PACIFIC HORIZON FUNDS INC, N-30D, 1997-05-08

PACIFIC HORIZON FUNDS INC
N-30D, 1997-05-08

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<PAGE> 1
PACIFIC HORIZON GROWTH & INCOME FUNDS

PACIFIC HORIZON GROWTH & INCOME FUNDS
ANNUAL REPORT
FEBRUARY 28, 1997

CAPITAL INCOME FUND
ASSET ALLOCATION 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>
- --------------------------------------------------------------------------------
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>

================================================================================
<PAGE> 3

Contents

<TABLE>
<S> <C>
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 MANAGERS 10-21
PACIFIC HORIZON CAPITAL INCOME FUND
Portfolio of Investments 22-25
Statement of Assets
and Liabilities 26
Statement of Operations 27
Statements of Changes
in Net Assets 28
PACIFIC HORIZON ASSET ALLOCATION FUND
Statement of Assets
and Liabilities 29
Statement of Operations 30
Statements of Changes
in Net Assets 31
NOTES TO FINANCIAL STATEMENTS 32-38
FINANCIAL HIGHLIGHTS 39-42
REPORT OF INDEPENDENT ACCOUNTANTS 43
MASTER INVESTMENT TRUST, SERIES
I -- ASSET ALLOCATION PORTFOLIO
Portfolio of Investments 44-49
Statement of Assets
and Liabilities 50
Statement of Operations 51
Statements of Changes
in Net Assets 52
Notes to Financial Statements 53-56
Supplementary Data 57
Report of Independent Accountants 58
</TABLE>
<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>
- ------------------------------------------------------------------------------------
<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>
- ------------------------------------------------------------------------------------
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>

- --------------------------------------------------------------------------------

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
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
MANAGERS enables you to gain
insight into the Fund's
investments and learn more
about the Fund managers'
strategies.

Because a picture or chart can help clarify the
text, the investment management team may have
illustrated the most important features of the Fund.
The illustrations may represent the portfolio
composition, the largest holdings or a
simplification of the investment adviser's
investment style.
LOGO LOGO
<PAGE> 7

The financial statements summarize and describe the Fund's financial
transactions. They are broken down into four different statements, which are
illustrated below:

The PORTFOLIO OF INVESTMENTS lists each investment holding in the Fund as of the
date of the report. Investments may be grouped by category (by industry or
security type, for example). The percentage of the Fund's net assets represented
by these groupings is also disclosed.

TYPE OF SECURITY

INDUSTRY SECTOR AND PERCENTAGE OF THE FUND'S
NET ASSETS REPRESENTED BY INVESTMENTS IN THAT
SECTOR (IF APPLICABLE)

ACTUAL PORTFOLIO HOLDINGS WITH SHARES AND
MARKET VALUE AS OF REPORT DATE

The STATEMENT OF ASSETS AND LIABILITIES lists all the assets and liabilities of
the Fund as of the date of the statement. This is an individual fund's "balance
sheet." Also disclosed in this statement are the Fund's net asset value per
share and its maximum offering price per share as of the date of the statement.
The statement also lists the accounts that comprise the Fund's
net assets (capital stock, undistributed
income, etc.).

SUMMARY OF THE FUND'S INVESTMENTS AND ALL
OTHER ASSETS OWNED BY THE FUND, INCLUDING
AMOUNTS OWED TO THE FUND BY OUTSIDE PARTIES

SUMMARY OF ALL AMOUNTS OWED TO OUTSIDE PARTIES
BY THE FUND

NET RESULTS OF ASSETS LESS LIABILITIES

THE MARKET VALUE OF THE FUND'S TOTAL NET
ASSETS DIVIDED BY THE NUMBER OF SHARES
OUTSTANDING

THE CURRENT NET ASSET VALUE PER SHARE PLUS SALES CHARGE, IF ANY
LOGO
LOGO
<PAGE> 8

The STATEMENT OF OPERATIONS shows the amount of dividend and interest income
earned from the Fund's investments, the expenses incurred by the Fund from its
operations and any
gains or losses realized and not yet realized
by the Fund from holding and/or selling any
investments.

ANY INCOME EARNED FROM THE FUND'S INVESTMENTS

OPERATING EXPENSES INCURRED BY THE FUND DURING
THE PERIOD

GAINS OR LOSSES REALIZED UPON THE SALE OF THE
FUND'S INVESTMENTS AND ANY CHANGE IN
UNREALIZED GAINS OR LOSSES ON FUND HOLDINGS
DURING THE PERIOD

NET CHANGE IN NET ASSETS DUE TO FUND
OPERATIONS

The STATEMENTS OF CHANGES IN NET ASSETS shows the changes in the net assets of
the Fund during each of the two most recent reporting periods. The changes in
net assets are generally
broken down into four distinct sections:

OPERATIONS: SEE STATEMENT OF OPERATIONS

DIVIDENDS TO SHAREHOLDERS: TOTAL INCOME
DIVIDENDS PAID TO SHAREHOLDERS DURING THE
PERIODS

DISTRIBUTIONS TO SHAREHOLDERS: TOTAL REALIZED
GAINS DISTRIBUTED TO SHAREHOLDERS DURING THE
PERIODS

FUND SHARE TRANSACTIONS: DOLLAR VALUE OF FUND
SHARES PURCHASED, REDEEMED OR REINVESTED
DURING THE PERIODS

The NOTES TO FINANCIAL STATEMENTS are footnotes to the statements listed above.
These notes include information on accounting methods used by the Fund,
contractual arrangements between the Fund and its service providers, certain
transactions effected by the Fund and other general information about the Fund.

The FINANCIAL HIGHLIGHTS shows, for a single share outstanding throughout each
period presented, the net investment income, the realized and unrealized gains
and losses and the dividends and distributions of the Fund. It also shows key
data and ratios, such as the total investment return for each period, the
portfolio turnover rate for Funds other than money market mutual funds, the
ratio of expenses to average net assets and the ratio of net investment income
to average net assets.
LOGO
LOGO

<PAGE> 9

[This page intentionally left blank.]

<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,
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
CAPITAL INCOME FUND

======================

ED CASSENS, CFA
Senior Portfolio Manager
Bank of America NT&SA

GOAL:

The Pacific Horizon Capital Income Fund seeks total investment return through a
combination of current income and capital appreciation consistent with prudent
risk.

INVESTMENTS:

The Fund invests primarily in convertible bonds and convertible preferred stocks
of domestic issuers.

APPROPRIATE FOR:

Investors seeking a competitive return over the long term comprised of current
income and capital appreciation.

INCEPTION:

September 25, 1987

SIZE OF FUND AS OF
FEBRUARY 28, 1997:

Over $310 million
Q
HOW DID THE FUND PERFORM DURING THE 12 MONTHS ENDED FEBRUARY 28, 1997?

A
The Fund performed quite well during the past 12 months, with A Shares
posting a return of 18.53%* (without the sales charge), as compared to 11.33%**
for the CS First Boston Index. K Shares had a total return of 18.14% for the
same 12 months.**** This new class of shares is primarily offered to Daily
Advantage 401(k) plan participants, although they are available to certain other
eligible individuals, as outlined in the prospectus.
Q
WHAT CONDITIONS AFFECTED THE FUND'S PERFORMANCE?

A
Last year's investment environment was dominated by the overall strength of
the stock market. It was an exuberant time, with the Standard & Poor's 500 Stock
Index gaining 26.18%.** The strong stock market helped pull up the prices of
convertibles, which delivered solid performance, even as interest rates rose in
the second half of the year.

The recent gains in the stock market also created a good climate for mergers and
acquisitions, which, in turn, boosted the Fund's return. Specifically, the Fund
saw the value of its stake in Bally Entertainment increase when that company was
bought by Hilton Hotels (0.91% of net assets as of February 28, 1997).*** Beyond
this, the Fund's investment in convertibles issued by Tyco Toys enjoyed gains
when Tyco merged with Mattel, Inc. (position was sold on 11/28/96).***

10
<PAGE> 13

Q
HOW DID YOU MANAGE THE FUND IN THAT ENVIRONMENT?

A
During the year, the Fund held convertibles in attractive market sectors
such as finance and technology. Convertibles issued by companies in the
financial industry still make up the portfolio's largest investment at 16.4% of
assets.*** This sector continues to be very profitable, and the profits have
generated a lot of excess capital for companies to raise dividends and buy back
stock. There is a trend in the industry towards mergers and consolidation, as
smaller companies need to merge with larger institutions in order to stay
competitive. Some of our holdings included Sovereign Bancorp and Ahmanson
(H.F.), Series D (1.11% and 1.37% of net assets, respectively, as of February
28, 1997).***

In the technology sector, we held convertibles issued by the semiconductor
manufacturers--specifically Xilinx, Inc., Altera Corp., and Analog Devices,
Inc., (1.10% of net assets, 0.84% of net assets and 0.98% of net assets,
respectively, as of February 28, 1997).*** The semiconductor industry went
through a downcycle in 1995 and 1996, but it looks like the cycle is beginning
to pick-up.
Q
DID THE FUND CONTINUE TO HOLD COMMON STOCKS AS WELL AS CONVERTIBLES?

A
Yes. About 13.5% of the Fund's assets were invested in common stocks.***
Often, there were not enough attractive convertibles available in certain
industry sectors. For example, we were unable to locate enough good convertible
instruments in the health care industry, so we bought stock in Bristol-Myers
Squibb Co. and Schering-Plough Corp. (1.05% and 1.16% of net assets,
respectively, as of February 28, 1997).***

Q
WHAT IS YOUR OUTLOOK FOR CONVERTIBLES GOING FORWARD?

A
We expect an environment of moderate economic growth with corporate earnings
increasing 7% to 10%. If corporate earnings do continue to increase,
convertibles could perform as well as the stock market.

We don't anticipate making any significant changes in the Fund's strategy or the
types of convertibles we hold. We still like the outlook for the financial
industry, semiconductors, and the drilling and exploration trend in the energy
sector. The only significant change we foresee is that if the economy picks up
strength, we may decrease our holdings in the health care sector, since these
are more defensive issues.

- ---------------
* 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 13.22%
for the period.

** Source: Ibbotson Associates, 1997. The CS First Boston Index is an
unmanaged index generally representative of the convertible securities
market as a whole, and cannot be invested in directly. 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.

*** The composition of the Fund's holdings is subject to change.

**** 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 21, 1996. For this reason, the performance results for K Shares are
those of A Shares without the sales charge for the period from March 1,
1996 through

11
<PAGE> 14

October 20, 1996 combined with actual K Share performance from October 21,
1996 through February 28, 1997. The performance results for K Shares
included in the Financial Highlights table in the financial statements
represent actual performance from the inception date of the K Shares.

12
<PAGE> 15

PACIFIC HORIZON
ASSET ALLOCATION FUND

======================

ROBERT PYLES, CFA
Sr. Vice President &
Director of Equity
Bank of America NT&SA

Mr. Pyles manages the equity portion of the Asset Allocation Fund.

GOAL:

The Pacific Horizon Asset Allocation Fund seeks long-term growth from capital
appreciation and dividend and interest income.

INVESTMENTS:

The Fund uses a balanced approach by investing in stocks, bonds and cash-
equivalent securities.

APPROPRIATE FOR:

Investors seeking growth and income through a diversified portfolio of stocks
and bonds.

INCEPTION:

January 18, 1994

SIZE OF FUND AS OF
FEBRUARY 28, 1997:
Over $35 million
- ----------------------

- ----------------------

STEVEN L. VIELHABER
Director of Taxable Fixed Income
Bank of America NT&SA

Mr. Vielhaber is a leading member of the investment management team for the
fixed-income portion of the Asset Allocation Fund.

Q
HOW DID THE FUND PERFORM DURING THE 12 MONTHS ENDED FEBRUARY 28, 1997?

A
The Fund had a total return of 17.64% for the 12 months ended February 28,
1997 for A Shares (without the sales charge.)* The Fund uses two benchmarks, the
Standard & Poor's 500 Stock Index and the Lehman Brothers Aggregate Bond Index,
which returned 26.18% and 4.83%, respectively.** In addition, during the period
ended February 28, 1997, the Fund introduced K Shares, which are primarily
offered to Daily Advantage 401(k) plan participants, although they are also
available to certain other eligible individuals, as outlined in the prospectus.
For the year ended February 28, 1997, K Shares had a total return of 17.57%.****
Q
HOW DID YOU ALLOCATE THE FUND'S PORTFOLIO AMONG STOCKS, BONDS AND CASH
DURING THE RECENT 12 MONTHS?

A
The Fund began the 12 month period with a normal asset mix of about 55%
stocks, 40% bonds and 5% cash. But as

13
<PAGE> 16

interest rates rose during the early part of the year, we moved 2% to 3% of our
cash position into bonds to take advantage of the higher yields. The strong
performance of stocks in the portfolio raised the Fund's equity weighting to
approximately 60% both in November and February. On both occasions, we sold
stocks at a profit in order to bring the Fund's allocation back into line. Our
weightings as of the period ended February 28, 1997 were 58% stocks, 39% bonds,
and 3% cash.***
Q
HOW DID YOU MANAGE THE STOCK PORTION OF THE PORTFOLIO?

A
We based our sector investment decisions on earnings growth and value levels
and where we are in the economic cycle. For the past year, we were in the third
phase of a four-phase economic cycle--the expansion phase. Historical data shows
that the capital goods and technology industries typically perform well in this
phase of the economic cycle, so we chose to be overweighted in these sectors.
They turned out to be two of the three strongest performing segments of the
stock market during the past 12 months.

The Fund also benefited from our underweighting in the utility sector, which
dramatically underperformed the market due to the changing regulatory and
competitive environment.

Among portfolio stocks, strong performers for the Fund included Intel (3.9%),
Cisco Systems (1.0%), Warner-Lambert (0.9%), Price-Costco, Inc. (0.6%), and
Household International (1.3%).***
Q
HOW DID YOU MANAGE THE BONDS IN THE PORTFOLIO?

A
The fixed-income portion of the Asset Allocation Fund is managed against the
Lehman Brothers Aggregate Bond Index which includes Treasuries, corporate bonds,
and mortgage-backed securities. With the economy slowing sharply in late 1995
and early 1996, the portfolio was structured to take advantage of falling
interest rates. Thus, it was underweighted
in both the corporate and mortgage sectors.

As evidence of steady economic strength continued to mount, and interest rates
settled into a trading range, we increased our asset allocation to both
mortgages and corporate bonds; with spreads in the corporate sector trading at
relatively tight levels, the credit curve flat and quality spreads tight. We
positioned our corporate exposure predominantly in shorter maturities of higher
credit quality. (The credit curve is a measure of the incremental spread for
extending maturities in the same credit. Quality spreads are a measure of the
incremental spread for accepting lower-rated credits.) In mortgages, we have
increased our exposure to the seasoned sector using current coupons and moderate
premiums. Seasoned mortgages, having been through previous prepayment cycles,
have lower prepayment volatility, and should perform very well in the
range-bound environment that we are forecasting--an environment where interest
rates are trading within a tighter range.
Q
WHAT IS YOUR OUTLOOK FOR THE ECONOMY AND THE FUND?

A
We anticipate a period of continued economic expansion. We are watching
stock valuations and economic data carefully, and will continue to select
attractively priced stocks that can deliver steady earnings growth in the long
term. We will continue to manage the bond sector of the portfolio within the
context of our duration-neutral strategy, but with a slight bias toward
shorter-term issues whose prices are more stable when interest rates fluctuate.
Duration, which measures a bond's price sensitivity to interest rates, is a
principal component of risk and return. In terms of our Funds, the average
durations of the securities in the Funds' portfolios generally remain fairly
close to the durations of the Funds' respective benchmarks. We then attempt to
add value by applying our relative value methodology to sector allocation, yield
curve

14
<PAGE> 17

positioning and security selection. We plan to again reduce equities to

15
<PAGE> 18

56% and increase bonds to 42%, and retain 2% cash.***

- ---------------
* Return figures for the Fund include change in share price, reinvestment of
dividends and capital gains distributions. Performance figures do not
reflect the maximum 4.50% front-end sales load, which applies to some
investors. Fund performance with the 4.50% maximum sales charge was 12.35%
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 S&P 500 and the Lehman Brothers Aggregate Bond are unmanaged indices
generally representative of equity investments and asset allocation
investments respectively, and cannot be invested in directly.

*** Percentages figures shown are calculated as a percentage of net assets as
of February 28, 1997. The composition of the Fund's holdings is subject to
change.

**** The inception date of the K Shares (the date K Shares were initially
funded) was July 22, 1996. The K Shares did not commence operations until
November 11, 1996. For this reason, the performance results for K Shares
are those of A Shares without the sales charge for the period from March 1,
1996 through November 10, 1996 combined with actual K Share performance
from November 11, 1996 through February 28, 1997. The performance results
for K Shares included in the Financial Highlights table in the financial
statements represent actual performance from the inception date of the K
Shares.

16
<PAGE> 19

PACIFIC HORIZON
CAPITAL INCOME FUND
(AS OF FEBRUARY 28, 1997)

GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)

<TABLE>
<CAPTION>
LIPPER
CONVERTIBLE
SECURITIES
MEASUREMENT PERIOD FUNDS CS FIRST
(FISCAL YEAR COVERED) A SHARES K SHARES AVERAGE BOSTON
<S> <C> <C> <C> <C>
9/25/87 9550 10000 10000 10000
2/29/88 9005.88 9430.23 9047.33 8878
2/28/89 10239.5 10721.98 9904.77 9786
2/28/90 12248.92 12826.09 10637.58 10369
2/28/91 13495.05 14130.92 11450.17 10990
2/29/92 17032.58 17835.14 14196.61 13523
2/28/93 20544.21 21506.06 16146.99 15593
2/28/94 25032.07 26198.84 18891.38 18088
2/28/95 23626.89 24728.15 18374.06 17588
2/29/96 29760.72 31147.89 22616.32 21778
2/28/97 35276.14 36797.22 25774.09 24052
</TABLE>

HOW PERFORMANCE COMPARES
As the chart indicates, the Pacific
Horizon Capital Income Fund has
consistently outperformed the market,
as compared to the CS First Boston
Index, a widely-used, unmanaged index
which measures the performance of
convertible securities. An initial
$10,000 investment in the Fund made on
September 30, 1987, would now be worth
$35,276 for A Shares. The same
investment made in the CS First Boston
Index, would now be worth $24,052.
Correspondingly, a $10,000 investment
in K Shares for the same period would
now be worth $36,797.*

The Fund also fared well compared to other convertible security funds. The
average of convertible security funds as tracked by Lipper Analytical Services,
Inc., measures the performance of other funds with investment objectives and
policies similar to those of the Pacific Horizon Capital Income Fund. The
average of convertible securities funds on the same $10,000 investment over the
same period would have grown to $25,774.

SEE INVESTMENT MANAGER INTERVIEW FOR FACTORS AFFECTING FUND PERFORMANCE:

Investment return and principal value are historical and will vary with market
conditions, so an investor's shares, when redeemed, may be worth more or less
than their original cost. Return figures for the Fund include change in share
price, reinvestment of dividends, and capital gain distributions, if any, and
the effect of the maximum 4.50% sales charge.

*The inception date of the K Shares (the date K Shares were initially funded)
was July 22, 1996. The K Shares did not commence operations until October 21,
1996. For this reason, the performance results for K Shares are those of A
Shares without the sales charge for the period from March 1, 1996 through
October 20, 1996, combined with actual

<TABLE>
<CAPTION>
----------------------------------------
CAPITAL INCOME FUND
AVERAGE ANNUAL RETURN
----------------------------------------
A SHARES K SHARES*
Without With
Sales Sales
Charge Charge
----------------------------------------
<S> <C> <C> <C>
1 Year 18.53% 13.22% 18.14%
......................................
5 Year 15.68% 14.61% 15.59%
......................................

Since
Inception 14.85% 14.29% 14.81%
(9/25/87)
---------------------------------------

</TABLE>

<PAGE> 20

K Share performance from October 21, 1996 through February 28, 1997. The
performance results for K Shares included in the Financial Highlights table in
the financial statements represent actual performance from the inception date of
the K Shares. K Shares, unlike A Shares, are sold without a front-end sales load
but have an ongoing .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 Convertible Securities Funds Average, nor the
CS First Boston Index may be invested in directly. The hypothetical investment
in the CS First Boston 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.

18
<PAGE> 21

PACIFIC HORIZON
CAPITAL INCOME FUND
(AS OF FEBRUARY 28, 1997)
BALANCE

Two Advantages
The Pacific Horizon Capital Income
Fund provides investors with the
opportunity to receive regular
quarterly income while participating
in the upside potential of the
underlying equity securities.
Historically, holders of convertible
securities have enjoyed about 70
percent of the appreciation of
stocks.* Investors seeking growth
and income will appreciate the
opportunities to invest in the
Pacific Horizon Capital Income Fund.
Of course, past performance is not
reflective of future results.
*Source: Investment Advisor, March
1993.

- --------------------------------------------------------------------------------

DIVERSITY
Positioned for Income and Growth
PORTFOLIO COMPOSITION*
(PERCENT OF ASSETS)

<TABLE>
<S> <C> <C> <C> <C>
CONVERTIBLE BONDS 46.9
CONVERTIBLE PREFERRED
STOCKS 36.1
COMMON STOCKS 13.5
CASH & CASH
EQUIVALENTS 3.5
</TABLE>

The Pacific Horizon Capital Income
Fund is professionally managed and
maintains at least a 65 percent
position in convertible securities.
In order to increase performance,
the Fund also invests in common and
preferred stocks, cash and cash
equivalents that the adviser
believes to be of high quality.
<TABLE>
<CAPTION>
TOP TEN HOLDINGS AS OF
FEBRUARY 28, 1997*
-----------------------------------------------------
PERCENT OF
NET ASSETS
<S> <C> <C> <C> <C>
-----------------------------------------------------
Wells Fargo Co. 1.63%
.....................................................
Cooper Industries, Inc. 1.43%
.....................................................
Great Western Financial Corp. 1.42%
.....................................................
Warner-Lambert Co. 1.41%
.....................................................
FPA Medical 1.40%
.....................................................
Ahmanson (H.F.), Series D 1.37%
.....................................................
Microsoft Corp. Series A 1.34%
.....................................................
Fifth Third Bancorp 1.33%
.....................................................
Glendale Federal Bank, Series E 1.29%
.....................................................
Equitable Cos., Inc. 1.24%
-----------------------------------------------------
TOTAL 13.86%
-----------------------------------------------------
</TABLE>

* The composition of the Fund's
holdings is subject to change.
<PAGE> 22

PACIFIC HORIZON
ASSET ALLOCATION FUND
(AS OF FEBRUARY 28, 1997)

GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)

<TABLE>
<CAPTION>
LIPPER LEHMAN
MEASUREMENT PERIOD FLEXIBLE BROTHERS
(FISCAL YEAR FUNDS AGGREGA TE
COVERED) A SHARES K SHARES AVERAGE BOND INDEX S&P 500
<S> <C> <C> <C> <C> <C>
1/18/94 10000 10000 10000 10000 10000
2/28/94 9446.21 9891.32 9476.76 9826 10000
8/31/94 9584.45 9773.57 9640.57 9686 10043.95
2/28/95 9921.20 10388.69 10102.98 10001 10443.56
8/31/95 11180.06 11602.16 11494.96 10780 12202
2/29/96 12182.80 12756.86 12353.92 11224 14058.00
8/31/96 12371.85 12807.27 12967.83 11220
2/28/97 14332.04 15010 14125.70 11824 17741
</TABLE>

HOW PERFORMANCE COMPARES
The chart compares the performance of
the Pacific Horizon Asset Allocation
Fund to the S&P 500, an unmanaged
index typically used as a performance
benchmark for equity investments, and
the Lehman Brothers Aggregate Bond
Index, an unmanaged index with
investment policies similar to the
Fund. As illustrated, the Fund fared
well compared to other asset
allocation funds. The average of asset
allocation funds as tracked by Lipper
Analytical Services, Inc., measures
the performance of other funds with
investment objectives
and policies similar to those of the Pacific Horizon Asset Allocation Fund. An
initial $10,000 investment in the Fund made on January 18, 1994, would now be
worth $14,332 for A Shares. The same investment made in the Lipper Flexible
Funds Average would now be worth $14,126. Correspondingly, a $10,000 investment
in K Shares for the same period would now be worth $15,002.*

SEE INVESTMENT MANAGER INTERVIEW FOR FACTORS AFFECTING FUND PERFORMANCE

Investment return and principal value are historical and will vary with market
conditions, so an investor's shares, when redeemed, may be worth more or less
than their original cost. Return figures for the Fund include change in share
price, reinvestment of dividends, and capital gains distributions, if any, and
the effect of the maximum 4.50% sales charge.

* The inception date of the K Shares (the date K Shares were initially funded)
was July 22, 1996. The K Shares did not commence operations until November 11,
1996. For this reason, the performance results for K Shares are those of A
Shares without the sales charge for the period from March 1, 1996 through
November 10, 1996 combined with actual K Share performance from November 11,
1996 through February 28, 1997. The

<TABLE>
<CAPTION>
----------------------------------------
<S> <C> <C> <C>
ASSET ALLOCATION FUND
AVERAGE ANNUAL RETURN

----------------------------------------
A SHARES K SHARES*
Without With
Sales Sales
Charge Charge
----------------------------------------
<S> <C> <C> <C>
1 Year 17.64% 12.35% 17.57%
......................................
3 Year 14.89% 13.14% 14.87%
......................................

Since
Inception 13.93% 12.25% 13.91%
(1/18/94)
----------------------------------------
</TABLE>

<PAGE> 23

performance results for K Shares included in the Financial Highlights table in
the financial statements represent actual performance from the inception date of
the K Shares. K Shares, unlike A Shares, are sold without a front-end sales load
but have an ongoing .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 Flexible Funds Average, the S&P 500 Index, nor
the Lehman Brothers Aggregate Bond Index may be invested in directly. The
hypothetical investment in the S&P 500 and Lehman Brothers Aggregate Bond Index
do 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.

21
<PAGE> 24

PACIFIC HORIZON
ASSET ALLOCATION FUND
(AS OF FEBRUARY 28, 1997)
PORTFOLIO COMPOSITION*

A Market-Driven Process

The Fund's adviser seeks to
determine relative values among
stocks, bonds and cash equivalents
and weights the portfolio
accordingly.
The Fund's adviser looks for the
following characteristics within
each asset class: Stock holdings
that display above-average growth
potential and reasonable valuation.
The diversified bond portfolio may
contain mortgage-backed securities
as well as fixed-income obligations
that are undervalued in the opinion
of the Fund's adviser. The Fund's
cash holdings can be viewed as a
defensive position in changing
markets.

- --------------------------------------------------------------------------------

A BALANCED INVESTMENT
APPROACH

Allocation Among Asset Classes

The Fund may be appropriate for
investors seeking long-term growth
from capital appreciation as well as
dividend and interest income through
a balanced approach to investing
using bonds, stocks and cash
equivalents. Investors can make one
simple investment and their money
will be spread over a variety of
asset classes. The Fund's adviser
seeks a total return greater than
bonds or cash with less volatility
than an investment in stocks.
Through strategically allocating
assets among various investments,
the Fund's adviser will shift the
asset mix as market conditions
change, thereby seeking to profit
from market opportunities in any
economic environment.
ASSET ALLOCATION

<TABLE>
<S> <C> <C> <C> <C>
COMMON STOCKS 58.0
CASH & EQUIVALENTS 3.0
BONDS 39.0
</TABLE>

- -----------------------------------------------------------------------------
* The composition of the Fund's
holdings is subject to change.
SHIFTING THE ASSET MIX
<PAGE> 25

PACIFIC HORIZON CAPITAL INCOME FUND
- --------------------------------------------------------------------------------

Portfolio of Investments
February 28, 1997
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- ------------------------------------------------------------------------ ------- -----------
<S> <C> <C>
COMMON STOCKS -- 13.5%
BANKING -- 6.6%
Barnett Banks, Inc..................................................... 75,472 $ 3,490,580
Fifth Third Bancorp.................................................... 49,626 4,137,568
Great Western Financial Corp........................................... 100,785 4,421,942
RCSB Financial, Inc.................................................... 98,437 3,309,944
Wells Fargo Co......................................................... 16,666 5,070,630
---------
20,430,664
---------
ENERGY -- 1.1%
Reading & Bates Corp................................................... 144,950 3,515,037
---------
HOUSEHOLD & PERSONAL CARE -- 1.0%
Colgate-Palmolive Co................................................... 30,000 3,105,000
---------
INDUSTRIAL AND COMMERCIAL SERVICES -- 0.4%
Cooper Industries, Inc................................................. 27,622 1,222,273
---------
PHARMACEUTICALS -- 4.4%
American Home Products Corp............................................ 40,000 2,560,000
Bristol-Myers Squibb Co................................................ 25,000 3,262,500
Schering-Plough Corp................................................... 47,000 3,601,375
Warner-Lambert Co...................................................... 52,000 4,368,000
---------
13,791,875
---------
Total Common Stocks (Cost $42,410,549).................................. 42,064,849
---------
CONVERTIBLE PREFERRED STOCKS -- 36.3%
BANKING -- 4.6%
Ahmanson (H.F.), Series D, $3.00....................................... 50,000 4,250,000
First Chicago NBD Corp., Series B, $2.88............................... 25,000 2,525,000
Glendale Federal Bank, Series E, $2.19................................. 60,000 3,990,000
Sovereign Bancorp, Series B, $3.13..................................... 45,000 3,431,250
---------
14,196,250
---------
COMPUTER -- 1.3%
Microsoft Corp., Series A, $2.20....................................... 50,000 4,143,750
---------
DIVERSIFIED -- 1.0%
Corning Delaware LP, Inc., $3.00....................................... 50,000 3,118,750
---------
ELECTRONICS -- 1.0%
Elsag Bailey Corp., $2.75.............................................. 88,000 3,146,000
---------
FINANCIAL SERVICES -- 2.1%
Merrill Lynch & Co., Inc. (STRYPES)*, $4.09............................ 55,000 3,575,000
PennCorp Financial Group, Inc., 144A, $3.50............................ 50,000 2,906,250
---------
6,481,250
---------
FOREST & PAPER PRODUCTS -- 1.9%
International Paper Co., 144A, $5.25................................... 70,000 3,281,250
James River Corp., Series P, $1.55..................................... 80,000 2,450,000
---------
5,731,250
---------
HOME & BUILDING DEVELOPING -- 1.1%
Owens Corning Capital LLC, 144A, $3.25................................. 60,000 3,450,000
---------
HOUSEHOLD & PERSONAL CARE -- 0.5%
AJL Peps Trust, $1.44.................................................. 110,000 1,622,500
---------
</TABLE>

- ---------------
See Notes to Financial Statements.

22
<PAGE> 26

<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- ------------------------------------------------------------------------ ------ ---------
<S> <C> <C>
INDUSTRIAL & COMMERCIAL SERVICES -- 2.5%
Calenergy Capital Trust 2, 144A, $3.13................................. 66,000 $ 3,316,500
McDermott, Inc., Series A, $2.20....................................... 20,000 600,000
McDermott International, Inc., Series C, 144A, $1.44................... 87,000 3,741,000
---------
7,657,500
---------
INSURANCE -- 6.8%
Aetna, Inc., Class C, $4.76............................................ 42,000 3,386,250
Allstate Corp., $2.30.................................................. 62,000 2,914,000
American Bankers Insurance Group, Inc., $3.13.......................... 58,000 3,799,000
Conseco, Inc., $4.28................................................... 7,000 976,500
Frontier Financing Trust, 144A, $3.13.................................. 60,000 3,345,000
Integon Corp., $3.88................................................... 73,000 3,431,000
St. Paul Capital LLC, $3.00............................................ 55,000 3,396,250
---------
21,248,000
---------
LEISURE -- 1.1%
Felcor Suite Hotels, Inc., Series A, $1.95............................. 120,000 3,285,000
---------
MEDIA -- 0.8%
SFX Broadcasting, Inc., 144A, $3.25.................................... 52,000 2,405,000
---------
METALS -- 0.3%
Cyprus Amax Minerals Co., Series A, $4.00.............................. 19,950 1,049,869
---------
MINING -- 1.9%
Amax Gold, Inc., Series B, $3.75....................................... 40,000 2,220,000
Freeport McMoran, Inc., $1.75.......................................... 125,000 3,671,875
---------
5,891,875
---------
OIL & GAS -- 2.9%
Ashland, Inc., $3.13................................................... 45,000 2,925,000
Occidental Petroleum Corp., $3.00...................................... 40,000 2,500,000
Unocal Corp., $3.13.................................................... 66,960 3,632,580
---------
9,057,580
---------
RETAIL -- 0.7%
K-Mart Financing, Inc., $3.88.......................................... 42,100 2,304,975
---------
TELECOMMUNICATIONS -- 3.5%
Airtouch Communications, Inc., Series C, $2.13......................... 60,000 2,895,000
Loral Space & Communications, 144A, $3.00.............................. 46,000 2,403,500
Philippine Long Distance Tel Co., Series III, $3.50.................... 35,000 1,903,125
Sprint Corp., $2.63.................................................... 101,000 3,547,625
---------
10,749,250
---------
UTILITIES -- 2.3%
Citizens Utilities Co., $2.50.......................................... 75,000 3,787,500
MCN Corp., $2.02....................................................... 112,500 3,206,250
---------
6,993,750
---------
Total Convertible Preferred Stocks (Cost $103,586,998).................. 112,532,549
---------
</TABLE>

<TABLE>
<CAPTION>
MATURITY PRINCIPAL VALUE
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
- ---------------------------------------------- ------ -------- ---------- ------------
<S> <C> <C> <C> <C>
CORPORATE CONVERTIBLE BONDS -- 47.0%
AUTOMOBILE PARTS -- 1.1%
Magna International, Inc..................... 5.00% 10/15/02 3,100,000 $ 3,433,250
COMPUTERS -- 2.0%
Adaptec, Inc., 144A.......................... 4.75% 2/1/04 3,275,000 3,299,563
Apple Computer, Inc., 144A................... 6.00% 6/1/01 1,000,000 851,250
Unisys Corp.................................. 8.25% 3/15/06 900,000 1,066,500
Unisys Corp.................................. 8.25% 8/1/00 1,000,000 978,750
6,196,063
</TABLE>

- ---------------
See Notes to Financial Statements.

23
<PAGE> 27

<TABLE>
<CAPTION>
MATURITY PRINCIPAL VALUE
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
- ---------------------------------------------- ---- ---- ------ --------
<S> <C> <C> <C> <C>
Diversified -- 4.6%
ADT Operations, Inc.+........................ 0.00% 7/6/10 5,950,000 $ 3,741,062
Berkshire Hathaway, Inc...................... 1.00% 12/2/01 3,200,000 3,324,000
Grand Metropolitan PLC, 144A................. 6.50% 1/31/00 2,900,000 3,342,250
US Filter Corp............................... 4.50% 12/15/01 3,500,000 3,806,250
14,213,562
ELECTRONICS -- 5.5%
Altera Corp., 144A........................... 5.75% 6/15/02 1,400,000 2,607,500
Analog Devices, Inc.......................... 3.50% 12/1/00 2,350,000 3,028,563
Motorola, Inc. +............................. 0.00% 9/27/13 2,500,000 1,843,750
SCI Systems, Inc., 144A...................... 5.00% 5/1/06 1,800,000 2,328,750
Thermo Electron Corp., 144A.................. 4.25% 1/1/03 3,300,000 3,712,500
Xilinx, Inc., 144A........................... 5.25% 11/1/02 3,100,000 3,402,250
16,923,313
ENERGY -- 4.6%
Diamond Offshore Drilling, Inc............... 3.75% 2/15/07 3,600,000 3,555,000
Key Energy Group, Inc., 144A................. 7.50% 7/1/03 1,700,000 2,195,125
Seacor Holdings, Inc., 144A.................. 5.375% 11/15/06 2,700,000 2,602,125
Swift Energy Co.............................. 6.25% 11/15/06 3,000,000 2,850,000
Valhi, Inc.+................................. 0.00% 10/20/07 6,900,000 3,070,500
14,272,750
HEALTHCARE -- 4.7%
Careline, Inc................................ 8.00% 5/1/01 1,975,000 2,537,875
FPA Medical Management, Inc.................. 6.50% 12/15/01 3,650,000 4,357,188
PhyCor, Inc.................................. 4.50% 2/15/03 1,500,000 1,520,625
Tenet Healthcare Corp........................ 6.00% 12/1/05 2,800,000 3,090,500
TheraTx, Inc................................. 8.00% 2/1/02 3,000,000 2,973,750
14,479,938
INDUSTRIAL & COMMERCIAL SERVICES -- 3.7%
Cooper Industries, Inc....................... 7.05% 1/1/15 2,946,000 3,211,140
Protection One Alarm Monitoring, Inc......... 6.75% 9/15/03 3,670,000 3,436,037
Solectron Corp., 144A........................ 6.00% 3/1/06 2,700,000 2,895,750
Trinova Corp................................. 6.00% 10/15/02 2,000,000 1,985,000
11,527,927
INSURANCE -- 4.0%
American Travellers Corp..................... 6.50% 10/1/05 1,100,000 3,353,625
Equitable Cos., Inc.......................... 6.125% 12/15/24 3,000,000 3,855,000
NAC Re Corp.................................. 5.25% 12/15/02 3,000,000 2,925,000
USF&G Corp.+................................. 0.00% 3/3/09 3,500,000 2,415,000
12,548,625
LEISURE -- 0.9%
Hilton Hotels Corp........................... 5.00% 5/15/06 2,780,000 2,818,225
MINING -- 1.4%
Agnico Eagle Mines........................... 3.50% 1/27/04 2,000,000 1,835,000
Trizec Hahn Corp............................. 3.00% 1/29/21 2,500,000 2,421,875
4,256,875
OIL & GAS -- 4.0%
Baker Hughes, Inc.+.......................... 0.00% 5/5/08 4,800,000 3,552,000
Nabors Industries, Inc....................... 5.00% 5/15/06 3,000,000 3,292,500
Pennzoil Co.................................. 4.75% 10/1/03 2,700,000 3,078,000
Pride Petroleum Services, Inc................ 6.25% 2/15/06 1,800,000 2,499,750
12,422,250
</TABLE>

- ---------------
See Notes to Financial Statements.

24
<PAGE> 28

- ---------------

Percentages indicated are based on net assets of $310,360,460.
(a) Represents cost for federal income tax and book purposes and differs from
value by net unrealized appreciation of securities as follows:

<TABLE>
<S> <C>
Unrealized appreciation.................................... $26,076,695
Unrealized depreciation.................................... (6,488,009)
-----------
Net unrealized appreciation................................ $19,588,686
===========
</TABLE>

144A -- Security which is restricted as to resale only to qualified
institutional investors.

STRYPES -- Structured Yield Product Exchangeable for Stock.

* At maturity, convertible into shares of SunAmerica stock or the cash
equivalent.

+ Zero Coupon Bond

See Notes to Financial Statements.

25
<PAGE> 29

PACIFIC HORIZON CAPITAL INCOME FUND
- --------------------------------------------------------------------------------

Statement of Assets and Liabilities
February 28, 1997
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (cost $280,980,709)............ $300,569,395
Cash............................................................... 4,743,987
Interest and dividends receivable.................................. 1,927,279
Receivable for capital shares sold................................. 858,743
Receivable for investment securities sold.......................... 3,224,892
Prepaid expenses................................................... 16,684
------------
Total Assets......................................................... 311,340,980
------------
LIABILITIES:
Payable for capital shares redeemed................................ 583,821
Investment advisory fees payable................................... 107,041
Administration fees payable........................................ 47,574
Shareholder service fees payable (A Shares)........................ 59,250
Shareholder service fees payable (K Shares) ....................... 217
12b-1 fees payable (K Shares)...................................... 792
Transfer agent fees................................................ 130,794
Legal fees payable................................................. 1,950
Other accrued expenses............................................. 49,081
------------
Total Liabilities.................................................... 980,520
------------
NET ASSETS........................................................... $310,360,460
============
Net Assets:
A Shares........................................................... $309,308,683
K Shares........................................................... 1,051,777
------------
Total................................................................ $310,360,460
============
Shares Outstanding ($0.001 par value, 300 million shares authorized):
A Shares........................................................... 17,822,748
K Shares........................................................... 60,792
------------
Total................................................................ 17,883,540
============
NET ASSET VALUE
A Shares -- redemption price per share............................. $17.35
Maximum Sales Charge (A Shares).................................... 4.50%
Maximum Offering Price (A Shares)
(Net Asset Value of A Shares/(100%-Maximum Sales Charge)).......... $18.17
K Shares -- offering price per share............................... $17.30
COMPOSITION OF NET ASSETS:
Shares of common stock, at par..................................... $ 17,884
Additional paid-in capital......................................... 266,787,962
Accumulated undistributed net investment income.................... 1,897,430
Accumulated net realized gains on investment transactions.......... 22,068,498
Net unrealized appreciation on investments......................... 19,588,686
------------
NET ASSETS, FEBRUARY 28, 1997........................................ $310,360,460
============
</TABLE>

- ---------------
See Notes to Financial Statements.

26
<PAGE> 30

PACIFIC HORIZON CAPITAL INCOME FUND
- --------------------------------------------------------------------------------

Statement of Operations
For the year ended February 28, 1997
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest (net of foreign tax withholding of $6,942).............................. $ 6,387,797
Dividends (net of foreign tax withholding of $10,809)............................ 6,051,292
-----------
Total Income................................................................... 12,439,089
-----------
EXPENSES:
Advisory fees.................................................................... 1,220,622
Administration fees.............................................................. 542,500
Shareholder service fees (A Shares).............................................. 677,727
Shareholder service fees (K Shares).............................................. 396
12b-1 fees (K Shares)............................................................ 1,186
Transfer agent fees.............................................................. 401,287
Legal fees....................................................................... 9,870
Other expenses................................................................... 385,629
-----------
Total Expenses................................................................. 3,239,217
Less: Fee waivers................................................................. (396)
Fees paid by third parties.................................................... (26,827)
-----------
Total Net Expenses................................................................ 3,211,994
-----------
NET INVESTMENT INCOME............................................................. 9,227,095
-----------
NET REALIZED/ UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gains on investment transactions.................................... 48,284,940
Net change in unrealized appreciation on investments............................. (10,670,170)
-----------
Net realized/ unrealized gains on investments..................................... 37,614,770
-----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................................. $46,841,865
===========
</TABLE>

- ---------------
See Notes to Financial Statements.

27
<PAGE> 31

PACIFIC HORIZON CAPITAL INCOME FUND
- --------------------------------------------------------------------------------

Statements of Changes in Net Assets
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 29,
1997 1996
------------ ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income................................ $ 9,227,095 $ 8,945,405
Net realized gains on investment transactions........ 48,284,940 2,680,964
Net change in unrealized appreciation on
investments........................................ (10,670,170) 38,907,177
------------ ------------
Change in net assets resulting from operations......... 46,841,865 50,533,546
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
A Shares........................................... (9,043,759) (10,020,414)
K Shares(a)........................................ (2,046) --
Net realized gains from investment transactions
A Shares........................................... (22,450,057) --
K Shares(a)........................................ (15,970) --
------------ ------------
Change in net assets from shareholder distributions.... (31,511,832) (10,020,414)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued.......................... 76,079,488 264,083,620
Dividends reinvested................................. 30,042,288 9,525,718
Cost of shares redeemed.............................. (57,837,148) (265,627,625)
------------ ------------
Change in net assets from capital share transactions... 48,284,628 7,981,713
------------ ------------
Change in net assets................................... 63,614,661 48,494,845
NET ASSETS
Beginning of year.................................... 246,745,799 198,250,954
------------ ------------
End of year.......................................... $310,360,460 $246,745,799
============ ============
</TABLE>

- ---------------

(a) Period from July 22, 1996 (inception date) to February 28, 1997.

See Notes to Financial Statements.

28
<PAGE> 32

PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------

Statement of Assets and Liabilities
February 28, 1997
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Investment in Master Investment Trust, Series I -- Asset Allocation
Portfolio, at value................................................. $35,652,775
Deferred organization costs........................................... 13,994
Prepaid expenses...................................................... 376
-----------
Total Assets............................................................ 35,667,145
-----------
LIABILITIES:
Reports to shareholders expense payable............................... 26,083
Fund accounting fees and expenses payable............................. 10,465
Audit fees payable.................................................... 14,960
Transfer agent fees payable........................................... 15,369
Shareholder service fees payable (A and K Shares)..................... 7,075
Other accrued expenses................................................ 7,409
-----------
Total Liabilities....................................................... 81,361
-----------
NET ASSETS.............................................................. $35,585,784
===========
Net Assets:
A Shares.............................................................. $34,838,046
K Shares.............................................................. 747,738
-----------
Total................................................................... $35,585,784
===========
Shares Outstanding ($0.001 par value, 150 million shares authorized):
A Shares.............................................................. 1,795,743
K Shares.............................................................. 38,550
-----------
Total................................................................... 1,834,293
===========
NET ASSET VALUE
A Shares -- redemption price per share................................ $19.40
=====
Maximum Sales Charge (A Shares)....................................... 4.50%
Maximum Offering Price (A Shares)
(Net Asset Value of A Shares/(100% -- Maximum Sales Charge)).......... $20.31
=====
K Shares -- Offering price per share.................................. $19.40
=====
COMPOSITION OF NET ASSETS:
Shares of common stock, at par........................................ $ 1,834
Additional paid-in capital............................................ 30,876,968
Accumulated undistributed net investment income....................... 137,447
Accumulated net realized gains on investment transactions............. 1,720,071
Net unrealized appreciation on investments............................ 2,849,464
-----------
NET ASSETS, FEBRUARY 28, 1997........................................... $35,585,784
===========
</TABLE>

- ---------------
See Notes to Financial Statements.

29
<PAGE> 33

PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------

Statement of Operations
For the year ended February 28, 1997
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Investment Income from Master Investment Trust, Series I -- Asset
Allocation Portfolio:
Interest income........................................................ $ 769,422
Dividend income........................................................ 291,117
----------
1,060,539
Expenses............................................................... $ 206,467
Less: Fee waivers and expense reimbursements........................... (117,129)
----------
89,338
Net Investment Income from Master Investment Trust,
Series I -- Asset Allocation Portfolio................................... 971,201
EXPENSES:
Shareholder service fees (A Shares)...................................... 68,548
Shareholder service fees (K Shares)...................................... 506
12b-1 fees (K Shares).................................................... 1,000
Administration fees...................................................... 41,432
Registration fees........................................................ 47,564
Transfer agent fees...................................................... 45,610
Reports to shareholders.................................................. 42,336
Fund accounting fees and expenses........................................ 32,732
Amortization of organization costs....................................... 25,558
Audit fees............................................................... 16,281
Legal fees............................................................... 2,928
Directors' fees.......................................................... 904
Other expenses........................................................... 6,552
----------
Total Expenses........................................................ 331,951
Less: Fee waivers and expense reimbursements.............................. (73,479)
----------
Total Net Expense......................................................... 258,472
----------
NET INVESTMENT INCOME..................................................... 712,729
REALIZED/UNREALIZED GAINS ON INVESTMENTS FROM
MASTER INVESTMENT TRUST, SERIES I -- ASSET ALLOCATION PORTFOLIO:
Net realized gains on investment transactions............................ 2,440,559
Net change in unrealized appreciation on investments..................... 1,517,990
----------
Net realized/unrealized gains on investments from Master
Investment Trust Series I -- Asset Allocation Portfolio.................. 3,958,549
----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.......................... $4,671,278
==========
</TABLE>

- ---------------
See Notes to Financial Statements.

30
<PAGE> 34

PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------

Statements of Changes in Net Assets
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 29,
1997 1996
------------ ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income................................ $ 712,729 $ 464,352
Net realized gain on investment transactions......... 2,440,559 920,161
Net change in unrealized appreciation on
investments........................................ 1,517,990 1,078,509
----------- -----------
Change in net assets resulting from operations......... 4,671,278 2,463,022
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
A Shares........................................... (682,373) (387,903)
K Shares (a)....................................... (3,691) --
Net realized gains from investment transactions
A Shares........................................... (998,763) (544,588)
K Shares (a)....................................... (15,739) --
----------- -----------
Change in net assets from shareholder distributions.... (1,700,566) (932,491)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued.......................... 15,869,326 17,093,597
Dividends reinvested................................. 1,651,877 903,640
Cost of shares redeemed.............................. (7,260,804) (2,866,740)
----------- -----------
Change in net assets from capital share transactions... 10,260,399 15,130,497
----------- -----------
Change in net assets................................... 13,231,111 16,661,028
NET ASSETS:
Beginning of year.................................... 22,354,673 5,693,645
----------- -----------
End of year.......................................... $35,585,784 $22,354,673
=========== ===========
</TABLE>

- ---------------
(a) Period from July 22, 1996 (inception date) to February 28, 1997.

See Notes to Financial Statements.

31
<PAGE> 35

PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------

Notes to Financial Statements
- --------------------------------------------------------------------------------

NOTE 1 -- ORGANIZATION

Pacific Horizon Funds, Inc. (the "Company"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended (the "Act"), as
an open-end management investment company. At February 28, 1997, the Company
operated as a series company comprised of seventeen funds. The accompanying
financial statements and notes are those of the Pacific Horizon Capital Income
Fund (the "Capital Income Fund") and Pacific Horizon Asset Allocation Fund (the
"Asset Allocation Fund"), collectively the "Funds" individually the "Fund". The
Funds offer A Shares and effective July 22, 1996, began offering K Shares. A
Shares have a Shareholder Services Plan while K Shares have a Distribution Plan
and Administrative and Shareholder Services Plan.

The Capital Income Fund seeks to provide investors with a total investment
return, comprised of current income and capital appreciation, consistent with
prudent investment risk. The Asset Allocation Fund seeks to achieve its
investment objective by investing substantially all of its assets in the Asset
Allocation Portfolio (the "Portfolio") of Master Investment Trust, Series I (the
"Trust"), an open-end management investment company that has the same investment
objective as that of the Asset Allocation Fund. The value of the Asset
Allocation Fund's investment in the Portfolio included in the accompanying
Statement of Assets and Liabilities reflects the Asset Allocation Fund's
proportionate beneficial interest in the net assets of the Portfolio (17.0% at
February 28, 1997). The financial statements of the Portfolio, including its
portfolio of investments, are included elsewhere within this report and should
be read in conjunction with the Asset Allocation Fund's financial statements.

Bank of America National Trust and Savings Association ("Bank of America"),
a subsidiary of BankAmerica Corporation, serves as the Capital Income Fund's
investment adviser. The BISYS Group, Inc. ("BISYS"), through its wholly-owned
subsidiary BISYS Fund Services, Limited Partnership, serves as the Funds'
administrator. Concord Financial Group, Inc. (the "Distributor"), an indirect,
wholly-owned subsidiary of BISYS serves as the distributor of the Funds' shares.
BISYS Fund Services, Inc. ("BISYS Ohio"), also a wholly-owned subsidiary of
BISYS serves as transfer agent and dividend disbursing agent of the Funds.

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies followed by
the Funds in the preparation of their financial statements. The policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those of estimates.

32
<PAGE> 36

PORTFOLIO VALUATIONS:

The Capital Income Fund values portfolio securities (other than debt
securities with remaining maturities of 60 days or less) at the last reported
sales price on the securities exchange on which such securities are primarily
traded or at the last sales price on the NASDAQ National Securities Market.
Securities not listed on an exchange or the NASDAQ National Securities Market or
securities for which there were no transactions are valued at the mean between
the current quoted bid and ask prices on the date of the valuation. Bid price is
used when no ask price is available. The Fund may also use an independent
pricing service, approved by the Board of Directors, to value certain of their
securities. Such prices reflect market values which may be established through
the use of electronic data processing techniques and matrix systems. Restricted
securities and securities for which market quotations are not readily available,
if any, are valued at fair value using methods approved by the Board of
Directors. Debt securities with remaining maturities of 60 days or less are
valued at amortized cost.

The valuation of securities of the Asset Allocation Fund's investment in the
Portfolio is discussed in Note 2 of the Portfolio's financial statements.

SECURITIES TRANSACTIONS AND RELATED INCOME:

The Capital Income Fund records security transactions on a trade date basis.
Interest income, including accretion of discount and amortization of premium, is
accrued daily. Dividend income is recognized on the ex-dividend date. Realized
gains and losses from security transactions are recorded on an identified cost
basis.

The Asset Allocation Fund records its share of the investment income,
expenses and realized and unrealized gains and losses recorded by the Portfolio
on a daily basis. The investment income, expenses and realized and unrealized
gains and losses are allocated daily to investors in the Portfolio based upon
the value of their investments in the Portfolio. Such investments are adjusted
on a daily basis.

EXPENSES:

The Company accounts separately for the assets, liabilities and operations
of each fund. Direct expenses of a fund are charged to that fund while general
Company expenses are allocated among the Company's respective portfolios.

The investment income and expenses of a fund (other than class specific
expenses) and realized and unrealized gains and losses on investments of a fund
are allocated to each class of shares based upon their relative net asset value
on the date income is earned or expenses and realized and unrealized gains and
losses are incurred.

The Asset Allocation Fund incurred certain costs in connection with its
organization. Such costs have been deferred and are being amortized on a
straight line basis over five years.

33
<PAGE> 37

DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:

The Funds' net investment income is declared and paid as a dividend,
quarterly, 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 Funds can be
offset by capital loss carryovers of the Funds, such gains will not be
distributed. Dividends and distributions are recorded by the Funds on the
ex-dividend date.

The amount of dividends from net investment income and of distributions from
net realized gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the composition of net assets based on their federal
tax-basis treatment; temporary differences do not require reclassification.
Dividends and distributions to shareholders which exceed net investment income
and net realized capital gains for financial reporting purposes but not for tax
purposes are reported as dividends in excess of net investment income or
distributions in excess of net realized gains. To the extent they exceed net
investment income and net realized gains for tax purposes, they are reported as
distributions of capital.

As of February 28, 1997, the following reclassifications have been made to
increase (decrease) such accounts with offsetting adjustments made to paid-in
capital:

<TABLE>
<CAPTION>
ACCUMULATED UNDISTRIBUTED ACCUMULATED NET REALIZED
NET INVESTMENT INCOME GAIN/(LOSS) ON INVESTMENTS
------------------------- --------------------------
<S> <C> <C>
Capital Income Fund.......... $ 326,372 $ (288,285)
Asset Allocation Fund........ (1,681) 1,679
</TABLE>

FEDERAL INCOME TAXES:

It is the Funds' policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
timely, all of its net investment company taxable income and net capital gains
to shareholders. Therefore, no federal income tax provision is required.

During the year, the Capital Income Fund utilized $2,934,042 of its
available capital loss carryover to offset realized capital gains for federal
tax purposes.

OTHER:

The Capital Income Fund maintains a cash balance with its custodian and
receives a reduction of its custody fees and expenses for the amount of interest
earned on such uninvested cash balances. For financial reporting purposes for
the year ended February 28, 1997, custodian fees and expenses paid by third
parties were increased by $26,827. There was no effect on net investment income.
The Fund could have invested such cash amounts in

34
<PAGE> 38

income producing assets if it had not agreed to a reduction of fees or expenses
under the expense offset arrangement with its custodian.

Effective October 1, 1996 the earnings credit account for Capital Income
converted to an interest bearing account. Earnings credit balances are available
until February 28, 1998.

NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES

The Capital Income Fund has an Investment Advisory Agreement with Bank of
America and the Funds have an Administration Agreement with BISYS and a
Distribution Agreement with the Distributor. Pursuant to the terms of the
Investment Advisory Agreement, Bank of America is entitled to a fee from the
Capital Income Fund, which is accrued daily and payable monthly, at an annual
rate of 0.45% of the Fund's average daily net assets. Pursuant to the terms of
the Administration Agreement, BISYS is entitled to a fee, which is accrued daily
and payable monthly, at an annual rate of 0.20% and 0.15%, of the average daily
net assets of the Capital Income and Asset Allocation Fund, respectively. For
the year ended February 28, 1997, BISYS agreed to waive $41,432 of its fee as
Administrator for the Asset Allocation Fund. For the same period BISYS
reimbursed $31,598 of operating expenses of the Asset Allocation Fund.

For the year ended February 28, 1997, the Distributor advised the Funds that
it retained $268,543 and $47,026 from commissions earned on sales of the Capital
Income Fund's and Asset Allocation Fund's shares, respectively. For the same
period, Bank of America and its affiliates advised the Funds that they retained
$2,094,439 and $373,436 from commissions earned on sales of shares of the
Capital Income Fund and Asset Allocation Fund, respectively.

The Funds have a Shareholder Services Plan (the "Plan") under which each
Fund pays the Distributor for shareholder servicing expenses incurred in
connection with A Shares of each Fund. Under the Plan, payments for shareholder
servicing expenses may not exceed 0.25% of each Fund's average daily net assets
for A Shares. For the year ended February 28, 1997, the Capital Income Fund and
Asset Allocation Fund incurred charges of $677,727 and $68,548, respectively,
pursuant to the Plan. The Funds were advised that of these amounts, the
Distributor retained $46,625 and $2,735 from the Capital Income Fund and Asset
Allocation Fund, respectively, and affiliates of Bank of America retained
$593,044 and $64,576, respectively. The Plan provides that if, in any month, the
fees paid to the Distributor are less than the costs incurred by the
Distributor, the excess costs will be included in future computations of the
fee, provided that any excess cost will not be carried forward beyond the end of
the fiscal year in which such excess costs were incurred.

The Funds have adopted a Distribution Plan and an Administrative and
Shareholder Services Plan (the "Administrative Plan") with respect to K Shares
of the Funds. Under the Distribution Plan, the Funds pay the Distributor for
expenses primarily intended to result in the sale of the Funds' K Shares. Under
the Distribution Plan, payments by the Funds for

35
<PAGE> 39

distribution expenses may not exceed 0.75% of the average daily net assets of
each Fund's K Shares. Payments for distribution expenses under the Distribution
Plan are subject to Rule 12b-1 under the Act. Under the Administrative Plan, the
Funds pay for expenses incurred in connection with shareholder services provided
by the Distributor and payments to Service Organizations for the provision of
support services with respect to beneficial owners of K Shares. Under the
Administrative Plan, payments for shareholder services and administrative
services may not exceed 0.25% and 0.75%, respectively, of the average daily net
assets of each Fund's K Shares. The total of all payments under the Distribution
Plan and the Administrative and Shareholder Services Plan may not exceed, in the
aggregate, the annual rate of 1.00% of the average daily net assets of each
Fund's K Shares. For the period ended February 28, 1997, the Distributor waived
$396 and $499 for the Capital Income Fund and Asset Allocation Fund,
respectively.

BISYS Ohio serves the Funds as transfer agent and dividend disbursing agent.
In these capacities, BISYS Ohio earned $401,287 and $45,610 from the Capital
Income Fund and Asset Allocation Fund, respectively, for the year ended February
28, 1997. For the period January 1, 1996 to December 31, 1996, BISYS Ohio agreed
to voluntarily limit aggregate transfer agency fees. Absent this voluntary limit
the Funds would have incurred additional costs of $94,823 and $16,412 for the
Capital Income Fund and Asset Allocation Fund, respectively.

For the year ended February 28, 1997, the Capital Income Fund and Asset
Allocation Fund incurred legal charges totaling $9,870 and $2,928, respectively,
which were earned by a law firm, a partner of which serves as Secretary of the
Company.

Certain officers of the Company are affiliated with BISYS. Such persons are
not paid directly by the Company for serving in these capacities.

NOTE 4 -- DIRECTORS' COMPENSATION

Each Director of the Company is entitled to an annual retainer of $25,000,
plus $1,000 for each day the director participates in all or part of a Board or
Committee meeting, and the Chairman of each Committee receives a retainer of
$1,000 for services as Chairman of the Committee. In addition, the Company's
President is entitled to an annual salary of $20,000 for services as President.
The former President and Chairman of the Company received an additional $40,000
per year through February 28, 1997 in consideration of his years of service.

The Board has also established a retirement plan (the "Retirement Plan") for
the Directors. The Retirement Plan provides that each Director who dies or
resigns after five years of service as a director will be entitled to receive
ten annual payments each equal to the greater of: (i) 50% of the annual
Director's retainer that was payable during the year of that director's death or
resignation, or (ii) 50% of the annual Director's retainer then in effect for
Directors of the Company during the year of such payment. A Director who dies or
resigns

36
<PAGE> 40

after nine years of service as a director will be entitled to receive ten annual
payments equal to the greater of: (i) 100% of the annual Director's retainer
that was payable during the year of that Director's death or resignation, or
(ii) 100% of the annual Director's retainer then in effect for Directors of the
Company during the year of such payment. In addition, the amount payable each
year to a Director who dies or resigns shall be increased by $1,000 for each
year of service that the Director served as Chairman of the Board. Each Director
may receive any benefits payable under the Retirement Plan, at his or her
election, either in one lump sum payment or ten annual installments. A
Director's years of service for the purpose of calculating the payments
described above shall be based upon service as a Director or Chairman after
February 28, 1994. Aggregate costs pursuant to the Retirement Plan amounted to
$2,190 and $20 for the Capital Income Fund and Asset Allocation Fund,
respectively, for the year ended February 28, 1997.

NOTE 5 -- SECURITIES TRANSACTIONS

For the year ended February 28, 1997, the cost of purchases and the proceeds
from sales of Capital Income Fund's securities (excluding short-term
investments) amounted to $348,896,148 and $328,345,151, respectively.

NOTE 6 -- CAPITAL SHARE TRANSACTIONS

Transactions in capital shares for the Funds are summarized below:

<TABLE>
<CAPTION>
CAPITAL INCOME FUND
-----------------------------------------------------
YEAR ENDED YEAR ENDED
FEBRUARY 28, 1997 FEBRUARY 29, 1996
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
------ ---------- ------- ---------
<S> <C> <C> <C> <C>
A Shares (000's)
Issued..................................... 4,375 $ 75,024 18,026 $ 264,084
Reinvested................................. 1,793 30,024 639 9,526
Redeemed................................... (3,373) (57,813) (18,167) (265,628)
------ ---------- ------- ---------
Net increase................................ 2,795 $ 47,235 498 $ 7,982
====== ========== ======= =========
K Shares(a)
Issued..................................... 61,106 $1,055,431 -- $ --
Reinvested................................. 1,082 18,016 -- --
Redeemed................................... (1,396) (24,309) -- --
------ ---------- ------- ---------
Net increase................................ 60,792 $1,049,138 -- $ --
====== ========== ======= =========
</TABLE>

- ---------------

(a) Period from July 22, 1996 (inception date) to February 28, 1997.

37
<PAGE> 41

<TABLE>
<CAPTION>
ASSET ALLOCATION FUND
---------------------------------------------------
YEAR ENDED YEAR ENDED
FEBRUARY 28, 1997 FEBRUARY 29, 1996
---------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
------ -------- ------ -------
<S> <C> <C> <C> <C>
A Shares (000's)
Issued...................................... 825 $ 15,144 1,016 $17,093
Reinvested.................................. 90 1,632 53 904
Redeemed.................................... (395) (7,251) (169) (2,867)
------ -------- ------ -------
Net increase................................. 520 $ 9,525 900 $15,130
======== ========== ======== ==========
K Shares (a)
Issued...................................... 37,991 $724,963 -- $ --
Reinvested.................................. 1,051 19,438 -- --
Redeemed.................................... (491) (9,394) -- --
------ -------- ------ -------
Net increase................................. 38,551 $735,007 -- $ --
======== ========== ======== ==========
</TABLE>

- ---------------
(a) Period from July 22, 1996 (inception date) to February 28, 1997.

NOTE 7 -- FEDERAL INCOME TAX INFORMATION (UNAUDITED)

During the year ended February 28, 1997, the Funds declared long-term
capital distributions in the following amounts:

<TABLE>
<S> <C>
Capital Income Fund........................................................ $16,140,606
Asset Allocation Fund...................................................... $ 479,990
</TABLE>

For the taxable year ended February 28, 1997, the following percentage of
income dividends paid by the Funds qualify for the dividends received deduction
available to corporations:

<TABLE>
<CAPTION>
QUALIFIED
DIVIDEND INCOME
---------------
<S> <C>
Capital Income Fund........................................................ 11.38%
Asset Allocation Fund...................................................... 11.37%
</TABLE>

38
<PAGE> 42

PACIFIC HORIZON CAPITAL INCOME FUND
- --------------------------------------------------------------------------------

Financial Highlights
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------------------------------
FEBRUARY FEBRUARY FEBRUARY FEBRUARY FEBRUARY
28, 29, 28, 28, 28,
1997 (A) 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
A SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF
YEAR....................................... $ 16.42 $ 13.65 $ 15.42 $ 13.32 $ 12.01
======== ======== ======== ======== ========
Income from Investment Operations:
Net investment income...................... 0.57 0.62 0.57 0.50 0.56
Net realized and unrealized gains/
(losses) on investment transactions...... 2.34 2.84 (1.43) 2.36 1.79
-------- -------- -------- -------- --------
Total income (loss) from investment
operations................................. 2.91 3.46 (0.86) 2.86 2.35
-------- -------- -------- -------- --------
Less Dividends and Distributions:
Dividends to shareholders from net
investment income........................ (0.57) (0.69) (0.54) (0.48) (0.60)
Distribution to shareholders from net
realized gains on investment
transactions............................. (1.41) 0.00 (0.37) (0.28) (0.44)
-------- -------- -------- -------- --------
Total Dividends and Distributions........... (1.98) (0.69) (0.91) (0.76) (1.04)
-------- -------- -------- -------- --------
Net change in net asset value per share..... 0.93 2.77 (1.77) 2.10 1.31
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END OF YEAR...... $ 17.35 $ 16.42 $ 13.65 $ 15.42 $ 13.32
======== ======== ======== ======== ========
Total return (excludes sales charge)........ 18.53% 25.96% (5.61%) 21.85% 20.62%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year (millions)....... $ 309 $ 247 198 $ 191 $ 20
Ratio of expenses to average net assets.... 1.18% 1.23% 0.97% 0.46% 0.07%
Ratio of net investment income to average
net assets............................... 3.40% 4.05% 4.48% 4.19% 5.00%
Ratio of expenses to average net assets*... 1.19%** 1.26%** 1.14% 1.20% 3.34%
Ratio of net investment income to average
net assets*.............................. (b) (b) 4.31% 3.45% 1.73%
Portfolio turnover rate.................... 124% 57% 94% 103% 216%
Average commission rate paid (c)........... $ 0.0210 $ -- $ -- $ -- $ --
</TABLE>

- ---------------

<TABLE>
<C> <S>
* During the period, certain fees were voluntarily reduced and/ or reimbursed. If such voluntary fee
reductions and/ or reimbursements had not occurred, the ratios would have been as indicated.
** During the years ended February 28, 1997 and February 29, 1996, the Portfolio received credits from
its custodian for interest earned on uninvested balances which were used to offset custodian fees
and expenses. If such credits had not occurred, the expense ratios would have been as indicated. The
ratio of net investment income was not affected.
(a) As of July 22, 1996, the Portfolio designated the existing series of shares as "A" Shares.
(b) There were no waivers or reimbursements during the period.
(c) Represents the dollar amount of commissions paid on Portfolio transactions divided by the total
number of shares purchased or sold for which commissions were charged and is calculated on the basis
of the Portfolio as a whole without distinguishing between the classes of shares issued. Disclosure
is not required for prior periods.
</TABLE>

See Notes to Financial Statements.

39
<PAGE> 43

PACIFIC HORIZON CAPITAL INCOME FUND
- --------------------------------------------------------------------------------

Financial Highlights
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PERIOD ENDED
FEBRUARY 28,
1997 (A)
------------
<S> <C>
K SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD.................................... $ 16.24
--------
Income from Investment Operations:
Net investment income............................................................ 0.32
Net realized and unrealized gains on investment transactions..................... 2.43
--------
Total income from investment operations........................................... 2.75
--------
Less Dividends and Distributions:
Dividends to shareholders from net investment income............................. (0.28)
Distribution to shareholders from net realized gains on investment
transactions................................................................... (1.41)
--------
Total Dividends and Distribution.................................................. (1.69)
--------
Net change in net asset value per share........................................... 1.06
--------
NET ASSET VALUE PER SHARE, END OF PERIOD.......................................... $ 17.30
========
Total return...................................................................... 17.47%(c)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year (millions)............................................. $ 1
Ratio of expenses to average net assets.......................................... 1.66%(d)
Ratio of net investment income to average net assets............................. 2.85%(d)
Ratio of expenses to average net assets*......................................... 1.91%(d)**
Ratio of net investment income to average net assets*............................ 2.60%(d)
Portfolio turnover rate.......................................................... 124%
Average commission rate paid (b)................................................. $ 0.0210
</TABLE>

- ---------------

<TABLE>
<C> <S>
* 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.
** Fees paid by third parties had no effect on the ratios.
(a) Period from July 22, 1996 (inception date) to February 28, 1997.
(b) Represents the dollar amount of commissions paid on Portfolio transactions divided by the total
number of shares purchased or sold for which commissions were charged and is calculated on the basis
of the Portfolio as a whole without distinguishing between the classes of shares issued. Disclosure
is not required for prior periods.
(c) Not annualized.
(d) Annualized.
</TABLE>

See Notes to Financial Statements.

40
<PAGE> 44

PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------

Financial Highlights
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
FEBRUARY FEBRUARY FEBRUARY FEBRUARY
28, 29, 28, 28,
1997(B) 1996 1995 1994(A)
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
A SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF YEAR........... $ 17.52 $ 15.15 $ 14.84 $ 15.00
-------- -------- -------- --------
Income from Investment Operations:
Net investment income................................. 0.48 0.52 0.48 0.03
Net realized and unrealized gain (loss) on investment
transactions........................................ 2.50 2.86 0.24 (0.19)
-------- -------- -------- --------
Total income (loss) from investment operations......... 2.98 3.38 0.72 (0.16)
-------- -------- -------- --------
Less Dividends and Distributions:
Dividends to shareholders from net investment
income.............................................. (0.46) (0.53) (0.41) --
Distributions to shareholders from net realized gains
on investment transactions.......................... (0.64) (0.48) -- --
-------- -------- -------- --------
Total Dividends and Distributions...................... (1.10) (1.01) (0.41) --
-------- -------- -------- --------
Net change in net asset value per share................ 1.88 2.37 0.31 (0.16)
-------- -------- -------- --------
NET ASSET VALUE PER SHARE, END OF YEAR................. $ 19.40 $ 17.52 $ 15.15 $ 14.84
======== ======== ======== ========
Total return (excludes sales charge)................... 17.64% 22.80% 5.03% (1.07%)++
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year (000)....................... $ 34,838 $ 22,355 $ 5,694 $ 666
Ratio of expenses to average net assets............... 1.25% 0.62% 0.00% 0.00%+
Ratio of net investment income to average net
assets.............................................. 2.59% 3.49% 4.25% 4.20%+
Ratio of expenses to average net assets*.............. 1.94% 2.92% 7.89% 83.95%+
Ratio of net investment income to average net
assets*............................................. 1.90% 1.19% (3.64%) (79.75%)+
</TABLE>

- ---------------

<TABLE>
<C> <S>
+ Annualized.
++ Not annualized.
* During the period, certain fees were voluntarily reduced and expenses reimbursed. If such voluntary
fee reductions and expense reimbursements had not occurred, the ratios would have been as indicated.
(a) Period from January 13, 1994 (inception date) to February 28, 1994.
(b) As of July 22, 1996 the Fund designated the existing series of shares as "A" shares.
</TABLE>

See Notes to Financial Statements.

41
<PAGE> 45

PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------

Financial Highlights
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PERIOD ENDED
FEBRUARY 28,
1997(A)
-------------
<S> <C>
K SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD................................. $ 17.23
Income from Investment Operations:
Net investment income......................................................... 0.19
Net realized and unrealized gain on investments............................... 2.80
--------
Total income from investment operations........................................ 2.99
--------
Less Dividends and Distributions:
Dividends to shareholders from net investment income.......................... (0.18)
Distributions to shareholders from net realized gains on investment
transactions................................................................ (0.64)
--------
Total Dividends and Distributions.............................................. (0.82)
--------
Net change in net asset value per share........................................ 2.17
--------
NET ASSET VALUE PER SHARE, END OF PERIOD....................................... $ 19.40
========
Total Return................................................................... 17.69%++
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000)............................................. $ 748
Ratio of expenses to average net assets....................................... 1.94%+
Ratio of net investment income to average net assets.......................... 2.31%+
Ratio of expenses to average net assets*...................................... 3.26%+
Ratio of net investment income to average net assets*......................... 0.99%+
</TABLE>

- ---------------

<TABLE>
<C> <S>
+ Annualized.
++ Not annualized.
* During the period, certain fees were voluntarily reduced and expenses reimbursed. If such voluntary
fee reductions and expense reimbursements had not occurred, the ratios would have been as indicated.
(a) Period from July 22, 1996 (inception date) to February 28, 1997.
</TABLE>

See Notes to Financial Statements.

42
<PAGE> 46

REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------

To the Board of Directors
and Shareholders of
Pacific Horizon Funds, Inc.

In our opinion, the accompanying statements of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Pacific Horizon Capital Income
Fund and Pacific Horizon Asset Allocation Fund (two of the portfolios
constituting the Pacific Horizon Funds, Inc., hereafter referred to as the
"Funds") at February 28, 1997, the results of each of their operations for the
year then ended, the changes in each of their net assets for each of the two
years in the period then ended and the financial highlights for each of the
periods presented, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Funds' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
February 28, 1997 by correspondence with the custodian, provides a reasonable
basis for the opinion expressed above.

PRICE WATERHOUSE LLP

1177 Avenue of the Americas
New York, New York
April 21, 1997

43
<PAGE> 47

MASTER INVESTMENT TRUST SERIES I --
ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------

Portfolio of Investments
February 28, 1997
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- ------------------------------------------------------------------------- ------ -----------
<S> <C> <C>
COMMON STOCKS -- 58.7%
AEROSPACE/AIRLINES -- 1.0%
AMR Corp.**............................................................. 5,300 $ 416,713
Boeing Co. ............................................................. 16,500 1,678,875
2,095,588
ALUMINUM -- 0.4%
Aluminum Co. of America ................................................ 12,400 883,500
AUTOMOBILES -- 1.2%
Ford Motor ............................................................. 28,400 933,650
General Motors Corp. ................................................... 26,700 1,545,263
2,478,913
AUTOMOBILE PARTS -- 0.1%
Cooper Tire & Rubber ................................................... 15,600 310,050
BANKS -- 3.9%
Banc One Corp. ......................................................... 50,300 2,219,488
Chase Manhattan Corp. .................................................. 18,700 1,872,337
CitiCorp. .............................................................. 15,800 1,844,650
Wells Fargo Co. ........................................................ 7,100 2,160,175
8,096,650
BEVERAGES -- 2.1%
Anheuser-Busch Co. ..................................................... 19,800 881,100
Coca-Cola Co. .......................................................... 43,800 2,671,800
Pepsico, Inc. .......................................................... 25,400 835,025
4,387,925
BROKERAGE -- 1.3%
Dean Witter ............................................................ 70,400 2,701,600
CHEMICALS -- 1.9%
E.I. Du Pont De Nemours & Co. .......................................... 19,900 2,134,275
Monsanto Corp. ......................................................... 52,100 1,895,138
4,029,413
COMPUTER SOFTWARE/HARDWARE -- 3.9%
Automatic Data Processing, Inc. ........................................ 15,900 677,737
Hewlett Packard Co. .................................................... 17,400 974,400
IBM..................................................................... 7,700 1,106,875
Microsoft Corp. ........................................................ 34,800 3,393,000
Silicon Graphics** ..................................................... 28,100 677,913
Seagate Technology** ................................................... 30,100 1,422,225
8,252,150
</TABLE>

- ---------------
See Notes to Financial Statements.

44
<PAGE> 48

<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- ------------------------------------------------------------------------- ------ --------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
COSMETICS/HOUSEHOLD PRODUCTS -- 2.3%
Colgate-Palmolive Co. .................................................. 6,800 $ 703,800
Gillette Co. ........................................................... 13,300 1,052,363
Masco Corp. ............................................................ 16,200 569,025
Newell Co. ............................................................. 12,000 445,500
Proctor & Gamble Co. ................................................... 17,700 2,126,212
4,896,900
ELECTRICAL PRODUCTS -- 2.8%
Emerson Electric Co. ................................................... 15,000 1,485,000
General Electric Co. ................................................... 42,300 4,351,613
5,836,613
ELECTRONIC SEMICONDUCTORS -- 2.8%
Intel Corp. ............................................................ 34,000 4,823,750
National Semiconductors Corp. .......................................... 38,000 992,750
5,816,500
ELECTRIC UTILITIES -- 0.3%
Duke Power Co. ......................................................... 13,800 610,650
FINANCIAL SERVICES -- 2.9%
American Express ....................................................... 42,100 2,752,287
First Data Corp. ....................................................... 50,400 1,845,900
Household International, Inc.+ ......................................... 15,900 1,540,313
6,138,500
FOOD -- 1.9%
Archer Daniels Midland Co. ............................................. 19,100 353,350
Conagra, Inc. .......................................................... 18,900 1,001,700
Kellogg Co. ............................................................ 20,200 1,383,700
Ralston Purina Co. ..................................................... 14,500 1,190,813
3,929,563
GAS UTILITIES -- 1.0%
Columbia Gas Systems, Inc. ............................................. 31,900 1,874,125
Praxair, Inc. .......................................................... 4,600 223,675
2,097,800
HOSPITAL CARE -- 1.0%
Abbott Laboratories .................................................... 11,900 669,375
Becton Dickinson & Co. ................................................. 18,600 916,050
Johnson & Johnson ...................................................... 7,600 437,950
2,023,375
INSURANCE -- LIFE -- 0.4%
Providian Corp. ........................................................ 14,200 793,425
INSURANCE -- PROPERTY AND CASUALTY -- 1.0%
American Intl. Group, Inc.+ ............................................ 5,100 617,100
Chubb Corp. ............................................................ 26,300 1,541,838
2,158,938
LEISURE -- 0.80%
Disney Walt Co. ........................................................ 11,400 846,450
Hilton Hotels Corp. .................................................... 10,500 263,813
ITT Corp. .............................................................. 6,500 367,250
Mattel, Inc. ........................................................... 10,300 256,213
1,733,726
</TABLE>

- ---------------
See Notes to Financial Statements.

45
<PAGE> 49

<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- ------------------------------------------------------------------------- ------ --------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
MANUFACTURING -- MACHINERY -- 1.1%
General Signal Corp. ................................................... 20,000 $ 872,500
Illinois Tools Work, Inc. .............................................. 16,200 1,366,875
2,239,375
MEDIA -- 0.8%
ACNielsen .............................................................. 1 15
Gannett, Inc. .......................................................... 3,600 287,100
McGraw Hill Companies .................................................. 6,500 337,187
Time Warner, Inc. ...................................................... 14,400 590,400
Tribune Co. ............................................................ 14,400 565,200
1,779,902
MULTI INDUSTRIES -- 3.9%
Cognizant Corp. ........................................................ 7,600 265,050
Corning, Inc. .......................................................... 18,300 688,537
Pacific Enterprises .................................................... 25,100 765,550
Sherwin Williams ....................................................... 12,300 690,337
Tenneco, Inc. .......................................................... 20,800 819,000
TRW, Inc. .............................................................. 29,200 1,529,350
Tyco Labs, Inc. ........................................................ 32,700 1,929,300
Whitman Corp. .......................................................... 27,200 639,200
7,326,324
NATURAL ENERGY -- 0.8%
Coastal Corp. .......................................................... 19,000 864,500
Panenergy Corp. ........................................................ 19,400 826,925
1,691,425
OIL INTERNATIONAL -- 3.0%
Chevron Corp. .......................................................... 11,600 748,200
Exxon Corp. ............................................................ 18,500 1,847,688
Mobil Corp. ............................................................ 8,700 1,067,925
Texaco, Inc. ........................................................... 8,500 840,438
USX Marathon Corp. ..................................................... 22,800 607,050
Williams Co. ........................................................... 25,050 1,095,938
6,207,239
OIL SERVICE -- 0.6%
Schlumberger Ltd. ...................................................... 6,500 654,063
Haliburton Co. ......................................................... 12,000 775,495
1,429,558
PAPER PRODUCTS -- 1.6%
Kimberly Clark Corp. ................................................... 8,400 890,400
Ikon Office Solutions, Inc. ............................................ 44,000 1,815,000
International Paper Co.+ ............................................... 14,500 605,375
3,310,775
PHARMACEUTICALS -- 5.7%
American Home Products Corp. ........................................... 19,900 1,273,600
Amgen, Inc. ............................................................ 9,500 580,688
Bristol-Meyers ......................................................... 15,700 2,048,850
Lilly (Eli) & Co. ...................................................... 18,700 1,633,913
Medtronic, Inc. ........................................................ 7,700 498,575
Merck & Co., Inc. ...................................................... 28,700 2,640,400
Pfizer, Inc. ........................................................... 15,700 1,438,513
Schering Plough Corp. .................................................. 9,800 750,925
Warner Lambert Co. ..................................................... 12,700 1,066,800
11,932,264
</TABLE>

- ---------------
See Notes to Financial Statements.

46
<PAGE> 50

<TABLE>
<CAPTION>
RATINGS
S&P/MOODY'S MATURITY PRINCIPAL VALUE
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
- ------------------------------ ------------ ------ -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
COMMERCIAL PAPER -- 2.2%
Cargill ..................... AAA/Aaa* 5.35% 03/03/97 $2,000,000 $ 2,000,000
Philip Morris ............... AAA/Aaa* 5.36% 03/03/97 2,700,000 2,700,000
------------
Total Commercial Paper
(cost $4,700,000) ........... 4,700,000
------------
CORPORATE OBLIGATIONS -- 16.4%
CORPORATE BONDS -- 10.2%
Lehman Brothers ............. A/Baa1 5.75% 11/15/98 1,000,000 989,920
Ford Motor Credit ........... A+/A1 9.50% 04/15/00 2,750,000 2,966,562
General Motors .............. A-/A3 6.88% 07/15/01 2,000,000 2,002,500
Morgan Stanley .............. A+/A1+ 8.88% 10/15/01 3,800,000 4,113,500
NationsBank Credit
Transfer .................. AAA/Aaa 6.45% 04/15/03 3,500,000 3,504,563
The Money Storetrust
1996-B .................... AAA/Aaa 7.38% 05/15/17 3,500,000 3,544,040
Cook Co. .................... AAA/Aaa 5.00% 11/15/23 800,000 716,000
First Union Corp. ........... A-/A2 6.55% 10/15/35 3,600,000 3,528,000
------------
21,365,085
------------
</TABLE>

- ---------------
See Notes to Financial Statements.

47
<PAGE> 51

<TABLE>
<CAPTION>
RATINGS
S&P/MOODY'S MATURITY PRINCIPAL VALUE
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
- ------------------------------ ------------ ------ -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
MEDIUM TERM NOTES -- 6.2%
Province of Quebec+ ......... A+/A1 7.98% 04/01/99 $3,000,000 $ 3,090,000
Bank of Novia Scotia ........ A+/A1 9.00% 10/01/99 1,400,000 1,482,250
General Motors Accept
Corp. ..................... A-/A3 7.38% 04/25/00 2,000,000 2,040,000
International Lease
Finance ................... A+/A1 5.71% 02/01/00 1,600,000 1,560,000
Chrysler Financial Corp. .... A-/A3 5.63% 02/16/01 2,500,000 2,403,125
PaineWebber Group ........... BBB+/Baa1 7.02% 02/10/04 2,500,000 2,481,250
------------
13,056,625
------------
Total Corporate Obligations
(cost $34,375,810) .......... 34,421,710
------------
EUROPEAN GOVERNMENT BONDS -- 1.3%
Republic of Italy Z.C.B.+
(cost $2,689,776)............ AA/Aa3 0.00% 01/10/01 3,500,000 2,712,483
------------
2,712,483
------------
</TABLE>

<TABLE>
<CAPTION>
MATURITY PRINCIPAL VALUE
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
- ------------------------------ ------ -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS -- 8.6%
U.S. TREASURY BONDS -- 6.1%
U.S. Treasury Bond .......... 8.13%* 08/15/21 $4,500,000 $ 5,120,325
U.S. Treasury Bond .......... 10.38%* 11/15/12 6,100,000 7,766,215
------------
12,886,540
------------
U.S. TREASURY NOTES -- 2.5%
U.S. Treasury Note .......... 7.75%* 01/31/00 1,000,000 1,039,810
U.S. Treasury Note .......... 7.88%* 11/15/04 2,000,000 2,159,199
U.S. Treasury Note .......... 6.25%* 02/15/07 2,000,000 1,956,680
------------
5,155,689
------------
Total U.S. Government Obligations
(cost $18,104,061) .......... 18,042,229
------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 12.3%
Federal Home Loan Mortage
Corporation Pool #G10304... 6.50% 04/01/09 834,572 821,010
Federal Home Loan Mortage
Corporation Pool #E60891... 6.50% 07/01/10 2,990,553 2,941,957
Federal Home Loan Mortage
Corporation Pool #297505... 8.00% 06/01/17 12,091 12,458
Federal Home Loan Mortage
Corporation Pool #533301... 10.50% 04/01/19 32,105 35,516
Federal Home Loan Mortage
Corporation Pool #544066... 8.00% 12/01/19 9,681 9,950
FNCL Pool #325602............ 6.50% 10/01/10 541,479 530,311
FNCL Pool #313349............ 10.00% 01/01/27 1,435,941 1,570,113
Government National Mortage
Association Pool #146301... 10.00% 02/15/16 88,721 98,010
GNSF Pool #278853............ 9.00% 11/15/19 363,928 389,176
GNSF Pool #276635............ 9.00% 12/15/19 261,749 279,909
GNSF Pool #780330............ 9.00% 12/15/19 1,337,058 1,426,474
GNSF Pool #283578............ 8.00% 01/15/20 86,356 89,190
GNSF Pool #231236............ 9.00% 01/15/20 235,714 252,067
GNSF Pool #258039............ 9.00% 01/15/20 244,249 261,194
GNSF Pool #234214............ 8.00% 03/15/20 99,933 103,213
GNSF Pool #318567............ 8.00% 01/15/20 15,326 15,724
GNSF Pool #317275............ 8.00% 02/15/22 14,361 14,724
</TABLE>

- ---------------
See Notes to Financial Statements.

48
<PAGE> 52

<TABLE>
<CAPTION>
MATURITY PRINCIPAL VALUE
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
- ------------------------------ ------ -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- (CONTINUED)
GNSF Pool #312656............ 8.00% 02/15/22 $ 508,868 $ 521,908
GNSF Pool #316108............ 8.00% 03/15/22 469,731 481,621
GNSF Pool #316859............ 8.00% 03/15/22 733,202 751,761
GNSF Pool #311456............ 8.00% 04/15/22 583,346 598,113
GNSF Pool #321799............ 8.00% 04/15/22 432,745 443,699
GNSF Pool #323085............ 8.00% 05/15/22 930,574 954,130
GNSF Pool #373336............ 7.50% 05/15/22 712,481 714,709
GNSF Pool #373346............ 7.50% 06/15/22 831,715 834,315
GNSF Pool #388995............ 7.50% 07/15/22 848,858 851,511
GNSF Pool #389002............ 7.50% 08/15/22 663,282 665,356
GNSF Pool #342065............ 8.00% 11/15/22 354,092 362,944
GNSF Pool #295283............ 7.50% 11/15/22 971,224 974,563
GNSF Pool #780227............ 8.00% 12/15/22 194,181 198,733
GNSF Pool #350519............ 7.00% 06/15/23 17,744 17,384
GNSF Pool #326465............ 7.00% 11/15/23 1,076,065 1,054,208
GNSF Pool #369671............ 7.00% 12/15/23 2,361,236 2,313,274
GNSF Pool #371045............ 8.00% 02/15/24 284,104 291,119
FGLMC Pool #D66935........... 7.50% 01/01/26 389,133 389,499
FGLMC Pool #D66969........... 7.50% 01/01/26 855,984 857,589
FGLMC Pool #D68671........... 7.50% 02/01/26 595,875 596,434
FGLMC Pool #D69671........... 7.50% 03/01/26 33,129 33,182
FGLMC Pool #D70402........... 7.50% 03/01/26 99,467 99,592
FGLMC Pool #D69839........... 7.50% 04/01/26 475,749 476,492
FGLMC Pool #D69930........... 7.50% 04/01/26 455,003 455,714
FGLMC Pool #D70086 .......... 7.50% 04/01/26 574,719 575,617
FGLMC Pool #D71116 .......... 7.50% 05/01/26 97,413 97,565
FGLMC Pool #D71404 .......... 7.50% 05/01/26 1,263,897 1,265,873
------------
Total U.S. Government Agency
Obligations (cost
$25,725,743) ................ 25,727,901
------------
TOTAL INVESTMENTS -- 99.5%
(COST $188,453,819)(A)....... 208,708,800
Other assets in excess of
liabilities -- 0.5% ......... 1,060,303
------------
NET ASSETS -- 100.0% $209,769,103
==============
</TABLE>

- ---------------

Percentages indicated are based on net assets of $209,769,103.

(a) Represents cost for federal income tax and book purposes and differs from
value by net unrealized appreciation of securities as follows:

<TABLE>
<S> <C>
Unrealized appreciation ................................................... $22,060,999
Unrealized depreciation ................................................... (1,806,018)
-----------
Net unrealized appreciation ............................................... $20,254,981
===========
</TABLE>

Z.C.B. -- Zero Coupon Bond.

+ Foreign issuer

* Effective yield

** Non-income producing security

- ---------------
See Notes to Financial Statements.

49
<PAGE> 53

MASTER INVESTMENT TRUST, SERIES I --
ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------

Statement of Assets and Liabilities
February 28, 1997
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (cost $188,453,819)............. $208,708,800
Cash................................................................ 64,405
Receivable for investment securities sold........................... 2,411,748
Contribution receivable............................................. 228,912
Dividends receivable................................................ 253,309
Interest receivable................................................. 1,043,502
Deferred organization costs......................................... 24,235
Prepaid expenses.................................................... 3,043
------------
Total Assets.......................................................... 212,737,954
============
LIABILITIES:
Withdrawal payable.................................................. 130,746
Payable for investment securities purchased......................... 2,733,318
Advisory fees payable............................................... 21,718
Audit fees payable.................................................. 29,875
Fund accounting fees payable........................................ 21,971
Custodian fees payable.............................................. 9,722
Legal fees payable.................................................. 8,488
Administration fees payable......................................... 1,517
Other accrued expenses.............................................. 11,496
------------
Total Liabilities..................................................... 2,968,851
------------
NET ASSETS, FEBRUARY 28, 1997......................................... $209,769,103
============
</TABLE>

- ---------------
See Notes to Financial Statements.

50
<PAGE> 54

MASTER INVESTMENT TRUST, SERIES I --
ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------

Statement of Operations
For the year ended February 28, 1997
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income....................................................... $ 5,301,048
Dividend income....................................................... 2,012,465
-----------
Total Income........................................................ 7,313,513
-----------
EXPENSES:
Advisory fees......................................................... 1,046,406
Administration fees................................................... 94,685
Fund accounting fees and expenses..................................... 131,743
Audit fees............................................................ 34,173
Custodian fees and expenses........................................... 30,367
Legal fees............................................................ 18,307
Trustees' fees........................................................ 11,048
Amortization of organization costs.................................... 13,860
Other operating expenses.............................................. 17,138
-----------
Total Expenses.................................................... 1,397,727
Less: Fee waivers..................................................... (802,751)
-----------
Total Net Expenses...................................................... 594,976
-----------
NET INVESTMENT INCOME................................................... 6,718,537
-----------
NET REALIZED/UNREALIZED GAINS ON INVESTMENTS:
Net realized gains on investment transactions......................... 22,245,042
Net change in unrealized appreciation on investments.................. 4,290,246
-----------
Net realized/unrealized gains on investments............................ 26,535,288
-----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $33,253,825
===========
</TABLE>

- ---------------
See Notes to Financial Statements.

51
<PAGE> 55

MASTER INVESTMENT TRUST, SERIES I --
ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------

Statements of Changes in Net Assets
- --------------------------------------------------------------------------------

- ---------------
See Notes to Financial Statements.

52
<PAGE> 56

MASTER INVESTMENT TRUST, SERIES I --
ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------

Notes to Financial Statements
- --------------------------------------------------------------------------------

NOTE 1 -- ORGANIZATION

Master Investment Trust, Series I (the "Trust"), a Delaware business trust,
is registered under the Investment Company Act of 1940, as amended (the "Act"),
as an open-end management investment company. At February 28, 1997, the Trust
consisted of three portfolios. The accompanying financial statements and notes
are those of the Asset Allocation Portfolio (the "Portfolio") only.

The investment objective of the Portfolio is to obtain long term growth from
capital appreciation and dividend and interest income. The Portfolio seeks to
achieve its objective by actively allocating investments among the three major
asset categories: bonds, equity securities and cash equivalents.

Bank of America National Trust and Savings Association ("Bank of America"),
a subsidiary of BankAmerica Corporation, serves as the Portfolio's investment
adviser. The BISYS Group, Inc. ("BISYS"), through its wholly-owned subsidiary,
BISYS Fund Services, Limited Partnership ("BISYS Ohio") serves as the
Portfolio's administrator.

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies followed by
the Portfolio in the preparation of its financial statements. The policies are
in conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.

PORTFOLIO VALUATIONS:

Securities for which market quotations are readily available (other than
debt securities with remaining maturities of 60 days or less) are valued at the
last reported sales price on the securities exchange on which such securities
are primarily traded or at the last reported sales price on the NASDAQ National
Securities Market. Securities not listed on an exchange or the NASDAQ National
Securities Market or securities for which there were no transactions on the day
of valuation are valued at the mean of the most recent bid and ask prices. Bid
price is used when no ask price is available. The Portfolio may use an
independent pricing service, approved by the Board of Trustees, to value certain
of their securities. Such prices reflect market values which may be established
through the use of electronic data processing techniques and matrix systems.
Restricted securities and securities for which market quotations are not readily
available, if any, are valued at fair value using methods approved by the Board
of Trustees.

53
<PAGE> 57

Debt securities with remaining maturities of 60 days or less are valued at
amortized cost, which approximates market value.

SECURITIES TRANSACTIONS AND RELATED INCOME:

Securities transactions are accounted for on a trade date basis. Interest
income, including accretion of discount and amortization of premium, is accrued
daily. Dividend income is recorded on the ex-dividend date. Realized gains and
losses on securities transactions are determined on the identified cost basis.

EXPENSES:

Expenses directly attributable to a Portfolio are charged to that Portfolio,
while general Trust expenses are allocated among the respective portfolios of
the Trust.

FEDERAL INCOME TAXES:

The Portfolio will be treated as a partnership for federal income tax
purposes. As such, each investor in the Portfolio will be taxed on their share
of the Portfolio's ordinary income and capital gains. It is intended that the
Portfolio will be managed in such a way that an investor will be able to satisfy
the requirements of the Internal Revenue Code applicable to regulated investment
companies.

NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES

The Portfolio has an Investment Advisory Agreement with Bank of America and
an Administration Agreement with BISYS.

As Adviser, Bank of America is responsible for managing the investment of
the assets of the Portfolio in conformity with the stated objectives and
policies of the Portfolio. Pursuant to the terms of the Investment Advisory
Agreement, Bank of America is entitled to a fee, which is accrued daily and
payable monthly, at an annual rate of 0.55% of the average daily net assets of
the Portfolio. For the year ended February 28, 1997, Bank of America waived
$735,797 in fees as Adviser of the Portfolio.

As Administrator, BISYS assists in supervising the operations of the
Portfolio. Pursuant to the terms of the Administration Agreement, BISYS is
entitled to a fee which is accrued daily and payable monthly, at an annual rate
of 0.05% of the Portfolio's average daily net assets. For the year ended
February 28, 1997, BISYS waived $66,954 in fees as Administrator of the
Portfolio.

For services provided to all three of the portfolios constituting the Trust,
each Trustee receives an annual fee of $3,000 and a meeting fee of $500.

For the year ended February 28, 1997, the Portfolio incurred legal expenses
of $18,307, which were earned by a law firm, a partner of which serves as
Secretary of the Trust.

54
<PAGE> 58

Certain officers of the Trust are affiliated with BISYS. Such persons are
not paid directly by the Trust for serving in these capacities.

NOTE 4 -- SECURITIES TRANSACTIONS

During the year ended February 28, 1997, the Portfolio purchased and sold
portfolio securities, excluding short-term securities, in the following amounts:

<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
U.S. Government................................................... $ 50,943,913 $ 52,593,283
Other............................................................. 169,694,792 161,995,504
------------ ------------
Total............................................................. $220,638,705 $214,588,787
============ ============
</TABLE>

NOTE 5 -- CONCENTRATION OF CREDIT RISK

The Portfolio had the following concentrations by industry sector at
February 28, 1997 (as a percentage of total investments):

<TABLE>
<S> <C>
Commercial Paper.......................................................... 2.2%
Corporate Bonds........................................................... 10.3
Medium Term Notes......................................................... 6.2
Euro Bonds................................................................ 1.3
U.S. Treasury Bonds....................................................... 6.1
U.S. Treasury Notes....................................................... 2.5
U.S. Government Agency Obligations........................................ 12.4
Aerospace/Airlines........................................................ 1.0
Aluminium................................................................. 0.4
Automobiles............................................................... 1.2
Automobile Parts.......................................................... 0.1
Banks..................................................................... 3.9
Beverages................................................................. 2.1
Brokerage................................................................. 1.3
Chemicals................................................................. 1.9
Computer Software/Hardware................................................ 3.9
Cosmetics/Household Products.............................................. 2.3
Electrical Products....................................................... 2.8
Electronic Semiconductors................................................. 2.8
Electric Utilities........................................................ 0.3
Financial services........................................................ 2.9
Food...................................................................... 1.9
Gas Utilities............................................................. 1.0
Hospital Care............................................................. 1.0
Insurance -- Life......................................................... 0.4
Insurance -- Property and Casualty........................................ 1.0
Leisure................................................................... 0.8
</TABLE>

55
<PAGE> 59

<TABLE>
<S> <C>
Manufacturing -- Machinery................................................ 1.1
Media..................................................................... 0.8
Multi Industries.......................................................... 3.5
Natural Energy............................................................ 0.8
Oil -- International...................................................... 3.1
Oil Service............................................................... 0.4
Paper Products............................................................ 1.6
Pharmaceuticals........................................................... 6.0
Photography............................................................... 0.2
Railroad.................................................................. 0.7
Retail.................................................................... 1.8
Retail -- Manufacturing................................................... 0.3
Telecommunications........................................................ 1.6
Telephone................................................................. 3.0
Tobacco................................................................... 1.1
-----
100.0%
=====
</TABLE>

NOTE 6 -- PROPOSED REORGANIZATION

On October 29, 1996, the Board of Trustees of the Seafirst Retirement Funds
("Seafirst") and Board of Directors of the Pacific Horizon Funds, Inc., voted to
approve the merger of the Company with respect to the Blue Chip, Asset
Allocation and Intermediate Bond portfolios of the Pacific Horizon Funds, Inc.
Under the terms of the reorganization, the assets and liabilities of the
Seafirst Blue Chip, Seafirst Asset Allocation, and Seafirst Intermediate Bond
Funds would be exchanged for a newly formed class of shares of the Pacific
Horizon Blue Chip, Pacific Horizon Asset Allocation and Pacific Horizon
Intermediate Bond Funds, respectively, and the Seafirst Funds will be
liquidated.

Upon consummation of the merger of the Seafirst Asset Allocation Fund into
the Pacific Horizon Asset Allocation Fund the combined fund will withdraw its
investment in the Asset Allocation Portfolio and engage Bank of America to
manage its assets directly.

The reorganization is subject to shareholder approval and, if approved, is
expected to be completed by June 30, 1997.

56
<PAGE> 60

MASTER INVESTMENT TRUST SERIES I --
ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------

Supplementary Data
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FOR THE FOR THE YEAR PERIOD
YEAR ENDED YEAR ENDED ENDED ENDED
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1997 1996 1995 1994*
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Ratio of expenses to
average net assets....... 0.31% 0.26% 0.17% 0.24%**
Ratio of net investment
income to average net
assets................... 3.51% 3.87% 4.01% 3.35%**
Ratio of expenses to
average net assets (a)... 0.73% 0.73% 0.77% 0.27%**
Ratio of net investment
income to average net
assets(a)................ 3.09% 3.40% 3.41% 3.32%**
Portfolio Turnover......... 116% 157% 142% 67%
Average Commission rate
paid (b)................. $0.044 -- -- --
</TABLE>

- ---------------

<TABLE>
<C> <S>
(a) During the period, certain fees were voluntarily reduced and expenses
reimbursed. If such voluntary fee reductions and expense reimbursements had not
occurred, the ratios would have been as indicated.
(b) Represents the dollar amount of commissions paid on Portfolio transactions
divided by the total number of shares purchased and sold for which commissions
were charged.
* For the period December 6, 1993 ( commencement of operations) through February
28, 1994
** Annualized
</TABLE>

See Notes to Financial Statements.

57
<PAGE> 61

MASTER INVESTMENT TRUST, SERIES I
- --------------------------------------------------------------------------------

Report of Independent Accountants
- --------------------------------------------------------------------------------

To the Trustees
and Investors of
Master Investment Trust, Series I

In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the supplementary data present fairly, in all material
respects, the financial position of Master Investment Trust, Series I -- Asset
Allocation Portfolio (the "Portfolio") at February 28, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and its supplementary data for each of
the periods presented in conformity with generally accepted accounting
principles. These financial statements and supplementary data (hereafter
referred to as "financial statements") are the responsibility of the Portfolio's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at February 28, 1997 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.

PRICE WATERHOUSE LLP

1177 Avenue of the Americas
New York, New York
April 21, 1997

58
<PAGE> 62

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> 63
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