costs in selling the securities or other property. See "Net Asset
Value" below for an example of when such form of payment might be appropriate.
The Company has committed that it will pay all redemption requests by a
shareholder of record in cash, limited in amount with respect to each
shareholder during any ninety-day period to the lesser of $250,000 or 1% of the
Company's net asset value at the beginning of such period.
Any institution purchasing shares on behalf of separate accounts
will be required to hold the shares in a single nominee name (a "Master
Account"). Institutions investing in more than one Fund offered by the Company
must maintain a separate Master
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Account for each Fund. Institutions may arrange with the Funds' transfer agent
for certain sub-accounting services (such as purchase, redemption and dividend
record keeping).
National Banking Regulations
The Comptroller of the Currency has ruled that a national bank may
invest in shares of an investment company to the extent that the portfolio of
such company consists of investments in which the bank might invest directly. As
a national bank could invest directly without limitation in general obligations
of the U.S. Treasury and the portfolios of the Treasury Fund and Treasury Only
Fund are limited to such investments, national banks may acquire shares of the
Treasury Fund and Treasury Only Fund without limitation.
In addition, the regulations of the Comptroller of the Currency
provide that funds held in a fiduciary capacity by a national bank approved by
the Comptroller to exercise fiduciary powers must be invested in accordance with
the instrument establishing the fiduciary relationship and local law. In the
opinion of the Company's counsel, the purchase of shares of the Funds by such
national banks acting on behalf of their fiduciary accounts is not contrary to
applicable regulations if consistent with the particular account and proper
under the law governing the administration of the account. Prospective investors
should consult their advisers regarding the law applicable to their purchase of
shares.
Net Asset Value
In General. Each class's net asset value per share is calculated by
dividing the total value of the assets attributable to the class, less the value
of any liabilities applicable to the class, by the total number of outstanding
shares of that class. Each class's net asset value is calculated separately from
each of the other of the Company's class's net asset value. "Assets belonging
to" a Fund consist of the consideration received upon the issuance of shares
representing interests in the Fund together with all income, earnings, profits
and proceeds derived from the investment thereof, any proceeds from the sale,
exchange or liquidation of such investments, any funds or payments derived from
any re-investment of such proceeds, and a portion of any general assets of the
Company not belonging to a particular Fund. Each Fund is charged with the direct
expenses of that Fund and with a share of the general expenses of the Company.
The determinations by the Board of Directors as to direct and allocable expenses
and the allocable portion of general assets with respect to the various
portfolios are conclusive. The expenses that are charged to a Fund are borne
equally by each share of the Fund except for
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payments to Shareholder Organizations that are borne solely by Horizon Service
Shares and certain payments to Distribution or Service Organizations, including
Bank of America and BA Investment Services, Inc. ("BAIS"), that are borne solely
by Pacific Horizon Shares, X Shares and S Shares and Rule 12b-1 fees that are
borne solely by X Shares and S Shares of the Funds, as described in the
Prospectuses for such Shares.
A "business day" for purposes of processing share purchases and
redemptions received by the Transfer Agent at its Columbus office is a day on
which both the Funds' custodian and the New York Stock Exchange are open for
trading, except a "business day" does not include Martin Luther King, Jr. Day,
Columbus Day or Veteran's Day. In 1997 the holidays on which the New York Stock
Exchange is closed are: New Year's Day, President's Day, Good Friday, Memorial
Day (observed), Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Amortized Cost Method. The Funds use the amortized cost method of
valuation in computing the net asset value of their shares for purposes of sales
and redemptions. Under this method a Fund values each of its portfolio
securities at cost on the date of purchase and thereafter assumes a constant
proportionate amortization of any discount or premium until maturity of the
security. As a result the value of a portfolio security for purposes of
determining net asset value normally does not change in response to fluctuating
interest rates. While the amortized cost method seems to provide certainty in
portfolio valuation it may result in periods during which values, as determined
by amortized cost, are higher or lower than the amount such Fund would receive
if it sold its portfolio securities. The market value of the securities in the
Funds can be expected to vary inversely with changes in prevailing interest
rates. Thus, if interest rates have increased from the time a security was
purchased, such security, if sold, might be sold at a price less than its
amortized cost. Similarly, if interest rates have declined from the time a
security was purchased, such security, if sold, might be sold at a price greater
than its amortized cost. In either instance, if the security is held to
maturity, no gain or loss will be realized.
In connection with their use of amortized cost valuation, the Funds
limit the dollar-weighted average maturity of their portfolios to not more than
90 days and do not purchase any instrument with a remaining maturity of greater
than 397 calendar days, except for certain qualifying variable or floating rate
instruments whose maturities may be longer. The Company's Board of Directors has
also established, pursuant to rules promulgated by the SEC, procedures that are
intended to stabilize each Fund's net asset value per share for purposes of
sales and redemptions at $1.00. Such procedures include the determination,
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at such intervals as the Board deems appropriate, of the extent, if any, to
which a Fund's net asset value per share calculated by using available market
quotations deviates from $1.00 per share. In the event such deviation exceeds
1/2 of 1% the Board will promptly consider what action, if any, should be
initiated. If the Board believes that the amount of any deviation may result in
material dilution or other unfair results to investors or existing shareholders,
it will take such steps as it considers appropriate to eliminate or reduce to
the extent reasonably practicable any such dilution or unfair results. These
steps may include selling portfolio instruments prior to maturity, shortening a
Fund's average portfolio maturity, withholding or reducing dividends, reducing
the number of a Fund's outstanding shares without monetary consideration or
determining net asset value per share by using available market quotations. If a
Fund reduces the number of its outstanding shares without monetary consideration
it will mail written notice to shareholders at least three business days before
the redemption and in the notice will state the reason for the redemption and
the fact that the redemption may result in a capital loss to shareholders.
The Funds' administrator, the BISYS Group, Inc. (the
"Administrator"), may use a pricing service to value certain portfolio
securities where the prices provided are believed by the Administrator pursuant
to guidelines adopted by the Board of Directors to reflect the fair value of
such securities. In valuing a Fund's securities, the pricing service would
normally take into consideration such factors as yield, risk, quality, maturity,
type of issue, trading characteristics, special circumstances and other factors
it deems relevant in determining valuations for normal institutional-sized
trading units of debt securities and would not rely on quoted prices. The
methods used by the pricing service and the valuations so established will be
utilized under the general supervision of the Company's Board of Directors.
Additionally, in determining market-based net asset value per share all
portfolio securities for which market quotations (or appropriate substitutes
that reflect current market conditions) are not readily available shall be
valued at their fair value as determined by the valuation committee in
accordance with procedures established by the Board of Directors.
Supplementary Purchase Information: Pacific Horizon Shares
Initial purchases of Pacific Horizon Shares into a new account may
not be made by wire. However, persons wishing to make a subsequent purchase of
Pacific Horizon Shares into an already existing account by wire should telephone
the Transfer 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
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made; the investor's portfolio account number; and the investor's name.
Shares may be purchased in connection with IRAs only by direct
remittance to the Transfer Agent. Purchases for IRA accounts will be effective
only when payments received by the Transfer Agent are converted into federal
funds. Purchases for these plans may not be made in advance of receipt of funds.
The Transfer Agent may charge a fee to act as custodian for IRAs, payment of
which could require the liquidation of shares. Pacific Horizon Shares of the
Prime Fund acquired through an exchange of Class B shares of an investment
portfolio of the Time Horizon Funds liquidated by the Transfer Agent as fees for
custodial services to IRA accounts will not be subject to the contingent
deferred sales load. All fees charged are described in the appropriate form.
Supplementary Redemption Information: Pacific Horizon Shares
Pacific Horizon Shares for which orders for wire redemption are
received on a business day before 2:30 p.m. (Eastern Time) with respect to the
Prime Fund, Treasury Fund or Government Fund, 11:30 a.m. (Eastern Time) with
respect to the Treasury Only Fund, 10:30 a.m. (Eastern Time) with respect to the
California Tax-Exempt Money Market Fund or 12:00 noon (Eastern time) with
respect to the Tax-Exempt Money Fund, will be redeemed as of such time and the
proceeds of redemption (less any applicable contingent deferred sales load
charged on Pacific Horizon Shares of the Prime Fund acquired through an exchange
of Class B shares of an investment portfolio of the Time Horizon Funds) will
normally be wired in Federal funds on the same business day to the commercial
bank specified by the investor on the Account Application (or other bank of
record on the investor's file with the Transfer Agent). To qualify to use the
wire redemption privilege, payment for shares must be drawn on, and redemption
proceeds paid to, the same bank and account as designated on the Account
Application (or other bank of record as described above). If the proceeds of a
particular redemption are to be wired to another bank, the request must be in
writing and signature guaranteed. Pacific Horizon Shares for which orders for
wire redemption are received on a business day after the respective times stated
above or on a non-business day will be redeemed as of the next determination of
net asset value for the Fund involved and the proceeds of redemption (less any
applicable contingent deferred sales load charged on Pacific Horizon Shares of
the Prime Fund acquired through an exchange of Class B shares of an investment
portfolio of the Time Horizon Funds) will normally be wired in federal funds on
the next business day after receipt of the redemption request. Redemption
proceeds (less any applicable contingent deferred sales load charged on Pacific
Horizon Shares of the Prime Fund acquired through an exchange of
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Class B shares of an investment portfolio of the Time Horizon Funds) will be
wired to a correspondent member bank if the investor's designated bank is not a
member of the Federal Reserve System. Immediate notification by the
correspondent bank to the investor's bank is necessary to avoid a delay in
crediting the funds to the investor's bank account. Proceeds of less than $1,000
will be mailed to the investor's address.
To change the commercial bank or account designated to receive
redemption proceeds, a written request must be sent to the Company, c/o Pacific
Horizon Funds, Inc., P.O. Box 18290, Columbus, Ohio 43218-2090. Such request
must be signed by each shareholder, with each signature guaranteed as described
in the Funds' Prospectuses. Guarantees must be signed by an authorized signatory
and "signature guaranteed" must appear with the signature. The Transfer Agent
may request further documentation from corporations, executors, administrators,
trustees or guardians, and will accept other suitable verification arrangements
from foreign investors, such as consular verification.
Investors redeeming by Check generally will be subject to the same
rules and regulations that commercial banks apply to checking accounts, although
the election of this privilege creates only a shareholder-transfer agent
relationship with the Transfer Agent. An investor may deliver Checks directly to
the Transfer Agent, BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus, Ohio
43219-3035, in which case the proceeds will be mailed, wired or made available
at the Transfer Agent on the next business day. The Check delivered to the
Transfer Agent must be accompanied by a properly executed stock power form on
which the investor's signature is guaranteed as described in the Funds'
Prospectuses.
Because dividends accrue daily and because a contingent deferred
sales load may be applicable, Checks should not be used to close an account.
Check redemption may be modified or terminated at any time by the Company or the
Transfer Agent upon notice to shareholders.
For processing redemptions, the Transfer Agent may request further
documentation from corporations, executors, administrators, trustees or
guardians. The Transfer Agent will accept other suitable verification
arrangements from foreign investors, such as consular verification.
Investors should be aware that if they have selected the TeleTrade
Privilege, any request for a wire redemption will be effected as a TeleTrade
transaction through the Automated Clearing House (ACH) system unless more prompt
transmittal specifically is requested. Redemption proceeds of a TeleTrade
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transaction will be on deposit in the investor's account at the ACH member bank
normally two business days after receipt of the redemption request.
Pacific Horizon Shares of the Prime Fund acquired through an
exchange of Class B shares of an investment portfolio of the Time Horizon Funds
are subject to a contingent deferred sales load upon redemption. For purposes of
computing the contingent deferred sales load, the length of time of ownership
will be measured from the date of the original purchase of Class B shares and
will not include any period of ownership of the Pacific Horizon Shares of the
Prime Fund.
Exchange Privilege. Shareholders in the Pacific Horizon Family of
Funds have an exchange privilege whereby they may exchange all or part of their
Pacific Horizon Shares for shares of other investment portfolios in the Pacific
Horizon Family of Funds or for like shares of any investment portfolio of Time
Horizon Funds. In addition, holders of Class B shares of an investment portfolio
of Time Horizon Funds may exchange such Class B shares for Pacific Horizon
Shares of the Pacific Horizon Prime Fund without the payment of any contingent
deferred sales load at the time the exchange is made. By use of the exchange
privilege, the investor authorizes the Transfer Agent to act on telephonic,
telegraphic or written exchange instructions from any person representing
himself to be the investor and believed by the Transfer Agent to be genuine. The
Transfer Agent's records of such instructions are binding. The exchange
privilege may be modified or terminated at any time upon notice to shareholders.
For federal income tax purposes, exchange transactions are treated as sales on
which a purchaser will realize a capital gain or loss depending on whether the
value of the shares exchanged is more or less than his basis in such shares at
the time of the transaction.
Exchange transactions described in Paragraphs A, B, C, D and E below
will be made on the basis of the relative net asset values per share of the
investment portfolios involved in the transaction.
A. Shares of any investment portfolio purchased with a sales load, as
well as additional shares acquired through reinvestment of dividends
or distributions on such shares, may be exchanged without a sales
load for shares of any other investment portfolio in the Pacific
Horizon Family of Funds or Time Horizon Funds.
B. Pacific Horizon Shares of the Prime Fund ("Prime Shares") acquired
pursuant to an exchange transaction with Class B shares of an
investment portfolio of Time Horizon Funds will continue to be
subject to a
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contingent deferred sales load. However, Prime Shares that had been
acquired through an exchange of Class B shares of an investment
portfolio of the Time Horizon Funds may be exchanged for other Class
B shares without the payment of a contingent deferred sales load at
the time of exchange. In determining the holding period for
calculating the contingent deferred sales load payable on redemption
of Class B shares, the holding period of the shares originally held
will be added to the holding period of the shares acquired through
exchange unless the Class B shares have been exchanged for Prime
Shares.
C. Shares of any investment portfolio in the Pacific Horizon Family of
Funds or Time Horizon Funds acquired by a previous exchange
transaction involving shares on which a sales load has directly or
indirectly been paid (e.g. shares purchased with a sales load or
issued in connection with an exchange transaction involving shares
that had been purchased with a sales load), as well as additional
shares acquired through reinvestment of dividends or distributions
on such shares, may be redeemed and the proceeds used to purchase
without a sales load shares of any other investment portfolio. To
accomplish an exchange transaction under the provisions of this
Paragraph, investors must notify the Transfer Agent of their prior
ownership of shares and their account number.
D. Shares of any investment portfolio in the Pacific Horizon Family of
Funds may be exchanged without a sales load for shares of any other
investment portfolio in the Family that is offered without a sales
load.
E. Shares of any investment portfolio in the Pacific Horizon Family of
Funds purchased without a sales load may be exchanged without a
sales load for shares in any other portfolio where the investor
involved maintained an account in the Pacific Horizon Family of
Funds before April 20, 1987 or was the beneficial owner of shares of
Bunker Hill Income Securities, Inc. on the date of its
reorganization into the Company's Corporate Bond Fund.
Except as stated above, a sales load will be imposed when shares of
any investment portfolio in the Pacific Horizon Family of Funds that were
purchased or otherwise acquired without a sales load are exchanged for shares of
another investment portfolio in the Pacific Horizon Family (or for shares of any
investment portfolio of Time Horizon Funds) which are sold with a sales load.
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<PAGE> 218
Exchange requests received on a business day prior to the time
shares of the investment portfolios involved in the request are priced will be
processed on the date of receipt. "Processing" a request means that shares in
the investment portfolio from which the shareholder is withdrawing an investment
will be redeemed at the net asset value per share next determined on the date of
receipt. Shares of the new investment portfolio into which the shareholder is
investing will also normally be purchased at the net asset value per share next
determined coincident to or after the time of redemption. Exchange requests
received on a business day after the time shares of the investment portfolios
involved in the request are priced will be processed on the next business day in
the manner described above.
Pacific Horizon Shares, X Shares and S Shares
Persons wishing to purchase Pacific Horizon Shares through their
accounts at Bank of America or a Service Organization should contact such entity
directly for appropriate instructions. Persons purchasing X Shares through Bank
of America's 401(k) Program should contact their representative. Persons wishing
to establish a Sweep Account at BAIS, with respect to X Shares, a Sweep Account
at Bank of America or its banking or brokerage affiliates, with respect to S
Shares, or at certain other Service Organizations, with respect to X Shares and
S Shares, should contact BAIS, Bank of America, its banking or brokerage
affiliates or a Service Organization directly for appropriate instructions.
Depending on the terms of the Sweep Account, Bank of America, its banking or
brokerage affiliates , or BAIS may charge their customers fees for automatic
investment, redemption and other services provided. Such fees may include, for
example, account maintenance fees, compensating balance requirements or fees
based upon account transactions, assets or income. Bank of America, its banking
or brokerage affiliates, BAIS or the particular Service Organization is
responsible for providing information concerning these services and any charges
to any customers who must authorize the purchase of shares prior to such
purchase.
Miscellaneous. Certificates for shares will not be issued.
The Company may suspend the right of redemption or postpone the date
of payment for shares during any period when (a) trading on the New York Stock
Exchange is restricted by applicable rules and regulations of the SEC; (b) the
New York 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> 219
transfer of its shares upon the occurrence of any of the foregoing conditions.)
The Company's Charter permits its Board of Directors to require a
shareholder to redeem involuntarily shares in a Fund if the balance held of
record by the shareholder drops below $500 and such shareholder does not
increase such balance to $500 or more upon 60 days' notice. The contingent
deferred sales load with respect to Pacific Horizon Shares of the Prime Fund
acquired through an exchange of B Shares of an investment portfolio of the Time
Horizon Funds is not charged on involuntary redemptions. The Company will not
require a shareholder to redeem shares of a Fund if the balance held of record
by the shareholder is less than $500 solely because of a decline in the net
asset value of the shares. The Company may also redeem shares involuntarily if
such redemption is appropriate to carry out the Company's responsibilities under
the Investment Company Act of 1940.
If the Company's Board of Directors determines that conditions exist
which make payment of redemption proceeds wholly in cash unwise or undesirable,
the Company may make payment wholly or partly in readily marketable securities
or other property. In such an event, a shareholder would incur transaction costs
in selling the securities or other property. The Company has committed that it
will pay all redemption requests by a shareholder of record in cash, limited in
amount with respect to each shareholder during any ninety-day period to the
lesser of $250,000 or 1% of the net asset value at the beginning of such period.
MANAGEMENT OF THE FUNDS
Directors and Officers
The directors and officers of the Company, their addresses, ages,
and principal occupations during the past five years are:
Position with
Name and Address Age Company Principal Occupations
- ---------------- --- -------------- ---------------------
Thomas M. Collins 62 Director Of counsel, law firm of
McDermott & Trayner McDermott & Trayner;
225 S. Lake Avenue Partner of the law firm
Suite 410 of Musick, Peeler &
Pasadena, CA 91101-3005 Garrett (until April,
1993); Chairman of
the Board and
Trustee, Master
Investment Trust,
Series I (registered
investment company)
(since 1993);
President and
Chairman of the
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Position with
Name and Address Age Company Principal Occupations
- ---------------- --- -------------- ---------------------
Board of Pacific
Horizon Funds, Inc.
(1982 to August 31,
1995); former
Trustee, Master
Investment Trust,
Series II
(registered
investment company)
1993 to April
1997; former
Director, Bunker
Hill Income
Securities, Inc.
(registered
investment company)
through 1991.
Douglas B. Fletcher 71 Vice Chairman Chairman of the Board
Fletcher Capital of the Board and Chief Executive
Advisors Incorporated Officer, Fletcher
4 Upper Newport Plaza Capital Advisor,
Suite 100 Incorporated, (regis-
Newport Beach, CA 92660-2629 tered investment
advisor) 1991 to
date; Partner,
Newport Partners
(private venture
capital firm), 1981
to date; Chairman of
the Board and Chief
Executive Officer,
First Pacific
Advisors, Inc.
(registered
investment adviser)
and seven investment
companies under its
management, prior to
1983; former Allied
Member, New York
Stock Exchange;
Chairman of the
Board of FPA
Paramount Fund, Inc.
through 1984;
Director, TIS
Mortgage Investment
Company (real estate
investment trust);
Trustee and former
Vice Chairman of the
Board, Claremont
McKenna College;
Chartered Financial
Analyst.
Robert E. Greeley 64 Director Chairman, Page Mill
Page Mill Asset Asset Management (a
Management private investment
433 California Street company) since 1991;
Suite 900 Manager, Corporate
San Francisco, CA 94104 Investments, Hewlett
Packard Company from
1979 to 1991; Trustee,
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<PAGE> 221
Position with
Name and Address Age Company Principal Occupations
- ---------------- --- -------------- ---------------------
Master Investment
Trust, Series I
(since 1993);
Director, Morgan
Grenfell Small Cap
Fund (since 1986);
former Director,
Bunker Hill Income
Securities, Inc.
(since 1989); former
Trustee, SunAmerica
Fund Group
(previously Equitec
Siebel Fund Group)
from 1984 to 1992;
former Trustee,
Master Investment
Trust, Series II
from 1993 to
February 1997
(registered
investment companies).
Kermit O. Hanson 80 Director Vice Chairman of the
17760 14th Ave., N.W. Advisory Board, 1988 to
Shoreline, WA 98177 date, Executive
Director, 1977 to 1988,
Pacific Rim Bankers
Program (a non-profit
educational
institution); Dean
Emeritus, 1981 to date,
Dean, 1964-81, Graduate
School of Business
Administration,
University of
Washington; Director,
Washington Federal
Savings & Loan
Association; Trustee,
Seafirst Retirement
Funds (since 1993)
(registered investment
company).
Cornelius J. Pings* 67 Chairman of President, Association
Association of American the Board and of American Universi-
Universities President ties, February 1993 to
1200 New York Avenue, NW date; January 1993,
Provost, 1982 to Senior Vice President
Suite 550 for Academic Affairs,
Washington, DC 20005 1981 to January 1993,
University of Southern
California; Trustee,
Master Investment Trust,
Series I (since 1995);
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<PAGE> 222
Position with
Name and Address Age Company Principal Occupations
- ---------------- --- -------------- ---------------------
former Trustee,
Master Investment
Trust, Series II
(October 1995 to
February 1997).
J. David Huber 49 Executive Employee of BISYS Fund
BISYS Fund Services Vice President Services, Inc.,
3435 Stelzer Road June 1987 to present;
Columbus, OH 43219 President of Master
Investment Trust,
Series I, and
Seafirst Retirement
Funds (since 1996)
Master Investment
Trust Series II
(1996 - February 1997).
Michael Brascetta 37 Vice President Senior Vice President
BISYS Fund Services of Shareholder Services,
3435 Stelzer Road BISYS Fund Services,
Columbus, OH 43219 Inc., April 1996 to
present; Employee, The
Vanguard Group, 1981 to
April 1996.
Irimga McKay 36 Vice Senior Vice President,
1230 Columbia Street President July 1993 to date, prior
5th Floor thereto First Vice
La Jolla, CA 92037 President of the
Administrator and
Distributor,
November 1988 to
July 1993; Vice
President, Series
II and Seafirst
Retirement Funds
(since 1993); Master
Investment Trust
(1993 - February
1997), Regional Vice
President, Continental
Equities, June 1987
to November 1988;
Assistant
Wholesaler, VMS
Realty Partners (a
real estate limited
partnership), May
1986 to June 1987.
Stephanie L. Blaha 37 Vice Director of Client
BISYS Fund Services President Services of the
3435 Stelzer Road Administrator, March
Columbus, OH 43219 1995 to date, prior
thereto Assistant Vice
President of the
Administrator and
Distributor, October
1991 to March 1995; Vice
President, Seafirst
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<PAGE> 223
Position with
Name and Address Age Company Principal Occupations
- ---------------- --- -------------- ---------------------
Retirement Funds,
Master Investment
Trust, Series I
(since 1996) and
Master Investment
Trust, Series II
(1993 - February
1997); Account
Manager, AT&T
American Transtech,
Mutual Fund
Division, July 1989
to October 1991.
Kevin L. Martin 35 Treasurer Vice President, Fund
BISYS Fund Services Accounting BISYS Fund
3435 Stelzer Road Services, Inc.
Columbus, OH 43219 February 1996 to
Present; Treasurer,
Seafirst Retirement
Funds (since 1996)
and Master
Investment Trust,
Series II (1996 -
February 1997)
Senior Audit
Manager, Ernst &
Young LLP (1984 to
February 1996).
Lisa Ling 36 Assistant Employee, BISYS Fund
BISYS Fund Services Treasurer Services, Inc., November
3435 Stelzer Road 1995 to present;
Columbus, OH 43219 Assistant Treasurer,
Master Investment
Trust Series II
(1996 - February
1997) and Seafirst
Retirement Funds
(since 1996);
employee, Federated
Investors, October
1982 to November 1995.
W. Bruce McConnel, III 54 Secretary Partner of the law firm
1345 Chestnut Street of Drinker Biddle &
Philadelphia National Bank Reath LLP.
Building, Suite 1100
Philadelphia, PA 19107
George O. Martinez 36 Assistant Senior Vice President
BISYS Fund Services Secretary and Director of
3435 Stelzer Road Administrative and
Columbus, OH 43219 Regulatory Services, of
the Administrator, since
April 1995; Assistant
Secretary, Seafirst
Retirement Funds (since
1995) and Master
Investment Trust, Series
II (1995 - February
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<PAGE> 224
Position with
Name and Address Age Company Principal Occupations
- ---------------- --- -------------- ---------------------
1997); prior thereto,
Vice President and
Associate General
Counsel, Alliance
Capital Management, L.P.
Alaina V. Metz 28 Assistant Chief Administrator,
BISYS Fund Services Secretary Administrative and
3435 Stelzer Road Regulatory Services,
Columbus, OH 43219 BISYS Fund Services,
Inc., June 1995 to
present; Assistant
Secretary of
Seafirst Retirement
Funds (since 1996);
Supervisor, Mutual
Fund Legal
Department, Alliance
Capital Management,
May 1989 to June 1995.
- ----------
* Mr. Pings is an "interested director" of the Company as defined in the
1940 Act.
The Audit Committee of the Board is comprised of all directors and
is chaired by Dr. Hanson. The Board does not have an Executive Committee.
Each director is entitled to receive an annual fee of $25,000 plus
$1,000 for each day that a director participates in all or a part of a Board
meeting; the President receives an additional $20,000 per annum for his services
as President; each member of a Committee of the Board is entitled to receive
$1,000 for each Committee meeting they participate in (whether or not held on
the same day as a Board meeting); and each Chairman of a Committee of the Board
shall be entitled to receive an annual retainer of $1,000 for his services as
Chairman of the Committee. Kenneth L. Trefftz, a former director of the
Company, became a director emeritus of the Company and received a retirement
benefit of $60,000 on January 1, 1997. Mr. Collins, the former President and
Chairman of the Company, received an additional $40,000 per year through
February 28, 1997 in recognition of his years of service. The Funds, and each
other fund of the Company, pays its proportionate share of these amounts based
on relative net asset values.
For the fiscal year ended February 28, 1997, the Company paid or
accrued for the account of its directors as a
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<PAGE> 225
group for services in all capacities a total of $316,500. Of that amount,
$148,436, $78,691, $18,169, $11,974, $12,997 and $19,418 of directors'
compensation were allocated to the Prime, Treasury, Government, Treasury Only,
Tax-Exempt Money and California Tax-Exempt Money Market Funds, respectively.
Each director is also reimbursed for out-of-pocket expenses incurred as a
director. Drinker Biddle & Reath LLP, of which Mr. McConnel is a partner,
receives legal fees as counsel to the Company. As of the date of this Statement
of Additional Information, the directors and officers of the Company, as a
group, own less than 1% of the outstanding shares of each of the Company's
investment portfolios.
Under a retirement plan approved by the Board of Directors,
including a majority of its directors who are not "interested persons" of the
Company, a director who dies or resigns after five years of service is entitled
to receive ten annual payments each equal to the greater of: (i) 50% of the
annual director's retainer that was payable by the Company during the year of
his/her death or resignation, or (ii) 50% of the annual director's retainer then
in effect for directors of the Company during the year of such payment. A
director who dies or resigns after nine years of service is entitled to receive
ten annual payments each equal to the greater of: (i) 100% of the annual
director's retainer that was payable by the Company during the year of his/her
death or resignation, or (ii) 100% of the annual director's retainer then in
effect for directors of the Company during the year of such payment. Further,
the amount payable each year to a director who dies or resigns is increased by
$1,000 for each year of service that the director served as Chairman of the
Board.
Years of service for purposes of calculating the benefit described
above are based upon service as a director or Chairman after February 28, 1994.
Retirement benefits in which a director has become vested may not be reduced by
later Board action.
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
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<PAGE> 226
writing within the 30 calendar days after the date the individual is first
elected as a director.
In addition to the foregoing, the Board of Directors may, in its
discretion and in recognition of a director's period of service before March 1,
1994 as a director and possibly as Chairman, authorize the Company to pay a
retirement benefit following the director's death or resignation (unless the
director has vested benefits as a result of completing nine years of service).
Any such action shall be approved by the Board and by a majority of the
directors who are not "interested persons" of the Company within 120 days
following the director's death or resignation and may be authorized as a single
sum cash payment or as not more than ten annual payments (beginning the first
anniversary of the director's date of death or resignation and continuing for
one or more anniversary date(s) thereafter).
The obligation of the Company to pay benefits to a former director
is neither secured nor funded by the Company but shall be binding upon its
successors in interest. The payment of benefits under the retirement plan has no
priority or preference over the lawful claims of the Company's creditors or
shareholders, and the right to receive such payments is not assignable or
transferable by a director (or former director) other than by will, by the laws
of descent and distribution, or by the director's written designation of a
beneficiary.
The following chart provides certain information as of February 28,
1997 about the fees received by directors of the Company as directors and/or
officers of the Company and as directors and/or trustees of the Fund Complex:
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<PAGE> 227
================================================================================
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
- --------------------------------------------------------------------------------
Thomas M. Collins $76,000 $14,074 $31,293 $86,125
Director+
- --------------------------------------------------------------------------------
Douglas B. Fletcher $37,000 $11,410 $24,680 $37,000
Vice Chairman of
the Board
- --------------------------------------------------------------------------------
Robert E. Greeley++ $33,000 $ 8,992 $17,905 $51,625
Director
- --------------------------------------------------------------------------------
Kermit O. Hanson $35,000 $12,664 $26,722 $43,000
Director
- --------------------------------------------------------------------------------
Kenneth J. Trefftzs*** $60,000 $18,500 $ -- $78,500
Director Emeritus
- --------------------------------------------------------------------------------
Cornelius J. Pings $57,000 $10,133 $22,561 $68,125
President and
Chairman of the
Board+++
================================================================================
- ----------
* For the fiscal year ended February 28, 1997, the Company accrued on the
part of all of the directors an aggregate of $57,273 in retirement
benefits.
** The "Fund Complex" consists of the Company, Seafirst Retirement Funds,
Master Investment Trust, Series I, [Master Investment Trust, Series II],
Time Horizon Funds and World Horizon Funds.
*** During the fiscal year ended February 28, 1997, Mr. Trefftzs received a
lump sum payment of $60,000, representing payment of a retirement benefit
from the Company. Mr. Trefftzs has accrued a further amount of $18,500 as
of February 28, 1997 in pension or retirement benefits from the Company.
+ Mr. Collins was President and Chairman of the Board of the Company until
August 31, 1995.
++ Mr. Greeley became a director of the Company on April 25, 1994.
+++ Mr. Pings became President and Chairman of the Board of the Company
effective September 1, 1995.
Investment Adviser
Bank of America is the successor by merger to Security Pacific
National Bank ("Security Pacific"), which previously served as investment
adviser to each of the Funds, other than the Government and Treasury Only Funds,
since the commencement of their operations. In the investment advisory
agreement, Bank of America has agreed to provide investment advisory services as
described in the Prospectuses. Bank of America has also agreed to pay all
expenses incurred by it in connection with its activities under its agreement
other than the cost of securities, including brokerage commissions, if any,
purchased for the
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<PAGE> 228
Company. In rendering its advisory services, Bank of America may utilize Bank
officers from one or more of the departments of the Bank which are authorized to
exercise the fiduciary powers of Bank of America with respect to the investment
of trust assets. In some cases, these officers may also serve as officers, and
utilize the facilities, of wholly-owned subsidiaries or other affiliates of Bank
of America or its parent corporation. For the services provided and expenses
assumed pursuant to the investment advisory agreement, the Company has agreed to
pay Bank of America fees, accrued daily and payable monthly, at the following
annual rates: .10% of the first $3 billion of each Fund's net assets, plus .09%
of the next $2 billion of each Fund's net assets, plus .08% of each Fund's net
assets over $5 billion. From time to time, Bank of America may waive fees or
reimburse the Company for expenses voluntarily or as required by certain state
securities laws.
For the fiscal years ended February 28, 1995, February 29, 1996 and
February 28, 1997, Bank of America was paid in the aggregate, pursuant to the
investment advisory agreements applicable to them, advisory fees (net of
waivers) of $2,330,203, $3,964,899 and $5,792,971, respectively, by the Prime
Fund, $2,140,125, $2,446,958 and $2,861,734, respectively, by the Treasury Fund
and $501,956, $439,603 and $444,648, respectively, by the Tax-Exempt Money Fund.
For the fiscal years ended February 28, 1995, February 29, 1996 and February 28,
1997, Bank of America was paid in the aggregate, pursuant to the investment
advisory agreements applicable to it, advisory fees (net of waivers and expense
reimbursements) of $301,964, $508,348 and $849,799, respectively, by the
California Tax-Exempt Money Market Fund. For the fiscal years ended February 28,
1995, February 29, 1996 and February 28, 1997, Bank of America did not effect
any fee waivers or expense reimbursements with respect to the Treasury Fund but
did reimburse expenses or waive fees to the Prime Fund, in the aggregate, in the
amount of $920,627, $0 and $0, and the Tax-Exempt Money Fund, in the amount of
$11,611, $0 and $0, respectively. For the fiscal years ended February 28, 1995,
February 29, 1996 and February 28, 1997, Bank of America, in the aggregate,
waived fees and reimbursed expenses with respect to the California Tax-Exempt
Money Market Fund in the amount of $0, $0 and $153,004, respectively.
For the fiscal year ended February 28, 1995, the Government Fund and
Treasury Only Fund paid Bank of America investment advisory fees (net of fee
waivers or expense reimbursements) of $321,634 and $293,305, respectively. For
that same period, Bank of America waived fees of $8,313 for the Treasury Only
Fund and waived fees of $313,740 and reimbursed expenses to the Government Fund
in the amount of $14,000. For the fiscal year ended February 29, 1996, the
Government Fund and Treasury Only Fund paid Bank of America investment advisory
fees
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<PAGE> 229
(net of fee waivers and expense reimbursements) of $539,047 and $487,156,
respectively. For that same period, Bank of America waived fees of $276,490 and
reimbursed expenses of $4,778 with respect to the Government Fund. For the
fiscal year ended February 28, 1997, the Government Fund and Treasury Only Fund
paid Bank of America investment advisory fees (net of fee waivers and expense
reimbursements) of $539,047 and $487,156, respectively. For that same period,
Bank of America waived fees of $335,332 and $0 for the Government Fund and
Treasury Only Fund, respectively.
The Company's investment advisory agreement for the Funds provides
that Bank of America shall not be liable for any error of judgment or mistake of
law or for any loss suffered by the Company in connection with the performance
of the investment advisory agreement, except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services or a
loss resulting from willful misfeasance, bad faith or negligence in the
performance of its duties or from reckless disregard by it of its duties and
obligations thereunder.
The Glass-Steagall Act and Proposed Legislation
The Glass-Steagall Act, among other things, prohibits banks from
engaging in the business of underwriting securities, although national and
state-chartered banks generally are permitted to purchase and sell securities
upon the order and for the account of their customers. In 1971, the United
States Supreme Court held in Investment Company Institute v. Camp that the
Glass-Steagall Act prohibits a national bank from operating a fund for the
collective investment of managing agency accounts. Subsequently, the Board of
Governors of the Federal Reserve System (the "Board") issued a regulation and
interpretation to the effect that the Glass-Steagall Act and such decision
forbid a bank holding company registered under the Federal Bank Holding Company
Act of 1956 (the "Holding Company Act") or any non-bank affiliate thereof from
sponsoring, organizing or controlling a registered, open-end investment company
continuously engaged in the issuance of its shares, but do not prohibit such a
holding company or affiliate from acting as investment adviser, transfer agent
and custodian to such an investment company. In 1981, the United States Supreme
Court held in Board of Governors of the Federal Reserve System v. Investment
Company Institute that the Board did not exceed its authority under the Holding
Company Act when it adopted its regulation and interpretation authorizing bank
holding companies and their non-bank affiliates to act as investment advisers to
registered closed-end investment companies.
Bank of America believes that if the question was properly
presented, a court should hold that Bank of America may
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<PAGE> 230
perform the services for the Company contemplated by the investment advisory
agreement, the Prospectuses, and this Statement of Additional Information
without violation of the Glass-Steagall Act or other applicable banking laws or
regulations. It should be noted, however, that there have been no cases deciding
whether a national bank may perform services comparable to those performed by
Bank of America and future changes in either federal or state statutes and
regulations relating to permissible activities of banks or trust companies and
their subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of present and future statutes and regulations,
could prevent Bank of America from continuing to perform such services for the
Company or from continuing to purchase Company shares for the accounts of its
customers.
For a discussion of the Glass-Steagall Act in connection with the
Company's Shareholder Services Plan, see "Shareholder Services Plan" in the
Prospectuses for Horizon Service Shares.
On the other hand, as described herein, the Funds are currently
distributed by the Distributor, and the Administrator, its parent, provides the
Company with administrative services. If current restrictions under the
Glass-Steagall Act preventing a bank from sponsoring, organizing, controlling or
distributing shares of an investment company were relaxed, the Company expects
that Bank of America would consider the possibility of offering to perform some
or all of the services now provided by the Administrator or the Distributor.
From time to time, legislation modifying such restriction has been introduced in
Congress which, if enacted, would permit a bank holding company to establish a
non-bank subsidiary having the authority to organize, sponsor and distribute
shares of an investment company. If this or similar legislation was enacted, the
Company expects that Bank of America's parent bank holding company would
consider the possibility of one of its non-bank subsidiaries offering to perform
some or all of the services now provided by the Administrator of Distributor. It
is not possible, of course, to predict whether or in what form such legislation
might be enacted or the terms upon which Bank of America or such a non-bank
affiliate might offer to provide services for consideration by the Company's
Board of Directors.
Administrator
The BISYS Group, Inc. (the "Administrator"), through its
wholly-owned subsidiary BISYS Fund Services, L.P., with principal offices at 150
Clove Road, Little Falls, New Jersey 07424 and 3435 Stelzer Road, Columbus, Ohio
43219, is the Company's administrator. The Administrator also serves as
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administrator to several other investment companies. Prior to November 1, 1996,
Concord Holding Corporation ("Concord") an indirect, wholly-owned subsidiary of
BISYS served as administrator and references to the Administrator with respect
to periods prior to November 1, 1996 shall mean Concord.
The Administrator provides administrative services for the Funds as
described in their Prospectuses pursuant to a Basic Administrative Services
Agreement. The agreement will continue in effect with respect to each Fund until
October 31, 1997 and thereafter will be extended with respect to each Fund for
successive periods of one year, provided that each such extension is
specifically approved (a) by vote of a majority of those members of the
Company's Board of Directors who are not interested persons of any party to the
agreement, cast in person at a meeting called for the purpose of voting on such
approval, and (b) the Company's Board of Directors or by vote of a majority of
the outstanding voting securities of such Fund. The agreement is terminable at
any time without cause and without penalty by the Company's Board of Directors
or by a vote of a majority of a Fund's outstanding shares upon 60 days' notice
to the Administrator, or by the Administrator upon 90 days' notice to the
Company.
For its services under the Basic Administrative Services Agreement,
the Administrator is entitled to receive an administration fee, accrued daily
and payable monthly, at the following annual rates: .10% of the first $7 billion
of each Fund's net assets, plus .09% of the next $3 billion of each Fund's net
assets, plus .08% of each Fund's net assets over $10 billion. From time to time,
the Administrator may waive fees or reimburse the Company for expenses, either
voluntarily or as required by certain state securities laws.
For the fiscal years ended February 28, 1995, February 29, 1996 and
February 28, 1997, the Administrator was paid, pursuant to the administration
agreement then in effect, administration fees (net of waivers) of $2,366,035,
$4,062,578 and $6,236,990, respectively, by the Prime Fund, $2,140,125,
$2,447,372 and $2,863,262, respectively, by the Treasury Fund and $501,956,
$439,603 and $444,648, respectively, by the Tax-Exempt Money Fund. For the
fiscal years ended February 28, 1995, February 29, 1996 and February 28, 1997,
the Administrator was paid, pursuant to the administration agreement then in
effect, administrative fees (net of waivers) of $301,964, $508,348 and $849,799,
respectively, by the California Tax-Exempt Money Market Fund. For the fiscal
years ended February 28, 1995, February 29, 1996, and February 28, 1997, the
Administrator did not effect any fee waivers with respect to the Treasury Fund,
but reimbursed operating expenses of $95,000 and $0 for the fiscal years ended
February 29, 1996 and February 28, 1997. For the fiscal years
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ended February 28, 1995, February 29, 1996 and February 28, 1997, the
Administrator reimbursed the Prime Fund and Tax-Exempt Money Fund for expenses
or waived fees in the amount of $949,233, $235,000 and $0 and $11,611, $0 and
$0, respectively. For the fiscal years ended February 28, 1995, February 29,
1996 and February 28, 1997, aggregate fee waivers and expense reimbursements by
the Administrator with respect to the California Tax-Exempt Money Market Fund
were $0, $5,000 and $0, respectively.
For the fiscal year ended February 28, 1995, the Government Fund and
Treasury Only Fund paid the Administrator (net of fee waivers), $463,641 and
$293,305, respectively. For this same period the Administrator waived fees due
from the Government Fund and Treasury Only Fund in the amounts of $185,733 and
$8,313, respectively and reimbursed the Funds $0 and $0, respectively. For the
fiscal year ended February 29, 1996, the Government Fund and Treasury Only Fund
paid the Administrator $489,935 and $341,008, respectively. For this same
period, the Administrator waived fees due from the Government Fund in the amount
of $182,262. For the fiscal year ended February 28, 1997, the Government Fund
and the Treasury Only Fund paid the Administrator, $539,047 and $487,156,
respectively.
The Administrator will bear all expenses in connection with the
performance of its services under its Basic Administrative Services Agreement
for the Funds with the exception of fees charged by The Bank of New York for
certain fund accounting services which are borne by the Funds. See "Custodian
and Transfer Agent" below. Expenses borne by the Company include taxes,
interest, brokerage fees and commissions, if any, fees of directors who are not
officers, directors, partners, employees or holders of 5% or more of the
outstanding voting securities of Bank of America or the Administrator or any of
their affiliates, SEC fees and state securities qualification fees, advisory
fees, fees payable under the Basic Administrative Services Agreement and Special
Management Services Plan, fees payable to Shareholder, Distribution and Service
Organizations, charges of custodians, transfer and dividend disbursing agents'
fees, certain insurance premiums, outside auditing and legal expenses, costs of
maintaining corporate existence, costs attributable to investor services,
including without limitation telephone and personnel expenses, costs of
preparing and printing prospectuses and statements of additional information for
regulatory purposes, cost of shareholders' reports and corporate meetings and
any extraordinary expenses.
The Basic Administrative Services Agreement provides that the
Administrator shall not be liable for any error of judgment or mistake of law or
any loss suffered by any Fund in connection with the matters to which the
agreement relates,
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except a loss resulting from willful misfeasance, bad faith or negligence in the
performance of the Administrator's duties or from the reckless disregard by the
Administrator of its obligations and duties thereunder.
Special Management Services Plan
Effective January 1997, the Special Management Services Agreement with
respect to the Funds' Pacific Horizon Shares was terminated and replaced by the
Special Management Services Plan. Fees payable by the Funds' Pacific Horizon
Shares pursuant to the Special Management Services Plan are the same as those
payable pursuant to the Special Management Services Agreement. Shareholder
Organizations provide services to their clients who beneficially own Pacific
Horizon Shares of the Funds as described in the prospectuses pursuant to the
Special Management Services Plan.
Unless sooner terminated, the Special Management Services Plan (and any
agreement entered into pursuant to such Plan) will continue until October 31,
1997 and thereafter shall continue automatically for successive annual periods
provided such continuance is approved at least annually by a majority of the
Board of Directors, including a majority of the directors who are not
"interested persons" (as defined in the 1940 Act) of the Company and have no
direct or indirect financial interest in the operation of the Special Management
Services Plan or in any agreement related to such Plan (the "Disinterested
Directors") by vote cast in person at a meeting called for such purpose. The
selection and nomination of the directors who are not "interested persons" of
the Company shall be committed to such Disinterested Directors. In addition, any
material amendment to the terms of the Special Management Services Plan shall
become effective only upon the approval of a majority of the Disinterested
Directors. The Special Management Services Plan is terminable at any time with
respect to Pacific Horizon Shares of any Fund by vote of a majority of the
Disinterested Directors. Any agreement entered into pursuant to the Special
Management Services Plan is terminable with respect to Pacific Horizon Shares of
any Fund without penalty at any time by the Company (which termination may be by
vote of a majority of the Disinterested Directors) or by a Shareholder
Organization upon notice to the Company.
In consideration of the services provided pursuant to the Special
Management Services Plan, Shareholder Organizations are entitled to receive a
fee, computed daily and payable monthly at the annual rate of up to 0.32% of the
average daily net asset value of each Fund's Pacific Horizon Shares (0.35% for
the California Tax-Exempt Money Market Fund) beneficially owned by clients of
such Shareholder Organizations. The Special Management Services Plan provides
that a written report of the
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amounts expended under such Plan, and the purposes for which such expenditures
were incurred, will be made to the Board of Directors for its review at least
quarterly.
For the fiscal years ended February 28, 1995, February 29, 1996 and
February 28, 1997, the Prime Fund incurred expenses under either the previous
Special Management Services Agreement or the new Special Management Services
Plan (January 1, 1997 through February 28, 1997) of $3,464,984, $5,244,694 and
$7,225,077, respectively, of which $65,326, $68,810 and $48,060 , respectively,
were earned by the Administrator, $18,906, $4,193,897 and $37,933, respectively,
were earned by Bank of America, $268,593, $633,935 and $828,637, respectively,
were earned by affiliates of the Administrator, and $3,112,159, $348,052 and
$6,358,507, respectively, were earned by affiliates of Bank of America; and the
Treasury Fund incurred expenses of $3,830,002, $3,781,235 and $2,600,002,
respectively, of which $28,381, $30,679 and $17,372, respectively, were earned
by the Administrator, $9,031, $3,250,931 and $0, respectively, were earned by
Bank of America, $40,665, $294,175 and $1,580,540, respectively, were earned by
affiliates of the Administrator, and $3,751,925, $205,450 and $1,019,462,
respectively, were earned by affiliates of Bank of America. For the fiscal years
ended February 28, 1995, February 29, 1996 and February 28, 1997, the Tax-Exempt
Money Fund incurred expenses under the Plan (before fee waivers) of $135,034,
$151,128 and $187,663, respectively, of which $8,273, $5,115 and $5,303,
respectively, were earned by the Administrator, $1,062, $145,543 and $0,
respectively, were earned by Bank of America, $125,664, $0 and $153,076,
respectively, were earned by affiliates of Bank of America and $0, $470 and
$34,587, respectively, were earned by affiliates of the Administrator. For the
fiscal years ended February 28, 1995, February 29, 1996 and February 28, 1997,
the California Tax-Exempt Money Market Fund incurred expenses under the
Agreement (before fee waivers) of $639,503, $1,181,258 and $1,785,019,
respectively, of which $9,701, $10,928 and $7,814, respectively, were earned by
the Administrator, $21,474, $49,396 and $318,263, respectively, were earned by
affiliates of the Administrator, $2,892, $959,655 and $0, respectively were
earned by Bank of America and $605,436, $0 and $1,466,756, respectively, were
earned by affiliates of Bank of America. For the fiscal years ended February 28,
1995, February 29, 1996 and February 28, 1997, Bank of America and the
Administrator, and their respective affiliates, did not waive any Special
Management Services fees with respect to the Prime Fund, Treasury Fund,
California Tax-Exempt Money Market Fund, or Tax-Exempt Money Fund.
For the fiscal year ended February 28, 1995, the Government Fund and
Treasury Only Fund incurred expenses of
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$774,259 and $191,572, respectively, under the Agreement, of which $0 and
$1,581, respectively, were earned by Bank of America; $135 and $1,779,
respectively, were earned by the Administrator; $774,124 and $187,925,
respectively, were earned by affiliates of Bank of America; and $0 and $287,
respectively, were earned by affiliates of the Administrator. For the fiscal
year ended February 29, 1996, the Government Fund and Treasury Only Fund
incurred expenses of $993,425 and $613,759, respectively, under the Agreement,
of which, $686,425 and $434,890, respectively, were earned by Bank of America;
$182 and $5,540, respectively, were earned by the Administrator; $299,463 and
$134,307, respectively, were earned by affiliates of Bank of America; and $7,355
and $39,022 were earned by affiliates of the Administrator. For the fiscal year
ended February 28, 1997, the Government Fund and Treasury Only Fund incurred
expenses of $720,909 and $854,818, respectively, under the Agreement, of which
$32,071 and $7,006, respectively were earned by Bank of America; $396 and $637,
respectively, were earned by the Administrator; $652,101 and $626,411,
respectively, were earned by affiliates of Bank of America and $36,737 and
$221,401, respectively, were earned by affiliates of the Administrator.
Fee Waivers and Expense Reimbursements
During the course of the Company's fiscal year, the Administrator
and Bank of America may prospectively waive payment of fees and/or assume
certain expenses of one or more of the Company's funds, as a result of
competitive pressures and in order to preserve and protect the business and
reputation of the Administrator and Bank of America. This will have the effect
of increasing yield to investors at the time such fees are not received or
amounts are assumed and decreasing yield when such fees or amounts are
reimbursed.
Distributor
The Distributor acts as the exclusive distributor of the shares of
each of the Funds pursuant to a distribution agreement with the Company. Shares
are sold on a continuous basis by the Distributor as agent, although the
Distributor is not obliged to sell any particular amount of shares. No
compensation is payable by the Funds to the Distributor for its distribution
services. The distribution agreement shall continue in effect with respect to
each Fund until October 31, 1997. Thereafter, if not terminated, the
distribution agreement shall continue automatically for successive terms of one
year, provided that such continuance is specifically approved at least annually
(a) by a vote of a majority of those members of the Board of Directors of the
Company who are not parties to the distribution agreement or "interested
persons" of any such party, cast in
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person at a meeting called for the purpose of voting on such approval, and (b)
by the Board of Directors of the Company or by vote of a "majority of the
outstanding voting securities" of the Funds as to which the distribution
agreement is effective; provided, however, that the distribution agreement may
be terminated by the Company at any time, without the payment of any penalty, by
vote of a majority of the entire Board of Directors of the Company or by a vote
of a "majority of the outstanding voting securities" of such Funds on 60 days'
written notice to the Distributor, or by the Distributor at any time, without
the payment of any penalty, on 90 days' written notice to the Company. This
Agreement will automatically and immediately terminate in the event of its
"assignment."
The Distribution and Services Plan. The Distributor is also entitled
to payment from the Company for distribution and service fees pursuant to the
Distribution and Services Plan (the "12b-1 Plan") adopted on behalf of the X
Shares and S Shares. Under the 12b-1 Plan, the Company may pay the Distributor
for: (a) direct out-of-pocket promotional expenses incurred by the Distributor
in advertising and marketing X Shares and S Shares; (b) expenses incurred in
connection with preparing, printing, mailing, and distributing or publishing
advertisements and sales literature for X Shares and S Shares; (c) expenses
incurred in connection with printing and mailing Prospectuses and Statements of
Additional Information to other than current X or S shareholders; (d) periodic
payments or commissions to one or more securities dealers, brokers, financial
institutions or other industry professionals, such as investment advisors,
accountants, and estate planning firms (severally, "a Distribution
Organization") with respect to a Fund's X Shares and S Shares beneficially owned
by customers for whom the Distribution Organization is the Distribution
Organization of record or holder of record of such X Shares or S Shares; (e) the
direct or indirect cost of financing the payments or expenses included in (a)
and (d) above; or (f) for such other services as may be construed, by any court
or governmental agency or commission, including the Securities and Exchange
Commission, to constitute distribution services under the 1940 Act or rules and
regulations thereunder.
Pursuant to the 12b-1 Plan, the Company may also pay for
administrative support services provided with respect to a Distribution
Organizations customers ("clients") X Shares and S Shares. Administrative
services provided may include some or all of the following: (i) processing
dividend and distribution payments from a Fund on behalf of its Clients; (ii)
providing information periodically to its Clients showing their positions in X
Shares and S Shares; (iii) arranging for bank wires; (iv) responding to routine
Client inquiries concerning their investment in X Shares and S Shares; (v)
providing the
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information to the Funds necessary for accounting or sub-accounting; (vi) if
required by law, forwarding shareholder communications from a Fund (such as
proxies, shareholder reports, annual and semi-annual financial statements and
dividend, distribution and tax notices) to its Clients; (vii) aggregating and
processing purchase and redemption requests from its Clients and placing net
purchase and redemption orders for its Clients; (viii) establishing and
maintaining accounts and records relating to Clients that invest in X Shares and
S Shares; (ix) assisting Clients in changing dividend options, account
designations and addresses; (x) developing, maintaining and operating systems
necessary to support Sweep Accounts; or (xi) other similar services if requested
by the Company.
The 12b-1 Plan for X Shares and S Shares provides that the
Distributor is entitled to receive payments on a monthly basis at an annual rate
not exceeding 0.55% and 1.00% of the average daily net assets during such month
of the outstanding X Shares and S Shares, respectively, to which such 12b-1 Plan
relates. Not more than 0.25% of such net assets will be used to compensate
Service Organizations for personal services provided to X and S shareholders
and/or the maintenance of such shareholders' accounts and not more than 0.30%
and 0.75% of such net assets of the X and S shareholders, respectively, will be
used for promotional and other primary distribution activities.
Payments made out of or charged against the assets of a particular
class of shares of a particular Fund must be in payment for expenses incurred on
behalf of that class.
Payments for distribution expenses under the 12b-1 Plan are subject
to Rule 12b-1 (the "Rule") under the 1940 Act. The Rule defines distribution
expenses to include the cost of "any activity which is primarily intended to
result in the sale of [Company] shares." The Rule provides, among other things,
that an investment company may bear such expenses only pursuant to a plan
adopted in accordance with the Rule. In accordance with the Rule, the 12b-1 Plan
provides that a written report of the amounts expended under the 12b-1 Plan, and
the purposes for which such expenditures were incurred, will be made to the
Board of Directors for its review at least quarterly. In addition, the 12b-1
Plan provides that it may not be amended to increase materially the costs which
shares of a Fund may bear for distribution pursuant to the 12b-1 Plan without
shareholder approval and that other material amendments of the 12b-1 Plan must
be approved by a majority of the Board of Directors, and by a majority of the
directors who are neither "interested persons" (as defined in the 1940 Act) of
the Company nor have any direct or indirect financial interest in the operation
of the 12b-1 Plan, or in any agreements entered into in connection with the
12b-1 Plan, by vote cast in person at a meeting called for the
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purpose of considering such amendments (the "Non-Interested Plan Directors").
The selection and nomination of the directors of the Company who are not
"interested persons" of the Company have been committed to the discretion of the
Non-Interested Plan Directors.
The Company's Board of Directors has concluded that there is a
reasonable likelihood that the 12b-1 Plan will benefit the Funds and their X and
S shareholders. The 12b-1 Plan is subject to annual reapproval by a majority of
the Company's Board of Directors, including a majority of the Non-Interested
Plan Directors and is terminable without penalty at any time with respect to any
Fund by a vote of a majority of the Non-Interested Plan Directors or by vote of
the holders of a majority of the outstanding X Shares and S Shares of the Fund
involved. Any agreement entered into pursuant to the 12b-1 Plan with a Service
Organization is terminable with respect to any Fund without penalty, at any
time, by vote of a majority of the Non-Interested Plan Directors, by vote of the
holders of a majority of the outstanding X Shares or S Shares of such Fund, or
by the Service Organization. Each agreement will also terminate automatically in
the event of its assignment.
For the fiscal year ended February 28, 1997, 12b-1 fee payments to
Shareholder Organization totalled $147,984, $4,111, and $22,455 with respect to
X Shares of the Prime Fund, Treasury Fund and California Tax-Exempt Money Market
Fund, respectively and represented the total of payments made under 12b-1 plan.
For the fiscal year ended February 28, 1997 shareholder service fee payments to
Shareholder Organization totalled $123,320, $3,425, and $18,713 with respect to
X Shares of the Prime Fund, Treasury Fund and California Tax-Exempt Money Market
Fund, respectively. Of these amounts, for the fiscal year ended, $270,960,
$7,529 and $41,168 was paid to Bank of America affiliates with respect to X
Shares of the Prime Fund, Treasury Fund and California Tax-Exempt Money Market
Fund. As of February 28, 1997, no S Shares were outstanding.
Custodian and Transfer Agent
The Company has appointed The Bank of New York, 90 Washington
Street, New York, New York 10286, as custodian for the Funds. Additionally,
BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus, Ohio 43219-3035, a
wholly-owned subsidiary of the Administrator, has been appointed as transfer and
dividend
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disbursing agent for the Company. As transfer and dividend disbursing agent for
each Fund, BISYS Fund Services, Inc. has agreed to provide services including
(1) issuing and redeeming shares of the Funds, and (ii) making dividend and
other distributions to shareholders of the Fund. The Bank of New York also
provides the Company with certain accounting, bookkeeping, pricing, and dividend
and distribution calculation services pursuant to a fund accounting services
agreement with the Administrator. The monthly fees charged by the bank under the
fund accounting agreement are borne by the Funds. The Company and The Bank of
New York have appointed Bank of America to act as sub-custodian pursuant to a
Sub-Custodian Agreement. As sub-custodian of the Company's assets, Bank of
America (i) maintains a separate account or accounts in the name of the Company,
(ii) holds and disburses portfolio securities on account of the Company, (iii)
makes receipts and disbursements of money on behalf of the Company, (iv)
collects and receives all income and other payments and distributions on account
of the Company's portfolio securities held by Bank of America, (v) responds to
correspondence from security brokers and others relating to its duties, and (vi)
makes periodic reports to the Company's Board of Directors concerning its duties
thereunder. Under the Sub-Custodian Agreement, the Company will reimburse Bank
of America for its costs and expenses in providing services thereunder. Bank of
America is the successor to Security Pacific under the Sub-Custodian Agreement.
For the fiscal years ended February 28, 1995, February 29, 1996 and February 28,
1997, Bank of America, in its capacity as sub-custodian, did not hold any of the
Company's assets and, accordingly, received no fees. For its services as
transfer and dividend disbursing agent to the Prime, Treasury, Government,
Treasury Only, Tax-Exempt Money and California Tax-Exempt Money Market Funds,
BISYS Fund Services, Inc. receives a fee, payable monthly, at the annual rate of
$10,000 per Fund. Each Fund also reimburses BISYS Fund Services, Inc. for any
out-of-pocket expenses incurred as transfer agent.
TAXES
The following is only a summary of certain additional considerations
generally affecting the Funds and their shareholders that are not described in
the Prospectuses for the Funds. No attempt is made to present a detailed
explanation of the tax treatment of the Funds or their shareholders, and the
discussion here and in the Prospectuses is not intended as a substitute for
careful tax planning. Investors are advised to consult their tax advisers with
specific reference to their own tax situations.
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Federal - All Funds
Each Fund will be treated as a separate corporate entity under the
Internal Revenue Code of 1986, as amended (the "Code"), and intends to qualify
as a "regulated investment company." By following this policy, each Fund expects
to eliminate or reduce to a nominal amount the federal income taxes to which it
may be subject. If for any taxable year a Fund does not qualify for the special
federal tax treatment afforded regulated investment companies, all of the Fund's
taxable income would be subject to tax at regular corporate rates (without any
deduction for distributions to shareholders). In such event, the Fund's dividend
distributions (including amounts derived from interest on Municipal Securities
in the case of the Tax-Exempt Money Fund and California Tax-Exempt Money Market
Fund) to shareholders would be taxable as ordinary income to the extent of the
current and accumulated earnings and profits of the particular Fund and would be
eligible for the dividends received deduction in the case of corporate
shareholders.
Qualification as a regulated investment company under the Code
requires, among other things, that each Fund distribute to its shareholders an
amount equal to at least the sum of 90% of its investment company taxable
income, if any, and 90% of its tax-exempt income, if any, net of certain
deductions for each taxable year. In general, a Fund's investment company
taxable income will be its taxable income, subject to certain adjustments and
excluding the excess of any net long-term capital gain for the taxable year over
the net short-term capital loss, if any, for such year. A Fund will be taxed on
its undistributed investment company taxable income, if any.
A Fund will not be treated as a regulated investment company under
the Code if 30% or more of the Fund's gross income for a taxable year is derived
from gains realized on the sale or other disposition of securities and certain
other investments held for less than three months (the "Short-Short Test").
Interest (including original issue and accrued market discount) received by a
Fund upon maturity or disposition of a security held for less than three months
will not be treated as gross income derived from the sale or other disposition
of such security within the meaning of this requirement. However, any other
income that is attributable to realized market appreciation will be treated as
gross income from the sale or other disposition of securities for this purpose.
Any distribution of the excess of net long-term capital gains over
net short-term capital losses is taxable to shareholders as long-term capital
gains, regardless of how long the shareholder has held the distributing Fund's
shares and whether such gains are received in cash or additional Fund
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shares. The Fund will designate such a distribution as a capital gain dividend
in a written notice mailed to shareholders after the close of the Fund's taxable
year.
Ordinary income of individuals is taxable at a maximum marginal rate
of 39.6%; however, because of limitations on itemized deductions otherwise
allowable and the phase-out of personal exemptions, the maximum effective
marginal rate of tax for some taxpayers may be higher. An individual's long-term
capital gains are taxable at a maximum nominal rate of 28%. For corporations,
long-term capital gains and ordinary income are both taxable at a maximum
nominal rate of 35%.
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to currently distribute specific percentages of their
ordinary taxable income for each calendar year and capital gain net income
(excess of capital gains over capital losses). Each Fund intends to make
sufficient distributions or deemed distributions of its ordinary taxable income
and any capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.
The Company will be required in certain cases to withhold and remit
to the United States Treasury 31% of taxable dividends or gross sale proceeds
paid to shareholders (i) who have failed to provide a correct tax identification
number in the manner required, (ii) who are subject to withholding by the
Internal Revenue Service for failure to properly include on their return
payments of taxable interest or dividends or (iii) who have failed to certify to
the Company that they are not subject to backup withholding or that they are
"exempt recipients."
At February 28, 1997, the Prime Fund, Treasury Fund, Government
Fund, Treasury Only Fund, Tax-Exempt Money Fund and California Tax-Exempt Money
Market Fund, had unused capital loss carryovers of approximately $3,470,138 (of
which $744,962 will expire in fiscal 2002 and $2,725,176 will expire in fiscal
2003), $47,456 (which will expire in fiscal 2002), $939,079 (which will expire
in fiscal 2003), $23,969 (which will expire in fiscal 2003), $188,027 (of which
$16,664 will expire in fiscal 1998, $14,011 will expire in fiscal 2000, $71,218
will expire in fiscal 2002, $19,132 will expire in fiscal 2003, $36,425 will
expire in fiscal 2004 and $30,577 will expire in fiscal 2005) and $4,266 (which
will expire in fiscal 2004), respectively, available for federal income tax
purposes to be applied against future capital gains, if any.
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Federal - Tax-Exempt Money Fund and California Tax-Exempt Money Market Fund
The policy of the Tax-Exempt Money Fund and the California
Tax-Exempt Money Market Fund is to pay each year as exempt-interest dividends
substantially all the respective Fund's Municipal Securities interest income net
of certain deductions. An exempt-interest dividend is any dividend or part
thereof (other than a capital gains dividend) paid by a Fund and designated as
an exempt-interest dividend in a written notice mailed to shareholders after the
close of the Fund's taxable year. However, the aggregate amount of dividends so
designated by the Fund cannot exceed the excess of the amount of interest exempt
from tax under Section 103 of the Code received by the Fund during the taxable
year over any amounts disallowed as deductions under Sections 265 and 171(a)(2)
of the Code. The percentage of total dividends paid for any taxable year which
qualifies as exempt-interest dividends will be the same for all shareholders
receiving dividends from the Fund for such year. In order for the Tax-Exempt
Money Fund and California Tax-Exempt Money Market Fund to pay exempt-interest
dividends for any taxable year, at the close of each quarter of each Fund's
taxable year at least 50% of the aggregate value of each Fund's assets must
consist of exempt-interest obligations.
Exempt-interest dividends may be treated by shareholders of the
Tax-Exempt Money Fund and the California Tax-Exempt Money Market Fund as items
of interest excludable from their gross income under Section 103(a) of the Code.
However, each shareholder is advised to consult his or her tax adviser with
respect to whether exempt-interest dividends would retain the exclusion under
Section 103(a) if such shareholder would be treated as a "substantial user" or a
"related person" to such user with respect to facilities financed through any of
the tax-exempt obligations held by the respective Funds. A "substantial user" is
defined under U.S. Treasury Regulations to include a non-exempt person who both
(1) regularly uses a part of such facilities in his or her trade or business and
(2) whose gross revenues derived with respect to the facilities financed by the
issuance of bonds are more than 5% of the total revenues derived by all users of
such facilities, who occupies more than 5% of the usable area of such facilities
or for whom such facilities or a part thereof were specifically constructed,
reconstructed or acquired. A "related person" includes certain related natural
persons, affiliated corporations, partners and partnerships and S corporations
and their shareholders. Interest on indebtedness incurred by a shareholder to
purchase or carry shares of a Fund generally is not deductible for federal
income tax purposes.
Income itself exempt from federal income taxation will be considered
in addition to adjusted gross income when
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determining whether Social Security payments received by a shareholder are
subject to federal income taxation.
California - California Tax-Exempt Money Market Fund
As a regulated investment company, the California Tax-Exempt Money
Market Fund will be relieved of liability for California state franchise and
corporate income tax to the extent its taxable income is distributed to its
shareholders. The California Tax-Exempt Money Market Fund will be taxed on its
undistributed taxable income. If for any year the California Tax-Exempt Money
Market Fund does not qualify as a regulated investment company, all of its
taxable income (including interest income on California Municipal Securities for
franchise tax purposes only) may be subject to California state franchise or
income tax at regular corporate rates.
If, at the close of each quarter of its taxable year, at least 50%
of the value of the total assets of a regulated investment company, or series
thereof, consists of obligations the interest on which, if held by an
individual, is exempt from taxation by California ("California Exempt
Securities"), then the regulated investment company, or series of that company,
will be qualified to pay dividends exempt from California state personal income
tax to its non-corporate shareholders (hereinafter referred to as "California
exempt-interest dividends"). For this purpose, California Exempt Securities are
generally limited to California Municipal Securities and certain U.S. Government
and U.S. Possession obligations. "Series" of a regulated investment company is
defined as a segregated portfolio of assets, the beneficial interest in which is
owned by the holders of an exclusive class or series of stock of the company.
The California Tax-Exempt Money Market Fund intends to qualify under the above
requirements so that it can pay California exempt-interest dividends. If the
California Tax-Exempt Money Market Fund does not so qualify, no part of its
respective dividends to shareholders will be exempt from the California state
personal income tax.
Within sixty days after the close of its taxable year, the
California Tax-Exempt Money Market Fund will notify its respective shareholders
of the portion of the dividends paid by the Fund to each shareholder with
respect to such taxable year which is exempt from California state personal
income tax. The total amount of California exempt-interest dividends paid by the
California Tax-Exempt Money Market Fund with respect to any taxable year cannot
exceed the excess of the amount of interest received by the California
Tax-Exempt Money Market Fund for such year on California Exempt Securities over
any amounts that, if the California Tax-Exempt Money Market Fund were treated as
an individual, would be considered expenses related to tax exempt
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income or amortizable bond premium and would thus not be deductible under
federal income or California state personal income tax law. The percentage of
total dividends paid for any taxable year which qualifies as California
exempt-interest dividends will be the same for all shareholders receiving
dividends from the Fund for such year.
In cases where shareholders are "substantial users" or "related
persons" with respect to California Exempt Securities held by the California
Tax-Exempt Money Market Fund, such shareholders should consult their tax
advisers to determine whether California exempt-interest dividends paid by the
Fund with respect to such obligations retain California state personal income
tax exclusion. In this connection rules similar to those regarding the possible
unavailability of federal exempt-interest dividend treatment to "substantial
users" are applicable for California state tax purposes. See "Additional
Information Concerning Taxes - Federal - Tax-Exempt Money Fund and California
Tax-Exempt Money Market Fund" above. Interest on indebtedness incurred by a
shareholder to purchase or carry California Tax-Exempt Money Market Fund shares
is not deductible for California state personal income tax purposes if the
California Tax-Exempt Money Market Fund distributes California exempt-interest
dividends during the shareholder's taxable year.
The foregoing is only a summary of some of the important California
state personal income tax considerations generally affecting the California
Tax-Exempt Money Market Fund and its shareholders. No attempt is made to present
a detailed explanation of the California state personal income tax treatment of
the California Tax-Exempt Money Market Fund or its shareholders, and this
discussion is not intended as a substitute for careful planning. Further, it
should be noted that the portion of any California Tax-Exempt Money Market Fund
dividends constituting California exempt-interest dividends is excludable from
income for California state personal income tax purposes only. Any dividends
paid to shareholders subject to California state franchise tax or California
state corporate income tax may therefore be taxed as ordinary or capital gains
dividends to such purchasers notwithstanding that all or a portion of such
dividends is exempt from California state personal income tax. Accordingly,
potential investors in the California Tax-Exempt Money Market Fund, including,
in particular, corporate investors which may be subject to either California
franchise tax or California corporate income tax, should consult their tax
advisers with respect to the application of such taxes to the receipt of
California Tax-Exempt Money Market Fund dividends and as to their own California
state tax situation, in general.
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Other Information
Depending upon the extent of activities in states and localities in
which its offices are maintained, in which its agents or independent contractors
are located or in which it is otherwise deemed to be conducting business, a Fund
may be subject to the tax laws of such states or localities.
Exempt-interest dividends generally will be exempt from state and
local taxes as well. However, except as noted above with respect to California
state personal income tax, in some situations income distributions may be
taxable to shareholders under state or local law as dividend income even though
all or a portion of such distributions may be derived from interest on
tax-exempt obligations or U.S. Government obligations which, if realized
directly, would be exempt from such income taxes. Shareholders are advised to
consult their tax advisers concerning the application of state and local taxes.
The foregoing discussion is based on tax laws and regulations which
are in effect on the date of this Statement of Additional Information. Such laws
and regulations may be changed by legislative or administrative action.
YIELD INFORMATION
The "yields" and "effective yields" of each Fund are calculated
according to formulas prescribed by the SEC. The standardized seven-day yield
for each Fund's series of shares is computed separately for each series by
determining the net change, exclusive of capital changes, in the value of a
hypothetical pre-existing account in the particular Fund involved having a
balance of one share at the beginning of the period, dividing the net change in
account value by the value of the account at the beginning of the base period to
obtain the base period return, and multiplying the base period return by
(365/7). The net change in the value of an account in a Fund includes the value
of additional shares purchased with dividends from the original share, and
dividends declared on both the original share and any such additional shares,
net of all fees, other than nonrecurring account or sales charges, that are
charged to all shareholder accounts in proportion to the length of the base
period and the Fund's average account size. The capital changes to be excluded
from the calculation of the net change in account value are realized gains and
losses from the sale of securities and unrealized appreciation and depreciation.
The effective annualized yields for each Fund are computed by compounding a
particular Fund's unannualized base period returns (calculated as above) by
adding 1 to the base period returns, raising the sums to a power equal to 365
divided by 7, and subtracting 1 from the
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results. In addition, the Tax-Exempt Money Fund and California Tax-Exempt Money
Market Fund may quote a standardized "tax-equivalent yield" for each of its
series of shares which is computed by: (a) dividing the portion of the Fund's
yield (as calculated above) for such series that is exempt from federal, or in
the case of the California Tax-Exempt Money Market Fund both federal and
California state, income tax by one minus a stated federal, or in the case of
the California Tax-Exempt Money Market Fund a combined federal and California
state, income tax rate; (b) with respect to the California Tax-Exempt Money
Market Fund dividing the portion of that Fund's yield (as calculated above) that
is exempt from federal income tax only by one minus a federal income tax rate,
and (c) adding the figure resulting from (a) above (with respect to the
Tax-Exempt Money Fund) or from (a) and (b) above (with respect to the California
Tax-Exempt Money Market Fund) to that portion, if any, of the Fund's yield for
such series of shares that is not exempt from federal income tax. The fees which
may be imposed by institutional investors directly on their customers for cash
management services are not reflected in the Funds' calculations of yields. The
current yields for the Funds may be obtained by calling (800) 227-1545
Based on the foregoing calculations, for the seven-day period ended
February 28, 1997, the yield (and effective yield) for Horizon Shares, Horizon
Service Shares, Pacific Horizon Shares and X Shares (Prime and Treasury Funds
only) of the Prime Fund, Treasury Fund, Government Fund, Treasury Only Fund, and
Tax-Exempt Money Fund after fee waivers and/or expense reimbursements by Bank of
America and the Administrator, were as follows: Prime Fund - Horizon Shares --
5.23% (5.37%); Prime Fund - Horizon Service Shares -- 4.98% (5.11%); Prime Fund
- - Pacific Horizon Shares -- 4.91% (5.03%); Prime Fund - X Shares 4.68% (4.79%);
Treasury Fund - Horizon Shares -- 5.09% (5.22%); Treasury Fund - Horizon Service
Shares -- 4.84% (4.96%); Treasury Fund - Pacific Horizon Shares -- 4.89%
(4.77%); Treasury Fund - X Shares 4.65% (4.54%); Government Fund - Horizon
Shares -- 5.12% (5.25%); Government Fund Horizon Service Shares -- 4.87%
(4.98%); Government Fund - Pacific Horizon Shares -- 4.80% (4.91%); Treasury
Only Fund Horizon Service Shares -- 4.68% (4.79%); Treasury Only Fund - Pacific
Horizon Shares -- 4.61% (4.72%); Treasury Only Fund Horizon Shares -- 4.93%
(5.05%); Tax-Exempt Money Fund Horizon Shares -- 3.19% (3.25%); and Tax-Exempt
Money Fund Horizon Service Shares -- 2.94% (2.99%); Tax-Exempt Money Fund -
Pacific Horizon Shares -- 2.87% (2.92%). For the same period, the tax-equivalent
yield for the Tax-Exempt Money Fund was 5.23%, 4.82% and 4.70% for Horizon
Shares, Horizon Service Shares and Pacific Horizon Shares, respectively. The
federal income tax rate used in calculating the tax-equivalent yields of the
Tax-Exempt Money Fund was 31%. The seven-day yield, effective yield and
tax-equivalent yield (after fee
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waivers and expense reimbursements) for Horizon Service Shares, Pacific Horizon
Shares and X Shares of the California Tax-Exempt Money Market Fund was 2.92%,
2.96%, 4.47%, and 2.85%, and 2.89%, 4.36%, 2.62%, and 2.65%, respectively for
the period ended February 28, 1997. The combined federal and California income
tax rate used in calculating the foregoing tax-equivalent yields was 34.7%. As
of February 28, 1997, Horizon Shares and S Shares of the California Tax-Exempt
Money Market Fund and S Shares of the Treasury Fund and Tax-Exempt Money Fund
were not offered and accordingly, no yield information is available.
From time to time, the yields of the Funds may be quoted in and
compared to other mutual funds with similar investment objectives in
advertisements, shareholder reports or other communications to shareholders. The
Funds may also include calculations in such communications that describe
hypothetical investment results. (Such performance examples will be based on an
express set of assumptions and are not indicative of the performance of any
Fund.) Such calculations may from time to time include discussions or
illustrations of the effects of compounding in advertisements. "Compounding"
refers to the fact that, if dividends or other distributions on a Fund
investment are reinvested by being paid in additional Fund shares, any future
income of a Fund would increase the value of the Fund investment more quickly
than if dividends or other distributions had been paid in cash. The Funds may
also include discussions or illustrations of the potential investment goals of a
prospective investor (including but not limited to tax and/or retirement
planning), investment management techniques, policies or investment suitability
of a Fund, economic conditions, legislative developments (including pending
legislation), the effects of inflation and historical performance of various
asset classes. From time to time advertisements or communications to
shareholders may summarize the substance of information contained in shareholder
reports (including the investment composition of a Fund), as well as the views
of the investment adviser as to current market, economic, trade and interest
rate trends, legislative, regulatory and monetary developments, investment
strategies and related matters believed to be of relevance to a Fund. The Funds
may also include in advertisements charts, graphs or drawings which illustrate
the potential risks and rewards of investment in various investment vehicles. In
addition, advertisements or shareholder communications may include a discussion
of certain attributes or benefits to be derived by an investment in a Fund and
may include testimonials as to the investment adviser's capabilities by clients.
Such advertisements or communications may include symbols, headlines or other
material which highlight or summarize the information discussed in more detail
therein. With proper authorization, a Fund may reprint articles (or excerpts)
written regarding the Fund and provide them to prospective shareholders.
Performance
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information with respect to the Funds is generally available by calling
(800) 346-2087.
In addition to the publications listed in the Funds' Prospectuses,
yield data as reported in the following publications may be used in comparing
the yields of the Funds to those of other mutual funds with similar investment
objectives: Business Week, Investor's Business Daily, Kiplinger, U.S. News,
Financial World, USA Today, Morningstar, Mutual Fund Monitor, and American
Banker.
GENERAL INFORMATION
Description of Shares
The Company is an open-end management investment company organized
as a Maryland corporation on October 27, 1982. The Fund's Charter authorizes the
Board of Directors to issue up to four hundred billion full and fractional
shares of capital stock. The Board of Directors has authorized the issuance of
seventy-one classes of stock - Classes A through W, Common Stock representing
interests in twenty separate investment portfolios. Each share of capital stock
has a par value of $.001. This Statement of Additional Information describes the
Pacific Horizon Shares, Horizon Shares and Horizon Service Shares of the Prime,
Treasury, Government, Treasury Only, Tax-Exempt Money and California Tax-Exempt
Money Market Funds, the X Shares of the Prime Fund, Treasury Fund and California
Tax-Exempt Money Market Fund, the S Shares of the Prime, Treasury, Tax-Exempt
Money and California Tax-Exempt Money Market Funds.
Shares have no preemptive rights and only such conversion or
exchange rights as the Board may grant in its discretion. When issued for
payment as described in its Prospectuses, the Company's shares will be fully
paid and non-assessable. For information concerning possible restrictions upon
the transferability of the Company's shares and redemption provisions with
respect to such shares, see "Purchase and Redemption Information" in this
Statement of Additional Information.
The Funds' Pacific Horizon Shares, Horizon Shares, Horizon Service
Shares, X Shares and S Shares differ in the following respects. Pacific Horizon
Shares beneficially owned by clients of Shareholder Organizations bear the fees
payable under a Special Management Services Plan, which are payable at the
annual rate of up to 0.32% of the average daily net asset value of each Fund's
Pacific Horizon Shares (0.35% with respect to the California Tax-Exempt Money
Market Fund). Horizon Service Shares bear the fees payable under a Shareholder
Services Plan that are
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payable at the rate of up to .25% (on an annualized basis) of the average daily
net asset value of the Horizon Service Shares that are outstanding from time to
time. X Shares bear the fees payable under the Distribution and Services Plan
that has been adopted for X Shares that are outstanding from time to time. S
Shares bear the fees payable under the Distribution and Services Plan that has
been adopted for such shares, which are payable at the rate of up to 1.00% (on
an annualized basis) of the average daily net asset value of the S Shares that
are outstanding from time to time. Only Horizon Service Shares bear the fees
payable under the Shareholder Services Plan. Only Pacific Horizon Shares
beneficially owned by clients of Shareholder Organizations bear the fees payable
under the Special Management Services Plan. Only X and S Shares bear the fees
payable under their respective Distribution and Services Plan. Due to the
different expenses borne by the respective classes of the Company, net yield for
each class will vary.
Holders of all outstanding shares of a particular Fund will vote
together in the aggregate and not by class on all matters, except that only X
Shares and S Shares of a Fund will be entitled to vote on matters submitted to a
vote of shareholders pertaining to those shares' respective Distribution and
Services Plans, only Horizon Service Shares of a Fund will be entitled to vote
on matters submitted to a vote of shareholders pertaining to the Horizon Service
Shares' Shareholder Services Plan, and only Pacific Horizon Shares of a Fund
will be entitled to vote on matters submitted to a vote of shareholders
pertaining to the Pacific Horizon Funds' Special Management Services Plan.
Further, shareholders of all of the Funds, as well as those of any other
investment portfolio now or hereafter offered by the Company, will vote together
in the aggregate and not separately on a Fund-by-Fund basis, except as otherwise
required by law or when permitted by the Board of Directors. Rule 18f-2 under
the 1940 Act provides that any matter required to be submitted to the holders of
the outstanding voting securities of an investment company such as the Company
shall not be deemed to have been effectively acted upon unless approved by a
majority of the outstanding shares of each Fund affected by the matter. A Fund
is affected by a matter unless it is clear that the interests of each Fund in
the matter are substantially identical or that the matter does not affect any
interest of the Fund. Under the Rule, the approval of an investment advisory
agreement or any change in a fundamental investment policy would be effectively
acted upon with respect to a Fund only if approved by a majority of the
outstanding shares of such Fund. However, the Rule also provides that the
ratification of independent public accountants, the approval of principal
underwriting contracts and the election of directors may be effectively acted
upon by shareholders of the Company voting in the aggregate without regard to
particular Funds.
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Notwithstanding any provision of Maryland law requiring a greater
vote of the Company's common stock (or of the shares of a Fund voting separately
as a class) in connection with any corporate action, unless otherwise provided
by law (for example, by Rule 18f-2 discussed above) or by the Company's Charter,
the Company may take or authorize such action upon the favorable vote of the
holders of more than 50% of the outstanding common stock of the Company voting
without regard to class.
Horizon Service Shares
As stated in the Prospectuses for such Shares, Horizon Service
Shares are sold to Shareholder Organizations which enter into service agreements
requiring them to provide support services to their customers who beneficially
own Horizon Service Shares in consideration of the Funds' payment of up to .25%
(on an annualized basis) of the average daily net asset value of the Horizon
Service Shares beneficially owned by the customers. For the fiscal years ended
February 28, 1995, February 29, 1996 and February 28, 1997, payments to
Shareholder Organizations totalled $2,115,780, $3,119,024 and $6,017,363,
respectively, with respect to the Horizon Service Shares of the Prime Fund,
$989,269, $1,703,233 and $3,451,084, respectively, with respect to Horizon
Service Shares of the Treasury Fund, and $103,606, $113,492 and $276,447,
respectively, with respect to the Horizon Service Shares of the Tax-Exempt Money
Fund. Of these amounts, for the fiscal years indicated, $391,875, $3,065,147 and
$5,113,436, respectively, $224,434, $1,639,415 and $3,115,516 , respectively,
and $28,442, $108,762 and $274,174, respectively, were paid to Bank of America
and/or its affiliates with respect to the Prime Fund, Treasury Fund and
Tax-Exempt Money Fund, respectively, and $15,122, $6,746 and $0 was paid to the
Administrator and/or its affiliates with respect to the Prime Fund, Treasury
Fund and Tax-Exempt Money Fund, respectively.
For the fiscal year ended February 28, 1995, payments to Shareholder
Organizations totaled $590,188 and $604,380, respectively, with respect to the
Horizon Service Shares of the Government Fund and Treasury Only Fund. Of these
amounts, $132,934 and $569,889, respectively, were paid by the Government Fund
and Treasury Only Fund to Bank of America and/or its affiliates, and $0 was paid
by the Government Fund and the Treasury Only Fund to the Administrator and/or
its affiliates. For the fiscal year ended February 29, 1996, payments to
Shareholder Organizations totalled $608,863 and $369,104, respectively, with
respect to the Horizon Service Shares of the Government Fund and Treasury Only
Fund. Of these amounts $602,557 and $361,220, respectively, were paid by the
Government Fund and Treasury Only Fund to affiliates of Bank of America, and $0
was paid by the Government Fund and Treasury Only Fund to the Administrator
and/or its affiliates. For the fiscal year ended
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February 28, 1997, payments to Shareholder Organizations totaled $621,036 and
$448,350, respectively with respect to the Horizon Service Shares of the
Government Fund and Treasury Only Fund. Of these amounts, $609,891 and $416,253,
respectively was paid by the Government Fund and Treasury Only Fund to Bank of
America and/or its affiliates, and $396 and $637, respectively was paid by the
Government Fund and Treasury Only Fund to the Administrator and/or its
affiliates.
For the fiscal year ended February 28, 1995, payments to Shareholder
Organizations totalled $255,299 with respect to the Horizon Service Shares of
the California Tax-Exempt Money Market Fund. Of this amount, $251,505 was paid
to Bank of America and/or its affiliates, and $0 was paid to the Administrator
and/or its affiliates. For the fiscal year ended February 29, 1996, payments to
Shareholder Organizations totalled $348,568 with respect to the Horizon Service
Shares of the California Tax-Exempt Money Market Fund. Of this amount, $346,675
was paid to affiliates of Bank of America, and $0 was paid to the Administrator
and/or its affiliates. For the fiscal year ended February 28, 1997, payments to
Shareholder Organizations totalled $830,774 with respect to the Horizon Service
Shares of the California Tax-Exempt Money Market Fund. Of this amount $760,334
was paid to Bank of America and/or its affiliates, and $0 was paid to the
Administrator and/or its affiliates.
Services provided by Shareholder Organizations under service
agreements may include: (i) aggregating and processing purchase and redemption
requests for Horizon Service Shares from customers and placing net purchase and
redemption orders with the Distributor; (ii) providing customers with a service
that invests the assets of their accounts in Horizon Service Shares pursuant to
specific or pre-authorized instructions; (iii) processing dividend payments on
behalf of customers; (iv) providing information periodically to customers
showing their positions in Horizon Service Shares; (v) arranging for bank wires;
(vi) responding to customer inquiries relating to the services performed by the
Shareholder Organizations; (vii) providing subaccounting with respect to Horizon
Service Shares beneficially owned by customers or providing the information to
the Company necessary for subaccounting; (viii) if required by law, forwarding
shareholder communications from the Company (such as proxies, shareholder
reports, annual and semi-annual financial statements and dividend, distribution
and tax notices) to customers; (ix) forwarding to customers proxy statements and
proxies containing any proposals regarding the Company's arrangements with
Shareholder Organizations; and (x) providing such other similar services as
requested by the Funds.
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The Company's agreements with Shareholder Organizations are governed
by a Plan (called a "Shareholder Services Plan"). The Shareholder Services Plan
has been approved by the Board of Directors of the Company, including a majority
of the Directors who are not "interested persons" of the Company as defined in
the 1940 Act and have no direct or indirect financial interest in the
Shareholder Services Plan or any related service agreement (the "Disinterested
Directors"). In approving the Shareholder Services Plan, the Directors
determined that there was a reasonable likelihood that it would be beneficial to
each Fund and to the holders of its Horizon Service Shares. The Shareholder
Services Plan will continue with respect to each Fund until October 31, 1997,
unless earlier terminated in accordance with its terms, and thereafter it will
continue in effect indefinitely provided that the Directors approve the
Shareholder Services Plan at least annually in the manner described above.
Under the Shareholder Services Plan, the Board of Directors must be
provided with and must review, at least quarterly, a written report of all
amounts expended pursuant to the Shareholder Services Plan. The Shareholder
Services Plan and any service agreements implementing the Shareholder Services
Plan must be in writing. The Shareholder Services Plan may be terminated at any
time with respect to any Fund by a vote of the majority of the Disinterested
Directors. Each service agreement under the Shareholder Services Plan is also
terminable at any time without payment of any penalty by a vote of a majority of
the Disinterested Directors. Any material amendment of the Shareholder Services
Plan must be approved by a majority vote of the Board of Directors and of the
Disinterested Directors cast in person at a meeting called for the purpose of
voting on the amendment.
With respect to the purchase or sale of portfolio securities and the
execution of portfolio transactions, no Fund will give preference to Shareholder
Organizations with which the Fund enters into service agreements.
Counsel
Drinker Biddle & Reath LLP (of which W. Bruce McConnel, III,
Secretary of the Company, is a partner), 1345 Chestnut Street, Philadelphia
National Bank Building, Philadelphia, Pennsylvania 19107, serves as counsel to
the Company and will pass upon the legality of the shares offered hereby.
O'Melveney & Myers LLP, 400 South Hope Street, Los Angeles, California 90071
acts as special California counsel for the Company and has reviewed the portions
of the Prospectus and Statement of Additional Information for the California
Tax-Exempt Money Market Fund concerning California taxes and the description
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of the special considerations relating to California Municipal Securities.
Independent Accountants
Price Waterhouse LLP, with offices at 1177 Avenue of the Americas,
New York, New York 10036, has been selected as independent accountants of each
Fund for the fiscal year ending February 28, 1997.
Reports
Each Fund will send its shareholders unaudited semi-annual reports
including a description of the Fund's investments, and annual financial
statements together with a report of independent accountants.
Miscellaneous
As used in the Prospectuses and this Statement of Additional
Information, a "vote of a majority" of the outstanding shares of a Fund or a
particular series means, with respect to the approval of an investment advisory
agreement, a distribution plan or a change in a fundamental investment policy,
the affirmative vote of the lesser of (a) more than 50% of the outstanding
shares of the Fund or of the series, or (b) 67% of the shares of the Fund or of
the series present at a meeting at which more than 50% of the outstanding shares
of the Fund or series are represented in person or by proxy.
At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Pacific
Horizon Shares of the Treasury Only Fund were as follows: BA Securities Inc.,
185 Berry Street, 3rd Floor, San Francisco, CA 94107, 68,019,301.47 shares
(32.37%); BA Investment Services, Inc., For the Benefit of Clients, Attn: Unit
#7852 -Bob Santilli, P.O. Box 7042, San Francisco, CA 94120, 115,811,976.99
shares (55.11%); and Hare & Co., Bank of New York and Short-Term Investment
Funds, Attn: Bimal Saha, One Wall Street, New York, NY 10286, 18,564,856.67
shares (8.83%); Bank of America National Trust and Savings Association, The
Private Bank, Attn: Common Stock Funds, Unit 38329, P.O. Box 51377,Terminal
Annex, Los Angeles CA 90551-1577, 14,665,058.13 shares (63.88%); and City of
Hope, Attn: Corporate Accounting; 1500 East Duarte Road, Duarte, CA 91010,
1,952,348.83 shares (8.50%); and City and County of San Francisco, Mayor's
Office of Community Development (MOCD), Attn: Priscilla Watts, 25 Van Ness
Avenue, Suite 700, San Francisco, CA 94102, 4,902,943.68 shares (21.36%).
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At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Horizon
Service Shares of the Treasury Fund Only were as follows: Omnibus Account for
the Shareholders Accounts Maintained By Concord Financial Service, Ins., Attn:
Linda Zerbe, 100 First Avenue, Suite 300, Pittsburgh, PA 15222, 42, 378,318.42
shares (21.13%); Omnibus Account for the Shareholder Accounts Maintained by
Concord Financial Services, Inc., Attn: Linda Zerbe, 100 First Avenue, Suite
300, Pittsburgh, PA 15222, 64,192,825.27 shares (32.01%); Bank of America
National Trust and Savings Association, The Private Bank, Attn: Common Trust
Funds, Unit 38329, P.O. Box 513577, Terminal Annex, Los Angeles, CA 90051-1577,
62,881,591.27 shares (59.00%); BA Investment Services, Inc., Attn: Bob Santilli,
185 Berry Street, 3rd Floor, Unit 7852, San Francisco, CA 94107, 34,843,296.47
shares (32.70%); and Security Pacific Cash Management, c/o Bank of America -
6PO. M/C 5533, Attn: Regina Olsen, 1850 Gateway Blvd., Concord, CA 94520,
211,718,600.00 shares (33.22%); and Bank of America Southern Comm. Bank, Attn:
Cindy 2964, P.O. Box 98600, Las Vegas, NV 89193-8600, 147,702,252.22 shares
(23.18%).
At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Pacific
Horizon Shares of the Treasury Fund were as follows: Hare & Co., Bank of
New York and Short Term Investment Funds, Attn: Bimal Saha, One Wall Street, New
York, NY 10286, 69,602,119.63 shares (20.13%); BA Investment Services, Inc., For
the Benefit of Clients, Attn: Unit #7852 - Bob Santilli, P.O. Box 7042, San
Francisco, CA 94120, 223,833,671.16 shares (64.75%); Bank of America National
Trust and Savings Association, The Private Bank, Attn: Common Trust Funds, Unit
38329, P.O. Box 513577, Terminal Annex, Los Angeles, CA 90051-1577,
218,751,508.19 shares (39.77%); Hare & Co., c/o Bank of New York, Attn: Frank
Notaro Spec. Proc. Dep., One Wail Street, 5th Floor, New York, NY 10286,
88,408,186.13 shares (16.07%); and Clark Company Nevada & Tr., Attn: Mark
Aston, Treasurer, 520 South Grand Central Parkway, Las Vegas, NV 89155-1220,
30,000,000.00 shares (5.46%).
At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Horizon
Service Shares of the Treasury Fund were as follows: BISYS Fund Services, Inc.
Pittsburgh, PA fbo Sweep Customers, Attn: Linda Zerbe, 100 First Avenue, Suite
300, Pittsburgh, PA 15222, 172,238,456.01 shares (11.43%); and BISYS Fund
Services, Inc. Pittsburgh, fbo Sweep Customers, Attn: Linda Zerbe, 100 First
Avenue, Suite 300, Pittsburgh, PA 15222, 465,104,543.34 shares (30.85%); and
Bank of America National Trust and Savings Association, The Private Bank, Attn:
Common Trust Funds, Unit 38329, P.O. Box 513577, Terminal Annex, Los Angeles,
CA 90051-1577, 219,164,704.13 shares (34.39%);
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At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Class X
Shares of the Treasury Fund were as follows: BA Investment Services, Inc., fbo
Clients, Attn: Unit 7852- Dan Spillane, P.O. Box 7042, San Francisco, CA 94120,
10,739,687.25 shares (99.99%);
At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Pacific
Horizon Shares of the Government Fund were as follows: BA Investment Services,
Inc., For the Benefit of Clients, Attn: Unit #7852 - Bob Santilli, P.O. Box
7042, San Francisco, CA 94120, 75,391,887.45 shares (47.32%); BA Securities,
Inc., 185 Berry Street, 3rd Floor, San Francisco, CA 94107, 30,015,417.74
shares (18.84%); WALL Data Incorporated, 11332 NE 122nd Way, Kirkland, WA
98034, 15,984,662.30 shares (10.03%); Bank of America National Trust and
Savings Association, The Private Bank, Attn: Common Trust Funds, Unit 38329,
P.O. Box 513577, Terminal Annex, Los Angeles, CA 90051-1577, 3,711,365.97
shares (8.37%); Sunquest Information Systems, Inc., Attn: Trena Couch, 1407
Eisenhower Boulevard, Johnstown, PA 15904-3217, 16,600,997.97 shares (37.47%);
First Trust, NA as Escrow Agent, FBO Kaiser Aluminum & Chemical Corporation,
Dept. of Labor, AC#98925410, P.O. Box 64010, St. Paul, MN 55164-0010,
7,198,000.00 shares (16.23%); Skinner Corporation, Attn: Debbie Sokvitne, 1326
Fifth Avenue, Suite 711, Seattle, WA 98101, 3,173,621.30 shares (7.16%); and
Statek Corporation, Attn: Brian McCarthy, 512 N. Main Street, Orange, CA 92868,
3,251,044.76 shares (7.33%).
At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Horizon
Service Shares of the Government Fund were as follows: Omnibus Account for the
Shareholder Accounts Maintained By Concord Financial Services, Inc., Attn: Linda
Zerbe, First and Market Building, 100 First Avenue, Suite 300, Pittsburgh, PA
15222, 34,261,567.41 shares (14.32%); Omnibus Account for the Shareholder
Accounts Maintained by Concord Financial Services, Inc., Attn: Linda Zerbe,
First and Market Building, 100 First Avenue, Suite 300, Pittsburgh, PA 15222,
34,736,091.09 (14.51%); Viejas Bond of Kumeyaay Indians, a Federally recognized
Indian tribe, 5000 Willows Road, Alpine, CA 91901, 15,497,635.34 shares (6.48%);
Bank of America National Trust and Savings Association, The Private Bank, Attn:
Common Trust Funds, Unit 38329, P.O. Box 513577, Terminal Annex, Los Angeles, CA
90051-1577, 27977,885.64 shares (40.55%); and Bank of Nevada Southern Comm Bank,
Attn: Cindy 2964, P.O. Box 98600, Las Vegas, NV 89193-8600, 29,467,772.62 shares
(42.71%).
At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Pacific
Horizon Shares of the Prime Fund were as follows: Hare & Co, Bank of New York
and Short Term investment Funds, Attn: Binal Saha, One Wall Street, New York,
NY 10286, 149,394,037.41 shares (6.78%); BA Investment Services, Inc. For the
Benefit of Clients, Attn: Unit 7852 - Bob Santilli, P.O. Box 7042, San
Francisco, CA 94120, 1,749,802,842.05 shares (79.43%); and BA Securities, Inc.,
185 Berry Street, 3rd Floor, San Francisco, CA 94107, 201,016,335.34
shares (9.12%).
At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Horizon
Service Shares of the Prime Fund were as
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follows: BISYS Fund Services, Inc. Pittsburgh, fbo Sweep Customers, Attn:
Linda Zerbe, 100 First Avenue, Suite 300, Pittsburgh, PA 15222,
1,346,839,017.87 shares (46.24%); and BISYS Fund Services, Inc. Pittsburgh, fbo
Sweep Customers, Attn: Linda Zerbe, 100 First Avenue, Suite 300, Pittsburgh,
PA, 15222, 319,718,303.80 shares (10.98%).
At May 30, 1977, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Class X
Shares of the Prime Fund were as follows: BA Investment Services, Inc., fbo
Clients, Attn: Unit 7852- Dan Spillane, P.O. Box, 7042, San Francisco, CA
94120, 302,342,053.89 shares (99.44%).
At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Pacific
Horizon Shares of the Tax-Exempt Money Fund were as follows: BA Investment
Services, Inc., For the Benefit of Clients, Attn: Unit #7852 - Bob Santilli,
P.O. Box 7042, San Francisco, CA 94120, 86,159,563.09 shares (93.62%); and Bank
of America National Trust and Savings Association, The Private Bank, Attn:
Common Trust Funds, Unit 38329, P.O. Box 513577, Terminal Annex, Los Angeles,
CA 90051-1577, 250,784,940.81 shares (97.77%).
At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Horizon
Shares of the Tax-Exempt Money Fund were as follows: BISYS Fund Services, Inc.
Pittsburgh, fbo Sweep Customers, Attn: Linda Zerbe, 100 First Avenue, Suite 300,
Pittsburgh, PA 15222, 22,522,433.57 shares (13.92%); and BISYS Fund Services,
Inc. Pittsburgh, fbo Sweep Customers, Attn: Linda Zerbe, 100 First Avenue, Suite
300, Pittsburgh, PA 15222, 115,386,215.41 shares (71.30%).
At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Horizon
Shares of the Tax-Exempt Money Fund were as follows: Bank of America National
Trust and Savings Association, The Private Bank, Attn: Common Trust Funds, Unit
38329, P.O. Box 513577, Terminal Annex, Los Angeles, CA 90051-1577,
115,386,215.41 shares (83.67%); and BA Investment Services, Inc., Attn: Bob
Santilli, 185 Berry St., 3rd Floor, Unit 7852, San Francisco, CA 94107,
21,291,069.77 shares (15.44%).
At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Horizon
Shares of the California Tax-Exempt Money Market Fund were as follows: BISYS
Fund Services, Inc., Pittsburgh, fbo our sweep customers, First and Market
Building, Attn: Linda Zerbe, 100 First Avenue, Suite 300, Pittsburgh, PA
15222, 169,545,900.04 shares (36.95%); and BISYS Fund Services, Inc.
Pittsburgh, fbo our customers, Attn: Linda Zerbe, 100 First Avenue, Suite 300,
Pittsburgh, PA 15222, 213,083,138.26 shares (46.44%).
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At May 30, 1997, the name, address and share ownership of the entities
which held as record owners more than 5% of the outstanding Pacific Horizon
Shares of the California Tax-Exempt Money Market Fund were as follows: BA
Securities, Inc., 185 Berry Street, 3rd Floor, San Francisco, CA 94107,
201,984,699.03 shares (44.18%); BA Investment Services, Inc., For the Benefit
of Clients, Attn: Unit #7852 - Bob Santilli, P.O. Box 7042, San Francisco, CA
94120, 237,034,467.39 shares (51.85%).
At May 30, 1997, the name, address and share ownership of the entities
which held as record owners more than 5% of the outstanding Pacific Horizon
Shares of the California Tax-Exempt Money Market Fund were as follows: Bank of
America National Trust and Savings Association, The Private Bank, Attn: Common
Trust Funds, Unit 38329, P.O. Box 513577, Terminal Annex, Los Angeles, CA
90051-1577, 577,212,706,197.26 shares (55.59%); and BA Investment Services,
Inc., Attn: Bob Santilli, 185 Berry Street, 3rd Floor, Unit 7852, San
Francisco, CA 94107, 138,830,382.32 shares (36.28%).
At May 30, 1997, the name, address and share ownership of the entities
which held as record owners more than 5% of the outstanding Class X Shares of
the California Tax-Exempt Money Market Fund were as follows: BA Investment
Services, Inc., For the Benefit of Clients, Attn: Unit #7852 - Dan Spillane,
P.O. Box 7042, San Francisco, CA 94120, 36,250,280.71 shares (100%).
At May 30, 1997, the name, address and share ownership of the entities
which held as record owners more than 5% of the outstanding Class A Shares of
the California Tax-Exempt Bond Fund were as follows: Bank of America
National Trust and Savings Association, The Private Bank, Attn: Common Trust
Funds Unit #38329, P.O. Box 3577, Terminal Annex, Los Angeles, CA 90051,
2,174,529.37 shares (7.35%).
At May 30, 1997, the name, address and share ownership of the entities
which held as record owners more than 5% of the outstanding A Shares of the
Corporate Bond Fund were as follows: Bank of America National Trust and Savings
Association, The Private Bank, Attn: Common Trust Funds, Unit 38329, P.O. Box
3577 Terminal Annex, Los Angeles, CA 90051, 409,252.52 shares (18.32%).
At May 30, 1997, the name, address and share ownership of the entities
which held as record owners more than 5% of the outstanding Class K Shares of
the Corporate Bond Fund were as follows: Corelink Financial Inc., P.O. Box
4054, Concord, CA 94524, 14,251.35 shares (99.53%).
At May 30, 1997, the name, address and share ownership of the entities
which held as record owners more than 5% of the outstanding Class A Shares of
the National Municipal Bond Fund were as follows: BA Investment Services, Inc.,
fbo 421981352, 185 Berry Street, 3rd Floor, Suite 2640, San Francisco, CA
94104, 80,975.44 shares (6.21%).
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At May 30, 1997, the name, address and share ownership of the entities
which held as record owners more than 5% of the outstanding Class K Shares of
the National Municipal Bond Fund were as follows: BISYS Fund Services, Inc.,
3435 Stelzer Road, Suite 100, Columbus, Ohio 43219, 104,764 shares (100%).
At May 30, 1997, the name, address and share ownership of the entities
which held as record owners more than 5% of the outstanding Class A Shares of
the International Equity Fund were as follows: PACO, Attn: Mutual Funds, P.O.
Box 3577, Terminal Annex, Los Angeles, CA 90051, 427,589.93 shares (18.72%); and
PACO, Attn: Mutual Funds, P.O. Box 3577, Terminal Annex, Los Angeles, CA 90051,
542,804.32 shares (23.76%); and Bank of America National Trust and Savings
Association, The Private Bank, Attn: Common Trust Funds, Unit 38329, P.O. Box
3577, Terminal Annex, Los Angeles, CA 90051, 681,085.08 shares (29.82%).
At May 30, 1997, the name, address and share ownership of the entities
which held as record owners more than 5% of the outstanding Class K Shares of
the International Equity Fund were as follows: Corelink Financial Inc., P.O.
Box 4054, Concord, CA 94524, 22,466.70 shares (99.55%).
At May 30, 1997, the name, address and share ownership of the entities
which held as record owners more than 5% of the outstanding Class K Shares of
the Aggressive Growth Fund were as follows: Corelink Financial Inc., P.O. Box
4054, Concord, CA 94524, 37,286.30 shares (99.86%).
At May 30, 1997, the name, address and share ownership of the entities
which held as record owners more than 5% of the outstanding Class A Shares of
the Intermediate Bond Fund were as follows: PACO, Attn: Mutual Funds, P.O. Box
3577 Terminal Annex, Los Angeles, CA 90051, 187,640.73 shares (6.32%); Bank of
America National Trust and Savings Association, The Private Bank, Attn: Common
Trust Funds Unit 38329, P.O. Box 3577, Terminal Annex, Los Angeles, CA 90051,
1,623,599.96 shares (54.65%).
At May 30, 1997, the name, address and share ownership of the entities
which held as record owners more than 5% of the outstanding Class K Shares of
the Intermediate Bond Fund were as follows: Corelink Financial Inc., P.O. Box
4054, Concord, CA 94524, 43,333.53 shares (99.75%).
At May 30, 1997, the name, address and share ownership of the entities
which held as record owners more than 5% of the outstanding Class A Shares of
the Blue Chip Fund were as follows: Bank of America National Trust and Savings
Association, The Private Bank, Attn: Common Trust Funds Unit 38329, P.O. Box
3577, Terminal Annex, Los Angeles, CA 90051, 688,814.59 shares (10.26%).
At May 30, 1997, the name, address and share ownership of the entities
which held as record owners more than 5% of the outstanding Class K Shares of
the Blue Chip Fund were as follows:
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Corelink Financial Inc., P.O. Box 4054, Concord, CA 94524, 81,570.10 shares
(99.94%).
At May 30, 1997, the name, address and share ownership of the entities
which held as record owners more than 5% of the outstanding Class K Shares of
the Capital Income Fund were as follows: BA Investment Services, Inc., fbo
426275621, 185 Berry Street, 3rd Floor, Suite 2640, San Francisco, CA 94104,
5,831.48 shares (8.01%); Corelink Financial Inc., P.O. Box 4054, Concord, CA
94524, 65,302.16 shares (89.71%).
At May 30, 1997, the name, address and share ownership of the entities
which held as record owners more than 5% of the outstanding Class K Shares of
the California Tax-Exempt Bond Fund were as follows: BISYS Fund Services, Inc.,
Attn: Regulation and Compliance Department, 3435 Stelzer Road, Suite 1000,
Columbus, Ohio 43219, 144.47 shares (100%).
At May 30, 1997, the name, address and share ownership of the entities
which held as record owners more than 5% of the outstanding Class A Shares of
the Asset Allocation Fund were as follows: Corelink Financial Inc., P.O. Box
4054, Concord, CA 94524, 114,739.11 shares (6.13%).
At May 30, 1997, the name, address and share ownership of the entities
which held as record owners more than 5% of the outstanding Class K Shares of
the Asset Allocation Fund were as follows: Corelink Financial Inc., P.O. Box
4054, Concord, CA 94524, 42,234.07 shares (99.86%).
At May 30, 1997, the name, address and share ownership of the entities
which held as record owners more than 5% of the outstanding Class K Shares of
the U.S. Government Securities Fund were as follows: Corelink Financial Inc.,
P.O. Box 4054, Concord, CA 94524, 48,196.66 shares (99.76%).
At May 30, 1997, the name, address and share ownership of the entities
which held as record owners more than 5% of the outstanding Class A Shares of
the Short-Term Government Fund were as follows: Bank of America National Trust
and Savings Association, The Private Bank, Attn: Common Trust Funds, Unit 38329,
P.O. Box 3577 Terminal Annex, Los Angeles, CA 90051, 2,075,151.21 shares
(97.15%).
At such date, no other person was known by the Company to hold of
record or beneficially more than 5% of the outstanding shares of any investment
portfolio of the Company.
The Prospectuses relating to the Pacific Horizon Shares, Horizon
Shares, Horizon Service Shares, X Shares and S Shares and this Statement of
Additional Information omit certain information contained in the Company's
registration statement filed with the SEC. Copies of the registration
statement, including items omitted herein, may be obtained from the Commission
by paying the charges prescribed under its rules and regulations.
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At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Class K
Shares of the Intermediate Bond Fund were as follows: Corelink Financial Inc.,
P.O. Box 4054, Concord CA 94524, 43,333.53 shares (99.75%).
At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Class A
Shares of the Blue Chip Fund were as follows: Bank of America National Trust
and Savings Association, The Private Bank, Attn: Common Trust Funds Unit 38329,
P.O. Box 3577, Terminal Annex, Los Angeles, CA 90051, 688,814.59 shares
(10.26%).
At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Class K
Shares of the Blue Chip Fund were as follows: Corelink Financial Inc., P.O. Box
4054, Concord, CA 94524, 81,570.10 shares (99.94%).
At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Class K
Shares of the Capital Income Fund were as follows: BA Investment Services,
Inc., fbo 426275621, 185 Berry Street, 3rd Floor, Suite 2640, San Francisco, CA
94104, 5,831.48 shares (8.01%); Corelink Financial Inc., P.O. Box 4054, Concord
CA 94524, 65,302.16 shares (89.71%).
At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Class K
Shares of the California Tax-Exempt Bond Fund were as follows: BISYS Fund
Services, Inc., Attn: Regulation and Compliance Department, 3435 Stelzer Road,
Suite 1000, Columbus, Ohio 43219, 144.47 shares (100%).
At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Class A
Shares of the Asset Allocation Fund were as follows: Corelink Financial Inc.,
P.O. Box 4054, Concord, CA 94524, 114,739.11 shares (6.13%).
At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Class K
Shares of the Asset Allocation Fund were as follows: Corelink Financial Inc.,
P.O. Box 4054, Concord, CA 94524, 42,234.07 shares (99.86%).
At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Class K
Shares of the U.S. Government Securities Fund were as follows: Corelink
Financial Inc., P.O. Box 4054, Concord, CA 94524, 48,196.66 shares (99.76%).
At May 30, 1997, the name, address and share ownership of the
entities which held as record owners more than 5% of the outstanding Class A
Shares of the Short-Term Government Fund were
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as follows: Bank of America National Trust and Savings Association, The Private
Bank, Attn: Common Trust Funds, Unit 38329, P.O. Box 3577 Terminal Annex, Los
Angeles, CA 90051, 2,075,151.21 shares (97.15%).
At such date, no other person was known by the Company to hold of
record or beneficially more than 5% of the outstanding shares of any investment
portfolio of the Company.
The Prospectuses relating to the Pacific Horizon Shares, Horizon
Shares, Horizon Service Shares, X Shares and S Shares and this Statement of
Additional Information omit certain information contained in the Company's
registration statement filed with the SEC. Copies of the registration statement,
including items omitted herein, may be obtained from the Commission by paying
the charges prescribed under its rules and regulations.
Financial Statements and Experts
The Annual Reports for each Fund for their fiscal year ended
February 28, 1997 (the "Annual Reports") accompany this Statement of Additional
Information. The financial statements and notes thereto in each Annual Report
are incorporated into this Statement of Additional Information by reference. The
financial statements and notes in each Annual Report have been audited by Price
Waterhouse LLP, whose report thereon also appears in each Annual Report and is
also incorporated herein by reference. No other parts of the Annual Reports are
incorporated by reference herein. Such financial statements have been
incorporated herein in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
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APPENDIX A
Commercial Paper Ratings
A Standard & Poor's commercial paper rating is a current assessment
of the likelihood of timely payment of debt considered short-term in the
relevant market. The following summarizes the rating categories used by Standard
and Poor's for commercial paper:
"A-1" - Issue's degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are
denoted "A-1+."
"A-2" - Issue's capacity for timely payment is satisfactory.
However, the relative degree of safety is not as high as for issues designated
"A-1."
"A-3" - Issue has an adequate capacity for timely payment. It is,
however, somewhat more vulnerable to the adverse effects of changes in
circumstances than an obligation carrying a higher designation.
"B" - Issue has only a speculative capacity for timely payment.
"C" - Issue has a doubtful capacity for payment.
"D" - Issue is in payment default.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an original
maturity in excess of 9 months. The following summarizes the rating categories
used by Moody's for commercial paper:
"Prime-1" - Issuer or related supporting institutions are considered
to have a superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established industries; high
rates of return on funds employed; conservative capitalization structures with
moderate reliance on debt and ample asset protection; broad margins in earning
coverage of fixed financial charges and high internal cash generation; and well
established access to a range of financial markets and assured sources of
alternate liquidity.
"Prime-2" - Issuer or related supporting institutions are considered
to have a strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, will be
more subject to variation. Capitalization characteristics, while
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still appropriate, may be more affected by external conditions. Ample
alternative liquidity is maintained.
"Prime-3" - Issuer or related supporting institutions have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuer does not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
"D-3" - Debt possesses satisfactory liquidity, and other protection
factors qualify issue as investment grade. Risk factors are larger and subject
to more variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
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Fitch short-term ratings apply to debt obligations that are payable
on demand or have original maturities of generally up to three years. The
following summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" - Securities possess exceptionally strong credit quality.
Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues assigned this
rating have a satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as the "F-1+" and "F-1" categories.
"F-3" - Securities possess fair credit quality. Issues assigned this
rating have characteristics suggesting that the degree of assurance for timely
payment is adequate; however, near-term adverse changes could cause these
securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues assigned this
rating have characteristics suggesting a minimal degree of assurance for timely
payment and are vulnerable to near-term adverse changes in financial and
economic conditions.
"D" - Securities are in actual or imminent payment default.
Fitch may also use the symbol "LOC" with its short-term ratings to
indicate that the rating is based upon a letter of credit issued by a commercial
bank.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely or incomplete payment of principal or interest of unsubordinated
instruments having a maturity of one year or less which are issued by United
States commercial banks, thrifts and non-bank banks; non-United States banks;
and broker-dealers. The following summarizes the ratings used by Thomson
BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest
rating category and indicates a very high degree of likelihood that principal
and interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1."
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"TBW-3" - This designation represents the lowest investment grade
category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher ratings,
capacity to service principal and interest in a timely fashion is considered
adequate.
"TBW-4" - This designation indicates that the debt is regarded as
non-investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1+" - Obligations supported by the highest capacity for timely
repayment.
"A1" - Obligations are supported by the highest capacity for timely
repayment.
"A2" - Obligations are supported by a satisfactory capacity for
timely repayment, although such capacity may be susceptible to adverse changes
in business, economic or financial conditions.
"A3" - Obligations are supported by a satisfactory capacity for
timely repayment. Such capacity is more susceptible to adverse changes in
business, economic or financial conditions than for obligations in higher
categories.
"B" - Obligations for which the capacity for timely repayment is
susceptible to adverse changes in business, economic or financial conditions.
"C" - Obligations for which there is an inadequate capacity to
ensure timely repayment.
"D" - Obligations which have a high risk of default or which are
currently in default.
Corporate and Municipal Long-Term Debt Ratings
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - This designation represents the highest rating assigned by
Standard & Poor's to a debt obligation and indicates an extremely strong
capacity to pay interest and repay principal.
"AA" - Debt is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in small degree.
A-4
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"A" - Debt is considered to have a strong capacity to pay interest
and repay principal although such issues are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay
interest and repay principal. Whereas such issues normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher-rated categories.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
"BB" - Debt has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
"B" - Debt has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"BB" or "BB-" rating.
"CCC" - Debt has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
"CC" - This rating is typically applied to debt subordinated to
senior debt that is assigned an actual or implied "CCC" rating.
"C" - This rating is typically applied to debt subordinated to
senior debt which is assigned an actual or implied "CCC-" debt rating. The "C"
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
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"CI" - This rating is reserved for income bonds on which no interest
is being paid.
"D" - Debt is in payment default. This rating is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid, and
certain other obligations that S & P believes may experience high volatility or
high variability in expected returns due to non-credit risks. Examples of such
obligations are: securities whose principal or interest return is indexed to
equities, commodities, or currencies; certain swaps and options; and interest
only and principal only mortgage securities.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and are to
be considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
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"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" represents a poor standing; "Ca"
represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in
default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
(P)... - When applied to forward delivery bonds, indicates that the
rating is provisional pending delivery of the bonds. The rating may be revised
prior to delivery if changes occur in the legal documents or the underlying
credit quality of the bonds.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt rated
"B" possesses the risk that obligations will not be met when due. Debt rated
"CCC" is well below investment grade and has considerable uncertainty as to
timely payment of principal, interest or preferred dividends. Debt rated "DD" is
a defaulted debt obligation, and the rating "DP" represents preferred stock with
dividend arrearages.
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To provide more detailed indications of credit quality, the "AA,"
"A," "BBB," "BB" and "B" ratings may be modified by the addition of a plus (+)
or minus (-) sign to show relative standing within these major categories.
The following summarizes the highest four ratings used by Fitch for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
"AA" - Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated "F-1+."
"A" - Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
"BB," "B," "CCC," "CC," "C," "DDD," "DD," and "D" Bonds that possess
one of these ratings are considered by Fitch to be speculative investments. The
ratings "BB" to "C" represent Fitch's assessment of the likelihood of timely
payment of principal and interest in accordance with the terms of obligation for
bond issues not in default. For defaulted bonds, the rating "DDD" to "D" is an
assessment of the ultimate recovery value through reorganization or liquidation.
To provide more detailed indications of credit quality, the Fitch
ratings from and including "AA" to "C" may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major rating
categories.
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries.
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The following summarizes the rating categories used by IBCA for long-term debt
ratings:
"AAA" - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions may
increase investment risk albeit not very significantly.
"A" - Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is strong,
although adverse changes in business, economic or financial conditions may lead
to increased investment risk.
"BBB" - Obligations for which there is currently a low expectation
of investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial conditions
are more likely to lead to increased investment risk than for obligations in
other categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one of
these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree of
speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating to
denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely repayment
of principal or interest over the term to maturity of long term debt and
preferred stock which are issued by United States commercial banks, thrifts and
non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis with limited
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<PAGE> 271
incremental risk compared to issues rated in the highest category.
"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned by
Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
Municipal Note Ratings
A Standard and Poor's rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
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<PAGE> 272
"MIG-1"/"VMIG-1" - Loans bearing this designation are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high
quality, with margins of protection ample although not so large as in the
preceding group.
"MIG-3"/"VMIG-3" - Loans bearing this designation are of favorable
quality, with all security elements accounted for but lacking the undeniable
strength of the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - Loans bearing this designation are of adequate
quality, carrying specific risk but having protection commonly regarded as
required of an investment security and not distinctly or predominantly
speculative.
"SG" - Loans bearing this designation are of speculative quality and
lack margins of protection.
Fitch and Duff & Phelps use the short-term ratings described under
Commercial Paper Ratings for municipal notes.
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<PAGE> 273
FORM N-1A
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
(1) Included in Part A hereof:
Financial Highlights for:
Prime Fund
Tax-Exempt Money Fund
California Tax-Exempt Money Market Fund
Treasury Fund
Treasury Only Fund
Government Fund
(2) Incorporate by reference in Part B hereof:
- The Audited Financial Statements and related notes
thereto as well as the Auditor's reports thereon for
each of the Prime, Tax-Exempt Money, California Tax-
Exempt Money Market, Treasury, Treasury Only, Government
Funds for the fiscal year ended February 28, 1997 as
filed with the Securities and Exchange Commission on
May 8, 1997 pursuant to Rule 30b2-1 of the
Investment Company Act of 1490 (Nos. 2- 81110 and
811-4293).
(b) Exhibits:
(1) (a) Restated Articles of Incorporation filed
November 22, 1983 are incorporated by
reference to Exhibit 1(a) to Post-
Effective Amendment No. 45 to the
Registration Statement of the Registrant
on Form N-1A (Nos. 2-81110/811-4293)
filed February 23, 1996 ("Post-Effective
Amendment No. 45").
(b) Articles Supplementary filed January 9,
1986 are incorporated by reference to
Exhibit 1(b) to Post-Effective Amendment
No. 45.
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<PAGE> 274
(c) Articles Supplementary to increase
authorized capital stock filed
August 31, 1989 are incorporated by
reference to Exhibit 1(c) to Post-
Effective Amendment No. 45.
(d) Articles Supplementary classifying
shares filed August 31, 1989 are
incorporated by reference to Exhibit
1(d) to Post-Effective Amendment No. 45.
(e) Articles Supplementary classifying
shares filed June 3, 1991 are
incorporated by reference to Exhibit
1(e) to Post-Effective Amendment No. 45.
(f) Articles Supplementary classifying and
reclassifying shares filed August 1, 1991 are
incorporated by reference to Exhibit 1(f) to
Post-Effective Amendment
No. 45.
(g) Articles Supplementary to increase
authorized capital stock filed August
16, 1991 are incorporated by reference
to Exhibit 1(g) to Post-Effective
Amendment No. 45.
(h) Articles Supplementary classifying
shares filed August 16, 1991 are
incorporated by reference to Exhibit
1(h) to Post-Effective Amendment No. 45.
(i) Articles Supplementary classifying
shares filed November 25, 1991 are
incorporated by reference to Exhibit
1(i) to Post-Effective Amendment No. 45.
(j) Articles Supplementary classifying
shares filed May 11, 1992 are
incorporated by reference to Exhibit
1(j) to Post-Effective Amendment No. 45.
(k) Articles Supplementary reclassifying
shares filed May 15, 1992 are
incorporated by reference to Exhibit
1(k) to Post-Effective Amendment No. 45.
(l) Articles Supplementary classifying
shares filed July 20, 1992 are
incorporated by reference to Exhibit
1(l) to Post-Effective Amendment No. 45.
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<PAGE> 275
(m) Articles Supplementary to increase authorized
capital stock filed August 6, 1992 are
incorporated by reference to Exhibit 1(m) to
Post-Effective Amendment
No. 45.
(n) Articles Supplementary classifying
shares filed August 6, 1992 are
incorporated by reference to Exhibit
1(n) to Post-Effective Amendment No. 45.
(o) Articles Supplementary classifying
shares filed March 3, 1993 are
incorporated by reference to Exhibit
1(o) to Post-Effective Amendment No. 45.
(p) Articles Supplementary reclassifying
shares filed May 12, 1993 are
incorporated by reference to Exhibit
1(p) to Post-Effective Amendment No. 45.
(q) Articles of Amendment eliminating
restriction on number of classes of
shares filed May 8, 1990 are
incorporated by reference to Exhibit
1(q) to Post-Effective Amendment No. 45.
(r) Articles of Amendment reclassifying
shares filed on July 9, 1993 are
incorporated by reference to Exhibit
1(r) to Post-Effective Amendment No. 45.
(s) Articles Supplementary classifying
shares filed November 18, 1993 are
incorporated by reference to Exhibit
1(s) to Post-Effective Amendment No. 45.
(t) Articles Supplementary reclassifying
shares filed November 18, 1993 are
incorporated by reference to Exhibit
1(t) to Post-Effective Amendment No. 45.
(u) Articles Supplementary reclassifying
shares filed January 21, 1994 are
incorporated by reference to Exhibit
1(u) to Post-Effective Amendment No. 45.
(v) Articles Supplementary classifying
shares filed October 30, 1995 are
incorporated by reference to Exhibit
1(v) to Post-Effective Amendment No. 47
to the Registration Statement of the
Registrant on Form N-1A (Nos. 2-
81110/811-4293) filed April 30, 1996
("Post-Effective Amendment No. 47").
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<PAGE> 276
(w) Articles of Amendment cancelling shares
filed on January 26, 1996 are
incorporated by reference to Exhibit
1(v) to Post-Effective Amendment No. 45.
(x) Articles Supplementary classifying
shares filed on January 26, 1996 are
incorporated by reference to Exhibit
1(w) to Post-Effective Amendment No. 45.
(y) Articles Supplementary reclassifying
shares filed on January 26, 1996 are
incorporated by reference to Exhibit
1(x) to Post-Effective Amendment No. 45.
(z) Articles Supplementary reclassifying
shares filed on April 12, 1996 are
incorporated by reference to Exhibit
1(z) to Post-Effective Amendment No. 51
to the Registration Statement of the
Registrant on Form N-1A (Nos. 2-
81110/811-4293) filed November 13, 1996
("Post-Effective Amendment No. 51").
(aa) Articles Supplementary reclassifying
shares filed on June 25, 1996 are
incorporated by reference to Exhibit
1(z) to Post-Effective Amendment No. 50
to the Registration Statement of the
Registrant on Form N-1A (Nos. 2-
81110/811-4293) filed July 29, 1996
("Post-Effective Amendment No. 50.").
(bb) Articles Supplementary reclassifying
shares filed on June 25, 1996 are
incorporated by reference to Exhibit
1(aa) to Post-Effective Amendment No.
50.
(cc) Articles Supplementary reclassifying
shares filed on June 25, 1996 are
incorporated by reference to Exhibit
1(bb) to Post-Effective Amendment No.
50.
(dd) Articles Supplementary reclassifying
shares filed on March 5, 1997 are
incorporated by reference to Exhibit
1(dd) to Post-Effective Amendment No. 54
to the Registration Statement of the
Registrant on Form N-1A (Nos. 2-
81110/811-4293) filed April 16, 1997
("Post-Effective Amendment No. 54.").
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<PAGE> 277
(ee) Articles Supplementary reclassifying
shares filed on April 11, 1997 are
incorporated by reference to Exhibit
1(ee) to Post-Effective Amendment No.
54.
(ff) Articles Supplementary to increase
authorized capital stock filed on June
11, 1997.
(gg) Articles Supplementary reclassifying
shares filed on June 11, 1997.
(2) (a) Amended and Restated By-Laws as approved by
Registrant's Board of Directors on July 23, 1996
are incorporated by reference to Exhibit 2(f) to
Post- Effective Amendment No. 50.
(3) None.
(4) See Article VI, Section (2) of Article VII,
Article VIII and Section (2) and (4) of Article X
of the Restated Articles of Incorporation
incorporated by reference to Exhibit 1(a) of Post-
Effective Amendment No. 45 and Article I, Section
1 and 10 of Article II, Article IV and Section 1
of Article VI of the Amended and Restated By-laws
incorporated by reference to Exhibit 2(f) of
Post-Effective Amendment No. 50.
(5) (a) Investment Advisory Agreement dated as of
April 22, 1992 between Registrant and Bank of
America National Trust and Savings Association
(Money Market Funds) is incorporated by reference
to Exhibit 5(a) to Post-Effective Amendment No.
45.
(b) Investment Advisory Agreement dated as of April
22, 1992 between Registrant and Bank of America
National Trust and 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.
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<PAGE> 278
(d) Addendum to Investment Advisory
Agreement dated as of March 1, 1993
between Registrant and Bank of America
National Trust and Savings Association
(Money Market Funds - Government and
Treasury Only Funds) is incorporated by
reference to Exhibit 5(d) to Post-
Effective Amendment No. 45.
(e) Investment Advisory Agreement dated November 1,
1994 between Registrant and Bank of America
National Trust & Savings Association with respect
to the Capital Income Fund is incorporated by
reference to Exhibit 5(e) to Post-Effective
Amendment No. 45.
(f) Investment Advisory Agreement dated as of July 1,
1996 between Registrant and Bank of America
National Trust & Savings Association with respect
to the National Municipal Bond Fund is
incorporated by reference to Exhibit 5(f) to Post-
Effective Amendment No. 51.
(g) Investment Advisory Agreement dated as
of July 30, 1996 between Registration
and Bank of America National Trust and
Savings Association with respect to the
International Equity and Short-Term
Government Funds is incorporated by
reference to Exhibit 5(g) to Post-
Effective Amendment No. 51.
(h) Investment Advisory Agreement dated as
of September 1, 1996 between Registrant
and Bank of America National Trust &
Savings Association with respect to the
Corporate Bond Fund is incorporated by
reference to Exhibit 5(h) to Post-
Effective Amendment No. 52 to the
Registration Statement of the Registrant
on Form N-1A (Nos. 2-81110/811-4293)
filed January 31, 1997 ("Post-Effective
Amendment No. 52").
(i) Amended and Restated Investment Advisory
Agreement dated as of January 1, 1997
between Registrant and Bank of America
National Trust & Savings Association
with respect to the International Equity
Fund is incorporated by reference to
Exhibit 5(i) to Post-Effective Amendment
No. 52.
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<PAGE> 279
(j) Sub-Investment Advisory Agreement dated
as of January 1, 1997 between Bank of
America National Trust & Savings
Association and Wellington Management
Company, LLP with respect to the
International Equity Fund is
incorporated by reference to Exhibit
5(j) to Post-Effective Amendment No. 52.
(k) Form of Investment Advisory Agreement
dated as of ___________ between
Registrant and Bank of America National
Trust & Savings Association with respect
to the Asset Allocation Fund is
incorporated by reference to Exhibit
5(k) to Post-Effective Amendment No. 53
to the Registration Statement on Form N-
1A (Nos. 2-81110/811-4293) filed
February 7, 1997 ("Post-Effective
Amendment No. 53").
(6) (a) Amended and Restated Distribution
Agreement between the Registrant and
Concord Financial Group, Inc. is
incorporated by reference to Exhibit
6(a) to Post-Effective Amendment No. 51.
(b) Form of Broker/Dealer Agreement is
incorporated by reference to Exhibit
6(c) to Post-Effective Amendment No. 45.
(c) Form of Bank Agreement is incorporated
by reference to Exhibit 6(d) to Post-
Effective Amendment No. 45.
(7) Board Guidelines on Significant
Governance Issues (which includes a
description of the Board of Director's
retirement policy and benefit) are
incorporated by reference to Exhibit 7
to Post-Effective Amendment No. 45.
(8) (a) Custody Agreement between Registrant and The
Bank of New York dated as of April 3, 1989 is
incorporated by reference to Exhibit 8(a) to Post-
Effective Amendment No. 45.
(b) Amendment No. 1 to Custody Agreement
between Registrant and The Bank of New
York dated as of March 30, 1990 is
incorporated by reference to Exhibit
8(b) to Post-Effective Amendment No. 45.
8
<PAGE> 280
(c) Amendment No. 2 to Custody Agreement
between Registrant and The Bank of New
York dated as of February 26, 1993 is
incorporated by reference to Exhibit
8(c) to Post-Effective Amendment No. 49
to the Registration Statement of the
Registrant on Form N-1A (Nos. 2-
81110/811-4293) filed June 28, 1996
("Post-Effective Amendment No. 49").
(d) Amendment No. 3 to Custody Agreement
between Registrant and The Bank of New
York dated as of April 24, 1996 is
incorporated by reference to Exhibit
8(d) to Post-Effective Amendment No. 49.
(e) Amendment No. 4 to Custody Agreement
between Registrant and The Bank of New
York dated as of July 1, 1996 is
incorporated by reference to Exhibit
8(e) to Post-Effective Amendment No. 51.
(f) Custodian Services Agreement between
Registrant and PNC Bank, N.A is
incorporated by reference to Exhibit
8(c) to Post-Effective Amendment No. 45.
(g) Transfer Agency Agreement between
Registrant and BISYS Fund Services, Inc.
is incorporated by reference to Exhibit
8(d) to Post-Effective Amendment No. 47.
(h) Amendment No. 1 to Transfer Agency
Agreement between Registrant and BISYS
Fund Services, Inc. is incorporated by
reference to Exhibit 8(h) to Post-
Effective Amendment No. 52.
(i) Sub-Custodian Agreement between
Registrant, The Bank of New York, and
Security Pacific National Bank is
incorporated by reference to Exhibit
8(e) to Post-Effective Amendment No. 45.
(j) Sub-Custodian Agreement between The Bank
of New York and Citibank, N.A. dated
May 18, 1988 is incorporated by
reference to Exhibit 8(f) to Post-
Effective Amendment No. 45.
(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
9
<PAGE> 281
(8)(i) to Post-Effective Amendment No.
37.
(9) (a) Basic Administrative Services Agreement
between Registrant and The BISYS Group,
Inc. (Money Market Funds) dated as of
November 1, 1996 is incorporated by
reference to Exhibit 9(a) to Post-
Effective Amendment No. 52.
(b) Administration Agreement between
Registrant and The BISYS Group, Inc.
(Non-Money Market Funds) dated as of
November 1, 1996 is incorporated by
reference to Exhibit 9(b) to Post-
Effective Amendment No. 52.
(c) Amendment No. 1 to the Administration
Agreement between Registrant and The
BISYS Group, Inc. (Asset Allocation
Fund) dated as of November 1, 1996 is
incorporated by reference to Exhibit
9(c) to Post-Effective Amendment No. 54.
(d) Cash Management and Related Services Agreement
between Registrant and The Bank of New York
(Horizon Shares and Horizon Service Shares) dated
as of May 1, 1990 is incorporated by reference to
Exhibit 9(s) to Post-Effective Amendment No. 45.
(e) Amendment to Cash Management and Related Services
Agreement between Registrant and The Bank of New
York dated as of June 21, 1993 is incorporated by
reference to Exhibit 9(t) to Post- Effective
Amendment No. 45.
(f) Accounting Services Agreement between
the Registrant and Provident Financial
Processing Corp is incorporated by
reference to Exhibit 9(u) to Post-
Effective Amendment No. 45.
(10)(1) Opinion of counsel that shares are validly issued,
fully paid and non-assessable.
- --------------------
1 Filed with the Securities and Exchange Commission ("SEC") on April 29, 1997
under Rule 24f-2 as part of Registrant's 24f- 2 Notice.
10
<PAGE> 282
(11) (a) Consent of Drinker Biddle &
Reath LLP.
(b) Consent of Price Waterhouse LLP.
(c) Consent of O'Melveny & Myers LLP
(12) None
(13) (a) Purchase Agreement between Registrant and The
Dreyfus Corporation is incorporated by reference
to Exhibit 13(a) to Post-Effective Amendment No.
45.
(b) Purchase Agreement between Registrant
and Hambrecht & Quist Group, Inc. dated
March 31, 1988 is incorporated by
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.
11
<PAGE> 283
(h) Purchase Agreement between Pacific
Horizon California Tax-Exempt Bond
Portfolio, Inc. and The Dreyfus
Corporation is incorporated by reference
to Exhibit 13(h) to Post-Effective
Amendment No. 45.
(i) Purchase Agreement between Pacific
Horizon California Tax-Exempt Bond
Portfolio, Inc. and Pacific Horizon Tax-
Exempt Funds, Inc. is incorporated by
reference to Exhibit 13(i) to Post-
Effective Amendment No. 45.
(j) Investment Letter of Concord Financial
Group, Inc. to The Horizon Capital Funds
is incorporated by reference to Exhibit
13(j) to Post-Effective Amendment No.
45.
(14) (a) Individual Retirement Account and accompanying
Custodial Agreement, Disclosure Statement, IRA
Application and IRA Transfer/Rollover Request Form
is incorporated by reference to Exhibit 14(a) to
Post-Effective Amendment No.
45.
(b) Appointment of Successor Custodian for
Individual Retirement Account dated as
of August 3, 1990 is incorporated by
reference to Exhibit 14(b) to Post-
Effective Amendment No. 45.
(15) (a) Shareholder Services Plan for Non-Money
Market Funds is incorporated by
reference to Exhibit 15(a) to Post-
Effective Amendment No. 45.
(b) Shareholder Services Plan for Horizon Service
Shares as modified by Registrant's Board of
Directors on January 29, 1993 is incorporated by
reference to Exhibit 15(b) to Post- Effective
Amendment No. 45.
(c) Revised Shareholder Servicing Agreement
is incorporated by reference to Exhibit
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
12
<PAGE> 284
15(d) to Post-Effective Amendment No.
45.
(e) Revised Shareholder Servicing Agreement
for Non-Money Market Funds is
incorporated by reference to Exhibit
15(e) to Post-Effective Amendment No.
45.
(f) Special Management Services Plan and related
Special Management Services Agreement for Pacific
Horizon Shares of Registrant's Money Market Funds
is incorporated by reference to Exhibit 15(f) to
Post-Effective Amendment No.
51.
(g) Distribution and Services Plan and related
Administrative Servicing Agreement and
Distribution Agreement with respect to
Registrant's "B" Shares is incorporated by
reference to Exhibit 15(g) to Post-Effective
Amendment No.
51.
(h) Distribution and Services Plan and
related Distribution and Administrative
Servicing Agreement with respect to
Registrant's "S" Shares, "X" Shares and "Y"
Shares.
(i) Distribution Plan and related
Distribution Agreement with respect to
Registrant's "K" Shares is incorporated
by reference to Exhibit 15(i) to Post-
Effective Amendment No. 51.
(j) Administrative and Shareholder Services Plan and
related Administrative and Shareholder Services
Agreement with respect to Registrant's "K" Shares
is incorporated by reference to Exhibit 15(j) to
Post-Effective Amendment No.
51.
(k) Shareholder Service Plan and related
Shareholder Servicing Agreement for SRF
Shares is incorporated by reference to
Exhibit 15(k) to Post-Effective
Amendment No. 53.
(16) (a) Schedule for Computation of Performance
Quotations with respect to the Prime
Fund, Treasury Fund, Tax-Exempt Money
Fund, Tax-Exempt Money Market Fund,
13
<PAGE> 285
California Tax-Exempt Money Market Fund,
Aggressive Growth Fund, California Tax- Exempt
Bond Fund, U.S. Government Securities Fund
(formerly known as the GNMA Extra Fund) and
Capital Income Fund (formerly known as the
Convertible Securities Fund) is incorporated by
reference to Exhibit 16(a) to Post- Effective
Amendment No. 45.
(b) Schedule for Computation of Performance
Quotations with respect to the
Government Fund, Treasury Only Fund and
Prime Value Fund is incorporated by
reference to Exhibit 16(b) to Post-
Effective Amendment No. 45.
(c) Schedule for Computation of Performance
Quotations with respect to the Corporate
Bond Fund, Intermediate Bond Fund
(formerly known as the Flexible Bond
Fund), Blue Chip Fund, Asset Allocation
Fund and National Municipal Bond Fund is
incorporated by reference to Exhibit
16(c) to Post-Effective Amendment No.
45.
(d) Schedule for Computation of Performance Quotations
with respect to the International Equity Fund is
incorporated by reference to Exhibit 16(d) to
Post-Effective Amendment No.
51.
(e) Schedule for Computation of Performance
Quotations with respect to the Short-
Term Government Fund is incorporated by
reference to Exhibit 16(e) to Post-
Effective Amendment No. 52.
(f) Schedule for Computation of Performance
Quotations with respect to the Prime Fund, Tax-Exempt
Money Fund, California Tax-Exempt Money Market Fund,
Treasury Fund, Treasury Only Fund and Government Fund.
(17) Financial Data Schedules with respect
to the Prime Fund, Tax-Exempt Money
Fund, California Tax-Exempt Money Market Fund,
Treasury Fund, Treasury Only Fund and Government Fund.
(18) Amended and Restated Plan Pursuant to
Rule 18f-3 for Operation of a Multi-Class System.
Item 25. Persons Controlled by or under
Common Control with Registrant
14
<PAGE> 286
Registrant is controlled by its Board of Directors.
Item 26. Number of Holders of Securities
Number of Record
Holders as of
Title of Class May 30, 1997
-------------- ----------------
Class A Common Stock 337
Class A Common Stock -
Special Series 1 1206
Class A Common Stock -
Special Series 2 70
Class A Common Stock -
Special Series 3 0
Class A Common Stock -
Special Series 4 2
Class B Common Stock 1564
Class B Common Stock -
Special Series 1 2219
Class B Common Stock -
Special Series 2 277
Class B Common Stock -
Special Series 3 2
Class B Common Stock -
Special Series 4 7
Class D Common Stock 16501
Class D Common Stock -
Special Series 3 0
Class D Common Stock -
Special Series 5 2
Class E Common Stock 2541
Class E Common Stock -
Special Series 3 0
Class E Common Stock -
Special Series 5 2
Class F Common Stock 18374
Class F Common Stock -
Special Series 3 0
Class F Common Stock -
Special Series 5 4
Class G Common Stock 3902
Class G Common Stock -
Special Series 3 0
Class G Common Stock -
Special Series 5 1
Class H Common Stock 0
Class I Common Stock 140
Class I Common Stock -
Special Series 1 46
Class I Common Stock -
Special Series 2 11
Class J Common Stock 224
Class J Common Stock -
15
<PAGE> 287
Number of Record
Holders as of
Title of Class May 30, 1997
-------------- ----------------
Special Series 1 313
Class J Common Stock -
Special Series 2 5
Class J Common Stock -
Special Series 4 2
Class K Common Stock 57
Class K Common Stock -
Special Series 1 1241
Class K Common Stock -
Special Series 2 19
Class L Common Stock 114
Class L Common Stock -
Special Series 1 207
Class L Common Stock -
Special Series 2 30
Class M Common Stock 521
Class M Common Stock -
Special Series 3 0
Class M Common Stock -
Special Series 5 2
Class M Common Stock -
Special Series 7 0
Class N Common Stock 12212
Class N Common Stock -
Special Series 3 0
Class N Common Stock -
Special Series 5 2
Class N Common Stock -
Special Series 7 0
Class O Common Stock 2240
Class O Common Stock -
Special Series 3 0
Class O Common Stock -
Special Series 5 2
Class O Common Stock -
Special Series 7 0
Class Q Common Stock 378
Class Q Common Stock -
Special Series 3 0
Class Q Common Stock -
Special Series 5 1
Class R Common Stock 0
Class R Common Stock -
Special Series 3 0
Class R Common Stock -
Special Series 5 0
Class S Common Stock 0
Class S Common Stock -
Special Series 3 0
Class S Common Stock -
Special Series 5 0
Class T Common Stock 733
Class T Common Stock -
Special Series 3 0
16
<PAGE> 288
Number of Record
Holders as of
Title of Class May 30, 1997
-------------- ----------------
Class T Common Stock -
Special Series 5 2
Class U Common Stock 6
Class U Common Stock -
Special Series 3 0
Class U Common Stock -
Special Series 5 0
Class V Common Stock 0
Class V Common Stock -
Special Series 3 0
Class V Common Stock -
Special Series 5 0
Class W Common Stock 2432
Class W Common Stock -
Special Series 3 0
Class W Common Stock -
Special Series 5 2
Item 27. Indemnification
Article VII, Section 3, of Registrant's Restated Articles of
Incorporation, incorporated herein by reference as Exhibit (1)(a) hereto, and
Article VI, Section 2, of Registrant's Amended and Restated By-Laws,
incorporated herein by reference as Exhibit (2)(a) hereto, provide for the
indemnification of Registrant's directors and officers. Indemnification of the
Fund's sub-adviser, principal underwriter, custodians, sub-custodians, transfer
agent and sub-transfer agent is provided for, respectively, in Section 8 of the
Sub-Advisory Agreement incorporated herein by reference as Exhibit (5)(j),
Article V of the Amended and Restated Distribution Agreement, incorporated
herein by reference as Exhibit (6)(a), Article XV, Section 15 of the Custody
Agreement incorporated herein by reference as Exhibit (8)(a) hereto, Article
XII, Section 14 of the Sub-Custodian Agreement incorporated herein by reference
as Exhibit (8)(i) hereto, Article III, Section 4 of the Sub-Custodian Agreement
incorporated herein by reference as Exhibit (8)(j) hereto, Section 8 of the form
of Sub-Custody Agreement incorporated herein by reference as Exhibit (8)(k),
Article VII, Section 7, of the Transfer Agency Agreement incorporated herein by
reference as Exhibit (8)(g), and Article VI, Section 3, of the Cash Management
and Related Services Agreement incorporated herein by reference as Exhibit
(9)(d) hereto. Registrant has obtained from a major insurance carrier a
directors and officers' liability policy covering certain types of errors and
omissions. In no event will Registrant indemnify any of its directors, officers,
employees or agents against any liability to which such person would otherwise
be subject by reason of his willful misfeasance, bad faith or gross negligence
in the performance of his duties or by reason of his reckless disregard of the
duties involved in the conduct of his office or under his agreement with
Registrant. Registrant will comply with Rule 484 under the Securities Act of
1933 and Release 11330 under the Investment Company Act of 1940 in connection
with any indemnification.
17
<PAGE> 289
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of Registrant pursuant to the foregoing provisions, or otherwise,
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Registrant of expenses
incurred or paid by a director, officer or controlling person of Registrant in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 28. (a) Business and Other Connections of Investment
Adviser
Bank of America National Trust and Savings Association ("Bank of
America") performs investment advisory services for Registrant. Bank of America
and its predecessors have been in the business of managing the investments of
fiduciary and other accounts since 1904. In addition to its trust business, Bank
of America provides commercial and consumer banking services.
To the knowledge of Registrant, none of the directors or officers of
Bank of America, except those set forth below, is or has been, at any time
during the past two calendar years, engaged in any other business, profession,
vocation or employment of a substantial nature, except that certain directors
and officers of Bank of America also hold various positions with, and engage in
business for, BankAmerica Corporation, which owns all the outstanding stock of
Bank of America, or other subsidiaries of BankAmerica Corporation. Set forth
below are the names and principal businesses of the directors of Bank of America
and the directors and certain of the senior executive officers of Bank of
America who are engaged in any other business, profession, vocation or
employment of a substantial nature, other than with BankAmerica Corporation.
18
<PAGE> 290
Position with
Bank of America
National Trust
and Savings Principal Type of
Association Name Occupation Business
- ----------- ---- ---------- --------
Director..........Joseph F. Alibrandi Chairman of the Manufacturer of
Board and CEO, Aerospace and
Whittaker Communication
Corporation Products
Director..........Jill Elikann Barad President and Chief Toy manufacturer
Executive Officer, and distributor
Mattel, Inc.
Director..........Peter B. Bedford Chairman and CEO, California based
Bedford Property Real Estate
Investors, Inc. Investment Trust
Director. . . . Andrew F. Brimmer President, Consulting
Brimmer & Co., Inc.
Director . . . Richard A. Retired Chairman of Utility Company
Clarke the Board, Pacific
Gas and Electric
Company
Chairman. . . David A. Coulter Chairman of the Banking
Board, Chief
Executive Officer
and President, Bank
America Corporation
and Bank of
America National
Trust & Savings
Association
Director. . . . Timm F. Crull Chairman, Hallmark Greeting cards
International
Director. . . . Kathleen Feldstein President, Economic
Economics Consulting
Studies, Inc.
Director . . . . Donald E. Guinn Chairman Emeritus, Telecommuni-
Pacific Telesis cations and
Group Diversified
Holding Com-
pany
Director . . . . Frank L. Hope, Jr. Consulting Architectural
Architect and Engineering
Consulting
Director . . . . Ignacio E. Lozano, Chairman, Newspaper
Jr. "La Opinion" Publishing
Director . . . . Walter E. Massey, President, Higher
Ph.D. Morehouse Education
College
Director. . . . John M. Richman Of Counsel, Law firm
Wachtell, Lipton,
Rosen & Katz
19
<PAGE> 291
Position with
Bank of America
National Trust
and Savings Principal Type of
Association Name Occupation Business
- ----------- ---- ---------- --------
Director. . . Richard M. Retired; Chairman Banking
Rosenberg of the Board and
CEO, Bank America
Corporation and
Bank of America
National Trust &
Savings Association
Director. . . . A. Michael Spence Dean of the Higher
Graduate School of Education
Business, Stanford
University
Director. . . . Solomon D. President and CEO, Telecommunica-
Trujillo U.S. West tions
Communications
Group
(b) Business and Other Connections of Sub-Adviser
Wellington Management Corporation, LLP, ("Wellington") is an
investment adviser registered under the Investment Advisers Act of 1940 (the
"Advisers Act").
The list required by this Item 28 of the partners of Wellington,
together with information as to any business profession, vocation or employment
of substantial nature engaged in by such partners during the past two years, is
incorporated herein by references to Schedules A and D of Form ADV filed by
Wellington pursuant to the Advisers Act (SEC File No. 801-15908).
Item 29. Principal Underwriters
(a) Principal underwriter (exclusive distributor) also acts as
principal underwriter or exclusive distributor for The Infinity Funds, Inc., The
Pilot Funds, Seafirst Retirement Funds
and Time Horizon Funds.
(b) For information as to the business, profession, vocation or
employment of a substantial nature of each of the principal underwriter, its
officers and directors, reference is made to their Form BD File No. 8-37601
filed by the principal underwriter. For information, as to the positions or
offices of each of the principal underwriter, its officers and directors,
reference is made to the section entitled "Management" in the Statement of
Additional Information. Both the principal underwriter's Form BD and the
Registrants Statements of Additional Information are incorporated herein by
reference.
(c) Not Applicable.
20
<PAGE> 292
Item 30. Location of Accounts and Records
(1) The BISYS Group, Inc., 150 Clove Road, Little
Falls, New Jersey 07424 (records relating to the
administrator).
(2) Concord Financial Group, Inc., 3435 Stelzer Road,
Columbus, Ohio 43219 (records relating to the
distributor).
(3) Concord Management (Ireland) Limited, Floor 2,
Block 2, Harcourt Centre, Dublin 2, Ireland
(records relating to the administrator for the
Funds it services).
(4) Bank of America National Trust and Savings
Association, 555 California Street, San Francisco,
California 94104 (records relating to the
investment adviser).
(5) Wellington Management Company, LLP, 75 State Street, Boston,
Massachusetts 02109 (records relating to the investment
sub-adviser for the International Equity Fund)
(6) Bank of America National Trust and Savings Association, 555
California Street, San Francisco, California 94104 (records
relating to the Sub- Custodian for the Funds it services).
(7) The Bank of New York, 90 Washington Street, New York, New York
10286) (records relating to the custodian for the Funds it
services).
(8) BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus, Ohio
43219 (records relating to the transfer agent for the Funds it
services).
(9) Drinker Biddle & Reath LLP, Philadelphia National
Bank Building, 1345 Chestnut Street, Philadelphia,
Pennsylvania 19107-3496 (Registrant's Charter, By-
Laws and Minute Books).
(10) PNC Bank, National Association, 1600 Market Street, 28th
Floor, Philadelphia, PA 19103, (records relating to the
custodian for the Funds it services).
(11) PFPC, Inc. 103 Bellevue Parkway, Wilmington, DE
19809, (records relating to the sub-administrator
for the Funds it services).
21
<PAGE> 293
Item 31. Management Services
Inapplicable.
Item 32. Undertakings
Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the Investment Company Act of 1940, as amended, as though such
provisions were applicable to it.
Registrant hereby undertakes to furnish its Annual Report to
Shareholders upon request and without charge to any person to whom a prospectus
is delivered.
22
<PAGE> 294
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 13th day of June, 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 June 13, 1997
- ------------------------ Board and President
Cornelius John Pings
/s/Kevin L. Martin Treasurer (Chief June 13, 1997
- ------------------------ Accounting and
Kevin L. Martin Financial Officer)
*/Thomas M. Collins Director June 13, 1997
- ------------------------
Thomas M. Collins
*/Douglas B. Fletcher Director June 13, 1997
- ------------------------
Douglas B. Fletcher
*/Robert E. Greeley Director June 13, 1997
- ------------------------
Robert E. Greeley
*/Kermit O. Hanson Director June 13, 1997
- ------------------------
Kermit O. Hanson
*By: /s/W. Bruce McConnel, III
---------------------------
W. Bruce McConnel, III
Attorney-in-fact
23
<PAGE> 295
PACIFIC HORIZON FUNDS, INC.
Certificate of Secretary
The following resolution was duly adopted by the Board of Directors
of Pacific Horizon Funds, Inc. on April 30, 1997 and remains in effect on the
date hereof:
FURTHER RESOLVED, that the directors and officers of Pacific
Horizon who may be required to execute any amendments to Pacific
Horizon's Registration Statement be, and each hereby is, authorized
to execute a power of attorney appointing W. Bruce McConnel, III and
Cornelius J. Pings their true and lawful attorney or attorneys, to
execute in their name, place and stead, in their capacity as
director or officer, or both, of Pacific Horizon any and all
amendments to the Registration Statement, and all instruments
necessary or incidental in connection therewith, and to file the
same with the SEC; and either of said attorneys shall have the power
to act thereunder with or without the other said attorney and shall
have full power of substitution and resubstitution; and to do in the
name and on behalf of said directors and officers, or any or all of
them, in any and all capacities, every act whatsoever requisite or
necessary to be done in the premises, as fully and to all intents
and purposes as each of said directors or officers, or any or all of
them, might or could do in person, said acts of said attorneys,
being hereby ratified and approved.
IN WITNESS WHEREOF, I have hereunto set my hand this 13th day of
June, 1997.
PACIFIC HORIZON FUNDS, INC.
/s/ W. Bruce McConnel III
-------------------------------------
W. Bruce McConnel, III
Secretary
<PAGE> 296
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> 297
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> 298
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> 299
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> 300
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> 1
Exhibit 1 (ff)
ARTICLES SUPPLEMENTARY
OF
PACIFIC HORIZON FUNDS, INC.
PACIFIC HORIZON FUNDS, INC., a Maryland corporation having its
principal office in the City of Baltimore, Maryland (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: Pursuant to sections 2-105(c) and 2-208.1 of the Maryland
General Corporation Law, the Board of Directors of the Corporation, an open-end
company registered under the Investment Company Act of 1940, has increased the
total number of shares of capital stock which the Corporation shall have
authority to issue from Two Hundred Billion (200,000,000,000) shares, of the par
value of One Mill ($0.001) per share, and of the aggregate par value of Two
Hundred Million Dollars ($200,000,000), to Four Hundred Billion
(400,000,000,000) shares, of the par value of One Mill ($0.001) per share, and
of the aggregate par value of Four Hundred Million Dollars ($400,000,000),
pursuant to the following resolution adopted at a regular meeting of the Board
of Directors of the Corporation held on April 30, 1997:
RESOLVED, that the total number of shares of capital stock which the
Corporation shall have authority to issue be increased to Four Hundred
Billion (400,000,000,000) shares, of the par value of One Mill ($0.001)
per share, and of the aggregate par value of Four Hundred Million Dollars
($400,000,000).
<PAGE> 2
SECOND: The total number of classified and authorized shares of each
class of the Corporation as of immediately before the increase is: Class A
Common Stock, Ten Billion (10,000,000,000) shares of capital stock of the
Corporation (of the aggregate par value of Ten Million Dollars ($10,000,000));
Class A Common Stock - Special Series 1, Ten Billion
(10,000,000,000) shares of capital stock of the Corporation (of the
aggregate par value of Ten Million Dollars ($10,000,000));
Class A Common Stock - Special Series 2, Ten Billion
(10,000,000,000) shares of capital stock of the Corporation (of the
aggregate par value of Ten Million Dollars ($10,000,000));
Class A Common Stock - Special Series 3, Ten Billion
(10,000,000,000) shares of capital stock of the Corporation (of the
aggregate par value of Ten Million Dollars ($10,000,000));
Class A Common Stock - Special Series 4, Four Billion Four Hundred
Million (4,400,000,000) shares of capital stock of the Corporation (of the
aggregate par value of Four Million, Four Hundred Thousand Dollars
($4,400,000));
Class B Common Stock, Ten Billion (10,000,000,000) shares of capital
stock of the Corporation (of the aggregate par value of Ten Million
Dollars ($10,000,000));
Class B Common Stock - Special Series 1, Ten Billion
(10,000,000,000) shares of capital stock of the Corporation (of the
aggregate par value of Ten Million Dollars ($10,000,000));
Class B Common Stock - Special Series 2, Eighteen Billion
(18,000,000,000) shares of capital stock of the Corporation (of the
aggregate par value of Eighteen Million Dollars ($18,000,000));
Class B Common Stock - Special Series 3, Ten Billion
(10,000,000,000) shares of capital stock of the Corporation (of the
aggregate par value of Ten Million Dollars ($10,000,000));
Class B Common Stock - Special Series 4, Ten Billion
(10,000,000,000) shares of capital stock of the Corporation
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<PAGE> 3
(of the aggregate par value of Ten Million Dollars ($10,000,000));
Class C Common Stock, Two Hundred and Fifty Million (250,000,000)
shares of capital stock of the Corporation (of the aggregate par value of
Two Hundred and Fifty Thousand Dollars ($250,000));
Class D Common Stock, Four Hundred Million (400,000,000) shares of
capital stock of the Corporation (of the aggregate par value of Four
Hundred Thousand Dollars ($400,000));
Class D Common Stock - Special Series 3, Six Hundred Million
(600,000,000) shares of capital stock of the Corporation (of the aggregate
par value of Six Hundred Thousand Dollars ($600,000));
Class D Common Stock - Special Series 5, Fifty Million (50,000,000)
shares of capital stock of the Corporation (of the aggregate par value of
Fifty Thousand Dollars ($50,000));
Class E Common Stock, One Hundred Million (100,000,000) shares of
capital stock of the Corporation (of the aggregate par value of One
Hundred Thousand Dollars ($100,000));
Class E Common Stock - Special Series 3, One Hundred and Fifty
Million (150,000,000) shares of capital stock of the Corporation (of the
aggregate par value of One Hundred and Fifty Thousand Dollars ($150,000));
Class E Common Stock - Special Series 5, Fifty Million (50,000,000)
shares of capital stock of the Corporation (of the aggregate par value of
Fifty Thousand Dollars ($50,000));
Class F Common Stock, One Hundred Million (100,000,000) shares of
capital stock of the Corporation (of the aggregate par value of One
Hundred Thousand Dollars ($100,000));
Class F Common Stock - Special Series 3, One Hundred and Fifty
Million (150,000,000) shares of capital stock of the Corporation (of the
aggregate par value of One Hundred and Fifty Thousand Dollars ($150,000));
Class F Common Stock - Special Series 5, Fifty Million (50,000,000)
shares of capital stock of the Corporation (of the aggregate par value of
Fifty Thousand Dollars ($50,000));
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Class G Common Stock, One Hundred Million (100,000,000) shares of
capital stock of the Corporation (of the aggregate par value of One
Hundred Thousand Dollars ($100,000));
Class G Common Stock - Special Series 3, One Hundred and Fifty
Million (150,000,000) shares of capital stock of the Corporation (of the
aggregate par value of One Hundred and Fifty Thousand Dollars ($150,000));
Class G Common Stock - Special Series 5, Fifty Million (50,000,000)
shares of capital stock of the Corporation (of the aggregate par value of
Fifty Thousand Dollars ($50,000));
Class I Common Stock, One Billion Five Hundred Million
(1,500,000,000) shares of capital stock of the Corporation (of the
aggregate par value of One Million Five Hundred Thousand Dollars
($1,500,000));
Class I Common Stock - Special Series 1, Three Billion
(3,000,000,000) shares of capital stock of the Corporation (of the
aggregate par value of Three Million Dollars ($3,000,000));
Class I Common Stock - Special Series 2, Three Billion
(3,000,000,000) shares of capital stock of the Corporation (of the
aggregate par value of Three Million Dollars ($3,000,000));
Class J Common Stock, One Billion (1,000,000,000) shares of capital
stock of the Corporation (of the aggregate par value of One Million
Dollars ($1,000,000));
Class J Common Stock - Special Series 1, One Billion (1,000,000,000)
shares of capital stock of the Corporation (of the aggregate par value of
One Million Dollars ($1,000,000));
Class J Common Stock - Special Series 2, Five Hundred Million
(500,000,000) shares of capital stock of the Corporation (of the aggregate
par value of Five Hundred Thousand Dollars ($500,000));
Class J Common Stock - Special Series 4, One Billion (1,000,000,000)
shares of capital stock of the Corporation (of the aggregate par value of
One Million Dollars ($1,000,000));
Class K Common Stock, Fifteen Billion (15,000,000,000) shares of
capital stock of the Corporation (of the aggregate par value of Fifteen
Million Dollars ($15,000,000));
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<PAGE> 5
Class K Common Stock - Special Series 1, Fifteen Billion
(15,000,000,000) shares of capital stock of the Corporation (of the
aggregate par value of Fifteen Million Dollars ($15,000,000));
Class K Common Stock - Special Series 2, Seven Billion
(7,000,000,000) shares of capital stock of the Corporation (of the
aggregate par value of Seven Million Dollars ($7,000,000));
Class L Common Stock, Fifteen Billion (15,000,000,000) shares of
capital stock of the Corporation (of the aggregate par value of Fifteen
Million Dollars ($15,000,000));
Class L Common Stock - Special Series 1, Fifteen Billion
(15,000,000,000) shares of capital stock of the Corporation (of the
aggregate par value of Fifteen Million Dollars ($15,000,000));
Class L Common Stock - Special Series 2, Seven Billion
(7,000,000,000) shares of capital stock of the Corporation (of the
aggregate par value of Seven Million Dollars ($7,000,000));
Class M Common Stock, Forty Million (40,000,000) shares of capital
stock of the Corporation (of the aggregate par value of Forty Thousand
Dollars ($40,000));
Class M Common Stock - Special Series 3, Sixty Million (60,000,000)
shares of capital stock of the Corporation (of the aggregate par value of
Sixty Thousand Dollars ($60,000));
Class M Common Stock - Special Series 5, Fifty Million (50,000,000)
shares of capital stock of the Corporation (of the aggregate par value of
Fifty Thousand Dollars ($50,000));
Class M Common Stock - Special Series 7, Fifty Million (50,000,000)
shares of capital stock of the Corporation (of the aggregate par value of
Fifty Thousand Dollars ($50,000));
Class N Common Stock, Forty Million (40,000,000) shares of capital
stock of the Corporation (of the aggregate par value of Forty Thousand
Dollars ($40,000));
Class N Common Stock - Special Series 3, Sixty Million (60,000,000)
shares of capital stock of the Corporation (of the aggregate par value of
Sixty Thousand Dollars ($60,000));
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Class N Common Stock - Special Series 5, Fifty Million (50,000,000)
shares of capital stock of the Corporation (of the aggregate par value of
Fifty Thousand Dollars ($50,000));
Class N Common Stock - Special Series 7, Fifty Million (50,000,000)
shares of capital stock of the Corporation (of the aggregate par value of
Fifty Thousand Dollars ($50,000));
Class O Common Stock, Forty Million (40,000,000) shares of capital
stock of the Corporation (of the aggregate par value of Forty Thousand
Dollars ($40,000));
Class O Common Stock - Special Series 3, Sixty Million (60,000,000)
shares of capital stock of the Corporation (of the aggregate par value of
Sixty Thousand Dollars ($60,000));
Class O Common Stock - Special Series 5, Fifty Million (50,000,000)
shares of capital stock of the Corporation (of the aggregate par value of
Fifty Thousand Dollars ($50,000));
Class O Common Stock - Special Series 7, Fifty Million (50,000,000)
shares of capital stock of the Corporation (of the aggregate par value of
Fifty Thousand Dollars ($50,000));
Class Q Common Stock, Forty Million (40,000,000) shares of capital
stock of the Corporation (of the aggregate par value of Forty Thousand
Dollars ($40,000));
Class Q Common Stock - Special Series 3, Sixty Million (60,000,000)
shares of capital stock of the Corporation (of the aggregate par value of
Sixty Thousand Dollars ($60,000));
Class Q Common Stock - Special Series 5, Fifty Million (50,000,000)
shares of capital stock of the Corporation (of the aggregate par value of
Fifty Thousand Dollars ($50,000));
Class R Common Stock, Forty Million (40,000,000) shares of capital
stock of the Corporation (of the aggregate par value of Forty Thousand
Dollars ($40,000));
Class R Common Stock - Special Series 3, Sixty Million (60,000,000)
shares of capital stock of the Corporation (of the aggregate par value of
Sixty Thousand Dollars ($60,000));
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<PAGE> 7
Class R Common Stock - Special Series 5, Fifty Million (50,000,000)
shares of capital stock of the Corporation (of the aggregate par value of
Fifty Thousand Dollars ($50,000));
Class S Common Stock, Forty Million (40,000,000) shares of capital
stock of the Corporation (of the aggregate par value of Forty Dollars
($40,000));
Class S Common Stock - Special Series 3, Sixty Million (60,000,000)
shares of capital stock of the Corporation (of the aggregate par value of
Sixty Thousand Dollars ($60,000));
Class S Common Stock - Special Series 5, Fifty Million (50,000,000)
shares of capital stock of the Corporation (of the aggregate par value of
Fifty Thousand Dollars ($50,000));
Class T Common Stock, Forty Million (40,000,000) shares of capital
stock of the Corporation (of the aggregate par value of Forty Thousand
Dollars ($40,000));
Class T Common Stock - Special Series 3, Sixty Million (60,000,000)
shares of capital stock of the Corporation (of the aggregate par value of
Sixty Thousand Dollars ($60,000));
Class T Common Stock - Special Series 5, Fifty Million (50,000,000)
shares of capital stock of the Corporation (of the aggregate par value of
Fifty Thousand Dollars ($50,000));
Class U Common Stock, Forty Million (40,000,000) shares of capital
stock of the Corporation (of the aggregate par value of Forty Thousand
Dollars ($40,000));
Class U Common Stock - Special Series 3, Sixty Million (60,000,000)
shares of capital stock of the Corporation (of the aggregate par value of
Sixty Thousand Dollars ($60,000));
Class U Common Stock - Special Series 5, Fifty Million (50,000,000)
shares of capital stock of the Corporation (of the aggregate par value of
Fifty Thousand Dollars ($50,000));
Class V Common Stock, Forty Million (40,000,000) shares of capital
stock of the Corporation (of the aggregate par value of Forty Thousand
Dollars ($40,000));
-7-
<PAGE> 8
Class V Common Stock - Special Series 3, Sixty Million (60,000,000)
shares of capital stock of the Corporation (of the aggregate par value of
Sixty Thousand Dollars ($60,000));
Class V Common Stock - Special Series 5, Fifty Million (50,000,000)
shares of capital stock of the Corporation (of the aggregate par value of
Fifty Thousand Dollars ($50,000));
Class W Common Stock, Forty Million (40,000,000) shares of capital
stock of the Corporation (of the aggregate par value of Forty Thousand
Dollars ($40,000));
Class W Common Stock - Special Series 3, Sixty Million (60,000,000)
shares of capital stock of the Corporation (of the aggregate par value of
Sixty Thousand Dollars ($60,000));
Class W Common Stock - Special Series 5, Fifty Million (50,000,000)
shares of capital stock of the Corporation (of the aggregate par value of
Fifty Thousand Dollars ($50,000));
The total number of authorized and unclassified shares of capital stock of the
Corporation as of immediately before the increase is Eight Billion, Seven
Hundred and Fifty Million (8,750,000,000) shares, of the par value of One Mill
($0.001) per share, and of the aggregate par value of Eight Million, Seven
Hundred and Fifty Thousand Dollars ($8,750,000).
THIRD: The total number of classified and authorized shares of each
class of the Corporation as increased is:
Class A Common Stock, Ten Billion (10,000,000,000) shares of capital
stock of the Corporation (of the aggregate par value of Ten Million Dollars
($10,000,000));
Class A Common Stock - Special Series 1, Ten Billion (10,000,000,000)
shares of capital stock of the Corporation (of the aggregate par value of
Ten Million Dollars ($10,000,000));
Class A Common Stock - Special Series 2, Ten Billion (10,000,000,000)
shares of capital stock of the Corporation
-8-
<PAGE> 9
(of the aggregate par value of Ten Million Dollars ($10,000,000));
Class A Common Stock - Special Series 3, Ten Billion
(10,000,000,000) shares of capital stock of the Corporation (of the
aggregate par value of Ten Million Dollars ($10,000,000));
Class A Common Stock - Special Series 4, Ten Billion
(10,000,000,000) shares of capital stock of the Corporation (of the
aggregate par value of Ten Million Dollars ($10,000,000));
Class B Common Stock, Twenty Billion (20,000,000,000) shares of
capital stock of the Corporation (of the aggregate par value of Twenty
Million Dollars ($20,000,000));
Class B Common Stock - Special Series 1, Twenty Billion
(20,000,000,000) shares of capital stock of the Corporation (of the
aggregate par value of Twenty Million Dollars ($20,000,000));
Class B Common Stock - Special Series 2, Twenty Billion
(20,000,000,000) shares of capital stock of the Corporation (of the
aggregate par value of Twenty Million Dollars ($20,000,000));
Class B Common Stock - Special Series 3, Twenty Billion
(20,000,000,000) shares of capital stock of the Corporation (of the
aggregate par value of Twenty Million Dollars ($20,000,000));
Class B Common Stock - Special Series 4, Twenty Billion
(20,000,000,000) shares of capital stock of the Corporation (of the
aggregate par value of Twenty Million Dollars ($20,000,000));
Class C Common Stock, Zero (0) shares of capital stock of the
Corporation (of the aggregate par value of Zero Dollars ($0));
Class D Common Stock, One Hundred Million (100,000,000) shares of
capital stock of the Corporation (of the aggregate par value of One
Hundred Thousand Dollars ($100,000));
Class D Common Stock - Special Series 3, One Hundred Million
(100,000,000) shares of capital stock of the Corporation (of the aggregate
par value of One Hundred Thousand Dollars ($100,000));
Class D Common Stock - Special Series 5, One Hundred Million
(100,000,000) shares of capital stock of the
-9-
<PAGE> 10
Corporation (of the aggregate par value of One Hundred Thousand Dollars
($100,000));
Class E Common Stock, One Hundred Million (100,000,000) shares of
capital stock of the Corporation (of the aggregate par value of One
Hundred Thousand Dollars ($100,000));
Class E Common Stock - Special Series 3, One Hundred Million
(100,000,000) shares of capital stock of the Corporation (of the aggregate
par value of One Hundred Thousand Dollars ($100,000));
Class E Common Stock - Special Series 5, One Hundred Million
(100,000,000) shares of capital stock of the Corporation (of the aggregate
par value of One Hundred Thousand Dollars ($100,000));
Class F Common Stock, One Hundred Million (100,000,000) shares of
capital stock of the Corporation (of the aggregate par value of One
Hundred Thousand Dollars ($100,000));
Class F Common Stock - Special Series 3, One Hundred Million
(100,000,000) shares of capital stock of the Corporation (of the aggregate
par value of One Hundred Thousand Dollars ($100,000));
Class F Common Stock - Special Series 5, One Hundred Million
(100,000,000) shares of capital stock of the Corporation (of the aggregate
par value of One Hundred Thousand Dollars ($100,000));
Class G Common Stock, One Hundred Million (100,000,000) shares of
capital stock of the Corporation (of the aggregate par value of One
Hundred Thousand Dollars ($100,000));
Class G Common Stock - Special Series 3, One Hundred Million
(100,000,000) shares of capital stock of the Corporation (of the aggregate
par value of One Hundred Thousand Dollars ($100,000));
Class G Common Stock - Special Series 5, One Hundred Million
(100,000,000) shares of capital stock of the Corporation (of the aggregate
par value of One Hundred Thousand Dollars ($100,000));
Class I Common Stock, Ten Billion (10,000,000,000) shares of capital
stock of the Corporation (of the aggregate par value of Ten Million
Dollars ($10,000,000));
Class I Common Stock - Special Series 1, Ten Billion
(10,000,000,000) shares of capital stock of the Corporation
-10-
<PAGE> 11
(of the aggregate par value of Ten Million Dollars ($10,000,000));
Class I Common Stock - Special Series 2, Ten Billion
(10,000,000,000) shares of capital stock of the Corporation (of the
aggregate par value of Ten Million Dollars ($10,000,000));
Class J Common Stock, Ten Billion (10,000,000,000) shares of capital
stock of the Corporation (of the aggregate par value of Ten Million
Dollars ($10,000,000));
Class J Common Stock - Special Series 1, Ten Billion
(10,000,000,000) shares of capital stock of the Corporation (of the
aggregate par value of Ten Million Dollars ($10,000,000));
Class J Common Stock - Special Series 2, Ten Billion
(10,000,000,000) shares of capital stock of the Corporation (of the
aggregate par value of Ten Million Dollars ($10,000,000));
Class J Common Stock - Special Series 4, Ten Billion
(10,000,000,000) shares of capital stock of the Corporation (of the
aggregate par value of Ten Million Dollars ($10,000,000));
Class K Common Stock, Ten Billion (10,000,000,000) shares of capital
stock of the Corporation (of the aggregate par value of Ten Million
Dollars ($10,000,000));
Class K Common Stock - Special Series 1, Ten Billion
(10,000,000,000) shares of capital stock of the Corporation (of the
aggregate par value of Ten Million Dollars ($10,000,000));
Class K Common Stock - Special Series 2, Ten Billion
(10,000,000,000) shares of capital stock of the Corporation (of the
aggregate par value of Ten Million Dollars ($10,000,000));
Class L Common Stock, Ten Billion (10,000,000,000) shares of capital
stock of the Corporation (of the aggregate par value of Ten Million
Dollars ($10,000,000));
Class L Common Stock - Special Series 1, Ten Billion
(10,000,000,000) shares of capital stock of the Corporation (of the
aggregate par value of Ten Million Dollars ($10,000,000));
Class L Common Stock - Special Series 2, Ten Billion
(10,000,000,000) shares of capital stock of the Corporation
-11-
<PAGE> 12
(of the aggregate par value of Ten Million Dollars ($10,000,000));
Class M Common Stock, One Hundred Million (100,000,000) shares of
capital stock of the Corporation (of the aggregate par value of One
Hundred Thousand Dollars ($100,000));
Class M Common Stock - Special Series 3, One Hundred Million
(100,000,000) shares of capital stock of the Corporation (of the aggregate
par value of One Hundred Thousand Dollars ($100,000));
Class M Common Stock - Special Series 5, One Hundred Million
(100,000,000) shares of capital stock of the Corporation (of the aggregate
par value of One Hundred Thousand Dollars ($100,000));
Class M Common Stock - Special Series 7, One Hundred Million
(100,000,000) shares of capital stock of the Corporation (of the aggregate
par value of One Hundred Thousand Dollars ($100,000));
Class N Common Stock, One Hundred Million (100,000,000) shares of
capital stock of the Corporation (of the aggregate par value of One
Hundred Thousand Dollars ($100,000));
Class N Common Stock - Special Series 3, One Hundred Million
(100,000,000) shares of capital stock of the Corporation (of the aggregate
par value of One Hundred Thousand Dollars ($100,000));
Class N Common Stock - Special Series 5, One Hundred Million
(100,000,000) shares of capital stock of the Corporation (of the aggregate
par value of One Hundred Thousand Dollars ($100,000));
Class N Common Stock - Special Series 7, One Hundred Million
(100,000,000) shares of capital stock of the Corporation (of the aggregate
par value of One Hundred Thousand Dollars ($100,000));
Class O Common Stock, One Hundred Million (100,000,000) shares of
capital stock of the Corporation (of the aggregate par value of One
Hundred Thousand Dollars ($100,000));
Class O Common Stock - Special Series 3, One Hundred Million
(100,000,000) shares of capital stock of the Corporation (of the aggregate
par value of One Hundred Thousand Dollars ($100,000));
Class O Common Stock - Special Series 5, One Hundred Million
(100,000,000) shares of capital stock of the
-12-
<PAGE> 13
Corporation (of the aggregate par value of One Hundred Thousand Dollars
($100,000));
Class O Common Stock - Special Series 7, One Hundred Million
(100,000,000) shares of capital stock of the Corporation (of the aggregate
par value of One Hundred Thousand Dollars ($100,000));
Class Q Common Stock, One Hundred Million (100,000,000) shares of
capital stock of the Corporation (of the aggregate par value of One
Hundred Thousand Dollars ($100,000));
Class Q Common Stock - Special Series 3, One Hundred Million
(100,000,000) shares of capital stock of the Corporation (of the aggregate
par value of One Hundred Thousand Dollars ($100,000));
Class Q Common Stock - Special Series 5, One Hundred Million
(100,000,000) shares of capital stock of the Corporation (of the aggregate
par value of One Hundred Thousand Dollars ($100,000));
Class R Common Stock, One Hundred Million (100,000,000) shares of
capital stock of the Corporation (of the aggregate par value of One
Hundred Thousand Dollars ($100,000));
Class R Common Stock - Special Series 3, One Hundred Million
(100,000,000) shares of capital stock of the Corporation (of the aggregate
par value of One Hundred Thousand Dollars ($100,000));
Class R Common Stock - Special Series 5, One Hundred Million
(100,000,000) shares of capital stock of the Corporation (of the aggregate
par value of One Hundred Thousand Dollars ($100,000));
Class S Common Stock, One Hundred Million (100,000,000) shares of
capital stock of the Corporation (of the aggregate par value of One
Hundred Thousand Dollars ($100,000));
Class S Common Stock - Special Series 3, One Hundred Million
(100,000,000) shares of capital stock of the Corporation (of the aggregate
par value of One Hundred Thousand Dollars ($100,000));
Class S Common Stock - Special Series 5, One Hundred Million
(100,000,000) shares of capital stock of the Corporation (of the aggregate
par value of One Hundred Thousand Dollars ($100,000));
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<PAGE> 14
Class T Common Stock, One Hundred Million (100,000,000) shares of
capital stock of the Corporation (of the aggregate par value of One
Hundred Thousand Dollars ($100,000));
Class T Common Stock - Special Series 3, One Hundred Million
(100,000,000) shares of capital stock of the Corporation (of the aggregate
par value of One Hundred Thousand Dollars ($100,000));
Class T Common Stock - Special Series 5, One Hundred Million
(100,000,000) shares of capital stock of the Corporation (of the aggregate
par value of One Hundred Thousand Dollars ($100,000));
Class U Common Stock, One Hundred Million (100,000,000) shares of
capital stock of the Corporation (of the aggregate par value of One
Hundred Thousand Dollars ($100,000));
Class U Common Stock - Special Series 3, One Hundred Million
(100,000,000) shares of capital stock of the Corporation (of the aggregate
par value of One Hundred Thousand Dollars ($100,000));
Class U Common Stock - Special Series 5, One Hundred Million
(100,000,000) shares of capital stock of the Corporation (of the aggregate
par value of One Hundred Thousand Dollars ($100,000));
Class V Common Stock, One Hundred Million (100,000,000) shares of
capital stock of the Corporation (of the aggregate par value of One
Hundred Thousand Dollars ($100,000));
Class V Common Stock - Special Series 3, One Hundred Million
(100,000,000) shares of capital stock of the Corporation (of the aggregate
par value of One Hundred Thousand Dollars ($100,000));
Class V Common Stock - Special Series 5, One Hundred Million
(100,000,000) shares of capital stock of the Corporation (of the aggregate
par value of One Hundred Thousand Dollars ($100,000));
Class W Common Stock, One Hundred Million (100,000,000) shares of
capital stock of the Corporation (of the aggregate par value of One
Hundred Thousand Dollars ($100,000));
Class W Common Stock - Special Series 3, One Hundred Million
(100,000,000) shares of capital stock of the Corporation (of the aggregate
par value of One Hundred Thousand Dollars ($100,000));
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<PAGE> 15
Class W Common Stock - Special Series 5, One Hundred Million
(100,000,000) shares of capital stock of the Corporation (of the aggregate
par value of One Hundred Thousand Dollars ($100,000));
The total number of authorized and unclassified shares of capital stock of the
Corporation as increased is One Hundred and Fifteen Billion, Five Hundred
Million (115,500,000,000) shares, of the par value of One Mill ($0.001) per
share, and of the aggregate par value of One Hundred and Fifteen Million, Five
Hundred Thousand Dollars (115,500,000).
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<PAGE> 16
IN WITNESS WHEREOF, PACIFIC HORIZON FUNDS, INC. has caused these
presents to be signed in its name and on its behalf by its President and its
corporate seal to be hereunto affixed and attested by its Secretary on this 10th
day of June, 1997.
PACIFIC HORIZON FUNDS, INC.
[SEAL] By: /s/ Cornelius J. Pings
-------------------------------
Cornelius J. Pings
President
Attest:
/s/ W. Bruce McConnel, III
- -------------------------------
W. Bruce McConnel, III
Secretary
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<PAGE> 17
CERTIFICATE
THE UNDERSIGNED, President of PACIFIC HORIZON FUNDS, INC., who
executed on behalf of said Corporation the attached Articles Supplementary of
said Corporation, of which this Certificate is made a part, hereby acknowledges,
in the name and on behalf of said Corporation, the attached Articles
Supplementary to be the corporate act of said Corporation, and certifies that to
the best of his knowledge, information and belief the matters and facts set
forth in the attached Articles Supplementary with respect to authorization and
approval are true in all material respects, under the penalties for perjury.
Dated: June 10, 1997 /s/ Cornelius J. Pings
-----------------------------
Cornelius J. Pings
President
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<PAGE> 1
Exhibit 1 (gg)
ARTICLES SUPPLEMENTARY
OF
PACIFIC HORIZON FUNDS, INC.
PACIFIC HORIZON FUNDS, INC., a Maryland corporation having its
principal office in the City of Baltimore, Maryland (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
Class A Common Stock - Special Series 5
FIRST: Pursuant to Section 2-208 of the Maryland General Corporation
Law, the Board of Directors of the Corporation has classified Ten Billion
(10,000,000,000) shares of authorized, unissued and previously unclassified
capital stock (par value One Mill ($0.001) per share) of the Corporation as
Class A Common Stock -Special Series 5 (par value One Mill ($0.001) per share),
such that there now exists a total of Ten Billion (10,000,000,000) shares of
capital stock of the Corporation classified as Class A Common Stock - Special
Series 5 pursuant to the following resolutions adopted by the Board of Directors
of the Corporation at the Regular Meeting of the Board of Directors held on
April 30, 1997:
RESOLVED, that pursuant to Article VI of the Articles of
Incorporation of the Corporation Ten Billion (10,000,000,000) authorized,
unissued and previously unclassified shares of capital stock of the
Corporation (of the par value of One Mill ($0.001) per share be, and
hereby
<PAGE> 2
are, divided into and classified as Class A Common Stock -
Special Series 5;
FURTHER RESOLVED, that all consideration received by the Corporation
for the issue or sale of shares of Class A Common Stock - Special Series 5
shall be invested and reinvested with the consideration received by the
Corporation for the issue and sale of all other shares now or hereafter
designated as Class A Common Stock (irrespective of whether said shares
have been designated as Special Series of said Class, and if so designated
as Special Series, irrespective of the particular Series designation),
along with all income, earnings, profits and proceeds thereof, including
any proceeds derived from the sale, exchange or liquidation thereof, any
funds or payments derived from any reinvestment of such proceeds in
whatever form the same may be, and any general assets of the Corporation
allocated to the shares of Class A Common Stock - Special Series 5 or such
other shares by the Board of Directors in accordance with the Charter of
the Corporation, and each share of Class A Common Stock - Special Series 5
shall share equally with each such other share in such consideration and
other assets, income, earnings, profits and proceeds thereof, including
any proceeds derived from the sale, exchange or liquidation thereof, and
any assets derived from any reinvestment of such proceeds in whatever
form;
FURTHER RESOLVED, that each share of Class A Common Stock - Special
Series 5 shall be charged equally with each other share now or hereafter
designated as Class A Common Stock (irrespective of whether said share has
been designated as part of a Special Series of said Class and, if so
designated as a part of a Special Series, irrespective of the particular
Series designation) with the expenses and liabilities of the Corporation
in respect of shares of Class A Common Stock - Special Series 5 or such
other shares and in respect of any general expenses and liabilities of the
Corporation allocated to shares of Class A Common Stock - Special Series 5
or such other shares in accordance with the Charter of the Corporation,
except that:
(a) shares of Class A Common Stock - Special Series 5 shall bear the
expenses and liabilities relating to any agreements or arrangements
entered into by or on behalf of the Corporation pursuant to which an
organization or other person agrees to provide services with respect to
such Series but not with respect to shares of Class A Common Stock
(irrespective of whether said shares have been designated as part of a
Special Series of said Class and, if so designated as a part of a Special
Series, irrespective of the particular Series designation) other than
Class A Common
-2-
<PAGE> 3
Stock - Special Series 5, as well as any other expenses and liabilities
directly attributable to Class A Common Stock - Special Series 5 which
the Board of Directors determines should be borne solely by such Series;
and
(b) shares of Class A Common Stock - Special Series 5 shall not bear
the expenses and liabilities relating to any agreements or arrangements
entered into by or on behalf of the Corporation pursuant to which an
organization or other person agrees to provide services with respect to
other shares of Class A Common Stock (irrespective of whether said shares
have been designated as part of a Special Series of said Class and, if so
designated as a part of a Special Series, irrespective of the particular
Series designation) but not with respect to Class A Common Stock - Special
Series 5, as well as any other expenses and liabilities directly
attributable to shares of Class A Common Stock other than Class A Common
Stock - Special Series 5 which the Board of Directors determines should be
borne solely by such other shares;
FURTHER RESOLVED, that each share of Class A Common Stock - Special
Series 5 shall otherwise have the same preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption as each other share
now or hereafter designated as Class A Common Stock (irrespective of
whether said share has been designated as part of a Special Series of said
Class and, if so designated as part of a Special Series, irrespective of
the particular Series designation), except that:
(a) on any matter that pertains to the agreements, arrangements,
expenses or liabilities described in clause (a) of the immediately
preceding resolution (or to any plan or other document adopted by the
Corporation relating to said agreements, arrangements, expenses or
liabilities) and is submitted to a vote of shareholders of the
Corporation, only shares of Class A Common Stock - Special Series 5 shall
be entitled to vote, except that: (i) if said matter affects shares of
capital stock of the Corporation other than shares of Class A Common Stock
- Special Series 5, such other affected shares of capital stock shall also
be entitled to vote, and in such case shares of Class A Common Stock -
Special Series 5 shall be voted in the aggregate together with such other
affected shares and not by Class or Series except where otherwise required
by law or permitted by the Board of Directors of the Corporation; and (ii)
if said matter does not affect shares of Class A Common Stock - Special
Series 5, said shares shall not be entitled to vote (except where
otherwise required by law or permitted by the Board of Directors) even
though the matter is submitted to a
-3-
<PAGE> 4
vote of the holders of shares of capital stock of the Corporation other
than shares of Class A Common Stock - Special Series 5; and
(b) on any matter that pertains to the agreements, arrangements,
expenses or liabilities described in clause (b) of the immediately
preceding resolution (or any plan or other document adopted by the
Corporation relating to said agreements, arrangements, expenses or
liabilities) and is submitted to a vote of shareholders of the
Corporation, shares of Class A Common Stock - Special Series 5 shall not
be entitled to vote, except where otherwise required by law or permitted
by the Board of Directors of the Corporation, and except that if said
matter affects shares of Class A Common Stock - Special Series 5, such
shares shall be entitled to vote, and in such case shares of Class A
Common Stock - Special Series 5 shall be voted in the aggregate together
with all other shares of capital stock of the Corporation voting on the
matter and not by Class or Series except where otherwise required by law
or permitted by the Board of Directors.
Class B Common Stock - Special Series 5
SECOND: Pursuant to Section 2-208 of the Maryland General
Corporation Law, the Board of Directors of the Corporation has classified Twenty
Billion (20,000,000,000) shares of authorized, unissued and previously
unclassified capital stock (par value One Mill ($0.001) per share) of the
Corporation as Class B Common Stock -Special Series 5 (par value One Mill
($0.001) per share), such that there now exists a total of Twenty Billion
(20,000,000,000) shares of capital stock of the Corporation classified as Class
B Common Stock - Special Series 5 pursuant to the following resolutions adopted
by the Board of Directors of the Corporation at the Regular Meeting of the Board
of Directors held on April 30, 1997:
RESOLVED, that pursuant to Article VI of the Articles of
Incorporation of the Corporation Twenty Billion (20,000,000,000)
authorized, unissued and previously
-4-
<PAGE> 5
unclassified shares of capital stock of the Corporation (of the par value
of One Mill ($0.001) per share be, and hereby are, divided into and
classified as Class B Common Stock - Special Series 5;
FURTHER RESOLVED, that all consideration received by the Corporation
for the issue or sale of shares of Class B Common Stock - Special Series 5
shall be invested and reinvested with the consideration received by the
Corporation for the issue and sale of all other shares now or hereafter
designated as Class B Common Stock (irrespective of whether said shares
have been designated as Special Series of said Class, and if so designated
as Special Series, irrespective of the particular Series designation),
along with all income, earnings, profits and proceeds thereof, including
any proceeds derived from the sale, exchange or liquidation thereof, any
funds or payments derived from any reinvestment of such proceeds in
whatever form the same may be, and any general assets of the Corporation
allocated to the shares of Class B Common Stock - Special Series 5 or such
other shares by the Board of Directors in accordance with the Charter of
the Corporation, and each share of Class B Common Stock - Special Series 5
shall share equally with each such other share in such consideration and
other assets, income, earnings, profits and proceeds thereof, including
any proceeds derived from the sale, exchange or liquidation thereof, and
any assets derived from any reinvestment of such proceeds in whatever
form;
FURTHER RESOLVED, that each share of Class B Common Stock - Special
Series 5 shall be charged equally with each other share now or hereafter
designated as Class B Common Stock (irrespective of whether said share has
been designated as part of a Special Series of said Class and, if so
designated as a part of a Special Series, irrespective of the particular
Series designation) with the expenses and liabilities of the Corporation
in respect of shares of Class B Common Stock - Special Series 5 or such
other shares and in respect of any general expenses and liabilities of the
Corporation allocated to shares of Class B Common Stock - Special Series 5
or such other shares in accordance with the Charter of the Corporation,
except that:
(a) shares of Class B Common Stock - Special Series 5 shall bear the
expenses and liabilities relating to any agreements or arrangements
entered into by or on behalf of the Corporation pursuant to which an
organization or other person agrees to provide services with respect to
such Series but not with respect to shares of Class B Common Stock
(irrespective of whether said shares have been designated as part of a
Special Series of said Class and, if
-5-
<PAGE> 6
so designated as a part of a Special Series, irrespective of the
particular Series designation) other than Class B Common Stock - Special
Series 5, as well as any other expenses and liabilities directly
attributable to Class B Common Stock - Special Series 5 which the Board of
Directors determines should be borne solely by such Series; and
(b) shares of Class B Common Stock - Special Series 5 shall not bear
the expenses and liabilities relating to any agreements or arrangements
entered into by or on behalf of the Corporation pursuant to which an
organization or other person agrees to provide services with respect to
other shares of Class B Common Stock (irrespective of whether said shares
have been designated as part of a Special Series of said Class and, if so
designated as a part of a Special Series, irrespective of the particular
Series designation) but not with respect to Class B Common Stock - Special
Series 5, as well as any other expenses and liabilities directly
attributable to shares of Class B Common Stock other than Class B Common
Stock - Special Series 5 which the Board of Directors determines should be
borne solely by such other shares;
FURTHER RESOLVED, that each share of Class B Common Stock - Special
Series 5 shall otherwise have the same preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption as each other share
now or hereafter designated as Class B Common Stock (irrespective of
whether said share has been designated as part of a Special Series of said
Class and, if so designated as part of a Special Series, irrespective of
the particular Series designation), except that:
(a) on any matter that pertains to the agreements, arrangements,
expenses or liabilities described in clause (a) of the immediately
preceding resolution (or to any plan or other document adopted by the
Corporation relating to said agreements, arrangements, expenses or
liabilities) and is submitted to a vote of shareholders of the
Corporation, only shares of Class B Common Stock - Special Series 5 shall
be entitled to vote, except that: (i) if said matter affects shares of
capital stock of the Corporation other than shares of Class B Common Stock
- Special Series 5, such other affected shares of capital stock shall also
be entitled to vote, and in such case shares of Class B Common Stock -
Special Series 5 shall be voted in the aggregate together with such other
affected shares and not by Class or Series except where otherwise required
by law or permitted by the Board of Directors of the Corporation; and (ii)
if said matter does not affect shares of Class B Common Stock Special
Series 5, said shares shall not be entitled to vote
-6-
<PAGE> 7
(except where otherwise required by law or permitted by the Board of
Directors) even though the matter is submitted to a vote of the holders of
shares of capital stock of the Corporation other than shares of Class B
Common Stock - Special Series 5; and
(b) on any matter that pertains to the agreements, arrangements,
expenses or liabilities described in clause (b) of the immediately
preceding resolution (or any plan or other document adopted by the
Corporation relating to said agreements, arrangements, expenses or
liabilities) and is submitted to a vote of shareholders of the
Corporation, shares of Class B Common Stock - Special Series 5 shall not
be entitled to vote, except where otherwise required by law or permitted
by the Board of Directors of the Corporation, and except that if said
matter affects shares of Class B Common Stock - Special Series 5, such
shares shall be entitled to vote, and in such case shares of Class B
Common Stock - Special Series 5 shall be voted in the aggregate together
with all other shares of capital stock of the Corporation voting on the
matter and not by Class or Series except where otherwise required by law
or permitted by the Board of Directors.
Class I Common Stock - Special Series 3
THIRD: Pursuant to Section 2-208 of the Maryland General Corporation
Law, the Board of Directors of the Corporation has classified Ten Billion
(10,000,000,000) shares of authorized, unissued and previously unclassified
capital stock (par value One Mill ($0.001) per share) of the Corporation as
Class I Common Stock -Special Series 3 (par value One Mill ($0.001) per share),
such that there now exists a total of Ten Billion (10,000,000,000) shares of
capital stock of the Corporation classified as Class I Common Stock - Special
Series 3 pursuant to the following resolutions adopted by the Board of Directors
of the Corporation at the Regular Meeting of the Board of Directors held on
April 30, 1997:
-7-
<PAGE> 8
RESOLVED, that pursuant to Article VI of the Articles of
Incorporation of the Corporation Ten Billion (10,000,000,000) authorized,
unissued and previously unclassified shares of capital stock of the
Corporation (of the par value of One Mill ($0.001) per share be, and
hereby are, divided into and classified as Class I Common Stock - Special
Series 3;
FURTHER RESOLVED, that all consideration received by the Corporation
for the issue or sale of shares of Class I Common Stock - Special Series 3
shall be invested and reinvested with the consideration received by the
Corporation for the issue and sale of all other shares now or hereafter
designated as Class I Common Stock (irrespective of whether said shares
have been designated as Special Series of said Class, and if so designated
as Special Series, irrespective of the particular Series designation),
along with all income, earnings, profits and proceeds thereof, including
any proceeds derived from the sale, exchange or liquidation thereof, any
funds or payments derived from any reinvestment of such proceeds in
whatever form the same may be, and any general assets of the Corporation
allocated to the shares of Class I Common Stock - Special Series 3 or such
other shares by the Board of Directors in accordance with the Charter of
the Corporation, and each share of Class I Common Stock - Special Series 3
shall share equally with each such other share in such consideration and
other assets, income, earnings, profits and proceeds thereof, including
any proceeds derived from the sale, exchange or liquidation thereof, and
any assets derived from any reinvestment of such proceeds in whatever
form;
FURTHER RESOLVED, that each share of Class I Common Stock - Special
Series 3 shall be charged equally with each other share now or hereafter
designated as Class I Common Stock (irrespective of whether said share has
been designated as part of a Special Series of said Class and, if so
designated as a part of a Special Series, irrespective of the particular
Series designation) with the expenses and liabilities of the Corporation
in respect of shares of Class I Common Stock - Special Series 3 or such
other shares and in respect of any general expenses and liabilities of the
Corporation allocated to shares of Class I Common Stock Special Series 3
or such other shares in accordance with the Charter of the Corporation,
except that:
(a) shares of Class I Common Stock - Special Series 3 shall bear the
expenses and liabilities relating to any agreements or arrangements
entered into by or on behalf of the Corporation pursuant to which an
organization or other person agrees to provide services with respect to
such
-8-
<PAGE> 9
Series but not with respect to shares of Class I Common Stock
(irrespective of whether said shares have been designated as part of a
Special Series of said Class and, if so designated as a part of a Special
Series, irrespective of the particular Series designation) other than
Class I Common Stock - Special Series 3, as well as any other expenses and
liabilities directly attributable to Class I Common Stock - Special Series
3 which the Board of Directors determines should be borne solely by such
Series; and
(b) shares of Class I Common Stock - Special Series 3 shall not bear
the expenses and liabilities relating to any agreements or arrangements
entered into by or on behalf of the Corporation pursuant to which an
organization or other person agrees to provide services with respect to
other shares of Class I Common Stock (irrespective of whether said shares
have been designated as part of a Special Series of said Class and, if so
designated as a part of a Special Series, irrespective of the particular
Series designation) but not with respect to Class I Common Stock - Special
Series 3, as well as any other expenses and liabilities directly
attributable to shares of Class I Common Stock other than Class I Common
Stock - Special Series 3 which the Board of Directors determines should be
borne solely by such other shares;
FURTHER RESOLVED, that each share of Class I Common Stock - Special
Series 3 shall otherwise have the same preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption as each other share
now or hereafter designated as Class I Common Stock (irrespective of
whether said share has been designated as part of a Special Series of said
Class and, if so designated as part of a Special Series, irrespective of
the particular Series designation), except that:
(a) on any matter that pertains to the agreements, arrangements,
expenses or liabilities described in clause (a) of the immediately
preceding resolution (or to any plan or other document adopted by the
Corporation relating to said agreements, arrangements, expenses or
liabilities) and is submitted to a vote of shareholders of the
Corporation, only shares of Class I Common Stock - Special Series 3 shall
be entitled to vote, except that: (i) if said matter affects shares of
capital stock of the Corporation other than shares of Class I Common Stock
- Special Series 3, such other affected shares of capital stock shall also
be entitled to vote, and in such case shares of Class I Common Stock -
Special Series 3 shall be voted in the aggregate together with such other
affected shares and not by Class or Series except where otherwise required
by law or permitted
-9-
<PAGE> 10
by the Board of Directors of the Corporation; and (ii) if said matter does
not affect shares of Class I Common Stock - Special Series 3, said shares
shall not be entitled to vote (except where otherwise required by law or
permitted by the Board of Directors) even though the matter is submitted
to a vote of the holders of shares of capital stock of the Corporation
other than shares of Class I Common Stock - Special Series 3; and
(b) on any matter that pertains to the agreements, arrangements,
expenses or liabilities described in clause (b) of the immediately
preceding resolution (or any plan or other document adopted by the
Corporation relating to said agreements, arrangements, expenses or
liabilities) and is submitted to a vote of shareholders of the
Corporation, shares of Class I Common Stock - Special Series 3 shall not
be entitled to vote, except where otherwise required by law or permitted
by the Board of Directors of the Corporation, and except that if said
matter affects shares of Class I Common Stock - Special Series 3, such
shares shall be entitled to vote, and in such case shares of Class I
Common Stock - Special Series 3 shall be voted in the aggregate together
with all other shares of capital stock of the Corporation voting on the
matter and not by Class or Series except where otherwise required by law
or permitted by the Board of Directors.
Class J Common Stock - Special Series 3
FOURTH: Pursuant to Section 2-208 of the Maryland General
Corporation Law, the Board of Directors of the Corporation has classified Ten
Billion (10,000,000,000) shares of authorized, unissued and previously
unclassified capital stock (par value One Mill ($0.001) per share) of the
Corporation as Class J Common Stock -Special Series 3 (par value One Mill
($0.001) per share), such that there now exists a total of Ten Billion
(10,000,000,000) shares of capital stock of the Corporation classified as Class
J Common Stock - Special Series 3 pursuant to the following resolutions adopted
by the Board of Directors of the Corporation at the Regular Meeting of the Board
of Directors held on April 30, 1997:
-10-
<PAGE> 11
RESOLVED, that pursuant to Article VI of the Articles of
Incorporation of the Corporation Ten Billion (10,000,000,000) authorized,
unissued and previously unclassified shares of capital stock of the
Corporation (of the par value of One Mill ($0.001) per share be, and
hereby are, divided into and classified as Class J Common Stock - Special
Series 3;
FURTHER RESOLVED, that all consideration received by the Corporation
for the issue or sale of shares of Class J Common Stock - Special Series 3
shall be invested and reinvested with the consideration received by the
Corporation for the issue and sale of all other shares now or hereafter
designated as Class J Common Stock (irrespective of whether said shares
have been designated as Special Series of said Class, and if so designated
as Special Series, irrespective of the particular Series designation),
along with all income, earnings, profits and proceeds thereof, including
any proceeds derived from the sale, exchange or liquidation thereof, any
funds or payments derived from any reinvestment of such proceeds in
whatever form the same may be, and any general assets of the Corporation
allocated to the shares of Class J Common Stock - Special Series 3 or such
other shares by the Board of Directors in accordance with the Charter of
the Corporation, and each share of Class J Common Stock - Special Series 3
shall share equally with each such other share in such consideration and
other assets, income, earnings, profits and proceeds thereof, including
any proceeds derived from the sale, exchange or liquidation thereof, and
any assets derived from any reinvestment of such proceeds in whatever
form;
FURTHER RESOLVED, that each share of Class J Common Stock - Special
Series 3 shall be charged equally with each other share now or hereafter
designated as Class J Common Stock (irrespective of whether said share has
been designated as part of a Special Series of said Class and, if so
designated as a part of a Special Series, irrespective of the particular
Series designation) with the expenses and liabilities of the Corporation
in respect of shares of Class J Common Stock - Special Series 3 or such
other shares and in respect of any general expenses and liabilities of the
Corporation allocated to shares of Class J Common Stock Special Series 3
or such other shares in accordance with the Charter of the Corporation,
except that:
(a) shares of Class J Common Stock - Special Series 3 shall bear the
expenses and liabilities relating to any agreements or arrangements
entered into by or on behalf of the Corporation pursuant to which an
organization or other person agrees to provide services with respect to
such
-11-
<PAGE> 12
Series but not with respect to shares of Class J Common Stock
(irrespective of whether said shares have been designated as part of a
Special Series of said Class and, if so designated as a part of a Special
Series, irrespective of the particular Series designation) other than
Class J Common Stock - Special Series 3, as well as any other expenses and
liabilities directly attributable to Class J Common Stock - Special Series
3 which the Board of Directors determines should be borne solely by such
Series; and
(b) shares of Class J Common Stock - Special Series 3 shall not bear
the expenses and liabilities relating to any agreements or arrangements
entered into by or on behalf of the Corporation pursuant to which an
organization or other person agrees to provide services with respect to
other shares of Class J Common Stock (irrespective of whether said shares
have been designated as part of a Special Series of said Class and, if so
designated as a part of a Special Series, irrespective of the particular
Series designation) but not with respect to Class J Common Stock - Special
Series 3, as well as any other expenses and liabilities directly
attributable to shares of Class J Common Stock other than Class J Common
Stock - Special Series 3 which the Board of Directors determines should be
borne solely by such other shares;
FURTHER RESOLVED, that each share of Class J Common Stock - Special
Series 3 shall otherwise have the same preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption as each other share
now or hereafter designated as Class J Common Stock (irrespective of
whether said share has been designated as part of a Special Series of said
Class and, if so designated as part of a Special Series, irrespective of
the particular Series designation), except that:
(a) on any matter that pertains to the agreements, arrangements,
expenses or liabilities described in clause (a) of the immediately
preceding resolution (or to any plan or other document adopted by the
Corporation relating to said agreements, arrangements, expenses or
liabilities) and is submitted to a vote of shareholders of the
Corporation, only shares of Class J Common Stock - Special Series 3 shall
be entitled to vote, except that: (i) if said matter affects shares of
capital stock of the Corporation other than shares of Class J Common Stock
- Special Series 3, such other affected shares of capital stock shall also
be entitled to vote, and in such case shares of Class J Common Stock -
Special Series 3 shall be voted in the aggregate together with such other
affected shares and not by Class or Series except where otherwise required
by law or permitted
-12-
<PAGE> 13
by the Board of Directors of the Corporation; and (ii) if said matter does
not affect shares of Class J Common Stock Special Series 3, said shares
shall not be entitled to vote (except where otherwise required by law or
permitted by the Board of Directors) even though the matter is submitted
to a vote of the holders of shares of capital stock of the Corporation
other than shares of Class J Common Stock - Special Series 3; and
(b) on any matter that pertains to the agreements, arrangements,
expenses or liabilities described in clause (b) of the immediately
preceding resolution (or any plan or other document adopted by the
Corporation relating to said agreements, arrangements, expenses or
liabilities) and is submitted to a vote of shareholders of the
Corporation, shares of Class J Common Stock - Special Series 3 shall not
be entitled to vote, except where otherwise required by law or permitted
by the Board of Directors of the Corporation, and except that if said
matter affects shares of Class J Common Stock - Special Series 3, such
shares shall be entitled to vote, and in such case shares of Class J
Common Stock - Special Series 3 shall be voted in the aggregate together
with all other shares of capital stock of the Corporation voting on the
matter and not by Class or Series except where otherwise required by law
or permitted by the Board of Directors.
General
FIFTH: The shares of capital stock of the Corporation reclassified
pursuant to the resolutions set forth in Articles FIRST through FOURTH of these
Articles Supplementary have been reclassified by the Corporation's Board of
Directors under the authority contained in the Charter of the Corporation.
SIXTH: These Articles Supplementary do not increase the authorized
number of shares of the Corporation or the aggregate par value thereof. The
total number of shares of capital stock which the Corporation is presently
authorized to issue remains Four Hundred Billion (400,000,000,000) shares (of
the par value of One Mill ($.001) each) and of the aggregate par
-13-
<PAGE> 14
value of Four Hundred Million Dollars ($400,000,000) of Common Stock classified
as follows:
-14-
<PAGE> 15
Number of shares
Classification Authorized
- -------------- ----------
Class A 10,000,000,000
Class A-Special Series 1 10,000,000,000
Class A-Special Series 2 10,000,000,000
Class A-Special Series 3 10,000,000,000
Class A-Special Series 4 10,000,000,000
Class A-Special Series 5 10,000,000,000
Class B 20,000,000,000
Class B-Special Series 1 20,000,000,000
Class B-Special Series 2 20,000,000,000
Class B-Special Series 3 20,000,000,000
Class B-Special Series 4 20,000,000,000
Class B-Special Series 5 20,000,000,000
Class C 0
Class D 100,000,000
Class D-Special Series 3 100,000,000
Class D-Special Series 5 100,000,000
Class E 100,000,000
Class E-Special Series 3 100,000,000
Class E-Special Series 5 100,000,000
Class F 100,000,000
Class F-Special Series 3 100,000,000
Class F-Special Series 5 100,000,000
Class G 100,000,000
Class G-Special Series 3 100,000,000
Class G-Special Series 5 100,000,000
Class I 10,000,000,000
Class I-Special Series 1 10,000,000,000
Class I-Special Series 2 10,000,000,000
Class I-Special Series 3 10,000,000,000
Class J 10,000,000,000
Class J-Special Series 1 10,000,000,000
Class J-Special Series 2 10,000,000,000
Class J-Special Series 3 10,000,000,000
Class J-Special Series 4 10,000,000,000
Class K 10,000,000,000
Class K-Special Series 1 10,000,000,000
Class K-Special Series 2 10,000,000,000
Class L 10,000,000,000
Class L-Special Series 1 10,000,000,000
Class L-Special Series 2 10,000,000,000
Class M 100,000,000
Class M-Special Series 3 100,000,000
Class M-Special Series 5 100,000,000
Class M-Special Series 7 100,000,000
Class N 100,000,000
Class N-Special Series 3 100,000,000
Class N-Special Series 5 100,000,000
Class N-Special Series 7 100,000,000
-15-
<PAGE> 16
Class O 100,000,000
Class O-Special Series 3 100,000,000
Class O-Special Series 5 100,000,000
Class O-Special Series 7 100,000,000
Class Q 100,000,000
Class Q-Special Series 3 100,000,000
Class Q-Special Series 5 100,000,000
Class R 100,000,000
Class R-Special Series 3 100,000,000
Class R-Special Series 5 100,000,000
Class S 100,000,000
Class S-Special Series 3 100,000,000
Class S-Special Series 5 100,000,000
Class T 100,000,000
Class T-Special Series 3 100,000,000
Class T-Special Series 5 100,000,000
Class U 100,000,000
Class U-Special Series 3 100,000,000
Class U-Special Series 5 100,000,000
Class V 100,000,000
Class V-Special Series 3 100,000,000
Class V-Special Series 5 100,000,000
Class W 100,000,000
Class W-Special Series 3 100,000,000
Class W-Special Series 5 100,000,000
Unclassified 65,500,000,000
Total 400,000,000,000
IN WITNESS WHEREOF, PACIFIC HORIZON FUNDS, INC. has caused these presents
to be signed in its name and on its behalf by its President and its corporate
seal to be hereunto affixed and attested by its Secretary on this 10th day of
June, 1997.
PACIFIC HORIZON FUNDS, INC.
[SEAL] By:/s/ Cornelius J. Pings
-----------------------------------
Name: Cornelius J. Pings
Title: President
Attest:
/s/ W. Bruce McConnel, III
- -----------------------------
W. Bruce McConnel, III
Secretary
-16-
<PAGE> 17
CERTIFICATE
THE UNDERSIGNED, President of PACIFIC HORIZON FUNDS, INC., who
executed on behalf of said Corporation the attached Articles Supplementary
of said Corporation, of which this Certificate is made a part, hereby
acknowledges, in the name and on behalf of said Corporation, the attached
Articles Supplementary to be the corporate act of said Corporation, and
certifies that to the best of his knowledge, information and belief the
matters and facts set forth in the attached Articles Supplementary with
respect to authorization and approval are true in all material respects,
under the penalties for perjury.
Dated: June 10, 1997 /s/ Cornelius J. Pings
----------------------
Name: Cornelius J. Pings
Title: President
<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. 56 to the Registration Statement
(No. 2- 81110) on Form N-1A under the Securities Act of 1933 and the Investment
Company Act of 1940, as amended, of Pacific Horizon Funds, Inc. This consent
does not constitute a consent under section 7 of the Securities Act of 1933, and
in consenting to the use of our name and the references to our Firm under such
caption we have not certified any part of the Registration Statement and do not
otherwise come within the categories of persons whose consent is required under
said section 7 or the rules and regulations of the Securities and Exchange
Commission thereunder.
/s/DRINKER BIDDLE & REATH LLP
-----------------------------
DRINKER BIDDLE & REATH LLP
Philadelphia, Pennsylvania
June 13, 1997
<PAGE> 1
Exhibit 11 (b)
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 56 to the registration statement on Form N-1A (the "Registration
Statement") of our reports dated April 21, 1997, relating to the financial
statements and financial highlights appearing in the February 28, 1997 Annual
Report to Shareholders of the Pacific Horizon Prime Fund, Pacific Horizon
Treasury Fund, Pacific Horizon Treasury Only Fund, Pacific Horizon Government
Fund, Pacific Horizon Tax-Exempt Money Fund, and Pacific Horizon California
Tax-Exempt Money Market Fund, six of the portfolios comprising the Pacific
Horizon Funds, Inc., which are also incorporated by reference into the
Registration Statement. We also consent to the references to us under the
heading "Financial Highlights" in the Prospectus and under the headings
"Independent Accountants" and "Financial Statements and Experts" in the
Statement of Additional Information.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
New York, New York
June 12, 1997
<PAGE> 1
EXHIBIT 11 (c)
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the reference to our
Firm under the caption "Counsel" in the Statement of Additional Information
included in Post-Effective Amendment No. 56 to the Registration Statement (No.
2-81110) on Form N-1A under the Securities Act of 1933, as amended, of Pacific
Horizon Funds, Inc.
/s/ O'MELVENY & MYERS LLP
-----------------------------
O'MELVENY & MYERS LLP
Los Angeles, California
June 12, 1997
<PAGE> 1
Exhibit 15 (h)
PACIFIC HORIZON FUNDS, INC.
DISTRIBUTION AND SERVICES PLAN
This Distribution and Services Plan (the "Plan") has been adopted by
the Board of Directors of Pacific Horizon Funds, Inc. (the "Company") in
connection with the Class A-Special Series 3 Shares of the Treasury Fund, Class
B-Special Series 3 Shares of the Prime Fund, Class I-Special Series 3 Shares of
the Tax-Exempt Money Fund, Class J-Special Series 3 Shares of the California
Tax-Exempt Money Market Fund (collectively, the "S Shares"), Class A-Special
Series 4 Shares of the Treasury Fund, Class B-Special Series 4 Shares of the
Prime Fund and Class J-Special Series 4 Shares of the California Tax-Exempt
Money Market Fund (collectively, the "X Shares"), Class A-Special Series 5
Shares of the Treasury Fund and Class B-Special Series 5 Shares of the Prime
Fund (collectively, the "Y Shares") (all such S, X and Y Shares collectively
called "Shares" and such funds collectively called the "Funds"), in conformance
with Rule 12b-1 under the Investment Company Act of 1940, as amended (the "1940
Act").
Section 1. Expenses. The Company may incur expenses under the Plan
in an amount not to exceed: 1.00% annually of the average daily net assets of a
Fund's outstanding S Shares; .55% annually of the average daily net assets of a
Fund's outstanding X Shares; and 1.00% annually of the average daily net assets
of a Fund's outstanding Y Shares.
Section 2. Distribution Payments. The Company may pay the
distributor of the Company (the "Distributor") (or any other person) a fee (a
"Distribution Fee"): of up to .75% annually of the average daily net assets of a
Fund's outstanding S Shares; of up to .30% annually of the average daily net
assets of a Fund's outstanding X Shares; and of up to .75% annually of the
average daily net assets of a Fund's outstanding Y Shares. Such Distribution Fee
shall be calculated and accrued daily, paid monthly and shall be in
consideration for distribution services and the assumption of related expenses
(including the payment of commissions and transaction fees) in conjunction with
the offering and sale of Shares of the Funds. In determining the amounts payable
on behalf of a Fund under the Plan, the net asset value of such Shares shall be
computed in the manner specified in the Company's then current Prospectuses and
Statement of Additional Information describing such Shares.
<PAGE> 2
Section 3. Distribution Expenses and Activities Covered by Plan.
Payments to the Distributor (or any other person) under Section 2 shall be used
by the Distributor (or any other person) to cover expenses and activities
primarily intended to result in the sale of Shares, including the payment of
commissions and transaction fees. Such expenses and activities may include but
are not limited to: (a) direct out-of-pocket promotional expenses incurred by
the Distributor in advertising and marketing Shares; (b) expenses incurred in
connection with preparing, printing, mailing, and distributing or publishing
advertisements and sales literature; (c) expenses incurred in connection with
printing and mailing Prospectuses and Statements of Additional Information to
other than current shareholders; (d) periodic payments or commissions to one or
more securities dealers, brokers, financial institutions or other industry
professionals, such as investment advisors, accountants, and estate planning
firms, including any of the Company's service providers (severally, "a
Distribution Organization") with respect to a Fund's Shares beneficially owned
by customers for whom the Distribution Organization is the Distribution
Organization of record or holder of record of such Shares; (e) the direct or
indirect cost of financing the payments or expenses included in (a) and (d)
above; or (f) for such other services as may be construed by any court or
governmental agency or commission, including the Securities and Exchange
Commission (the "Commission"), to constitute distribution services under the
1940 Act or rules and regulations thereunder. Such distribution services shall
be provided pursuant to a distribution and administrative servicing agreement
("Distribution and Administrative Servicing Agreement"). Any organization
providing distribution assistance may also become a service organization (as
defined in Section 4) and receive administrative servicing fees pursuant to a
Distribution and Administrative Servicing Agreement under this Plan.
Section 4. Administrative Services Covered by Plan. The Company may
also pay securities dealers, brokers, financial institutions or other industry
professionals, such as investment advisors, accountants, and estate planning
firms, including any of the Company's service providers (severally, a "Service
Organization") for administrative support services provided with respect to its
customers' Shares. Such administrative support services shall be provided
pursuant to a Distribution and Administrative Servicing Agreement.
Section 5. Administrative Servicing Fees Covered by Plan. Fees paid
to a Service Organization shall be in consideration for the administrative
support services provided pursuant to its Distribution and Administrative
Servicing Agreement and may be paid at an annual rate of up to .25% of the
average daily net assets of a Fund's outstanding Shares owned of record or
beneficially by that Service Organization's customers
-2-
<PAGE> 3
for whom such Service Organization is the dealer of record or holder of record
or with whom it has a servicing relationship. Such fees shall be calculated and
accrued daily, paid monthly, and computed in the manner set forth in the
Distribution and Administrative Servicing Agreement.
Section 6. Expenses Allocated, Compliance. Amounts paid by a Fund
must be for distribution and/or shareholder administrative support services
rendered for or on behalf of the holders of the Fund's Shares. However, joint
distribution financing with respect to such Shares (which may involve other
investment funds or companies that are affiliated persons of the Company or
affiliated persons of the Distributor) shall be permitted in accordance with
applicable regulations of the Commission as in effect from time to time.
Section 7. Reports to Company. So long as this Plan is in effect,
the Distributor shall provide the Company's Board of Directors, and the
Directors shall review, at least quarterly, a written report of the amounts
expended pursuant to the Plan and the purposes for which such expenditures were
made.
Section 8. Approval of Plan. This Plan will become effective with
respect to a particular Fund's Shares (a) on the date the public offering of
such shares commences after the approval by written consent of the sole
shareholder of outstanding Shares of that Fund, and (b) upon the approval by a
majority of the Board of Directors, including a majority of those directors who
are not "interested persons" (as defined in the 1940 Act) of the Company and who
have no direct or indirect financial interest in the operation of the Plan or in
any agreements entered into in connection with the Plan (the "Disinterested
Directors"), pursuant to a vote cast in person at a meeting called for the
purpose of voting on the approval of the Plan.
Section 9. Continuance of Plan. Unless sooner terminated in
accordance with the terms hereof, this Plan shall continue until October 31,
1997, and thereafter, shall continue in effect for so long as its continuance is
specifically approved at least annually by the Company's Board of Directors in
the manner described in Section 8(b) hereof.
Section 10. Amendments. This Plan may be amended at any time by the
Board of Directors provided that (a) any amendment to increase materially the
costs which the Shares of a Fund may bear for distribution pursuant to the Plan
shall be effective only upon approval by a vote of a majority of the outstanding
Shares affected by such matter, and (b) any material amendments of the terms of
the Plan shall become effective only upon approval in the manner described in
Section 8(b) hereof.
-3-
<PAGE> 4
Section 11. Termination. This Plan, as to any Fund or any Class of
any Fund, is terminable without penalty at any time by (a) a vote of a majority
of the Disinterested Directors, or (b) a vote of a majority of such outstanding
Shares of such Class.
Section 12. Selection/Nomination of Directors. While this Plan is in
effect, the selection and nomination of those Disinterested Directors shall be
committed to the discretion of such Disinterested Directors.
Section 13. 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.
-4-
<PAGE> 5
PACIFIC HORIZON FUNDS, INC.
(the "Company")
FORM OF DISTRIBUTION AND ADMINISTRATION SERVICING AGREEMENT
to
DISTRIBUTION AND SERVICES PLAN
Ladies and Gentlemen:
We wish to enter into this Distribution and Administrative Servicing Agreement
("Agreement") with you concerning the provision of distribution and
administrative support services to your customers ("Clients") who may from time
to time be the record or beneficial owners of "S", "X" and or "Y" shares (such
shares referred to herein as the "Shares") of one or more of the Company's
investment portfolios (individually, a "Fund" and collectively, the "Funds"),
which are listed on Appendix A.
The terms and conditions of this Agreement are as follows:
Section 1. You agree to provide reasonable assistance in connection with the
distribution of Shares to Clients as reasonably requested from time to time by
us and/or the following administrative support services* to your Clients who may
from time to time own of record or beneficially a Fund's Shares: (i) processing
dividend and distribution payments from a Fund on behalf of Clients; (ii)
providing information periodically to your Clients showing their positions in
the Shares; (iii) arranging for bank wires; (iv) responding to routine Client
inquiries concerning their investment in Shares; (v) providing the information
to the Funds necessary for accounting or sub-accounting; (vi) if required by
law, forwarding shareholder communications from a Fund (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to Clients; (vii) aggregating and processing
purchase, exchange, and redemption requests from Clients and placing net
purchase, exchange, and redemption orders for your customers; (viii) providing
customers with a service that invests the assets of their accounts in the Shares
pursuant to specific or pre-authorized instructions; (ix) establishing and
maintaining accounts and records relating to Clients that invest in Shares; (x)
assisting customers in changing dividend options, account designations and
addresses; (xi) developing, maintaining and operating systems necessary to
support sweep accounts, and
- ----------
* Services may be added or deleted in a particular Agreement. For example,
administrative support, distribution or certain administrative support
services may be deleted.
<PAGE> 6
(xii) other similar services we may reasonably request to the extent you are
permitted to so under applicable law.
Section 2. You will provide such office space and equipment, telephone and
personnel (which may be any part of the space, equipment and facilities
currently used in your business, or any personnel employed by you) as may be
reasonably necessary or beneficial in order to provide the aforementioned
services to Clients.
Section 3. Neither you nor any of your officers, employees or agents are
authorized to make any representations concerning us, a Fund, or its Shares
except those contained in our then current prospectus for such Shares, copies of
which will be supplied by us to you, or in such supplemental literature or
advertising as may be authorized by us in writing.
Section 4. For all purposes of this Agreement you will be deemed to be an
independent contractor, and will have no authority to act as agent for us in any
matter or in any respect. You will not engage in activities pursuant to this
Agreement which constitute acting as a broker or dealer under state law unless
you have obtained the licenses required by law. You and your employees will,
upon request, be available during normal business hours to consult with us or
our designees concerning the performance of your responsibilities under this
Agreement.
Section 5. In consideration of the services and facilities provided by you
hereunder, we will pay to you, and you will accept as full payment therefore, a
fee at the annual rate of __% (__% and __% for distribution services and
administrative support services, respectively); __% (__% and __% for
distribution services and administrative support services, respectively); and
__% (__% and __% for distribution services and administrative support services,
respectively) of the average daily net assets of the particular Fund's
outstanding S, X and Y Shares, respectively, owned of record or beneficially by
your Clients from time to time for whom you are the dealer of record or holder
of record or with whom you have a servicing relationship ("Clients' Shares").
Said fee will be computed daily and payable monthly. For purposes of determining
the fees payable under this Section 5, the average daily net asset value of the
Clients' Shares will be computed in the manner specified in our then current
Registration Statement in connection with the computation of the net asset value
of the particular Fund's Shares for purposes of purchases and redemptions. The
fee rate stated above may be prospectively increased or decreased by us, in our
sole discretion, at any time upon notice to you. Further, we may, in our
discretion and without notice, suspend or withdraw the sale of Shares, including
the sale of such Shares to you for the account of any Client(s).
-2-
<PAGE> 7
Section 6. You acknowledge that you will provide to the Funds' Board of
Directors, at least quarterly, a written report of the amounts expended
pursuant to this Agreement and the purposes for which such expenditures were
made. In connection with such revenues, you will furnish us or our designees
with such information as we or they may reasonably request (including, without
limitation, periodic certifications confirming the provision to Clients of some
or all of the services described herein), and will otherwise cooperate with us
and our designees (including, without limitation, any auditors designated by
us), in connection with the preparation of reports to the Funds' Board of
Directors concerning this Agreement and the monies paid or payable by us
pursuant hereto, as well as any other reports or filings that may be required
by law.
Section 7. We may enter into other similar Servicing Agreements with any other
person or persons without your consent.
Section 8. By your written acceptance of this Agreement, you represent, warrant
and agree that: (i) the compensation payable to you hereunder and the receipt
of such compensation by you hereunder, together with any other compensation you
receive from Clients in connection with the investment of their assets in
Shares of the Funds, is permissible under applicable law, will be disclosed to
your Clients, will be authorized by your Clients and will not be excessive or
unreasonable; and (ii) (a) you are a member of the National Association of
Securities Dealers, Inc. ("NASD"), that such membership has not been suspended,
and that you agree to maintain membership in the NASD, or (b) you will not
engage in activity which would require you to be licensed as a broker/dealer
under federal and state securities laws or (c) you are a foreign broker/dealer
not eligible for membership in the NASD, and are fully licensed and legally
empowered to act as a securities broker-dealer under the laws of each
jurisdiction in which you conduct such business. You further agree to abide by
all applicable laws, including without limitation, all applicable provisions of
the Investment Company Act of 1940, as amended, the Securities Act of 1933, as
amended, and the Securities Exchange Act of 1934, as amended and all applicable
rules and regulations thereunder.
Section 9. This Agreement will become effective on the date a fully executed
copy of this Agreement is received by us or our designee. Unless sooner
terminated, this Agreement will continue until October 31, 1997, and thereafter
will continue automatically for successive annual periods provided such
continuance is specifically approved at least annually by the Funds in the
manner described in Section 12 hereof. This Agreement is terminable with
respect to any Class of Shares, without penalty, at any time by the Funds
(which termination may be by vote of a majority of our Disinterested Directors
as defined in Section 12 hereof or by vote of the holders of a
-3-
<PAGE> 8
majority of the outstanding Shares of such Class) or by you upon notice to the
other party hereto. This Agreement will terminate in the event of its assignment
(as defined in the Investment Company Act of 1940 (the "Act")).
Section 10. All notices and other communications to either you or us will be
duly given if mailed, telegraphed, telexed or transmitted by similar
telecommunications device to the appropriate address shown above.
Section 11. This Agreement will be construed in accordance with the laws of the
State of New York without giving effect to principles of conflict of laws.
Section 12. This Agreement has been approved by vote of a majority of (i) the
Company's Board of Directors and (ii) those Directors who are not "interested
persons" (as defined in the Act) of the Company and have no direct or indirect
financial interest in the operation of the Distribution and Services Plan
adopted by us regarding the provision of administrative support services to the
record or beneficial owners of Shares or in any agreements related thereto
("Disinterested Directors"), cast in person at a meeting called for the purpose
of voting on such approval.
If you agree to be legally bound by the provisions of this Agreement, please
sign a copy of this letter where indicated.
-4-
<PAGE> 9
below and promptly return it to us, Concord Financial Group, Inc., 3435 Stelzer
Road, Columbus, Ohio 43219.
Very truly yours,
CONCORD FINANCIAL GROUP, INC.
By:
--------------------------------
Authorized Officer
Accepted and Agreed to:
- ------------------------------------
Name of Organization
By:
---------------------------------
Authorized Officer
Date:
------------------
- ------------------------------------
Taxpayer Identification Number
- ------------------------------------
Account Number
- ------------------------------------
Dealer Code
-5-
<PAGE> 10
APPENDIX A
Please check the appropriate boxes to indicate the Funds of the Company for
which you wish to act as a service organization with respect to the Shares:
[ ] Treasury Fund - S Shares (Class A - Special Series 3)
[ ] Prime Fund - S Shares (Class B - Special Series 3)
[ ] Tax-Exempt Money Fund - S Shares (Class I - Special Series 3)
[ ] California Tax-Exempt Money Market Fund - S Shares (Class J - Special Series
3)
[ ] Treasury Fund - X Shares (Class A - Special Series 4)
[ ] Prime Fund - X Shares (Class B - Special Series 4)
[ ] California Tax-Exempt Money Market Fund - X Shares (Class J - Special Series
4)
[ ] Treasury Fund - Y Shares (Class A - Special Series 5)
[ ] Prime Fund - Y Shares (Class B - Special Series 5)
- ----------------------------------------
(Service Organization Name)
By:
-------------------------------------
Authorized Officer
Dated:
----------------------------------
A-1
<PAGE> 1
THE PACIFIC HORIZON FUNDS
EXHIBIT 16
TOTAL RETURN
X SHARES
MONEY MARKET FUNDS
TREASURY
AVERAGE ANNUAL TOTAL RETURN
- ---------------------------
T = (ERV/P) to the power of 1/N - 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.
N = NUMBER OF YEARS
<TABLE>
<CAPTION>
EXAMPLE:
<S> <C>
SINCE INCEPTION: (03/30/84 TO 02/28/97):
(2,131.5 /1000 to the power of (1/(4718 /365))-1) = 6.03%
ONE YEAR: (02/29/96 TO 02/28/97):
( 1,046.9 /1000 to the power of (1/(365 /365))-1) = 4.69%
FIVE YEAR: (02/29/92 TO 02/28/97):
( 1,216.7 /1000 to the power of (1/(1825 /365))-1) = 4.00%
TEN YEAR: (02/28/87 TO 02/28/97):
( 1,703.3 /1000 to the power of (1/(3650 /365))-1) = 5.47%
</TABLE>
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.
EXAMPLE:
YEAR TO DATE: (12/31/96 TO 02/28/97):
(1,007.4 /1,000) - 1 = 0.74%
QUARTERLY: (11/30/96 TO 02/28/97):
(1,011.3 /1,000) - 1 = 1.13%
MONTHLY: (01/31/97 TO 02/28/97):
(1,003.5 /1,000) - 1 = 0.35%
<PAGE> 2
THE PACIFIC HORIZON FUNDS
EXHIBIT 16
TOTAL RETURN
HORIZON SHARES
MONEY MARKET FUNDS
PRIME
AVERAGE ANNUAL TOTAL RETURN
--------------------------------------
T = (ERV/P) to the power of 1/N - 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.
N = NUMBER OF YEARS
<TABLE>
<S> <C>
EXAMPLE:
SINCE INCEPTION: ( 07/10/87 TO 02/28/97 ):
( 1,773.5 /1000 to the power of (1/( 3521 /365))-1) = 6.12%
ONE YEAR: ( 02/29/96 TO 02/28/97 ):
( 1,053.4 /1000 to the power of (1/( 365 /365))-1) = 5.34%
FIVE YEAR: ( 02/29/92 TO 02/28/97 ):
( 1,250.4 /1000 to the power of (1/( 1825 /365))-1) = 4.57%
</TABLE>
<PAGE> 3
THE PACIFIC HORIZON FUNDS
EXHIBIT 16
TOTAL RETURN
HORIZON SHARES
MONEY MARKET FUNDS
TREASURY
AVERAGE ANNUAL TOTAL RETURN
--------------------------------------
T = (ERV/P) to the power of 1/N - 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.
N = NUMBER OF YEARS
<TABLE>
<S> <C>
EXAMPLE:
SINCE INCEPTION: ( 07/10/87 TO 02/28/97 ):
( 1,727.3 /1000 to the power of (1/( 3521 /365))-1) = 5.83%
ONE YEAR: ( 02/29/96 TO 02/28/97 ):
( 1,052.1 /1000 to the power of (1/( 365 /365))-1) = 5.21%
FIVE YEAR: ( 02/29/92 TO 02/28/97 ):
( 1,238.4 /1000 to the power of (1/( 1825 /365))-1) = 4.37%
</TABLE>
<PAGE> 4
THE PACIFIC HORIZON FUNDS
EXHIBIT 16
TOTAL RETURN
HORIZON SHARES
MONEY MARKET FUNDS
GOVERNMENT
AVERAGE ANNUAL TOTAL RETURN
--------------------------------------
T = (ERV/P) to the power of 1/N - 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.
N = NUMBER OF YEARS
<TABLE>
<S> <C>
EXAMPLE:
SINCE INCEPTION: ( 06/14/93 TO 02/28/97 ):
( 1,190.5 /1000 to the power of (1/( 1355 /365))-1) = 4.81%
ONE YEAR: ( 02/29/96 TO 02/28/97 ):
( 1,052.5 /1000 to the power of (1/( 365 /365))-1) = 5.25%
</TABLE>
<PAGE> 5
THE PACIFIC HORIZON FUNDS
EXHIBIT 16
TOTAL RETURN
HORIZON SHARES
MONEY MARKET FUNDS
TREASURY ONLY
AVERAGE ANNUAL TOTAL RETURN
--------------------------------------
T = (ERV/P) to the power of 1/N - 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.
N = NUMBER OF YEARS
<TABLE>
<S> <C>
EXAMPLE:
SINCE INCEPTION: ( 09/20/95 TO 02/28/97 ):
( 1,074.1 /1000 to the power of (1/( 527 /365))-1) = 5.08%
ONE YEAR: ( 02/29/96 TO 02/28/97 ):
( 1,050.2 /1000 to the power of (1/( 365 /365))-1) = 5.02%
</TABLE>
<PAGE> 6
THE PACIFIC HORIZON FUNDS
EXHIBIT 16
TOTAL RETURN
HORIZON SHARES
MONEY MARKET FUNDS
TAX-EXEMPT MONEY
AVERAGE ANNUAL TOTAL RETURN
--------------------------------------
T = (ERV/P) to the power of 1/N - 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.
N = NUMBER OF YEARS
<TABLE>
<S> <C>
EXAMPLE:
SINCE INCEPTION: ( 07/10/87 TO 02/28/97 ):
( 1,474.8 /1000 to the power of (1/( 3521 /365))-1) = 4.11%
ONE YEAR: ( 02/29/96 TO 02/28/97 ):
( 1,032.7 /1000 to the power of (1/( 365 /365))-1) = 3.27%
FIVE YEAR: ( 02/29/92 TO 02/28/97 ):
( 1,157.0 /1000 to the power of (1/( 1825 /365))-1) = 2.96%
</TABLE>
<PAGE> 7
THE PACIFIC HORIZON FUNDS
EXHIBIT 16
TOTAL RETURN
HORIZON SERVICE SHARES
MONEY MARKET FUNDS
PRIME
AVERAGE ANNUAL TOTAL RETURN
- ---------------------------
T = (ERV/P) to the power of 1/N - 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.
N = NUMBER OF YEARS
<TABLE>
<S> <C>
EXAMPLE: *
SINCE INCEPTION: (02/18/88 TO 02/28/97):
(1,662.9 /1000 to the power of (1/(3298 /365))-1) = 5.79%
ONE YEAR: (02/29/96 TO 02/28/97):
( 1,050.8 /1000 to the power of (1/(365 /365))-1) = 5.08%
FIVE YEAR: (03/01/92 TO 02/28/97):
( 1,234.9 /1000 to the power of (1/(1825 /365))-1) = 4.31%
</TABLE>
<PAGE> 8
THE PACIFIC HORIZON FUNDS
EXHIBIT 16
TOTAL RETURN
HORIZON SERVICE SHARES
MONEY MARKET FUNDS
TREASURY
AVERAGE ANNUAL TOTAL RETURN
- ---------------------------
T = (ERV/P) to the power of 1/N - 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.
N = NUMBER OF YEARS
<TABLE>
<S> <C>
EXAMPLE:
SINCE INCEPTION: (02/18/88 TO 02/28/97):
(1,628.0 /1000 to the power of (1/(3299 /365))-1) = 5.54%
ONE YEAR: (02/29/96 TO 02/28/97):
( 1,049.7 /1000 to the power of (1/(365 /365))-1) = 4.97%
FIVE YEAR: (03/01/92 TO 02/28/97):
(1,223.1 /1000 to the power of (1/(1825 /365))-1) = 4.11%
</TABLE>
<PAGE> 9
THE PACIFIC HORIZON FUNDS
EXHIBIT 16
TOTAL RETURN
HORIZON SERVICE SHARES
MONEY MARKET FUNDS
CALIFORNIA TAX-EXEMPT
AVERAGE ANNUAL TOTAL RETURN
- ---------------------------
T = (ERV/P) to the power of 1/N - 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.
N = NUMBER OF YEARS
<TABLE>
<S> <C>
EXAMPLE:
SINCE INCEPTION: (03/01/93 TO 02/28/97):
(1,113.4 /1000 to the power of (1/(1461 /365))-1) = 2.72%
ONE YEAR: (02/29/96 TO 02/28/97):
( 1,029.5 /1000 to the power of (1/(365 /365))-1) = 2.95%
</TABLE>
<PAGE> 10
THE PACIFIC HORIZON FUNDS
EXHIBIT 16
TOTAL RETURN
HORIZON SERVICE SHARES
MONEY MARKET FUNDS
GOVERNMENT
AVERAGE ANNUAL TOTAL RETURN
- ---------------------------
T = (ERV/P) to the power of 1/N - 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.
N = NUMBER OF YEARS
<TABLE>
<S> <C>
EXAMPLE:
SINCE INCEPTION: (03/01/93 TO 02/28/97):
(1,190.4 /1000 to the power of (1/(1461 /365))-1) = 4.45%
ONE YEAR: (02/29/96 TO 02/28/97):
( 1,049.8 /1000 to the power of (1/(365 /365))-1) = 4.98%
</TABLE>
<PAGE> 11
THE PACIFIC HORIZON FUNDS
EXHIBIT 16
TOTAL RETURN
HORIZON SERVICE SHARES
MONEY MARKET FUNDS
TREASURY ONLY
AVERAGE ANNUAL TOTAL RETURN
- ---------------------------
T = (ERV/P) to the power of 1/N - 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.
N = NUMBER OF YEARS
<TABLE>
<S> <C>
EXAMPLE:
SINCE INCEPTION: (03/01/93 TO 02/28/97):
(1,176.8 /1000 to the power of (1/(1461 /365))-1) = 4.15%
ONE YEAR: (02/29/96 TO 02/28/97):
( 1,047.5 /1000 to the power of (1/(365 /365))-1) = 4.75%
</TABLE>
<PAGE> 12
THE PACIFIC HORIZON FUNDS
EXHIBIT 16
TOTAL RETURN
HORIZON SERVICE SHARES
MONEY MARKET FUNDS
TAX-EXEMPT MONEY
AVERAGE ANNUAL TOTAL RETURN
- ---------------------------
T = (ERV/P) to the power of 1/N - 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.
N = NUMBER OF YEARS
<TABLE>
<S> <C>
EXAMPLE:
SINCE INCEPTION: (02/18/88 TO 02/28/97):
(1,400.9 /1000 to the power of (1/(3299 /365))-1) = 3.80%
ONE YEAR: (02/29/96 TO 02/28/97):
( 1,030.1 /1000 to the power of (1/(365 /365))-1) = 3.01%
FIVE YEAR: (03/01/92 TO 02/28/97):
(1,142.5 /1000 to the power of (1/(1825 /365))-1) = 2.70%
</TABLE>
<PAGE> 13
THE PACIFIC HORIZON FUNDS
EXHIBIT 16
TOTAL RETURN
X SHARES
MONEY MARKET FUNDS
PRIME
AVERAGE ANNUAL TOTAL RETURN
- ---------------------------
T = (ERV/P) to the power of 1/N - 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.
N = NUMBER OF YEARS
<TABLE>
<S> <C>
EXAMPLE:
SINCE INCEPTION: (03/30/84 TO 02/28/97):
(2,194.7 /1000 to the power of (1/(4718 /365))-1) = 6.27%
ONE YEAR: (02/29/96 TO 02/28/97):
( 1,048.3 /1000 to the power of (1/(365 /365))-1) = 4.83%
FIVE YEAR: (02/29/92 TO 02/28/97):
( 1,228.4 /1000 to the power of (1/(1825 /365))-1) = 4.20%
TEN YEAR: (02/28/87 TO 02/28/97):
( 1,750.7 /1000 to the power of (1/(3650 /365))-1) = 5.76%
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.
EXAMPLE:
YEAR TO DATE: (12/31/96 TO 02/28/97):
(1,007.6 /1,000) - 1 = 0.76%
QUARTERLY: (11/30/96 TO 02/28/97):
(1,011.7 /1,000) - 1 = 1.17%
MONTHLY: (01/31/97 TO 02/28/97):
(1,003.6 /1,000) - 1 = 0.36%
</TABLE>
<PAGE> 14
THE PACIFIC HORIZON FUNDS
EXHIBIT 16
TOTAL RETURN
PACIFIC HORIZON SHARES
MONEY MARKET FUNDS
GOVERNMENT
AVERAGE ANNUAL TOTAL RETURN
- ---------------------------
T = (ERV/P) to the power of 1/N - 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.
N = NUMBER OF YEARS
<TABLE>
<S> <C>
EXAMPLE:
SINCE INCEPTION: (03/01/93 TO 02/28/97):
(1,186.6 /1000 to the power of (1/(1460 /365))-1) = 4.37%
ONE YEAR: (02/29/96 TO 02/28/97):
( 1,049.1 /1000 to the power of (1/(365 /365))-1) = 4.91%
</TABLE>
<PAGE> 15
THE PACIFIC HORIZON FUNDS
EXHIBIT 16
TOTAL RETURN
PACIFIC HORIZON SHARES
MONEY MARKET FUNDS
TREASURY ONLY
AVERAGE ANNUAL TOTAL RETURN
- ---------------------------
T = (ERV/P) to the power of 1/N - 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.
N = NUMBER OF YEARS
<TABLE>
<S> <C>
EXAMPLE:
SINCE INCEPTION: (03/01/93 TO 02/28/97):
(1,172.1 /1000 to the power of (1/(1460 /365))-1) = 4.05%
ONE YEAR: (02/29/96 TO 02/28/97):
( 1,046.8 /1000 to the power of (1/(365 /365))-1) = 4.68%
</TABLE>
<PAGE> 16
THE PACIFIC HORIZON FUNDS
EXHIBIT 16
TOTAL RETURN
PACIFIC HORIZON SHARES
MONEY MARKET FUNDS
PRIME
AVERAGE ANNUAL TOTAL RETURN
- ---------------------------
T = (ERV/P) to the power of 1/N - 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.
N = NUMBER OF YEARS
<TABLE>
<S> <C>
EXAMPLE:
SINCE INCEPTION: (03/30/84 TO 02/28/97):
(2,200.0 /1000 to the power of (1/(4718 /365))-1) = 6.29%
ONE YEAR: (02/29/96 TO 02/28/97):
( 1,050.1 /1000 to the power of (1/(365 /365))-1) = 5.01%
FIVE YEAR: (02/29/92 TO 02/28/97):
( 1,230.8 /1000 to the power of (1/(1825 /365))-1) = 4.24%
TEN YEAR: (02/28/87 TO 02/28/97):
( 1,754.0 /1000 to the power of (1/(3650 /365))-1) = 5.78%
</TABLE>
<PAGE> 17
THE PACIFIC HORIZON FUNDS
EXHIBIT 16
TOTAL RETURN
PACIFIC HORIZON SHARES
MONEY MARKET FUNDS
TREASURY
AVERAGE ANNUAL TOTAL RETURN
- ---------------------------
T = (ERV/P) to the power of 1/N - 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.
N = NUMBER OF YEARS
<TABLE>
<S> <C>
EXAMPLE:
SINCE INCEPTION: (03/30/84 TO 02/28/97):
(2,136.7 /1000 to the power of (1/(4718 /365))-1) = 6.05%
ONE YEAR: (02/29/96 TO 02/28/97):
( 1,048.7 /1000 to the power of (1/(365 /365))-1) = 4.87%
FIVE YEAR: (02/29/92 TO 02/28/97):
( 1,218.4 /1000 to the power of (1/(1825 /365))-1) = 4.03%
TEN YEAR: (02/28/87 TO 02/28/97):
( 1,706.5 /1000 to the power of (1/(3650 /365))-1) = 5.49%
</TABLE>
<PAGE> 18
THE PACIFIC HORIZON FUNDS
EXHIBIT 16
TOTAL RETURN
PACIFIC HORIZON SHARES
MONEY MARKET FUNDS
CALIFORNIA TAX-EXEMPT
AVERAGE ANNUAL TOTAL RETURN
- ---------------------------
T = (ERV/P) to the power of 1/N - 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.
N = NUMBER OF YEARS
<TABLE>
<S> <C>
EXAMPLE:
SINCE INCEPTION: (12/06/89 TO 02/28/97):
(1,251.6 /1000 to the power of (1/(2641 /365))-1) = 3.15%
ONE YEAR: (02/29/96 TO 02/28/97):
( 1,028.8 /1000 to the power of (1/(365 /365))-1) = 2.88%
FIVE YEAR: (02/29/92 TO 02/28/97):
( 1,135.3 /1000 to the power of (1/(1825 /365))-1) = 2.57%
</TABLE>
<PAGE> 19
THE PACIFIC HORIZON FUNDS
EXHIBIT 16
TOTAL RETURN
PACIFIC HORIZON SHARES
MONEY MARKET FUNDS
TAX-EXEMPT MONEY
AVERAGE ANNUAL TOTAL RETURN
- ---------------------------
T = (ERV/P) to the power of 1/N - 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.
N = NUMBER OF YEARS
<TABLE>
<S> <C>
EXAMPLE:
SINCE INCEPTION: (07/09/93 TO 02/28/97):
(1,104.3 /1000 to the power of (1/(1330 /365))-1) = 2.76%
ONE YEAR: (02/29/96 TO 02/28/97):
( 1,029.4 /1000 to the power of (1/(365 /365))-1) = 2.94%
</TABLE>
<PAGE> 20
THE PACIFIC HORIZON FUNDS
EXHIBIT 16
TOTAL RETURN
X SHARES
MONEY MARKET FUNDS
CALIFORNIA TAX-EXEMPT
AVERAGE ANNUAL TOTAL RETURN
- ---------------------------
T = (ERV/P) to the power of 1/N - 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.
N = NUMBER OF YEARS
EXAMPLE:
<TABLE>
<S> <C>
SINCE INCEPTION: (03/01/93 TO 02/28/97):
(1,112.0 /1000 to the power of (1/(1460 /365))-1) = 2.69%
ONE YEAR: (02/29/96 TO 02/28/97):
( 1,028.0 /1000 to the power of (1/(365 /365))-1) = 2.80%
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.
EXAMPLE:
YEAR TO DATE: (12/31/96 TO 02/28/97):
(1,004.2 /1,000) - 1 = 0.42%
QUARTERLY: (11/30/96 TO 02/28/97):
(1,006.6 /1,000) - 1 = 0.66%
MONTHLY: (01/31/97 TO 02/28/97):
(1,002.0 /1,000) - 1 = 0.20%
</TABLE>
<PAGE> 1
Exhibit 18
PACIFIC HORIZON FUNDS, INC.
(the "Company")
AMENDED AND RESTATED PLAN PURSUANT TO RULE 18f-3
FOR OPERATION OF A MULTI-CLASS SYSTEM
I. INTRODUCTION
On February 23, 1995, the Securities and Exchange Commission (the
"Commission") adopted Rule 18f-3 under the Investment Company Act of 1940, as
amended (the "1940 Act"), which permits the creation and operation of a
multi-class distribution structure without the need to obtain an exemptive order
under Section 18 of the 1940 Act. Rule 18f-3, which became effective on April 3,
1995, requires an investment company to file with the Commission a written plan
specifying all of the differences among classes, including the various services
offered to shareholders, different distribution arrangements for each class,
methods for allocating expenses relating to those differences and any conversion
features or exchange privileges. The Company operated a multi-class distribution
structure pursuant to an exemptive order granted by the Commission on November
17, 1989. On April 27, 1995, the Board of Directors of the Company authorized
the Company to operate its current multi-class distribution structure in
compliance with Rule 18f-3.
II. ATTRIBUTES OF CLASSES
A. Generally
Money Market Funds
The Company is authorized to offer six classes of shares -- Pacific
Horizon Shares, Horizon Shares, Horizon Service Shares, Class S Shares, Class X
Shares and Class Y Shares -- in the Prime and Treasury Funds. The Company is
authorized to offer five classes of shares -- Pacific Horizon Shares, Horizon
Shares, Horizon Service Shares, Class S Shares, and Class X Shares in the
California Tax-Exempt Money Market Fund. The Company is authorized to offer four
classes of shares -- Pacific Horizon Shares, Horizon Shares, Horizon Service
Shares and Class S Shares -- in the Tax-Exempt Money Fund. The Company is
authorized to offer three classes of shares -- Pacific Horizon Shares, Horizon
Shares and Horizon Service Shares in the Treasury Only and Government Funds. The
Prime Fund, Treasury Fund, California Tax-Exempt Money Market Fund, Treasury
Only Fund, Government Fund,
- 1 -
<PAGE> 2
and Tax-Exempt Money Fund are each referred herein as a "Fund," and collectively
as the "Money Market Funds."
Non-Money Market Funds
The Company is authorized to offer four classes of shares -- Class A
Shares, Class M Shares, Class K Shares and Class SRF Shares -- in the Asset
Allocation, Blue Chip and Intermediate (formerly, Flexible) Bond Funds. The
Company is authorized to offer three classes of shares -- Class A Shares, Class
M Shares and Class K Shares -- in the Aggressive Growth, Capital Income, U.S.
Government Securities, Corporate Bond, Utilities, Short-Term Government, Growth
and Income, International Bond, International Equity, California Tax-Exempt Bond
and National Municipal Bond Funds. The Aggressive Growth, Capital Income, U.S.
Government Securities, Corporate Bond, Blue Chip, Asset Allocation, Intermediate
(formerly, Flexible) Bond, Utilities, Short-Term Government, Growth and Income,
International Bond, International Equity, California Tax-Exempt Bond and
National Municipal Bond Funds are each referred to herein as a "Fund," and
collectively as the "Non-Money Market Funds."
All Funds
In general, shares of each class shall be identical except for
different expense variables (which will result in different returns for each
series), certain related rights, certain distribution, administrative and
shareholder services and certain sales charges. More particularly, the Pacific
Horizon Shares, Horizon Shares, Horizon Service Shares, Class X Shares, Class S
Shares and Class Y Shares of the Money Market Funds and Class A Shares, Class M
Shares, Class K Shares and Class SRF Shares of the Non-Money Market Funds shall
represent interests in the same portfolio of investments of the particular Fund,
and shall be identical in all respects, except for: (a) the impact of expenses
assessed to the Pacific Horizon Shares pursuant to a Special Management Services
Plan, expenses assessed to the Horizon Service Shares, Class A Shares and Class
SRF Shares pursuant to the Shareholder Services Plan adopted for such classes,
expenses assessed to Class S Shares, Class X Shares, and Class Y Shares pursuant
to the Distribution and Services Plan adopted for such classes, expenses
assessed to Class K Shares pursuant to the Distribution Plan and Administrative
and Shareholder Services Plan adopted for such class, expenses assessed to Class
M Shares pursuant to the Distribution Plan and Administrative Service Plan
adopted for such class, the sales charge imposed on Class A Shares and any other
incremental expenses subsequently identified that should be properly allocated
to one class so long as any subsequent changes in expense allocations are
reviewed and approved by a vote of the Board of Directors, including a majority
of the independent
- 2 -
<PAGE> 3
directors; (b) the fact that a class shall vote separately on matters which
pertain to the Special Management Services Plan, Shareholder Services Plan,
Distribution and Services Plan, Distribution Plan, Administrative Service Plan
or Administrative and Shareholder Services Plan adopted for that class and any
matter submitted to shareholders relating to such class's expenses; (c) the
different exchange privileges, sales charges and conversion features of the
class of shares; (d) the designation of each class of shares of the particular
Fund; and (e) the different shareholder services relating to a class of shares.
B. Distribution and Servicing Arrangements, Expenses and Sales Charges
1. Money Market Funds
Pacific Horizon Shares
Pacific Horizon Shares are currently available for purchase by
individuals directly from the Company's distributor, by clients of Bank of
America National Trust and Savings Association ("Bank of America") through their
qualified trust and agency accounts and by clients of certain institutions such
as banks or broker-dealers ("Service Organizations"). Pacific Horizon Shares
shall not initially be subject to a sales charge (except as provided below) but
shall initially be subject to a servicing fee payable pursuant to a Special
Management Services Plan which shall not initially exceed 0.32% (on an annual
basis) of the average daily net asset value of each Fund's (other than the
California Tax-Exempt Money Market Fund) Pacific Horizon Shares outstanding from
time to time and 0.35% (on an annual basis) of the average daily net asset value
of the California Tax-Exempt Money Market Fund's Pacific Horizon Shares
outstanding from time to time.
Shareholder services covered by the Special Management Services Plan
initially shall consist of: (i) aggregating and processing purchase and
redemption requests for shares from clients and placing net purchase and
redemption orders with the distributor; (ii) providing clients with a service
that invests the assets of their accounts in such shares pursuant to specific or
pre-authorized instructions; (iii) processing dividend payments from us on
behalf of clients; (iv) providing statements periodically to clients showing
their positions in such shares; (v) providing subaccounting with respect to
shares beneficially owned by clients or the information to the Company necessary
for subaccounting; (vi) if required by law, forwarding shareholder
communications from the Company (such as proxies, shareholder reports, annual
and semi-annual financial statements and dividend, distribution and tax notices)
to clients; (vii) forwarding to clients proxy statements and proxies containing
any
- 3 -
<PAGE> 4
proposals regarding the Special Management Services Plan; (viii) developing and
monitoring investor programs offered from time to time; (ix) providing dedicated
walk-in and telephone facilities to handle client inquires and serve client
needs; (x) providing and maintaining specialized systems for the automatic
investments of clients; (xi) maintaining the registration or qualification of a
class for sale under state securities laws; (xii) paying for the operation of
arrangements that facilitate same-day purchases by clients; (xiii) assuming the
expense of payments made to third parties for services provided in connection
with the investments of their customers in a class; and (xiv) providing various
other services (such as the provision of a facility to receive purchase and
redemption orders) for shareholders who have made a minimum initial investment
of less than $500,000; and (xv) providing such other similar services as the
Company may reasonably request to the extent permitted under applicable
statutes, rules or regulations.
Pacific Horizon Shares of the Prime Fund acquired through exchange
of shares ("B Shares") of Time Horizon Funds offered with a contingent deferred
sales charge ("CDSC") will be subject to a maximum CDSC of up to 5.00% upon
redemption in accordance with the prospectus for B Shares of Time Horizon Funds.
For purposes of computing the CDSC, the length of time of ownership will be
measured from the date of the original purchase of B Shares and will not include
any period of ownership of the Pacific Horizon Shares of the Prime Fund.
Horizon Shares
Horizon Shares are currently offered to institutional investors and
shall not be available for purchase by individuals directly. Horizon Shares are
not currently subject to a sales charge or a fee payable pursuant to a
Shareholder Services Plan.
Horizon Service Shares
Horizon Service Shares are currently offered to institutional
investors such as Bank of America or the Company's administrator (also referred
to as "Shareholder Organizations"), who are compensated by the Money Market
Funds for providing shareholder services pursuant to a Shareholder Services
Agreement to their customers who are the beneficial owners of the Horizon
Service Shares. Horizon Service Shares are not available for purchase by
individuals directly. Horizon Service Shares are not currently subject to a
sales charge but shall be subject to a shareholder servicing fee payable
pursuant to a Shareholder Services Plan adopted for that class which shall not
initially exceed 0.25% (on an annualized basis) of the average daily net asset
value of the Horizon Service Shares beneficially owned by the customers of
Shareholder Organizations.
- 4 -
<PAGE> 5
The services provided by Shareholder Organizations may initially
include the following: (i) aggregating and processing purchase and redemption
requests from customers for Horizon Service Shares and placing net purchase and
redemption orders with the distributor; (ii) providing customers with a service
that invests the assets of their accounts in Horizon Service Shares pursuant to
specific or preauthorized instructions; (iii) processing dividend payments from
a Fund on behalf of customers; (iv) providing information periodically to
customers regarding their position in Horizon Service Shares; (v) arranging for
bank wires; (vi) responding to customer inquiries regarding services performed
by the Shareholder Organizations; (vii) providing sub-accounting with respect to
Horizon Service Shares beneficially owned by customers or the information
necessary for sub-accounting; (viii) forwarding shareholder communications from
a Fund to customers; and (ix) other similar services if requested by a Fund.
Class S Shares
Class S Shares are currently available only to retail customers of
Bank of America, its affiliates or a Service Organization who purchase such
shares through a Sweep Account offered by Bank of America, its affiliates or the
Service Organization. Class S Shares shall not initially be subject to a sales
charge. Class S Shares shall initially be subject to distribution and
shareholder servicing fee payable pursuant to the Distribution and Services Plan
adopted for that class which shall not initially exceed 1.00% of the average
daily net asset value of outstanding Class S Shares. Distribution expenses
covered by the Distribution and Services Plan include: (i) direct out-of-pocket
promotional expenses incurred by the distributor in advertising and marketing
Class S Shares; (ii) expenses incurred in connection with preparing, printing,
mailing, and distributing or publishing advertisements and sales literature for
Class S Shares; (iii) expenses incurred in connection with printing and mailing
prospectuses and statements of additional information to other than current
Class S shareholders; (iv) periodic payments or commissions to one or more
securities dealers, brokers, financial institutions or other industry
professionals, such as investment advisors, accountants, and estate planning
firms, including any of the Company's service providers, (severally, "a
Distribution Organization" and collectively, "Distribution Organizations") with
respect to a Fund's Class S Shares beneficially owned by customers for whom the
Distribution Organization is the Distribution Organization of record or holder
of record of such Class S Shares; (v) the direct or indirect cost of financing
the payments or expenses included in (i) and (iv) above; and (vi) for such other
services as may be construed, by any court or governmental agency or commission,
including the Commission, to constitute distribution services under the 1940 Act
or rules and regulations thereunder.
- 5 -
<PAGE> 6
Shareholder services covered by this Distribution and Services Plan
include: (i) processing dividend and distribution payments from a Fund on behalf
of its clients; (ii) providing information periodically to its clients showing
their positions in Class S Shares; (iii) arranging for bank wires; (iv)
responding to routine client inquiries concerning their investment in Class S
Shares; (v) providing the information to the Funds necessary for accounting or
sub-accounting; (vi) if required by law, forwarding shareholder communications
from a Fund (such as proxies, shareholder reports, annual and semi-annual
financial statements and dividend, distribution and tax notices) to its clients;
(vii) aggregating and processing purchase, exchange and redemption requests from
its clients and placing net purchase, exchange and redemption orders for its
clients; (viii) providing customers with a service that invests the assets of
their accounts in S Shares pursuant to specific or pre-authorized instructions;
(ix) establishing and maintaining accounts and records relating to clients that
invest in Class S Shares; (x) assisting clients in changing dividend options,
account designations and addresses; (xi) developing, maintaining and operating
systems necessary to support Sweep Accounts; and (xii) other similar services if
requested by the Company.
Class X Shares
Class X Shares are currently available only to customers of BA
Investment Services, Inc. or Service Organizations who purchase such shares
through a Sweep Account offered by BA Investment Services, Inc. or Service
Organizations. Class X Shares shall not initially be subject to a sales charge.
Class X Shares also shall initially be subject to a distribution and shareholder
servicing fee payable pursuant to the Distribution and Services Plan adopted for
that class which shall not initially exceed 0.55% of the average daily net asset
value of outstanding Class X Shares. Distribution services and shareholder
services under the Distribution and Services Plan for Class X Shares are the
same as those covered by the Distribution and Services Plan for Class S Shares.
Class Y Shares
Class Y Shares are currently available only to institutional
customers of Bank of America, its affiliates or a Service Organization who
purchase such shares through a Sweep Account offered by Bank of America, its
affiliates or the Service Organization. Class Y Shares shall not initially be
subject to a sales charge. Class Y Shares also shall initially be subject to a
distribution and shareholder servicing fee payable pursuant to the Distribution
and Services Plan adopted for that class which shall not initially exceed 1.00%
of the average daily net asset value of outstanding Class Y Shares. Distribution
expenses and shareholder services covered by the Distribution and Services
- 6 -
<PAGE> 7
Plan for Class Y Shares are identical to those covered by the Distribution and
Services Plan for Class S Shares.
2. Non-Money Market Funds
Class A Shares
Class A Shares are currently offered to the general public and shall
initially be subject to a front-end sales charge which shall not initially
exceed 4.50% of the offering price of Class A Shares. There is no front-end
sales charge imposed on combined purchases of Class A Shares in excess of $1
million or if the aggregate value of Class A Shares beneficially owned by a
shareholder in any Pacific Horizon or Time Horizon Fund equals or exceeds $1
million ("Large Purchase Exemption"). Shares purchased under the Large Purchase
Exemption are subject to a contingent deferred sales charge of 1.00% and 0.50%,
respectively, on redemptions within one and two years after purchase. Class A
Shares are also currently subject to a fee payable pursuant to a Shareholder
Services Plan which currently does not initially exceed 0.25% (on an annual
basis) of the average daily net asset value of the Class A Shares.
Services covered by the Shareholder Services Plan adopted for the
class currently include expenses incurred in connection with shareholder
services provided by the distributor and payments to Service Organizations for
support services for the beneficial owners of Class A Shares. Support services
provided by Service Organizations may include, among other things: (i)
establishing and maintaining accounts and records relating to clients that
invest in Fund shares; (ii) processing dividend and distribution payments from
the Funds on behalf of clients; (iii) providing information periodically to
clients regarding their positions in shares; (iv) arranging for bank wires; (v)
responding to client inquiries concerning their investments in Fund shares; (vi)
providing the information to the Funds necessary for accounting or
subaccounting; (vii) if required by law, forwarding shareholder communications
from the Funds (such as proxies, shareholder reports, annual and semi-annual
financial statements and dividend, distribution and tax notices) to clients;
(viii) assisting in processing exchange and redemption requests from clients;
(ix) assisting clients in changing dividend options, account designations and
addresses; and (x) providing such other similar services.
Class M Shares
Class M Shares of the Non-Money Market Funds shall initially be
offered to investors who currently have a Master Relationship Account or similar
account ("Relationship Account") with Bank of America or one of its affiliated
banks. Class M
- 7 -
<PAGE> 8
Shares shall not initially be subject to a sales charge. Class M Shares shall
initially be subject to a distribution fee payable pursuant to the Distribution
Plan adopted for that class which shall not initially exceed 0.25% of the
average daily net asset value of outstanding Class M Shares. Distribution
expenses covered by the Distribution Plan include: (i) direct out-of-pocket
promotional expenses incurred by the distributor in advertising and marketing M
Shares; (ii) expenses incurred in connection with preparing, printing, mailing,
and distributing or publishing advertisements and sales literature; (iii)
expenses incurred in connection with printing and mailing prospectuses and
statements of additional information to other than current shareholders; (iv)
periodic payments or commissions to one or more Distribution Organizations with
respect to a Fund's M Shares beneficially owned by customers for whom the
Distribution Organization is the Distribution Organization of record or holder
of record of such M Shares; (v) the direct or indirect cost of financing the
payments or expenses included in (i) and (iv) above; or (vi) for such other
services as may be construed by any court or governmental agency or commission,
including the Commission, to constitute distribution services under the 1940 Act
or rules and regulations thereunder.
Class M Shares also shall initially be subject to an administrative
servicing fee payable pursuant to the Administrative Service Plan adopted for
that class which shall not initially exceed 0.25% of the average daily net asset
value of outstanding Class M Shares. Administrative services covered by the
Administrative Services Plan include: (i) processing dividend and distribution
payments from a Fund on behalf of clients; (ii) providing statements
periodically to clients showing their positions in Class M Shares; (iii)
providing the information to the Funds necessary for accounting or
sub-accounting; (iv) if required by law, forwarding shareholder communications
from a Fund (such as proxies, shareholder reports, annual and semi-annual
financial statements and dividend, distribution and tax notices) to clients; (v)
aggregating and processing purchase, exchange, and redemption requests from
clients and placing net purchase, exchange, and redemption orders for customers;
(vi) establishing and maintaining accounts and records relating to clients that
invest in Class M Shares; and (vii) other similar administrative services that
the Company may reasonably request to the extent permitted under applicable law.
Class K Shares
Class K Shares are currently available only to: (a) businesses or
other organizations that participate in the Daily Advantage(R) Program sponsored
by Bank of America; (b) individuals investing proceeds from a redemption of
shares from another open-end investment company on which such individual paid a
front-end
- 8 -
<PAGE> 9
sales load if (i) such redemption occurred within thirty days prior to the
purchase order and (ii) such other open-end investment company was not
distributed and advised by Concord Financial Group, Inc. ("Concord") and Bank of
America, respectively, or their affiliates; (c) accounts opened for IRA
rollovers from a 401(k) plan in which the assets were held in any Pacific
Horizon or Time Horizon Fund and subsequent purchases into an IRA rollover
account opened as described above, so long as the original IRA rollover account
remains open on the Company's books ("Qualified IRA Rollovers"), (d) accounts
under Section 403(b)(7) of the Internal Revenue Code of 1986; and (e) deferred
compensation plans under Section 457 of the Internal Revenue Code of 1986.
Class K Shares shall not initially be subject to a sales charge.
Class K Shares shall initially be subject to a distribution fee payable pursuant
to the Distribution Plan adopted for that class which shall not initially exceed
0.75% of the average daily net asset value of outstanding Class K Shares. Class
K Shares also shall initially be subject to an administrative servicing fee
payable pursuant to the Administrative and Shareholder Services Plan adopted for
that class which shall not initially exceed 0.75% of the average daily net asset
value of outstanding Class K Shares. Class K Shares also shall initially be
subject to a shareholder servicing fee payable pursuant to the Administrative
and Shareholder Services Plan adopted for that class which shall not initially
exceed 0.25% of the average daily net asset value of outstanding Class K Shares.
The distribution services and administrative services covered by the
Distribution Plan and Administrative and Shareholder Services Plan for Class K
Shares are the same as those covered by the Distribution Plan and Administrative
Services Plan for Class M Shares. Shareholder services covered by the
Administrative and Shareholder Services Plan include: (i) arranging for bank
wires; (ii) responding to routine client inquiries concerning their investment
in the shares; (iii) assisting customers in changing dividend options, account
designations and addresses; and (iv) other similar shareholder services that the
Company may reasonably request to the extent permitted under applicable law.
Payments under the Distribution Plan and the Administrative and
Shareholder Services Plan are not intended for services if not permitted by the
Employee Retirement Income Security Act of 1974, as amended.
The total of all fees under the Distribution Plan and Administrative
and Shareholder Services Plan may not exceed, in the aggregate, the annual rate
of 1.00% of the average net assets of a Fund's Class K Shares.
- 9 -
<PAGE> 10
Class SRF Shares
Class SRF Shares are currently available only to shareholders of
Seafirst Retirement Funds investing in Eligible Retirement Accounts. Eligible
Retirement Accounts are accounts which were open prior to the date of Seafirst's
reorganization into the Company (the "Reorganization Date"), have remained open
continuously since that date and meet one of the following descriptions:
1)Individual Retirement Accounts that are exempt under Section 408(e) and are
maintained in conformity with Section 408(e) of the Internal Revenue Code of
1986, including a) rollover accounts and Simplified Employee Pension Plans ("SEP
Plans") for which Seafirst Bank or one of its affiliates serves as custodian or
b) IRA's opened after the Reorganization Date under a SEP Plan that was open as
of the Reorganization Date and has remained open continuously since that date,
and 2) qualified pension or profit sharing trusts that are exempt under Section
501(a) and that are maintained in conformity with Section 401(a) of the Internal
Revenue Code of 1986, including a) corporate pension or profit-sharing trusts,
b) pension or profit sharing trusts benefiting one or more self-employed
individuals, or c) accounts opened for new participants in a qualified pension
or profit-sharing trust that was open as of the Reorganization Date and has
remained open continuously since that date.
Class SRF Shares are not currently subject to a sales charge but shall be
subject to a shareholder servicing fee payable pursuant to a Shareholders
Services Plan adopted for that class which shall not initially exceed 0.25% (on
an annualized basis) of the average daily net asset value of the Class SRF
Shares.
Services covered by the Shareholder Services Plan adopted for the
class currently include expenses incurred in connection with shareholder
services provided by the distributor and payments to Service Organizations for
support services for the beneficial owners of Class SRF Shares. Support services
provided by Service Organizations may include, among other things: (i)
establishing and maintaining accounts and records relating to clients that
invest in Fund shares; (ii) processing dividend and distribution payments from
the Funds on behalf of clients; (iii) providing information periodically to
clients regarding their positions in shares; (iv) arranging for bank wires; (v)
responding to client inquiries concerning their investments in Fund shares; (vi)
providing the information to the Funds necessary for accounting or
subaccounting; (vii) if required by law, forwarding shareholder communications
from the Funds (such as proxies, shareholder reports, annual and semi-annual
financial statements and dividend, distribution and tax notices) to clients;
(viii) assisting in processing exchange and redemption requests from clients;
(ix) assisting clients in changing dividend options, account designations and
addresses; and (x) providing such other similar services.
- 10 -
<PAGE> 11
C. Conversion Features
1. Money Market Funds
The Company does not currently offer a conversion feature to holders
of Pacific Horizon Shares, Horizon Shares, Horizon Service Shares, Class S
Shares, Class X Shares or Class Y Shares.
2. Non-Money Market Funds
Class A Shares
The Company does not currently offer a conversion feature to holders
of Class A Shares.
Class M Shares
The Company does not currently offer a conversion feature to holders
of Class M Shares.
Class K Shares
The Company does not currently offer a conversion feature to holders
of Class K Shares.
Class SRF Shares
Class SRF Shares acquired in the reorganization of Seafirst
Retirement Funds into the Company, and additional shares acquired through
purchase, exchange and/or the reinvestment of dividends and distributions
currently will convert automatically into Class A Shares of the same Fund on the
third anniversary of the Reorganization Date.
D. Shareholder Services
1. Exchange Privileges
Money Market Funds
Only holders of Pacific Horizon Shares are currently permitted to
exchange their shares in a Fund for like Shares of another Fund of the Company
or for like shares of any Time Horizon Fund provided, however, that Pacific
Horizon Shares of the Prime Fund acquired through an exchange of B Shares of an
investment portfolio of Time Horizon Funds may only be exchanged for B Shares of
an investment portfolio of Time Horizon Funds and, provided further that such
other shares may legally be sold in the state of the investor's residence. When
Pacific Horizon Shares are exchanged for shares of another Fund of the Company
- 11 -
<PAGE> 12
which are sold with a sales load, the applicable sales load, if any, shall be
deducted.
B Shares of Time Horizon Funds offered with a CDSC may be exchanged
for Pacific Horizon Shares of the Prime Fund. Such exchange-acquired Pacific
Horizon Shares of the Prime Fund will be subject to a CDSC upon redemption in
accordance with the prospectus for B Shares of Time Horizon Funds.
Non-Money Market Funds
Class A Shares
Holders of Class A Shares are currently permitted to exchange their
shares for Class A Shares of other Non-Money Market Funds, for Pacific Horizon
Shares of the Money Market Funds or for like shares of any Time Horizon Fund.
Holders of Class A Shares who purchased their shares with a front-end sales
charge generally shall be permitted to exchange their shares without paying an
additional front-end sales charge on shares acquired through the exchange.
Neither a contingent deferred sales load nor a front-end sales load will be
imposed if a shareholder who has entered a Fund under the Large Purchase
Exemption exchanges shares between Funds of the Company or Time Horizon Funds.
However, shares acquired in the exchange will remain subject to the contingent
deferred sales load discussed above.
Class M Shares
Through a Relationship Account, holders of Class M Shares shall
initially be permitted to exchange their Shares for Shares of the same class of
another Pacific Horizon Fund or an investment portfolio of Time Horizon Funds.
Class K Shares
Holders of Class K Shares shall initially be permitted to exchange
their shares for Class K Shares of other Funds of the Company or for like shares
of any Time Horizon Fund.
Class SRF
Holders of Class SRF Shares in Eligible Retirement Accounts are
currently permitted to exchange their shares for Class SRF Shares of other Funds
of the Company and Class A Shares of any other taxable, Non-Money Market Fund
offered by the Company or Time Horizon Funds without incurring the front-end
sales charge otherwise applicable on Class A Shares ("Eligible Exchange
Shares"). SRF shares or Eligible Exchange Shares may also be exchanged for
Pacific Horizon Shares of the Prime Fund.
- 12 -
<PAGE> 13
Eligible Exchange Shares may further be exchanged for Class A Shares in any
taxable, Non-Money Market Fund offered by the Company or a Time Horizon Fund
without incurring the front-end sales charge otherwise applicable, or for SRF
Shares of a Fund. SRF Shares or Eligible Exchange Shares held in an IRA account
for which a Shareholder's surviving spouse is the beneficiary may continue to be
exchanged for SRF Shares or A Shares in any other taxable Non-Money Market Fund
offered by the Company or Time Horizon Funds without incurring the front-end
sales charge applicable on sales of A Shares.
2. Individual Retirement Accounts ("IRAs")
Money Market Funds
Currently, the Company only makes IRAs, including IRAs set up under
a Simplified Employee Pension Plan and IRA "Rollover Accounts," available to
holders of Pacific Horizon Shares in each Money Market Fund other than the
California Tax-Exempt Money Market Fund and the Tax-Exempt Money Fund.
Non-Money Market Funds
The Company currently makes IRAs available to holders of Class A and
Class M Shares. Class K Shares are available to Qualified IRA Rollovers. Class
SRF Shares are available to participants in an Eligible Retirement Account.
3. Automatic Investment Program
Money Market Funds
Only holders of Pacific Horizon Shares of each Money Market Fund
currently have an automatic investment plan whereby a shareholder may purchase
Pacific Horizon Shares of a Money Market Fund at regular intervals selected by
the investor.
Non-Money Market Funds
Class A Shares
Holders of Class A Shares currently have an automatic investment
plan whereby, a shareholder may purchase Class A Shares of a Fund at regular
intervals selected by the investor.
Class M Shares
No automatic investment plan is currently available for Class M
Shares.
- 13 -
<PAGE> 14
Class K Shares
Holders of Class K Shares shall initially have an automatic
investment plan whereby, in general, a shareholder may purchase Class K Shares
of a Fund at regular intervals selected by the investor.
Class SRF Shares
No automatic investment plan is currently available for Class SRF
Shares.
4. Direct Deposit Program
Money Market Funds
Only holders of Pacific Horizon Shares currently have a direct
deposit program whereby a shareholder who receives payments from the federal
government may purchase Pacific Horizon Shares by having these payments
automatically deposited into his or her Fund account.
Non-Money Market Funds
Class A Shares
Holders of Class A Shares currently have a direct deposit program
whereby a shareholder who receives payments from the federal government may
purchase Class A Shares of a Fund by having these payments automatically
deposited into his or her Fund Account.
Class M Shares
No direct deposit program is currently available for Class M Shares.
Class K Shares
Holders of Class K Shares shall initially have a direct deposit
program whereby a shareholder who receives payments from the federal government
may purchase Class K Shares of a Fund by having these payments automatically
deposited into his or her Fund Account.
Class SRF Shares
No direct deposit program is currently available for Class SRF
Shares.
- 14 -
<PAGE> 15
5. Automatic Withdrawal Plan
Money Market Funds
Only holders of Pacific Horizon Shares currently have an automatic
withdrawal plan whereby a shareholder may request withdrawal of a certain dollar
amount on a monthly, quarterly, semi-annual or annual basis.
Non-Money Market Funds
Class A Shares
Holders of Class A Shares currently have an automatic withdrawal
plan whereby a shareholder may request withdrawal of a certain dollar amount on
a monthly, quarterly, semi-annual or annual basis.
Class M Shares
Holders of Class M Shares shall initially have an automatic
withdrawal plan whereby a shareholder may request withdrawals of a certain
dollar amount on a monthly, quarterly, semi-annual or annual basis.
Class K Shares
Holders of Class K Shares shall initially have an automatic
withdrawal plan whereby a shareholder may request withdrawals of a certain
dollar amount on a monthly, quarterly, semi-annual or annual basis.
Class SRF Shares
No automatic withdrawal plan is currently available for Class SRF
Shares.
E. Methodology for Allocating Expenses Between Classes
Expenses of each Fund will be apportioned to each class of shares
depending upon the nature of the expense item.
Specifically, before determining the daily dividend rates and
yields, the following expense items shall be calculated as follows:
- 15 -
<PAGE> 16
1. General Operating Expenses
Operating expenses which are attributable to all classes of shares
("operating expenses") will be allocated among the classes of shares based on
their net asset value at the end of the day. Operating expenses will include
fees paid to Bank of America under the Investment Advisory Agreement, fees paid
to Concord Holding Corporation under the Basic Administrative Services Agreement
and all other expenses such as custody fees, transfer agent fees and audit fees,
except those specifically listed below.
2. Class-Specific Expenses
Shareholder Services Fees
In addition to their respective pro-rata share of operating
expenses, Horizon Service Shares shall initially bear a shareholder services fee
which is calculated at an annual rate not to exceed 0.25% of the average daily
net asset value of such outstanding shares at the end of the day, Pacific
Horizon Shares shall initially bear a special management services fee which is
presently calculated at an annual rate not to exceed 0.32% (0.35% for the
California Tax-Exempt Money Fund) of the average daily net asset value of such
outstanding shares at the end of the day, Class A Shares shall initially bear a
shareholder services fee which is calculated at an annual rate not to exceed
0.25% of the average daily net asset value of such outstanding shares at the end
of the day, and Class SRF Shares shall initially bear a shareholder services fee
which is calculated at an annual rate not to exceed 0.25% of the average daily
net asset value of such outstanding shares at the end of the day.
Distribution and Services Fees
In addition to their respective pro-rata share of operating
expenses, Class M Shares shall initially bear a distribution fee and
administrative services fee which is presently calculated at an annual rate not
to exceed 0.25% and 0.25%, respectively, of the average daily net asset value of
such outstanding shares at the end of the day. Class S Shares shall initially
bear a distribution and shareholder services fee which is calculated at an
annual rate not to exceed 0.75% and 0.25%, respectively, of the average daily
net asset value of such outstanding shares at the end of the day. Class X Shares
shall initially bear a distribution and shareholder services fee which is
presently calculated at an annual rate not to exceed 0.30% and 0.25%,
respectively, of the average daily net asset value of such outstanding shares at
the end of the day. Class Y Shares shall initially bear a distribution and
shareholder services fee which is calculated at an annual rate not to exceed
0.75% and 0.25%,
- 16 -
<PAGE> 17
respectively, of the average daily net asset value of such outstanding shares at
the end of the day. Class K Shares shall initially bear a distribution fee which
is presently calculated at an annual rate not to exceed 0.75% of the average
daily net asset value of such outstanding shares at the end of the day, a
shareholder services fee which is presently calculated at an annual rate not to
exceed 0.25% of the average daily net asset value of such outstanding shares at
the end of the day, and an administrative services fee which is presently
calculated at an annual rate not to exceed 0.75% of the average daily net asset
value of such outstanding shares at the end of the day. The total of all
distribution, shareholder services and administrative services fees may not
exceed, in the aggregate, the annual rate of 1.00% of the average daily net
assets of the Fund's Class K Shares.
Approved: April 30, 1997
- 17 -
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<F1>Horizon Shares
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<F1>Horizon Service Shares
</FN>
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<CIK> 0000711663
<NAME> PACIFIC HORIZON FUNDS
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<NAME> TREASURY FUND
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<FN>
<F1>X Shares
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<CIK> 0000711663
<NAME> PACIFIC HORIZON FUNDS
<SERIES>
<NUMBER> 021
<NAME> PRIME FUND
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<FN>
<F1>Pacific Horizon Shares
</FN>
</TABLE>
<TABLE> <S> <C>
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<CIK> 0000711663
<NAME> PACIFIC HORIZON FUNDS
<SERIES>
<NUMBER> 022
<NAME> PRIME FUND
<S> <C>
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<FN>
<F1>Horizon Shares
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<CIK> 0000711663
<NAME> PACIFIC HORIZON FUNDS
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<NUMBER> 023
<NAME> PRIME FUND
<S> <C>
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<F1>Horizon Service Shares
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<TABLE> <S> <C>
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<CIK> 0000711663
<NAME> PACIFIC HORIZON FUNDS
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<NUMBER> 024
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<FN>
<F1>X Shares
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</TABLE>
<TABLE> <S> <C>
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<CIK> 0000711663
<NAME> PACIFIC HORIZON FUNDS
<SERIES>
<NUMBER> 071
<NAME> CALIFORNIA TAX-EXEMPT MONEY MARKET
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<FN>
<F1>Pacific Horizon Shares
</FN>
</TABLE>
<TABLE> <S> <C>
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<CIK> 0000711663
<NAME> PACIFIC HORIZON FUNDS
<SERIES>
<NUMBER> 072
<NAME> CALIFORNIA TAX-EXEMPT MONEY MARKET
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<FN>
<F1>HORIZON SERVICE SHARES
</FN>
</TABLE>
<TABLE> <S> <C>
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<CIK> 0000711663
<NAME> PACIFIC HORIZON FUNDS
<SERIES>
<NUMBER> 073
<NAME> CALIFORNIA TAX-EXEMPT MONEY MARKET
<S> <C>
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<FN>
<F1>X Shares
</FN>
</TABLE>
<TABLE> <S> <C>
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<CIK> 0000711663
<NAME> PACIFIC HORIZON FUNDS
<SERIES>
<NUMBER> 081
<NAME> PACIFIC HORIZON TAX-EXEMPT MONEY FUND
<S> <C>
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<FN>
<F1>Pacific Horizon Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000711663
<NAME> PACIFIC HORIZON FUNDS
<SERIES>
<NUMBER> 082
<NAME> PACIFIC HORIZON TAX-EXEMPT MONEY FUND
<S> <C>
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<FN>
<F1>Horizon Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000711663
<NAME> PACIFIC HORIZON FUNDS
<SERIES>
<NUMBER> 083
<NAME> PACIFIC HORIZON TAX-EXEMPT MONEY FUND
<S> <C>
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<FN>
<F1>Horizon Service Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000711663
<NAME> PACIFIC HORIZON FUNDS
<SERIES>
<NUMBER> 101
<NAME> GOVERNMENT FUND
<S> <C>
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<FN>
<F1>Pacific Horizon Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000711663
<NAME> PACIFIC HORIZON FUNDS
<SERIES>
<NUMBER> 102
<NAME> GOVERNMENT FUND
<S> <C>
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<FN>
<F1>Horizon Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000711663
<NAME> PACIFIC HORIZON FUNDS
<SERIES>
<NUMBER> 103
<NAME> GOVERNMENT FUND
<S> <C>
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<FN>
<F1>Horizon Service Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000711663
<NAME> PACIFIC HORIZON FUNDS
<SERIES>
<NUMBER> 111
<NAME> TREASURY ONLY FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 506,828,636
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<PER-SHARE-NAV-BEGIN> 1.00<F1>
<PER-SHARE-NII> 0.046<F1>
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<FN>
<F1>Pacific Horizon Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000711663
<NAME> PACIFIC HORIZON FUNDS
<SERIES>
<NUMBER> 112
<NAME> TREASURY ONLY FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> FEB-28-1997
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<OVERDIST-NET-GAINS-PRIOR> (64,367)
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<GROSS-EXPENSE> 2,651,213
<AVERAGE-NET-ASSETS> 40,685,760<F1>
<PER-SHARE-NAV-BEGIN> 1.00<F1>
<PER-SHARE-NII> 0.049<F1>
<PER-SHARE-GAIN-APPREC> 0<F1>
<PER-SHARE-DIVIDEND> 0.049<F1>
<PER-SHARE-DISTRIBUTIONS> 0<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 1.00<F1>
<EXPENSE-RATIO> 0.27<F1>
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>Horizon Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000711663
<NAME> PACIFIC HORIZON FUNDS
<SERIES>
<NUMBER> 113
<NAME> TREASURY ONLY FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 506,828,636
<INVESTMENTS-AT-VALUE> 506,828,636
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<TOTAL-LIABILITIES> 807,676
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<PAID-IN-CAPITAL-COMMON> 515,235,811
<SHARES-COMMON-STOCK> 259,575,992<F1>
<SHARES-COMMON-PRIOR> 185,982,664<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (32,905)
<ACCUM-APPREC-OR-DEPREC> 0
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<DISTRIBUTIONS-OF-INCOME> 8,357,569<F1>
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<SHARES-REINVESTED> 17,977,687
<NET-CHANGE-IN-ASSETS> 47,699,693
<ACCUMULATED-NII-PRIOR> 0
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<OVERDIST-NET-GAINS-PRIOR> (64,367)
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,651,213
<AVERAGE-NET-ASSETS> 179,345,676<F1>
<PER-SHARE-NAV-BEGIN> 1.00<F1>
<PER-SHARE-NII> 0.047<F1>
<PER-SHARE-GAIN-APPREC> 0<F1>
<PER-SHARE-DIVIDEND> 0.047<F1>
<PER-SHARE-DISTRIBUTIONS> 0<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 1.00<F1>
<EXPENSE-RATIO> 0.53<F1>
<AVG-DEBT-OUTSTANDING> 0<F1>
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<FN>
<F1>Horizon Service Shares
</FN>
</TABLE>
