<PAGE> 1
As filed with the Securities and Exchange Commission on April 30, 1997
Registration Nos. 2-81110/811-4293
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
Post-Effective Amendment No. 55 /x/
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. 57 /x/
--------------------------
PACIFIC HORIZON FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road
Columbus, OH 43219
(Address of Principal Executive Offices)
Registrant's Telephone Number, including area code: (800) 332-3863
W. Bruce McConnel, III
Drinker Biddle & Reath
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107-3496
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/x/ 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE> 2
Registrant has registered an indefinite number of its shares under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940, as amended. The Registrant has filed its Rule 24f-2 Notice relating
to such shares for Registrant's most recent fiscal year on April 29, 1997.
================================================================================
<PAGE> 3
PACIFIC HORIZON FUNDS, INC.
Y Shares of the
Prime Fund and Treasury 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> 4
PROSPECTUS
_______ __, 1997
Y Shares of the
Prime Fund
Treasury Fund
Investment Portfolios Offered by Pacific Horizon Funds, Inc.
This Prospectus applies to the Y Shares of the Prime Fund and Treasury Fund (the
"Funds"), two 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 institutional investors with daily liquidity.
The investment objectives of the PRIME FUND and TREASURY FUND are to seek high
current income and stability of principal.
o 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.
o 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.
This Prospectus briefly sets forth certain information about the Funds described
herein that investors should know before investing. It should be read and
retained for future reference. Additional information about the Funds, contained
in a Statement of Additional Information dated _______ __, 1997, has been filed
with the Securities and Exchange Commission and is available to investors upon
request and without charge by calling the Funds' Distributor at (800) 426-3863.
The Statement of Additional Information, as it may from time to time be revised,
is incorporated in its entirety by reference into this Prospectus.
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
1
<PAGE> 5
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.
Y Shares are available to institutional investors who purchase such shares
through cash management services, such as a sweep account ("Sweep Account")
offered by Bank of America National Trust and Savings Association, any of its
banking or brokerage affiliates ("Bank of America") and certain other financial
service organizations, such as banks or broker-dealers ("Service
Organizations"). A Sweep Account combines a deposit account (the "Transaction
Account") with a daily sweep of balances to or from the Prime and Treasury
Funds. Bank of America its affiliates or Service Organizations, as applicable,
are responsible for providing institutions investing in Y Shares through a Sweep
Account with Sweep Account materials (the "Sweep Materials") describing the
various features and operations of the Sweep Account. The Sweep Materials should
be reviewed in conjunction with this Prospectus.
Bank of America National Trust and Savings Association (the "Investment
Adviser") San Francisco, California acts as investment adviser to the Funds.
Concord Financial Group, Inc. (the "Distributor") sponsors the Funds and acts as
their distributor and The BISYS Group, Inc. acts as their administrator, neither
of which is affiliated with the Investment Adviser.
Portfolio securities held by each Fund have remaining maturities of thirteen
months or less from the date of purchase by the Fund. Portfolio securities which
have certain put or demand features exercisable by a Fund within thirteen months
(as well as certain U.S. Government obligations with floating or variable
interest rates) and securities held as collateral for repurchase agreements may
have longer maturities.
2
<PAGE> 6
Contents
Summary 5
Expense Information 9
Investment Objectives and Policies 23
Management of the Funds 30
Purchase and Redemption of Shares 34
Additional Shareholder Services 37
Dividends and Distributions 37
Taxes 37
Description of Shares 38
Distributor: Investment Adviser:
Concord Financial Group, Inc. Bank of America National Trust
3435 Stelzer Road and Savings Association
Columbus, OH 43219 555 California Street
San Francisco, CA 94104
For purchase and redemption orders, yield information and
other Fund information call (800) 426-3863
3
<PAGE> 7
Summary
The following summary is qualified in its entirety by reference to the more
detailed information included elsewhere in the Prospectus.
Y Shares: The Prime Fund and the Treasury Fund each issue
Y Shares. Y Shares represent interests in a
particular Fund's investment portfolio. Y Shares
are identical to other share classes in all
respects except that Y Shares of the Prime and
Treasury Funds bear fees payable to the
Distributor for distribution and shareholder
servicing expenses at the annual rate of up to
0.75% and 0.25% respectively of the average daily
net assets of such Fund's Y Shares. In addition,
Y Shares of the Prime and Treasury Funds have
certain exclusive voting rights on matters
submitted to a vote of shareholders pertaining to
the Distribution and Services Plan relating to a
particular series of such funds. 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.
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
4
<PAGE> 8
investment risks that differ from debt obligations
of domestic issuers. The market value of the
Funds' portfolio securities will normally vary
inversely with prevailing interest rates. See
"Investment Objectives and Policies."
Net Asset Value: Each Fund seeks to maintain its net asset value
per share at $1.00, and values its portfolio
securities on the basis of amortized cost. The
dollar weighted average maturity of each Fund is
90 days or less. See "Purchase and Redemption of
Shares--Net Asset Value."
Investment Adviser: Bank of America National Trust and Savings
Association (the "Investment Adviser") is the
investment adviser of each Fund. The Investment
Adviser is a national banking association formed
in 1904 which provides commercial banking and
trust business through an extensive system of
branches across the western United States. The
Investment Adviser's principal banking affiliates
operate branches in ten U.S. states as well as
corporate banking, business credit and thrift
offices in major U.S. cities. In addition, it has
branches, corporate offices and representative
offices in 36 countries. The Investment Adviser
is the successor by merger to Security Pacific
National Bank ("Security Pacific"), which
previously served as investment adviser to the
Company since the commencement of its operations
in 1984. The Investment Adviser and its
affiliates have over $__ billion under management,
including over $__ billion in mutual funds. See
"Management of the Funds."
Distributor and
Administrator: Concord Financial Group, Inc. (the "Distributor")
sponsors the Funds and acts as their distributor.
The Distributor is an indirect, wholly-owned
subsidiary of the BISYS Group, Inc. (the
"Administrator"), which acts as the Funds'
administrator. See "Management of the Funds--
Administrator."
Advisory, Administration
and Distribution Fees: For their respective services the Investment
Adviser and the Administrator each receive fees at
the maximum annual rate of .10% of each Fund's net
assets. These fees are subject to decrease as the
net assets of the respective Funds increase. No
fee is payable by the Funds to the Distributor for
its distribution services. See "Management of the
Funds."
Investing in the Funds: Y Shares of the Prime and Treasury Funds are
available to institutional investors who purchase
such shares through cash management services, such
as a sweep account ("Sweep Account") offered by
Bank of America National Trust and Savings
Association, any of its banking or brokerage
affiliates ("Bank of America") and certain other
financial service organizations, such as
5
<PAGE> 9
broker-dealers ("Service Organizations"). A
Sweep Account combines a deposit account (the
"Transaction Account") with a daily sweep of
balances to or from the Prime and Treasury
Funds' Y Shares. Y Shares may be purchased on
any Business Day (as defined below) that Bank
of America and the particular Service
Organization are open for business by making
a deposit into your Transaction Account. All
transaction orders are processed by the
Company at the net asset value next
determined after the order is received. See
"Purchase and Redemption of Shares--How Y
Shares Are Purchased."
Redemption of Investment: With respect to Y Shares of the Prime and Treasury
Fund, if withdrawals and charges to your Sweep
Account exceed deposits and credits, Bank of
America or the particular Service Organization, as
applicable, will transmit a redemption order on
your behalf to the appropriate Fund in the dollar
amount of that day's Net Sweep Amount.
Redemptions are effected by the Company on a
Business Day at the net asset value per share next
determined after receipt of the redemption order
by the Transfer Agent. See "Purchase and
Redemption of Shares--How Y 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 their sub-custodian.
BISYS Fund Services, Inc. serves as the Funds'
transfer and dividend disbursing agent.
6
<PAGE> 10
Expense Information
The following table sets forth certain information regarding the shareholder
transaction expenses imposed by Y Shares of the Prime and Treasury Funds and the
annual operating expenses expected to be incurred by Y Shares of the Funds
during their first twelve months of operations. Actual expenses may vary.
Hypothetical examples based on the table are also shown.
Prime Treasury
Y Shares (1) Y Shares (1)
------------ ------------
Shareholder Transaction Expenses
Sales Load Imposed on Purchases None None
Sales Load Imposed on Reinvestment
Dividends None None
Sales Load Imposed on Redemptions(2) None None
Deferred Sales Load None None
Redemption Fees None None
Exchange Fees None None
Annual Operating Expenses
(as a percentage of average net assets)
Management Fees(3) (After Fee Waivers) % %
--- ---
Rule 12b-1 Fees (3), (4) % %
--- ---
Shareholder Services Fees % %
--- ---
All Other Expenses % %
--- ---
Total Operating Expenses % %
--- ---
(1) Additional fees charged by Bank of America or Service Organizations related
to the Sweep Account are not included in this table. For additional
information with respect to Sweep Account fees and charges, including a
description of the services available to Sweep Account holders, you should
refer to the Sweep Materials.
(2) The Company reserves the right to impose a charge for wiring redemption
proceeds.
(3) Without fee waivers and expense reimbursements, the Funds incur an
investment advisory fee and an administration fee, each payable at a
maximum annual rate of .10% of each Fund's average daily net asset value.
(4) Because of the Distribution and Services Plan Payment paid by Y Shares as
shown in the above table, long-term Class Y shareholders may pay more than
the economic equivalent of the maximum front-end sales charge permitted by
the National Association of Securities Dealers, Inc.
7
<PAGE> 11
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:
Prime Fund
Y Shares $ $ $ $
--- --- --- ---
Treasury Fund
Y Shares $ $ $ $
--- --- --- ---
The foregoing Expense Summary and Example are intended to assist investors in Y
Shares of the Prime and Treasury Funds in understanding the various shareholder
transaction and operating expenses of that 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> 12
Financial Highlights
On March 30, 1984, the Company commenced its public sale of shares (Pacific
Horizon Shares) in each of the Prime Fund and Treasury Fund, which were
originally called "Money Market Portfolio" and "Government Money Market
Portfolio," respectively. On January 19, 1990, the Prime Fund and Treasury Fund
of The Horizon Funds (the "Predecessor Prime Fund" and the "Predecessor Treasury
Fund") were combined with the Money Market Portfolio and Government Money Market
Portfolio of the Company; the Company changed the names of its resulting
portfolios to "Prime Fund" and "Treasury Fund;" and the Company began offering
Horizon Shares and Horizon Service Shares in the Prime and Treasury Funds. On
April 7, 1997 the Company began offering S Shares in the Prime Fund. The Company
has also classified an X Share class and a Y Share class of the Prime and
Treasury Funds and an S Share class of the Treasury Funds. Pacific Horizon
Shares, Horizon Shares, Horizon Service Shares, X Shares and S Shares of each
Fund are offered through other 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.
Y Shares bear the expense of a distribution and services plan (the "Distribution
and Services Plan") at an annual rate not to exceed 1.00% of the average daily
net asset value of the Prime and Treasury Funds' outstanding Y Shares. See
"Description of Shares" below for certain differences among the Pacific Horizon
Shares, Horizon Shares, Horizon Service Shares, S Shares, X Shares and Y 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 tables are presented for informational purposes only. Actual
investment results of the Class Y Shares of the Prime and Treasury Funds may be
different. The information contained in the Financial Highlights insofar as it
pertains to each of the six fiscal years in the six year period ended February
28, 1997 has been audited by [ ], independent accountants for these two Funds,
whose unqualified report on the financial statements containing such information
is incorporated by reference into the Statement of Additional Information, which
may be obtained upon request. The information contained in the Financial
Highlights for each of the three years in the period ended February 28, 1989 was
audited by other independent accountants whose report thereon dated April 20,
1989 expressed an unqualified opinion on the statements containing such
information. The Financial Highlights should be read in conjunction with the
financial statements and notes thereto and the unqualified report of independent
accountants which are incorporated by reference into the Statement of Additional
Information.
9
<PAGE> 13
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,
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from Investment Operations:
Net investment income.................................... 0.0539 0.0424 0.0287 0.0340
Net realized gain (loss) on securities................... 0.0004 (0.0227) (0.0016) 0.0000
------- ------- ------- -------
Total income from investment operations.................. 0.0543 0.0197 0.0271 0.0340
Less Distributions:
Dividends from net investment income..................... (0.0539) (0.0422) (0.0287) (0.0341)
Increase due to voluntary capital
contribution from investment adviser................... 0.0000 0.0233 0.0000 0.0000
Net change in net asset value per share.................. 0.0004 0.0008 (0.0016) (0.0001)
------- ------- ------- -------
Net asset value per share, end of year................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return............................................. 5.53% 4.30%** 2.91% 3.45%
Ratios/Supplemental Data:
Net assets, end of year (millions)....................... $ 2,200 $ 1,129 $ 1,216 $ 992
Ratio of expenses to average net assets.................. 0.55%* 0.51%* 0.52%* 0.55%
Ratio of net investment income to
average net assets..................................... 5.37%* 4.19%* 2.86%* 3.42%
</TABLE>
<TABLE>
<CAPTION>
Prime Fund+
--------------------------------------------------------
Year Ended
--------------------------------------------------------
Feb. 29, Feb. 28, Feb. 28, Feb. 28, Feb. 29,
1992 1991 1990 1989 1988
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from Investment Operations:
Net investment income.................................... 0.0558 0.0762 0.0855 0.0738 0.0643
Net realized gain (loss) on securities................... 0.0005 (0.0001) 0.0001 (0.0002) 0.0003
------- ------- ------- -------
Total income from investment operations.................. 0.0563 0.0761 0.0856 0.0736 0.0646
Less Distributions:
Dividends from net investment income..................... (0.0557) (0.0762) (0.0855) (0.0738) (0.0643)
Increase due to voluntary capital
contribution from investment adviser................... 0.0000 0.0000 0.0000 0.0000 0.0000
Net change in net asset value per share.................. 0.0006 (0.0001) 0.0001 (0.0002) 0.0003
------- ------- ------- -------
Net asset value per share, end of year................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return............................................. 5.72% 7.89% 8.90% 7.63%++ 6.62%++
Ratios/Supplemental Data:
Net assets, end of year (millions)....................... $ 1,413 $ 1,086 $ 890 $ 921 $ 957
Ratio of expenses to average net assets.................. 0.56% 0.56% 0.63% 0.63% 0.58%
Ratio of net investment income to
average net assets..................................... 5.51% 7.61% 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.
** 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.
10
<PAGE> 14
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,
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- -------
Income from Investment Operations:
Net investment income.................................... 0.0527 0.0405 0.0262 0.0309
Net realized gain (loss) on securities................... 0.0011 0.0001 (0.0002) 0.0000
------- ------- ------- -------
Total income from investment operations.................. 0.0538 0.0406 0.0260 0.0309
------- ------- ------- -------
Less Dividends and Distributions:
Dividends from net investment income..................... (0.0527) (0.0405) (0.0262) (0.0311)
------- ------- ------- -------
Net change in net asset value per share.................. 0.0011 0.0001 (0.0002) (0.0002)
------- ------- ------- -------
Net asset value per share, end of year................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= =======
Total return............................................. 5.40% 4.13% 2.65% 3.15%
Ratios/Supplemental Data:
Net assets, end of year (millions)....................... $ 1,091 $ 1,132 $ 1,577 $ 1,746
Ratio of expenses to average net assets.................. 0.57%* 0.55% 0.55% 0.56%
Ratio of net investment income to average
net assets............................................. 5.24%* 3.99% 2.62% 3.11%
</TABLE>
<TABLE>
<CAPTION>
Treasury Fund+
--------------------------------------------------------
Year Ended
--------------------------------------------------------
Feb. 29, Feb. 28, Feb. 28, Feb. 28, Feb. 29,
1992 1991 1990 1989 1988
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income.................................... 0.0512 0.0731 0.0833 0.0712 0.0587
Net realized gain (loss) on securities................... 0.0002 0.0006 0.0004 (0.0005) (0.0003)
------- ------- ------- ------- -------
Total income from investment operations.................. 0.0514 0.0737 0.0837 0.0707 0.0584
------- ------- ------- ------- -------
Less Dividends and Distributions:
Dividends from net investment income..................... (0.0513) (0.0733) (0.0830) (0.0709) (0.0587)
------- ------- ------- ------- -------
Net change in net asset value per share.................. 0.0001 0.0004 0.0007 (0.0002) 0.0003
------- ------- ------- ------- -------
Net asset value per share, end of year................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
Total return............................................. 5.25% 7.58% 8.62% 7.33%++ 6.08%++
Ratios/Supplemental Data:
Net assets, end of year (millions)....................... $ 2,300 $ 1,663 $ 1,144 $ 1,048 $ 947
Ratio of expenses to average net assets.................. 0.56% 0.55% 0.55% 0.54% 0.56%
Ratio of net investment income to average
net assets............................................. 5.07% 7.29% 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.
11
<PAGE> 15
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.
Additionally, the yields of each Fund may be compared to those of other mutual
funds with similar investment objectives and to other relevant indices or to
rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
Funds' yields may be compared to Donoghue's Money Fund Averages, which are
averages compiled by Donoghue's Money Fund Report. Yield data as reported in
national financial publications, including Money, Forbes, Barron's, The Wall
Street Journal and The New York Times, or in publications of a local or regional
nature, may also be used in comparing the yields of the Funds. A complete
listing of the indices, rankings and publications discussed above is contained
in the Statement of Additional Information.
Since yields fluctuate, yield data cannot necessarily be used to compare an
investment in the shares of a Fund with bank deposits, savings accounts and
similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that yield
is generally a function of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses and market conditions. Any
fees charged by the Investment Adviser or institutional investors directly to
their customer accounts in connection with investments in shares of the Funds
(which fees may include, for example, account maintenance fees, compensating
balance requirements or fees based upon account transactions, assets or income)
will not be included in the Funds' calculations of yield.
Investment Objectives and Policies
This section describes the investment objective and policies of each Fund.
Assets of the Funds will be invested in dollar-denominated debt securities with
remaining maturities of thirteen months or less as defined by the Securities and
Exchange Commission, and the dollar-weighted average portfolio maturity of each
Fund will not exceed 90 days. All securities acquired by the Funds will be
determined by the investment adviser, under guidelines established by the
Company's Board of Directors, to present minimal credit risks. Securities
acquired by the Funds will be U.S. Government securities or other "First Tier
Securities" (as defined by the Securities and Exchange Commission) of the types
described below. First Tier Securities consist of instruments that are either
rated at the time of purchase in the top rating category by one (if rated by
only one) or more unaffiliated nationally recognized statistical rating
organizations ("NRSROs") including Standard and Poor's Ratings Group, Division
of McGraw-Hill ("Standard & Poor's"), Moody's Investors Service, Inc.
("Moody's"), Duff & Phelps Credit Co. ("Duff & Phelps") or Fitch Investors
Service, Inc. ("Fitch") or are issued by issuers with such ratings. The Appendix
to the Statement of Additional Information includes a description of the
applicable NRSRO ratings. Unrated instruments (including instruments with
long-term but no short-term ratings) purchased by a particular Fund will be of
comparable quality to the rated instruments that the Fund may purchase, as
determined by the Funds' investment adviser pursuant to guidelines approved by
the Board of Directors.
12
<PAGE> 16
Prime Fund. The Prime Fund's investment objective is to seek high current income
and stability of principal. The Fund invests substantially all of its assets in
a diversified portfolio of U.S. dollar-denominated money market instruments such
as bank certificates of deposit and bankers' acceptances, commercial paper
(including variable and floating rate instruments) and repurchase agreements, in
addition to obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. Portfolio securities held by the Fund have
remaining maturities of thirteen months or less from the date of purchase by the
Fund. (Portfolio securities which are subject to repurchase agreements or have
certain put or demand features exercisable by the Fund within thirteen months,
as well as certain U.S. Government obligations with floating or variable
interest rates, may have longer maturities.)
In pursuing its investment objective, the Prime Fund invests in a broad range of
government, bank and commercial obligations that may be available in the money
markets. The money market instruments in which the Fund invests will generally
have neither as much risk nor as high a return as longer-term or lower-rated
instruments. In accordance with current regulations of the Securities and
Exchange Commission, the Fund intends to limit its investments in the securities
of any single issuer (other than securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities) to not more than 5% of the Fund's
total assets at the time of purchase, provided that the Fund may invest up to
25% of its total assets in the securities of any one issuer for a period of up
to three business days.
The Prime Fund may purchase bank obligations such as certificates of deposit and
bankers' acceptances issued or supported by the credit of domestic banks,
foreign branches of domestic banks ("Euro CDs") or domestic branches of foreign
banks ("Yankee CDs" and "Yankee BAs") or foreign branches of foreign banks
("Yankee Euros"). Such banks must have total assets at the time of purchase in
excess of $2.5 billion. No more than 25% of the Prime Fund's total assets at the
time of purchase may be invested in Yankee CDs and BAs, Euro CDs and Yankee
Euros. The Fund may also make interest-bearing savings deposits in such
commercial banks in amounts not in excess of 5% of the Fund's total assets.
The Prime Fund may be subject to additional investment risks because the Fund
may hold securities issued by foreign branches of domestic banks, domestic
branches of foreign banks and foreign branches of foreign banks (and, as
described below, commercial paper issued by foreign issuers). These risks are
different in some respects from those incurred by a fund which invests only in
debt obligations of U.S. domestic issuers. Such risks include future political
and economic developments, the possible imposition of withholding taxes on
interest income payable on the securities by the particular country in which the
branch is located, the possible seizure or nationalization of foreign deposits,
the possible establishment of exchange controls or the adoption of other foreign
governmental restrictions which might adversely affect the payment of principal
and interest on these securities. In addition, foreign branches of domestic
banks, domestic branches of foreign banks and foreign branches of foreign banks
are not necessarily subject to the same regulatory requirements that apply to
domestic branches of domestic banks (such as reserve requirements, loan
limitations, examinations, accounting, auditing and recordkeeping requirements,
and public availability of information) and the Fund may experience difficulties
in obtaining or enforcing a judgment against the issuing bank.
The Prime Fund may purchase commercial paper, short-term notes and corporate
bonds that meet the Fund's maturity limitations. Commercial paper purchased by
the Prime Fund may include instruments issued by foreign issuers, such as
Canadian Commercial Paper ("CCP"), which is U.S. dollar-denominated commercial
paper issued by a Canadian corporation or a Canadian counterpart of a U.S.
corporation, and Europaper, which is U.S. dollar-denominated commercial paper of
a foreign issuer.
13
<PAGE> 17
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.
Common Investment Policies
Government Obligations. The Prime 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 Fund may only invest in stripped securities
14
<PAGE> 18
issued by the U.S. Treasury and recorded in the Federal Reserve book-entry
record-keeping system. A number of securities firms and banks have stripped the
interest coupons and resold them in custodian receipt programs with different
names such as Treasury Income Growth Receipts ("TIGRs") and Certificates of
Accrual on Treasuries ("CATS"). Privately-issued stripped securities such as
TIGRs and CATS are not themselves guaranteed by the U.S. Government, but the
future payment of principal or interest on U.S. Treasury obligations which they
represent is so guaranteed.
Repurchase Agreements. Each 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 other financial institutions, and
agree to repurchase them at an agreed upon date and price. At the time a Fund
enters into a reverse repurchase agreement, it will place in a segregated
custodial account liquid assets or high grade debt securities having a value
equal to or greater than the repurchase price and the Company's investment
adviser will continuously monitor the account to ensure that the value is
maintained. A Fund would only enter into reverse repurchase agreements to avoid
otherwise selling securities during unfavorable market conditions to meet
redemptions. Reverse repurchase agreements involve the risk that the market
value of the portfolio securities sold by a Fund may decline below the price of
the securities such Fund is obligated to repurchase. Interest paid by a Fund in
connection with a reverse repurchase agreement will reduce the net investment
income of such Fund. Reverse repurchase agreements are considered to be
borrowings under the Investment Company Act of 1940.
Variable and Floating Rate Instruments. Securities purchased by a Fund may
include variable and floating rate instruments, which may have a stated maturity
in excess of a Fund's maturity limitations but which will, except for certain
U.S. Government obligations, permit a Fund to demand payment of the principal of
the instrument at least once every thirteen months upon not more than thirty
days' notice. Variable and floating rate instruments 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.
15
<PAGE> 19
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 future changes in interest rates. Delayed settlement describes a securities
transaction in a secondary market for which settlement will occur sometime in
the future. When-issued, forward commitment and delayed settlement transactions
involve the risk, however, that the yield or price obtained in a transaction may
be less favorable than the yield or price available in the market when the
securities delivery takes place. The Funds' forward commitments, when-issued
purchases and delayed settlements are not expected to exceed 25% of the value of
the total assets of a particular Fund absent unusual market conditions. A Fund's
liquidity and the ability of its investment adviser to manage its portfolio may
be adversely affected in the event a Fund's forward commitments, commitments to
purchase when-issued securities and delayed settlements ever exceed 25% of the
value of its total assets. The Funds do not intend to engage in these
transactions for speculative purposes but only in furtherance of their
investment objectives.
Investment Limitations. The investment objectives of the Prime and Treasury
Funds 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
16
<PAGE> 20
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 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.
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.
17
<PAGE> 21
Management of the Funds
Board of Directors. The business of the Company is managed under the direction
of its Board of Directors. Information about the Directors and officers of the
Company is included in the Statement of Additional Information.
Investment Adviser. Bank of America National Trust and Savings Association (the
"Investment Adviser") serves as investment adviser to each Fund. The Investment
Adviser, which has principal offices located at 555 California Street, San
Francisco, California 94104, is a national banking association formed in 1904
which provides commercial banking and trust business through an extensive system
of branches across the western United States. The Investment Adviser's principal
banking affiliates operate branches in ten U.S. states as well as corporate
banking, business credit and thrift offices in major U.S. cities. In addition,
it has branches, corporate offices and representative offices in 36 countries.
The Investment Adviser is the successor by merger to Security Pacific National
Bank ("Security Pacific"), which previously served as investment adviser to the
Company since it commenced operations in 1984. The Investment Adviser and its
affiliates have over $__ billion under management, including over $__ billion in
mutual funds. Bank of America is a subsidiary of BankAmerica Corporation, a
registered bank holding company.
The Investment Adviser manages the investments of the Funds and is responsible
for all purchases and sales of the Funds' portfolio securities. For its
investment advisory services the Investment Adviser is entitled to receive a fee
accrued daily and payable monthly at the following annual rates: .10% of the
first $3 billion of each Fund's net assets, plus .09% of the next $2 billion of
each Fund's net assets, plus .08% of each Fund's net assets over $5 billion. For
the fiscal year ended February 28, 1997, the Prime Fund and Treasury Fund paid
the Investment Adviser advisory fees at the effective annual rates of .__% and
.__% of such Funds' respective average daily net assets.
In addition, Bank of America may receive fees pursuant to the Distribution and
Services Plan with respect to the Prime and Treasury Funds' Y Shares. Bank of
America and Service Organizations may receive fees charged directly to their
customers' accounts in connection with investments in Y Shares of the Prime and
Treasury Funds.
Administrator. The BISYS Group, Inc. (the "Administrator"), through its
wholly-owned subsidiary BISYS Fund Services, L.P., serves as the Company's
administrator and assists generally in supervising the Funds' operations. Their
offices are located at 150 Clove Road, Little Falls, New Jersey 07424 and 3435
Stelzer Road, Columbus, Ohio 43219. Prior to November 1, 1996, Concord Holding
Corporation, an indirect, wholly-owned subsidiary of the current Administrator,
served as administrator.
Under its basic administrative services agreement for the Funds, the
Administrator has agreed to provide facilities, equipment and personnel to carry
out administrative services that are for the benefit of all series of shares in
the Funds, including coordination of reports to shareholders and the Securities
and Exchange Commission; calculation of the net asset value of the Funds' shares
and dividends and capital gains distributions to shareholders; payment of the
costs of maintaining the Funds' offices; preparation of tax returns; provision
of internal legal and accounting compliance services; maintenance (or oversight
of the maintenance by others approved by the Board of Directors) of the Funds'
books and records; and the provision of various services for shareholders who
have made a minimum initial investment of at least $500,000, including the
provision of a facility to receive purchase and redemption orders for the
accounts of such shareholders.
For its administrative services the Administrator is entitled to receive an
administration fee computed daily and payable monthly at the following annual
18
<PAGE> 22
rates: .10% of the first $7 billion of each Fund's net assets, plus .09% of the
next $3 billion of each Fund's net assets, plus .08% of each Fund's net assets
over $10 billion. This amount may be reduced pursuant to certain undertakings by
the Administrator described below under "Fee Waivers." For the fiscal year ended
February 28, 1997, the Prime Fund and Treasury Fund paid the Administrator
administration fees at the effective annual rates of .___% and .___% 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 their 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.
Distribution and Services Plan. Under the Distribution and Services Plan, the
Prime and Treasury Funds pay the Distributor for distribution expenses primarily
intended to result in the sale of such Funds' Y Shares and for shareholder
servicing expenses. Such distribution expenses include expenses incurred in
connection with advertising and marketing each Fund's Class Y Shares; payments
to Service Organizations for assistance in connection with the distribution of Y
Shares; and expenses incurred in connection with preparing, printing and
distributing prospectuses for the Funds (except those used for regulatory
purposes or for distribution to existing shareholders of the Funds) and in
implementing and operating the Distribution and Services Plan. Shareholder
servicing expenses include expenses incurred in connection with shareholder
services provided by the Distributor and payments to Service Organizations for
the provision of support services with respect to the beneficial owners of Y
Shares, such as establishing and maintaining accounts and records relating to
their clients who invest in Y Shares, assisting clients in processing exchange
and redemption requests, developing, maintaining and supporting systems
necessary to support cash management services, such as Sweep Accounts and/or in
changing dividend options and account descriptions and responding to client
inquiries concerning their investments.
19
<PAGE> 23
Under the Distribution and Services Plan, payments by the Prime and Treasury
Funds for distribution expenses and shareholder servicing expenses may not
exceed the annual rate of up to 0.75% and 0.25%, respectively of the average
daily net assets of such Funds' Y Shares. These amounts may be reduced pursuant
to undertakings by the Distributor. Payments for distribution expenses under the
Distribution and Services Plan are subject to Rule 12b-1 under the 1940 Act. As
stated below under "Description of Shares," fees pursuant to the Distribution
and Services Plan are borne by the S, X and Y Shares of the Prime and Treasury
Funds and are not paid with respect to such Funds' other series of shares.
The Company will obtain a representation from the Service Organizations (and
from Bank of America and the Distributor) that they are or will be licensed as
dealers as required by applicable law or will not engage in activities which
would require them to be so licensed.
Fee Waivers. Except as noted in this Prospectus and the Statement of Additional
Information, the Funds' service contractors bear all expenses in connection with
the performance of their services and the Funds bear the expenses incurred in
their operations. From time to time during the course of the Funds' fiscal year,
the Administrator and/or the Investment Adviser may prospectively waive payment
of fees and/or assume certain expenses of a Fund as a result of competitive
pressures and in order to protect the business and reputation of the
Administrator and Investment Adviser. This will have the effect of lowering the
overall expense ratio of the Fund involved and of increasing such Fund's yield
to investors at the time such fees are not received or amounts are assumed and
of increasing the overall expense ratio of such Fund and of decreasing yield to
investors when such fees are not waived or amounts are not reimbursed.
Purchase and Redemption of Shares
How Y Shares Are Purchased. Y Shares of the Prime and Treasury Funds are offered
by this Prospectus to institutional customers of Bank of America, its banking or
brokerage affiliates or Service Organizations that establish cash management
services, such as a Sweep Account with Bank of America or a Service
Organization. Each Sweep Account combines a Transaction Account with a periodic
sweep of balances to or from the Prime and Treasury Funds. Investors may open a
Sweep Account by completing and signing the appropriate Sweep Materials. The
Sweep Materials contain important information about the various features and
operations of the Sweep Account and should be reviewed in conjunction with this
Prospectus.
Y Shares may be purchased on any Business Day (as defined below) that Bank of
America and the particular Service Organization are open for business by making
a deposit into your Transaction Account. On each day that both the Prime and
Treasury Funds' custodian and the New York Stock Exchange (the "Exchange") are
open for business (a "Business Day") and Bank of America, its affiliates and a
Service Organization are open for business, Bank of America, its 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, its affiliates or
a Service Organization, on your behalf, to transmit a purchase order to the Fund
designated in your Sweep Account in the amount of that day's Net Sweep Amount in
accordance with the Sweep Account procedures of Bank of America, its affiliates
or a Service Organization. Your purchase order will be made effective and full
and fractional Y Shares will be purchased at the net asset value per share next
determined after receipt by the Transfer Agent. It is the responsibility of Bank
of America, its affiliates or a Service Organization to transmit orders for the
purchases of Y Shares by its customers to the Transfer Agent and deliver
required funds on a timely basis, in accordance with the procedures stated
above. Share purchases and redemptions executed through Bank of America, its
affiliates or a Service Organization are executed only on Business Days that
Bank of America, its affiliates or a Service Organization, respectively, is open
for business.
20
<PAGE> 24
Contact Bank of America, its affiliates or your Service Organization for
additional information about Bank of America's, its affiliates or the Service
Organization's Sweep Account procedures.
How Y Shares Are Redeemed. If, on any Business Day Bank of America, its
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, its
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, its affiliates or
the particular Service Organization, as applicable, is closed as described in
the Sweep Materials, Bank of America, its 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 Y 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, its
affiliates or the particular Service Organization to transmit the redemption
order and credit its customer's Transaction Account with the redemption proceeds
on a timely basis. Bank of America, its 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. 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 Y Shares are
redeemed.
Net Asset Value. The net asset value per share of the Y Shares of the Prime and
Treasury Funds is the value of all securities and other assets owned by a Fund
that are allocable to the Y 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 Funds 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, 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 Horizon, Horizon Service, X, S or Y Shares of the Prime and
Treasury Funds.
Dividends and Distributions
The shareholders of a Fund are entitled to dividends and distributions arising
from the net investment income and net realized gains, if any, earned on
21
<PAGE> 25
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. Reinvestment dividends receive the
same tax treatment as dividends of other series paid in cash.
Taxes
Federal. During its most recent taxable year, each Fund qualified separately as
a "regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"), and each Fund intends to so qualify in future years, as
long as such qualification is in the best interest of its shareholders. As a
result of this qualification, each Fund generally is not required to pay federal
income taxes to the extent its earnings are distributed in accordance with the
Code.
In connection with such tax qualification, each Fund contemplates declaring as
dividends at least 90% of its investment company taxable income for each taxable
year. An investor of any Fund who receives a dividend derived from investment
company taxable income (including any excess of net short-term capital gain over
net long-term capital loss) treats it as a receipt of ordinary income in the
computation of his gross income, whether such dividend is paid in the form of
cash or additional shares of a Fund. Because all of the net investment income of
the Funds is expected to be derived from earned interest, it is anticipated that
all dividends paid by the Funds will be taxable as ordinary income to
shareholders who are not exempt from federal income taxes and that no part of
any distribution paid by the Funds will be eligible for the dividends received
deduction for corporations.
Although the Funds anticipate that they will not have net long-term capital
gain, any distribution of a Fund's excess of net long-term capital gain over its
net short-term capital loss will be taxable to shareholders of that Fund as
long-term capital gain, regardless of how long the shareholder has held shares
of the Fund.
Dividends declared in October, November or December of any calendar year payable
to shareholders of record on a specified date in December will be deemed for
federal tax purposes to have been paid by the Funds and received by the
shareholders on December 31 of such year, if such dividends are paid during
January of the following year.
The foregoing is only a brief summary of some of the important federal income
tax considerations generally affecting the Funds and their shareholders, and is
based on federal tax laws and regulations which are in effect as of the date of
this Prospectus. Such laws and regulations may be changed by legislative or
administrative actions. Additional tax information of relevance to particular
investors is contained in the Statement of Additional Information. Potential
investors in the Funds should consult their tax advisers with specific reference
to their own tax situation. Shareholders will be advised at least annually as to
the federal income tax consequences of dividends and distributions made each
year.
State and Local. Investors are advised to consult their tax advisers concerning
the application of state and local taxes, which may have different consequences
from those of the federal income tax law described above.
22
<PAGE> 26
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. On July 22, 1996,
the Company began offering X Shares in the Prime and Treasury Funds and on April
7, 1997, the Company began offering S Shares in the Prime Fund. The Company has
also classified an S share class of the Treasury Fund and a Y Share class of the
Prime and Treasury Funds. X Shares are offered to retail customers who purchase
such shares through a sweep account offered by BA Investment Services, Inc. and
certain Service Organizations. Pacific Horizon 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 be purchased through institutions. S Shares may be purchased
by retail investors who purchase such shares through a sweep account offered by
Bank of America or its affiliates and certain Service Organizations.
The Company's charter authorizes the Board of Directors to issue up to four
hundred billion full and fractional shares of capital stock, and to classify and
reclassify any authorized and unissued shares into one or more classes of
shares. The Board of Directors may similarly classify or reclassify any class of
shares into one or more series.
Pursuant to such authority, the Board of Directors has authorized the issuance
of the following series of shares representing interests in the Funds, each 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 Horizon
Shares, twenty billion Horizon Service Shares, twenty billion Pacific Horizon
Shares and twenty billion Y Shares representing interests in the Prime Fund; and
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, X Shares, Horizon Shares, Horizon Service Shares and S Shares of the
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 Y Shares of the Prime and Treasury Funds and
describes only the investment objectives and policies, operations, contracts and
other matters relating to such shares.
Each Horizon Share, Horizon Service Share, Pacific Horizon Share, S Share, X
Share and Y Share in a Fund has a par value of $.001, and, except as noted
below, is entitled to participate equally in the dividends and distributions
declared by the Board of Directors with respect to such Fund and in the net
distributable assets of such Fund on liquidation. Holders of Y Shares bear the
fees described in this Prospectus that are paid to the Distributor and Service
Organizations by the Funds under the Company's Distribution and Services Plan.
Similarly, holders of the Funds' X Shares and S Shares bear the fees described
in the prospectuses relating to such shares that are paid to the Distributor and
23
<PAGE> 27
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, 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 the Prospectus for such shares that are paid
to Shareholder Organizations by the Fund, under the Company's Shareholder
Services Plan. Similarly, holders of the Funds' Pacific Horizon Shares bear the
fees described in the Prospectus 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 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 the Prime and Treasury Funds' Y Shares generally will be
approximately 0.68% lower than the yield on the same Fund's Pacific Horizon
Shares, 0.75% lower than the yield on the same Fund's Horizon Service Shares,
1.00% lower than the yield on the same Fund's Horizon Shares, 0.45% lower than
the yield on the same Fund's X Shares and equal to the yield on the same Fund's
S 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 relating to
the particular series. Only holders of Pacific Horizon Shares will be entitled
to vote on matters submitted to a vote of shareholders pertaining to the Funds'
Special Management Services Plan. Shares have no preemptive rights and only such
conversion and exchange rights as the Board may grant at its discretion. When
issued for payment as described in this Prospectus, shares will be fully paid
and non-assessable. Certificates for shares will not be issued.
The Company does not presently intend to hold annual meetings of shareholders
for the election of directors and other business unless and until such time as
less than a majority of the directors holding office have been elected by the
shareholders of the Company, at which time the directors then in office will
call a shareholders' meeting for the election of directors. Under certain
circumstances, however, shareholders have the right to call a meeting of
shareholders to consider the removal of one or more directors and such meetings
will be called when requested by the holders of record of 10% or more of the
Company's outstanding shares of common stock. To the extent required by law and
the Company's undertaking with the Securities and Exchange Commission, the
Company will assist in shareholder communications in such matters. Shares have
cumulative voting rights to the extent that may be required by applicable law.
24
<PAGE> 28
PACIFIC HORIZON MUTUAL FUNDS
Y Shares of the
Prime Fund and
Treasury Fund
PROSPECTUS
, 1997
---------- --
NOT FDIC INSURED
25
<PAGE> 29
PACIFIC HORIZON FUNDS, INC.
Y Shares of the Prime Fund and Treasury Fund
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 of the Funds
15. Control Persons and Principal Holders of Management of the Funds;
Securities...................................... Miscellaneous
16. Investment Advisory and Other Services ......... Management of the Funds;
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 ............ Purchase and
Securities Being Offered Redemption of Shares
20. Tax Status...................................... Taxes
21. Underwriters.................................... Management of the Funds;
Distributor
22. Calculation of Performance Data................. Yield Information
<PAGE> 30
PACIFIC HORIZON FUNDS, INC.
Y Shares
of the
Prime Fund and Treasury Fund
, 1997
Statement Of Additional Information
TABLE OF CONTENTS
PAGE
The Company.............................................................. 2
Investment Objectives and Policies....................................... 2
Purchase and Redemption of Shares........................................ 14
Management of the Funds.................................................. 19
Taxes.................................................................... 34
Yield Information........................................................ 37
General Information...................................................... 38
Appendix A............................................................... A-1
-------------------------
This Statement of Additional Information applies to the Y Shares of the
Prime Fund and Treasury Fund (the "Funds") of Pacific Horizon Funds, Inc. (the
"Company"). This Statement of Additional Information is meant to be read in
conjunction with the Prospectus dated , 1997 with 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 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 Prospectus relating
to the Company's Y Shares may be obtained by calling Concord Financial Group,
Inc. at (800) 332-3863. Capitalized terms used but not defined herein have the
same meanings as in the Prospectuses.
-1-
<PAGE> 31
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 July 22, 1996, the
Prime Fund and Treasury Fund began offering X Shares. On April , 1997, the
Prime Fund began offering S Shares.
The Company offers other classes of shares, including Pacific Horizon
Shares, Horizon Shares, Horizon Services Shares, X Shares and S Shares, in the
Prime and Treasury Funds and also offers other series of shares in other
investment portfolios which are described in separate prospectuses and
statements of additional information. For further information, contact the
Distributor at the telephone number stated on the cover page of this statement
of additional information.
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 Prospectus for the Funds.
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 and Treasury 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
-2-
<PAGE> 32
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 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
-3-
<PAGE> 33
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 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:
-4-
<PAGE> 34
(a) the Treasury Fund held the following securities: [ ]; (b) the Government
Fund held the following securities: [ ] (c) the Prime Fund held the following
securities: [ ] (d) the U.S. Government Securities Fund held the following
securities: [ ] (e) the Corporate Bond Fund held the following securities: [ ]
(f) the Intermediate Bond Master Portfolio held the following securities: [ ]
(g) the Blue Chip Master Portfolio held the following securities: [ ] and (h)
the Asset Allocation Master Portfolio held the following securities: [ ]
Merrill Lynch & Co., Inc., Goldman, Sachs & Co., Bear Stearns Co.,
Inc., Morgan Stanley & Co. Incorporated, Shearson Lehman Brothers, Inc., Dean
Witter Reynolds, Inc. and Paine Webber are considered to be regular brokers and
dealers of the Company.
Portfolio Instruments
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 and Treasury Funds are "First
Tier Securities" as defined by the SEC. First Tier Securities consist of
instruments that are either rated at the time of purchase in the top rating
category by one or more unaffiliated nationally recognized statistical rating
organizations ("NRSROs") or issued by issuers with such ratings. Eligible
Securities consist of instruments that are either rated at the time of purchase
in the top two rating categories by one or more unaffiliated NRSROs or issued by
issuers with such ratings. See the Appendix to this statement of additional
information for a description of the applicable NRSRO
-5-
<PAGE> 35
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 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
-6-
<PAGE> 36
Mortgage Association. The Prime and Treasury Funds will not acquire obligations
issued by the International Bank for Reconstruction and Development, the Asian
Development Bank or the Inter-American Development Bank.
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, and
Tax-Exempt Money 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 Prospectus. Variable and
floating rate instruments are frequently not rated by credit rating agencies;
however, unrated variable and floating rate instruments purchased by a Fund will
be determined by the investment adviser under guidelines established by the
Company's Board of Directors to be of comparable quality at the time of purchase
to rated instruments eligible for purchase by such Fund. In making such
determinations, the investment adviser will consider the earning power, cash
flows and other liquidity ratios of the issuers of such instruments (such
issuers include financial, merchandising,
-7-
<PAGE> 37
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 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
-8-
<PAGE> 38
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. The purchase of 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 ("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
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
-9-
<PAGE> 39
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 Prime Fund 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."
Repurchase Agreements. The Prime Fund and Treasury Fund may enter into
repurchase agreements with respect to their portfolio securities as indicated in
the Prospectus. Pursuant to such agreements, a Fund purchases securities from
financial institutions such as banks and broker-dealers which are deemed to be
creditworthy by the investment adviser under guidelines approved by the Board of
Directors, subject to the seller's agreement to repurchase and the Fund's
agreement to resell such securities at a specified date and price. No Fund will
enter into repurchase agreements with Bank of America or Bank of America's
affiliates, nor will any Fund give preference to repurchase agreements with
Distribution Organizations (as defined below), Shareholder Organizations or
Service Organizations. The repurchase price generally equals the price paid by
the Fund plus interest negotiated on the basis of current short-term rates
(which may be more or less than the rate on the underlying portfolio security).
Securities subject to repurchase agreements will be held by the Funds' custodian
or a sub-custodian or in the Federal Reserve/Treasury book-entry system, and a
Fund will make payment for such securities only upon receipt of evidence of
physical delivery of the securities or of such book entry. The seller under a
repurchase agreement will be required to deliver instruments the value of which
is 102% of the repurchase price (excluding accrued interest), provided that
notwithstanding such requirement, the adviser shall require that the value of
the collateral, after transaction costs (including loss of interest reasonably
expected to be incurred on a default), shall be equal to or greater than the
resale price (including interest) provided in the agreement. If the seller
defaulted on its repurchase obligation, the Fund holding the 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.
-10-
<PAGE> 40
Reverse Repurchase Agreements. The Funds may also enter into reverse
repurchase agreements with respect to their securities. Whenever a Fund enters
into a reverse repurchase agreement, it will place in a segregated account
maintained with its custodian cash, U.S. Government securities and other liquid
high-grade debt securities having a value equal to the repurchase price
(including accrued interest) and will subsequently monitor the account for
maintenance of such equivalent value. Reverse repurchase agreements are
considered to be borrowings by a Fund under the Investment Company Act of 1940.
Investment Practices
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.
-11-
<PAGE> 41
The market value of the securities underlying a when- issued purchase,
a forward commitment to purchase securities, or a delayed settlement and any
subsequent fluctuations in their market value is taken into account when
determining the market value of a Fund starting on the day the Fund agrees to
purchase the securities. The Fund does not earn interest on the securities it
has committed to purchase until they are paid for and delivered on the
settlement date.
Loans of Securities. The Prime 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 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 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.
The Prime 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, the 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).
Investment Limitations
The Prospectuses for each Fund sets forth certain fundamental policies
that may not be changed with respect to such Fund without the affirmative vote
of the holders of the majority of the Fund's outstanding shares (as defined
below under "Miscellaneous"). Similarly, the following enumerated additional
-12-
<PAGE> 42
fundamental policies may not be changed with respect to a Fund without such a
vote of shareholders.
The Prime Fund may not:
1. Purchase securities of any one issuer (other than obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities)
if immediately thereafter more than 15% of its total assets would be invested in
certificates of deposit or bankers' acceptances of any one bank, or more than 5%
of its total assets would be invested in other securities of any one bank or the
securities of any other issuer (except that up to 25% of the Fund's total assets
may be invested without regard to this limitation).
In accordance with current regulations of the SEC, the Prime Fund
presently intends to limit its investments in the securities of any single
issuer (other than securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities) to not more than 5% of the Fund's total assets at
the time of purchase, provided that the Fund may invest up to 25% of its total
assets in the securities of any one issuer for a period that does not exceed
three business days. This intention is not, however, a fundamental policy of the
Fund.
The Prime Fund and Treasury 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).
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.
-13-
<PAGE> 43
* * *
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, the Prime Fund treats, in
accordance with the current views of the staff of the SEC and as a matter of
non-fundamental policy that may be changed without a vote of shareholders, all
supranational organizations as a single industry and each foreign government
(and all of its agencies) as a separate industry.
For purposes of Investment Limitation P. 6 of this Statement of
Additional Information with respect to the Prime Fund and Treasury 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
-14-
<PAGE> 44
committed that it will pay all redemption requests by a shareholder of record in
cash, limited in amount with respect to each shareholder during any ninety-day
period to the lesser of $250,000 or 1% of the Company's net asset value at the
beginning of such period.
Any institution purchasing shares on behalf of separate accounts will
be required to hold the shares in a single nominee name (a "Master Account").
Institutions investing in more than one Fund offered by the Company must
maintain a separate Master Account for each Fund. Institutions may arrange with
the Funds' transfer agent for certain sub-accounting services (such as purchase,
redemption and dividend record keeping).
National Banking Regulations
The Comptroller of the Currency has ruled that a national bank may
invest in shares of an investment company to the extent that the portfolio of
such company consists of investments in which the bank might invest directly. As
a national bank could invest directly without limitation in general obligations
of the U.S. Treasury and the portfolio of the Treasury Fund is limited to such
investments, national banks may acquire shares of the Treasury Fund without
limitation.
In addition, the regulations of the Comptroller of the Currency
provide that funds held in a fiduciary capacity by a national bank approved by
the Comptroller to exercise fiduciary powers must be invested in accordance with
the instrument establishing the fiduciary relationship and local law. In the
opinion of the Company's counsel, the purchase of shares of the Funds by such
national banks acting on behalf of their fiduciary accounts is not contrary to
applicable regulations if consistent with the particular account and proper
under the law governing the administration of the account. Prospective investors
should consult their advisers regarding the law applicable to their purchase of
shares.
Net Asset Value
In General. Each Fund's net asset value per share is calculated by
dividing the total value of the assets belonging to the Fund, less the value of
any liabilities applicable to the Fund, by the total number of outstanding
shares of that Fund. Each Fund's net asset value is calculated separately from
each of the other of the Company's Fund's net asset value. "Assets belonging to"
a Fund consist of the consideration received upon the issuance of shares
representing interests in the Fund together with all income, earnings, profits
and proceeds derived from the investment thereof, any proceeds from the sale,
exchange or liquidation of such investments, any funds or payments derived
-15-
<PAGE> 45
from any re-investment of such proceeds, and a portion of any general assets of
the Company not belonging to a particular Fund. Each Fund is charged with the
direct expenses of that Fund and with a share of the general expenses of the
Company. The determinations by the Board of Directors as to direct and allocable
expenses and the allocable portion of general assets with respect to the various
portfolios are conclusive. The expenses that are charged to a Fund are borne
equally by each share of the Fund except for payments to Shareholder
Organizations that are borne solely by Horizon Service Shares and certain
payments to Distribution or Service Organizations, including BA Investment
Services, Inc. ("BAIS"), that are borne solely by Pacific Horizon Shares, X
Shares, S Shares and Y Shares and Rule 12b-1 fees that are borne solely by X
Shares, S Shares and Y 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.
-16-
<PAGE> 46
In connection with their use of amortized cost valuation, the Funds
limit the dollar-weighted average maturity of their portfolios to not more than
90 days and do not purchase any instrument with a remaining maturity of greater
than 397 calendar days. The Company's Board of Directors has also established,
pursuant to rules promulgated by the SEC, procedures that are intended to
stabilize each Fund's net asset value per share for purposes of sales and
redemptions at $1.00. Such procedures include the determination, at such
intervals as the Board deems appropriate, of the extent, if any, to which a
Fund's net asset value per share calculated by using available market quotations
deviates from $1.00 per share. In the event such deviation exceeds 1/2 of 1% the
Board will promptly consider what action, if any, should be initiated. If the
Board believes that the amount of any deviation may result in material dilution
or other unfair results to investors or existing shareholders, it will take such
steps as it considers appropriate to eliminate or reduce to the extent
reasonably practicable any such dilution or unfair results. These steps may
include selling portfolio instruments prior to maturity, shortening a Fund's
average portfolio maturity, withholding or reducing dividends, reducing the
number of a Fund's outstanding shares without monetary consideration or
determining net asset value per share by using available market quotations. If a
Fund reduces the number of its 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.
-17-
<PAGE> 47
Y Shares
Institutions wishing to establish a Sweep Account at Bank of America,
its affiliates or at certain other Service Organizations, with respect to Y
Shares should contact Bank of America, its affiliate or a Service Organization
directly for appropriate instructions. Depending on the terms of the Sweep
Account, Bank of America, its affiliate or the Service Organization also may
charge their customers fees for automatic investment, redemption and other
services provided. Such fees may include, for example, account maintenance fees,
compensating balance requirements or fees based upon account transactions,
assets or income. Bank of America, its affiliate or the particular Service
Organization is responsible for providing information concerning these services
and any charges to any customers who must authorize the purchase of shares prior
to such purchase.
Miscellaneous. Certificates for shares will not be issued.
The Company may suspend the right of redemption or postpone the date
of payment for shares during any period when (a) trading on the New York Stock
Exchange is restricted by applicable rules and regulations of the SEC; (b) the
New York Stock Exchange is closed for other than customary weekend and holiday
closings; (c) the SEC has by order permitted such suspension; or (d) an
emergency exists as determined by the SEC. (The Company may also suspend or
postpone the recordation of the transfer of its shares upon the occurrence of
any of the foregoing conditions.)
The Company's Charter permits its Board of Directors to require a
shareholder to redeem involuntarily shares in a Fund if the balance held of
record by the shareholder drops below $500 and such shareholder does not
increase such balance to $500 or more upon 60 days' notice. The 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
-18-
<PAGE> 48
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
Board of Pacific Horizon
Funds, Inc. (1982 to
August 31, 1995); former
Trustee, Master
Investment Trust, Series
II (registered
investment company) 1993
to February 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
-19-
<PAGE> 49
Position with
Name and Address Age Company Principal Occupations
- ---------------- --- ------- ---------------------
investment companies
under its management,
prior to 1983; former
Allied Member, New York
Stock Exchange; Chairman
of the Board of FPA
Paramount Fund, Inc.
through 1984; Director,
TIS Mortgage Investment
Company (real estate
investment trust);
Trustee and former Vice
Chairman of the Board,
Claremont McKenna
College; Chartered
Financial Analyst.
Robert E. Greeley 64 Director Chairman, Page Mill
Page Mill Asset Asset Management (a
Management private investment
433 California Street company) since 1991;
Suite 900 Manager, Corporate
San Francisco, CA 94104 Investments, Hewlett
Packard Company from
1979 to 1991; Trustee,
Master Investment Trust,
Series I (since 1993);
Director, Morgan
Grenfell Small Cap Fund
(since 1986); former
Director, Bunker Hill
Income Securities, Inc.
(since 1989); former
Trustee, SunAmerica Fund
Group (previously
Equitec Siebel Fund
Group) from 1984 to
1992; former Trustee,
Master Investment Trust,
Series II from 1993 to
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
-20-
<PAGE> 50
Position with
Name and Address Age Company Principal Occupations
- ---------------- --- ------- ---------------------
Administration,
University of
Washington; Director,
Washington Federal
Savings & Loan
Association; Trustee,
Seafirst Retirement
Funds (since 1993)
(registered investment
company).
Cornelius J. Pings* 67 Chairman of President, Association
Association of American the Board and of American Universi-
Universities President ties, February 1993 to
One DuPont Circle date; Provost, 1982 to
Suite 730 January 1993, Senior
Washington, DC 20036 Vice President for
Academic Affairs, 1981
to January 1993,
University of Southern
California; Trustee,
Master Investment Trust,
Series I (since 1995);
former Trustee, Master
Investment Trust, Series
II (October 1995 to
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, Master Investment
Trust Series II (until
February 1997) and
Seafirst Retirement
Funds (since 1996).
Michael Brascetta 37 Vice President Senior Vice President
BISYS Fund Services of Shareholder Services,
3435 Stelzer Road BISYS Fund Services,
Columbus, OH 43219 Inc., April 1996 to
present; Employee, The
Vanguard Group, 1981 to
April 1996.
Irimga McKay 36 Vice Senior Vice President,
1230 Columbia Street President July 1993 to date, prior
5th Floor thereto First Vice
La Jolla, CA 92037 President of the
Administrator and
Distributor, November
1988 to July 1993; Vice
President, Master
-21-
<PAGE> 51
Position with
Name and Address Age Company Principal Occupations
- ---------------- --- ------- ---------------------
Investment Trust, Series
II (until February 1997)
and Seafirst Retirement
Funds (since 1993);
Regional Vice President,
Continental Equities,
June 1987 to November
1988; Assistant
Wholesaler, VMS Realty
Partners (a real estate
limited partnership),
May 1986 to June 1987.
Stephanie L. Blaha 37 Vice Director of Client
BISYS Fund Services President Services of the
3435 Stelzer Road Administrator, March
Columbus, OH 43219 1995 to date, prior
thereto Assistant Vice
President of the
Administrator and
Distributor, October
1991 to March 1995; Vice
President (since 1996);
Seafirst Retirement
Funds, Master Investment
Trust, Series I and
Master Investment Trust,
Series II (until
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
(since 1996), Seafirst
Retirement Funds and
Master Investment Trust,
Series II (until
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
(since 1996); Master
Investment Trust Series
II and Seafirst
-22-
<PAGE> 52
Position with
Name and Address Age Company Principal Occupations
- ---------------- --- ------- ---------------------
Retirement Funds (until
February 1997);
employee, Federated
Investors, October 1982
to November 1995.
W. Bruce McConnel, III 54 Secretary Partner of the law firm
1345 Chestnut Street of Drinker Biddle &
Philadelphia National Bank Reath.
Building, Suite 1100
Philadelphia, PA 19107
George O. Martinez 36 Assistant Senior Vice President
BISYS Fund Services Secretary and Director of
3435 Stelzer Road Administrative and
Columbus, OH 43219 Regulatory Services, of
the Administrator, since
April 1995; Assistant
Secretary (since 1995);
Seafirst Retirement
Funds and Master
Investment Trust, Series
II (until February
1997); prior thereto,
Vice President and
Associate General
Counsel, Alliance
Capital Management, L.P.
Alaina V. Metz 28 Assistant Chief Administrator,
BISYS Fund Services Secretary Administrative and
3435 Stelzer Road Regulatory Services,
Columbus, OH 43219 BISYS Fund Services,
Inc., June 1995 to
present; Assistant
Secretary of Seafirst
Retirement Funds (since
1996); Supervisor, Mutual
Fund Legal Department,
Alliance Capital
Management, May 1989 to
June 1995.
* Mr. Pings is an "interested director" of the Company as defined in the 1940
Act.
The Audit Committee of the Board is comprised of all directors and is
chaired by Dr. Hanson. The Board does not have an Executive Committee.
-23-
<PAGE> 53
Each director is entitled to receive an annual fee of $25,000 plus
$1,000 for each day that a director participates in all or a part of a Board
meeting; the President receives an additional $20,000 per annum for his services
as President; each member of a Committee of the Board is entitled to receive
$1,000 for each Committee meeting they participate in (whether or not held on
the same day as a Board meeting); and each Chairman of a Committee of the Board
shall be entitled to receive an annual retainer of $1,000 for his services as
Chairman of the Committee. Effective September 1, 1996, Kenneth L. Trefftz, a
former director of the Company, became a director emeritus of the Company and
received a retirement benefit of $60,000 on January 1, 1997. The Funds, and each
other fund of the Company, pays its proportionate share of these amounts based
on relative net asset values.
For the fiscal year ended February 28, 1997, the Company paid or
accrued for the account of its directors as a group for services in all
capacities a total of $ . Of that amount, $ , and $ , of
directors' compensation were allocated to the Prime and Treasury Funds,
respectively. Each director is also reimbursed for out-of-pocket expenses
incurred as a director. Drinker Biddle & Reath, of which Mr. McConnel is a
partner, receives legal fees as counsel to the Company. As of the date of this
Statement of Additional Information, the directors and officers of the Company,
as a group, own less than 1% of the outstanding shares of each of the Company's
investment portfolios.
Under a retirement plan approved by the Board of Directors, including
a majority of its directors who are not "interested persons" of the Company, a
director who dies or resigns after five years of service is entitled to receive
ten annual payments each equal to the greater of: (i) 50% of the annual
director's retainer that was payable by the Company during the year of his/her
death or resignation, or (ii) 50% of the annual director's retainer then in
effect for directors of the Company during the year of such payment. A director
who dies or resigns after nine years of service is entitled to receive ten
annual payments each equal to the greater of: (i) 100% of the annual director's
retainer that was payable by the Company during the year of his/her death or
resignation, or (ii) 100% of the annual director's retainer then in effect for
directors of the Company during the year of such payment. Further, the amount
payable each year to a director who dies or resigns is increased 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
-24-
<PAGE> 54
director has become vested may not be reduced by later Board action.
In lieu of receiving ten annual payments, a director may elect to
receive substantially equivalent benefits through a single-sum cash payment of
the present value of such benefits paid by the Company within 45 days of the
death or resignation of the director. The present value of such benefits is to
be calculated (i) based on the retainer that was payable by the Company during
the year of the director's death or resignation (and not on any retainer payable
to directors thereafter), and (ii) using the interest rate in effect as of the
date of the director's death or resignation by the Pension Benefit Guaranty
Corporation (or any successor thereto) for valuing immediate annuities under
terminating defined benefit pension plans. A director's election to receive a
single sum must be made in writing within the 30 calendar days after the date
the individual is first elected as a director.
In addition to the foregoing, the Board of Directors may, in its
discretion and in recognition of a director's period of service before March 1,
1994 as a director and possibly as Chairman, authorize the Company to pay a
retirement benefit following the director's death or resignation (unless the
director has vested benefits as a result of completing nine years of service).
Any such action shall be approved by the Board and by a majority of the
directors who are not "interested persons" of the Company within 120 days
following the director's death or resignation and may be authorized as a single
sum cash payment or as not more than ten annual payments (beginning the first
anniversary of the director's date of death or resignation and continuing for
one or more anniversary date(s) thereafter).
The obligation of the Company to pay benefits to a former director is
neither secured nor funded by the Company but shall be binding upon its
successors in interest. The payment of benefits under the retirement plan has no
priority or preference over the lawful claims of the Company's creditors or
shareholders, and the right to receive such payments is not assignable or
transferable by a director (or former director) other than by will, by the laws
of descent and distribution, or by the director's written designation of a
beneficiary.
The following chart provides certain information as of February 28,
1997 about the fees received by directors of the Company as directors and/or
officers of the Company and as directors and/or trustees of the Fund Complex:
-25-
<PAGE> 55
<TABLE>
<CAPTION>
====================================================================================================================================
TOTAL
COMPENSATION
PENSION OR FROM
RETIREMENT ESTIMATED REGISTRANT
AGGREGATE BENEFITS ANNUAL AND FUND
COMPENSATION ACCRUED AS BENEFITS COMPLEX**
NAME OF PERSON/ FROM THE PART OF FUND UPON PAID TO
POSITION COMPANY EXPENSES* RETIREMENT DIRECTORS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Thomas M. Collins $ $ $ $
Director+
- ------------------------------------------------------------------------------------------------------------------------------------
Douglas B. Fletcher $ $ $ $
Vice Chairman of
the Board
- ------------------------------------------------------------------------------------------------------------------------------------
Robert E. Greeley++ $ $ $ $
Director
- ------------------------------------------------------------------------------------------------------------------------------------
Kermit O. Hanson $ $ $ $
Director
- ------------------------------------------------------------------------------------------------------------------------------------
Cornelius J. Pings $ $ $ $
President and
Chairman of the
Board+++
====================================================================================================================================
</TABLE>
- ----------
* For the fiscal year ended February 28, 1997, the Company accrued on the
part of all of the directors an aggregate of $ in retirement
benefits.
** The "Fund Complex" consists of the Company, Seafirst Retirement Funds,
Master Investment Trust, Series I, Master Investment Trust, Series II, Time
Horizon Funds and World Horizon Funds.
+ Mr. Collins was President and Chairman of the Board of the Company until
August 31, 1995.
++ Mr. Greeley became a director of the Company on April 25, 1994.
+++ Mr. Pings became President and Chairman of the Board of the Company
effective September 1, 1995.
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 since the commencement of their operations. In the
investment advisory agreement, Bank of America has agreed to provide investment
advisory services as described in the Prospectuses. Bank of America has also
agreed to pay all expenses incurred by it in connection with its activities
under its agreement other than the cost of securities, including brokerage
commissions, if any, purchased for the Company. In rendering its advisory
services, Bank of America may utilize Bank of America officers from one or more
of the departments of the Bank of America which are authorized to exercise the
fiduciary powers of Bank of America
-26-
<PAGE> 56
with respect to the investment of trust assets. In some cases, these officers
may also serve as officers, and utilize the facilities, of wholly-owned
subsidiaries or other affiliates of Bank of America or its parent corporation.
For the services provided and expenses assumed pursuant to the investment
advisory agreement, the Company has agreed to pay Bank of America fees, accrued
daily and payable monthly, at the following annual rates: .10% of the first $3
billion of each Fund's net assets, plus .09% of the next $2 billion of each
Fund's net assets, plus .08% of each Fund's net assets over $5 billion. From
time to time, Bank of America may waive fees or reimburse the Company for
expenses voluntarily or as required by certain state securities laws.
For the fiscal years ended February 28, 1995, February 29, 1996 and
February 28, 1997, Bank of America was paid in the aggregate, pursuant to the
investment advisory agreements applicable to them, advisory fees (net of
waivers) of $2,330,203, $3,964,899 and $ , respectively, by the Prime
Fund, and $2,140,125, $2,446,958 and $ , respectively, by the Treasury
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 $ .
The Company's investment advisory agreement for the Funds provides
that Bank of America shall not be liable for any error of judgment or mistake of
law or for any loss suffered by the Company in connection with the performance
of the investment advisory agreement, except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services or a
loss resulting from willful misfeasance, bad faith or negligence in the
performance of its duties or from reckless disregard by it of its duties and
obligations thereunder.
The Glass-Steagall Act and Proposed Legislation
The Glass-Steagall Act, among other things, prohibits banks from
engaging in the business of underwriting securities, although national and
state-chartered banks generally are permitted to purchase and sell securities
upon the order and for the account of their customers. In 1971, the United
States Supreme Court held in Investment Company Institute v. Camp that the
Glass-Steagall Act prohibits a bank from operating a fund for the collective
investment of managing agency accounts. Subsequently, the Board of Governors of
the Federal Reserve System (the "Board") issued a regulation and interpretation
to the effect that the Glass-Steagall Act and such decision forbid a bank
holding company registered under the Federal Bank Holding Company Act of 1956
(the "Holding Company Act") or any non-bank
-27-
<PAGE> 57
affiliate thereof from sponsoring, organizing or controlling a registered,
open-end investment company continuously engaged in the issuance of its shares,
but do not prohibit such a holding company or affiliate from acting as
investment adviser, transfer agent and custodian to such an investment company.
In 1981, the United States Supreme Court held in Board of Governors of the
Federal Reserve System v. Investment Company Institute that the Board did not
exceed its authority under the Holding Company Act when it adopted its
regulation and interpretation authorizing bank holding companies and their
non-bank affiliates to act as investment advisers to registered closed-end
investment companies.
Bank of America believes that if the question was properly presented,
a court should hold that Bank of America may perform the services for the
Company contemplated by the investment advisory agreement, the Prospectuses, and
this Statement of Additional Information without violation of the Glass-Steagall
Act or other applicable banking laws or regulations. It should be noted,
however, that there have been no cases deciding whether a 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.
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
-28-
<PAGE> 58
or the terms upon which Bank of America or such a non-bank affiliate might offer
to provide services for consideration by the Company's Board of Directors.
Administrator
The BISYS Group, Inc. (the "Administrator"), through its wholly-owned
subsidiary BISYS Fund Services, L.P., with principal offices at 50 Clove Road,
Little Falls, New Jersey 07424 and 3435 Stelzer Road, Columbus, Ohio 43219, is
the Company's administrator. The Administrator also serves as administrator to
several other investment companies. Prior to November 1, 1996, Concord Holding
Corporation ("Concord") an indirect, wholly-owned subsidiary of BISYS served as
administrator and references to the Administrator with respect to periods prior
to November 1, 1996 shall mean Concord.
The Administrator provides administrative services for the Funds as
described in their Prospectuses pursuant to a Basic Administrative Services
Agreement. The agreement will continue in effect with respect to each Fund until
October 31, 1997 and thereafter will be extended with respect to each Fund for
successive periods of one year, provided that each such extension is
specifically approved (a) by vote of a majority of those members of the
Company's Board of Directors who are not interested persons of any party to the
agreement, cast in person at a meeting called for the purpose of voting on such
approval, and (b) the Company's Board of Directors or by vote of a majority of
the outstanding voting securities of such Fund. The agreement is terminable at
any time without cause and without penalty by the Company's Board of Directors
or by a vote of a majority of a Fund's outstanding shares upon 60 days' notice
to the Administrator, or by the Administrator upon 90 days' notice to the
Company.
For its services under the Basic Administrative Services Agreement,
the Administrator is entitled to receive an administration fee, accrued daily
and payable monthly, at the following annual rates: .10% of the first $7 billion
of each Fund's net assets, plus .09% of the next $3 billion of each Fund's net
assets, plus .08% of each Fund's net assets over $10 billion. From time to time,
the Administrator may waive fees or reimburse the Company for expenses, either
voluntarily or as required by certain state securities laws.
For the fiscal years ended February 28, 1995, February 29, 1996 and
February 28, 1997, the Administrator was paid, pursuant to the administration
agreement then in effect, administration fees (net of waivers) of $2,366,035,
$4,062,578 and $ , respectively, by the Prime Fund, and $2,140,125,
$2,447,372 and $ , respectively, by the Treasury Fund. For
-29-
<PAGE> 59
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 $ for
the fiscal years ended February 29, 1996 and February 28, 1997. For the fiscal
years ended February 28, 1995, February 29, 1996 and February 28, 1997, the
Administrator reimbursed the Prime Fund and Tax-Exempt Money Fund for expenses
or waived fees in the amount of $949,233, $235,000 and $ and $11,611, $0
and $ , respectively.
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, 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.
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
-30-
<PAGE> 60
received or amounts are assumed and decreasing yield when such fees or amounts
are reimbursed.
Distributor
The Distributor acts as the exclusive distributor of the shares of
each of the Funds pursuant to a distribution agreement with the Company. Shares
are sold on a continuous basis by the Distributor as agent, although the
Distributor is not obliged to sell any particular amount of shares. No
compensation is payable by the Funds to the Distributor for its distribution
services. The distribution agreement shall continue in effect with respect to
each Fund until October 31, 1997. Thereafter, if not terminated, the
distribution agreement shall continue automatically for successive terms of one
year, provided that such continuance is specifically approved at least annually
(a) by a vote of a majority of those members of the Board of Directors of the
Company who are not parties to the distribution agreement or "interested
persons" of any such party, cast in person at a meeting called for the purpose
of voting on such approval, and (b) by the Board of Directors of the Company or
by vote of a "majority of the outstanding voting securities" of the Funds as to
which the distribution agreement is effective; provided, however, that the
distribution agreement may be terminated by the Company at any time, without the
payment of any penalty, by vote of a majority of the entire Board of Directors
of the Company or by a vote of a "majority of the outstanding voting securities"
of such Funds on 60 days' written notice to the Distributor, or by the
Distributor at any time, without the payment of any penalty, on 90 days' written
notice to the Company. This Agreement will automatically and immediately
terminate in the event of its "assignment."
The Distribution and Services Plan. The Distributor is also entitled
to payment from the Company for distribution and service fees pursuant to the
Distribution and Services Plan (the "12b-1 Plan") adopted on behalf of the Y
Shares. Under the 12b-1 Plan, the Company may pay the Distributor for: (a)
direct out-of-pocket promotional expenses incurred by the Distributor in
advertising and marketing Y Shares; (b) expenses incurred in connection with
preparing, printing, mailing, and distributing or publishing advertisements and
sales literature for Y Shares; (c) expenses incurred in connection with printing
and mailing Prospectuses and Statements of Additional Information to other than
current Y shareholders; (d) periodic payments or commissions to one or more
securities dealers, brokers, financial institutions or other industry
professionals, such as investment advisors, accountants, and estate planning
firms (severally, "a Distribution Organization") with respect to a Fund's Y
Shares beneficially owned by customers for whom the Distribution Organization is
the Distribution Organization of record or holder
-31-
<PAGE> 61
of record of such Y Shares; (e) the direct or indirect cost of financing the
payments or expenses included in (a) and (d) above; or (f) for such other
services as may be construed, by any court or governmental agency or commission,
including the Securities and Exchange Commission, to constitute distribution
services under the 1940 Act or rules and regulations thereunder.
Pursuant to the 12b-1 Plan, the Company may also pay for
administrative support services provided with respect to a Distribution
Organizations customers' ("clients") Y Shares. Administrative services provided
may include some or all of the following: (i) processing dividend and
distribution payments from a Fund on behalf of its Clients; (ii) providing
information periodically to its Clients showing their positions in Y Shares;
(iii) arranging for bank wires; (iv) responding to routine Client inquiries
concerning their investment in Y Shares; (v) providing the information to the
Funds necessary for accounting or sub- accounting; (vi) if required by law,
forwarding shareholder communications from a Fund (such as proxies, shareholder
reports, annual and semi-annual financial statements and dividend, distribution
and tax notices) to its Clients; (vii) aggregating and processing purchase and
redemption requests from its Clients and placing net purchase and redemption
orders for its Clients; (viii) establishing and maintaining accounts and records
relating to Clients that invest in Y Shares; (ix) assisting Clients in changing
dividend options, account designations and addresses; (x) developing,
maintaining and operating systems necessary to support Sweep Accounts; or (xi)
other similar services if requested by the Company.
The 12b-1 Plan for Y Shares provides that the Distributor is entitled
to receive payments on a monthly basis at an annual rate not exceeding 1.00% of
the average daily net assets during such month of the outstanding Y Shares 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 Y
shareholders and/or the maintenance of such shareholders' accounts and not more
than 0.75% of such net assets of the Y shareholders 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
-32-
<PAGE> 62
plan adopted in accordance with the Rule. In accordance with the Rule, the 12b-1
Plan provides that a written report of the amounts expended under the 12b-1
Plan, and the purposes for which such expenditures were incurred, will be made
to the Board of Directors for its review at least quarterly. In addition, the
12b-1 Plan provides that it may not be amended to increase materially the costs
which shares of a Fund may bear for distribution pursuant to the 12b-1 Plan
without shareholder approval and that other material amendments of the 12b-1
Plan must be approved by a majority of the Board of Directors, and by a majority
of the directors who are neither "interested persons" (as defined in the 1940
Act) of the Company nor have any direct or indirect financial interest in the
operation of the 12b-1 Plan, or in any agreements entered into in connection
with the 12b-1 Plan, by vote cast in person at a meeting called for the purpose
of considering such amendments (the "Non-Interested Plan Directors"). The
selection and nomination of the directors of the Company who are not "interested
persons" of the Company have been committed to the discretion of the
Non-Interested Plan Directors.
The Company's Board of Directors has concluded that there is a
reasonable likelihood that the 12b-1 Plan will benefit the Funds and their Y
shareholders. The 12b-1 Plan is subject to annual reapproval by a majority of
the Company's Board of Directors, including a majority of the Non-Interested
Plan Directors and is terminable without penalty at any time with respect to any
Fund by a vote of a majority of the Non-Interested Plan Directors or by vote of
the holders of a majority of the outstanding Y Shares of the Fund involved. Any
agreement entered into pursuant to the 12b-1 Plan with a Service Organization is
terminable with respect to any Fund without penalty, at any time, by vote of a
majority of the Non-Interested Plan Directors, by vote of the holders of a
majority of the outstanding Y Shares of such Fund, or by the Service
Organization. Each agreement will also terminate automatically in the event of
its assignment.
Custodian and Transfer Agent
The Company has appointed The Bank of New York, 90 Washington Street,
New York, New York 10286, as custodian for the Funds. Additionally, BISYS Fund
Services, Inc., 3435 Stelzer Road, Columbus, Ohio 43219-3035, a wholly-owned
subsidiary of the Administrator, has been appointed as transfer and dividend
disbursing agent for the Company. As transfer and dividend disbursing agent for
each Fund, BISYS Fund Services, Inc. has agreed to provide services including
(1) issuing and redeeming shares of the Funds, and (ii) making dividend and
other distributions to shareholders of the Fund. The Bank of New York also
provides the Company with certain accounting, bookkeeping, pricing, and dividend
and distribution calculation services
-33-
<PAGE> 63
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 and Treasury Funds, BISYS
Fund Services, Inc. receives a fee, payable monthly, at the annual rate of
$10,000 per Fund. Each Fund also reimburses BISYS Fund Services, Inc. for any
out-of-pocket expenses incurred as transfer agent.
TAXES
The following is only a summary of certain additional considerations
generally affecting the Funds and their shareholders that are not described in
the Prospectuses for the Funds. No attempt is made to present a detailed
explanation of the tax treatment of the Funds or their shareholders, and the
discussion here and in the Prospectuses is not intended as a substitute for
careful tax planning. Investors are advised to consult their tax advisers with
specific reference to their own tax situations.
Federal - All Funds
Each Fund will be treated as a separate corporate entity under the
Internal Revenue Code of 1986, as amended (the "Code"), and intends to qualify
as a "regulated investment company." By following this policy, each Fund expects
to eliminate or reduce to a nominal amount the federal income taxes to which it
may be subject. If for any taxable year a Fund does not qualify for the special
federal tax treatment afforded regulated investment companies, all of the Fund's
taxable income
-34-
<PAGE> 64
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) 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 shares. The Fund
will designate such a distribution as a capital gain dividend in a written
notice mailed to shareholders after the close of the Fund's taxable year.
Ordinary income of individuals is taxable at a maximum nominal rate of
39.6%; however, because of limitations on itemized deductions otherwise
allowable and the phase-out of personal exemptions, the maximum effective
marginal rate of tax for some taxpayers may be higher. An individual's long-term
capital gains are taxable at a maximum nominal rate of 28%. For corporations,
long-term capital gains and ordinary income are
-35-
<PAGE> 65
both taxable at a maximum nominal rate of 35% (or at a maximum effective
marginal rate of 39% in the case of corporations having taxable income between
$100,000 and $335,000).
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to currently distribute specific percentages of their
ordinary taxable income for each calendar year and capital gain net income
(excess of capital gains over capital losses). Each Fund intends to make
sufficient distributions or deemed distributions of its ordinary taxable income
and any capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.
The Company will be required in certain cases to withhold and remit to
the United States Treasury 31% of taxable dividends or gross sale proceeds paid
to shareholders (i) who have failed to provide a correct tax identification
number in the manner required, (ii) who are subject to withholding by the
Internal Revenue Service for failure to properly include on their return
payments of taxable interest or dividends or (iii) who have failed to certify to
the Company that they are not subject to backup withholding or that they are
"exempt recipients."
At February 28, 1997, the Prime Fund and Treasury Fund had
unused capital loss carryovers of approximately $ (of which $
will expire in fiscal 2002 and $ will expire in fiscal 2003), and
$ (which will expire in fiscal 2002), $ (of which $ will
expire in fiscal 2002 and $ will expire in fiscal 2003), respectively,
available for federal income tax purposes to be applied against future capital
gains, if any.
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, 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.
-36-
<PAGE> 66
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 results. 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
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
-37-
<PAGE> 67
investment more quickly than if dividends or other distributions had been paid
in cash. The Funds may also include discussions or illustrations of the
potential investment goals of a prospective investor (including but not limited
to tax and/or retirement planning), investment management techniques, policies
or investment suitability of a Fund, economic conditions, legislative
developments (including pending legislation), the effects of inflation and
historical performance of various asset classes. From time to time
advertisements or communications to shareholders may summarize the substance of
information contained in shareholder reports (including the investment
composition of a Fund), as well as the views of the investment adviser as to
current market, economic, trade and interest rate trends, legislative,
regulatory and monetary developments, investment strategies and related matters
believed to be of relevance to a Fund. The Funds may also include in
advertisements charts, graphs or drawings which illustrate the potential risks
and rewards of investment in various investment vehicles. In addition,
advertisements or shareholder communications may include a discussion of certain
attributes or benefits to be derived by an investment in a Fund and may include
testimonials as to the investment adviser's capabilities by clients. Such
advertisements or communications may include symbols, headlines or other
material which highlight or summarize the information discussed in more detail
therein. With proper authorization, a Fund may reprint articles (or excerpts)
written regarding the Fund and provide them to prospective shareholders.
Performance information with respect to the Funds is generally available by
calling (800) 346-2087.
In addition to the publications listed in the Funds' Prospectuses,
yield data as reported in the following publications may be used in comparing
the yields of the Funds to those of other mutual funds with similar investment
objectives: Business Week, Investor's Business Daily, Kiplinger, U.S. News,
Financial World, USA Today, Morningstar, Mutual Fund Monitor, and American
Banker.
GENERAL INFORMATION
Description of Shares
The Company is an open-end management investment company organized as
a Maryland corporation on October 27, 1982. The Fund's Charter authorizes the
Board of Directors to issue up to two hundred billion full and fractional shares
of capital stock. The Board of Directors has authorized the issuance of
twenty-two classes of stock - Classes A through W, Common Stock representing
interests in twenty-two separate investment portfolios. Each share of capital
stock has a par value of
-38-
<PAGE> 68
$.001. This Statement of Additional Information describes the Y Shares of the
Prime and Treasury Funds.
Shares have no preemptive rights and only such conversion or exchange
rights as the Board may grant in its discretion. When issued for payment as
described in its Prospectuses, the Company's shares will be fully paid and
non-assessable. For information concerning possible restrictions upon the
transferability of the Company's shares and redemption provisions with respect
to such shares, see "Purchase and Redemption Information" in this Statement of
Additional Information.
The Funds' Pacific Horizon Shares, Horizon Shares, Horizon Service
Shares, X Shares, S Shares and Y Shares differ in the following respects.
Pacific Horizon Shares beneficially owned by clients of Shareholder
Organizations bear the fees payable under a Special Management Services Plan,
which are payable at the annual rate of up to 0.32% of the average daily net
asset value of each Fund's Pacific Horizon Shares. Horizon Service Shares bear
the fees payable under a Shareholder Services Plan that are payable at the rate
of up to .25% (on an annualized basis) of the average daily net asset value of
the Horizon Service Shares that are outstanding from time to time. X Shares bear
the fees payable under the Distribution and Services Plan that has been adopted
for X Shares that are outstanding from time to time. S Shares and Y Shares bear
the fees payable under the Distribution and Services Plan that has been adopted
for S Shares and Y 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 and Y
Shares that are outstanding from time to time. Only Horizon Service Shares bear
the fees payable under the Shareholder Services Plan. Only Pacific Horizon
Shares beneficially owned by clients of Shareholder Organizations bear the fees
payable under the Special Management Services Plan. Only X, S and Y Shares bear
the fees payable under their respective Distribution and Services Plan. Due to
the different expenses borne by the respective classes of the Company, net yield
for each class will vary.
Holders of all outstanding shares of a particular Fund will vote
together in the aggregate and not by class on all matters, except that only X
Shares, S Shares and Y Shares of a Fund will be entitled to vote on matters
submitted to a vote of shareholders pertaining to their respective Distribution
and Services Plans, only Horizon Service Shares of a Fund will be entitled to
vote on matters submitted to a vote of shareholders pertaining to the Horizon
Service Shares' Shareholder Services Plan, and only Pacific Horizon Shares of a
Fund will be entitled to vote on matters submitted to a vote of shareholders
pertaining to the Pacific Horizon Funds' Special Management Services Plan.
-39-
<PAGE> 69
Further, shareholders of all of the Funds, as well as those of any other
investment portfolio now or hereafter offered by the Company, will vote together
in the aggregate and not separately on a Fund-by-Fund basis, except as otherwise
required by law or when permitted by the Board of Directors. Rule 18f-2 under
the 1940 Act provides that any matter required to be submitted to the holders of
the outstanding voting securities of an investment company such as the Company
shall not be deemed to have been effectively acted upon unless approved by a
majority of the outstanding shares of each Fund affected by the matter. A Fund
is affected by a matter unless it is clear that the interests of each Fund in
the matter are substantially identical or that the matter does not affect any
interest of the Fund. Under the Rule, the approval of an investment advisory
agreement or any change in a fundamental investment policy would be effectively
acted upon with respect to a Fund only if approved by a majority of the
outstanding shares of such Fund. However, the Rule also provides that the
ratification of independent public accountants, the approval of principal
underwriting contracts and the election of directors may be effectively acted
upon by shareholders of the Company voting in the aggregate without regard to
particular Funds.
Notwithstanding any provision of Maryland law requiring a greater vote
of the Company's common stock (or of the shares of a Fund voting separately as a
class) in connection with any corporate action, unless otherwise provided by law
(for example, by Rule 18f-2 discussed above) or by the Company's Charter, the
Company may take or authorize such action upon the favorable vote of the holders
of more than 50% of the outstanding common stock of the Company voting without
regard to class.
Counsel
Drinker Biddle & Reath (of which W. Bruce McConnel, III, Secretary of
the Company, is a partner), 1345 Chestnut Street, Philadelphia National Bank
Building, Philadelphia, Pennsylvania 19107, serves as counsel to the Company and
will pass upon the legality of the shares offered hereby.
Independent Accountants
[ ] with offices at [ ] has been selected as independent accountants
of each Fund for the fiscal year ending February 28, 1997.
Reports
Each Fund will send its shareholders unaudited semi-annual reports
including a description of the Fund's investments,
-40-
<PAGE> 70
and annual financial statements together with a report of independent
accountants.
Miscellaneous
As used in the Prospectuses and this Statement of Additional
Information, a "vote of a majority" of the outstanding shares of a Fund or a
particular series means, with respect to the approval of an investment advisory
agreement, a distribution plan or a change in a fundamental investment policy,
the affirmative vote of the lesser of (a) more than 50% of the outstanding
shares of the Fund or of the series, or (b) 67% of the shares of the Fund or of
the series present at a meeting at which more than 50% of the outstanding shares
of the Fund or series are represented in person or by proxy.
At , 1997, the name, address and share ownership
of the entities which held as record owners more than 5% of the outstanding
Pacific Horizon Shares of the Treasury Only Fund were as follows:
At , 1997, the name, address and share ownership
of the entities which held as record owners more than 5% of the outstanding
Horizon Service Shares of the Treasury Only Fund were as follows:
At , 1997, the name, address and share ownership
of the entities which held as record owners more than 5% of the outstanding
Pacific Horizon Shares of the Treasury Fund were as follows:
At , 1997, the name, address and share ownership
of the entities which held as record owners more than 5% of the outstanding
Horizon Service Shares of the Treasury Fund were as follows:
At , 1997, the name, address and share ownership
of the entities which held as beneficial owners more than 5% of the outstanding
Horizon Service Shares of the Treasury Fund were as follows:
At , 1997, the name, address and share ownership
of the entities which held as record owners more than 5% of the outstanding
Horizon Shares of the Treasury Fund were as follows:
At , 1997, the name, address and share ownership
of the entities which held as record owners more than 5% of the outstanding X
Shares of the Treasury Fund were as follows:
-41-
<PAGE> 71
At , 1997, the name, address and share ownership
of the entities which held as record owners more than 5% of the outstanding
Pacific Horizon Shares of the Government Fund were as follows:
At , 1997, the name, address and share ownership
of the entities which held as record owners more than 5% of the outstanding
Horizon Service Shares of the Government Fund were as follows:
At , 1997, the name, address and share ownership
of the entities which held as beneficial owners more than 5% of the outstanding
Horizon Service Shares of the Government Fund were as follows:
At , 1997, the name, address and share ownership
of the entities which held as record owners more than 5% of the outstanding
Horizon Shares of the Government Fund were as follows:
At , 1997, the name, address and share ownership
of the entities which held as record owners more than 5% of the outstanding
Pacific Horizon Shares of the Prime Fund were as follows:
At , 1997, the name, address and share ownership
of the entities which held as record owners more than 5% of the outstanding
Horizon Service Shares of the Prime Fund were as follows:
At , 1997, the name, address and share ownership
of the entities which held as beneficial owners more than 5% of the outstanding
Horizon Service Shares of the Prime Fund were as follows:
At , 1997, the name, address and share ownership
of the entities which held as beneficial owners more than 5% of the outstanding
X Shares of the Prime Fund were as follows:
At , 1997, the name, address and share ownership
of the entities which held as record owners more than 5% of the outstanding
Pacific Horizon Shares of the Tax-Exempt Money Fund were as follows:
At , 1997, the name, address and share ownership
of the entities which held as record owners more than 5% of the outstanding
Horizon Service Shares of the Tax-Exempt Money Fund were as follows:
-42-
<PAGE> 72
At , 1997, the name, address and share ownership
of the entities which held as beneficial owners more than 5% of the outstanding
Horizon Service Shares of the Tax- Exempt Money Fund were as follows:
At , 1997, the name, address and share ownership
of the entities which held as record owners more than 5% of the outstanding
Horizon Shares of the Tax-Exempt Money Fund were as follows:
At , 1997, the name, address and share ownership
of the entities which held as record owners more than 5% of the outstanding
Pacific Horizon Shares of the California Tax-Exempt Money Market Fund were as
follows:
At , 1997, the name, address and share ownership
of the entities which held as record owners more than 5% of the outstanding
Horizon Service Shares of the California Tax-Exempt Money Market Fund were as
follows:
At , 1997, the name, address and share ownership
of the entities which held as beneficial owners more than 5% of the outstanding
Horizon Service Shares of the California Tax-Exempt Money Market Fund were as
follows:
At , 1997, the name, address and share ownership
of the entities which held as beneficial owners more than 5% of the outstanding
X Shares of the California Tax-Exempt Money Market Fund were as follows:
At , 1997, the name, address and share ownership
of the entities which held as record owners more than 5% of the outstanding A
Shares of the Corporate Bond Fund were as follows:
At , 1997, the name, address and share ownership
of the entities which held as record owners more than 5% of the outstanding K
Shares of the Corporate Bond Fund were as follows:
At , 1997, the name, address and share ownership
of the entities which held as record owners more than 5% of the outstanding
Class A Shares of the National Municipal Bond Fund were as follows:
At , 1997, the name, address and share ownership
of the entities which held as record owners more than 5% of the outstanding
Class K Shares of the National Municipal Bond Fund were as follows:
-43-
<PAGE> 73
At , 1997, the name, address and share ownership
of the entities which held as record owners more than 5% of the outstanding
Class A Shares of the International Equity Fund were as follows:
At , 1997, the name, address and share ownership
of the entities which held as record owners more than 5% of the outstanding
Class K Shares of the International Equity Fund were as follows:
At such date, no other person was known by the Company to hold
of record or beneficially more than 5% of the outstanding shares of any
investment portfolio of the Company.
The Prospectuses relating to the Y 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.
-44-
<PAGE> 74
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.
A-1
<PAGE> 75
"Prime-2" - Issuer or related supporting institutions are considered
to have a strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, will be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternative
liquidity is maintained.
"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
A-2
<PAGE> 76
factors are larger and subject to more variation. Nevertheless, timely payment
is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.
Fitch short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years. The following
summarizes the rating categories used by Fitch for short-term obligations:
"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
A-3
<PAGE> 77
year or less which are issued by United States commercial banks, thrifts and
non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest
rating category and indicates a very high degree of likelihood that principal
and interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents the lowest investment grade
category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher ratings,
capacity to service principal and interest in a timely fashion is considered
adequate.
"TBW-4" - This designation indicates that the debt is regarded as
non-investment grade and therefore speculative.
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.
A-4
<PAGE> 78
"C" - Obligations for which there is an inadequate capacity to ensure
timely repayment.
"D" - Obligations which have a high risk of default or which are
currently in default.
Corporate and Municipal Long-Term Debt Ratings
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - This designation represents the highest rating assigned by
Standard & Poor's to a debt obligation and indicates an extremely strong
capacity to pay interest and repay principal.
"AA" - Debt is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in small degree.
"A" - Debt is considered to have a strong capacity to pay interest and
repay principal although such issues are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay
interest and repay principal. Whereas such issues normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher-rated categories.
"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
A-5
<PAGE> 79
principal repayments. Adverse business, financial or economic conditions will
likely impair capacity or willingness to pay interest and repay principal. The
"B" rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BB" or "BB-" rating.
"CCC" - Debt has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
"CC" - This rating is typically applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC" rating.
"C" - This rating is typically applied to debt subordinated to senior
debt which is assigned an actual or implied "CCC-" debt rating. The "C" rating
may be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
"CI" - This rating is reserved for income bonds on which no interest
is being paid.
"D" - Debt is in payment default. This rating is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid, and
certain other obligations that S & P believes may experience high 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
A-6
<PAGE> 80
generally referred to as "gilt edged." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and are to be
considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" represents a poor standing; "Ca"
represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in
default.
Con. (---) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
(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
A-7
<PAGE> 81
occur in the legal documents or the underlying credit quality of the bonds.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt rated
"B" possesses the risk that obligations will not be met when due. Debt rated
"CCC" is well below investment grade and has considerable uncertainty as to
timely payment of principal, interest or preferred dividends. Debt rated "DD" is
a defaulted debt obligation, and the rating "DP" represents preferred stock with
dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the highest four ratings used by Fitch for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA." Because bonds rated
in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable
future
A-8
<PAGE> 82
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. 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-9
<PAGE> 83
"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 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"
A-10
<PAGE> 84
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:
"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.
A-11
<PAGE> 85
"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.
A-12
<PAGE> 86
FORM N-1A
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
(1) None.
(b) Exhibits:
(1) (a) Restated Articles of Incorporation filed November
22, 1983 are incorporated by reference to Exhibit 1(a)
to Post- Effective Amendment No. 45 to the Registration
Statement of the Registrant on Form N-1A (Nos.
2-81110/811-4293) filed February 23, 1996
("Post-Effective Amendment No. 45").
(b) Articles Supplementary filed January 9, 1986 are
incorporated by reference to Exhibit 1(b) to
Post-Effective Amendment No. 45.
(c) Articles Supplementary to increase authorized capital
stock filed August 31, 1989 are incorporated by
reference to Exhibit 1(c) to Post- Effective Amendment
No. 45.
(d) Articles Supplementary classifying shares filed August
31, 1989 are incorporated by reference to Exhibit 1(d)
to Post-Effective Amendment No. 45.
(e) Articles Supplementary classifying shares filed June 3,
1991 are incorporated by reference to Exhibit 1(e) to
Post-Effective Amendment No. 45.
(f) Articles Supplementary classifying and reclassifying
shares filed August 1, 1991 are incorporated by
reference to Exhibit 1(f) to Post-Effective Amendment
No. 45.
(g) Articles Supplementary to increase authorized capital
stock filed August 16, 1991 are incorporated by
reference
1
<PAGE> 87
to Exhibit 1(g) to Post-Effective Amendment No. 45.
(h) Articles Supplementary classifying shares filed August
16, 1991 are incorporated by reference to Exhibit 1(h)
to Post-Effective Amendment No. 45.
(i) Articles Supplementary classifying shares filed
November 25, 1991 are incorporated by reference to
Exhibit 1(i) to Post-Effective Amendment No. 45.
(j) Articles Supplementary classifying shares filed May 11,
1992 are incorporated by reference to Exhibit 1(j) to
Post-Effective Amendment No. 45.
(k) Articles Supplementary reclassifying shares filed May
15, 1992 are incorporated by reference to Exhibit 1(k)
to Post-Effective Amendment No. 45.
(l) Articles Supplementary classifying shares filed July
20, 1992 are incorporated by reference to Exhibit 1(l)
to Post-Effective Amendment No. 45.
(m) Articles Supplementary to increase authorized capital
stock filed August 6, 1992 are incorporated by
reference to Exhibit 1(m) to Post-Effective Amendment
No. 45.
(n) Articles Supplementary classifying shares filed August
6, 1992 are incorporated by reference to Exhibit 1(n)
to Post-Effective Amendment No. 45.
(o) Articles Supplementary classifying shares filed March
3, 1993 are incorporated by reference to Exhibit 1(o)
to Post-Effective Amendment No. 45.
(p) Articles Supplementary reclassifying shares filed May
12, 1993 are incorporated by reference to Exhibit 1(p)
to Post-Effective Amendment No. 45.
(q) Articles of Amendment eliminating restriction on number
of classes of shares filed May 8, 1990 are incorporated
by reference to Exhibit 1(q) to Post-Effective
Amendment No. 45.
2
<PAGE> 88
(r) Articles of Amendment reclassifying shares filed on
July 9, 1993 are incorporated by reference to Exhibit
1(r) to Post-Effective Amendment No. 45.
(s) Articles Supplementary classifying shares filed
November 18, 1993 are incorporated by reference to
Exhibit 1(s) to Post-Effective Amendment No. 45.
(t) Articles Supplementary reclassifying shares filed
November 18, 1993 are incorporated by reference to
Exhibit 1(t) to Post-Effective Amendment No. 45.
(u) Articles Supplementary reclassifying shares filed
January 21, 1994 are incorporated by reference to
Exhibit 1(u) to Post-Effective Amendment No. 45.
(v) Articles Supplementary classifying shares filed October
30, 1995 are incorporated by reference to Exhibit 1(v)
to Post-Effective Amendment No. 47 to the Registration
Statement of the Registrant on Form N-1A (Nos. 2-
81110/811-4293) filed April 30, 1996 ("Post-Effective
Amendment No. 47").
(w) Articles of Amendment cancelling shares filed on
January 26, 1996 are incorporated by reference to
Exhibit 1(v) to Post-Effective Amendment No. 45.
(x) Articles Supplementary classifying shares filed on
January 26, 1996 are incorporated by reference to
Exhibit 1(w) to Post-Effective Amendment No. 45.
(y) Articles Supplementary reclassifying shares filed on
January 26, 1996 are incorporated by reference to
Exhibit 1(x) to Post-Effective Amendment No. 45.
(z) Articles Supplementary reclassifying shares filed on
April 12, 1996 are incorporated by reference to Exhibit
1(z) to Post-Effective Amendment No. 51 to the
Registration Statement of the Registrant on Form N-1A
(Nos. 2- 81110/811-4293) filed November 13, 1996
("Post-Effective Amendment No. 51").
(aa) Articles Supplementary reclassifying shares filed on
June 25, 1996 are
3
<PAGE> 89
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.").
(ee) Articles Supplementary reclassifying shares filed on
April 11, 1997 are incorporated by reference to Exhibit
1(ee) to Post-Effective Amendment No. 54 .
(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.
4
<PAGE> 90
(5) (a) Investment Advisory Agreement dated as of April 22,
1992 between Registrant and Bank of America National
Trust and Savings Association (Money Market Funds) is
incorporated by reference to Exhibit 5(a) to
Post-Effective Amendment No. 45.
(b) Investment Advisory Agreement dated as of April 22,
1992 between Registrant and Bank of America National
Trust and Savings Association (Non-Money Market Funds)
is incorporated by reference to Exhibit 5(b) to
Post-Effective Amendment No. 45.
(c) Addendum to Investment Advisory Agreement dated as of
March 1, 1993 between Registrant and Bank of America
National Trust and Savings Association (Money Market
Funds - Prime Value Fund) is incorporated by reference
to Exhibit 5(c) to Post-Effective Amendment No. 45.
(d) Addendum to Investment Advisory Agreement dated as of
March 1, 1993 between Registrant and Bank of America
National Trust and Savings Association (Money Market
Funds - Government and Treasury Only Funds) is
incorporated by reference to Exhibit 5(d) to Post-
Effective Amendment No. 45.
(e) Investment Advisory Agreement dated November 1, 1994
between Registrant and Bank of America National Trust &
Savings Association with respect to the Capital Income
Fund is incorporated by reference to Exhibit 5(e) to
Post-Effective Amendment No. 45.
(f) Investment Advisory Agreement dated as of July 1, 1996
between Registrant and Bank of America National Trust &
Savings Association with respect to the National
Municipal Bond Fund is incorporated by reference to
Exhibit 5(f) to Post- Effective Amendment No. 51.
(g) Investment Advisory Agreement dated as of July 30, 1996
between Registration and Bank of America National Trust
and Savings Association with respect to the
International Equity and Short-Term Government Funds is
incorporated by
5
<PAGE> 91
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.
(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.
6
<PAGE> 92
(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.
(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.
7
<PAGE> 93
(g) Transfer Agency Agreement between Registrant and BISYS
Fund Services, Inc. is incorporated by reference to
Exhibit 8(d) to Post-Effective Amendment No. 47.
(h) Amendment No. 1 to Transfer Agency Agreement between
Registrant and BISYS Fund Services, Inc. is
incorporated by reference to Exhibit 8(h) to Post-
Effective Amendment No. 52.
(i) Sub-Custodian Agreement between Registrant, The Bank of
New York, and Security Pacific National Bank is
incorporated by reference to Exhibit 8(e) to
Post-Effective Amendment No. 45.
(j) Sub-Custodian Agreement between The Bank of New York
and Citibank, N.A. dated May 18, 1988 is incorporated
by reference to Exhibit 8(f) to Post- Effective
Amendment No. 45.
(k) Form of Sub-Custody Agreement between The Bank of New
York and Bank of America National Trust and Savings
Association is incorporated by reference to Exhibit
(8)(i) to Post-Effective Amendment No. 37.
(9) (a) Basic Administrative Services Agreement between
Registrant and The BISYS Group, Inc. (Money Market
Funds) dated as of November 1, 1996 is incorporated by
reference to Exhibit 9(a) to Post- Effective Amendment
No. 52.
(b) Administration Agreement between Registrant and The
BISYS Group, Inc. (Non-Money Market Funds) dated as of
November 1, 1996 is incorporated by reference to
Exhibit 9(b) to Post- Effective Amendment No. 52.
(c) Amendment No. 1 to the Administration Agreement between
Registrant and The BISYS Group, Inc. (Asset Allocation
Fund) dated as of November 1, 1996 is incorporated by
reference to Exhibit 9(c) to Post-Effective Amendment
No. 54.
8
<PAGE> 94
(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.
(11) Consent of Drinker Biddle & Reath LLP.
(12) None
(13) (a) Purchase Agreement between Registrant and The
Dreyfus Corporation is incorporated by reference to
Exhibit 13(a) to Post-Effective Amendment No. 45.
(b) Purchase Agreement between Registrant and Hambrecht &
Quist Group, Inc. dated March 31, 1988 is incorporated
by reference to Exhibit 13(b) to Post- Effective
Amendment No. 45.
(c) Investment Letter of Concord Financial Group, Inc. to
The Horizon Funds is incorporated by reference to
Exhibit 13(c) to Post-Effective Amendment No. 45.
- ------------------
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.
9
<PAGE> 95
(d) Purchase Agreement between Pacific Horizon Tax-Exempt
Money Market Portfolio, Inc. and Hambrecht & Quist
Group, Inc. is incorporated by reference to Exhibit
13(d) to Post-Effective Amendment No. 45.
(e) Purchase Agreement between Pacific Horizon Tax-Exempt
Money Market Portfolio, Inc. and Pacific Horizon Tax-
Exempt Funds, Inc. is incorporated by reference to
Exhibit 13(e) to Post- Effective Amendment No. 45.
(f) Purchase Agreement between Pacific Horizon Tax-Exempt
Money Market Portfolio, Inc. and The Dreyfus
Corporation is incorporated by reference to Exhibit
13(f) to Post-Effective Amendment No. 45.
(g) Purchase Agreement between Pacific Horizon California
Tax-Exempt Bond Portfolio, Inc. and Hambrecht & Quist
Group, Inc. is incorporated by reference to Exhibit
13(g) to Post-Effective Amendment No. 45.
(h) Purchase Agreement between Pacific Horizon California
Tax-Exempt Bond Portfolio, Inc. and The Dreyfus
Corporation is incorporated by reference to Exhibit
13(h) to Post-Effective Amendment No. 45.
(i) Purchase Agreement between Pacific Horizon California
Tax-Exempt Bond Portfolio, Inc. and Pacific Horizon
Tax- Exempt Funds, Inc. is incorporated by reference to
Exhibit 13(i) to Post- Effective Amendment No. 45.
(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.
10
<PAGE> 96
(b) Appointment of Successor Custodian for Individual
Retirement Account dated as of August 3, 1990 is
incorporated by reference to Exhibit 14(b) to Post-
Effective Amendment No. 45.
(15) (a) Shareholder Services Plan for Non-Money Market
Funds is incorporated by reference to Exhibit 15(a) to
Post- Effective Amendment No. 45.
(b) Shareholder Services Plan for Horizon Service Shares as
modified by Registrant's Board of Directors on January
29, 1993 is incorporated by reference to Exhibit 15(b)
to Post- Effective Amendment No. 45.
(c) Revised Shareholder Servicing Agreement is incorporated
by reference to Exhibit 15(c) to Post-Effective
Amendment No. 45.
(d) Revised Shareholder Service Agreement as modified by
Registrant's Board of Directors on January 29, 1993 is
incorporated by reference to Exhibit 15(d) to
Post-Effective Amendment No. 45.
(e) Revised Shareholder Servicing Agreement for Non-Money
Market Funds is incorporated by reference to Exhibit
15(e) to Post-Effective Amendment No. 45.
(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
11
<PAGE> 97
Servicing Agreement with respect to Registrant's
"S" Shares and "X" Shares is incorporated by
reference to Exhibit 15(f) to Post-Effective
Amendment No. 47.
(i) Distribution Plan and related Distribution Agreement
with respect to Registrant's "K" Shares is incorporated
by reference to Exhibit 15(i) to Post- Effective
Amendment No. 51.
(j) Administrative and Shareholder Services Plan and
related Administrative and Shareholder Services
Agreement with respect to Registrant's "K" Shares is
incorporated by reference to Exhibit 15(j) to
Post-Effective Amendment No. 51.
(k) Shareholder Service Plan and related Shareholder
Servicing Agreement for SRF Shares is incorporated by
reference to Exhibit 15(k) to Post-Effective Amendment
No. 53.
(16) (a) Schedule for Computation of Performance Quotations
with respect to the Prime Fund, Treasury Fund,
Tax-Exempt Money Fund, Tax-Exempt Money Market Fund,
California Tax-Exempt Money Market Fund, Aggressive
Growth Fund, California Tax- Exempt Bond Fund, U.S.
Government Securities Fund (formerly known as the GNMA
Extra Fund) and Capital Income Fund (formerly known as
the Convertible Securities Fund) is incorporated by
reference to Exhibit 16(a) to Post- Effective Amendment
No. 45.
(b) Schedule for Computation of Performance Quotations with
respect to the Government Fund, Treasury Only Fund and
Prime Value Fund is incorporated by reference to
Exhibit 16(b) to Post- Effective Amendment No. 45.
(c) Schedule for Computation of Performance Quotations with
respect to the Corporate Bond Fund, Intermediate Bond
Fund (formerly known as the Flexible Bond Fund), Blue
Chip Fund, Asset Allocation Fund and National Municipal
Bond Fund is incorporated by reference to Exhibit
12
<PAGE> 98
16(c) to Post-Effective Amendment No. 45.
(d) Schedule for Computation of Performance Quotations with
respect to the International Equity Fund is
incorporated by reference to Exhibit 16(d) to
Post-Effective Amendment No. 51.
(e) Schedule for Computation of Performance Quotations with
respect to the Short- Term Government Fund is
incorporated by reference to Exhibit 16(e) to Post-
Effective Amendment No. 52.
(17) None.
(18) Amended and Restated Plan Pursuant to Rule 18f-3 for
Operation of a Multi- Class System is incorporated by
reference to Exhibit 18 to Post- Effective Amendment
No. 53.
Item 25. Persons Controlled by or under Common Control with Registrant
Registrant is controlled by its Board of Directors.
Item 26. Number of Holders of Securities
Number of Record
Holders as of
Title of Class April 1, 1997
-------------- -------------
Class A Common Stock 347
Class A Common Stock -
Special Series 1 1236
Class A Common Stock -
Special Series 2 224
Class A Common Stock -
Special Series 3 0
Class A Common Stock -
Special Series 4 2
Class B Common Stock 1611
Class B Common Stock -
Special Series 1 2128
Class B Common Stock -
Special Series 2 864
Class B Common Stock -
Special Series 3 0
Class B Common Stock -
Special Series 4 6
13
<PAGE> 99
Number of Record
Holders as of
Title of Class April 1, 1997
-------------- -------------
Class D Common Stock 16666
Class D Common Stock -
Special Series 3 0
Class D Common Stock -
Special Series 5 2
Class E Common Stock 3656
Class E Common Stock -
Special Series 3 0
Class E Common Stock -
Special Series 5 2
Class F Common Stock 18009
Class F Common Stock -
Special Series 3 0
Class F Common Stock -
Special Series 5 3
Class G Common Stock 4021
Class G Common Stock -
Special Series 3 0
Class G Common Stock -
Special Series 5 1
Class H Common Stock 0
Class I Common Stock 142
Class I Common Stock -
Special Series 1 55
Class I Common Stock -
Special Series 2 40
Class J Common Stock 233
Class J Common Stock -
Special Series 1 317
Class J Common Stock -
Special Series 2 5
Class J Common Stock -
Special Series 4 2
Class K Common Stock 58
Class K Common Stock -
Special Series 1 1236
Class K Common Stock -
Special Series 2 37
Class L Common Stock 116
Class L Common Stock -
Special Series 1 194
Class L Common Stock -
Special Series 2 98
Class M Common Stock 536
Class M Common Stock -
Special Series 3 0
Class M Common Stock -
Special Series 5 2
Class M Common Stock -
Special Series 7 0
Class N Common Stock 11193
Class N Common Stock -
Special Series 3 0
Class N Common Stock -
14
<PAGE> 100
Number of Record
Holders as of
Title of Class April 1, 1997
-------------- -------------
Special Series 5 1
Class N Common Stock -
Special Series 7 0
Class O Common Stock 2198
Class O Common Stock -
Special Series 3 0
Class O Common Stock -
Special Series 5 2
Class O Common Stock -
Special Series 7 0
Class Q Common Stock 397
Class Q Common Stock -
Special Series 3 0
Class Q Common Stock -
Special Series 5 1
Class R Common Stock 0
Class R Common Stock -
Special Series 3 0
Class R Common Stock -
Special Series 5 0
Class S Common Stock 0
Class S Common Stock -
Special Series 3 0
Class S Common Stock -
Special Series 5 0
Class T Common Stock 527
Class T Common Stock -
Special Series 3 0
Class T Common Stock -
Special Series 5 2
Class U Common Stock 6
Class U Common Stock -
Special Series 3 0
Class U Common Stock -
Special Series 5 0
Class V Common Stock 0
Class V Common Stock -
Special Series 3 0
Class V Common Stock -
Special Series 5 0
Class W Common Stock 2487
Class W Common Stock -
Special Series 3 0
Class W Common Stock -
Special Series 5 2
Item 27. Indemnification
Article VII, Section 3, of Registrant's Restated Articles of
Incorporation, incorporated herein by reference as Exhibit (1)(a) hereto, and
Article VI, Section 2, of Registrant's Amended and Restated By-Laws,
incorporated herein by reference as Exhibit (2)(a) hereto, provide for the
indemnification of Registrant's directors and officers. Indemnification of the
15
<PAGE> 101
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.
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.
16
<PAGE> 102
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.
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
17
<PAGE> 103
Position with
Bank of America
National Trust
and Savings Principal Type of
Association Name Occupation Business
- ----------- ---- ---------- --------
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
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
18
<PAGE> 104
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.
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,
19
<PAGE> 105
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).
Item 31. Management Services
Inapplicable.
Item 32. Undertakings
Registrant hereby undertakes to comply with the provisions of Section
16(c) of the Investment Company Act of 1940, as amended, as though such
provisions were applicable to it.
Registrant hereby undertakes to furnish its Annual Report to
Shareholders upon request and without charge to any person to whom a prospectus
is delivered.
20
<PAGE> 106
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Philadelphia, and the Commonwealth of
Pennsylvania, on this 30th day of April, 1997.
PACIFIC HORIZON FUNDS, INC.
Registrant
*/Cornelius John Pings
--------------------------------------
Cornelius John Pings
President
(Signature and Title)
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
Signature Title Date
*/Cornelius John Pings Chairman of the April 30, 1997
- --------------------------- Board and President
Cornelius John Pings
/s/Kevin L. Martin Treasurer (Chief April 30, 1997
- --------------------------- Accounting and
Kevin L. Martin Financial Officer)
*/Thomas M. Collins Director April 30, 1997
- ---------------------------
Thomas M. Collins
*/Douglas B. Fletcher Director April 30, 1997
- ---------------------------
Douglas B. Fletcher
*/Robert E. Greeley Director April 30, 1997
- ---------------------------
Robert E. Greeley
*/Kermit O. Hanson Director April 30, 1997
- ---------------------------
Kermit O. Hanson
*By: /s/W. Bruce McConnel, III
---------------------------
W. Bruce McConnel, III
Attorney-in-fact
21
<PAGE> 107
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 30th day of
April, 1997.
PACIFIC HORIZON FUNDS, INC.
/s/ W. Bruce McConnel, III
--------------------------------
W. Bruce McConnel, III
Secretary
<PAGE> 108
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> 109
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> 110
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> 111
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> 112
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> 113
EXHIBIT INDEX
Exhibits
11(a) Consent of Drinker Biddle & Reath LLP.
<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. 55 to the Registration Statement
(No. 2- 81110) on Form N-1A under the Securities Act of 1933 and the Investment
Company Act of 1940, as amended, of Pacific Horizon Funds, Inc. This consent
does not constitute a consent under section 7 of the Securities Act of 1933, and
in consenting to the use of our name and the references to our Firm under such
caption we have not certified any part of the Registration Statement and do not
otherwise come within the categories of persons whose consent is required under
said section 7 or the rules and regulations of the Securities and Exchange
Commission thereunder.
/s/ DRINKER BIDDLE & REATH LLP
------------------------------------
DRINKER BIDDLE & REATH LLP
Philadelphia, Pennsylvania
April 30, 1997
