<PAGE> 1
PACIFIC HORIZON INTERNATIONAL EQUITY FUND
ANNUAL REPORT
FEBRUARY 28, 1997
INTERNATIONAL EQUITY FUND
INVESTING FOR ALL
THE TIMES OF YOUR LIFE
----------------
NOT FDIC INSURED
----------------
<PAGE> 2
PACIFIC HORIZON FUNDS, INC.
3435 Stelzer Road, Columbus, OH 43219
1-800-332-3863
INVESTMENT ADVISER
Bank of America National Trust
and Savings Association
555 California Street
San Francisco, CA 94104
ADMINISTRATOR
The BISYS Group, Inc.
3435 Stelzer Road
Columbus, OH 43219
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
FUND COUNSEL
Drinker Biddle & Reath LLP
1345 Chestnut Street
Philadelphia, PA 19107
DISTRIBUTOR
Concord Financial Group, Inc.
3435 Stelzer Road
Columbus, OH 43219
FUND SHARES ARE NOT FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR
OTHERWISE ENDORSED BY THE U.S. GOVERNMENT, THE FDIC, THE FEDERAL RESERVE BOARD,
OR ANY OTHER GOVERNMENTAL AGENCY.
The Pacific Horizon Funds, Inc. are sponsored and distributed by Concord
Financial Group, Inc., which is unaffiliated with Bank of America. Bank of
America serves as investment adviser and receives fees for such services. From
time to time, Bank of America may provide other services to the Funds for
additional fees, as disclosed in the Funds' prospectuses.
This material must be preceded or accompanied by a current prospectus.
<TABLE>
<S> <C>
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INVESTMENTS IN PACIFIC HORIZON FUNDS, INC. ARE NOT
BANK DEPOSITS AND ARE NOT OBLIGATIONS OF, OR
GUARANTEED BY, BANK OF AMERICA OR ANY AFFILIATES. AN
INVESTMENT IN MUTUAL FUNDS INVOLVES INVESTMENT RISKS, NOT
INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT FDIC
INVESTED. INSURED
</TABLE>
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<PAGE> 3
Contents
FUND FACTS 2-3
UNDERSTANDING YOUR SHAREHOLDER REPORT 4-6
ECONOMIC REVIEW FROM THE INVESTMENT
ADVISER 8-9
FUND OVERVIEW AND INTERVIEW WITH YOUR
INVESTMENT MANAGER 10-12
PACIFIC HORIZON INTERNATIONAL
EQUITY FUND 13-15
Portfolio of Investments 16-24
Statement of Assets
and Liabilities 25
Statement of Operations 26
Statements of Changes
in Net Assets 27
Notes to Financial
Statements 28-36
Financial Highlights 37-38
Report of Independent Accountants 39
<PAGE> 4
PACIFIC HORIZON FUND FACTS
The Pacific Horizon Family of Funds offers a variety of mutual funds with
different investment objectives to help you diversify your portfolio and meet
your investment goals. Some Funds offer greater growth potential, while others
such as the money market funds, strive to maintain a stable net asset value but
offer no growth potential.
<TABLE>
<CAPTION>
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<S> <C>
<CAPTION>
FUND NAME INVESTMENT OBJECTIVE
- ------------------------------------------------------------------------------------
<S> <C>
International Equity Long-Term Capital Growth
.....................................................................................
Aggressive Growth Maximum Capital Appreciation
.....................................................................................
Blue Chip Long-Term Capital Appreciation
.....................................................................................
Capital Income Total Investment Return
.....................................................................................
Asset Allocation Long-Term Growth
.....................................................................................
Corporate Bond High Current Income
.....................................................................................
Intermediate Bond Income and Capital Appreciation
.....................................................................................
U.S. Government Securities High Level of Current Income
.....................................................................................
Short-Term Government High Current Income with Relative
Stability of Principal
.....................................................................................
National Municipal Bond* High Level of Federal Tax-Free
Current Income
.....................................................................................
California Tax-Exempt Bond* High Level of Federal and California
Tax-Free Current Income
.....................................................................................
Money Market Funds+ High Current Income Plus Principal
- Prime Stability
- Treasury
- Government
- Treasury Only
.....................................................................................
Tax-Exempt Money Market Funds*+
- Tax-Exempt Money High Level of Federal Tax-Free Current
Income Plus Principal Stability
- California Tax-Exempt Money Market High Level of Federal and California
Tax-Free Current Income Plus Principal
Stability
</TABLE>
- --------------------------------------------------------------------------------
* Certain investors may be subject to the federal Alternative Minimum Tax (AMT)
and to certain state and local taxes.
+ There can be no assurance that the Funds will be able to maintain a stable net
asset value of $1.00 per share. Fund shares are not insured or guaranteed by
the U.S. Government.
2
<PAGE> 5
With the help of an investment professional, you can develop a strategy tailored
to meet your goals. To receive any of the Funds' prospectuses, which include
more complete information such as charges and expenses, call your Investment
Specialist or the Pacific Horizon Funds. Read the prospectus carefully before
investing or sending money.
<TABLE>
<CAPTION>
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<S> <C>
<CAPTION>
PORTFOLIO CONSISTS PRIMARILY OF ... APPROPRIATE FOR INVESTORS WHO SEEK
- ----------------------------------------------------------------------------------
<S> <C>
Foreign Equity Securities Diversification into foreign equity markets with
associated risk.
..............................................................................................
Small Capitalization Stocks Higher-than-average long-term growth potential with
higher-than-average risk.
..............................................................................................
Blue Chip Stocks Long-term growth potential from investments in the
stocks of well-established companies.
..............................................................................................
Convertible Bonds and Convertible Combined potential for current income and capital
Preferred Stocks appreciation.
..............................................................................................
Stocks, Bonds and Cash Equivalents Long-term growth potential and current income from
stocks and bonds.
..............................................................................................
Investment-Grade Corporate Debt High monthly income potential with reasonable
investment risk.
..............................................................................................
Investment-Grade Corporate and U.S. Regular monthly income from a diversified portfolio
Government Securities of investment-grade securities.
..............................................................................................
GNMAs and Other U.S. Government High monthly income potential and low credit risk.
Securities
..............................................................................................
U.S. Government and Government Agency Monthly income and relative stability of investment.
Securities
..............................................................................................
Investment-Grade Municipal Debt Monthly tax-free income.
Securities
..............................................................................................
Investment-Grade California High monthly double tax-free income.
Municipal Securities
..............................................................................................
High-Quality Corporate and/or U.S. A flexible, convenient way to manage or accumulate
Government Short-Term Obligations cash while waiting for other investment
opportunities.
..............................................................................................
Short-Term Municipal Obligations A tax-free way to manage or accumulate cash while
waiting for other investment opportunities.
..............................................................................................
Short-Term California Municipal A tax-free way to manage or accumulate cash while
Obligations waiting for other investment opportunities.
</TABLE>
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3
<PAGE> 6
UNDERSTANDING YOUR SHAREHOLDER REPORT
As a mutual fund shareholder, you receive two financial reports a year that
contain important information about your investment. The Financial Statements
and Financial Highlights included in annual reports are audited by an
independent public accounting firm and cover the activity for the past fiscal
year. The independent public accountant provides an opinion letter in each
audited report. A semi-annual report is a six-month interim report that includes
financial statements that are generally not audited by an independent public
accounting firm.
This guide will help you extract the information from
the report.
The TABLE OF CONTENTS helps [ART WORK]
you locate the information you
want.
The ECONOMIC REVIEW FROM THE
INVESTMENT ADVISER provides a
brief overview of the economy
and how it affects the
financial markets.
The FUND OVERVIEW AND
INTERVIEW WITH YOUR INVESTMENT
MANAGER enables you to gain
insight into the Fund's
investments and learn more
about the Fund manager's
strategies.
Because a picture or chart can help clarify the
[ART WORK] text, the investment management team may have
illustrated the most important features of the Fund.
The illustrations may represent the portfolio
composition, the largest holdings or a
simplification of the investment adviser's
investment style.
4
<PAGE> 7
The financial statements summarize and describe the Fund's financial
transactions. They are broken down into four different statements, which are
illustrated below:
The PORTFOLIO OF INVESTMENTS lists each investment holding in the Fund as of the
date of the report. Investments may be grouped by category (by industry or
security type, for example). The percentage of the Fund's net assets represented
by these groupings is also disclosed.
TYPE OF SECURITY
[ART WORK] INDUSTRY SECTOR AND PERCENTAGE OF THE FUND'S
NET ASSETS REPRESENTED BY INVESTMENTS IN THAT
SECTOR (IF APPLICABLE)
ACTUAL PORTFOLIO HOLDINGS WITH SHARES AND
MARKET VALUE AS OF REPORT DATE
The STATEMENT OF ASSETS AND LIABILITIES lists all the assets and liabilities of
the Fund as of the date of the statement. This is an individual fund's "balance
sheet." Also disclosed in this statement are the Fund's net asset value per
share and its maximum offering price per share as of the date of the statement.
The statement also lists the accounts that comprise the Fund's net assets
(capital stock, undistributed income, etc.).
SUMMARY OF THE FUND'S INVESTMENTS AND ALL
OTHER ASSETS OWNED BY THE FUND, INCLUDING
AMOUNTS OWED TO THE FUND BY OUTSIDE PARTIES
[ART WORK]
SUMMARY OF ALL AMOUNTS OWED TO OUTSIDE PARTIES
BY THE FUND
NET RESULTS OF ASSETS LESS LIABILITIES
THE MARKET VALUE OF THE FUND'S TOTAL NET
ASSETS DIVIDED BY THE NUMBER OF SHARES
OUTSTANDING
THE CURRENT NET ASSET VALUE PER SHARE PLUS SALES CHARGE, IF ANY
5
<PAGE> 8
The STATEMENT OF OPERATIONS shows the amount of dividend and interest income
earned from the Fund's investments, the expenses incurred by the Fund from its
operations and any gains or losses realized and not yet realized by the Fund
from holding and/or selling any investments.
ANY INCOME EARNED FROM THE FUND'S INVESTMENTS
[ART WORK] OPERATING EXPENSES INCURRED BY THE FUND DURING
THE PERIOD
GAINS OR LOSSES REALIZED UPON THE SALE OF THE
FUND'S INVESTMENTS AND ANY CHANGE IN
UNREALIZED GAINS OR LOSSES ON FUND HOLDINGS
DURING THE PERIOD
NET CHANGE IN NET ASSETS DUE TO FUND
OPERATIONS
The STATEMENTS OF CHANGES IN NET ASSETS shows the changes in the net assets of
the Fund during each of the two most recent reporting periods. The changes in
net assets are generally broken down into four distinct sections:
OPERATIONS: SEE STATEMENT OF OPERATIONS
[ART WORK] DIVIDENDS TO SHAREHOLDERS: TOTAL INCOME
DIVIDENDS PAID TO SHAREHOLDERS DURING THE
PERIODS
DISTRIBUTIONS TO SHAREHOLDERS: TOTAL REALIZED
GAINS DISTRIBUTED TO SHAREHOLDERS DURING THE
PERIODS
FUND SHARE TRANSACTIONS: DOLLAR VALUE OF FUND
SHARES PURCHASED, REDEEMED OR REINVESTED
DURING THE PERIODS
The NOTES TO FINANCIAL STATEMENTS are footnotes to the statements listed above.
These notes include information on accounting methods used by the Fund,
contractual arrangements between the Fund and its service providers, certain
transactions effected by the Fund and other general information about the Fund.
The FINANCIAL HIGHLIGHTS shows, for a single share outstanding throughout each
period presented, the net investment income, the realized and unrealized gains
and losses and the dividends and distributions of the Fund. It also shows key
data and ratios (such as the total investment return for each period), the
portfolio turnover rate for Funds other than money market mutual funds, the
ratio of expenses to average net assets and the ratio of net investment income
to average net assets.
6
<PAGE> 9
[This page intentionally left blank.]
7
<PAGE> 10
ECONOMIC REVIEW
FROM THE INVESTMENT ADVISER
The Standard & Poor's Stock Index posted a total return of 26.18% during the 12
month period ended February 28, 1997, amply rewarding long-term investors who
rode out volatility early in the period.* The best performers were concentrated
among shares of large company stocks, which significantly outpaced shares of
smaller firms.
At the end of this period, however, the markets began to give serious
consideration to a possible tightening of monetary policy following Federal
Reserve Chairman Alan Greenspan's Humphrey-Hawkins testimony. Chairman
Greenspan's comments focused on current high levels of consumer confidence and
the potential for inflationary pressures to surface. His comments fueled renewed
volatility in the fixed-income markets, and the bellwether 30-year Treasury bond
ended the period with a 0.36% total return.**
THE CASE FOR
STOCKS AND BONDS
The stock market's gain raises some important issues. Late in the period, there
was considerable discussion concerning Federal Reserve Chairman Alan Greenspan's
comments of "irrational exuberance" in his reflections on the state of the U.S.
equity markets. Other observers felt that investors should be optimistic based
on the healthy business climate in the U.S., the moderate economic policies of
the current administration and the focus in Washington on balanced budgets.
Overall, the U.S. economy seems poised for continued moderate growth, which is
good news for stocks. The stock market's current price-to-earnings (P/E) ratio
of 17.8 times our 1997 earnings estimates is within the 16 to 19 times range of
the 1960s when we had similar inflation levels. We think it is reasonable to
expect P/E ratios to stay at current levels. That gives an estimated market
return over the next 12 months of 10% (8% from earnings growth and 2% from
dividend yield).
Congress and the Clinton Administration continue to entertain the prospect of a
Balanced Budget Amendment, mandating the end of federal deficits within five to
seven years. While an agreement has not passed to date, this shift in attitude
bodes well for both stocks and bonds, as a balanced budget facilitates lower
interest rates, encouraging earnings growth.
POTENTIAL RISKS
Given the length of the current economic expansion, history tells us that the
bulls will run out of steam. Slowing economic growth is a double-edged sword as
lower corporate earnings lead to both a decline in prices and a reallocation of
savings. Companies with disappointing earnings may quickly fall into disfavor.
Broad equity indices may then decline as investors reallocate their assets into
more stable stocks.
The U.S. bond market and, indirectly, the U.S. equity market have benefited from
strong purchases of U.S. Treasuries by foreign investors. Supported by an
appreciating dollar, foreign purchases of U.S. Treasuries in 1996 were $265
billion compared to $118 billion in net sales by domestic investors (for four
quarters ended December 31, 1996).*** If the dollar should decline, there would
be less incentive to buy dollar denominated assets.
LOOKING FORWARD
In our view, investors should approach the remainder of 1997 with rational
exuberance tempered by a knowledge of history. Under the best case scenario, the
U.S. economy will see a move toward sustainable growth, higher real interest
rates and an anticipated 8% to 9% increase in corporate profits. Given these
projections, most investment professionals expect equities to perform well in
1997, although below 1996 levels. Bonds at this juncture seem attractive,
especially given the recommended revisions to real rates of inflation and the
trend toward a balanced federal budget.
8
<PAGE> 11
History, however, usually repeats itself, and we would not be surprised to see
some corrections ahead. Thus, investors may want to review their portfolios,
bearing in mind the importance of diversification in controlling risk. We see
the most value in equities characterized by growth at reasonable P/E multiples,
and find relative value in intermediate-term bonds, rather than long duration
plays. Investors seeking long-term growth after inflation and taxes should
remain biased toward stocks and positive on bonds.
Sincerely,
/s/ Kirk Hartman
Kirk Hartman
Chief Investment Officer,
Bank of America NT&SA,
Investment Adviser to the
Pacific Horizon Funds
- ---------------
* The S&P 500 is an index that is representative of the large capitalization
U.S. equity market as a whole, and cannot be invested in directly.
** Source: Bloomberg using Merrill Lynch Taxable Bond Indices which reflects
the 30-year Treasury bond return.
*** Source: ISI Group
9
<PAGE> 12
PACIFIC HORIZON
INTERNATIONAL EQUITY FUND
TROND SKRAMSTAD PHOTO
TROND SKRAMSTAD
Senior Vice President and Partner
Wellington Management Co., LLP
Sub-Adviser to the Fund
Mr. Skramstad directs the Global Equity Strategy Group and plays a key role in
the management of this Fund.
GOAL:
The Pacific Horizon International Equity Fund seeks long-term capital growth.
INVESTMENTS:
The Fund invests in a diversified portfolio of equity securities of companies
that are domiciled or have their principal activities in countries outside the
U.S.
APPROPRIATE FOR:
Investors who want to diversify their investments in foreign equity markets and
who are prepared to accept the risks associated with such investments.
INCEPTION:
May 13, 1996
SIZE OF FUND AS OF
FEBRUARY 28, 1997:
Over $16 million
Q
WHAT IS THE FUND'S INVESTMENT STRATEGY AND OBJECTIVE?
A
The Fund's investment objective is to seek long-term capital growth,
primarily through investments in equity securities of companies outside of the
U.S., although the Fund is accounted for in U.S. dollars.
The management team focuses on high quality, large-cap stocks within the
established markets of Europe and the Far East and may also invest in smaller
companies and emerging markets. The Fund will generally be fully invested, and
currency management is used only for defensive hedging purposes.
The cornerstone of our international investment approach is fundamental
research. We combine input from regional analysts, global industry analysts,
global economists and market strategists. The result is a broadly diversified
portfolio that incorporates the firm's best thinking with respect to security
selection, sector and country allocation.
Q
HOW DID THE FUND AND INTERNATIONAL MARKETS PERFORM DURING THE NINE MONTHS
ENDED FEBRUARY 28, 1997?
A
The Fund returned -0.79% (without the sales charge) for A Shares since its
inception on May 13, 1996, for the period ended February 28, 1997.* In addition,
during the period, the Fund introduced K Shares, which are primarily offered to
Daily Advantage 401(k) plan participants, although they are available to certain
other eligible individuals, as outlined in the prospectus. During the period
ended February 28, 1997, K Shares returned -1.09%.** By comparison, for the nine
month period beginning June 1, 1996 and ending February 28, 1997, the Fund's
benchmark, the Morgan Stanley Capital International (MSCI) All Country World
Free ex-US
10
<PAGE> 13
Index rose only 1.76% in U.S. dollar terms, as compared to 20.05% for the S&P
500 Index.*** Overseas markets returns were hurt by a stronger dollar and a
difficult year in Japan. Japanese stocks returned -23.3% in U.S. dollar terms
for the nine month period beginning June 1, 1996 and ending February 28, 1997,
as investors remained fundamentally pessimistic about the future economic growth
of the Japanese economy.
For the same nine month period beginning on June 1, 1996 and ending on February
28, 1997, European markets, as a group, were up 17.2% in U.S. dollar terms, as
measured by the MSCI Europe Index, driven by falling interest rates and an
improving economic environment. For the same period, the Nordic countries
(Finland, Sweden, Norway and Denmark) were particularly strong, each gaining
17.0% to 32.0% in U.S. dollar terms. United Kingdom stocks advanced, as did the
markets in France and Germany.
Elsewhere, the smaller Pacific Basin markets as a whole were generally weaker
than Europe, but several individual markets saw impressive returns as Hong Kong
was up 12.70%, Malaysia was up 15.25% and Taiwan returned 28.75% in U.S. dollar
terms for the same nine month period ended February 28, 1997. Many Latin
American markets also were strong performers.
Q
HOW HAVE THE FUND'S ASSETS BEEN DIVIDED AMONG DIFFERENT MARKETS SINCE
INCEPTION ON MAY 13, 1996?
A
The Fund is invested in 26 countries and 156 equity issues. Its equity
exposure by region at February 28, 1997 was as follows: Europe: 54%; Japan: 22%;
Pacific Basin (excluding Japan): 17%; and Latin America/Canada: 7%.****
Q
HOW HAVE YOU POSITIONED THE PORTFOLIO FOR THE YEAR AHEAD?
A
The Fund is generally overweighted in Continental European markets. Those
economies are gradually accelerating due to the effects of stimulative monetary
policies and more competitive currency levels. This remains a good recipe for
corporate profitability.
Our strategy in Japan remains relatively cautious relative to the benchmark,
given the structural challenges ahead, and the gradually improving economic
picture. However, we have been buying shares of world class global exporters and
attractively priced domestic-oriented companies on market weakness in Japan.
On balance, we have a positive long-term outlook for Asian economies and stock
markets. Asian economies (outside of Japan), despite slowing exports, continue
to grow at twice the rate of the developed countries and well in excess of most
of the world's other emerging markets.
We are underweighted in Canada and overweighted in Latin America, relative to
the Index. In Latin America, we are participating selectively as economic
fundamentals there are improving, but political uncertainty and other factors
present ongoing risks.
Q
WHO SHOULD CONSIDER INVESTING IN THIS FUND?
A
The Fund may be appropriate for investors who wish to increase investment
opportunity while reducing overall investment risk through diversification. The
U.S. market now accounts for only 45% of the total market capitalization of the
world's stock markets.***** The potential for faster growth exists in many
rapidly developing markets around the globe. International equity investors have
access to these markets, and the ability to tap their growth potential.
11
<PAGE> 14
International investments also can involve risk not usually associated with U.S.
equity investments, such as currency risk and different levels and types of
political and economic risks. However, these factors inherently present
opportunities for the experienced international investor to deliver attractive,
long-term returns.
- ---------------
* Return figures for the Fund include change in share price, reinvestment of
dividends and capital gain distributions. Performance figures do not
reflect the maximum 4.50% front-end sales load, which applies to some
investors. Fund performance with the 4.50% maximum sales charge was -5.24%
for the period. The Fund is currently waiving a portion of the advisory,
administrative and/or shareholder servicing fee. This voluntary waiver may
be modified or terminated at any time, which would reduce the Fund's
performance.
** The inception date of the K Shares (the date K Shares were initially
funded) was July 22, 1996. The K Shares did not commence operations until
October 25, 1996. For this reason, the performance results for K Shares are
those of A Shares without the sales charge for the period from May 13, 1996
(inception date of the Fund) through October 24, 1996 combined with actual
K Share performance from October 25, 1996 through February 28, 1997. The
performance results for K Shares included in the Financial Highlights table
in the financial statements represents actual performance from the
inception date of the K Shares.
*** The Morgan Stanley Capital Index (MSCI) All Country World Free ex-U.S.
Index is an unmanaged index generally representative of the international
equity market as a whole (excluding the U.S.), and cannot be invested in
directly. The S&P 500 is an index typically used to represent the
large-capitalization U.S. equity market as a whole, and cannot be invested
in directly.
**** The composition of the Fund's holdings is subject to change.
***** Source: Morgan Stanley, using MSCI All Country World Free ex-U.S. Index.
12
<PAGE> 15
PACIFIC HORIZON
INTERNATIONAL EQUITY FUND
(AS OF FEBRUARY 28, 1997)
GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)
<TABLE>
<CAPTION>
MSCI ALL
LIPPER COUNTRY
INTERNATIONAL WORLD FREE
MEASUREMENT PERIOD EQUITY FUND EX-U.S.
(FISCAL YEAR COVERED) A SHARES K SHARES AVERAGE INDEX
<S> <C> <C> <C> <C>
5/13/96 9551.10 10000.00 10000 10000
8/31/96 9283.67 9720 9807.03 9773.57
2/28/97 9475.68 9891.04 10528.01 10175.49
</TABLE>
HOW PERFORMANCE COMPARES
The chart compares the Pacific Horizon
International Equity Fund to the
Morgan Stanley Capital International
(MSCI) All Country World Free ex-U.S.
Index, which is an unmanaged index
typically used as a performance
benchmark for international equity
investments.
As illustrated, the Fund tracked the
performance of other international
equity funds. The average of
international equity funds as reported
by Lipper Analytical Services, Inc. measures the performance of other funds with
investment objectives and policies similar to
those of the Pacific Horizon International Equity Fund. An initial $10,000
investment in the Fund made on May 13, 1996 would now be worth $9,475 for A
Shares. The same investment made in the Lipper International Equity Fund Average
would now be worth $10,528. Correspondingly, a $10,000 investment in K Shares
for the same period would now be worth $9,891.*
SEE INVESTMENT MANAGER INTERVIEW FOR FACTORS AFFECTING FUND PERFORMANCE.
The performance data quoted represents past performance and is not an indication
of future results. The investment return and principal value are historical and
will vary with market conditions, so an investor's shares, when redeemed, may be
worth more or less than their original cost.
* The inception date of the K Shares (the date K Shares were initially funded)
was July 22, 1996. The K Shares did not commence operations until October 25,
1996. For this reason, the performance results for K Shares are those of A
Shares without the sales charge for the period from May 13, 1996 (inception date
of the Fund) through October 24, 1996 combined with actual K Share performance
from October 25, 1996 through February 28, 1997. The performance results for K
Shares included in the Financial Highlights table in the financial statements
represent actual performance from the inception date of the K
----------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INTERNATIONAL EQUITY FUND
AGGREGATE TOTAL RETURN
<CAPTION>
---------------------------------------
A SHARES K SHARES*
Without With
Sales Sales
Charge Charge
---------------------------------------
<S> <C> <C> <C>
Since
Inception -0.79% -5.24% -1.09%
(5/13/96)
</TABLE>
----------------------------------
Performance quoted is not
annualized.
Return figures for the Fund
include change in share price,
reinvestment of dividends and
capital gains distributions.
<PAGE> 16
Shares. K Shares, unlike A Shares, are sold without a front-end sales load but
have an ongoing .75% distribution or administrative services fee (of which .25%
are currently being waived), which would have reduced prior performance.
Lipper Analytical Services, Inc. is an independent mutual fund-monitoring
organization. Neither the Lipper International Equity Fund Average, nor the
Morgan Stanley Capital International (MSCI) All Country World Free ex-U.S. Index
may be invested in directly. The hypothetical investment in the Morgan Stanley
Capital International (MSCI) All Country World Free ex-U.S. Index does not
reflect any sales or management fees that would be incurred if an investor were
to actually purchase individual securities or mutual funds, while the
performance of the Fund reflects all expenses and management fees and the effect
of the maximum sales charge.
14
<PAGE> 17
PACIFIC HORIZON
INTERNATIONAL EQUITY FUND
(AS OF FEBRUARY 28, 1997)
A WORLD OF INVESTMENT OPPORTUNITY
An investment in the Pacific Horizon International Equity Fund offers
shareholders the potential to take advantage of the expanding universe of
international equity investments that now account for nearly two-thirds of the
world's investment opportunities and 80% of the world's blue-chip companies.
As you can see on the chart below, stocks of companies headquartered outside the
United States increasingly make up a larger portion of the world's capital
markets.
U.S. versus non-U.S. securities, as a percent of the World's Capital Markets
<TABLE>
<CAPTION>
1970 1996
<S> <C>
Non-U.S. 34 U.S. 45
U.S. 66 NON-U.S. 55
</TABLE>
Primary areas of investment opportunity currently include the countries in the
adjacent table, which reflects the current largest country holdings of the MSCI
All Country World Free ex-U.S. Index as of December 31, 1996.
<TABLE>
<CAPTION>
TOP TEN COUNTRIES+*
AS OF FEBRUARY 28, 1997
<S> <C>
- ----------------------------------------
<CAPTION>
PERCENT OF
NET ASSETS
<S> <C>
- ----------------------------------------
Japan 20.5%
......................................................
United Kingdom 13.8%
......................................................
France 7.9%
......................................................
Germany 7.7%
......................................................
Australia 4.7%
......................................................
Spain 4.1%
......................................................
Sweden 2.9%
......................................................
Netherlands 2.9%
......................................................
Italy 2.8%
......................................................
Switzerland 2.7%
- ----------------------------------------
TOTAL 70.0%
- ----------------------------------------
</TABLE>
- ---------------
+ Calculation is based on investment securities and futures contracts.
* The composition of the Fund's holdings is subject to change.
The International Equity Fund employs a "blue-chip" approach to the world's
markets. The Fund aims to select stocks from major industries in the 47
countries represented by the Morgan Stanley Capital International (MSCI) All
Country World Free ex-U.S. Index. Fund managers will strive to add value by
carefully screening stocks to select what they believe to be the best stocks in
each industry, with a focus on stock of large, well-established companies.
Source: MSCI, 1997
15
<PAGE> 18
PACIFIC HORIZON INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- ------------------------------------------------------- --------- --------------
<S> <C> <C>
COMMON STOCKS -- 83.3%
ARGENTINA -- 0.8%
Energy -- 0.5%
YPF Sociedad Anonima ADR........................... 3,000 $ 80,250
Beverages & Tobacco -- 0.3%
Quilmes Industrial ADR............................. 5,000 56,250
--------------
Total Argentina.................................... 136,500
--------------
AUSTRALIA -- 2.7%
Construction & Housing -- 0.6%
Boral Ltd. (b)..................................... 37,500 101,950
--------------
Food & Household Products -- 0.6%
Goodman Fielder Ltd................................ 87,000 105,422
--------------
Metals -- Non Ferrous -- 0.6%
Pioneer International.............................. 30,000 89,250
--------------
Metals -- Steel -- 0.9%
BHP................................................ 10,637 140,874
--------------
Total Australia.................................... 437,496
--------------
AUSTRIA -- 1.0%
Energy -- 1.0%
OMV AG............................................. 1,400 165,122
--------------
BRAZIL -- 1.4%
Forest Products & Paper -- 0.3%
Aracruz Cellulose.................................. 4,800 44,400
--------------
Telecommunications -- 0.6%
Telebras ADR....................................... 1,000 97,000
--------------
Utilities -- Electric & Gas -- 0.5%
Centrais Electricas Brasileiras ADR................ 4,000 86,588
--------------
Total Brazil....................................... 227,988
--------------
CANADA -- 0.7%
Banking -- 0.3%
Bank of Montreal................................... 1,330 47,548
--------------
Electrical & Electronics -- 0.4%
CanWest Global Communications Corp................. 5,000 69,375
--------------
Total Canada....................................... 116,923
--------------
CHILE -- 1.1%
Banking -- 0.2%
Banco Santander Chile ADR.......................... 2,000 35,250
--------------
Utilities -- Electric & Gas -- 0.9%
Enersis............................................ 4,600 152,375
--------------
Total Chile........................................ 187,625
--------------
</TABLE>
- ---------------
See Notes to Financial Statements.
16
<PAGE> 19
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- ------------------------------------------------------- --------------
<S> <C> <C>
DENMARK -- 1.9%
Banking -- 1.3%
Unidanmark A/S..................................... 4,000 $ 210,075
--------------
Telecommunications -- 0.6%
Tele Danmark....................................... 1,800 93,695
--------------
Total Denmark...................................... 303,770
--------------
FINLAND -- 1.8%
Building Materials & Components -- 0.1%
Kesko.............................................. 1,000 14,637
--------------
Forest Products & Paper -- 0.4%
Metsa Serla........................................ 7,500 62,647
--------------
Machinery & Engineering -- 0.7%
Rauma Oy........................................... 5,000 113,361
--------------
Telecommunications -- 0.6%
Nokia Corp. ADR.................................... 1,600 93,600
--------------
Total Finland...................................... 284,245
--------------
FRANCE -- 7.9%
Automoblies -- 0.3%
PSA Peugeot Citroen................................ 400 44,242
--------------
Banking -- 1.9%
Banque National de Paris........................... 2,500 113,457
Credit Commercial de France........................ 1,300 60,938
Societe Generale................................... 1,140 132,093
--------------
306,488
--------------
Beverages & Tobacco -- 0.7%
Remy Cointreau..................................... 4,200 109,498
--------------
Data Processing & Reproduction -- 1.0%
Havas.............................................. 2,000 158,006
--------------
Electrical & Electronics -- 0.7%
Alcatel Alsthom Co................................. 1,100 112,974
--------------
Energy -- 1.2%
Elf Aquitaine...................................... 1,000 95,681
Total SA........................................... 1,200 95,751
--------------
191,432
--------------
Health & Personal Care -- 0.6%
Rhone-Poulenc...................................... 3,000 105,337
--------------
Insurance -- 0.7%
Assurance Generales de France...................... 3,500 123,200
--------------
Leisure & Tourism -- 0.8%
Accor.............................................. 1,000 137,640
--------------
Total France....................................... 1,288,817
--------------
GERMANY -- 5.3%
Automoblies -- 0.9%
Daimler Benz....................................... 2,000 145,203
--------------
</TABLE>
- ---------------
See Notes to Financial Statements.
17
<PAGE> 20
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- ------------------------------------------------------- --------------
<S> <C> <C>
GERMANY -- (CONTINUED)
Electrical & Electronics -- 0.7%
Siemens Ord........................................ 2,400 $ 121,472
--------------
Machinery & Engineering -- 1.3%
Metallgesellschaft AG (b).......................... 10,000 209,210
--------------
Merchandising -- 1.4%
Karstadt AG........................................ 675 220,746
--------------
Metals -- Non Ferrous -- 0.5%
Degussa............................................ 180 76,382
--------------
Retail -- 0.5%
Hornbach Holding AG................................ 1,400 87,951
--------------
Total Germany...................................... 860,964
--------------
HONG KONG -- 2.2%
Food & Household Products -- 0.3%
Tingyi (Cayman Islands) Holding Co. (b)............ 174,000 42,694
--------------
Multi-Industry -- 1.2%
Swire Pacific Ltd. ADR............................. 13,000 111,643
Hutchinson Whampoa................................. 11,000 83,813
--------------
195,456
--------------
Real Estate -- 0.7%
Sun Hung Kai Properties............................ 10,000 115,582
--------------
Total Hong Kong.................................... 353,732
--------------
INDONESIA -- 1.0%
Health & Personal Care -- 0.2%
Kalbe Farma........................................ 30,000 37,250
--------------
Real Estate -- 0.3%
Jaya Real Property................................. 40,000 57,596
--------------
Telecommunications -- 0.5%
Indonesia Satellite ADR............................ 2,600 74,750
--------------
Total Indonesia.................................... 169,596
--------------
INDIA -- 0.4%
Banking -- 0.3%
State Bank of India GDR (b)........................ 2,000 40,000
--------------
Health & Personal Care -- 0.1%
Ranbaxy Laboratories GDR........................... 900 19,800
--------------
Total India........................................ 59,800
--------------
ITALY -- 2.2%
Automoblies -- 0.6%
Fiat............................................... 31,900 98,449
--------------
Banking -- 0.6%
Banca Commerciale Italiana......................... 50,000 101,136
--------------
</TABLE>
- ---------------
See Notes to Financial Statements.
18
<PAGE> 21
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- ------------------------------------------------------- --------------
<S> <C> <C>
ITALY -- (CONTINUED)
Telecommunications -- 1.0%
Seat (b)........................................... 20,000 $ 7,216
STET............................................... 20,000 85,758
Telecom Italia..................................... 26,000 61,048
--------------
154,022
--------------
Total Italy........................................ 353,607
--------------
JAPAN -- 20.5%
Aerospace & Military Technology -- 0.7%
Mitsubishi Heavy Industries, Ltd................... 15,000 107,914
--------------
Appliances & Household Durables -- 1.2%
Matsushita Electric Industrial Co., Ltd. (b)....... 13,000 200,182
--------------
Automobiles -- 1.9%
Aisin Seiko Co., Ltd............................... 5,000 69,956
Exedy Corp......................................... 2,000 24,836
NGK Spark Plug Co.................................. 13,000 133,455
Toyota Motor Corp.................................. 3,000 76,745
--------------
304,992
--------------
Banking -- 2.5%
Bank of Tokyo...................................... 6,000 98,353
Daibiru Corp....................................... 1,000 9,454
Sakura Bank Ltd.................................... 15,000 95,745
Sanwa Bank......................................... 12,000 138,091
Seventy-Seven Bank................................. 8,000 65,237
--------------
406,880
--------------
Chemicals -- 0.6%
Toyo Ink Manufacturing............................. 25,000 94,586
--------------
Construction & Housing -- 0.8%
Chudenko Corp...................................... 3,000 85,686
Danto Corp......................................... 1,000 10,100
Okumura............................................ 6,000 31,700
Sawako Corp........................................ 100 1,625
--------------
129,111
--------------
Computer Software -- 0.3%
Square Co., Ltd.................................... 1,300 50,913
--------------
Data Processing & Reproduction -- 0.7%
Dai Nippon Printing Co., Ltd....................... 7,000 116,483
--------------
Electrical & Electronics -- 2.3%
Mabuchi Motor...................................... 4,000 199,023
Murata Manufacturing Co., Ltd...................... 4,000 140,078
Sanshin Electronics Co............................. 2,000 27,320
--------------
366,421
--------------
Financial Services -- 0.7%
Nomura Securities.................................. 9,000 119,960
--------------
</TABLE>
- ---------------
See Notes to Financial Statements.
19
<PAGE> 22
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- ------------------------------------------------------- --------------
<S> <C> <C>
JAPAN -- (CONTINUED)
Health & Personal Care -- 1.6%
Chugai Pharmaceutical Co., Ltd..................... 22,000 $ 173,574
Eisai Co., Ltd..................................... 5,000 93,551
--------------
267,125
--------------
Machinery & Engineering -- 1.5%
Fuji Machine Manufacturing Co...................... 6,000 154,980
JGC Corp........................................... 10,000 57,041
Kyudenko Co., Ltd.................................. 5,000 38,083
--------------
250,104
--------------
Metals -- Steel -- 2.1%
Maruichi Steel Tube................................ 10,000 156,470
Tokyo Steel Manufacturing.......................... 5,000 55,054
Yamato Kogyo Co., Ltd.............................. 15,000 135,359
--------------
346,883
--------------
Real Estate -- 0.2%
Meiwa Estate Co. Ltd. (b).......................... 1,000 24,836
--------------
Recreation/Other Consumer Goods -- 0.9%
Nintendo Corp. Ltd................................. 500 35,226
Sony Corp.......................................... 1,000 72,109
Sony Music Entertainment, Inc...................... 1,200 46,295
--------------
153,630
--------------
Textiles & Apparel -- 1.0%
Onward Kashiyama Co., Ltd.......................... 12,000 147,032
Maruco Co., Ltd.................................... 800 9,206
--------------
156,238
--------------
Tires -- 0.2%
Sumitomo Rubber Industries......................... 6,000 39,490
--------------
Transportation -- Road & Rail -- 0.8%
Nippon Express Co., Ltd............................ 20,000 128,653
--------------
Wholesale & International Trade -- 0.5%
Canon Sales Co., Inc............................... 4,000 77,490
--------------
Total Japan 3,341,891
--------------
KOREA -- 0.8%
Metals -- Steel -- 0.3%
Pohang Iron & Steel Ltd. ADR....................... 3,000 58,500
--------------
Utilities -- Electric & Gas -- 0.5%
Korea Electric Power............................... 4,500 81,000
--------------
Total Korea 139,500
--------------
MALAYSIA -- 1.6%
Financial Services -- 0.2%
MBF Capital Berhad................................. 20,000 41,084
--------------
</TABLE>
- ---------------
See Notes to Financial Statements.
20
<PAGE> 23
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- ------------------------------------------------------- --------------
<S> <C> <C>
MALAYSIA -- (CONTINUED)
Multi-Industry -- 0.9%
Renong Berhad...................................... 20,000 $ 36,412
Sime Darby Berhad.................................. 20,000 75,724
Sungei Way Holdings Berhad......................... 10,000 29,001
--------------
141,137
--------------
Leisure & Tourism -- 0.3%
Resorts World Berhad............................... 10,000 46,723
--------------
Real Estate -- 0.2%
Land & General Holdings............................ 15,000 30,511
--------------
Total Malaysia..................................... 259,455
--------------
MEXICO -- 2.3%
Banking -- 0.3%
Grupo Financiero Bancomer, S.A. de C.V............. 150,000 58,362
--------------
Beverages & Tobacco -- 0.8%
Fomento Economico Mexicano, S.A. de C.V............ 30,000 125,761
--------------
Construction & Housing -- 0.4%
Cemex, S.A. de C.V................................. 15,000 60,621
--------------
Forest Products & Paper -- 0.8%
Kimberly Clark de Mexico, S.A. de C.V.............. 3,000 128,808
--------------
Total Mexico....................................... 373,552
--------------
NETHERLANDS -- 2.9%
Chemicals -- 0.4%
Akzo Nobel......................................... 500 72,057
--------------
Financial Services -- 1.0%
Intle Nederlanden.................................. 4,276 165,606
--------------
Recreation/Other Consumer Goods -- 0.9%
Polygram NV........................................ 3,300 151,280
--------------
Transportation -- Airlines -- 0.6%
KLM Royal Dutch Airlines NV........................ 3,000 92,001
--------------
Total Netherlands.................................. 480,944
--------------
NEW ZEALAND -- 1.0%
Forest Products & Paper -- 0.4%
Carter Holt Harvey Ltd............................. 30,000 67,939
--------------
Transportation -- Airlines -- 0.6%
Air New Zealand Ltd................................ 35,000 91,382
--------------
Total New Zealand.................................. 159,321
--------------
NORWAY -- 1.8%
Banking -- 0.3%
Fokus Bank......................................... 7,000 54,053
--------------
Energy -- 0.7%
Saga Petroleum ASA................................. 6,800 114,611
--------------
Health & Personal Care -- 0.8%
Nycomed ASA (b).................................... 8,600 134,094
--------------
Total Norway....................................... 302,758
--------------
</TABLE>
- ---------------
See Notes to Financial Statements.
21
<PAGE> 24
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- ------------------------------------------------------- --------------
<S> <C> <C>
PHILIPPINES -- 0.4%
Telecommunications -- 0.4%
Phillippine Long Distance ADR...................... 1,200 $ 69,600
--------------
SINGAPORE -- 1.7%
Banking -- 0.6%
Development Bank of Singapore Ltd.................. 7,000 92,744
--------------
Machinery & Engineering -- 0.2%
Far East Levingston Shipbuilding (b)............... 10,000 41,009
--------------
Multi-Industry -- 0.4%
Keppel Corp. Ltd................................... 9,000 64,984
--------------
Real Estate -- 0.5%
Straits Steamship Land Ltd. (b).................... 25,000 85,174
--------------
Total Singapore.................................... 283,911
--------------
SPAIN -- 0.9%
Telecommunications -- 0.3%
Telefonica de Espana............................... 2,300 52,955
--------------
Utilities -- Electric & Gas -- 0.6%
Endesa............................................. 1,530 93,403
--------------
Total Spain........................................ 146,358
--------------
SWEDEN -- 1.4%
Electrical & Electronics -- 0.4%
ABB AB............................................. 520 58,757
--------------
Health & Personal Care -- 1.0%
Pharmacia & Upjohn, Inc............................ 4,400 163,275
--------------
Total Sweden....................................... 222,032
--------------
SWITZERLAND -- 2.7%
Beverages & Tobacco -- 0.6%
Compagnie Financiere Richemont AG.................. 70 98,297
--------------
Food & Household Products -- 1.0%
Nestle AG.......................................... 150 163,422
--------------
Machinery & Engineering -- 0.6%
Sulzer AG.......................................... 175 109,219
--------------
Transportation -- Airlines -- 0.5%
Swissair AG (b).................................... 90 76,745
--------------
Total Switzerland.................................. 447,683
--------------
THAILAND -- 0.6%
Banking -- 0.3%
Siam Commercial Bank & Public Co., Ltd............. 9,500 53,919
--------------
Real Estate -- 0.3%
Land & House Public Co., Ltd....................... 8,000 45,405
--------------
Total Thailand..................................... 99,324
--------------
UNITED KINGDOM -- 13.8%
Aerospace & Military Technology -- 0.0%
British Aerospace PLC.............................. 8 167
--------------
</TABLE>
- ---------------
See Notes to Financial Statements.
22
<PAGE> 25
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- ------------------------------------------------------- --------------
<S> <C> <C>
UNITED KINGDOM -- (CONTINUED)
Banking -- 1.0%
Bank of Scotland................................... 23,000 $ 127,782
Royal Bank of Scotland Group PLC................... 4,500 42,340
--------------
170,122
--------------
Beverages & Tobacco -- 0.9%
Guinness PLC....................................... 20,000 149,402
--------------
Chemicals -- 0.7%
BOC Group PLC...................................... 7,000 112,793
--------------
Data Processing & Reproduction -- 1.3%
De La Rue PLC (b).................................. 21,000 213,326
--------------
Food & Household Products -- 1.6%
Reckitt & Colman PLC............................... 12,000 155,430
Sainsbury (J.) PLC................................. 20,000 100,362
--------------
255,792
--------------
Forest Products & Paper -- 0.7%
Jefferson Smurfit Group PLC........................ 44,000 111,112
--------------
Health & Personal Care -- 1.6%
Amersham International PLC......................... 6,100 129,100
Zeneca PLC......................................... 4,500 132,336
--------------
261,436
--------------
Insurance -- 0.7%
Royal & Sun Alliance Insurance Group PLC........... 14,000 112,565
--------------
Leisure & Tourism -- 1.4%
Carlton Communications PLC......................... 11,000 94,000
Rank Group PLC..................................... 20,000 136,531
--------------
230,531
--------------
Merchandising -- 0.9%
Boots Co. PLC...................................... 13,500 149,235
--------------
Multi-Industry -- 1.0%
Cookson Group PLC.................................. 41,400 158,510
--------------
Telecommunications -- 0.5%
British Telecom PLC................................ 12,000 83,190
--------------
Utilities -- Electric & Gas -- 1.5%
BG PLC............................................. 20,000 55,557
Centrica PLC....................................... 80,000 85,699
Scottish Power PLC................................. 17,800 101,792
--------------
243,048
--------------
Total United Kingdom............................... 2,251,229
--------------
VENEZUELA -- 0.5%
Telecommunications -- 0.5%
Compania Anomina Nacional Telefonos................ 2,500 79,375
--------------
Total Common Stocks
(cost $13,568,002)............................... 13,603,118
--------------
</TABLE>
- ---------------
See Notes to Financial Statements.
23
<PAGE> 26
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- ------------------------------------------------------- --------------
<S> <C> <C>
INVESTMENT COMPANIES -- 0.8%
India Fund......................................... 11,300 $ 96,050
Korean Investment Fund............................. 4,700 35,194
--------------
Total Investment Companies
(cost $137,148).................................. 131,244
--------------
</TABLE>
<TABLE>
<CAPTION>
MATURITY PRINCIPAL VALUE
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
- ------------------------------------- ---- -------- ---------- --------------
<S> <C> <C> <C> <C>
U.S. TREASURY OBLIGATIONS -- 0.8%
U.S. Treasury Bill................. 5.01% 05/01/97 100,000 99,135
U.S. Treasury Bill................. 4.97% 05/22/97 35,000 34,596
-----------
Total U.S. Treasury Obligations
(cost $133,328).................. 133,731
-----------
REPURCHASE AGREEMENT -- 14.8%
Swiss American Securities Inc.,
dated 2/28/97, with a maturity
value of $2,410,074
(Collateralized by $2,324,000
U.S. Treasury Securities, 7.25%,
5/15/16, market
value -- $2,458,570)
(cost $2,409,000; Note 2)........ 5.35% 03/03/97 2,409,000 2,409,000
--------------
TOTAL INVESTMENTS --
(COST $16,247,478) (A)............. $ 16,277,093
Other assets in excess of
liabilities -- 0.3%.............. 56,385
--------------
NET ASSETS -- 100.0%................. $ 16,333,478
==============
<FN>
- ---------------
Percentages indicated are based on net assets of $16,333,478.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<CAPTION>
<S> <C>
Unrealized appreciation..................................... $ 653,763
Unrealized depreciation..................................... (624,148)
--------
Net unrealized appreciation................................. $ 29,615
========
<FN>
(b) Represents a non-income producing security.
ADR -- American Depositary Receipt
PLC -- Public Limited Company
</TABLE>
See Notes to Financial Statements.
24
<PAGE> 27
PACIFIC HORIZON INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
February 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at value (Cost $16,247,478).................................... $16,277,093
Interest and dividend receivable............................................ 8,949
Receivable from investment advisor.......................................... 41,306
Receivable for capital shares sold.......................................... 58,406
Receivable for investment securities sold................................... 451,908
Forward currency contracts--
net amount receivable from counterparties................................. 6,548
Deferred organization costs................................................. 42,531
Prepaid expenses............................................................ 10,635
Other assets................................................................ 5,211
-----------
Total Assets................................................................. 16,902,587
-----------
LIABILITIES
Cash overdraft.............................................................. 35,013
Payable for capital shares redeemed......................................... 266,572
Payable for currencies purchased............................................ 132,613
Forward currency contracts --
net amount payable to counterparties...................................... 20,949
Payable for currencies purchased............................................ 4,892
Net payable for variation margin on futures contracts....................... 26,839
Custodian and fund accounting fees payable.................................. 23,042
Audit fees payable.......................................................... 36,878
Other accrued expenses...................................................... 22,311
-----------
Total Liabilities............................................................ 569,109
-----------
NET ASSETS................................................................... $16,333,478
===========
Net Assets
A Shares.................................................................... $16,217,437
K Shares.................................................................... 116,041
-----------
Total........................................................................ $16,333,478
===========
Shares Outstanding
($0.001 par value, 150 million shares authorized):
A Shares.................................................................... 1,636,100
K Shares.................................................................... 11,751
-----------
Total........................................................................ 1,647,851
===========
NET ASSET VALUE
A Shares -- redemption price per share...................................... $9.91
Maximum Sales Charge (A Shares)............................................. 4.50%
Maximum Offering Price (A Shares)
(Net Asset Value of A Shares/(100%-Maximum Sales Charge))................... $10.38
K Shares -- offering price per share........................................ $9.88
COMPOSITION OF NET ASSETS:
Shares of common stock, at par.............................................. $ 1,648
Additional paid-in-capital.................................................. 16,266,024
Accumulated undistributed net investment income............................. (18,867)
Accumulated net realized gain on investment transactions and futures
contracts................................................................. 88,887
Net unrealized appreciation on investments and futures contracts............ 12,249
Net unrealized depreciation from foreign currency transactions.............. (16,463)
-----------
NET ASSETS, FEBRUARY 28, 1997................................................ $16,333,478
===========
</TABLE>
- ---------------
See Notes to Financial Statements.
25
<PAGE> 28
PACIFIC HORIZON INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the period ended February 28, 1997(a)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Investment Income from Master Investment Trust, Series I --
International Equity Portfolio (b):
Dividends (net of foreign withholding tax of $1,561)........... $ 9,966
Interest....................................................... 5,084
--------
Total Income................................................... 15,050
--------
Expenses....................................................... 49,967
Fee waivers and expense reimbursements......................... (41,705)
--------
Total expenses............................................... 8,262
--------
Net Investment Income from Master Investment Trust, Series I --
International Equity Portfolio................................. 6,788
--------
Dividends (net of foreign withholding tax of $5,622)............. 57,190
Interest......................................................... 24,952
--------
Total Income................................................... 88,930
--------
EXPENSES
Investment advisory fees....................................... 48,128
Administration fees............................................ 14,481
Shareholder service fees (A and K shares)...................... 18,782
Custodian and fund accounting fees............................. 18,605
Registration fees.............................................. 44,193
Reports to shareholders........................................ 42,531
Transfer agent fees............................................ 4,233
Legal fees..................................................... 1,625
Audit fees..................................................... 36,865
Other expenses................................................. 11,544
--------
Total Expenses............................................... 240,987
Less: Fee waivers and expense reimbursements..................... (181,166)
--------
Total Net Expenses............................................... 59,821
--------
NET INVESTMENT INCOME............................................ 29,109
--------
NET REALIZED/UNREALIZED GAINS (LOSSES) ON INVESTMENTS(B):
Net realized gains on investment transactions and
futures contracts............................................ 55,351
Net change in unrealized appreciation on investments and
futures...................................................... 12,249
Net change in unrealized depreciation from foreign currency
transactions................................................. (16,463)
--------
Net realized/unrealized gains on investments..................... 51,137
--------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................. $ 80,246
========
<FN>
- ---------------
(a) Period from May 13, 1996 (inception date of fund) to February 28, 1997.
(b) On August 31, 1996, the International Equity Fund withdrew its investment in
the Master Investment Trust, Series I and invested directly in investment
securities.
</TABLE>
See Notes to Financial Statements.
26
<PAGE> 29
PACIFIC HORIZON INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
For the period ended February 28, 1997(a)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT ACTIVITIES
OPERATIONS:
Net investment income.......................................... $ 29,109
Net realized gains on investment transactions
and futures contracts........................................ 55,351
Net change in unrealized appreciation on investments and
futures contracts............................................ 12,249
Net change in unrealized depreciation on foreign currency
transactions................................................. (16,463)
-----------
Change in net assets resulting from operations................. 80,246
-----------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED GAINS ON
INVESTMENT TRANSACTIONS:
Class A Shares................................................. (14,330)
Class K Shares................................................. (110)
-----------
Change in net assets from shareholder distributions.............. (14,440)
-----------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares issued.................................... 20,137,406
Dividends reinvested........................................... 8,601
Cost of shares redeemed........................................ (3,878,335)
-----------
Change in net assets from capital share transactions............. 16,267,672
-----------
Change in net assets............................................. 16,333,478
NET ASSETS:
Beginning of period............................................ 0
-----------
End of period.................................................. $ 16,333,478
===========
<FN>
- ---------------
(a) Period from May 13, 1996 (inception date of fund) to February 28, 1997.
</TABLE>
See Notes to Financial Statements.
27
<PAGE> 30
PACIFIC HORIZON INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 -- ORGANIZATION
Pacific Horizon Funds, Inc. (the "Company"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended (the "Act"), as
an open-end management investment company. At February 28, 1997, the Company
operated as a series company comprised of seventeen funds. The accompanying
financial statements and notes are those of the Pacific Horizon International
Equity Fund, ("the Fund"). The Fund commenced operations on May 13, 1996. The
Fund offers A Shares and, effective July 22, 1996, began offering K Shares. A
Shares have a Shareholder Services Plan while K Shares have a Distribution Plan
and Administrative and Shareholder Services Plan.
The Fund seeks long-term capital growth to achieve its investment objective
by investing primarily in foreign equity securities.
Prior to September 1, 1996, the Fund sought to achieve its investment
objective by investing substantially all of its assets in the Pacific Horizon
International Equity Portfolio of the Master Investment Trust, Series I (the
"Portfolio"), an open-end management investment company that had the same
investment objective as that of the Fund. Effective September 1, 1996, the Fund
withdrew its investment in the Portfolio and began investing its assets directly
in investment securities.
Bank of America National Trust and Savings Association ("Bank of America"),
a subsidiary of BankAmerica Corporation, serves as the Fund's investment
adviser. The BISYS Group, Inc. ("BISYS"), through its wholly-owned subsidiary
BISYS Fund Services, Limited Partnership, serves as the Funds' administrator.
Concord Financial Group, Inc. (the "Distributor"), an indirect, wholly-owned
subsidiary of BISYS, serves as the distributor of the Fund's shares. BISYS Fund
Services, Inc. ("BISYS Ohio"), also a wholly-owned subsidiary of BISYS, serves
as transfer agent and dividend disbursing agent of the Fund.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
PORTFOLIO VALUATIONS:
The securities of the Fund for which market quotations are readily available
(other than debt securities with remaining maturities of 60 days or less) are
valued at the last reported
28
<PAGE> 31
sale price on the date of valuation or, if none is available, at the mean
between the current quoted bid and ask prices on the date of valuation as
provided by investment dealers. Short-term debt securities with less than 60
days to maturity are valued at amortized cost, which approximates market value.
Trading in foreign securities is generally completed prior to the end of regular
trading on the New York Stock Exchange (the "Exchange"). Trading may occur in
foreign securities on Saturdays and U.S. holidays and at other times when the
Exchange is closed. As a result, there may be delays in reflecting changes in
the market values of foreign securities in the calculation of net asset value
per share of the Fund on days when net asset value is not calculated and on days
which shareholders of the Fund cannot redeem.
SECURITIES TRANSACTIONS AND RELATED INCOME:
The Fund records security transactions on a trade date basis. Interest
income, including accretion of discount and amortization of premium, is accrued
daily. Dividend income is recognized on the ex-dividend date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
EXPENSES:
The Company accounts separately for the assets, liabilities and operations
of each fund. Direct expenses of a fund are charged to that fund while general
Company expenses are allocated among the Company's respective portfolios.
The investment income and expenses of a fund (other than class specific
expenses) and realized and unrealized gains and losses on investments of a fund
are allocated to each class of shares based upon their relative net asset value
on the date income is earned or expenses and realized and unrealized gains and
losses are incurred.
Prior to September 1, 1996, the Fund recorded its share of the investment
income, expenses and realized and unrealized gains and losses recorded by the
Master Investment Trust, Series I -- International Equity Portfolio on a daily
basis, based upon the value of its investment in the Portfolio.
The fund incurred certain costs in connection with its organization. Such
costs have been deferred and are being amortized by the fund on a straight line
basis over five years.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
The Fund's net investment income, if any, is declared and paid as a dividend
at least annually to shareholders of record at the close of business on record
date. Net realized gains on portfolio securities, if any, are distributed at
least annually. However, to the extent that net realized gains of the Fund can
be offset by capital loss carryovers of the Fund, such gains will not be
distributed. Dividends and distributions are recorded by the Fund on the
ex-dividend date.
29
<PAGE> 32
The amount of dividends from net investment income and of distributions from
net realized gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the composition of net assets based on their federal
tax-basis treatment; temporary differences do not require reclassification.
Dividends and distributions to shareholders which exceed net investment income
and net realized capital gains for financial reporting purposes but not for tax
purposes are reported as dividends in excess of net investment income or
distributions in excess of net realized gains. To the extent they exceed net
investment income and net realized gains for tax purposes, they are reported as
distributions of capital.
As of February 28, 1997, the following reclassifications have been made to
increase (decrease) such accounts with offsetting adjustments made to
paid-in-capital:
<TABLE>
<CAPTION>
ACCUMULATED NET REALIZED
ACCUMULATED UNDISTRIBUTED GAIN/(LOSS) ON
NET INVESTMENT INCOME INVESTMENTS
------------------------- ------------------------
<S> <C> <C>
International Equity Fund............ $47,976 $(47,976)
</TABLE>
FEDERAL INCOME TAXES:
It is the Fund's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
timely all of its net investment company taxable income and net capital gains to
shareholders. Therefore, no federal income tax provision is required.
Currency losses incurred after October 31 for the Fund are deemed to arise
on the first business day of the following fiscal year for tax purposes. The
Fund has incurred and will elect to defer such currency losses of $28,470 after
October 31, 1996.
FOREIGN CURRENCY TRANSLATION:
The accounting records of the Fund are maintained in U.S. dollars. Foreign
currency amounts are translated into U.S. dollars at the current rate of
exchange to determine the value of investments, assets and liabilities.
Purchases and sales of securities, and income and expenses are translated at the
prevailing rate of exchange on the respective dates of such transactions. The
Fund does not isolate that portion of the results of operations resulting from
changes in foreign exchange rates on investments from the fluctuations arising
from changes in market prices of securities held. Such fluctuations are included
with the net realized and unrealized gains or losses from investments.
Foreign security and currency transactions may involve certain
considerations and risks not typically associated with those of domestic origin
as a result of, among other factors, the
30
<PAGE> 33
level of governmental supervision and regulation of foreign securities markets
and the possibilities of political or economic instability.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities and forward currency contracts, sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, the difference between the amounts
of dividends, interest and foreign withholding amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in the
value of assets and liabilities other than investments in securities at fiscal
year end, resulting from changes in the exchange rate.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS:
The Fund may enter into forward foreign currency exchange contracts in
connection with purchases or sales of securities to hedge the U.S. dollar value
of portfolio securities denominated in a particular currency. The objective of
the Fund's foreign currency hedging transactions is to reduce the risk that the
U.S. dollar value of the Fund's foreign currency denominated securities will
decline in value due to changes in foreign currency exchange rates. All foreign
currency exchange contracts are "marked-to-market" daily at the applicable
translation rates resulting in unrealized gains or losses. Realized and
unrealized gains or losses are included in the Statement of Assets and
Liabilities and the Statement of Operations. Realized gains or losses are
recorded at the time the foreign currency exchange contract is offset by
entering into a closing transaction or by delivery or receipt of the currency.
Risks may arise upon entering into these contracts from the potential inability
of counterparties to meet the terms of their contracts and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar.
The Fund had the following outstanding forward currency exchange contracts
at February 28, 1997:
31
<PAGE> 34
<TABLE>
<CAPTION>
FOREIGN SETTLEMENT VALUE AT CURRENT UNREALIZED
CURRENCY CONTRACTS DATE SETTLEMENT DATE VALUE GAIN/(LOSS)
- ---------------------------------- ---------- --------------- ---------- -----------
<S> <C> <C> <C> <C>
Purchase Contracts:
Australian Dollar................. 03/31/97 $ 137,214 $ 139,752 $ 2,538
Australian Dollar................. 03/31/97 191,541 194,255 2,714
German Mark....................... 03/20/97 364,924 354,831 (10,093)
Italian Lira...................... 03/21/97 172,492 164,715 (7,777)
Spanish Peseta.................... 03/21/97 529,739 530,483 744
Swedish Krona..................... 03/28/97 80,458 79,389 (1,069)
Swedish Krona..................... 03/28/97 168,651 166,678 (1,973)
----------- ---------- ---------
$ 1,645,019 $1,630,103 $ (14,916)
=========== ========== =========
Sale Contracts:
French Franc...................... 03/27/97 $ 67,617 $ 67,654 $ (37)
Italian Lira...................... 03/21/97 82,808 82,256 552
----------- ---------- ---------
$ 150,425 $ 149,910 $ 515
=========== ========== =========
</TABLE>
FUTURES:
A futures contract is an agreement to purchase or sell a specified quantity
of an underlying instrument at a specified future date, or to make or receive a
cash payment based on the value of a securities index. During the period the
futures contract is open, changes in the value of the contract are recognized as
unrealized gains or losses by "marking to market" such contract on a daily basis
to reflect the market value of the contract at the end of each day's trading.
Such unrealized gains and losses are included in the caption "Net unrealized
appreciation on investment transactions and futures contracts" in the Statement
of Assets and Liabilities. The Fund agrees to receive from or pay to the broker
an amount of "variation margin" and are included as a payable or receivable in
the Statement of Assets and Liabilities. When the futures contract is closed,
the Fund records a realized gain or loss equal to the difference between the
proceeds from (or cost of) the closing transaction and the Fund's basis in the
contract. Such gains or losses are included in the caption "Accumulated net
realized gain on investment transactions and futures contracts" in the Statement
and Assets and Liabilities. The Fund has entered into futures contracts to hedge
a portion of its portfolio.
The use of futures contracts involves, to varying degrees, elements of
market risk. Risks arise from the possible imperfect correlation in movements in
the price of futures contracts, interest rates and the underlying hedged assets,
and the possible inability of counterparties to meet the terms of their
contracts. However, the Fund's activities in futures contracts are conducted
through regulated exchanges which minimize counterparty credit risks.
The Fund had the following open futures contracts at February 28, 1997:
32
<PAGE> 35
<TABLE>
<CAPTION>
NUMBER CONTRACT EXPIRATION UNREALIZED
OF CONTRACTS VALUE DATE GAIN/(LOSS)
------------ ---------- ---------- -----------
<S> <C> <C> <C> <C>
Purchased:
AUSD All Ordinaries................... 75 $ 141,734 03/31/97 $ 565
AUSD All Ordinaries................... 100 188,978 03/31/97 (7,033)
Germany DAX Index..................... 200 386,489 03/20/97 27,289
Hang-Seng Index (Hong Kong)........... 50 85,685 03/30/97 194
Milan MIB30 Index (Italy)............. 10,000 102,485 03/21/97 (7,067)
Madrid IBEX Index (Spain)............. 6,000 220,883 03/21/97 (10,352)
Madrid IBEX Index (Spain)............. 8,000 294,511 03/21/97 (14,165)
OMX Index (Sweden).................... 300 82,222 03/28/97 (2,272)
OMX Index (Sweden).................... 600 164,444 03/28/97 (4,525)
---------- ----------
Totals............................... $1,667,431 $ (17,366)
========== ==========
</TABLE>
The aggregate market value of cash or eligible securities pledged to cover
margin requirements for open futures positions at February 28, 1997 was
$133,731.
REPURCHASE AGREEMENTS:
The Fund's custodian and other banks acting in a sub-custodian capacity take
possession of the collateral pledged for investments in repurchase agreements.
The underlying collateral is valued daily on a mark-to-market basis to determine
that the value, including accrued interest, exceeds the repurchase price. In the
event of the seller's default of the obligation to repurchase, the Fund has the
right to liquidate the collateral and apply the proceeds in satisfaction of the
obligation. Under certain circumstances, in the event of default or bankruptcy
by the other party to the agreement, realization and/or retention of the
collateral may be subject to legal proceedings.
NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund has an Investment Advisory Agreement with Bank of America, an
Administration Agreement with BISYS and a Distribution Agreement with the
Distributor. Pursuant to the terms of the Investment Advisory Agreement, Bank of
America is entitled to a fee from the Fund, which is accrued daily and payable
monthly, at an annual rate of 0.75% of the Fund's average daily net assets. For
the year ended February 28, 1997, Bank of America agreed to waive $56,391 for
the Fund. Pursuant to the terms of the Administration Agreement, BISYS is
entitled to a fee from the Fund, which is accrued daily and payable monthly, at
an annual rate of 0.15% of the Fund's average daily net assets. For the period
ended February 28, 1997, BISYS agreed to waive its fee of $15,032 as
Administrator for the Fund. For the same period, Bank of America reimbursed
$132,666 for operating expenses of the Fund.
33
<PAGE> 36
For the period ended February 28, 1997, the Distributor advised the Fund
that it retained $12,765 from commissions earned on sales of the Fund's shares.
For the same period, Bank of America and its affiliates advised the Funds that
they retained $101,858 from commissions earned on sales of shares of the Fund.
The Fund has a Shareholder Service Plan (the "Plan") under which the Fund
pays the Distributor for shareholder servicing expenses incurred in connection
with A Shares of the Fund. Under the Plan, payments for shareholder servicing
expenses may not exceed 0.25% of the Fund's average daily net assets for A
Shares. For the period ended February 28, 1997, the Fund incurred charges of
$18,778, pursuant to the Plan. The Plan provides that if, in any month, the fees
paid to the Distributor are less than the costs incurred by the Distributor, the
excess costs will be included in future computations of the fee, provided that
any excess cost will not be carried forward beyond the end of the fiscal year in
which such excess costs were incurred. For the year ended February 28, 1997,
BISYS waived $18,778 of A Shares' shareholder servicing fees.
The Fund has a Distribution Plan and an Administrative and Shareholder
Services Plan (the "Administrative Plan") with respect to K Shares of the Fund.
Under the Distribution Plan, the Fund pays the Distributor for expenses
primarily intended to result in the sale of the Fund's K Shares. Under the
Distribution Plan, payments by the Fund for distribution expenses may not exceed
0.75% of the average daily net assets of the Fund's K Shares. Payments for
distribution expenses under the Distribution Plan are subject to Rule 12b-1
under the Act. Under the Administrative Plan, the Fund pays for expenses
incurred in connection with shareholder services provided by the Distributor and
payments to Service Organizations for the provision of support services with
respect to beneficial owners of K Shares. Under the Administrative Plan,
payments for shareholder services and administrative services may not exceed
0.25% and 0.75%, respectively, of the average daily net assets of the Fund's K
Shares. The total of all payments under the Distribution Plan and the
Administrative Plan may not exceed, in the aggregate, the annual rate of 1.00%
of the average daily net assets of the Fund's K Shares. For the year ended
February 28, 1997, BISYS waived $4 in K Share shareholder servicing fees.
BISYS Ohio serves the Fund as transfer agent and dividend disbursing agent.
In these capacities, BISYS Ohio earned $4,233 from the Fund for the year ended
February 28, 1997. For the period January 1, 1996 to December 31, 1996, BISYS
Ohio agreed to voluntarily limit aggregate transfer agency fees. Absent this
voluntary limit the Fund would have incurred an additional cost of $7,384.
For the period ended February 28, 1997, the Fund incurred legal charges
totaling $1,625 which were earned by a law firm, a partner of which serves as
Secretary of the Company.
Certain officers of the Company are affiliated with BISYS. Such persons are
not paid directly by the Company for serving in these capacities.
34
<PAGE> 37
NOTE 4 -- DIRECTORS' COMPENSATION
Each Director of the Company is entitled to an annual retainer of $25,000,
plus $1,000 for each day the director participates in all or part of a Board or
Committee meeting, and the Chairman of each Committee receives a retainer of
$1,000 for services as Chairman of the Committee. In addition, the Company's
President is entitled to an annual salary of $20,000 for services as President.
The former President and Chairman of the Company receives an additional $40,000
per year through February 28, 1997, in consideration of his years of service.
The Board has also established a retirement plan (the "Retirement Plan") for
the Directors. The Retirement Plan provides that each Director who dies or
resigns after five years of service as a director will be entitled to receive
ten annual payments each equal to the greater of: (i) 50% of the annual
Director's retainer that was payable during the year of that director's death or
resignation, or (ii) 50% of the annual Director's retainer then in effect for
Directors of the Company during the year of such payment. A Director who dies or
resigns after nine years of service as a director will be entitled to receive
ten annual payments equal to the greater of: (i) 100% of the annual Director's
retainer that was payable during the year of that Director's death or
resignation, or (ii) 100% of the annual Director's retainer then in effect for
Directors of the Company during the year of such payment. In addition, the
amount payable each year to a Director who dies or resigns shall be increased by
$1,000 for each year of service that the Director served as Chairman of the
Board. Each Director may receive any benefits payable under the Retirement Plan,
at his or her election, either in one lump sum payment or ten annual
installments. A Director's years of service for the purpose of calculating the
payments described above shall be based upon service as a Director or Chairman
after February 28, 1994.
NOTE 5 -- SECURITIES TRANSACTIONS
For the year ended February 28, 1997, the cost of purchases and the proceeds
from the sales of the Fund's portfolio securities (excluding short-term
investments) amounted to $25,550,885 and $10,274,376, respectively.
35
<PAGE> 38
NOTE 6 -- CAPITAL SHARE TRANSACTIONS
Transactions in capital shares for the Fund are summarized below:
<TABLE>
<CAPTION>
PERIOD ENDED FEBRUARY
28, 1997
------------------------
SHARES AMOUNT
--------- -----------
<S> <C> <C>
A Shares
Issued................................................................ 2,025,050 $20,020,078
Reinvested............................................................ 856 8,491
Redeemed.............................................................. (389,806) (3,877,701)
--------- -----------
Net increase........................................................... 1,636,100 $16,150,868
========= ===========
K Shares (b)
Issued................................................................ 11,805 $ 117,328
Reinvested............................................................ 11 110
Redeemed.............................................................. (65) (634)
--------- -----------
Net increase........................................................... 11,751 $ 116,804
========= ===========
<FN>
- ---------------
(a) Period from May 13, 1996 (inception date of Fund) to February 28, 1997.
(b) Period from July 22, 1996 (inception date of K Shares) to February 28, 1997.
</TABLE>
36
<PAGE> 39
PACIFIC HORIZON INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD
ENDED
FEBRUARY
28,
1997(a)
---------
<S> <C>
A SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD......................... $ 10.00
--------
Income from Investment Operations:
Net investment income................................................ (0.01)
Net realized and unrealized gains on investment transactions......... (0.07)
--------
Total income from investment operations................................ (0.08)
--------
Distributions to shareholders from net realized gains on investment
transactions (0.01)
--------
Net change in asset value per share.................................... (0.09)
--------
NET ASSET VALUE PER SHARE, END OF PERIOD............................... $ 9.91
========
Total return (excludes sales charge)................................... (0.79%)**
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year (000)...................................... 16,217
Ratio of expenses to average net assets.............................. 0.92%(b)
Ratio of net investment income to average net assets................. 0.40%(b)
Ratio of expenses to average net assets*............................. 3.92%(b)
Ratio of net investment income to average net assets*................ (2.61%)(b)
Portfolio turnover rate.............................................. 114%**
Average commission rate paid......................................... $ 0.0353 (c)
<FN>
- ---------------
* During the period, certain fees were voluntarily reduced and/or reimbursed. If
such voluntary fee reductions and/or reimbursements had not occurred, the ratios
would have been as indicated.
** Not annualized.
(a) Period from May 13, 1996 (inception date of fund) to February 28, 1997.
(b) Annualized.
(c) Represents the dollar amount of commissions paid on Fund transactions divided by
the total number of shares purchased or sold for which commissions were charged
and is calculated on the basis of the Fund as a whole or without distinguishing
between the classes of shares issued.
</TABLE>
See Notes to Financial Statements.
37
<PAGE> 40
PACIFIC HORIZON INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD
ENDED
FEBRUARY
28,
1997(a)
---------
<S> <C>
K SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD........................ $ 9.82
--------
Income from Investment Operations:
Net investment (loss)............................................... (0.01)
Net realized and unrealized gains on investment transactions........ 0.08
--------
Total income from investment operations............................... 0.07
--------
Distributions to shareholders from net realized gains on investment
transactions........................................................ (0.01)
--------
Net change in asset value per share................................... 0.06
--------
NET ASSET VALUE PER SHARE, END OF PERIOD.............................. $ 9.88
--------
========
Total return (excludes sales charge).................................. 0.72%**
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year (000)..................................... 116
Ratio of expenses to average net assets............................. 1.49%(b)
Ratio of net investment income to average net assets................ (0.31%)(b)
Ratio of expenses to average net assets*............................ 3.53%(b)
Ratio of net investment income to average net assets*............... (2.34%)(b)
Portfolio turnover rate............................................. 114%**
Average commission rate paid........................................ $ 0.0353 (c)
<FN>
- ---------------
* During the period, certain fees were voluntarily reduced and/or reimbursed. If
such voluntary fee reductions and/or reimbursements had not occurred, the ratios
would have been as indicated.
** Not annualized.
(a) Period July 22, 1996 (inception date) to February 28, 1997
(b) Annualized.
(c) Represents the dollar amount of commissions paid on Fund transactions divided by
the total number of shares purchased or sold for which commissions were charged
and is calculated on the basis of the Fund as a whole without distinguishing
between the classes of shares issued.
</TABLE>
See Notes to Financial Statements.
38
<PAGE> 41
PACIF IC HORIZON INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Board of Directors
and Shareholders of
Pacific Horizon Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Pacific Horizon International
Equity Fund (one of the portfolios constituting Pacific Horizon Funds, Inc.,
hereafter referred to as the "Funds") at February 28, 1997, and the results of
its operations, the changes in its net assets and the financial highlights for
the period May 13, 1996 (commencement of operations) through February 28, 1997,
in conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Funds' management; our responsibility
is to express an opinion on these financial statements based on our audit. We
conducted our audit of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at February 28, 1997 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provides
a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
April 21, 1997
39
<PAGE> 42
RESULTS OF SPECIAL SHAREHOLDER MEETING (UNAUDITED)
On December 23, 1996, a special meeting of the shareholders of Pacific
Horizon Funds was held to approve an Amended and Restated Investment Advisory
Agreement between Pacific Horizon Funds, Inc. and Bank of America National Trust
and Savings Association with respect to the Fund and to approve a Sub-Advisory
Agreement between Bank of America National Trust and Savings Association and
Wellington Management Company, LLP with respect to the Fund.
Investment Advisory Agreement -- The shareholders of the Pacific Horizon
Funds approved the Amended Agreement, as follows:
<TABLE>
<CAPTION>
IN FAVOR OPPOSED ABSTAIN
- --------- --------- ---------
<S> <C> <C>
1,021,398 2,217 52,037
</TABLE>
Sub-Advisory Agreement -- The shareholders of the Pacific Horizon Funds
approved the Sub-Advisory Agreement as follows:
<TABLE>
<CAPTION>
IN FAVOR OPPOSED ABSTAIN
- --------- --------- ---------
<S> <C> <C>
1,070,300 2,217 3,136
</TABLE>
40
<PAGE> 43
For more information, complete the following form and mail it to:
Pacific Horizon Funds
1230 Columbia Street, Suite 500
San Diego, CA 92101
................................................................................
First Name Last Name
................................................................................
Street Address
................................................................................
City State Zip Code
................................................................................
Area Code and Telephone Number
PLEASE CHECK ONE OF THE TWO BOXES BELOW SO WE CAN BETTER MEET YOUR NEED FOR
SERVICE.
[ ] A broker assisted me with the purchase of my Pacific Horizon Fund.
............................................................................
Name of Broker
............................................................................
Name of Brokerage Firm
[ ] I purchased my Pacific Horizon Fund without the assistance of a broker.
Please send me a free investing kit on the Pacific Horizon Fund(s) checked
below. The kit includes a prospectus, which has more complete information
on the Fund(s) such as charges and expenses. Read the prospectus carefully
before investing or sending money.
PACIFIC HORIZON FUNDS
<TABLE>
<S> <C>
[ ] International Equity Fund [ ] Intermediate Bond Fund
[ ] Aggressive Growth Fund [ ] U.S. Government Securities Fund
[ ] Blue Chip Fund [ ] Short-Term Government Fund
[ ] Capital Income Fund [ ] National Municipal Bond Fund
[ ] Asset Allocation Fund [ ] California Tax-Exempt Bond Fund
[ ] Corporate Bond Fund
Money Market Funds
[ ] Prime Fund [ ] Treasury Only Fund
[ ] Treasury Fund [ ] Tax-Exempt Money Fund
[ ] Government Fund [ ] California Tax-Exempt Money Market Fund
</TABLE>
Additional Comments:
................................................................................
................................................................................
................................................................................
................................................................................
................................................................................
................................................................................
NOT FDIC INSURED - NO BANK GUARANTEE - MAY LOSE VALUE
<PAGE> 44
--------------
Bulk Rate
U.S. Postage
PAID
Cleveland, OH
Permit No. 1
--------------
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PACIFIC HORIZON FUNDS
Concord Financial Group, Inc., Distributor
IBQ-0016 4/97
