<PAGE> 1
PACIFIC HORIZON GROWTH & INCOME FUNDS
ANNUAL REPORT
February 28, 1998
Capital Income Fund
Asset Allocation Fund
Investing For All
The Times Of Your Life
NOT FDIC INSURED
PACIFIC HORIZON GROWTH & INCOME FUNDS
<PAGE> 2
PACIFIC HORIZON FUNDS, INC.
103 Bellevue Parkway
Wilmington, DE 19809
1-800-332-3863
INVESTMENT ADVISER
Bank of America National Trust
and Savings Association
555 California Street
San Francisco, CA 94104
ADMINISTRATOR
Bank of America National
Trust and Savings Association
555 California Street
San Francisco, CA 94104
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
Provident Distributors, Inc.
Four Falls Corporate Center
6th Floor
Conshohocken, PA 19428
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 Provident
Distributors, Inc. which is unaffiliated with the Bank of America. Bank of
America serves as investment adviser to the Funds 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.
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INVESTMENTS IN PACIFIC HORIZON FUNDS, INC. ARE NOT BANK
DEPOSITS AND ARE NOT OBLIGATIONS OF, OR GUARANTEED BY, NOT
BANK OF AMERICA OR ANY AFFILIATES. AN INVESTMENT IN FDIC
MUTUAL FUNDS INVOLVES INVESTMENT RISKS, INCLUDING THE INSURED
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
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<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 MANAGER 10-19
PACIFIC HORIZON CAPITAL INCOME
FUND
Portfolio of Investments 20-24
Statement of Assets
and Liabilities 25
Statement of Operations 26
Statements of Changes
in Net Assets 27
PACIFIC HORIZON ASSET ALLOCATION
FUND
Portfolio of Investments 28-36
Statement of Assets
and Liabilities 37
Statement of Operations 38
Statements of Changes
in Net Assets 39
NOTES TO FINANCIAL STATEMENTS 40-48
FINANCIAL HIGHLIGHTS 49-53
REPORT OF INDEPENDENT ACCOUNTANTS 54
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PACIFIC HORIZON FUND FACTS
The Pacific Horizon Family of Funds offers a variety of mutual funds with
different investment objectives to help you diversify your portfolio and meet
your investment goals. Some Funds offer greater growth potential, while others
such as the money market funds, strive to maintain a stable net asset value, but
offer no growth potential.
<TABLE>
<CAPTION>
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FUND NAME INVESTMENT OBJECTIVE
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<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(dagger) High Current Income Plus Principal
- Prime Stability
- Treasury
- Government
- Treasury Only
...........................................................................
Tax-Exempt Money Market Funds*(dagger)
- Tax-Exempt Money High Level of Federal Tax-Free Current
Income Plus Principal Stability
- California Tax-Exempt Money High Level of Federal and California
Market Tax-Free Current Income Plus Principal
Stability
</TABLE>
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* Certain investors may be subject to the federal Alternative Minimum Tax (AMT)
and to certain state and local taxes.
(dagger) There can be no assurance that the Funds will be able to maintain a
stable net asset value of $1.00 per share. Fund shares are not
insured or guaranteed by the U.S. Government.
2
<PAGE> 5
With the help of an investment professional, you can develop a strategy tailored
to meet your goals. To receive any of the Funds' prospectuses, which include
more complete information such as charges and expenses, call your Investment
Specialist or the Pacific Horizon Funds. Read the prospectus carefully before
investing or sending money.
<TABLE>
<CAPTION>
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PORTFOLIO CONSISTS PRIMARILY OF... APPROPRIATE FOR INVESTORS WHO SEEK
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<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
Preferred Stocks and capital appreciation.
...........................................................................
Stocks, Bonds and Cash Long-term growth potential and current
Equivalents income from stocks and bonds.
...........................................................................
Investment-Grade Corporate Debt High monthly income potential with
reasonable investment risk.
...........................................................................
Investment-Grade Corporate and Regular monthly income from a
U.S. Government Securities diversified portfolio of
investment-grade securities.
...........................................................................
GNMAs and Other U.S. Government High monthly income potential and low
Securities credit risk.
...........................................................................
U.S. Government and Government Monthly income and relative stability
Agency Securities of investment.
...........................................................................
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 A flexible, convenient way to manage or
U.S. Government Short-Term accumulate cash while waiting for other
Obligations 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
Obligations cash while waiting for other investment
opportunities.
</TABLE>
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3
<PAGE> 6
UNDERSTANDING YOUR SHAREHOLDER REPORT
As a mutual fund shareholder, you receive two financial reports a year that
contain important information about your investment. The Financial Statements
and Financial Highlights included in annual reports are audited by an
independent public accounting firm and cover the activity for the past fiscal
year. The independent public accountant provides an opinion letter in each
audited report. A semi-annual report is a six-month interim report that includes
financial statements that are generally not audited by an independent public
accounting firm.
This guide will help you extract the information from
the report.
The TABLE OF CONTENTS helps
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.
[GRAPHICS] 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.
[GRAPHICS]
4
<PAGE> 7
The financial statements summarize and describe the Fund's financial
transactions. They are broken down into four different statements, which are
illustrated below:
The PORTFOLIO OF INVESTMENTS lists each investment holding in the Fund as of the
date of the report. Investments may be grouped by category (by industry or
security type, for example). The percentage of the Fund's net assets represented
by these groupings is also disclosed.
TYPE OF SECURITY
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
[GRAPHICS]
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
[GRAPHICS]
5
<PAGE> 8
The STATEMENT OF OPERATIONS shows the amount of dividend and interest income
earned from the Fund's investments, the expenses incurred by the Fund from its
operations and any gains or losses realized and not yet realized by the Fund
from holding and/or selling any investments.
ANY INCOME EARNED FROM THE FUND'S INVESTMENTS
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
[GRAPHICS]
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
[GRAPHICS]
The NOTES TO FINANCIAL STATEMENTS are footnotes to the statements listed above.
These notes include information on accounting methods used by the Fund,
contractual arrangements between the Fund and its service providers, certain
transactions effected by the Fund and other general information about the Fund.
The FINANCIAL HIGHLIGHTS shows, for a single share outstanding throughout each
period presented, the net investment income, the realized and unrealized gains
and losses and the dividends and distributions of the Fund. It also shows key
data and ratios, such as the total investment return for each period, the
portfolio turnover rate for Funds other than money market mutual funds, the
ratio of expenses to average net assets and the ratio of net investment income
to average net assets.
6
<PAGE> 9
[This page intentionally left blank.]
7
<PAGE> 10
ECONOMIC REVIEW
FROM THE INVESTMENT ADVISER
Fourth quarter Gross Domestic Product was reported at a 3.7% annualized rate,
with inflation continuing to be non-existent and a positive factor for the
economy and the domestic financial markets. Changes in consumer prices are
negligible and producer prices are actually declining. Historically high
consumer confidence, resulting from strong job growth, wage gains and the
positive wealth effect created by the buoyant stock market, has created solid
income growth and has fueled the robust housing market in the first quarter of
1998. Consumers have been the primary beneficiaries of the turmoil in the Asian
markets. Lower bond yields, a by-product of the Asian financial crisis, have
resulted in lower mortgages payments for households looking to buy a home.
THE CASE FOR
STOCKS AND BONDS
The Standard & Poor's Stock Index posted a total return of 35.1%** during the 12
month period ended February 28, 1998, amply rewarding long-term investors who
rode out volatility that accompanied the Asian financial crisis. The best
performers were concentrated among shares of large company stocks, which
significantly outpaced shares of smaller firms.
Companies have been issuing reduced earnings forecasts at an increasing rate.
Despite the early warnings, the reduced earnings expectations have not put a
damper on the stock market. The bullish sentiment for low inflation and
continuing strong profits for 1998 are propelling the stock markets to new
highs. The Dow*** has gained 8.4% during the first two months of the year,
significantly higher than expected. Overall, the U.S. economy seems poised for
continued moderate growth, which is good news for stocks. We think it is
reasonable to expect P/E ratios to stay at current levels of 22 times 1998
earnings. That gives an estimated market return over the next 12 months of 9%
(7.8% from earnings growth and 1.2% from dividend yield).
Fixed income investors remain optimistic due to the lack of price pressures, the
strong dollar and the expectation of an Asia-led slowdown in the U.S. Interest
rates on Treasuries have fallen across the yield curve over the last twelve
months and are currently below 6%, the lowest level in 25 years. The finance
sector has been outperforming expectations as of late, which has a lot to do
with the wave of colossal merger and acquisition activity sweeping across
financial institutions.
The prospects for a government budget surplus in fiscal 1998 are growing. Some
economists are predicting as much as a $50 billion surplus due to large tax
revenues as well as efforts to reduce government spending. These revenue flows
will serve to reduce immediate government financing needs. Already, we have seen
cuts in the size of Treasury auctions so far this year.
POTENTIAL RISKS
The Asian financial crisis, which began in the third quarter of 1997, is
expected to modestly impact U.S. domestic growth. As expected, trade between
U.S. and Asian trade partners has sharply deteriorated, with the current account
deficit widening to its highest level in ten years. The deficit widened to
$166.5 billion in 1997, up from $148.2 billion for 1996. The largest threat to
the U.S. economy, according to The Organization for Economic Cooperation and
Development (OECD), would be a second round of currency devaluations in Asia. It
could happen again if Japan fails to jumpstart its economy.
While the final outcome of the Asian financial crisis remains unclear, the
initial predictions of a global financial crisis have not been supported by the
evidence.
8
<PAGE> 11
With the Asian crisis potentially constraining corporate profitability in the
second or third quarter, we expect that growth will slow during the remainder of
the year.
Tame inflation continues to be the theme du jour as the Consumer Price Index's
1.4% increase over the past 12 months is the second lowest reading in 33 years,
outdone only by the collapse in oil prices in 1986. The lack of inflationary
pressures and the uncertainty surrounding the Asian financial crisis have kept
the Federal Reserve from raising interest rates. The Fed funds rate has remained
at 5.50% since last March. However, the labor market is stretched and wage
pressures are intensifying. So far, increased productivity has compensated for
wage increases; however, recent significant increases in real asset values, such
as housing and land, have not gone unnoticed by Chairman Greenspan and may play
a factor in determining monetary policy over the coming months.
LOOKING FORWARD
It is now a widely accepted view that the U.S. economy is growing at a faster
pace early in 1998 than analysts had projected last year at the height of the
Asian turmoil. Although the preliminary GDP figure will not be released until
the end of April, the early estimate for the first quarter lies somewhere
between 3.5 - 4.0%. In order to reach the projected 1998 growth rate of 2.8%*,
U.S. growth will have to sustain a considerable slowdown in the latter part of
the year to compensate for the strengths it is exhibiting now.
Looking forward, there are a lot of crosscurrents in the U.S. corporate earnings
picture. Ironically, the impact from the Asian financial crisis so far have been
positive, with lower interest rates boosting the economy. In the first quarter,
currency and oil earnings will be negative factors, but stronger economic growth
will offset any weaknesses. In the second and third quarters, we expect the
impact from Asia should be mitigated by strong growth in Europe. We continue to
believe that the economic impact from Asia will be moderate with the U.S.
economy slowing, but sustaining a near normal growth rate of 2.8% in 1998. Given
these projections, we expect equities and fixed income securities to perform
well in 1998, although below 1997 levels.
Sincerely,
/s/ Kirk Hartman
Kirk Hartman
Chief Investment Officer of
Fixed Income Management
- ---------------
* Source: Bloomberg, 1998.
** Source: Bloomberg, 1998. 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 Dow Jones Industrial Average is a price-weighted average of 30 actively
traded blue chip stocks and cannot be invested in directly.
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, 1998:
Over $393 million
Q
HOW DID THE FUND PERFORM DURING THE 12 MONTHS ENDED FEBRUARY 28, 1998?
A
The Fund performed quite well during the past 12 months, with A Shares
posting a return of 21.54%* (without the sales charge), as compared to 18.63%**
for the CS First Boston Index. K Shares had a total return of 20.97% for the
same 12 months.
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 a strong year again, with the Standard & Poor's 500
Stock Index returning over 33% for the twelve months ended 2/28/98.** This
strong stock market helped the return of convertible securities. In addition,
interest rates went down during the year, which positively affected the
financial markets.
Q
HOW DID YOU MANAGE THE FUND IN THAT ENVIRONMENT?
A
The Fund continues to have a large weighting in the Finance sector, as more
mergers and consolidations are anticipated. The Health Care sector is
overweighted because of the favorable demographics, and because earnings will be
up in a period when they are generally lower. The Fund is underweighted in
Basics because an increase in the inflation rate is not expected.
Q
DID THE FUND CONTINUE TO HOLD COMMON STOCKS AS WELL AS CON-
VERTIBLES?
A
Yes. The Fund has reduced its stock holdings to lower its equity
sensitivity. Currently, common stocks make up only about 5% of the Fund.***
10
<PAGE> 13
Q
WHAT IS YOUR OUTLOOK FOR CONVERTIBLES GOING FORWARD?
A
It is expected that gains in earnings will be a little harder to come by
this year, so a more defensive approach is being taken in the selection
process. The plan is to continue to employ the same strategy with a more
defensive approach, due to the recent run-up in the stock and convertibles
markets.
- ---------------
* 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 16.07%
for the period. The Fund is currently waiving 12b-1 fees. This voluntary
waiver may be modified or terminated at any time, which would reduce the
Fund's performance.
** Source: Ibbotson Associates, 1998. 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 performance data quoted represents past performance and is not an indication
of future results. The investment return and Net Asset Value will fluctuate so
that an investor's shares when redeemed, may be worth more or less than their
original cost.
11
<PAGE> 14
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, 1998:
Over $247 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, 1998?
A
For the 12 months ended February 28, 1998, the Fund had total returns of
23.07%* and 22.10%* for A shares (without the sales charge) and K shares,
respectively. The Fund uses two benchmarks, the Standard & Poor's 500 Stock
Index and the Lehman Brothers Aggregate Bond Index, which returned 35.1% and
10.4%, respectively.**
Q
HOW DID YOU ALLOCATE THE FUND'S PORTFOLIO AMONG STOCKS, BONDS AND CASH
DURING THE RECENT 12 MONTHS?
A
The Fund seeks to determine relative values among three major asset
categories -- equities, bonds and cash equivalents -- and weights the portfolio
accordingly. Early in the year, we felt that stocks and bonds would outperform
cash and consequently changed our target normal asset allocation by increasing
equities from 55% to 56%, bonds from 40% to 42% and by decreasing cash from 5%
to 2%.
12
<PAGE> 15
This remained our target mix throughout the year and strong portfolio equity
performance caused us to rebalance the portfolio on three occasions in order to
return to our targets. Our weightings as of the period ended February 28, 1998
were 58% stocks, 40% bonds, and 2% cash.***
Q
HOW DID YOU MANAGE THE STOCK PORTION OF THE PORTFOLIO?
A
Within the stock component of the Fund, we looked for companies with market
capitalization above $1 billion with favorable future earnings prospects and
reasonable valuation levels relative to their expected growth rates.
Among portfolio stocks, strong per-
formance for the Fund included Pfizer (1.1% of net assets as of February 28,
1998), General Electric (2.5% of net assets as of February 28, 1998), American
Express (0.9% of net assets as of February 28, 1998) and Monsanto (0.5% of net
assets as of February 28, 1998.
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. In keeping with our philosophy for managing
fixed income assets, we managed this portfolio to be duration neutral to have
roughly the same average maturity as the Index. To enhance its yield, the Fund
increased its exposure to lower quality and shorter maturity corporate issues.
The mortgage holdings in the portfolio were held roughly neutral to the holdings
of the Index. Early in the year we added to our position in seasoned mortgage
securities, and, as mortgages became cheap or expensive, we opportunistically
added or sold positions to enhance returns.
Q
WHAT IS YOUR OUTLOOK FOR THE ECONOMY AND THE FUND?
A
Our analysis of the economic environment over the past year continued to
point to an economy that was in an expansion phase, which we also forecast for
1998. As soon as it became clear in early January that events in Southeast Asia
were not derailing the U.S. economy or corporate profits, the market shrugged
off the fears and uncertainty of the fourth quarter and has made almost daily
new highs.
- ---------------
* 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 17.55%
for the period. The Fund is currently waiving a portion of the advisory,
administrative and/or shareholder servicing fees. 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, 1998. The composition of the Fund's holdings is subject to
change.
The performance data quoted represents past performance and is not an indication
of future results. The investment return and Net Asset Value will fluctuate so
that an investor's shares when redeemed, may be worth more or less than their
original cost.
13
<PAGE> 16
PACIFIC HORIZON
CAPITAL INCOME FUND
(AS OF FEBRUARY 28, 1998)
GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)
<TABLE>
<CAPTION>
MEASUREMENT LIPPER
PERIOD CONVERTIBLE
(FISCAL SECURITIES
YEAR FUNDS CS FIRST
COVERED) A SHARES K SHARES AVERAGE BOSTON
<S> <C> <C> <C> <C>
2/29/88 9550 10000 10000 10000
2/28/89 10855 11370 10949 11024
2/28/90 12985 13601 11759 11680
2/28/91 14306 14985 12657 12380
2/29/92 18056 18913 15692 15233
2/28/93 21778 22812 17848 17565
2/28/94 26536 27795 20882 20375
2/28/95 25046 26235 20310 19812
2/29/96 31549 33046 24999 24531
2/28/97 37395 39044 28489 27093
2/28/98 45452 47232 33995 32139
</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
February 29, 1988, would now be worth
$45,452 for A Shares. The same
investment made in the CS First Boston
Index, would now be worth $32,139.
Correspondingly, a $10,000 investment
in K Shares for the same period would
now be worth $47,232*.
<TABLE>
<CAPTION> -----------------------------------------------
CAPITAL INCOME FUND
AVERAGE ANNUAL RETURN
-------------------------------------------------
A SHARES K SHARES*
Without With
Sales Sales
Charge Charge
-------------------------------------------------
<S> <C> <C> <C>
1 Year 21.54% 16.07% 20.97%
...............................................
5 Year 15.85% 14.79% 15.67%
...............................................
10 year 16.89% 16.35% 16.79%
------------------------------------------------
</TABLE>
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 same
$10,000 investment made in the Lipper Convertible Securities Funds Average would
now be worth $33,995.
FEDERAL INCOME TAX STATUS OF DIVIDENDS (UNAUDITED)
The Pacific Horizon Capital Income Fund distributed a total Capital Gain
Dividend of $2.945538 for the year ended February 28, 1998. Of this total
Capital Gain Dividend amount, the Fund made a 28 percent rate distribution of
$0.860511 and a 20 percent rate distribution of $0.395595.
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.
14
<PAGE> 17
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 prior to such date. 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 on an ongoing .75%
distribution or administrative services fee (of which .25% are currently being
waived), which would 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.
15
<PAGE> 18
PACIFIC HORIZON
CAPITAL INCOME FUND
(AS OF FEBRUARY 28, 1998)
BALANCE
Two Advantages
The Pacific Horizon Capital Income
Convertible Fund provides investors with the
Bonds opportunity to receive regular
70% or More Steady Income quarterly income while participating
Equity Participation Stream Provides in the upside potential of the
in Rising Market Stability in underlying equity securities.
Declining Historically, holders of convertible
Market and securities have enjoyed about 70
Capital Gain percent of the appreciation of
in Rising stocks.* Investors seeking growth
Bond Market and income will appreciate the
Provide opportunities to invest in the
Opportunity for Pacific Horizon Capital Income Fund.
(bullet) Capital Gains Of course, past performance is not
(bullet) Steady Income Stream reflective of future results.
(bullet) Lower Volatility
*Source: Investment Advisor, March
1993.
------------------------------------------------------------------------------
The Pacific Horizon Capital Income
PORTFOLIO COMPOSITION* Fund is professionally managed and
CONVERTIBLE BONDS 60.7 maintains at least a 65 percent
CONVERTIBLE PRE- position in convertible securities.
FERRED STOCKS 33.1 In order to increase performance,
COMMON STOCKS 5.1 the Fund also invests in common and
CASH & CASH preferred stocks, cash and cash
EQUIVALENTS 1.1 equivalents that the adviser
believes to be of high quality.
<TABLE>
<CAPTION>
TOP TEN HOLDINGS AS OF
FEBRUARY 28, 1998*
----------------------------------------------------
PERCENT OF
COMPANY NET ASSETS
----------------------------------------------------
<S> <C>
American Bankers Insurance Group,
Inc. Series B 1.74%
......................................................
CUC International, Inc. 144A 1.70%
......................................................
Protection One Alarm Monitoring, Inc. 1.63%
......................................................
Rite Aid Corp. 1.56%
......................................................
Home Depot, Inc. 1.53%
......................................................
Sovereign Bancorp, Inc. Series B 1.48%
......................................................
Abonanson, H.F. & Co. 1.45%
......................................................
Golden State Bancorp, Series A 1.44%
......................................................
Spries Corp. 1.41%
......................................................
Alza Corp. 1.41%
------------------------------------------------------
TOTAL 15.35%
------------------------------------------------------
* The composition of the Fund's holdings is subject
to change.
</TABLE>
16
<PAGE> 19
PACIFIC HORIZON
ASSET ALLOCATION FUND
(AS OF FEBRUARY 28, 1998)
GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)
<TABLE>
<CAPTION>
MEASUREMENT
PERIOD LEHMAN
(FISCAL LIPPER BROTHERS LIPPER
YEAR FLEXIBLE AGGREGATE BALANCED
COVERED) A SHARES K SHARES FUNDS BOND INDEX S&P 500 FUNDS
<S> <C> <C> <C> <C> <C> <C>
1/10/94 10000 10000 10000 10000 10000 10000
2/28/94 9446 9891 9477 9826 10000 9901
2/28/95 9921 10389 10103 10001 10444 10039
2/29/96 12183 12757 12354 11224 14058 12334
2/28/97 14332 15010 14126 11824 17741 14133
2/28/98 17638 18316 17129 13050 23950 17146
</TABLE>
HOW PERFORMANCE COMPARES
We have changed the Fund benchmark
index from the Lipper Flexible Funds
Average to the Lipper Balanced Funds
Average which more closely resembles
the composition of the Fund and, we
believe, is a more appropriate
benchmark for the Fund holdings. In
order to complete the transition to
the new benchmark, we are providing a
hypothetical comparison to the Fund's
performance since January 18, 1994
with both its former benchmark and its
new benchmark, the Lipper Balanced
Funds Average.
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 $17,638 for
A Shares. The same investment made in the Lipper Balanced Funds Average would
now be worth $17,146. Correspondingly, a $10,000 investment in K Shares for the
same period would now be worth $18,316.*
<TABLE>
<CAPTION>
-------------------------------------------------
ASSET ALLOCATION FUND
AVERAGE ANNUAL RETURN
-------------------------------------------------
A SHARES K SHARES*
Without With
Sales Sales
Charge Charge
-------------------------------------------------
<S> <C> <C> <C>
1 Year 23.07% 17.55% 22.10%
...............................................
3 Year 21.14% 19.31% 20.80%
...............................................
Since
Incep-
tion 16.07% 14.78% 15.83%
(1/18/94)
------------------------------------------------
</TABLE>
17
<PAGE> 20
FEDERAL INCOME TAX STATUS OF DIVIDENDS (UNAUDITED)
The Pacific Horizon Asset Allocation Fund distributed a total Capital Gain
Dividend of $1.758483 for the year ended February 28, 1998. Of this total
Capital Gain Dividend amount, the Fund made a 28 percent rate distribution of
$0.534818 and a 20 percent rate distribution of $0.325801.
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 prior to such date. 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
on 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 Balanced 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.
18
<PAGE> 21
PACIFIC HORIZON
ASSET ALLOCATION FUND
(AS OF FEBRUARY 28, 1998) [GRAPHICS]
PORTFOLIO
A Market-Driven Process COMPOSITION*
The Fund's adviser seeks to Common Stocks 57.9
determine relative values among Cash & Equivalents 2.0
stocks, bonds and cash equivalents Bonds 40.1
and weights the portfolio --------
accordingly. * The composition of the Fund's holdings
The Fund's adviser looks for the is subject to change.
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
SHIFTING THE ASSET MIX from capital appreciation as well as
dividend and interest income through
a balanced approach to investing
Stocks provide Bonds provide using bonds, stocks and cash
growth steady equivalents. Investors can make one
opportunity income simple investment and their money
will be spread over a variety of
Cash 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.
19
<PAGE> 22
PACIFIC HORIZON CAPITAL INCOME FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- ------- ------------
<S> <C> <C>
COMMON STOCKS -- 5.1%
BASICS -- 1.3%
W.R. Grace & Co............................................. 60,000 $ 5,036,250
------------
CONSUMER CYCLICALS -- 1.3%
Nordstrom, Inc.............................................. 88,300 5,063,453
------------
CONSUMER STAPLES -- 1.3%
McDonald's Corp............................................. 90,000 4,927,500
------------
FINANCE -- 1.2%
Fleet Financial Group, Inc.................................. 60,000 4,728,750
------------
Total Common Stocks (Cost $17,137,062)...................... 19,755,953
------------
CONVERTIBLE PREFERRED STOCKS -- 33.1%
BASICS -- 2.9%
Cyprus AMAX Minerals, Series A, $4.00....................... 19,950 992,512
Freeport -- Mcmoran, Inc., $1.75............................ 125,000 2,625,000
International Paper Co., $2.62.............................. 85,000 4,356,250
Timet Capital, Trust I, Series D, $3.31..................... 70,000 3,535,000
------------
11,508,762
------------
CAPITAL GOODS -- 2.5%
Elsag Bailey Corp., $2.75................................... 108,000 4,144,500
McDermott International, Inc., Series C, 144A, $2.88........ 87,000 4,926,375
McDermott, Inc., Series A, $2.20............................ 20,000 802,500
------------
9,873,375
------------
CONSUMER CYCLICALS --5.3%
Fleetwood Capital Trust 144A, $3.00......................... 84,600 4,959,675
Houston Industries, Inc., $3.22............................. 75,000 4,640,625
K-mart Financing, Inc., $3.88............................... 48,875 2,737,000
Owens Corning Capital LLC 144A, $3.25....................... 72,000 3,483,000
TCI Communications, Series A, $2.13......................... 75,000 5,118,750
------------
20,939,050
------------
CONSUMER STAPLES -- 1.7%
AJL PEPS Trust $1.44........................................ 212,200 2,625,975
Ralston Purina Co., $4.34................................... 65,000 4,176,250
------------
6,802,225
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
20
<PAGE> 23
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- ------- ------------
<S> <C> <C>
CONVERTIBLE PREFERRED STOCKS -- (CONTINUED)
ENERGY -- 3.9%
EVI Inc., 144A*, $2.50...................................... 87,000 $ 4,045,500
MCN Energy Group, $2.01..................................... 112,500 3,628,125
MCN Energy Group, Income PRIDES, $4.00...................... 14,300 847,275
Occidental Petroleum Corp., $3.00........................... 40,000 2,960,000
Unocal Corp., $3.13......................................... 66,960 3,707,910
------------
15,188,810
------------
FINANCE -- 10.4%
Ahmanson, H.F. & Co., $3.00................................. 45,000 5,810,625
American Bankers Insurance Group, Inc., Series B, $3.13..... 60,000 6,855,000
Frontier Financing Trust, Inc., $3.13....................... 19,000 1,144,750
Frontier Financing Trust, Inc., 144A*, $3.13................ 50,000 3,012,500
Golden State Bancorp, Series A, $2.19....................... 66,000 5,684,250
Penncorp Financial Group, Inc., 144A, $3.50................. 75,000 4,246,875
Protective Life Corp., $3.25................................ 73,300 4,562,925
Sovereign Bancorp, Inc., Series B, $3.13.................... 50,000 5,825,000
St. Paul Capital LLC, Series M, $3.00....................... 50,000 3,831,250
------------
40,973,175
------------
HEALTH CARE -- 0.6%
Medpartners, Inc., $1.44.................................... 162,400 2,324,350
------------
TECHNOLOGY -- 1.2%
Microsoft Corp., Series A, $2.20............................ 50,000 4,637,500
------------
UTILITIES -- 4.6%
Airtouch Communications, Inc., Series C, $2.13.............. 80,000 5,380,000
CalEnergy Capital Trust, 144A*, $3.13....................... 70,000 3,176,250
Citizens Utilities Company, $2.50........................... 85,000 4,058,750
Sprint Corp., $2.63......................................... 101,000 5,555,000
------------
18,170,000
------------
Total Convertible Preferred Stocks (Cost $112,096,189)............... 130,417,247
------------
</TABLE>
<TABLE>
<CAPTION>
MATURITY PRINCIPAL
RATE DATE AMOUNT
---- -------- -----------
<S> <C> <C> <C> <C>
CONVERTIBLE BONDS -- 60.7%
BASICS -- 2.0%
Agnico Eagle Mines, Ltd................. 3.50% 01/27/04 $ 6,350,000 3,786,187
Coeur D'Alene Mines Corp. 144A.......... 7.25% 10/31/05 4,400,000 3,916,000
------------
7,702,187
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
21
<PAGE> 24
<TABLE>
<CAPTION>
MATURITY PRINCIPAL VALUE
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
----------- ---- -------- ----------- ------------
<S> <C> <C> <C> <C>
CONVERTIBLE BONDS -- (CONTINUED)
CAPITAL GOODS -- 4.8%
Mark IV Industries, Inc. 144A*.......... 4.75% 11/01/04 $ 3,000,000 $ 2,853,750
Thermo Electron Corp. 144A.............. 4.25% 01/01/03 3,300,000 3,931,125
U.S. Filter Corp........................ 4.50% 12/15/01 3,500,000 3,850,000
USA Waste Services, Inc................. 4.00% 02/01/02 4,725,000 5,209,312
WMX Technologies, Inc................... 2.00% 01/24/05 4,000,000 3,240,000
------------
19,084,187
------------
CONSUMER CYCLICALS -- 16.6%
CUC International, Inc. 144A*........... 3.00% 02/15/02 5,000,000 6,687,500
Family Golf Centers, Inc. 144A*......... 5.75% 10/15/04 4,400,000 4,867,500
Hilton Hotels Corp...................... 5.00% 05/15/06 4,180,000 4,441,250
Home Depot, Inc......................... 3.25% 10/01/01 4,100,000 6,027,000
Magna International, Inc. 144A.......... 4.88% 02/15/05 4,100,000 4,182,000
Nine West Group, Inc. 144A*............. 5.50% 07/15/03 4,400,000 3,646,500
Omnicom Group, Inc. 144A................ 2.25% 01/06/13 4,400,000 4,911,500
Pep Boys, Inc........................... 4.46%(dagger) 09/20/11 8,800,000 4,928,000
Personnel Group of America, Inc.,
144A*................................. 5.75% 07/01/04 3,500,000 4,655,000
Protection One Alarm Monitoring, Inc.... 6.75% 09/15/03 5,155,000 6,424,419
Rite Aid Corp. 144A..................... 5.25% 09/15/02 5,300,000 6,154,625
Saks Holdings, Inc...................... 5.50% 09/15/06 4,500,000 4,179,375
Tower Automotive, Inc. 144A*............ 5.00% 08/01/04 4,000,000 4,410,000
------------
65,514,669
------------
ENERGY -- 5.0%
Halter Marine Group, Inc. 144A*......... 4.50% 09/15/04 4,000,000 3,720,000
Key Energy Group, Inc. 144A*............ 5.00% 09/15/04 4,100,000 3,423,500
Loews Corporation....................... 3.13% 09/15/07 4,500,000 4,365,000
Parker Drilling Corp.................... 5.50% 08/01/04 3,800,000 3,952,000
Seacor Holdings, Inc.................... 5.38% 11/15/06 1,300,000 1,413,750
Seacor Holdings, Inc. 144A*............. 5.38% 11/15/06 2,700,000 2,936,250
------------
19,810,500
------------
FINANCIAL SERVICES -- 5.1%
Bank Atlantic Bancorp, Inc.............. 5.63% 12/01/07 4,400,000 4,994,000
Berkshire Hathaway, Inc................. 1.00% 12/02/01 3,200,000 5,340,000
Penn Treaty American Corp............... 6.25% 12/01/03 890,000 1,123,625
Penn Treaty American Corp............... 6.25% 12/01/03 3,310,000 4,178,875
USF & G Corp............................ 2.71%(dagger) 03/03/09 6,000,000 4,545,000
------------
20,181,500
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
22
<PAGE> 25
<TABLE>
<CAPTION>
MATURITY PRINCIPAL VALUE
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
----------- ---- -------- ----------- ------------
<S> <C> <C> <C> <C>
CONVERTIBLE BONDS -- (CONTINUED)
HEALTH CARE -- 11.6%
Alza Corp............................... 4.06%(dagger) 07/14/14 $10,000,000 $ 5,162,500
Alza Corp............................... 5.00% 05/01/06 4,800,000 5,544,000
Atria Communities, Inc. 144A............ 5.00% 10/15/02 4,400,000 4,867,500
Carematrix Corp. 144A*.................. 6.25% 08/15/04 4,500,000 4,668,750
Centocor, Inc. 144A..................... 4.75% 02/15/05 2,620,000 2,659,300
Dura Pharmaceuticals, Inc............... 3.50% 07/15/02 4,200,000 3,622,500
NCS Healthcare, Inc. 144A*.............. 5.75% 08/15/04 4,310,000 4,633,250
Phycor, Inc............................. 4.50% 02/15/03 4,500,000 4,218,750
Roche Holdings, Inc. Notes 144A......... 4.14%(dagger) 04/20/10 5,000,000 3,050,000
Roche Holdings, Inc. Notes 144A......... 4.89%(dagger) 05/06/12 9,000,000 4,556,250
Tenet Healthcare Corp................... 6.00% 12/01/05 3,000,000 2,767,500
------------
45,750,300
------------
HEALTHCARE SERVICES -- 6.4%
Alternative Living Services............. 5.25% 12/15/02 3,935,000 4,840,050
American Retirement Corp................ 5.75% 10/01/02 4,200,000 4,583,250
ARV Assisted Living, Inc................ 6.75% 04/01/06 4,765,000 4,330,194
FPA Medical Management 144A*............ 6.50% 12/15/01 2,875,000 3,054,688
Omnicare, Inc. 144A*.................... 5.00% 12/01/07 4,400,000 5,076,500
Sunrise Assisted Living Inc. 144A*...... 5.50% 06/15/02 2,430,000 3,137,738
------------
25,022,420
------------
TECHNOLOGY -- 7.5%
Adaptec, Inc............................ 4.75% 02/01/04 500,000 445,000
Adaptec, Inc. 144A*..................... 4.75% 02/01/04 2,775,000 2,469,750
Atmel Corp. 144A, 3.25%, due 6/1/02;
8.25%, beginning 6/1/00 (double dagger) 3.25% 06/01/02 4,100,000 3,582,375
Itron, Inc.............................. 6.75% 03/31/04 900,000 990,000
Itron, Inc. 144A*....................... 6.75% 03/31/04 3,000,000 3,300,000
Kent Electronics Corp................... 4.50% 09/01/04 5,075,000 4,237,625
Motorola, Inc. LYON..................... 1.80%(dagger) 09/27/13 3,350,000 2,520,875
Photronics Inc.......................... 6.00% 06/01/04 2,600,000 3,331,250
Solectron Corp. 144A.................... 6.00% 03/01/06 2,700,000 4,201,875
Xilinx, Inc. 144A....................... 5.25% 11/01/02 4,000,000 4,270,000
------------
29,348,750
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
23
<PAGE> 26
<TABLE>
<CAPTION>
MATURITY PRINCIPAL VALUE
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
----------- ---- -------- ----------- ------------
<S> <C> <C> <C> <C>
CONVERTIBLE BONDS -- (CONTINUED)
UTILITIES -- 1.7%
Bell Atlantic Financial Services 144A... 5.75% 04/01/03 $ 2,170,000 $ 2,243,238
U.S. Cellular, Corp. LYON............... 5.81%(dagger) 06/15/15 12,000,000 4,440,000
------------
6,683,238
------------
Total Convertible Bonds (Cost
$224,986,736)......................... 239,097,751
------------
TOTAL INVESTMENTS -- 98.9% (COST
$354,219,987)(a)...................... 389,270,951
OTHER ASSETS IN EXCESS OF LIABILITIES --
1.1%.................................. 4,400,069
------------
NET ASSETS -- 100.0%.................... $393,671,020
============
</TABLE>
- ---------------
Percentages indicated are based on net assets of $393,671,020.
(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.............................. $47,484,918
Unrealized depreciation.............................. (12,433,954)
-----------
Net unrealized appreciation.......................... $35,050,964
===========
144A -- Security was purchased pursuant to Rule 144A under the
Securities Act of 1933 and may not be resold subject to that
rule except to qualified institutional buyers. At the end of
the period, these securities amounted to 17.8% of net
assets.
* 144A Security registration under the Securities Act of 1933
will occur for this security upon sale of this security.
(dagger) Rate shown is the effective yield at year end date.
(double dagger) Step-up Bond.
LYON -- Liquid Yield Option Note: Callable, zero coupon securities
priced at a deep discount from par. They include a "put"
feature that enables holders to redeem them at a specific
date, at a specific price. Put prices reflect fixed interest
rates and therefore increase over time.
PRIDES -- Preferred Redeemable Increased Dividend Securities.
PEPS -- Premium Exchangeable Participating Shares -- each PEP is
exchangeable for 1.25 American Depository Shares of Amway
Japan on 2/15/99.
</TABLE>
See Notes to Financial Statements.
24
<PAGE> 27
PACIFIC HORIZON CAPITAL INCOME FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (cost $354,219,987).... $389,270,951
Cash....................................................... 2,703,263
Interest and dividends receivable.......................... 2,849,766
Receivable for capital shares sold......................... 558,713
Receivable for investment securities sold.................. 795,987
Other assets............................................... 42,436
------------
Total Assets................................................ 396,221,116
------------
LIABILITIES:
Payable for capital shares redeemed........................ 944,692
Payable for investment securities purchased................ 1,085,000
Investment advisory fees payable........................... 134,320
Administration fees payable................................ 59,893
Shareholder service fees payable (A Shares)................ 74,363
Shareholder service fees payable (K Shares)................ 481
Distribution fees payable (K Shares)....................... 5,691
Transfer agent fees payable................................ 139,050
Legal fees payable......................................... 3,937
Other accrued expenses..................................... 84,016
Other liabilities.......................................... 18,653
------------
Total Liabilities........................................... 2,550,096
------------
NET ASSETS.................................................. $393,671,020
============
Net Assets:
A Shares................................................... $391,142,965
K Shares................................................... 2,528,055
------------
Total....................................................... $393,671,020
============
Shares Outstanding ($0.001 par value, 200 million shares
authorized):
A Shares................................................... 22,641,045
K Shares................................................... 146,670
------------
Total....................................................... 22,787,715
============
NET ASSET VALUE
A Shares -- Net asset value and redemption price per
share.................................................... $ 17.28
============
Maximum Sales Charge (A Shares)............................ 4.50%
Maximum Offering Price per share (A Shares)
(Net Asset Value of A Shares/(100% -- Maximum Sales
Charge))............................................... $ 18.09
============
K Shares -- Net asset value, offering and redemption price
per share................................................ $ 17.24
============
COMPOSITION OF NET ASSETS:
Shares of common stock, at par............................. $ 22,788
Additional paid-in capital................................. 352,605,530
Accumulated undistributed net investment income............ 2,096,055
Accumulated net realized gains on investment
transactions............................................. 3,895,683
Net unrealized appreciation on investments................. 35,050,964
------------
NET ASSETS, FEBRUARY 28, 1998............................... $393,671,020
============
</TABLE>
- ---------------
See Notes to Financial Statements.
25
<PAGE> 28
PACIFIC HORIZON CAPITAL INCOME FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the year ended February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends................................................. $ 6,157,082
Interest.................................................. 10,060,025
-----------
Total Income............................................ 16,217,107
-----------
EXPENSES:
Investment advisory fees.................................. 1,637,658
Administration fees....................................... 727,852
Shareholder service fees (A Shares)....................... 905,435
Shareholder service fees (K Shares)....................... 4,372
Distribution fees (K Shares).............................. 13,115
Custodian and fund accounting fees........................ 84,824
Transfer agent fees....................................... 475,299
Legal fees................................................ 16,238
Other expenses............................................ 216,271
-----------
Total Expenses.......................................... 4,081,064
Less: Fee waivers......................................... (4,372)
Expenses paid by third parties........................ (44,448)
-----------
Total Net Expenses.......................................... 4,032,244
-----------
NET INVESTMENT INCOME....................................... 12,184,863
-----------
NET REALIZED/UNREALIZED GAINS ON INVESTMENTS:
Net realized gain on investment transactions.............. 40,172,797
Net change in unrealized appreciation on investments...... 15,462,278
-----------
Net realized/unrealized gains on investments.............. 55,635,075
-----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $67,819,938
===========
</TABLE>
- ---------------
See Notes to Financial Statements.
26
<PAGE> 29
PACIFIC HORIZON CAPITAL INCOME FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------
FEBRUARY 28, FEBRUARY 28,
1998 1997
------------ ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income................................ $ 12,184,863 $ 9,227,095
Net realized gains on investment transactions........ 40,172,797 48,284,940
Net change in unrealized appreciation on
investments........................................ 15,462,278 (10,670,170)
------------ ------------
Change in net assets resulting from operations......... 67,819,938 46,841,865
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
A Shares........................................... (11,941,341) (9,043,759)
K Shares........................................... (44,897) (2,046)(a)
Net realized gains from investment transactions:
A Shares........................................... (58,050,678) (22,450,057)
K Shares........................................... (294,934) (15,970)(a)
------------ ------------
Change in net assets from shareholder distributions.... (70,331,850) (31,511,832)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued.......................... 95,805,004 76,079,488
Dividends reinvested................................. 65,580,717 30,042,288
Cost of shares redeemed.............................. (75,563,249) (57,837,148)
------------ ------------
Change in net assets from capital share transactions... 85,822,472 48,284,628
------------ ------------
Change in net assets................................... 83,310,560 63,614,661
NET ASSETS
Beginning of Year.................................... 310,360,460 246,745,799
------------ ------------
End of Year (including undistributed net investment
income of $2,096,055 and $1,897,430,
respectively)...................................... $393,671,020 $310,360,460
============ ============
</TABLE>
- ---------------
(a) Period from July 22, 1996 (inception date) to February 28, 1997.
See Notes to Financial Statements.
27
<PAGE> 30
PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- ------ ------------
<S> <C> <C>
COMMON STOCKS -- 57.9%
AEROSPACE/AIRLINES -- 0.9%
AMR Corporation**......................................... 4,500 $ 569,531
Boeing Co................................................. 19,200 1,041,600
FDX Corporation**......................................... 10,960 698,015
------------
2,309,146
------------
AUTOMOBILES -- 0.7%
Ford Motor Co............................................. 12,700 718,344
General Motors Corp....................................... 15,700 1,082,319
------------
1,800,663
------------
BANKS -- 5.4%
Banc One Corp............................................. 55,990 3,163,435
Chase Manhattan Corp...................................... 16,000 1,985,000
Citicorp.................................................. 25,500 3,378,750
U.S.Bancorp............................................... 21,200 2,439,325
Wells Fargo & Co.......................................... 7,600 2,447,200
------------
13,413,710
------------
BEVERAGES -- 1.4%
Coca-Cola Co.............................................. 33,400 2,294,162
PepsiCo, Inc.............................................. 37,200 1,360,125
------------
3,654,287
------------
BUILDING MATERIALS -- 0.3%
Masco Corp................................................ 14,800 804,750
------------
CHEMICALS -- 1.5%
E.I. Du Pont de Nemours & Co.............................. 14,700 901,294
Monsanto Corp............................................. 26,000 1,322,750
Praxair, Inc.............................................. 5,500 262,969
W.R. Grace & Co........................................... 13,500 1,133,156
------------
3,620,169
------------
COMPUTER SOFTWARE/HARDWARE -- 5.0%
First Data Corp........................................... 54,300 1,846,200
Hewlett-Packard Co........................................ 25,100 1,681,700
IBM....................................................... 21,700 2,266,294
</TABLE>
- ---------------
See Notes to Financial Statements.
28
<PAGE> 31
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- ------ ------------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
COMPUTER SOFTWARE/HARDWARE -- (CONTINUED)
Microsoft Corp.**......................................... 67,400 $ 5,712,150
Seagate Technology, Inc.**................................ 32,800 797,450
------------
12,303,794
------------
CONTAINERS & PACKAGING -- 0.1%
Bemis Co., Inc............................................ 6,300 283,894
------------
COSMETICS/HOUSEHOLD PRODUCTS -- 2.4%
Gillette Co............................................... 15,100 1,628,912
Kimberly-Clark Corp....................................... 24,300 1,353,206
Newell Co................................................. 14,200 651,425
Procter & Gamble Co....................................... 26,200 2,225,362
------------
5,858,905
------------
ELECTRIC UTILITIES -- 0.9%
Duke Energy Co............................................ 23,200 1,289,050
GPU, Inc.................................................. 25,700 1,032,819
------------
2,321,869
------------
ELECTRONIC PRODUCTS -- 2.5%
General Electric Co....................................... 81,200 6,313,300
------------
ELECTRONIC SEMICONDUCTORS -- 1.2%
Intel Corp................................................ 19,200 1,722,000
National Semiconductor Corp.**............................ 53,700 1,282,088
------------
3,004,088
------------
FINANCIAL SERVICES -- 3.5%
American Express.......................................... 24,300 2,188,519
Equifax, Inc.............................................. 27,400 984,687
Household International, Inc.............................. 17,200 2,233,850
Morgan Stanley Group, Inc................................. 20,100 1,400,719
Providian Financial Corporation........................... 32,600 1,850,050
------------
8,657,825
------------
FOOD -- 1.2%
Archer Daniels Midland Co................................. 38,600 866,087
Ralston Purina Group...................................... 15,100 1,531,706
Sara Lee Corp............................................. 9,900 559,350
------------
2,957,143
------------
FOOD CHAINS -- 0.2%
Albertson's, Inc.......................................... 12,000 561,750
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
29
<PAGE> 32
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- ------ ------------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
GAS UTILITIES -- 0.3%
Columbia Energy Group, Inc................................ 11,100 $ 847,069
------------
HOSPITAL CARE -- 1.3%
Baxter International, Inc................................. 15,100 855,038
Boston Scientific Corp.**................................. 21,600 1,290,600
Johnson & Johnson Co...................................... 13,500 1,019,250
------------
3,164,888
------------
HOTEL & MOTELS -- 0.3%
Hilton Hotels Corp........................................ 10,600 316,012
Starwood Hotels & Resorts................................. 7,532 426,029
------------
742,041
------------
INSURANCE-PROPERTY & CASUALTY -- 0.7%
Progressive Corp.......................................... 14,000 1,622,250
------------
LEISURE -- 0.7%
Disney (Walt) Co.......................................... 12,400 1,388,025
Mattel, Inc............................................... 7,700 325,806
------------
1,713,831
------------
MANUFACTURING -- MACHINERY -- 0.6%
Illinois Tool Works, Inc.................................. 22,900 1,372,569
------------
MEDIA -- 1.1%
ACNielsen Corp.**......................................... 1 25
Gannett, Inc.............................................. 5,200 335,725
McGraw Hill Companies..................................... 4,900 370,562
Meredith Corp............................................. 6,600 283,387
Time Warner, Inc.......................................... 12,300 830,250
Tribune Co................................................ 12,700 819,944
------------
2,639,893
------------
MULTI-INDUSTRY -- 3.0%
Cendant Corp.**........................................... 55,030 2,063,625
Dover Corp................................................ 41,200 1,591,350
Ikon Office Solutions, Inc................................ 36,900 1,206,169
Tyco International Ltd.................................... 49,400 2,507,050
------------
7,368,194
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
30
<PAGE> 33
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- ------ ------------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
NATURAL ENERGY -- 1.0%
Coastal Corp.............................................. 16,100 $ 1,024,362
Williams Cos., Inc........................................ 42,600 1,392,488
------------
2,416,850
------------
OIL DOMESTIC & CRUDE -- 0.6%
Pennzoil Co............................................... 10,600 709,537
USX -- Marathon Group..................................... 19,500 673,969
------------
1,383,506
------------
OIL INTERNATIONAL -- 2.0%
Chevron Corp.............................................. 9,900 803,138
Exxon Corp................................................ 36,500 2,331,438
Mobil Corp................................................ 14,900 1,079,319
Texaco, Inc............................................... 14,500 809,281
------------
5,023,176
------------
OIL SERVICE -- 0.6%
Halliburton Co............................................ 10,700 497,550
Schlumberger, Ltd......................................... 6,500 489,937
Western Atlas, Inc.**..................................... 7,700 584,719
------------
1,572,206
------------
PAPER PRODUCTS -- 0.3%
Champion International Corp............................... 7,700 393,181
International Paper Co.................................... 7,600 354,350
------------
747,531
------------
PHARMACEUTICALS -- 7.5%
Bristol-Meyers Squibb Co.................................. 29,500 2,955,531
Lilly, (Eli) & Co......................................... 27,800 1,829,588
Medtronic, Inc............................................ 22,300 1,184,688
Merck & Co., Inc.......................................... 48,000 6,123,000
Pfizer, Inc............................................... 30,800 2,725,800
Schering-Plough Corp...................................... 16,800 1,277,850
Warner Lambert Co......................................... 16,400 2,398,500
------------
18,494,957
------------
PHOTOGRAPHY -- 0.1%
Eastman Kodak Co.......................................... 4,200 275,625
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
31
<PAGE> 34
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- ------ ------------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
RAILROADS -- 0.4%
Burlington Northern Santa Fe.............................. 5,900 $ 587,788
Union Pacific Corp........................................ 6,100 311,100
------------
898,888
------------
RESTAURANTS -- 0.7%
McDonald's Corp........................................... 21,100 1,155,225
Sysco Corp................................................ 12,700 597,694
------------
1,752,919
------------
RETAIL -- 2.2%
CVS Corp.................................................. 13,000 962,812
Home Depot, Inc........................................... 21,200 1,352,825
Nordstrom, Inc............................................ 19,200 1,101,000
Wal-Mart Stores, Inc...................................... 44,800 2,074,800
------------
5,491,437
------------
RETAIL MANUFACTURING -- 0.7%
Costco Companies, Inc.**.................................. 14,200 694,025
Dayton Hudson Corp........................................ 13,600 1,051,450
------------
1,745,475
------------
TELECOMMUNICATIONS -- 2.6%
3 Com Corp.**............................................. 38,900 1,390,675
Cisco Systems, Inc.**..................................... 44,850 2,954,494
Lucent Technologies, Inc.................................. 18,400 1,994,100
------------
6,339,269
------------
TELEPHONE -- 3.0%
AT&T Corp................................................. 27,300 1,661,888
Bell Atlantic Corp........................................ 14,500 1,301,375
GTE Corp.................................................. 27,800 1,504,675
MCI Communications Corp................................... 50,600 2,419,313
Sprint Corp............................................... 8,300 547,800
------------
7,435,051
------------
TOBACCO -- 1.0%
Philip Morris Cos., Inc................................... 59,100 2,567,156
------------
Total Common Stocks (Cost $104,458,793)..................... 143,480,074
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
32
<PAGE> 35
<TABLE>
<CAPTION>
RATINGS
S&P/MOODY'S MATURITY PRINCIPAL VALUE
(UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ------ -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CORPORATE OBLIGATIONS -- 16.1%
CORPORATE BONDS -- 14.0%
AESOP Funding II Series
1997-1, Class A1......... AAA/Aaa 6.220% 10/20/01 $1,000,000 $1,006,366
AON Corp................... AA-/A3 7.400% 10/01/02 1,000,000 1,046,250
Capital One Bank........... BBB-/Baa3 7.000% 04/30/01 1,400,000 1,419,250
Citibank Credit Card Master
Trust, ZCB............... AAA/Aaa 0.000% 02/07/03 3,500,000 2,878,106
Citibank Credit Card Master
Trust I, ZCB............. AAA/Aaa 0.000% 08/15/06 2,000,000 1,341,832
Enron Corp................. BBB+/Baa2 6.450% 11/15/01 1,100,000 1,109,625
Federated Department
Stores................... BBB-/Baa2 8.125% 10/15/02 1,000,000 1,072,500
Finova Capital Corp........ A-/Baa1 6.625% 09/15/01 2,200,000 2,227,500
First Union Corp........... A-/A2 6.550% 10/15/05 3,600,000 3,685,500
Ford Motor Credit Co....... A+/A1 5.750% 01/25/01 2,500,000 2,484,375
General Growth Properties,
Series 1, Class A2,
144A(double dagger)...... NR/Aaa 6.602% 11/15/07 1,600,000 1,634,116
General Motors Acceptance
Corp..................... A-/A3 7.125% 05/01/01 2,000,000 2,055,000
General Motors Acceptance
Corp..................... A-/A3 6.875% 07/15/01 2,000,000 2,042,500
James River Corp........... BBB-/Baa3 8.375% 11/15/01 1,250,000 1,335,938
PSE & G Capital Corp....... BBB/Baa2 6.740% 10/23/01 1,100,000 1,112,375
Sears Roebuck Acceptance
Corp..................... A-/A2 7.000% 06/15/07 1,500,000 1,554,375
TCI Communications Inc..... BBB/Ba1 6.375% 09/15/99 950,000 951,188
The Money Store Home Equity
Trust, Series
1996 -- B................ AAA/Aaa 7.380% 05/15/17 3,500,000 3,571,148
Time Warner, Inc........... BBB-/Ba1 7.950% 02/01/00 1,200,000 1,245,000
Williams Cos., Inc......... BBB-/Baa2 6.125% 02/01/01 1,000,000 998,750
----------
34,771,694
----------
MEDIUM TERM NOTES -- 2.1%
Banco Latinoamericano,
144A..................... NR/Baa2 6.590% 10/16/01 1,400,000 1,393,000
Bear Stearns & Co.......... A/A2 6.125% 02/01/03 1,100,000 1,086,250
</TABLE>
- ---------------
See Notes to Financial Statements.
33
<PAGE> 36
<TABLE>
<CAPTION>
RATINGS
S&P/MOODY'S MATURITY PRINCIPAL VALUE
(UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ------ -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CORPORATE OBLIGATIONS -- (CONTINUED)
MEDIUM TERM NOTES -- (CONTINUED)
Korea Development Bank..... BB+/Ba1 7.125% 09/17/01 $ 1,550,000 $ 1,439,563
Paine Webber Group, Inc.... BBB+/Baa1 7.015% 02/10/04 1,250,000 1,278,125
-----------
5,196,938
-----------
Total Corporate Obligations (Cost $39,433,070)................................... 39,968,632
-----------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 18.2%
Federal Home Loan Mortgage
Corp. Pool #297505...... 8.000% 06/01/17 9,082 9,593
Federal Home Loan Mortgage
Corp. Pool #533301...... 10.500% 04/01/19 18,764 20,641
Federal Home Loan Mortgage
Corp. Pool #544066...... 8.000% 12/01/19 7,775 8,184
Federal National Mortgage
Association Pool #1997-
M5 Cl-C................. 6.740% 08/25/07 2,000,000 2,036,620
FGLMC Pool #D66935........ 7.500% 01/01/26 305,429 314,019
FGLMC Pool #D66969........ 7.500% 01/01/26 735,224 756,361
FGLMC Pool #D68671........ 7.500% 02/01/26 528,148 543,002
FGLMC Pool #D69671........ 7.500% 03/01/26 27,416 28,196
FGLMC Pool #D69839........ 7.500% 04/01/26 455,663 468,621
FGLMC Pool #D69930........ 7.500% 04/01/26 382,236 393,106
FGLMC Pool #D70086........ 7.500% 04/01/26 507,491 521,923
FGLMC Pool #D70402........ 7.500% 03/01/26 93,310 96,080
FGLMC Pool #D71116........ 7.500% 05/01/26 96,290 98,998
FGLMC Pool #D71404........ 7.500% 05/01/26 1,156,727 1,189,621
FHLMC Pool #E60891........ 6.500% 07/01/10 2,728,208 2,750,374
FHLMC Pool #G10304........ 6.500% 04/01/09 714,797 717,701
FNCI Pool #400028......... 6.500% 02/01/13 3,000,000 3,010,313
FNCL Pool #251116......... 8.000% 08/01/27 6,677,014 6,921,142
FNCL Pool #313349......... 10.000% 01/01/27 1,109,983 1,204,678
FNCL Pool #325602......... 6.500% 10/01/10 421,022 424,048
GNMA Pool #146301......... 10.000% 02/15/16 62,957 69,115
GNMA Pool #187160......... 7.000% 03/01/28 10,500,000 10,618,125
GNSF Pool #231236......... 9.000% 01/15/20 232,624 253,269
GNSF Pool #234214......... 8.000% 03/15/20 97,921 102,879
GNSF Pool #258039......... 9.000% 01/15/20 179,566 195,502
GNSF Pool #276635......... 9.000% 10/15/19 208,872 227,409
GNSF Pool #278853......... 9.000% 11/15/19 301,987 328,788
GNSF Pool #283578......... 8.000% 01/15/20 64,353 67,611
GNSF Pool #295283......... 7.500% 11/15/22 704,265 727,374
GNSF Pool #311456......... 8.000% 04/15/22 462,647 483,610
</TABLE>
- ---------------
See Notes to Financial Statements.
34
<PAGE> 37
<TABLE>
<CAPTION>
MATURITY PRINCIPAL VALUE
RATE DATE AMOUNT (NOTE 2)
------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- (CONTINUED)
GNSF Pool #312656......... 8.000% 02/15/22 $ 345,837 $ 361,832
GNSF Pool #316108......... 8.000% 03/15/22 392,371 410,396
GNSF Pool #316859......... 8.000% 03/15/22 686,448 717,767
GNSF Pool #317275......... 8.000% 02/15/22 12,443 13,015
GNSF Pool #318567......... 8.000% 01/15/22 13,644 14,279
GNSF Pool #321799......... 8.000% 04/15/22 378,404 395,550
GNSF Pool #323085......... 8.000% 05/15/22 778,828 814,118
GNSF Pool #326465......... 7.000% 11/15/23 966,375 981,777
GNSF Pool #342065......... 8.000% 11/15/22 298,631 311,509
GNSF Pool #350519......... 7.000% 06/15/23 17,460 17,744
GNSF Pool #369671......... 7.000% 12/15/23 2,030,952 2,063,320
GNSF Pool #371045......... 8.000% 02/15/24 232,488 242,151
GNSF Pool #373336......... 7.500% 05/15/22 609,550 628,789
GNSF Pool #373346......... 7.500% 06/15/22 677,934 699,332
GNSF Pool #388995......... 7.500% 07/15/22 797,372 822,539
GNSF Pool #389002......... 7.500% 08/15/22 608,161 627,356
GNSF Pool #780227......... 8.000% 12/15/22 164,554 171,188
GNSF Pool #780330......... 9.000% 12/15/19 1,048,306 1,136,101
----------
Total U.S. Government Agency Obligations (Cost $44,344,593)................ 45,015,666
----------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 0.5%
Vendee Mortgage Trust,
Series 1998-1, Class 2,
Interest Only Obligation
(Cost $1,222,827)....... 0.455% 02/15/28 53,505,678 1,230,631
----------
CERTIFICATES OF DEPOSIT -- YANKEE -- 0.7%
BHP Finance(dagger) (Cost
$1,553,415)............. 6.420% 03/01/26 1,600,000 1,626,000
----------
U.S. GOVERNMENT OBLIGATIONS -- 5.3%
U.S. TREASURY BONDS -- 3.3%
U.S. Treasury Bond........ 8.125% 08/15/21 6,000,000 7,571,879
U.S. Treasury Bond........ 6.375% 08/15/27 500,000 529,750
----------
8,101,629
----------
U.S. TREASURY STRIPS -- 2.0%
U.S. Treasury Strips*..... 6.050%* 02/15/13 5,900,000 2,433,926
U.S. Treasury Strips*..... 6.180%* 08/15/23 12,000,000 2,645,279
----------
5,079,205
----------
Total U.S. Treasury Obligations (Cost $12,444,249)......................... 13,180,834
----------
</TABLE>
- ---------------
See Notes to Financial Statements.
35
<PAGE> 38
<TABLE>
<CAPTION>
VALUE
SHARES NOTES
--------- ------------
<S> <C> <C>
TEMPORARY INVESTMENTS -- 5.4%
Temporary Investment Cash Fund.......................... 6,747,969 $ 6,747,969
Temporary Investment Fund............................... 6,747,969 6,747,969
------------
Total Temporary Investments (Cost $13,495,939)............ 13,495,938
------------
TOTAL INVESTMENTS -- 104.1% (COST $216,952,886)(A)........ 257,997,775
LIABILITIES IN EXCESS OF OTHER ASSETS -- (4.1%)........... (10,199,247)
------------
NET ASSETS -- 100.0%...................................... $247,798,528
============
</TABLE>
- ---------------
Percentages indicated are based on net assets of $247,798,528.
(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.............................. $43,391,541
Unrealized depreciation.............................. $(2,346,652)
-----------
Net unrealized appreciation.......................... $41,044,889
===========
</TABLE>
144A -- Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may not be resold subject to that rule except to qualified
institutional buyers. At the end of the period, these securities
amounted to 1.2% of net assets.
FGLMC -- Federal Home Loan Mortgage Corporation -- Gold.
FHLMC -- Federal Home Loan Mortgage Corporation.
FNCI -- Federal National Mortgage Association -- 15 Year Fixed.
FNCL -- Federal National Mortgage Association -- 30 Year Fixed.
GNMA -- Government National Mortgage Association.
GNSF -- Government National Mortgage Association -- 30 Year Fixed.
ZCB -- Zero Coupon Bond.
NR -- Not Rated.
* Effective Yield.
** Non-income producing security.
(dagger) Foreign Issuer.
(double dagger) Private Placement Security.
See Notes to Financial Statements.
36
<PAGE> 39
PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (cost $216,952,886)..... $257,997,775
Interest and dividends receivable.......................... 1,144,638
Receivable for capital shares sold......................... 283,099
Receivable for investment securities sold.................. 1,316,492
Prepaid expenses........................................... 898
------------
Total Assets................................................ 260,742,902
------------
LIABILITIES:
Payable for capital shares redeemed........................ 399,083
Payable for investment securities purchased................ 12,219,945
Investment advisory fees payable........................... 74,915
Administration fees payable................................ 57,532
Shareholder service fees payable (A Shares)................ 9,262
Shareholder service fees payable (K Shares)................ 309
Shareholder service fees payable (SRF Shares).............. 37,603
Audit fees payable......................................... 35,301
Distribution fees payable (K Shares)....................... 990
Transfer agent fees payable................................ 10,516
Other accrued expenses..................................... 98,918
------------
Total Liabilities........................................... 12,944,374
------------
NET ASSETS.................................................. $247,798,528
============
Net Assets:
A Shares................................................... $ 49,239,679
K Shares................................................... 1,666,565
SRF Shares................................................. 196,892,284
------------
Total....................................................... $247,798,528
============
Shares Outstanding ($0.001 par value, 400 million shares
authorized):
A Shares................................................... 2,299,985
K Shares................................................... 78,014
SRF Shares................................................. 11,841,110
------------
Total....................................................... 14,219,109
============
NET ASSET VALUE
A Shares -- Net asset value and redemption price per
share.................................................... $ 21.41
============
Maximum Sales Charge (A Shares)............................ 4.50%
Maximum Offering Price per share (A Shares) (Net Asset
Value of A Shares/(100% -- Maximum Sales Charge))...... $ 22.42
============
K Shares -- Net asset value, offering price and redemption
price per share.......................................... $ 21.36
============
SRF Shares -- Net asset value, offering price and
redemption price per share............................... $ 16.63
============
COMPOSITION OF NET ASSETS:
Shares of common stock, at par............................. $ 1,422
Additional paid-in capital................................. 201,307,487
Accumulated undistributed net investment income............ 951,491
Accumulated net realized gains on investment
transactions............................................. 4,493,239
Net unrealized appreciation on investments................. 41,044,889
------------
NET ASSETS, FEBRUARY 28, 1998............................... $247,798,528
============
</TABLE>
37
<PAGE> 40
PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the year ended February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Investment Income from Master Investment Trust, Series
I -- Asset Allocation Portfolio (a):
Interest income.......................................... $ 337,434
Dividend income.......................................... 98,956
-----------
436,390
-----------
Expenses................................................... 30,161
Less: Fee waivers and expense reimbursements............... (15,096)
-----------
15,065
-----------
Net Investment Income from Master Investment Trust, Series
I -- Asset Allocation Portfolio............................ 421,325
Interest income............................................ 4,684,847
Dividend income............................................ 1,210,143
-----------
Total Income................................................ 6,316,315
-----------
EXPENSES:
Investment advisory fees................................... 650,191
Administration fees........................................ 258,691
Administrative and Shareholder service fees (K Shares)..... 2,466
Shareholder service fees (A Shares)........................ 103,328
Shareholder service fees (SRF Shares) (b).................. 325,357
Distribution fees (K Shares)............................... 4,923
Accounting fees............................................ 85,965
Custodian fees............................................. 33,250
Transfer agent fees........................................ 65,521
Registration fees.......................................... 39,214
Reports to shareholders.................................... 81,963
Amortization of organization costs......................... 13,826
Audit fees................................................. 10,199
Legal fees................................................. 1,537
Directors' fees............................................ 11,159
Other expenses............................................. 3,250
-----------
Total Expenses........................................... 1,690,840
Less: Fee waivers and expense reimbursements............... (31,996)
-----------
Total Net Expenses.......................................... 1,658,844
-----------
NET INVESTMENT INCOME....................................... 4,657,471
-----------
REALIZED/UNREALIZED GAINS ON INVESTMENTS (A):
Net realized gains on investment transactions.............. 16,121,025
Net change in unrealized appreciation on investments....... 10,917,084
-----------
Net realized/unrealized gains on investments............... 27,038,109
-----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $31,695,580
===========
</TABLE>
- ---------------
(a) On June 23, 1997, the Fund withdrew its investments in Master Investment
Trust Series I and engaged Bank of America to manage its investments
directly.
(b) SRF Shares were first issued on June 23, 1997.
See Notes to Financial Statements.
38
<PAGE> 41
PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------
FEBRUARY 28, FEBRUARY 28,
1998 1997
------------ ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income.............................. $ 4,657,471 $ 712,729
Net realized gain on investment transactions....... 16,121,025 2,440,559
Net change in unrealized appreciation on
investments...................................... 10,917,084 1,517,990
------------ ------------
Change in net assets resulting from operations....... 31,695,580 4,671,278
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
A Shares......................................... (948,423) (682,373)
K Shares......................................... (16,758) (3,691)(a)
SRF Shares (b)................................... (2,815,255) --
Net realized gains from investment transactions
A Shares......................................... (3,507,686) (998,763)
K Shares......................................... (82,265) (15,739)(a)
SRF Shares (b)................................... (9,820,897) --
------------ ------------
Change in net assets from shareholder
distributions...................................... (17,191,284) (1,700,566)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued........................ 208,437,645 15,869,326
Dividends reinvested............................... 16,979,819 1,651,877
Cost of shares redeemed............................ (27,709,016) (7,260,804)
------------ ------------
Change in net assets from capital share
transactions....................................... 197,708,448 10,260,399
------------ ------------
Change in net assets................................. 212,212,744 13,231,111
NET ASSETS
Beginning of Year.................................. 35,585,784 22,354,673
------------ ------------
End of Year (including undistributed net investment
income of $951,491 and $137,447,
respectively.)................................... $247,798,528 $ 35,585,784
============ ============
</TABLE>
- ---------------
(a) Period from July 22, 1996 (inception date) to February 28, 1997.
(b) Period from June 23, 1997 (inception date) to February 28, 1998.
See Notes to Financial Statements.
39
<PAGE> 42
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 -- GENERAL
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, 1998, 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".
On June 23, 1997 the Seafirst Asset Allocation Fund was reorganized with the
Asset Allocation Fund in a tax free reorganization. Pursuant to the terms of the
reorganization, the Seafirst Asset Allocation Fund transferred all of its assets
and liabilities, including $27,278,341 unrealized appreciation, to the Asset
Allocation Fund in exchange for SRF Shares of the Asset Allocation Fund. In
connection with the reorganization, the Seafirst Asset Allocation Fund's
shareholders received 11,715,709 SRF shares of the Asset Allocation Fund (valued
at $185,025,928). The aggregate net assets of the Asset Allocation Fund and the
Seafirst Asset Allocation Fund immediately before the reorganization were
$40,269,960 and $185,025,928, respectively. Immediately following the
reorganization the net assets of the Asset Allocation Fund were $225,295,888. As
a result of this reorganization the Asset Allocation Fund began issuing three
classes of shares, A shares, K shares (effective July 22, 1996) and SRF shares.
The Capital Income Fund offers A Shares and effective July 22, 1996, began
offering K Shares. A Shares and SRF 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 obtain long term
growth from capital appreciation, dividend and interest income. The Asset
Allocation Fund seeks to achieve its objective by actively allocating
investments among the three major asset categories, bonds, equity securities and
cash equivalents.
Prior to June 23, 1997, the Asset Allocation Fund sought to achieve its
investment objective by investing substantially all of its assets in the Asset
40
<PAGE> 43
Allocation Portfolio of Master Investment Trust Series I, which had the same
investment objective as that of the Asset Allocation Fund. Effective June 23,
1997, the Asset Allocation Fund withdrew its investment in the Asset Allocation
Portfolio and began investing its assets directly in securities.
Bank of America National Trust and Savings Association ("Bank of America"),
a subsidiary of BankAmerica Corporation, serves as the Funds' investment
adviser. On September 15, 1997, Bank of America assumed the responsibility of
administrator for each of the Funds pursuant to the terms of an Administration
Agreement between the Company and Bank of America (the "Administration
Agreement"). Prior to September 15, 1997, The BISYS Group, Inc. ("BISYS")
through its wholly-owned subsidiary, BISYS Fund Services, Limited Partnership,
served as the Funds' Administrator.
Bank of America has entered into an agreement with PFPC Inc. ("PFPC"), an
indirect wholly-owned subsidiary of PNC Bank Corp., pursuant to which PFPC has
agreed to provide certain sub-administration services to the Funds, including,
but not limited to, assisting in the developing and monitoring of compliance
procedures, participating in periodic updating of the Funds' prospectuses and
statements of additional information, providing periodic reports to the
Company's Board and providing certain record-keeping services. Bank of America
will bear all fees and expenses charged by PFPC for such services.
Furthermore, pursuant to authority granted in the Administration Agreement,
Bank of America has entered into an agreement with PFPC under which PFPC has
agreed to provide certain accounting, bookkeeping, pricing and dividend and
distribution calculation services for the Funds. The Funds bear all fees and
expenses charged by PFPC for these services.
In addition, pursuant to authority granted in the Administration Agreement,
Bank of America has entered into an agreement with The Bank of New York ("BONY")
under which BONY has agreed to provide certain accounting, bookkeeping, pricing
and dividend and distribution calculation services for the Funds. The Funds bear
all fees and expenses charged by BONY for these services.
DISTRIBUTOR AND TRANSFER AGENT
Effective September 15, 1997, Provident Distributors, Inc. ("PDI"), assumed
responsibility as principal underwriter and distributor of shares of the Fund.
Prior to such date, Concord Financial Group Inc. (the "Former Distributor") also
a wholly-owned subsidiary of BISYS served as distributor of the Funds.
Additionally on October 24, 1997, PFPC assumed responsibility as the Fund's
transfer
41
<PAGE> 44
agent and dividend disbursing agent. BISYS Fund Services, Inc. ("BISYS Ohio")
also a wholly-owned subsidiary of BISYS, served the Funds in such capacity prior
to such date.
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. These 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.
PORTFOLIO VALUATIONS:
The Funds value 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.
SECURITIES TRANSACTIONS AND RELATED INCOME/EXPENSES:
The Funds record 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.
Prior to June 23, 1997, the Asset Allocation Fund recorded 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 were allocated daily to investors in
the
42
<PAGE> 45
Portfolio based upon the value of their investments in the Portfolio. Such
investments were adjusted on a daily basis.
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.
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.
43
<PAGE> 46
As of February 28, 1998, the following reclassifications have been made to
increase (decrease) such accounts primarily due to paydown adjustments for tax
purposes:
<TABLE>
<CAPTION>
ACCUMULATED
ACCUMULATED NET REALIZED
UNDISTRIBUTED GAIN/(LOSS)
NET INVESTMENT ON
INCOME INVESTMENTS
-------------- ------------
<S> <C> <C>
Asset Allocation Fund............................... $(62,991) $62,991
</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.
NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
The Funds have an Investment Advisory Agreement and an Administration
Agreement with Bank of America. Pursuant to the terms of the Investment Advisory
Agreement, Bank of America is entitled to a fee from the Funds, which is accrued
daily and payable monthly, at an annual rate of 0.45% and 0.40% of the Capital
Income Fund and the Asset Allocation Fund, respectively, of average daily net
assets. Pursuant to the terms of the Administration Agreement, Bank of America
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. During the period March 1, 1997 through
September 15, 1997, the Funds had an Administration Agreement with BISYS.
Pursuant to the terms of the former administration agreement, BISYS was entitled
to the same fee in effect under the current Administration agreement for
administrative services provided. For the period ended September 15, 1997, BISYS
agreed to waive $17,413 of its fee as Administrator for the Asset Allocation
Fund.
For the year ended February 28, 1998, PDI and the Former Distributor advised
the Funds that it retained $86,359 and $10,024 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 $563,216 and $80,281 from commissions earned on sales of shares of
the Capital Income Fund and Asset Allocation Fund, respectively.
44
<PAGE> 47
The Funds have a Shareholder Services Plan (the "Plan") under which each
Fund paid to PDI and the Former 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, 1998, the Capital
Income Fund and Asset Allocation Fund incurred charges of $905,435 and $103,328,
respectively, pursuant to the Plan. The Funds were advised that of these
amounts, PDI and the Former Distributor retained $54,546 and $3,724 from the
Capital Income Fund and Asset Allocation Fund, respectively, and affiliates of
Bank of America retained $772,752 and $86,340, respectively. For the same
period, shareholder services fees of $2,708 were waived by the Asset Allocation
Fund. The Plan provides that if, in any month, the fees paid to PDI and the
Former Distributor are less than the costs incurred by PDI and the Former
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 PDI and the Former
Distributor for expenses primarily intended to result in the sale of the Funds'
K Shares. Under the Distribution Plan, payments by the Funds for 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
paid for expenses incurred in connection with shareholder services provided by
PDI and the Former 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 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 year ended February 28, 1998, PDI and the Former
Distributor received fees of $17,487 and $7,389 for the Capital Income Fund and
Asset Allocation Fund, respectively, pursuant to Distribution and Administrative
Plans. The Funds were advised that of these amounts PDI and the Former
Distributor retained $2,122, and $1,393 from the Capital Income Fund and Asset
Allocation Fund and affiliates of Bank of America retained $990 from the Capital
Income Fund. For the same period, shareholder services fees of $4,372 and $59
were waived by the Capital Income Fund and Asset Allocation Fund, respectively.
45
<PAGE> 48
The Asset Allocation Fund has a Shareholder Services Plan under which the
Fund paid PDI and the Former Distributor for shareholder servicing expenses
incurred in connection with the SRF shares. Under the Plan, payments for
shareholder servicing expenses may not exceed 0.25% of the Fund's average daily
net assets for SRF shares. For the year ended February 28, 1998, Asset
Allocation Fund incurred charges of $325,357, pursuant to the Plan. The Fund was
advised that of this amount the affiliates of Bank of America retained $313,527.
For the same period, shareholder services fees of $11,816 were waived by The
Asset Allocation Fund.
From the period October 24, 1997 through February 28, 1998, PFPC earned
$175,304 and $11,481 from the Capital Income Fund and Asset Allocation Fund,
respectively, for transfer agency and dividend disbursing agency services
performed. BISYS Ohio served the Funds as transfer agent and dividend disbursing
agent through October 24, 1997. In these capacities, BISYS Ohio earned $299,995
and $54,040 from the Capital Income Fund and Asset Allocation Fund,
respectively, for the period ended October 24, 1997.
For the year ended February 28, 1998, the Capital Income Fund and Asset
Allocation Fund incurred legal charges totaling $16,238 and $1,537,
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 PFPC. 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 $50,000,
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 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 will
receive an additional 10% of their annual Director's retainer for each year of
service between years six and nine, plus one half of the difference between 100%
and the director's applica-
46
<PAGE> 49
ble percentage. A Director who dies or resigns after ten 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 after February 28, 1994; however a director in office on March 18,
1998 who either resigns in good standing or dies before completing five years of
service as a director shall be assigned an Applicable Percentage of 50 percent.
Aggregate costs pursuant to the Retirement Plan amounted to $1,988 and $1,663
for the Capital Income Fund and Asset Allocation Fund, respectively, for the
year ended February 28, 1998. A director who comes into office after March 18,
1998 is ineligible to participate in the Retirement Plan.
NOTE 5 -- SECURITIES TRANSACTIONS
For the year ended February 28, 1998, the cost of purchases and the proceeds
from sales of Capital Income Fund's securities (excluding short-term
investments) amounted to $273,653,743 and $241,810,245, respectively. The cost
of purchases and the proceeds from sales of Asset Allocation Fund's securities
(excluding short-term investments) amounted to $179,165,420 and $188,155,070,
respectively.
NOTE 6 -- CAPITAL SHARE TRANSACTIONS
Transactions in shares of common stock of the Funds are summarized below:
<TABLE>
<CAPTION>
CAPITAL INCOME FUND
--------------------------------------------
YEAR ENDED
--------------------------------------------
FEBRUARY 28, 1998 FEBRUARY 28, 1997
-------------------- -------------------
SHARES AMOUNT SHARES AMOUNT
------- ---------- ------ ----------
<S> <C> <C> <C> <C>
A SHARES (000'S)
Issued........................... 5,211 $ 94,279 4,375 $ 75,024
Reinvested....................... 3,816 65,240 1,793 30,024
Redeemed......................... (4,209) (75,226) (3,373) (57,813)
------- ---------- ------ ----------
Net increase....................... 4,818 $ 84,293 2,795 $ 47,235
======= ========== ====== ==========
</TABLE>
47
<PAGE> 50
<TABLE>
<CAPTION>
CAPITAL INCOME FUND
--------------------------------------------
YEAR ENDED
--------------------------------------------
FEBRUARY 28, 1998 FEBRUARY 28, 1997
-------------------- -------------------
SHARES AMOUNT SHARES AMOUNT
------- ---------- ------ ----------
<S> <C> <C> <C> <C>
K SHARES
Issued........................... 84,437 $1,526,087 61,106 $1,055,431
Reinvested....................... 20,132 340,801 1,082 18,016
Redeemed......................... (18,691) (337,379) (1,396) (24,309)
------- ---------- ------ ----------
Net increase....................... 85,878 $1,529,509 60,792(a) $1,049,138(a)
======= ========== ====== ==========
</TABLE>
<TABLE>
<CAPTION>
ASSET ALLOCATION FUND
--------------------------------------------
YEAR ENDED
--------------------------------------------
FEBRUARY 28, 1998 FEBRUARY 28, 1997
-------------------- -------------------
SHARES AMOUNT SHARES AMOUNT
------- ---------- ------ ----------
<S> <C> <C> <C> <C>
A SHARES (000'S)
Issued........................... 734 $ 14,942 825 $ 15,144
Reinvested....................... 211 4,243 90 1,632
Redeemed......................... (441) (8,989) (395) (7,251)
------- ---------- ------ ----------
Net increase....................... 504 $ 10,196 520 $ 9,525
======= ========== ====== ==========
K SHARES
Issued........................... 58,580 $1,194,200 37,991 $ 724,963
Reinvested....................... 4,918 99,023 1,051 19,438
Redeemed......................... (24,034) (485,133) (491) (9,394)
------- ---------- ------ ----------
Net increase....................... 39,464 $ 808,090 38,551(a) $ 735,007(a)
======= ========== ====== ==========
SRF SHARES (000)(B)
Issued........................... 12,164 $ 192,302 -- $ --
Reinvested....................... 797 12,637 -- --
Redeemed......................... (1,120) (18,235) -- --
------- ---------- ------ ----------
Net Increase....................... 11,841 $ 186,704 -- $ --
======= ========== ====== ==========
</TABLE>
- ---------------
<TABLE>
<C> <S>
(a) Period from July 22, 1996 (inception date) to February 28,
1997.
(b) Period from June 23, 1997 (inception date) to February 28,
1998.
</TABLE>
48
<PAGE> 51
PACIFIC HORIZON CAPITAL INCOME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997(A) 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
A SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF
YEAR................................... $ 17.35 $ 16.42 $13.65 $15.42 $13.32
------- ------- ------ ------ ------
Income from Investment
Operations:
Net investment income.................. 0.58 0.57 0.62 0.57 0.50
Net realized and unrealized gains
(losses) on investment
transactions......................... 2.89 2.34 2.84 (1.43) 2.36
------- ------- ------ ------ ------
Total income (loss) from investment
operations........................... 3.47 2.91 3.46 (0.86) 2.86
------- ------- ------ ------ ------
Less Dividends and Distributions:
Dividends to shareholders from net
investment income.................... (0.59) (0.57) (0.69) (0.54) (0.48)
Dividends to shareholders from net
realized gains on investment
transactions......................... (2.95) (1.41) -- (0.37) (0.28)
------- ------- ------ ------ ------
Total Dividends and Distributions...... (3.54) (1.98) (0.69) (0.91) (0.76)
------- ------- ------ ------ ------
Net change in net asset value per
share................................ (0.07) 0.93 2.77 (1.77) 2.10
------- ------- ------ ------ ------
NET ASSET VALUE PER SHARE, END OF
YEAR................................. $ 17.28 $ 17.35 $16.42 $13.65 $15.42
======= ======= ====== ====== ======
Total return (excludes sales charge).... 21.54% 18.53% 25.96% (5.61%) 21.85%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year (millions)... $ 391 $ 309 $ 247 $ 198 $ 191
Ratio of expenses to average net
assets............................... 1.10% 1.18% 1.23% 0.97% 0.46%
Ratio of net investment income (loss)
to average net assets................ 3.35% 3.40% 4.05% 4.48% 4.19%
Ratio of expenses to average net
assets*.............................. 1.12%** 1.19%** 1.26%** 1.14% 1.20%
Ratio of net investment income to
average net assets*.................. 3.33% (b) (b) 4.31% 3.45%
Portfolio turnover rate................ 69% 124% 57% 94% 103%
Average commission rate paid (c)....... $0.0175 $0.0210 $ -- $ -- $ --
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the year, certain fees were 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, 1998 and 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 amounts 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.
49
<PAGE> 52
PACIFIC HORIZON CAPITAL INCOME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD
YEAR ENDED ENDED
FEBRUARY 28, FEBRUARY 28,
1998 1997(a)
------------ ------------
<S> <C> <C>
K SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD
Income from Investment Operations:................. $ 17.30 $ 16.24
------- -------
Net investment income
Net realized gains on investment transactions.... 0.48 0.32
Total income from investment operations............ 2.89 2.43
------- -------
Less: Dividends and Distributions:................. 3.37 2.75
------- -------
Dividends to shareholders from net investment
income......................................... (0.48) (0.28)
Distributions to shareholders from net realized
gains on investment transactions............... (2.95) (1.41)
------- -------
Total Dividends and Distributions.................. (3.43) (1.69)
------- -------
Net change in net asset value per share............ (0.06) 1.06
------- -------
NET ASSET VALUE PER SHARE, END OF PERIOD........... $ 17.24 $ 17.30
======= =======
Total return....................................... 20.97% 17.47% (d)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (millions)........... $ 3 $ 1
Ratio of expenses to average net assets.......... 1.60% 1.66% (c)
Ratio of net investment income to average net
assets......................................... 2.85% 2.85% (c)
Ratio of expenses to average net assets*......... 1.86% 1.91% (c)**
Ratio of net investment income to average net
assets*........................................ 2.59% 2.60% (c)
Portfolio turnover rate.......................... 69% 124%
Average commission rate paid (b)................. $0.0175 $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 amounts 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.
(c) Annualized.
(d) Not annualized.
</TABLE>
See Notes to Financial Statements.
50
<PAGE> 53
PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD
--------------------------------------------------------- ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997(b) 1996 1995 1994(a)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
A SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF PERIOD............. $ 19.40 $ 17.52 $ 15.15 $ 14.84 $ 15.00
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income........... 0.52 0.48 0.52 0.48 0.03
Net realized and unrealized
gains (losses) on investment
transactions.................. 3.72 2.50 2.86 0.24 (0.19)
------- ------- ------- ------- -------
Total income (loss) from
investment operations........... 4.24 2.98 3.38 0.72 (0.16)
------- ------- ------- ------- -------
Less Dividends and Distributions:
Dividends to shareholders from
net investment income......... (0.47) (0.46) (0.53) (0.41) --
Dividends to shareholders from
net realized gains on
investment transactions....... (1.76) (0.64) (0.48) -- --
------- ------- ------- ------- -------
Total Dividends and
Distributions................... (2.23) (1.10) (1.01) (0.41) --
------- ------- ------- ------- -------
Net change in net asset value per
share........................... 2.01 1.88 2.37 0.31 (0.16)
------- ------- ------- ------- -------
NET ASSET VALUE PER SHARE, END OF
PERIOD.......................... $ 21.41 $ 19.40 $ 17.52 $ 15.15 $ 14.84
======= ======= ======= ======= =======
Total return (excludes sales
charge)......................... 23.07% 17.64% 22.80% 5.03% (1.07%)(double dagger)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period
(000)......................... $49,240 $34,838 $22,355 $ 5,694 $ 666
Ratio of expenses to average net
assets........................ 1.03% 1.25% 0.62% 0.00% 0.00%(dagger)
Ratio of net investment income
(loss) to average net
assets........................ 2.67% 2.59% 3.49% 4.25% 4.20%(dagger)
Ratio of expenses to average net
assets*....................... 1.09% 1.94% 2.92% 7.89% 83.95%(dagger)
Ratio of net investment income
to average net assets*........ 2.61% 1.90% 1.19% (3.64%) (79.75%)(dagger)
Portfolio turnover rate......... 67% 116% 157% 142% 67%
Average commission rate
paid(c)....................... $0.0615 $0.0440 -- -- --
</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.
(dagger) Annualized.
(double dagger) Not annualized.
(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.
(c) Represents the dollar amounts 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.
51
<PAGE> 54
PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
FEBRUARY 28, FEBRUARY 28,
1998 1997(a)
------------ -------------
<S> <C> <C>
K SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD........... $ 19.40 $ 17.23
------- -------
Income from Investment Operations:
Net investment income.................................. 0.41 0.19
Net realized gains/(losses) on investment
transactions......................................... 3.66 2.80
------- -------
Total income from investment operations.................. 4.07 2.99
------- -------
Less: Dividends and Distributions:
Dividends to shareholders from net investment income... (0.36) (0.18)
Distributions to shareholders from net realized gains
on investment transactions........................... (1.75) (0.64)
------- -------
Total Dividends and Distributions........................ (2.11) (0.82)
------- -------
Net change in net asset value per share.................. 1.96 2.17
------- -------
NET ASSET VALUE PER SHARE, END OF PERIOD................. $ 21.36 $ 19.40
======= =======
Total return............................................. 22.10% 17.69%(double dagger)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000)...................... $ 1,667 $ 748
Ratio of expenses to average net assets................ 1.52% 1.94%(dagger)
Ratio of net investment income to average net assets... 2.17% 2.31%(dagger)
Ratio of expenses to average net assets*............... 1.58% 3.26%(dagger)
Ratio of net investment income to average net
assets*.............................................. 2.11% 0.99%(dagger)
Portfolio turnover rate................................ 67% 116%
Average commission rate paid(b)........................ $0.0615 $0.0440
</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.
(dagger) Annualized.
(double dagger) Not annualized.
(a) Period from July 22, 1996 (inception date) to February 28,
1997.
(b) Represents the dollar amounts 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.
52
<PAGE> 55
PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
JUNE 23,
1997(a)
THROUGH
FEBRUARY 28,
1998
--------------
<S> <C>
SRF SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD.............. $ 15.79
--------
Income from Investment Operations:
Net investment income..................................... 0.30
Net realized and unrealized gains (losses) on investment
transactions............................................ 1.65
--------
Total income from investment operations..................... 1.95
--------
Less Dividends and Distributions:
Dividends to shareholders from net investment income...... (0.24)
Distributions to shareholders from net realized gains..... (0.87)
--------
Total Dividends and Distributions........................... (1.11)
--------
Net change in net asset value per share..................... 0.84
--------
NET ASSET VALUE PER SHARE, END OF PERIOD.................... $ 16.63
========
Total Return................................................ 13.56%(double dagger)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........................... $196,892
Ratio of expenses to average net assets................... 0.95%(dagger)
Ratio of net investment income (loss) to average net
assets.................................................. 2.73%(dagger)
Ratio of expenses to average net assets*.................. 0.97%(dagger)
Ratio of net investment income to average net assets*..... 2.71%(dagger)
Portfolio turnover rate................................... 67%(double dagger)
Average commission rate paid(b)........................... $ 0.0615
</TABLE>
- ---------------
<TABLE>
<C> <S>
* 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.
(dagger) Annualized.
(double dagger) Not Annualized.
(a) Date of commencement of operations of SRF Shares of the
Fund.
(b) Represents the dollar amounts 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.
53
<PAGE> 56
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 portfolios 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 seventeen portfolios
constituting Pacific Horizon Funds, Inc., hereafter referred to as the "Funds")
at February 28, 1998, 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, 1998 by correspondence with the custodian and brokers and the
application of alternative auditing procedures where confirmations from brokers
were not received, provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
April 21, 1998
54
<PAGE> 57
For more information, complete the following form and mail it to:
Pacific Horizon Funds, Inc.
PO Box 8968
Wilmington, DE 19899-8968
......................................................................
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> 58
Bulk Rate
U.S. Postage
PAID
New York, NY
Permit No. 8048
LOGO
Provident Distributor, Inc., Distributor
GRI-0014 4/98
<PAGE> 59
PACIFIC HORIZON INCOME FUND
ANNUAL REPORT
February 28, 1998
Short-Term Government Fund
Investing For All
The Times Of Your Life
NOT FDIC INSURED
PACIFIC HORIZON INCOME FUND
<PAGE> 60
PACIFIC HORIZON FUNDS, INC.
103 Bellevue Parkway
Wilmington, DE 19809
1-800-332-3863
INVESTMENT ADVISER
Bank of America National Trust
and Savings Association
555 California Street
San Francisco, CA 94104
ADMINISTRATOR
Bank of America National
Trust and Savings Association
555 California Street
San Francisco, CA 94104
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
Provident Distributors, Inc.
Four Falls Corporate Center
6th Floor
Conshohocken, PA 19428
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 Provident
Distributors, Inc. which is unaffiliated with the Bank of America. Bank of
America serves as investment adviser to the Funds 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, NOT
BANK OF AMERICA OR ANY AFFILIATES. AN INVESTMENT IN FDIC
MUTUAL FUNDS INVOLVES INVESTMENT RISKS, INCLUDING THE INSURED
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
============================================================================
</TABLE>
<PAGE> 61
..................................
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 MANAGER 10-14
PACIFIC HORIZON SHORT-TERM
GOVERNMENT FUND
PORTFOLIO OF INVESTMENTS 15
STATEMENT OF ASSETS
AND LIABILITIES 16
STATEMENT OF OPERATIONS 17
STATEMENTS OF CHANGES
IN NET ASSETS 18
NOTES TO FINANCIAL STATEMENTS 19-24
FINANCIAL HIGHLIGHTS 25
REPORT OF INDEPENDENT
ACCOUNTANTS 26
</TABLE>
<PAGE> 62
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>
- ---------------------------------------------------------------------------
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(dagger) High Current Income Plus Principal
- Prime Stability
- Treasury
- Government
- Treasury Only
...........................................................................
Tax-Exempt Money Market Funds*(dagger)
- Tax-Exempt Money High Level of Federal Tax-Free Current
Income Plus Principal Stability
- California Tax-Exempt Money High Level of Federal and California
Market 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.
(dagger) 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> 63
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
Preferred Stocks and capital appreciation.
...........................................................................
Stocks, Bonds and Cash Long-term growth potential and current
Equivalents income from stocks and bonds.
...........................................................................
Investment-Grade Corporate Debt High monthly income potential with
reasonable investment risk.
...........................................................................
Investment-Grade Corporate and Regular monthly income from a
U.S. Government Securities diversified portfolio of
investment-grade securities.
...........................................................................
GNMAs and Other U.S. Government High monthly income potential and low
Securities credit risk.
...........................................................................
U.S. Government and Government Monthly income and relative stability
Agency Securities of investment.
...........................................................................
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 A flexible, convenient way to manage or
U.S. Government Short-Term accumulate cash while waiting for other
Obligations 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
Obligations cash while waiting for other investment
opportunities.
</TABLE>
- ---------------------------------------------------------------------------
3
<PAGE> 64
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
MANAGER enables you to gain
insight into the Fund's
investments and learn more
about the Fund manager's
strategies.
[GRAPHICS]
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.
[GRAPHICS]
4
<PAGE> 65
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
[GRAPHICS]
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
[GRAPHICS] OUTSTANDING
THE CURRENT NET ASSET VALUE PER SHARE PLUS SALES CHARGE, IF ANY
5
<PAGE> 66
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
[GRAPHICS]
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
[GRAPHICS]
The NOTES TO FINANCIAL STATEMENTS are footnotes to the statements listed above.
These notes include information on accounting methods used by the Fund,
contractual arrangements between the Fund and its service providers, certain
transactions effected by the Fund and other general information about the Fund.
The FINANCIAL HIGHLIGHTS shows, for a single share outstanding throughout each
period presented, the net investment income, the realized and unrealized gains
and losses and the dividends and distributions of the Fund. It also shows key
data and ratios, such as the total investment return for each period, the
portfolio turnover rate for Funds other than money market mutual funds, the
ratio of expenses to average net assets and the ratio of net investment income
to average net assets.
6
<PAGE> 67
[This page intentionally left blank.]
7
<PAGE> 68
ECONOMIC REVIEW
FROM THE INVESTMENT ADVISER
Fourth quarter Gross Domestic Product was reported at a 3.7%* annualized rate,
with inflation continuing to be non-existent and a positive factor for the
economy and the domestic financial markets. Changes in consumer prices are
negligible and producer prices are actually declining. Historically high
consumer confidence, resulting from strong job growth, wage gains and the
positive wealth effect created by the buoyant stock market, has created solid
income growth and has fueled the robust housing market in the first quarter of
1998. Consumers have been the primary beneficiaries of the turmoil in the Asian
markets. Lower bond yields, a by-product of the Asian financial crisis, have
resulted in lower mortgages payments for households looking to buy a home.
THE CASE FOR
STOCKS AND BONDS
The Standard & Poor's Stock Index posted a total return of 35.1%** during the
12 month period ended February 28, 1998, amply rewarding long-term investors who
rode out volatility that accompanied the Asian financial crisis. The best
performers were concentrated among shares of large company stocks, which
significantly outpaced shares of smaller firms.
Companies have been issuing reduced earnings forecasts at an increasing rate.
Despite the early warnings, the reduced earnings expectations have not put a
damper on the stock market. The bullish sentiment for low inflation and
continuing strong profits for 1998 are propelling the stock markets to new
highs. The Dow*** has gained 8.4% during the first two months of the year,
significantly higher than expected. Overall, the U.S. economy seems poised for
continued moderate growth, which is good news for stocks. We think it is
reasonable to expect P/E ratios to stay at current levels of 22 times 1998
earnings. That gives an estimated market return over the next 12 months of 9%
(7.8% from earnings growth and 1.2% from dividend yield).
Fixed income investors remain optimistic due to the lack of price pressures, the
strong dollar and the expectation of an Asia-led slowdown in the U.S. Interest
rates on Treasuries have fallen across the yield curve over the last twelve
months and are currently below 6%, the lowest level in 25 years. The finance
sector has been outperforming expectations as of late, which has a lot to do
with the wave of colossal merger and acquisition activity sweeping across
financial institutions.
The prospects for a government budget surplus in fiscal 1998 are growing. Some
economists are predicting as much as a $50 billion surplus due to large tax
revenues as well as efforts to reduce government spending. These revenue flows
will serve to reduce immediate government financing needs. Already, we have seen
cuts in the size of Treasury auctions so far this year.
POTENTIAL RISKS
The Asian financial crisis, which began in the third quarter of 1997, is
expected to modestly impact U.S. domestic growth. As expected, trade between
U.S. and Asian trade partners has sharply deteriorated, with the current account
deficit widening to its highest level in ten years. The deficit widened to
$166.5 billion in 1997, up from $148.2 billion for 1996. The largest threat to
the U.S. economy, according to The Organization for Economic Cooperation and
Development (OECD), would be a second round of currency devaluations in Asia. It
could happen again if Japan fails to jumpstart its economy.
While the final outcome of the Asian financial crisis remains unclear, the
initial predictions of a global financial crisis have not been supported by the
evidence.
8
<PAGE> 69
With the Asian crisis potentially constraining corporate profitability in the
second or third quarter, we expect that growth will slow during the remainder of
the year.
Tame inflation continues to be the theme du jour as the Consumer Price Index's
1.4% increase over the past 12 months is the second lowest reading in 33 years,
outdone only by the collapse in oil prices in 1986. The lack of inflationary
pressures and the uncertainty surrounding the Asian financial crisis have kept
the Federal Reserve from raising interest rates. The Fed funds rate has remained
at 5.50% since last March. However, the labor market is stretched and wage
pressures are intensifying. So far, increased productivity has compensated for
wage increases; however, recent significant increases in real asset values, such
as housing and land, have not gone unnoticed by Chairman Greenspan and may play
a factor in determining monetary policy over the coming months.
LOOKING FORWARD
It is now a widely accepted view that the U.S. economy is growing at a faster
pace early in 1998 than analysts had projected last year at the height of the
Asian turmoil. Although the preliminary GDP figure will not be released until
the end of April, the early estimate for the first quarter lies somewhere
between 3.5 - 4.0%. In order to reach the projected 1998 growth rate of 2.8%,
U.S. growth will have to sustain a considerable slowdown in the latter part of
the year to compensate for the strengths it is exhibiting now.
Looking forward, there are a lot of crosscurrents in the U.S. corporate earnings
picture. Ironically, the impact from the Asian financial crisis so far have been
positive, with lower interest rates boosting the economy. In the first quarter,
currency and oil earnings will be negative factors, but stronger economic growth
will offset any weaknesses. In the second and third quarters, we expect the
impact from Asia should be mitigated by strong growth in Europe. We continue to
believe that the economic impact from Asia will be moderate with the U.S.
economy slowing, but sustaining a near normal growth rate of 2.8% in 1998. Given
these projections, we expect equities and fixed income securities to perform
well in 1998, although below 1997 levels.
Sincerely,
/s/ Kirk Hartman
Kirk Hartman
Chief Investment Officer of
Fixed Income Management
- ---------------
* Source: Bloomberg, 1998.
** Source: Bloomberg, 1998. 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 Dow Jones Industrial Average is a price-weighted average of 30 actively
traded blue chip stocks and cannot be invested in directly.
9
<PAGE> 70
PACIFIC HORIZON
SHORT-TERM GOVERNMENT FUND
KIRK HARTMAN PHOTO
KIRK HARTMAN
Chief Investment Officer
Bank of America NT&SA
The Pacific Horizon Income Funds are managed by a Bank of America NT&SA
investment team led by Kirk Hartman, Chief Investment Officer.
GOAL:
The Pacific Horizon Short-Term Government Fund seeks high current income
consistent with relative stability of principal.
INVESTMENTS:
The Fund invests in securities issued or guaranteed by the U.S. Government, its
agencies, instrumentalities or sponsored enterprises.
APPROPRIATE FOR:
Investors who want income from securities issued or guaranteed by the U.S.
Government or its enterprises and relative stability of principal.
INCEPTION:
August 2, 1996
SIZE OF FUND AS OF
FEBRUARY 28, 1998:
Over $32 million
Q
HOW HAS THE FUND PERFORMED DURING THE 12 MONTHS ENDED FEBRUARY 28, 1998?
A
The Fund has performed well, delivering returns consistent with those of its
benchmark, the One-Year Treasury Bill Index. For the 12 months ended February
28, 1998, the Fund has posted an annualized return after all fees of 5.99%*
(without the sales charge), compared to 6.00% for the One-Year Treasury Bill
Index.** Since its inception, the Fund's assets have grown from $750,000 to in
excess of $32,000,0000.
Q
HOW HAVE YOU MANAGED THE FUND SINCE ITS INCEPTION?
A
All of our fixed-income Funds use a duration-neutral philosophy. Duration,
which measures a bond's price sensitivity to changes in interest rates, is a
principal component of risk and return. This means that we do not attempt to add
value by trying to forecast the future direction of interest rates. We add value
by investing in sectors and individual securities that offer good value, and by
identifying securities that provide yields that are attractive relative to those
securities with different maturities. Our relative value methodology strategy
enables us to compare and select opportunities that represent some of the best
values from the universe of available issues in the market.
The Fund invests in short duration securities issued by the United States
government and its agencies and attempts to replicate the duration of the
one-year Treasury Bill. Investments include short maturity Treasury obligations,
Agency-debentures, Agency-Backed pass-through balloons and well structured
Agency-Backed Collateralized Mortgage Obliga-
10
<PAGE> 71
tions (CMOs). Investments are chosen based upon their initial yield, structure
and potential to provide capital appreciation. Treasuries and Agency debentures
are placed strategically along the yield curve to capture the additional
benefits of "rolling down the curve." Balloons and Planned Amortization Class
CMOs (PAC CMOs), are used due to their higher yield spreads, relative stability,
and high credit quality.***
Q
WHAT IS YOUR OUTLOOK FOR THE ECONOMY AND THE FUND IN THE YEAR AHEAD?
A
Our outlook is for the economy to continue to expand, albeit at a slower
pace than last year. Productivity growth, imported deflation, and falling
commodity prices will keep inflation low. Corporate profit and stock prices will
continue to grow and the Federal Reserve Board's action which will be on hold
for some time to come.
As global events unfold, the biggest uncertainty the bond market continues to
grapple with is to what extent the slowdown in Asia will effect domestic
economic activity as a result of diminished exports and lower corporate
profitability. A survey of senior corporate officers found that most expected a
minimal impact from east Asia on their bottom lines. However, many market
analysts believe the full effect of the Asian contagion may be more significant
than this survey suggests. Oddly enough, the flight to quality that drove yields
lower has stimulated the housing sector and has caused record mortgage
refinancing activity. The reduction in monthly mortgage payments, sizable tax
refunds, the wealth effect from booming equity markets and average non-farm
payroll gains of 343,000 over the last 6 months have given consumers the means
to continue to spend. This burst of economic activity has thus far offset most
of the negative effects from Asia. The opposing forces of weakness in Asia and
domestic economic strength will likely keep Federal Reserve Board action on hold
at least until then end of the spring, if not longer.
The growth of the Fund has enabled it to become more efficient in terms of its
investments. We are now able to buy and sell larger blocks of securities at
"round lot prices", which reduces transaction costs for the Fund. As the Fund
gains assets, the strategy of the Fund will likely expand to include strategies
involving longer duration assets, such as fixed and adjustable rate
mortgage-backed securities, and fixed and floating rate agency Collateralized
Mortgage Obligations. These longer duration investments will be hedged with
short futures positions or options to create synthetic investments with
durations similar to the benchmark. The concept of this strategy is to capture
the additional yield spread associated with the mortgage product and reduce the
price sensitivity with the short futures positions.
Due to the Fund's conservative structure and high credit quality, it is expected
to provide competitive after-fee returns compared to its benchmark, the one-year
Treasury bill. Treasury notes have become "rich" due to the flight to quality,
low inflation, and reduced issuance. Therefore, we will continue to favor agency
securities and Mortgage-Backed Securities. At the present time we like CMOs that
have narrow payment windows and wide PAC bands. We also are inclined to add
short discount balloons due to their attractive option-adjusted spreads.
11
<PAGE> 72
- ---------------
* 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 1.24% for the period. The
Fund is currently waiving a portion of the advisory, administrative and/or
shareholder servicing fees. This voluntary waiver may be modified or
terminated at any time, which would reduce the Fund's performance.
** Source: Bloomberg, using Merrill Lynch Taxable Bond Indices which reflect
the One-Year Treasury Bill return. The One-Year Treasury Bill Index is an
unmanaged index generally representative of the Treasury bond market as a
whole, and cannot be invested in directly.
*** Information is as of February 28, 1998. The composition of the Fund's
holdings is subject to change.
The performance data quoted represents past performance and is not an indication
of future results. The investment return and Net Asset Value will fluctuate so
that an investor's shares when redeemed, may be worth more or less than their
original cost.
12
<PAGE> 73
PACIFIC HORIZON
SHORT-TERM GOVERNMENT FUND
(AS OF FEBRUARY 28, 1998)
GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)
<TABLE>
<CAPTION>
LIPPER SHORT-
TERM
GOVERNMENT MERRILL LYNCH
MEASUREMENT PERIOD FUNDS ONE-YEAR BILL
(FISCAL YEAR COVERED) A SHARES AVERAGE INDEX
<S> <C> <C> <C>
8/2/96 9551.10 10000 10000
8/31/96 9456.02 10028 10019
2/28/97 9395.02 10371 10335
8/31/97 10165 10686 10658
2/28/98 10461 10989 10955
</TABLE>
HOW PERFORMANCE COMPARES
The chart compares the Pacific
Horizon Short-Term Government Fund to
the Merrill Lynch One-Year Treasury
Bill Index, which is an unmanaged
index typically used as a performance
benchmark for short-term fixed income
investments.
The average of short-term government
funds as reported by Lipper
Analytical Services, Inc. measures
the performance of other funds with
<TABLE>
<CAPTION>
--------------------------------------
SHORT-TERM GOVERNMENT FUND
AVERAGE ANNUAL RETURN
--------------------------------------
A SHARES
Without With
Sales Sales
Charge Charge
--------------------------------------
<S> <C> <C>
1 Year 5.99% 1.24%
....................................
Since Inception 5.94% 2.90%
(8/2/1996)
--------------------------------------
</TABLE>
investment objectives and policies similar to those of the Pacific Horizon
Short-Term Government Fund. An initial $10,000 investment in the Fund made on
August 2, 1996, would now be worth $10,461. The same investment made in the
Lipper Short-Term Government Funds Average would now be worth $10,989.
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.
Lipper Analytical Services, Inc. is an independent mutual fund-monitoring
organization. Neither the Lipper Short-Term Government Funds Average, nor the
Merrill Lynch One-Year Treasury Bill Index may be invested in directly. The
hypothetical investment in the Merrill Lynch One-Year Treasury Bill 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.
13
<PAGE> 74
PACIFIC HORIZON
SHORT-TERM GOVERNMENT FUND
(AS OF FEBRUARY 28, 1998)
QUALITY
Investing in Short-Term U.S.
Government Securities
The Pacific Horizon Short-Term
Government Fund has a policy that it
will invest primarily in securities
issued or guaranteed by the U.S.
Government, and its agencies,
instrumentalities or sponsored
enterprises. The flexibility to
invest in different types of
securities can help to increase
performance, while diversification
can help to reduce risk. By
investing primarily in high-quality
U.S. Government securities, the Fund
seeks to stabilize short-term
performance.
PORTFOLIO COMPOSITION*
(PERCENTAGE BASED ON ASSETS)
<TABLE>
<S> <C>
U.S. TREASURY NOTES 26.6
CASH & EQUIVALENTS 3.1
U.S GOVERNMENT AGENCY
OBLIGATIONS 70.3
</TABLE>
- -----------------------------------------------------------
* The composition of the Fund's
holdings is subject to change.
14
<PAGE> 75
PACIFIC HORIZON SHORT-TERM GOVERNMENT FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATURITY PRINCIPAL VALUE
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
----------- ---- -------- --------- --------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 70.3%
Federal Farm Credit Bank Note........................ 5.940% 03/19/99 $1,000,000 $ 1,002,550
Federal Home Loan Bank Discount Note................. 5.400% 04/15/98 1,050,000 1,043,185
Federal Home Loan Bank Discount Note................. 5.710% 10/01/98 4,000,000 3,997,720
Federal Home Loan Mortgage Corp., Pool 1527.......... 5.500% 03/10/98 173,071 172,630
Federal Home Loan Mortgage Corp., Pool 1625.......... 5.500% 06/13/98 829,806 827,322
Federal Home Loan Mortgage Corp., Pool 1645.......... 5.500% 07/09/98 475,201 473,713
Federal Home Loan Mortgage Corp., Pool L70306........ 5.500% 07/19/98 1,482,482 1,475,662
Federal Home Loan Mortgage Corp., Pool 1643.......... 5.500% 12/05/99 2,000,000 1,979,013
Federal National Mortgage Assoc. Series 1993-68...... 6.250% 09/05/98 494,164 494,286
Federal National Mortgage Assoc Series 1997-14 QA.... 6.000% 09/05/98 666,967 665,144
Federal National Mortgage Assoc Series 1997-227 G.... 5.500% 12/25/00 1,000,000 985,908
Government National Mortgage Assoc Series 1995-5AA... 7.000% 09/07/98 729,272 730,183
Housing & Urban Development Series 96-A.............. 6.440% 08/01/99 2,500,000 2,525,742
Student Loan Marketing Association................... 7.723% 01/25/99 1,000,000 1,017,710
Student Loan Marketing Association................... 5.890% 11/17/99 2,500,000 2,502,550
Student Loan Marketing Association................... 7.500% 03/08/00 2,000,000 2,068,780
Tennessee Valley Authority Note...................... 5.950% 09/15/98 1,000,000 1,000,000
-----------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (COST
$22,959,111)......................................... 22,962,098
-----------
U.S. TREASURY OBLIGATIONS -- 26.6%
U.S. Treasury Note................................... 5.88% 10/31/98 1,500,000 1,503,090
U.S. Treasury Note................................... 5.63% 11/30/98 2,250,000 2,252,115
U.S. Treasury Note................................... 6.25% 03/31/99 2,000,000 2,015,620
U.S. Treasury Note................................... 6.38% 04/30/99 2,900,000 2,927,550
-----------
TOTAL U.S. TREASURY OBLIGATIONS (COST $8,661,343).... 8,698,375
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES
------
<S> <C> <C> <C> <C>
SHORT TERM INVESTMENTS -- 2.4%
Temporary Investment -- Fed Funds 5.22% (Cost
$801,125)......................................... 801,125 801,125
-----------
TOTAL INVESTMENTS -- 99.3%
(COST $32,421,579)(A)............................. 32,461,598
OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.7%...... 223,646
-----------
NET ASSETS -- 100.0%............................... $32,685,244
===========
</TABLE>
- ---------------
Percentages indicated are based on net assets of $32,685,244.
(a) Represents cost for federal income tax and book purposes and differs from
value by net unrealized depreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation..................................... $58,670
Unrealized depreciation..................................... (18,651)
-------
Net unrealized appreciation................................. $40,019
=======
</TABLE>
See Notes to Financial Statements.
15
<PAGE> 76
PACIFIC HORIZON SHORT-TERM GOVERNMENT FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (cost $32,421,579).... $32,461,598
Interest Receivable....................................... 499,837
Deferred organization cost................................ 15,803
-----------
Total Assets................................................ 32,977,238
-----------
LIABILITIES:
Dividends payable......................................... 137,016
Payable to Advisor........................................ 49,273
Payable for capital shares redeemed....................... 49,715
Custodian and fund accounting fees payable................ 5,942
Transfer agent fees payable............................... 18,183
Legal fees payable........................................ 197
Other accrued expenses.................................... 31,668
-----------
Total Liabilities........................................... 291,994
-----------
NET ASSETS.................................................. $32,685,244
===========
Shares Outstanding ($0.001 par value, 200 million shares
authorized):.............................................. 3,259,919
===========
NET ASSET VALUE
Net Asset Value and Redemption price per share............ $ 10.03
===========
Maximum Sales Charge...................................... 4.50%
Maximum Offering Price per share (Net Asset Value / (100%
-- Maximum Sales Charge))............................... $ 10.50
===========
COMPOSITION OF NET ASSETS:
Shares of common stock, at par............................ $ 3,260
Additional paid-in capital................................ 32,626,177
Accumulated net investment income......................... 4,749
Accumulated net realized gains on investment
transactions............................................ 11,039
Net unrealized appreciation on investments................ 40,019
-----------
NET ASSETS, FEBRUARY 28, 1998............................... $32,685,244
===========
</TABLE>
- ---------------
See Notes to Financial Statements.
16
<PAGE> 77
PACIFIC HORIZON SHORT-TERM GOVERNMENT FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the year ended February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................. $ 1,481,494
EXPENSES:
Investment advisory fees.................................. 64,249
Administration fees....................................... 51,399
Shareholder service fees.................................. 64,249
Custodian and fund accounting fees........................ 38,730
Transfer agent fees....................................... 36,374
Legal fees................................................ 1,066
Audit fees................................................ 29,902
Organizational costs...................................... 4,762
Other expenses............................................ 5,617
-----------
Total Expenses.......................................... 296,348
Less: Fee waivers and expense reimbursements................ (232,078)
-----------
Total Net Expenses.......................................... 64,270
-----------
NET INVESTMENT INCOME....................................... 1,417,224
-----------
NET REALIZED/UNREALIZED GAINS ON INVESTMENTS:
Net realized gain on investment transactions.............. 29,888
Net change in unrealized appreciation on investments...... 48,973
-----------
Net realized/unrealized gains on investments.............. 78,861
-----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $ 1,496,085
===========
</TABLE>
- ---------------
See Notes to Financial Statements.
17
<PAGE> 78
PACIFIC HORIZON SHORT-TERM GOVERNMENT FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
FEBRUARY 28, FEBRUARY 28,
1998 1997(a)
------------ ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income.............................. $ 1,417,224 $ 269,337
Net realized gains on investment transactions...... 29,888 6,933
Net change in unrealized
appreciation/(depreciation) on investments....... 48,973 (8,954)
------------ -----------
Change in net assets resulting from operations....... 1,496,085 267,316
------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.............................. (1,417,224) (269,337)
Net realized gains on investment transactions...... (12,533) (6,933)
Excess of net realized gains on investment
transactions..................................... -- (1,567)
------------ -----------
Change in net assets from shareholder
distributions...................................... (1,429,757) (277,837)
------------ -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued........................ 27,125,076 17,406,395
Dividends reinvested............................... 7,986 646
Cost of shares redeemed............................ (10,055,621) (1,855,045)
------------ -----------
Change in net assets from capital share
transactions....................................... 17,077,441 15,551,996
------------ -----------
Change in net assets................................. 17,143,769 15,541,475
NET ASSETS
Beginning of Period................................ 15,541,475 --
------------ -----------
End of Period (including undistributed net
investment income of $4,749 and $0,
respectively.)................................... $32,685,244 $15,541,475
============ ===========
</TABLE>
- ---------------
(a) Period from August 2, 1996 (inception date) to February 28, 1997.
See Notes to Financial Statements.
18
<PAGE> 79
PACIFIC HORIZON SHORT-TERM GOVERNMENT FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 -- ORGANIZATION
Pacific Horizon Funds, Inc. (the "Company"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended (the "Act"), as
an open-end management investment company. At February 28, 1998, the Company
operated as a series company comprised of seventeen funds. The accompanying
financial statements and notes are those of the Pacific Horizon Short-Term
Government Fund (the "Fund"). The Fund commenced operations on August 2, 1996.
The Fund offers A Shares only.
The Fund seeks to provide investors with high current income, consistent
with relative stability of principal.
Bank of America National Trust and Savings Association ("Bank of America"),
a subsidiary of BankAmerica Corporation, serves as the Fund's investment
adviser. On September 15, 1997, Bank of America assumed the responsibility of
administrator for the Fund pursuant to the terms of an Administration Agreement
between the Company and Bank of America (the "Administration Agreement"). Prior
to September 15, 1997 BISYS Group, Inc. ("BISYS") through its wholly-owned
subsidiary, BISYS Fund Services, Limited Partnership, served as the Funds'
Administrator.
Bank of America has entered into an agreement with PFPC Inc. ("PFPC"), an
indirect wholly-owned subsidiary of PNC Bank Corp., pursuant to which PFPC has
agreed to provide certain sub-administration services to the Fund, including,
but not limited to, assisting in the developing and monitoring of compliance
procedures, participating in periodic updating of the Funds' prospectuses and
statements of additional information, providing periodic reports to the
Company's Board and providing certain record-keeping services. Bank of America
will bear all fees and expenses charged by PFPC for such services.
Furthermore, pursuant to authority granted in the Administration Agreement,
Bank of America has entered into an agreement with PFPC under which PFPC has
agreed to provide certain accounting, bookkeeping, pricing and dividend and
distribution calculation services for the Fund. The Fund bears all fees and
expenses charged by PFPC for these services.
19
<PAGE> 80
DISTRIBUTOR AND TRANSFER AGENT
Effective September 15, 1997, Provident Distributors, Inc. ("PDI"), assumed
responsibility as principal underwriter and distributor of shares of the Fund.
Prior to such date, Concord Financial Group Inc. (the "Former Distributor") also
a wholly-owned subsidiary of BISYS served as distributor of the Fund.
Additionally on October 24, 1997, PFPC assumed responsibility as the Fund's
transfer agent and dividend disbursing agent. BISYS Fund Services, Inc. ("BISYS
Ohio") also a wholly-owned subsidiary of BISYS, served the Fund in such capacity
prior to such date.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. These policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
PORTFOLIO VALUATIONS
The 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 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 its 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, which
approximates market value.
SECURITIES TRANSACTIONS AND RELATED INCOME:
The Fund records security transactions on a trade date. Interest income,
including accretion of discount and amortization of premium, is accrued daily.
20
<PAGE> 81
Realized gains and losses from securities transactions are recorded on the
identified cost basis.
EXPENSES:
The Company accounts separately for the assets, liabilities and operations
of each fund. Direct expenses of a fund are charged to that fund while general
Company expenses are allocated among the Company's respective portfolios.
The Fund incurred certain costs in connection with its organization. Such
costs have been deferred and are being amortized by the Fund on a straight line
basis over five years.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
The Fund's net investment income is declared daily and paid monthly as a
dividend to shareholders of record at the close of business on record date. Net
realized gains on portfolio securities, if any, are distributed at least
annually. However, to the extent that net realized gains of the Fund can be
offset by capital loss carryovers of the Fund, such gains will not be
distributed. Dividends and distributions are recorded by the Fund on the
ex-dividend date.
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, 1998, the following reclassifications have been made to
increase (decrease) such accounts primarily due to paydown adjustments for tax
purposes:
<TABLE>
<CAPTION>
ACCUMULATED UNDISTRIBUTED ACCUMULATED NET REALIZED
NET INVESTMENT INCOME GAIN ON INVESTMENTS
------------------------- ------------------------
<S> <C> <C>
Short-Term Government
Fund............... $4,749 ($4,749)
</TABLE>
21
<PAGE> 82
FEDERAL INCOME TAXES:
It is the Fund's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
timely, all of its net investment company taxable income and net capital gains
to shareholders. Therefore, no Federal income tax provision is required.
NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund has an Investment Advisory and Administration Agreement with Bank
of America. For the period ended September 15, 1997, the Fund had an
Administration Agreement with BISYS and a Distribution Agreement with the Former
Distributor. Pursuant to the terms of the Investment Advisory Agreement, Bank of
America is entitled to a fee from the Fund, which is accrued daily and payable
monthly, at an annual rate of 0.25% of the Fund's average daily net assets. For
the year ended February 28, 1998, Bank of America agreed to waive $64,249 of its
advisory fees for the Fund. Pursuant to the terms of the Administration
Agreement, Bank of America is entitled to a fee from the Fund, which is accrued
daily and payable monthly, at an annual rate of 0.20% of the Fund's average
daily net assets. Pursuant to the terms of the former administration agreement,
BISYS was entitled to the same fee in effect under the current Administration
Agreement. For the year ended February 28, 1998, the administrators waived
$51,399 of their administration fee for the Fund. During the same period Bank of
America reimbursed $52,181 in operating expenses of the Fund.
For the year ended February 28, 1998, the Distributor advised the Fund that
it retained no commissions on sales of the Fund's shares. For the same period,
Bank of America and its affiliates advised the Fund that they retained no
commissions on sales of the Fund's shares.
The Fund has a Shareholder Services Plan (the "Plan") under which PDI and
the Former Distributor incurred shareholder servicing expenses in connection
with A Shares of the Fund. Under the Plan, payments by the Fund for shareholder
servicing expenses may not exceed 0.25% of each Fund's average daily net assets.
For the year ended February 28, 1998, shareholder service fees incurred pursuant
to the Plan totaled $64,249. The Plan provides that if, in any month, the fees
paid to PDI and the Former Distributor are less than the costs incurred by PDI
and the Former Distributor, the excess costs will be included in future
computations of the fee, provided that any excess costs will not be carried
forward beyond the end of the fiscal year in which such excess costs were
incurred. PDI and the Former Distributor waived shareholder servicing fees of
$64,249 during the year ended February 28, 1998.
22
<PAGE> 83
From the period October 24, 1997 through February 28, 1998, PFPC earned
$7,218 from the Fund for transfer agency and dividend disbursing agency services
performed. BISYS Ohio served the Fund as transfer agent and dividend disbursing
agent through October 24, 1997. In these capacities, BISYS Ohio earned $29,156
from the Fund for the period March 1, 1997 through October 24, 1997.
For the year ended February 28, 1998, the Fund incurred legal charges
totaling $1,066 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 PFPC. 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 $50,000,
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 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 will
receive an additional 10% of their annual Director's retainer for each year of
service between years six and nine, plus one half of the difference between 100%
and the director's applicable percentage. A Director who dies or resigns after
ten 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 after February 28,
1994; however a director in office on March 18, 1998 who either
23
<PAGE> 84
resigns in good standing or dies before completing five years of service as a
director should be assigned an Applicable Percentage of 50 percent. Aggregate
costs pursuant to the Retirement Plan amounted to $1,801 for the Fund, for the
year ended February 28, 1998. A director who comes into office after March 18,
1998 is ineligible to participate in the Retirement Plan.
NOTE 5 -- SECURITIES TRANSACTIONS
For the year ended February 28, 1998, the cost of purchases and the proceeds
from sales of Fund securities (excluding short-term investments) amounted to
$36,439,295 and $18,580,204, respectively.
NOTE 6 -- CAPITAL SHARE TRANSACTIONS
Transactions in capital shares for the Fund are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
FEBRUARY 28, 1998 FEBRUARY 28, 1997
------------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ --------- -----------
<S> <C> <C> <C> <C>
A SHARES
Issued.................... 2,709,051 $ 27,125,076 1,739,262 $17,406,395
Reinvested................ 797 7,986 65 646
Redeemed.................. (1,003,872) (10,055,621) (185,384) (1,855,045)
---------- ------------ --------- -----------
Net increase................ 1,705,976 $ 17,077,441 1,553,943(a) $15,551,996(a)
========== ============ ========= ===========
</TABLE>
- ---------------
(a) Period from August 2, 1996 (inception date of fund) to February 28, 1997.
24
<PAGE> 85
PACIFIC HORIZON SHORT-TERM GOVERNMENT FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
FEBRUARY 28, FEBRUARY 28,
1998 1997(A)
------------ ------------
<S> <C> <C>
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD......... $10.00 $10.00
------ ------
Income from Investment Operations:
Net investment income................................ 0.55 0.32
Net realized gains on investment transactions........ 0.03 0.01
------ ------
Total income from investment operations................ 0.58 0.33
Less Dividends and Distributions:
Dividends to shareholders from net investment
income............................................. (0.55) (0.32)
Distributions to shareholders from net realized gains
on investment transactions......................... --(d) (0.01)
------ ------
Total Dividends and Distributions...................... (0.55) (0.33)
------ ------
Net change in net asset value per share................ 0.03 0.00
------ ------
NET ASSET VALUE PER SHARE, END OF PERIOD............... $10.03 $10.00
====== ======
Total return........................................... 5.99% 3.33% (c)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (millions)............... $ 33 $ 16
Ratio of expenses to average net assets.............. 0.25% 0.11% (b)
Ratio of net investment income to average net
assets............................................. 5.49% 5.53% (b)
Ratio of expenses to average net assets*............. 1.15% 3.15% (b)
Ratio of net investment income to average net
assets*............................................ 4.59% 2.49% (b)
Portfolio turnover rate.............................. 82% 81% (c)
</TABLE>
- ---------------
* 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 shown.
(a) Period from August 2, 1996 (inception date of fund) to February 28, 1997.
(b) Annualized.
(c) Not annualized.
(d) Amount represents less than a penny per share.
See Notes to Financial Statements.
25
<PAGE> 86
PACIFIC HORIZON SHORT-TERM GOVERNMENT FUND
- --------------------------------------------------------------------------------
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Board of Directors
and Shareholders of
Pacific Horizon Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statement of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Pacific Horizon Short-Term
Government Fund (one of the seventeen portfolios constituting Pacific Horizon
Funds, Inc., hereafter referred to as the "Fund") at February 28, 1998, the
results of its operations for the year then ended and, the changes in its net
assets and the financial highlights for 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 Fund'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, 1998 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
April 21, 1998
26
<PAGE> 87
For more information, complete the following form and mail it to:
Pacific Horizon Funds, Inc.
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> 88
Bulk Rate
U.S. Postage
PAID
New York, NY
Permit No. 8048
[PACIFIC HORIZON FUNDS LOGO]
Provident Distributor, Inc., Distributor
SGV-0005 4/98
<PAGE> 89
PACIFIC HORIZON INTERNATIONAL EQUITY FUND
ANNUAL REPORT
February 28, 1998
International Equity Fund
Investing For All
The Times Of Your Life
NOT FDIC INSURED
PACIFIC HORIZON INTERNATIONAL EQUITY FUND
<PAGE> 90
PACIFIC HORIZON FUNDS, INC.
103 Bellevue Parkway
Wilmington, DE 19809
1-800-332-3863
INVESTMENT ADVISER
Bank of America National Trust
and Savings Association
555 California Street
San Francisco, CA 94104
ADMINISTRATOR
Bank of America National
Trust and Savings Association
555 California Street
San Francisco, CA 94104
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
Provident Distributors, Inc.
Four Falls Corporate Center
6th Floor
Conshohocken, PA 19428
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 Provident
Distributors, Inc. which is unaffiliated with the Bank of America. Bank of
America serves as investment adviser to the Funds 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, NOT
BANK OF AMERICA OR ANY AFFILIATES. AN INVESTMENT IN FDIC
MUTUAL FUNDS INVOLVES INVESTMENT RISKS, INCLUDING THE INSURED
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
- ----------------------------------------------------------------------------
</TABLE>
-----------------------------------------------------------------------------
--------------------------------------------------------------------------
<PAGE> 91
..................................
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 MANAGER 10-19
PACIFIC HORIZON INTERNATIONAL
EQUITY FUND
PORTFOLIO OF INVESTMENTS 20-26
STATEMENT OF ASSETS
AND LIABILITIES 27
STATEMENT OF OPERATIONS 28
STATEMENTS OF CHANGES
IN NET ASSETS 29
NOTES TO FINANCIAL
STATEMENTS 30-40
FINANCIAL HIGHLIGHTS 41-42
REPORT OF INDEPENDENT
ACCOUNTANTS 43
</TABLE>
<PAGE> 92
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>
- ---------------------------------------------------------------------------
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*(dagger)
- Tax-Exempt Money High Level of Federal Tax-Free Current
Income Plus Principal Stability
- California Tax-Exempt Money High Level of Federal and California
Market 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.
(dagger) 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> 93
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
Preferred Stocks and capital appreciation.
...........................................................................
Stocks, Bonds and Cash Long-term growth potential and current
Equivalents income from stocks and bonds.
...........................................................................
Investment-Grade Corporate Debt High monthly income potential with
reasonable investment risk.
...........................................................................
Investment-Grade Corporate and Regular monthly income from a
U.S. Government Securities diversified portfolio of
investment-grade securities.
...........................................................................
GNMAs and Other U.S. Government High monthly income potential and low
Securities credit risk.
...........................................................................
U.S. Government and Government Monthly income and relative stability
Agency Securities of investment.
...........................................................................
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 A flexible, convenient way to manage or
U.S. Government Short-Term accumulate cash while waiting for other
Obligations 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
Obligations cash while waiting for other investment
opportunities.
</TABLE>
- --------------------------------------------------------------------------------
3
<PAGE> 94
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
MANAGER enables you to gain
insight into the Fund's
investments and learn more
about the Fund manager's
strategies.
[GRAPHICS]
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.
[GRAPHICS]
4
<PAGE> 95
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
[GRAPHICS]
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
[GRAPHICS]
THE CURRENT NET ASSET VALUE PER SHARE PLUS SALES CHARGE, IF ANY
5
<PAGE> 96
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
[GRAPHICS]
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
[GRAPHICS]
The NOTES TO FINANCIAL STATEMENTS are footnotes to the statements listed above.
These notes include information on accounting methods used by the Fund,
contractual arrangements between the Fund and its service providers, certain
transactions effected by the Fund and other general information about the Fund.
The FINANCIAL HIGHLIGHTS shows, for a single share outstanding throughout each
period presented, the net investment income, the realized and unrealized gains
and losses and the dividends and distributions of the Fund. It also shows key
data and ratios (such as the total investment return for each period), the
portfolio turnover rate for Funds other than money market mutual funds, the
ratio of expenses to average net assets and the ratio of net investment income
to average net assets.
6
<PAGE> 97
[This page intentionally left blank.]
7
<PAGE> 98
ECONOMIC REVIEW
FROM THE INVESTMENT ADVISER
Fourth quarter Gross Domestic Product was reported at a 3.7%* annualized rate,
with inflation continuing to be non-existent and a positive factor for the
economy and the domestic financial markets. Changes in consumer prices are
negligible and producer prices are actually declining. Historically high
consumer confidence, resulting from strong job growth, wage gains and the
positive wealth effect created by the buoyant stock market, has created solid
income growth and has fueled the robust housing market in the first quarter of
1998. Consumers have been the primary beneficiaries of the turmoil in the Asian
markets. Lower bond yields, a by-product of the Asian financial crisis, have
resulted in lower mortgages payments for households looking to buy a home.
THE CASE FOR
STOCKS AND BONDS
The Standard & Poor's Stock Index posted a total return of 35.1%** during the 12
month period ended February 28, 1998, amply rewarding long-term investors who
rode out volatility that accompanied the Asian financial crisis. The best
performers were concentrated among shares of large company stocks, which
significantly outpaced shares of smaller firms.
Companies have been issuing reduced earnings forecasts at an increasing rate.
Despite the early warnings, the reduced earnings expectations have not put a
damper on the stock market. The bullish sentiment for low inflation and
continuing strong profits for 1998 are propelling the stock markets to new
highs. The Dow*** has gained 8.4% during the first two months of the year,
significantly higher than expected. Overall, the U.S. economy seems poised for
continued moderate growth, which is good news for stocks. We think it is
reasonable to expect P/E ratios to stay at current levels of 22 times 1998
earnings. That gives an estimated market return over the next 12 months of 9%
(7.8% from earnings growth and 1.2% from dividend yield).
Fixed income investors remain optimistic due to the lack of price pressures, the
strong dollar and the expectation of an Asia-led slowdown in the U.S. Interest
rates on Treasuries have fallen across the yield curve over the last twelve
months and are currently below 6%, the lowest level in 25 years. The finance
sector has been outperforming expectations as of late, which has a lot to do
with the wave of colossal merger and acquisition activity sweeping across
financial institutions.
The prospects for a government budget surplus in fiscal 1998 are growing. Some
economists are predicting as much as a $50 billion surplus due to large tax
revenues as well as efforts to reduce government spending. These revenue flows
will serve to reduce immediate government financing needs. Already, we have seen
cuts in the size of Treasury auctions so far this year.
POTENTIAL RISKS
The Asian financial crisis, which began in the third quarter of 1997, is
expected to modestly impact U.S. domestic growth. As expected, trade between
U.S. and Asian trade partners has sharply deteriorated, with the current account
deficit widening to its highest level in ten years. The deficit widened to
$166.5 billion in 1997, up from $148.2 billion for 1996. The largest threat to
the U.S. economy, according to The Organization for Economic Cooperation and
Development (OECD), would be a second round of currency devaluations in Asia. It
could happen again if Japan fails to jumpstart its economy.
While the final outcome of the Asian financial crisis remains unclear, the
initial predictions of a global financial crisis have not been supported by the
evidence.
8
<PAGE> 99
With the Asian crisis potentially constraining corporate profitability in the
second or third quarter, we expect that growth will slow during the remainder of
the year.
Tame inflation continues to be the theme du jour as the Consumer Price Index's
1.4% increase over the past 12 months is the second lowest reading in 33 years,
outdone only by the collapse in oil prices in 1986. The lack of inflationary
pressures and the uncertainty surrounding the Asian financial crisis have kept
the Federal Reserve from raising interest rates. The Fed funds rate has remained
at 5.50% since last March. However, the labor market is stretched and wage
pressures are intensifying. So far, increased productivity has compensated for
wage increases; however, recent significant increases in real asset values, such
as housing and land, have not gone unnoticed by Chairman Greenspan and may play
a factor in determining monetary policy over the coming months.
LOOKING FORWARD
It is now a widely accepted view that the U.S. economy is growing at a faster
pace early in 1998 than analysts had projected last year at the height of the
Asian turmoil. Although the preliminary GDP figure will not be released until
the end of April, the early estimate for the first quarter lies somewhere
between 3.5 - 4.0%. In order to reach the projected 1998 growth rate of 2.8%,
U.S. growth will have to sustain a considerable slowdown in the latter part of
the year to compensate for the strengths it is exhibiting now.
Looking forward, there are a lot of crosscurrents in the U.S. corporate earnings
picture. Ironically, the impact from the Asian financial crisis so far have been
positive, with lower interest rates boosting the economy. In the first quarter,
currency and oil earnings will be negative factors, but stronger economic growth
will offset any weaknesses. In the second and third quarters, we expect the
impact from Asia should be mitigated by strong growth in Europe. We continue to
believe that the economic impact from Asia will be moderate with the U.S.
economy slowing, but sustaining a near normal growth rate of 2.8% in 1998. Given
these projections, we expect equities and fixed income securities to perform
well in 1998, although below 1997 levels.
Sincerely,
/s/ Kirk Hartman
Kirk Hartman
Chief Investment Officer of
Fixed Income Management
- ---------------
* Source: Bloomberg, 1998.
** Source: Bloomberg, 1998. 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 Dow Jones Industrial Average is a price-weighted average of 30 actively
traded blue chip stocks and cannot be invested in directly.
9
<PAGE> 100
PACIFIC HORIZON
INTERNATIONAL EQUITY FUND
TROND SKRAMSTAD PHOTO
TROND SKRAMSTAD
Senior Vice President and Partner
Wellington Management Co., LLP
Sub-Adviser to the Fund
Mr. Skramstad directs the Global Equity Strategy Group and plays a key role in
the management of this Fund.
GOAL:
The Pacific Horizon International Equity Fund seeks long-term capital growth.
INVESTMENTS:
The Fund invests in a diversified portfolio of equity securities of companies
that are domiciled or have their principal activities in countries outside the
U.S.
APPROPRIATE FOR:
Investors who want to diversify their investments in foreign equity markets and
who are prepared to accept the risks associated with such investments.
INCEPTION:
May 13, 1996
SIZE OF FUND AS OF
FEBRUARY 28, 1998:
Over $42 million
Q
DESCRIBE THE FUND'S INVESTMENT STRATEGY AND OBJECTIVES.
A
The investment objective of the Fund is to seek long-term capital growth
primarily through investments in foreign equity securities. During normal market
conditions, the Fund will invest at least 80% of its total assets in equity
securities of companies domiciled or having their principal activities in
countries outside the U.S. The base currency of the Fund is U.S. dollars.
Wellington Management Company, LLP employs an active international equity
management style based on intensive fundamental research. The Fund is managed by
Wellington Management Company's Global Equity Strategy Group (GESG). Trond
Skramstad, Chairman of the GESG, and Andrew S. Offit, Associate Portfolio
Manager, have primary day-to-day responsibility for the Fund relying on the
input of the GESG. This management team emphasizes high quality, large-cap
stocks within the established markets but may also invest in smaller companies
and emerging markets. The Fund will generally be fully invested, and currency
management is used for defensive hedging purposes.
The cornerstone of Wellington Management's international investment approach is
fundamental research. The GESG combines inputs from regional analysts, global
industry analysts and global economists. As a core portfolio, the Fund will be
diversified by country, industry, and company.
Q
HOW DID THE FUND PERFORM DURING THE 12 MONTHS ENDED FEBRUARY 28, 1998?
A
The Fund had a total return of 10.32% for the 12 months ended February 28,
1998 for A Shares (without the sales charge.)* For the 12 months ended
10
<PAGE> 101
February 28, 1998, K Shares had a total return of 9.35%. By comparison, for the
12 months ended February 28, 1998, the Fund's benchmark, the Morgan Stanley
Capital International (MSCI) all country World Free ex-US Index returned
12.1%.**
The Fund's below-benchmark performance was primarily the result of the
portfolio's positioning in Japan and to a lesser extent, our strategy in
Developed Asia and the United Kingdom.
- - Japan
Throughout 1997, we maintained a slightly-above consensus forecast on Japanese
economic growth. At that time, only the Japanese global exporters such as Toyota
and Sony were maintaining their valuations and many segments of the market were
close to collapse. We incorrectly concluded that one such segment, the smaller
capitalization stocks with relatively high sensitivity to the domestic economy,
was ready to rebound and thus built up positions in several of these stocks. In
fact, many investors concluded the exact opposite and stuck only with the
largest of the names in the Index. It played out that the Japanese economy did
not rebound and domestic spending as of this writing remains weak. As a result,
the Japanese portion of our portfolio significantly underperformed MSCI Japan.
- - Developed Asia
As believers in the value of diversifying the Fund into the Asian markets of
Hong Kong, Singapore, Malaysia, Australia and New Zealand, we had a slightly
above benchmark weight in Developed Asia in the initial part of the year. This
small bet in itself proved to be slightly negative to relative performance as
these markets collapsed in the latter half of 1997. However, our stock selection
was also a drag on portfolio performance. Our exposure to financial services and
real estate in Hong Kong and Singapore proved costly as well as our
under-exposure to Australian banks, which performed strongly on the back of
falling Australian yields.
- - The United Kingdom
After an extended period of British pound strength, many of the UK industrial
companies had suffered a relative downgrade to their competitiveness. Our belief
was that the British pound would weaken versus continental European currencies
as we headed into 1998. Based on this view, we held an overweight position in
companies that should benefit from this development. Subsequently, the pound did
not weaken and additionally, many UK exporters were seen to have large exposure
to the troubled Asian economies. As a result, the portfolio's UK exposure
underperformed MSCI United Kingdom. This is a position we are re-examining in
light of an increasing possibility that a politically driven and uncompetitive
exchange rate parity could be set for the pound should the UK enter into
European Monetary Union sometime over the next two to three years.
These areas of underperformance were in large measure offset by several positive
investments during the past twelve months. Chief among these were (1) the
decision to underweight Japanese stocks; (2) the Fund's overweight position in
European markets and stock selection in Continental Europe; (3) the timing and
execution of the Fund's investments in Latin America - where the Fund was
overweight early in the year and where we trimmed before the Asian contagion
started to adversely affect that region; as well as (4) an extremely small
absolute position (and a significant underweight to the benchmark) in Asian
emerging markets.
11
<PAGE> 102
Q
WHAT IS THE FUND'S BENCHMARK? WILL THE FUND'S PORTFOLIO DIFFER FROM THAT OF
THE BENCHMARK?
A
The Fund's benchmark is the MSCI All Country World Free ex-US Index. The
Index is market capitalization-weighted and reflects the actual universe of
opportunities for a global investor in 47 developed and emerging markets. The
market capitalization profile of the Fund will, in general, be relatively
similar to the MSCI All Country Free ex-US Index, with a concentration in larger
capitalization stocks. Names that are smaller, i.e. with a market capitalization
of less than $2 billion, however, are used on an opportunistic basis.
The portfolio management process incorporates both bottom-up fundamental
security analysis as well as top-down insights. Our focus is to add value
through security selection as well as by making judgments on country- and
industry-level portfolio weights. As a result, the Fund typically diverges from
the Index on a country, industry, and security basis.
Q
HOW DID THE PERFORMANCES OF THE NON-US MARKETS COMPARE TO THAT OF US STOCK
MARKET FOR THE 12 MONTHS ENDING FEBRUARY 28, 1998 AND SINCE THE INCEPTION
PERIOD?
A
Stock markets around the world varied dramatically by region for the 12
months ending February 28, 1998. The US stock market returned 35.1%, as measured
by the total return of the S&P 500 Index***. Hurt by a strong dollar and a
difficult year in the Pacific Basin countries, the MSCI All Country World Free
ex-US Index rose only 12.1% in US dollar terms. As the Asian turmoil unfolded,
the Pacific Basin ex-Japan Index returned - 25.2% and the Japanese equity market
returned -8.2% in US dollar terms for the 12 months ending February 28, 1998.
All the European markets rallied as the MSCI Europe Index was up 37.3% in US
dollar terms driven by falling interest rates and an improving economic
environment. In particular, Spain, Switzerland and Italy registered strong
performance, posting returns of 62.1%, 57.9% and 56.8% in US dollar terms
respectively. Latin American markets were mixed during the 12 month period as
Brazil returned 1.9% while Mexico returned 21.3% in US dollar terms. Throughout
much of the year a strong US dollar hurt returns for non-US stocks.
Q
HOW HAVE YOU BEEN MANAGING THE FUND SINCE ITS INCEPTION?
A
Wellington Management Company, LLP began managing the Fund in January of
1997, and the approach employed has been consistent since the Fund's inception.
Currently, the Fund is invested in 27 countries and 160 equity names. The Fund's
exposure by region is as follows: Europe: 62%, Japan: 14%, Pacific Basic Japan:
6%, Latin America/Canada 5%, and cash 13%****. Going forward, we intend to
continue to diversify across industries and countries to take full advantage of
opportunities as we find them.
Q
WHAT IS THE OUTLOOK FOR THE FUND AND OVERSEAS MARKETS IN THE YEAR AHEAD?
A
Outlook and Investment Strategy
EUROPE (62% OF PORTFOLIO)
The Fund benefited from its overweighted position in the European markets
throughout the entire fiscal year. Stock selection in Europe also continues to
be strong. The Fund's holdings in the financial sector rose sharply on actual
and expected European merger and acquisition activity. For example, the Fund
holds AGF, the French insurer, which rose 54% in U.S. dollar terms for the
twelve months
12
<PAGE> 103
ended February 28, 1998 as it became the target of takeover bids by Germany's
Allianz and Italy's Generali. Other French bank holdings, BNP (+36%) and CCF
(+61%) also rose during the fiscal year as investors pushed up bank prices
across the continent in anticipation of a wave of mergers as well as significant
improvement in earnings growth.
In the United Kingdom, the Fund's holdings adversely affected performance as our
forecast of a weaker pound versus the European continental currencies has not
yet materialized. Thus, portfolio holdings which are sensitive to export
earnings such as the electronics materials firm Cookson (+1%), the engineering
firm BTR (-38%), and the industrial gas producer BOC (+1%) underperformed the UK
market (+37%) as the strong pound hurt their competitive positioning.
In the rest of Europe, the Fund continued to benefit from positive stock
selection in several smaller countries. In Denmark, the Fund's large position in
Unidanmark (+43%) rose as the stock is now considered a strong regional takeover
target. Finally, in Switzerland, we added a position in Roche (+32%), the global
pharmaceutical, which had become more fairly valued since pulling back from the
extreme levels it hit mid-summer.
We view the economic and stock market dynamics in Europe as the most positive in
the world at this time. On a company by company basis, we find European
management becoming increasingly focused on the bottom line. Global competition
and the move to monetary union is accelerating this process, which in turn is
increasing merger and acquisition activity, thus supporting equity prices. While
European profits may be impacted somewhat by the Asian turmoil, the European
economy has less exposure to Southeast Asia than is true for most other major
regions of the world. Therefore company profits in Europe should continue to
increase significantly for the rest of 1998 as economic growth continues to
improve and currencies remain highly competitive. Meanwhile tight fiscal
policies and still relatively high unemployment keep inflation and interest
rates in check. Low inflation, continued solid profits growth, monetary union
and a new sense of shareholder value will support the European stock markets in
our view. We are maintaining an overweight position relative to the benchmark.
JAPAN (14% OF PORTFOLIO)
In Japan, the Fund benefited from its underweight position versus the benchmark
as the Japanese market fell -8.2% in the twelve months ended February 28, 1998
versus +12.1% for the Index as a whole. During the earlier months of the fiscal
year, we were slightly underweight in Japan versus the benchmark (-2% to -3%).
Towards the second half of the fiscal year, we became more cautious of the
economic health of Japan and we increased our underweight position to over -6%
relative to the Index. We are staying underweight as corporate management and
economic policy makers continue on their path of "too-little-too-late" in an
overall recessionary domestic economy. This is to some extent offset by
valuations that are becoming increasingly attractive on a global basis. We do
not yet see a catalyst, however, for a broad based rally. For that to happen,
the government must put in place meaningful measures to stimulate private
consumption growth, preferably through a permanent income tax cut. We also need
to see further changes in both the regulatory framework and company management
attitudes to allow for the efficient use of capital through an unwinding of
cross share holdings and a real possibility of hostile merger and acquisition
activity.
13
<PAGE> 104
In the meantime, given a more sluggish domestic growth outlook, we have
repositioned the portfolio by adding to particularly well-positioned exporters
such as Rohm, the electrical components maker, Sony, the consumer electronics
giant, and domestic defensives such as NTT, the giant telecommunications
company.
DEVELOPED ASIA (6% OF PORTFOLIO)
While the Fund had an overweight position, in Australia and New Zealand in
particular, versus the benchmark in Developed Asia for most of the fiscal year,
we trimmed our exposure over the last two months and reached an overall neutral
weight versus the Index at the closing of the fiscal year. Toward the end of
1997, investments in Developed Asia negatively impacted portfolio returns. As of
February 28, 1998, the Fund has slight overweight positions in Singapore
(-28.5%), New Zealand (-6.6%) , and Australia (-0.6%), and underweight positions
in Hong Kong (-19.0%) and Malaysia (-60.1%). Valuations for many companies in
the region have greatly improved in the last few months, although the economic
and political backdrop varies greatly. We continue to believe that Singaporean
equities have been unfairly penalized during the recent correction. Companies in
Singapore like Overseas Union Bank, which we purchased during the last quarter
of 1997, have relatively solid balance sheets, and are well positioned to take
advantage of changing regional competition. We are also still long-term
believers in Hong Kong, and valuations there certainly have improved, but we
remain cautious as the region's turmoil is likely to continue to cast a pall
over this market in the short run.
EMERGING MARKETS (4% OF PORTFOLIO)
Emerging Asia (1% of portfolio)
The Fund maintained an underweight position in Emerging Asia versus the Index
throughout the fiscal year, assisting in overall relative performance. Despite
the Fund's small weighting in this region of the world as of February 28, 1998,
small positions in Indonesia (-81.7%), the Philippines (-55.2%) and Thailand
(-55.1%) were a drag on performance in absolute terms. A number of constructive
steps have recently taken place in countries such as Thailand and Korea. We
believe we may have passed the worst, however, the environment remains
unpredictable. We also expect significant divergence among the markets. We are
looking to add to the region, but are extremely selective in our approach. While
we believe the long-term growth story of this region is still intact, the
working out of current problems is likely to be gradual. Further major corporate
bankruptcies are expected, the implementation of promised changes to fiscal and
monetary policies is uncertain, and politics and the well entrenched "crony
capitalism" remain obstacles to rapid reform. In the short run, we remain
cautious about investing in these countries and are staying underweight Emerging
Asia.
Latin America (3% of portfolio)
During the first half of the fiscal year, the Fund had an overweight position
versus the benchmark in Latin America. Toward the second half of the fiscal
year, the Fund held an underweight position in the region. As of February 28,
1998, the Fund has slightly above benchmark weight in Argentina (+9.9%) and
Mexico (+21.3%) while Brazil (+1.9%) and Chile (-14.8%) have weights below the
benchmark. We view that the contagion from the Asian crisis is not likely to
pass quickly, and started trimming our Latin American holdings in the latter
part of the year on a selective basis.
14
<PAGE> 105
Q
WHICH COUNTRIES LOOK STRONG OR WEAK?
A
The European economies are accelerating as a result of favorable
macroeconomic conditions and the move toward the monetary union. We plan to
maintain an overweight position in the region. Our strategy in Japan remains
cautious given the structural challenges ahead and the relatively soft economic
picture. In the Pacific Basin ex-Japan region, we expect the effects of the
Asian crisis will take time to resolve but we are also looking for selected
opportunities. In Latin America, we are participating, but have a reduced
exposure as the contagion from the Asian turmoil will remain in the near term.
Q
HOW DOES THE DOLLAR'S STRENGTH AFFECT THE FUND'S PERFORMANCE?
A
As the Fund's currency denomination is in U.S. dollars, when the value of
the U.S. dollar declines, foreign investments such as the Fund increase in value
for a U.S. dollar-based investor. Conversely, if the U.S. dollar appreciates,
non-U.S. securities decrease in value in U.S. dollar terms. For example, if the
Fund owns 100 shares of a Japanese stock trading at 1,500 yen, the investment is
worth 150,000 yen. If the exchange rate is 100 yen per dollar, the investment is
worth $1,500 (150,000 / 100). If the yen subsequently appreciates against the
dollar by 5% to a rate of 95 yen per dollar, and the share price of the stock is
unchanged, the value of the investment would increase by the same 5% to
approximately $1,579 (150,000 / 95). The Fund's currency exposure will normally
be unhedged. The Fund's currency exposures are carefully monitored, however, and
may be selectively hedged as circumstances warrant. For example, the Fund has
been holding put options on the Brazilian Real since July 1997.
Q
WHO SHOULD CONSIDER INVESTING IN THIS FUND?
A
Investors looking for broad based exposure to investment opportunities in
equity markets outside the U.S. as well as those with other assets, such as U.S.
equities, can potentially achieve an overall portfolio risk reduction by
investing in the Fund.
Depending on the investor's time horizon, most long-term investors should have a
greater percentage of their assets in equities versus bonds, cash, or tangibles.
Of this equity portion, it is advisable to have a component invested
internationally as the diversification provides for a better risk-return profile
over the long-term. Globally diversified portfolios, those invested in many
countries, are less volatile than single country portfolios. However, while
international investing generally improves an investor's risk and return
profile, international investments can also involve risks not usually associated
with domestic investments. These may include currency risk, as well as the risks
associated with political uncertainty. In addition, capital market structures
around the globe vary, as do accounting techniques. While these factors can
contribute to the risk of international investing, they also present
opportunities for the experienced international investor to deliver attractive,
long-term returns.
* Return figures for the Fund include change in share price, reinvestment of
dividends and capital gain distributions. Performance figures do not
reflect the maximum 4.50% front-end sales load, which applies to some
investors. Fund performance with the 4.50% maximum sales charge was 5.33%
for the period. The Fund is currently waiving a portion of the advisory,
administrative and/or shareholder serving fee. This voluntary waiver may be
modified or terminated at any time, which would reduce the Fund's
performance.
15
<PAGE> 106
** The Morgan Stanley Capital Index (MSCI) All Country World Free ex-U.S.
Index is an unmanaged index generally representative of the international
equity market as a whole (excluding the U.S.) and cannot be invested in
directly. The S&P 500 is an index typically used to represent the
large-capitalization U.S. equity market as a whole, and cannot be invested
in directly.
*** Source: Standard & Poors Micropal, 1998. The S & P 500 is an unmanaged
index generally representative of the equity market as a whole and cannot
be invested in directly.
**** The composition of the Fund's holdings is subject to change.
The performance data quoted represents performance and is not an indication of
future results. The investment return and Net Asset Value will fluctuate so that
an investors shares when redeemed, may be worth more or less than their original
cost.
16
<PAGE> 107
PACIFIC HORIZON
INTERNATIONAL EQUITY FUND
(AS OF FEBRUARY 28, 1998)
GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)
<TABLE>
<CAPTION>
LIPPER MSCI ALL
INTERNATIONAL COUNTRY
MEASUREMENT PERIOD EQUITY FUND WORLD FREE
(FISCAL YEAR COVERED) A SHARES K SHARES AVERAGE EX-U.S. INDEX
<S> <C> <C> <C> <C>
5/13/96 9551.10 10000.00 10000 10000
8/31/96 9283.67 9720.00 9807 9774
2/28/97 9475.68 9891.04 10528 10175
8/31/97 10073.00 10478.00 10493 10354
2/28/98 10454.00 10816.00 11982 11412
</TABLE>
HOW PERFORMANCE COMPARES
The chart compares the Pacific Horizon International Equity Fund to the Morgan
Stanley Capital International (MSCI) All Country World Free ex-U.S. Index, which
is an unmanaged index typically used as a performance benchmark for
international equity investments.
As illustrated, the Fund tracked the performance of other international equity
funds. The average of international equity funds as reported by Lipper
Analytical Services, Inc. measures the performance of other funds with
investment objectives and policies similar to those of the Pacific Horizon
International Equity Fund. An initial $10,000 investment in the Fund made on May
13, 1996 would now be worth $10,454 for A Shares. The same investment made in
the Lipper International Equity Fund Average would now be worth $11,982.
Correspondingly, a $10,000 investment in K Shares for the same period would now
be worth $10,816.*
FEDERAL INCOME TAX STATUS OF DIVIDENDS (UNAUDITED)
The Pacific Horizon International Equity Fund distributed a total Capital Gain
Dividend of $0.270588 for the year ended February 28, 1998. Of this total
Capital Gain Dividend amount, the Fund made a 28 percent rate distribution of
$0.009955.
SEE INVESTMENT MANAGER INTERVIEW FOR FACTORS AFFECTING FUND PERFORMANCE.
The performance data quoted represents past performance and is not an indication
of future results. The investment return and principal value are historical and
will vary with market conditions, so an investor's shares, when redeemed, may be
worth more or less than their original cost.
INTERNATIONAL EQUITY FUND
AGGREGATE TOTAL RETURN
<TABLE>
<CAPTION>
-----------------------------------------------------
A SHARES K SHARES*
Without With
Sales Sales
Charge Charge
------------------------------------------------------
<S> <C> <C> <C>
1 Year 10.32% 5.33% 9.35%
- -----------------------------------------------------
Since Inception 5.15% 2.50% 4.46%
(5/13/96)
</TABLE>
Performance quoted is not annualized. Return figures for the Fund include change
in share price, reinvestment of dividends and capital gains distributions.
17
<PAGE> 108
* The inception date of the K Shares (the date K shares were initially funded)
was July 22, 1996. The K shares did not commence operations until October 25,
1996. For this reason, the performance results for K Shares are those of A
Shares without the sales charge prior to such date. 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 load but have
an ongoing .75% distribution or administrative services fee (of which .25% are
currently being waived), which would have reduced prior performance.
Lipper Analytical Services, Inc. is an independent mutual fund-monitoring
organization. Neither the Lipper International Equity Fund Average, nor the
Morgan Stanley Capital International (MSCI) All Country World Free ex-U.S. Index
may be invested in directly. The hypothetical investment in the Morgan Stanley
Capital International (MSCI) All Country World Free ex-U.S. Index does not
reflect any sales or management fees that would be incurred if an investor were
to actually purchase individual securities or mutual funds, while the
performance of the Fund reflects all expenses and management fees and the effect
of the maximum sales charge.
18
<PAGE> 109
PACIFIC HORIZON
INTERNATIONAL EQUITY FUND
(AS OF FEBRUARY 28, 1998)
A WORLD OF INVESTMENT OPPORTUNITY
An investment in the Pacific Horizon International Equity Fund offers
shareholders the potential to take advantage of the expanding universe of
international equity investments.
As you can see on the chart below, stocks of companies headquartered outside the
United States increasingly make up a larger portion of the world's capital
markets.
U.S. versus non-U.S. securities, as a percent of the World's Capital Markets
<TABLE>
<CAPTION>
<S> <C> <C>
1970 1997
---- ----
Non-U.S. 34% 51%
U.S. 66% 49%
</TABLE>
Primary areas of investment opportunity currently include the countries in the
adjacent table, which reflects the current largest country holdings of the MSCI
All Country World Free ex-U.S. Index as of December 31, 1997.
<TABLE>
<CAPTION>
TOP TEN COUNTRIES IN MSCI(dagger)*
ALL COUNTRY FREE EX-U.S. INDEX
(AS OF 12/31/97)
PERCENT OF NET ASSETS
AS OF FEBRUARY 28, 1998
- --------------------------------------------
FUND
ALLOCATION
MSCI AS A
COUNTRY PERCENT OF
WEIGHTS NET ASSETS
<S> <C> <C>
- --------------------------------------------
Japan 21.3% 14.1%
............................................
United Kingdom 18.3% 18.3%
............................................
Germany 8.3% 9.1%
............................................
France 6.8% 7.7%
............................................
Switzerland 6.6% 6.2%
............................................
Netherlands 4.8% 6.2%
............................................
Canada 4.4% 1.7%
............................................
Italy 3.4% 1.5%
............................................
Hong Kong 2.4% .80%
............................................
Australia 2.3% 2.7%
- --------------------------------------------
TOTAL 78.6% 68.3%
- --------------------------------------------
</TABLE>
(dagger) Calculation is based on investment securities and futures contracts.
* The composition of the Fund's holdings is subject to change.
The International Equity Fund employs a "blue-chip" approach to the world's
markets. The Fund aims to select stocks from major industries in the 47
countries represented by the Morgan Stanley Capital International (MSCI) All
Country World Free ex-U.S. Index. Fund managers will strive to add value by
carefully screening stocks to select what they believe to be the best stocks in
each industry, with a focus on stock of large, well-established companies.
Source: MSCI, 1998
19
<PAGE> 110
PACIFIC HORIZON INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- --------- ----------
<S> <C> <C>
COMMON STOCKS -- 87.2%
ARGENTINA -- 0.9%
Banco de Galicia ADR....................................... 2,702 $ 67,212
Banco de Galicia y Buenos Aires S.A. de C.V................ 15,863 97,285
Telefonica de Argentina SA ADR............................. 5,500 197,656
----------
362,153
----------
AUSTRALIA -- 2.7%
Australia & New Zealand Bank Group Ltd..................... 27,000 185,777
Rio Tinto Ltd.............................................. 13,700 179,943
CSR Ltd.................................................... 40,000 132,708
Goodman Fielder Ltd........................................ 82,398 142,579
News Corp. Ltd............................................. 55,832 355,632
WMC Ltd.................................................... 47,717 161,886
----------
1,158,525
----------
BRAZIL -- 1.4%
Centrais Electricas Brasileiras ADR........................ 3,550 79,786
Companhia Energetica de Minas Gerais....................... 1,485,000 63,597
Companhia Energetica de Minas Gerais ADR................... 900 32,670
Petroleo Brasiliero S.A.................................... 685,000 155,165
Telebras ADR............................................... 1,666 203,981
Telecomunicacoes Brasilieras S.A........................... 356,000 43,470
----------
578,669
----------
CANADA -- 1.7%
Canadian Imperial Bank..................................... 3,200 101,972
Canadian Imperial Bank of Commerce......................... 4,100 130,688
Canadian National Railway Co............................... 2,800 173,950
Canadian Pacific, Ltd...................................... 11,200 320,600
----------
727,210
----------
CHILE -- 0.3%
CIA Telecome Chile ADR..................................... 4,200 114,450
Embotelladora Andina S.A. Series B ADR..................... 500 8,875
----------
123,325
----------
DENMARK -- 1.9%
Novo Nordisk A/S........................................... 1,350 201,964
Unidanmark A/S............................................. 8,540 619,672
----------
821,636
----------
</TABLE>
- ---------------
See Notes to Financial Statements.
20
<PAGE> 111
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- --------- ----------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
FINLAND -- 1.7%
Kesko...................................................... 10,400 $ 170,242
Metsa Serla-B Shares....................................... 30,500 271,220
Oy Nokia AB................................................ 1,870 187,160
Rauma Oy................................................... 5,000 82,119
----------
710,741
----------
FRANCE -- 7.7%
Assurance Generales de France (b).......................... 7,090 384,815
Axa -- UAP................................................. 1,870 180,880
Banque Nationale de Paris.................................. 7,839 473,743
Compagnie de Saint Gobain.................................. 1,730 242,342
Compagnie Generale des Eaux................................ 980 154,179
Credit Commercial de France................................ 2,000 147,834
Elf Aquitaine.............................................. 4,570 520,096
Compagnie Generale des Etablissements Michelin............. 3,060 189,451
Rhone-Poulenc.............................................. 4,711 217,088
Societe Generale........................................... 1,875 282,669
Total S.A.................................................. 4,190 459,647
----------
3,252,744
----------
GERMANY -- 9.1%
Adidas AG.................................................. 1,290 203,300
Allianz AG................................................. 180 57,528
Bayer AG (b)............................................... 18,180 772,877
Degussa AG (b)............................................. 4,700 241,635
Dresdner Bank AG........................................... 7,440 340,481
Hornbach Holdings AG....................................... 2,970 209,482
Karstadt AG................................................ 1,175 407,905
MAN AG..................................................... 1,260 378,328
Mannesmann AG (b).......................................... 980 592,938
Metallgesellschaft AG...................................... 7,300 148,433
ProSieben Media AG 144A.................................... 7,120 357,028
VEBA AG.................................................... 2,000 134,894
----------
3,844,829
----------
HONG KONG -- 0.8%
Hutchison Whampoa Ltd...................................... 36,000 254,570
New World Development Co., Ltd............................. 14,302 52,738
Sun Hung Kai Properties.................................... 1,600 11,986
----------
319,294
----------
INDIA -- 0.2%
Ranbaxy Laboratories Ltd. GDR.............................. 900 23,625
State Bank of India GDR.................................... 2,000 39,700
----------
63,325
----------
</TABLE>
- ---------------
See Notes to Financial Statements.
21
<PAGE> 112
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- --------- ----------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
INDONESIA -- 0.2%
PT Gudang Garam............................................ 23,000 $ 28,717
PT Hanjaya Mandala Sampoerna............................... 34,000 19,593
PT Indosat................................................. 7,000 10,065
PT Telekomunikasi Indonesia................................ 46,000 18,192
----------
76,567
----------
IRELAND -- 1.3%
Allied Irish Banks PLC..................................... 22,729 293,399
Jefferson Smurfit Group PLC................................ 103,700 266,358
----------
559,757
----------
ITALY -- 1.5%
Telecom Italia SPA......................................... 90,440 615,080
----------
JAPAN -- 14.1%
Advantest Corp............................................. 1,400 98,963
Aisin Seiko Co., Ltd....................................... 7,000 75,358
Bank of Tokyo -- Mitsubishi, Ltd........................... 15,000 212,539
Daiwa Securities Co., Ltd.................................. 39,000 192,330
Eisai Co., Ltd............................................. 19,000 332,383
Exedy Corp................................................. 13,200 89,337
Fuji Machine Manufacturing Co.............................. 12,000 321,064
Fuji Photo Film Co......................................... 8,000 313,465
Fujisawa Pharmaceutical Co., Ltd........................... 14,000 140,742
Hitachi, Ltd............................................... 17,000 127,571
JGC Corp................................................... 14,000 36,238
JUSCO Co., Ltd............................................. 16,000 259,637
Mabuchi Motor.............................................. 4,000 213,726
Maruichi Steel Tube........................................ 13,000 172,881
Matsumotokiyoshi........................................... 5,400 202,612
Matsushita Electric Industrial Co., Ltd.................... 15,000 218,475
Meiwa Estate Co., Ltd...................................... 400 4,749
Namco Ltd.................................................. 6,200 149,687
Nippon Telegraph & Telephone Corp.......................... 48 440,750
Nomura Securities.......................................... 9,000 123,961
Okumura.................................................... 19,000 84,374
Otsuka Kagu................................................ 1,600 66,873
Rohm Co., Ltd.............................................. 2,000 197,894
Sanwa Bank................................................. 18,000 179,530
Sony Corp.................................................. 5,500 496,319
Sony Music Entertainment, Inc.............................. 6,000 237,948
Square Co., Ltd............................................ 4,700 183,788
Sumitomo Rubber Industries................................. 25,000 130,413
Takashimaya Company Ltd.................................... 15,000 128,236
Toshiba Corp............................................... 41,000 183,693
Uni-Charm Corp............................................. 3,000 106,863
</TABLE>
- ---------------
See Notes to Financial Statements.
22
<PAGE> 113
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- --------- ----------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
JAPAN -- (CONTINUED)
Yamanouchi Pharmaceutical Co., Ltd......................... 5,000 $ 121,507
Yamato Kogyo Co., Ltd...................................... 11,000 88,816
----------
5,932,722
----------
MALAYSIA -- 0.2%
Genting Berhad............................................. 6,000 19,918
Malayan Banking Berhad..................................... 5,000 19,456
Telekom Malaysia Berhad.................................... 9,000 30,612
YTL Corp. Berhad........................................... 13,000 22,463
----------
92,449
----------
MEXICO -- 1.5%
Grupo Televisa S.A......................................... 9,400 163,770
Kimberly Clark de Mexico, S. A. de C.V. ADR................ 6,000 134,982
Kimberly Clark de Mexico, S.A. de C.V...................... 60,000 269,959
Panamerican Beverages, Inc. ADR............................ 2,200 80,163
----------
648,874
----------
NETHERLANDS -- 6.2%
AKZO Nobel................................................. 1,430 290,137
ING Groep N.V. (b)......................................... 15,120 799,992
Philips Electronics N.V.................................... 4,000 310,715
Polygram N.V............................................... 3,667 190,078
Royal Dutch Petroleum Co................................... 8,100 440,438
Royal PTT Nederland N.V.................................... 2,700 135,865
Unilever N.V............................................... 6,900 443,956
----------
2,611,181
----------
NEW ZEALAND -- 0.3%
Carter Holt Harvey Ltd..................................... 32,576 49,879
Telecom Corp. of New Zealand Ltd. ADR...................... 2,450 93,406
----------
143,285
----------
NORWAY -- 0.5%
Saga Petroleum ASA......................................... 11,550 196,850
----------
PHILIPPINES -- 0.4%
Ayala Land, Inc............................................ 114,000 57,143
Manila Electric Co......................................... 25,000 74,561
Metropolitan Bank & Trust Co............................... 6,400 53,734
----------
185,438
----------
SINGAPORE -- 1.0%
Development Bank of Singapore Ltd.......................... 7,000 54,842
Keppel Fels Ltd............................................ 20,000 61,443
</TABLE>
- ---------------
See Notes to Financial Statements.
23
<PAGE> 114
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- --------- ----------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
SINGAPORE -- (CONTINUED)
Oversea-Chinese Banking Corp., Ltd......................... 4,000 $ 23,812
Overseas Union Bank Ltd.................................... 79,000 297,284
----------
437,381
----------
SPAIN -- 3.4%
Banco Popular Espanol S.A.................................. 4,650 412,119
Banco Santander SA (b)..................................... 9,200 425,309
Empresa Nacional de Electridad, S.A........................ 10,360 228,705
Endesa S.A. ADR............................................ 7,100 157,088
Telefonica de Espana ADR................................... 2,000 207,500
----------
1,430,721
----------
SWEDEN -- 3.3%
Nordbanken Holding AB...................................... 109,200 688,771
Pharmacia & Upjohn, Inc.................................... 14,600 590,824
Sparbanken Sverige AB, Swedbank............................ 4,360 133,962
----------
1,413,557
----------
SWITZERLAND -- 6.2%
Holderbank Financiere Glarus AG............................ 640 623,603
Nestle SA (b).............................................. 413 723,228
Novartis AG................................................ 213 388,381
Roche Holdings AG (b)...................................... 68 796,021
Union Bank of Switzerland.................................. 67 104,362
----------
2,635,595
----------
THAILAND -- 0.3%
Bangkok Bank Public Co., Ltd............................... 11,700 39,905
BEC World Public Co., Ltd.................................. 4,000 23,387
Siam Commercial Bank & Public Co., Ltd..................... 366 773
Thai Farmers Bank Public Co., Ltd.......................... 17,400 52,079
----------
116,144
----------
UNITED KINGDOM -- 18.3%
Associated British Foods PLC............................... 27,800 290,199
Bank of Scotland........................................... 19,200 218,919
Bass PLC................................................... 27,143 454,951
Billiton PLC............................................... 63,700 156,274
BOC Group PLC.............................................. 24,663 385,772
British Petroleum Co. PLC.................................. 46,809 645,855
BTR PLC.................................................... 85,000 225,673
Burmah Castrol PLC......................................... 8,100 139,768
Carlton Communications PLC................................. 35,000 246,069
Cookson Group PLC.......................................... 72,196 269,242
Diageo PLC (b)............................................. 51,656 528,596
Diageo PLC -- B Shares..................................... 7,344 62,515
HSBC Holdings PLC.......................................... 17,800 513,178
</TABLE>
- ---------------
See Notes to Financial Statements.
24
<PAGE> 115
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- --------- ----------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
UNITED KINGDOM -- (CONTINUED)
Johnson Matthey PLC........................................ 27,000 $ 234,503
Lloyds TSB Group PLC....................................... 12,100 182,093
PowerGen PLC............................................... 24,467 341,818
Rank Group PLC............................................. 41,000 224,797
Reckitt & Colman PLC....................................... 22,200 391,658
Royal & Sun Alliance Group PLC............................. 24,600 313,298
Royal Bank of Scotland Group............................... 26,700 413,239
Smithkline Beecham PLC..................................... 16,200 202,717
WPP Group PLC.............................................. 43,000 227,266
Zeneca Group PLC (b)....................................... 24,400 1,060,609
----------
7,729,009
----------
Total Common Stocks (Cost $33,496,760)..................... 36,787,061
----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
STRIKE EXPIRATION AMOUNT
------ ---------- ---------
<S> <C> <C> <C> <C>
EUROPEAN STYLE OPTION ON FOREIGN CURRENCY -- 0.0%
Brazilian Real Purchased Put Option (Cost $13,039).... $ 1.25 4/14/98 $ 52,500 1,327
-----------
</TABLE>
<TABLE>
<CAPTION>
MATURITY PRINCIPAL
RATE DATE AMOUNT
---- -------- ---------
<S> <C> <C> <C> <C>
U. S. TREASURY OBLIGATIONS -- 0.8%
U.S. Treasury Bill (b)................................... 5.05% 04/30/98 $120,000 118,977
U.S. Treasury Bill (b)................................... 4.96% 05/07/98 95,000 94,113
U.S. Treasury Bill (b)................................... 5.09% 05/07/98 95,000 94,113
U.S. Treasury Bill (b)................................... 5.05% 05/21/98 50,000 49,432
-----------
Total U. S. Treasury Obligations (Cost $356,646)......... 356,635
-----------
REPURCHASE AGREEMENT -- 13.7%
PaineWebber, Inc., dated 2/27/98, with a maturity value
of $5,786,709 (Collateralized by $5,815,000 U.S. Treasury
Bills, 6.00%, 5/31/98, market value -- $5,907,677) (Cost
$5,784,000; Note 2)...................................... 5.62% 03/02/98 5,784,000 5,784,000
-----------
TOTAL INVESTMENTS -- 101.7% (COST $39,650,445)(A)......... 42,929,023
LIABILITIES IN EXCESS OF OTHER ASSETS -- (1.7%)........... (727,269)
-----------
NET ASSETS -- 100.0%...................................... $42,201,754
===========
</TABLE>
- ---------------
Percentages indicated are based on net assets of $42,201,754.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation..................................... $4,432,076
Unrealized depreciation..................................... (1,153,498)
----------
Net unrealized appreciation................................. $3,278,578
==========
</TABLE>
(b) Segregated as collateral for forwards and futures.
ADR -- American Depository Receipt
GDR -- Global Depository Receipt
PLC -- Public Limited Company
See Notes to Financial Statements.
25
<PAGE> 116
The following is a breakdown of the Fund
by Industry Classifications as of February 28, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY
--------
<S> <C>
Automobile 0.8%
Banking 20.4%
Beverages & Tobacco 3.2%
Building Materials & Components 3.2%
Chemicals 7.3%
Computer Software 0.5%
Construction & Housing 0.2%
Electrical & Electronics 2.0%
Energy 4.5%
Financial Services 0.9%
Food & Household Products 5.9%
Forest Products & Paper 3.0%
Health & Personal Care 11.1%
Insurance 2.5%
Leisure & Tourism 2.2%
Machinery & Equipment 4.5%
Merchandising 1.1%
Metals -- Non Ferrous 2.6%
Metals -- Steel 0.7%
Multi-Industry 4.2%
Real Estate 0.3%
Recreational/Other Consumer Goods 6.4%
Retail 3.2%
Telecommunications 6.3%
Transportation -- Road & Rail 1.3%
Utilities -- Electric & Gas 1.7%
-----
TOTAL COMMON STOCKS 100%
=====
</TABLE>
- ---------------
See Notes to Financial Statements.
26
<PAGE> 117
PACIFIC HORIZON INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (cost $33,866,445)..... $37,145,023
Repurchase agreements (cost $5,784,000).................... 5,784,000
Cash....................................................... 880
Interest and dividend receivable........................... 36,067
Receivable for capital shares sold......................... 94,697
Receivable for investment securities sold.................. 421,560
Net receivable for variation margin on futures contracts... 15,632
Deferred organization costs................................ 32,158
-----------
Total Assets................................................ 43,530,017
-----------
LIABILITIES:
Payable for capital shares redeemed........................ 57,360
Payable for securities purchased........................... 1,126,742
Forward currency contracts -- net amount payable to
counterparties........................................... 18,516
Investment advisory fee payable............................ 14,041
Custodian and fund accounting fees payable................. 41,839
Transfer agent fees payable................................ 22,199
Audit fees payable......................................... 40,163
Other accrued expenses..................................... 7,403
-----------
Total Liabilities........................................... 1,328,263
-----------
NET ASSETS.................................................. $42,201,754
===========
Net Assets
A Shares................................................... $41,642,883
K Shares................................................... 558,871
-----------
Total....................................................... $42,201,754
===========
Shares Outstanding ($0.001 par value, 200 million shares
authorized):
A Shares................................................... 3,947,858
K Shares................................................... 53,466
-----------
Total....................................................... 4,001,324
===========
Net Asset Value
A Shares -- Redemption Price Per Share...................... $10.55
======
Maximum Sales Charge (A Shares)............................ 4.50%
Maximum Offering Price (A Shares)
(Net Asset Value of A Shares/(100% -- Maximum Sales
Charge))............................................... $11.05
======
K Shares -- Offering and Redemption Price Per Share......... $10.45
======
COMPOSITION OF NET ASSETS:
Shares of common stock, at par............................. $4,001
Additional paid-in capital................................. 40,925,679
Distributions in excess of net investment income........... (84,161)
Accumulated net realized losses on investment and foreign
currency transactions, forward currency contracts and
futures contracts........................................ (2,077,051)
Net unrealized appreciation on investments, forward
currency contracts, futures contracts and foreign
currency translations.................................... 3,433,286
-----------
NET ASSETS, FEBRUARY 28, 1998............................... $42,201,754
===========
</TABLE>
- ---------------
See Notes to Financial Statements.
27
<PAGE> 118
PACIFIC HORIZON INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the year ended February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $52,992)..... $ 463,489
Interest.................................................. 242,326
-----------
705,815
-----------
EXPENSES:
Investment advisory fees.................................. 232,581
Administration fees....................................... 62,021
Shareholder service fees (A shares)....................... 76,721
Shareholder service fees (K shares)....................... 806
Custodian and fund accounting fees........................ 223,437
Registration fees......................................... 36,362
Reports to shareholders................................... 72,578
Transfer agent fees....................................... 47,700
Audit fees................................................ 35,162
Organizational expense.................................... 10,373
Other expenses............................................ 2,958
-----------
Total Expenses.......................................... 800,699
Less: Fee waivers and expense reimbursements.............. (419,646)
-----------
Total Net Expenses.......................................... 381,053
-----------
NET INVESTMENT INCOME....................................... 324,762
-----------
NET REALIZED/UNREALIZED GAINS/(LOSSES) ON INVESTMENTS:
Net realized losses on investment and foreign currency
transactions, forward currency contracts and futures
contracts............................................... (1,317,018)
Net change in unrealized appreciation on investments,
forward currency contracts, futures contracts and
foreign currency translations........................... 3,437,500
-----------
Net realized/unrealized gains on investments.............. 2,120,482
-----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $ 2,445,244
===========
</TABLE>
- ---------------
See Notes to Financial Statements.
28
<PAGE> 119
PACIFIC HORIZON INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
FEBRUARY 28, FEBRUARY 28,
1998 1997(a)
------------ ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income............................... $ 324,762 $ 29,109
Net realized gains/(losses) on investment and
foreign currency transactions, forward currency
contracts and futures contracts................... (1,317,018) 55,351
Net change in unrealized appreciation/(depreciation)
on investments, forward currency contracts,
futures contracts and foreign currency
translations...................................... 3,437,500 (4,214)
----------- -----------
Change in net assets resulting from operations........ 2,445,244 80,246
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Class A Shares.................................... (293,996) --
Class K Shares.................................... (3,725) --
Net realized gains on investment transactions:
Class A Shares.................................... (930,184) (14,330)
Class K Shares.................................... (11,071) (110)
----------- -----------
Change in net assets from shareholder distributions... (1,238,976) (14,440)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued......................... 32,932,837 20,137,406
Dividends reinvested................................ 685,188 8,601
Cost of shares redeemed............................. (8,956,017) (3,878,335)
----------- -----------
Change in net assets from capital share
transactions........................................ 24,662,008 16,267,672
----------- -----------
Change in net assets.................................. 25,868,276 16,333,478
NET ASSETS:
Beginning of Period................................. 16,333,478 --
----------- -----------
End of Period (including distributions in excess of
net investment income, $84,161 and $18,867,
respectively)..................................... $42,201,754 $16,333,478
=========== ===========
</TABLE>
- ---------------
(a) Period from May 13, 1996 (inception date) to February 28, 1997.
See Notes to Financial Statements.
29
<PAGE> 120
PACIFIC HORIZON INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 -- ORGANIZATION
Pacific Horizon Funds, Inc. (the "Company"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended (the "Act"), as
an open-end management investment company. At February 28, 1998, the Company
operated as a series company comprised of seventeen funds. The accompanying
financial statements and notes are those of the Pacific Horizon International
Equity Fund ("the Fund"). The Fund commenced operations on May 13, 1996. The
Fund offers A Shares and, effective July 22, 1996, began offering K Shares. A
Shares have a Shareholder Services Plan while K Shares have a Distribution Plan
and Administrative and Shareholder Services Plan.
The Fund seeks to achieve its investment objective of long-term capital
growth by investing primarily in foreign equity securities.
Prior to September 1, 1996, the Fund sought to achieve its investment
objective by investing substantially all of its assets in the Pacific Horizon
International Equity Portfolio of the Master Investment Trust, Series I (the
"Portfolio"), an open-end management investment company that had the same
investment objective as that of the Fund. Effective September 1, 1996, the Fund
withdrew its investment in the Portfolio and began investing its assets directly
in investment securities.
Bank of America National Trust and Savings Association ("Bank of America"),
a subsidiary of BankAmerica Corporation, serves as the Fund's investment
adviser. On September 15, 1997, Bank of America assumed the responsibility of
administrator for each of the Funds pursuant to the terms of an Administration
Agreement between the Company and Bank of America (the "Administration
Agreement"). Prior to September 15, 1997, BISYS Group, Inc. ("BISYS") through
its wholly-owned subsidiary, BISYS Fund Services, Limited Partnership, served as
the Funds' administrator.
Bank of America has entered into an agreement with PFPC Inc. ("PFPC"), an
indirect wholly-owned subsidiary of PNC Bank Corp., pursuant to which PFPC has
agreed to provide certain sub-administration services to the Funds, including,
but not limited to, assisting in the developing and monitoring of compliance
procedures, participating in periodic updating of the Funds' prospectuses and
statements of additional information, providing periodic reports to the
Company's Board and providing certain record-keeping services.
30
<PAGE> 121
Bank of America will bear all fees and expenses charged by PFPC for such
services.
Furthermore, pursuant to authority granted in the Administration Agreement,
Bank of America has entered into an agreement with PFPC under which PFPC has
agreed to provide certain accounting, bookkeeping, pricing and dividend and
distribution calculation services for the Fund. The Fund bears all fees and
expenses charged by PFPC for these services.
DISTRIBUTOR AND TRANSFER AGENT
Effective September 15, 1997, Provident Distributors, Inc. ("PDI"), assumed
responsibility as principal underwriter and distributor of shares of the Fund.
Prior to such date, Concord Financial Group, Inc. (the "Former Distributor")
also a wholly-owned subsidiary of BISYS, served as distributor of the Funds.
Additionally on October 24, 1997, PFPC assumed responsibility as the Fund's
transfer agent and dividend disbursing agent. BISYS Fund Services, Inc. ("BISYS
Ohio"), also wholly-owned subsidiary of BISYS, served the Funds in such capacity
prior to such date.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. These policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
PORTFOLIO VALUATIONS:
The securities of the Fund for which market quotations are readily available
(other than debt securities with remaining maturities of 60 days or less) are
valued at the last reported sale price as quoted by their principal exchange on
the date of valuation or, if none is available, at the mean between the current
quoted bid and ask prices on the date of valuation as provided by investment
dealers. Securities for which no market valuations are available are valued in
good faith as determined by the Fund's Board of Directors. Short-term debt
securities with less than 60 days to maturity are valued at amortized cost,
which approximates market value. Trading in foreign securities is generally
completed prior to the end of regular trading on the New York Stock Exchange
(the "Exchange"). Trading may occur in foreign securities on Saturdays and U.S.
holidays and at other times when the Exchange is closed. As a result, there may
31
<PAGE> 122
be delays in reflecting changes in the market values of foreign securities in
the calculation of net asset value per share of the Fund on days when net asset
value is not calculated and on days which shareholders of the Fund cannot
redeem.
SECURITIES TRANSACTIONS AND RELATED INCOME:
The Fund records security transactions on a trade date basis. Interest
income, including accretion of discount and amortization of premium, is accrued
daily. Dividend income is recognized on the ex-dividend date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
EXPENSES:
The Company accounts separately for the assets, liabilities and operations
of each fund. Direct expenses of a fund are charged to that fund while general
Company expenses are allocated among the Company's respective portfolios.
The investment income and expenses of a fund (other than class specific
expenses) and realized and unrealized gains and losses on investments of a fund
are allocated to each class of shares based upon their relative net asset value
on the date income is earned or expenses and realized and unrealized gains and
losses are incurred.
Prior to September 1, 1996, the Fund recorded its share of the investment
income, expenses and realized and unrealized gains and losses recorded by the
Master Investment Trust, Series I--International Equity Portfolio on a daily
basis, based upon the value of its investment in the Portfolio.
The Fund incurred certain costs in connection with its organization. Such
costs have been deferred and are being amortized by the Fund on a straight line
basis over five years.
REPURCHASE AGREEMENTS:
The Fund's custodian and other banks acting in a sub-custodian capacity take
possession of the collateral pledged for investments in repurchase agreements.
The underlying collateral is valued daily on a mark-to-market basis to determine
that the value, including accrued interest, exceeds the repurchase price. In the
event of the seller's default of the obligation to repurchase, the Fund has the
right to liquidate the collateral and apply the proceeds in satisfaction of the
obligation. Under certain circumstances, in the event of default or bankruptcy
by the other party to the agreement, realization and/or retention of the
collateral may be subject to legal proceedings.
32
<PAGE> 123
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
The Fund's net investment income, if any, is declared and paid as a dividend
at least annually to shareholders of record at the close of business on record
date. Net realized gains on portfolio securities, if any, are distributed at
least annually. However, to the extent that net realized gains of the Fund can
be offset by capital loss carryovers of the Fund, such gains will not be
distributed. Dividends and distributions are recorded by the Fund on the
ex-dividend date.
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, 1998, the following reclassifications have been made to
increase (decrease) such accounts primarily due to reclassification of foreign
currency losses:
<TABLE>
<CAPTION>
ACCUMULATED UNDISTRIBUTED ACCUMULATED NET REALIZED
FUND NET INVESTMENT INCOME GAIN/(LOSS) ON INVESTMENTS
---- ------------------------- --------------------------
<S> <C> <C>
International Equity
Fund................ $(92,335) $92,335
</TABLE>
FEDERAL INCOME TAXES:
It is the Fund's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
annually all of its net investment company taxable income and net capital gains
to shareholders. Therefore, no Federal income tax provision is required.
Capital and currency losses incurred after October 31 for the Fund are
deemed to arise on the first business day of the following fiscal year for tax
purposes. The Fund has incurred and will elect to defer such losses of
$2,124,875 and $100,147, respectively, after October 31, 1997.
33
<PAGE> 124
FOREIGN CURRENCY TRANSLATION:
The accounting records of the Fund are maintained in U.S. dollars. Foreign
currency amounts are translated into U.S. dollars at the current rate of
exchange to determine the value of investments, assets and liabilities.
Purchases and sales of securities, and income and expenses are translated at the
prevailing rate of exchange on the respective dates of such transactions. Any
resulting gain or loss on such translation is reported in the Fund's statement
of operations. The Fund does not isolate that portion of the results of
operations resulting from changes in foreign exchange rates on investments from
the fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gains or losses
from investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities and forward currency contracts, sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions represent the difference between the
amounts of dividends, interest and foreign withholding recorded versus amounts
actually received or paid. Net unrealized foreign exchange gains and losses
arise from changes in the value of assets and liabilities other than investments
in securities at fiscal year end, resulting from changes in the exchange rate.
Foreign security and currency transactions may involve certain
considerations and risks not typically associated with those of domestic origin
as a result of, among other factors, the level of governmental supervision and
regulation of foreign securities markets and the possibilities of political or
economic instability.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS:
The Fund may enter into forward foreign currency exchange contracts in
connection with purchases or sales of securities to hedge the U.S. dollar value
of portfolio securities denominated in a particular currency. The objective of
the Fund's forward foreign currency hedging transactions is to reduce the risk
that the U.S. dollar value of the Fund's foreign currency denominated securities
will decline in value due to changes in foreign currency exchange rates. All
forward foreign currency exchange contracts are "marked-to-market" daily at the
applicable translation rates resulting in unrealized gains or losses. Realized
and unrealized gains or losses are included in the Statement of Assets and
Liabilities and the Statement of Operations. Realized gains or losses are
recorded at the time the forward foreign currency exchange contract is offset by
entering into a closing transaction or by delivery or receipt of the currency.
Risks may arise upon entering into these contracts from the potential inability
of counterparties to
34
<PAGE> 125
meet the terms of their contracts and from unanticipated movements in the value
of a foreign currency relative to the U.S. dollar.
The Fund had the following outstanding forward foreign currency exchange
contracts at February 28, 1998:
<TABLE>
<CAPTION>
VALUE AT UNREALIZED
FORWARD FOREIGN SETTLEMENT SETTLEMENT CURRENT APPRECIATION/
CURRENCY CONTRACTS DATE DATE VALUE (DEPRECIATION)
------------------ ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
Purchase Contracts:
Australian Dollar........... 03/03/98 $ 48,987 $ 50,125 $ 1,138
Australian Dollar........... 03/05/98 106,636 108,153 1,517
Australian Dollar........... 03/31/98 178,016 184,788 6,773
Canadian Dollar............. 03/19/98 516,977 517,724 747
Danish Krone................ 03/03/98 37,639 37,540 (99)
Danish Krone................ 03/04/98 63,337 63,322 (15)
French Franc................ 03/31/98 537,531 526,693 (10,838)
German Marks................ 03/03/98 145,650 145,572 (78)
German Marks................ 03/19/98 477,067 463,043 (14,024)
Italian Lira................ 03/05/98 62,023 61,969 (54)
Italian Lira................ 03/20/98 472,127 471,255 (872)
Japanese Yen................ 03/03/98 60,420 60,998 579
Japanese Yen................ 03/12/98 201,042 201,937 895
Spanish Peseta.............. 03/20/98 522,584 523,553 969
Swedish Krona............... 03/27/98 403,340 403,113 (227)
UK Pounds................... 03/02/98 51,339 51,354 15
UK Pounds................... 03/05/98 182,653 182,747 93
UK Pounds................... 03/20/98 475,904 474,760 (1,145)
---------- ---------- --------
$4,543,272 $4,528,646 $(14,626)
========== ========== ========
Sale Contracts:
French Franc................ 03/31/98 $ 64,221 $ 64,497 $ (276)
German Marks................ 03/19/98 467,961 463,043 4,917
Japanese Yen................ 03/02/98 84,356 85,945 (1,589)
Japanese Yen................ 03/04/98 83,012 83,009 3
Japanese Yen................ 03/12/98 195,036 201,937 (6,901)
New Zealand Dollar.......... 03/02/98 8,724 8,876 (151)
New Zealand Dollar.......... 03/03/98 1,098 1,116 (18)
New Zealand Dollar.......... 03/06/98 1,089 1,092 (3)
Singapore Dollar............ 03/06/98 2,982 2,983 (1)
UK Pounds................... 03/03/98 31,134 31,048 86
---------- ---------- --------
$ 939,613 $ 943,546 $ (3,933)
========== ========== ========
</TABLE>
FUTURES:
A futures contract is an agreement to purchase or sell a specified quantity
of an underlying instrument at a specified future date, or to make or receive a
cash payment based on the value of a securities index. During the period the
futures
35
<PAGE> 126
contract is open, changes in the value of the contract are recognized as
unrealized gains or losses by "marking to market" such contract on a daily basis
to reflect the market value of the contract at the end of each day's trading.
Such unrealized gains and losses are included in the caption "Net unrealized
appreciation on investment transactions and futures contracts" in the Statement
of Assets and Liabilities. The Fund agrees to receive from or pay to the broker
an amount of "variation margin" and are included as a payable or receivable in
the Statement of Assets and Liabilities. When the futures contract is closed,
the Fund records a realized gain or loss equal to the difference between the
proceeds from (or cost of) the closing transaction and the Fund's basis in the
contract. Such gains or losses are included in the caption "Accumulated net
realized gain on investment transactions and futures contracts" in the Statement
and Assets and Liabilities. The Fund enters into futures contracts to hedge a
portion of its portfolio.
The use of futures contracts involves, to varying degrees, elements of
market risk. Risks arise from the possible imperfect correlation in movements in
the price of futures contracts, interest rates and the underlying hedged assets,
and the possible inability of counterparties to meet the terms of their
contracts. However, the Fund's activities in futures contracts are conducted
through regulated exchanges which minimize counterparty credit risks.
The Fund had the following open futures contracts at February 28, 1998:
<TABLE>
<CAPTION>
UNREALIZED
NUMBER CONTRACT EXPIRATION APPRECIATION/
OF CONTRACTS VALUE DATE (DEPRECIATION)
------------ -------- ---------- --------------
<S> <C> <C> <C> <C>
Purchased:
AUST Index (Australia)................ 100 $ 9,469 03/31/98 $ 1,771
CAC 40 Index (France)................. 600 50,716 03/31/98 16,613
FTSE Index (UK)....................... 50 46,969 03/20/98 48,204
Hang-Seng Index (Hong Kong)........... 100 12,399 03/26/98 12,955
IBEX Index (Spain).................... 9,000 47,229 03/13/98 31,159
Milan MIB30 Index (Italy)............. 30,000 42,829 03/20/98 5,839
OMX Index (Sweden).................... 1,200 9,657 03/28/98 40,695
Toronto Index (Canada)................ 2,000 35,668 03/19/98 17,286
-------- --------
Totals................................ $254,936 $174,522
======== ========
</TABLE>
The aggregate market value of cash or eligible securities pledged to cover
margin requirements for open futures positions at February 28, 1998 was
$6,682,655.
36
<PAGE> 127
NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund has an Investment Advisory and Administration Agreement with Bank
of America, and had an Administration Agreement with BISYS and a Distribution
Agreement with the Former Distributor through September 15, 1997. Pursuant to
the terms of the Investment Advisory Agreement, Bank of America is entitled to a
fee from the Fund, which is accrued daily and payable monthly, at an annual rate
of 0.75% of the Fund's average daily net assets. For the year ended February 28,
1998, Bank of America agreed to waive $232,580 of its advisory fees for the
Fund. Pursuant to the terms of the Administration Agreement, Bank of America is
entitled to a fee from the Fund, which is accrued daily and payable monthly, at
an annual rate of 0.15% of the Fund's average daily net assets. Pursuant to the
terms of the former administration agreement, BISYS was entitled to the same fee
in effect under the current Administration Agreement. For the year ended
February 28, 1998, the administrator agreed to waive $62,021 of its
administration fee for the Fund. For the same period, Bank of America reimbursed
$54,966 for operating expenses of the Fund.
For the year ended February 28, 1998, the PDI and the Former Distributor
advised the Fund that it retained $13,479 from commissions earned on sales of
the Fund's shares. For the same period, Bank of America and its affiliates
advised the Funds that they retained $58,733 from commissions earned on sales of
shares of the Fund.
The Fund has a Shareholder Service Plan (the "Plan") under which the Fund
pays PDI and the Former Distributor for shareholder servicing expenses incurred
in connection with A Shares of the Fund. Under the Plan, payments for
shareholder servicing expenses may not exceed 0.25% of the Fund's average daily
net assets for A Shares. For the year ended February 28, 1998, the Fund incurred
charges of $76,721, pursuant to the Plan. The Fund was advised that of these
amounts PDI and the Former Distributor retained $6,301 and affiliates of Bank of
America retained $8,168. The Plan provides that if, in any month, the fees paid
to PDI and the Former Distributor are less than the costs incurred by PDI and
the Former 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 Distributor
waived $68,541 of A Shares' shareholder servicing fees for the year ended
February 28, 1998.
The Fund has a Distribution Plan and an Administrative and Shareholder
Services Plan (the "Administrative Plan") with respect to K Shares of the Fund.
Under the Distribution Plan, the Fund pays PDI and the Former Distributor for
expenses primarily intended to result in the sale of the Fund's K Shares. Under
37
<PAGE> 128
the Distribution Plan, payments by the Fund for distribution expenses may not
exceed 0.75% of the average daily net assets of the Fund's K Shares. Payments
for distribution expenses under the Distribution Plan are subject to Rule 12b-1
under the Act. Under the Administrative Plan, the Fund pays for expenses
incurred in connection with shareholder services provided by PDI and the Former
Distributor and payments to Service Organizations for the provision of support
services with respect to beneficial owners of K Shares. Under the Administrative
Plan, payments for shareholder services and administrative services may not
exceed 0.25% and 0.75%, respectively, of the average daily net assets of the
Fund's K Shares. The total of all payments under the Distribution Plan and the
Administrative Plan may not exceed, in the aggregate, the annual rate of 1.00%
of the average daily net assets of the Fund's K Shares. For the year ended
February 28, 1998, the Fund incurred charges of $3,222, pursuant to the
Distribution and the Administration Plans. The Distributor waived $1,538 of the
distribution and administrative servicing fees for the year ended February 28,
1998.
From the period October 24, 1997 through February 28, 1998, PFPC earned
$28,166 from the Fund for transfer agency and dividend disbursing agency
services performed. BISYS Ohio served the Fund as transfer agent and dividend
disbursing agent through October 24, 1997. In these capacities, BISYS Ohio
earned $19,534 from the Fund for the period ended October 24, 1997.
For the year ended February 28, 1998, the Fund incurred legal charges
totaling $41 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 PFPC. 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 $50,000,
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 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,
38
<PAGE> 129
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 will receive an
additional 10% of their annual Director's retainer for each year of service
between years six and nine, plus one half of the difference between 100% and the
director's applicable percentage. A Director who dies or resigns after ten 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 after February 28, 1994; however a director in
office on March 18, 1998 who either resigns in good standing or dies before
completing five years of service as a director should be assigned an Applicable
Percentage of 50 percent. Aggregate costs pursuant to the Retirement Plan
amounted to $1,618 for the Fund, for the year ended February 28, 1998. A
director who comes into office after March 18, 1998 is ineligible to participate
in the Retirement Plan.
NOTE 5 -- SECURITIES TRANSACTIONS
For the year ended February 28, 1998, the cost of purchases and the proceeds
from the sales of the Fund's portfolio securities (excluding short-term
investments) amounted to $42,233,097 and $21,037,533, respectively.
NOTE 6 -- CAPITAL SHARE TRANSACTIONS
Transactions in capital shares for the Fund are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
FEBRUARY 28, 1998 FEBRUARY 28, 1997(a)(b)
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
A Shares
Issued............................... 3,093,208 $32,373,676 2,025,050 $20,020,078
Reinvested........................... 68,417 671,344 856 8,491
Redeemed............................. (849,866) (8,810,729) (389,806) (3,877,701)
--------- ----------- --------- -----------
Net increase........................... 2,311,758 $24,234,291 1,636,100 $16,150,868
========= =========== ========= ===========
</TABLE>
39
<PAGE> 130
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
FEBRUARY 28, 1998 FEBRUARY 28, 1997(a)(b)
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
K Shares
Issued............................... 53,867 $ 559,161 11,805 $ 117,328
Reinvested........................... 1,423 13,844 11 110
Redeemed............................. (13,574) (145,288) (65) (634)
--------- ----------- --------- -----------
Net increase........................... 41,715 $ 427,717 11,751 $ 116,804
========= =========== ========= ===========
</TABLE>
- ---------------
(a) Period from May 13, 1996 (inception date of Fund) to February 28, 1997, for
the A Shares.
(b) Period from July 22, 1996 (inception date of K Shares) to February 28, 1997,
for the K Shares.
40
<PAGE> 131
PACIFIC HORIZON INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
FEBRUARY 28, FEBRUARY 28,
1998 1997(a)
------------ ------------
<S> <C> <C>
A SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF
PERIOD....................................... $ 9.91 $ 10.00
------- -------
Income from Investment Operations:
Net investment income (loss)................. 0.07 (0.01)
Net realized and unrealized gains on
investment transactions, forward contracts,
foreign currency transactions and futures
contracts.................................. 0.92 (0.07)
------- -------
Total income (loss) from investment
operations................................... 0.99 (0.08)
------- -------
Less: Dividends and Distributions:
Dividends to shareholders from net investment
income..................................... (0.08) --
Distributions to shareholders from net
realized gains on investment
transactions............................... (0.27) (0.01)
------- -------
Total Dividends and Distributions.............. (0.35) (0.01)
------- -------
Net change in net asset value per share........ 0.64 (0.09)
------- -------
NET ASSET VALUE PER SHARE, END OF PERIOD....... $ 10.55 $ 9.91
======= =======
Total return (excludes sales charge)........... 10.32% (0.79%)(b)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000)............ $41,643 $16,217
Ratio of expenses to average net assets...... 1.22% 0.92% (c)
Ratio of net investment income (loss) to
average net assets......................... 1.05% 0.40% (c)
Ratio of expenses to average net assets*..... 2.57% 3.92% (c)
Ratio of net investment income (loss) to
average net assets*........................ (0.30%) (2.61%)(c)
Portfolio turnover rate...................... 79% 114% (b)
Average commission rate paid (d)............. $0.0147 $0.0353
</TABLE>
- ---------------
<TABLE>
<S> <C>
* 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.
(a) Period from May 13, 1996 (inception date of Fund) to
February 28, 1997.
(b) Not annualized.
(c) Annualized.
(d) Represents the dollar amount of commissions paid on Fund
transactions divided by the total number of shares purchased
or sold for which commissions were charged and is calculated
on the basis of the Fund as a whole or without
distinguishing between the classes of shares issued.
</TABLE>
See Notes to Financial Statements.
41
<PAGE> 132
PACIFIC HORIZON INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
FEBRUARY 28, FEBRUARY 28,
1998 1997(a)
------------ ------------
<S> <C> <C>
K SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD..... $ 9.88 $ 9.82
Income from Investment Operations:
Net investment income (loss)..................... 0.03 (0.01)
Net realized and unrealized gains on investment
transactions, forward contracts, foreign
currency transactions and futures contracts.... 0.87 0.08
------- -------
Total income from investment operations............ 0.90 0.07
------- -------
Less: Dividends and Distributions:
Dividends to shareholders from net investment
income......................................... (0.06) --
Distributions to shareholders from net realized
gains on investment transactions............... (0.27) (0.01)
------- -------
Total Dividends and Distributions.................. (0.33) (0.01)
------- -------
Net change in net asset value per share............ 0.57 0.06
------- -------
NET ASSET VALUE PER SHARE, END OF PERIOD........... $ 10.45 $ 9.88
======= =======
Total return....................................... 9.35% 0.72%(b)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000)................ $ 559 $ 116
Ratio of expenses to average net assets.......... 1.72% 1.49% (c)
Ratio of net investment income (loss) to average
net assets..................................... 0.48% (0.31%)(c)
Ratio of expenses to average net assets*......... 3.30% 3.53% (c)
Ratio of net investment income (loss) to average
net assets*.................................... (1.10%) (2.34%)(c)
Portfolio turnover rate.......................... 79% 114% (b)
Average commission rate paid (d)................. $0.0147 $0.0353
</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.
(a) Period from July 22, 1996 (inception date) to February 28,
1997.
(b) Not annualized.
(c) Annualized.
(d) Represents the dollar amount of commission paid on Fund
transactions divided by the total number of shares purchased
or sold for which commissions were charged and is calculated
on the basis of the Fund as a whole or without
distinguishing between the classes of shares issued.
</TABLE>
See Notes to Financial Statements.
42
<PAGE> 133
PACIFIC HORIZON INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Board of Directors
and Shareholders of
Pacific Horizon Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statement of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Pacific Horizon International
Equity Fund (one of the seventeen portfolios constituting Pacific Horizon Funds,
Inc., hereafter referred to as the "Fund") at February 28, 1998, the results of
its operations for the year then ended, the changes in its net assets and the
financial highlights for 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 Fund'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, 1998 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide
a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
April 21, 1998
43
<PAGE> 134
For more information, complete the following form and mail it to:
Pacific Horizon Funds, Inc.
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> 135
Bulk Rate
U.S. Postage
PAID
New York, NY
Permit No. 8048
LOGO
Provident Distributor, Inc., Distributor
IEQ-0022 4/98
<PAGE> 136
PACIFIC HORIZON TAXABLE MONEY MARKET FUNDS
ANNUAL REPORT
February 28, 1998
Prime Fund
Treasury Fund
Government Fund
Treasury Only Fund
Investing For All
The Times Of Your Life
NOT FDIC INSURED
PACIFIC HORIZON TAXABLE MONEY MARKET FUNDS
<PAGE> 137
PACIFIC HORIZON FUNDS, INC.
103 Bellevue Parkway
Wilmington, DE 19809
1-800-332-3863
INVESTMENT ADVISER
Bank of America National Trust
and Savings Association
555 California Street
San Francisco, CA 94104
ADMINISTRATOR
Bank of America National
Trust and Savings Association
555 California Street
San Francisco, CA 94104
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
Provident Distributors, Inc.
Four Falls Corporate Center
6th Floor
Conshohocken, PA 19428
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 Provident
Distributors, Inc. which is unaffiliated with the Bank of America. Bank of
America serves as investment adviser to the Funds 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, NOT
BANK OF AMERICA OR ANY AFFILIATES. AN INVESTMENT IN FDIC
MUTUAL FUNDS INVOLVES INVESTMENT RISKS, INCLUDING THE INSURED
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
- ----------------------------------------------------------------------------
</TABLE>
-----------------------------------------------------------------------------
--------------------------------------------------------------------------
<PAGE> 138
.....................................
Contents
<TABLE>
<S> <C>
FUND FACTS 2-3
UNDERSTANDING YOUR SHAREHOLDER
REPORT 4-6
ECONOMIC REVIEW FROM THE
INVESTMENT ADVISER 8-9
PORTFOLIO OF INVESTMENTS 10-35
STATEMENTS OF ASSETS
AND LIABILITIES 36
STATEMENTS OF OPERATIONS 37
STATEMENTS OF CHANGES
IN NET ASSETS 38-39
NOTES TO FINANCIAL
STATEMENTS 40-50
FINANCIAL HIGHLIGHTS 51-67
REPORT OF INDEPENDENT
ACCOUNTANTS 68
</TABLE>
<PAGE> 139
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>
- ---------------------------------------------------------------------------
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(dagger) High Current Income Plus Principal
- Prime Stability
- Treasury
- Government
- Treasury Only
...........................................................................
Tax-Exempt Money Market Funds*(dagger)
- Tax-Exempt Money High Level of Federal Tax-Free Current
Income Plus Principal Stability
- California Tax-Exempt Money High Level of Federal and California
Market 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.
(dagger) 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> 140
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
Preferred Stocks and capital appreciation.
...........................................................................
Stocks, Bonds and Cash Long-term growth potential and current
Equivalents income from stocks and bonds.
...........................................................................
Investment-Grade Corporate Debt High monthly income potential with
reasonable investment risk.
...........................................................................
Investment-Grade Corporate and Regular monthly income from a
U.S. Government Securities diversified portfolio of
investment-grade securities.
...........................................................................
GNMAs and Other U.S. Government High monthly income potential and low
Securities credit risk.
...........................................................................
U.S. Government and Government Monthly income and relative stability
Agency Securities of investment.
...........................................................................
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 A flexible, convenient way to manage or
U.S. Government Short-Term accumulate cash while waiting for other
Obligations 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
Obligations cash while waiting for other investment
opportunities.
</TABLE>
- --------------------------------------------------------------------------------
3
<PAGE> 141
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
MANAGER enables you to gain
insight into the Fund's
investments and learn more
about the Fund manager's
strategies.
[GRAPHICS]
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.
[GRAPHICS]
4
<PAGE> 142
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
[GRAPHICS]
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
[GRAPHICS]
THE CURRENT NET ASSET VALUE PER SHARE PLUS SALES CHARGE, IF ANY
5
<PAGE> 143
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
[GRAPHICS]
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
[GRAPHICS]
The NOTES TO FINANCIAL STATEMENTS are footnotes to the statements listed above.
These notes include information on accounting methods used by the Fund,
contractual arrangements between the Fund and its service providers, certain
transactions effected by the Fund and other general information about the Fund.
The FINANCIAL HIGHLIGHTS shows, for a single share outstanding throughout each
period presented, the net investment income, the realized and unrealized gains
and losses and the dividends and distributions of the Fund. It also shows key
data and ratios, such as the total investment return for each period, the
portfolio turnover rate for Funds other than money market mutual funds, the
ratio of expenses to average net assets and the ratio of net investment income
to average net assets.
6
<PAGE> 144
[This page intentionally left blank.]
7
<PAGE> 145
ECONOMIC REVIEW
FROM THE INVESTMENT ADVISER
Fourth quarter Gross Domestic Product was reported at a 3.7%* annualized rate,
with inflation continuing to be non-existent and a positive factor for the
economy and the domestic financial markets. Changes in consumer prices are
negligible and producer prices are actually declining. Historically high
consumer confidence, resulting from strong job growth, wage gains and the
positive wealth effect created by the buoyant stock market, has created solid
income growth and has fueled the robust housing market in the first quarter of
1998. Consumers have been the primary beneficiaries of the turmoil in the Asian
markets. Lower bond yields, a by-product of the Asian financial crisis, have
resulted in lower mortgages payments for households looking to buy a home.
THE CASE FOR
STOCKS AND BONDS
The Standard & Poor's Stock Index posted a total return of 35.1%** during the 12
month period ended February 28, 1998, amply rewarding long-term investors who
rode out volatility that accompanied the Asian financial crisis. The best
performers were concentrated among shares of large company stocks, which
significantly outpaced shares of smaller firms.
Companies have been issuing reduced earnings forecasts at an increasing rate.
Despite the early warnings, the reduced earnings expectations have not put a
damper on the stock market. The bullish sentiment for low inflation and
continuing strong profits for 1998 are propelling the stock markets to new
highs. The Dow*** has gained 8.4% during the first two months of the year,
significantly higher than expected. Overall, the U.S. economy seems poised for
continued moderate growth, which is good news for stocks. We think it is
reasonable to expect P/E ratios to stay at current levels of 22 times 1998
earnings. That gives an estimated market return over the next 12 months of 9%
(7.8% from earnings growth and 1.2% from dividend yield).
Fixed income investors remain optimistic due to the lack of price pressures, the
strong dollar and the expectation of an Asia-led slowdown in the U.S. Interest
rates on Treasuries have fallen across the yield curve over the last twelve
months and are currently below 6%, the lowest level in 25 years. The finance
sector has been outperforming expectations as of late, which has a lot to do
with the wave of colossal merger and acquisition activity sweeping across
financial institutions.
The prospects for a government budget surplus in fiscal 1998 are growing. Some
economists are predicting as much as a $50 billion surplus due to large tax
revenues as well as efforts to reduce government spending. These revenue flows
will serve to reduce immediate government financing needs. Already, we have seen
cuts in the size of Treasury auctions so far this year.
POTENTIAL RISKS
The Asian financial crisis, which began in the third quarter of 1997, is
expected to modestly impact U.S. domestic growth. As expected, trade between
U.S. and Asian trade partners has sharply deteriorated, with the current account
deficit widening to its highest level in ten years. The deficit widened to
$166.5 billion in 1997, up from $148.2 billion for 1996. The largest threat to
the U.S. economy, according to The Organization for Economic Cooperation and
Development (OECD), would be a second round of currency devaluations in Asia. It
could happen again if Japan fails to jumpstart its economy.
While the final outcome of the Asian financial crisis remains unclear, the
initial predictions of a global financial crisis have not been supported by the
evidence.
8
<PAGE> 146
With the Asian crisis potentially constraining corporate profitability in the
second or third quarter, we expect that growth will slow during the remainder of
the year.
Tame inflation continues to be the theme du jour as the Consumer Price Index's
1.4% increase over the past 12 months is the second lowest reading in 33 years,
outdone only by the collapse in oil prices in 1986. The lack of inflationary
pressures and the uncertainty surrounding the Asian financial crisis have kept
the Federal Reserve from raising interest rates. The Fed funds rate has remained
at 5.50% since last March. However, the labor market is stretched and wage
pressures are intensifying. So far, increased productivity has compensated for
wage increases; however, recent significant increases in real asset values, such
as housing and land, have not gone unnoticed by Chairman Greenspan and may play
a factor in determining monetary policy over the coming months.
LOOKING FORWARD
It is now a widely accepted view that the U.S. economy is growing at a faster
pace early in 1998 than analysts had projected last year at the height of the
Asian turmoil. Although the preliminary GDP figure will not be released until
the end of April, the early estimate for the first quarter lies somewhere
between 3.5 - 4.0%. In order to reach the projected 1998 growth rate of 2.8%,
U.S. growth will have to sustain a considerable slowdown in the latter part of
the year to compensate for the strengths it is exhibiting now.
Looking forward, there are a lot of crosscurrents in the U.S. corporate earnings
picture. Ironically, the impact from the Asian financial crisis so far have been
positive, with lower interest rates boosting the economy. In the first quarter,
currency and oil earnings will be negative factors, but stronger economic growth
will offset any weaknesses. In the second and third quarters, we expect the
impact from Asia should be mitigated by strong growth in Europe. We continue to
believe that the economic impact from Asia will be moderate with the U.S.
economy slowing, but sustaining a near normal growth rate of 2.8% in 1998. Given
these projections, we expect equities and fixed income securities to perform
well in 1998, although below 1997 levels.
Sincerely,
/s/ Kirk Hartman
Kirk Hartman
Chief Investment Officer of
Fixed Income Management
- ---------------
* Source: Bloomberg, 1998.
** Source: Bloomberg, 1998. 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 Dow Jones Industrial Average is a price-weighted average of 30 actively
traded blue chip stocks and cannot be invested in directly.
9
<PAGE> 147
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
BANK NOTES -- 3.3%
DOMESTIC -- 2.5%
American Express Centurion Bank Monthly
Variable Rate (final maturity
4/15/98)*............................. A1/P1 5.595% 03/16/98 $ 50,000,000 $ 50,000,000
American Express Centurion Bank Monthly
Variable Rate (final maturity
6/26/98)*............................. A1/P1 5.595% 03/26/98 25,000,000 25,000,000
The Bank of New York................... A1+/P1 6.100% 05/22/98 25,000,000 24,994,107
Bank One Wisconsin N.A................. A1+/P1 5.550% 02/26/99 25,000,000 24,966,726
Huntington National Bank............... A1/P1 5.940% 08/31/98 50,000,000 49,985,629
Key Bank N.A., Monthly Variable Rate
(final maturity 9/23/98)*............. A1/P1 5.495% 03/23/98 22,000,000 21,986,550
PNC Bank N.A........................... A1/P1 6.050% 05/28/98 20,000,000 19,996,838
Union Planters National Bank........... P1/TBW1 6.290% 08/20/98 23,470,000 23,542,622
--------------
Total Domestic Bank Notes............... 240,472,472
--------------
FOREIGN -- 0.8%
Abbey National Treasury Services,
PLC................................... A1+/P1 6.000% 06/17/98 50,000,000 49,999,150
</TABLE>
- ---------------
See Notes to Financial Statements.
10
<PAGE> 148
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
BANK NOTES -- (CONTINUED)
General Motors Acceptance Corp......... A1/P1 7.500% 05/26/98 $ 30,000,000 $ 30,129,754
--------------
Total Foreign Bank Notes................ 80,128,904
--------------
Total Bank Notes
(Amortized Cost $320,601,376).......... 320,601,376
--------------
CERTIFICATES OF DEPOSIT -- 16.6%
DOMESTIC -- 4.1%
Bankers Trust Company, Daily Variable
Rate (final maturity 07/21/98)*....... A1/P1 5.650% 03/02/98 25,000,000 24,995,305
Bankers Trust Company, Weekly Variable
Rate (final maturity 07/07/98)*....... A1/P1 5.679% 03/04/98 50,000,000 49,988,154
Bankers Trust Company, Weekly Variable
Rate (final maturity 10/7/98)*........ A1/P1 5.859% 03/04/98 50,000,000 50,000,000
Crestar Bank........................... A1/P1 5.800% 04/08/98 50,000,000 50,000,000
Crestar Bank........................... A1/P1 5.560% 05/27/98 50,000,000 50,000,000
Crestar Bank........................... A1/P1 5.860% 06/15/98 25,000,000 25,000,000
Crestar Bank........................... A1/P1 5.860% 07/20/98 50,000,000 49,996,305
Crestar Bank........................... A1/P1 5.920% 10/16/98 50,000,000 49,982,008
Morgan Guaranty Trust Company.......... A1+/P1 5.800% 07/28/98 25,000,000 24,996,092
Morgan Guaranty Trust Company.......... A1+/P1 5.870% 08/06/98 25,000,000 24,996,895
--------------
399,954,759
--------------
EURO -- 1.0%
Bank of Tokyo Mitsubishi, London
Branch................................ A1/P1 6.040% 05/11/98 25,000,000 25,000,486
Bayerische Landesbank Girozentrale,
London Branch......................... A1+/P1 5.810% 06/03/98 25,000,000 24,999,247
</TABLE>
- ---------------
See Notes to Financial Statements.
11
<PAGE> 149
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
CERTIFICATES OF DEPOSIT -- (CONTINUED)
EURO -- (CONTINUED)
Istituto Bancario San Paolo Di Torino,
London................................ A1/P1 5.750% 04/14/98 $ 25,000,000 $ 25,000,594
Istituto Bancario San Paolo Di Torino,
London................................ A1/P1 5.840% 06/05/98 25,000,000 25,000,648
--------------
100,000,975
--------------
YANKEE -- 11.5%
Bank of Tokyo Mitsubishi, New York..... A1/P1 6.500% 03/04/98 50,000,000 50,000,000
Bank of Tokyo Mitsubishi, New York..... A1/P1 5.900% 04/28/98 25,000,000 25,000,000
Bank of Tokyo Mitsubishi, New York..... A1/P1 5.960% 04/30/98 25,000,000 25,000,000
Banque National de Paris, Chicago...... A1/P1 5.970% 07/01/98 25,000,000 24,993,614
Banque National de Paris, Chicago...... A1/P1 5.890% 07/21/98 25,000,000 24,997,028
Banque National de Paris, Chicago...... A1/P1 5.800% 07/31/98 25,000,000 24,995,018
Banque Paribas, New York............... A1/P1 5.660% 03/01/99 90,000,000 89,956,856
BHF Bank of Aktiengesellschaft, New
York, Monthly Variable Rate (final
maturity 8/13/98)*.................... A1/P1 5.555% 03/13/98 50,000,000 49,991,203
Canadian Imperial Bank of Commerce, New
York.................................. A1+/P1 5.865% 08/11/98 25,000,000 24,990,926
Canadian Imperial Bank of Commerce, New
York.................................. A1+/P1 5.880% 10/14/98 50,000,000 49,985,130
Deutsche Bank A.G., New York........... A1+/P1 5.940% 10/22/98 25,000,000 24,990,770
Istituto Bancario San Paolo Di Torino,
New York.............................. A1/P1 5.840% 06/15/98 75,000,000 75,051,980
</TABLE>
- ---------------
See Notes to Financial Statements.
12
<PAGE> 150
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
CERTIFICATES OF DEPOSIT -- (CONTINUED)
YANKEE -- (CONTINUED)
Istituto Bancario San Paolo Di Torino,
New York.............................. A1/P1 5.870% 07/20/98 $ 50,000,000 $ 49,994,458
Landesbank Hessen-Thuringen
Girozentrale, New York................ A1+/P1 5.940% 06/19/98 25,000,000 24,995,679
National Bank of Canada, New York...... A1/P1 6.150% 05/15/98 44,000,000 43,995,319
National Bank of Canada, New York...... A1/P1 6.140% 06/05/98 25,000,000 24,998,679
Royal Bank of Canada, New York......... A1+/P1 5.650% 03/03/98 80,000,000 79,999,376
Royal Bank of Canada, New York......... A1+/P1 5.630% 02/26/99 50,000,000 49,966,279
Societe Generale Bank, New York........ A1+/P1 5.910% 10/15/98 25,000,000 24,992,534
Societe Generale Bank, New York........ A1+/P1 5.660% 02/26/99 50,000,000 49,985,739
Societe Generale Bank, New York........ A1+/P1 5.700% 02/26/99 50,000,000 49,980,995
Societe Generale Bank, New York........ A1+/P1 5.690% 03/02/99 50,000,000 49,976,050
Societe Generale Bank, New York, Daily
Variable Rate (final maturity
1/22/99)*............................. A1+/P1 5.710% 03/02/98 25,000,000 24,989,187
Societe Generale Bank, New York, Daily
Variable Rate (final maturity
10/23/98)*............................ A1+/P1 5.690% 03/02/98 50,000,000 49,981,269
Societe Generale Bank, New York, Daily
Variable Rate (final maturity
6/16/98)*............................. A1+/P1 5.700% 03/02/98 25,000,000 24,995,754
Societe Generale Bank, New York, Daily
Variable Rate (final maturity
8/25/98)*............................. A1+/P1 5.700% 03/02/98 25,000,000 24,992,976
</TABLE>
- ---------------
See Notes to Financial Statements.
13
<PAGE> 151
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
CERTIFICATES OF DEPOSIT -- (CONTINUED)
YANKEE -- (CONTINUED)
Westdeutsche Landesbank Girozentrole,
New York.............................. A1+/P1 5.780% 07/31/98 $ 35,000,000 $ 34,996,687
Westpac Banking Corp., New York........ A1+/P1 5.930% 08/12/98 25,000,000 24,995,704
--------------
1,123,789,210
--------------
Total Certificates of Deposit (Amortized
Cost $1,623,744,944).................. 1,623,744,944
--------------
COMMERCIAL PAPER -- 33.2%
DOMESTIC -- 28.7%
ASSET BACKED SECURITIES -- 8.4%
Aesop Funding Corp..................... A1/P1 5.500% 04/15/98 50,000,000 49,656,250
Asset Securitization Cooperative
Corp.................................. A1/P1 5.750% 03/16/98 50,000,000 49,880,208
CC USA Inc............................. A1+/P1 5.590% 03/09/98 31,000,000 30,961,491
CC USA Inc............................. A1+/P1 5.740% 03/24/98 25,000,000 24,908,319
CC USA Inc............................. A1+/P1 5.585% 03/25/98 25,500,000 25,405,055
CC USA Inc............................. A1+/P1 5.740% 03/27/98 30,000,000 29,875,633
CC USA Inc............................. A1+/P1 5.590% 03/30/98 32,500,000 32,353,651
CC USA Inc............................. A1+/P1 5.400% 08/17/98 24,500,000 23,878,925
Enterprise Funding Corp. (b)........... A1+/P1 5.520% 03/06/98 23,696,000 23,677,833
Enterprise Funding Corp. (b)........... A1+/P1 5.490% 04/15/98 32,355,000 32,132,964
Enterprise Funding Corp. (b)........... A1+/P1 5.570% 04/27/98 50,000,000 49,559,042
Republic Industries Funding Corp....... A1/P1 5.520% 03/20/98 55,000,000 54,839,767
Riverwoods Funding Corp................ A1+/P1 5.720% 03/11/98 50,000,000 49,920,556
Riverwoods Funding Corp................ A1+/P1 5.510% 06/03/98 100,000,000 98,576,583
Sigma Finance Inc...................... A1+/P1 5.540% 03/26/98 37,000,000 36,857,653
Sigma Finance Inc...................... A1+/P1 5.475% 05/05/98 25,000,000 24,752,865
Sigma Finance Inc...................... A1+/P1 5.490% 05/12/98 50,000,000 49,451,000
Sigma Finance Inc...................... A1+/P1 5.400% 07/28/98 25,000,000 24,441,250
</TABLE>
- ---------------
See Notes to Financial Statements.
14
<PAGE> 152
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
COMMERCIAL PAPER -- (CONTINUED)
DOMESTIC -- (CONTINUED)
ASSET BACKED SECURITIES -- (CONTINUED)
World Omni Vehicle Leasing Inc......... A1/P1 5.515% 03/20/98 $ 50,000,000 $ 49,854,465
World Omni Vehicle Leasing Inc......... A1/P1 5.490% 04/24/98 56,596,000 56,129,932
--------------
817,113,442
--------------
AUTOMOBILES -- 1.7%
American Honda Finance Corp............ F1/P1 5.510% 05/29/98 40,000,000 39,455,122
Daimler-Benz North America Corp........ A1/P1 5.625% 04/22/98 50,000,000 49,593,750
General Motors Acceptance Corp......... A1/P1 5.600% 04/20/98 25,000,000 24,805,556
General Motors Acceptance Corp......... A1/P1 5.650% 04/22/98 50,000,000 49,591,944
--------------
163,446,372
--------------
BANKING -- 2.3%
Bankers Trust, New York, Daily Variable
Rate (final maturity 8/4/98)*......... A1/P1 5.700% 03/02/98 25,000,000 25,000,000
Bankers Trust, New York, Daily Variable
Rate (final maturity 9/4/98)*......... A1/P1 5.760% 03/02/98 50,000,000 50,000,000
Bankers Trust, New York, Daily Variable
Rate (final maturity 9/4/98)*......... A1/P1 5.780% 03/02/98 25,000,000 25,000,000
National Australia Funding Inc......... A1+/P1 5.460% 05/26/98 25,500,000 25,167,395
NationsBank Corporation................ A1/P1 5.470% 04/10/98 50,000,000 49,696,111
Unifunding Inc......................... A1/P1 5.660% 06/02/98 50,000,000 49,268,917
--------------
224,132,423
--------------
</TABLE>
- ---------------
See Notes to Financial Statements.
15
<PAGE> 153
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
COMMERCIAL PAPER -- (CONTINUED)
DOMESTIC -- (CONTINUED)
BROKERAGE SERVICES -- 4.0%
Lehman Brothers Holdings, Inc., Weekly
Variable Rate (final maturity
4/03/98)*............................. A1/F1 5.799% 03/04/98 $ 50,000,000 $ 50,000,000
Lehman Brothers Holdings, Inc.......... A1/F1 5.770% 03/04/98 25,000,000 24,987,979
Merrill Lynch & Co., Inc............... A1+/P1 5.510% 05/20/98 100,000,000 98,790,861
Merrill Lynch & Co., Inc............... A1+/P1 5.650% 06/03/98 25,000,000 24,631,181
Salomon Smith Barney Holdings Inc...... A1/P1 5.730% 03/06/98 25,000,000 24,980,104
Salomon Smith Barney Holdings Inc...... A1/P1 5.485% 04/22/98 50,000,000 49,603,861
Salomon Smith Barney Holdings Inc...... A1/P1 5.520% 05/07/98 50,000,000 49,486,333
Salomon Smith Barney Holdings Inc...... A1/P1 5.415% 07/29/98 50,000,000 48,871,875
Salomon Smith Barney Holdings Inc...... A1/P1 5.770% 03/17/98 24,775,000 24,711,466
--------------
396,063,660
--------------
CONGLOMERATES -- 1.3%
B.A.T. Capital Corporation............. F1/P1 5.760% 04/07/98 25,000,000 24,852,000
B.A.T. Capital Corporation............. F1/P1 5.570% 04/22/98 50,000,000 49,597,722
B.A.T. Capital Corporation............. F1/P1 5.560% 05/20/98 50,000,000 49,382,222
--------------
123,831,944
--------------
CONSUMER NON-DURABLES -- 0.4%
Newell Co.............................. A1/D1 5.585% 03/27/98 40,000,000 39,838,656
--------------
ELECTRONICS -- 0.8%
Hitachi America Ltd.................... A1+/P1 5.400% 07/15/98 31,000,000 30,367,600
Hitachi America Ltd.................... A1+/P1 5.410% 07/31/98 20,000,000 19,543,156
Hitachi America Ltd.................... A1+/P1 5.400% 08/21/98 25,000,000 24,351,250
--------------
74,262,006
--------------
</TABLE>
- ---------------
See Notes to Financial Statements.
16
<PAGE> 154
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
COMMERCIAL PAPER -- (CONTINUED)
DOMESTIC -- (CONTINUED)
FINANCE COMPANIES -- 4.7%
BTR Dunlop Finance Inc................. A1/P1 5.690% 03/26/98 $ 50,000,000 $ 49,802,431
BTR Dunlop Finance Inc................. A1/P1 5.390% 07/14/98 50,000,000 48,989,375
Countrywide Home Loans, Inc............ A1/F1 5.530% 05/20/98 50,000,000 49,385,556
Countrywide Home Loans, Inc............ A1/F1 5.530% 05/27/98 72,950,000 71,975,084
General Electric Capital Corp.......... A1+/P1 5.550% 04/27/98 25,000,000 24,780,312
General Electric Capital Corp.......... A1+/P1 5.510% 05/06/98 50,000,000 49,494,917
Safeco Credit Company.................. A1/D1 5.760% 03/04/98 20,600,000 20,590,112
Safeco Credit Company.................. A1/D1 5.765% 03/11/98 22,000,000 21,964,769
Safeco Credit Company.................. A1/D1 5.770% 03/11/98 32,000,000 31,948,711
Safeco Credit Company.................. A1/D1 5.800% 03/18/98 20,000,000 19,945,222
Safeco Credit Company.................. A1/D1 5.470% 04/30/98 20,000,000 19,817,667
Safeco Credit Company.................. A1/D1 5.500% 05/06/98 25,000,000 24,747,917
Safeco Credit Company.................. A1/D1 5.550% 05/27/98 26,000,000 25,651,275
--------------
459,093,348
--------------
MINING -- 0.9%
Rio Tinto America Inc.................. A1+/P1 5.760% 03/11/98 48,700,000 48,622,080
Rio Tinto America Inc.................. A1+/P1 5.410% 08/11/98 45,300,000 44,190,364
--------------
92,812,444
--------------
PUBLISHING -- 0.3%
Tribune Company........................ A1/P1 5.740% 03/06/98 25,000,000 24,980,069
--------------
SOVEREIGN ISSUES -- 0.4%
Government Development Bank of Puerto
Rico.................................. A1+/TBW1 5.450% 05/22/98 43,000,000 42,466,203
--------------
UTILITIES -- 3.5%
British Gas Capital Inc................ A1/P1 5.730% 04/21/98 25,000,000 24,797,062
British Gas Capital Inc................ A1/P1 5.600% 05/07/98 75,000,000 74,218,333
British Gas Capital Inc................ A1/P1 5.430% 07/27/98 50,000,000 48,883,833
</TABLE>
- ---------------
See Notes to Financial Statements.
17
<PAGE> 155
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
COMMERCIAL PAPER -- (CONTINUED)
DOMESTIC -- (CONTINUED)
UTILITIES -- (CONTINUED)
British Gas Capital Inc................ A1/P1 5.430% 08/24/98 $ 75,000,000 $ 73,006,556
Duke Capital Corp...................... A1/F1 5.770% 03/04/98 20,000,000 19,990,383
Duke Capital Corp...................... A1/F1 5.520% 04/06/98 25,000,000 24,862,000
Duke Capital Corp...................... A1/F1 5.540% 06/02/98 39,127,000 38,567,027
National Rural Utilities Cooperative
Finance Corp.......................... A1+/P1 5.700% 03/17/98 20,000,000 19,949,333
National Rural Utilities Cooperative
Finance Corp.......................... A1+/P1 5.680% 05/05/98 20,000,000 19,794,889
--------------
344,069,416
--------------
Total Domestic Commercial Paper
(Amortized Cost $2,802,109,983)....... 2,802,109,983
--------------
FOREIGN -- 4.5%
AIR TRANSPORTATION -- 0.5%
BAA PLC................................ A1+/P1 5.700% 04/06/98 50,000,000 49,715,000
--------------
AUTOMOBILES -- 1.0%
Ford Credit Europe, PLC................ A1/P1 5.720% 03/06/98 75,000,000 74,940,417
Ford Credit Europe, PLC................ A1/P1 5.530% 04/08/98 25,000,000 24,854,069
--------------
99,794,486
--------------
BANKING -- 0.5%
Abbey National Treasury Services,
PLC................................... A1+/P1 5.560% 03/11/98 25,000,000 24,961,389
Banque National de Paris, Canadian
Branch................................ A1/P1 5.730% 03/05/98 24,000,000 23,984,720
--------------
48,946,109
--------------
BUILDING SOCIETY -- 0.5%
Nationwide Building Society............ A1/P1 5.585% 05/06/98 50,000,000 49,488,042
--------------
</TABLE>
- ---------------
See Notes to Financial Statements.
18
<PAGE> 156
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
COMMERCIAL PAPER -- (CONTINUED)
FOREIGN -- (CONTINUED)
FOOD AND BEVERAGES -- 1.0%
Diageo Capital PLC..................... A1/P1 5.400% 07/06/98 $ 47,500,000 $ 46,595,125
Diageo Capital PLC..................... A1/P1 5.420% 07/27/98 50,000,000 48,885,889
--------------
95,481,014
--------------
SOVEREIGN ISSUES -- 0.8%
Cades.................................. A1+/P1 5.730% 03/05/98 30,000,000 29,980,900
Cades.................................. A1+/P1 5.650% 06/05/98 50,000,000 49,246,667
--------------
79,227,567
--------------
UTILITIES -- 0.2%
Ontario Hydro.......................... A1+/P1 5.700% 03/16/98 25,000,000 24,940,625
--------------
Total Foreign Commercial Paper
(Amortized Cost $447,592,843)......... 447,592,843
--------------
Total Commercial Paper
(Amortized Cost $3,249,702,826)........ 3,249,702,826
--------------
CORPORATE OBLIGATIONS -- 16.4%
ASSET BACKED SECURITIES -- 1.2%
CC USA, Inc............................ A1+/P1 6.175% 05/26/98 20,000,000 20,000,771
Sigma Finance Inc., Daily Variable Rate
(final maturity 7/27/98)*............. A1+/P1 5.680% 03/02/98 50,000,000 49,999,597
Sigma Finance, Inc..................... A1+/P1 5.915% 03/05/98 50,000,000 49,999,827
--------------
120,000,195
--------------
AUTOMOBILES -- 3.4%
American Honda Finance Corp., Quarterly
Variable Rate (final maturity
1/20/99)*............................. F1/P1 5.598% 04/20/98 25,000,000 25,000,000
American Honda Finance Corp., Quarterly
Variable Rate (final maturity
1/21/99)*............................. F1/P1 5.625% 04/21/98 50,000,000 49,995,534
</TABLE>
- ---------------
See Notes to Financial Statements.
19
<PAGE> 157
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
CORPORATE OBLIGATIONS -- (CONTINUED)
AUTOMOBILES -- (CONTINUED)
American Honda Finance Corp., Quarterly
Variable Rate (final maturity
4/6/98)*.............................. F1/P1 5.822% 04/06/98 $ 50,000,000 $ 49,999,048
American Honda Finance Corp., Quarterly
Variable Rate (final maturity
4/9/98)*.............................. F1/P1 5.691% 04/09/98 24,000,000 24,000,237
American Honda Finance Corp., Quarterly
Variable Rate (final maturity
6/16/98)*............................. F1/P1 5.906% 03/16/98 20,000,000 20,000,000
American Honda Finance Corp., Quarterly
Variable Rate (final maturity
7/27/98)*............................. F1/P1 5.621% 04/27/98 45,000,000 45,000,000
General Motors Acceptance Corp., Daily
Variable Rate (final maturity
4/21/98)*............................. A1/P1 5.750% 03/02/98 25,000,000 25,001,087
General Motors Acceptance Corp.,
Quarterly Variable Rate (final
maturity 5/22/98)*.................... A1/P1 5.595% 03/23/98 50,000,000 50,001,130
General Motors Acceptance Corp.,
Quarterly Variable Rate (final
maturity 9/3/98)*..................... A1/P1 5.886% 03/03/98 46,393,000 46,395,876
--------------
335,392,912
--------------
</TABLE>
- ---------------
See Notes to Financial Statements.
20
<PAGE> 158
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
CORPORATE OBLIGATIONS -- (CONTINUED)
BANKING -- 3.5%
Bankers Trust New York Corp., Monthly
Variable Rate (final maturity
2/10/99)*............................. A1/P1 5.575% 03/10/98 $105,000,000 $ 104,960,614
Bank of Scotland, PLC, Quarterly
Variable Rate (final maturity
9/22/98)*............................. A1/P1 5.806% 03/22/98 25,000,000 24,994,562
Compagnie Bancaire USA Funding, Daily
Variable Rate (final maturity
5/15/98)*............................. A1/P1 5.760% 03/02/98 50,000,000 49,998,837
Compaigne Bancaire USA Funding
Quarterly Variable Rate (final
maturity 7/16/98)*.................... A1/P1 5.563% 04/16/98 34,000,000 33,990,461
Compaigne Bancaire USA Funding Weekly
Variable Rate (final maturity
10/1/98)*............................. A1/P1 5.809% 03/04/98 50,000,000 50,000,000
Compaigne Bancaire USA Funding Weekly
Variable Rate (final maturity
10/1/98)*............................. A1/P1 5.809% 03/04/98 25,000,000 24,997,068
Compagnie Bancaire USA Funding Weekly
Variable Rate (final maturity
11/25/98)*............................ A1/P1 5.929% 03/04/98 50,000,000 50,000,000
--------------
338,941,542
--------------
BROKERAGE SERVICES -- 4.7%
Bear Stearns Companies, Inc., Daily
Variable Rate, Series B (final
maturity 3/17/98)*.................... A1/P1 5.700% 03/02/98 75,000,000 75,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
21
<PAGE> 159
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
CORPORATE OBLIGATIONS -- (CONTINUED)
BROKERAGE SERVICES -- (CONTINUED)
Bear Stearns Companies, Inc., Daily
Variable Rate, Series B (final
maturity 6/12/98)*.................... A1/P1 5.760% 03/02/98 $ 60,000,000 $ 60,000,302
Bear Stearns Companies, Inc., Monthly
Variable Rate (final maturity
8/14/98)*............................. A1/P1 5.775% 03/16/98 25,000,000 25,019,085
Bear Stearns Companies, Inc., Monthly
Variable Rate, Series B (final
maturity 4/1/98)*..................... A1/P1 5.775% 03/02/98 18,000,000 18,002,258
C. S. First Boston, Inc., Daily
Variable Rate (final maturity
7/21/98)*............................. A1+/P1 5.670% 03/02/98 50,000,000 50,000,000
C. S. First Boston, Inc., Weekly
Variable Rate (final maturity
5/15/98)*............................. A1+/P1 5.629% 03/04/98 50,000,000 50,000,000
Lehman Brothers Holdings, Inc., Daily
Variable Rate (final maturity
3/22/99)*............................. A1/F1 5.710% 03/02/98 50,000,000 50,000,000
Lehman Brothers Holdings, Inc.,
Quarterly Variable Rate (final
maturity 2/12/99)*.................... A1/F1 5.655% 04/13/98 25,000,000 25,000,000
Lehman Brothers Holdings, Inc.,
Quarterly Variable Rate (final
maturity 5/28/98)*.................... A1/F1 6.045% 05/28/98 36,000,000 36,034,395
</TABLE>
- ---------------
See Notes to Financial Statements.
22
<PAGE> 160
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
CORPORATE OBLIGATIONS -- (CONTINUED)
BROKERAGE SERVICES -- (CONTINUED)
Merrill Lynch & Co., Inc., Daily
Variable Rate (final maturity
11/23/98)*............................ A1+/P1 5.700% 03/02/98 $ 25,000,000 $ 25,000,000
Merrill Lynch & Co., Inc., Daily
Variable Rate (final maturity
12/9/98)*............................. A1+/P1 5.760% 03/02/98 25,000,000 24,998,067
Merrill Lynch & Co., Inc., Weekly
Variable Rate (final maturity
3/4/98)*.............................. A1+/P1 5.629% 03/04/98 19,000,000 18,999,759
--------------
458,053,866
--------------
CONGLOMERATES -- 0.3%
Philip Morris Co., Inc................. A1/P1 9.000% 05/15/98 22,625,000 22,750,689
--------------
FINANCE COMPANIES -- 1.7%
Dean Witter Discover & Co.............. A1/P1 6.000% 03/01/98 15,000,000 15,000,000
Household Finance Corp., Daily Variable
Rate (final maturity 5/28/98)*........ A1/P1 5.720% 03/02/98 50,000,000 50,000,000
Household Finance Corp., Monthly
Variable Rate (final maturity
1/19/99)*............................. A1/P1 5.587% 03/19/98 25,000,000 25,000,000
Household Finance Corp., Monthly
Variable Rate (final maturity
1/21/99)*............................. A1/P1 5.595% 03/23/98 25,000,000 25,000,000
Household Finance Corp., Monthly
Variable Rate (final maturity
9/15/98)*............................. A1/P1 5.675% 03/16/98 50,000,000 50,022,707
--------------
165,022,707
--------------
</TABLE>
- ---------------
See Notes to Financial Statements.
23
<PAGE> 161
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
CORPORATE OBLIGATIONS -- (CONTINUED)
LEASING -- 1.1%
Sanwa Business Credit Corp., Daily
Variable Rate (final maturity
4/17/98)*............................. P1/D1 5.810% 03/02/98 $ 25,000,000 $ 25,000,000
Sanwa Business Credit Corp., Daily
Variable Rate (final maturity
9/18/98)*............................. P1/D1 5.720% 03/02/98 25,000,000 25,000,000
Sanwa Business Credit Corp., Monthly
Variable Rate (final maturity
4/29/98)*............................. P1/D1 5.750% 03/30/98 25,000,000 25,003,319
USL Capital Corp., Series D, Quarterly
Variable Rate (final maturity
4/22/98)*............................. P1/F1 5.705% 04/22/98 34,000,000 34,005,075
--------------
109,008,394
--------------
RELOCATION SERVICES -- 0.5%
PHH Corporation, Monthly Variable Rate
(final maturity 6/24/98)*............. A1/P1 5.625% 03/24/98 50,000,000 50,000,000
--------------
Total Corporate Obligations
(Amortized Cost $1,599,170,305)........ 1,599,170,305
--------------
MASTER NOTES -- 7.1%
Goldman Sachs Group L.P. (final
maturity 10/13/98)*................... A1+/P1 5.828% 03/02/98 400,000,000 400,000,000
Morgan Stanley Group, Inc. (final
maturity 3/24/98)*.................... A1/P1 5.788% 03/02/98 300,000,000 300,000,000
--------------
Total Master Notes
(Amortized Cost $700,000,000).......... 700,000,000
--------------
</TABLE>
- ---------------
See Notes to Financial Statements.
24
<PAGE> 162
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
REPURCHASE AGREEMENTS -- 25.5%
CIBC Oppenheimer, Corp., dated 2/27/98,
with a maturity value of $135,064,013
(Collateralized by $137,095,000
various U.S. Government Obligations,
5.37%-7.75%, 3/24/98-3/8/12, market
value -- $137,701,990................. 5.690% 03/02/98 $135,000,000 $ 135,000,000
Morgan Stanley Dean Witter & Co., dated
2/27/98, with a maturity value of
$180,085,350 (Collateralized by
$246,113,822 various U.S. Government
Obligations, 5.00%-13.0%,
4/1/98-2/1/28, market value --
$183,600,518)......................... 5.690% 03/02/98 180,000,000 180,000,000
First Chicago Capital Markets, Inc.,
dated 2/27/98, with a maturity value
of $130,061,642 (Collateralized by
$132,876,000 various U.S. Government
Obligations, 0.00%-7.0%, 3/12/98-
12/13/99, market
value -- $132,603,501................. 5.690% 03/02/98 130,000,000 130,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
25
<PAGE> 163
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
REPURCHASE AGREEMENTS -- (CONTINUED)
Goldman Sachs & Co., dated 2/27/98,
with a maturity value of $118,622,726
(Collateralized by $117,146,000 U.S.
Treasury Note, 5.875%, 2/28/99, market
value -- $120,938,802)................ 5.640% 03/02/98 $118,567,000 $ 118,567,000
Goldman Sachs & Co., dated 2/27/98,
with a maturity value of $325,154,104
(Collateralized by $639,720,401
various U.S. Government Obligations,
5.50%-10.5%, 4/1/98-2/1/98, market
value -- $331,500,001)................ 5.690% 03/02/98 325,000,000 325,000,000
J.P. Morgan Securities, Inc., dated
2/27/98, with a maturity value of
$450,213,750 (Collateralized by
$455,797,296 Government National
Mortgage Association, 7.50%, 9/15/12-
1/15/28, market
value -- $459,000,001)................ 5.700% 03/02/98 450,000,000 450,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
26
<PAGE> 164
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
REPURCHASE AGREEMENTS -- (CONTINUED)
NationsBank, Inc., dated 2/27/98, with
a maturity value of $380,179,867
(Collateralized by $394,051,091
Federal National Mortgage Association,
6.5%-7.0%, 9/1/11-1/1/13, market
value -- $387,600,000)................ 5.680% 03/02/98 $380,000,000 $ 380,000,000
Nomura Securities, Inc., dated 2/27/98,
with a maturity value of $325,154,375
(Collateralized by $330,724,126
Federal National Mortgage Association,
5.5%-9.5%, 8/1/99-2/1/28, market
value -- $331,500,001)................ 5.700% 03/02/98 325,000,000 325,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
27
<PAGE> 165
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
REPURCHASE AGREEMENTS -- (CONTINUED)
Prudential Securities, Inc., dated
2/27/98, with a maturity value of
$450,213,375 (Collateralized by
$475,269,551 Federal National Mortgage
Association, 6.5%, 9/1/12, market
value -- $459,000,001)................ 5.690% 03/02/98 $450,000,000 $ 450,000,000
--------------
Total Repurchase Agreements
(Amortized Cost $2,493,567,000)........ 2,493,567,000
--------------
TOTAL INVESTMENTS -- 102.1%
(AMORTIZED COST $9,986,786,451)(a)..... 9,986,786,451
LIABILITIES IN EXCESS OF OTHER ASSETS --
(2.1%)................................ (207,110,383)
--------------
NET ASSETS -- 100.0%.................... $9,779,676,068
==============
</TABLE>
- ---------------
Percentages indicated are based on net assets of $9,779,676,068.
(a) Cost for federal income tax and financial reporting purposes are
substantially the same.
(b) Private placement security.
PLC -- Public Liability Company.
N.R.S.R.O. Nationally Recognized Statistical Ratings Organization. Rating
agencies that are included within the N.R.S.R.O. category are: S&P, Moody's,
Fitch Investors Services, Duff & Phelps, IBCA, and Thomsons Bank Watch.
<TABLE>
<C> <S>
A1 -- Highest rating assigned by S&P and IBCA.
P1 -- Highest rating assigned by Moody's.
F1 -- Highest rating assigned by Fitch Investors.
D1 -- Highest rating assigned by Duff.
TBW1 -- Highest rating assigned by Thomsons Bank Watch.
</TABLE>
Note: S&P and Moody's ratings have been used, unless another service has
assigned the security a higher rating.
* Variable rate security. Maturity date reflects the next interest rate change
date.
See Notes to Financial Statements.
28
<PAGE> 166
PACIFIC HORIZON TREASURY FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
MATURITY PRINCIPAL COST
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C>
U.S. TREASURY OBLIGATIONS -- 29.7%
U.S. Treasury Note................ 6.125% 03/31/98 $ 75,000,000 $ 75,030,243
U.S. Treasury Note................ 7.875% 04/15/98 50,000,000 50,134,432
U.S. Treasury Note................ 6.125% 05/15/98 75,000,000 75,070,970
U.S. Treasury Note................ 9.000% 05/15/98 75,000,000 75,517,134
U.S. Treasury Note................ 6.000% 05/31/98 25,000,000 25,024,328
U.S. Treasury Note................ 6.250% 06/30/98 50,000,000 50,102,114
U.S. Treasury Note................ 8.250% 07/15/98 91,250,000 92,114,346
U.S. Treasury Note................ 6.250% 07/31/98 50,000,000 50,123,039
U.S. Treasury Note................ 5.875% 08/15/98 150,000,000 150,137,721
U.S. Treasury Note................ 9.250% 08/15/98 75,000,000 76,185,202
U.S. Treasury Note................ 6.125% 08/31/98 125,000,000 125,419,571
U.S. Treasury Note................ 4.750% 08/31/98 50,000,000 49,840,734
--------------
Total U.S. Treasury Obligations
(Amortized Cost $894,699,834)..... 894,699,834
--------------
REPURCHASE AGREEMENTS -- 68.4%
Barclays de Zoete Wedd Securities,
Inc., dated 2/27/98, with a
maturity value of $145,068,150
(Collateralized by $111,311,000
U.S. Treasury Obligations,
10.75%-12.0%, 5/15/03-5/15/05,
market value -- $147,901,058)... 5.640% 03/02/98 145,000,000 145,000,000
CIBC Oppenheimer, Corp., dated
2/27/98, with a maturity value
of $145,068,029 (Collateralized
by $141,683,000 various U.S.
Treasury Obligations,
5.75%-11.25%, 6/30/98-2/15/15,
market value -- $147,907,744)... 5.630% 03/02/98 145,000,000 145,000,000
C.S. First Boston Corp., dated
2/27/98, with a maturity value
of $425,199,750 (Collateralized
by $412,984,000 U.S. Treasury
Notes, 5.875%-6.625%,
2/15/00-5/15/07, market value --
$435,643,658)................... 5.640% 03/02/98 425,000,000 425,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
29
<PAGE> 167
<TABLE>
<CAPTION>
AMORTIZED
MATURITY PRINCIPAL COST
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENTS -- (CONTINUED)
Morgan Stanley Dean Witter & Co.,
dated 2/27/98, with a maturity
value of $145,068,271
(Collateralized by $136,193,000
U.S. Treasury Notes,
5.625%-7.875%, 11/30/99-5/15/06,
market value -- $147,900,135)... 5.650% 03/02/98 $145,000,000 $ 145,000,000
Goldman Sachs & Co., dated
2/27/98, with a maturity value
of $574,937,093 (Collateralized
by $583,869,000 U.S. Treasury
Note, 0.00%-7.875%,
4/15/98-2/15/08, market
value -- $586,160,673).......... 5.640% 03/02/98 574,667,000 574,667,000
HSBC Securities, Inc., dated
2/27/98, with a maturity value
of $145,068,150 (Collateralized
by $231,922,000 U.S. Treasury
Obligations, 0.00%, 5/15/98-
11/15/12, market value --
$147,900,605)................... 5.640% 03/02/98 145,000,000 145,000,000
J.P. Morgan Securities, Inc.,
dated 2/27/98, with a maturity
value of $145,068,029
(Collateralized by $154,612,000
U.S. Treasury Notes,
0.00%-6.25%, 4/30/01-12/31/01,
market value -- $147,900,300)... 5.630% 03/02/98 145,000,000 145,000,000
Lehman Brothers, Inc., dated
2/27/98, with a maturity value
of $50,023,333 (Collateralized
by $107,443,000 U.S. Treasury
Notes, 0.00%, 2/15/08-11/15/12,
market value -- $51,001,397).... 5.600% 03/02/98 50,000,000 50,000,000
Merrill Lynch Securities, Inc.,
dated 2/27/98, with a maturity
value of $145,067,063
(Collateralized by $120,725,000
U.S. Treasury Obligations,
5.75%-11.25%, 11/30/99-2/15/19,
market value -- $147,901,010)... 5.550% 03/02/98 145,000,000 145,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
30
<PAGE> 168
<TABLE>
<CAPTION>
AMORTIZED
MATURITY PRINCIPAL COST
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENTS -- (CONTINUED)
Nomura Securities, Inc., dated
2/27/98, with a maturity value
of $145,068,150 (Collateralized
by $142,707,000 U.S. Treasury
Notes, 6.25%, 4/30/01-6/30/02,
market value -- $147,900,157)... 5.640% 03/02/98 $145,000,000 $ 145,000,000
--------------
Total Repurchase Agreements
(Amortized Cost $2,064,667,000)..... 2,064,667,000
--------------
TOTAL INVESTMENTS -- 98.1%
(AMORTIZED COST $2,959,366,834)(a).. 2,959,366,834
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 1.9%............... 56,872,749
--------------
NET ASSETS -- 100.0%................ $3,016,239,583
==============
</TABLE>
- ---------------
Percentages indicated are based on net assets of $3,016,239,583.
(a) Cost for federal income tax and financial reporting purpose are
substantially the same.
See Notes to Financial Statements.
31
<PAGE> 169
PACIFIC HORIZON GOVERNMENT FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
MATURITY PRINCIPAL COST
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
----------- ----- -------- ----------- ------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 44.2%
U.S. GOVERNMENT AGENCY OBLIGATIONS -- DISCOUNT -- 14.2%
Federal Home Loan Mortgage Corp......... 5.590%(dagger) 03/02/98 $30,000,000 $ 29,995,342
Federal Home Loan Mortgage Corp......... 5.500%(dagger) 05/08/98 40,000,000 39,588,978
------------
Total U.S. Government Agency
Obligations -- Discount (Amortized Cost
$69,584,320)........................... 69,584,320
------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- FIXED -- 17.7%
Federal Farm Credit Bank................ 5.540% 03/02/98 5,000,000 5,000,000
Federal Farm Credit Bank................ 5.750% 09/11/98 5,000,000 4,997,449
Federal Farm Credit Bank................ 5.600% 10/01/98 5,000,000 5,001,354
Federal Farm Credit Bank................ 5.700% 11/03/98 5,000,000 4,997,357
Federal Home Loan Bank.................. 5.720% 07/07/98 10,000,000 10,008,533
Federal Home Loan Bank.................. 5.715% 07/21/98 10,000,000 9,998,704
Federal Home Loan Bank.................. 5.700% 09/10/98 5,000,000 4,996,632
Federal Home Loan Bank.................. 5.690% 10/02/98 2,500,000 2,498,795
Federal Home Loan Bank.................. 5.800% 10/27/98 5,000,000 4,998,718
Federal Home Loan Mortgage Corporation.. 5.840% 04/08/98 4,000,000 4,000,000
Federal National Mortgage Association... 6.020% 04/15/98 5,000,000 5,002,155
Federal National Mortgage Association... 5.710% 06/23/98 10,000,000 9,998,554
Federal National Mortgage Association... 7.000% 07/13/98 5,000,000 5,020,482
Federal National Mortgage Association... 5.630% 08/14/98 5,000,000 4,995,861
Federal National Mortgage Association... 5.710% 09/09/98 5,000,000 4,996,213
------------
Total U.S. Government Agency
Obligations -- Fixed (Amortized Cost
$86,510,807)........................... 86,510,807
------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- VARIABLE -- 12.3%
Federal Home Loan Bank, Monthly Variable
Rate (final maturity 8/4/98)*.......... 5.390% 03/04/98 20,000,000 19,990,932
Federal National Mortgage Association,
Monthly Variable Rate (final maturity
7/30/98)*.............................. 5.420% 03/02/98 20,000,000 19,990,448
</TABLE>
- ---------------
See Notes to Financial Statements.
32
<PAGE> 170
<TABLE>
<CAPTION>
AMORTIZED
MATURITY PRINCIPAL COST
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
----------- ----- -------- ----------- ------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- (CONTINUED)
U.S. GOVERNMENT AGENCY OBLIGATIONS -- VARIABLE -- (CONTINUED)
Federal National Mortgage Association,
Weekly Variable Rate (final maturity
10/20/98)*............................. 5.740% 03/03/98 $20,000,000 $ 19,994,446
------------
Total U.S. Government Agency
Obligations -- Variable (Amortized Cost
$59,975,826)........................... 59,975,826
------------
Total U.S. Government Agency Obligations
(Amortized Cost $216,070,953).......... 216,070,953
------------
REPURCHASE AGREEMENTS -- 55.6%
CIBC Oppenheimer, Corp., dated 2/27/98,
with a maturity value of $15,007,113
(Collateralized by $15,015,000 U.S.
Government Obligations, 6.375%-6.90%,
10/13/00-10/9/01, market value --
$15,304,286)........................... 5.69% 03/02/98 15,000,000 15,000,000
Morgan Stanley Dean Witter & Co., dated
2/27/98, with a maturity value of
$20,009,483 (Collateralized by
$54,962,315 various U.S. Government
Obligations, 0.00%-15.00%, 3/12/98-
11/1/27, market
value -- $20,400,097).................. 5.69% 03/02/98 20,000,000 20,000,000
First Chicago Capital Markets, Inc.,
dated 2/27/98, with a maturity value of
$20,009,483 (Collateralized by
$19,980,000 U.S. Treasury Note, 5.875%,
11/15/99, market
value -- $20,404,744).................. 5.69% 03/02/98 20,000,000 20,000,000
Goldman Sachs & Co., dated 2/27/98, with
a maturity value of $97,220,077
(Collateralized by $531,613,617 various
U.S. Government Obligations, 5.50%-
12.50%, 3/25/98-2/1/28, market value --
$99,117,480)........................... 5.69% 03/02/98 97,174,000 97,174,000
HSBC Securities, Inc., dated 2/27/98,
with a maturity value of $20,009,467
(Collateralized by $30,331,922 U.S.
Government Obligations, 0.00%-8.50%,
6/25/98-9/1/27, market value --
$20,403,345)........................... 5.68% 03/02/98 20,000,000 20,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
33
<PAGE> 171
<TABLE>
<CAPTION>
AMORTIZED
MATURITY PRINCIPAL COST
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
----------- ----- -------- ----------- ------------
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENTS -- (CONTINUED)
J.P. Morgan Securities, Inc., dated
2/27/98, with a maturity value of
$20,009,500 (Collateralized by
$20,069,479 Government National
Mortgage Association, 6.50%-7.50%,
2/15/26-2/15/28, market value --
$20,400,001)........................... 5.70% 03/02/98 $20,000,000 $ 20,000,000
Merrill Lynch Securities, Inc., dated
2/27/98, with a maturity value of
$20,009,333 (Collateralized by
$48,562,044 U.S. Government
Obligations, 5.50%-8.00%,1/1/01-1/1/09,
market value -- $20,402,977)........... 5.60% 03/02/98 20,000,000 20,000,000
NationsBank, Inc., dated 2/27/98, with a
maturity value of $20,009,467
(Collateralized by $21,042,098 Federal
National Mortgage Association, 7.00%-
7.50%, 9/1/11-6/1/12, market value --
$20,400,000)........................... 5.68% 03/02/98 20,000,000 20,000,000
Nomura Securities, Inc., dated 2/27/98,
with a maturity value of $20,009,500
(Collateralized by $22,594,870 Federal
National Mortgage Association, 6.00%-
8.00%, 5/1/11-2/1/28, market value --
$20,400,001)........................... 5.70% 03/02/98 20,000,000 20,000,000
Prudential Securities, Inc., dated
2/27/98, with a maturity value of
$20,009,483 (Collateralized by
$20,456,106 U.S. Government
Obligations, 0.00%-6.50%,
5/28/98-2/1/18, market value --
$20,400,562)........................... 5.69% 03/02/98 20,000,000 20,000,000
------------
Total Repurchase Agreements (Amortized
Cost $272,174,000)..................... 272,174,000
------------
TOTAL INVESTMENTS -- 99.8% (AMORTIZED
COST $488,244,953)(A).................. 488,244,953
OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.2% 995,676
------------
NET ASSETS -- 100.0%..................... $489,240,629
============
</TABLE>
- ---------------
Percentages indicated are based on net assets of $489,240,629.
(a) Cost for federal income tax and financial reporting purposes are
substantially the same.
* Variable rate security. Maturity date reflects the next interest rate change
date.
(dagger) Rate represents effective yield at date of purchase.
See Notes to Financial Statements.
34
<PAGE> 172
PACIFIC HORIZON TREASURY ONLY FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
MATURITY PRINCIPAL COST
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C>
U.S. TREASURY OBLIGATIONS -- 98.4%
U.S. TREASURY BILLS -- 25.5%
U. S. Treasury Bill............... 5.310%(dagger) 03/05/98 $ 32,123,000 $ 32,104,440
U. S. Treasury Bill............... 5.310%(dagger) 04/23/98 80,000,000 79,378,502
--------------
111,482,942
--------------
U.S. TREASURY NOTES -- 72.9%
U.S. Treasury Note................ 5.125% 03/31/98 31,060,000 31,052,197
U.S. Treasury Note................ 6.125% 03/31/98 51,545,000 51,575,258
U.S. Treasury Note................ 7.875% 04/15/98 87,633,000 87,885,996
U.S. Treasury Note................ 5.125% 04/30/98 40,745,000 40,720,570
U.S. Treasury Note................ 5.875% 04/30/98 13,600,000 13,610,479
U.S. Treasury Note................ 6.125% 05/15/98 56,595,000 56,675,189
U.S. Treasury Note................ 8.250% 07/15/98 2,575,000 2,601,583
U.S. Treasury Note................ 6.125% 08/31/98 33,405,000 33,516,058
--------------
317,637,330
--------------
Total U.S. Treasury Obligations
(Amortized Cost $429,120,272)..... 429,120,272
--------------
TOTAL INVESTMENTS -- 98.4%
(AMORTIZED COST $429,120,272)(a).. 429,120,272
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 1.6%............... 6,886,074
--------------
NET ASSETS -- 100.0%................ $ 436,006,346
==============
</TABLE>
- ---------------
Percentages indicated are based on net assets of $436,006,346.
(a) Cost for federal income tax and financial reporting purposes are
substantially the same.
(dagger) Rate represents effective yield at date of purchase.
See Notes to Financial Statements.
35
<PAGE> 173
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRIME TREASURY GOVERNMENT TREASURY
FUND FUND FUND ONLY FUND
--------------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments in securities, at value (amortized cost
$7,493,219,451 $894,669,834, $216,070,953 and $429,120,272,
respectively)............................................... $ 7,493,219,451 $ 894,699,834 $216,070,953 $429,120,272
Repurchase agreements (cost $2,493,567,000, $2,064,667,000
$272,174,000 and $0, respectively)........................ 2,493,567,000 2,064,667,000 272,174,000 --
Cash....................................................... 320,256 -- 114 --
Interest receivable........................................ 59,383,563 15,051,412 1,800,553 7,212,402
Prepaid expenses........................................... 952,218 -- -- --
Receivable for investment securities sold.................. -- 51,281,250 -- 45,814,669
Deferred organizational costs.............................. -- -- -- 23,796
--------------- -------------- ------------ ------------
Total Assets................................................ 10,047,442,488 3,025,699,496 490,045,620 482,171,139
--------------- -------------- ------------ ------------
LIABILITIES:
Payable to bank............................................ -- 38,966 -- 1,638
Dividends payable.......................................... 16,466,456 7,992,895 562,176 323,025
Payable for investment securities purchased................ 247,343,494 -- -- 45,550,109
Investment advisory fees payable........................... 662,817 243,173 18,763 30,740
Administration fees payable................................ 729,581 244,501 37,458 30,800
Special management fees payable (Pacific Horizon Shares)... 598,133 79,811 33,244 47,448
Shareholder service fees payable (Horizon Service
Shares)................................................... 661,679 356,748 54,372 34,937
Shareholder service fees payable (X Shares)................ 157,824 34,620 -- --
Shareholder service fees payable (S Shares)................ 98,598 -- -- --
Shareholder service fees payable (Y Shares)................ 17,874 15,020 -- --
Distribution fees payable (X Shares)....................... 189,389 40,781 -- --
Distribution fees payable (S Shares)....................... 118,308 -- -- --
Distribution fees payable (Y Shares)....................... 53,622 42,960 -- --
Custodian and fund accounting fees payable................. 230,934 113,577 47,480 37,236
Transfer agent fees payable................................ 244,031 87,146 22,412 31,562
Other accrued expenses..................................... 193,680 169,715 29,086 77,298
--------------- -------------- ------------ ------------
Total Liabilities........................................... 267,766,420 9,459,913 804,991 46,164,793
--------------- -------------- ------------ ------------
NET ASSETS.................................................. $ 9,779,676,068 $3,016,239,583 $489,240,629 $436,006,346
=============== ============== ============ ============
Net Assets:
Pacific Horizon Shares..................................... $ 2,452,112,326 $ 336,293,095 $161,640,196 $228,483,167
Horizon Shares............................................. 2,414,466,836 702,033,432 63,162,653 30,167,044
Horizon Service Shares..................................... 3,374,174,474 1,712,790,859 264,437,780 177,356,135
X Shares................................................... 869,716,062 183,090,014 -- --
S Shares................................................... 559,417,598 -- -- --
Y Shares................................................... 109,788,772 82,032,183 -- --
--------------- -------------- ------------ ------------
Total....................................................... $ 9,779,676,068 $3,016,239,583 $489,240,629 $436,006,346
=============== ============== ============ ============
Shares Outstanding ($0.001 par value, 120 billion, 60
billion, 30 billion, and 30 billion shares authorized,
respectively):
Pacific Horizon Shares..................................... 2,452,310,074 336,438,924 161,852,144 228,512,717
Horizon Shares............................................. 2,414,749,939 702,133,948 63,211,715 30,167,905
Horizon Service Shares..................................... 3,374,020,827 1,712,911,515 264,638,808 177,369,374
X Shares................................................... 869,677,855 183,088,539 -- --
S Shares................................................... 559,414,515 -- -- --
Y Shares................................................... 109,788,400 82,031,348 -- --
--------------- -------------- ------------ ------------
Total....................................................... 9,779,961,610 3,016,604,274 489,702,667 436,049,996
=============== ============== ============ ============
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER
SHARE...................................................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
=============== ============== ============ ============
COMPOSITION OF NET ASSETS:
Shares of common stock, at par............................. $ 9,779,963 $ 3,016,604 $ 489,703 $ 436,050
Additional paid-in capital................................. 9,769,782,074 3,012,611,984 489,212,964 435,613,948
Accumulated undistributed net investment income............ 3,514,189 667,877 453,728 --
Accumulated net realized losses on investment
transactions.............................................. (3,400,158) (56,882) (915,766) (43,652)
--------------- -------------- ------------ ------------
NET ASSETS, FEBRUARY 28, 1998............................... $ 9,779,676,068 $3,016,239,583 $489,240,629 $436,006,346
=============== ============== ============ ============
</TABLE>
- ---------------
See Notes to Financial Statements.
36
<PAGE> 174
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Statements of Operations
For the year ended February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRIME TREASURY GOVERNMENT TREASURY
FUND FUND FUND ONLY FUND
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest.................... $458,788,515 $150,006,923 $25,748,926 $23,437,348
------------ ------------ ----------- -----------
EXPENSES:
Investment advisory fees.... 7,234,054 2,708,981 460,253 439,545
Administration fees......... 7,938,015 2,712,338 460,253 439,545
Special management fees
(Pacific Horizon
Shares)................... 7,285,114 1,088,447 455,016 667,711
Shareholder service fees
(Horizon Service
Shares)................... 8,141,653 4,075,595 646,192 508,971
Shareholder service fees (X
Shares)................... 1,126,895 157,400 -- --
Shareholder service fees (S
Shares)................... 482,149 -- -- --
Shareholder service fees (Y
Shares)................... 99,846 61,805 -- --
Distribution fees (X
Shares)................... 1,352,274 188,860 -- --
Distribution fees (S
Shares)................... 1,241,178 -- -- --
Distribution fees (Y
Shares)................... 299,538 185,411 -- --
Registration and filing
fees...................... 617,625 411,101 228,276 50,346
Custodian and fund
accounting fees........... 692,500 341,494 141,198 113,775
Transfer agent fees......... 508,568 112,752 43,239 81,899
Legal fees.................. 274,244 181,444 19,347 30,208
Audit fees.................. 40,347 45,545 20,635 27,259
Other expenses.............. 813,512 279,942 104,711 98,664
------------ ------------ ----------- -----------
Total Expenses............ 38,147,512 12,551,115 2,579,120 2,457,923
Less: Fee waivers........... (772,551) -- (210,869) --
Expenses paid by third
parties............... (11,235) (4,484) (1,715) (10,875)
------------ ------------ ----------- -----------
Total Net Expenses............ 37,363,726 12,546,631 2,366,536 2,447,048
------------ ------------ ----------- -----------
Net Investment Income......... 421,424,789 137,460,292 23,382,390 20,990,300
NET REALIZED GAINS
(LOSSES) ON INVESTMENTS:
Net realized gains (losses)
on investment
transactions.............. 69,980 1,095 23,313 (10,747)
------------ ------------ ----------- -----------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS... $421,494,769 $137,461,387 $23,405,703 $20,979,553
============ ============ =========== ===========
</TABLE>
- ---------------
See Notes to Financial Statements.
37
<PAGE> 175
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRIME FUND
---------------------------------
YEAR ENDED
---------------------------------
FEBRUARY 28, FEBRUARY 28,
1998 1997
--------------- ---------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income...................................... $ 421,424,789 $ 313,627,480
Net realized gains (losses) on investment transactions..... 69,980 172,885
--------------- ---------------
Change in net assets resulting from operations.............. 421,494,769 313,800,365
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Pacific Horizon Shares..................................... (117,152,680) (110,595,534)
Horizon Shares............................................. (100,966,269) (79,709,197)
Horizon Service Shares..................................... (170,004,484) (119,808,778)
X Shares................................................... (22,281,567) (2,322,836)(a)
S Shares................................................... (8,606,405)(b) --
Y Shares................................................... (1,807,633)(c) --
--------------- ---------------
Change in net assets from shareholder distributions......... (420,819,038) (312,436,345)
--------------- ---------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued................................ 65,111,897,688 42,442,585,809
Dividends reinvested....................................... 243,957,627 177,262,119
Cost of shares redeemed.................................... (62,727,564,200) (40,881,572,699)
--------------- ---------------
Change in net assets from capital share transactions........ 2,628,291,115 1,738,275,229
--------------- ---------------
Change in net assets........................................ 2,628,966,846 1,739,639,249
NET ASSETS
Beginning of Year.......................................... 7,150,709,222 5,411,069,973
--------------- ---------------
End of Year................................................ $ 9,779,676,068 $ 7,150,709,222
=============== ===============
Accumulated Undistributed Net Investment Income............. $ 3,514,189 $ 2,908,438
=============== ===============
</TABLE>
- ---------------
(a) Period from July 22, 1996 (inception date) to February 28, 1997.
(b) Period from April 7, 1997 (inception date) to February 28, 1998.
(c) Period from July 10, 1997 (inception date) to February 28, 1998.
See Notes to Financial Statements.
38
<PAGE> 176
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TREASURY FUND GOVERNMENT FUND TREASURY ONLY FUND
- --------------------------------- --------------------------------- ---------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
- --------------------------------- --------------------------------- ---------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1998 1997 1998 1997 1998 1997
- --------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
$ 137,460,292 $ 139,590,623 $ 23,382,390 $ 26,370,373 $ 20,990,300 $ 22,616,016
1,095 86,112 23,313 12,552 (10,747) 31,462
- --------------- --------------- --------------- --------------- --------------- ---------------
137,461,387 139,676,735 23,405,703 26,382,925 20,979,553 22,647,478
- --------------- --------------- --------------- --------------- --------------- ---------------
(16,848,276) (38,697,555) (7,118,240) (10,822,314) (9,857,218) (12,248,712)
(34,529,165) (34,033,530) (3,181,981) (3,358,368) (1,377,435) (2,009,735)
(82,004,103) (66,796,890) (13,146,010) (12,135,558) (9,755,647) (8,357,569)
(3,006,912) (62,648)(a) -- -- -- --
-- -- -- -- -- --
(1,071,836)(c) -- -- -- -- --
- --------------- --------------- --------------- --------------- --------------- ---------------
(137,460,292) (139,590,623) (23,446,231) (26,316,240) (20,990,300) (22,616,016)
- --------------- --------------- --------------- --------------- --------------- ---------------
23,310,724,272 17,362,879,524 3,331,389,913 3,514,048,456 1,441,272,391 2,581,288,044
49,740,717 46,043,231 18,033,757 20,515,585 15,715,206 17,977,687
(22,935,720,988) (17,661,736,799) (3,376,729,790) (3,547,375,120) (1,536,173,410) (2,551,597,500)
- --------------- --------------- --------------- --------------- --------------- ---------------
424,744,001 (252,814,044) (27,306,120) (12,811,079) (79,185,813) 47,668,231
- --------------- --------------- --------------- --------------- --------------- ---------------
424,745,096 (252,727,932) (27,346,648) (12,744,394) (79,196,560) 47,699,693
2,591,494,487 2,844,222,419 516,587,277 529,331,671 515,202,906 467,503,213
- --------------- --------------- --------------- --------------- --------------- ---------------
$ 3,016,239,583 $ 2,591,494,487 $ 489,240,629 $ 519,587,277 $ 436,006,346 $ 515,202,906
=============== =============== =============== =============== =============== ===============
$ 667,877 $ 667,877 $ 453,728 $ 517,569 $ -- $ --
=============== =============== =============== =============== =============== ===============
</TABLE>
See Notes to Financial Statements.
39
<PAGE> 177
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. On February 28, 1998, the Company
operated as a series company comprised of seventeen funds. The accompanying
financial statements and notes are those of Pacific Horizon Prime Fund (the
"Prime Fund"), Pacific Horizon Treasury Fund (the "Treasury Fund"), Pacific
Horizon Government Fund (the "Government Fund") and Pacific Horizon Treasury
Only Fund (the "Treasury Only Fund"), collectively the "Funds".
The Funds each issue three classes of shares (Pacific Horizon Shares,
Horizon Shares and Horizon Services Shares). Effective July 22, 1996, the Prime
Fund and the Treasury Fund began offering X Shares. The Prime Fund began
offering S Shares effective April 7, 1997 and effective July 10, 1997 the Prime
Fund and the Treasury Fund each began offering Y Shares. The Treasury Fund is
also authorized to issue S shares for purchase as of the date of this report.
Pacific Horizon Shares have a Special Management Services Plan while the Horizon
Service Shares have a Shareholder Services Plan. X, S and Y Shares each have a
Distribution and Services Plan.
THE INVESTMENT OBJECTIVES OF THE FUNDS ARE AS FOLLOWS:
Prime Fund -- Seek high current income and stability of principal by
investing in a broad range of government, bank and commercial obligations
available in the money markets as well as repurchase agreements relating to such
obligations.
Treasury Fund -- Seek high current income and stability of principal by
investing in direct obligations of the U.S. Treasury and repurchase agreements
relating to Treasury obligations.
Government Fund -- Provide liquidity and as high a level of current income
as is consistent with the preservation of capital by investing in short-term
debt obligations issued or guaranteed as to interest and principal by the U.S.
Government, its agencies, authorities or instrumentality's and in repurchase
agreements with respect to such obligations.
40
<PAGE> 178
Treasury Only Fund -- Provide liquidity and as high a level of current
income as is consistent with the preservation of capital by investing in direct
obligations of the U.S. Treasury, such as Treasury bills, notes and bonds.
ADMINISTRATOR
Bank of America National Trust and Savings Association ("Bank of America"),
a subsidiary of BankAmerica Corporation, serves as the Fund's investment
adviser. On September 15, 1997, Bank of America assumed the responsibility of
administrator for each of the Funds pursuant to the terms of an Administration
Agreement between the Company and Bank of America (the "Administration
Agreement"). Prior to September 15, 1997 The BISYS Group, Inc. ("BISYS") through
its wholly-owned subsidiary, BISYS Fund Services, Limited Partnership, served as
the Funds' Administrator.
Bank of America has entered into an agreement with PFPC Inc. ("PFPC"), an
indirect wholly-owned subsidiary of PNC Bank Corp., pursuant to which PFPC has
agreed to provide certain sub-administration services to the Funds, including,
but not limited to, assisting in the developing and monitoring of compliance
procedures, participating in periodic updating of the Funds' prospectuses and
statements of additional information, providing periodic reports to the
Company's Board and providing certain record-keeping services. Bank of America
will bear all fees and expenses charged by PFPC for such services.
In addition, pursuant to authority granted in the Administration Agreement,
Bank of America has entered into an agreement with The Bank of New York ("BONY")
under which BONY has agreed to provide certain accounting, bookkeeping, pricing
and dividend and distribution calculation services for the Funds. The Funds bear
all fees and expenses charged by BONY for these services.
DISTRIBUTOR AND TRANSFER AGENT
Effective September 15, 1997, Provident Distributors, Inc. ("PDI"), assumed
responsibility as principal underwriter and distributor of shares of the Funds.
Prior to such date, Concord Financial Group, Inc. (the "Former Distributor")
also a wholly-owned subsidiary of BISYS served as distributor of the Funds.
Additionally on October 24, 1997, PFPC assumed responsibility as the Fund's
transfer agent and dividend disbursing agent. BISYS Fund Services, Inc. ("BISYS
Ohio") also a wholly-owned subsidiary of BISYS, served the Funds in such
capacity prior to such date.
41
<PAGE> 179
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Funds in preparation of their financial statements. These policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
PORTFOLIO VALUATIONS:
The securities of the Funds are valued at amortized cost, which approximates
market value. The amortized cost method involves valuing a security at its cost
on the date of purchase and thereafter assuming a constant amortization to
maturity of the difference between the principal amount due at maturity and
cost.
SECURITIES TRANSACTIONS AND RELATED INCOME:
The Funds record security transactions on a trade date basis. Interest
income, including accretion of discount and amortization of premium, is accrued
daily. Realized gains and losses from security transactions are recorded on an
identified cost basis.
EXPENSES:
The Company accounts separately for the assets, liabilities and operations
of each fund. Direct expenses of a fund are charged to that fund while general
Company expenses are allocated among the Company's respective portfolios.
The investment income and expenses of a fund (other than class specific
expenses) and realized 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 gains and losses are incurred.
REPURCHASE AGREEMENTS (PRIME FUND, TREASURY FUND, AND GOVERNMENT FUND):
The Funds' custodian and other banks acting in a sub-custodian capacity take
possession of the collateral pledged for investments in repurchase agreements.
The underlying collateral is valued daily on a mark-to-market basis to determine
that the value, including accrued interest, exceeds the repurchase price. In the
event of the seller's default of the obligation to repurchase, the
42
<PAGE> 180
Funds have the right to liquidate the collateral and apply the proceeds in
satisfaction of the obligation. Under certain circumstances, in the event of
default or bankruptcy by the other party to the agreement, realization and/or
retention of the collateral may be subject to legal proceedings.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
The Funds' net investment income is declared as a dividend daily, and paid
monthly, 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.
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
annually, all of its net investment company taxable income and net capital gains
to shareholders. Therefore, no Federal income tax provision is required.
43
<PAGE> 181
At February 28, 1998, the Prime Fund, Treasury Fund, Government Fund, and
Treasury Only Fund had the following capital loss carryovers:
<TABLE>
<CAPTION>
CAPITAL LOSS
FUND CARRYOVER EXPIRATION DATE
---- ------------ ---------------
<S> <C> <C>
Prime Fund.......................................... $ 674,982 2002
2,725,176 2003
----------
$3,400,158
==========
Treasury Fund....................................... $ 47,456 2002
9,426 2006
----------
$ 56,882
==========
Government Fund..................................... $ 915,766 2003
==========
Treasury Only Fund.................................. $ 23,888 2003
==========
</TABLE>
To the extent that these carryovers are used to offset future capital gains,
it is probable that the gains so offset will not be distributed to shareholders.
Capital losses incurred after October 31 for the Funds are deemed to arise
on the first business day of the following fiscal year for tax purposes. The
Treasury Only Fund has incurred and elected to defer such capital losses of
$19,764, after October 31, 1997. During the year, the Prime Fund, Treasury Fund
and Government Fund utilized $69,980, $1,095 and $23,313, respectively, of its
available capital loss carryover to offset realized capital gains for Federal
income tax purposes.
OTHER:
The Funds maintain a cash balance with their custodian and receive
reductions of 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, 1998, custodian fees and expenses paid by third parties were
increased by $11,235, $4,484, $1,715 and $10,875 for the Prime Fund, Treasury
Fund, Government Fund and Treasury Only Fund, respectively. There was no effect
on net investment income. The Funds could have invested such cash balances in
income producing assets if they had not agreed to a reduction of fees or
expenses under the expense offset arrangement with their custodian.
NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
Bank of America serves as the Funds' Manager, providing Investment Advisory
and Administrative services. For the period ended September 15, 1997, the
44
<PAGE> 182
Fund had an Administration Agreement with BISYS and a Distribution Agreement
with the Former Distributor. Bank of America is entitled to an Advisory fee from
each Fund, which is accrued daily and payable monthly, at an annual rate of
0.10% of each Fund's first $3 billion of net assets, plus 0.09% of each Fund's
next $2 billion of net assets, plus 0.08% of each Fund's net assets in excess of
$5 billion. For the year ended February 28, 1998, Bank of America voluntarily
waived fees from the Government Fund in the amount of $210,869. The
Administration Agreement entitles Bank of America to fees from each Fund for
Administrative services performed, which is accrued daily and payable monthly,
at an annual rate of 0.10% of each Fund's first $7 billion of net assets, plus
0.09% of each Fund's next $3 billion of net assets, plus 0.08% of each Fund's
net assets in excess of $10 billion. During the period March 1, 1997 through
September 15, 1997, the Funds had an Administration Agreement with BISYS.
Administration fee rates paid to BISYS were the same as those currently paid to
Bank of America. The Funds were advised that for the period September 15, 1997
through February 28, 1998, Bank of America and for the period March 1, 1997
through September 15, 1997, BISYS earned the following amounts pursuant to the
respective Administrative Agreements:
<TABLE>
<CAPTION>
BANK OF
FUND AMERICA BISYS
---- ------- -----
<S> <C> <C>
Prime Fund................................................ $3,929,655 $4,008,360
Treasury Fund............................................. 1,359,676 1,352,662
Government Fund........................................... 210,009 250,244
Treasury Only Fund........................................ 190,516 249,029
</TABLE>
The Funds have adopted a Special Management Services Plan (the "Services
Plan") pursuant to which Service Organizations agree to provide certain services
to their clients who are beneficial owners of Pacific Horizon Shares in return
for a payment by the Funds of a fee at an annual rate 0.32% of the average daily
net assets of the outstanding Pacific Horizon Shares of each Fund. Fees under
the Services Plan are borne solely by the Pacific Horizon Shares. Service
Organizations may include Bank of America and its affiliates, PDI (from
September 15, 1997 through February 28, 1998), and BISYS (prior to September 15,
1997). For the year ended February 28, 1998, for the period September 15, 1997
through February 28, 1998 and for the period March 1, 1997 through September 15,
1997, the Funds were advised that Bank of America and its affiliates, PDI and
BISYS each earned the following amounts pursuant to the Services Plan,
respectively:
45
<PAGE> 183
<TABLE>
<CAPTION>
BANK OF
FUND AMERICA PDI BISYS
---- ------- --- -----
<S> <C> <C> <C>
Prime Fund......................................... $6,742,687 $12,453 $22,110
Treasury Fund...................................... 789,384 4,853 5,446
Government Fund.................................... 427,718 139 159
Treasury Only Fund................................. 607,979 36 25
</TABLE>
The Funds have also adopted a Shareholder Services Plan (the "Horizon
Services Plan") pursuant to which Service Organizations agree to provide certain
services to their clients who are beneficial owners of Horizon Service Shares in
return for payment by the Funds of a fee at an annual rate of 0.25% of the
average daily net assets of the Horizon Service Shares. Fees under the Horizon
Services Plan are borne solely by the Horizon Service Shares. For the year ended
February 28, 1998, the Funds were advised that Bank of America and its
affiliates earned the following amounts pursuant to the Horizon Services Plan,
respectively:
<TABLE>
<CAPTION>
BANK OF
AMERICA
AND
FUND AFFILIATES
---- ----------
<S> <C>
Prime Fund.................................................. $7,381,916
Treasury Fund............................................... 3,668,245
Government Fund............................................. 586,936
Treasury Only Fund.......................................... 432,402
</TABLE>
The Prime Fund and Treasury Fund have adopted the Distribution and Services
Plan under which the Funds paid PDI and the Former Distributor (prior to
September 15, 1997) and Service Organizations for the provision of support
services with respect to the beneficial owners of X Shares. Payments for
distribution expenses and shareholder servicing expenses may not exceed the
annual rate of 0.30% and 0.25%, respectively, of the average daily net assets of
each Fund's X Shares. For the year ended February 28, 1998, the Funds were
advised that Bank of America and its affiliates earned the following amounts
pursuant to the Distribution and Services Plan, respectively:
<TABLE>
<CAPTION>
BANK OF
AMERICA
AND
FUND AFFILIATES
---- ----------
<S> <C>
Prime Fund.................................................. $2,468,893
Treasury Fund............................................... 345,956
</TABLE>
The Prime Fund and Treasury Fund have adopted the Distribution and Services
Plan under which the Funds paid PDI and the Former Distributor (prior to
September 15, 1997) and Service Organizations for the provision of support
46
<PAGE> 184
service with respect to the beneficial owners of Y shares. Payments for
distribution expenses and shareholder servicing expenses may not exceed the
annual rate of 0.75% and 0.25%; respectively, of the average daily net assets of
each Funds' Y shares. For the year ended February 28, 1998, the Funds were
advised that Bank of America and its affiliates earned the following amounts
pursuant to the Distribution and Services Plan, respectively:
<TABLE>
<CAPTION>
BANK OF
AMERICA
AND
FUND AFFILIATES
---- ----------
<S> <C>
Prime Fund.................................................. $399,384
Treasury Fund............................................... 246,527
</TABLE>
The Prime Fund and Treasury Fund have adopted the Distribution and Services
Plan under which the Fund paid PDI and the Former Distributor (prior to
September 15, 1997) and Service Organizations for the provision of support
services with respect to the beneficial owners of S shares. Payments for the
distribution expenses and shareholder servicing expenses may not exceed the
annual rate of 0.75% and 0.25%, respectively, of the average daily net assets of
the Fund's S shares. For the year ended February 28, 1998, Bank of America
waived $772,551 of distribution expenses from the Prime Fund. For the year ended
February 28, 1998, the Funds were advised that Bank of America and its
affiliates, earned the following amounts pursuant to the Distribution and
Services Plan, respectively:
<TABLE>
<CAPTION>
BANK OF
AMERICA
AND
FUND AFFILIATES
---- ----------
<S> <C>
Prime Fund.................................................. $950,478
</TABLE>
From the period October 24, 1997 through February 28, 1998 PFPC earned
$288,833, $20,977, $0 and $17,187 from the Prime Fund, Treasury Fund, Government
Fund and Treasury Only Fund, respectively, for transfer agency and dividend
disbursing agency services performed. BISYS Ohio served the Funds as transfer
agent and dividend disbursing agent through October 24, 1997. In these
capacities for the Funds, BISYS Ohio earned $219,735, $91,775, $43,239 and
$64,712 from the Prime Fund, Treasury Fund, Government Fund and Treasury Only
Fund, respectively, for the period ended October 24, 1997.
For the year ended February 28, 1998, the Prime Fund, Treasury Fund,
Government Fund and Treasury Only Fund incurred legal charges totaling $274,244,
$181,444, $19,347, and $30,208, respectively, which were earned by a law firm, a
partner of which serves as Secretary of the Company.
47
<PAGE> 185
Certain officers of the Company are affiliated with PFPC. 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 $50,000,
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 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 will
receive an additional 10% of their annual Director's retainer for each year of
service between years six and nine, plus one half of the difference between 100%
and the director's applicable percentage. A Director who dies or resigns after
ten 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 after February 28,
1994; however a director in office on March 18, 1998 who either resigns in good
standing or dies before completing five years of service as a director should be
assigned an Applicable Percentage of 50 percent. Aggregate costs pursuant to the
Retirement Plan amounted to $37,045, $27,925, $33,068, and $28,840, for the
Prime Fund, Treasury Fund, Government Fund and Treasury Only Fund, respectively,
for the year ended February 28, 1998. A director who comes into office after
March 18, 1998 is ineligible to participate in the Retirement Plan.
48
<PAGE> 186
NOTE 5 -- CAPITAL SHARE TRANSACTIONS
Transactions in shares of each Fund (at $1.00 per share) for the periods
indicated are summarized below:
<TABLE>
<CAPTION>
PRIME FUND TREASURY FUND
--------------------------------- ---------------------------------
YEAR ENDED YEAR ENDED
--------------------------------- ---------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1998 1997 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
PACIFIC HORIZON SHARES
Issued...................... 3,213,898,034 4,320,031,345 1,134,991,546 2,180,160,265
Reinvest.................... 108,696,696 99,202,915 12,406,265 13,626,783
Redeemed.................... (3,163,041,484) (4,326,928,364) (1,221,794,534) (2,875,003,912)
--------------- --------------- --------------- ---------------
Net increase/(decrease)...... 159,553,246 92,305,896 (74,396,723) (681,216,864)
=============== =============== =============== ===============
HORIZON SHARES
Issued...................... 20,455,794,396 15,114,015,999 5,229,807,041 6,363,082,166
Reinvest.................... 39,465,419 25,723,399 12,806,288 11,616,438
Redeemed.................... (19,790,457,950) (15,081,065,299) (5,158,308,715) (6,478,650,334)
--------------- --------------- --------------- ---------------
Net increase/(decrease)...... 704,801,865 58,674,099 84,304,614 (103,951,730)
=============== =============== =============== ===============
HORIZON SERVICE SHARES
Issued...................... 35,791,164,395 22,771,276,975 14,976,381,895 8,799,447,002
Reinvest.................... 69,471,827 50,011,411 24,007,250 20,737,353
Redeemed.................... (35,431,800,117) (21,437,775,542) (14,844,801,907) (8,293,700,822)
--------------- --------------- --------------- ---------------
Net increase................ 428,836,105 1,383,512,844 155,587,238 526,483,533
=============== =============== =============== ===============
X SHARES
Issued...................... 4,432,511,179 237,259,971 1,534,986,458 20,188,155
Reinvest.................... 17,713,737 2,324,394 520,914 62,656
Redeemed.................... (3,784,327,932) (35,803,494) (1,358,289,848) (14,379,796)
--------------- --------------- --------------- ---------------
Net increase................ 665,896,984 203,780,871(a) 177,217,524 5,871,015(a)
=============== =============== =============== ===============
S SHARES
Issued...................... 607,731,207 -- -- --
Reinvest.................... 8,606,126 -- -- --
Redeemed.................... (56,922,818) -- -- --
--------------- --------------- --------------- ---------------
Net increase................ 559,414,515(b) -- -- --
=============== =============== =============== ===============
Y SHARES
Issued...................... 610,798,477 -- 434,557,332 --
Reinvest.................... 3,822 -- -- --
Redeemed.................... (501,013,899) -- (352,525,984) --
--------------- --------------- --------------- ---------------
Net increase................ 109,788,400(c) -- 82,031,348(c) --
=============== =============== =============== ===============
</TABLE>
- ---------------
<TABLE>
<C> <S>
(a) Period from July 22, 1996 (inception date) to February 28,
1997.
(b) Period from April 7, 1997 (inception date) to February 28,
1998.
(c) Period from July 10, 1997 (inception date) to February 28,
1998.
</TABLE>
49
<PAGE> 187
<TABLE>
<CAPTION>
GOVERNMENT FUND TREASURY ONLY FUND
--------------------------------- ---------------------------------
YEAR ENDED YEAR ENDED
--------------------------------- ---------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1998 1997 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
PACIFIC HORIZON SHARES
Issued................... 480,817,616 817,557,991 443,400,770 1,028,727,745
Reinvest................. 6,669,928 8,010,482 8,944,830 10,180,140
Redeemed................. (518,067,695) (894,476,160) (449,034,109) (1,088,026,565)
--------------- --------------- --------------- ---------------
Net increase/(decrease)... (30,580,151) (68,907,687) 3,311,491 (49,118,680)
=============== =============== =============== ===============
HORIZON SHARES
Issued................... 210,022,080 205,437,403 60,587,676 195,585,962
Reinvest................. 2,397,397 2,653,506 399,848 1,168,058
Redeemed................. (210,377,544) (201,774,473) (61,278,210) (173,560,437)
--------------- --------------- --------------- ---------------
Net increase/(decrease)... 2,041,933 6,316,436 (290,686) 23,193,583
=============== =============== =============== ===============
HORIZON SERVICE SHARES
Issued................... 2,640,550,217 2,491,053,062 937,283,945 1,356,974,337
Reinvest 8,966,432 9,851,597 6,370,528 6,629,489
Redeemed................. (2,648,284,551) (2,451,124,487) (1,025,861,091) (1,290,010,498)
--------------- --------------- --------------- ---------------
Net increase/(decrease)... 1,232,098 49,780,172 (82,206,618) 73,593,328
=============== =============== =============== ===============
</TABLE>
50
<PAGE> 188
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
PACIFIC HORIZON SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income......... 0.0515 0.0492 0.0539 0.0424 0.0287
Net realized gains/(losses) on
investment transactions..... -- -- 0.0004 (0.0227) (0.0016)
-------- -------- -------- -------- --------
Total income from investment
operations.................... 0.0515 0.0492 0.0543 0.0197 0.0271
Less dividends to shareholders
from net investment income.... (0.0515) (0.0490) (0.0539) (0.0422) (0.0287)
Increase due to voluntary
capital contribution from
Investment Advisor............ -- -- -- 0.0233 --
-------- -------- -------- -------- --------
Net change in net asset value
per share -- 0.0002 0.0004 0.0008 (0.0016)
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END
OF YEAR....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return................... 5.27% 5.01% 5.53% 4.30%(dagger) 2.91%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions).................. $ 2,452 $ 2,292 $ 2,200 $ 1,129 $ 1,216
Ratio of expenses to average
net assets.................. 0.55% 0.55% 0.55% 0.51% 0.52%
Ratio of net investment income
to average net assets....... 5.15% 4.92% 5.37% 4.19% 2.86%
Ratio of expenses to average
net assets*................. (b) (b) 0.56% 0.56% 0.53%
Ratio of net investment income
to average net assets*...... (b) (b) 5.36% 4.14% 2.85%
</TABLE>
- ---------------
<TABLE>
<S> <C>
(dagger) Total return includes the effect of the voluntary capital
contribution from the Investment Advisor. Without this
capital contribution, the total return would have been
lower.
* During the year, 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.
(a) There were no fee waivers or expense reimbursements during
the period.
(b) Fee waivers and fees paid by third parties had no effect on
the ratios.
</TABLE>
See Notes to Financial Statements.
51
<PAGE> 189
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
HORIZON SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income....... 0.0546 0.0524 0.0571 0.0461 0.0319
Net realized gains/(losses)
on investment
transactions.............. -- -- 0.0004 (0.0232) (0.0016)
-------- -------- -------- -------- --------
Total income from investment
operations.................. 0.0546 0.0524 0.0575 0.0229 0.0303
Less dividends to
shareholders from net
investment income........... (0.0547) (0.0522) (0.0571) (0.0454) (0.0319)
Increase due to voluntary
capital contribution from
Investment Advisor.......... -- -- -- 0.0233 --
-------- -------- -------- -------- --------
Net change in net asset value
per share................... (0.0001) 0.0002 0.0004 0.0008 (0.0016)
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE,
END OF YEAR................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return................. 5.60% 5.34% 5.86% 4.63%(dagger) 3.24%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions).................. $ 2,415 $ 1,710 $ 1,651 $ 662 $ 3,840
Ratio of expenses to average
net assets.................. 0.22% 0.23% 0.23% 0.16% 0.20%
Ratio of net investment
income to average net
assets...................... 5.47% 5.24% 5.69% 4.11% 3.19%
Ratio of expenses to average
net assets*................. (a) (a) 0.24% 0.23% 0.21%
Ratio of net investment
income to average net
assets*..................... (a) (a) 5.68% 4.04% 3.18%
</TABLE>
- ---------------
<TABLE>
<S> <C>
* During the year, 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.
(dagger) Total return includes the effect of the voluntary capital
contribution from the Investment Advisor. Without this
capital contribution, the total return would have been
lower.
(a) Fee waivers and fees paid by third parties had no effect on
the ratios.
</TABLE>
See Notes to Financial Statements.
52
<PAGE> 190
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
HORIZON SERVICE SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income............ 0.0521 0.0499 0.0546 0.0431 0.0294
Net realized gains/(losses) on
investment transactions........ -- -- 0.0004 (0.0227) (0.0016)
-------- -------- -------- -------- --------
Total income from investment
operations....................... 0.0521 0.0499 0.0550 0.0204 0.0278
Less dividends to shareholders
from net investment income....... (0.0522) (0.0497) (0.0546) (0.0429) (0.0294)
Increase due to voluntary capital
contribution from Investment
Advisor.......................... -- -- -- 0.0233 --
-------- -------- -------- -------- --------
Net change in net asset value per
share (0.0001). 0.0002 0.0004 0.0008 (0.0016)
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END OF
YEAR............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return...................... 5.34% 5.08% 5.60% 4.37%(dagger) 2.98%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions)..................... $ 3,374 $ 2,945 $ 1,561 $ 864 $ 839
Ratio of expenses to average net
assets......................... 0.48% 0.48% 0.48% 0.44% 0.45%
Ratio of net investment income to
average net assets............. 5.23% 5.00% 5.44% 4.31% 2.94%
Ratio of expenses to average net
assets*........................ (a) (a) 0.49% 0.48% 0.46%
Ratio of net investment income to
average net assets* (a) (a) 5.43% 4.27% 2.93%
</TABLE>
- ---------------
<TABLE>
<S> <C>
* During the year, 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.
(dagger) Total return includes the effect of the voluntary capital
contribution from the Investment Advisor. Without this
capital contribution, the total return would have been
lower.
(a) Fee waivers and fees paid by third parties had no effect on
the ratios.
</TABLE>
See Notes to Financial Statements.
53
<PAGE> 191
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
FEBRUARY 28, FEBRUARY 28,
1998 1997(a)
------------ ------------
<S> <C> <C>
X SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD........ $ 1.00 $ 1.00
-------- --------
Income from Investment Operations:
Net investment income............................... 0.0491 0.0282
Net realized gains/(losses) on investment
transactions...................................... -- --
-------- --------
Total income from investment operations............... 0.0491 0.0282
Less dividends to shareholders from net investment
income.............................................. (0.0491) (0.0281)
-------- --------
Net change in net asset value per share............... -- 0.0001
-------- --------
NET ASSET VALUE PER SHARE, END OF PERIOD.............. $ 1.00 $ 1.00
======== ========
Total return.......................................... 5.03% 2.84%(d)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (millions).............. $ 869 $ 204
Ratio of expenses to average net assets............. 0.77% 0.78%(c)
Ratio of net investment income to average net
assets............................................ 4.92% 4.73%(c)
Ratio of expenses to average net assets*............ (b) (b)
Ratio of net investment income to average net
assets*........................................... (b) (b)
</TABLE>
- ---------------
<TABLE>
<S> <C>
* 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.
(a) Period from July 22, 1996 (inception date) to February 28,
1997.
(b) Fee waivers and fees paid by third parties had no effect on
the ratios.
(c) Annualized.
(d) Not annualized.
</TABLE>
See Notes to Financial Statements.
54
<PAGE> 192
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
FEBRUARY 28,
1998(a)
--------------
<S> <C>
S SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD.............. $ 1.00
-----------
Income from Investment Operations:
Net investment income..................................... 0.0444
Net realized gains/(losses) on investment transactions.... --
-----------
Total income from investment operations..................... 0.0444
Less dividends to shareholders from net investment income... (0.0444)
-----------
Net change in net asset value per share..................... --
-----------
NET ASSET VALUE PER SHARE, END OF PERIOD.................... $ 1.00
===========
Total return................................................ 4.53%(d)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (millions).................... $ 110
Ratio of expenses to average net assets................... 0.76%(c)
Ratio of net investment income to average net assets...... 4.92%(c)
Ratio of expenses to average net assets*.................. 1.20%(b)(c)
Ratio of net investment income to average net assets*..... 4.48%(b)(c)
</TABLE>
- ---------------
<TABLE>
<S> <C>
* 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.
(a) Period from April 7, 1997 (inception date) to February 28,
1998.
(b) Fees paid by third parties had no effect on the ratios.
(c) Annualized.
(d) Not annualized.
</TABLE>
See Notes to Financial Statements.
55
<PAGE> 193
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
FEBRUARY 28,
1998(a)
------------
<S> <C>
Y SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD.............. $ 1.00
--------
Income from Investment Operations:
Net investment income..................................... 0.0290
Net realized gains/(losses) on investment transactions.... --
--------
Total income from investment operations..................... 0.0290
Less dividends to shareholders from net investment income... (0.0290)
--------
Net change in net asset value per share..................... --
--------
NET ASSET VALUE PER SHARE, END OF PERIOD.................... $ 1.00
========
Total return................................................ 2.93%(d)
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (millions).................... $ 559
Ratio of expenses to average net assets................... 1.21%(c)
Ratio of net investment income to average net assets...... 4.48%(c)
Ratio of expenses to average net assets*.................. (b)
Ratio of net investment income to average net assets*..... (b)
</TABLE>
- ---------------
<TABLE>
<S> <C>
* 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.
(a) Period from July 10, 1997 (inception date) to February 28,
1998.
(b) Fee waivers and fees paid by third parties had no effect on
the ratios.
(c) Annualized.
(d) Not annualized.
</TABLE>
See Notes to Financial Statements.
56
<PAGE> 194
PACIFIC HORIZON TREASURY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
PACIFIC HORIZON SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income...... 0.0497 0.0477 0.0527 0.0405 0.0262
Net realized gains/(losses)
on investment
transactions............. (0.0002) -- 0.0011 0.0001 (0.0002)
-------- -------- -------- -------- --------
Total income from investment
operations................. 0.0495 0.0477 0.0538 0.0406 0.0260
Less dividends to
shareholders from net
investment income.......... (0.0495) (0.0477) (0.0527) (0.0405) (0.0262)
-------- -------- -------- -------- --------
Net change in net asset value
per share.................. -- -- 0.0011 0.0001 (0.0002)
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE,
END OF YEAR................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return................. 5.07% 4.87% 5.40% 4.13% 2.65%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions)............... $ 336 $ 411 $ 1,091 $ 1,132 $ 1,577
Ratio of expenses to
average net assets....... 0.57% 0.57% 0.57% 0.55% 0.55%
Ratio of net investment
income to average net
assets................... 4.96% 4.76% 5.24% 3.99% 2.62%
Ratio of expenses to
average net assets*...... (a)(b) (b) 0.58% (a) (a)
Ratio of net investment
income to average net
assets*.................. (a)(b) (b) 5.23% (a) (a)
</TABLE>
- ---------------
<TABLE>
<S> <C>
* During the year, 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.
(a) There were no fee waivers or expense reimbursements during
the period.
(b) Fees paid by third parties had no effect on the ratios.
</TABLE>
See Notes to Financial Statements.
57
<PAGE> 195
PACIFIC HORIZON TREASURY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
HORIZON SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income... 0.0527 0.0509 0.0559 0.0437 0.0294
Net realized
gains/(losses) on
investment
transactions.......... -- -- 0.0011 0.0001 (0.0002)
-------- -------- -------- -------- --------
Total income from
investment operations... 0.0527 0.0509 0.0570 0.0438 0.0292
Less dividends to
shareholders from net
investment income....... (0.0527) (0.0509) (0.0559) (0.0437) (0.0294)
-------- -------- -------- -------- --------
Net change in net asset
value per share......... -- -- 0.0011 0.0001 (0.0002)
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE,
END OF YEAR............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return.............. 5.40% 5.21% 5.73% 4.46% 2.98%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of
year (millions)....... $ 702 $ 618 $ 722 469 $ 487
Ratio of expenses to
average net assets.... 0.25% 0.25% 0.25% 0.23% 0.23%
Ratio of net investment
income to average net
assets................ 5.27% 5.09% 5.56% 4.36% 2.94%
Ratio of expenses to
average net assets*... (a)(b) (b) 0.26% (a) (a)
Ratio of net investment
income to average net
assets*............... (a)(b) (b) 5.55% (a) (a)
</TABLE>
- ---------------
<TABLE>
<S> <C>
* During the year, 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.
(a) There were no fee waivers or expense reimbursements during
the period.
(b) Fees paid by third parties had no effect on the ratios.
</TABLE>
See Notes to Financial Statements.
58
<PAGE> 196
PACIFIC HORIZON TREASURY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
HORIZON SERVICE SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR............ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income........ 0.0502 0.0484 0.0534 0.0412 0.0269
Net realized gains/(losses)
on investment
transactions............... -- -- 0.0011 0.0001 (0.0002)
-------- -------- -------- -------- --------
Total income from investment
operations................... 0.0502 0.0484 0.0545 0.0413 0.0267
Less dividends to shareholders
from net investment income... (0.0502) (0.0484) (0.0534) (0.0412) (0.0269)
-------- -------- -------- -------- --------
Net change in net asset value
per share.................... -- -- 0.0011 0.0001 (0.0002)
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END
OF YEAR...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return.................. 5.14% 4.97% 5.47% 4.20% 2.72%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions)................. $ 1,713 $ 1,557 $ 1,031 $ 364 $ 541
Ratio of expenses to average
net assets................. 0.50% 0.50% 0.50% 0.48% 0.48%
Ratio of net investment
income to average net
assets..................... 5.03% 4.84% 5.31% 4.01% 2.69%
Ratio of expenses to average
net assets*................ (a)(b) (b) 0.51% (a) (a)
Ratio of net investment
income to average net
assets*.................... (a)(b) (b) 5.30% (a) (a)
</TABLE>
- ---------------
<TABLE>
<S> <C>
* During the year, 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.
(a) There were no fee waivers or expense reimbursements during
the period.
(b) Fees paid by third parties had no effect on the ratios.
</TABLE>
See Notes to Financial Statements.
59
<PAGE> 197
PACIFIC HORIZON TREASURY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
FEBRUARY 28, FEBRUARY 28,
1998 1997(a)
------------ ------------
<S> <C> <C>
X SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD........ $ 1.00 $ 1.00
-------- --------
Income from Investment Operations:
Net investment income............................... 0.0472 0.0271
-------- --------
Total income from investment operations............... 0.0472 0.0271
Less dividends to shareholders from net investment
income.............................................. (0.0472) (0.0271)
-------- --------
Net change in net asset value per share............... -- --
-------- --------
NET ASSET VALUE PER SHARE, END OF PERIOD.............. $ 1.00 $ 1.00
======== ========
Total return.......................................... 4.83% 2.74%(e)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (millions).............. $ 183 $ 6
Ratio of expenses to average net assets............. 0.78% 0.81%(d)
Ratio of net investment income to average net
assets............................................ 4.73% 4.58%(d)
Ratio of expenses to average net assets*............ (b)(c) (b)(c)
Ratio of net investment income to average net
assets*........................................... (b)(c) (b)(c)
</TABLE>
- ---------------
<TABLE>
<S> <C>
* 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.
(a) Period from July 22, 1996 (inception date) to February 28,
1997.
(b) There were no fee waivers or expense reimbursements during
the period.
(c) Fees paid by third parties had no effect on the ratios.
(d) Annualized.
(e) Not annualized.
</TABLE>
See Notes to Financial Statements.
60
<PAGE> 198
PACIFIC HORIZON TREASURY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
FEBRUARY 28,
1998(a)
------------
<S> <C>
Y SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD.............. $ 1.00
Income from Investment Operations:
Net investment income..................................... 0.0276
--------
Total income from investment operations..................... 0.0276
Less dividends to shareholders from net investment income... (0.0276)
Net change in net asset value per share..................... --
--------
NET ASSET VALUE PER SHARE, END OF PERIOD.................... $ 1.00
========
Total return................................................ 2.80%(e)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (millions).................... $ 82
Ratio of expenses to average net assets................... 1.22%(d)
Ratio of net investment income to average net assets...... 4.28%(d)
Ratio of expenses to average net assets*.................. (b)(c)
Ratio of net investment income to average net assets*..... (b)(c)
</TABLE>
- ---------------
<TABLE>
<S> <C>
* 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.
(a) Period from July 10, 1997 (inception date) to February 28,
1998.
(b) There were no fee waivers or expense reimbursements during
the period.
(c) Fees paid by third parties had no effect on the ratios.
(d) Annualized.
(e) Not annualized.
</TABLE>
See Notes to Financial Statements.
61
<PAGE> 199
PACIFIC HORIZON GOVERNMENT FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
PACIFIC HORIZON SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income............ 0.0503 0.0481 0.0530 0.0421 0.0288
Net realized gains/(losses) on
investment transactions........ (0.0002) -- (0.0004)** (0.0091) (0.0006)
-------- -------- -------- -------- --------
Total income from investment
operations....................... 0.0501 0.0481 0.0526 0.0330 0.0282
Less dividends to shareholders
from net investment income........ (0.0501) (0.0480) (0.0524) (0.0420) (0.0288)
Increase due to voluntary capital
contribution from Investment
Advisor.......................... -- -- -- 0.0085 --
-------- -------- -------- -------- --------
Net change in net asset value per
share............................ -- 0.0001 0.0002 (0.0005) (0.0006)
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END OF
YEAR............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return...................... 5.13% 4.91% 5.37% 4.28%(dagger) 2.92%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions)..................... $ 162 $ 192 $ 261 $ 355 $ 154
Ratio of expenses to average net
assets......................... 0.60% 0.55% 0.56% 0.50% 0.60%
Ratio of net investment income to
average net assets............. 4.99% 4.82% 5.34% 4.27% 2.88%
Ratio of expenses to average net
assets*........................ 0.64% 0.61%(a) 0.63% 0.58% 0.60%
Ratio of net investment income to
average net assets*............ 4.95% 4.76%(a) 5.27% 4.19% 2.88%
</TABLE>
- ---------------
<TABLE>
<S> <C>
* During the year, 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.
** Net realized loss for the period is a direct result of a
decrease in outstanding shares between February 28, 1995 and
the date of the gain realization.
(a) Fees paid by third parties had no effect on the ratios.
(dagger) Total return includes the effect of the voluntary capital
contribution from the Investment Advisor. Without this
capital contribution, the total return would have been
lower.
</TABLE>
See Notes to Financial Statements.
62
<PAGE> 200
PACIFIC HORIZON GOVERNMENT FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994(b)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
HORIZON SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income............ 0.0532 0.0513 0.0600 0.0454 0.0227
Net realized gains/(losses) on
investment transactions........ 0.0001 -- (0.0042)** (0.0092) (0.0006)
-------- -------- -------- -------- --------
Total income from investment
operations....................... 0.0533 0.0513 0.0558 0.0362 0.0221
Less dividends to shareholders
from net investment income....... (0.0533) (0.0512) (0.0556) (0.0452) (0.0227)
Increase due to voluntary capital
contribution from Investment
Advisor.......................... -- -- -- 0.0085 --
-------- -------- -------- -------- --------
Net change in net asset value per
share............................ -- 0.0001 0.0002 (0.0005) (0.0006)
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END OF
YEAR............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return...................... 5.46% 5.25% 5.71% 4.61%(dagger) 2.29%(d)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions)..................... $ 63 $ 61 $ 55 $ 235 $ 370
Ratio of expenses to average net
assets......................... 0.27% 0.22% 0.24% 0.17% 0.28%(c)
Ratio of net investment income to
average net assets............. 5.32% 5.15% 5.66% 4.67% 3.17%(c)
Ratio of expenses to average net
assets*........................ 0.32% 0.29%(a) 0.30% 0.25% 0.28%(c)
Ratio of net investment income to
average net assets*............ 5.27% 5.08%(a) 5.60% 4.59% 3.17%(c)
</TABLE>
- ---------------
<TABLE>
<S> <C>
* During the year, 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.
** Net realized loss for the period is a direct result of a
decrease in outstanding shares between February 28, 1995 and
the date of the gain realization.
(a) Fees paid by third parties had no effect on the ratios.
(b) Period from June 14, 1993 (inception date) to February 28,
1994.
(c) Annualized.
(d) Not annualized.
(dagger) Total return includes the effect of the voluntary capital
contribution from the Investment Advisor. Without this
capital contribution, the total return would have been
lower.
</TABLE>
See Notes to Financial Statements.
63
<PAGE> 201
PACIFIC HORIZON GOVERNMENT FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
HORIZON SERVICE SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income....... 0.0507 0.0488 0.0537 0.0429 0.0300
Net realized gains/(losses)
on investment
transactions.............. 0.0001 -- (0.0004)** (0.0092) (0.0006)
-------- -------- -------- -------- --------
Total income from investment
operations.................. 0.0508 0.0488 0.0533 0.0337 0.0294
Less dividends to
shareholders from net
investment income........... (0.0508) (0.0487) (0.0531) (0.0427) (0.0300)
Increase due to voluntary
capital contribution from
Investment Advisor.......... -- -- -- 0.0085 --
-------- -------- -------- -------- --------
Net change in net asset value
per share................... -- 0.0001 0.0002 (0.0005) (0.0006)
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE,
END OF YEAR................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return................. 5.20% 4.98% 5.44% 4.35%(dagger) 3.04%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions)................ $ 264 $ 263 $ 213 $ 289 $ 326
Ratio of expenses to average
net assets................ 0.52% 0.48% 0.49% 0.43% 0.48%
Ratio of net investment
income to average net
assets.................... 5.07% 4.89% 5.41% 4.32% 2.99%
Ratio of expenses to average
net assets*............... 0.57% 0.54%(a) 0.56% 0.51% 0.53%
Ratio of net investment
income to average net
assets* 5.02% 4.83%(a) 5.34% 4.24% 2.94%
</TABLE>
- ---------------
<TABLE>
<S> <C>
* During the year, 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.
** Net realized loss for the period is a direct result of a
decrease in outstanding shares between February 28, 1995 and
the date of the gain realization.
(a) Fees paid by third parties had no effect on the ratios.
(dagger) Total return includes the effect of the voluntary capital
contribution from the Investment Advisor. Without this
capital contribution, the total return would have been
lower.
</TABLE>
See Notes to Financial Statements.
64
<PAGE> 202
PACIFIC HORIZON TREASURY ONLY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
PACIFIC HORIZON SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income....... 0.0472 0.0458 0.0495 0.0384 0.0254
Net realized gains/(losses)
on investment
transactions.............. -- 0.0001 0.0003 (0.0002) (0.0002)
-------- -------- -------- -------- --------
Total income from investment
operations.................. 0.0472 0.0459 0.0498 0.0382 0.0252
Less dividends to
shareholders from net
investment income........... (0.0472) (0.0458) (0.0495) (0.0384) (0.0254)
-------- -------- -------- -------- --------
Net change in net asset value
per share................... -- 0.0001 0.0003 (0.0002) (0.0002)
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE,
END OF YEAR................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return................. 4.83% 4.68% 5.06% 3.90% 2.57%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions)................ $ 229 $ 225 $ 274 $ 90 $ 72
Ratio of expenses to average
net assets................ 0.61% 0.60% 0.63% 0.62% 0.56%
Ratio of net investment
income to average net
assets.................... 4.73% 4.59% 4.94% 3.90% 2.54%
Ratio of expenses to average
net assets*............... (a)(b) (b) (a) 0.63% 0.72%
Ratio of net investment
income to average net
assets*................... (a)(b) (b) (a) 3.89% 2.38%
</TABLE>
- ---------------
<TABLE>
<S> <C>
* During the year, 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.
(a) There were no fee waivers or expense reimbursements during
the period.
(b) Fees paid by third parties had no effect on the ratios.
</TABLE>
See Notes to Financial Statements.
65
<PAGE> 203
PACIFIC HORIZON TREASURY ONLY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
--------------------------- ------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1998 1997 1996(a)
------------ ------------ ------------
<S> <C> <C> <C>
HORIZON SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF
PERIOD................................... $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Income from Investment Operations:
Net investment income.................... 0.0504 0.0490 0.0227
Net realized gains/(losses) on investment
transactions........................... -- 0.0001 (0.0001)
-------- -------- --------
Total income from investment operations.... 0.0504 0.0491 0.0226
Less dividends to shareholders from net
investment income........................ (0.0504) (0.0490) (0.0227)
-------- -------- --------
Net change in net asset value per share.... -- 0.0001 (0.0001)
-------- -------- --------
NET ASSET VALUE PER SHARE, END OF PERIOD... $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total return............................... 5.16% 5.02% 2.30%(e)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (millions)... $ 30 $ 30 $ 7
Ratio of expenses to average net
assets................................. 0.29% 0.27% 0.70%(d)
Ratio of net investment income to average
net assets............................. 5.04% 4.94% 11.88%(d)
Ratio of expenses to average net
assets*................................ (b)(c) (b)(c) (b)
Ratio of net investment income to average
net assets*............................ (b)(c) (b)(c) (b)
</TABLE>
- ---------------
<TABLE>
<S> <C>
* 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.
(a) Period from September 20, 1995 (inception date) to February
29, 1996.
(b) There were no fee waivers or expense reimbursements during
the period.
(c) Fees paid by third parties had no effect on the ratios.
(d) Annualized.
(e) Not annualized.
</TABLE>
See Notes to Financial Statements.
66
<PAGE> 204
PACIFIC HORIZON TREASURY ONLY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
HORIZON SERVICE SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income... 0.0480 0.0465 0.0502 0.0391 0.0273
Net realized
gains/(losses) on
investment
transactions.......... -- 0.0001 0.0003 (0.0002) (0.0002)
-------- -------- -------- -------- --------
Total income from
investment operations... 0.0480 0.0466 0.0505 0.0389 0.0271
Less dividends to
shareholders from net
investment income....... (0.0480) (0.0465) (0.0502) (0.0391) (0.0273)
-------- -------- -------- -------- --------
Net change in net asset
value per share......... -- 0.0001 0.0003 (0.0002) (0.0002)
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE,
END OF YEAR............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return.............. 4.90% 4.75% 5.14% 3.98% 2.76%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of
year (millions)....... $ 177 $ 260 $ 186 $ 194 $ 272
Ratio of expenses to
average net assets.... 0.54% 0.53% 0.56% 0.55% 0.39%
Ratio of net investment
income to average net
assets................ 4.80% 4.66% 5.01% 3.86% 2.73%
Ratio of expenses to
average net assets*... (a)(b) (a)(b) (a) 0.56% 0.64%
Ratio of net investment
income to average net
assets*............... (a)(b) (a)(b) (a) 3.85% 2.48%
</TABLE>
- ---------------
<TABLE>
<S> <C>
* 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.
(a) There were no fee waivers or expense reimbursements during
the period.
(b) Fees paid by third parties had no effect on the ratios.
</TABLE>
See Notes to Financial Statements
67
<PAGE> 205
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 portfolios 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 Pacific Horizon Prime Fund, Pacific
Horizon Treasury Fund, Pacific Horizon Government Fund and Pacific Horizon
Treasury Only Fund (four of the seventeen portfolios constituting Pacific
Horizon Funds, Inc., hereafter referred to as the "Funds") at February 28, 1998,
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, 1998 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide
a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
April 21, 1998
68
<PAGE> 206
For more information, complete the following form and mail it to:
Pacific Horizon Funds, Inc.
PO Box 8968
Wilmington, DE 19899-8968
...............................................................................
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> 207
Bulk Rate
U.S. Postage
PAID
New York, NY
Permit No. 8048
[PACIFIC HORIZON FUNDS LOGO]
Provident Distributor, Inc., Distributor
PRM-0029 4/98
<PAGE> 208
PACIFIC HORIZON TAX-EXEMPT INCOME FUNDS
ANNUAL REPORT
February 28, 1998
National Municipal Bond Fund
California Tax-Exempt Bond Fund
Investing For All
The Times Of Your Life
NOT FDIC INSURED
PACIFIC HORIZON TAX-EXEMPT INCOME FUNDS
<PAGE> 209
PACIFIC HORIZON FUNDS, INC.
103 Bellevue Parkway
Wilmington, DE 19809
1-800-332-3863
INVESTMENT ADVISER
Bank of America National Trust
and Savings Association
555 California Street
San Francisco, CA 94104
ADMINISTRATOR
Bank of America National
Trust and Savings Association
555 California Street
San Francisco, CA 94104
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
Provident Distributors, Inc.
Four Falls Corporate Center
6th Floor
Conshohocken, PA 19428
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 Provident
Distributors, Inc. which is unaffiliated with the Bank of America. Bank of
America serves as investment adviser to the Funds 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, NOT
BANK OF AMERICA OR ANY AFFILIATES. AN INVESTMENT IN FDIC
MUTUAL FUNDS INVOLVES INVESTMENT RISKS, INCLUDING THE INSURED
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
============================================================================
</TABLE>
<PAGE> 210
..................................
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 MANAGER 10-16
PORTFOLIO OF INVESTMENTS
National Municipal Bond Fund 17-24
California Tax-Exempt Bond Fund 25-38
STATEMENTS OF ASSETS AND
LIABILITIES
National Municipal Bond Fund 39
California Tax-Exempt
Bond Fund 40
STATEMENTS OF OPERATIONS
National Municipal Bond Fund 41
California Tax-Exempt Bond Fund 42
STATEMENTS OF CHANGES IN NET ASSETS
National Municipal Bond Fund 43
California Tax-Exempt Bond Fund 44
NOTES TO FINANCIAL STATEMENTS 45-53
FINANCIAL HIGHLIGHTS 54-55
REPORT OF INDEPENDENT ACCOUNTANTS 56
</TABLE>
<PAGE> 211
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 stable net asset value but
offer no growth potential.
<TABLE>
<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(dagger) High Current Income Plus Principal
- Prime Stability
- Treasury
- Government
- Treasury Only
...........................................................................
Tax-Exempt Money Market Funds*(dagger)
- Tax-Exempt Money High Level of Federal Tax-Free Current
Income Plus Principal Stability
- California Tax-Exempt Money High Level of Federal and California
Market 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.
(dagger) 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> 212
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
Preferred Stocks and capital appreciation.
...........................................................................
Stocks, Bonds and Cash Long-term growth potential and current
Equivalents income from stocks and bonds.
...........................................................................
Investment-Grade Corporate Debt High monthly income potential with
reasonable investment risk.
...........................................................................
Investment-Grade Corporate and Regular monthly income from a
U.S. Government Securities diversified portfolio of
investment-grade securities.
...........................................................................
GNMAs and Other U.S. Government High monthly income potential and low
Securities credit risk.
...........................................................................
U.S. Government and Government Monthly income and relative stability
Agency Securities of investment.
...........................................................................
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 A flexible, convenient way to manage or
U.S. Government Short-Term accumulate cash while waiting for other
Obligations 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
Obligations cash while waiting for other investment
opportunities.
</TABLE>
- --------------------------------------------------------------------------------
3
<PAGE> 213
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
MANAGER enables you to gain
insight into the Fund's
investments and learn more
about the Fund manager's
strategies.
[GRAPHICS]
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.
[GRAPHICS]
4
<PAGE> 214
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
[GRAPHICS]
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
[GRAPHICS]
5
<PAGE> 215
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
[GRAPHICS]
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
[GRAPHICS]
The NOTES TO FINANCIAL STATEMENTS are footnotes to the statements listed above.
These notes include information on accounting methods used by the Fund,
contractual arrangements between the Fund and its service providers, certain
transactions effected by the Fund and other general information about the Fund.
The FINANCIAL HIGHLIGHTS shows, for a single share outstanding throughout each
period presented, the net investment income, the realized and unrealized gains
and losses and the dividends and distributions of the Fund. It also shows key
data and ratios, such as the total investment return for each period, the
portfolio turnover rate for Funds other than money market mutual funds, the
ratio of expenses to average net assets and the ratio of net investment income
to average net assets.
6
<PAGE> 216
[This page intentionally left blank.]
7
<PAGE> 217
ECONOMIC REVIEW
FROM THE INVESTMENT ADVISER
Fourth quarter Gross Domestic Product was reported at a 3.7%* annualized rate,
with inflation continuing to be non-existent and a positive factor for the
economy and the domestic financial markets. Changes in consumer prices are
negligible and producer prices are actually declining. Historically high
consumer confidence, resulting from strong job growth, wage gains and the
positive wealth effect created by the buoyant stock market, has created solid
income growth and has fueled the robust housing market in the first quarter of
1998. Consumers have been the primary beneficiaries of the turmoil in the Asian
markets. Lower bond yields, a by-product of the Asian financial crisis, have
resulted in lower mortgages payments for households looking to buy a home.
THE CASE FOR
STOCKS AND BONDS
The Standard & Poor's Stock Index posted a total return of 35.1%** during the 12
month period ended February 28, 1998, amply rewarding long-term investors who
rode out volatility that accompanied the Asian financial crisis. The best
performers were concentrated among shares of large company stocks, which
significantly outpaced shares of smaller firms.
Companies have been issuing reduced earnings forecasts at an increasing rate.
Despite the early warnings, the reduced earnings expectations have not put a
damper on the stock market. The bullish sentiment for low inflation and
continuing strong profits for 1998 are propelling the stock markets to new
highs. The Dow*** has gained 8.4% during the first two months of the year,
significantly higher than expected. Overall, the U.S. economy seems poised for
continued moderate growth, which is good news for stocks. We think it is
reasonable to expect P/E ratios to stay at current levels of 22 times 1998
earnings. That gives an estimated market return over the next 12 months of 9%
(7.8% from earnings growth and 1.2% from dividend yield).
Fixed income investors remain optimistic due to the lack of price pressures, the
strong dollar and the expectation of an Asia-led slowdown in the U.S. Interest
rates on Treasuries have fallen across the yield curve over the last twelve
months and are currently below 6%, the lowest level in 25 years. The finance
sector has been outperforming expectations as of late, which has a lot to do
with the wave of colossal merger and acquisition activity sweeping across
financial institutions.
The prospects for a government budget surplus in fiscal 1998 are growing. Some
economists are predicting as much as a $50 billion surplus due to large tax
revenues as well as efforts to reduce government spending. These revenue flows
will serve to reduce immediate government financing needs. Already, we have seen
cuts in the size of Treasury auctions so far this year.
POTENTIAL RISKS
The Asian financial crisis, which began in the third quarter of 1997, is
expected to modestly impact U.S. domestic growth. As expected, trade between
U.S. and Asian trade partners has sharply deteriorated, with the current account
deficit widening to its highest level in ten years. The deficit widened to
$166.5 billion in 1997, up from $148.2 billion for 1996. The largest threat to
the U.S. economy, according to The Organization for Economic Cooperation and
Development (OECD), would be a second round of currency devaluations in Asia. It
could happen again if Japan fails to jumpstart its economy.
While the final outcome of the Asian financial crisis remains unclear, the
initial predictions of a global financial crisis have not been supported by the
evidence.
8
<PAGE> 218
With the Asian crisis potentially constraining corporate profitability in the
second or third quarter, we expect that growth will slow during the remainder of
the year.
Tame inflation continues to be the theme du jour as the Consumer Price Index's
1.4% increase over the past 12 months is the second lowest reading in 33 years,
outdone only by the collapse in oil prices in 1986. The lack of inflationary
pressures and the uncertainty surrounding the Asian financial crisis have kept
the Federal Reserve from raising interest rates. The Fed funds rate has remained
at 5.50% since last March. However, the labor market is stretched and wage
pressures are intensifying. So far, increased productivity has compensated for
wage increases; however, recent significant increases in real asset values, such
as housing and land, have not gone unnoticed by Chairman Greenspan and may play
a factor in determining monetary policy over the coming months.
LOOKING FORWARD
It is now a widely accepted view that the U.S. economy is growing at a faster
pace early in 1998 than analysts had projected last year at the height of the
Asian turmoil. Although the preliminary GDP figure will not be released until
the end of April, the early estimate for the first quarter lies somewhere
between 3.5 - 4.0%. In order to reach the projected 1998 growth rate of 2.8%,
U.S. growth will have to sustain a considerable slowdown in the latter part of
the year to compensate for the strength it is exhibiting now.
Looking forward, there are a lot of crosscurrents in the U.S. corporate earnings
picture. Ironically, the impact from the Asian financial crisis so far have been
positive, with lower interest rates boosting the economy. In the first quarter,
currency and oil earnings will be negative factors, but stronger economic growth
will offset any weaknesses. In the second and third quarters, we expect the
impact from Asia should be mitigated by strong growth in Europe. We continue to
believe that the economic impact from Asia will be moderate with the U.S.
economy slowing, but sustaining a near normal growth rate of 2.8% in 1998. Given
these projections, we expect equities and fixed income securities to perform
well in 1998, although below 1997 levels.
Sincerely,
Kirk Hartman
/s/ Kirk Hartman
Chief Investment Officer of
Fixed Income Management
- ---------------
* Source: Bloomberg, 1998.
** Source: Bloomberg, 1998. 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 Dow Jones Industrial Average is a price-weighted average of 30 actively
traded blue chip stocks and cannot be invested in directly.
9
<PAGE> 219
PACIFIC HORIZON
NATIONAL MUNICIPAL BOND FUND AND
CALIFORNIA TAX-EXEMPT BOND FUND
- ----------------------
- ----------------------
STEPHEN P. SCHARRE
Portfolio Manager
Bank of America NT&SA
GOAL:
The Pacific Horizon National Municipal Bond Fund seeks to achieve as high a
level of current interest income exempt from Federal income tax as is consistent
with prudent investment management and preservation of capital.
INVESTMENTS:
The Pacific Horizon National Municipal Bond Fund invests primarily in
investment-grade municipal securities issued on behalf of states, territories
and possessions of the United States, the District of Columbia and their
respective authorities, agencies, instrumentalities and political subdivisions.
APPROPRIATE FOR:
Investors seeking monthly interest income exempt from Federal income tax.+
INCEPTION:
January 28, 1994
SIZE OF FUND AS OF
FEBRUARY 28, 1998:
Over $14 million
GOAL:
The Pacific Horizon California Tax-Exempt Bond Fund seeks to achieve as high a
level of current interest income exempt from Federal and California state income
taxes as is consistent with prudent investment management and preservation of
capital.
INVESTMENTS:
The Pacific Horizon California Tax-Exempt Bond Fund invests primarily in
municipal securities issued on behalf of the state of California and its
political subdivisions, agencies, authorities and other governmental entities.
APPROPRIATE FOR:
California residents seeking monthly interest income exempt from both Federal
and California personal income taxes.(dagger)
INCEPTION:
March 30, 1984
SIZE OF FUND AS OF
FEBRUARY 28, 1998:
Over $213 million
- ---------------
(dagger) Certain investors may be subject to the Federal Alternative Minimum Tax
(AMT) and to certain state and local taxes.
10
<PAGE> 220
Q
HOW DID THE MUNICIPAL BOND MARKETS AND THE FUNDS PERFORM DURING THE PAST 12
MONTHS?
A
The municipal bond market performed well during the past 12 months,
benefiting from the general decline in interest rates. The decline in municipal
bond yields did, however, lag behind the decline in Treasury yields due to the
tremendous increase in the demand for Treasury securities by international
investors seeking safety from the economic turmoil in Asia. For the 12 month
period ending February 28, 1998, the Pacific Horizon National Municipal Bond
Fund had a total return of 8.65% (exclusive of the sales charge) for A Shares.*
The Pacific Horizon California Tax-Exempt Bond Fund returned 9.18% (exclusive of
the sales charge) for A Shares during the same period.* That compares to 9.14%
for the Fund's benchmark, the Lehman Brothers Municipal Bond Index.**
Q
WHAT FACTORS AFFECTED THE FUNDS' PERFORMANCE DURING THE 12 MONTHS ENDED
FEBRUARY 28, 1998?
A
During the first six months of the period, interest rates moved within a
fairly tight range as investors were torn between strong economic growth and
incredibly good inflation data. During this period, most investors expected the
economy to slow down from the strong 3.1% Gross Domestic Product ("GDP") growth
rate in 1996. However, this slowdown never materialized and the GDP growth, in
fact, actually increased during 1997 to 3.8%. The strong labor market and
accompanying drop in the unemployment rate also attracted investors' attention
since these conditions are normally associated with an increase in inflation. In
the face of this strong growth, inflation actually improved rather significantly
as the year-over-year change in Producer Price Index dropped from 2.1% in
February 1997 to -1.7% in February 1998. The Consumer Price Index also improved
as the year-over-change fell from 3.0% to 1.4% during the same period.
The market's explanation for the unexpected improvement in inflation was that
the economy was shifting to a "new era" with improved productivity from
technology investment combined with an increased globalization of the economy.
These factors raised the non-inflationary growth rate of GDP well above the
expected range of 2.25% to 2.5%. This struggle between growth and inflation was
thrown aside by the market in October of 1997 as the first signs of the
financial crises in Asia became apparent to the U.S. bond market. The bond
market rallied strongly during the fourth quarter of 1997 and into early 1998 as
the Treasury market benefited from a flight to quality from international
investors. In addition, a significant change in investor expectations occurred
as the Asian turmoil was now likely to slow U.S. economic growth and the large
currency devaluations throughout Asia would provide further improvement to the
U.S. inflation picture.
Q
HOW DID YOU MANAGE THE FUNDS IN THAT ENVIRONMENT?
A
As we entered the period, the Funds were positioned fairly conservatively,
with their durations neutral to the benchmark, as the longevity of the economic
expansion and tight labor market indicated that inflationary pressures would
likely increase. As the economy continued to unexpectedly strengthen during
1997, no significant extension of the Funds'
11
<PAGE> 221
durations were made. Despite the strong economy, inflation did not increase as
expected allowing for interest rates to remain fairly stable during the first
half of the year. As the Asian crises unfolded during the fourth quarter of
1997, a shift in portfolio strategy to increase the Funds' durations and improve
call protection was initiated in order to benefit from declining interest rates.
Q
DID THE FUNDS' CREDIT QUALITY CHANGE OVER THE PERIOD?
A
The average credit quality in the National Municipal Bond Fund was reduced
slightly during the reporting period, as the Fund's investments in AAA
securities decreased from 46% to 44%. This was accomplished by increasing the
Fund's exposure to BBB credits and non-rated securities in order to increase the
Fund's average yield. The Fund's average credit quality remains very high at
AA.***
In the California Tax-Exempt Bond Fund the average credit quality remains AA
with no significant changes in the quality distribution during the period. AAA
quality bonds remain dominant in the Fund, ending the period at 54%, as the
mono-line insurance companies continue to increase their market share of
municipal bond issuance in California.***
Q
WHAT IS YOUR OUTLOOK FOR THE ECONOMY AND THE MUNICIPAL BOND MARKET FOR THE
YEAR AHEAD?
A
We anticipate that the economy will continue to expand, albeit at a slower
pace than last year. Productivity growth, imported deflation, and falling
commodity prices will keep inflation low. Municipal credit trends will continue
to be positive. It is expected that Federal Reserve action will be on hold for
some time to come, and that interest rates will remain in a gradually declining
trading range.
We currently expect municipal bonds to modestly outperform taxable bonds this
year. Municipal-to-Treasury yield ratios are currently higher than normal as a
significant increase in the new issue supply has temporarily created value in
municipal bonds. Our current outlook is that the new supply will slow
significantly later this year as refunding activity subsides. We also expect
investor demand to increase near mid-year as we pass the personal tax date in
April.
- ---------------
* Return figures for the Funds 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 for the
National Municipal and the California Tax-Exempt Bond Fund was 3.76% and
4.22% respectively, for the period. The Funds are 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 a Fund's performance.
** Source: Ibbotson Associates, 1998. The Lehman Brothers Municipal Bond Index
is an unmanaged index generally representative of the municipal bond market
as a whole, and cannot be invested in directly.
*** The composition of the Fund's holdings is subject to change.
The performance data quoted represents past performance and is not an indication
of future results. The investment return and Net Asset Value will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than the
original cost.
12
<PAGE> 222
PACIFIC HORIZON
NATIONAL MUNICIPAL BOND FUND
(AS OF FEBRUARY 28, 1998)
GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)
<TABLE>
<CAPTION>
LIPPER
GENERAL LEHMAN
MUNICIPAL BROTHERS
MEASUREMENT PERIOD DEBT FUNDS MUNICIPAL
(FISCAL YEAR COVERED) A SHARES AVERAGE BOND INDEX
<S> <C> <C> <C>
1/28/94 9551.10 10000 10000
2/28/94 9455.22 9735.08 9741
2/28/95 9718.35 9796.43 9928
2/29/96 10802.54 10767.76 11025
2/28/97 11414.08 11270.02 11634
2/28/98 12402.00 12298.00 12697
</TABLE>
HOW PERFORMANCE COMPARES
The chart compares the Pacific
Horizon National Municipal Bond Fund
to the Lehman Brothers Municipal Bond
Index, which is an unmanaged index
typically used as a performance
benchmark for municipal debt
investments.
As illustrated, the Fund tracked the
performance of other municipal debt
funds. The average of municipal debt
reported by Lipper Analytical
Services, Inc. measures the perform-
<TABLE>
<CAPTION>
----------------------------------
NATIONAL MUNICIPAL BOND FUND
AVERAGE ANNUAL RETURN
--------------------------------------
A SHARES
--------------
Without With
Sales Sales
Charge Charge
--------------------------------------
<S> <C> <C>
1 Year 8.65% 3.76%
. ....................................
Since Inception
(1/28/94) 6.59% 5.40%
-------------------------------------
</TABLE>
ance of other funds with investment objectives and policies similar to those of
the Pacific Horizon National Municipal Bond Fund. An initial $10,000 investment
in the Fund made on January 28, 1994, would now be worth $12,402 for A Shares.
The same investment made in the Lipper General Municipal Debt Funds Average
would now be worth $12,298.
FEDERAL INCOME TAX STATUS OF DIVIDENDS (UNAUDITED)
The Pacific Horizon National Municipal Bond Fund distributed a total Capital
Gain Dividend of $0.021944 for the year ended February 28, 1998. Of this total
Capital Gain Dividend amount, the Fund made a 28 percent rate distribution of
$0.011534 and a 20 percent rate distribution of $0.008328.
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.
Lipper Analytical Services, Inc. is an independent mutual fund-monitoring
organization. Neither the Lipper Municipal Debt Funds Average, nor the Lehman
Brothers Municipal Bond Fund Index may be invested in directly. The hypothetical
investment in the Lehman Brothers Municipal Bond Fund 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.
13
<PAGE> 223
PACIFIC HORIZON
NATIONAL MUNICIPAL BOND FUND
(AS OF FEBRUARY 28, 1998)
<TABLE>
<CAPTION>
1997 Federal Tax Rates(dagger)
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------
28% 31% 36% 39.6%
- -------------------------------------------------------------------
Joint $41,201 $99,601 $151,751 Over
Return: $99,600 $151,750 $271,050 $271,050
...................................................................
Single $24,651 $59,751 $124,651 Over
Return: $59,750 $124,650 $271,050 $271,050
- -------------------------------------------------------------------
</TABLE>
===================================================================
<TABLE>
<S> <C> <C> <C> <C>
4.5% 6.25% 6.52% 7.03% 7.45%
....................................................................
5.0 6.94 7.25 7.81 8.28
....................................................................
5.5 7.64 7.97 8.59 9.11
....................................................................
6.0 8.33 8.70 9.38 9.93
....................................................................
6.5 9.03 9.42 10.16 10.76
....................................................................
- --------------------------------------------------------------------
</TABLE>
- -
(dagger) Source: Internal Revenue Service.
* Certain investors may be subject to the federal Alternative Minimum Tax (AMT)
and/or certain state and local taxes. Shareholders should consult with a tax
adviser.
TAX-EQUIVALENT YIELD
The Bottom Line
Today's higher federal tax
rates make tax-exempt income
more attractive. This chart
enables you to determine what
the yield on a taxable
investment would have to be
to match a hypothetical tax-
exempt yield.* For example,
in order to equal a 5%
tax-exempt yield, a taxable
investment would have to
yield between 6.94% and
8.28%, depending on your
federal tax bracket. The
higher your tax bracket, the
better the potential
after-tax result of investing
in a tax-exempt fund. The
Pacific Horizon National
Municipal Bond Fund seeks to
provide a high level of
current income free from
federal income tax,
consistent with prudent
investment management and
preservation of capital.
14
<PAGE> 224
PACIFIC HORIZON
CALIFORNIA TAX-EXEMPT BOND FUND
(AS OF FEBRUARY 28, 1998)
GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)
<TABLE>
<CAPTION>
LIPPER
CALIFORNIA LEHMAN
MUNICIPAL BROTHERS
MEASUREMENT PERIOD BOND FUNDS MUNICIPAL
(FISCAL YEAR COVERED) A SHARES AVERAGE BOND INDEX
<S> <C> <C> <C>
2/29/88 9550 10000 10000
2/28/89 10016 10638 10622
2/28/90 10911 11580 11712
2/28/91 11754 12498 12792
2/29/92 12886 13681 14070
2/28/93 14691 15576 16007
2/28/94 15520 16423 16891
2/28/95 15576 16491 17215
2/29/96 17153 18226 19117
2/28/97 17888 19083 20173
2/28/98 19531 20871 22016
</TABLE>
HOW PERFORMANCE COMPARES
The chart compares the Pacific
Horizon California Tax-Exempt Bond
Fund to the Lehman Brothers Municipal
Bond Index, which is an unmanaged
index typically used as a performance
benchmark for municipal debt
investments.
As illustrated, the Fund tracked the
performance of other municipal debt
funds. The average of California
municipal debt funds reported by
Lipper Analytical Services, Inc.
measures the performance of other funds
<TABLE>
<CAPTION>
-------------------------------------
CALIFORNIA TAX-EXEMPT
AVERAGE ANNUAL RETURN
-------------------------------------
A SHARES
Without With
Sales Sales
Charge Charge
-------------------------------------
<S> <C> <C>
1 year: 9.18% 4.22%
...................................
5 years: 5.86% 4.89%
...................................
10 years: 7.42% 6.92%
------------------------------------
</TABLE>
with investment objectives and policies similar to those of the Pacific Horizon
California Tax-Exempt Bond Fund. An initial $10,000 investment in the Fund for
the ten year period commencing on February 28, 1988 would now be worth $19,531
for A Shares. The same investment made in the Lipper California Municipal Bond
Funds Average for the same time period would now be worth $20,871.
FEDERAL INCOME TAX STATUS OF DIVIDENDS (UNAUDITED)
The Pacific Horizon California Tax-Exempt Bond Fund distributed a total Capital
Gain Dividend of $0.014492 for the year ended February 28, 1998. Of this total
Capital Gain Dividend amount, the Fund made a 28 percent rate distribution of
$0.014492.
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.
Lipper Analytical Services, Inc. is an independent mutual fund-monitoring
organization. Neither the Lipper California Municipal Debt Funds Average, nor
the Lehman Brothers Municipal Bond Fund Index may be invested in directly. The
hypothetical investment in the Lehman Brothers Municipal Bond Fund 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.
15
<PAGE> 225
PACIFIC HORIZON
CALIFORNIA TAX-EXEMPT BOND FUND
(AS OF FEBRUARY 28, 1998)
TAX-EXEMPT
Dollars and Sense
for California
Residents
The top federal
income tax rate is
39.6 percent on
income above
$271,050. In
addition, the top
California State
tax rate is 9.3% on
income above
$65,832. By
investing in the
Pacific Horizon
California
Tax-Exempt Bond
Fund, Golden State
residents may
benefit from
regular income that
is free from
federal and state
taxes.*
Use the chart to determine what the hypothetical yield on a taxable investment
would have to be to match a tax-exempt yield. For example, in order to equal a 5
percent tax-exempt yield, a taxable investment would have to yield between 7.66%
and 9.13%, depending on your combined federal and state tax brackets. The higher
your tax bracket, the better the potential after-tax result of investing in a
tax-exempt fund.
- -------------
* Certain investors may be subject to the federal Alternative Minimum Tax (AMT)
and/or certain state and local taxes. Shareholders should consult with a tax
adviser. The effective rates are based on the combined Federal, State and FICA
liabilities for 1997.
<TABLE>
<CAPTION>
COMBINED 1997 CALIFORNIA
STATE & FEDERAL EFFECTIVE RATE
--------------------------------------------------------------------
34.70% 37.42% 41.95% 45.22%
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Joint $41,201 $99,601 $151,751 over
Return: $89,600 $151,750 $271,050 $271,050
..................................................................
Single $24,651 $59,751 $124,651 over
Return: $59,750 $124,650 $271,050 $271,050
--------------------------------------------------------------------
</TABLE>
<TABLE>
---------------------------------------------------
A TAX-EXEMPT
INVESTMENT
YIELDING: IS EQUIVALENT TO A TAXABLE INVESTMENT YIELDING:
<S> <C> <C> <C> <C>
4.5% 6.89% 7.19% 7.75% 8.21%
..................................................................
5.0 7.66 7.99 8.61 9.13
..................................................................
[GRAPHIC] 5.5 8.42 8.79 9.47 10.04
..................................................................
6.0 9.19 9.59 10.34 10.95
..................................................................
6.5 9.95 10.39 11.20 11.87
..................................................................
--------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
S&P/MOODY'S
LONG-TERM RATING COMPOSITION*
<TABLE>
<S> <C>
A 16%
BBB 8
AA 15
AAA 54
NONRATED 7
</TABLE>
- ---------------
* The composition of the Fund's holdings is subject to change.
The Pacific Horizon California Tax-Exempt Bond Fund invests primarily in
investment-grade municipal securities that are rated in the four highest
categories by an independent rating agency such as Standard & Poor's or nonrated
securities deemed by the Fund's adviser to be of comparable quality. By
maintaining high standards, the Fund seeks to minimize risk while increasing
yield, offering an investor the opportunity for capital preservation as well as
consistent monthly dividends. Tax-exempt bond funds invest in securities issued
by states, local municipalities and governments, whose financial condition will
affect the value of their securities.
16
<PAGE> 226
PACIFIC HORIZON NATIONAL MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/
S&P
RATINGS MATURITY PRINCIPAL VALUE
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- --------
<S> <C> <C> <C> <C> <C>
MUNICIPAL BONDS -- 98.5
CALIFORNIA -- 7.8%
Del Mar Race Track
Authority, Sinking Bond... NR/NR 6.000% 08/15/06 $250,000 $ 269,687
Del Mar Race Track
Authority, Callable on
8/15/06 @102.............. NR/NR 6.200% 08/15/11 250,000 272,500
Foothill/Eastern Corridor
Agency, California Toll
Road, Senior Lien, Series
A, Callable on 1/1/05
@102...................... Baa/BBB- 6.000% 01/01/34 150,000 157,875
San Joaquin Hills
Transportation Corridor
Agency Toll Road Revenue,
Series A, Callable 1/15/14
@102 (Zero Coupon), due
1/15/16, 5.6% beginning
1/15/07................... Baa3/BBB- 5.570%* 01/15/16 500,000 324,375
West Covina, Certificates
of Participation, Queen of
the Valley Hospital,
Callable on 8/15/04
@102...................... A2/A 6.500% 08/15/24 75,000 81,562
-----------
1,105,999
-----------
COLORADO -- 3.5%
Colorado Health Facilities
Authority, National
Benevolent Association,
Series B.................. BAA1/NR 5.250% 02/01/28 300,000 291,000
Pueblo County Single Family
Mortgage, Series A,
Callable on 6/1/02 @102... NR/AA- 6.850% 12/01/25 200,000 213,000
-----------
504,000
-----------
</TABLE>
- ---------------
See Notes to Financial Statements.
17
<PAGE> 227
<TABLE>
<CAPTION>
MOODY'S/
S&P
RATINGS MATURITY PRINCIPAL VALUE
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- --------
<S> <C> <C> <C> <C> <C>
MUNICIPAL BONDS -- (CONTINUED)
CONNECTICUT -- 0.5%
Connecticut State Clean
Water Fund, Callable on
6/1/04 @102............... Aaa/AAA 5.650% 06/01/10 $ 75,000 $ 80,719
-----------
FLORIDA -- 5.8%
Florida State Board of
Education, Capital Outlay,
Series 1994A, Callable on
6/1/04 @101............... Aa2/AA+ 6.100% 06/01/24 75,000 80,156
Florida State Board of
Education, Capital Outlay,
Series 1997A, Callable on
6/1/07 @101............... Aa2/AA+ 5.000% 06/01/27 500,000 485,625
Jacksonville Electric
Authority, St. John's
River, Issue 2, Series 9,
Callable on 10/1/02
@101...................... Aa1/AA 5.250% 10/01/21 255,000 255,319
-----------
821,100
-----------
ILLINOIS -- 12.5%
Chicago O'Hare
International Airport,
Senior Lien, Series A,
Callable on 1/1/04 @102... A1/A+ 4.800% 01/01/05 500,000 510,000
Cook County General
Obligation, Series B (FGIC
Insured), Callable on
11/15/02 @102............. Aaa/AAA 5.500% 11/15/22 300,000 307,500
Illinois Health Facility
Authority, Edward
Hospital, Series A,
Callable on 2/15/04
@102...................... A2/A+ 6.000% 02/15/19 75,000 79,031
Illinois Health Facility
Authority, Illinois
Masonic Medical Center,
Series A, Callable on
10/1/99 @102.............. A3/A- 7.600% 10/01/07 300,000 319,125
Illinois State Sales Tax
Revenue, Series O,
Prerefunded on 6/15/01
@100...................... NR/NR 6.000% 06/15/18 20,000 21,200
</TABLE>
- ---------------
See Notes to Financial Statements.
18
<PAGE> 228
<TABLE>
<CAPTION>
MOODY'S/
S&P
RATINGS MATURITY PRINCIPAL VALUE
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- --------
<S> <C> <C> <C> <C> <C>
MUNICIPAL BONDS -- (CONTINUED)
ILLINOIS -- (CONTINUED)
Illinois State Sales Tax
Revenue Unrefunded, Series
O, Callable on 6/15/01
@100...................... NR/NR 6.000% 06/15/18 $ 30,000 $ 31,425
Illinois State Sales Tax
Revenue, Series W (FGIC
Insured) Callable on
6/15/06 @101.............. Aaa/AAA 5.000% 06/15/16 520,000 515,450
-----------
1,783,731
-----------
INDIANA -- 4.4%
Bloomington Indiana Sewer
Works (MBIA Insured),
Callable on 1/1/05 @102... Aaa/AAA 5.875% 01/01/25 150,000 157,687
Indiana Bond Bank, State
Revolving Fund, Program A,
Callable on 2/1/05 @102... NR/AAA 6.875% 02/01/12 100,000 114,875
Indianapolis Local Public
Improvement Unrefunded,
Callable on 4/6/98 @101... Aaa/AAA 7.900% 02/01/07 300,000 358,875
-----------
631,437
-----------
KENTUCKY -- 1.6%
Kentucky State Property &
Buildings Refunding
Project No. 55............ A2/A+ 6.000% 09/01/08 200,000 225,250
-----------
MASSACHUSETTS -- 10.8%
Massachusetts Bay
Transportation Authority,
General Transportation
System, Series A, Callable
on 3/1/06 @101............ A1/AA- 5.375% 03/01/16 500,000 514,375
Massachusetts State Port
Authority, Series A,
Callable on 7/1/07 @101... Aa3/AA- 5.000% 07/01/27 400,000 387,000
Massachusetts State Housing
Finance Agency, Single
Family Housing Revenue,
(MBIA Insured) (AMT),
Callable on 6/1/06 @102... Aaa/AAA 6.250% 12/01/15 500,000 535,625
</TABLE>
- ---------------
See Notes to Financial Statements.
19
<PAGE> 229
<TABLE>
<CAPTION>
MOODY'S/
S&P
RATINGS MATURITY PRINCIPAL VALUE
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- --------
<S> <C> <C> <C> <C> <C>
MUNICIPAL BONDS -- (CONTINUED)
MASSACHUSETTS -- (CONTINUED)
Massachusetts State Water
Resource Authority, Series
C, Callable on 12/1/04
@102...................... A2/A 5.250% 12/01/20 $100,000 $ 100,625
-----------
1,537,625
-----------
MICHIGAN -- 3.9%
Greater Detroit Resource
Recovery Authority, Series
B (AMBAC Insured) ........ Aaa/AAA 6.250% 12/13/05 500,000 561,875
-----------
MINNESOTA -- 3.3%
Northern Municipal Power
Agency, Series A, Callable
on 1/1/99 @102............ A2/A 7.250% 01/01/16 445,000 466,396
-----------
MISSOURI -- 3.8%
Sikeston Electric Revenue
Sinking Bond, ETM,
Callable on 6/1/98 @100... AAA/AAA 6.250% 06/01/08 500,000 546,875
-----------
NEBRASKA -- 1.3%
Omaha Public Power
District, Nebraska
Electric Company, Series
C, Sinking Bond........... Aa2/AA 5.500% 02/01/14 175,000 187,031
-----------
NEVADA -- 11.1%
Clark County Convention &
Visitors Center (MBIA
Insured).................. Aaa/AAA 4.800% 07/01/02 500,000 514,375
Clark County Passenger
Facilities Charge, Las
Vegas/Macarran
International Airport,
Series A (MBIA Insured)
(AMT), Callable on 7/1/05
@102...................... Aaa/AAA 5.750% 07/01/23 500,000 524,375
</TABLE>
- ---------------
See Notes to Financial Statements.
20
<PAGE> 230
<TABLE>
<CAPTION>
MOODY'S/
S&P
RATINGS MATURITY PRINCIPAL VALUE
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- --------
<S> <C> <C> <C> <C> <C>
MUNICIPAL BONDS -- (CONTINUED)
NEVADA -- (CONTINUED)
Nevada Housing Division,
Single Family Mortgage,
Series D1, Callable on
4/1/06 @102............... Aa3/NR 6.250% 04/01/14 $500,000 $ 542,500
-----------
1,581,250
-----------
NEW JERSEY -- 3.8%
New Jersey Economic
Development Authority,
Market Transition
Facilities, Series A (MBIA
Insured), Callable on
7/1/04 @102............... Aaa/AAA 5.700% 07/01/05 150,000 162,562
New Jersey State Turnpike
Authority, Series C (AMBAC
Insured), Callable on
1/1/01 @101.5............. Aaa/AAA 6.400% 01/01/07 350,000 374,938
-----------
537,500
-----------
NEW YORK -- 3.9%
New York City, Industrial
Development Agency,
Special Facilities
Revenue, Terminal One
Group Assistant Project
(AMT), Callable on 1/1/04
@102...................... A/A 6.000% 01/01/15 75,000 79,219
New York State Local
Government Assistance
Corp., Series B, Callable
on 4/1/02 @102............ A3/A+ 6.000% 04/01/18 50,000 53,250
New York State Urban
Development Facilities.... Baa1/BBB+ 5.750% 04/01/11 400,000 430,500
-----------
562,969
-----------
OREGON -- 1.1%
Portland International
Airport, Series 10 (FGIC
Insured) (AMT), Callable
on 7/1/05 @101............ Aaa/AAA 5.875% 07/01/15 150,000 158,813
-----------
</TABLE>
- ---------------
See Notes to Financial Statements.
21
<PAGE> 231
<TABLE>
<CAPTION>
MOODY'S/
S&P
RATINGS MATURITY PRINCIPAL VALUE
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- --------
<S> <C> <C> <C> <C> <C>
MUNICIPAL BONDS -- (CONTINUED)
PENNSYLVANIA -- 3.6%
Philadelphia Airport,
Series A (AMBAC Insured)
(AMT), Callable on 6/15/05
@102...................... Aaa/AAA 5.700% 06/15/07 $200,000 $ 216,250
Philadelphia Water and
Wastewater (AMBAC-TCRS
Insured).................. AAA/Aaa 5.500% 06/15/07 250,000 269,688
Pittsburgh Urban
Redevelopment Authority,
Home Improvement, Series A
(AMT), Callable on 2/1/04
@102...................... A/A 5.650% 08/01/15 20,000 20,550
-----------
506,488
-----------
TENNESSEE -- 4.5%
Humphreys County Industrial
Development Board, E.I.
DuPont de Nemours and Co.
Project (AMT), Callable on
5/1/04 @102............... Aa3/AA- 6.700% 05/01/24 75,000 83,250
Maury County Industrial
Development Board
Pollution Control, Saturn
Corp. Project, Callable on
9/1/04 @102............... A3/A 6.500% 09/01/24 500,000 552,500
-----------
635,750
-----------
TEXAS -- 6.9%
Brazos River Authority,
Special Facilities
Refunded (FGIC Insured),
Callable on 8/15/05
@100...................... Aaa/AAA 5.500% 08/15/15 200,000 205,500
Lower Colorado River
Authority Prerefunded,
Junior Lien -- 1998 (AMBAC
Insured) Callable on
1/1/02 @100............... NR/AAA 6.000% 01/01/17 15,000 16,350
</TABLE>
- ---------------
See Notes to Financial Statements.
22
<PAGE> 232
<TABLE>
<CAPTION>
MOODY'S/
S&P
RATINGS MATURITY PRINCIPAL VALUE
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- --------
<S> <C> <C> <C> <C> <C>
MUNICIPAL BONDS -- (CONTINUED)
TEXAS -- (CONTINUED)
Lower Colorado River
Authority Unrefunded,
Junior Lien -- 1998 (AMBAC
Insured) Callable on
1/1/02 @100............... Aaa/AAA 6.000% 01/01/17 $ 10,000 $ 10,375
Lower Colorado River
Authority Refunded, Junior
Lien (AMBAC Insured) ETM,
Callable on 1/1/02 @100... NR/AAA 6.000% 01/01/17 25,000 28,125
Lower Neches Valley
Authority, River Treatment
Project, Callable on
2/1/04 @102............... Aa2/AA 5.650% 02/01/29 600,000 614,250
Texas Water Development
Board, State Revolving
Fund, Senior Lien,
Callable on 7/15/02
@102...................... Aa1/AAA 6.000% 07/15/13 100,000 107,000
-----------
981,600
-----------
UTAH -- 3.6%
Ashley Valley Water and
Sewer Implementation
District, Sinking Bond
(AMBAC Insured)........... Aaa/AAA 9.500% 01/01/08 285,000 364,800
Intermountain Power Agency,
Utah Power Supply, Series
C, Sinking Bond........... A1/A+ 5.250% 07/01/14 150,000 152,625
-----------
517,425
-----------
WYOMING -- 0.8%
Wyoming Community
Development Authority,
Single Family Mortgage,
Series G Sinking Bond
(AMT), Callable on
11/26/01 @103............. Aa2/AA 7.200% 06/01/10 100,000 108,875
-----------
</TABLE>
- ---------------
See Notes to Financial Statements.
23
<PAGE> 233
<TABLE>
<CAPTION>
<S> <C>
MUNICIPAL BONDS -- (CONTINUED)
TOTAL INVESTMENTS -- 98.5%
(AMORTIZED COST
$13,249,600)(a) $14,042,708
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 1.5% 220,203
-----------
NET ASSETS -- 100.0%........ $14,262,911
===========
</TABLE>
- ---------------
Percentages indicated are based on net assets of $14,262,911.
(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................................. $797,846
Unrealized depreciation................................. (4,738)
--------
Net unrealized appreciation............................. $793,108
========
</TABLE>
<TABLE>
<S> <C>
AMBAC -- AMBAC Indemnity Corporation.
AMT -- Interest on securities subject to Federal Alternative
Minimum Tax.
ETM -- Escrowed to Maturity.
FGIC -- Financial Guaranty Insurance Company.
MBIA -- Municipal Bond Insurance Association.
TCRS -- Trust Certificate Receipts.
NR -- No rating assigned by Moody's or S&P.
</TABLE>
* Rate represents effective yield at date of purchase.
See Notes to Financial Statements.
24
<PAGE> 234
PACIFIC HORIZON CALIFORNIA TAX-EXEMPT BOND FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/
S&P
RATINGS MATURITY PRINCIPAL VALUE
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- --------
<S> <C> <C> <C> <C> <C>
MUNICIPAL BONDS -- 99.8%
CALIFORNIA -- 97.3%
ABAG Financial
Corporation,
Certificates of
Participation, Series A,
Callable on 6/1/00
@102.................... NR/A 6.250% 06/01/11 $1,000,000 $ 1,045,000
Alameda County
Certificates of
Participation, Capital
Projects (AMBAC
Insured), Callable on
6/1/07 @102............. Aaa/AAA 5.000% 06/01/22 2,150,000 2,101,625
Alameda County
Certificates of
Participation, Santa
Rita Jail Project, (MBIA
Insured), Callable on
12/1/03 @102............ Aaa/AAA 5.700% 12/01/14 3,000,000 3,180,000
Alameda County Water
District, Certificates
of Participation, Water
Systems Project (FGIC
Insured), Callable on
6/1/04 @102............. Aaa/AAA 6.000% 06/01/15 2,515,000 2,687,906
Bodega Bay Fire
Protection District,
Certificates of
Participation, Fire
Station Project,
Callable on 10/1/14
@102.................... NR/BBB- 6.450% 10/01/31 1,185,000 1,299,056
</TABLE>
- ---------------
See Notes to Financial Statements.
25
<PAGE> 235
<TABLE>
<CAPTION>
MOODY'S/
S&P
RATINGS MATURITY PRINCIPAL VALUE
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- --------
<S> <C> <C> <C> <C> <C>
MUNICIPAL BONDS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
California Health
Facilities Financing
Authority, Adventist
Health Systems West,
Series B (MBIA Insured),
Callable on 3/1/01
@102.................... Aaa/AAA 6.500% 03/01/07 $1,000,000 $ 1,083,750
California Health
Facilities Financing
Authority, Adventist
Health Systems, Series A
(MBIA Insured), Callable
on 3/1/01 @102.......... Aaa/AAA 7.000% 03/01/13 1,000,000 1,091,250
California Health
Facilities Financing
Authority, Kaiser
Permanente Medical Care,
Series A, Callable on
12/1/00 @102............ A2/A+ 6.500% 12/01/20 2,000,000 2,132,500
California Health
Facilities Financing
Authority, Sutter Health
Facilities, Series C
(FSA Insured), Callable
on 8/15/07 @102......... Aaa/AAA 5.125% 08/15/22 3,000,000 2,977,500
California Housing
Finance Agency (AMT)
(MBIA Insured), Callable
on 8/1/07 @102.......... Aaa/AAA 5.750% 02/01/29 3,000,000 3,120,000
California Housing
Finance Authority (AMT)
(MBIA Insured), Callable
on 8/1/07 @102.......... Aaa/AAA 5.650% 08/01/17 1,250,000 1,295,312
California Pollution
Control Financing
Authority, Pacific Gas &
Electric Co............. A1/AA- 6.625% 06/01/09 1,000,000 1,095,000
</TABLE>
- ---------------
See Notes to Financial Statements.
26
<PAGE> 236
<TABLE>
<CAPTION>
MOODY'S/
S&P
RATINGS MATURITY PRINCIPAL VALUE
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- --------
<S> <C> <C> <C> <C> <C>
MUNICIPAL BONDS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
California Pollution
Control Financing
Authority, Southern
California Edison,
Series A (AMT), Callable
on 9/1/99
@102.................... NR/A+ 6.900% 09/01/06 $1,000,000 $ 1,060,000
California Pollution
Control Financing
Authority, Southern
California Edison,
Series B (AMT), Callable
on 12/1/02 @102......... A1/A+ 6.400% 12/01/24 1,000,000 1,088,750
California State
Department of Water
Revenue, Residential
Central Valley Project,
Series S, Callable on
12/1/07 @101............ Aa2/AA 5.000% 12/01/17 2,000,000 1,972,500
California State
Department of Water
Revenue, Central Valley
Project, Series L,
Callable on 6/1/03
@101.5.................. Aa2/AA 5.700% 12/01/16 4,500,000 4,713,750
California State General
Obligation Bond
(AMBAC-TCRS Insured),
Callable on 5/1/04
@102.................... Aaa/AAA 6.000% 05/01/12 2,645,000 2,886,356
California State General
Obligation Bond (FGIC-
TCRS Insured), Callable
on 10/1/05 @101......... Aaa/AAA 5.250% 10/01/17 2,600,000 2,626,000
California State General
Obligation Bond......... A+/A1 6.750% 04/01/07 2,575,000 3,051,375
</TABLE>
- ---------------
See Notes to Financial Statements.
27
<PAGE> 237
<TABLE>
<CAPTION>
MOODY'S/
S&P
RATINGS MATURITY PRINCIPAL VALUE
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- --------
<S> <C> <C> <C> <C> <C>
MUNICIPAL BONDS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
California State Public
Works Board Lease
Revenue, Department of
Corrections, Series A
(AMBAC Insured),
Callable on 1/1/06
@102.................... Aaa/AAA 5.500% 01/01/10 $2,000,000 $ 2,145,000
California State Public
Works Board Lease
Revenue, Department of
Corrections, State
Prison, Series E,
Callable on 6/1/04
@102.................... A2/A 5.500% 06/01/19 7,970,000 8,139,362
Capital Area Development
Authority, Series A
(MBIA Insured), Callable
on 4/1/02 @102.......... Aaa/AAA 6.500% 04/01/12 1,000,000 1,096,250
Central Valley Financing
Authority, Cogeneration
Project, Carson Ice,
Callable on 7/1/03
@102.................... NR/BBB- 6.000% 07/01/09 3,000,000 3,183,750
Chino Unified School
District, Certificates
of Participation,
Convertible Capital
Appreciation Land
Acquisition, Series A
(FSA Insured), Callable
on 9/1/98 @93.713 (Zero
Coupon), due 9/1/14,
6.6% beginning 3/1/00... Aaa/AAA 2.520%* 09/01/14 2,000,000 1,945,000
Contra Costa Water
District, Series H,
Callable on 10/1/07
@100.................... A1/AA- 5.000% 10/01/22 4,000,000 3,900,000
</TABLE>
- ---------------
See Notes to Financial Statements.
28
<PAGE> 238
<TABLE>
<CAPTION>
MOODY'S/
S&P
RATINGS MATURITY PRINCIPAL VALUE
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- --------
<S> <C> <C> <C> <C> <C>
MUNICIPAL BONDS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
Del Mar Race Track
Revenue Authority,
Callable on 8/15/06
@102.................... NR/NR 6.000% 08/15/08 $1,000,000 $ 1,076,250
Del Mar Race Track
Revenue Authority,
Callable on 8/15/06
@102.................... NR/NR 6.200% 08/15/11 1,000,000 1,090,000
Del Mar Race Track
Revenue Authority,
Sinking Date 8/15/02
@100.................... NR/NR 6.000% 08/15/06 1,000,000 1,078,750
Delta County Home
Mortgage Financing
Authority, Single Family
Mortgage, Series A,
Callable on 6/1/02
@102.................... NR/AAA 6.750% 12/01/25 1,790,000 1,792,076
Duarte Certificates of
Participation, City of
Hope National Medical
Center, Callable on
4/1/03 @102............. Baa1/NR 6.000% 04/01/08 5,000,000 5,287,500
East Bay Municipal
Utility District Water
System (FGIC Insured),
Callable on 6/1/06
@102.................... Aaa/AAA 5.000% 06/01/16 3,000,000 2,977,500
Eastern Municipal Water
District California
Water and Sewer Revenue,
Certificates of
Participation (FGIC
Insured), Sinking Date
7/1/09 @100............. Aaa/AAA 6.750% 07/01/12 1,000,000 1,206,250
</TABLE>
- ---------------
See Notes to Financial Statements.
29
<PAGE> 239
<TABLE>
<CAPTION>
MOODY'S/
S&P
RATINGS MATURITY PRINCIPAL VALUE
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- --------
<S> <C> <C> <C> <C> <C>
MUNICIPAL BONDS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
Elsinore Valley Municipal
Water District,
Certificates of
Participation, Series A
(FGIC Insured), Sinking
Date 7/1/10 @100........ Aaa/AAA 6.000% 07/01/12 $1,500,000 $ 1,700,625
Emeryville Public
Financing Authority,
Emeryville Redevelopment
Project, Series A,
Callable on 5/1/02
@102.................... NR/A- 6.500% 05/01/21 1,500,000 1,627,500
Escondido Joint Powers
Financing Authority
Lease Revenue,
California Center for
the Arts, (AMBAC
Insured), Callable on
9/1/05 @102............. Aaa/AAA 6.000% 09/01/18 1,500,000 1,627,500
Foothill/Eastern Corridor
Agency, California Toll
Road Revenue Bond,
Series A, Callable on
1/1/10 @100............. Baa/BBB- 6.000% 01/01/16 3,000,000 3,225,000
Fremont Public Financing
Authority, Local
Improvement District
39R, Callable on 9/2/98
@102.................... NR/NR 6.000% 09/01/11 1,965,000 2,010,470
Fresno Health Facilities
Agency, Holy Cross
Health Systems, St.
Agnes Project, Callable
on 6/1/02 @102.......... Aa3/AA 6.625% 06/01/21 2,450,000 2,676,625
Fresno Sewer, Series A-1
(AMBAC Insured), Sinking
Date 9/1/11 @100........ Aaa/AAA 6.250% 09/01/14 5,000,000 5,818,750
</TABLE>
- ---------------
See Notes to Financial Statements.
30
<PAGE> 240
<TABLE>
<CAPTION>
MOODY'S/
S&P
RATINGS MATURITY PRINCIPAL VALUE
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- --------
<S> <C> <C> <C> <C> <C>
MUNICIPAL BONDS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
Industrial Urban
Development Agency, Tax
Allocation
Transportation District,
Project 3, Callable on
11/1/02 @101.75......... NR/A- 6.900% 11/01/16 $1,000,000 $ 1,096,250
Irvine Ranch Water
District, Joint Powers
Agency, Issue II,
Callable on 8/15/98
@100.................... NR/A+ 8.250% 08/15/23 2,400,000 2,443,752
Long Beach Harbor Revenue
(AMT) (MBIA Insured),
Callable on 5/15/05
@102.................... Aaa/AAA 5.375% 05/15/20 4,000,000 4,035,000
Los Angeles Convention &
Exhibition Center
Authority, Series A
(MBIA Insured).......... Aaa/AAA 6.000% 08/15/10 3,000,000 3,420,000
Los Angeles County
Metropolitan
Transportation
Authority, Sales Tax
Revenue, Proposition
C-2nd, Series A (AMBAC
Insured), Callable on
7/1/05 @100............. Aaa/AAA 5.000% 07/01/25 3,500,000 3,403,750
Los Angeles County
Transportation Community
Sales Tax Revenue,
Series A, Callable on
7/1/99 @102............. A1/AA- 7.400% 07/01/15 2,000,000 2,132,500
Los Angeles County
Transportation Community
Sales Tax Revenue,
Series B, Callable on
7/1/01 @102............. A1/AA- 6.500% 07/01/13 2,500,000 2,693,750
</TABLE>
- ---------------
See Notes to Financial Statements.
31
<PAGE> 241
<TABLE>
<CAPTION>
MOODY'S/
S&P
RATINGS MATURITY PRINCIPAL VALUE
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- --------
<S> <C> <C> <C> <C> <C>
MUNICIPAL BONDS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
Los Angeles County,
Sanitation District
Financing Authority,
Revenue Capital
Projects, Series A,
Callable on 10/1/03
@102.................... Aa/AA 5.375% 10/01/13 $1,500,000 $ 1,543,125
Los Angeles Department of
Water & Power, Callable
on 4/15/03 @102......... Aa/A+ 5.750% 04/15/12 2,000,000 2,105,000
Los Angeles General
Obligation Bond, Series
A (MBIA Insured),
Callable on 9/1/04
@102.................... Aaa/AAA 6.000% 09/01/11 2,000,000 2,202,500
Los Angeles Harbor
Department, Series B
(AMT), Callable on
8/1/02 @102............. Aa3/AA 6.625% 08/01/25 2,000,000 2,182,500
Manhattan Beach Unified
School District,
Certificates of
Participation,
Convertible Capital
Appreciation, Series B
(MBIA Insured), Callable
on 8/1/05
@102 (Zero Coupon), due
8/1/20, 6.5% beginning
8/1/00.................. Aaa/AAA 6.350%* 08/01/20 2,000,000 1,862,500
Metropolitan Water
District, Southern
California Waterworks,
Series 1993A, Sinking
Date 7/1/14 @100........ Aa2/AA 5.750% 07/01/21 4,500,000 4,989,375
</TABLE>
- ---------------
See Notes to Financial Statements.
32
<PAGE> 242
<TABLE>
<CAPTION>
MOODY'S/
S&P
RATINGS MATURITY PRINCIPAL VALUE
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- --------
<S> <C> <C> <C> <C> <C>
MUNICIPAL BONDS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
Metropolitan Water
District, Southern
California Waterworks,
Series 1995A (MBIA
Insured), Callable on
7/1/05 @102............. Aaa/AAA 5.750% 07/01/21 $3,000,000 $ 3,176,250
Natomas Unified School
District, Series A...... Aaa/AAA 5.750% 09/01/17 1,000,000 1,052,500
Northern California
Transmission, Ore
Transmission Project,
Series A (MBIA Insured),
Callable on 5/1/02
@102.................... Aaa/AAA 6.250% 05/01/10 2,000,000 2,170,000
Northridge Water
District, Certificates
of Participation (AMBAC
Insured), Callable on
2/1/06 @102............. Aaa/AAA 5.250% 02/01/18 2,500,000 2,518,750
Orange County Community
Facilities District,
Special Tax No. 86-1
(FSA Insured), Callable
on 8/15/99 @102......... Aaa/AAA 7.125% 08/15/17 1,500,000 1,593,750
Orange County Community
Facilities District,
Special Tax No. 87-4.... NR/AAA 7.200% 08/15/08 2,000,000 2,287,500
Pasadena Community
Multi-Family Housing,
Civic Center, Series A
(AMT) (FSA Insured),
Callable on 12/1/02
@102.................... Aaa/AAA 6.400% 12/01/12 2,500,000 2,650,000
Port Oakland, Port
Authority, Series H
(AMT) (MBIA Insured),
Callable on 11/1/07
@102.................... Aaa/AAA 5.500% 11/01/15 5,000,000 5,212,500
</TABLE>
- ---------------
See Notes to Financial Statements.
33
<PAGE> 243
<TABLE>
<CAPTION>
MOODY'S/
S&P
RATINGS MATURITY PRINCIPAL VALUE
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- --------
<S> <C> <C> <C> <C> <C>
MUNICIPAL BONDS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
Poway Certificates of
Participation,
Poinsettia Mobilehome
Park (FSA Insured),
Callable on 6/1/02
@102.................... Aaa/AAA 6.375% 06/01/18 $2,500,000 $ 2,703,125
Rancho Water District
Financing Authority
(AMBAC Insured),
Callable on 8/15/01
@101.5.................. Aaa/AAA 6.400% 08/15/04 1,000,000 1,093,750
Rancho Water District
Financing Authority
(FGIC Insured), Callable
on 11/1/05 @102......... Aaa/AAA 5.900% 11/01/15 2,000,000 2,180,000
Sacramento Power
Authority Cogeneration
Project, Callable on
7/1/06 @102............. NR/BBB- 5.875% 07/01/15 2,900,000 3,055,875
San Diego County Water
Authority, Certificates
of Participation, Series
A, Callable on 5/1/01
@102.................... Aa3/AA- 6.400% 05/01/08 2,000,000 2,177,500
San Diego Industrial
Development, San Diego
Gas & Electric, Series
A, Callable on 9/1/02
@102.................... A1/A+ 6.400% 09/01/18 1,500,000 1,610,625
San Diego Special Tax
Community Facilities
District No. 1, Series
B, Callable on 9/1/05
@102.................... NR/NR 7.000% 09/01/15 2,000,000 2,162,500
San Francisco Bay Area
Rapid Transit District
Sale Tax Revenue (FGIC
Insured), Callable on
7/1/05 @101............. Aaa/AAA 5.500% 07/01/20 1,095,000 1,127,850
</TABLE>
- ---------------
See Notes to Financial Statements.
34
<PAGE> 244
<TABLE>
<CAPTION>
MOODY'S/
S&P
RATINGS MATURITY PRINCIPAL VALUE
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- --------
<S> <C> <C> <C> <C> <C>
MUNICIPAL BONDS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
San Francisco California
State Building Authority
Lease Revenue, General
Service, Series A (MBIA
Insured)................ Aaa/AAA 5.000% 10/01/08 $1,000,000 $ 1,057,500
San Francisco City &
County Airport,
Community International
Airport, Second Series
Issue 10A (AMT) (MBIA
Insured), Callable on
5/1/06 @102............. Aaa/AAA 5.700% 05/01/26 3,000,000 3,127,500
San Francisco City &
County Airport,
Community International
Airport, Second Series
Issue 2 (MBIA Insured),
Callable on 5/1/03
@102.................... Aaa/AAA 6.750% 05/01/13 1,730,000 1,952,738
San Francisco City &
County Public Utilities,
Series A, Callable on
11/1/02 @100............ Aa/AA- 6.000% 11/01/15 1,000,000 1,053,750
San Joaquin County
Certificates of
Participation, Capital
Facilities Project (MBIA
Insured), Sinking Date
11/15/11 @100........... Aaa/AAA 5.500% 11/15/13 1,750,000 1,894,375
San Joaquin Hills
Transportation Corridor
Agency Toll Road
Revenue, Series A,
Callable 1/15/14 @102
(Zero Coupon), due
11/15/12, 5.6%,
beginning 1/15/07....... Baa3/BBB- 5.570%* 01/15/16 3,000,000 1,946,250
</TABLE>
- ---------------
See Notes to Financial Statements.
35
<PAGE> 245
<TABLE>
<CAPTION>
MOODY'S/
S&P
RATINGS MATURITY PRINCIPAL VALUE
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- --------
<S> <C> <C> <C> <C> <C>
MUNICIPAL BONDS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
San Jose Financing
Authority, Convention
Center Project, Series
C....................... A1/A+ 6.400% 09/01/17 $3,000,000 $ 3,198,750
San Jose Redevelopment
Agency, Tax Allocation,
Merged Area
Redevelopment Project
(MBIA Insured).......... Aaa/AAA 6.000% 08/01/15 3,670,000 4,160,863
Santa Ana Financing
Authority, Police
Administration and
Holding Facility, Series
A (MBIA Insured),
Callable on 7/1/04
@102.................... Aaa/AAA 5.625% 07/01/09 1,130,000 1,214,750
Scotts Valley Unified
School District, Series
B (FGIC Insured),
Callable on 8/1/05
@102.................... Aaa/NR 5.375% 08/01/17 1,295,000 1,325,756
Southern California
Public Power Authority,
Power Project........... A/A 6.750% 07/01/13 1,000,000 1,183,750
Southern California Rapid
Transit District,
Certificates of
Participation, Workers
Compensation Fund (MBIA
Insured), Callable on
1/1/01 @102.5........... Aaa/AAA 6.000% 07/01/10 1,000,000 1,065,000
Thousand Oaks
Redevelopment Agency,
Thousand Oaks Boulevard
Redevelopment (MBIA
Insured), Callable on
12/1/05 @102............ Aaa/AAA 5.250% 12/01/08 1,370,000 1,459,050
</TABLE>
- ---------------
See Notes to Financial Statements.
36
<PAGE> 246
<TABLE>
<CAPTION>
MOODY'S/
S&P
RATINGS MATURITY PRINCIPAL VALUE
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- --------
<S> <C> <C> <C> <C> <C>
MUNICIPAL BONDS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
Thousand Oaks
Redevelopment Agency,
Thousand Oaks Boulevard
Redevelopment (MBIA
Insured), Callable on
12/1/05 @102............ Aaa/AAA 5.400% 12/01/09 $1,290,000 $ 1,378,688
Turlock Industrial
Refunded Revenue
District, Series A (MBIA
Insured)................ Aaa/AAA 6.000% 01/01/09 2,000,000 2,270,000
Union City Community
Redevelopment Agency,
Tax Allocation
Redevelopment Project
(AMBAC Insured),
Callable on 10/1/03
@102.................... Aaa/AAA 5.850% 10/01/23 1,250,000 1,323,438
University of California,
Hospital Medical Center
(AMBAC Insured),
Callable on 7/1/06
@101.................... Aaa/AAA 5.750% 07/01/24 5,000,000 5,300,000
University of California,
Hospital Medical Center
(AMBAC Insured),
Callable on 7/1/06
@101.................... Aaa/AAA 6.000% 07/01/26 3,500,000 3,793,125
West Covina Redevelopment
Agency, Community
Facilities Special Tax,
Fashion Plaza, Sinking
Date 9/1/10 @100........ NR/A 6.000% 09/01/17 3,000,000 3,315,000
Westwood Unified School
District, Callable on
8/1/06 @102............. NR/BBB 6.500% 08/01/21 1,025,000 1,105,719
------------
208,120,267
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
37
<PAGE> 247
<TABLE>
<CAPTION>
MOODY'S/
S&P
RATINGS MATURITY PRINCIPAL VALUE
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- --------
<S> <C> <C> <C> <C> <C>
MUNICIPAL BONDS -- (CONTINUED)
PUERTO RICO -- 2.5%
Puerto Rico Electric
Power Authority, Series
U, Callable on 7/1/04
@102.................... Baa1/BBB+ 6.000% 07/01/14 $5,000,000 $ 5,437,500
------------
TOTAL INVESTMENTS --
99.8% (COST
$197,962,891)(A)........ 213,557,767
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 0.2%..... 427,209
------------
NET ASSETS -- 100.0%..... $213,984,976
============
</TABLE>
- ---------------
Percentage indicated are based on net assets of $213,984,976.
(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.............................. $15,627,831
Unrealized depreciation.............................. (32,955)
-----------
Net unrealized appreciation.......................... $15,594,876
===========
AMBAC -- AMBAC Indemnity Corporation.
AMT -- Interest on securities subject to Federal Alternative
Minimum Tax.
FGIC -- Financial Guaranty Insurance Company.
FSA -- Financial Security Assurance Inc.
MBIA -- Municipal Bond Insurance Association.
TCRS -- Trust Certificate Receipts.
NR -- No rating assigned by Moody's or S&P.
</TABLE>
* Rate represents effective yield at date of purchase.
See Notes to Financial Statements.
38
<PAGE> 248
PACIFIC HORIZON NATIONAL MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (cost $13,249,600).... $14,042,708
Cash...................................................... 19,778
Interest receivable....................................... 176,313
Receivable for capital shares sold........................ 128,287
Deferred organizational costs............................. 8,353
-----------
Total Assets................................................ 14,375,439
-----------
LIABILITIES:
Dividends payable......................................... 13,680
Payable for capital shares redeemed....................... 22,224
Shareholder service fees payable (A Shares)............... 1,307
Custodian and fund accounting fees payable................ 12,609
Transfer agent fees payable............................... 13,304
Other accrued expenses.................................... 49,404
-----------
Total Liabilities........................................... 112,528
-----------
NET ASSETS.................................................. $14,262,911
===========
Shares Outstanding ($0.001 par value, 200 million shares
authorized)............................................... 1,355,717
===========
NET ASSET VALUE
Net asset value and redemption price per share............ $ 10.52
===========
Maximum Sales Charge...................................... 4.50%
Maximum Offering Price Per Share
(Net Asset Value of Shares/ (100% -- Maximum Sales
Charge)).............................................. $ 11.02
===========
COMPOSITION OF NET ASSETS:
Shares of common stock, at par............................ $ 1,355
Additional paid-in capital................................ 13,458,223
Accumulated undistributed net investment income........... 5,033
Accumulated net realized gains on investment
transactions............................................ 5,192
Net unrealized appreciation on investments................ 793,108
-----------
NET ASSETS, FEBRUARY 28, 1998............................... $14,262,911
===========
</TABLE>
- ---------------
See Notes to Financial Statements.
39
<PAGE> 249
PACIFIC HORIZON CALIFORNIA TAX-EXEMPT BOND FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (cost $197,962,891)... $213,557,767
Cash...................................................... 708,955
Interest receivable....................................... 2,952,019
Receivable for capital shares sold........................ 42,351
------------
Total Assets................................................ 217,261,092
------------
LIABILITIES:
Dividends payable......................................... 347,066
Payable for capital shares redeemed....................... 2,645,836
Investment advisory fees payable.......................... 50,074
Administration fees payable............................... 33,488
Shareholder service fees payable (A Shares)............... 41,724
Custodian and fund accounting fees payable................ 24,581
Transfer agent fees payable............................... 46,025
Legal fees payable........................................ 2,625
Other accrued expenses.................................... 84,697
------------
Total Liabilities........................................... 3,276,116
------------
NET ASSETS.................................................. $213,984,976
============
Shares Outstanding ($0.001 par value, 200 million shares
authorized)............................................... 28,026,050
============
NET ASSET VALUE
Net asset value and redemption price per share............ $ 7.64
============
Maximum Sales Charge...................................... 4.50%
Maximum Offering Price Per Share (Net Asset Value / (100%
-- Maximum Sales Charge))............................... $ 8.00
============
COMPOSITION OF NET ASSETS:
Shares of common stock, at par............................ $ 28,026
Additional paid-in capital................................ 195,837,716
Accumulated undistributed net investment income........... 291,783
Accumulated net realized gains on investment
transactions............................................ 2,232,575
Net unrealized appreciation on investments................ 15,594,876
------------
NET ASSETS, FEBRUARY 28, 1998............................... $213,984,976
============
</TABLE>
- ---------------
See Notes to Financial Statements.
40
<PAGE> 250
PACIFIC HORIZON NATIONAL MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the year ended February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................. $ 741,566
----------
EXPENSES:
Investment advisory fees.................................. 48,653
Administration fees....................................... 27,802
Shareholder service fees (A Shares)....................... 34,753
Custodian and fund accounting fees........................ 35,620
Transfer agent fees....................................... 32,539
Registration and filing fees.............................. 24,289
Organizational expense.................................... 15,330
Legal fees................................................ 2,717
----------
Total Expenses.......................................... 221,703
Less: Fee waivers and reimbursements........................ (150,430)
Expenses paid by third parties.......................... (1,851)
----------
Total Net Expenses.......................................... 69,422
----------
NET INVESTMENT INCOME....................................... 672,144
----------
NET REALIZED/UNREALIZED GAINS ON INVESTMENTS:
Net realized gain on investment transactions.............. 37,910
Net change in unrealized appreciation on investments...... 410,519
----------
Net realized/unrealized gains on investments................ 448,429
----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $1,120,573
==========
</TABLE>
- ---------------
See Notes to Financial Statements.
41
<PAGE> 251
PACIFIC HORIZON CALIFORNIA TAX-EXEMPT BOND FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the year ended February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................. $12,380,912
-----------
EXPENSES:
Investment advisory fees.................................. 828,272
Administration fees....................................... 608,975
Shareholder service fees (A Shares)....................... 548,249
Custodian and fund accounting fees........................ 84,035
Transfer agent fees....................................... 124,331
Legal fees................................................ 14,426
Other expenses............................................ 118,006
-----------
Total Expenses.......................................... 2,326,294
Less: Fee waivers......................................... (340,754)
Expenses paid by third parties.......................... (6,195)
-----------
Total Net Expenses........................................ 1,979,345
-----------
NET INVESTMENT INCOME....................................... 10,401,567
-----------
NET REALIZED/UNREALIZED GAINS ON INVESTMENTS:
Net realized gain on investment transactions.............. 2,654,339
Net change in unrealized appreciation on investments...... 6,125,217
-----------
Net realized/unrealized gains on investments................ 8,779,556
-----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $19,181,123
===========
</TABLE>
42
<PAGE> 252
PACIFIC HORIZON NATIONAL MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 28, FEBRUARY 28,
1998 1997
------------ ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income............................ $ 672,144 $ 696,493
Net realized gains on investment transactions.... 37,910 20,105
Net change in unrealized appreciation on
investments.................................... 410,519 107,766
----------- -----------
Change in net assets resulting from operations..... 1,120,573 824,364
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
A Shares....................................... (672,117) (691,409)
K Shares....................................... (27) (28)(a)
Net realized gains from investment transactions:
A Shares....................................... (28,694) (43,317)
K Shares....................................... -- (3)(a)
----------- -----------
Change in net assets from shareholder
distributions.................................... (700,838) (734,757)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued...................... 4,473,013 7,848,104
Dividends reinvested............................. 558,840 512,621
Cost of shares redeemed.......................... (6,603,381) (5,278,031)
----------- -----------
Change in net assets from capital share
transactions..................................... (1,571,528) 3,082,694
----------- -----------
Change in net assets............................... (1,151,793) 3,172,301
NET ASSETS
Beginning of Year................................ 15,414,704 12,242,403
----------- -----------
End of Year (including undistributed net
investment income of $5,033 and $5,282,
respectively).................................. $14,262,911 $15,414,704
=========== ===========
</TABLE>
- ---------------
(a) Period from July 22, 1996 (inception date) through February 28, 1997.
See Notes to Financial Statements.
43
<PAGE> 253
PACIFIC HORIZON CALIFORNIA TAX-EXEMPT BOND FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 28, FEBRUARY 28,
1998 1997
------------ ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income............................. $10,401,567 $ 10,448,373
Net realized gains on investment transactions..... 2,654,339 358,663
Net change in unrealized appreciation
(depreciation) on investments................... 6,125,217 (1,868,867)
------------ ------------
Change in net assets resulting from operations.... 19,181,123 8,938,169
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
A Shares........................................ (10,401,540) (10,448,345)
K Shares........................................ (27) (28)(a)
Net realized gains from investment transactions:
A Shares........................................ (414,788) (1,489,041)
K Shares........................................ -- (7)(a)
------------ ------------
Change in net assets from shareholder
distributions..................................... (10,816,355) (11,937,421)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued....................... 31,684,108 43,958,663
Dividends reinvested.............................. 6,597,508 6,765,701
Cost of shares redeemed........................... (53,772,246) (47,755,621)
------------ ------------
Change in net assets from capital share
transactions...................................... (15,490,630) 2,968,743
------------ ------------
Change in net assets................................ (7,125,862) (30,509)
NET ASSETS
Beginning of Year................................. 221,110,838 221,141,347
------------ ------------
End of Year (Including undistributed net
investment income of $291,783 and $188,743,
respectively)................................... $213,984,976 $221,110,838
============ ============
</TABLE>
- ---------------
(a) Period from July 22, 1996 (inception date) through February 28, 1997.
See Notes to Financial Statements.
44
<PAGE> 254
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, 1998, the Company
operated as a series company comprised of seventeen funds. The accompanying
financial statements and notes are those of the Pacific Horizon National
Municipal Bond Fund (the "National Municipal Bond Fund") and the Pacific Horizon
California Tax-Exempt Bond Fund (the "California Tax-Exempt Bond Fund"),
collectively the "Funds", individually a "Fund". The Funds offer A Shares and
have a Shareholder Services Plan. During the fiscal year ended February 28, 1998
the Funds' former administrator redeemed 106 shares and 146 shares,
respectively, of K Shares of National Municipal Bond Fund and California
Tax-Exempt Bond Fund valued at $1,096 and $1,094, respectively, which resulted
in a complete liquidation of this class of shares.
The Funds seek to achieve a high level of current income exempt from Federal
income tax and in the case of the California Tax-Exempt Bond Fund, exempt from
California State personal income tax as well, as is consistent with prudent
investment management and preservation of capital.
Prior to July 1, 1996, the National Municipal Bond Fund sought to achieve
its investment objective by investing substantially all of its assets in the
National Municipal Bond Portfolio of the Master Investment Trust, Series II (the
"Portfolio"), an open-end management investment company that had the same
investment objective as that of the National Municipal Bond Fund. Effective July
1, 1996, the National Municipal Bond Fund withdrew its investment in the
Portfolio and began investing its assets directly in investment securities.
ADMINISTRATOR
Bank of America National Trust and Savings Association ("Bank of America"),
a subsidiary of BankAmerica Corporation, serves as the Funds' investment
adviser. On September 15, 1997, Bank of America assumed the responsibility of
administrator for each of the Funds pursuant to the terms of an Administration
Agreement between the Company and Bank of America (the "Administration
Agreement"). Prior to September 15, 1997, The BISYS Group, Inc. ("BISYS")
through its wholly-owned subsidiary, BISYS Fund Services, Limited Partnership,
served as the Funds' administrator.
45
<PAGE> 255
Bank of America entered into an agreement with PFPC Inc. ("PFPC"), an
indirect wholly-owned subsidiary of PNC Bank Corp., pursuant to which PFPC has
agreed to provide certain sub-administration services to the Funds, including,
but not limited to, assisting in the developing and monitoring of compliance
procedures, participating in periodic updating of the Funds' prospectuses and
statements of additional information, providing periodic reports to the
Company's Board and providing certain record-keeping services. Bank of America
will bear all fees and expenses charged by PFPC for such services.
In addition, pursuant to authority granted in the Administration Agreement,
Bank of America has entered into an agreement with The Bank of New York ("BONY")
under which BONY has agreed to provide certain accounting, bookkeeping, pricing
and dividend and distribution calculation services for the Funds. The Funds bear
all fees and expenses charged by BONY for these services.
DISTRIBUTOR AND TRANSFER AGENT
Effective September 15, 1997, Provident Distributors, Inc. ("PDI"), assumed
responsibility as principal underwriter and distributor of shares of the Funds.
Prior to such date, Concord Financial Group, Inc., (the "Former Distributor") a
wholly-owned subsidiary of BISYS served the Funds as distributor. Additionally,
on October 24, 1997, PFPC assumed responsibility as the Funds' transfer agent
and dividend disbursing agent. BISYS Fund Services, Inc. ("BISYS Ohio") also a
wholly-owned subsidiary of BISYS served the Funds in such capacity prior to such
date.
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. These policies are
in conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
PORTFOLIO VALUATIONS:
The Funds value portfolio securities each business day through the use of an
independent pricing service approved by the Board of Directors. When, in the
judgement of the pricing service, quoted bid prices for portfolio securities are
readily available and are representative of the bid side of the market, these
investments are valued at the mean between quoted bid prices (as obtained by
46
<PAGE> 256
the pricing service from dealers in such securities) and ask prices (as
calculated by the pricing service based upon its evaluation of the market for
such securities). Other investments are valued as determined by the pricing
service, through the use of electronic data processing techniques and matrix
systems. Restricted securities for which market quotations are not readily
available, if any, are valued at fair value using methods approved by the Board
of Directors. Securities with remaining maturities of 60 days or less are valued
at amortized cost, which approximates market value.
SECURITIES TRANSACTIONS AND RELATED INCOME:
The Funds record security transactions on a trade date basis. Interest
income, including accretion of discount and amortization of premiums, is accrued
daily. Realized gains and losses from security transactions are recorded on an
identified cost basis. Securities purchased or sold on a when-issued or delayed
delivery basis may be settled a month after the trade date.
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 National Municipal Bond Fund incurred certain costs in connection with
its organization. Such costs have been deferred and are being amortized by the
Fund on a straight line basis over five years.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
The Funds' net investment income is declared as a dividend daily, and paid
monthly, 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 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
47
<PAGE> 257
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, 1998, the following reclassifications have been made to
increase (decrease) such accounts with offsetting adjustments made to paid-in
capital:
<TABLE>
<CAPTION>
ACCUMULATED UNDISTRIBUTED
NET INVESTMENT INCOME
-------------------------
<S> <C>
National Municipal Bond Fund......................... $ (249)
California Tax-Exempt Bond Fund...................... 103,040
</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 at
least annually, all of its net investment company taxable income and net capital
gains to shareholders. Therefore, no Federal income tax provision is required.
OTHER:
The National Municipal Bond Fund and the California Tax-Exempt Bond Fund
maintain a cash balance with their custodian and receive a reduction of their
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,
1998, custodian fees and expenses paid by third parties were increased by $1,851
and $6,195, respectively. There was no effect on net investment income. The
Funds could have invested such cash amounts in income producing assets if they
had not agreed to a reduction of fees or expenses under the expense offset
arrangement with their custodian.
NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
The Funds have an Investment Advisory and Administration Agreement with Bank
of America. Pursuant to the terms of the Investment Advisory Agreement, Bank of
America is entitled to a fee from the Funds, which is accrued daily
48
<PAGE> 258
and payable monthly, at an annual rate of 0.35% and 0.40% of the National
Municipal Bond Fund's and California Tax-Exempt Bond Fund's average daily net
assets, respectively. For the year ended February 28, 1998, Bank of America
waived $48,653 and $194,717 of Investment Advisory fees from the National
Municipal Bond Fund and California Tax-Exempt Bond Fund, respectively. Pursuant
to the terms of the Administration Agreement, Bank of America is entitled to a
fee from the Funds, which is accrued daily and payable monthly, at an annual
rate of 0.20% and 0.30% of the average daily net assets of the National
Municipal Bond Fund and California Tax-Exempt Bond Fund, respectively. For the
period ended September 15, 1997, the Funds had an Administration Agreement with
BISYS. Pursuant to the terms of the former administration agreement, BISYS was
entitled to the same fee in effect under the current Administration agreement
for administrative services provided. Bank of America and BISYS voluntarily
waived a portion of respective fees totaling $12,714 and $15,088 for the
National Municipal Bond Fund and $43,399 and $102,638 for the California
Tax-Exempt Bond Fund, respectively. For the year ended February 28, 1998, Bank
of America reimbursed $41,459 of operating expenses of the National Municipal
Bond Fund.
For the year ended February 28, 1998, PDI and the Former Distributor advised
the Funds that it retained $1,970 and $7,840, respectively, from commissions
earned on sales of the National Municipal Bond Fund's and California Tax Exempt
Bond Fund's shares, respectively. For the same period, Bank of America and its
affiliates advised the Funds that they retained $15,655 and $56,751,
respectively, from commissions earned on sales of the National Municipal Bond
Fund's and California Tax-Exempt Bond Fund's shares, respectively.
The Funds have a Shareholder Services Plan (the "Plan") under which each
Fund pays for shareholder servicing expenses related to the Funds' shares. Under
the Plan, payments for shareholder servicing expenses may not exceed 0.25% of
each Fund's average daily net assets for A Shares. The Plan provides that if, in
any month, the fees paid to PDI and the Former Distributor are less than the
costs incurred by PDI and the Former Distributor, the excess costs will be
included in future computations of the fee, provided that any excess costs will
not be carried forward beyond the end of the fiscal year in which such excess
costs were incurred. For the year ended February 28, 1998, the National
Municipal Bond Fund and California Tax-Exempt Bond Fund incurred charges of
$34,753 and $548,249, respectively, pursuant to the Plan. The Funds were advised
that of these amounts, PDI retained $13 from the National Municipal Bond Fund,
PDI and the Former Distributor retained $80,933 and $113,667, respectively, from
the California Tax-Exempt Bond Fund, and affiliates of Bank of America retained
$2,159 and $313,116 from the National Municipal Bond
49
<PAGE> 259
Fund and California Tax-Exempt Bond Fund, respectively. For the year ended
February 28, 1998, PDI and the Former Distributor waived $32,516 for the
National Municipal Bond Fund.
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 PDI and the Former
Distributor for expenses primarily intended to result in the sale of the Funds'
K Shares. Under the Distribution Plan, payments by the Funds for the
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 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.
From the period October 24, 1997 through February 28, 1998, PFPC earned
$9,366 and $43,022 from the National Municipal Bond Fund and California Tax-
Exempt Bond Fund, respectively, for transfer agency and dividend disbursing
agency services performed. BISYS Ohio served the Funds as transfer agent and
dividend disbursing agent through October 24, 1997. In these capacities, BISYS
Ohio earned $23,173 and $81,309 from the National Municipal Bond Fund and
California Tax-Exempt Bond Fund, respectively, for the period March 1, 1997
through October 24, 1997.
For the year ended February 28, 1998, the National Municipal Bond Fund and
California Tax-Exempt Bond Fund incurred legal charges totaling $2,717 and
$14,426, 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 PFPC. 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 $50,000,
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
50
<PAGE> 260
$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 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 will
receive an additional 10% of their annual Director's retainer for each year of
service between years six and nine, plus one half of the difference between 100%
and the director's applicable percentage. A Director who dies or resigns after
ten 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 after February 28,
1994; however, a director in office on March 18, 1998 who either resigns in good
standing or dies before completing five years of services as a director should
be assigned an Applicable Percentage of 50 percent. Aggregate costs pursuant to
the Retirement Plan amounted to $1,778 and $1,786 for the National Municipal
Bond Fund and California Tax-Exempt Bond Fund, respectively, for the year ended
February 28, 1998. A director who comes into office after March 18, 1998 is
ineligible to participate in the Retirement Plan.
NOTE 5 -- SECURITIES TRANSACTIONS
For the year ended February 28, 1998, the cost of purchases and the proceeds
from sales of the National Municipal Bond Fund's portfolio securities (excluding
short-term investments) amounted to $5,042,517 and $6,623,505, respectively, and
the cost of purchases and the proceeds from sales of California Tax-Exempt Bond
Fund's portfolio securities (excluding short-term investments) amounted to
$59,791,653 and $72,342,424, respectively.
51
<PAGE> 261
NOTE 6 -- CAPITAL SHARE TRANSACTIONS
Transactions in capital shares for the Funds are summarized below:
<TABLE>
<CAPTION>
NATIONAL MUNICIPAL BOND FUND CALIFORNIA TAX-EXEMPT BOND FUND
------------------------------------ --------------------------------------
YEAR ENDED YEAR ENDED
FEBRUARY 28,
1998 FEBRUARY 28, 1997 FEBRUARY 28, 1998 FEBRUARY 28, 1997
---------------- ----------------- ----------------- ------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------- ------ -------- ------ -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
A SHARES (000'S)
Issued................. 432 $4,473 784 $ 7,850 4,291 $31,684 6,009 $ 43,958
Reinvested............. 54 558 51 513 885 6,597 926 6,766
Redeemed............... (645) (6,602) (527) (5,278) (7,234) (53,771) (6,548) (47,756)
---- ------- ---- -------- ------ -------- ------- --------
Net
increase/(decrease).... (159) $(1,571) 308 $ 3,085 (2,058) $(15,490) 387 $ 2,968
==== ======= ==== ======== ====== ======== ======= ========
K SHARES
Issued................. -- $ -- 100 $ 1,000 -- $ -- 138 $ 1,000
Reinvested............. 3 31 3 28 4 31 4 31
Redeemed............... (106) (1,096) -- -- (146) (1,094) -- --
---- ------- ---- -------- ------ -------- ------- --------
Net
increase/(decrease).... (103) $(1,065) 103 $ 1,028(a) (142) $(1,063) 142 $ 1,031(a)
==== ======= ==== ======== ====== ======== ======= ========
</TABLE>
- ---------------
(a) Period from July 22, 1996 (inception date) to February 28, 1997.
NOTE 7 -- CONCENTRATION OF CREDIT RISK
The California Tax-Exempt Bond Fund invests substantially all of its assets
in a diversified portfolio of tax-exempt debt obligations primarily consisting
of issuers in the State of California. The issuers' ability to meet their
obligations may be affected by California economic or political developments.
The National Municipal Bond Fund invests substantially all of its assets in
debt obligations issued by or on behalf of states, territories and possessions
of the United States, the District of Columbia, and their respective
authorities, agencies, instrumentality's, and political sub-divisions.
52
<PAGE> 262
The Funds had the following concentrations by type of obligation at February
28, 1998 (as a percentage of total investments).
<TABLE>
<CAPTION>
NATIONAL CALIFORNIA
MUNICIPAL TAX-EXEMPT
BOND BOND
--------- ----------
<S> <C> <C>
Air Transportation..................................... --% 2.4%
Airport Facilities..................................... 9.1 0.9
Certificates of Participation.......................... 0.6 3.3
Education.............................................. 3.5 2.3
General Obligations.................................... 2.8 3.6
Health & Medical Facilities............................ 2.6 8.6
Home Building and Land Development..................... 4.6 3.3
Industrial Development................................. 4.5 2.0
Leases................................................. 1.9 1.6
Leasing................................................ -- 1.9
Parking Facilities..................................... 3.7 --
Pollution Control Revenue & Industrial Development..... -- 8.2
Power Projects......................................... -- 2.0
Property Redevelopment................................. 1.6 1.6
Public Facilities...................................... -- 5.9
Revenue................................................ 42.2 34.4
Sales Tax Revenue...................................... 0.4 3.9
Sewer Projects......................................... 1.1 --
Tax Revenue Anticipation Notes......................... 3.7 1.7
Transportation......................................... 4.8 2.0
Utilities.............................................. 8.1 2.5
Water & Power Projects................................. 4.8 7.9
----- -----
100.0% 100.0%
===== =====
</TABLE>
53
<PAGE> 263
PACIFIC HORIZON NATIONAL MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD
YEAR ENDED ENDED
--------------------------------------------------------------- ------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997(A) 1996 1995 1994(b)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
A SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR............... $ 10.18 $ 10.15 $ 9.64 $ 9.89 $ 10.00
-------- -------- -------- -------- --------
Income from investment
operations:
Net investment income............ 0.50 0.50 0.54 0.50 0.01
Net realized and unrealized
gains/(losses) on investment
transactions.................... 0.36 0.06 0.51 (0.25) (0.11)
-------- -------- -------- -------- --------
Total income/(loss) from
investment operations........... 0.86 0.56 1.05 0.25 (0.10)
Less Dividends and Distributions:
Dividends to shareholders from
net investment income........... (0.50) (0.50) (0.54) (0.50) (0.01)
Dividends to shareholders from
net realized gains on investment
transactions.................... (0.02) (0.03) -- -- --
-------- -------- -------- -------- --------
Total Dividends and
Distributions................... (0.52) (0.53) (0.54) (0.50) (0.01)
-------- -------- -------- -------- --------
Net change in net asset value per
share........................... 0.34 0.03 0.51 (0.25) (0.11)
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END OF
YEAR............................ $ 10.52 $ 10.18 $ 10.15 $ 9.64 $ 9.89
======== ======== ======== ======== ========
Total return (excludes sales
charge)......................... 8.65% 5.66% 1.16% 2.78% (1.00%)(c)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(000)........................... $ 14,263 $ 15,414 $ 12,242 $ 2,520 $ 733
Ratio of expenses to average net
assets.......................... 0.50% 0.49% 0.12% 0.00% 0.00%(d)
Ratio of net investment income
to average net assets........... 4.84% 4.96% 5.24% 5.30% 1.15%(d)
Ratio of expenses to average net
assets*......................... 1.60%** 2.22%** 2.71%** 17.46% 170.99%(d)
Ratio of net investment
income/(loss) to average net
assets*......................... 3.74% 3.25% 2.65% (12.16%) (169.84%)
Portfolio turnover rate......... 36% 12% 38% 20% 15%
</TABLE>
- ---------------
<TABLE>
<S> <C>
* During the year, 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, 1998 and 1997 and
February 29, 1996, the Fund 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 Fund designated the existing series
of shares as "A" Shares.
(b) Period from January 28, 1994 (inception date) to February
28, 1994.
(c) Not annualized.
(d) Annualized.
</TABLE>
See Notes to Financial Statements.
54
<PAGE> 264
PACIFIC HORIZON CALIFORNIA TAX-EXEMPT BOND FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997(a) 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
A SHARES
Net asset value per share,
beginning of period.............. $ 7.35 $ 7.45 $ 7.12 $ 7.49 $ 7.51
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income............ 0.35 0.36 0.37 0.38 0.38
Net realized and unrealized gains
(losses) on investment
transactions................... 0.29 (0.05) 0.33 (0.37) 0.04
-------- -------- -------- -------- --------
Total income from investment
operations....................... 0.64 0.31 0.70 0.01 0.42
-------- -------- -------- -------- --------
Less Dividends and Distributions:
Dividends to shareholders from
net investment income.......... (0.35) (0.36) (0.37) (0.38) (0.38)
Dividends to shareholders from
net realized gains on
investment transactions........ -- (0.05) -- -- (0.06)
-------- -------- -------- -------- --------
Net change in net asset value per
share............................ 0.29 (0.10) 0.33 (0.37) (0.02)
-------- -------- -------- -------- --------
Net asset value per share, end of
year............................. $ 7.64 $ 7.35 $ 7.45 $ 7.12 $ 7.49
======== ======== ======== ======== ========
Total return (excludes sales
charge).......................... 9.18% 4.29% 10.12% 0.36% 5.65%
Ratios/Supplemental Data:
Net assets at end of year
(millions)..................... $ 214 $ 221 $ 221 $ 195 $ 245
Ratio of expenses to average net
assets......................... 0.90% 0.90% 0.94% 0.95% 0.96%
Ratio of net investment income to
average net assets............. 4.74% 4.88% 5.11% 5.43% 4.96%
Ratio of expenses to average net
assets*........................ 1.06%** 1.10%** 1.14%** 1.15% 1.11%
Ratio of net investment income to
average net assets*............ 4.58% 4.68% 4.91% 5.23% 4.81%
Portfolio turnover rate........... 28% 34% 57% 20% 15%
</TABLE>
- ---------------
<TABLE>
<S> <C>
* During the year, 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, 1998 and 1997 and
February 29, 1996, the Fund 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 Fund designated the existing series
of shares as "A" Shares.
</TABLE>
See Notes to Financial Statements.
55
<PAGE> 265
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 portfolios 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 Pacific Horizon National Municipal
Bond Fund and Pacific Horizon California Tax-Exempt Bond Fund (two of the
seventeen portfolios constituting Pacific Horizon Funds, Inc., hereafter
referred to as the "Funds") at February 28, 1998, 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, 1998 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
April 21, 1998
56
<PAGE> 266
For more information, complete the following form and mail it to:
Pacific Horizon Funds, Inc.
PO Box 8968
Wilmington, DE 19899-8968
.......................................................................
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> 267
Bulk Rate
U.S. Postage
PAID
New York, NY
Permit No. 8048
LOGO
Provident Distributor, Inc., Distributor
TXI-0015 4/98
<PAGE> 268
PACIFIC HORIZON TAX-EXEMPT MONEY MARKET FUNDS
ANNUAL REPORT
February 28, 1998
Tax-Exempt Money Market Fund
California Tax-Exempt Money Market Fund
Investing For All
The Times Of Your Life
NOT FDIC INSURED
PACIFIC HORIZON TAX-EXEMPT MONEY MARKET FUNDS
<PAGE> 269
PACIFIC HORIZON FUNDS, INC.
103 Bellevue Parkway
Wilmington, DE 19809
1-800-332-3863
INVESTMENT ADVISER
Bank of America National Trust
and Savings Association
555 California Street
San Francisco, CA 94104
ADMINISTRATOR
Bank of America National
Trust and Savings Association
555 California Street
San Francisco, CA 94104
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
Provident Distributors, Inc.
Four Falls Corporate Center
6th Floor
Conshohocken, PA 19428
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 Provident
Distributors, Inc. which is unaffiliated with the Bank of America. Bank of
America serves as investment adviser to the Funds 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, NOT
BANK OF AMERICA OR ANY AFFILIATES. AN INVESTMENT IN FDIC
MUTUAL FUNDS INVOLVES INVESTMENT RISKS, INCLUDING THE INSURED
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
============================================================================
</TABLE>
<PAGE> 270
.....................................
Contents
<TABLE>
<S> <C>
FUND FACTS 2-3
UNDERSTANDING YOUR SHAREHOLDER
REPORT 4-6
ECONOMIC REVIEW FROM THE
INVESTMENT ADVISER 8-9
PORTFOLIO OF INVESTMENTS 10-46
STATEMENTS OF ASSETS
AND LIABILITIES 47
STATEMENTS OF OPERATIONS 48
STATEMENTS OF CHANGES
IN NET ASSETS 49
NOTES TO FINANCIAL
STATEMENTS 50-59
FINANCIAL HIGHLIGHTS 60-67
REPORT OF INDEPENDENT
ACCOUNTANTS 68
</TABLE>
<PAGE> 271
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>
- ---------------------------------------------------------------------------
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*(dagger)
- Tax-Exempt Money High Level of Federal Tax-Free Current
Income Plus Principal Stability
- California Tax-Exempt Money High Level of Federal and California
Market 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.
(dagger) 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> 272
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
Preferred Stocks and capital appreciation.
...........................................................................
Stocks, Bonds and Cash Long-term growth potential and current
Equivalents income from stocks and bonds.
...........................................................................
Investment-Grade Corporate Debt High monthly income potential with
reasonable investment risk.
...........................................................................
Investment-Grade Corporate and Regular monthly income from a
U.S. Government Securities diversified portfolio of
investment-grade securities.
...........................................................................
GNMAs and Other U.S. Government High monthly income potential and low
Securities credit risk.
...........................................................................
U.S. Government and Government Monthly income and relative stability
Agency Securities of investment.
...........................................................................
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 A flexible, convenient way to manage or
U.S. Government Short-Term accumulate cash while waiting for other
Obligations 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
Obligations cash while waiting for other investment
opportunities.
</TABLE>
- --------------------------------------------------------------------------------
3
<PAGE> 273
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.
[GRAPHIC]
The FUND OVERVIEW AND
INTERVIEW WITH YOUR INVESTMENT
MANAGER enables you to gain
insight into the Fund's
investments and learn more
about the Fund manager's
strategies.
Because a picture or chart can help clarify the
text, the investment management team may have
illustrated the most important features of the Fund.
[GRAPHIC] The illustrations may represent the portfolio
composition, the largest holdings or a
simplification of the investment adviser's
investment style.
4
<PAGE> 274
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)
[GRAPHIC]
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
[GRAPHIC]
NET RESULTS OF ASSETS LESS LIABILITIES
THE MARKET VALUE OF THE FUND'S TOTAL NET
ASSETS DIVIDED BY THE NUMBER OF SHARES
OUTSTANDING
THE CURRENT NET ASSET VALUE PER SHARE PLUS SALES CHARGE, IF ANY
5
<PAGE> 275
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
[GRAPHIC]
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
[GRAPHIC]
DISTRIBUTIONS TO SHAREHOLDERS: TOTAL REALIZED
GAINS DISTRIBUTED TO SHAREHOLDERS DURING THE
PERIODS
FUND SHARE TRANSACTIONS: DOLLAR VALUE OF FUND
SHARES PURCHASED, REDEEMED OR REINVESTED
DURING THE PERIODS
The NOTES TO FINANCIAL STATEMENTS are footnotes to the statements listed above.
These notes include information on accounting methods used by the Fund,
contractual arrangements between the Fund and its service providers, certain
transactions effected by the Fund and other general information about the Fund.
The FINANCIAL HIGHLIGHTS shows, for a single share outstanding throughout each
period presented, the net investment income, the realized and unrealized gains
and losses and the dividends and distributions of the Fund. It also shows key
data and ratios, such as the total investment return for each period, the
portfolio turnover rate for Funds other than money market mutual funds, the
ratio of expenses to average net assets and the ratio of net investment income
to average net assets.
6
<PAGE> 276
[This page intentionally left blank.]
7
<PAGE> 277
ECONOMIC REVIEW
FROM THE INVESTMENT ADVISER
Fourth quarter Gross Domestic Product was reported at a 3.7%* annualized rate,
with inflation continuing to be non-existent and a positive factor for the
economy and the domestic financial markets. Changes in consumer prices are
negligible and producer prices are actually declining. Historically high
consumer confidence, resulting from strong job growth, wage gains and the
positive wealth effect created by the buoyant stock market, has created solid
income growth and has fueled the robust housing market in the first quarter of
1998. Consumers have been the primary beneficiaries of the turmoil in the Asian
markets. Lower bond yields, a by-product of the Asian financial crisis, have
resulted in lower mortgages payments for households looking to buy a home.
THE CASE FOR
STOCKS AND BONDS
The Standard & Poor's Stock Index posted a total return of 35.1%** during the 12
month period ended February 28, 1998, amply rewarding long-term investors who
rode out volatility that accompanied the Asian financial crisis. The best
performers were concentrated among shares of large company stocks, which
significantly outpaced shares of smaller firms.
Companies have been issuing reduced earnings forecasts at an increasing rate.
Despite the early warnings, the reduced earnings expectations have not put a
damper on the stock market. The bullish sentiment for low inflation and
continuing strong profits for 1998 are propelling the stock markets to new
highs. The Dow*** has gained 8.4% during the first two months of the year,
significantly higher than expected. Overall, the U.S. economy seems poised for
continued moderate growth, which is good news for stocks. We think it is
reasonable to expect P/E ratios to stay at current levels of 22 times 1998
earnings. That gives an estimated market return over the next 12 months of 9%
(7.8% from earnings growth and 1.2% from dividend yield).
Fixed income investors remain optimistic due to the lack of price pressures, the
strong dollar and the expectation of an Asia-led slowdown in the U.S. Interest
rates on Treasuries have fallen across the yield curve over the last twelve
months and are currently below 6%, the lowest level in 25 years. The finance
sector has been outperforming expectations as of late, which has a lot to do
with the wave of colossal merger and acquisition activity sweeping across
financial institutions.
The prospects for a government budget surplus in fiscal 1998 are growing. Some
economists are predicting as much as a $50 billion surplus due to large tax
revenues as well as efforts to reduce government spending. These revenue flows
will serve to reduce immediate government financing needs. Already, we have seen
cuts in the size of Treasury auctions so far this year.
POTENTIAL RISKS
The Asian financial crisis, which began in the third quarter of 1997, is
expected to modestly impact U.S. domestic growth. As expected, trade between
U.S. and Asian trade partners has sharply deteriorated, with the current account
deficit widening to its highest level in ten years. The deficit widened to
$166.5 billion in 1997, up from $148.2 billion for 1996. The largest threat to
the U.S. economy, according to The Organization for Economic Cooperation and
Development (OECD), would be a second round of currency devaluations in Asia. It
could happen again if Japan fails to jumpstart its economy.
While the final outcome of the Asian financial crisis remains unclear, the
initial predictions of a global financial crisis have not been supported by the
evidence.
8
<PAGE> 278
With the Asian crisis potentially constraining corporate profitability in the
second or third quarter, we expect that growth will slow during the remainder of
the year.
Tame inflation continues to be the theme du jour as the Consumer Price Index's
1.4% increase over the past 12 months is the second lowest reading in 33 years,
outdone only by the collapse in oil prices in 1986. The lack of inflationary
pressures and the uncertainty surrounding the Asian financial crisis have kept
the Federal Reserve from raising interest rates. The Fed funds rate has remained
at 5.50% since last March. However, the labor market is stretched and wage
pressures are intensifying. So far, increased productivity has compensated for
wage increases; however, recent significant increases in real asset values, such
as housing and land, have not gone unnoticed by Chairman Greenspan and may play
a factor in determining monetary policy over the coming months.
LOOKING FORWARD
It is now a widely accepted view that the U.S. economy is growing at a faster
pace early in 1998 than analysts had projected last year at the height of the
Asian turmoil. Although the preliminary GDP figure will not be released until
the end of April, the early estimate for the first quarter lies somewhere
between 3.5 - 4.0%. In order to reach the projected 1998 growth rate of 2.8%,
U.S. growth will have to sustain a considerable slowdown in the latter part of
the year to compensate for the strengths it is exhibiting now.
Looking forward, there are a lot of crosscurrents in the U.S. corporate earnings
picture. Ironically, the impact from the Asian financial crisis so far have been
positive, with lower interest rates boosting the economy. In the first quarter,
currency and oil earnings will be negative factors, but stronger economic growth
will offset any weaknesses. In the second and third quarters, we expect the
impact from Asia should be mitigated by strong growth in Europe. We continue to
believe that the economic impact from Asia will be moderate with the U.S.
economy slowing, but sustaining a near normal growth rate of 2.8% in 1998. Given
these projections, we expect equities and fixed income securities to perform
well in 1998, although below 1997 levels.
Sincerely,
/s/ Kirk Hartman
Kirk Hartman
Chief Investment Officer of
Fixed Income Management
- ---------------
* Source: Bloomberg, 1998.
** Source: Bloomberg, 1998. 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 Dow Jones Industrial Average is a price-weighted average of 30 actively
traded blue chip stocks and cannot be invested in directly.
9
<PAGE> 279
PACIFIC HORIZON TAX-EXEMPT MONEY FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- --------------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- 104.4%
ARIZONA -- 1.3%
Apache County
Industrial Development
Authority, Tucson
Electric Power
(LOC -- Toronto
Dominion Bank) (final
maturity 6/15/20)*..... VMIG1/Aa2 A1+/AA 3.40% 03/04/98 $ 7,800,000 $ 7,800,000
Pima County Industrial
Development Authority,
Tucson Electric Power
Co. (LOC -- Societe
Generale) (final
maturity 10/1/22)*..... VMIG1/Aa3 A1+/AA- 3.40% 03/04/98 1,100,000 1,100,000
------------
8,900,000
------------
ARKANSAS -- 2.3%
Arkansas State
Development Financing
Authority Single Family
Mortgage (final
maturity 7/1/17)*...... NR/NR A1+/AAA 3.95% 07/01/98 10,860,000 10,860,000
Arkansas State
Financial Development
Authority (FGIC
Insured) (LOC --
Citibank) (final
maturity 12/1/15)*..... VMIG1/Aaa A1+/AAA 3.40% 03/05/98 5,200,000 5,200,000
------------
16,060,000
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
10
<PAGE> 280
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- 4.9%
California Health
Facilities Financing
Authority, Adventist
Health System/West,
Series A (MBIA
Insured) (final
maturity 9/1/28)*... VMIG1/Aaa A1+/AAA 3.60% 03/04/98 $14,000,000 $14,000,000
California Statewide
Community
Development
Authority,
Certificate of
Participation,
Sutter Health
Obligation Group
(AMBAC
Insured)(final
maturity 7/1/15)*... VMIG1/Aaa A2/AAA 3.85% 03/02/98 3,300,000 3,300,000
California Statewide
Community
Development
Authority, Tax and
Revenue
Anticipation, Series
B................... NR/Aaa NR/AAA 4.75% 09/30/98 10,000,000 10,048,024
Orange County Irvine
Coast Assessment
(LOC -- Industrial
Bank of Japan)
(final maturity
9/2/18)*............ NR/A1 A/A+ 3.60% 03/02/98 7,000,000 7,000,000
-----------
34,348,024
-----------
COLORADO -- 3.7%
Colorado Health
Facilities
Authority, North
Colorado Medical
Center (MBIA
Insured) (final
maturity
5/15/20)*........... VMIG1/Aaa A1+/AAA 3.40% 03/05/98 5,100,000 5,100,000
Colorado State Tax &
Revenue Anticipation
Notes, Series A..... NR/NR SP1+/NR 4.50% 06/26/98 20,000,000 20,040,105
</TABLE>
- ---------------
See Notes to Financial Statements.
11
<PAGE> 281
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
COLORADO -- (CONTINUED)
Colorado Student
Obligation Bond
Authority, Student
Loan, Series C-2
(LOC -- Student Loan
Marketing) (final
maturity 9/1/02)*... VMIG1/Aaa A1+/AAA 3.35% 03/04/98 $1,300,000 $ 1,300,000
-----------
26,440,105
-----------
DELAWARE -- 0.6%
Delaware Economic
Development (final
maturity
12/1/15)*........... VMIG1/Aaa A1+/AAA 3.40% 03/04/98 4,000,000 4,000,000
-----------
DISTRICT OF COLUMBIA -- 5.6%
District of
Columbia, Series A1
(LOC -- National
Westminster) (final
maturity
10/1/07)*........... VMIG1/Aa2 A1+/AA 3.70% 03/02/98 6,900,000 6,900,000
District of
Columbia, Series A2
(LOC -- Canadian
Imperial Bank)
(final maturity
10/1/07)*........... VMIG1/Aa3 A1+/AA- 3.70% 03/02/98 9,900,000 9,900,000
District of
Columbia, Series A3
(final maturity
10/1/07)*........... VMIG1/Aa3 A1+/AA- 3.70% 03/02/98 12,000,000 12,000,000
District of
Columbia, Series A4
(final maturity
10/1/07)*........... VMIG1/Aa3 A1+/AA- 3.70% 03/02/98 1,000,000 1,000,000
District of
Columbia, Series A5
(LOC -- Bank of Nova
Scotia) (final
maturity
10/1/07)*........... VMIG1/Aa3 A1+/AA- 3.70% 03/02/98 9,778,000 9,778,000
-----------
39,578,000
-----------
FLORIDA -- 4.6%
Florida Board of
Education (final
maturity 6/1/23)*... NR/Aa A1+/AA 3.80% 06/01/98 9,900,000 9,900,000
</TABLE>
- ---------------
See Notes to Financial Statements.
12
<PAGE> 282
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
FLORIDA -- (CONTINUED)
Orlando Special
Assessment Republic
Drive Interchange
(LOC -- Morgan
Guaranty) (final
maturity 10/1/21)*..... VMIG1/Aa1 NR/NR 3.40% 03/04/98 $ 4,700,000 $ 4,700,000
Pasco County School
Board (AMBAC Insured)
(final maturity
8/1/26)*............... VMIG1/Aaa A1+/AAA 3.40% 03/04/98 7,000,000 7,000,000
Sarasota County
Commercial Paper....... P1/NR A1/NR 3.80% 03/10/98 5,000,000 5,000,000
Sarasota County
Hospital............... P1/NR A1/NR 3.70% 04/09/98 3,500,000 3,500,000
St. Lucie County,
Pollution Control
Revenue, Florida Power
& Light, Series A...... P1/NR A1/NR 3.50% 04/01/98 2,500,000 2,500,000
------------
32,600,000
------------
GEORGIA -- 3.6%
Burke County
Development Authority
Pollution Control,
Oglethorpe Power Corp.,
Series A (FGIC Insured)
(final maturity
1/1/19)*............... VMIG1/Aaa A1+/AAA 3.35% 03/04/98 3,000,000 3,000,000
Gainesville
Redevelopment
Authority, Riverside
Military Academy
(LOC -- Wachovia Bank
and Trust) (final
maturity 1/1/23)*...... NR/AA2 NR/NR 3.50% 03/04/98 15,000,000 15,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
13
<PAGE> 283
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
GEORGIA -- (CONTINUED)
Georgia Municipal Gas
Authority, Series A
(LOC -- Morgan Guaranty
Trust, Wachovia Bank,
Credit Suisse,
Bayerische Landesbank,
ABN Amro Bank) (final
maturity 11/1/06)*..... NR/NR A1+/AA 3.35% 03/04/98 $ 7,600,000 $ 7,600,000
------------
25,600,000
------------
ILLINOIS -- 10.1%
Chicago Variable
Equipment Notes
(LOC -- Harris Trust
and Savings Bank)
(final maturity
1/1/06)*............... VMIG1/MIG1 A1+/AA- 3.80% 03/02/98 6,800,000 6,800,000
Chicago Tender Notes
(LOC -- Morgan Guaranty
Trust) (final maturity
1/31/99)*.............. VMIG1/MIG1 A1/Sp1+ 3.55% 10/29/98 15,000,000 15,000,000
Illinois Health
Facilities Authority,
Elmhurst Memorial
Hospital, Series B
(LOC -- Rabobank)
(final maturity
1/1/20)*............... VMIG1/A2 NR/NR 3.80% 03/02/98 7,600,000 7,600,000
Illinois Health
Facilities Authority,
Franciscan Sisters
Health (final maturity
1/1/18)*............... VMIG1/A2 NR/NR 3.80% 03/02/98 9,250,000 9,250,000
Illinois Health
Facilities Authority,
Pooled Revolving Fund
(LOC -- NBD Bank)
(final maturity
8/1/15)*............... VMIG1/Aa3 A1+/AA- 3.40% 03/04/98 2,400,000 2,400,000
Illinois Health
Facilities Authority,
Resurrection Health
Care Systems (final
maturity 5/1/11)*...... VMIG1/A2 NR/NR 3.70% 03/02/98 7,000,000 7,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
14
<PAGE> 284
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
ILLINOIS -- (CONTINUED)
Illinois Health
Facilities Authority,
Elmhurst Memorial
Hospital, Series A
(final maturity
1/1/28)*............... VMIG1/A2 NR/NR 3.80% 03/04/98 $ 8,100,000 $ 8,100,000
Illinois State Toll
Highway Authority,
Series B (LOC --
Societe Generale) (MBIA
Insured) (final
maturity 1/1/10)*...... VMIG1/Aaa A1+/AAA 3.35% 03/04/98 7,700,000 7,700,000
University of Illinois,
The Board of Trustees
Health Services
Facilities System,
Series B (LOC --
Landesbank Hessen)
(final maturity
10/1/26)*.............. VMIG1/Aaa A1+/AAA 3.40% 03/04/98 7,600,000 7,600,000
------------
71,450,000
------------
INDIANA -- 1.8%
Indiana Health Facility
Financing Authority,
Hospital Revenue Bonds,
Deaconess Hospital,
Inc. (LOC -- First
National Bank of
Chicago) (final
maturity 1/1/22)*...... VMIG1/Aa3 NR/NR 3.40% 03/04/98 1,200,000 1,200,000
Jasper County Pollution
Control Revenue,
Northern Indiana Public
Service, Series A...... P1/NR A1/NR 3.20% 03/12/98 8,000,000 8,000,000
Rockport Pollution
Control Revenue,
Indiana Michigan Power
Co. Project (AMBAC
Insured) (final
maturity 6/1/25)*...... NR/Aaa NR/AAA 3.45% 03/04/98 3,600,000 3,600,000
------------
12,800,000
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
15
<PAGE> 285
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
IOWA -- 0.7%
Iowa Higher Education
Loan Authority, Private
College (MBIA Insured)
(final maturity
12/1/15)*.............. VMIG1/Aaa A1+/AAA 3.50% 03/04/98 $ 4,700,000 $ 4,700,000
------------
KENTUCKY -- 1.4%
Kentucky
Asset/Liability Tax &
Revenue Anticipation
Notes, Series A........ MIG1/NR Sp1+/NR 4.50% 06/25/98 10,000,000 10,019,886
------------
LOUISIANA -- 5.8%
Ascension Parish
Pollution Control,
Borden Inc. Project
(LOC -- Credit Suisse)
(final maturity
12/1/09)*.............. VMIG1/Aa2 A1+/AA 3.45% 03/04/98 5,500,000 5,500,000
Louisiana State
Offshore Terminal
Authority, First Stage,
Loop Inc. (LOC --
Morgan Guaranty) (final
maturity 9/1/17)*...... VMIG1/Aa1 A1+/AAA 3.45% 03/04/98 4,610,000 4,610,000
Louisiana Public
Facilities Authority
Hospital Revenue,
Willis-Knighton Medical
Center (AMBAC Insured)
(final maturity
9/1/27)*............... VMIG1/Aaa A1+/AAA 3.45% 03/04/98 15,000,000 15,000,000
Louisiana State General
Obligation Bonds, Tax
Exempt Eagle Trust,
Series 1994 (AMBAC
Insured) (final
maturity 5/1/09)*...... NR/NR A1/AA 3.56% 03/05/98 11,600,000 11,600,000
</TABLE>
- ---------------
See Notes to Financial Statements.
16
<PAGE> 286
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
LOUISIANA -- (CONTINUED)
Plaquemines Port
Harbor & Term
District, Chevron
Pipe Line Company
(final maturity
9/1/08)*............ NR/Aa2 NR/AA 3.85% 03/02/98 $4,000,000 $ 4,000,000
-----------
40,710,000
-----------
MARYLAND -- 1.4%
Gaithersburg
Economic Development
Authority, Asbury
Methodist (MBIA
Insured) (final
maturity 7/1/27)*... NR/NR A1/AAA 3.45% 03/05/98 10,000,000 10,000,000
-----------
MICHIGAN -- 2.6%
Grand Rapids Water
Supply (final
maturity 1/1/20)*... VMIG1/Aaa NR/AAA 3.35% 03/04/98 3,600,000 3,600,000
Michigan Municipal
Bond Authority,
Series B............ NR/NR NR/Sp1+ 4.50% 07/02/98 10,000,000 10,022,713
Michigan State
Strategic Fund,
Ltd., Consumers
Power Co.
(LOC -- Canadian
Imperial Bank)
(final maturity
6/15/10)*........... NR/Aa3 A1+/AA- 3.70% 03/02/98 4,900,000 4,900,000
-----------
18,522,713
-----------
MINNESOTA -- 0.9%
Duluth Tax Increment
Revenue, Lake
Superior Paper
(LOC -- Wachovia
Bank) (final
maturity 9/1/10)*... VMIG1/Aa2 A1+/AA+ 3.40% 03/05/98 3,600,000 3,600,000
St. Cloud Health
Care Facilities, St.
Cloud Hospital,
Series A
(LOC -- Rabobank
Nederland) (final
maturity 7/1/27)*... NR/NR A1+/AAA 3.35% 03/05/98 3,000,000 3,000,000
-----------
6,600,000
-----------
</TABLE>
- ---------------
See Notes to Financial Statements.
17
<PAGE> 287
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
MISSOURI -- 0.5%
Columbia Water &
Electric, Series B
(LOC -- Toronto
Dominion Bank) (final
maturity 12/1/15)*..... VMIG1/Aa2 A1+/AA 3.40% 03/04/98 $ 1,400,000 $ 1,400,000
Missouri State Health &
Educational Facilities
Authority, Series B
(MBIA Insured) (final
maturity 6/1/22)*...... NR/Aaa A1+/AAA 3.40% 03/04/98 2,000,000 2,000,000
------------
3,400,000
------------
MONTANA -- 0.3%
Forsyth Pollution
Control Revenue Bond,
Portland General
Electric Co.
(LOC -- Union Bank of
Switzerland) (final
maturity 6/1/13)*...... P1/Aaa A1+/AA+ 3.40% 03/04/98 2,500,000 2,500,000
------------
NEBRASKA -- 1.0%
Lincoln County
Commercial Paper....... P1/NR A1/NR 3.65% 03/12/98 3,900,000 3,900,000
Nebraska Educational
Facilities (FGIC
Insured) (final
maturity 12/1/00)*..... VMIG1/Aaa A1/AAA 3.75% 03/04/98 3,435,000 3,435,000
------------
7,335,000
------------
NEVADA -- 0.5%
Las Vegas Commercial
Paper.................. P1/NR A1/NR 3.45% 03/10/98 3,500,000 3,500,000
------------
NEW MEXICO -- 2.4%
Farmington Pollution
Control Revenue Bond,
Arizona Public Service
Co., Series B
(LOC -- Barclays Bank)
(final maturity
9/1/24)*............... P1/NR A1+/AA 3.65% 03/02/98 9,000,000 9,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
18
<PAGE> 288
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
NEW MEXICO -- (CONTINUED)
New Mexico State
Highway Commission
(FSA Insured) (final
maturity
6/15/11)*........... VMIG1/Aaa A1+/AAA 3.40% 03/04/98 $8,000,000 $ 8,000,000
-----------
17,000,000
-----------
NEW YORK -- 2.5%
New York City
General
Obligation.......... P1/NR A1/NR 3.00% 03/09/98 7,000,000 7,000,000
New York State
Transportation
Authority (final
maturity 4/1/10)*... VMIG1/Aaa NR/NR 3.50% 03/04/98 9,900,000 9,900,000
Triborough Bridge
and Tunnel Authority
(FGIC Insured)
(final maturity
1/1/24)*............ VMIG1/Aaa A1+/AAA 3.15% 03/04/98 1,100,000 1,100,000
-----------
18,000,000
-----------
NORTH CAROLINA -- 5.5%
Charlotte Airport
Revenue, Series A
(MBIA Insured)
(final maturity
7/1/16)*............ VMIG1/Aaa A1+/AAA 3.35% 03/04/98 2,000,000 2,000,000
Lenoir County
Hospital Revenue,
Lenoir Memorial
Hospital
(LOC -- Wachovia
Bank) (final
maturity
10/1/12)*........... VMIG1/Aa2 NR/NR 3.45% 03/04/98 3,300,000 3,300,000
North Carolina
Commercial Paper.... P1/NR A1/NR 3.70% 03/10/98 6,200,000 6,200,000
North Carolina
Eastern Municipal
Power............... P1/NR A1/NR 3.45% 04/08/98 5,000,000 5,000,000
North Carolina
Medical Care
Commission Hospital
Revenue Bond, Moses
H. Cone Memorial
Hospital Project
(LOC -- Wachovia
Bank) (final
maturity 9/1/02)*... NR/NR A1+/AA 3.40% 03/05/98 1,600,000 1,600,000
North Carolina
Municipal Power
Agency, Catawba
Project............. P1/NR A1/NR 3.00% 03/11/98 6,500,000 6,500,000
</TABLE>
- ---------------
See Notes to Financial Statements.
19
<PAGE> 289
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
NORTH CAROLINA -- (CONTINUED)
North Carolina Medical
Care Community
Retirement (LOC --
LaSalle National Bank)
(final maturity
11/15/09)*............. NR/NR A1+/AA+ 3.40% 03/04/98 $10,000,000 $ 10,000,000
Raleigh-Durham Airport
Authority, American
Airlines Project,
Series 1995B
(LOC -- Royal Bank of
Canada) (final maturity
11/1/15)*.............. NR/NR A1+/AA- 3.65% 03/02/98 4,200,000 4,200,000
------------
38,800,000
------------
OHIO -- 1.4%
Scioto County Hospital,
Volunteer Hospital of
America Center, Inc.,
Series B (AMBAC
Insured) (final
maturity 12/1/25)*..... NR/Aaa A1+/AAA 3.35% 03/04/98 3,325,000 3,325,000
Scioto County Hospital,
Volunteer Hospital of
America Center, Inc.,
Series F (AMBAC
Insured) (final
maturity 12/1/25)*..... NR/Aaa A1+/AAA 3.35% 03/04/98 2,530,000 2,530,000
Scioto County Hospital,
Volunteer Hospital of
America Center, Inc.,
Series G (AMBAC
Insured) (final
maturity 12/1/25)*..... NR/Aaa A1+/AAA 3.35% 03/04/98 4,000,000 4,000,000
------------
9,855,000
------------
OKLAHOMA -- 0.7%
Oklahoma Water
Resources Board State
Loan Program Revenue
Bonds (LOC -- Union
Bank of Switzerland)
(final maturity
9/1/24)*............... NR/NR A1+/AA 3.55% 09/01/98 5,000,000 5,000,000
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
20
<PAGE> 290
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
OREGON -- 1.4%
Medford Oregon Hospital
Facilities Authority,
Rogue Valley Manor
(final maturity
5/15/27)*.............. NR/NR A+/A2 3.60% 03/04/98 $10,000,000 $ 10,000,000
------------
PENNSYLVANIA -- 12.5%
Allegheny County
Hospital Development
Authority, St. Francis
Hospital (LOC -- First
National Bank of
Chicago) (final
maturity 11/1/27)*..... VMIG1/Aa3 A1+/AA- 3.40% 03/04/98 20,000,000 20,000,000
Allegheny County
Industrial Development
Authority, Duquesne
Light Co., Series A
(LOC -- Canadian
Imperial Bank of
Commerce) (final
maturity 9/1/11)*...... NR/NR A1+/AA- 3.85% 10/21/98 8,225,000 8,225,000
Allegheny County
Industrial Development
Authority, Duquesne
Light Co., Series A
(LOC -- Canadian
Imperial Bank of
Commerce) (final
maturity 9/1/11)*...... P1/NR A1+/AA- 3.85% 10/21/98 3,700,000 3,700,000
Delaware Valley
Regulation Finance
Authority Local
Government, Series A
(LOC -- Credit Suisse)
(final maturity
12/1/19)*.............. VMIG1/Aa3 A1+/AA 3.35% 03/04/98 3,000,000 3,000,000
Emmaus General
Authority Revenue Bond,
Series B-16
(LOC -- Kredietbank)
(final maturity
3/1/24)*............... A1+/NR SP1+/NR 3.45% 03/04/98 2,200,000 2,200,000
</TABLE>
- ---------------
See Notes to Financial Statements.
21
<PAGE> 291
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
PENNSYLVANIA -- (CONTINUED)
Emmaus General
Authority Revenue
Bond, Series E
(final maturity
3/1/24)*............ A1+/NR SP1+/NR 3.50% 03/04/98 $1,400,000 $ 1,400,000
Emmaus General
Authority Revenue
Bond, Series G
(final maturity
3/1/24)*............ A1+/NR SP1+/NR 3.50% 03/04/98 5,000,000 5,000,000
Quakertown General
Authority, Pooled
Financing Program,
Series A (LOC -- PNC
Bank) (final
maturity 7/1/26)*... VMIG1/A1 NR/NR 3.50% 03/04/98 21,000,000 21,000,000
Quakertown Hospital
Authority, HPS Group
Pooled Financing
(LOC -- PNC Bank)
(final maturity
7/1/05)*............ VMIG1/A1 NR/NR 3.50% 03/03/98 23,800,000 23,800,000
-----------
88,325,000
-----------
SOUTH CAROLINA -- 1.7%
Piedmont Municipal
Power Agency, South
Carolina Electric
Co., Series C (MBIA
Insured) (final
maturity 1/1/22)*... VMIG1/Aaa A1+/AAA 3.40% 03/04/98 2,000,000 2,000,000
Piedmont Municipal
Power Agency, South
Carolina Electric
Co., Series D (MBIA
Insured) (final
maturity 1/1/25)*... VMIG1/Aaa A1+/AAA 3.40% 03/04/98 10,100,000 10,100,000
-----------
12,100,000
-----------
TENNESSEE -- 3.1%
Bristol Health &
Education
Facilities, Series
1995A (final
maturity 3/1/14)*... NR/NR A1/AAA 3.55% 03/04/98 8,500,000 8,500,000
Clarksville Public
Building Authority
(final maturity
11/1/27)*........... A1/Aa3 NR/NR 3.45% 03/04/98 4,000,000 4,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
22
<PAGE> 292
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
TENNESSEE -- (CONTINUED)
Metropolitan Government
Nashville & Davidson
County Health &
Education Facilities,
Adventist/Sunbelt,
Series A (final
maturity 11/15/26)*.... VMIG1/Aa3 A1+/AA+ 3.40% 03/05/98 $ 9,350,000 $ 9,350,000
------------
21,850,000
------------
TEXAS -- 10.5%
Angelina & Neches River
Authority Industrial
Development Corp Solid
Waste Disposal (TEEC,
Inc. Temple-Inland)
Series D (LOC -- Credit
Suisse) (final maturity
5/1/14)*............... P1/Aa3 NR/NR 3.70% 03/02/98 5,300,000 5,300,000
Grand Prairie Housing
Financing Corp, Lincoln
Property Co.(final
maturity 6/1/10)*...... NR/NR A1+/AAA 3.50% 03/04/98 6,700,000 6,700,000
Grapevine Industrial
Development Corporation
Airport Revenue,
Southern Air
Transportation
(LOC -- Bank One Texas)
(final maturity
3/1/10)*............... NR/NR A1+/AA 3.45% 03/05/98 2,300,000 2,300,000
Harris County Health
Facilities Development
Corp, Memorial Hospital
Systems, Series B
(final maturity
6/1/24)*............... VMIG1/Aaa A1+/AAA 3.35% 03/04/98 3,500,000 3,500,000
</TABLE>
- ---------------
See Notes to Financial Statements.
23
<PAGE> 293
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
TEXAS -- (CONTINUED)
Harris County,
Industrial
Development
Pollution Control
Revenue Bonds (Exxon
Corporation) (final
maturity 3/1/24)*... NR/Aaa A1+/AAA 3.65% 03/02/98 $1,000,000 $ 1,000,000
Lower Neches Valley
Authority, Chervon
Corp. (final
maturity
2/15/17)*........... NR/P1 A1+/AA 3.45% 03/17/98 4,700,000 4,700,000
North Central Texas
Commercial Paper.... P1/NR A1/NR 3.70% 03/10/98 5,000,000 5,000,000
North Texas
Municipal Water
District (AMBAC
Insured) (final
maturity 6/1/02)*... NR/Aaa NR/AAA 7.65% 06/01/98 2,280,000 2,349,584
Nueces River
Authority (final
maturity 3/1/27)*... VMIG1/NR NR/AAA 3.56% 03/05/98 16,600,000 16,600,000
Texas State Tax &
Revenue Anticipation
Notes, Series A..... MIG1/NR SP1+/NR 4.75% 08/31/98 22,000,000 22,097,620
Tom Green County
Health Facilities
Development,
Universal Health
Services (LOC --
Morgan Guaranty
Trust) (final
maturity
12/1/15)*........... NR/NR A1+/AAA 3.40% 03/04/98 2,000,000 2,000,000
University of Texas
Board of Regents.... P1/NR A1/NR 3.55% 05/14/98 3,000,000 3,000,000
-----------
74,547,204
-----------
UTAH -- 1.4%
Intermountain Power
Agency, Utah Power
Supply Revenue
(LOC -- Chase
Manhattan Bank)
(final maturity
7/1/03)*............ VMIG1/Aaa NR/NR 3.55% 03/04/98 9,900,000 9,900,000
-----------
</TABLE>
- ---------------
See Notes to Financial Statements.
24
<PAGE> 294
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
VERMONT -- 1.4%
Mt. Vernon Commercial
Paper.................. P1/NR A1/NR 3.60% 03/10/98 $ 3,290,000 $ 3,290,000
Vermont Education and
Health Financing
Agency, Middlebury
College Project, Series
A (final maturity
11/1/27)*.............. NR/Aa NR/AA 3.85% 05/01/98 2,075,000 2,077,706
Vermont Education and
Health Financing
Agency, Middlebury
College Project, Series
A (final maturity
5/1/28)*............... NR/NR A1+/AA 3.95% 05/01/98 4,700,000 4,700,000
------------
10,067,706
------------
VIRGINIA -- 0.9%
Peninsula Port
Authority of Virginia
Coal Terminal, Dominion
Terminal Associates
Project, Series D
(LOC -- Barclays Bank)
(final maturity
7/1/16)*............... P1/Aa2 NR/NR 3.65% 03/02/98 2,000,000 2,000,000
Peninsula Port
Authority of Virginia,
Dominion Terminal
Associates Project..... P1/NR A1/NR 3.00% 03/11/98 4,035,000 4,035,000
------------
6,035,000
------------
WISCONSIN -- 3.6%
Carlton Pollution
Control Revenue,
Wisconsin Power and
Light Co. (final
maturity 9/01/05)*..... VMIG1/Aa2 A1+/AA 3.70% 03/02/98 2,900,000 2,900,000
Wisconsin State
Operating Note......... MIG1/NR SP1+/NR 4.50% 06/15/98 7,100,000 7,114,182
</TABLE>
- ---------------
See Notes to Financial Statements.
25
<PAGE> 295
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
WISCONSIN -- (CONTINUED)
Wisconsin State
Operating Notes,
Series 2............ MIG1/NR SP1+/NR 4.50% 06/15/98 $10,000,000 $10,021,940
Wisconsin
Transportation
Revenue............. P1/NR A1/NR 3.10% 03/10/98 5,159,000 5,159,000
-----------
25,195,122
-----------
WYOMING -- 1.8%
Converse Country,
Pacificcorp., Series
1992................ P1/NR A1/NR 3.25% 03/12/98 12,485,000 12,485,000
-----------
TOTAL INVESTMENTS -- 104.4%
(AMORTIZED COST
$738,223,760)(a).... 738,223,760
LIABILITIES IN EXCESS
OF OTHER ASSETS --
(4.4%).............. (30,899,984)
-----------
NET ASSETS --
100.0%.............. $707,323,776
===========
</TABLE>
- ---------------
Percentages indicated are based on net assets of $707,323,776.
(a) Cost for Federal income tax and financial reporting purposes is
substantially the same.
<TABLE>
<C> <S>
AMBAC -- AMBAC Indemnity Corporation.
FGIC -- Financial Guaranty Insurance Company.
FSA -- Financial Security Assurance.
LOC -- Letter of Credit.
MBIA -- Municipal Bond Insurance Association.
NR -- No rating assigned by Moody's or S&P.
</TABLE>
* Variable rate security. Maturity date reflects the next rate change date.
(dagger) The ratings provided consist of short-term and long-term ratings.
See Notes to Financial Statements.
26
<PAGE> 296
PACIFIC HORIZON CALIFORNIA TAX-EXEMPT
MONEY MARKET FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- 99.8%
CALIFORNIA -- 96.3%
Abag Financial
Authority, For Non-
Profit Corporations,
Certificates of
Participation, Lucile
Salter Packard Project
(final maturity
8/1/23)*................ VMIG1/AAA A1+/AAA 3.00% 03/04/98 $ 1,930,000 $ 1,930,000
Alameda-Contra Costa
Financing Authority,
Certificates of
Participation (final
maturity 8/1/23)*....... NR/NR A1+/AA- 2.90% 03/05/98 5,000,000 5,000,000
California Department of
Water................... P1/NR A1+/NR 3.40% 04/16/98 2,330,000 2,330,000
California General
Obligation (final
maturity 4/1/04)*(double
dagger)............... NR/NR A1+/AAA 3.00% 03/16/98 15,100,000 15,100,000
California General
Obligation.............. P1/A A/A+ 3.45% 03/24/98 11,000,000 11,000,000
California General
Obligation.............. P1/A A/A+ 3.55% 04/20/98 10,000,000 10,000,000
California General
Obligation.............. P1/A A/A+ 3.70% 03/06/98 6,000,000 6,000,000
California General
Obligation.............. P1/A A/A+ 3.65% 03/09/98 5,000,000 5,000,000
California General
Obligation.............. P1/A A/A+ 3.70% 03/06/98 10,000,000 10,000,000
California General
Obligation, Class A
(final maturity
2/1/06)(double dagger).. A1+/AA NR/NR 3.46% 03/05/98 10,000,000 10,000,000
California Health
Facilities Financing
Authority (final
maturity 7/1/20)*....... VMIG1/AA A1/AA 3.00% 03/04/98 4,200,000 4,200,000
California Health
Facilities Financing
Authority (final
maturity 8/1/16)**...... NR/AAA NR/AAA 3.50% 05/01/98 11,300,000 11,300,000
</TABLE>
- ---------------
See Notes to Financial Statements.
27
<PAGE> 297
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
California Health
Facilities Financing
Authority, Adventist
Health System, Series
A (MBIA Insured)
(final maturity
9/1/28)*............. VMIG1/AAA A1+/AAA 3.60% 03/04/98 $16,000,000 $ 16,000,000
California Health
Facilities Financing
Authority, Catholic
Healthcare West,
Series 1995C (MBIA
Insured) (final
maturity 7/1/11)*.... VMIG1/Aaa A1+/AAA 3.00% 03/04/98 10,000,000 10,000,000
California Health
Facilities Financing
Authority, Catholic
Healthcare West,
Series 1995D (MBIA
Insured) (final
maturity 7/1/18)*.... VMIG1/AAA A1+/AAA 3.00% 03/04/98 9,700,000 9,700,000
California Health
Facilities Financing
Authority, Catholic
Healthcare West,
Series 1996C (MBIA
Insured) (final
maturity 7/1/12)*.... VMIG1/Aaa A1+/AAA 3.00% 03/04/98 5,700,000 5,700,000
California Health
Facilities Financing
Authority, Catholic
Healthcare West,
Series 1997B (MBIA
Insured) (final
maturity 7/1/12)*.... VMIG1/Aaa A1+/AAA 3.00% 03/04/98 13,300,000 13,300,000
California Health
Facilities Financing
Authority, Catholic
Healthcare, Series
1988A (MBIA Insured)
(final maturity
7/1/09)*............. VMIG1/AAA A1+/AAA 3.00% 03/04/98 3,700,000 3,700,000
</TABLE>
- ---------------
See Notes to Financial Statements.
28
<PAGE> 298
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
California Health
Facilities Financing
Authority, Children's
Hospital (MBIA
Insured) (final
maturity 11/1/21)*... VMIG1/Aaa A1+/AAA 2.90% 03/04/98 $7,550,000 $ 7,550,000
California Health
Facilities Financing
Authority, Scripps
Memorial Hospital,
Series 1991B (MBIA
Insured) (final
maturity 10/1/21)*... VMIG1/AAA A1+/AAA 3.05% 03/04/98 1,500,000 1,500,000
California Health
Facilities Financing
Authority, St. Joseph
Healthcare System,
Series 1985A (final
maturity 7/1/12)*.... VMIG1/AA3 A1+/AA 3.55% 03/02/98 2,240,000 2,240,000
California Health
Facilities Financing
Authority, Sutter
Healthcare
Facilities, Series B
(LOC -- Morgan
Guaranty Trust)
(final maturity
3/1/20)*............. VMIG1/AA1 A1+/AAA 3.65% 03/02/98 1,000,000 1,000,000
California Housing
Financing Agency,
Multi-Unit Rental
Revenue Authority
(MBIA Insured) (final
maturity 8/1/07)*.... NR/AAA NR/AAA 3.55% 08/01/98 2,000,000 2,000,000
California Housing
Financing Agency,
Multi-Unit Rental
Revenue Authority
(MBIA Insured) (final
maturity 8/1/08)*.... NR/AAA NR/AAA 3.55% 08/01/98 2,500,000 2,500,000
California Housing
Financing Agency,
Multifamily, Series A
(final maturity
7/15/13)*............ NR/NR A1+/AAA 2.95% 03/04/98 4,030,000 4,030,000
</TABLE>
- ---------------
See Notes to Financial Statements.
29
<PAGE> 299
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
California Housing
Financing Agency,
Multifamily, Series B
(final maturity
7/15/13)*............ NR/NR A1+/AAA 2.95% 03/04/98 $1,500,000 $ 1,500,000
California Housing
Financing Agency,
Series E (AMT) (final
maturity 2/1/33)*.... VMIG1/AA2 A1+/AA- 3.55% 03/04/98 15,000,000 15,000,000
California Pollution
Control Financing
Authority............ P1/NR A1/NR 3.30% 03/12/98 14,000,000 14,000,000
California Pollution
Control Financing
Authority, Southern
California Edison --
Series D............. P1/NR A1/NR 3.55% 05/19/98 6,200,000 6,200,000
California Pollution
Control Financing
Authority, Atlantic
Richfield Company
Project, Series 1994A
(AMT) (final maturity
12/1/24)*............ VMIG1/A2 A1/A 3.70% 03/02/98 8,800,000 8,800,000
California Pollution
Control Financing
Authority, Calsan,
Inc. Project, Series
A (AMT) (LOC-Wells
Fargo Bank) (final
maturity 12/1/11)*... NR/NR NR/NR 3.20% 03/04/98 1,700,000 1,700,000
California Pollution
Control Financing
Authority, Chevron
USA, Inc. Project,
(final maturity
11/15/01)*........... NR/AA2 NR/AA 3.85% 05/15/98 2,408,462 2,408,462
California Pollution
Control Financing
Authority, Delano
Power Project (AMT)
(LOC -- Algemene Bank
Nederland) (final
maturity 8/1/19)*.... NR/AA1 NR/NR 3.65% 03/02/98 4,900,000 4,900,000
</TABLE>
- ---------------
See Notes to Financial Statements.
30
<PAGE> 300
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
California Pollution
Control Financing
Authority, Honey Lake
Power Company Project
(AMT) (LOC -- Banque
Nationale, Paris)
(final maturity
9/1/18)*............. NR/Aa3 NR/NR 3.65% 03/02/98 $4,300,000 $ 4,300,000
California Pollution
Control Financing
Authority, Pacific
Gas & Electric,
Series 1996A (AMT)
(LOC -- Swiss Bank
Corporation) (final
maturity 12/1/16)*... NR/NR A1+/AAA 3.20% 03/04/98 15,000,000 15,000,000
California Pollution
Control Financing
Authority, Pacific
Gas & Electric,
Series 1997B (AMT)
(LOC-Deutsche Bank)
(final maturity
11/1/26)*............ NR/NR A1+/AAA 3.60% 03/02/98 53,250,000 53,250,000
California Pollution
Control Financing
Authority, Pacific
Gas & Electric,
Series 1997C (AMT)
(LOC -- Kredietbank
N.V.) (final maturity
11/1/26)*............ NR/NR A1+/AA+ 3.65% 03/02/98 31,500,000 31,500,000
California Pollution
Control Financing
Authority, Pacific
Gas & Electric,
Series D............. NR/NR A1+/AA+ 3.55% 03/10/98 6,800,000 6,800,000
California Pollution
Control Financing
Authority, Shell Oil
Company Martinez
Project, Series 1994A
(AMT) (final maturity
10/1/24)*............ VMIG1/Aa1 NR/NR 3.60% 03/02/98 19,800,000 19,800,000
</TABLE>
- ---------------
See Notes to Financial Statements.
31
<PAGE> 301
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
California Pollution
Control Financing
Authority, Shell Oil
Company Project,
Series 1991A (final
maturity 10/1/06)*... VMIG1/AA1 A1+/AAA 3.55% 03/02/98 $1,300,000 $ 1,300,000
California Pollution
Control Financing
Authority, Southern
California Edison Co.
Project, Series 1986D
(final maturity
2/28/08)*............ P1/A1 A1/A+ 3.90% 03/02/98 1,000,000 1,000,000
California Pollution
Control Financing
Authority, Solid
Waste Disposal
Revenue, Taormina
Industries, Inc.
Project (AMT) (LOC --
Sanwa Bank, Ltd.)
(final maturity
8/1/14)*............. VMIG1/A1 NR/NR 3.85% 03/04/98 5,335,000 5,335,000
California Pollution
Control Financing
Authority, Solid
Waste Disposal
Revenue, Taormina
Industries, Inc.,
Project, Series 1994B
(AMT) (final maturity
8/1/14)*............. VMIG1/A1 NR/NR 3.85% 03/04/98 2,240,000 2,240,000
California Pollution
Control Revenue...... P1/NR A1+/NR 2.95% 03/10/98 3,300,000 3,300,000
California Pollution
Control Revenue...... P1/NR A1+/NR 3.10% 03/10/98 2,000,000 2,000,000
California Pollution
Control Revenue...... P1/NR A1+/NR 3.10% 03/12/98 3,600,000 3,600,000
California Pollution
Control Revenue...... P1/NR A1+/NR 3.10% 03/18/98 15,000,000 15,000,000
California Pollution
Control Revenue...... P1/NR A1+/NR 2.90% 03/04/98 2,000,000 2,000,000
California School
Cash Reserve Program
Authority, Series
A.................... MIG1/NR SP1+/NR 4.75% 07/02/98 37,110,666 37,110,666
</TABLE>
- ---------------
See Notes to Financial Statements.
32
<PAGE> 302
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
California State
Department of Water
(final maturity
12/1/29)*............ NR/AA A+/AA 3.41% 03/05/98 $8,300,000 $ 8,300,000
California State
Municipal Receipts,
Series SGA 54 (AMBAC
Insured) (final
maturity 6/1/21)*
**................... NR/NR NR/NR 3.40% 03/04/98 15,950,000 15,950,000
California State
Municipal Receipts,
Series SGA 72 (FGIC
Insured) (final
maturity 6/1/17)*
***.................. NR/NR A1+/AAA 3.40% 03/04/98 2,000,000 2,000,000
California State
Municipal Receipts,
Series SGB 7 (final
maturity 9/1/21)*.... NR/NR A1+/AAA 3.40% 03/04/98 3,975,000 3,975,000
California State
Revenue Anticipation
Note................. MIG1/NR SP1+/NR 4.50% 06/30/98 14,491,929 14,491,929
California Statewide
Community Development
Authority, Apartment
Development Revenue,
Series A-1 (final
maturity 5/15/25)*... NR/NR NR/AAA 3.00% 03/04/98 4,100,000 4,100,000
California Statewide
Community Development
Authority, Apartment
Development Revenue,
Series A-2 (final
maturity 5/15/25)*... NR/NR NR/AAA 3.00% 03/04/98 28,000,000 28,000,000
California Statewide
Community Development
Authority, Apartment
Development Revenue,
Series A-5 (final
maturity 5/15/25)*... NR/NR NR/AAA 3.15% 03/04/98 15,425,000 15,425,000
</TABLE>
- ---------------
See Notes to Financial Statements.
33
<PAGE> 303
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
California Statewide
Community Development
Authority, Apartment
Development Revenue,
Series A-6 (final
maturity 5/15/25)*... NR/NR NR/AAA 3.15% 03/04/98 $2,300,000 $ 2,300,000
California Statewide
Community Development
Authority, Apartment
Development Revenue,
Series A-7 (AMT)
(final maturity
5/15/25)*............ NR/NR NR/AAA 3.20% 03/04/98 8,800,000 8,800,000
California Statewide
Community Development
Authority, Sutter
Health Obligation
Group (AMBAC Insured)
(final maturity
7/1/15)*............. NR/NR NR/NR 3.85% 03/02/98 24,600,000 24,600,000
California Statewide
Community Development
Authority, Calsonic
Project (final
maturity 8/1/08)*.... NR/NR NR/NR 3.65% 03/04/98 7,000,000 7,000,000
California Statewide
Community Development
Authority, Chevron
USA, Inc. Project
(AMT) (final maturity
12/15/24)*........... NR/AA2 NR/NR 3.65% 03/02/98 12,400,000 12,400,000
California Statewide
Community Development
Authority, Kaiser
Permanente Foundation
Hospital (final
maturity 12/1/15)*... VMIG1/AA3 A1+/A+ 3.50% 03/04/98 3,400,000 3,400,000
</TABLE>
- ---------------
See Notes to Financial Statements.
34
<PAGE> 304
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
California Statewide
Community Development
Authority, Merrills
Packaging, Inc. (AMT)
(LOC -- Bank of
Tokyo) (final
maturity 12/1/18)*... NR/NR A1/A+ 3.65% 03/04/98 $1,605,000 $ 1,605,000
California Statewide
Community Development
Authority, Tax and
Revenue Anticipation
Note, Series B....... NR/AAA NR/AAA 4.75% 09/30/98 7,033,023 7,033,023
California Statewide
Community Development
Authority, The
Terraces at PK Marino
Project (AMT) (LOC --
Sanwa Bank,
California) (final
maturity 7/1/27)*.... VMIG1/A1 NR/NR 4.20% 03/04/98 7,355,000 7,355,000
California
Transportation
Finance Authority
(FSA Insured) (final
maturity 10/1/27)*... NR/NR A1+/AAA 3.20% 03/04/98 6,600,000 6,600,000
Camarillo Multifamily
Housing Authority,
Heritage Park Project
(FNMA Insured) (final
maturity 7/15/19)*... NR/NR A1+/AAA 3.00% 03/04/98 5,000,000 5,000,000
Central Coast Water
Authority California
Revenue (final
maturity 10/1/16)*... NR/NR A1+/AAA 3.36% 03/04/98 2,250,000 2,250,000
Chula Vista
Industrial
Development Revenue.. P1/NR A1/NR 3.15% 03/18/98 3,000,000 3,000,000
Chula Vista
Industrial
Development, San
Diego Gas & Electric
Co., Series A (AMT)
(final maturity
3/1/23)*............. VMIG1/A2 A1/A 3.75% 03/02/98 700,000 700,000
</TABLE>
- ---------------
See Notes to Financial Statements.
35
<PAGE> 305
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
Chula Vista
Industrial
Development, San
Diego Gas & Electric
Co., Series B (AMT)
(final maturity
12/1/27)*............ VMIG1/A1 A1/A+ 3.30% 03/04/98 $11,000,000 $ 11,000,000
City of Long Beach
(final maturity
5/15/15)*............ NR/NR A1+/AAA 3.31% 03/04/98 6,500,000 6,500,000
Contra Costa County
Tax & Revenue
Anticipation Notes,
Series A............. MIG1/NR SP1+/NR 4.50% 07/01/98 10,021,559 10,021,559
Eastern Municipal
Water District,
California Water &
Sewer, Certificates
of Participation,
Series B (FGIC
Insured) (final
maturity 7/1/20)*.... VMIG1/Aaa A1+/AAA 2.90% 03/04/98 25,640,000 25,640,000
Foothill/Eastern
Corridor Agency, Toll
Road Revenue, Series
B (LOC -- Morgan
Guaranty Trust)
(final maturity
1/2/35)*............. NR/NR A1+/AAA 2.90% 03/05/98 7,100,000 7,100,000
Fremont Certificates
of Participation,
Family Residential
Center (final
maturity 8/1/28)*.... NR/NR A1+/AA- 2.95% 03/04/98 2,000,000 2,000,000
Fremont Multi-Family
Housing Authority
(LOC -- Bayerische
Landesbank) (final
maturity 9/1/14)*.... NR/NR A1+/AAA 3.00% 03/05/98 6,000,000 6,000,000
Grand Terrace
Community
Redevelopment Agency,
Mt. Vernon Villas
(LOC -- Industrial
Bank of Japan) (final
maturity 12/1/11)*... NR/NR A2/A- 4.10% 03/04/98 1,650,000 1,650,000
</TABLE>
- ---------------
See Notes to Financial Statements.
36
<PAGE> 306
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
Hayward Multi-Family
Housing Authority,
Series A (final
maturity 8/1/14)*.... VMIG1/Aaa NR/AAA 2.90% 03/04/98 $9,600,000 $ 9,600,000
Huntington Beach
Multi-Family Housing,
Huntington Breakers,
Series A (LOC --
Sumitomo Bank, Ltd.)
(final maturity
7/1/14)*............. VMIG1/A1 NR/NR 3.65% 03/04/98 10,300,000 10,300,000
Indio Multi-Family
Housing, Western
Federal Savings
Project (LOC -- Wells
Fargo & Co.) (final
maturity 6/1/05)*.... NR/NR A1/A+ 2.75% 03/05/98 2,900,000 2,900,000
Irvine Improvement
Board Act 1915,
District 94-13
(LOC -- Canadian
Imperial Bank) (final
maturity 9/2/22)*.... VMIG1/Aa3 A1+/AA- 3.65% 03/02/98 2,800,000 2,800,000
Irvine Improvement
Board Act 1915,
District 94-15
(LOC -- Dai-Ichi
Kangyo Bank, Ltd.)
(final maturity
9/2/20)*............. VMIG1/A1 A2/BBB+ 3.85% 03/02/98 12,733,000 12,733,000
Ivrine Ranch Water
District (LOC --
National Westminster)
(final maturity
8/1/16)*............. VMIG1/AA2 A1/A 3.65% 03/04/98 2,700,000 2,700,000
Long Beach Health
Facilities, Memorial
Health Service (final
maturity 10/1/16)*... VMIG1/A1 A1+/AA- 3.05% 03/04/98 11,600,000 11,600,000
Long Beach (AMT)
(final maturity
5/15/05)*............ P1/Aaa A1/AAA 3.45% 03/04/98 4,995,000 4,995,000
Long Beach County,
Capital Asset........ P1/NR A1/NR 3.20% 03/11/98 1,000,000 1,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
37
<PAGE> 307
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
Los Angeles Community
Redevelopment Agency,
Academy Village
Apartments (AMT)
(LOC -- Swiss Bank)
(final maturity
10/1/19)*............ VMIG1/Aa1 NR/NR 3.05% 03/02/98 $15,000,000 $ 15,000,000
Los Angeles County
Metro Transportation
Sales Tax Revenue,
Series 1993A (MBIA
Insured) (final
maturity 7/1/20)*.... VMIG1/Aaa A1+/AAA 2.90% 03/05/98 31,150,000 31,150,000
Los Angeles County
Metropolitan
Transportation
Authority, Series
SG-54 (final maturity
7/1/17)*............. NR/NR A1+/AAA 3.41% 03/04/98 2,100,000 2,100,000
Los Angeles County
Pension Obligation,
Series B (AMBAC
Insured) (final
maturity 6/30/07)*... VMIG1/Aaa A1+/AAA 3.00% 03/04/98 1,200,000 1,200,000
Los Angeles County
Tranportation
Authority............ P1/NR A1+/NR 2.85% 03/12/98 5,337,000 5,337,000
Los Angeles County
Transportation
Authority, Series
A.................... P1/NR A1+/NR 3.70% 03/09/98 4,900,000 4,900,000
Los Angeles County
Transportation
Commission Sales Tax
Revenue, Series 1992A
(FGIC Insured) (final
maturity 7/1/12)*.... VMIG1/Aaa A1+/AAA 3.00% 03/04/98 2,400,000 2,400,000
Los Angeles County
Transportation
Commission Sales Tax
Revenue, Series A.... P1/NR A1+/NR 3.70% 03/09/98 100,000 100,000
Los Angeles County
Water Authority...... P1/NR A1+/NR 3.15% 04/03/98 15,000,000 15,000,000
Los Angeles County
Waste Water
Systems.............. P1/NR A1+/NR 3.60% 03/12/98 1,500,000 1,500,000
Los Angeles County
Capital Asset........ P1/NR A1/NR 3.30% 03/06/98 1,000,000 1,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
38
<PAGE> 308
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
Los Angeles County
Capital Asset........ P1/NR A1/NR 3.40% 03/25/98 $10,000,000 $ 10,000,000
Los Angeles County
Capital Asset........ P1/NR A1/NR 3.40% 03/06/98 5,000,000 5,000,000
Los Angeles
Department of Water
and Power............ P1/NR A1+/NR 3.35% 05/11/98 19,000,000 19,000,000
Los Angeles
Department of Water
and Power............ P1/NR A1+/NR 3.10% 03/17/98 5,000,000 5,000,000
Los Angeles
Department of Water
and Power............ P1/NR A1+/NR 3.75% 04/08/98 15,000,000 15,000,000
Los Angeles
Department of Water
and Power............ P1/NR A1+/NR 3.00% 03/06/98 10,000,000 10,000,000
Los Angeles
Department of Water
and Power............ P1/NR A1+/NR 3.10% 03/17/98 35,000,000 35,000,000
Los Angeles Tax &
Revenue Anticipation
Notes................ MIG1/NR SP1+/NR 4.50% 06/30/98 15,028,671 15,028,671
Los Angeles
Transportation
Authority............ P1/NR A1+/NR 2.95% 03/05/98 6,000,000 6,000,000
Los Angeles Unified
School District Tax &
Revenue Anticipation
Note................. MIG1/NR SP1+/NR 4.50% 10/01/98 7,026,456 7,026,456
Marin County Tax &
Revenue Anticipation
Notes................ MIG1/NR NR/NR 4.50% 07/31/98 20,052,238 20,052,238
Metropolitan Water
District, Southern
California
Waterworks, Series A
(AMBAC Insured)
(final maturity
6/1/23)*............. VMIG1/Aaa A1+/AAA 2.90% 03/05/98 6,980,000 6,980,000
Modesto County....... P1/NR A1+/NR 2.95% 03/12/98 8,000,000 8,000,000
Modesto Irrigation
District............. P1/NR A1/NR 3.10% 03/19/98 7,000,000 7,000,000
Monterey County
Financing Authority,
Reclamation and
Distribution Project
(LOC -- Dai-Ichi
Kangyo Bank, Ltd.)
(final maturity
9/1/36)*............. VMIG1/A1 NR/NR 3.90% 03/05/98 19,100,000 19,100,000
</TABLE>
- ---------------
See Notes to Financial Statements.
39
<PAGE> 309
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
Monterey Peninsula
Water Management
District,
Certificates of
Participation,
Wastewater
Reclamation Project
(LOC -- Sumitomo
Bank, Ltd.) (final
maturity 7/1/22)*.... VMIG1/A1 A2/A- 3.50% 03/05/98 $21,600,000 $ 21,600,000
Monterey Waste
Management Authority
(LOC -- Dai Ichi
Kangyo Bank, Ltd.)
(final maturity
4/1/15)*............. NR/NR A2/BBB+ 3.90% 03/02/98 3,400,000 3,400,000
MSR Public Power
Agency, California
San Jaun Project,
Series 1997E (MBIA
Insured) (final
maturity 7/1/22)*.... VMIG1/AAA A1+/AAA 3.00% 03/04/98 15,200,000 15,200,000
Ontario Industrial
Development
Authority, L.D.
Brinkman & Co.
(LOC -- Union Bank of
California) (final
maturity 4/1/15)*.... P1/NR NR/NR 3.55% 03/02/98 3,000,000 3,000,000
Orange County
Apartment Development
Authority, Bear Brand
Apartments (final
maturity 11/1/07)*... VMIG1/Aa2 NR/NR 3.00% 03/04/98 19,500,000 19,500,000
Orange County
Apartment Development
Authority, Pointe
Niguel Project,
Series C
(LOC -- First
Interstate Bancorp)
(final maturity
11/1/05)*............ VMIG1/Aa3 NR/NR 3.25% 03/05/98 13,000,000 13,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
40
<PAGE> 310
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
Orange County
Apartment Development
Authority, Traboco
Wood Apartments
(final maturity
4/1/23)*............. VMIG1/A1 NR/NR 2.70% 03/04/98 $2,670,000 $ 2,670,000
Orange County Housing
Authority, Costa
Partner Development,
Series BB (final
maturity 12/1/09)*... VMIG1/Aa2 NR/NR 3.20% 03/03/98 12,000,000 12,000,000
Orange County Special
Finance Authority,
Tetter Plan, Series B
(LOC-IBJ Schroder
Bank & Trust) (final
maturity 11/1/14)*... P1/A2 A2/A- 3.75% 03/04/98 5,825,000 5,825,000
Otay Water District,
Certificates of
Participation (final
maturity 9/1/26)*.... P1/Aaa A+/AAA 3.00% 03/04/98 2,200,000 2,200,000
Riverside County
Community Facilities
District, Special Tax
No. 88-4 (LOC --
Kredietbank N.V.)
(final maturity
9/1/14)*............. VMIG1/AA2 NR/NR 3.05% 03/04/98 5,700,000 5,700,000
Riverside County
Housing Authority,
Multi-Family Mortgage
Revenue, Woodcreek
Development (final
maturity 7/15/18)*... NR/NR A1+/AAA 2.95% 03/04/98 2,000,000 2,000,000
Riverside County
Housing, Multi-Family
Mortgage Revenue,
Emirtus Park, Series
B (final maturity
7/15/18)*............ NR/NR A1+/AAA 2.95% 03/04/98 3,100,000 3,100,000
Riverside County
School Financing
Authority, Revenue
Anticipation Note.... MIG1/NR NR/NR 4.50% 10/01/98 8,028,373 8,028,373
Riverside County
Transportation
Authority............ P1/NR A1/NR 3.00% 03/12/98 5,000,000 5,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
41
<PAGE> 311
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
Sacramento County
Multi-Family Housing,
Series A (LOC --
Dai-Ichi Kangyo Bank,
Ltd.) (final maturity
4/15/07)*............ VMIG1/A1 NR/NR 3.90% 03/05/98 $8,800,000 $ 8,800,000
Sacramento County Tax
& Revenue
Anticipation Note.... MIG1/NR SP1+/NR 4.50% 09/30/98 3,010,504 3,010,504
Sacramento Municipal
Utility Authority.... P1/NR A1+/NR 3.15% 03/27/98 8,000,000 8,000,000
Sacramento County.... P1/NR A1+/NR 3.35% 05/12/98 11,293,000 11,293,000
San Bernardino County
Housing Authority,
Multi-Family Housing,
Brookside Meadows,
Series A (final
maturity 8/1/05)*.... VMIG1/Aa2 NR/NR 3.10% 03/04/98 22,000,000 22,000,000
San Diego Area Local
Government,
Certificates of
Participation, Tax &
Revenue Anticipation
Notes................ NR/NR SP1+/NR 4.50% 10/01/98 1,505,247 1,505,247
San Diego City,
Industrial
Development
Authority, San Diego
Gas & Electric....... P1/NR A1+/NR 3.70% 03/09/98 1,500,000 1,500,000
San Diego City,
Industrial
Development
Authority, San Diego
Gas & Electric,
Series A............. P1/NR A1+/NR 3.65% 03/09/98 6,400,000 6,400,000
San Diego County
Housing Authority,
Multi-Family Housing
Revenue, Country
Hills (final maturity
8/15/13)*............ NR/NR A1+/AAA 2.95% 03/05/98 4,590,000 4,590,000
San Diego County Tax
& Revenue
Anticipation Notes... MIG1/NR SP1+/NR 4.50% 09/30/98 45,165,796 45,165,796
San Diego County
Water District
Authority............ P1/NR A1+/NR 3.70% 03/09/98 5,000,000 5,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
42
<PAGE> 312
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
San Diego Housing
Authority, Multi-
Family Housing, Nobel
Ct. Apartments,
Series L (final
maturity 12/1/08)*... VMIG1/A2 NR/NR 3.00% 03/05/98 $11,910,000 $ 11,910,000
San Diego Housing
Authority, Multi-
Family Housing, Paseo
Point Apartments,
Series A (final
maturity 8/1/15)*.... VMIG1/AA2 NR/NR 3.50% 03/04/98 1,500,000 1,500,000
San Diego Industrial
Development Revenue.. P1/NR A1+/NR 3.35% 05/13/98 5,200,000 5,200,000
San Francisco Airport
Authority............ P1/NR A1+/NR 3.10% 03/25/98 4,020,000 4,020,000
San Francisco City
and County Community
International
Airport, Series SG 88
(final maturity
5/1/21)*............. NR/NR A1+/AAA 3.38% 03/05/98 5,345,000 5,345,000
San Francisco City
and County Community
International
Airport, Series SGA
50 (AMT) (MBIA
Insured) (final
maturity 5/1/16)*.... NR/NR A1+/AAA 3.40% 03/04/98 7,500,000 7,500,000
San Francisco City
and County Community
International
Airport, Series SGA
56 (AMT) (MBIA
Insured) (final
maturity 5/1/26)*.... NR/NR A1+/AAA 3.40% 03/05/98 3,905,000 3,905,000
San Francisco City
and County
Multi-Family Housing,
Bayside Village
Project D, Series A
(LOC -- Industrial
Bank of Japan) (final
maturity 12/1/05)*... VMIG1/A2 NR/NR 3.85% 03/05/98 1,000,000 1,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
43
<PAGE> 313
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
San Francisco City
and County
Multi-Family Housing,
Winterland Project,
Series 1985-C
(LOC -- Citibank,
N.A.) (final maturity
6/1/06)*............. NR/NR A1+/AA- 2.70% 03/03/98 $1,500,000 $ 1,500,000
San Francisco
Commercial Paper..... P1/NR A1+/NR 3.65% 03/10/98 7,500,000 7,500,000
San Francisco
Commercial Paper..... P1/NR A1+/NR 3.70% 03/19/98 5,000,000 5,000,000
San Mateo County Tax
& Revenue
Anticipation Notes... NR/NR SP1+/NR 4.50% 07/01/98 7,015,770 7,015,770
Santa Ana Unified
School District,
Certificates of
Participation (LOC --
Banque Nationale,
Paris) (final
maturity 7/1/15)*.... VMIG1/Aa3 NR/NR 3.00% 03/04/98 3,200,000 3,200,000
Santa Clara County
Multi-Family Housing
Authority, Foxchase
Apartments (FGIC
Insured) (final
maturity 11/1/07)*... VMIG1/AAA A1+/AAA 2.90% 03/05/98 1,500,000 1,500,000
Santa Clara County,
Transit Authority,
Series 1985-A (LOC --
Sumitomo Bank) (final
maturity 6/1/15)*.... VMIG1/A1 NR/NR 4.05% 03/02/98 11,760,000 11,760,000
Santa Clara Electric
Revenue Authority,
Series C (LOC --
National Westminster)
(final maturity
7/1/10)*............. VMIG1/Aa2 NR/NR 3.05% 03/02/98 1,700,000 1,700,000
Southeast Recovery
Facility, Series A
(LOC -- Industrial
Bank of Japan Ltd.)
(final maturity
12/1/18)*............ VMIG1/A2 A2/A- 3.95% 03/02/98 19,100,000 19,100,000
</TABLE>
- ---------------
See Notes to Financial Statements.
44
<PAGE> 314
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
Southeast Recovery
Facility, Series B
(AMT) (LOC --
Industrial Bank of
Japan Ltd.) (final
maturity 12/1/18)*... VMIG1/A2 A2/A- 4.10% 03/04/98 $3,300,000 $ 3,300,000
Southern California
Metropolitan Water
District............. P1/NR A1+/NR 2.80% 03/06/98 4,000,000 4,000,000
Southern California
Metropolitan Water
District............. P1/NR A1+/NR 3.70% 03/11/98 5,700,000 5,700,000
Southern California
Public Power
Authority (AMBAC
Insured) (final
maturity 7/1/19)*.... VMIG1/Aaa A1+/AAA 3.00% 03/02/98 10,300,000 10,300,000
Southern California
Public Power
Authority, Palo Verde
Project (AMBAC
Insured) (final
maturity 7/1/17)*.... VMIG1/AAA A1+/AAA 3.00% 03/02/98 1,200,000 1,200,000
Vallejo Industrial
Development
Authority, Meyer
Cookware Industries
Project, Series A
(AMT) (LOC -- Bank of
Tokyo) (final
maturity 12/1/23)*... NR/NR A1/A+ 3.80% 03/02/98 3,300,000 3,300,000
Victor Valley
Community College,
Certificates of
Participation,
Capital Improvement
Refining Project
(LOC -- Banque
Nationale, Paris)
(final maturity
12/1/28)*............ NR/NR A1/A 3.05% 03/04/98 5,000,000 5,000,000
Washington Township
Hospital, Alameda
County, Series A
(LOC -- Industrial
Bank of Japan) (final
maturity 1/1/16)*.... VMIG1/A2 NR/NR 3.70% 03/05/98 5,900,000 5,900,000
</TABLE>
- ---------------
See Notes to Financial Statements.
45
<PAGE> 315
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
Woodland Multi-Family
Mortgage Revenue
(final maturity
8/1/18)*............. NR/NR A1+/AAA 2.95% 03/04/98 $1,800,000 $ 1,800,000
--------------
1,388,466,694
--------------
PUERTO RICO -- 3.5%
Puerto Rico
Commercial Paper..... P1/NR A1+/NR 2.85% 03/10/98 27,350,000 27,350,000
Puerto Rico
Commercial Paper..... P1/NR A1+/NR 2.90% 03/13/98 20,000,000 20,000,000
Puerto Rico Electric
Power Authority,
Series SGA 43 (final
maturity 7/1/22)*.... NR/NR A1+/AAA 3.35% 03/02/98 2,900,000 2,900,000
--------------
50,250,000
--------------
TOTAL INVESTMENTS -- 99.8%
(AMORTIZED COST
$1,438,716,694)(a)... 1,438,716,694
OTHER ASSETS IN EXCESS
OF
LIABILITIES -- 0.2%... 2,921,055
--------------
NET ASSETS -- 100.0%.. $1,441,637,749
==============
</TABLE>
- ---------------
Percentages indicated are based on net assets of $1,441,637,749.
(a) Cost for Federal income tax and financial reporting purposes is
substantially the same.
<TABLE>
<C> <S>
AMBAC -- AMBAC Indemnity Corporation.
AMT -- Interest on securities subject to Federal Alternative
Minimum Tax.
FGIC -- Financial Guaranty Insurance Company.
FNMA -- Federal National Mortgage Association.
FSA -- Financial Security Assurance.
LOC -- Letter of Credit.
MBIA -- Municipal Bond Insurance Association.
NR -- No rating assigned by Moody's or S&P.
</TABLE>
* Variable rate security. Maturity date reflects the next rate change date.
** Security includes put feature.
*** Security includes call feature.
(dagger) The ratings provided consist of short-term and long-term ratings.
(double dagger) 144A -- Security was purchased pursuant to Rule 144A under the
Securities Act of 1933 and may not be resold subject to that
rule except to qualified institutional buyers. At the end of
the period, these securities amounted to 17.4% of net assets.
See Notes to Financial Statements.
46
<PAGE> 316
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALIFORNIA
TAX-EXEMPT TAX-EXEMPT
MONEY MONEY MARKET
FUND FUND
------------ --------------
<S> <C> <C>
ASSETS:
Investments in securities, at value (amortized cost
$738,223,760, and $1,438,716,694, respectively).......... $738,223,760 $1,438,716,694
Cash....................................................... 93,018 284,558
Interest Receivable........................................ 4,892,966 9,195,297
Prepaid expenses........................................... 34,227 --
------------ --------------
Total Assets................................................ 743,243,971 1,448,196,549
------------ --------------
LIABILITIES:
Dividends payable.......................................... 1,080,905 813,814
Payable for investment securities purchased................ 34,410,000 5,000,000
Investment advisory fees payable........................... 54,741 109,687
Administration fees payable................................ 54,663 109,531
Special management fees payable (Pacific Horizon Shares)... 69,563 142,473
Shareholder service fees payable (Horizon Service
Shares).................................................. 34,905 131,670
Shareholder service fees payable (X Shares)................ -- 6,000
Shareholder service fees payable (S Shares)................ 5,382 25,219
Distribution fees payable (X Shares)....................... -- 7,197
Distribution fees payable (S Shares)....................... 39,748 30,269
Custodian and fund accounting fees payable................. 53,706 46,471
Transfer agent fees payable................................ 14,191 45,653
Legal fees payable......................................... 7,219 13,367
Other accrued expenses..................................... 95,172 77,449
------------ --------------
Total Liabilities........................................... 35,920,195 6,558,800
------------ --------------
NET ASSETS.................................................. $707,323,776 $1,441,637,749
============ ==============
Net Assets:
Pacific Horizon Shares..................................... $150,935,560 $ 597,734,078
Horizon Shares............................................. 343,844,011 --
Horizon Service Shares..................................... 185,806,464 671,563,654
X Shares................................................... -- 30,710,096
S Shares................................................... 26,737,741 141,629,921
------------ --------------
Total....................................................... $707,323,776 $1,441,637,749
============ ==============
Shares Outstanding ($0.001 par value, 50 billion and 40
billion shares authorized, respectively):
Pacific Horizon Shares..................................... 150,961,873 597,750,253
Horizon Shares............................................. 343,994,016 --
Horizon Service Shares..................................... 185,835,775 671,602,739
X Shares................................................... -- 30,711,906
S Shares................................................... 26,737,717 141,630,149
------------ --------------
Total....................................................... 707,529,381 1,441,695,047
============ ==============
NET ASSET VALUE, OFFERING PRICE, AND
REDEMPTION PRICE PER SHARE................................. $ 1.00 $ 1.00
============ ==============
COMPOSITION OF NET ASSETS:
Shares of common stock, at par............................. $ 707,479 $ 1,441,695
Additional paid-in capital................................. 706,768,542 1,440,189,891
Accumulated undistributed net investment income............ 52,442 62,301
Accumulated net realized losses on investment
transactions............................................. (204,687) (56,138)
------------ --------------
NET ASSETS, FEBRUARY 28, 1998............................... $707,323,776 $1,441,637,749
============ ==============
</TABLE>
- ---------------
See Notes to Financial Statements.
47
<PAGE> 317
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Statements of Operations
For the year ended February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALIFORNIA
TAX-EXEMPT
TAX-EXEMPT MONEY
MONEY MARKET
FUND FUND
----------- -----------
<S> <C> <C>
INVESTMENT INCOME:
Interest................................................... $23,523,919 $41,030,924
----------- -----------
EXPENSES:
Investment advisory fees................................... 636,863 1,149,877
Administration fees........................................ 636,863 1,149,877
Special management fees (Pacific Horizon Shares)........... 384,228 1,851,005
Shareholder service fees (Horizon Service Shares).......... 464,176 1,340,735
Shareholder service fees (X Shares)........................ -- 91,193
Shareholder service fees (S Shares)........................ 19,016 116,192
Distribution fees (X Shares)............................... -- 109,431
Distribution fees (S Shares)............................... 57,047 368,434
Custodian and fund accounting fees......................... 193,481 147,835
Transfer agent fees........................................ 48,601 98,992
Legal fees................................................. 36,242 65,288
Other expenses............................................. 246,990 225,316
----------- -----------
Total Expenses........................................... 2,723,507 6,714,175
Less: Fee waivers.......................................... (34,227) (377,448)
Expenses paid by third parties....................... (11,286) (6,195)
----------- -----------
Total Net Expenses.......................................... 2,677,994 6,330,532
----------- -----------
NET INVESTMENT INCOME....................................... 20,845,925 34,700,392
NET REALIZED LOSSES ON INVESTMENTS:
Net realized losses on investment transactions............. (33,324) (45,278)
----------- -----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $20,812,601 $34,655,114
=========== ===========
</TABLE>
- ---------------
See Notes to Financial Statements.
48
<PAGE> 318
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALIFORNIA TAX-EXEMPT
TAX-EXEMPT MONEY FUND MONEY MARKET FUND
----------------------------------- -----------------------------------
YEAR ENDED YEAR ENDED
----------------------------------- -----------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1998 1997 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income........ $ 20,845,925 $ 13,859,405 $ 34,700,392 $ 24,332,592
Net realized gains (losses)
on investment
transactions............... (33,324) (26,740) (45,278) 26,388
--------------- --------------- --------------- ---------------
Change in net assets resulting
from operations.............. 20,812,601 13,832,665 34,655,114 24,358,980
--------------- --------------- --------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM NET INVESTMENT INCOME:
Pacific Horizon Shares..... (3,710,722) (1,704,176) (15,910,817) (14,425,062)
Horizon Shares............. (11,040,725) (8,858,516) -- --
Horizon Service Shares..... (5,881,059) (3,296,713) (16,451,344) (9,708,150)
S Shares................... (213,419)(c) -- (1,319,384)(b) --
X Shares................... -- -- (1,018,847) (199,380)(a)
--------------- --------------- --------------- ---------------
Change in net assets from
shareholder distributions.... (20,845,925) (13,859,405) (34,700,392) (24,332,592)
--------------- --------------- --------------- ---------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares
issued................... 1,756,343,172 1,611,040,281 3,024,788,107 2,140,307,421
Dividends reinvested....... 5,686,685 2,774,538 26,426,275 19,760,377
Cost of shares redeemed.... (1,574,206,334) (1,481,260,268) (2,603,253,345) (1,897,767,756)
--------------- --------------- --------------- ---------------
Change in net assets from
capital share transactions... 187,823,523 132,554,551 447,961,037 262,300,042
--------------- --------------- --------------- ---------------
Change in net assets.......... 187,790,199 132,527,811 447,915,759 262,326,430
NET ASSETS:
Beginning of year.......... 519,533,577 387,005,766 993,721,990 731,395,560
--------------- --------------- --------------- ---------------
End of year................ $ 707,323,776 $ 519,533,577 $ 1,441,637,749 $ 993,721,990
=============== =============== =============== ===============
Accumulated Undistributed Net
Investment Income............ $ 52,442 $ 52,442 $ 62,301 $ 62,301
=============== =============== =============== ===============
</TABLE>
- ---------------
(a) Period from October 2, 1996 (inception date) to February 28, 1997.
(b) Period from June 18, 1997 (inception date) to February 28, 1998.
(c) Period from July 8, 1997 (inception date) to February 28, 1998.
See Notes to Financial Statements.
49
<PAGE> 319
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, 1998, the Company
operated as a series company comprised of seventeen portfolios. The accompanying
financial statements and notes are those of the Pacific Horizon Tax-Exempt Money
Fund (the "Tax-Exempt Fund") and Pacific Horizon California Tax-Exempt Money
Market Fund (the "California Tax-Exempt Fund"), collectively the "Funds",
individually the "Fund".
The Tax-Exempt Fund issues four classes of shares (Pacific Horizon Shares,
Horizon Shares, Horizon Service Shares and effective July 8, 1997, S Shares) and
California Tax-Exempt Fund issues four classes of shares (Pacific Horizon
Shares, Horizon Service Shares, and effective October 2, 1996, X Shares and
effective June 18, 1997, S Shares). The California Tax-Exempt Fund is authorized
to issue a fourth class of shares (Horizon Shares). Pacific Horizon Shares have
a Special Management Services Plan while the Horizon Service Shares have a
Shareholder Services Plan. X Shares and S Shares have a Distribution and
Services Plan.
The Funds' seek to provide as high a level of current interest income exempt
from federal income taxes as is consistent with relative stability of principal
and daily liquidity. In addition, the California Tax-Exempt Fund seeks to
provide income that is also exempt from California state income taxes.
Bank of America National Trust and Savings Association ("Bank of America"),
a subsidiary of BankAmerica Corporation, serves as the Fund's investment
adviser. On September 15, 1997, Bank of America assumed the responsibility of
administrator for each of the Funds pursuant to the terms of an Administration
Agreement between the Company and Bank of America (the "Administration
Agreement"). Prior to September 15, 1997 BISYS Group, Inc. ("BISYS") through its
wholly-owned subsidiary, BISYS Fund Services, Limited Partnership, served as the
Funds' Administrator.
Bank of America has entered into an agreement with PFPC Inc. ("PFPC"), an
indirect wholly-owned subsidiary of PNC Bank Corp., pursuant to which PFPC has
agreed to provide certain sub-administration services to the Funds, including,
but not limited to, assisting in the developing and monitoring of compliance
procedures, participating in periodic updating of the Funds' prospec-
50
<PAGE> 320
tuses and statements of additional information, providing periodic reports to
the Company's Board and providing certain record-keeping services. Bank of
America will bear all fees and expenses charged by PFPC for such services.
In addition, pursuant to authority granted in the Administration Agreement,
Bank of America has entered into an agreement with The Bank of New York ("BONY")
under which BONY has agreed to provide certain accounting, bookkeeping, pricing
and dividend and distribution calculation services for the Funds. The Funds bear
all fees and expenses charged by BONY for these services.
DISTRIBUTOR AND TRANSFER AGENT
Effective September 15, 1997, Provident Distributors, Inc. ("PDI"), assumed
responsibility as principal underwriter and distributor of shares of the Funds.
Prior to such date, Concord Financial Group, Inc. (the "Former Distributor"),
also a wholly-owned subsidiary of BISYS, served as distributor of the Funds.
Additionally on October 24, 1997, PFPC assumed responsibility as the Fund's
transfer agent and dividend disbursing agent. BISYS Fund Services, Inc. ("BISYS
Ohio") also a wholly-owned subsidiary of BISYS, served the Funds in such
capacity prior to such date.
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. These policies are
in conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
PORTFOLIO VALUATIONS:
The securities of the Funds are valued at amortized cost, which approximates
market value. The amortized cost method involves valuing a security at its cost
on the date of purchase and thereafter assuming a constant amortization to
maturity of the difference between principal amount due at maturity and initial
cost.
SECURITIES TRANSACTIONS AND RELATED INCOME:
The Funds record security transactions on a trade date basis. Interest
income, including accretion of discount and amortization of premium, is accrued
51
<PAGE> 321
daily. Realized gains and losses from security transactions are recorded on an
identified cost basis.
EXPENSES:
The Company accounts separately for the assets, liabilities and operations
of each fund. Direct expenses of a fund are charged to that fund while general
Company expenses are allocated among the Company's respective portfolios.
The investment income and expenses (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.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
The Funds' net investment income is declared as a dividend daily, and paid
monthly, 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, 1998, the following reclassifications have been made to
increase (decrease) such accounts with offsetting adjustments made to paid-in
capital:
<TABLE>
<CAPTION>
ACCUMULATED ACCUMULATED NET
UNDISTRIBUTED NET REALIZED GAIN/(LOSS)
FUND INVESTMENT INCOME ON INVESTMENTS
---- ------------------ --------------------
<S> <C> <C>
Tax-Exempt Fund........................... $ -- $(16,664)
</TABLE>
52
<PAGE> 322
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
annually all of its net investment company taxable income and net capital gains
to shareholders. Therefore, no Federal income tax provision is required.
At February 28, 1998, the Tax-Exempt Fund and California Tax-Exempt Fund had
the following capital loss carryovers:
<TABLE>
<CAPTION>
CAPITAL LOSS EXPIRATION
FUND CARRYOVER DATE
---- ------------ ----------
<S> <C> <C>
Tax-Exempt Fund........................................... $ 14,011 2000
71,218 2002
19,132 2003
36,425 2004
30,577 2005
15,133 2006
--------
$186,496
========
California Tax-Exempt Fund................................ $ 4,266 2004
51,872 2006
--------
56,138
========
</TABLE>
To the extent that these loss carryovers are used to offset future capital
gains, it is probable that the gains so offset will not be distributed to
shareholders. During the year ended February 28, 1998, $16,664 of capital loss
carryovers expired for the Tax-Exempt Fund.
Capital losses incurred after October 31 for the Tax-Exempt Fund and the
California Tax-Exempt Fund are deemed to arise on the first business day of the
following fiscal year for tax purposes. The Funds have incurred and elected to
defer capital losses of $18,190 and $1,893, respectively, incurred after October
31, 1997.
OTHER:
The Funds maintain 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, 1998, custodian fees and expenses paid by third parties were
increased by $11,286 and $6,195 for the Tax-Exempt Fund and California Tax-
Exempt Fund, respectively. There was no effect on net investment income. The
Fund could have invested such cash amounts in income producing assets if it had
not agreed to a reduction of fees or expenses under the expense offset
arrangement with its custodian.
53
<PAGE> 323
NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
The Funds have an Investment Advisory Agreement and an Administration
Agreement with Bank of America. For the period ended September 15, 1997, the
Fund's had an Administration Agreement with BISYS and a Distribution Agreement
with the Former Distributor. Bank of America is entitled to an Advisory fee from
each Fund, which is accrued daily and payable monthly, at an annual rate of
0.10% of each Fund's first $3 billion of net assets, plus 0.09% of each Fund's
next $2 billion of net assets, plus 0.08% of each Fund's net assets in excess of
$5 billion. The Administration Agreement entitled Bank of America to fees from
each Fund for Administrative services performed, which is accrued daily and
payable monthly, at an annual rate of 0.10% of each Fund's first $7 billion of
net assets, plus 0.09% of each Fund's next $3 billion of net assets, plus 0.08%
of each Fund's net assets in excess of $10 billion. During the period March 1,
1997 through September 15, 1997, the Funds had an Administration Agreement with
BISYS. Administration fee rates paid to BISYS were the same as those currently
paid to Bank of America. The Funds were advised that for the period September
15, 1997 through February 28, 1998, Bank of America and for the period March 1,
1997 through September 15, 1997, BISYS earned the following amounts pursuant to
the respective Administrative Agreements:
<TABLE>
<CAPTION>
BANK OF
AMERICA AND
FUND AFFILIATES BISYS
---- ----------- -----
<S> <C> <C>
Tax-Exempt Fund.......................................... $322,955 $313,908
California Tax-Exempt Fund............................... 575,370 574,507
</TABLE>
The Funds have adopted a Special Management Services Plan (the "Services
Plan") pursuant to which Service Organizations agree to provide certain services
to their clients who are beneficial owners of Pacific Horizon Shares in return
for a payment by the Funds of a fee at an annual rate of 0.32% and 0.35% for the
Tax-Exempt Money Fund and California Tax-Exempt Fund, respectively, of the
average daily net assets of the outstanding Pacific Horizon Shares of each Fund.
Currently, the California Tax-Exempt Fund is waiving 0.03% in special management
fees. Fees under the Services Plan are borne solely by the Pacific Horizon
Shares. Service Organizations may include Bank of America and its affiliates,
and PDI (from September 15 through February 28, 1998), and BISYS (prior to
September 15, 1997). Under the Services Agreement and Services Plan, Bank of
America, PDI (from September 15 through February 28, 1998), and BISYS (prior to
September 15, 1997) waived $158,626, $218 and $525, respectively, in special
management fees for the California Tax-Exempt Fund. For the year ended February
28, 1998, for the period September 15, 1997 through February 28, 1998 and for
the period March 1, 1997 through September 15, 1997, the Funds were
54
<PAGE> 324
advised that Bank of America and its affiliates, PDI and BISYS earned the
following amounts pursuant to the Services Agreement and Services Plan,
respectively:
<TABLE>
<CAPTION>
BANK OF
AMERICA AND
FUND AFFILIATES PDI BISYS
---- ----------- ------ -----
<S> <C> <C> <C>
Tax-Exempt Fund.................................. $ 377,885 $2,580 $2,939
California Tax-Exempt Fund....................... 1,676,744 2,304 5,548
</TABLE>
The Funds have also adopted a Shareholder Services Plan (the "Horizon
Services Plan") pursuant to which Service Organizations agree to provide certain
services to their clients who are beneficial owners of Horizon Service Shares in
return for payment by the Funds of a fee at an annual rate of 0.25% of the
average daily net assets of the Horizon Service Shares. Fees under the Horizon
Services Plan are borne solely by the Horizon Service Shares. For the year ended
February 28, 1998, the Funds were advised that Bank of America and its
affiliates earned the following amounts pursuant to the Horizon Services Plan,
respectively:
<TABLE>
<CAPTION>
BANK OF
AMERICA AND
FUND AFFILIATES
---- -----------
<S> <C>
Tax-Exempt Fund............................................. $ 422,932
California Tax-Exempt Fund.................................. 1,187,827
</TABLE>
The California Tax-Exempt Fund has adopted the Distribution and Services
Plan under which the Fund paid PDI and the Former Distributor and Service
Organizations for the provision of support services with respect to the
beneficial owners of X Shares. Payments for distribution expenses and
shareholder servicing expenses may not exceed the annual rate of 0.30% and
0.25%, respectively, of the average daily net assets of such Fund's X Shares.
For the year ended February 28, 1998, the Fund was advised that Bank of America
and its affiliates earned $200,624 pursuant to the Distribution and Services
Plan.
The Funds have adopted the Distribution and Services Plan under which the
Fund pays the Distributor and Service Organizations for the provision of support
services with respect to the beneficial owners of S shares. Payments for the
distribution expenses and shareholder servicing expenses may not exceed the
annual rate of 0.75% and 0.25%, respectively, of the average daily net assets of
the Funds' S shares. For the year ended February 28, 1998, the Funds were
55
<PAGE> 325
advised that Bank of America and its affiliates earned the following amounts
pursuant to the Distribution and Services Plan, respectively:
<TABLE>
<CAPTION>
BANK OF
AMERICA AND
FUND AFFILIATES
---- -----------
<S> <C>
Tax-Exempt Fund............................................. $ 41,836
California Tax-Exempt Fund.................................. 266,540
</TABLE>
For the same period, the Funds were advised that Bank of America and its
Affiliates waived $34,227 and $218,079 for the Tax-Exempt Fund and the
California Tax-Exempt Fund, respectively.
From the period October 24, 1997 through February 28, 1998 PFPC earned
$5,088 and $43,682 from the Tax-Exempt Fund and California Tax-Exempt Fund,
respectively, for transfer agency and dividend disbursing agency services
performed. BISYS Ohio served the Funds as transfer agent and dividend disbursing
agent through October 24, 1997. In these capacities for the Funds, BISYS Ohio
earned $43,513 and $55,310 from the Tax-Exempt Fund and California Tax-Exempt
Fund, respectively, for the period ended October 24, 1997.
For the year ended February 28, 1998, the Tax-Exempt Fund and California
Tax-Exempt Fund incurred legal charges totaling $36,242 and $65,288,
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 PFPC. 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 $50,000,
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 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 will
receive an additional 10% of their annual Director's retainer for each year of
service between years six
56
<PAGE> 326
and nine, plus one half of the difference between 100% and the director's
applicable percentage. A Director who dies or resigns after ten 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 after February 28, 1994; however a director in office on March 18,
1998 who either resigns in good standing or dies before completing five years of
service as a director should be assigned an applicable percentage of 50 percent.
Aggregate costs pursuant to the Retirement Plan amounted to $33,960 and $5,064
for the Tax-Exempt Fund and California Tax-Exempt Fund, respectively, for the
year ended February 28, 1998. A director who comes into office after March 18,
1998 is ineligible to participate in the Retirement Plan.
NOTE 5 -- CONCENTRATION OF CREDIT RISK
The Tax-Exempt Fund invests substantially all of its assets in a diversified
portfolio of tax-exempt debt obligations. The California Tax-Exempt Fund invests
substantially all of its assets in a nondiversified portfolio of tax-exempt debt
obligations primarily consisting of issuers in the State of California. The
issuers' abilities to meet their obligations may be affected by economic,
regional or political developments.
57
<PAGE> 327
The Tax-Exempt Fund and the California Tax-Exempt Fund had the following
concentrations by industry sector at February 28, 1998 (as a percentage of total
investments):
<TABLE>
<CAPTION>
CALIFORNIA
TAX-EXEMPT TAX-EXEMPT
FUND FUND
---------- ----------
<S> <C> <C>
Airport Facilities....................................... 1.2% 0.6%
Certificates of Participation............................ -- 0.5
Commercial Paper......................................... 11.4 25.4
Education................................................ 8.1 0.3
General Obligations...................................... 12.3 4.9
Healthcare............................................... 21.7 7.9
Housing Developments..................................... 0.9 16.6
Industrial Development Revenue........................... 4.7 3.4
Municipal Notes & Bonds.................................. 4.4 1.3
Pollution Control........................................ 2.7 10.5
Power Projects........................................... 2.5 1.0
Revenue.................................................. 14.0 12.9
Sewer Projects........................................... -- 3.9
Special Tax.............................................. 7.2 6.2
Transportation........................................... 2.4 1.5
Turnpike, Road & Bridge Development...................... 0.1 --
Utilities................................................ 3.3 0.1
Water Projects........................................... 3.1 3.0
------ ------
100.0% 100.0%
====== ======
</TABLE>
58
<PAGE> 328
NOTE 6 -- CAPITAL SHARE TRANSACTIONS
Transactions in shares of each Portfolio (at $1.00 per share) for the
periods indicated are summarized below:
<TABLE>
<CAPTION>
CALIFORNIA
TAX-EXEMPT TAX-EXEMPT
MONEY FUND MONEY MARKET FUND
-------------------------------- ------------------------------
YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
PACIFIC HORIZON SHARES
Issued...................... 248,974,300 230,496,897 924,399,780 917,590,384
Reinvested.................. 3,683,304 1,545,273 15,765,764 13,790,272
Redeemed.................... (188,139,622) (195,234,875) (835,476,867) (966,354,368)
-------------- -------------- -------------- ------------
Net increase/(decrease)...... 64,517,982 36,807,295 104,688,677 (34,973,712)
============== ============== ============== ============
HORIZON SHARES
Issued...................... 1,016,879,219 997,203,792 -- --
Reinvested.................. 60,094 135,161 -- --
Redeemed.................... (937,199,915) (1,035,902,063) -- --
-------------- -------------- -------------- ------------
Net increase/(decrease)...... 79,739,398 (38,563,110) -- --
============== ============== ============== ============
HORIZON SERVICE SHARES
Issued...................... 444,505,307 383,339,592 1,844,862,775 1,184,396,760
Reinvested.................. 1,729,858 1,094,104 8,320,478 5,770,710
Redeemed.................... (429,406,739) (250,123,330) (1,653,155,809) (921,990,855)
-------------- -------------- -------------- ------------
Net increase................. 16,828,426 134,310,366 200,027,444 268,176,615
============== ============== ============== ============
X SHARES
Issued...................... -- -- 62,397,815 38,320,277
Reinvested.................. -- -- 1,019,371 199,395
Redeemed.................... -- -- (61,802,419) (9,422,533)
-------------- -------------- -------------- ------------
Net increase................. -- -- 1,614,767 29,097,139(a)
============== ============== ============== ============
S SHARES
Issued...................... 45,984,346 -- 193,127,737 --
Reinvested.................. 213,429 -- 1,320,662 --
Redeemed.................... (19,460,058) -- (52,818,250) --
-------------- -------------- -------------- ------------
Net increase................. 26,737,717(c) -- 141,630,149(b) --
============== ============== ============== ============
</TABLE>
- ---------------
(a) Period from October 2, 1996 (inception date) to February 28,
1997.
(b) Period from June 18, 1997 (inception date) to February 28,
1998.
(c) Period from July 8, 1997 (inception date) to February 28,
1998.
59
<PAGE> 329
PACIFIC HORIZON TAX-EXEMPT MONEY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD
--------------------------------------------------------------- ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994(a)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
PACIFIC HORIZON SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income......... 0.0310 0.0290 0.0327 0.0253 0.0124
Less dividends to shareholders
from net investment income.... (0.0310) (0.0290) (0.0327) (0.0253) (0.0124)
-------- -------- -------- -------- --------
Net change in net asset value
per share..................... -- -- -- -- --
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END
OF YEAR....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return................... 3.14% 2.94% 3.32% 2.56% 1.25%(d)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions).................. $ 151 $ 86 $ 50 $ 37 $ 50
Ratio of expenses to average
net assets.................. 0.60% 0.60% 0.63% 0.60% 0.60%(c)
Ratio of net investment income
to average net assets....... 3.09% 2.91% 3.26% 2.47% 1.95%(c)
Ratio of expenses to average
net assets*................. (b)(e) (b) (b) (b) 0.61%(c)
Ratio of net investment income
to average net assets*...... (b)(e) (b) (b) (b) 1.94%(c)
</TABLE>
- ---------------
* During the year, 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.
(a) Period from July 9, 1993 (inception date) to February 28,
1994.
(b) There were no fee waivers or expense reimbursements during
the period.
(c) Annualized.
(d) Not annualized.
(e) Fees paid by third parties had no effect on the ratios.
See Notes to Financial Statements.
60
<PAGE> 330
PACIFIC HORIZON TAX-EXEMPT MONEY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
HORIZON SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income......... 0.0342 0.0322 0.0359 0.0285 0.0225
Less dividends to shareholders
from net investment income.... (0.0342) (0.0322) (0.0359) (0.0285) (0.0225)
-------- -------- -------- -------- --------
Net change in net asset value
per share..................... -- -- -- -- --
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END
OF YEAR....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return................... 3.47% 3.27% 3.65% 2.89% 2.27%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions).................. $ 344 $ 264 $ 303 $ 382 $ 515
Ratio of expenses to average
net assets.................. 0.28% 0.28% 0.31% 0.28% 0.28%
Ratio of net investment income
to average net assets....... 3.41% 3.22% 3.58% 2.81% 2.25%
Ratio of expenses to average
net assets*................. (a)(b) (a) (a) (a) 0.29%
Ratio of net investment income
to average net assets*...... (a)(b) (a) (a) (a) 2.24%
</TABLE>
- ---------------
* During the year, 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.
(a) There were no fee waivers or expense reimbursements during
the period.
(b) Fees paid by third parties had no effect on the ratios.
See Notes to Financial Statements.
61
<PAGE> 331
PACIFIC HORIZON TAX-EXEMPT MONEY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
HORIZON SERVICE SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income......... 0.0317 0.0297 0.0334 0.0260 0.0200
Less dividends to shareholders
from net investment income.... (0.0317) (0.0297) (0.0334) (0.0260) (0.0200)
-------- -------- -------- -------- --------
Net change in net asset value
per share..................... -- -- -- -- --
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END
OF YEAR....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return................... 3.22% 3.01% 3.39% 2.63% 2.02%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions).................. $ 186 $ 169 $ 35 $ 39 $ 48
Ratio of expenses to average
net assets.................. 0.53% 0.53% 0.56% 0.53% 0.53%
Ratio of net investment income
to average net assets....... 3.17% 2.98% 3.34% 2.57% 2.04%
Ratio of expenses to average
net assets*................. (a)(b) (a) (a) (a) 0.57%
Ratio of net investment income
to average net assets*...... (a)(b) (a) (a) (a) 2.00%
</TABLE>
- ---------------
* During the year, 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.
(a) There were no fee waivers or expense reimbursements during
the period.
(b) Fees paid by third parties had no effect on the ratios.
See Notes to Financial Statements.
62
<PAGE> 332
PACIFIC HORIZON TAX-EXEMPT MONEY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
FEBRUARY 28,
1998(a)
------------
<S> <C>
S SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD.............. $ 1.00
Income from Investment Operations:
Net investment income..................................... 0.0184
Less dividends to shareholders from net investment income... (0.0184)
--------
Net change in net asset value per share..................... --
--------
NET ASSET VALUE PER SHARE, END OF PERIOD.................... $ 1.00
========
Total return................................................ 1.85%(c)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (millions).................... $ 27
Ratio of expenses to average net assets................... 0.81%(b)
Ratio of net investment income to average net assets...... 2.76%(b)
Ratio of expenses to average net assets*.................. 1.25%(b)(d)
Ratio of net investment income to average net assets*..... 2.32%(b)(d)
</TABLE>
- ---------------
* 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.
(a) Period from July 8, 1997 (inception date) to February 28,
1998.
(b) Annualized.
(c) Not annualized.
(d) Fees paid by third parties had no effect on the ratios.
See Notes to Financial Statements.
63
<PAGE> 333
PACIFIC HORIZON CALIFORNIA TAX-EXEMPT
MONEY MARKET FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
PACIFIC HORIZON SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income......... 0.0302 0.0284 0.0324 0.0249 0.0186
Net realized gains/(losses) on
investment transactions..... -- -- (0.0001) (0.0001) 0.0002
-------- -------- -------- -------- --------
Total income from investment
operations.................... 0.0302 0.0284 0.0323 0.0248 0.0188
Less dividends to shareholders
from net investment income.... (0.0302) (0.0284) (0.0324) (0.0249) (0.0186)
-------- -------- -------- -------- --------
Net change in net asset value
per share..................... -- -- (0.0001) (0.0001) 0.0002
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END
OF YEAR....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return................... 3.06% 2.88% 3.29% 2.52% 1.88%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions).................. $ 598 $ 493 $ 528 $ 187 $ 204
Ratio of expenses to average
net assets.................. 0.57% 0.57% 0.62% 0.62% 0.66%
Ratio of net investment income
to average net assets....... 3.01% 2.83% 3.35% 2.48% 1.86%
Ratio of expenses to average
net assets*................. 0.60%(b) 0.60%** 0.63%** (a) 0.68%
Ratio of net investment income
to average net assets*...... 2.98%(b) 2.80% (b) (a) 1.84%
</TABLE>
- ---------------
* During the year, 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 cash balances which were used
to offset custodian fees and expenses. If such credits had
not occurred, the expense ratio would have been as
indicated. The ratio of net investment income was not
affected.
(a) There were no fee waivers or expense reimbursements during
the period.
(b) Fees paid by third parties had no effect on the ratios.
See Notes to Financial Statements.
64
<PAGE> 334
PACIFIC HORIZON CALIFORNIA TAX-EXEMPT
MONEY MARKET FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
HORIZON SERVICE SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income..... 0.0309 0.0291 0.0331 0.0256 0.0198
Net realized
gains/(losses) on
investment
transactions............ -- -- 0.0001 (0.0001) (0.0001)
-------- -------- -------- -------- --------
Total income from
investment operations..... 0.0309 0.0291 0.0332 0.0255 0.0197
Less dividends to
shareholders from net
investment income......... (0.0309) (0.0291) (0.0331) (0.0256) (0.0198)
-------- -------- -------- -------- --------
Net change in net asset
value per share........... -- -- 0.0001 (0.0001) (0.0001)
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE,
END OF YEAR............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return............... 3.13% 2.95% 3.36% 2.59% 2.00%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions).............. $ 671 $ 472 $ 203 $ 88 $ 124
Ratio of expenses to
average net assets...... 0.50% 0.50% 0.55% 0.55% 0.53%
Ratio of net investment
income to average net
assets.................. 3.06% 2.92% 3.43% 2.50% 1.98%
Ratio of expenses to
average net assets*..... (a)(b) (b) 0.55%** (a) 0.60%
Ratio of net investment
income to average net
assets*................. (a)(b) (b) 3.42% (a) 1.91%
</TABLE>
- ---------------
* During the year, 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 year ended February 29, 1996 the Portfolio
received credits from its custodian for interest earned on
uninvested cash balances which were used to offset custodian
fees and expenses. If such credits had not occurred, the
expense ratio would have been as indicated. The ratio of net
investment income was not affected.
(a) There were no fee waivers or expense reimbursements during
the period.
(b) Fees paid by third parties had no effect on the ratios.
See Notes to Financial Statements.
65
<PAGE> 335
PACIFIC HORIZON CALIFORNIA TAX-EXEMPT
MONEY MARKET FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
FEBRUARY 28, FEBRUARY 28,
1998 1997(a)
------------ ------------
<S> <C> <C>
X SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD......... $ 1.00 $ 1.00
Income from Investment Operations:
Net investment income................................ 0.0279 0.0107
Less dividends to shareholders from net investment
income............................................... (0.0279) (0.0107)
-------- --------
Net change in net asset value per share................ -- --
-------- --------
NET ASSET VALUE PER SHARE, END OF PERIOD............... $ 1.00 $ 1.00
======== ========
Total return........................................... 2.83% 1.09%(d)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (millions)............... $ 31 $ 29
Ratio of expenses to average net assets.............. 0.80% 0.80%(c)
Ratio of net investment income to average net
assets............................................. 2.80% 2.66%(c)
Ratio of expenses to average net assets*............. (b) (b)
Ratio of net investment income to average net
assets*............................................ (b) (b)
</TABLE>
- ---------------
* 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.
(a) Period from October 2, 1996 (inception date) to February 28,
1997.
(b) Fees paid by third parties had no effect on the ratios.
(c) Annualized.
(d) Not annualized.
See Notes to Financial Statements.
66
<PAGE> 336
PACIFIC HORIZON CALIFORNIA TAX-EXEMPT
MONEY MARKET FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
FEBRUARY 28,
1998(a)
------------
<S> <C>
S SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD.............. $ 1.00
--------
Income from Investment Operations:
Net investment income..................................... 0.0194
Less dividends to shareholders from net investment income... (0.0194)
--------
Net change in net asset value per share..................... --
--------
NET ASSET VALUE PER SHARE, END OF PERIOD.................... $ 1.00
========
Total return................................................ 1.96%(d)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (millions).................... $ 141
Ratio of expenses to average net assets................... 0.79%(c)
Ratio of net investment income to average net assets...... 2.69%(c)
Ratio of expenses to average net assets*.................. 1.23%(b)(c)
Ratio of net investment income to average net assets*..... 2.25%(b)(c)
</TABLE>
- ---------------
* 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.
(a) Period from June 18, 1997 (inception date) to February 28,
1998.
(b) Fees paid by third parties had no effect on the ratios.
(c) Annualized.
(d) Not annualized.
See Notes to Financial Statements.
67
<PAGE> 337
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 portfolios 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 Pacific Horizon Tax-Exempt Money
Fund and Pacific Horizon California Tax-Exempt Money Market Fund (two of the
seventeen portfolios constituting Pacific Horizon Funds, Inc., hereafter
referred to as the "Funds") at February 28, 1998, 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, 1998 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
April 21, 1998
68
<PAGE> 338
For more information, complete the following form and mail it to:
Pacific Horizon Funds, Inc.
PO Box 8968
Wilmington, DE 19899-8968
<TABLE>
<S> <C>
......................................................................................................................
First Name Last Name
......................................................................................................................
Street Address
......................................................................................................................
City State Zip Code
......................................................................................................................
Area Code and Telephone Number
</TABLE>
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.
<TABLE>
<S> <C>
......................................................................................................................
Name of Broker
......................................................................................................................
Name of Brokerage Firm
</TABLE>
[ ] 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>
<TABLE>
<S> <C>
Additional Comments:
......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
</TABLE>
NOT FDIC INSURED - NO BANK GUARANTEE - MAY LOSE VALUE
<PAGE> 339
Bulk Rate
U.S. Postage
PAID
New York, NY
Permit No. 8048
LOGO
Provident Distributor, Inc., Distributor
TXM-0015 4/98
<PAGE> 340
PACIFIC HORIZON MUTUAL FUNDS
ANNUAL REPORT
February 28, 1998
S Shares of the
Prime Fund
Tax-Exempt Money Fund
California Tax-Exempt Money Market Fund
Investing For All
The Times Of Your Life
NOT FDIC INSURED
PACIFIC HORIZON MUTUAL FUNDS
<PAGE> 341
PACIFIC HORIZON FUNDS, INC.
103 Bellevue Parkway
Wilmington, DE 19809
1-800-332-3863
INVESTMENT ADVISER
Bank of America National Trust
and Savings Association
555 California Street
San Francisco, CA 94104
ADMINISTRATOR
Bank of America National
Trust and Savings Association
555 California Street
San Francisco, CA 94104
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
Provident Distributors, Inc.
Four Falls Corporate Center
6th Floor
Conshohocken, PA 19428
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 Provident
Distributors, Inc. which is unaffiliated with the Bank of America. Bank of
America serves as investment adviser to the Funds 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, NOT
BANK OF AMERICA OR ANY AFFILIATES. AN INVESTMENT IN FDIC
MUTUAL FUNDS INVOLVES INVESTMENT RISKS, INCLUDING THE INSURED
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
- ----------------------------------------------------------------------------
</TABLE>
-----------------------------------------------------------------------------
--------------------------------------------------------------------------
<PAGE> 342
..................................
Contents
<TABLE>
<S> <C>
FUND FACTS 2-3
UNDERSTANDING YOUR SHAREHOLDER
REPORT 4-6
ECONOMIC REVIEW FROM THE
INVESTMENT ADVISER 8-9
PRIME FUND
Portfolio of Investments 10-28
Statement of Assets and
Liabilities 29
Statement of Operations 30
Statements of Changes in Net
Assets 31
Notes to Financial Statements 32-40
Financial Highlights 41-46
Report of Independent
Accountants 47
TAX-EXEMPT MONEY MARKET FUNDS
Portfolios of Investments 48-84
Statements of Assets and
Liabilities 85
Statements of Operations 86
Statements of Changes in Net
Assets 87
Notes to Financial Statements 88-97
Financial Highlights 98-105
Report of Independent
Accountants 106
</TABLE>
<PAGE> 343
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>
- ---------------------------------------------------------------------------
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(dagger) High Current Income Plus Principal
- Prime Stability
- Treasury
- Government
- Treasury Only
...........................................................................
Tax-Exempt Money Market Funds*(dagger)
- Tax-Exempt Money High Level of Federal Tax-Free Current
Income Plus Principal Stability
- California Tax-Exempt Money High Level of Federal and California
Market 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.
(dagger) 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> 344
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
Preferred Stocks and capital appreciation.
...........................................................................
Stocks, Bonds and Cash Long-term growth potential and current
Equivalents income from stocks and bonds.
...........................................................................
Investment-Grade Corporate Debt High monthly income potential with
reasonable investment risk.
...........................................................................
Investment-Grade Corporate and Regular monthly income from a
U.S. Government Securities diversified portfolio of
investment-grade securities.
...........................................................................
GNMAs and Other U.S. Government High monthly income potential and low
Securities credit risk.
...........................................................................
U.S. Government and Government Monthly income and relative stability
Agency Securities of investment.
...........................................................................
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 A flexible, convenient way to manage or
U.S. Government Short-Term accumulate cash while waiting for other
Obligations 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
Obligations cash while waiting for other investment
opportunities.
</TABLE>
- --------------------------------------------------------------------------------
3
<PAGE> 345
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.
[GRAPHICS]
The FUND OVERVIEW AND
INTERVIEW WITH YOUR INVESTMENT
MANAGER enables you to gain
insight into the Fund's
investments and learn more
about the Fund manager's
strategies.
Because a picture or chart can help clarify the
text, the investment management team may have
illustrated the most important features of the Fund.
[GRAPHICS] The illustrations may represent the portfolio
composition, the largest holdings or a
simplification of the investment adviser's
investment style.
4
<PAGE> 346
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
[GRAPHICS]
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
[GRAPHICS]
5
<PAGE> 347
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
[GRAPHICS]
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
[GRAPHICS]
The NOTES TO FINANCIAL STATEMENTS are footnotes to the statements listed above.
These notes include information on accounting methods used by the Fund,
contractual arrangements between the Fund and its service providers, certain
transactions effected by the Fund and other general information about the Fund.
The FINANCIAL HIGHLIGHTS shows, for a single share outstanding throughout each
period presented, the net investment income, the realized and unrealized gains
and losses and the dividends and distributions of the Fund. It also shows key
data and ratios, such as the total investment return for each period, the
portfolio turnover rate for Funds other than money market mutual funds, the
ratio of expenses to average net assets and the ratio of net investment income
to average net assets.
6
<PAGE> 348
[This page intentionally left blank.]
7
<PAGE> 349
ECONOMIC REVIEW
FROM THE INVESTMENT ADVISER
Fourth quarter Gross Domestic Product was reported at a 3.7%* annualized rate,
with inflation continuing to be non-existent and a positive factor for the
economy and the domestic financial markets. Changes in consumer prices are
negligible and producer prices are actually declining. Historically high
consumer confidence, resulting from strong job growth, wage gains and the
positive wealth effect created by the buoyant stock market, has created solid
income growth and has fueled the robust housing market in the first quarter of
1998. Consumers have been the primary beneficiaries of the turmoil in the Asian
markets. Lower bond yields, a by-product of the Asian financial crisis, have
resulted in lower mortgages payments for households looking to buy a home.
THE CASE FOR
STOCKS AND BONDS
The Standard & Poor's Stock Index posted a total return of 35.1%** during the 12
month period ended February 28, 1998, amply rewarding long-term investors who
rode out volatility that accompanied the Asian financial crisis. The best
performers were concentrated among shares of large company stocks, which
significantly outpaced shares of smaller firms.
Companies have been issuing reduced earnings forecasts at an increasing rate.
Despite the early warnings, the reduced earnings expectations have not put a
damper on the stock market. The bullish sentiment for low inflation and
continuing strong profits for 1998 are propelling the stock markets to new
highs. The Dow*** has gained 8.4% during the first two months of the year,
significantly higher than expected. Overall, the U.S. economy seems poised for
continued moderate growth, which is good news for stocks. We think it is
reasonable to expect P/E ratios to stay at current levels of 22 times 1998
earnings. That gives an estimated market return over the next 12 months of 9%
(7.8% from earnings growth and 1.2% from dividend yield).
Fixed income investors remain optimistic due to the lack of price pressures, the
strong dollar and the expectation of an Asia-led slowdown in the U.S. Interest
rates on Treasuries have fallen across the yield curve over the last twelve
months and are currently below 6%, the lowest level in 25 years. The finance
sector has been outperforming expectations as of late, which has a lot to do
with the wave of colossal merger and acquisition activity sweeping across
financial institutions.
The prospects for a government budget surplus in fiscal 1998 are growing. Some
economists are predicting as much as a $50 billion surplus due to large tax
revenues as well as efforts to reduce government spending. These revenue flows
will serve to reduce immediate government financing needs. Already, we have seen
cuts in the size of Treasury auctions so far this year.
POTENTIAL RISKS
The Asian financial crisis, which began in the third quarter of 1997, is
expected to modestly impact U.S. domestic growth. As expected, trade between
U.S. and Asian trade partners has sharply deteriorated, with the current account
deficit widening to its highest level in ten years. The deficit widened to
$166.5 billion in 1997, up from $148.2 billion for 1996. The largest threat to
the U.S. economy, according to The Organization for Economic Cooperation and
Development (OECD), would be a second round of currency devaluations in Asia. It
could happen again if Japan fails to jumpstart its economy.
While the final outcome of the Asian financial crisis remains unclear, the
initial predictions of a global financial crisis have not been supported by the
evidence.
8
<PAGE> 350
With the Asian crisis potentially constraining corporate profitability in the
second or third quarter, we expect that growth will slow during the remainder of
the year.
Tame inflation continues to be the theme du jour as the Consumer Price Index's
1.4% increase over the past 12 months is the second lowest reading in 33 years,
outdone only by the collapse in oil prices in 1986. The lack of inflationary
pressures and the uncertainty surrounding the Asian financial crisis have kept
the Federal Reserve from raising interest rates. The Fed funds rate has remained
at 5.50% since last March. However, the labor market is stretched and wage
pressures are intensifying. So far, increased productivity has compensated for
wage increases; however, recent significant increases in real asset values, such
as housing and land, have not gone unnoticed by Chairman Greenspan and may play
a factor in determining monetary policy over the coming months.
LOOKING FORWARD
It is now a widely accepted view that the U.S. economy is growing at a faster
pace early in 1998 than analysts had projected last year at the height of the
Asian turmoil. Although the preliminary GDP figure will not be released until
the end of April, the early estimate for the first quarter lies somewhere
between 3.5 - 4.0%. In order to reach the projected 1998 growth rate of 2.8%,
U.S. growth will have to sustain a considerable slowdown in the latter part of
the year to compensate for the strengths it is exhibiting now.
Looking forward, there are a lot of crosscurrents in the U.S. corporate earnings
picture. Ironically, the impact from the Asian financial crisis so far have been
positive, with lower interest rates boosting the economy. In the first quarter,
currency and oil earnings will be negative factors, but stronger economic growth
will offset any weaknesses. In the second and third quarters, we expect the
impact from Asia should be mitigated by strong growth in Europe. We continue to
believe that the economic impact from Asia will be moderate with the U.S.
economy slowing, but sustaining a near normal growth rate of 2.8% in 1998. Given
these projections, we expect equities and fixed income securities to perform
well in 1998, although below 1997 levels.
Sincerely,
Kirk Hartman
Kirk Hartman
Chief Investment Officer of
Fixed Income Management
- ---------------
* Source: Bloomberg, 1998.
** Source: Bloomberg, 1998. 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 Dow Jones Industrial Average is a price-weighted average of 30 actively
traded blue chip stocks and cannot be invested in directly.
9
<PAGE> 351
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
BANK NOTES -- 3.3%
DOMESTIC -- 2.5%
American Express Centurion Bank Monthly
Variable Rate (final maturity
4/15/98)*............................. A1/P1 5.595% 03/16/98 $ 50,000,000 $ 50,000,000
American Express Centurion Bank Monthly
Variable Rate (final maturity
6/26/98)*............................. A1/P1 5.595% 03/26/98 25,000,000 25,000,000
The Bank of New York................... A1+/P1 6.100% 05/22/98 25,000,000 24,994,107
Bank One Wisconsin N.A................. A1+/P1 5.550% 02/26/99 25,000,000 24,966,726
Huntington National Bank............... A1/P1 5.940% 08/31/98 50,000,000 49,985,629
Key Bank N.A., Monthly Variable Rate
(final maturity 9/23/98)*............. A1/P1 5.495% 03/23/98 22,000,000 21,986,550
PNC Bank N.A........................... A1/P1 6.050% 05/28/98 20,000,000 19,996,838
Union Planters National Bank........... P1/TBW1 6.290% 08/20/98 23,470,000 23,542,622
--------------
Total Domestic Bank Notes............... 240,472,472
--------------
FOREIGN -- 0.8%
Abbey National Treasury Services,
PLC................................... A1+/P1 6.000% 06/17/98 50,000,000 49,999,150
</TABLE>
- ---------------
See Notes to Financial Statements.
10
<PAGE> 352
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
BANK NOTES -- (CONTINUED)
FOREIGN -- (CONTINUED)
General Motors Acceptance Corp......... A1/P1 7.500% 05/26/98 $ 30,000,000 $ 30,129,754
--------------
Total Foreign Bank Notes................ 80,128,904
--------------
Total Bank Notes
(Amortized Cost $320,601,376).......... 320,601,376
--------------
CERTIFICATES OF DEPOSIT -- 16.6%
DOMESTIC -- 4.1%
Bankers Trust Company, Daily Variable
Rate (final maturity 07/21/98)*....... A1/P1 5.650% 03/02/98 25,000,000 24,995,305
Bankers Trust Company, Weekly Variable
Rate (final maturity 07/07/98)*....... A1/P1 5.679% 03/04/98 50,000,000 49,988,154
Bankers Trust Company, Weekly Variable
Rate (final maturity 10/7/98)*........ A1/P1 5.859% 03/04/98 50,000,000 50,000,000
Crestar Bank........................... A1/P1 5.800% 04/08/98 50,000,000 50,000,000
Crestar Bank........................... A1/P1 5.560% 05/27/98 50,000,000 50,000,000
Crestar Bank........................... A1/P1 5.860% 06/15/98 25,000,000 25,000,000
Crestar Bank........................... A1/P1 5.860% 07/20/98 50,000,000 49,996,305
Crestar Bank........................... A1/P1 5.920% 10/16/98 50,000,000 49,982,008
Morgan Guaranty Trust Company.......... A1+/P1 5.800% 07/28/98 25,000,000 24,996,092
Morgan Guaranty Trust Company.......... A1+/P1 5.870% 08/06/98 25,000,000 24,996,895
--------------
399,954,759
--------------
EURO -- 1.0%
Bank of Tokyo Mitsubishi, London
Branch................................ A1/P1 6.040% 05/11/98 25,000,000 25,000,486
Bayerische Landesbank Girozentrale,
London Branch......................... A1+/P1 5.810% 06/03/98 25,000,000 24,999,247
</TABLE>
- ---------------
See Notes to Financial Statements.
11
<PAGE> 353
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
CERTIFICATES OF DEPOSIT -- (CONTINUED)
EURO -- (CONTINUED)
Istituto Bancario San Paolo Di Torino,
London................................ A1/P1 5.750% 04/14/98 $ 25,000,000 $ 25,000,594
Istituto Bancario San Paolo Di Torino,
London................................ A1/P1 5.840% 06/05/98 25,000,000 25,000,648
--------------
100,000,975
--------------
YANKEE -- 11.5%
Bank of Tokyo Mitsubishi, New York..... A1/P1 6.500% 03/04/98 50,000,000 50,000,000
Bank of Tokyo Mitsubishi, New York..... A1/P1 5.900% 04/28/98 25,000,000 25,000,000
Bank of Tokyo Mitsubishi, New York..... A1/P1 5.960% 04/30/98 25,000,000 25,000,000
Banque National de Paris, Chicago...... A1/P1 5.970% 07/01/98 25,000,000 24,993,614
Banque National de Paris, Chicago...... A1/P1 5.890% 07/21/98 25,000,000 24,997,028
Banque National de Paris, Chicago...... A1/P1 5.800% 07/31/98 25,000,000 24,995,018
Banque Paribas, New York............... A1/P1 5.660% 03/01/99 90,000,000 89,956,856
BHF Bank of Aktiengesellschaft, New
York, Monthly Variable Rate (final
maturity 8/13/98)*.................... A1/P1 5.555% 03/13/98 50,000,000 49,991,203
Canadian Imperial Bank of Commerce, New
York.................................. A1+/P1 5.865% 08/11/98 25,000,000 24,990,926
Canadian Imperial Bank of Commerce, New
York.................................. A1+/P1 5.880% 10/14/98 50,000,000 49,985,130
Deutsche Bank A.G., New York........... A1+/P1 5.940% 10/22/98 25,000,000 24,990,770
Istituto Bancario San Paolo Di Torino,
New York.............................. A1/P1 5.840% 06/15/98 75,000,000 75,051,980
</TABLE>
- ---------------
See Notes to Financial Statements.
12
<PAGE> 354
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
CERTIFICATES OF DEPOSIT -- (CONTINUED)
YANKEE -- (CONTINUED)
Istituto Bancario San Paolo Di Torino,
New York.............................. A1/P1 5.870% 07/20/98 $ 50,000,000 $ 49,994,458
Landesbank Hessen-Thuringen
Girozentrale, New York................ A1+/P1 5.940% 06/19/98 25,000,000 24,995,679
National Bank of Canada, New York...... A1/P1 6.150% 05/15/98 44,000,000 43,995,319
National Bank of Canada, New York...... A1/P1 6.140% 06/05/98 25,000,000 24,998,679
Royal Bank of Canada, New York......... A1+/P1 5.650% 03/03/98 80,000,000 79,999,376
Royal Bank of Canada, New York......... A1+/P1 5.630% 02/26/99 50,000,000 49,966,279
Societe Generale Bank, New York........ A1+/P1 5.910% 10/15/98 25,000,000 24,992,534
Societe Generale Bank, New York........ A1+/P1 5.660% 02/26/99 50,000,000 49,985,739
Societe Generale Bank, New York........ A1+/P1 5.700% 02/26/99 50,000,000 49,980,995
Societe Generale Bank, New York........ A1+/P1 5.690% 03/02/99 50,000,000 49,976,050
Societe Generale Bank, New York, Daily
Variable Rate (final maturity
1/22/99)*............................. A1+/P1 5.710% 03/02/98 25,000,000 24,989,187
Societe Generale Bank, New York, Daily
Variable Rate (final maturity
10/23/98)*............................ A1+/P1 5.690% 03/02/98 50,000,000 49,981,269
Societe Generale Bank, New York, Daily
Variable Rate (final maturity
6/16/98)*............................. A1+/P1 5.700% 03/02/98 25,000,000 24,995,754
Societe Generale Bank, New York, Daily
Variable Rate (final maturity
8/25/98)*............................. A1+/P1 5.700% 03/02/98 25,000,000 24,992,976
</TABLE>
- ---------------
See Notes to Financial Statements.
13
<PAGE> 355
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
CERTIFICATES OF DEPOSIT -- (CONTINUED)
YANKEE -- (CONTINUED)
Westdeutsche Landesbank Girozentrole,
New York.............................. A1+/P1 5.780% 07/31/98 $ 35,000,000 $ 34,996,687
Westpac Banking Corp., New York........ A1+/P1 5.930% 08/12/98 25,000,000 24,995,704
--------------
1,123,789,210
--------------
Total Certificates of Deposit (Amortized
Cost $1,623,744,944).................. 1,623,744,944
--------------
COMMERCIAL PAPER -- 33.2%
DOMESTIC -- 28.7%
ASSET BACKED SECURITIES -- 8.4%
Aesop Funding Corp..................... A1/P1 5.500% 04/15/98 50,000,000 49,656,250
Asset Securitization Cooperative
Corp.................................. A1/P1 5.750% 03/16/98 50,000,000 49,880,208
CC USA Inc............................. A1+/P1 5.590% 03/09/98 31,000,000 30,961,491
CC USA Inc............................. A1+/P1 5.740% 03/24/98 25,000,000 24,908,319
CC USA Inc............................. A1+/P1 5.585% 03/25/98 25,500,000 25,405,055
CC USA Inc............................. A1+/P1 5.740% 03/27/98 30,000,000 29,875,633
CC USA Inc............................. A1+/P1 5.590% 03/30/98 32,500,000 32,353,651
CC USA Inc............................. A1+/P1 5.400% 08/17/98 24,500,000 23,878,925
Enterprise Funding Corp. (b)........... A1+/P1 5.520% 03/06/98 23,696,000 23,677,833
Enterprise Funding Corp. (b)........... A1+/P1 5.490% 04/15/98 32,355,000 32,132,964
Enterprise Funding Corp. (b)........... A1+/P1 5.570% 04/27/98 50,000,000 49,559,042
Republic Industries Funding Corp....... A1/P1 5.520% 03/20/98 55,000,000 54,839,767
Riverwoods Funding Corp................ A1+/P1 5.720% 03/11/98 50,000,000 49,920,556
Riverwoods Funding Corp................ A1+/P1 5.510% 06/03/98 100,000,000 98,576,583
Sigma Finance Inc...................... A1+/P1 5.540% 03/26/98 37,000,000 36,857,653
Sigma Finance Inc...................... A1+/P1 5.475% 05/05/98 25,000,000 24,752,865
Sigma Finance Inc...................... A1+/P1 5.490% 05/12/98 50,000,000 49,451,000
Sigma Finance Inc...................... A1+/P1 5.400% 07/28/98 25,000,000 24,441,250
</TABLE>
- ---------------
See Notes to Financial Statements.
14
<PAGE> 356
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
COMMERCIAL PAPER -- (CONTINUED)
DOMESTIC -- (CONTINUED)
ASSET BACKED SECURITIES -- (CONTINUED)
World Omni Vehicle Leasing Inc......... A1/P1 5.515% 03/20/98 $ 50,000,000 $ 49,854,465
World Omni Vehicle Leasing Inc......... A1/P1 5.490% 04/24/98 56,596,000 56,129,932
--------------
817,113,442
--------------
AUTOMOBILES -- 1.7%
American Honda Finance Corp............ F1/P1 5.510% 05/29/98 40,000,000 39,455,122
Daimler-Benz North America Corp........ A1/P1 5.625% 04/22/98 50,000,000 49,593,750
General Motors Acceptance Corp......... A1/P1 5.600% 04/20/98 25,000,000 24,805,556
General Motors Acceptance Corp......... A1/P1 5.650% 04/22/98 50,000,000 49,591,944
--------------
163,446,372
--------------
BANKING -- 2.3%
Bankers Trust, New York, Daily Variable
Rate (final maturity 8/4/98)*......... A1/P1 5.700% 03/02/98 25,000,000 25,000,000
Bankers Trust, New York, Daily Variable
Rate (final maturity 9/4/98)*......... A1/P1 5.760% 03/02/98 50,000,000 50,000,000
Bankers Trust, New York, Daily Variable
Rate (final maturity 9/4/98)*......... A1/P1 5.780% 03/02/98 25,000,000 25,000,000
National Australia Funding Inc......... A1+/P1 5.460% 05/26/98 25,500,000 25,167,395
NationsBank Corporation................ A1/P1 5.470% 04/10/98 50,000,000 49,696,111
Unifunding Inc......................... A1/P1 5.660% 06/02/98 50,000,000 49,268,917
--------------
224,132,423
--------------
</TABLE>
- ---------------
See Notes to Financial Statements.
15
<PAGE> 357
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
COMMERCIAL PAPER -- (CONTINUED)
DOMESTIC -- (CONTINUED)
BROKERAGE SERVICES -- 4.0%
Lehman Brothers Holdings, Inc., Weekly
Variable Rate (final maturity
4/03/98)*............................. A1/F1 5.799% 03/04/98 $ 50,000,000 $ 50,000,000
Lehman Brothers Holdings, Inc.......... A1/F1 5.770% 03/04/98 25,000,000 24,987,979
Merrill Lynch & Co., Inc............... A1+/P1 5.510% 05/20/98 100,000,000 98,790,861
Merrill Lynch & Co., Inc............... A1+/P1 5.650% 06/03/98 25,000,000 24,631,181
Salomon Smith Barney Holdings Inc...... A1/P1 5.730% 03/06/98 25,000,000 24,980,104
Salomon Smith Barney Holdings Inc...... A1/P1 5.485% 04/22/98 50,000,000 49,603,861
Salomon Smith Barney Holdings Inc...... A1/P1 5.520% 05/07/98 50,000,000 49,486,333
Salomon Smith Barney Holdings Inc...... A1/P1 5.415% 07/29/98 50,000,000 48,871,875
Salomon Smith Barney Holdings Inc...... A1/P1 5.770% 03/17/98 24,775,000 24,711,466
--------------
396,063,660
--------------
CONGLOMERATES -- 1.3%
B.A.T. Capital Corporation............. F1/P1 5.760% 04/07/98 25,000,000 24,852,000
B.A.T. Capital Corporation............. F1/P1 5.570% 04/22/98 50,000,000 49,597,722
B.A.T. Capital Corporation............. F1/P1 5.560% 05/20/98 50,000,000 49,382,222
--------------
123,831,944
--------------
CONSUMER NON-DURABLES -- 0.4%
Newell Co.............................. A1/D1 5.585% 03/27/98 40,000,000 39,838,656
--------------
ELECTRONICS -- 0.8%
Hitachi America Ltd.................... A1+/P1 5.400% 07/15/98 31,000,000 30,367,600
Hitachi America Ltd.................... A1+/P1 5.410% 07/31/98 20,000,000 19,543,156
Hitachi America Ltd.................... A1+/P1 5.400% 08/21/98 25,000,000 24,351,250
--------------
74,262,006
--------------
</TABLE>
- ---------------
See Notes to Financial Statements.
16
<PAGE> 358
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
COMMERCIAL PAPER -- (CONTINUED)
DOMESTIC -- (CONTINUED)
FINANCE COMPANIES -- 4.7%
BTR Dunlop Finance Inc................. A1/P1 5.690% 03/26/98 $ 50,000,000 $ 49,802,431
BTR Dunlop Finance Inc................. A1/P1 5.390% 07/14/98 50,000,000 48,989,375
Countrywide Home Loans, Inc............ A1/F1 5.530% 05/20/98 50,000,000 49,385,556
Countrywide Home Loans, Inc............ A1/F1 5.530% 05/27/98 72,950,000 71,975,084
General Electric Capital Corp.......... A1+/P1 5.550% 04/27/98 25,000,000 24,780,312
General Electric Capital Corp.......... A1+/P1 5.510% 05/06/98 50,000,000 49,494,917
Safeco Credit Company.................. A1/D1 5.760% 03/04/98 20,600,000 20,590,112
Safeco Credit Company.................. A1/D1 5.765% 03/11/98 22,000,000 21,964,769
Safeco Credit Company.................. A1/D1 5.770% 03/11/98 32,000,000 31,948,711
Safeco Credit Company.................. A1/D1 5.800% 03/18/98 20,000,000 19,945,222
Safeco Credit Company.................. A1/D1 5.470% 04/30/98 20,000,000 19,817,667
Safeco Credit Company.................. A1/D1 5.500% 05/06/98 25,000,000 24,747,917
Safeco Credit Company.................. A1/D1 5.550% 05/27/98 26,000,000 25,651,275
--------------
459,093,348
--------------
MINING -- 0.9%
Rio Tinto America Inc.................. A1+/P1 5.760% 03/11/98 48,700,000 48,622,080
Rio Tinto America Inc.................. A1+/P1 5.410% 08/11/98 45,300,000 44,190,364
--------------
92,812,444
--------------
PUBLISHING -- 0.3%
Tribune Company........................ A1/P1 5.740% 03/06/98 25,000,000 24,980,069
--------------
SOVEREIGN ISSUES -- 0.4%
Government Development Bank of Puerto
Rico.................................. A1+/TBW1 5.450% 05/22/98 43,000,000 42,466,203
--------------
UTILITIES -- 3.5%
British Gas Capital Inc................ A1/P1 5.730% 04/21/98 25,000,000 24,797,062
British Gas Capital Inc................ A1/P1 5.600% 05/07/98 75,000,000 74,218,333
British Gas Capital Inc................ A1/P1 5.430% 07/27/98 50,000,000 48,883,833
</TABLE>
- ---------------
See Notes to Financial Statements.
17
<PAGE> 359
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
COMMERCIAL PAPER -- (CONTINUED)
DOMESTIC -- (CONTINUED)
UTILITIES -- (CONTINUED)
British Gas Capital Inc................ A1/P1 5.430% 08/24/98 $ 75,000,000 $ 73,006,556
Duke Capital Corp...................... A1/F1 5.770% 03/04/98 20,000,000 19,990,383
Duke Capital Corp...................... A1/F1 5.520% 04/06/98 25,000,000 24,862,000
Duke Capital Corp...................... A1/F1 5.540% 06/02/98 39,127,000 38,567,027
National Rural Utilities Cooperative
Finance Corp.......................... A1+/P1 5.700% 03/17/98 20,000,000 19,949,333
National Rural Utilities Cooperative
Finance Corp.......................... A1+/P1 5.680% 05/05/98 20,000,000 19,794,889
--------------
344,069,416
--------------
Total Domestic Commercial Paper
(Amortized Cost $2,802,109,983)....... 2,802,109,983
--------------
FOREIGN -- 4.5%
AIR TRANSPORTATION -- 0.5%
BAA PLC................................ A1+/P1 5.700% 04/06/98 50,000,000 49,715,000
--------------
AUTOMOBILES -- 1.0%
Ford Credit Europe, PLC................ A1/P1 5.720% 03/06/98 75,000,000 74,940,417
Ford Credit Europe, PLC................ A1/P1 5.530% 04/08/98 25,000,000 24,854,069
--------------
99,794,486
--------------
BANKING -- 0.5%
Abbey National Treasury Services,
PLC................................... A1+/P1 5.560% 03/11/98 25,000,000 24,961,389
Banque National de Paris, Canadian
Branch................................ A1/P1 5.730% 03/05/98 24,000,000 23,984,720
--------------
48,946,109
--------------
BUILDING SOCIETY -- 0.5%
Nationwide Building Society............ A1/P1 5.585% 05/06/98 50,000,000 49,488,042
--------------
</TABLE>
- ---------------
See Notes to Financial Statements.
18
<PAGE> 360
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
COMMERCIAL PAPER -- (CONTINUED)
FOREIGN -- (CONTINUED)
FOOD AND BEVERAGES -- 1.0%
Diageo Capital PLC..................... A1/P1 5.400% 07/06/98 $ 47,500,000 $ 46,595,125
Diageo Capital PLC..................... A1/P1 5.420% 07/27/98 50,000,000 48,885,889
--------------
95,481,014
--------------
SOVEREIGN ISSUES -- 0.8%
Cades.................................. A1+/P1 5.730% 03/05/98 30,000,000 29,980,900
Cades.................................. A1+/P1 5.650% 06/05/98 50,000,000 49,246,667
--------------
79,227,567
--------------
UTILITIES -- 0.2%
Ontario Hydro.......................... A1+/P1 5.700% 03/16/98 25,000,000 24,940,625
--------------
Total Foreign Commercial Paper
(Amortized Cost $447,592,843)......... 447,592,843
--------------
Total Commercial Paper
(Amortized Cost $3,249,702,826)........ 3,249,702,826
--------------
CORPORATE OBLIGATIONS -- 16.4%
ASSET BACKED SECURITIES -- 1.2%
CC USA, Inc............................ A1+/P1 6.175% 05/26/98 20,000,000 20,000,771
Sigma Finance Inc., Daily Variable Rate
(final maturity 7/27/98)*............. A1+/P1 5.680% 03/02/98 50,000,000 49,999,597
Sigma Finance, Inc..................... A1+/P1 5.915% 03/05/98 50,000,000 49,999,827
--------------
120,000,195
--------------
AUTOMOBILES -- 3.4%
American Honda Finance Corp., Quarterly
Variable Rate (final maturity
1/20/99)*............................. F1/P1 5.598% 04/20/98 25,000,000 25,000,000
American Honda Finance Corp., Quarterly
Variable Rate (final maturity
1/21/99)*............................. F1/P1 5.625% 04/21/98 50,000,000 49,995,534
</TABLE>
- ---------------
See Notes to Financial Statements.
19
<PAGE> 361
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
CORPORATE OBLIGATIONS -- (CONTINUED)
AUTOMOBILES -- (CONTINUED)
American Honda Finance Corp., Quarterly
Variable Rate (final maturity
4/6/98)*.............................. F1/P1 5.822% 04/06/98 $ 50,000,000 $ 49,999,048
American Honda Finance Corp., Quarterly
Variable Rate (final maturity
4/9/98)*.............................. F1/P1 5.691% 04/09/98 24,000,000 24,000,237
American Honda Finance Corp., Quarterly
Variable Rate (final maturity
6/16/98)*............................. F1/P1 5.906% 03/16/98 20,000,000 20,000,000
American Honda Finance Corp., Quarterly
Variable Rate (final maturity
7/27/98)*............................. F1/P1 5.621% 04/27/98 45,000,000 45,000,000
General Motors Acceptance Corp., Daily
Variable Rate (final maturity
4/21/98)*............................. A1/P1 5.750% 03/02/98 25,000,000 25,001,087
General Motors Acceptance Corp.,
Quarterly Variable Rate (final
maturity 5/22/98)*.................... A1/P1 5.595% 03/23/98 50,000,000 50,001,130
General Motors Acceptance Corp.,
Quarterly Variable Rate (final
maturity 9/3/98)*..................... A1/P1 5.886% 03/03/98 46,393,000 46,395,876
--------------
335,392,912
--------------
</TABLE>
- ---------------
See Notes to Financial Statements.
20
<PAGE> 362
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
CORPORATE OBLIGATIONS -- (CONTINUED)
BANKING -- 3.5%
Bankers Trust New York Corp., Monthly
Variable Rate (final maturity
2/10/99)*............................. A1/P1 5.575% 03/10/98 $105,000,000 $ 104,960,614
Bank of Scotland, PLC, Quarterly
Variable Rate (final maturity
9/22/98)*............................. A1/P1 5.806% 03/22/98 25,000,000 24,994,562
Compagnie Bancaire USA Funding, Daily
Variable Rate (final maturity
5/15/98)*............................. A1/P1 5.760% 03/02/98 50,000,000 49,998,837
Compaigne Bancaire USA Funding
Quarterly Variable Rate (final
maturity 7/16/98)*.................... A1/P1 5.563% 04/16/98 34,000,000 33,990,461
Compaigne Bancaire USA Funding Weekly
Variable Rate (final maturity
10/1/98)*............................. A1/P1 5.809% 03/04/98 50,000,000 50,000,000
Compaigne Bancaire USA Funding Weekly
Variable Rate (final maturity
10/1/98)*............................. A1/P1 5.809% 03/04/98 25,000,000 24,997,068
Compagnie Bancaire USA Funding Weekly
Variable Rate (final maturity
11/25/98)*............................ A1/P1 5.929% 03/04/98 50,000,000 50,000,000
--------------
338,941,542
--------------
BROKERAGE SERVICES -- 4.7%
Bear Stearns Companies, Inc., Daily
Variable Rate, Series B (final
maturity 3/17/98)*.................... A1/P1 5.700% 03/02/98 75,000,000 75,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
21
<PAGE> 363
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
CORPORATE OBLIGATIONS -- (CONTINUED)
BROKERAGE SERVICES -- (CONTINUED)
Bear Stearns Companies, Inc., Daily
Variable Rate, Series B (final
maturity 6/12/98)*.................... A1/P1 5.760% 03/02/98 $ 60,000,000 $ 60,000,302
Bear Stearns Companies, Inc., Monthly
Variable Rate (final maturity
8/14/98)*............................. A1/P1 5.775% 03/16/98 25,000,000 25,019,085
Bear Stearns Companies, Inc., Monthly
Variable Rate, Series B (final
maturity 4/1/98)*..................... A1/P1 5.775% 03/02/98 18,000,000 18,002,258
C. S. First Boston, Inc., Daily
Variable Rate (final maturity
7/21/98)*............................. A1+/P1 5.670% 03/02/98 50,000,000 50,000,000
C. S. First Boston, Inc., Weekly
Variable Rate (final maturity
5/15/98)*............................. A1+/P1 5.629% 03/04/98 50,000,000 50,000,000
Lehman Brothers Holdings, Inc., Daily
Variable Rate (final maturity
3/22/99)*............................. A1/F1 5.710% 03/02/98 50,000,000 50,000,000
Lehman Brothers Holdings, Inc.,
Quarterly Variable Rate (final
maturity 2/12/99)*.................... A1/F1 5.655% 04/13/98 25,000,000 25,000,000
Lehman Brothers Holdings, Inc.,
Quarterly Variable Rate (final
maturity 5/28/98)*.................... A1/F1 6.045% 05/28/98 36,000,000 36,034,395
</TABLE>
- ---------------
See Notes to Financial Statements.
22
<PAGE> 364
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
CORPORATE OBLIGATIONS -- (CONTINUED)
BROKERAGE SERVICES -- (CONTINUED)
Merrill Lynch & Co., Inc., Daily
Variable Rate (final maturity
11/23/98)*............................ A1+/P1 5.700% 03/02/98 $ 25,000,000 $ 25,000,000
Merrill Lynch & Co., Inc., Daily
Variable Rate (final maturity
12/9/98)*............................. A1+/P1 5.760% 03/02/98 25,000,000 24,998,067
Merrill Lynch & Co., Inc., Weekly
Variable Rate (final maturity
3/4/98)*.............................. A1+/P1 5.629% 03/04/98 19,000,000 18,999,759
--------------
458,053,866
--------------
CONGLOMERATES -- 0.3%
Philip Morris Co., Inc................. A1/P1 9.000% 05/15/98 22,625,000 22,750,689
--------------
FINANCE COMPANIES -- 1.7%
Dean Witter Discover & Co.............. A1/P1 6.000% 03/01/98 15,000,000 15,000,000
Household Finance Corp., Daily Variable
Rate (final maturity 5/28/98)*........ A1/P1 5.720% 03/02/98 50,000,000 50,000,000
Household Finance Corp., Monthly
Variable Rate (final maturity
1/19/99)*............................. A1/P1 5.587% 03/19/98 25,000,000 25,000,000
Household Finance Corp., Monthly
Variable Rate (final maturity
1/21/99)*............................. A1/P1 5.595% 03/23/98 25,000,000 25,000,000
Household Finance Corp., Monthly
Variable Rate (final maturity
9/15/98)*............................. A1/P1 5.675% 03/16/98 50,000,000 50,022,707
--------------
165,022,707
--------------
</TABLE>
- ---------------
See Notes to Financial Statements.
23
<PAGE> 365
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
CORPORATE OBLIGATIONS -- (CONTINUED)
LEASING -- 1.1%
Sanwa Business Credit Corp., Daily
Variable Rate (final maturity
4/17/98)*............................. P1/D1 5.810% 03/02/98 $ 25,000,000 $ 25,000,000
Sanwa Business Credit Corp., Daily
Variable Rate (final maturity
9/18/98)*............................. P1/D1 5.720% 03/02/98 25,000,000 25,000,000
Sanwa Business Credit Corp., Monthly
Variable Rate (final maturity
4/29/98)*............................. P1/D1 5.750% 03/30/98 25,000,000 25,003,319
USL Capital Corp., Series D, Quarterly
Variable Rate (final maturity
4/22/98)*............................. P1/F1 5.705% 04/22/98 34,000,000 34,005,075
--------------
109,008,394
--------------
RELOCATION SERVICES -- 0.5%
PHH Corporation, Monthly Variable Rate
(final maturity 6/24/98)*............. A1/P1 5.625% 03/24/98 50,000,000 50,000,000
--------------
Total Corporate Obligations
(Amortized Cost $1,599,170,305)........ 1,599,170,305
--------------
MASTER NOTES -- 7.1%
Goldman Sachs Group L.P. (final
maturity 10/13/98)*................... A1+/P1 5.828% 03/02/98 400,000,000 400,000,000
Morgan Stanley Group, Inc. (final
maturity 3/24/98)*.................... A1/P1 5.788% 03/02/98 300,000,000 300,000,000
--------------
Total Master Notes
(Amortized Cost $700,000,000).......... 700,000,000
--------------
</TABLE>
- ---------------
See Notes to Financial Statements.
24
<PAGE> 366
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
REPURCHASE AGREEMENTS -- 25.5%
CIBC Oppenheimer, Corp., dated 2/27/98,
with a maturity value of $135,064,013
(Collateralized by $137,095,000
various U.S. Government Obligations,
5.37%-7.75%, 3/24/98-3/8/12, market
value -- $137,701,990................. 5.690% 03/02/98 $135,000,000 $ 135,000,000
Morgan Stanley Dean Witter & Co., dated
2/27/98, with a maturity value of
$180,085,350 (Collateralized by
$246,113,822 various U.S. Government
Obligations, 5.00%-13.0%,
4/1/98-2/1/28, market value --
$183,600,518)......................... 5.690% 03/02/98 180,000,000 180,000,000
First Chicago Capital Markets, Inc.,
dated 2/27/98, with a maturity value
of $130,061,642 (Collateralized by
$132,876,000 various U.S. Government
Obligations, 0.00%-7.0%, 3/12/98-
12/13/99, market
value -- $132,603,501................. 5.690% 03/02/98 130,000,000 130,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
25
<PAGE> 367
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
REPURCHASE AGREEMENTS -- (CONTINUED)
Goldman Sachs & Co., dated 2/27/98,
with a maturity value of $118,622,726
(Collateralized by $117,146,000 U.S.
Treasury Note, 5.875%, 2/28/99, market
value -- $120,938,802)................ 5.640% 03/02/98 $118,567,000 $ 118,567,000
Goldman Sachs & Co., dated 2/27/98,
with a maturity value of $325,154,104
(Collateralized by $639,720,401
various U.S. Government Obligations,
5.50%-10.5%, 4/1/98-2/1/98, market
value -- $331,500,001)................ 5.690% 03/02/98 325,000,000 325,000,000
J.P. Morgan Securities, Inc., dated
2/27/98, with a maturity value of
$450,213,750 (Collateralized by
$455,797,296 Government National
Mortgage Association, 7.50%, 9/15/12-
1/15/28, market
value -- $459,000,001)................ 5.700% 03/02/98 450,000,000 450,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
26
<PAGE> 368
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
REPURCHASE AGREEMENTS -- (CONTINUED)
NationsBank, Inc., dated 2/27/98, with
a maturity value of $380,179,867
(Collateralized by $394,051,091
Federal National Mortgage Association,
6.5%-7.0%, 9/1/11-1/1/13, market
value -- $387,600,000)................ 5.680% 03/02/98 $380,000,000 $ 380,000,000
Nomura Securities, Inc., dated 2/27/98,
with a maturity value of $325,154,375
(Collateralized by $330,724,126
Federal National Mortgage Association,
5.5%-9.5%, 8/1/99-2/1/28, market
value -- $331,500,001)................ 5.700% 03/02/98 325,000,000 325,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
27
<PAGE> 369
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
REPURCHASE AGREEMENTS -- (CONTINUED)
Prudential Securities, Inc., dated
2/27/98, with a maturity value of
$450,213,375 (Collateralized by
$475,269,551 Federal National Mortgage
Association, 6.5%, 9/1/12, market
value -- $459,000,001)................ 5.690% 03/02/98 $450,000,000 $ 450,000,000
--------------
Total Repurchase Agreements
(Amortized Cost $2,493,567,000)........ 2,493,567,000
--------------
TOTAL INVESTMENTS -- 102.1%
(AMORTIZED COST $9,986,786,451)(a)..... 9,986,786,451
LIABILITIES IN EXCESS OF OTHER ASSETS --
(2.1%)................................ (207,110,383)
--------------
NET ASSETS -- 100.0%.................... $9,779,676,068
==============
</TABLE>
- ---------------
Percentages indicated are based on net assets of $9,779,676,068.
(a) Cost for federal income tax and financial reporting purposes are
substantially the same.
(b) Private placement security.
PLC -- Public Liability Company.
N.R.S.R.O. Nationally Recognized Statistical Ratings Organization. Rating
agencies that are included within the N.R.S.R.O. category are: S&P, Moody's,
Fitch Investors Services, Duff & Phelps, IBCA, and Thomsons Bank Watch.
<TABLE>
<C> <S>
A1 -- Highest rating assigned by S&P and IBCA.
P1 -- Highest rating assigned by Moody's.
F1 -- Highest rating assigned by Fitch Investors.
D1 -- Highest rating assigned by Duff.
TBW1 -- Highest rating assigned by Thomsons Bank Watch.
</TABLE>
Note: S&P and Moody's ratings have been used, unless another service has
assigned the security a higher rating.
* Variable rate security. Maturity date reflects the next interest rate change
date.
See Notes to Financial Statements.
28
<PAGE> 370
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (amortized cost
$7,493,219,451)............................................. $ 7,493,219,451
Repurchase agreements (cost $2,493,567,000)................ 2,493,567,000
Cash....................................................... 320,256
Interest receivable........................................ 59,383,563
Prepaid expenses........................................... 952,218
---------------
Total Assets................................................ 10,047,442,488
---------------
LIABILITIES:
Dividends payable.......................................... 16,466,456
Payable for investment securities purchased................ 247,343,494
Investment advisory fees payable........................... 662,817
Administration fees payable................................ 729,581
Special management fees payable (Pacific Horizon Shares)... 598,133
Shareholder service fees payable (Horizon Service
Shares).................................................. 661,679
Shareholder service fees payable (X Shares)................ 157,824
Shareholder service fees payable (S Shares)................ 98,598
Shareholder service fees payable (Y Shares)................ 17,874
Distribution fees payable (X Shares)....................... 189,389
Distribution fees payable (S Shares)....................... 118,308
Distribution fees payable (Y Shares)....................... 53,622
Custodian and fund accounting fees payable................. 230,934
Transfer agent fees payable................................ 244,031
Other accrued expenses..................................... 193,680
---------------
Total Liabilities........................................... 267,766,420
---------------
NET ASSETS.................................................. $ 9,779,676,068
===============
Net Assets:
Pacific Horizon Shares..................................... $ 2,452,112,326
Horizon Shares............................................. 2,414,466,836
Horizon Service Shares..................................... 3,374,174,474
X Shares................................................... 869,716,062
S Shares................................................... 559,417,598
Y Shares................................................... 109,788,772
---------------
Total....................................................... $ 9,779,676,068
===============
Shares Outstanding ($0.001 par value) 120 billion:
Pacific Horizon Shares..................................... 2,452,310,074
Horizon Shares............................................. 2,414,749,939
Horizon Service Shares..................................... 3,374,020,827
X Shares................................................... 869,677,855
S Shares................................................... 559,414,515
Y Shares................................................... 109,788,400
---------------
Total....................................................... 9,779,961,610
===============
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER
SHARE...................................................... $ 1.00
===============
COMPOSITION OF NET ASSETS:
Shares of common stock, at par............................. $ 9,779,963
Additional paid-in capital................................. 9,769,782,074
Accumulated undistributed net investment income............ 3,514,189
Accumulated net realized losses on investment
transactions............................................. (3,400,158)
---------------
NET ASSETS, FEBRUARY 28, 1998............................... $ 9,779,676,068
===============
</TABLE>
- ---------------
See Notes to Financial Statements.
29
<PAGE> 371
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the year ended February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................. $458,788,515
------------
EXPENSES:
Investment advisory fees.................................. 7,234,054
Administration fees....................................... 7,938,015
Special management fees (Pacific Horizon Shares).......... 7,285,114
Shareholder service fees (Horizon Service Shares)......... 8,141,653
Shareholder service fees (X Shares)....................... 1,126,895
Shareholder service fees (S Shares)....................... 482,149
Shareholder service fees (Y Shares)....................... 99,846
Distribution fees (X Shares).............................. 1,352,274
Distribution fees (S Shares).............................. 1,241,178
Distribution fees (Y Shares).............................. 299,538
Registration and filing fees.............................. 617,625
Custodian and fund accounting fees........................ 692,500
Transfer agent fees....................................... 508,568
Legal fees................................................ 274,244
Audit fees................................................ 40,347
Other expenses............................................ 813,512
------------
Total Expenses.......................................... 38,147,512
Less: Fee waivers......................................... (772,551)
Expenses paid by third parties........................ (11,235)
------------
Total Net Expenses.......................................... 37,363,726
------------
Net Investment Income....................................... 421,424,789
NET REALIZED GAINS
ON INVESTMENTS:
Net realized gains on investment transactions............. 69,980
------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $421,494,769
============
</TABLE>
- ---------------
See Notes to Financial Statements.
30
<PAGE> 372
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------
FEBRUARY 28, FEBRUARY 28,
1998 1997
--------------- ---------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income...................................... $ 421,424,789 $ 313,627,480
Net realized gains on investment transactions.............. 69,980 172,885
--------------- ---------------
Change in net assets resulting from operations.............. 421,494,769 313,800,365
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Pacific Horizon Shares..................................... (117,152,680) (110,595,534)
Horizon Shares............................................. (100,966,269) (79,709,197)
Horizon Service Shares..................................... (170,004,484) (119,808,778)
X Shares................................................... (22,281,567) (2,322,836)(a)
S Shares................................................... (8,606,405)(b) --
Y Shares................................................... (1,807,633)(c) --
--------------- ---------------
Change in net assets from shareholder distributions......... (420,819,038) (312,436,345)
--------------- ---------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued................................ 65,111,897,688 42,442,585,809
Dividends reinvested....................................... 243,957,627 177,262,119
Cost of shares redeemed.................................... (62,727,564,200) (40,881,572,699)
--------------- ---------------
Change in net assets from capital share transactions........ 2,628,291,115 1,738,275,229
--------------- ---------------
Change in net assets........................................ 2,628,966,846 1,739,639,249
NET ASSETS
Beginning of Year.......................................... 7,150,709,222 5,411,069,973
--------------- ---------------
End of Year................................................ $ 9,779,676,068 $ 7,150,709,222
=============== ===============
Accumulated Undistributed Net Investment Income............. $ 3,514,189 $ 2,908,438
=============== ===============
</TABLE>
- ---------------
(a) Period from July 22, 1996 (inception date) to February 28, 1997.
(b) Period from April 7, 1997 (inception date) to February 28, 1998.
(c) Period from July 10, 1997 (inception date) to February 28, 1998.
See Notes to Financial Statements.
31
<PAGE> 373
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. On February 28, 1998, the Company
operated as a series company comprised of seventeen funds. The accompanying
financial statements and notes are those of Pacific Horizon Prime Fund (the
"Prime Fund").
The Prime Fund issues six classes of shares (Pacific Horizon Shares, Horizon
Shares and Horizon Services Shares). Effective July 22, 1996, the Prime Fund
began offering X Shares. The Prime Fund began offering S Shares effective April
7, 1997 and effective July 10, 1997 the Prime Fund began offering Y Shares.
Pacific Horizon Shares have a Special Management Services Plan while the Horizon
Service Shares have a Shareholder Services Plan. X, S and Y Shares each have a
Distribution and Services Plan.
THE INVESTMENT OBJECTIVE OF THE FUND IS AS FOLLOWS:
Prime Fund -- Seek high current income and stability of principal by
investing in a broad range of government, bank and commercial obligations
available in the money markets as well as repurchase agreements relating to such
obligations.
Bank of America National Trust and Savings Association ("Bank of America"),
a subsidiary of BankAmerica Corporation, serves as the Prime Fund's investment
adviser. On September 15, 1997, Bank of America assumed the responsibility of
administrator for the Prime Fund pursuant to the terms of an Administration
Agreement between the Company and Bank of America (the "Administration
Agreement"). Prior to September 15, 1997 The BISYS Group, Inc. ("BISYS") through
its wholly-owned subsidiary, BISYS Fund Services, Limited Partnership, served as
the Prime Fund's Administrator.
Bank of America has entered into an agreement with PFPC Inc. ("PFPC"), an
indirect wholly-owned subsidiary of PNC Bank Corp., pursuant to which PFPC has
agreed to provide certain sub-administration services to the Prime Fund,
including, but not limited to, assisting in the developing and monitoring of
compliance procedures, participating in periodic updating of the Prime Fund's
prospectuses and statements of additional information, providing periodic
reports to the Company's Board and providing certain record-keeping
32
<PAGE> 374
services. Bank of America will bear all fees and expenses charged by PFPC for
such services.
In addition, pursuant to authority granted in the Administration Agreement,
Bank of America has entered into an agreement with The Bank of New York ("BONY")
under which BONY has agreed to provide certain accounting, bookkeeping, pricing
and dividend and distribution calculation services for the Prime Fund. The Fund
bears all fees and expenses charged by BONY for these services.
DISTRIBUTOR AND TRANSFER AGENT
Effective September 15, 1997, Provident Distributors, Inc. ("PDI"), assumed
responsibility as principal underwriter and distributor of shares of the Prime
Fund. Prior to such date, Concord Financial Group, Inc. (the "Former
Distributor") also a wholly-owned subsidiary of BISYS served as distributor of
the Prime Fund. Additionally on October 24, 1997, PFPC assumed responsibility as
the Prime Fund's transfer agent and dividend disbursing agent. BISYS Fund
Services, Inc. ("BISYS Ohio") also a wholly-owned subsidiary of BISYS, served
the Prime Fund in such capacity prior to such date.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Prime Fund in preparation of its financial statements. These policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
PORTFOLIO VALUATIONS:
The securities of the Prime Fund are valued at amortized cost, which
approximates market value. The amortized cost method involves valuing a security
at its cost on the date of purchase and thereafter assuming a constant
amortization to maturity of the difference between the principal amount due at
maturity and cost.
SECURITIES TRANSACTIONS AND RELATED INCOME:
The Prime Fund records security transactions on a trade date basis. Interest
income, including accretion of discount and amortization of premium, is accrued
daily. Realized gains and losses from security transactions are recorded on an
identified cost basis.
33
<PAGE> 375
EXPENSES:
The Company accounts separately for the assets, liabilities and operations
of the Prime Fund. Direct expenses of the fund are charged to that fund while
general Company expenses are allocated among the Company's respective
portfolios.
The investment income and expenses of the Prime Fund (other than class
specific expenses) and realized gains and losses on investments of the Prime
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 gains and losses are
incurred.
REPURCHASE AGREEMENTS (PRIME FUND):
The Prime Fund's custodian and other banks acting in a sub-custodian
capacity take possession of the collateral pledged for investments in repurchase
agreements. The underlying collateral is valued daily on a mark-to-market basis
to determine that the value, including accrued interest, exceeds the repurchase
price. In the event of the seller's default of the obligation to repurchase, the
Prime Fund has the right to liquidate the collateral and apply the proceeds in
satisfaction of the obligation. Under certain circumstances, in the event of
default or bankruptcy by the other party to the agreement, realization and/or
retention of the collateral may be subject to legal proceedings.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
The Prime Fund's net investment income is declared as a dividend daily, and
paid monthly, 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 Prime Fund can
be offset by capital loss carryovers of the Fund, such gains will not be
distributed. Dividends and distributions are recorded by the Prime Fund 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
34
<PAGE> 376
income and net realized gains for tax purposes, they are reported as
distributions of capital.
FEDERAL INCOME TAXES:
It is the Prime Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute annually, all of its net investment company taxable income and net
capital gains to shareholders. Therefore, no Federal income tax provision is
required.
At February 28, 1998, the Prime Fund had the following capital loss
carryovers:
<TABLE>
<CAPTION>
CAPITAL LOSS
FUND CARRYOVER EXPIRATION DATE
---- ------------ ---------------
<S> <C> <C>
Prime Fund.......................................... $ 674,982 2002
2,725,176 2003
----------
$3,400,158
==========
</TABLE>
To the extent that these carryovers are used to offset future capital gains,
it is probable that the gains so offset will not be distributed to shareholders.
Capital losses incurred after October 31 for the Prime Fund are deemed to
arise on the first business day of the following fiscal year for tax purposes.
During the year, the Prime Fund utilized $69,980 of its available capital loss
carryover to offset realized capital gains for Federal income tax purposes.
OTHER:
The Prime Fund maintains a cash balance with its custodian and receives
reductions of 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, 1998, custodian fees and expenses paid by third parties were
increased by $11,235 for the Prime Fund. There was no effect on net investment
income. The Prime Fund could have invested such cash balances in income
producing assets if they had not agreed to a reduction of fees or expenses under
the expense offset arrangement with its custodian.
NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
Bank of America serves as the Prime Fund's Manager, providing Investment
Advisory and Administrative services. For the period ended September 15, 1997,
the Prime Fund had an Administration Agreement with BISYS and a Distribution
Agreement with the Former Distributor. Bank of America is entitled to an
Advisory fee from the Prime Fund, which is accrued daily and payable monthly,
35
<PAGE> 377
at an annual rate of 0.10% of the Fund's first $3 billion of net assets, plus
0.09% of the Fund's next $2 billion of net assets, plus 0.08% of the Fund's net
assets in excess of $5 billion. The Administration Agreement entitles Bank of
America to fees from the Prime Fund for Administrative services performed, which
is accrued daily and payable monthly, at an annual rate of 0.10% of the Fund's
first $7 billion of net assets, plus 0.09% of the Fund's next $3 billion of net
assets, plus 0.08% of the Fund's net assets in excess of $10 billion. During the
period March 1, 1997 through September 15, 1997, the Prime Fund had an
Administration Agreement with BISYS. Administration fee rates paid to BISYS were
the same as those currently paid to Bank of America. The Prime Fund was advised
that for the period September 15, 1997 through February 28, 1998, Bank of
America and for the period March 1, 1997 through September 15, 1997, BISYS
earned the following amounts pursuant to the respective Administrative
Agreements:
<TABLE>
<CAPTION>
BANK OF
FUND AMERICA BISYS
---- ------- -----
<S> <C> <C>
Prime Fund................................................ $3,929,655 $4,008,360
</TABLE>
The Prime Fund has adopted a Special Management Services Plan (the "Services
Plan") pursuant to which Service Organizations agree to provide certain services
to their clients who are beneficial owners of Pacific Horizon Shares in return
for a payment by the Prime Fund of a fee at an annual rate 0.32% of the average
daily net assets of the outstanding Pacific Horizon Shares of the Prime Fund.
Fees under the Services Plan are borne solely by the Pacific Horizon Shares.
Service Organizations may include Bank of America and its affiliates, PDI (from
September 15, 1997 through February 28, 1998), and BISYS (prior to September 15,
1997). For the year ended February 28, 1998, for the period September 15, 1997
through February 28, 1998 and for the period March 1, 1997 through September 15,
1997, the Prime Fund was advised that Bank of America and its affiliates, PDI
and BISYS each earned the following amounts pursuant to the Services Plan,
respectively:
<TABLE>
<CAPTION>
BANK OF
FUND AMERICA PDI BISYS
---- ------- --- -----
<S> <C> <C> <C>
Prime Fund......................................... $6,742,687 $12,453 $22,110
</TABLE>
The Prime Fund has also adopted a Shareholder Services Plan (the "Horizon
Services Plan") pursuant to which Service Organizations agree to provide certain
services to their clients who are beneficial owners of Horizon Service Shares in
return for payment by the Prime Fund of a fee at an annual rate of 0.25% of the
average daily net assets of the Horizon Service Shares. Fees under the Horizon
Services Plan are borne solely by the Horizon Service Shares. For the year ended
36
<PAGE> 378
February 28, 1998, the Prime Fund was advised that Bank of America and its
affiliates earned the following amounts pursuant to the Horizon Services Plan,
respectively:
<TABLE>
<CAPTION>
BANK OF
AMERICA
AND
FUND AFFILIATES
---- ----------
<S> <C>
Prime Fund.................................................. $7,381,916
</TABLE>
The Prime Fund has adopted the Distribution and Services Plan under which
the Prime Fund paid PDI and the Former Distributor (prior to September 15, 1997)
and Service Organizations for the provision of support services with respect to
the beneficial owners of X Shares. Payments for distribution expenses and
shareholder servicing expenses may not exceed the annual rate of 0.30% and
0.25%, respectively, of the average daily net assets of the Prime Funds X
Shares. For the year ended February 28, 1998, the Prime Fund was advised that
Bank of America and its affiliates earned the following amounts pursuant to the
Distribution and Services Plan.
<TABLE>
<CAPTION>
BANK OF
AMERICA
AND
FUND AFFILIATES
---- ----------
<S> <C>
Prime Fund.................................................. $2,468,893
</TABLE>
The Prime Fund has adopted the Distribution and Services Plan under which
the Prime Fund paid PDI and the Former Distributor (prior to September 15, 1997)
and Service Organizations for the provision of support service with respect to
the beneficial owners of Y shares. Payments for distribution expenses and
shareholder servicing expenses may not exceed the annual rate of 0.75% and
0.25%; respectively, of the average daily net assets of the Prime Funds Y
shares. For the year ended February 28, 1998, the Prime Fund was advised that
Bank of America and its affiliates earned the following amounts pursuant to the
Distribution and Services Plan.
<TABLE>
<CAPTION>
BANK OF
AMERICA
AND
FUND AFFILIATES
---- ----------
<S> <C>
Prime Fund.................................................. $399,384
</TABLE>
The Prime Fund has adopted the Distribution and Services Plan under which
the Prime Fund paid PDI and the Former Distributor (prior to September 15, 1997)
and Service Organizations for the provision of support services with respect to
the beneficial owners of S shares. Payments for the distribution expenses and
shareholder servicing expenses may not exceed the annual rate of 0.75% and
0.25%, respectively, of the average daily net assets of the Prime
37
<PAGE> 379
Fund's S shares. For the year ended February 28, 1998, Bank of America waived
$772,551 of distribution expenses from the Prime Fund. For the year ended
February 28, 1998, the Prime Fund was advised that Bank of America and its
affiliates, earned the following amounts pursuant to the Distribution and
Services Plan.
<TABLE>
<CAPTION>
BANK OF
AMERICA
AND
FUND AFFILIATES
---- ----------
<S> <C>
Prime Fund.................................................. $950,478
</TABLE>
From the period October 24, 1997 through February 28, 1998 PFPC earned
$288,833 from the Prime Fund for transfer agency and dividend disbursing agency
services performed. BISYS Ohio served the Prime Fund as transfer agent and
dividend disbursing agent through October 24, 1997. In these capacities for the
Prime Fund, BISYS Ohio earned $219,735 for the period ended October 24, 1997.
For the year ended February 28, 1998, the Prime Fund incurred legal charges
totaling $274,244 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 PFPC. 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 $50,000,
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 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 will
receive an additional 10% of their annual Director's retainer for each year of
service between years six and nine, plus one half of the difference between 100%
and the director's applicable percentage. A Director who dies or resigns after
ten years of service as a director will be entitled to receive ten annual
payments equal to the greater of:
38
<PAGE> 380
(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 after February 28, 1994; however a director in office on March 18,
1998 who either resigns in good standing or dies before completing five years of
service as a director should be assigned an Applicable Percentage of 50 percent.
Aggregate costs pursuant to the Retirement Plan amounted to $37,045 for the
Prime Fund for the year ended February 28, 1998. A director who comes into
office after March 18, 1998 is ineligible to participate in the Retirement Plan.
39
<PAGE> 381
NOTE 5 -- CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Prime Fund (at $1.00 per share) for the
periods indicated are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------
FEBRUARY 28, FEBRUARY 28,
1998 1997
--------------- ---------------
<S> <C> <C>
PACIFIC HORIZON SHARES
Issued..................................................... 3,213,898,034 4,320,031,345
Reinvest................................................... 108,696,696 99,202,915
Redeemed................................................... (3,163,041,484) (4,326,928,364)
--------------- ---------------
Net increase/(decrease)..................................... 159,553,246 92,305,896
=============== ===============
HORIZON SHARES
Issued..................................................... 20,455,794,396 15,114,015,999
Reinvest................................................... 39,465,419 25,723,399
Redeemed................................................... (19,790,457,950) (15,081,065,299)
--------------- ---------------
Net increase/(decrease)..................................... 704,801,865 58,674,099
=============== ===============
HORIZON SERVICE SHARES
Issued..................................................... 35,791,164,395 22,771,276,975
Reinvest................................................... 69,471,827 50,011,411
Redeemed................................................... (35,431,800,117) (21,437,775,542)
--------------- ---------------
Net increase............................................... 428,836,105 1,383,512,844
=============== ===============
X SHARES
Issued..................................................... 4,432,511,179 237,259,971
Reinvest................................................... 17,713,737 2,324,394
Redeemed................................................... (3,784,327,932) (35,803,494)
--------------- ---------------
Net increase............................................... 665,896,984 203,780,871(a)
=============== ===============
S SHARES
Issued..................................................... 607,731,207 --
Reinvest................................................... 8,606,126 --
Redeemed................................................... (56,922,818) --
--------------- ---------------
Net increase............................................... 559,414,515(b) --
=============== ===============
Y SHARES
Issued..................................................... 610,798,477 --
Reinvest................................................... 3,822 --
Redeemed................................................... (501,013,899) --
--------------- ---------------
Net increase............................................... 109,788,400(c) --
=============== ===============
</TABLE>
- ---------------
<TABLE>
<C> <S>
(a) Period from July 22, 1996 (inception date) to February 28,
1997.
(b) Period from April 7, 1997 (inception date) to February 28,
1998.
(c) Period from July 10, 1997 (inception date) to February 28,
1998.
</TABLE>
40
<PAGE> 382
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
PACIFIC HORIZON SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income......... 0.0515 0.0492 0.0539 0.0424 0.0287
Net realized gains/(losses) on
investment transactions..... -- -- 0.0004 (0.0227) (0.0016)
-------- -------- -------- -------- --------
Total income from investment
operations.................... 0.0515 0.0492 0.0543 0.0197 0.0271
Less dividends to shareholders
from net investment income.... (0.0515) (0.0490) (0.0539) (0.0422) (0.0287)
Increase due to voluntary
capital contribution from
Investment Advisor............ -- -- -- 0.0233 --
-------- -------- -------- -------- --------
Net change in net asset value
per share -- 0.0002 0.0004 0.0008 (0.0016)
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END
OF YEAR....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return................... 5.27% 5.01% 5.53% 4.30%(dagger) 2.91%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions).................. $ 2,452 $ 2,292 $ 2,200 $ 1,129 $ 1,216
Ratio of expenses to average
net assets.................. 0.55% 0.55% 0.55% 0.51% 0.52%
Ratio of net investment income
to average net assets....... 5.15% 4.92% 5.37% 4.19% 2.86%
Ratio of expenses to average
net assets*................. (a) (a) 0.56% 0.56% 0.53%
Ratio of net investment income
to average net assets*...... (a) (a) 5.36% 4.14% 2.85%
</TABLE>
- ---------------
<TABLE>
<C> <S>
(dagger) Total return includes the effect of the voluntary capital
contribution from the Investment Advisor. Without this
capital contribution, the total return would have been
lower.
* During the year, 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.
(a) Fee waivers and fees paid by third parties had no effect on
the ratios.
</TABLE>
See Notes to Financial Statements.
41
<PAGE> 383
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
HORIZON SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income....... 0.0546 0.0524 0.0571 0.0461 0.0319
Net realized gains/(losses)
on investment
transactions.............. -- -- 0.0004 (0.0232) (0.0016)
-------- -------- -------- -------- --------
Total income from investment
operations.................. 0.0546 0.0524 0.0575 0.0229 0.0303
Less dividends to
shareholders from net
investment income........... (0.0547) (0.0522) (0.0571) (0.0454) (0.0319)
Increase due to voluntary
capital contribution from
Investment Advisor.......... -- -- -- 0.0233 --
-------- -------- -------- -------- --------
Net change in net asset value
per share................... (0.0001) 0.0002 0.0004 0.0008 (0.0016)
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE,
END OF YEAR................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return................. 5.60% 5.34% 5.86% 4.63%(dagger) 3.24%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions).................. $ 2,415 $ 1,710 $ 1,651 $ 662 $ 3,840
Ratio of expenses to average
net assets.................. 0.22% 0.23% 0.23% 0.16% 0.20%
Ratio of net investment
income to average net
assets...................... 5.47% 5.24% 5.69% 4.11% 3.19%
Ratio of expenses to average
net assets*................. (a) (a) 0.24% 0.23% 0.21%
Ratio of net investment
income to average net
assets*..................... (a) (a) 5.68% 4.04% 3.18%
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the year, 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.
(dagger) Total return includes the effect of the voluntary capital
contribution from the Investment Advisor. Without this
capital contribution, the total return would have been
lower.
(a) Fee waivers and fees paid by third parties had no effect on
the ratios.
</TABLE>
See Notes to Financial Statements.
42
<PAGE> 384
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
HORIZON SERVICE SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income............ 0.0521 0.0499 0.0546 0.0431 0.0294
Net realized gains/(losses) on
investment transactions........ -- -- 0.0004 (0.0227) (0.0016)
-------- -------- -------- -------- --------
Total income from investment
operations....................... 0.0521 0.0499 0.0550 0.0204 0.0278
Less dividends to shareholders
from net investment income....... (0.0522) (0.0497) (0.0546) (0.0429) (0.0294)
Increase due to voluntary capital
contribution from Investment
Advisor.......................... -- -- -- 0.0233 --
-------- -------- -------- -------- --------
Net change in net asset value per
share (0.0001). 0.0002 0.0004 0.0008 (0.0016)
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END OF
YEAR............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return...................... 5.34% 5.08% 5.60% 4.37%(dagger) 2.98%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions)..................... $ 3,374 $ 2,945 $ 1,561 $ 864 $ 839
Ratio of expenses to average net
assets......................... 0.48% 0.48% 0.48% 0.44% 0.45%
Ratio of net investment income to
average net assets............. 5.23% 5.00% 5.44% 4.31% 2.94%
Ratio of expenses to average net
assets*........................ (a) (a) 0.49% 0.48% 0.46%
Ratio of net investment income to
average net assets* (a) (a) 5.43% 4.27% 2.93%
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the year, 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.
(dagger) Total return includes the effect of the voluntary capital
contribution from the Investment Advisor. Without this
capital contribution, the total return would have been
lower.
(a) Fee waivers and fees paid by third parties had no effect on
the ratios.
</TABLE>
See Notes to Financial Statements.
43
<PAGE> 385
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
FEBRUARY 28, FEBRUARY 28,
1998 1997(a)
------------ ------------
<S> <C> <C>
X SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD........ $ 1.00 $ 1.00
-------- --------
Income from Investment Operations:
Net investment income............................... 0.0491 0.0282
Net realized gains/(losses) on investment
transactions...................................... -- --
-------- --------
Total income from investment operations............... 0.0491 0.0282
Less dividends to shareholders from net investment
income.............................................. (0.0491) (0.0281)
-------- --------
Net change in net asset value per share............... -- 0.0001
-------- --------
NET ASSET VALUE PER SHARE, END OF PERIOD.............. $ 1.00 $ 1.00
======== ========
Total return.......................................... 5.03% 2.84%(d)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (millions).............. $ 869 $ 204
Ratio of expenses to average net assets............. 0.77% 0.78%(c)
Ratio of net investment income to average net
assets............................................ 4.92% 4.73%(c)
Ratio of expenses to average net assets*............ (b) (b)
Ratio of net investment income to average net
assets*........................................... (b) (b)
</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.
(a) Period from July 22, 1996 (inception date) to February 28,
1997.
(b) Fee waivers and fees paid by third parties had no effect on
the ratios.
(c) Annualized.
(d) Not annualized.
</TABLE>
See Notes to Financial Statements.
44
<PAGE> 386
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
FEBRUARY 28,
1998(A)
--------------
<S> <C>
S SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD.............. $ 1.00
-----------
Income from Investment Operations:
Net investment income..................................... 0.0444
Net realized gains/(losses) on investment transactions.... --
-----------
Total income from investment operations..................... 0.0444
Less dividends to shareholders from net investment income... (0.0444)
-----------
Net change in net asset value per share..................... --
-----------
NET ASSET VALUE PER SHARE, END OF PERIOD.................... $ 1.00
===========
Total return................................................ 4.53%(d)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (millions).................... $ 110
Ratio of expenses to average net assets................... 0.76%(c)
Ratio of net investment income to average net assets...... 4.92%(c)
Ratio of expenses to average net assets*.................. 1.20%(b)(c)
Ratio of net investment income to average net assets*..... 4.48%(b)(c)
</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.
(a) Period from April 7, 1997 (inception date) to February 28,
1998.
(b) Fees paid by third parties had no effect on the ratios.
(c) Annualized.
(d) Not annualized.
</TABLE>
See Notes to Financial Statements.
45
<PAGE> 387
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
FEBRUARY 28,
1998(A)
------------
<S> <C>
Y SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD.............. $ 1.00
--------
Income from Investment Operations:
Net investment income..................................... 0.0290
Net realized gains/(losses) on investment transactions.... --
--------
Total income from investment operations..................... 0.0290
Less dividends to shareholders from net investment income... (0.0290)
--------
Net change in net asset value per share..................... --
--------
NET ASSET VALUE PER SHARE, END OF PERIOD.................... $ 1.00
========
Total return................................................ 2.93%(d)
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (millions).................... $ 559
Ratio of expenses to average net assets................... 1.21%(c)
Ratio of net investment income to average net assets...... 4.48%(c)
Ratio of expenses to average net assets*.................. (b)
Ratio of net investment income to average net assets*..... (b)
</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.
(a) Period from July 10, 1997 (inception date) to February 28,
1998.
(b) Fee waivers and fees paid by third parties had no effect on
the ratios.
(c) Annualized.
(d) Not annualized.
</TABLE>
See Notes to Financial Statements.
46
<PAGE> 388
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 Pacific Horizon Prime Fund (one of
the seventeen portfolios constituting the Pacific Horizon Funds, Inc., hereafter
referred to as the "Fund") at February 28, 1998, 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 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, 1998 by correspondence with the custodian and brokers and the
application of alternative auditing procedures where confirmations from brokers
were not received, provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
April 21, 1998
47
<PAGE> 389
PACIFIC HORIZON TAX-EXEMPT MONEY FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- 104.4%
ARIZONA -- 1.3%
Apache County
Industrial Development
Authority, Tucson Electric Power
(LOC -- Toronto
Dominion Bank) (final
maturity 6/15/20)*..... VMIG1/Aa2 A1+/AA 3.40% 03/04/98 $ 7,800,000 $ 7,800,000
Pima County Industrial
Development Authority,
Tucson Electric Power
Co. (LOC -- Societe
Generale) (final
maturity 10/1/22)*..... VMIG1/Aa3 A1+/AA- 3.40% 03/04/98 1,100,000 1,100,000
------------
8,900,000
------------
ARKANSAS -- 2.3%
Arkansas State
Development Financing
Authority Single Family
Mortgage (final
maturity 7/1/17)*...... NR/NR A1+/AAA 3.95% 07/01/98 10,860,000 10,860,000
Arkansas State
Financial Development
Authority (FGIC
Insured) (LOC --
Citibank) (final
maturity 12/1/15)*..... VMIG1/Aaa A1+/AAA 3.40% 03/05/98 5,200,000 5,200,000
------------
16,060,000
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
48
<PAGE> 390
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
<S> <C> <C> <C> <C> <C> <C>
CALIFORNIA -- 4.9%
California Health
Facilities Financing
Authority, Adventist
Health System/West,
Series A (MBIA
Insured) (final
maturity 9/1/28)*... VMIG1/Aaa A1+/AAA 3.60% 03/04/98 $14,000,000 $14,000,000
California Statewide
Community
Development
Authority,
Certificate of
Participation,
Sutter Health
Obligation Group
(AMBAC
Insured)(final
maturity 7/1/15)*... VMIG1/Aaa A2/AAA 3.85% 03/02/98 3,300,000 3,300,000
California Statewide
Community
Development
Authority, Tax and
Revenue
Anticipation, Series
B................... NR/Aaa NR/AAA 4.75% 09/30/98 10,000,000 10,048,024
Orange County Irvine
Coast Assessment
(LOC -- Industrial
Bank of Japan)
(final maturity
9/2/18)*............ NR/A1 A/A+ 3.60% 03/02/98 7,000,000 7,000,000
-----------
34,348,024
-----------
COLORADO -- 3.7%
Colorado Health
Facilities
Authority, North
Colorado Medical
Center (MBIA
Insured) (final
maturity
5/15/20)*........... VMIG1/Aaa A1+/AAA 3.40% 03/05/98 5,100,000 5,100,000
Colorado State Tax &
Revenue Anticipation
Notes, Series A..... NR/NR SP1+/NR 4.50% 06/26/98 20,000,000 20,040,105
</TABLE>
- ---------------
See Notes to Financial Statements.
49
<PAGE> 391
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
COLORADO -- (CONTINUED)
<S> <C> <C> <C> <C> <C> <C>
Colorado Student
Obligation Bond
Authority, Student
Loan, Series C-2
(LOC -- Student Loan
Marketing) (final
maturity 9/1/02)*... VMIG1/Aaa A1+/AAA 3.35% 03/04/98 $1,300,000 $ 1,300,000
-----------
26,440,105
-----------
DELAWARE -- 0.6%
Delaware Economic
Development (final
maturity
12/1/15)*........... VMIG1/Aaa A1+/AAA 3.40% 03/04/98 4,000,000 4,000,000
-----------
DISTRICT OF COLUMBIA -- 5.6%
District of
Columbia, Series A1
(LOC -- National
Westminster) (final
maturity
10/1/07)*........... VMIG1/Aa2 A1+/AA 3.70% 03/02/98 6,900,000 6,900,000
District of
Columbia, Series A2
(LOC -- Canadian
Imperial Bank)
(final maturity
10/1/07)*........... VMIG1/Aa3 A1+/AA- 3.70% 03/02/98 9,900,000 9,900,000
District of
Columbia, Series A3
(final maturity
10/1/07)*........... VMIG1/Aa3 A1+/AA- 3.70% 03/02/98 12,000,000 12,000,000
District of
Columbia, Series A4
(final maturity
10/1/07)*........... VMIG1/Aa3 A1+/AA- 3.70% 03/02/98 1,000,000 1,000,000
District of
Columbia, Series A5
(LOC -- Bank of Nova
Scotia) (final
maturity
10/1/07)*........... VMIG1/Aa3 A1+/AA- 3.70% 03/02/98 9,778,000 9,778,000
-----------
39,578,000
-----------
FLORIDA -- 4.6%
Florida Board of
Education (final
maturity 6/1/23)*... NR/Aa A1+/AA 3.80% 06/01/98 9,900,000 9,900,000
</TABLE>
- ---------------
See Notes to Financial Statements.
50
<PAGE> 392
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
FLORIDA -- (CONTINUED)
Orlando Special
Assessment Republic
Drive Interchange
(LOC -- Morgan
Guaranty) (final
maturity 10/1/21)*..... VMIG1/Aa1 NR/NR 3.40% 03/04/98 $ 4,700,000 $ 4,700,000
Pasco County School
Board (AMBAC Insured)
(final maturity
8/1/26)*............... VMIG1/Aaa A1+/AAA 3.40% 03/04/98 7,000,000 7,000,000
Sarasota County
Commercial Paper....... P1/NR A1/NR 3.80% 03/10/98 5,000,000 5,000,000
Sarasota County
Hospital............... P1/NR A1/NR 3.70% 04/09/98 3,500,000 3,500,000
St. Lucie County,
Pollution Control
Revenue, Florida Power
& Light, Series A...... P1/NR A1/NR 3.50% 04/01/98 2,500,000 2,500,000
------------
32,600,000
------------
GEORGIA -- 3.6%
Burke County
Development Authority
Pollution Control,
Oglethorpe Power Corp.,
Series A (FGIC Insured)
(final maturity
1/1/19)*............... VMIG1/Aaa A1+/AAA 3.35% 03/04/98 3,000,000 3,000,000
Gainesville
Redevelopment
Authority, Riverside
Military Academy
(LOC -- Wachovia Bank
and Trust) (final
maturity 1/1/23)*...... NR/AA2 NR/NR 3.50% 03/04/98 15,000,000 15,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
51
<PAGE> 393
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
GEORGIA -- (CONTINUED)
Georgia Municipal Gas
Authority, Series A
(LOC -- Morgan Guaranty
Trust, Wachovia Bank,
Credit Suisse,
Bayerische Landesbank,
ABN Amro Bank) (final
maturity 11/1/06)*..... NR/NR A1+/AA 3.35% 03/04/98 $ 7,600,000 $ 7,600,000
------------
25,600,000
------------
ILLINOIS -- 10.1%
Chicago Variable
Equipment Notes
(LOC -- Harris Trust
and Savings Bank)
(final maturity
1/1/06)*............... VMIG1/MIG1 A1+/AA- 3.80% 03/02/98 6,800,000 6,800,000
Chicago Tender Notes
(LOC -- Morgan Guaranty
Trust) (final maturity
1/31/99)*.............. VMIG1/MIG1 A1/Sp1+ 3.55% 10/29/98 15,000,000 15,000,000
Illinois Health
Facilities Authority,
Elmhurst Memorial
Hospital, Series B
(LOC -- Rabobank)
(final maturity
1/1/20)*............... VMIG1/A2 NR/NR 3.80% 03/02/98 7,600,000 7,600,000
Illinois Health
Facilities Authority,
Franciscan Sisters
Health (final maturity
1/1/18)*............... VMIG1/A2 NR/NR 3.80% 03/02/98 9,250,000 9,250,000
Illinois Health
Facilities Authority,
Pooled Revolving Fund
(LOC -- NBD Bank)
(final maturity
8/1/15)*............... VMIG1/Aa3 A1+/AA- 3.40% 03/04/98 2,400,000 2,400,000
Illinois Health
Facilities Authority,
Resurrection Health
Care Systems (final
maturity 5/1/11)*...... VMIG1/A2 NR/NR 3.70% 03/02/98 7,000,000 7,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
52
<PAGE> 394
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
ILLINOIS -- (CONTINUED)
Illinois Health
Facilities Authority,
Elmhurst Memorial
Hospital, Series A
(final maturity
1/1/28)*............... VMIG1/A2 NR/NR 3.80% 03/04/98 $ 8,100,000 $ 8,100,000
Illinois State Toll
Highway Authority,
Series B (LOC --
Societe Generale) (MBIA
Insured) (final
maturity 1/1/10)*...... VMIG1/Aaa A1+/AAA 3.35% 03/04/98 7,700,000 7,700,000
University of Illinois,
The Board of Trustees
Health Services
Facilities System,
Series B (LOC --
Landesbank Hessen)
(final maturity
10/1/26)*.............. VMIG1/Aaa A1+/AAA 3.40% 03/04/98 7,600,000 7,600,000
------------
71,450,000
------------
INDIANA -- 1.8%
Indiana Health Facility
Financing Authority,
Hospital Revenue Bonds,
Deaconess Hospital,
Inc. (LOC -- First
National Bank of
Chicago) (final
maturity 1/1/22)*...... VMIG1/Aa3 NR/NR 3.40% 03/04/98 1,200,000 1,200,000
Jasper County Pollution
Control Revenue,
Northern Indiana Public
Service, Series A...... P1/NR A1/NR 3.20% 03/12/98 8,000,000 8,000,000
Rockport Pollution
Control Revenue,
Indiana Michigan Power
Co. Project (AMBAC
Insured) (final
maturity 6/1/25)*...... NR/Aaa NR/AAA 3.45% 03/04/98 3,600,000 3,600,000
------------
12,800,000
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
53
<PAGE> 395
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
IOWA -- 0.7%
Iowa Higher Education
Loan Authority, Private
College (MBIA Insured)
(final maturity
12/1/15)*.............. VMIG1/Aaa A1+/AAA 3.50% 03/04/98 $ 4,700,000 $ 4,700,000
------------
KENTUCKY -- 1.4%
Kentucky
Asset/Liability Tax &
Revenue Anticipation
Notes, Series A........ MIG1/NR Sp1+/NR 4.50% 06/25/98 10,000,000 10,019,886
------------
LOUISIANA -- 5.8%
Ascension Parish
Pollution Control,
Borden Inc. Project
(LOC -- Credit Suisse)
(final maturity
12/1/09)*.............. VMIG1/Aa2 A1+/AA 3.45% 03/04/98 5,500,000 5,500,000
Louisiana State
Offshore Terminal
Authority, First Stage,
Loop Inc. (LOC --
Morgan Guaranty) (final
maturity 9/1/17)*...... VMIG1/Aa1 A1+/AAA 3.45% 03/04/98 4,610,000 4,610,000
Louisiana Public
Facilities Authority
Hospital Revenue,
Willis-Knighton Medical
Center (AMBAC Insured)
(final maturity
9/1/27)*............... VMIG1/Aaa A1+/AAA 3.45% 03/04/98 15,000,000 15,000,000
Louisiana State General
Obligation Bonds, Tax
Exempt Eagle Trust,
Series 1994 (AMBAC
Insured) (final
maturity 5/1/09)*...... NR/NR A1/AA 3.56% 03/05/98 11,600,000 11,600,000
</TABLE>
- ---------------
See Notes to Financial Statements.
54
<PAGE> 396
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
LOUISIANA -- (CONTINUED)
Plaquemines Port
Harbor & Term
District, Chevron
Pipe Line Company
(final maturity
9/1/08)*............ NR/Aa2 NR/AA 3.85% 03/02/98 $4,000,000 $ 4,000,000
-----------
40,710,000
-----------
MARYLAND -- 1.4%
Gaithersburg
Economic Development
Authority, Asbury
Methodist (MBIA
Insured) (final
maturity 7/1/27)*... NR/NR A1/AAA 3.45% 03/05/98 10,000,000 10,000,000
-----------
MICHIGAN -- 2.6%
Grand Rapids Water
Supply (final
maturity 1/1/20)*... VMIG1/Aaa NR/AAA 3.35% 03/04/98 3,600,000 3,600,000
Michigan Municipal
Bond Authority,
Series B............ NR/NR NR/Sp1+ 4.50% 07/02/98 10,000,000 10,022,713
Michigan State
Strategic Fund,
Ltd., Consumers
Power Co.
(LOC -- Canadian
Imperial Bank)
(final maturity
6/15/10)*........... NR/Aa3 A1+/AA- 3.70% 03/02/98 4,900,000 4,900,000
-----------
18,522,713
-----------
MINNESOTA -- 0.9%
Duluth Tax Increment
Revenue, Lake
Superior Paper
(LOC -- Wachovia
Bank) (final
maturity 9/1/10)*... VMIG1/Aa2 A1+/AA+ 3.40% 03/05/98 3,600,000 3,600,000
St. Cloud Health
Care Facilities, St.
Cloud Hospital,
Series A
(LOC -- Rabobank
Nederland) (final
maturity 7/1/27)*... NR/NR A1+/AAA 3.35% 03/05/98 3,000,000 3,000,000
-----------
6,600,000
-----------
</TABLE>
- ---------------
See Notes to Financial Statements.
55
<PAGE> 397
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
MISSOURI -- 0.5%
Columbia Water &
Electric, Series B
(LOC -- Toronto
Dominion Bank) (final
maturity 12/1/15)*..... VMIG1/Aa2 A1+/AA 3.40% 03/04/98 $ 1,400,000 $ 1,400,000
Missouri State Health &
Educational Facilities
Authority, Series B
(MBIA Insured) (final
maturity 6/1/22)*...... NR/Aaa A1+/AAA 3.40% 03/04/98 2,000,000 2,000,000
------------
3,400,000
------------
MONTANA -- 0.3%
Forsyth Pollution
Control Revenue Bond,
Portland General
Electric Co.
(LOC -- Union Bank of
Switzerland) (final
maturity 6/1/13)*...... P1/Aaa A1+/AA+ 3.40% 03/04/98 2,500,000 2,500,000
------------
NEBRASKA -- 1.0%
Lincoln County
Commercial Paper....... P1/NR A1/NR 3.65% 03/12/98 3,900,000 3,900,000
Nebraska Educational
Facilities (FGIC
Insured) (final
maturity 12/1/00)*..... VMIG1/Aaa A1/AAA 3.75% 03/04/98 3,435,000 3,435,000
------------
7,335,000
------------
NEVADA -- 0.5%
Las Vegas Commercial
Paper.................. P1/NR A1/NR 3.45% 03/10/98 3,500,000 3,500,000
------------
NEW MEXICO -- 2.4%
Farmington Pollution
Control Revenue Bond,
Arizona Public Service
Co., Series B
(LOC -- Barclays Bank)
(final maturity
9/1/24)*............... P1/NR A1+/AA 3.65% 03/02/98 9,000,000 9,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
56
<PAGE> 398
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
NEW MEXICO -- (CONTINUED)
New Mexico State
Highway Commission
(FSA Insured) (final
maturity
6/15/11)*........... VMIG1/Aaa A1+/AAA 3.40% 03/04/98 $8,000,000 $ 8,000,000
-----------
17,000,000
-----------
NEW YORK -- 2.5%
New York City
General
Obligation.......... P1/NR A1/NR 3.00% 03/09/98 7,000,000 7,000,000
New York State
Transportation
Authority (final
maturity 4/1/10)*... VMIG1/Aaa NR/NR 3.50% 03/04/98 9,900,000 9,900,000
Triborough Bridge
and Tunnel Authority
(FGIC Insured)
(final maturity
1/1/24)*............ VMIG1/Aaa A1+/AAA 3.15% 03/04/98 1,100,000 1,100,000
-----------
18,000,000
-----------
NORTH CAROLINA -- 5.5%
Charlotte Airport
Revenue, Series A
(MBIA Insured)
(final maturity
7/1/16)*............ VMIG1/Aaa A1+/AAA 3.35% 03/04/98 2,000,000 2,000,000
Lenoir County
Hospital Revenue,
Lenoir Memorial
Hospital
(LOC -- Wachovia
Bank) (final
maturity
10/1/12)*........... VMIG1/Aa2 NR/NR 3.45% 03/04/98 3,300,000 3,300,000
North Carolina
Commercial Paper.... P1/NR A1/NR 3.70% 03/10/98 6,200,000 6,200,000
North Carolina
Eastern Municipal
Power............... P1/NR A1/NR 3.45% 04/08/98 5,000,000 5,000,000
North Carolina
Medical Care
Commission Hospital
Revenue Bond, Moses
H. Cone Memorial
Hospital Project
(LOC -- Wachovia
Bank) (final
maturity 9/1/02)*... NR/NR A1+/AA 3.40% 03/05/98 1,600,000 1,600,000
North Carolina
Municipal Power
Agency, Catawba
Project............. P1/NR A1/NR 3.00% 03/11/98 6,500,000 6,500,000
</TABLE>
- ---------------
See Notes to Financial Statements.
57
<PAGE> 399
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
NORTH CAROLINA -- (CONTINUED)
North Carolina Medical
Care Community
Retirement (LOC --
LaSalle National Bank)
(final maturity
11/15/09)*............. NR/NR A1+/AA+ 3.40% 03/04/98 $10,000,000 $ 10,000,000
Raleigh-Durham Airport
Authority, American
Airlines Project,
Series 1995B
(LOC -- Royal Bank of
Canada) (final maturity
11/1/15)*.............. NR/NR A1+/AA- 3.65% 03/02/98 4,200,000 4,200,000
------------
38,800,000
------------
OHIO -- 1.4%
Scioto County Hospital,
Volunteer Hospital of
America Center, Inc.,
Series B (AMBAC
Insured) (final
maturity 12/1/25)*..... NR/Aaa A1+/AAA 3.35% 03/04/98 3,325,000 3,325,000
Scioto County Hospital,
Volunteer Hospital of
America Center, Inc.,
Series F (AMBAC
Insured) (final
maturity 12/1/25)*..... NR/Aaa A1+/AAA 3.35% 03/04/98 2,530,000 2,530,000
Scioto County Hospital,
Volunteer Hospital of
America Center, Inc.,
Series G (AMBAC
Insured) (final
maturity 12/1/25)*..... NR/Aaa A1+/AAA 3.35% 03/04/98 4,000,000 4,000,000
------------
9,855,000
------------
OKLAHOMA -- 0.7%
Oklahoma Water
Resources Board State
Loan Program Revenue
Bonds (LOC -- Union
Bank of Switzerland)
(final maturity
9/1/24)*............... NR/NR A1+/AA 3.55% 09/01/98 5,000,000 5,000,000
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
58
<PAGE> 400
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
OREGON -- 1.4%
Medford Oregon Hospital
Facilities Authority,
Rogue Valley Manor
(final maturity
5/15/27)*.............. NR/NR A+/A2 3.60% 03/04/98 $10,000,000 $ 10,000,000
------------
PENNSYLVANIA -- 12.5%
Allegheny County
Hospital Development
Authority, St. Francis
Hospital (LOC -- First
National Bank of
Chicago) (final
maturity 11/1/27)*..... VMIG1/Aa3 A1+/AA- 3.40% 03/04/98 20,000,000 20,000,000
Allegheny County
Industrial Development
Authority, Duquesne
Light Co., Series A
(LOC -- Canadian
Imperial Bank of
Commerce) (final
maturity 9/1/11)*...... NR/NR A1+/AA- 3.85% 10/21/98 8,225,000 8,225,000
Allegheny County
Industrial Development
Authority, Duquesne
Light Co., Series A
(LOC -- Canadian
Imperial Bank of
Commerce) (final
maturity 9/1/11)*...... P1/NR A1+/AA- 3.85% 10/21/98 3,700,000 3,700,000
Delaware Valley
Regulation Finance
Authority Local
Government, Series A
(LOC -- Credit Suisse)
(final maturity
12/1/19)*.............. VMIG1/Aa3 A1+/AA 3.35% 03/04/98 3,000,000 3,000,000
Emmaus General
Authority Revenue Bond,
Series B-16
(LOC -- Kredietbank)
(final maturity
3/1/24)*............... A1+/NR SP1+/NR 3.45% 03/04/98 2,200,000 2,200,000
</TABLE>
- ---------------
See Notes to Financial Statements.
59
<PAGE> 401
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
PENNSYLVANIA -- (CONTINUED)
Emmaus General
Authority Revenue
Bond, Series E
(final maturity
3/1/24)*............ A1+/NR SP1+/NR 3.50% 03/04/98 $1,400,000 $ 1,400,000
Emmaus General
Authority Revenue
Bond, Series G
(final maturity
3/1/24)*............ A1+/NR SP1+/NR 3.50% 03/04/98 5,000,000 5,000,000
Quakertown General
Authority, Pooled
Financing Program,
Series A (LOC -- PNC
Bank) (final
maturity 7/1/26)*... VMIG1/A1 NR/NR 3.50% 03/04/98 21,000,000 21,000,000
Quakertown Hospital
Authority, HPS Group
Pooled Financing
(LOC -- PNC Bank)
(final maturity
7/1/05)*............ VMIG1/A1 NR/NR 3.50% 03/03/98 23,800,000 23,800,000
-----------
88,325,000
-----------
SOUTH CAROLINA -- 1.7%
Piedmont Municipal
Power Agency, South
Carolina Electric
Co., Series C (MBIA
Insured) (final
maturity 1/1/22)*... VMIG1/Aaa A1+/AAA 3.40% 03/04/98 2,000,000 2,000,000
Piedmont Municipal
Power Agency, South
Carolina Electric
Co., Series D (MBIA
Insured) (final
maturity 1/1/25)*... VMIG1/Aaa A1+/AAA 3.40% 03/04/98 10,100,000 10,100,000
-----------
12,100,000
-----------
TENNESSEE -- 3.1%
Bristol Health &
Education
Facilities, Series
1995A (final
maturity 3/1/14)*... NR/NR A1/AAA 3.55% 03/04/98 8,500,000 8,500,000
Clarksville Public
Building Authority
(final maturity
11/1/27)*........... A1/Aa3 NR/NR 3.45% 03/04/98 4,000,000 4,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
60
<PAGE> 402
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
TENNESSEE -- (CONTINUED)
Metropolitan Government
Nashville & Davidson
County Health &
Education Facilities,
Adventist/Sunbelt,
Series A (final
maturity 11/15/26)*.... VMIG1/Aa3 A1+/AA+ 3.40% 03/05/98 $ 9,350,000 $ 9,350,000
------------
21,850,000
------------
TEXAS -- 10.5%
Angelina & Neches River
Authority Industrial
Development Corp Solid
Waste Disposal (TEEC,
Inc. Temple-Inland)
Series D (LOC -- Credit
Suisse) (final maturity
5/1/14)*............... P1/Aa3 NR/NR 3.70% 03/02/98 5,300,000 5,300,000
Grand Prairie Housing
Financing Corp, Lincoln
Property Co.(final
maturity 6/1/10)*...... NR/NR A1+/AAA 3.50% 03/04/98 6,700,000 6,700,000
Grapevine Industrial
Development Corporation
Airport Revenue,
Southern Air
Transportation
(LOC -- Bank One Texas)
(final maturity
3/1/10)*............... NR/NR A1+/AA 3.45% 03/05/98 2,300,000 2,300,000
Harris County Health
Facilities Development
Corp, Memorial Hospital
Systems, Series B
(final maturity
6/1/24)*............... VMIG1/Aaa A1+/AAA 3.35% 03/04/98 3,500,000 3,500,000
</TABLE>
- ---------------
See Notes to Financial Statements.
61
<PAGE> 403
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
TEXAS -- (CONTINUED)
Harris County,
Industrial
Development
Pollution Control
Revenue Bonds (Exxon
Corporation) (final
maturity 3/1/24)*... NR/Aaa A1+/AAA 3.65% 03/02/98 $1,000,000 $ 1,000,000
Lower Neches Valley
Authority, Chervon
Corp. (final
maturity
2/15/17)*........... NR/P1 A1+/AA 3.45% 03/17/98 4,700,000 4,700,000
North Central Texas
Commercial Paper.... P1/NR A1/NR 3.70% 03/10/98 5,000,000 5,000,000
North Texas
Municipal Water
District (AMBAC
Insured) (final
maturity 6/1/02)*... NR/Aaa NR/AAA 7.65% 06/01/98 2,280,000 2,349,584
Nueces River
Authority (final
maturity 3/1/27)*... VMIG1/NR NR/AAA 3.56% 03/05/98 16,600,000 16,600,000
Texas State Tax &
Revenue Anticipation
Notes, Series A..... MIG1/NR SP1+/NR 4.75% 08/31/98 22,000,000 22,097,620
Tom Green County
Health Facilities
Development,
Universal Health
Services (LOC --
Morgan Guaranty
Trust) (final
maturity
12/1/15)*........... NR/NR A1+/AAA 3.40% 03/04/98 2,000,000 2,000,000
University of Texas
Board of Regents.... P1/NR A1/NR 3.55% 05/14/98 3,000,000 3,000,000
-----------
74,547,204
-----------
UTAH -- 1.4%
Intermountain Power
Agency, Utah Power
Supply Revenue
(LOC -- Chase
Manhattan Bank)
(final maturity
7/1/03)*............ VMIG1/Aaa NR/NR 3.55% 03/04/98 9,900,000 9,900,000
-----------
</TABLE>
- ---------------
See Notes to Financial Statements.
62
<PAGE> 404
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
VERMONT -- 1.4%
Mt. Vernon Commercial
Paper.................. P1/NR A1/NR 3.60% 03/10/98 $ 3,290,000 $ 3,290,000
Vermont Education and
Health Financing
Agency, Middlebury
College Project, Series
A (final maturity
11/1/27)*.............. NR/Aa NR/AA 3.85% 05/01/98 2,075,000 2,077,706
Vermont Education and
Health Financing
Agency, Middlebury
College Project, Series
A (final maturity
5/1/28)*............... NR/NR A1+/AA 3.95% 05/01/98 4,700,000 4,700,000
------------
10,067,706
------------
VIRGINIA -- 0.9%
Peninsula Port
Authority of Virginia
Coal Terminal, Dominion
Terminal Associates
Project, Series D
(LOC -- Barclays Bank)
(final maturity
7/1/16)*............... P1/Aa2 NR/NR 3.65% 03/02/98 2,000,000 2,000,000
Peninsula Port
Authority of Virginia,
Dominion Terminal
Associates Project..... P1/NR A1/NR 3.00% 03/11/98 4,035,000 4,035,000
------------
6,035,000
------------
WISCONSIN -- 3.6%
Carlton Pollution
Control Revenue,
Wisconsin Power and
Light Co. (final
maturity 9/01/05)*..... VMIG1/Aa2 A1+/AA 3.70% 03/02/98 2,900,000 2,900,000
Wisconsin State
Operating Note......... MIG1/NR SP1+/NR 4.50% 06/15/98 7,100,000 7,114,182
</TABLE>
- ---------------
See Notes to Financial Statements.
63
<PAGE> 405
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
WISCONSIN -- (CONTINUED)
Wisconsin State
Operating Notes,
Series 2............ MIG1/NR SP1+/NR 4.50% 06/15/98 $10,000,000 $10,021,940
Wisconsin
Transportation
Revenue............. P1/NR A1/NR 3.10% 03/10/98 5,159,000 5,159,000
-----------
25,195,122
-----------
WYOMING -- 1.8%
Converse Country,
Pacificcorp., Series
1992................ P1/NR A1/NR 3.25% 03/12/98 12,485,000 12,485,000
-----------
TOTAL INVESTMENTS -- 104.4%
(AMORTIZED COST
$738,223,760)(a).... 738,223,760
LIABILITIES IN EXCESS
OF OTHER ASSETS --
(4.4%).............. (30,899,984)
-----------
NET ASSETS --
100.0%.............. $707,323,776
===========
</TABLE>
- ---------------
Percentages indicated are based on net assets of $707,323,776.
(a) Cost for Federal income tax and financial reporting purposes is
substantially the same.
<TABLE>
<C> <S>
AMBAC -- AMBAC Indemnity Corporation.
FGIC -- Financial Guaranty Insurance Company.
FSA -- Financial Security Assurance.
LOC -- Letter of Credit.
MBIA -- Municipal Bond Insurance Association.
NR -- No rating assigned by Moody's or S&P.
</TABLE>
* Variable rate security. Maturity date reflects the next rate change date.
(dagger) The ratings provided consist of short-term and long-term ratings.
See Notes to Financial Statements.
64
<PAGE> 406
PACIFIC HORIZON CALIFORNIA TAX-EXEMPT
MONEY MARKET FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- 99.8%
CALIFORNIA -- 96.3%
Abag Financial
Authority, For Non-
Profit Corporations,
Certificates of
Participation, Lucile
Salter Packard Project
(final maturity
8/1/23)*................ VMIG1/AAA A1+/AAA 3.00% 03/04/98 $ 1,930,000 $ 1,930,000
Alameda-Contra Costa
Financing Authority,
Certificates of
Participation (final
maturity 8/1/23)*....... NR/NR A1+/AA- 2.90% 03/05/98 5,000,000 5,000,000
California Department of
Water................... P1/NR A1+/NR 3.40% 04/16/98 2,330,000 2,330,000
California General
Obligation (final
maturity 4/1/04)*
(double dagger)......... NR/NR A1+/AAA 3.00% 03/16/98 15,100,000 15,100,000
California General
Obligation.............. P1/A A/A+ 3.45% 03/24/98 11,000,000 11,000,000
California General
Obligation.............. P1/A A/A+ 3.55% 04/20/98 10,000,000 10,000,000
California General
Obligation.............. P1/A A/A+ 3.70% 03/06/98 6,000,000 6,000,000
California General
Obligation.............. P1/A A/A+ 3.65% 03/09/98 5,000,000 5,000,000
California General
Obligation.............. P1/A A/A+ 3.70% 03/06/98 10,000,000 10,000,000
California General
Obligation, Class A
(final maturity
2/1/06)*(double dagger). A1+/AA NR/NR 3.46% 03/05/98 10,000,000 10,000,000
California Health
Facilities Financing
Authority (final
maturity 7/1/20)*....... VMIG1/AA A1/AA 3.00% 03/04/98 4,200,000 4,200,000
California Health
Facilities Financing
Authority (final
maturity 8/1/16)**...... NR/AAA NR/AAA 3.50% 05/01/98 11,300,000 11,300,000
</TABLE>
- ---------------
See Notes to Financial Statements.
65
<PAGE> 407
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
California Health
Facilities Financing
Authority, Adventist
Health System, Series
A (MBIA Insured)
(final maturity
9/1/28)*............. VMIG1/AAA A1+/AAA 3.60% 03/04/98 $16,000,000 $ 16,000,000
California Health
Facilities Financing
Authority, Catholic
Healthcare West,
Series 1995C (MBIA
Insured) (final
maturity 7/1/11)*.... VMIG1/Aaa A1+/AAA 3.00% 03/04/98 10,000,000 10,000,000
California Health
Facilities Financing
Authority, Catholic
Healthcare West,
Series 1995D (MBIA
Insured) (final
maturity 7/1/18)*.... VMIG1/AAA A1+/AAA 3.00% 03/04/98 9,700,000 9,700,000
California Health
Facilities Financing
Authority, Catholic
Healthcare West,
Series 1996C (MBIA
Insured) (final
maturity 7/1/12)*.... VMIG1/Aaa A1+/AAA 3.00% 03/04/98 5,700,000 5,700,000
California Health
Facilities Financing
Authority, Catholic
Healthcare West,
Series 1997B (MBIA
Insured) (final
maturity 7/1/12)*.... VMIG1/Aaa A1+/AAA 3.00% 03/04/98 13,300,000 13,300,000
California Health
Facilities Financing
Authority, Catholic
Healthcare, Series
1988A (MBIA Insured)
(final maturity
7/1/09)*............. VMIG1/AAA A1+/AAA 3.00% 03/04/98 3,700,000 3,700,000
</TABLE>
- ---------------
See Notes to Financial Statements.
66
<PAGE> 408
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
California Health
Facilities Financing
Authority, Children's
Hospital (MBIA
Insured) (final
maturity 11/1/21)*... VMIG1/Aaa A1+/AAA 2.90% 03/04/98 $7,550,000 $ 7,550,000
California Health
Facilities Financing
Authority, Scripps
Memorial Hospital,
Series 1991B (MBIA
Insured) (final
maturity 10/1/21)*... VMIG1/AAA A1+/AAA 3.05% 03/04/98 1,500,000 1,500,000
California Health
Facilities Financing
Authority, St. Joseph
Healthcare System,
Series 1985A (final
maturity 7/1/12)*.... VMIG1/AA3 A1+/AA 3.55% 03/02/98 2,240,000 2,240,000
California Health
Facilities Financing
Authority, Sutter
Healthcare
Facilities, Series B
(LOC -- Morgan
Guaranty Trust)
(final maturity
3/1/20)*............. VMIG1/AA1 A1+/AAA 3.65% 03/02/98 1,000,000 1,000,000
California Housing
Financing Agency,
Multi-Unit Rental
Revenue Authority
(MBIA Insured) (final
maturity 8/1/07)*.... NR/AAA NR/AAA 3.55% 08/01/98 2,000,000 2,000,000
California Housing
Financing Agency,
Multi-Unit Rental
Revenue Authority
(MBIA Insured) (final
maturity 8/1/08)*.... NR/AAA NR/AAA 3.55% 08/01/98 2,500,000 2,500,000
California Housing
Financing Agency,
Multifamily, Series A
(final maturity
7/15/13)*............ NR/NR A1+/AAA 2.95% 03/04/98 4,030,000 4,030,000
</TABLE>
- ---------------
See Notes to Financial Statements.
67
<PAGE> 409
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
California Housing
Financing Agency,
Multifamily, Series B
(final maturity
7/15/13)*............ NR/NR A1+/AAA 2.95% 03/04/98 $1,500,000 $ 1,500,000
California Housing
Financing Agency,
Series E (AMT) (final
maturity 2/1/33)*.... VMIG1/AA2 A1+/AA- 3.55% 03/04/98 15,000,000 15,000,000
California Pollution
Control Financing
Authority............ P1/NR A1/NR 3.30% 03/12/98 14,000,000 14,000,000
California Pollution
Control Financing
Authority, Southern
California Edison --
Series D............. P1/NR A1/NR 3.55% 05/19/98 6,200,000 6,200,000
California Pollution
Control Financing
Authority, Atlantic
Richfield Company
Project, Series 1994A
(AMT) (final maturity
12/1/24)*............ VMIG1/A2 A1/A 3.70% 03/02/98 8,800,000 8,800,000
California Pollution
Control Financing
Authority, Calsan,
Inc. Project, Series
A (AMT) (LOC-Wells
Fargo Bank) (final
maturity 12/1/11)*... NR/NR NR/NR 3.20% 03/04/98 1,700,000 1,700,000
California Pollution
Control Financing
Authority, Chevron
USA, Inc. Project,
(final maturity
11/15/01)*........... NR/AA2 NR/AA 3.85% 05/15/98 2,408,462 2,408,462
California Pollution
Control Financing
Authority, Delano
Power Project (AMT)
(LOC -- Algemene Bank
Nederland) (final
maturity 8/1/19)*.... NR/AA1 NR/NR 3.65% 03/02/98 4,900,000 4,900,000
</TABLE>
- ---------------
See Notes to Financial Statements.
68
<PAGE> 410
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
California Pollution
Control Financing
Authority, Honey Lake
Power Company Project
(AMT) (LOC -- Banque
Nationale, Paris)
(final maturity
9/1/18)*............. NR/Aa3 NR/NR 3.65% 03/02/98 $4,300,000 $ 4,300,000
California Pollution
Control Financing
Authority, Pacific
Gas & Electric,
Series 1996A (AMT)
(LOC -- Swiss Bank
Corporation) (final
maturity 12/1/16)*... NR/NR A1+/AAA 3.20% 03/04/98 15,000,000 15,000,000
California Pollution
Control Financing
Authority, Pacific
Gas & Electric,
Series 1997B (AMT)
(LOC-Deutsche Bank)
(final maturity
11/1/26)*............ NR/NR A1+/AAA 3.60% 03/02/98 53,250,000 53,250,000
California Pollution
Control Financing
Authority, Pacific
Gas & Electric,
Series 1997C (AMT)
(LOC -- Kredietbank
N.V.) (final maturity
11/1/26)*............ NR/NR A1+/AA+ 3.65% 03/02/98 31,500,000 31,500,000
California Pollution
Control Financing
Authority, Pacific
Gas & Electric,
Series D............. NR/NR A1+/AA+ 3.55% 03/10/98 6,800,000 6,800,000
California Pollution
Control Financing
Authority, Shell Oil
Company Martinez
Project, Series 1994A
(AMT) (final maturity
10/1/24)*............ VMIG1/Aa1 NR/NR 3.60% 03/02/98 19,800,000 19,800,000
</TABLE>
- ---------------
See Notes to Financial Statements.
69
<PAGE> 411
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
California Pollution
Control Financing
Authority, Shell Oil
Company Project,
Series 1991A (final
maturity 10/1/06)*... VMIG1/AA1 A1+/AAA 3.55% 03/02/98 $1,300,000 $ 1,300,000
California Pollution
Control Financing
Authority, Southern
California Edison Co.
Project, Series 1986D
(final maturity
2/28/08)*............ P1/A1 A1/A+ 3.90% 03/02/98 1,000,000 1,000,000
California Pollution
Control Financing
Authority, Solid
Waste Disposal
Revenue, Taormina
Industries, Inc.
Project (AMT) (LOC --
Sanwa Bank, Ltd.)
(final maturity
8/1/14)*............. VMIG1/A1 NR/NR 3.85% 03/04/98 5,335,000 5,335,000
California Pollution
Control Financing
Authority, Solid
Waste Disposal
Revenue, Taormina
Industries, Inc.,
Project, Series 1994B
(AMT) (final maturity
8/1/14)*............. VMIG1/A1 NR/NR 3.85% 03/04/98 2,240,000 2,240,000
California Pollution
Control Revenue...... P1/NR A1+/NR 2.95% 03/10/98 3,300,000 3,300,000
California Pollution
Control Revenue...... P1/NR A1+/NR 3.10% 03/10/98 2,000,000 2,000,000
California Pollution
Control Revenue...... P1/NR A1+/NR 3.10% 03/12/98 3,600,000 3,600,000
California Pollution
Control Revenue...... P1/NR A1+/NR 3.10% 03/18/98 15,000,000 15,000,000
California Pollution
Control Revenue...... P1/NR A1+/NR 2.90% 03/04/98 2,000,000 2,000,000
California School
Cash Reserve Program
Authority, Series
A.................... MIG1/NR SP1+/NR 4.75% 07/02/98 37,110,666 37,110,666
</TABLE>
- ---------------
See Notes to Financial Statements.
70
<PAGE> 412
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
California State
Department of Water
(final maturity
12/1/29)*............ NR/AA A+/AA 3.41% 03/05/98 $8,300,000 $ 8,300,000
California State
Municipal Receipts,
Series SGA 54 (AMBAC
Insured) (final
maturity 6/1/21)*
**................... NR/NR NR/NR 3.40% 03/04/98 15,950,000 15,950,000
California State
Municipal Receipts,
Series SGA 72 (FGIC
Insured) (final
maturity 6/1/17)*
***.................. NR/NR A1+/AAA 3.40% 03/04/98 2,000,000 2,000,000
California State
Municipal Receipts,
Series SGB 7 (final
maturity 9/1/21)*.... NR/NR A1+/AAA 3.40% 03/04/98 3,975,000 3,975,000
California State
Revenue Anticipation
Note................. MIG1/NR SP1+/NR 4.50% 06/30/98 14,491,929 14,491,929
California Statewide
Community Development
Authority, Apartment
Development Revenue,
Series A-1 (final
maturity 5/15/25)*... NR/NR NR/AAA 3.00% 03/04/98 4,100,000 4,100,000
California Statewide
Community Development
Authority, Apartment
Development Revenue,
Series A-2 (final
maturity 5/15/25)*... NR/NR NR/AAA 3.00% 03/04/98 28,000,000 28,000,000
California Statewide
Community Development
Authority, Apartment
Development Revenue,
Series A-5 (final
maturity 5/15/25)*... NR/NR NR/AAA 3.15% 03/04/98 15,425,000 15,425,000
</TABLE>
- ---------------
See Notes to Financial Statements.
71
<PAGE> 413
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
California Statewide
Community Development
Authority, Apartment
Development Revenue,
Series A-6 (final
maturity 5/15/25)*... NR/NR NR/AAA 3.15% 03/04/98 $2,300,000 $ 2,300,000
California Statewide
Community Development
Authority, Apartment
Development Revenue,
Series A-7 (AMT)
(final maturity
5/15/25)*............ NR/NR NR/AAA 3.20% 03/04/98 8,800,000 8,800,000
California Statewide
Community Development
Authority, Sutter
Health Obligation
Group (AMBAC Insured)
(final maturity
7/1/15)*............. NR/NR NR/NR 3.85% 03/02/98 24,600,000 24,600,000
California Statewide
Community Development
Authority, Calsonic
Project (final
maturity 8/1/08)*.... NR/NR NR/NR 3.65% 03/04/98 7,000,000 7,000,000
California Statewide
Community Development
Authority, Chevron
USA, Inc. Project
(AMT) (final maturity
12/15/24)*........... NR/AA2 NR/NR 3.65% 03/02/98 12,400,000 12,400,000
California Statewide
Community Development
Authority, Kaiser
Permanente Foundation
Hospital (final
maturity 12/1/15)*... VMIG1/AA3 A1+/A+ 3.50% 03/04/98 3,400,000 3,400,000
</TABLE>
- ---------------
See Notes to Financial Statements.
72
<PAGE> 414
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
California Statewide
Community Development
Authority, Merrills
Packaging, Inc. (AMT)
(LOC -- Bank of
Tokyo) (final
maturity 12/1/18)*... NR/NR A1/A+ 3.65% 03/04/98 $1,605,000 $ 1,605,000
California Statewide
Community Development
Authority, Tax and
Revenue Anticipation
Note, Series B....... NR/AAA NR/AAA 4.75% 09/30/98 7,033,023 7,033,023
California Statewide
Community Development
Authority, The
Terraces at PK Marino
Project (AMT) (LOC --
Sanwa Bank,
California) (final
maturity 7/1/27)*.... VMIG1/A1 NR/NR 4.20% 03/04/98 7,355,000 7,355,000
California
Transportation
Finance Authority
(FSA Insured) (final
maturity 10/1/27)*... NR/NR A1+/AAA 3.20% 03/04/98 6,600,000 6,600,000
Camarillo Multifamily
Housing Authority,
Heritage Park Project
(FNMA Insured) (final
maturity 7/15/19)*... NR/NR A1+/AAA 3.00% 03/04/98 5,000,000 5,000,000
Central Coast Water
Authority California
Revenue (final
maturity 10/1/16)*... NR/NR A1+/AAA 3.36% 03/04/98 2,250,000 2,250,000
Chula Vista
Industrial
Development Revenue.. P1/NR A1/NR 3.15% 03/18/98 3,000,000 3,000,000
Chula Vista
Industrial
Development, San
Diego Gas & Electric
Co., Series A (AMT)
(final maturity
3/1/23)*............. VMIG1/A2 A1/A 3.75% 03/02/98 700,000 700,000
</TABLE>
- ---------------
See Notes to Financial Statements.
73
<PAGE> 415
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
Chula Vista
Industrial
Development, San
Diego Gas & Electric
Co., Series B (AMT)
(final maturity
12/1/27)*............ VMIG1/A1 A1/A+ 3.30% 03/04/98 $11,000,000 $ 11,000,000
City of Long Beach
(final maturity
5/15/15)*............ NR/NR A1+/AAA 3.31% 03/04/98 6,500,000 6,500,000
Contra Costa County
Tax & Revenue
Anticipation Notes,
Series A............. MIG1/NR SP1+/NR 4.50% 07/01/98 10,021,559 10,021,559
Eastern Municipal
Water District,
California Water &
Sewer, Certificates
of Participation,
Series B (FGIC
Insured) (final
maturity 7/1/20)*.... VMIG1/Aaa A1+/AAA 2.90% 03/04/98 25,640,000 25,640,000
Foothill/Eastern
Corridor Agency, Toll
Road Revenue, Series
B (LOC -- Morgan
Guaranty Trust)
(final maturity
1/2/35)*............. NR/NR A1+/AAA 2.90% 03/05/98 7,100,000 7,100,000
Fremont Certificates
of Participation,
Family Residential
Center (final
maturity 8/1/28)*.... NR/NR A1+/AA- 2.95% 03/04/98 2,000,000 2,000,000
Fremont Multi-Family
Housing Authority
(LOC -- Bayerische
Landesbank) (final
maturity 9/1/14)*.... NR/NR A1+/AAA 3.00% 03/05/98 6,000,000 6,000,000
Grand Terrace
Community
Redevelopment Agency,
Mt. Vernon Villas
(LOC -- Industrial
Bank of Japan) (final
maturity 12/1/11)*... NR/NR A2/A- 4.10% 03/04/98 1,650,000 1,650,000
</TABLE>
- ---------------
See Notes to Financial Statements.
74
<PAGE> 416
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
Hayward Multi-Family
Housing Authority,
Series A (final
maturity 8/1/14)*.... VMIG1/Aaa NR/AAA 2.90% 03/04/98 $9,600,000 $ 9,600,000
Huntington Beach
Multi-Family Housing,
Huntington Breakers,
Series A (LOC --
Sumitomo Bank, Ltd.)
(final maturity
7/1/14)*............. VMIG1/A1 NR/NR 3.65% 03/04/98 10,300,000 10,300,000
Indio Multi-Family
Housing, Western
Federal Savings
Project (LOC -- Wells
Fargo & Co.) (final
maturity 6/1/05)*.... NR/NR A1/A+ 2.75% 03/05/98 2,900,000 2,900,000
Irvine Improvement
Board Act 1915,
District 94-13
(LOC -- Canadian
Imperial Bank) (final
maturity 9/2/22)*.... VMIG1/Aa3 A1+/AA- 3.65% 03/02/98 2,800,000 2,800,000
Irvine Improvement
Board Act 1915,
District 94-15
(LOC -- Dai-Ichi
Kangyo Bank, Ltd.)
(final maturity
9/2/20)*............. VMIG1/A1 A2/BBB+ 3.85% 03/02/98 12,733,000 12,733,000
Ivrine Ranch Water
District (LOC --
National Westminster)
(final maturity
8/1/16)*............. VMIG1/AA2 A1/A 3.65% 03/04/98 2,700,000 2,700,000
Long Beach Health
Facilities, Memorial
Health Service (final
maturity 10/1/16)*... VMIG1/A1 A1+/AA- 3.05% 03/04/98 11,600,000 11,600,000
Long Beach (AMT)
(final maturity
5/15/05)*............ P1/Aaa A1/AAA 3.45% 03/04/98 4,995,000 4,995,000
Long Beach County,
Capital Asset........ P1/NR A1/NR 3.20% 03/11/98 1,000,000 1,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
75
<PAGE> 417
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
Los Angeles Community
Redevelopment Agency,
Academy Village
Apartments (AMT)
(LOC -- Swiss Bank)
(final maturity
10/1/19)*............ VMIG1/Aa1 NR/NR 3.05% 03/02/98 $15,000,000 $ 15,000,000
Los Angeles County
Metro Transportation
Sales Tax Revenue,
Series 1993A (MBIA
Insured) (final
maturity 7/1/20)*.... VMIG1/Aaa A1+/AAA 2.90% 03/05/98 31,150,000 31,150,000
Los Angeles County
Metropolitan
Transportation
Authority, Series
SG-54 (final maturity
7/1/17)*............. NR/NR A1+/AAA 3.41% 03/04/98 2,100,000 2,100,000
Los Angeles County
Pension Obligation,
Series B (AMBAC
Insured) (final
maturity 6/30/07)*... VMIG1/Aaa A1+/AAA 3.00% 03/04/98 1,200,000 1,200,000
Los Angeles County
Tranportation
Authority............ P1/NR A1+/NR 2.85% 03/12/98 5,337,000 5,337,000
Los Angeles County
Transportation
Authority, Series
A.................... P1/NR A1+/NR 3.70% 03/09/98 4,900,000 4,900,000
Los Angeles County
Transportation
Commission Sales Tax
Revenue, Series 1992A
(FGIC Insured) (final
maturity 7/1/12)*.... VMIG1/Aaa A1+/AAA 3.00% 03/04/98 2,400,000 2,400,000
Los Angeles County
Transportation
Commission Sales Tax
Revenue, Series A.... P1/NR A1+/NR 3.70% 03/09/98 100,000 100,000
Los Angeles County
Water Authority...... P1/NR A1+/NR 3.15% 04/03/98 15,000,000 15,000,000
Los Angeles County
Waste Water
Systems.............. P1/NR A1+/NR 3.60% 03/12/98 1,500,000 1,500,000
Los Angeles County
Capital Asset........ P1/NR A1/NR 3.30% 03/06/98 1,000,000 1,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
76
<PAGE> 418
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
Los Angeles County
Capital Asset........ P1/NR A1/NR 3.40% 03/25/98 $10,000,000 $ 10,000,000
Los Angeles County
Capital Asset........ P1/NR A1/NR 3.40% 03/06/98 5,000,000 5,000,000
Los Angeles
Department of Water
and Power............ P1/NR A1+/NR 3.35% 05/11/98 19,000,000 19,000,000
Los Angeles
Department of Water
and Power............ P1/NR A1+/NR 3.10% 03/17/98 5,000,000 5,000,000
Los Angeles
Department of Water
and Power............ P1/NR A1+/NR 3.75% 04/08/98 15,000,000 15,000,000
Los Angeles
Department of Water
and Power............ P1/NR A1+/NR 3.00% 03/06/98 10,000,000 10,000,000
Los Angeles
Department of Water
and Power............ P1/NR A1+/NR 3.10% 03/17/98 35,000,000 35,000,000
Los Angeles Tax &
Revenue Anticipation
Notes................ MIG1/NR SP1+/NR 4.50% 06/30/98 15,028,671 15,028,671
Los Angeles
Transportation
Authority............ P1/NR A1+/NR 2.95% 03/05/98 6,000,000 6,000,000
Los Angeles Unified
School District Tax &
Revenue Anticipation
Note................. MIG1/NR SP1+/NR 4.50% 10/01/98 7,026,456 7,026,456
Marin County Tax &
Revenue Anticipation
Notes................ MIG1/NR NR/NR 4.50% 07/31/98 20,052,238 20,052,238
Metropolitan Water
District, Southern
California
Waterworks, Series A
(AMBAC Insured)
(final maturity
6/1/23)*............. VMIG1/Aaa A1+/AAA 2.90% 03/05/98 6,980,000 6,980,000
Modesto County....... P1/NR A1+/NR 2.95% 03/12/98 8,000,000 8,000,000
Modesto Irrigation
District............. P1/NR A1/NR 3.10% 03/19/98 7,000,000 7,000,000
Monterey County
Financing Authority,
Reclamation and
Distribution Project
(LOC -- Dai-Ichi
Kangyo Bank, Ltd.)
(final maturity
9/1/36)*............. VMIG1/A1 NR/NR 3.90% 03/05/98 19,100,000 19,100,000
</TABLE>
- ---------------
See Notes to Financial Statements.
77
<PAGE> 419
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
Monterey Peninsula
Water Management
District,
Certificates of
Participation,
Wastewater
Reclamation Project
(LOC -- Sumitomo
Bank, Ltd.) (final
maturity 7/1/22)*.... VMIG1/A1 A2/A- 3.50% 03/05/98 $21,600,000 $ 21,600,000
Monterey Waste
Management Authority
(LOC -- Dai Ichi
Kangyo Bank, Ltd.)
(final maturity
4/1/15)*............. NR/NR A2/BBB+ 3.90% 03/02/98 3,400,000 3,400,000
MSR Public Power
Agency, California
San Jaun Project,
Series 1997E (MBIA
Insured) (final
maturity 7/1/22)*.... VMIG1/AAA A1+/AAA 3.00% 03/04/98 15,200,000 15,200,000
Ontario Industrial
Development
Authority, L.D.
Brinkman & Co.
(LOC -- Union Bank of
California) (final
maturity 4/1/15)*.... P1/NR NR/NR 3.55% 03/02/98 3,000,000 3,000,000
Orange County
Apartment Development
Authority, Bear Brand
Apartments (final
maturity 11/1/07)*... VMIG1/Aa2 NR/NR 3.00% 03/04/98 19,500,000 19,500,000
Orange County
Apartment Development
Authority, Pointe
Niguel Project,
Series C
(LOC -- First
Interstate Bancorp)
(final maturity
11/1/05)*............ VMIG1/Aa3 NR/NR 3.25% 03/05/98 13,000,000 13,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
78
<PAGE> 420
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
Orange County
Apartment Development
Authority, Traboco
Wood Apartments
(final maturity
4/1/23)*............. VMIG1/A1 NR/NR 2.70% 03/04/98 $2,670,000 $ 2,670,000
Orange County Housing
Authority, Costa
Partner Development,
Series BB (final
maturity 12/1/09)*... VMIG1/Aa2 NR/NR 3.20% 03/03/98 12,000,000 12,000,000
Orange County Special
Finance Authority,
Tetter Plan, Series B
(LOC-IBJ Schroder
Bank & Trust) (final
maturity 11/1/14)*... P1/A2 A2/A- 3.75% 03/04/98 5,825,000 5,825,000
Otay Water District,
Certificates of
Participation (final
maturity 9/1/26)*.... P1/Aaa A+/AAA 3.00% 03/04/98 2,200,000 2,200,000
Riverside County
Community Facilities
District, Special Tax
No. 88-4 (LOC --
Kredietbank N.V.)
(final maturity
9/1/14)*............. VMIG1/AA2 NR/NR 3.05% 03/04/98 5,700,000 5,700,000
Riverside County
Housing Authority,
Multi-Family Mortgage
Revenue, Woodcreek
Development (final
maturity 7/15/18)*... NR/NR A1+/AAA 2.95% 03/04/98 2,000,000 2,000,000
Riverside County
Housing, Multi-Family
Mortgage Revenue,
Emirtus Park, Series
B (final maturity
7/15/18)*............ NR/NR A1+/AAA 2.95% 03/04/98 3,100,000 3,100,000
Riverside County
School Financing
Authority, Revenue
Anticipation Note.... MIG1/NR NR/NR 4.50% 10/01/98 8,028,373 8,028,373
Riverside County
Transportation
Authority............ P1/NR A1/NR 3.00% 03/12/98 5,000,000 5,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
79
<PAGE> 421
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
Sacramento County
Multi-Family Housing,
Series A (LOC --
Dai-Ichi Kangyo Bank,
Ltd.) (final maturity
4/15/07)*............ VMIG1/A1 NR/NR 3.90% 03/05/98 $8,800,000 $ 8,800,000
Sacramento County Tax
& Revenue
Anticipation Note.... MIG1/NR SP1+/NR 4.50% 09/30/98 3,010,504 3,010,504
Sacramento Municipal
Utility Authority.... P1/NR A1+/NR 3.15% 03/27/98 8,000,000 8,000,000
Sacramento County.... P1/NR A1+/NR 3.35% 05/12/98 11,293,000 11,293,000
San Bernardino County
Housing Authority,
Multi-Family Housing,
Brookside Meadows,
Series A (final
maturity 8/1/05)*.... VMIG1/Aa2 NR/NR 3.10% 03/04/98 22,000,000 22,000,000
San Diego Area Local
Government,
Certificates of
Participation, Tax &
Revenue Anticipation
Notes................ NR/NR SP1+/NR 4.50% 10/01/98 1,505,247 1,505,247
San Diego City,
Industrial
Development
Authority, San Diego
Gas & Electric....... P1/NR A1+/NR 3.70% 03/09/98 1,500,000 1,500,000
San Diego City,
Industrial
Development
Authority, San Diego
Gas & Electric,
Series A............. P1/NR A1+/NR 3.65% 03/09/98 6,400,000 6,400,000
San Diego County
Housing Authority,
Multi-Family Housing
Revenue, Country
Hills (final maturity
8/15/13)*............ NR/NR A1+/AAA 2.95% 03/05/98 4,590,000 4,590,000
San Diego County Tax
& Revenue
Anticipation Notes... MIG1/NR SP1+/NR 4.50% 09/30/98 45,165,796 45,165,796
San Diego County
Water District
Authority............ P1/NR A1+/NR 3.70% 03/09/98 5,000,000 5,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
80
<PAGE> 422
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
San Diego Housing
Authority, Multi-
Family Housing, Nobel
Ct. Apartments,
Series L (final
maturity 12/1/08)*... VMIG1/A2 NR/NR 3.00% 03/05/98 $11,910,000 $ 11,910,000
San Diego Housing
Authority, Multi-
Family Housing, Paseo
Point Apartments,
Series A (final
maturity 8/1/15)*.... VMIG1/AA2 NR/NR 3.50% 03/04/98 1,500,000 1,500,000
San Diego Industrial
Development Revenue.. P1/NR A1+/NR 3.35% 05/13/98 5,200,000 5,200,000
San Francisco Airport
Authority............ P1/NR A1+/NR 3.10% 03/25/98 4,020,000 4,020,000
San Francisco City
and County Community
International
Airport, Series SG 88
(final maturity
5/1/21)*............. NR/NR A1+/AAA 3.38% 03/05/98 5,345,000 5,345,000
San Francisco City
and County Community
International
Airport, Series SGA
50 (AMT) (MBIA
Insured) (final
maturity 5/1/16)*.... NR/NR A1+/AAA 3.40% 03/04/98 7,500,000 7,500,000
San Francisco City
and County Community
International
Airport, Series SGA
56 (AMT) (MBIA
Insured) (final
maturity 5/1/26)*.... NR/NR A1+/AAA 3.40% 03/05/98 3,905,000 3,905,000
San Francisco City
and County
Multi-Family Housing,
Bayside Village
Project D, Series A
(LOC -- Industrial
Bank of Japan) (final
maturity 12/1/05)*... VMIG1/A2 NR/NR 3.85% 03/05/98 1,000,000 1,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
81
<PAGE> 423
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
San Francisco City
and County
Multi-Family Housing,
Winterland Project,
Series 1985-C
(LOC -- Citibank,
N.A.) (final maturity
6/1/06)*............. NR/NR A1+/AA- 2.70% 03/03/98 $1,500,000 $ 1,500,000
San Francisco
Commercial Paper..... P1/NR A1+/NR 3.65% 03/10/98 7,500,000 7,500,000
San Francisco
Commercial Paper..... P1/NR A1+/NR 3.70% 03/19/98 5,000,000 5,000,000
San Mateo County Tax
& Revenue
Anticipation Notes... NR/NR SP1+/NR 4.50% 07/01/98 7,015,770 7,015,770
Santa Ana Unified
School District,
Certificates of
Participation (LOC --
Banque Nationale,
Paris) (final
maturity 7/1/15)*.... VMIG1/Aa3 NR/NR 3.00% 03/04/98 3,200,000 3,200,000
Santa Clara County
Multi-Family Housing
Authority, Foxchase
Apartments (FGIC
Insured) (final
maturity 11/1/07)*... VMIG1/AAA A1+/AAA 2.90% 03/05/98 1,500,000 1,500,000
Santa Clara County,
Transit Authority,
Series 1985-A (LOC --
Sumitomo Bank) (final
maturity 6/1/15)*.... VMIG1/A1 NR/NR 4.05% 03/02/98 11,760,000 11,760,000
Santa Clara Electric
Revenue Authority,
Series C (LOC --
National Westminster)
(final maturity
7/1/10)*............. VMIG1/Aa2 NR/NR 3.05% 03/02/98 1,700,000 1,700,000
Southeast Recovery
Facility, Series A
(LOC -- Industrial
Bank of Japan Ltd.)
(final maturity
12/1/18)*............ VMIG1/A2 A2/A- 3.95% 03/02/98 19,100,000 19,100,000
</TABLE>
- ---------------
See Notes to Financial Statements.
82
<PAGE> 424
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
Southeast Recovery
Facility, Series B
(AMT) (LOC --
Industrial Bank of
Japan Ltd.) (final
maturity 12/1/18)*... VMIG1/A2 A2/A- 4.10% 03/04/98 $3,300,000 $ 3,300,000
Southern California
Metropolitan Water
District............. P1/NR A1+/NR 2.80% 03/06/98 4,000,000 4,000,000
Southern California
Metropolitan Water
District............. P1/NR A1+/NR 3.70% 03/11/98 5,700,000 5,700,000
Southern California
Public Power
Authority (AMBAC
Insured) (final
maturity 7/1/19)*.... VMIG1/Aaa A1+/AAA 3.00% 03/02/98 10,300,000 10,300,000
Southern California
Public Power
Authority, Palo Verde
Project (AMBAC
Insured) (final
maturity 7/1/17)*.... VMIG1/AAA A1+/AAA 3.00% 03/02/98 1,200,000 1,200,000
Vallejo Industrial
Development
Authority, Meyer
Cookware Industries
Project, Series A
(AMT) (LOC -- Bank of
Tokyo) (final
maturity 12/1/23)*... NR/NR A1/A+ 3.80% 03/02/98 3,300,000 3,300,000
Victor Valley
Community College,
Certificates of
Participation,
Capital Improvement
Refining Project
(LOC -- Banque
Nationale, Paris)
(final maturity
12/1/28)*............ NR/NR A1/A 3.05% 03/04/98 5,000,000 5,000,000
Washington Township
Hospital, Alameda
County, Series A
(LOC -- Industrial
Bank of Japan) (final
maturity 1/1/16)*.... VMIG1/A2 NR/NR 3.70% 03/05/98 5,900,000 5,900,000
</TABLE>
- ---------------
See Notes to Financial Statements.
83
<PAGE> 425
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
Woodland Multi-Family
Mortgage Revenue
(final maturity
8/1/18)*............. NR/NR A1+/AAA 2.95% 03/04/98 $1,800,000 $ 1,800,000
-------------
1,388,466,694
-------------
PUERTO RICO -- 3.5%
Puerto Rico
Commercial Paper..... P1/NR A1+/NR 2.85% 03/10/98 27,350,000 27,350,000
Puerto Rico
Commercial Paper..... P1/NR A1+/NR 2.90% 03/13/98 20,000,000 20,000,000
Puerto Rico Electric
Power Authority,
Series SGA 43 (final
maturity 7/1/22)*.... NR/NR A1+/AAA 3.35% 03/02/98 2,900,000 2,900,000
-------------
50,250,000
-------------
TOTAL INVESTMENTS -- 99.8%
(AMORTIZED COST
$1,438,716,694)(a)... 1,438,716,694
OTHER ASSETS IN EXCESS
OF
LIABILITIES -- 0.2%... 2,921,055
-------------
NET ASSETS -- 100.0%.. $1,441,637,749
=============
</TABLE>
- ---------------
Percentages indicated are based on net assets of $1,441,637,749.
(a) Cost for Federal income tax and financial reporting purposes is
substantially the same.
<TABLE>
<C> <S>
AMBAC -- AMBAC Indemnity Corporation.
AMT -- Interest on securities subject to Federal Alternative
Minimum Tax.
FGIC -- Financial Guaranty Insurance Company.
FNMA -- Federal National Mortgage Association.
FSA -- Financial Security Assurance.
LOC -- Letter of Credit.
MBIA -- Municipal Bond Insurance Association.
NR -- No rating assigned by Moody's or S&P.
</TABLE>
* Variable rate security. Maturity date reflects the next rate change date.
** Security includes put feature.
*** Security includes call feature.
(dagger) The ratings provided consist of short-term and long-term ratings.
(double dagger) 144A -- Security was purchased pursuant to Rule 144A under the
Securities Act of 1933 and may not be resold subject to
that rule except to qualified institutional buyers. At
the end of the period, these securities amounted to
17.4% of net assets.
See Notes to Financial Statements.
84
<PAGE> 426
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALIFORNIA
TAX-EXEMPT TAX-EXEMPT
MONEY MONEY MARKET
FUND FUND
------------ --------------
<S> <C> <C>
ASSETS:
Investments in securities, at value (amortized cost
$738,223,760, and $1,438,716,694, respectively).......... $738,223,760 $1,438,716,694
Cash....................................................... 93,018 284,558
Interest Receivable........................................ 4,892,966 9,195,297
Prepaid expenses........................................... 34,227 --
------------ --------------
Total Assets................................................ 743,243,971 1,448,196,549
------------ --------------
LIABILITIES:
Dividends payable.......................................... 1,080,905 813,814
Payable for investment securities purchased................ 34,410,000 5,000,000
Investment advisory fees payable........................... 54,741 109,687
Administration fees payable................................ 54,663 109,531
Special management fees payable (Pacific Horizon Shares)... 69,563 142,473
Shareholder service fees payable (Horizon Service
Shares).................................................. 34,905 131,670
Shareholder service fees payable (X Shares)................ -- 6,000
Shareholder service fees payable (S Shares)................ 5,382 25,219
Distribution fees payable (X Shares)....................... -- 7,197
Distribution fees payable (S Shares)....................... 39,748 30,269
Custodian and fund accounting fees payable................. 53,706 46,471
Transfer agent fees payable................................ 14,191 45,653
Legal fees payable......................................... 7,219 13,367
Other accrued expenses..................................... 95,172 77,449
------------ --------------
Total Liabilities........................................... 35,920,195 6,558,800
------------ --------------
NET ASSETS.................................................. $707,323,776 $1,441,637,749
============ ==============
Net Assets:
Pacific Horizon Shares..................................... $150,935,560 $ 597,734,078
Horizon Shares............................................. 343,844,011 --
Horizon Service Shares..................................... 185,806,464 671,563,654
X Shares................................................... -- 30,710,096
S Shares................................................... 26,737,741 141,629,921
------------ --------------
Total....................................................... $707,323,776 $1,441,637,749
============ ==============
Shares Outstanding ($0.001 par value, 50 billion and 40
billion shares authorized, respectively):
Pacific Horizon Shares..................................... 150,961,873 597,750,253
Horizon Shares............................................. 343,994,016 --
Horizon Service Shares..................................... 185,835,775 671,602,739
X Shares................................................... -- 30,711,906
S Shares................................................... 26,737,717 141,630,149
------------ --------------
Total....................................................... 707,529,381 1,441,695,047
============ ==============
NET ASSET VALUE, OFFERING PRICE, AND
REDEMPTION PRICE PER SHARE................................. $ 1.00 $ 1.00
============ ==============
COMPOSITION OF NET ASSETS:
Shares of common stock, at par............................. $ 707,479 $ 1,441,695
Additional paid-in capital................................. 706,768,542 1,440,189,891
Accumulated undistributed net investment income............ 52,442 62,301
Accumulated net realized losses on investment
transactions............................................. (204,687) (56,138)
------------ --------------
NET ASSETS, FEBRUARY 28, 1998............................... $707,323,776 $1,441,637,749
============ ==============
</TABLE>
- ---------------
See Notes to Financial Statements.
85
<PAGE> 427
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Statements of Operations
For the year ended February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALIFORNIA
TAX-EXEMPT
TAX-EXEMPT MONEY
MONEY MARKET
FUND FUND
----------- -----------
<S> <C> <C>
INVESTMENT INCOME:
Interest................................................... $23,523,919 $41,030,924
----------- -----------
EXPENSES:
Investment advisory fees................................... 636,863 1,149,877
Administration fees........................................ 636,863 1,149,877
Special management fees (Pacific Horizon Shares)........... 384,228 1,851,005
Shareholder service fees (Horizon Service Shares).......... 464,176 1,340,735
Shareholder service fees (X Shares)........................ -- 91,193
Shareholder service fees (S Shares)........................ 19,016 116,192
Distribution fees (X Shares)............................... -- 109,431
Distribution fees (S Shares)............................... 57,047 368,434
Custodian and fund accounting fees......................... 193,481 147,835
Transfer agent fees........................................ 48,601 98,992
Legal fees................................................. 36,242 65,288
Other expenses............................................. 246,990 225,316
----------- -----------
Total Expenses........................................... 2,723,507 6,714,175
Less: Fee waivers.......................................... (34,227) (377,448)
Expenses paid by third parties....................... (11,286) (6,195)
----------- -----------
Total Net Expenses.......................................... 2,677,994 6,330,532
----------- -----------
NET INVESTMENT INCOME....................................... 20,845,925 34,700,392
NET REALIZED LOSSES ON INVESTMENTS:
Net realized losses on investment transactions............. (33,324) (45,278)
----------- -----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $20,812,601 $34,655,114
=========== ===========
</TABLE>
- ---------------
See Notes to Financial Statements.
86
<PAGE> 428
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALIFORNIA TAX-EXEMPT
TAX-EXEMPT MONEY FUND MONEY MARKET FUND
----------------------------------- -----------------------------------
YEAR ENDED YEAR ENDED
----------------------------------- -----------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1998 1997 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income........ $ 20,845,925 $ 13,859,405 $ 34,700,392 $ 24,332,592
Net realized gains (losses)
on investment
transactions............... (33,324) (26,740) (45,278) 26,388
--------------- --------------- --------------- ---------------
Change in net assets resulting
from operations.............. 20,812,601 13,832,665 34,655,114 24,358,980
--------------- --------------- --------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM NET INVESTMENT INCOME:
Pacific Horizon Shares..... (3,710,722) (1,704,176) (15,910,817) (14,425,062)
Horizon Shares............. (11,040,725) (8,858,516) -- --
Horizon Service Shares..... (5,881,059) (3,296,713) (16,451,344) (9,708,150)
S Shares................... (213,419)(c) -- (1,319,384)(b) --
X Shares................... -- -- (1,018,847) (199,380)(a)
--------------- --------------- --------------- ---------------
Change in net assets from
shareholder distributions.... (20,845,925) (13,859,405) (34,700,392) (24,332,592)
--------------- --------------- --------------- ---------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares
issued................... 1,756,343,172 1,611,040,281 3,024,788,107 2,140,307,421
Dividends reinvested....... 5,686,685 2,774,538 26,426,275 19,760,377
Cost of shares redeemed.... (1,574,206,334) (1,481,260,268) (2,603,253,345) (1,897,767,756)
--------------- --------------- --------------- ---------------
Change in net assets from
capital share transactions... 187,823,523 132,554,551 447,961,037 262,300,042
--------------- --------------- --------------- ---------------
Change in net assets.......... 187,790,199 132,527,811 447,915,759 262,326,430
NET ASSETS:
Beginning of year.......... 519,533,577 387,005,766 993,721,990 731,395,560
--------------- --------------- --------------- ---------------
End of year................ $ 707,323,776 $ 519,533,577 $ 1,441,637,749 $ 993,721,990
=============== =============== =============== ===============
Accumulated Undistributed Net
Investment Income............ $ 52,442 $ 52,442 $ 62,301 $ 62,301
=============== =============== =============== ===============
</TABLE>
- ---------------
(a) Period from October 2, 1996 (inception date) to February 28, 1997.
(b) Period from June 18, 1997 (inception date) to February 28, 1998.
(c) Period from July 8, 1997 (inception date) to February 28, 1998.
See Notes to Financial Statements.
87
<PAGE> 429
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, 1998, the Company
operated as a series company comprised of seventeen portfolios. The accompanying
financial statements and notes are those of the Pacific Horizon Tax-Exempt Money
Fund (the "Tax-Exempt Fund") and Pacific Horizon California Tax-Exempt Money
Market Fund (the "California Tax-Exempt Fund"), collectively the "Funds",
individually the "Fund".
The Tax-Exempt Fund issues four classes of shares (Pacific Horizon Shares,
Horizon Shares, Horizon Service Shares and effective July 8, 1997, S Shares) and
California Tax-Exempt Fund issues four classes of shares (Pacific Horizon
Shares, Horizon Service Shares, and effective October 2, 1996, X Shares and
effective June 18, 1997, S Shares). The California Tax-Exempt Fund is authorized
to issue a fourth class of shares (Horizon Shares). Pacific Horizon Shares have
a Special Management Services Plan while the Horizon Service Shares have a
Shareholder Services Plan. X Shares and S Shares have a Distribution and
Services Plan.
The Funds' seek to provide as high a level of current interest income exempt
from federal income taxes as is consistent with relative stability of principal
and daily liquidity. In addition, the California Tax-Exempt Fund seeks to
provide income that is also exempt from California state income taxes.
Bank of America National Trust and Savings Association ("Bank of America"),
a subsidiary of BankAmerica Corporation, serves as the Fund's investment
adviser. On September 15, 1997, Bank of America assumed the responsibility of
administrator for each of the Funds pursuant to the terms of an Administration
Agreement between the Company and Bank of America (the "Administration
Agreement"). Prior to September 15, 1997 BISYS Group, Inc. ("BISYS") through its
wholly-owned subsidiary, BISYS Fund Services, Limited Partnership, served as the
Funds' Administrator.
Bank of America has entered into an agreement with PFPC Inc. ("PFPC"), an
indirect wholly-owned subsidiary of PNC Bank Corp., pursuant to which PFPC has
agreed to provide certain sub-administration services to the Funds, including,
but not limited to, assisting in the developing and monitoring of compliance
procedures, participating in periodic updating of the Funds' prospec-
88
<PAGE> 430
tuses and statements of additional information, providing periodic reports to
the Company's Board and providing certain record-keeping services. Bank of
America will bear all fees and expenses charged by PFPC for such services.
In addition, pursuant to authority granted in the Administration Agreement,
Bank of America has entered into an agreement with The Bank of New York ("BONY")
under which BONY has agreed to provide certain accounting, bookkeeping, pricing
and dividend and distribution calculation services for the Funds. The Funds bear
all fees and expenses charged by BONY for these services.
DISTRIBUTOR AND TRANSFER AGENT
Effective September 15, 1997, Provident Distributors, Inc. ("PDI"), assumed
responsibility as principal underwriter and distributor of shares of the Funds.
Prior to such date, Concord Financial Group, Inc. (the "Former Distributor"),
also a wholly-owned subsidiary of BISYS, served as distributor of the Funds.
Additionally on October 24, 1997, PFPC assumed responsibility as the Fund's
transfer agent and dividend disbursing agent. BISYS Fund Services, Inc. ("BISYS
Ohio") also a wholly-owned subsidiary of BISYS, served the Funds in such
capacity prior to such date.
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. These policies are
in conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
PORTFOLIO VALUATIONS:
The securities of the Funds are valued at amortized cost, which approximates
market value. The amortized cost method involves valuing a security at its cost
on the date of purchase and thereafter assuming a constant amortization to
maturity of the difference between principal amount due at maturity and initial
cost.
SECURITIES TRANSACTIONS AND RELATED INCOME:
The Funds record security transactions on a trade date basis. Interest
income, including accretion of discount and amortization of premium, is accrued
89
<PAGE> 431
daily. Realized gains and losses from security transactions are recorded on an
identified cost basis.
EXPENSES:
The Company accounts separately for the assets, liabilities and operations
of each fund. Direct expenses of a fund are charged to that fund while general
Company expenses are allocated among the Company's respective portfolios.
The investment income and expenses (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.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
The Funds' net investment income is declared as a dividend daily, and paid
monthly, 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, 1998, the following reclassifications have been made to
increase (decrease) such accounts with offsetting adjustments made to paid-in
capital:
<TABLE>
<CAPTION>
ACCUMULATED ACCUMULATED NET
UNDISTRIBUTED NET REALIZED GAIN/(LOSS)
FUND INVESTMENT INCOME ON INVESTMENTS
---- ------------------ --------------------
<S> <C> <C>
Tax-Exempt Fund........................... $ -- $(16,664)
</TABLE>
90
<PAGE> 432
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
annually all of its net investment company taxable income and net capital gains
to shareholders. Therefore, no Federal income tax provision is required.
At February 28, 1998, the Tax-Exempt Fund and California Tax-Exempt Fund had
the following capital loss carryovers:
<TABLE>
<CAPTION>
CAPITAL LOSS EXPIRATION
FUND CARRYOVER DATE
---- ------------ ----------
<S> <C> <C>
Tax-Exempt Fund........................................... $ 14,011 2000
71,218 2002
19,132 2003
36,425 2004
30,577 2005
15,133 2006
--------
$186,496
========
California Tax-Exempt Fund................................ $ 4,266 2004
51,872 2006
--------
56,138
========
</TABLE>
To the extent that these loss carryovers are used to offset future capital
gains, it is probable that the gains so offset will not be distributed to
shareholders. During the year ended February 28, 1998, $16,664 of capital loss
carryovers expired for the Tax-Exempt Fund.
Capital losses incurred after October 31 for the Tax-Exempt Fund and the
California Tax-Exempt Fund are deemed to arise on the first business day of the
following fiscal year for tax purposes. The Funds have incurred and elected to
defer capital losses of $18,190 and $1,893, respectively, incurred after October
31, 1997.
OTHER:
The Funds maintain 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, 1998, custodian fees and expenses paid by third parties were
increased by $11,286 and $6,195 for the Tax-Exempt Fund and California Tax-
Exempt Fund, respectively. There was no effect on net investment income. The
Fund could have invested such cash amounts in income producing assets if it had
not agreed to a reduction of fees or expenses under the expense offset
arrangement with its custodian.
91
<PAGE> 433
NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
The Funds have an Investment Advisory Agreement and an Administration
Agreement with Bank of America. For the period ended September 15, 1997, the
Fund's had an Administration Agreement with BISYS and a Distribution Agreement
with the Former Distributor. Bank of America is entitled to an Advisory fee from
each Fund, which is accrued daily and payable monthly, at an annual rate of
0.10% of each Fund's first $3 billion of net assets, plus 0.09% of each Fund's
next $2 billion of net assets, plus 0.08% of each Fund's net assets in excess of
$5 billion. The Administration Agreement entitled Bank of America to fees from
each Fund for Administrative services performed, which is accrued daily and
payable monthly, at an annual rate of 0.10% of each Fund's first $7 billion of
net assets, plus 0.09% of each Fund's next $3 billion of net assets, plus 0.08%
of each Fund's net assets in excess of $10 billion. During the period March 1,
1997 through September 15, 1997, the Funds had an Administration Agreement with
BISYS. Administration fee rates paid to BISYS were the same as those currently
paid to Bank of America. The Funds were advised that for the period September
15, 1997 through February 28, 1998, Bank of America and for the period March 1,
1997 through September 15, 1997, BISYS earned the following amounts pursuant to
the respective Administrative Agreements:
<TABLE>
<CAPTION>
BANK OF
AMERICA AND
FUND AFFILIATES BISYS
---- ----------- -----
<S> <C> <C>
Tax-Exempt Fund.......................................... $322,955 $313,908
California Tax-Exempt Fund............................... 575,370 574,507
</TABLE>
The Funds have adopted a Special Management Services Plan (the "Services
Plan") pursuant to which Service Organizations agree to provide certain services
to their clients who are beneficial owners of Pacific Horizon Shares in return
for a payment by the Funds of a fee at an annual rate of 0.32% and 0.35% for the
Tax-Exempt Money Fund and California Tax-Exempt Fund, respectively, of the
average daily net assets of the outstanding Pacific Horizon Shares of each Fund.
Currently, the California Tax-Exempt Fund is waiving 0.03% in special management
fees. Fees under the Services Plan are borne solely by the Pacific Horizon
Shares. Service Organizations may include Bank of America and its affiliates,
and PDI (from September 15 through February 28, 1998), and BISYS (prior to
September 15, 1997). Under the Services Agreement and Services Plan, Bank of
America, PDI (from September 15 through February 28, 1998), and BISYS (prior to
September 15, 1997) waived $158,626, $218 and $525, respectively, in special
management fees for the California Tax-Exempt Fund. For the year ended February
28, 1998, for the period September 15, 1997 through February 28, 1998 and for
the period March 1, 1997 through September 15, 1997, the Funds were
92
<PAGE> 434
advised that Bank of America and its affiliates, PDI and BISYS earned the
following amounts pursuant to the Services Agreement and Services Plan,
respectively:
<TABLE>
<CAPTION>
BANK OF
AMERICA AND
FUND AFFILIATES PDI BISYS
---- ----------- ------ -----
<S> <C> <C> <C>
Tax-Exempt Fund.................................. $ 377,885 $2,580 $2,939
California Tax-Exempt Fund....................... 1,676,744 2,304 5,548
</TABLE>
The Funds have also adopted a Shareholder Services Plan (the "Horizon
Services Plan") pursuant to which Service Organizations agree to provide certain
services to their clients who are beneficial owners of Horizon Service Shares in
return for payment by the Funds of a fee at an annual rate of 0.25% of the
average daily net assets of the Horizon Service Shares. Fees under the Horizon
Services Plan are borne solely by the Horizon Service Shares. For the year ended
February 28, 1998, the Funds were advised that Bank of America and its
affiliates earned the following amounts pursuant to the Horizon Services Plan,
respectively:
<TABLE>
<CAPTION>
BANK OF
AMERICA AND
FUND AFFILIATES
---- -----------
<S> <C>
Tax-Exempt Fund............................................. $ 422,932
California Tax-Exempt Fund.................................. 1,187,827
</TABLE>
The California Tax-Exempt Fund has adopted the Distribution and Services
Plan under which the Fund paid PDI and the Former Distributor and Service
Organizations for the provision of support services with respect to the
beneficial owners of X Shares. Payments for distribution expenses and
shareholder servicing expenses may not exceed the annual rate of 0.30% and
0.25%, respectively, of the average daily net assets of such Fund's X Shares.
For the year ended February 28, 1998, the Fund was advised that Bank of America
and its affiliates earned $200,624 pursuant to the Distribution and Services
Plan.
The Funds have adopted the Distribution and Services Plan under which the
Fund pays the Distributor and Service Organizations for the provision of support
services with respect to the beneficial owners of S shares. Payments for the
distribution expenses and shareholder servicing expenses may not exceed the
annual rate of 0.75% and 0.25%, respectively, of the average daily net assets of
the Funds' S shares. For the year ended February 28, 1998, the Funds were
93
<PAGE> 435
advised that Bank of America and its affiliates earned the following amounts
pursuant to the Distribution and Services Plan, respectively:
<TABLE>
<CAPTION>
BANK OF
AMERICA AND
FUND AFFILIATES
---- -----------
<S> <C>
Tax-Exempt Fund............................................. $ 41,836
California Tax-Exempt Fund.................................. 266,540
</TABLE>
For the same period, the Funds were advised that Bank of America and its
Affiliates waived $34,227 and $218,079 for the Tax-Exempt Fund and the
California Tax-Exempt Fund, respectively.
From the period October 24, 1997 through February 28, 1998 PFPC earned
$5,088 and $43,682 from the Tax-Exempt Fund and California Tax-Exempt Fund,
respectively, for transfer agency and dividend disbursing agency services
performed. BISYS Ohio served the Funds as transfer agent and dividend disbursing
agent through October 24, 1997. In these capacities for the Funds, BISYS Ohio
earned $43,513 and $55,310 from the Tax-Exempt Fund and California Tax-Exempt
Fund, respectively, for the period ended October 24, 1997.
For the year ended February 28, 1998, the Tax-Exempt Fund and California
Tax-Exempt Fund incurred legal charges totaling $36,242 and $65,288,
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 PFPC. 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 $50,000,
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 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 will
receive an additional 10% of their annual Director's retainer for each year of
service between years six
94
<PAGE> 436
and nine, plus one half of the difference between 100% and the director's
applicable percentage. A Director who dies or resigns after ten 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 after February 28, 1994; however a director in office on March 18,
1998 who either resigns in good standing or dies before completing five years of
service as a director should be assigned an applicable percentage of 50 percent.
Aggregate costs pursuant to the Retirement Plan amounted to $33,960 and $5,064
for the Tax-Exempt Fund and California Tax-Exempt Fund, respectively, for the
year ended February 28, 1998. A director who comes into office after March 18,
1998 is ineligible to participate in the Retirement Plan.
NOTE 5 -- CONCENTRATION OF CREDIT RISK
The Tax-Exempt Fund invests substantially all of its assets in a diversified
portfolio of tax-exempt debt obligations. The California Tax-Exempt Fund invests
substantially all of its assets in a nondiversified portfolio of tax-exempt debt
obligations primarily consisting of issuers in the State of California. The
issuers' abilities to meet their obligations may be affected by economic,
regional or political developments.
95
<PAGE> 437
The Tax-Exempt Fund and the California Tax-Exempt Fund had the following
concentrations by industry sector at February 28, 1998 (as a percentage of total
investments):
<TABLE>
<CAPTION>
CALIFORNIA
TAX-EXEMPT TAX-EXEMPT
FUND FUND
---------- ----------
<S> <C> <C>
Airport Facilities....................................... 1.2% 0.6%
Certificates of Participation............................ -- 0.5
Commercial Paper......................................... 11.4 25.4
Education................................................ 8.1 0.3
General Obligations...................................... 12.3 4.9
Healthcare............................................... 21.7 7.9
Housing Developments..................................... 0.9 16.6
Industrial Development Revenue........................... 4.7 3.4
Municipal Notes & Bonds.................................. 4.4 1.3
Pollution Control........................................ 2.7 10.5
Power Projects........................................... 2.5 1.0
Revenue.................................................. 14.0 12.9
Sewer Projects........................................... -- 3.9
Special Tax.............................................. 7.2 6.2
Transportation........................................... 2.4 1.5
Turnpike, Road & Bridge Development...................... 0.1 --
Utilities................................................ 3.3 0.1
Water Projects........................................... 3.1 3.0
------ ------
100.0% 100.0%
====== ======
</TABLE>
96
<PAGE> 438
NOTE 6 -- CAPITAL SHARE TRANSACTIONS
Transactions in shares of each Portfolio (at $1.00 per share) for the
periods indicated are summarized below:
<TABLE>
<CAPTION>
CALIFORNIA
TAX-EXEMPT TAX-EXEMPT
MONEY FUND MONEY MARKET FUND
-------------------------------- ------------------------------
YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
PACIFIC HORIZON SHARES
Issued...................... 248,974,300 230,496,897 924,399,780 917,590,384
Reinvested.................. 3,683,304 1,545,273 15,765,764 13,790,272
Redeemed.................... (188,139,622) (195,234,875) (835,476,867) (966,354,368)
-------------- -------------- -------------- ------------
Net increase/(decrease)...... 64,517,982 36,807,295 104,688,677 (34,973,712)
============== ============== ============== ============
HORIZON SHARES
Issued...................... 1,016,879,219 997,203,792 -- --
Reinvested.................. 60,094 135,161 -- --
Redeemed.................... (937,199,915) (1,035,902,063) -- --
-------------- -------------- -------------- ------------
Net increase/(decrease)...... 79,739,398 (38,563,110) -- --
============== ============== ============== ============
HORIZON SERVICE SHARES
Issued...................... 444,505,307 383,339,592 1,844,862,775 1,184,396,760
Reinvested.................. 1,729,858 1,094,104 8,320,478 5,770,710
Redeemed.................... (429,406,739) (250,123,330) (1,653,155,809) (921,990,855)
-------------- -------------- -------------- ------------
Net increase................. 16,828,426 134,310,366 200,027,444 268,176,615
============== ============== ============== ============
X SHARES
Issued...................... -- -- 62,397,815 38,320,277
Reinvested.................. -- -- 1,019,371 199,395
Redeemed.................... -- -- (61,802,419) (9,422,533)
-------------- -------------- -------------- ------------
Net increase................. -- -- 1,614,767 29,097,139(a)
============== ============== ============== ============
S SHARES
Issued...................... 45,984,346 -- 193,127,737 --
Reinvested.................. 213,429 -- 1,320,662 --
Redeemed.................... (19,460,058) -- (52,818,250) --
-------------- -------------- -------------- ------------
Net increase................. 26,737,717(c) -- 141,630,149(b) --
============== ============== ============== ============
</TABLE>
- ---------------
<TABLE>
<C> <S>
(a) Period from October 2, 1996 (inception date) to February 28,
1997.
(b) Period from June 18, 1997 (inception date) to February 28,
1998.
(c) Period from July 8, 1997 (inception date) to February 28,
1998.
</TABLE>
97
<PAGE> 439
PACIFIC HORIZON TAX-EXEMPT MONEY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD
--------------------------------------------------------------- ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994(a)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
PACIFIC HORIZON SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income......... 0.0310 0.0290 0.0327 0.0253 0.0124
Less dividends to shareholders
from net investment income.... (0.0310) (0.0290) (0.0327) (0.0253) (0.0124)
-------- -------- -------- -------- --------
Net change in net asset value
per share..................... -- -- -- -- --
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END
OF YEAR....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return................... 3.14% 2.94% 3.32% 2.56% 1.25%(d)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions).................. $ 151 $ 86 $ 50 $ 37 $ 50
Ratio of expenses to average
net assets.................. 0.60% 0.60% 0.63% 0.60% 0.60%(c)
Ratio of net investment income
to average net assets....... 3.09% 2.91% 3.26% 2.47% 1.95%(c)
Ratio of expenses to average
net assets*................. (b)(e) (b) (b) (b) 0.61%(c)
Ratio of net investment income
to average net assets*...... (b)(e) (b) (b) (b) 1.94%(c)
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the year, 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.
(a) Period from July 9, 1993 (inception date) to February 28,
1994.
(b) There were no fee waivers or expense reimbursements during
the period.
(c) Annualized.
(d) Not annualized.
(e) Fees paid by third parties had no effect on the ratios.
</TABLE>
See Notes to Financial Statements.
98
<PAGE> 440
PACIFIC HORIZON TAX-EXEMPT MONEY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
HORIZON SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income......... 0.0342 0.0322 0.0359 0.0285 0.0225
Less dividends to shareholders
from net investment income.... (0.0342) (0.0322) (0.0359) (0.0285) (0.0225)
-------- -------- -------- -------- --------
Net change in net asset value
per share..................... -- -- -- -- --
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END
OF YEAR....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return................... 3.47% 3.27% 3.65% 2.89% 2.27%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions).................. $ 344 $ 264 $ 303 $ 382 $ 515
Ratio of expenses to average
net assets.................. 0.28% 0.28% 0.31% 0.28% 0.28%
Ratio of net investment income
to average net assets....... 3.41% 3.22% 3.58% 2.81% 2.25%
Ratio of expenses to average
net assets*................. (a)(b) (a) (a) (a) 0.29%
Ratio of net investment income
to average net assets*...... (a)(b) (a) (a) (a) 2.24%
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the year, 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.
(a) There were no fee waivers or expense reimbursements during
the period.
(b) Fees paid by third parties had no effect on the ratios.
</TABLE>
See Notes to Financial Statements.
99
<PAGE> 441
PACIFIC HORIZON TAX-EXEMPT MONEY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
HORIZON SERVICE SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR............. $ 1.00 $ 1.00 $ 1.00 1.$00...... $ 1.00
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income......... 0.0317 0.0297 0.0334 0.0260.... 0.0200
Less dividends to shareholders
from net investment income.... (0.0317) (0.0297) (0.0334) (0.0260). (0.0200)
-------- -------- -------- -------- --------
Net change in net asset value
per share..................... -- -- -- -- --
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END
OF YEAR....................... $ 1.00 $ 1.00 $ 1.00 1.$00...... $ 1.00
======== ======== ======== ======== ========
Total return................... 3.22% 3.01% 3.39% 2.63%. 2.02%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions).................. $ 186 $ 169 $ 35 39$........ $ 48
Ratio of expenses to average
net assets.................. 0.53% 0.53% 0.56% 0.53%. 0.53%
Ratio of net investment income
to average net assets....... 3.17% 2.98% 3.34% 2.57%. 2.04%
Ratio of expenses to average
net assets*................. (a)(b) (a) (a) (a). 0.57%
Ratio of net investment income
to average net assets*...... (a)(b) (a) (a) (a). 2.00%
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the year, 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.
(a) There were no fee waivers or expense reimbursements during
the period.
(b) Fees paid by third parties had no effect on the ratios.
</TABLE>
See Notes to Financial Statements.
100
<PAGE> 442
PACIFIC HORIZON TAX-EXEMPT MONEY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
FEBRUARY 28,
1998(a)
------------
<S> <C>
S SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD.............. $ 1.00
Income from Investment Operations:
Net investment income..................................... 0.0184
Less dividends to shareholders from net investment income... (0.0184)
--------
Net change in net asset value per share..................... --
--------
NET ASSET VALUE PER SHARE, END OF PERIOD.................... $ 1.00
========
Total return................................................ 1.85%(c)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (millions).................... $ 27
Ratio of expenses to average net assets................... 0.81%(b)
Ratio of net investment income to average net assets...... 2.76%(b)
Ratio of expenses to average net assets*.................. 1.25%(b)(d)
Ratio of net investment income to average net assets*..... 2.32%(b)(d)
</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.
(a) Period from July 8, 1997 (inception date) to February 28,
1998.
(b) Annualized.
(c) Not annualized.
(d) Fees paid by third parties had no effect on the ratios.
</TABLE>
See Notes to Financial Statements.
101
<PAGE> 443
PACIFIC HORIZON CALIFORNIA TAX-EXEMPT
MONEY MARKET FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
PACIFIC HORIZON SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income......... 0.0302 0.0284 0.0324 0.0249 0.0186
Net realized gains/(losses) on
investment transactions..... -- -- (0.0001) (0.0001) 0.0002
-------- -------- -------- -------- --------
Total income from investment
operations.................... 0.0302 0.0284 0.0323 0.0248 0.0188
Less dividends to shareholders
from net investment income.... (0.0302) (0.0284) (0.0324) (0.0249) (0.0186)
-------- -------- -------- -------- --------
Net change in net asset value
per share..................... -- -- (0.0001) (0.0001) 0.0002
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END
OF YEAR....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return................... 3.06% 2.88% 3.29% 2.52% 1.88%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions).................. $ 598 $ 493 $ 528 $ 187 $ 204
Ratio of expenses to average
net assets.................. 0.57% 0.57% 0.62% 0.62% 0.66%
Ratio of net investment income
to average net assets....... 3.01% 2.83% 3.35% 2.48% 1.86%
Ratio of expenses to average
net assets*................. 0.60%(b) 0.60%** 0.63%** (a) 0.68%
Ratio of net investment income
to average net assets*...... 2.98%(b) 2.80% (b) (a) 1.84%
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the year, 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 cash balances which were used
to offset custodian fees and expenses. If such credits had
not occurred, the expense ratio would have been as
indicated. The ratio of net investment income was not
affected.
(a) There were no fee waivers or expense reimbursements during
the period.
(b) Fees paid by third parties had no effect on the ratios.
</TABLE>
See Notes to Financial Statements.
102
<PAGE> 444
PACIFIC HORIZON CALIFORNIA TAX-EXEMPT
MONEY MARKET FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
HORIZON SERVICE SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income..... 0.0309 0.0291 0.0331 0.0256 0.0198
Net realized
gains/(losses) on
investment
transactions............ -- -- 0.0001 (0.0001) (0.0001)
-------- -------- -------- -------- --------
Total income from
investment operations..... 0.0309 0.0291 0.0332 0.0255 0.0197
Less dividends to
shareholders from net
investment income......... (0.0309) (0.0291) (0.0331) (0.0256) (0.0198)
-------- -------- -------- -------- --------
Net change in net asset
value per share........... -- -- 0.0001 (0.0001) (0.0001)
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE,
END OF YEAR............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return............... 3.13% 2.95% 3.36% 2.59% 2.00%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions).............. $ 671 $ 472 $ 203 $ 88 $ 124
Ratio of expenses to
average net assets...... 0.50% 0.50% 0.55% 0.55% 0.53%
Ratio of net investment
income to average net
assets.................. 3.06% 2.92% 3.43% 2.50% 1.98%
Ratio of expenses to
average net assets*..... (a)(b) (b) 0.55%** (a) 0.60%
Ratio of net investment
income to average net
assets*................. (a)(b) (b) 3.42% (a) 1.91%
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the year, 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 year ended February 29, 1996 the Portfolio
received credits from its custodian for interest earned on
uninvested cash balances which were used to offset custodian
fees and expenses. If such credits had not occurred, the
expense ratio would have been as indicated. The ratio of net
investment income was not affected.
(a) There were no fee waivers or expense reimbursements during
the period.
(b) Fees paid by third parties had no effect on the ratios.
</TABLE>
See Notes to Financial Statements.
103
<PAGE> 445
PACIFIC HORIZON CALIFORNIA TAX-EXEMPT
MONEY MARKET FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
FEBRUARY 28, FEBRUARY 28,
1998 1997(a)
------------ ------------
<S> <C> <C>
X SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD......... $ 1.00 $ 1.00
Income from Investment Operations:
Net investment income................................ 0.0279 0.0107
Less dividends to shareholders from net investment
income............................................... (0.0279) (0.0107)
-------- --------
Net change in net asset value per share................ -- --
-------- --------
NET ASSET VALUE PER SHARE, END OF PERIOD............... $ 1.00 $ 1.00
======== ========
Total return........................................... 2.83% 1.09%(d)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (millions)............... $ 31 $ 29
Ratio of expenses to average net assets.............. 0.80% 0.80%(c)
Ratio of net investment income to average net
assets............................................. 2.80% 2.66%(c)
Ratio of expenses to average net assets*............. (b) (b)
Ratio of net investment income to average net
assets*............................................ (b) (b)
</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.
(a) Period from October 2, 1996 (inception date) to February 28,
1997.
(b) Fees paid by third parties had no effect on the ratios.
(c) Annualized.
(d) Not annualized.
</TABLE>
See Notes to Financial Statements.
104
<PAGE> 446
PACIFIC HORIZON CALIFORNIA TAX-EXEMPT
MONEY MARKET FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
FEBRUARY 28,
1998(a)
------------
<S> <C>
S SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD.............. $ 1.00
--------
Income from Investment Operations:
Net investment income..................................... 0.0194
Less dividends to shareholders from net investment income... (0.0194)
--------
Net change in net asset value per share..................... --
--------
NET ASSET VALUE PER SHARE, END OF PERIOD.................... $ 1.00
========
Total return................................................ 1.96%(d)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (millions).................... $ 141
Ratio of expenses to average net assets................... 0.79%(c)
Ratio of net investment income to average net assets...... 2.69%(c)
Ratio of expenses to average net assets*.................. 1.23%(b)(c)
Ratio of net investment income to average net assets*..... 2.25%(b)(c)
</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.
(a) Period from June 18, 1997 (inception date) to February 28,
1998.
(b) Fees paid by third parties had no effect on the ratios.
(c) Annualized.
(d) Not annualized.
</TABLE>
See Notes to Financial Statements.
105
<PAGE> 447
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 portfolios 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 Pacific Horizon Tax-Exempt Money
Fund and Pacific Horizon California Tax-Exempt Money Market Fund (two of the
seventeen portfolios constituting Pacific Horizon Funds, Inc., hereafter
referred to as the "Funds") at February 28, 1998, 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, 1998 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
April 21, 1998
106
<PAGE> 448
For more information, complete the following form and mail it to:
Pacific Horizon Funds, Inc.
PO Box 8968
Wilmington, DE 19899-8968
......................................................................
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> 449
Bulk Rate
U.S. Postage
PAID
New York, NY
Permit No. 8048
LOGO
Provident Distributor, Inc., Distributor
IST-0038 4/98
<PAGE> 450
PACIFIC HORIZON MONEY MARKET FUNDS
FOR INSTITUTIONS
ANNUAL REPORT
February 28, 1998
X Shares, Y Shares, Horizon Shares and
Horizon Service Shares
Prime Fund
Treasury Fund
Government Fund
Treasury Only Fund
Tax-Exempt Money Fund
California Tax-Exempt Money Market Fund
LOGO
NOT FDIC INSURED
Provident Distributor, Inc., Distributor
PACIFIC HORIZON MONEY MARKET FUNDS FOR INSTITUTIONS
<PAGE> 451
PACIFIC HORIZON FUNDS, INC.
103 Bellevue Parkway
Wilmington, DE 19809
1-800-332-3863
INVESTMENT ADVISER
Bank of America National Trust
and Savings Association
555 California Street
San Francisco, CA 94104
ADMINISTRATOR
Bank of America National
Trust and Savings Association
555 California Street
San Francisco, CA 94104
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
Provident Distributors, Inc.
Four Falls Corporate Center
6th Floor
Conshohocken, PA 19428
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 Provident
Distributors, Inc. which is unaffiliated with the Bank of America. Bank of
America serves as investment adviser to the Funds 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, NOT
BANK OF AMERICA OR ANY AFFILIATES. AN INVESTMENT IN FDIC
MUTUAL FUNDS INVOLVES INVESTMENT RISKS, INCLUDING THE INSURED
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
============================================================================
</TABLE>
<PAGE> 452
..................................
Contents
<TABLE>
<S> <C>
FUND FACTS 2-3
UNDERSTANDING YOUR SHAREHOLDER
REPORT 4-6
ECONOMIC REVIEW FROM THE
INVESTMENT ADVISER 8-9
TAXABLE MONEY
MARKET FUNDS
Portfolios of Investments 10-35
Statements of Assets
and Liabilities 36
Statements of Operations 37
Statements of Changes
in Net Assets 38-39
Notes to Financial
Statements 40-50
Financial Highlights 51-67
Report of Independent
Accountants 68
TAX-EXEMPT MONEY
MARKET FUNDS
Portfolios of Investments 69-105
Statements of Assets
and Liabilities 106
Statements of Operations 107
Statements of Changes
in Net Assets 108
Notes to Financial
Statements 109-118
Financial Highlights 119-126
Report of Independent
Accountants 127
</TABLE>
<PAGE> 453
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>
- ---------------------------------------------------------------------------
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(dagger) High Current Income Plus Principal
- Prime Stability
- Treasury
- Government
- Treasury Only
...........................................................................
Tax-Exempt Money Market Funds*(dagger)
- Tax-Exempt Money High Level of Federal Tax-Free Current
Income Plus Principal Stability
- California Tax-Exempt Money High Level of Federal and California
Market 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.
(dagger) 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> 454
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
Preferred Stocks and capital appreciation.
...........................................................................
Stocks, Bonds and Cash Long-term growth potential and current
Equivalents income from stocks and bonds.
...........................................................................
Investment-Grade Corporate Debt High monthly income potential with
reasonable investment risk.
...........................................................................
Investment-Grade Corporate and Regular monthly income from a
U.S. Government Securities diversified portfolio of
investment-grade securities.
...........................................................................
GNMAs and Other U.S. Government High monthly income potential and low
Securities credit risk.
...........................................................................
U.S. Government and Government Monthly income and relative stability
Agency Securities of investment.
...........................................................................
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 A flexible, convenient way to manage or
U.S. Government Short-Term accumulate cash while waiting for other
Obligations 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
Obligations cash while waiting for other investment
opportunities.
</TABLE>
- --------------------------------------------------------------------------------
3
<PAGE> 455
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.
[GRAPHICS]
The FUND OVERVIEW AND
INTERVIEW WITH YOUR INVESTMENT
MANAGER enables you to gain
insight into the Fund's
investments and learn more
about the Fund manager's
strategies.
Because a picture or chart can help clarify the
text, the investment management team may have
[GRAPHICS] illustrated the most important features of the Fund.
The illustrations may represent the portfolio
composition, the largest holdings or a
simplification of the investment adviser's
investment style.
4
<PAGE> 456
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)
[GRAPHIC]
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
[GRAPHIC]
NET RESULTS OF ASSETS LESS LIABILITIES
THE MARKET VALUE OF THE FUND'S TOTAL NET
ASSETS DIVIDED BY THE NUMBER OF SHARES
OUTSTANDING
THE CURRENT NET ASSET VALUE PER SHARE PLUS SALES CHARGE, IF ANY
5
<PAGE> 457
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
[GRAPHIC]
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
[GRAPHIC]
DISTRIBUTIONS TO SHAREHOLDERS: TOTAL REALIZED
GAINS DISTRIBUTED TO SHAREHOLDERS DURING THE
PERIODS
FUND SHARE TRANSACTIONS: DOLLAR VALUE OF FUND
SHARES PURCHASED, REDEEMED OR REINVESTED
DURING THE PERIODS
The NOTES TO FINANCIAL STATEMENTS are footnotes to the statements listed above.
These notes include information on accounting methods used by the Fund,
contractual arrangements between the Fund and its service providers, certain
transactions effected by the Fund and other general information about the Fund.
The FINANCIAL HIGHLIGHTS shows, for a single share outstanding throughout each
period presented, the net investment income, the realized and unrealized gains
and losses and the dividends and distributions of the Fund. It also shows key
data and ratios, such as the total investment return for each period, the
portfolio turnover rate for Funds other than money market mutual funds, the
ratio of expenses to average net assets and the ratio of net investment income
to average net assets.
6
<PAGE> 458
[This page intentionally left blank.]
7
<PAGE> 459
ECONOMIC REVIEW
FROM THE INVESTMENT ADVISER
Fourth quarter Gross Domestic Product was reported at a 3.7%* annualized rate,
with inflation continuing to be non-existent and a positive factor for the
economy and the domestic financial markets. Changes in consumer prices are
negligible and producer prices are actually declining. Historically high
consumer confidence, resulting from strong job growth, wage gains and the
positive wealth effect created by the buoyant stock market, has created solid
income growth and has fueled the robust housing market in the first quarter of
1998. Consumers have been the primary beneficiaries of the turmoil in the Asian
markets. Lower bond yields, a by-product of the Asian financial crisis, have
resulted in lower mortgages payments for households looking to buy a home.
THE CASE FOR
STOCKS AND BONDS
The Standard & Poor's Stock Index posted a total return of 35.1%** during the 12
month period ended February 28, 1998, amply rewarding long-term investors who
rode out volatility that accompanied the Asian financial crisis. The best
performers were concentrated among shares of large company stocks, which
significantly outpaced shares of smaller firms.
Companies have been issuing reduced earnings forecasts at an increasing rate.
Despite the early warnings, the reduced earnings expectations have not put a
damper on the stock market. The bullish sentiment for low inflation and
continuing strong profits for 1998 are propelling the stock markets to new
highs. The Dow*** has gained 8.4% during the first two months of the year,
significantly higher than expected. Overall, the U.S. economy seems poised for
continued moderate growth, which is good news for stocks. We think it is
reasonable to expect P/E ratios to stay at current levels of 22 times 1998
earnings. That gives an estimated market return over the next 12 months of 9%
(7.8% from earnings growth and 1.2% from dividend yield).
Fixed income investors remain optimistic due to the lack of price pressures, the
strong dollar and the expectation of an Asia-led slowdown in the U.S. Interest
rates on Treasuries have fallen across the yield curve over the last twelve
months and are currently below 6%, the lowest level in 25 years. The finance
sector has been outperforming expectations as of late, which has a lot to do
with the wave of colossal merger and acquisition activity sweeping across
financial institutions.
The prospects for a government budget surplus in fiscal 1998 are growing. Some
economists are predicting as much as a $50 billion surplus due to large tax
revenues as well as efforts to reduce government spending. These revenue flows
will serve to reduce immediate government financing needs. Already, we have seen
cuts in the size of Treasury auctions so far this year.
POTENTIAL RISKS
The Asian financial crisis, which began in the third quarter of 1997, is
expected to modestly impact U.S. domestic growth. As expected, trade between
U.S. and Asian trade partners has sharply deteriorated, with the current account
deficit widening to its highest level in ten years. The deficit widened to
$166.5 billion in 1997, up from $148.2 billion for 1996. The largest threat to
the U.S. economy, according to The Organization for Economic Cooperation and
Development (OECD), would be a second round of currency devaluations in Asia. It
could happen again if Japan fails to jumpstart its economy.
While the final outcome of the Asian financial crisis remains unclear, the
initial predictions of a global financial crisis have not been supported by the
evidence.
8
<PAGE> 460
With the Asian crisis potentially constraining corporate profitability in the
second or third quarter, we expect that growth will slow during the remainder of
the year.
Tame inflation continues to be the theme du jour as the Consumer Price Index's
1.4% increase over the past 12 months is the second lowest reading in 33 years,
outdone only by the collapse in oil prices in 1986. The lack of inflationary
pressures and the uncertainty surrounding the Asian financial crisis have kept
the Federal Reserve from raising interest rates. The Fed funds rate has remained
at 5.50% since last March. However, the labor market is stretched and wage
pressures are intensifying. So far, increased productivity has compensated for
wage increases; however, recent significant increases in real asset values, such
as housing and land, have not gone unnoticed by Chairman Greenspan and may play
a factor in determining monetary policy over the coming months.
LOOKING FORWARD
It is now a widely accepted view that the U.S. economy is growing at a faster
pace early in 1998 than analysts had projected last year at the height of the
Asian turmoil. Although the preliminary GDP figure will not be released until
the end of April, the early estimate for the first quarter lies somewhere
between 3.5 - 4.0%. In order to reach the projected 1998 growth rate of 2.8%,
U.S. growth will have to sustain a considerable slowdown in the latter part of
the year to compensate for the strengths it is exhibiting now.
Looking forward, there are a lot of crosscurrents in the U.S. corporate earnings
picture. Ironically, the impact from the Asian financial crisis so far have been
positive, with lower interest rates boosting the economy. In the first quarter,
currency and oil earnings will be negative factors, but stronger economic growth
will offset any weaknesses. In the second and third quarters, we expect the
impact from Asia should be mitigated by strong growth in Europe. We continue to
believe that the economic impact from Asia will be moderate with the U.S.
economy slowing, but sustaining a near normal growth rate of 2.8% in 1998. Given
these projections, we expect equities and fixed income securities to perform
well in 1998, although below 1997 levels.
Sincerely,
/s/ Kirk Hartman
Kirk Hartman
Chief Investment Officer of
Fixed Income Management
- ---------------
* Source: Bloomberg, 1998.
** Source: Bloomberg, 1998. 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 Dow Jones Industrial Average is a price-weighted average of 30 actively
traded blue chip stocks and cannot be invested in directly.
9
<PAGE> 461
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
BANK NOTES -- 3.3%
DOMESTIC -- 2.5%
American Express Centurion Bank Monthly
Variable Rate (final maturity
4/15/98)*............................. A1/P1 5.595% 03/16/98 $ 50,000,000 $ 50,000,000
American Express Centurion Bank Monthly
Variable Rate (final maturity
6/26/98)*............................. A1/P1 5.595% 03/26/98 25,000,000 25,000,000
The Bank of New York................... A1+/P1 6.100% 05/22/98 25,000,000 24,994,107
Bank One Wisconsin N.A................. A1+/P1 5.550% 02/26/99 25,000,000 24,966,726
Huntington National Bank............... A1/P1 5.940% 08/31/98 50,000,000 49,985,629
Key Bank N.A., Monthly Variable Rate
(final maturity 9/23/98)*............. A1/P1 5.495% 03/23/98 22,000,000 21,986,550
PNC Bank N.A........................... A1/P1 6.050% 05/28/98 20,000,000 19,996,838
Union Planters National Bank........... P1/TBW1 6.290% 08/20/98 23,470,000 23,542,622
--------------
Total Domestic Bank Notes............... 240,472,472
--------------
FOREIGN -- 0.8%
Abbey National Treasury Services,
PLC................................... A1+/P1 6.000% 06/17/98 50,000,000 49,999,150
</TABLE>
- ---------------
See Notes to Financial Statements.
10
<PAGE> 462
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
BANK NOTES -- (CONTINUED)
FOREIGN -- (CONTINUED)
General Motors Acceptance Corp......... A1/P1 7.500% 05/26/98 $ 30,000,000 $ 30,129,754
--------------
Total Foreign Bank Notes................ 80,128,904
--------------
Total Bank Notes
(Amortized Cost $320,601,376).......... 320,601,376
--------------
CERTIFICATES OF DEPOSIT -- 16.6%
DOMESTIC -- 4.1%
Bankers Trust Company, Daily Variable
Rate (final maturity 07/21/98)*....... A1/P1 5.650% 03/02/98 25,000,000 24,995,305
Bankers Trust Company, Weekly Variable
Rate (final maturity 07/07/98)*....... A1/P1 5.679% 03/04/98 50,000,000 49,988,154
Bankers Trust Company, Weekly Variable
Rate (final maturity 10/7/98)*........ A1/P1 5.859% 03/04/98 50,000,000 50,000,000
Crestar Bank........................... A1/P1 5.800% 04/08/98 50,000,000 50,000,000
Crestar Bank........................... A1/P1 5.560% 05/27/98 50,000,000 50,000,000
Crestar Bank........................... A1/P1 5.860% 06/15/98 25,000,000 25,000,000
Crestar Bank........................... A1/P1 5.860% 07/20/98 50,000,000 49,996,305
Crestar Bank........................... A1/P1 5.920% 10/16/98 50,000,000 49,982,008
Morgan Guaranty Trust Company.......... A1+/P1 5.800% 07/28/98 25,000,000 24,996,092
Morgan Guaranty Trust Company.......... A1+/P1 5.870% 08/06/98 25,000,000 24,996,895
--------------
399,954,759
--------------
EURO -- 1.0%
Bank of Tokyo Mitsubishi, London
Branch................................ A1/P1 6.040% 05/11/98 25,000,000 25,000,486
</TABLE>
- ---------------
See Notes to Financial Statements.
11
<PAGE> 463
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
CERTIFICATES OF DEPOSIT -- (CONTINUED)
EURO -- (CONTINUED)
Bayerische Landesbank Girozentrale,
London Branch......................... A1+/P1 5.810% 06/03/98 $ 25,000,000 $ 24,999,247
Istituto Bancario San Paolo Di Torino,
London................................ A1/P1 5.750% 04/14/98 25,000,000 25,000,594
Istituto Bancario San Paolo Di Torino,
London................................ A1/P1 5.840% 06/05/98 25,000,000 25,000,648
--------------
100,000,975
--------------
YANKEE -- 11.5%
Bank of Tokyo Mitsubishi, New York..... A1/P1 6.500% 03/04/98 50,000,000 50,000,000
Bank of Tokyo Mitsubishi, New York..... A1/P1 5.900% 04/28/98 25,000,000 25,000,000
Bank of Tokyo Mitsubishi, New York..... A1/P1 5.960% 04/30/98 25,000,000 25,000,000
Banque National de Paris, Chicago...... A1/P1 5.970% 07/01/98 25,000,000 24,993,614
Banque National de Paris, Chicago...... A1/P1 5.890% 07/21/98 25,000,000 24,997,028
Banque National de Paris, Chicago...... A1/P1 5.800% 07/31/98 25,000,000 24,995,018
Banque Paribas, New York............... A1/P1 5.660% 03/01/99 90,000,000 89,956,856
BHF Bank of Aktiengesellschaft, New
York, Monthly Variable Rate (final
maturity 8/13/98)*.................... A1/P1 5.555% 03/13/98 50,000,000 49,991,203
Canadian Imperial Bank of Commerce, New
York.................................. A1+/P1 5.865% 08/11/98 25,000,000 24,990,926
Canadian Imperial Bank of Commerce, New
York.................................. A1+/P1 5.880% 10/14/98 50,000,000 49,985,130
Deutsche Bank A.G., New York........... A1+/P1 5.940% 10/22/98 25,000,000 24,990,770
</TABLE>
- ---------------
See Notes to Financial Statements.
12
<PAGE> 464
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
CERTIFICATES OF DEPOSIT -- (CONTINUED)
YANKEE -- (CONTINUED)
Istituto Bancario San Paolo Di Torino,
New York.............................. A1/P1 5.840% 06/15/98 $ 75,000,000 $ 75,051,980
Istituto Bancario San Paolo Di Torino,
New York.............................. A1/P1 5.870% 07/20/98 50,000,000 49,994,458
Landesbank Hessen-Thuringen
Girozentrale, New York................ A1+/P1 5.940% 06/19/98 25,000,000 24,995,679
National Bank of Canada, New York...... A1/P1 6.150% 05/15/98 44,000,000 43,995,319
National Bank of Canada, New York...... A1/P1 6.140% 06/05/98 25,000,000 24,998,679
Royal Bank of Canada, New York......... A1+/P1 5.650% 03/03/98 80,000,000 79,999,376
Royal Bank of Canada, New York......... A1+/P1 5.630% 02/26/99 50,000,000 49,966,279
Societe Generale Bank, New York........ A1+/P1 5.910% 10/15/98 25,000,000 24,992,534
Societe Generale Bank, New York........ A1+/P1 5.660% 02/26/99 50,000,000 49,985,739
Societe Generale Bank, New York........ A1+/P1 5.700% 02/26/99 50,000,000 49,980,995
Societe Generale Bank, New York........ A1+/P1 5.690% 03/02/99 50,000,000 49,976,050
Societe Generale Bank, New York, Daily
Variable Rate (final maturity
1/22/99)*............................. A1+/P1 5.710% 03/02/98 25,000,000 24,989,187
Societe Generale Bank, New York, Daily
Variable Rate (final maturity
10/23/98)*............................ A1+/P1 5.690% 03/02/98 50,000,000 49,981,269
Societe Generale Bank, New York, Daily
Variable Rate (final maturity
6/16/98)*............................. A1+/P1 5.700% 03/02/98 25,000,000 24,995,754
</TABLE>
- ---------------
See Notes to Financial Statements.
13
<PAGE> 465
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
CERTIFICATES OF DEPOSIT -- (CONTINUED)
YANKEE -- (CONTINUED)
Societe Generale Bank, New York, Daily
Variable Rate (final maturity
8/25/98)*............................. A1+/P1 5.700% 03/02/98 $ 25,000,000 $ 24,992,976
Westdeutsche Landesbank Girozentrole,
New York.............................. A1+/P1 5.780% 07/31/98 35,000,000 34,996,687
Westpac Banking Corp., New York........ A1+/P1 5.930% 08/12/98 25,000,000 24,995,704
--------------
1,123,789,210
--------------
Total Certificates of Deposit (Amortized
Cost $1,623,744,944).................. 1,623,744,944
--------------
COMMERCIAL PAPER -- 33.2%
DOMESTIC -- 28.7%
ASSET BACKED SECURITIES -- 8.4%
Aesop Funding Corp..................... A1/P1 5.500% 04/15/98 50,000,000 49,656,250
Asset Securitization Cooperative
Corp.................................. A1/P1 5.750% 03/16/98 50,000,000 49,880,208
CC USA Inc............................. A1+/P1 5.590% 03/09/98 31,000,000 30,961,491
CC USA Inc............................. A1+/P1 5.740% 03/24/98 25,000,000 24,908,319
CC USA Inc............................. A1+/P1 5.585% 03/25/98 25,500,000 25,405,055
CC USA Inc............................. A1+/P1 5.740% 03/27/98 30,000,000 29,875,633
CC USA Inc............................. A1+/P1 5.590% 03/30/98 32,500,000 32,353,651
CC USA Inc............................. A1+/P1 5.400% 08/17/98 24,500,000 23,878,925
Enterprise Funding Corp. (b)........... A1+/P1 5.520% 03/06/98 23,696,000 23,677,833
Enterprise Funding Corp. (b)........... A1+/P1 5.490% 04/15/98 32,355,000 32,132,964
Enterprise Funding Corp. (b)........... A1+/P1 5.570% 04/27/98 50,000,000 49,559,042
Republic Industries Funding Corp....... A1/P1 5.520% 03/20/98 55,000,000 54,839,767
Riverwoods Funding Corp................ A1+/P1 5.720% 03/11/98 50,000,000 49,920,556
Riverwoods Funding Corp................ A1+/P1 5.510% 06/03/98 100,000,000 98,576,583
Sigma Finance Inc...................... A1+/P1 5.540% 03/26/98 37,000,000 36,857,653
</TABLE>
- ---------------
See Notes to Financial Statements.
14
<PAGE> 466
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
COMMERCIAL PAPER -- (CONTINUED)
DOMESTIC -- (CONTINUED)
ASSET BACKED SECURITIES -- (CONTINUED)
Sigma Finance Inc...................... A1+/P1 5.475% 05/05/98 $ 25,000,000 $ 24,752,865
Sigma Finance Inc...................... A1+/P1 5.490% 05/12/98 50,000,000 49,451,000
Sigma Finance Inc...................... A1+/P1 5.400% 07/28/98 25,000,000 24,441,250
World Omni Vehicle Leasing Inc......... A1/P1 5.515% 03/20/98 50,000,000 49,854,465
World Omni Vehicle Leasing Inc......... A1/P1 5.490% 04/24/98 56,596,000 56,129,932
--------------
817,113,442
--------------
AUTOMOBILES -- 1.7%
American Honda Finance Corp............ F1/P1 5.510% 05/29/98 40,000,000 39,455,122
Daimler-Benz North America Corp........ A1/P1 5.625% 04/22/98 50,000,000 49,593,750
General Motors Acceptance Corp......... A1/P1 5.600% 04/20/98 25,000,000 24,805,556
General Motors Acceptance Corp......... A1/P1 5.650% 04/22/98 50,000,000 49,591,944
--------------
163,446,372
--------------
BANKING -- 2.3%
Bankers Trust, New York, Daily Variable
Rate (final maturity 8/4/98)*......... A1/P1 5.700% 03/02/98 25,000,000 25,000,000
Bankers Trust, New York, Daily Variable
Rate (final maturity 9/4/98)*......... A1/P1 5.760% 03/02/98 50,000,000 50,000,000
Bankers Trust, New York, Daily Variable
Rate (final maturity 9/4/98)*......... A1/P1 5.780% 03/02/98 25,000,000 25,000,000
National Australia Funding Inc......... A1+/P1 5.460% 05/26/98 25,500,000 25,167,395
NationsBank Corporation................ A1/P1 5.470% 04/10/98 50,000,000 49,696,111
Unifunding Inc......................... A1/P1 5.660% 06/02/98 50,000,000 49,268,917
--------------
224,132,423
--------------
</TABLE>
- ---------------
See Notes to Financial Statements.
15
<PAGE> 467
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
COMMERCIAL PAPER -- (CONTINUED)
DOMESTIC -- (CONTINUED)
BROKERAGE SERVICES -- 4.0%
Lehman Brothers Holdings, Inc., Weekly
Variable Rate (final maturity
4/03/98)*............................. A1/F1 5.799% 03/04/98 $ 50,000,000 $ 50,000,000
Lehman Brothers Holdings, Inc.......... A1/F1 5.770% 03/04/98 25,000,000 24,987,979
Merrill Lynch & Co., Inc............... A1+/P1 5.510% 05/20/98 100,000,000 98,790,861
Merrill Lynch & Co., Inc............... A1+/P1 5.650% 06/03/98 25,000,000 24,631,181
Salomon Smith Barney Holdings Inc...... A1/P1 5.730% 03/06/98 25,000,000 24,980,104
Salomon Smith Barney Holdings Inc...... A1/P1 5.485% 04/22/98 50,000,000 49,603,861
Salomon Smith Barney Holdings Inc...... A1/P1 5.520% 05/07/98 50,000,000 49,486,333
Salomon Smith Barney Holdings Inc...... A1/P1 5.415% 07/29/98 50,000,000 48,871,875
Salomon Smith Barney Holdings Inc...... A1/P1 5.770% 03/17/98 24,775,000 24,711,466
--------------
396,063,660
--------------
CONGLOMERATES -- 1.3%
B.A.T. Capital Corporation............. F1/P1 5.760% 04/07/98 25,000,000 24,852,000
B.A.T. Capital Corporation............. F1/P1 5.570% 04/22/98 50,000,000 49,597,722
B.A.T. Capital Corporation............. F1/P1 5.560% 05/20/98 50,000,000 49,382,222
--------------
123,831,944
--------------
CONSUMER NON-DURABLES -- 0.4%
Newell Co.............................. A1/D1 5.585% 03/27/98 40,000,000 39,838,656
--------------
ELECTRONICS -- 0.8%
Hitachi America Ltd.................... A1+/P1 5.400% 07/15/98 31,000,000 30,367,600
Hitachi America Ltd.................... A1+/P1 5.410% 07/31/98 20,000,000 19,543,156
Hitachi America Ltd.................... A1+/P1 5.400% 08/21/98 25,000,000 24,351,250
--------------
74,262,006
--------------
</TABLE>
- ---------------
See Notes to Financial Statements.
16
<PAGE> 468
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
COMMERCIAL PAPER -- (CONTINUED)
DOMESTIC -- (CONTINUED)
FINANCE COMPANIES -- 4.7%
BTR Dunlop Finance Inc................. A1/P1 5.690% 03/26/98 $ 50,000,000 $ 49,802,431
BTR Dunlop Finance Inc................. A1/P1 5.390% 07/14/98 50,000,000 48,989,375
Countrywide Home Loans, Inc............ A1/F1 5.530% 05/20/98 50,000,000 49,385,556
Countrywide Home Loans, Inc............ A1/F1 5.530% 05/27/98 72,950,000 71,975,084
General Electric Capital Corp.......... A1+/P1 5.550% 04/27/98 25,000,000 24,780,312
General Electric Capital Corp.......... A1+/P1 5.510% 05/06/98 50,000,000 49,494,917
Safeco Credit Company.................. A1/D1 5.760% 03/04/98 20,600,000 20,590,112
Safeco Credit Company.................. A1/D1 5.765% 03/11/98 22,000,000 21,964,769
Safeco Credit Company.................. A1/D1 5.770% 03/11/98 32,000,000 31,948,711
Safeco Credit Company.................. A1/D1 5.800% 03/18/98 20,000,000 19,945,222
Safeco Credit Company.................. A1/D1 5.470% 04/30/98 20,000,000 19,817,667
Safeco Credit Company.................. A1/D1 5.500% 05/06/98 25,000,000 24,747,917
Safeco Credit Company.................. A1/D1 5.550% 05/27/98 26,000,000 25,651,275
--------------
459,093,348
--------------
MINING -- 0.9%
Rio Tinto America Inc.................. A1+/P1 5.760% 03/11/98 48,700,000 48,622,080
Rio Tinto America Inc.................. A1+/P1 5.410% 08/11/98 45,300,000 44,190,364
--------------
92,812,444
--------------
PUBLISHING -- 0.3%
Tribune Company........................ A1/P1 5.740% 03/06/98 25,000,000 24,980,069
--------------
SOVEREIGN ISSUES -- 0.4%
Government Development Bank of Puerto
Rico.................................. A1+/TBW1 5.450% 05/22/98 43,000,000 42,466,203
--------------
UTILITIES -- 3.5%
British Gas Capital Inc................ A1/P1 5.730% 04/21/98 25,000,000 24,797,062
British Gas Capital Inc................ A1/P1 5.600% 05/07/98 75,000,000 74,218,333
British Gas Capital Inc................ A1/P1 5.430% 07/27/98 50,000,000 48,883,833
</TABLE>
- ---------------
See Notes to Financial Statements.
17
<PAGE> 469
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
COMMERCIAL PAPER -- (CONTINUED)
DOMESTIC -- (CONTINUED)
UTILITIES -- (CONTINUED)
British Gas Capital Inc................ A1/P1 5.430% 08/24/98 $ 75,000,000 $ 73,006,556
Duke Capital Corp...................... A1/F1 5.770% 03/04/98 20,000,000 19,990,383
Duke Capital Corp...................... A1/F1 5.520% 04/06/98 25,000,000 24,862,000
Duke Capital Corp...................... A1/F1 5.540% 06/02/98 39,127,000 38,567,027
National Rural Utilities Cooperative
Finance Corp.......................... A1+/P1 5.700% 03/17/98 20,000,000 19,949,333
National Rural Utilities Cooperative
Finance Corp.......................... A1+/P1 5.680% 05/05/98 20,000,000 19,794,889
--------------
344,069,416
--------------
Total Domestic Commercial Paper
(Amortized Cost $2,802,109,983)....... 2,802,109,983
--------------
FOREIGN -- 4.5%
AIR TRANSPORTATION -- 0.5%
BAA PLC................................ A1+/P1 5.700% 04/06/98 50,000,000 49,715,000
--------------
AUTOMOBILES -- 1.0%
Ford Credit Europe, PLC................ A1/P1 5.720% 03/06/98 75,000,000 74,940,417
Ford Credit Europe, PLC................ A1/P1 5.530% 04/08/98 25,000,000 24,854,069
--------------
99,794,486
--------------
BANKING -- 0.5%
Abbey National Treasury Services,
PLC................................... A1+/P1 5.560% 03/11/98 25,000,000 24,961,389
Banque National de Paris, Canadian
Branch................................ A1/P1 5.730% 03/05/98 24,000,000 23,984,720
--------------
48,946,109
--------------
BUILDING SOCIETY -- 0.5%
Nationwide Building Society............ A1/P1 5.585% 05/06/98 50,000,000 49,488,042
--------------
</TABLE>
- ---------------
See Notes to Financial Statements.
18
<PAGE> 470
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
COMMERCIAL PAPER -- (CONTINUED)
FOREIGN -- (CONTINUED)
FOOD AND BEVERAGES -- 1.0%
Diageo Capital PLC..................... A1/P1 5.400% 07/06/98 $ 47,500,000 $ 46,595,125
Diageo Capital PLC..................... A1/P1 5.420% 07/27/98 50,000,000 48,885,889
--------------
95,481,014
--------------
SOVEREIGN ISSUES -- 0.8%
Cades.................................. A1+/P1 5.730% 03/05/98 30,000,000 29,980,900
Cades.................................. A1+/P1 5.650% 06/05/98 50,000,000 49,246,667
--------------
79,227,567
--------------
UTILITIES -- 0.2%
Ontario Hydro.......................... A1+/P1 5.700% 03/16/98 25,000,000 24,940,625
--------------
Total Foreign Commercial Paper
(Amortized Cost $447,592,843)......... 447,592,843
--------------
Total Commercial Paper
(Amortized Cost $3,249,702,826)........ 3,249,702,826
--------------
CORPORATE OBLIGATIONS -- 16.4%
ASSET BACKED SECURITIES -- 1.2%
CC USA, Inc............................ A1+/P1 6.175% 05/26/98 20,000,000 20,000,771
Sigma Finance Inc., Daily Variable Rate
(final maturity 7/27/98)*............. A1+/P1 5.680% 03/02/98 50,000,000 49,999,597
Sigma Finance, Inc..................... A1+/P1 5.915% 03/05/98 50,000,000 49,999,827
--------------
120,000,195
--------------
AUTOMOBILES -- 3.4%
American Honda Finance Corp., Quarterly
Variable Rate (final maturity
1/20/99)*............................. F1/P1 5.598% 04/20/98 25,000,000 25,000,000
American Honda Finance Corp., Quarterly
Variable Rate (final maturity
1/21/99)*............................. F1/P1 5.625% 04/21/98 50,000,000 49,995,534
</TABLE>
- ---------------
See Notes to Financial Statements.
19
<PAGE> 471
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
CORPORATE OBLIGATIONS -- (CONTINUED)
AUTOMOBILES -- (CONTINUED)
American Honda Finance Corp., Quarterly
Variable Rate (final maturity
4/6/98)*.............................. F1/P1 5.822% 04/06/98 $ 50,000,000 $ 49,999,048
American Honda Finance Corp., Quarterly
Variable Rate (final maturity
4/9/98)*.............................. F1/P1 5.691% 04/09/98 24,000,000 24,000,237
American Honda Finance Corp., Quarterly
Variable Rate (final maturity
6/16/98)*............................. F1/P1 5.906% 03/16/98 20,000,000 20,000,000
American Honda Finance Corp., Quarterly
Variable Rate (final maturity
7/27/98)*............................. F1/P1 5.621% 04/27/98 45,000,000 45,000,000
General Motors Acceptance Corp., Daily
Variable Rate (final maturity
4/21/98)*............................. A1/P1 5.750% 03/02/98 25,000,000 25,001,087
General Motors Acceptance Corp.,
Quarterly Variable Rate (final
maturity 5/22/98)*.................... A1/P1 5.595% 03/23/98 50,000,000 50,001,130
General Motors Acceptance Corp.,
Quarterly Variable Rate (final
maturity 9/3/98)*..................... A1/P1 5.886% 03/03/98 46,393,000 46,395,876
--------------
335,392,912
--------------
</TABLE>
- ---------------
See Notes to Financial Statements.
20
<PAGE> 472
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
CORPORATE OBLIGATIONS -- (CONTINUED)
BANKING -- 3.5%
Bankers Trust New York Corp., Monthly
Variable Rate (final maturity
2/10/99)*............................. A1/P1 5.575% 03/10/98 $105,000,000 $ 104,960,614
Bank of Scotland, PLC, Quarterly
Variable Rate (final maturity
9/22/98)*............................. A1/P1 5.806% 03/22/98 25,000,000 24,994,562
Compagnie Bancaire USA Funding, Daily
Variable Rate (final maturity
5/15/98)*............................. A1/P1 5.760% 03/02/98 50,000,000 49,998,837
Compaigne Bancaire USA Funding
Quarterly Variable Rate (final
maturity 7/16/98)*.................... A1/P1 5.563% 04/16/98 34,000,000 33,990,461
Compaigne Bancaire USA Funding Weekly
Variable Rate (final maturity
10/1/98)*............................. A1/P1 5.809% 03/04/98 50,000,000 50,000,000
Compaigne Bancaire USA Funding Weekly
Variable Rate (final maturity
10/1/98)*............................. A1/P1 5.809% 03/04/98 25,000,000 24,997,068
Compagnie Bancaire USA Funding Weekly
Variable Rate (final maturity
11/25/98)*............................ A1/P1 5.929% 03/04/98 50,000,000 50,000,000
--------------
338,941,542
--------------
BROKERAGE SERVICES -- 4.7%
Bear Stearns Companies, Inc., Daily
Variable Rate, Series B (final
maturity 3/17/98)*.................... A1/P1 5.700% 03/02/98 75,000,000 75,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
21
<PAGE> 473
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
CORPORATE OBLIGATIONS -- (CONTINUED)
BROKERAGE SERVICES -- (CONTINUED)
Bear Stearns Companies, Inc., Daily
Variable Rate, Series B (final
maturity 6/12/98)*.................... A1/P1 5.760% 03/02/98 $ 60,000,000 $ 60,000,302
Bear Stearns Companies, Inc., Monthly
Variable Rate (final maturity
8/14/98)*............................. A1/P1 5.775% 03/16/98 25,000,000 25,019,085
Bear Stearns Companies, Inc., Monthly
Variable Rate, Series B (final
maturity 4/1/98)*..................... A1/P1 5.775% 03/02/98 18,000,000 18,002,258
C. S. First Boston, Inc., Daily
Variable Rate (final maturity
7/21/98)*............................. A1+/P1 5.670% 03/02/98 50,000,000 50,000,000
C. S. First Boston, Inc., Weekly
Variable Rate (final maturity
5/15/98)*............................. A1+/P1 5.629% 03/04/98 50,000,000 50,000,000
Lehman Brothers Holdings, Inc., Daily
Variable Rate (final maturity
3/22/99)*............................. A1/F1 5.710% 03/02/98 50,000,000 50,000,000
Lehman Brothers Holdings, Inc.,
Quarterly Variable Rate (final
maturity 2/12/99)*.................... A1/F1 5.655% 04/13/98 25,000,000 25,000,000
Lehman Brothers Holdings, Inc.,
Quarterly Variable Rate (final
maturity 5/28/98)*.................... A1/F1 6.045% 05/28/98 36,000,000 36,034,395
</TABLE>
- ---------------
See Notes to Financial Statements.
22
<PAGE> 474
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
CORPORATE OBLIGATIONS -- (CONTINUED)
BROKERAGE SERVICES -- (CONTINUED)
Merrill Lynch & Co., Inc., Daily
Variable Rate (final maturity
11/23/98)*............................ A1+/P1 5.700% 03/02/98 $ 25,000,000 $ 25,000,000
Merrill Lynch & Co., Inc., Daily
Variable Rate (final maturity
12/9/98)*............................. A1+/P1 5.760% 03/02/98 25,000,000 24,998,067
Merrill Lynch & Co., Inc., Weekly
Variable Rate (final maturity
3/4/98)*.............................. A1+/P1 5.629% 03/04/98 19,000,000 18,999,759
--------------
458,053,866
--------------
CONGLOMERATES -- 0.3%
Philip Morris Co., Inc................. A1/P1 9.000% 05/15/98 22,625,000 22,750,689
--------------
FINANCE COMPANIES -- 1.7%
Dean Witter Discover & Co.............. A1/P1 6.000% 03/01/98 15,000,000 15,000,000
Household Finance Corp., Daily Variable
Rate (final maturity 5/28/98)*........ A1/P1 5.720% 03/02/98 50,000,000 50,000,000
Household Finance Corp., Monthly
Variable Rate (final maturity
1/19/99)*............................. A1/P1 5.587% 03/19/98 25,000,000 25,000,000
Household Finance Corp., Monthly
Variable Rate (final maturity
1/21/99)*............................. A1/P1 5.595% 03/23/98 25,000,000 25,000,000
Household Finance Corp., Monthly
Variable Rate (final maturity
9/15/98)*............................. A1/P1 5.675% 03/16/98 50,000,000 50,022,707
--------------
165,022,707
--------------
</TABLE>
- ---------------
See Notes to Financial Statements.
23
<PAGE> 475
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
CORPORATE OBLIGATIONS -- (CONTINUED)
LEASING -- 1.1%
Sanwa Business Credit Corp., Daily
Variable Rate (final maturity
4/17/98)*............................. P1/D1 5.810% 03/02/98 $ 25,000,000 $ 25,000,000
Sanwa Business Credit Corp., Daily
Variable Rate (final maturity
9/18/98)*............................. P1/D1 5.720% 03/02/98 25,000,000 25,000,000
Sanwa Business Credit Corp., Monthly
Variable Rate (final maturity
4/29/98)*............................. P1/D1 5.750% 03/30/98 25,000,000 25,003,319
USL Capital Corp., Series D, Quarterly
Variable Rate (final maturity
4/22/98)*............................. P1/F1 5.705% 04/22/98 34,000,000 34,005,075
--------------
109,008,394
--------------
RELOCATION SERVICES -- 0.5%
PHH Corporation, Monthly Variable Rate
(final maturity 6/24/98)*............. A1/P1 5.625% 03/24/98 50,000,000 50,000,000
--------------
Total Corporate Obligations
(Amortized Cost $1,599,170,305)........ 1,599,170,305
--------------
MASTER NOTES -- 7.1%
Goldman Sachs Group L.P. (final
maturity 10/13/98)*................... A1+/P1 5.828% 03/02/98 400,000,000 400,000,000
Morgan Stanley Group, Inc. (final
maturity 3/24/98)*.................... A1/P1 5.788% 03/02/98 300,000,000 300,000,000
--------------
Total Master Notes
(Amortized Cost $700,000,000).......... 700,000,000
--------------
</TABLE>
- ---------------
See Notes to Financial Statements.
24
<PAGE> 476
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
REPURCHASE AGREEMENTS -- 25.5%
CIBC Oppenheimer, Corp., dated 2/27/98,
with a maturity value of $135,064,013
(Collateralized by $137,095,000
various U.S. Government Obligations,
5.37%-7.75%, 3/24/98-3/8/12, market
value -- $137,701,990................. 5.690% 03/02/98 $135,000,000 $ 135,000,000
Morgan Stanley Dean Witter & Co., dated
2/27/98, with a maturity value of
$180,085,350 (Collateralized by
$246,113,822 various U.S. Government
Obligations, 5.00%-13.0%,
4/1/98-2/1/28, market value --
$183,600,518)......................... 5.690% 03/02/98 180,000,000 180,000,000
First Chicago Capital Markets, Inc.,
dated 2/27/98, with a maturity value
of $130,061,642 (Collateralized by
$132,876,000 various U.S. Government
Obligations, 0.00%-7.0%, 3/12/98-
12/13/99, market
value -- $132,603,501................. 5.690% 03/02/98 130,000,000 130,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
25
<PAGE> 477
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
REPURCHASE AGREEMENTS -- (CONTINUED)
Goldman Sachs & Co., dated 2/27/98,
with a maturity value of $118,622,726
(Collateralized by $117,146,000 U.S.
Treasury Note, 5.875%, 2/28/99, market
value -- $120,938,802)................ 5.640% 03/02/98 $118,567,000 $ 118,567,000
Goldman Sachs & Co., dated 2/27/98,
with a maturity value of $325,154,104
(Collateralized by $639,720,401
various U.S. Government Obligations,
5.50%-10.5%, 4/1/98-2/1/98, market
value -- $331,500,001)................ 5.690% 03/02/98 325,000,000 325,000,000
J.P. Morgan Securities, Inc., dated
2/27/98, with a maturity value of
$450,213,750 (Collateralized by
$455,797,296 Government National
Mortgage Association, 7.50%, 9/15/12-
1/15/28, market
value -- $459,000,001)................ 5.700% 03/02/98 450,000,000 450,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
26
<PAGE> 478
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
REPURCHASE AGREEMENTS -- (CONTINUED)
NationsBank, Inc., dated 2/27/98, with
a maturity value of $380,179,867
(Collateralized by $394,051,091
Federal National Mortgage Association,
6.5%-7.0%, 9/1/11-1/1/13, market
value -- $387,600,000)................ 5.680% 03/02/98 $380,000,000 $ 380,000,000
Nomura Securities, Inc., dated 2/27/98,
with a maturity value of $325,154,375
(Collateralized by $330,724,126
Federal National Mortgage Association,
5.5%-9.5%, 8/1/99-2/1/28, market
value -- $331,500,001)................ 5.700% 03/02/98 325,000,000 325,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
27
<PAGE> 479
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
REPURCHASE AGREEMENTS -- (CONTINUED)
Prudential Securities, Inc., dated
2/27/98, with a maturity value of
$450,213,375 (Collateralized by
$475,269,551 Federal National Mortgage
Association, 6.5%, 9/1/12, market
value -- $459,000,001)................ 5.690% 03/02/98 $450,000,000 $ 450,000,000
--------------
Total Repurchase Agreements
(Amortized Cost $2,493,567,000)........ 2,493,567,000
--------------
TOTAL INVESTMENTS -- 102.1%
(AMORTIZED COST $9,986,786,451)(a)..... 9,986,786,451
LIABILITIES IN EXCESS OF OTHER ASSETS --
(2.1%)................................ (207,110,383)
--------------
NET ASSETS -- 100.0%.................... $9,779,676,068
==============
</TABLE>
- ---------------
Percentages indicated are based on net assets of $9,779,676,068.
(a) Cost for federal income tax and financial reporting purposes are
substantially the same.
(b) Private placement security.
PLC -- Public Liability Company.
N.R.S.R.O. Nationally Recognized Statistical Ratings Organization. Rating
agencies that are included within the N.R.S.R.O. category are: S&P, Moody's,
Fitch Investors Services, Duff & Phelps, IBCA, and Thomsons Bank Watch.
<TABLE>
<C> <S>
A1 -- Highest rating assigned by S&P and IBCA.
P1 -- Highest rating assigned by Moody's.
F1 -- Highest rating assigned by Fitch Investors.
D1 -- Highest rating assigned by Duff.
TBW1 -- Highest rating assigned by Thomsons Bank Watch.
</TABLE>
Note: S&P and Moody's ratings have been used, unless another service has
assigned the security a higher rating.
* Variable rate security. Maturity date reflects the next interest rate change
date.
See Notes to Financial Statements.
28
<PAGE> 480
PACIFIC HORIZON TREASURY FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
MATURITY PRINCIPAL COST
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C>
U.S. TREASURY OBLIGATIONS -- 29.7%
U.S. Treasury Note................ 6.125% 03/31/98 $ 75,000,000 $ 75,030,243
U.S. Treasury Note................ 7.875% 04/15/98 50,000,000 50,134,432
U.S. Treasury Note................ 6.125% 05/15/98 75,000,000 75,070,970
U.S. Treasury Note................ 9.000% 05/15/98 75,000,000 75,517,134
U.S. Treasury Note................ 6.000% 05/31/98 25,000,000 25,024,328
U.S. Treasury Note................ 6.250% 06/30/98 50,000,000 50,102,114
U.S. Treasury Note................ 8.250% 07/15/98 91,250,000 92,114,346
U.S. Treasury Note................ 6.250% 07/31/98 50,000,000 50,123,039
U.S. Treasury Note................ 5.875% 08/15/98 150,000,000 150,137,721
U.S. Treasury Note................ 9.250% 08/15/98 75,000,000 76,185,202
U.S. Treasury Note................ 6.125% 08/31/98 125,000,000 125,419,571
U.S. Treasury Note................ 4.750% 08/31/98 50,000,000 49,840,734
--------------
Total U.S. Treasury Obligations
(Amortized Cost $894,699,834)..... 894,699,834
--------------
REPURCHASE AGREEMENTS -- 68.4%
Barclays de Zoete Wedd Securities,
Inc., dated 2/27/98, with a
maturity value of $145,068,150
(Collateralized by $111,311,000
U.S. Treasury Obligations,
10.75%-12.0%, 5/15/03-5/15/05,
market value -- $147,901,058)... 5.640% 03/02/98 145,000,000 145,000,000
CIBC Oppenheimer, Corp., dated
2/27/98, with a maturity value
of $145,068,029 (Collateralized
by $141,683,000 various U.S.
Treasury Obligations,
5.75%-11.25%, 6/30/98-2/15/15,
market value -- $147,907,744)... 5.630% 03/02/98 145,000,000 145,000,000
C.S. First Boston Corp., dated
2/27/98, with a maturity value
of $425,199,750 (Collateralized
by $412,984,000 U.S. Treasury
Notes, 5.875%-6.625%,
2/15/00-5/15/07, market value --
$435,643,658)................... 5.640% 03/02/98 425,000,000 425,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
29
<PAGE> 481
<TABLE>
<CAPTION>
AMORTIZED
MATURITY PRINCIPAL COST
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENTS -- (CONTINUED)
Morgan Stanley Dean Witter & Co.,
dated 2/27/98, with a maturity
value of $145,068,271
(Collateralized by $136,193,000
U.S. Treasury Notes,
5.625%-7.875%, 11/30/99-5/15/06,
market value -- $147,900,135)... 5.650% 03/02/98 $145,000,000 $ 145,000,000
Goldman Sachs & Co., dated
2/27/98, with a maturity value
of $574,937,093 (Collateralized
by $583,869,000 U.S. Treasury
Note, 0.00%-7.875%,
4/15/98-2/15/08, market
value -- $586,160,673).......... 5.640% 03/02/98 574,667,000 574,667,000
HSBC Securities, Inc., dated
2/27/98, with a maturity value
of $145,068,150 (Collateralized
by $231,922,000 U.S. Treasury
Obligations, 0.00%, 5/15/98-
11/15/12, market value --
$147,900,605)................... 5.640% 03/02/98 145,000,000 145,000,000
J.P. Morgan Securities, Inc.,
dated 2/27/98, with a maturity
value of $145,068,029
(Collateralized by $154,612,000
U.S. Treasury Notes,
0.00%-6.25%, 4/30/01-12/31/01,
market value -- $147,900,300)... 5.630% 03/02/98 145,000,000 145,000,000
Lehman Brothers, Inc., dated
2/27/98, with a maturity value
of $50,023,333 (Collateralized
by $107,443,000 U.S. Treasury
Notes, 0.00%, 2/15/08-11/15/12,
market value -- $51,001,397).... 5.600% 03/02/98 50,000,000 50,000,000
Merrill Lynch Securities, Inc.,
dated 2/27/98, with a maturity
value of $145,067,063
(Collateralized by $120,725,000
U.S. Treasury Obligations,
5.75%-11.25%, 11/30/99-2/15/19,
market value -- $147,901,010)... 5.550% 03/02/98 145,000,000 145,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
30
<PAGE> 482
<TABLE>
<CAPTION>
AMORTIZED
MATURITY PRINCIPAL COST
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENTS -- (CONTINUED)
Nomura Securities, Inc., dated
2/27/98, with a maturity value
of $145,068,150 (Collateralized
by $142,707,000 U.S. Treasury
Notes, 6.25%, 4/30/01-6/30/02,
market value -- $147,900,157)... 5.640% 03/02/98 $145,000,000 $ 145,000,000
--------------
Total Repurchase Agreements
(Amortized Cost $2,064,667,000)..... 2,064,667,000
--------------
TOTAL INVESTMENTS -- 98.1%
(AMORTIZED COST $2,959,366,834)(a).. 2,959,366,834
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 1.9%............... 56,872,749
--------------
NET ASSETS -- 100.0%................ $3,016,239,583
==============
</TABLE>
- ---------------
Percentages indicated are based on net assets of $3,016,239,583.
(a) Cost for federal income tax and financial reporting purpose are
substantially the same.
See Notes to Financial Statements.
31
<PAGE> 483
PACIFIC HORIZON GOVERNMENT FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
MATURITY PRINCIPAL COST
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
----------- ----- -------- ----------- ------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 44.2%
U.S. GOVERNMENT AGENCY OBLIGATIONS -- DISCOUNT -- 14.2%
Federal Home Loan Mortgage Corp......... 5.590%(dagger) 03/02/98 $30,000,000 $ 29,995,342
Federal Home Loan Mortgage Corp......... 5.500%(dagger) 05/08/98 40,000,000 39,588,978
------------
Total U.S. Government Agency
Obligations -- Discount (Amortized Cost
$69,584,320)........................... 69,584,320
------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- FIXED -- 17.7%
Federal Farm Credit Bank................ 5.540% 03/02/98 5,000,000 5,000,000
Federal Farm Credit Bank................ 5.750% 09/11/98 5,000,000 4,997,449
Federal Farm Credit Bank................ 5.600% 10/01/98 5,000,000 5,001,354
Federal Farm Credit Bank................ 5.700% 11/03/98 5,000,000 4,997,357
Federal Home Loan Bank.................. 5.720% 07/07/98 10,000,000 10,008,533
Federal Home Loan Bank.................. 5.715% 07/21/98 10,000,000 9,998,704
Federal Home Loan Bank.................. 5.700% 09/10/98 5,000,000 4,996,632
Federal Home Loan Bank.................. 5.690% 10/02/98 2,500,000 2,498,795
Federal Home Loan Bank.................. 5.800% 10/27/98 5,000,000 4,998,718
Federal Home Loan Mortgage Corporation.. 5.840% 04/08/98 4,000,000 4,000,000
Federal National Mortgage Association... 6.020% 04/15/98 5,000,000 5,002,155
Federal National Mortgage Association... 5.710% 06/23/98 10,000,000 9,998,554
Federal National Mortgage Association... 7.000% 07/13/98 5,000,000 5,020,482
Federal National Mortgage Association... 5.630% 08/14/98 5,000,000 4,995,861
Federal National Mortgage Association... 5.710% 09/09/98 5,000,000 4,996,213
------------
Total U.S. Government Agency
Obligations -- Fixed (Amortized Cost
$86,510,807)........................... 86,510,807
------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- VARIABLE -- 12.3%
Federal Home Loan Bank, Monthly Variable
Rate (final maturity 8/4/98)*.......... 5.390% 03/04/98 20,000,000 19,990,932
Federal National Mortgage Association,
Monthly Variable Rate (final maturity
7/30/98)*.............................. 5.420% 03/02/98 20,000,000 19,990,448
</TABLE>
- ---------------
See Notes to Financial Statements.
32
<PAGE> 484
<TABLE>
<CAPTION>
AMORTIZED
MATURITY PRINCIPAL COST
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
----------- ----- -------- ----------- ------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- (CONTINUED)
U.S. GOVERNMENT AGENCY OBLIGATIONS -- VARIABLE -- (CONTINUED)
Federal National Mortgage Association,
Weekly Variable Rate (final maturity
10/20/98)*............................. 5.740% 03/03/98 $20,000,000 $ 19,994,446
------------
Total U.S. Government Agency
Obligations -- Variable (Amortized Cost
$59,975,826)........................... 59,975,826
------------
Total U.S. Government Agency Obligations
(Amortized Cost $216,070,953).......... 216,070,953
------------
REPURCHASE AGREEMENTS -- 55.6%
CIBC Oppenheimer, Corp., dated 2/27/98,
with a maturity value of $15,007,113
(Collateralized by $15,015,000 U.S.
Government Obligations, 6.375%-6.90%,
10/13/00-10/9/01, market value --
$15,304,286)........................... 5.69% 03/02/98 15,000,000 15,000,000
Morgan Stanley Dean Witter & Co., dated
2/27/98, with a maturity value of
$20,009,483 (Collateralized by
$54,962,315 various U.S. Government
Obligations, 0.00%-15.00%, 3/12/98-
11/1/27, market
value -- $20,400,097).................. 5.69% 03/02/98 20,000,000 20,000,000
First Chicago Capital Markets, Inc.,
dated 2/27/98, with a maturity value of
$20,009,483 (Collateralized by
$19,980,000 U.S. Treasury Note, 5.875%,
11/15/99, market
value -- $20,404,744).................. 5.69% 03/02/98 20,000,000 20,000,000
Goldman Sachs & Co., dated 2/27/98, with
a maturity value of $97,220,077
(Collateralized by $531,613,617 various
U.S. Government Obligations, 5.50%-
12.50%, 3/25/98-2/1/28, market value --
$99,117,480)........................... 5.69% 03/02/98 97,174,000 97,174,000
HSBC Securities, Inc., dated 2/27/98,
with a maturity value of $20,009,467
(Collateralized by $30,331,922 U.S.
Government Obligations, 0.00%-8.50%,
6/25/98-9/1/27, market value --
$20,403,345)........................... 5.68% 03/02/98 20,000,000 20,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
33
<PAGE> 485
<TABLE>
<CAPTION>
AMORTIZED
MATURITY PRINCIPAL COST
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
----------- ----- -------- ----------- ------------
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENTS -- (CONTINUED)
J.P. Morgan Securities, Inc., dated
2/27/98, with a maturity value of
$20,009,500 (Collateralized by
$20,069,479 Government National
Mortgage Association, 6.50%-7.50%,
2/15/26-2/15/28, market value --
$20,400,001)........................... 5.70% 03/02/98 $20,000,000 $ 20,000,000
Merrill Lynch Securities, Inc., dated
2/27/98, with a maturity value of
$20,009,333 (Collateralized by
$48,562,044 U.S. Government
Obligations, 5.50%-8.00%,1/1/01-1/1/09,
market value -- $20,402,977)........... 5.60% 03/02/98 20,000,000 20,000,000
NationsBank, Inc., dated 2/27/98, with a
maturity value of $20,009,467
(Collateralized by $21,042,098 Federal
National Mortgage Association, 7.00%-
7.50%, 9/1/11-6/1/12, market value --
$20,400,000)........................... 5.68% 03/02/98 20,000,000 20,000,000
Nomura Securities, Inc., dated 2/27/98,
with a maturity value of $20,009,500
(Collateralized by $22,594,870 Federal
National Mortgage Association, 6.00%-
8.00%, 5/1/11-2/1/28, market value --
$20,400,001)........................... 5.70% 03/02/98 20,000,000 20,000,000
Prudential Securities, Inc., dated
2/27/98, with a maturity value of
$20,009,483 (Collateralized by
$20,456,106 U.S. Government
Obligations, 0.00%-6.50%,
5/28/98-2/1/18, market value --
$20,400,562)........................... 5.69% 03/02/98 20,000,000 20,000,000
------------
Total Repurchase Agreements (Amortized
Cost $272,174,000)..................... 272,174,000
------------
TOTAL INVESTMENTS -- 99.8% (AMORTIZED
COST $488,244,953)(a).................. 488,244,953
OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.2% 995,676
------------
NET ASSETS -- 100.0%..................... $489,240,629
============
</TABLE>
- ---------------
Percentages indicated are based on net assets of $489,240,629.
(a) Cost for federal income tax and financial reporting purposes are
substantially the same.
* Variable rate security. Maturity date reflects the next interest rate change
date.
(dagger) Rate represents effective yield at date of purchase.
See Notes to Financial Statements.
34
<PAGE> 486
PACIFIC HORIZON TREASURY ONLY FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
MATURITY PRINCIPAL COST
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C>
U.S. TREASURY OBLIGATIONS -- 98.4%
U.S. TREASURY BILLS -- 25.5%
U. S. Treasury Bill............... 5.310%(dagger) 03/05/98 $ 32,123,000 $ 32,104,440
U. S. Treasury Bill............... 5.310%(dagger) 04/23/98 80,000,000 79,378,502
--------------
111,482,942
--------------
U.S. TREASURY NOTES -- 72.9%
U.S. Treasury Note................ 5.125% 03/31/98 31,060,000 31,052,197
U.S. Treasury Note................ 6.125% 03/31/98 51,545,000 51,575,258
U.S. Treasury Note................ 7.875% 04/15/98 87,633,000 87,885,996
U.S. Treasury Note................ 5.125% 04/30/98 40,745,000 40,720,570
U.S. Treasury Note................ 5.875% 04/30/98 13,600,000 13,610,479
U.S. Treasury Note................ 6.125% 05/15/98 56,595,000 56,675,189
U.S. Treasury Note................ 8.250% 07/15/98 2,575,000 2,601,583
U.S. Treasury Note................ 6.125% 08/31/98 33,405,000 33,516,058
--------------
317,637,330
--------------
Total U.S. Treasury Obligations
(Amortized Cost $429,120,272)..... 429,120,272
--------------
TOTAL INVESTMENTS -- 98.4%
(AMORTIZED COST $429,120,272)(a).. 429,120,272
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 1.6%............... 6,886,074
--------------
NET ASSETS -- 100.0%................ $ 436,006,346
==============
</TABLE>
- ---------------
Percentages indicated are based on net assets of $436,006,346.
(a) Cost for federal income tax and financial reporting purposes are
substantially the same.
(dagger) Rate represents effective yield at date of purchase.
See Notes to Financial Statements.
35
<PAGE> 487
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRIME TREASURY GOVERNMENT TREASURY
FUND FUND FUND ONLY FUND
--------------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments in securities, at value (amortized cost
$7,493,219,451 $894,669,834, $216,070,953 and $429,120,272,
respectively)............................................... $ 7,493,219,451 $ 894,699,834 $216,070,953 $429,120,272
Repurchase agreements (cost $2,493,567,000, $2,064,667,000
$272,174,000 and $0, respectively)........................ 2,493,567,000 2,064,667,000 272,174,000 --
Cash....................................................... 320,256 -- 114 --
Interest receivable........................................ 59,383,563 15,051,412 1,800,553 7,212,402
Prepaid expenses........................................... 952,218 -- -- --
Receivable for investment securities sold.................. -- 51,281,250 -- 45,814,669
Deferred organizational costs.............................. -- -- -- 23,796
--------------- -------------- ------------ ------------
Total Assets................................................ 10,047,442,488 3,025,699,496 490,045,620 482,171,139
--------------- -------------- ------------ ------------
LIABILITIES:
Payable to bank............................................ -- 38,966 -- 1,638
Dividends payable.......................................... 16,466,456 7,992,895 562,176 323,025
Payable for investment securities purchased................ 247,343,494 -- -- 45,550,109
Investment advisory fees payable........................... 662,817 243,173 18,763 30,740
Administration fees payable................................ 729,581 244,501 37,458 30,800
Special management fees payable (Pacific Horizon Shares)... 598,133 79,811 33,244 47,448
Shareholder service fees payable (Horizon Service
Shares)................................................... 661,679 356,748 54,372 34,937
Shareholder service fees payable (X Shares)................ 157,824 34,620 -- --
Shareholder service fees payable (S Shares)................ 98,598 -- -- --
Shareholder service fees payable (Y Shares)................ 17,874 15,020 -- --
Distribution fees payable (X Shares)....................... 189,389 40,781 -- --
Distribution fees payable (S Shares)....................... 118,308 -- -- --
Distribution fees payable (Y Shares)....................... 53,622 42,960 -- --
Custodian and fund accounting fees payable................. 230,934 113,577 47,480 37,236
Transfer agent fees payable................................ 244,031 87,146 22,412 31,562
Other accrued expenses..................................... 193,680 169,715 29,086 77,298
--------------- -------------- ------------ ------------
Total Liabilities........................................... 267,766,420 9,459,913 804,991 46,164,793
--------------- -------------- ------------ ------------
NET ASSETS.................................................. $ 9,779,676,068 $3,016,239,583 $489,240,629 $436,006,346
=============== ============== ============ ============
Net Assets:
Pacific Horizon Shares..................................... $ 2,452,112,326 $ 336,293,095 $161,640,196 $228,483,167
Horizon Shares............................................. 2,414,466,836 702,033,432 63,162,653 30,167,044
Horizon Service Shares..................................... 3,374,174,474 1,712,790,859 264,437,780 177,356,135
X Shares................................................... 869,716,062 183,090,014 -- --
S Shares................................................... 559,417,598 -- -- --
Y Shares................................................... 109,788,772 82,032,183 -- --
--------------- -------------- ------------ ------------
Total....................................................... $ 9,779,676,068 $3,016,239,583 $489,240,629 $436,006,346
=============== ============== ============ ============
Shares Outstanding ($0.001 par value, 120 billion, 60
billion, 30 billion, and 30 billion shares authorized,
respectively):
Pacific Horizon Shares..................................... 2,452,310,074 336,438,924 161,852,144 228,512,717
Horizon Shares............................................. 2,414,749,939 702,133,948 63,211,715 30,167,905
Horizon Service Shares..................................... 3,374,020,827 1,712,911,515 264,638,808 177,369,374
X Shares................................................... 869,677,855 183,088,539 -- --
S Shares................................................... 559,414,515 -- -- --
Y Shares................................................... 109,788,400 82,031,348 -- --
--------------- -------------- ------------ ------------
Total....................................................... 9,779,961,610 3,016,604,274 489,702,667 436,049,996
=============== ============== ============ ============
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER
SHARE...................................................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
=============== ============== ============ ============
COMPOSITION OF NET ASSETS:
Shares of common stock, at par............................. $ 9,779,963 $ 3,016,604 $ 489,703 $ 436,050
Additional paid-in capital................................. 9,769,782,074 3,012,611,984 489,212,964 435,613,948
Accumulated undistributed net investment income............ 3,514,189 667,877 453,728 --
Accumulated net realized losses on investment
transactions.............................................. (3,400,158) (56,882) (915,766) (43,652)
--------------- -------------- ------------ ------------
NET ASSETS, FEBRUARY 28, 1998............................... $ 9,779,676,068 $3,016,239,583 $489,240,629 $436,006,346
=============== ============== ============ ============
</TABLE>
- ---------------
See Notes to Financial Statements.
36
<PAGE> 488
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Statements of Operations
For the year ended February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRIME TREASURY GOVERNMENT TREASURY
FUND FUND FUND ONLY FUND
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest.................... $458,788,515 $150,006,923 $25,748,926 $23,437,348
------------ ------------ ----------- -----------
EXPENSES:
Investment advisory fees.... 7,234,054 2,708,981 460,253 439,545
Administration fees......... 7,938,015 2,712,338 460,253 439,545
Special management fees
(Pacific Horizon
Shares)................... 7,285,114 1,088,447 455,016 667,711
Shareholder service fees
(Horizon Service
Shares)................... 8,141,653 4,075,595 646,192 508,971
Shareholder service fees (X
Shares)................... 1,126,895 157,400 -- --
Shareholder service fees (S
Shares)................... 482,149 -- -- --
Shareholder service fees (Y
Shares)................... 99,846 61,805 -- --
Distribution fees (X
Shares)................... 1,352,274 188,860 -- --
Distribution fees (S
Shares)................... 1,241,178 -- -- --
Distribution fees (Y
Shares)................... 299,538 185,411 -- --
Registration and filing
fees...................... 617,625 411,101 228,276 50,346
Custodian and fund
accounting fees........... 692,500 341,494 141,198 113,775
Transfer agent fees......... 508,568 112,752 43,239 81,899
Legal fees.................. 274,244 181,444 19,347 30,208
Audit fees.................. 40,347 45,545 20,635 27,259
Other expenses.............. 813,512 279,942 104,711 98,664
------------ ------------ ----------- -----------
Total Expenses............ 38,147,512 12,551,115 2,579,120 2,457,923
Less: Fee waivers........... (772,551) -- (210,869) --
Expenses paid by third
parties............... (11,235) (4,484) (1,715) (10,875)
------------ ------------ ----------- -----------
Total Net Expenses............ 37,363,726 12,546,631 2,366,536 2,447,048
------------ ------------ ----------- -----------
Net Investment Income......... 421,424,789 137,460,292 23,382,390 20,990,300
NET REALIZED GAINS
(LOSSES) ON INVESTMENTS:
Net realized gains (losses)
on investment
transactions.............. 69,980 1,095 23,313 (10,747)
------------ ------------ ----------- -----------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS... $421,494,769 $137,461,387 $23,405,703 $20,979,553
============ ============ =========== ===========
</TABLE>
- ---------------
See Notes to Financial Statements.
37
<PAGE> 489
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRIME FUND
---------------------------------
YEAR ENDED
---------------------------------
FEBRUARY 28, FEBRUARY 28,
1998 1997
--------------- ---------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income...................................... $ 421,424,789 $ 313,627,480
Net realized gains (losses) on investment transactions..... 69,980 172,885
--------------- ---------------
Change in net assets resulting from operations.............. 421,494,769 313,800,365
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Pacific Horizon Shares..................................... (117,152,680) (110,595,534)
Horizon Shares............................................. (100,966,269) (79,709,197)
Horizon Service Shares..................................... (170,004,484) (119,808,778)
X Shares................................................... (22,281,567) (2,322,836)(a)
S Shares................................................... (8,606,405)(b) --
Y Shares................................................... (1,807,633)(c) --
--------------- ---------------
Change in net assets from shareholder distributions......... (420,819,038) (312,436,345)
--------------- ---------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued................................ 65,111,897,688 42,442,585,809
Dividends reinvested....................................... 243,957,627 177,262,119
Cost of shares redeemed.................................... (62,727,564,200) (40,881,572,699)
--------------- ---------------
Change in net assets from capital share transactions........ 2,628,291,115 1,738,275,229
--------------- ---------------
Change in net assets........................................ 2,628,966,846 1,739,639,249
NET ASSETS
Beginning of Year.......................................... 7,150,709,222 5,411,069,973
--------------- ---------------
End of Year................................................ $ 9,779,676,068 $ 7,150,709,222
=============== ===============
Accumulated Undistributed Net Investment Income............. $ 3,514,189 $ 2,908,438
=============== ===============
</TABLE>
- ---------------
(a) Period from July 22, 1996 (inception date) to February 28, 1997.
(b) Period from April 7, 1997 (inception date) to February 28, 1998.
(c) Period from July 10, 1997 (inception date) to February 28, 1998.
See Notes to Financial Statements.
38
<PAGE> 490
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TREASURY FUND GOVERNMENT FUND TREASURY ONLY FUND
- --------------------------------- --------------------------------- ---------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
- --------------------------------- --------------------------------- ---------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1998 1997 1998 1997 1998 1997
- --------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
$ 137,460,292 $ 139,590,623 $ 23,382,390 $ 26,370,373 $ 20,990,300 $ 22,616,016
1,095 86,112 23,313 12,552 (10,747) 31,462
- --------------- --------------- --------------- --------------- --------------- ---------------
137,461,387 139,676,735 23,405,703 26,382,925 20,979,553 22,647,478
- --------------- --------------- --------------- --------------- --------------- ---------------
(16,848,276) (38,697,555) (7,118,240) (10,822,314) (9,857,218) (12,248,712)
(34,529,165) (34,033,530) (3,181,981) (3,358,368) (1,377,435) (2,009,735)
(82,004,103) (66,796,890) (13,146,010) (12,135,558) (9,755,647) (8,357,569)
(3,006,912) (62,648)(a) -- -- -- --
-- -- -- -- -- --
(1,071,836)(c) -- -- -- -- --
- --------------- --------------- --------------- --------------- --------------- ---------------
(137,460,292) (139,590,623) (23,446,231) (26,316,240) (20,990,300) (22,616,016)
- --------------- --------------- --------------- --------------- --------------- ---------------
23,310,724,272 17,362,879,524 3,331,389,913 3,514,048,456 1,441,272,391 2,581,288,044
49,740,717 46,043,231 18,033,757 20,515,585 15,715,206 17,977,687
(22,935,720,988) (17,661,736,799) (3,376,729,790) (3,547,375,120) (1,536,173,410) (2,551,597,500)
- --------------- --------------- --------------- --------------- --------------- ---------------
424,744,001 (252,814,044) (27,306,120) (12,811,079) (79,185,813) 47,668,231
- --------------- --------------- --------------- --------------- --------------- ---------------
424,745,096 (252,727,932) (27,346,648) (12,744,394) (79,196,560) 47,699,693
2,591,494,487 2,844,222,419 516,587,277 529,331,671 515,202,906 467,503,213
- --------------- --------------- --------------- --------------- --------------- ---------------
$ 3,016,239,583 $ 2,591,494,487 $ 489,240,629 $ 519,587,277 $ 436,006,346 $ 515,202,906
=============== =============== =============== =============== =============== ===============
$ 667,877 $ 667,877 $ 453,728 $ 517,569 $ -- $ --
=============== =============== =============== =============== =============== ===============
</TABLE>
See Notes to Financial Statements.
39
<PAGE> 491
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. On February 28, 1998, the Company
operated as a series company comprised of seventeen funds. The accompanying
financial statements and notes are those of Pacific Horizon Prime Fund (the
"Prime Fund"), Pacific Horizon Treasury Fund (the "Treasury Fund"), Pacific
Horizon Government Fund (the "Government Fund") and Pacific Horizon Treasury
Only Fund (the "Treasury Only Fund"), collectively the "Funds".
The Funds each issue three classes of shares (Pacific Horizon Shares,
Horizon Shares and Horizon Services Shares). Effective July 22, 1996, the Prime
Fund and the Treasury Fund began offering X Shares. The Prime Fund began
offering S Shares effective April 7, 1997 and effective July 10, 1997 the Prime
Fund and the Treasury Fund each began offering Y Shares. The Treasury Fund is
also authorized to issue S shares for purchase as of the date of this report.
Pacific Horizon Shares have a Special Management Services Plan while the Horizon
Service Shares have a Shareholder Services Plan. X, S and Y Shares each have a
Distribution and Services Plan.
THE INVESTMENT OBJECTIVES OF THE FUNDS ARE AS FOLLOWS:
Prime Fund -- Seek high current income and stability of principal by
investing in a broad range of government, bank and commercial obligations
available in the money markets as well as repurchase agreements relating to such
obligations.
Treasury Fund -- Seek high current income and stability of principal by
investing in direct obligations of the U.S. Treasury and repurchase agreements
relating to Treasury obligations.
Government Fund -- Provide liquidity and as high a level of current income
as is consistent with the preservation of capital by investing in short-term
debt obligations issued or guaranteed as to interest and principal by the U.S.
Government, its agencies, authorities or instrumentality's and in repurchase
agreements with respect to such obligations.
40
<PAGE> 492
Treasury Only Fund -- Provide liquidity and as high a level of current
income as is consistent with the preservation of capital by investing in direct
obligations of the U.S. Treasury, such as Treasury bills, notes and bonds.
Bank of America National Trust and Savings Association ("Bank of America"),
a subsidiary of BankAmerica Corporation, serves as the Fund's investment
adviser. On September 15, 1997, Bank of America assumed the responsibility of
administrator for each of the Funds pursuant to the terms of an Administration
Agreement between the Company and Bank of America (the "Administration
Agreement"). Prior to September 15, 1997 The BISYS Group, Inc. ("BISYS") through
its wholly-owned subsidiary, BISYS Fund Services, Limited Partnership, served as
the Funds' Administrator.
Bank of America has entered into an agreement with PFPC Inc. ("PFPC"), an
indirect wholly-owned subsidiary of PNC Bank Corp., pursuant to which PFPC has
agreed to provide certain sub-administration services to the Funds, including,
but not limited to, assisting in the developing and monitoring of compliance
procedures, participating in periodic updating of the Funds' prospectuses and
statements of additional information, providing periodic reports to the
Company's Board and providing certain record-keeping services. Bank of America
will bear all fees and expenses charged by PFPC for such services.
In addition, pursuant to authority granted in the Administration Agreement,
Bank of America has entered into an agreement with The Bank of New York ("BONY")
under which BONY has agreed to provide certain accounting, bookkeeping, pricing
and dividend and distribution calculation services for the Funds. The Funds bear
all fees and expenses charged by BONY for these services.
DISTRIBUTOR AND TRANSFER AGENT
Effective September 15, 1997, Provident Distributors, Inc. ("PDI"), assumed
responsibility as principal underwriter and distributor of shares of the Funds.
Prior to such date, Concord Financial Group, Inc. (the "Former Distributor")
also a wholly-owned subsidiary of BISYS served as distributor of the Funds.
Additionally on October 24, 1997, PFPC assumed responsibility as the Fund's
transfer agent and dividend disbursing agent. BISYS Fund Services, Inc. ("BISYS
Ohio") also a wholly-owned subsidiary of BISYS, served the Funds in such
capacity prior to such date.
41
<PAGE> 493
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Funds in preparation of their financial statements. These policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
PORTFOLIO VALUATIONS:
The securities of the Funds are valued at amortized cost, which approximates
market value. The amortized cost method involves valuing a security at its cost
on the date of purchase and thereafter assuming a constant amortization to
maturity of the difference between the principal amount due at maturity and
cost.
SECURITIES TRANSACTIONS AND RELATED INCOME:
The Funds record security transactions on a trade date basis. Interest
income, including accretion of discount and amortization of premium, is accrued
daily. Realized gains and losses from security transactions are recorded on an
identified cost basis.
EXPENSES:
The Company accounts separately for the assets, liabilities and operations
of each fund. Direct expenses of a fund are charged to that fund while general
Company expenses are allocated among the Company's respective portfolios.
The investment income and expenses of a fund (other than class specific
expenses) and realized 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 gains and losses are incurred.
REPURCHASE AGREEMENTS (PRIME FUND, TREASURY FUND, AND GOVERNMENT FUND):
The Funds' custodian and other banks acting in a sub-custodian capacity take
possession of the collateral pledged for investments in repurchase agreements.
The underlying collateral is valued daily on a mark-to-market basis to determine
that the value, including accrued interest, exceeds the repurchase price. In the
event of the seller's default of the obligation to repurchase, the
42
<PAGE> 494
Funds have the right to liquidate the collateral and apply the proceeds in
satisfaction of the obligation. Under certain circumstances, in the event of
default or bankruptcy by the other party to the agreement, realization and/or
retention of the collateral may be subject to legal proceedings.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
The Funds' net investment income is declared as a dividend daily, and paid
monthly, 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.
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
annually, all of its net investment company taxable income and net capital gains
to shareholders. Therefore, no Federal income tax provision is required.
43
<PAGE> 495
At February 28, 1998, the Prime Fund, Treasury Fund, Government Fund, and
Treasury Only Fund had the following capital loss carryovers:
<TABLE>
<CAPTION>
CAPITAL LOSS
FUND CARRYOVER EXPIRATION DATE
---- ------------ ---------------
<S> <C> <C>
Prime Fund.......................................... $ 674,982 2002
2,725,176 2003
----------
$3,400,158
==========
Treasury Fund....................................... $ 47,456 2002
9,426 2006
----------
$ 56,882
==========
Government Fund..................................... $ 915,766 2003
==========
Treasury Only Fund.................................. $ 23,888 2003
==========
</TABLE>
To the extent that these carryovers are used to offset future capital gains,
it is probable that the gains so offset will not be distributed to shareholders.
Capital losses incurred after October 31 for the Funds are deemed to arise
on the first business day of the following fiscal year for tax purposes. The
Treasury Only Fund has incurred and elected to defer such capital losses of
$19,764, after October 31, 1997. During the year, the Prime Fund, Treasury Fund
and Government Fund utilized $69,980, $1,095 and $23,313, respectively, of its
available capital loss carryover to offset realized capital gains for Federal
income tax purposes.
OTHER:
The Funds maintain a cash balance with their custodian and receive
reductions of 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, 1998, custodian fees and expenses paid by third parties were
increased by $11,235, $4,484, $1,715 and $10,875 for the Prime Fund, Treasury
Fund, Government Fund and Treasury Only Fund, respectively. There was no effect
on net investment income. The Funds could have invested such cash balances in
income producing assets if they had not agreed to a reduction of fees or
expenses under the expense offset arrangement with their custodian.
NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
Bank of America serves as the Funds' Manager, providing Investment Advisory
and Administrative services. For the period ended September 15, 1997, the
44
<PAGE> 496
Fund had an Administration Agreement with BISYS and a Distribution Agreement
with the Former Distributor. Bank of America is entitled to an Advisory fee from
each Fund, which is accrued daily and payable monthly, at an annual rate of
0.10% of each Fund's first $3 billion of net assets, plus 0.09% of each Fund's
next $2 billion of net assets, plus 0.08% of each Fund's net assets in excess of
$5 billion. For the year ended February 28, 1998, Bank of America voluntarily
waived fees from the Government Fund in the amount of $210,869. The
Administration Agreement entitles Bank of America to fees from each Fund for
Administrative services performed, which is accrued daily and payable monthly,
at an annual rate of 0.10% of each Fund's first $7 billion of net assets, plus
0.09% of each Fund's next $3 billion of net assets, plus 0.08% of each Fund's
net assets in excess of $10 billion. During the period March 1, 1997 through
September 15, 1997, the Funds had an Administration Agreement with BISYS.
Administration fee rates paid to BISYS were the same as those currently paid to
Bank of America. The Funds were advised that for the period September 15, 1997
through February 28, 1998, Bank of America and for the period March 1, 1997
through September 15, 1997, BISYS earned the following amounts pursuant to the
respective Administrative Agreements:
<TABLE>
<CAPTION>
BANK OF
FUND AMERICA BISYS
---- ------- -----
<S> <C> <C>
Prime Fund................................................ $3,929,655 $4,008,360
Treasury Fund............................................. 1,359,676 1,352,662
Government Fund........................................... 210,009 250,244
Treasury Only Fund........................................ 190,516 249,029
</TABLE>
The Funds have adopted a Special Management Services Plan (the "Services
Plan") pursuant to which Service Organizations agree to provide certain services
to their clients who are beneficial owners of Pacific Horizon Shares in return
for a payment by the Funds of a fee at an annual rate 0.32% of the average daily
net assets of the outstanding Pacific Horizon Shares of each Fund. Fees under
the Services Plan are borne solely by the Pacific Horizon Shares. Service
Organizations may include Bank of America and its affiliates, PDI (from
September 15, 1997 through February 28, 1998), and BISYS (prior to September 15,
1997). For the year ended February 28, 1998, for the period September 15, 1997
through February 28, 1998 and for the period March 1, 1997 through September 15,
1997, the Funds were advised that Bank of America and its affiliates, PDI and
BISYS each earned the following amounts pursuant to the Services Plan,
respectively:
45
<PAGE> 497
<TABLE>
<CAPTION>
BANK OF
FUND AMERICA PDI BISYS
---- ------- --- -----
<S> <C> <C> <C>
Prime Fund......................................... $6,742,687 $12,453 $22,110
Treasury Fund...................................... 789,384 4,853 5,446
Government Fund.................................... 427,718 139 159
Treasury Only Fund................................. 607,979 36 25
</TABLE>
The Funds have also adopted a Shareholder Services Plan (the "Horizon
Services Plan") pursuant to which Service Organizations agree to provide certain
services to their clients who are beneficial owners of Horizon Service Shares in
return for payment by the Funds of a fee at an annual rate of 0.25% of the
average daily net assets of the Horizon Service Shares. Fees under the Horizon
Services Plan are borne solely by the Horizon Service Shares. For the year ended
February 28, 1998, the Funds were advised that Bank of America and its
affiliates earned the following amounts pursuant to the Horizon Services Plan,
respectively:
<TABLE>
<CAPTION>
BANK OF
AMERICA
AND
FUND AFFILIATES
---- ----------
<S> <C>
Prime Fund.................................................. $7,381,916
Treasury Fund............................................... 3,668,245
Government Fund............................................. 586,936
Treasury Only Fund.......................................... 432,402
</TABLE>
The Prime Fund and Treasury Fund have adopted the Distribution and Services
Plan under which the Funds paid PDI and the Former Distributor (prior to
September 15, 1997) and Service Organizations for the provision of support
services with respect to the beneficial owners of X Shares. Payments for
distribution expenses and shareholder servicing expenses may not exceed the
annual rate of 0.30% and 0.25%, respectively, of the average daily net assets of
each Fund's X Shares. For the year ended February 28, 1998, the Funds were
advised that Bank of America and its affiliates earned the following amounts
pursuant to the Distribution and Services Plan, respectively:
<TABLE>
<CAPTION>
BANK OF
AMERICA
AND
FUND AFFILIATES
---- ----------
<S> <C>
Prime Fund.................................................. $2,468,893
Treasury Fund............................................... 345,956
</TABLE>
The Prime Fund and Treasury Fund have adopted the Distribution and Services
Plan under which the Funds paid PDI and the Former Distributor (prior to
September 15, 1997) and Service Organizations for the provision of support
46
<PAGE> 498
service with respect to the beneficial owners of Y shares. Payments for
distribution expenses and shareholder servicing expenses may not exceed the
annual rate of 0.75% and 0.25%; respectively, of the average daily net assets of
each Funds' Y shares. For the year ended February 28, 1998, the Funds were
advised that Bank of America and its affiliates earned the following amounts
pursuant to the Distribution and Services Plan, respectively:
<TABLE>
<CAPTION>
BANK OF
AMERICA
AND
FUND AFFILIATES
---- ----------
<S> <C>
Prime Fund.................................................. $399,384
Treasury Fund............................................... 246,527
</TABLE>
The Prime Fund and Treasury Fund have adopted the Distribution and Services
Plan under which the Fund paid PDI and the Former Distributor (prior to
September 15, 1997) and Service Organizations for the provision of support
services with respect to the beneficial owners of S shares. Payments for the
distribution expenses and shareholder servicing expenses may not exceed the
annual rate of 0.75% and 0.25%, respectively, of the average daily net assets of
the Fund's S shares. For the year ended February 28, 1998, Bank of America
waived $772,551 of distribution expenses from the Prime Fund. For the year ended
February 28, 1998, the Funds were advised that Bank of America and its
affiliates, earned the following amounts pursuant to the Distribution and
Services Plan, respectively:
<TABLE>
<CAPTION>
BANK OF
AMERICA
AND
FUND AFFILIATES
---- ----------
<S> <C>
Prime Fund.................................................. $950,478
</TABLE>
From the period October 24, 1997 through February 28, 1998 PFPC earned
$288,833, $20,977, $0 and $17,187 from the Prime Fund, Treasury Fund, Government
Fund and Treasury Only Fund, respectively, for transfer agency and dividend
disbursing agency services performed. BISYS Ohio served the Funds as transfer
agent and dividend disbursing agent through October 24, 1997. In these
capacities for the Funds, BISYS Ohio earned $219,735, $91,775, $43,239 and
$64,712 from the Prime Fund, Treasury Fund, Government Fund and Treasury Only
Fund, respectively, for the period ended October 24, 1997.
For the year ended February 28, 1998, the Prime Fund, Treasury Fund,
Government Fund and Treasury Only Fund incurred legal charges totaling $274,244,
$181,444, $19,347, and $30,208, respectively, which were earned by a law firm, a
partner of which serves as Secretary of the Company.
47
<PAGE> 499
Certain officers of the Company are affiliated with PFPC. 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 $50,000,
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 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 will
receive an additional 10% of their annual Director's retainer for each year of
service between years six and nine, plus one half of the difference between 100%
and the director's applicable percentage. A Director who dies or resigns after
ten 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 after February 28,
1994; however a director in office on March 18, 1998 who either resigns in good
standing or dies before completing five years of service as a director should be
assigned an Applicable Percentage of 50 percent. Aggregate costs pursuant to the
Retirement Plan amounted to $37,045, $27,925, $33,068, and $28,840, for the
Prime Fund, Treasury Fund, Government Fund and Treasury Only Fund, respectively,
for the year ended February 28, 1998. A director who comes into office after
March 18, 1998 is ineligible to participate in the Retirement Plan.
48
<PAGE> 500
NOTE 5 -- CAPITAL SHARE TRANSACTIONS
Transactions in shares of each Fund (at $1.00 per share) for the periods
indicated are summarized below:
<TABLE>
<CAPTION>
PRIME FUND TREASURY FUND
--------------------------------- ---------------------------------
YEAR ENDED YEAR ENDED
--------------------------------- ---------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1998 1997 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
PACIFIC HORIZON SHARES
Issued...................... 3,213,898,034 4,320,031,345 1,134,991,546 2,180,160,265
Reinvest.................... 108,696,696 99,202,915 12,406,265 13,626,783
Redeemed.................... (3,163,041,484) (4,326,928,364) (1,221,794,534) (2,875,003,912)
--------------- --------------- --------------- ---------------
Net increase/(decrease)...... 159,553,246 92,305,896 (74,396,723) (681,216,864)
=============== =============== =============== ===============
HORIZON SHARES
Issued...................... 20,455,794,396 15,114,015,999 5,229,807,041 6,363,082,166
Reinvest.................... 39,465,419 25,723,399 12,806,288 11,616,438
Redeemed.................... (19,790,457,950) (15,081,065,299) (5,158,308,715) (6,478,650,334)
--------------- --------------- --------------- ---------------
Net increase/(decrease)...... 704,801,865 58,674,099 84,304,614 (103,951,730)
=============== =============== =============== ===============
HORIZON SERVICE SHARES
Issued...................... 35,791,164,395 22,771,276,975 14,976,381,895 8,799,447,002
Reinvest.................... 69,471,827 50,011,411 24,007,250 20,737,353
Redeemed.................... (35,431,800,117) (21,437,775,542) (14,844,801,907) (8,293,700,822)
--------------- --------------- --------------- ---------------
Net increase................ 428,836,105 1,383,512,844 155,587,238 526,483,533
=============== =============== =============== ===============
X SHARES
Issued...................... 4,432,511,179 237,259,971 1,534,986,458 20,188,155
Reinvest.................... 17,713,737 2,324,394 520,914 62,656
Redeemed.................... (3,784,327,932) (35,803,494) (1,358,289,848) (14,379,796)
--------------- --------------- --------------- ---------------
Net increase................ 665,896,984 203,780,871(a) 177,217,524 5,871,015(a)
=============== =============== =============== ===============
S SHARES
Issued...................... 607,731,207 -- -- --
Reinvest.................... 8,606,126 -- -- --
Redeemed.................... (56,922,818) -- -- --
--------------- --------------- --------------- ---------------
Net increase................ 559,414,515(b) -- -- --
=============== =============== =============== ===============
Y SHARES
Issued...................... 610,798,477 -- 434,557,332 --
Reinvest.................... 3,822 -- -- --
Redeemed.................... (501,013,899) -- (352,525,984) --
--------------- --------------- --------------- ---------------
Net increase................ 109,788,400(c) -- 82,031,348(c) --
=============== =============== =============== ===============
</TABLE>
- ---------------
<TABLE>
<C> <S>
(a) Period from July 22, 1996 (inception date) to February 28,
1997.
(b) Period from April 7, 1997 (inception date) to February 28,
1998.
(c) Period from July 10, 1997 (inception date) to February 28,
1998.
</TABLE>
49
<PAGE> 501
<TABLE>
<CAPTION>
GOVERNMENT FUND TREASURY ONLY FUND
--------------------------------- ---------------------------------
YEAR ENDED YEAR ENDED
--------------------------------- ---------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1998 1997 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
PACIFIC HORIZON SHARES
Issued................... 480,817,616 817,557,991 443,400,770 1,028,727,745
Reinvest................. 6,669,928 8,010,482 8,944,830 10,180,140
Redeemed................. (518,067,695) (894,476,160) (449,034,109) (1,088,026,565)
--------------- --------------- --------------- ---------------
Net increase/(decrease)... (30,580,151) (68,907,687) 3,311,491 (49,118,680)
=============== =============== =============== ===============
HORIZON SHARES
Issued................... 210,022,080 205,437,403 60,587,676 195,585,962
Reinvest................. 2,397,397 2,653,506 399,848 1,168,058
Redeemed................. (210,377,544) (201,774,473) (61,278,210) (173,560,437)
--------------- --------------- --------------- ---------------
Net increase/(decrease)... 2,041,933 6,316,436 (290,686) 23,193,583
=============== =============== =============== ===============
HORIZON SERVICE SHARES
Issued................... 2,640,550,217 2,491,053,062 937,283,945 1,356,974,337
Reinvest 8,966,432 9,851,597 6,370,528 6,629,489
Redeemed................. (2,648,284,551) (2,451,124,487) (1,025,861,091) (1,290,010,498)
--------------- --------------- --------------- ---------------
Net increase/(decrease)... 1,232,098 49,780,172 (82,206,618) 73,593,328
=============== =============== =============== ===============
</TABLE>
50
<PAGE> 502
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
PACIFIC HORIZON SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income......... 0.0515 0.0492 0.0539 0.0424 0.0287
Net realized gains/(losses) on
investment transactions..... -- -- 0.0004 (0.0227) (0.0016)
-------- -------- -------- -------- --------
Total income from investment
operations.................... 0.0515 0.0492 0.0543 0.0197 0.0271
Less dividends to shareholders
from net investment income.... (0.0515) (0.0490) (0.0539) (0.0422) (0.0287)
Increase due to voluntary
capital contribution from
Investment Advisor............ -- -- -- 0.0233 --
-------- -------- -------- -------- --------
Net change in net asset value
per share -- 0.0002 0.0004 0.0008 (0.0016)
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END
OF YEAR....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return................... 5.27% 5.01% 5.53% 4.30%(dagger) 2.91%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions).................. $ 2,452 $ 2,292 $ 2,200 $ 1,129 $ 1,216
Ratio of expenses to average
net assets.................. 0.55% 0.55% 0.55% 0.51% 0.52%
Ratio of net investment income
to average net assets....... 5.15% 4.92% 5.37% 4.19% 2.86%
Ratio of expenses to average
net assets*................. (b) (b) 0.56% 0.56% 0.53%
Ratio of net investment income
to average net assets*...... (b) (b) 5.36% 4.14% 2.85%
</TABLE>
- ---------------
<TABLE>
<S> <C>
(dagger) Total return includes the effect of the voluntary capital
contribution from the Investment Advisor. Without this
capital contribution, the total return would have been
lower.
* During the year, 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.
(a) There were no fee waivers or expense reimbursements during
the period.
(b) Fee waivers and fees paid by third parties had no effect on
the ratios.
</TABLE>
See Notes to Financial Statements.
51
<PAGE> 503
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
HORIZON SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income....... 0.0546 0.0524 0.0571 0.0461 0.0319
Net realized gains/(losses)
on investment
transactions.............. -- -- 0.0004 (0.0232) (0.0016)
-------- -------- -------- -------- --------
Total income from investment
operations.................. 0.0546 0.0524 0.0575 0.0229 0.0303
Less dividends to
shareholders from net
investment income........... (0.0547) (0.0522) (0.0571) (0.0454) (0.0319)
Increase due to voluntary
capital contribution from
Investment Advisor.......... -- -- -- 0.0233 --
-------- -------- -------- -------- --------
Net change in net asset value
per share................... (0.0001) 0.0002 0.0004 0.0008 (0.0016)
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE,
END OF YEAR................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return................. 5.60% 5.34% 5.86% 4.63%(dagger) 3.24%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions).................. $ 2,415 $ 1,710 $ 1,651 $ 662 $ 3,840
Ratio of expenses to average
net assets.................. 0.22% 0.23% 0.23% 0.16% 0.20%
Ratio of net investment
income to average net
assets...................... 5.47% 5.24% 5.69% 4.11% 3.19%
Ratio of expenses to average
net assets*................. (a) (a) 0.24% 0.23% 0.21%
Ratio of net investment
income to average net
assets*..................... (a) (a) 5.68% 4.04% 3.18%
</TABLE>
- ---------------
<TABLE>
<S> <C>
* During the year, 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.
(dagger) Total return includes the effect of the voluntary capital
contribution from the Investment Advisor. Without this
capital contribution, the total return would have been
lower.
(a) Fee waivers and fees paid by third parties had no effect on
the ratios.
</TABLE>
See Notes to Financial Statements.
52
<PAGE> 504
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
HORIZON SERVICE SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income............ 0.0521 0.0499 0.0546 0.0431 0.0294
Net realized gains/(losses) on
investment transactions........ -- -- 0.0004 (0.0227) (0.0016)
-------- -------- -------- -------- --------
Total income from investment
operations....................... 0.0521 0.0499 0.0550 0.0204 0.0278
Less dividends to shareholders
from net investment income....... (0.0522) (0.0497) (0.0546) (0.0429) (0.0294)
Increase due to voluntary capital
contribution from Investment
Advisor.......................... -- -- -- 0.0233 --
-------- -------- -------- -------- --------
Net change in net asset value per
share (0.0001) 0.0002 0.0004 0.0008 (0.0016)
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END OF
YEAR............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return...................... 5.34% 5.08% 5.60% 4.37%(dagger) 2.98%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions)..................... $ 3,374 $ 2,945 $ 1,561 $ 864 $ 839
Ratio of expenses to average net
assets......................... 0.48% 0.48% 0.48% 0.44% 0.45%
Ratio of net investment income to
average net assets............. 5.23% 5.00% 5.44% 4.31% 2.94%
Ratio of expenses to average net
assets*........................ (a) (a) 0.49% 0.48% 0.46%
Ratio of net investment income to
average net assets* (a) (a) 5.43% 4.27% 2.93%
</TABLE>
- ---------------
<TABLE>
<S> <C>
* During the year, 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.
(dagger) Total return includes the effect of the voluntary capital
contribution from the Investment Advisor. Without this
capital contribution, the total return would have been
lower.
(a) Fee waivers and fees paid by third parties had no effect on
the ratios.
</TABLE>
See Notes to Financial Statements.
53
<PAGE> 505
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
FEBRUARY 28, FEBRUARY 28,
1998 1997(a)
------------ ------------
<S> <C> <C>
X SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD........ $ 1.00 $ 1.00
-------- --------
Income from Investment Operations:
Net investment income............................... 0.0491 0.0282
Net realized gains/(losses) on investment
transactions...................................... -- --
-------- --------
Total income from investment operations............... 0.0491 0.0282
Less dividends to shareholders from net investment
income.............................................. (0.0491) (0.0281)
-------- --------
Net change in net asset value per share............... -- 0.0001
-------- --------
NET ASSET VALUE PER SHARE, END OF PERIOD.............. $ 1.00 $ 1.00
======== ========
Total return.......................................... 5.03% 2.84%(d)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (millions).............. $ 869 $ 204
Ratio of expenses to average net assets............. 0.77% 0.78%(c)
Ratio of net investment income to average net
assets............................................ 4.92% 4.73%(c)
Ratio of expenses to average net assets*............ (b) (b)
Ratio of net investment income to average net
assets*........................................... (b) (b)
</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.
(a) Period from July 22, 1996 (inception date) to February 28,
1997.
(b) Fee waivers and fees paid by third parties had no effect on
the ratios.
(c) Annualized.
(d) Not annualized.
</TABLE>
See Notes to Financial Statements.
54
<PAGE> 506
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
FEBRUARY 28,
1998(a)
--------------
<S> <C>
S SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD.............. $ 1.00
-----------
Income from Investment Operations:
Net investment income..................................... 0.0444
Net realized gains/(losses) on investment transactions.... --
-----------
Total income from investment operations..................... 0.0444
Less dividends to shareholders from net investment income... (0.0444)
-----------
Net change in net asset value per share..................... --
-----------
NET ASSET VALUE PER SHARE, END OF PERIOD.................... $ 1.00
===========
Total return................................................ 4.53%(d)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (millions).................... $ 110
Ratio of expenses to average net assets................... 0.76%(c)
Ratio of net investment income to average net assets...... 4.92%(c)
Ratio of expenses to average net assets*.................. 1.20%(b)(c)
Ratio of net investment income to average net assets*..... 4.48%(b)(c)
</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.
(a) Period from April 7, 1997 (inception date) to February 28,
1998.
(b) Fees paid by third parties had no effect on the ratios.
(c) Annualized.
(d) Not annualized.
</TABLE>
See Notes to Financial Statements.
55
<PAGE> 507
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
FEBRUARY 28,
1998(a)
------------
<S> <C>
Y SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD.............. $ 1.00
--------
Income from Investment Operations:
Net investment income..................................... 0.0290
Net realized gains/(losses) on investment transactions.... --
--------
Total income from investment operations..................... 0.0290
Less dividends to shareholders from net investment income... (0.0290)
--------
Net change in net asset value per share..................... --
--------
NET ASSET VALUE PER SHARE, END OF PERIOD.................... $ 1.00
========
Total return................................................ 2.93%(d)
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (millions).................... $ 559
Ratio of expenses to average net assets................... 1.21%(c)
Ratio of net investment income to average net assets...... 4.48%(c)
Ratio of expenses to average net assets*.................. (b)
Ratio of net investment income to average net assets*..... (b)
</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.
(a) Period from July 10, 1997 (inception date) to February 28,
1998.
(b) Fee waivers and fees paid by third parties had no effect on
the ratios.
(c) Annualized.
(d) Not annualized.
</TABLE>
See Notes to Financial Statements.
56
<PAGE> 508
PACIFIC HORIZON TREASURY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
PACIFIC HORIZON SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income...... 0.0497 0.0477 0.0527 0.0405 0.0262
Net realized gains/(losses)
on investment
transactions............. (0.0002) -- 0.0011 0.0001 (0.0002)
-------- -------- -------- -------- --------
Total income from investment
operations................. 0.0495 0.0477 0.0538 0.0406 0.0260
Less dividends to
shareholders from net
investment income.......... (0.0495) (0.0477) (0.0527) (0.0405) (0.0262)
-------- -------- -------- -------- --------
Net change in net asset value
per share.................. -- -- 0.0011 0.0001 (0.0002)
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE,
END OF YEAR................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return................. 5.07% 4.87% 5.40% 4.13% 2.65%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions)............... $ 336 $ 411 $ 1,091 $ 1,132 $ 1,577
Ratio of expenses to
average net assets....... 0.57% 0.57% 0.57% 0.55% 0.55%
Ratio of net investment
income to average net
assets................... 4.96% 4.76% 5.24% 3.99% 2.62%
Ratio of expenses to
average net assets*...... (a)(b) (b) 0.58% (a) (a)
Ratio of net investment
income to average net
assets*.................. (a)(b) (b) 5.23% (a) (a)
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the year, 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.
(a) There were no fee waivers or expense reimbursements during
the period.
(b) Fees paid by third parties had no effect on the ratios.
</TABLE>
See Notes to Financial Statements.
57
<PAGE> 509
PACIFIC HORIZON TREASURY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
HORIZON SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income... 0.0527 0.0509 0.0559 0.0437 0.0294
Net realized
gains/(losses) on
investment
transactions.......... -- -- 0.0011 0.0001 (0.0002)
-------- -------- -------- -------- --------
Total income from
investment operations... 0.0527 0.0509 0.0570 0.0438 0.0292
Less dividends to
shareholders from net
investment income....... (0.0527) (0.0509) (0.0559) (0.0437) (0.0294)
-------- -------- -------- -------- --------
Net change in net asset
value per share......... -- -- 0.0011 0.0001 (0.0002)
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE,
END OF YEAR............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return.............. 5.40% 5.21% 5.73% 4.46% 2.98%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of
year (millions)....... $ 702 $ 618 $ 722 469 $ 487
Ratio of expenses to
average net assets.... 0.25% 0.25% 0.25% 0.23% 0.23%
Ratio of net investment
income to average net
assets................ 5.27% 5.09% 5.56% 4.36% 2.94%
Ratio of expenses to
average net assets*... (a)(b) (b) 0.26% (a) (a)
Ratio of net investment
income to average net
assets*............... (a)(b) (b) 5.55% (a) (a)
</TABLE>
- ---------------
<TABLE>
<S> <C>
* During the year, 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.
(a) There were no fee waivers or expense reimbursements during
the period.
(b) Fees paid by third parties had no effect on the ratios.
</TABLE>
See Notes to Financial Statements.
58
<PAGE> 510
PACIFIC HORIZON TREASURY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
HORIZON SERVICE SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR............ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income........ 0.0502 0.0484 0.0534 0.0412 0.0269
Net realized gains/(losses)
on investment
transactions............... -- -- 0.0011 0.0001 (0.0002)
-------- -------- -------- -------- --------
Total income from investment
operations................... 0.0502 0.0484 0.0545 0.0413 0.0267
Less dividends to shareholders
from net investment income... (0.0502) (0.0484) (0.0534) (0.0412) (0.0269)
-------- -------- -------- -------- --------
Net change in net asset value
per share.................... -- -- 0.0011 0.0001 (0.0002)
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END
OF YEAR...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return.................. 5.14% 4.97% 5.47% 4.20% 2.72%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions)................. $ 1,713 $ 1,557 $ 1,031 $ 364 $ 541
Ratio of expenses to average
net assets................. 0.50% 0.50% 0.50% 0.48% 0.48%
Ratio of net investment
income to average net
assets..................... 5.03% 4.84% 5.31% 4.01% 2.69%
Ratio of expenses to average
net assets*................ (a)(b) (b) 0.51% (a) (a)
Ratio of net investment
income to average net
assets*.................... (a)(b) (b) 5.30% (a) (a)
</TABLE>
- ---------------
<TABLE>
<S> <C>
* During the year, 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.
(a) There were no fee waivers or expense reimbursements during
the period.
(b) Fees paid by third parties had no effect on the ratios.
</TABLE>
See Notes to Financial Statements.
59
<PAGE> 511
PACIFIC HORIZON TREASURY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
FEBRUARY 28, FEBRUARY 28,
1998 1997(a)
------------ ------------
<S> <C> <C>
X SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD........ $ 1.00 $ 1.00
-------- --------
Income from Investment Operations:
Net investment income............................... 0.0472 0.0271
-------- --------
Total income from investment operations............... 0.0472 0.0271
Less dividends to shareholders from net investment
income.............................................. (0.0472) (0.0271)
-------- --------
Net change in net asset value per share............... -- --
-------- --------
NET ASSET VALUE PER SHARE, END OF PERIOD.............. $ 1.00 $ 1.00
======== ========
Total return.......................................... 4.83% 2.74%(e)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (millions).............. $ 183 $ 6
Ratio of expenses to average net assets............. 0.78% 0.81%(d)
Ratio of net investment income to average net
assets............................................ 4.73% 4.58%(d)
Ratio of expenses to average net assets*............ (b)(c) (b)(c)
Ratio of net investment income to average net
assets*........................................... (b)(c) (b)(c)
</TABLE>
- ---------------
<TABLE>
<S> <C>
* 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.
(a) Period from July 22, 1996 (inception date) to February 28,
1997.
(b) There were no fee waivers or expense reimbursements during
the period.
(c) Fees paid by third parties had no effect on the ratios.
(d) Annualized.
(e) Not annualized.
</TABLE>
See Notes to Financial Statements.
60
<PAGE> 512
PACIFIC HORIZON TREASURY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
FEBRUARY 28,
1998(a)
------------
<S> <C>
Y SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD.............. $ 1.00
Income from Investment Operations:
Net investment income..................................... 0.0276
--------
Total income from investment operations..................... 0.0276
Less dividends to shareholders from net investment income... (0.0276)
Net change in net asset value per share..................... --
--------
NET ASSET VALUE PER SHARE, END OF PERIOD.................... $ 1.00
========
Total return................................................ 2.80%(e)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (millions).................... $ 82
Ratio of expenses to average net assets................... 1.22%(d)
Ratio of net investment income to average net assets...... 4.28%(d)
Ratio of expenses to average net assets*.................. (b)(c)
Ratio of net investment income to average net assets*..... (b)(c)
</TABLE>
- ---------------
<TABLE>
<S> <C>
* 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.
(a) Period from July 10, 1997 (inception date) to February 28,
1998.
(b) There were no fee waivers or expense reimbursements during
the period.
(c) Fees paid by third parties had no effect on the ratios.
(d) Annualized.
(e) Not annualized.
</TABLE>
See Notes to Financial Statements.
61
<PAGE> 513
PACIFIC HORIZON GOVERNMENT FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
PACIFIC HORIZON SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income............ 0.0503 0.0481 0.0530 0.0421 0.0288
Net realized gains/(losses) on
investment transactions........ (0.0002) -- (0.0004)** (0.0091) (0.0006)
-------- -------- -------- -------- --------
Total income from investment
operations....................... 0.0501 0.0481 0.0526 0.0330 0.0282
Less dividends to shareholders
from net investment income........ (0.0501) (0.0480) (0.0524) (0.0420) (0.0288)
Increase due to voluntary capital
contribution from Investment
Advisor.......................... -- -- -- 0.0085 --
-------- -------- -------- -------- --------
Net change in net asset value per
share............................ -- 0.0001 0.0002 (0.0005) (0.0006)
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END OF
YEAR............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return...................... 5.13% 4.91% 5.37% 4.28%(dagger) 2.92%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions)..................... $ 162 $ 192 $ 261 $ 355 $ 154
Ratio of expenses to average net
assets......................... 0.60% 0.55% 0.56% 0.50% 0.60%
Ratio of net investment income to
average net assets............. 4.99% 4.82% 5.34% 4.27% 2.88%
Ratio of expenses to average net
assets*........................ 0.64% 0.61%(a) 0.63% 0.58% 0.60%
Ratio of net investment income to
average net assets*............ 4.95% 4.76%(a) 5.27% 4.19% 2.88%
</TABLE>
- ---------------
<TABLE>
<S> <C>
* During the year, 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.
** Net realized loss for the period is a direct result of a
decrease in outstanding shares between February 28, 1995 and
the date of the gain realization.
(a) Fees paid by third parties had no effect on the ratios.
(dagger) Total return includes the effect of the voluntary capital
contribution from the Investment Advisor. Without this
capital contribution, the total return would have been
lower.
</TABLE>
See Notes to Financial Statements.
62
<PAGE> 514
PACIFIC HORIZON GOVERNMENT FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994(b)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
HORIZON SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income............ 0.0532 0.0513 0.0600 0.0454 0.0227
Net realized gains/(losses) on
investment transactions........ 0.0001 -- (0.0042)** (0.0092) (0.0006)
-------- -------- -------- -------- --------
Total income from investment
operations....................... 0.0533 0.0513 0.0558 0.0362 0.0221
Less dividends to shareholders
from net investment income....... (0.0533) (0.0512) (0.0556) (0.0452) (0.0227)
Increase due to voluntary capital
contribution from Investment
Advisor.......................... -- -- -- 0.0085 --
-------- -------- -------- -------- --------
Net change in net asset value per
share............................ -- 0.0001 0.0002 (0.0005) (0.0006)
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END OF
YEAR............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return...................... 5.46% 5.25% 5.71% 4.61%(dagger) 2.29%(d)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions)..................... $ 63 $ 61 $ 55 $ 235 $ 370
Ratio of expenses to average net
assets......................... 0.27% 0.22% 0.24% 0.17% 0.28%(c)
Ratio of net investment income to
average net assets............. 5.32% 5.15% 5.66% 4.67% 3.17%(c)
Ratio of expenses to average net
assets*........................ 0.32% 0.29%(a) 0.30% 0.25% 0.28%(c)
Ratio of net investment income to
average net assets*............ 5.27% 5.08%(a) 5.60% 4.59% 3.17%(c)
</TABLE>
- ---------------
<TABLE>
<S> <C>
* During the year, 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.
** Net realized loss for the period is a direct result of a
decrease in outstanding shares between February 28, 1995 and
the date of the gain realization.
(a) Fees paid by third parties had no effect on the ratios.
(b) Period from June 14, 1993 (inception date) to February 28,
1994.
(c) Annualized.
(d) Not annualized.
(dagger) Total return includes the effect of the voluntary capital
contribution from the Investment Advisor. Without this
capital contribution, the total return would have been
lower.
</TABLE>
See Notes to Financial Statements.
63
<PAGE> 515
PACIFIC HORIZON GOVERNMENT FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
HORIZON SERVICE SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income....... 0.0507 0.0488 0.0537 0.0429 0.0300
Net realized gains/(losses)
on investment
transactions.............. 0.0001 -- (0.0004)** (0.0092) (0.0006)
-------- -------- -------- -------- --------
Total income from investment
operations.................. 0.0508 0.0488 0.0533 0.0337 0.0294
Less dividends to
shareholders from net
investment income........... (0.0508) (0.0487) (0.0531) (0.0427) (0.0300)
Increase due to voluntary
capital contribution from
Investment Advisor.......... -- -- -- 0.0085 --
-------- -------- -------- -------- --------
Net change in net asset value
per share................... -- 0.0001 0.0002 (0.0005) (0.0006)
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE,
END OF YEAR................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return................. 5.20% 4.98% 5.44% 4.35%(dagger) 3.04%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions)................ $ 264 $ 263 $ 213 $ 289 $ 326
Ratio of expenses to average
net assets................ 0.52% 0.48% 0.49% 0.43% 0.48%
Ratio of net investment
income to average net
assets.................... 5.07% 4.89% 5.41% 4.32% 2.99%
Ratio of expenses to average
net assets*............... 0.57% 0.54%(a) 0.56% 0.51% 0.53%
Ratio of net investment
income to average net
assets* 5.02% 4.83%(a) 5.34% 4.24% 2.94%
</TABLE>
- ---------------
<TABLE>
<S> <C>
* During the year, 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.
** Net realized loss for the period is a direct result of a
decrease in outstanding shares between February 28, 1995 and
the date of the gain realization.
(a) Fees paid by third parties had no effect on the ratios.
(dagger) Total return includes the effect of the voluntary capital
contribution from the Investment Advisor. Without this
capital contribution, the total return would have been
lower.
</TABLE>
See Notes to Financial Statements.
64
<PAGE> 516
PACIFIC HORIZON TREASURY ONLY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
PACIFIC HORIZON SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income....... 0.0472 0.0458 0.0495 0.0384 0.0254
Net realized gains/(losses)
on investment
transactions.............. -- 0.0001 0.0003 (0.0002) (0.0002)
-------- -------- -------- -------- --------
Total income from investment
operations.................. 0.0472 0.0459 0.0498 0.0382 0.0252
Less dividends to
shareholders from net
investment income........... (0.0472) (0.0458) (0.0495) (0.0384) (0.0254)
-------- -------- -------- -------- --------
Net change in net asset value
per share................... -- 0.0001 0.0003 (0.0002) (0.0002)
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE,
END OF YEAR................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return................. 4.83% 4.68% 5.06% 3.90% 2.57%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions)................ $ 229 $ 225 $ 274 $ 90 $ 72
Ratio of expenses to average
net assets................ 0.61% 0.60% 0.63% 0.62% 0.56%
Ratio of net investment
income to average net
assets.................... 4.73% 4.59% 4.94% 3.90% 2.54%
Ratio of expenses to average
net assets*............... (a)(b) (b) (a) 0.63% 0.72%
Ratio of net investment
income to average net
assets*................... (a)(b) (b) (a) 3.89% 2.38%
</TABLE>
- ---------------
<TABLE>
<S> <C>
* During the year, 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.
(a) There were no fee waivers or expense reimbursements during
the period.
(b) Fees paid by third parties had no effect on the ratios.
</TABLE>
See Notes to Financial Statements.
65
<PAGE> 517
PACIFIC HORIZON TREASURY ONLY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
--------------------------- ------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1998 1997 1996(a)
------------ ------------ ------------
<S> <C> <C> <C>
HORIZON SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF
PERIOD................................... $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Income from Investment Operations:
Net investment income.................... 0.0504 0.0490 0.0227
Net realized gains/(losses) on investment
transactions........................... -- 0.0001 (0.0001)
-------- -------- --------
Total income from investment operations.... 0.0504 0.0491 0.0226
Less dividends to shareholders from net
investment income........................ (0.0504) (0.0490) (0.0227)
-------- -------- --------
Net change in net asset value per share.... -- 0.0001 (0.0001)
-------- -------- --------
NET ASSET VALUE PER SHARE, END OF PERIOD... $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total return............................... 5.16% 5.02% 2.30%(e)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (millions)... $ 30 $ 30 $ 7
Ratio of expenses to average net
assets................................. 0.29% 0.27% 0.70%(d)
Ratio of net investment income to average
net assets............................. 5.04% 4.94% 11.88%(d)
Ratio of expenses to average net
assets*................................ (b)(c) (b)(c) (b)
Ratio of net investment income to average
net assets*............................ (b)(c) (b)(c) (b)
</TABLE>
- ---------------
<TABLE>
<S> <C>
* 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.
(a) Period from September 20, 1995 (inception date) to February
29, 1996.
(b) There were no fee waivers or expense reimbursements during
the period.
(c) Fees paid by third parties had no effect on the ratios.
(d) Annualized.
(e) Not annualized.
</TABLE>
See Notes to Financial Statements.
66
<PAGE> 518
PACIFIC HORIZON TREASURY ONLY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
HORIZON SERVICE SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income... 0.0480 0.0465 0.0502 0.0391 0.0273
Net realized
gains/(losses) on
investment
transactions.......... -- 0.0001 0.0003 (0.0002) (0.0002)
-------- -------- -------- -------- --------
Total income from
investment operations... 0.0480 0.0466 0.0505 0.0389 0.0271
Less dividends to
shareholders from net
investment income....... (0.0480) (0.0465) (0.0502) (0.0391) (0.0273)
-------- -------- -------- -------- --------
Net change in net asset
value per share......... -- 0.0001 0.0003 (0.0002) (0.0002)
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE,
END OF YEAR............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return.............. 4.90% 4.75% 5.14% 3.98% 2.76%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of
year (millions)....... $ 177 $ 260 $ 186 $ 194 $ 272
Ratio of expenses to
average net assets.... 0.54% 0.53% 0.56% 0.55% 0.39%
Ratio of net investment
income to average net
assets................ 4.80% 4.66% 5.01% 3.86% 2.73%
Ratio of expenses to
average net assets*... (a)(b) (a)(b) (a) 0.56% 0.64%
Ratio of net investment
income to average net
assets*............... (a)(b) (a)(b) (a) 3.85% 2.48%
</TABLE>
- ---------------
<TABLE>
<S> <C>
* 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.
(a) There were no fee waivers or expense reimbursements during
the period.
(b) Fees paid by third parties had no effect on the ratios.
</TABLE>
See Notes to Financial Statements
67
<PAGE> 519
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 portfolios 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 Pacific Horizon Prime Fund, Pacific
Horizon Treasury Fund, Pacific Horizon Government Fund and Pacific Horizon
Treasury Only Fund (four of the seventeen portfolios constituting Pacific
Horizon Funds, Inc., hereafter referred to as the "Funds") at February 28, 1998,
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, 1998 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide
a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
April 21, 1998
68
<PAGE> 520
PACIFIC HORIZON TAX-EXEMPT MONEY FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- 104.4%
ARIZONA -- 1.3%
Apache County
Industrial Development
Authority, Tucson
Electric Power
(LOC -- Toronto
Dominion Bank) (final
maturity 6/15/20)*..... VMIG1/Aa2 A1+/AA 3.40% 03/04/98 $ 7,800,000 $ 7,800,000
Pima County Industrial
Development Authority,
Tucson Electric Power
Co. (LOC -- Societe
Generale) (final
maturity 10/1/22)*..... VMIG1/Aa3 A1+/AA- 3.40% 03/04/98 1,100,000 1,100,000
------------
8,900,000
------------
ARKANSAS -- 2.3%
Arkansas State
Development Financing
Authority Single Family
Mortgage (final
maturity 7/1/17)*...... NR/NR A1+/AAA 3.95% 07/01/98 10,860,000 10,860,000
Arkansas State
Financial Development
Authority (FGIC
Insured) (LOC --
Citibank) (final
maturity 12/1/15)*..... VMIG1/Aaa A1+/AAA 3.40% 03/05/98 5,200,000 5,200,000
------------
16,060,000
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
69
<PAGE> 521
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- 4.9%
California Health
Facilities Financing
Authority, Adventist
Health System/West,
Series A (MBIA
Insured) (final
maturity 9/1/28)*... VMIG1/Aaa A1+/AAA 3.60% 03/04/98 $14,000,000 $14,000,000
California Statewide
Community
Development
Authority,
Certificate of
Participation,
Sutter Health
Obligation Group
(AMBAC
Insured)(final
maturity 7/1/15)*... VMIG1/Aaa A2/AAA 3.85% 03/02/98 3,300,000 3,300,000
California Statewide
Community
Development
Authority, Tax and
Revenue
Anticipation, Series
B................... NR/Aaa NR/AAA 4.75% 09/30/98 10,000,000 10,048,024
Orange County Irvine
Coast Assessment
(LOC -- Industrial
Bank of Japan)
(final maturity
9/2/18)*............ NR/A1 A/A+ 3.60% 03/02/98 7,000,000 7,000,000
-----------
34,348,024
-----------
COLORADO -- 3.7%
Colorado Health
Facilities
Authority, North
Colorado Medical
Center (MBIA
Insured) (final
maturity
5/15/20)*........... VMIG1/Aaa A1+/AAA 3.40% 03/05/98 5,100,000 5,100,000
Colorado State Tax &
Revenue Anticipation
Notes, Series A..... NR/NR SP1+/NR 4.50% 06/26/98 20,000,000 20,040,105
</TABLE>
- ---------------
See Notes to Financial Statements.
70
<PAGE> 522
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
COLORADO -- (CONTINUED)
Colorado Student
Obligation Bond
Authority, Student
Loan, Series C-2
(LOC -- Student Loan
Marketing) (final
maturity 9/1/02)*... VMIG1/Aaa A1+/AAA 3.35% 03/04/98 $1,300,000 $ 1,300,000
-----------
26,440,105
-----------
DELAWARE -- 0.6%
Delaware Economic
Development (final
maturity
12/1/15)*........... VMIG1/Aaa A1+/AAA 3.40% 03/04/98 4,000,000 4,000,000
-----------
DISTRICT OF COLUMBIA -- 5.6%
District of
Columbia, Series A1
(LOC -- National
Westminster) (final
maturity
10/1/07)*........... VMIG1/Aa2 A1+/AA 3.70% 03/02/98 6,900,000 6,900,000
District of
Columbia, Series A2
(LOC -- Canadian
Imperial Bank)
(final maturity
10/1/07)*........... VMIG1/Aa3 A1+/AA- 3.70% 03/02/98 9,900,000 9,900,000
District of
Columbia, Series A3
(final maturity
10/1/07)*........... VMIG1/Aa3 A1+/AA- 3.70% 03/02/98 12,000,000 12,000,000
District of
Columbia, Series A4
(final maturity
10/1/07)*........... VMIG1/Aa3 A1+/AA- 3.70% 03/02/98 1,000,000 1,000,000
District of
Columbia, Series A5
(LOC -- Bank of Nova
Scotia) (final
maturity
10/1/07)*........... VMIG1/Aa3 A1+/AA- 3.70% 03/02/98 9,778,000 9,778,000
-----------
39,578,000
-----------
FLORIDA -- 4.6%
Florida Board of
Education (final
maturity 6/1/23)*... NR/Aa A1+/AA 3.80% 06/01/98 9,900,000 9,900,000
</TABLE>
- ---------------
See Notes to Financial Statements.
71
<PAGE> 523
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
FLORIDA -- (CONTINUED)
Orlando Special
Assessment Republic
Drive Interchange
(LOC -- Morgan
Guaranty) (final
maturity 10/1/21)*..... VMIG1/Aa1 NR/NR 3.40% 03/04/98 $ 4,700,000 $ 4,700,000
Pasco County School
Board (AMBAC Insured)
(final maturity
8/1/26)*............... VMIG1/Aaa A1+/AAA 3.40% 03/04/98 7,000,000 7,000,000
Sarasota County
Commercial Paper....... P1/NR A1/NR 3.80% 03/10/98 5,000,000 5,000,000
Sarasota County
Hospital............... P1/NR A1/NR 3.70% 04/09/98 3,500,000 3,500,000
St. Lucie County,
Pollution Control
Revenue, Florida Power
& Light, Series A...... P1/NR A1/NR 3.50% 04/01/98 2,500,000 2,500,000
------------
32,600,000
------------
GEORGIA -- 3.6%
Burke County
Development Authority
Pollution Control,
Oglethorpe Power Corp.,
Series A (FGIC Insured)
(final maturity
1/1/19)*............... VMIG1/Aaa A1+/AAA 3.35% 03/04/98 3,000,000 3,000,000
Gainesville
Redevelopment
Authority, Riverside
Military Academy
(LOC -- Wachovia Bank
and Trust) (final
maturity 1/1/23)*...... NR/AA2 NR/NR 3.50% 03/04/98 15,000,000 15,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
72
<PAGE> 524
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
GEORGIA -- (CONTINUED)
Georgia Municipal Gas
Authority, Series A
(LOC -- Morgan Guaranty
Trust, Wachovia Bank,
Credit Suisse,
Bayerische Landesbank,
ABN Amro Bank) (final
maturity 11/1/06)*..... NR/NR A1+/AA 3.35% 03/04/98 $ 7,600,000 $ 7,600,000
------------
25,600,000
------------
ILLINOIS -- 10.1%
Chicago Variable
Equipment Notes
(LOC -- Harris Trust
and Savings Bank)
(final maturity
1/1/06)*............... VMIG1/MIG1 A1+/AA- 3.80% 03/02/98 6,800,000 6,800,000
Chicago Tender Notes
(LOC -- Morgan Guaranty
Trust) (final maturity
1/31/99)*.............. VMIG1/MIG1 A1/Sp1+ 3.55% 10/29/98 15,000,000 15,000,000
Illinois Health
Facilities Authority,
Elmhurst Memorial
Hospital, Series B
(LOC -- Rabobank)
(final maturity
1/1/20)*............... VMIG1/A2 NR/NR 3.80% 03/02/98 7,600,000 7,600,000
Illinois Health
Facilities Authority,
Franciscan Sisters
Health (final maturity
1/1/18)*............... VMIG1/A2 NR/NR 3.80% 03/02/98 9,250,000 9,250,000
Illinois Health
Facilities Authority,
Pooled Revolving Fund
(LOC -- NBD Bank)
(final maturity
8/1/15)*............... VMIG1/Aa3 A1+/AA- 3.40% 03/04/98 2,400,000 2,400,000
Illinois Health
Facilities Authority,
Resurrection Health
Care Systems (final
maturity 5/1/11)*...... VMIG1/A2 NR/NR 3.70% 03/02/98 7,000,000 7,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
73
<PAGE> 525
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
ILLINOIS -- (CONTINUED)
Illinois Health
Facilities Authority,
Elmhurst Memorial
Hospital, Series A
(final maturity
1/1/28)*............... VMIG1/A2 NR/NR 3.80% 03/04/98 $ 8,100,000 $ 8,100,000
Illinois State Toll
Highway Authority,
Series B (LOC --
Societe Generale) (MBIA
Insured) (final
maturity 1/1/10)*...... VMIG1/Aaa A1+/AAA 3.35% 03/04/98 7,700,000 7,700,000
University of Illinois,
The Board of Trustees
Health Services
Facilities System,
Series B (LOC --
Landesbank Hessen)
(final maturity
10/1/26)*.............. VMIG1/Aaa A1+/AAA 3.40% 03/04/98 7,600,000 7,600,000
------------
71,450,000
------------
INDIANA -- 1.8%
Indiana Health Facility
Financing Authority,
Hospital Revenue Bonds,
Deaconess Hospital,
Inc. (LOC -- First
National Bank of
Chicago) (final
maturity 1/1/22)*...... VMIG1/Aa3 NR/NR 3.40% 03/04/98 1,200,000 1,200,000
Jasper County Pollution
Control Revenue,
Northern Indiana Public
Service, Series A...... P1/NR A1/NR 3.20% 03/12/98 8,000,000 8,000,000
Rockport Pollution
Control Revenue,
Indiana Michigan Power
Co. Project (AMBAC
Insured) (final
maturity 6/1/25)*...... NR/Aaa NR/AAA 3.45% 03/04/98 3,600,000 3,600,000
------------
12,800,000
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
74
<PAGE> 526
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
IOWA -- 0.7%
Iowa Higher Education
Loan Authority, Private
College (MBIA Insured)
(final maturity
12/1/15)*.............. VMIG1/Aaa A1+/AAA 3.50% 03/04/98 $ 4,700,000 $ 4,700,000
------------
KENTUCKY -- 1.4%
Kentucky
Asset/Liability Tax &
Revenue Anticipation
Notes, Series A........ MIG1/NR Sp1+/NR 4.50% 06/25/98 10,000,000 10,019,886
------------
LOUISIANA -- 5.8%
Ascension Parish
Pollution Control,
Borden Inc. Project
(LOC -- Credit Suisse)
(final maturity
12/1/09)*.............. VMIG1/Aa2 A1+/AA 3.45% 03/04/98 5,500,000 5,500,000
Louisiana State
Offshore Terminal
Authority, First Stage,
Loop Inc. (LOC --
Morgan Guaranty) (final
maturity 9/1/17)*...... VMIG1/Aa1 A1+/AAA 3.45% 03/04/98 4,610,000 4,610,000
Louisiana Public
Facilities Authority
Hospital Revenue,
Willis-Knighton Medical
Center (AMBAC Insured)
(final maturity
9/1/27)*............... VMIG1/Aaa A1+/AAA 3.45% 03/04/98 15,000,000 15,000,000
Louisiana State General
Obligation Bonds, Tax
Exempt Eagle Trust,
Series 1994 (AMBAC
Insured) (final
maturity 5/1/09)*...... NR/NR A1/AA 3.56% 03/05/98 11,600,000 11,600,000
</TABLE>
- ---------------
See Notes to Financial Statements.
75
<PAGE> 527
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
LOUISIANA -- (CONTINUED)
Plaquemines Port
Harbor & Term
District, Chevron
Pipe Line Company
(final maturity
9/1/08)*............ NR/Aa2 NR/AA 3.85% 03/02/98 $4,000,000 $ 4,000,000
-----------
40,710,000
-----------
MARYLAND -- 1.4%
Gaithersburg
Economic Development
Authority, Asbury
Methodist (MBIA
Insured) (final
maturity 7/1/27)*... NR/NR A1/AAA 3.45% 03/05/98 10,000,000 10,000,000
-----------
MICHIGAN -- 2.6%
Grand Rapids Water
Supply (final
maturity 1/1/20)*... VMIG1/Aaa NR/AAA 3.35% 03/04/98 3,600,000 3,600,000
Michigan Municipal
Bond Authority,
Series B............ NR/NR NR/Sp1+ 4.50% 07/02/98 10,000,000 10,022,713
Michigan State
Strategic Fund,
Ltd., Consumers
Power Co.
(LOC -- Canadian
Imperial Bank)
(final maturity
6/15/10)*........... NR/Aa3 A1+/AA- 3.70% 03/02/98 4,900,000 4,900,000
-----------
18,522,713
-----------
MINNESOTA -- 0.9%
Duluth Tax Increment
Revenue, Lake
Superior Paper
(LOC -- Wachovia
Bank) (final
maturity 9/1/10)*... VMIG1/Aa2 A1+/AA+ 3.40% 03/05/98 3,600,000 3,600,000
St. Cloud Health
Care Facilities, St.
Cloud Hospital,
Series A
(LOC -- Rabobank
Nederland) (final
maturity 7/1/27)*... NR/NR A1+/AAA 3.35% 03/05/98 3,000,000 3,000,000
-----------
6,600,000
-----------
</TABLE>
- ---------------
See Notes to Financial Statements.
76
<PAGE> 528
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
MISSOURI -- 0.5%
Columbia Water &
Electric, Series B
(LOC -- Toronto
Dominion Bank) (final
maturity 12/1/15)*..... VMIG1/Aa2 A1+/AA 3.40% 03/04/98 $ 1,400,000 $ 1,400,000
Missouri State Health &
Educational Facilities
Authority, Series B
(MBIA Insured) (final
maturity 6/1/22)*...... NR/Aaa A1+/AAA 3.40% 03/04/98 2,000,000 2,000,000
------------
3,400,000
------------
MONTANA -- 0.3%
Forsyth Pollution
Control Revenue Bond,
Portland General
Electric Co.
(LOC -- Union Bank of
Switzerland) (final
maturity 6/1/13)*...... P1/Aaa A1+/AA+ 3.40% 03/04/98 2,500,000 2,500,000
------------
NEBRASKA -- 1.0%
Lincoln County
Commercial Paper....... P1/NR A1/NR 3.65% 03/12/98 3,900,000 3,900,000
Nebraska Educational
Facilities (FGIC
Insured) (final
maturity 12/1/00)*..... VMIG1/Aaa A1/AAA 3.75% 03/04/98 3,435,000 3,435,000
------------
7,335,000
------------
NEVADA -- 0.5%
Las Vegas Commercial
Paper.................. P1/NR A1/NR 3.45% 03/10/98 3,500,000 3,500,000
------------
NEW MEXICO -- 2.4%
Farmington Pollution
Control Revenue Bond,
Arizona Public Service
Co., Series B
(LOC -- Barclays Bank)
(final maturity
9/1/24)*............... P1/NR A1+/AA 3.65% 03/02/98 9,000,000 9,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
77
<PAGE> 529
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
NEW MEXICO -- (CONTINUED)
New Mexico State
Highway Commission
(FSA Insured) (final
maturity
6/15/11)*........... VMIG1/Aaa A1+/AAA 3.40% 03/04/98 $8,000,000 $ 8,000,000
-----------
17,000,000
-----------
NEW YORK -- 2.5%
New York City
General
Obligation.......... P1/NR A1/NR 3.00% 03/09/98 7,000,000 7,000,000
New York State
Transportation
Authority (final
maturity 4/1/10)*... VMIG1/Aaa NR/NR 3.50% 03/04/98 9,900,000 9,900,000
Triborough Bridge
and Tunnel Authority
(FGIC Insured)
(final maturity
1/1/24)*............ VMIG1/Aaa A1+/AAA 3.15% 03/04/98 1,100,000 1,100,000
-----------
18,000,000
-----------
NORTH CAROLINA -- 5.5%
Charlotte Airport
Revenue, Series A
(MBIA Insured)
(final maturity
7/1/16)*............ VMIG1/Aaa A1+/AAA 3.35% 03/04/98 2,000,000 2,000,000
Lenoir County
Hospital Revenue,
Lenoir Memorial
Hospital
(LOC -- Wachovia
Bank) (final
maturity
10/1/12)*........... VMIG1/Aa2 NR/NR 3.45% 03/04/98 3,300,000 3,300,000
North Carolina
Commercial Paper.... P1/NR A1/NR 3.70% 03/10/98 6,200,000 6,200,000
North Carolina
Eastern Municipal
Power............... P1/NR A1/NR 3.45% 04/08/98 5,000,000 5,000,000
North Carolina
Medical Care
Commission Hospital
Revenue Bond, Moses
H. Cone Memorial
Hospital Project
(LOC -- Wachovia
Bank) (final
maturity 9/1/02)*... NR/NR A1+/AA 3.40% 03/05/98 1,600,000 1,600,000
North Carolina
Municipal Power
Agency, Catawba
Project............. P1/NR A1/NR 3.00% 03/11/98 6,500,000 6,500,000
</TABLE>
- ---------------
See Notes to Financial Statements.
78
<PAGE> 530
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
NORTH CAROLINA -- (CONTINUED)
North Carolina Medical
Care Community
Retirement (LOC --
LaSalle National Bank)
(final maturity
11/15/09)*............. NR/NR A1+/AA+ 3.40% 03/04/98 $10,000,000 $ 10,000,000
Raleigh-Durham Airport
Authority, American
Airlines Project,
Series 1995B
(LOC -- Royal Bank of
Canada) (final maturity
11/1/15)*.............. NR/NR A1+/AA- 3.65% 03/02/98 4,200,000 4,200,000
------------
38,800,000
------------
OHIO -- 1.4%
Scioto County Hospital,
Volunteer Hospital of
America Center, Inc.,
Series B (AMBAC
Insured) (final
maturity 12/1/25)*..... NR/Aaa A1+/AAA 3.35% 03/04/98 3,325,000 3,325,000
Scioto County Hospital,
Volunteer Hospital of
America Center, Inc.,
Series F (AMBAC
Insured) (final
maturity 12/1/25)*..... NR/Aaa A1+/AAA 3.35% 03/04/98 2,530,000 2,530,000
Scioto County Hospital,
Volunteer Hospital of
America Center, Inc.,
Series G (AMBAC
Insured) (final
maturity 12/1/25)*..... NR/Aaa A1+/AAA 3.35% 03/04/98 4,000,000 4,000,000
------------
9,855,000
------------
OKLAHOMA -- 0.7%
Oklahoma Water
Resources Board State
Loan Program Revenue
Bonds (LOC -- Union
Bank of Switzerland)
(final maturity
9/1/24)*............... NR/NR A1+/AA 3.55% 09/01/98 5,000,000 5,000,000
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
79
<PAGE> 531
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
OREGON -- 1.4%
Medford Oregon Hospital
Facilities Authority,
Rogue Valley Manor
(final maturity
5/15/27)*.............. NR/NR A+/A2 3.60% 03/04/98 $10,000,000 $ 10,000,000
------------
PENNSYLVANIA -- 12.5%
Allegheny County
Hospital Development
Authority, St. Francis
Hospital (LOC -- First
National Bank of
Chicago) (final
maturity 11/1/27)*..... VMIG1/Aa3 A1+/AA- 3.40% 03/04/98 20,000,000 20,000,000
Allegheny County
Industrial Development
Authority, Duquesne
Light Co., Series A
(LOC -- Canadian
Imperial Bank of
Commerce) (final
maturity 9/1/11)*...... NR/NR A1+/AA- 3.85% 10/21/98 8,225,000 8,225,000
Allegheny County
Industrial Development
Authority, Duquesne
Light Co., Series A
(LOC -- Canadian
Imperial Bank of
Commerce) (final
maturity 9/1/11)*...... P1/NR A1+/AA- 3.85% 10/21/98 3,700,000 3,700,000
Delaware Valley
Regulation Finance
Authority Local
Government, Series A
(LOC -- Credit Suisse)
(final maturity
12/1/19)*.............. VMIG1/Aa3 A1+/AA 3.35% 03/04/98 3,000,000 3,000,000
Emmaus General
Authority Revenue Bond,
Series B-16
(LOC -- Kredietbank)
(final maturity
3/1/24)*............... A1+/NR SP1+/NR 3.45% 03/04/98 2,200,000 2,200,000
</TABLE>
- ---------------
See Notes to Financial Statements.
80
<PAGE> 532
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
PENNSYLVANIA -- (CONTINUED)
Emmaus General
Authority Revenue
Bond, Series E
(final maturity
3/1/24)*............ A1+/NR SP1+/NR 3.50% 03/04/98 $1,400,000 $ 1,400,000
Emmaus General
Authority Revenue
Bond, Series G
(final maturity
3/1/24)*............ A1+/NR SP1+/NR 3.50% 03/04/98 5,000,000 5,000,000
Quakertown General
Authority, Pooled
Financing Program,
Series A (LOC -- PNC
Bank) (final
maturity 7/1/26)*... VMIG1/A1 NR/NR 3.50% 03/04/98 21,000,000 21,000,000
Quakertown Hospital
Authority, HPS Group
Pooled Financing
(LOC -- PNC Bank)
(final maturity
7/1/05)*............ VMIG1/A1 NR/NR 3.50% 03/03/98 23,800,000 23,800,000
-----------
88,325,000
-----------
SOUTH CAROLINA -- 1.7%
Piedmont Municipal
Power Agency, South
Carolina Electric
Co., Series C (MBIA
Insured) (final
maturity 1/1/22)*... VMIG1/Aaa A1+/AAA 3.40% 03/04/98 2,000,000 2,000,000
Piedmont Municipal
Power Agency, South
Carolina Electric
Co., Series D (MBIA
Insured) (final
maturity 1/1/25)*... VMIG1/Aaa A1+/AAA 3.40% 03/04/98 10,100,000 10,100,000
-----------
12,100,000
-----------
TENNESSEE -- 3.1%
Bristol Health &
Education
Facilities, Series
1995A (final
maturity 3/1/14)*... NR/NR A1/AAA 3.55% 03/04/98 8,500,000 8,500,000
Clarksville Public
Building Authority
(final maturity
11/1/27)*........... A1/Aa3 NR/NR 3.45% 03/04/98 4,000,000 4,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
81
<PAGE> 533
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
TENNESSEE -- (CONTINUED)
Metropolitan Government
Nashville & Davidson
County Health &
Education Facilities,
Adventist/Sunbelt,
Series A (final
maturity 11/15/26)*.... VMIG1/Aa3 A1+/AA+ 3.40% 03/05/98 $ 9,350,000 $ 9,350,000
------------
21,850,000
------------
TEXAS -- 10.5%
Angelina & Neches River
Authority Industrial
Development Corp Solid
Waste Disposal (TEEC,
Inc. Temple-Inland)
Series D (LOC -- Credit
Suisse) (final maturity
5/1/14)*............... P1/Aa3 NR/NR 3.70% 03/02/98 5,300,000 5,300,000
Grand Prairie Housing
Financing Corp, Lincoln
Property Co. (final
maturity 6/1/10)*...... NR/NR A1+/AAA 3.50% 03/04/98 6,700,000 6,700,000
Grapevine Industrial
Development Corporation
Airport Revenue,
Southern Air
Transportation
(LOC -- Bank One Texas)
(final maturity
3/1/10)*............... NR/NR A1+/AA 3.45% 03/05/98 2,300,000 2,300,000
Harris County Health
Facilities Development
Corp, Memorial Hospital
Systems, Series B
(final maturity
6/1/24)*............... VMIG1/Aaa A1+/AAA 3.35% 03/04/98 3,500,000 3,500,000
</TABLE>
- ---------------
See Notes to Financial Statements.
82
<PAGE> 534
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
TEXAS -- (CONTINUED)
Harris County,
Industrial
Development
Pollution Control
Revenue Bonds (Exxon
Corporation) (final
maturity 3/1/24)*... NR/Aaa A1+/AAA 3.65% 03/02/98 $1,000,000 $ 1,000,000
Lower Neches Valley
Authority, Chervon
Corp. (final
maturity
2/15/17)*........... NR/P1 A1+/AA 3.45% 03/17/98 4,700,000 4,700,000
North Central Texas
Commercial Paper.... P1/NR A1/NR 3.70% 03/10/98 5,000,000 5,000,000
North Texas
Municipal Water
District (AMBAC
Insured) (final
maturity 6/1/02)*... NR/Aaa NR/AAA 7.65% 06/01/98 2,280,000 2,349,584
Nueces River
Authority (final
maturity 3/1/27)*... VMIG1/NR NR/AAA 3.56% 03/05/98 16,600,000 16,600,000
Texas State Tax &
Revenue Anticipation
Notes, Series A..... MIG1/NR SP1+/NR 4.75% 08/31/98 22,000,000 22,097,620
Tom Green County
Health Facilities
Development,
Universal Health
Services (LOC --
Morgan Guaranty
Trust) (final
maturity
12/1/15)*........... NR/NR A1+/AAA 3.40% 03/04/98 2,000,000 2,000,000
University of Texas
Board of Regents.... P1/NR A1/NR 3.55% 05/14/98 3,000,000 3,000,000
-----------
74,547,204
-----------
UTAH -- 1.4%
Intermountain Power
Agency, Utah Power
Supply Revenue
(LOC -- Chase
Manhattan Bank)
(final maturity
7/1/03)*............ VMIG1/Aaa NR/NR 3.55% 03/04/98 9,900,000 9,900,000
-----------
</TABLE>
- ---------------
See Notes to Financial Statements.
83
<PAGE> 535
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
VERMONT -- 1.4%
Mt. Vernon Commercial
Paper.................. P1/NR A1/NR 3.60% 03/10/98 $ 3,290,000 $ 3,290,000
Vermont Education and
Health Financing
Agency, Middlebury
College Project, Series
A (final maturity
11/1/27)*.............. NR/Aa NR/AA 3.85% 05/01/98 2,075,000 2,077,706
Vermont Education and
Health Financing
Agency, Middlebury
College Project, Series
A (final maturity
5/1/28)*............... NR/NR A1+/AA 3.95% 05/01/98 4,700,000 4,700,000
------------
10,067,706
------------
VIRGINIA -- 0.9%
Peninsula Port
Authority of Virginia
Coal Terminal, Dominion
Terminal Associates
Project, Series D
(LOC -- Barclays Bank)
(final maturity
7/1/16)*............... P1/Aa2 NR/NR 3.65% 03/02/98 2,000,000 2,000,000
Peninsula Port
Authority of Virginia,
Dominion Terminal
Associates Project..... P1/NR A1/NR 3.00% 03/11/98 4,035,000 4,035,000
------------
6,035,000
------------
WISCONSIN -- 3.6%
Carlton Pollution
Control Revenue,
Wisconsin Power and
Light Co. (final
maturity 9/01/05)*..... VMIG1/Aa2 A1+/AA 3.70% 03/02/98 2,900,000 2,900,000
Wisconsin State
Operating Note......... MIG1/NR SP1+/NR 4.50% 06/15/98 7,100,000 7,114,182
</TABLE>
- ---------------
See Notes to Financial Statements.
84
<PAGE> 536
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
WISCONSIN -- (CONTINUED)
Wisconsin State
Operating Notes,
Series 2............ MIG1/NR SP1+/NR 4.50% 06/15/98 $10,000,000 $10,021,940
Wisconsin
Transportation
Revenue............. P1/NR A1/NR 3.10% 03/10/98 5,159,000 5,159,000
-----------
25,195,122
-----------
WYOMING -- 1.8%
Converse Country,
Pacificcorp., Series
1992................ P1/NR A1/NR 3.25% 03/12/98 12,485,000 12,485,000
-----------
TOTAL INVESTMENTS -- 104.4%
(AMORTIZED COST
$738,223,760)(a).... 738,223,760
LIABILITIES IN EXCESS
OF OTHER ASSETS --
(4.4%).............. (30,899,984)
-----------
NET ASSETS --
100.0%.............. $707,323,776
===========
</TABLE>
- ---------------
Percentages indicated are based on net assets of $707,323,776.
(a) Cost for Federal income tax and financial reporting purposes is
substantially the same.
<TABLE>
<S> <C>
AMBAC -- AMBAC Indemnity Corporation.
FGIC -- Financial Guaranty Insurance Company.
FSA -- Financial Security Assurance.
LOC -- Letter of Credit.
MBIA -- Municipal Bond Insurance Association.
NR -- No rating assigned by Moody's or S&P.
</TABLE>
* Variable rate security. Maturity date reflects the next rate change date.
(dagger) The ratings provided consist of short-term and long-term ratings.
See Notes to Financial Statements.
85
<PAGE> 537
PACIFIC HORIZON CALIFORNIA TAX-EXEMPT
MONEY MARKET FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- 99.8%
CALIFORNIA -- 96.3%
Abag Financial
Authority, For Non-
Profit Corporations,
Certificates of
Participation, Lucile
Salter Packard Project
(final maturity
8/1/23)*................ VMIG1/AAA A1+/AAA 3.00% 03/04/98 $ 1,930,000 $ 1,930,000
Alameda-Contra Costa
Financing Authority,
Certificates of
Participation (final
maturity 8/1/23)*....... NR/NR A1+/AA- 2.90% 03/05/98 5,000,000 5,000,000
California Department of
Water................... P1/NR A1+/NR 3.40% 04/16/98 2,330,000 2,330,000
California General
Obligation (final
maturity 4/1/04)*
(double dagger)......... NR/NR A1+/AAA 3.00% 03/16/98 15,100,000 15,100,000
California General
Obligation.............. P1/A A/A+ 3.45% 03/24/98 11,000,000 11,000,000
California General
Obligation.............. P1/A A/A+ 3.55% 04/20/98 10,000,000 10,000,000
California General
Obligation.............. P1/A A/A+ 3.70% 03/06/98 6,000,000 6,000,000
California General
Obligation.............. P1/A A/A+ 3.65% 03/09/98 5,000,000 5,000,000
California General
Obligation.............. P1/A A/A+ 3.70% 03/06/98 10,000,000 10,000,000
California General
Obligation, Class A
(final maturity
2/1/06)*(double dagger). A1+/AA NR/NR 3.46% 03/05/98 10,000,000 10,000,000
California Health
Facilities Financing
Authority (final
maturity 7/1/20)*....... VMIG1/AA A1/AA 3.00% 03/04/98 4,200,000 4,200,000
California Health
Facilities Financing
Authority (final
maturity 8/1/16)**...... NR/AAA NR/AAA 3.50% 05/01/98 11,300,000 11,300,000
</TABLE>
- ---------------
See Notes to Financial Statements.
86
<PAGE> 538
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
California Health
Facilities Financing
Authority, Adventist
Health System, Series
A (MBIA Insured)
(final maturity
9/1/28)*............. VMIG1/AAA A1+/AAA 3.60% 03/04/98 $16,000,000 $ 16,000,000
California Health
Facilities Financing
Authority, Catholic
Healthcare West,
Series 1995C (MBIA
Insured) (final
maturity 7/1/11)*.... VMIG1/Aaa A1+/AAA 3.00% 03/04/98 10,000,000 10,000,000
California Health
Facilities Financing
Authority, Catholic
Healthcare West,
Series 1995D (MBIA
Insured) (final
maturity 7/1/18)*.... VMIG1/AAA A1+/AAA 3.00% 03/04/98 9,700,000 9,700,000
California Health
Facilities Financing
Authority, Catholic
Healthcare West,
Series 1996C (MBIA
Insured) (final
maturity 7/1/12)*.... VMIG1/Aaa A1+/AAA 3.00% 03/04/98 5,700,000 5,700,000
California Health
Facilities Financing
Authority, Catholic
Healthcare West,
Series 1997B (MBIA
Insured) (final
maturity 7/1/12)*.... VMIG1/Aaa A1+/AAA 3.00% 03/04/98 13,300,000 13,300,000
California Health
Facilities Financing
Authority, Catholic
Healthcare, Series
1988A (MBIA Insured)
(final maturity
7/1/09)*............. VMIG1/AAA A1+/AAA 3.00% 03/04/98 3,700,000 3,700,000
</TABLE>
- ---------------
See Notes to Financial Statements.
87
<PAGE> 539
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
California Health
Facilities Financing
Authority, Children's
Hospital (MBIA
Insured) (final
maturity 11/1/21)*... VMIG1/Aaa A1+/AAA 2.90% 03/04/98 $7,550,000 $ 7,550,000
California Health
Facilities Financing
Authority, Scripps
Memorial Hospital,
Series 1991B (MBIA
Insured) (final
maturity 10/1/21)*... VMIG1/AAA A1+/AAA 3.05% 03/04/98 1,500,000 1,500,000
California Health
Facilities Financing
Authority, St. Joseph
Healthcare System,
Series 1985A (final
maturity 7/1/12)*.... VMIG1/AA3 A1+/AA 3.55% 03/02/98 2,240,000 2,240,000
California Health
Facilities Financing
Authority, Sutter
Healthcare
Facilities, Series B
(LOC -- Morgan
Guaranty Trust)
(final maturity
3/1/20)*............. VMIG1/AA1 A1+/AAA 3.65% 03/02/98 1,000,000 1,000,000
California Housing
Financing Agency,
Multi-Unit Rental
Revenue Authority
(MBIA Insured) (final
maturity 8/1/07)*.... NR/AAA NR/AAA 3.55% 08/01/98 2,000,000 2,000,000
California Housing
Financing Agency,
Multi-Unit Rental
Revenue Authority
(MBIA Insured) (final
maturity 8/1/08)*.... NR/AAA NR/AAA 3.55% 08/01/98 2,500,000 2,500,000
California Housing
Financing Agency,
Multifamily, Series A
(final maturity
7/15/13)*............ NR/NR A1+/AAA 2.95% 03/04/98 4,030,000 4,030,000
</TABLE>
- ---------------
See Notes to Financial Statements.
88
<PAGE> 540
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
California Housing
Financing Agency,
Multifamily, Series B
(final maturity
7/15/13)*............ NR/NR A1+/AAA 2.95% 03/04/98 $1,500,000 $ 1,500,000
California Housing
Financing Agency,
Series E (AMT) (final
maturity 2/1/33)*.... VMIG1/AA2 A1+/AA- 3.55% 03/04/98 15,000,000 15,000,000
California Pollution
Control Financing
Authority............ P1/NR A1/NR 3.30% 03/12/98 14,000,000 14,000,000
California Pollution
Control Financing
Authority, Southern
California Edison --
Series D............. P1/NR A1/NR 3.55% 05/19/98 6,200,000 6,200,000
California Pollution
Control Financing
Authority, Atlantic
Richfield Company
Project, Series 1994A
(AMT) (final maturity
12/1/24)*............ VMIG1/A2 A1/A 3.70% 03/02/98 8,800,000 8,800,000
California Pollution
Control Financing
Authority, Calsan,
Inc. Project, Series
A (AMT) (LOC-Wells
Fargo Bank) (final
maturity 12/1/11)*... NR/NR NR/NR 3.20% 03/04/98 1,700,000 1,700,000
California Pollution
Control Financing
Authority, Chevron
USA, Inc. Project
(final maturity
11/15/01)*........... NR/AA2 NR/AA 3.85% 05/15/98 2,408,462 2,408,462
California Pollution
Control Financing
Authority, Delano
Power Project (AMT)
(LOC -- Algemene Bank
Nederland) (final
maturity 8/1/19)*.... NR/AA1 NR/NR 3.65% 03/02/98 4,900,000 4,900,000
</TABLE>
- ---------------
See Notes to Financial Statements.
89
<PAGE> 541
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
California Pollution
Control Financing
Authority, Honey Lake
Power Company Project
(AMT) (LOC -- Banque
Nationale, Paris)
(final maturity
9/1/18)*............. NR/Aa3 NR/NR 3.65% 03/02/98 $4,300,000 $ 4,300,000
California Pollution
Control Financing
Authority, Pacific
Gas & Electric,
Series 1996A (AMT)
(LOC -- Swiss Bank
Corporation) (final
maturity 12/1/16)*... NR/NR A1+/AAA 3.20% 03/04/98 15,000,000 15,000,000
California Pollution
Control Financing
Authority, Pacific
Gas & Electric,
Series 1997B (AMT)
(LOC-Deutsche Bank)
(final maturity
11/1/26)*............ NR/NR A1+/AAA 3.60% 03/02/98 53,250,000 53,250,000
California Pollution
Control Financing
Authority, Pacific
Gas & Electric,
Series 1997C (AMT)
(LOC -- Kredietbank
N.V.) (final maturity
11/1/26)*............ NR/NR A1+/AA+ 3.65% 03/02/98 31,500,000 31,500,000
California Pollution
Control Financing
Authority, Pacific
Gas & Electric,
Series D............. NR/NR A1+/AA+ 3.55% 03/10/98 6,800,000 6,800,000
California Pollution
Control Financing
Authority, Shell Oil
Company Martinez
Project, Series 1994A
(AMT) (final maturity
10/1/24)*............ VMIG1/Aa1 NR/NR 3.60% 03/02/98 19,800,000 19,800,000
</TABLE>
- ---------------
See Notes to Financial Statements.
90
<PAGE> 542
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
California Pollution
Control Financing
Authority, Shell Oil
Company Project,
Series 1991A (final
maturity 10/1/06)*... VMIG1/AA1 A1+/AAA 3.55% 03/02/98 $1,300,000 $ 1,300,000
California Pollution
Control Financing
Authority, Southern
California Edison Co.
Project, Series 1986D
(final maturity
2/28/08)*............ P1/A1 A1/A+ 3.90% 03/02/98 1,000,000 1,000,000
California Pollution
Control Financing
Authority, Solid
Waste Disposal
Revenue, Taormina
Industries, Inc.
Project (AMT) (LOC --
Sanwa Bank, Ltd.)
(final maturity
8/1/14)*............. VMIG1/A1 NR/NR 3.85% 03/04/98 5,335,000 5,335,000
California Pollution
Control Financing
Authority, Solid
Waste Disposal
Revenue, Taormina
Industries, Inc.,
Project, Series 1994B
(AMT) (final maturity
8/1/14)*............. VMIG1/A1 NR/NR 3.85% 03/04/98 2,240,000 2,240,000
California Pollution
Control Revenue...... P1/NR A1+/NR 2.95% 03/10/98 3,300,000 3,300,000
California Pollution
Control Revenue...... P1/NR A1+/NR 3.10% 03/10/98 2,000,000 2,000,000
California Pollution
Control Revenue...... P1/NR A1+/NR 3.10% 03/12/98 3,600,000 3,600,000
California Pollution
Control Revenue...... P1/NR A1+/NR 3.10% 03/18/98 15,000,000 15,000,000
California Pollution
Control Revenue...... P1/NR A1+/NR 2.90% 03/04/98 2,000,000 2,000,000
California School
Cash Reserve Program
Authority, Series
A.................... MIG1/NR SP1+/NR 4.75% 07/02/98 37,110,666 37,110,666
</TABLE>
- ---------------
See Notes to Financial Statements.
91
<PAGE> 543
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
California State
Department of Water
(final maturity
12/1/29)*............ NR/AA A+/AA 3.41% 03/05/98 $8,300,000 $ 8,300,000
California State
Municipal Receipts,
Series SGA 54 (AMBAC
Insured) (final
maturity 6/1/21)*
**................... NR/NR NR/NR 3.40% 03/04/98 15,950,000 15,950,000
California State
Municipal Receipts,
Series SGA 72 (FGIC
Insured) (final
maturity 6/1/17)*
***.................. NR/NR A1+/AAA 3.40% 03/04/98 2,000,000 2,000,000
California State
Municipal Receipts,
Series SGB 7 (final
maturity 9/1/21)*.... NR/NR A1+/AAA 3.40% 03/04/98 3,975,000 3,975,000
California State
Revenue Anticipation
Note................. MIG1/NR SP1+/NR 4.50% 06/30/98 14,491,929 14,491,929
California Statewide
Community Development
Authority, Apartment
Development Revenue,
Series A-1 (final
maturity 5/15/25)*... NR/NR NR/AAA 3.00% 03/04/98 4,100,000 4,100,000
California Statewide
Community Development
Authority, Apartment
Development Revenue,
Series A-2 (final
maturity 5/15/25)*... NR/NR NR/AAA 3.00% 03/04/98 28,000,000 28,000,000
California Statewide
Community Development
Authority, Apartment
Development Revenue,
Series A-5 (final
maturity 5/15/25)*... NR/NR NR/AAA 3.15% 03/04/98 15,425,000 15,425,000
</TABLE>
- ---------------
See Notes to Financial Statements.
92
<PAGE> 544
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
California Statewide
Community Development
Authority, Apartment
Development Revenue,
Series A-6 (final
maturity 5/15/25)*... NR/NR NR/AAA 3.15% 03/04/98 $2,300,000 $ 2,300,000
California Statewide
Community Development
Authority, Apartment
Development Revenue,
Series A-7 (AMT)
(final maturity
5/15/25)*............ NR/NR NR/AAA 3.20% 03/04/98 8,800,000 8,800,000
California Statewide
Community Development
Authority, Sutter
Health Obligation
Group (AMBAC Insured)
(final maturity
7/1/15)*............. NR/NR NR/NR 3.85% 03/02/98 24,600,000 24,600,000
California Statewide
Community Development
Authority, Calsonic
Project (final
maturity 8/1/08)*.... NR/NR NR/NR 3.65% 03/04/98 7,000,000 7,000,000
California Statewide
Community Development
Authority, Chevron
USA, Inc. Project
(AMT) (final maturity
12/15/24)*........... NR/AA2 NR/NR 3.65% 03/02/98 12,400,000 12,400,000
California Statewide
Community Development
Authority, Kaiser
Permanente Foundation
Hospital (final
maturity 12/1/15)*... VMIG1/AA3 A1+/A+ 3.50% 03/04/98 3,400,000 3,400,000
</TABLE>
- ---------------
See Notes to Financial Statements.
93
<PAGE> 545
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
California Statewide
Community Development
Authority, Merrills
Packaging, Inc. (AMT)
(LOC -- Bank of
Tokyo) (final
maturity 12/1/18)*... NR/NR A1/A+ 3.65% 03/04/98 $1,605,000 $ 1,605,000
California Statewide
Community Development
Authority, Tax and
Revenue Anticipation
Note, Series B....... NR/AAA NR/AAA 4.75% 09/30/98 7,033,023 7,033,023
California Statewide
Community Development
Authority, The
Terraces at PK Marino
Project (AMT) (LOC --
Sanwa Bank,
California) (final
maturity 7/1/27)*.... VMIG1/A1 NR/NR 4.20% 03/04/98 7,355,000 7,355,000
California
Transportation
Finance Authority
(FSA Insured) (final
maturity 10/1/27)*... NR/NR A1+/AAA 3.20% 03/04/98 6,600,000 6,600,000
Camarillo Multifamily
Housing Authority,
Heritage Park Project
(FNMA Insured) (final
maturity 7/15/19)*... NR/NR A1+/AAA 3.00% 03/04/98 5,000,000 5,000,000
Central Coast Water
Authority California
Revenue (final
maturity 10/1/16)*... NR/NR A1+/AAA 3.36% 03/04/98 2,250,000 2,250,000
Chula Vista
Industrial
Development Revenue.. P1/NR A1/NR 3.15% 03/18/98 3,000,000 3,000,000
Chula Vista
Industrial
Development, San
Diego Gas & Electric
Co., Series A (AMT)
(final maturity
3/1/23)*............. VMIG1/A2 A1/A 3.75% 03/02/98 700,000 700,000
</TABLE>
- ---------------
See Notes to Financial Statements.
94
<PAGE> 546
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
Chula Vista
Industrial
Development, San
Diego Gas & Electric
Co., Series B (AMT)
(final maturity
12/1/27)*............ VMIG1/A1 A1/A+ 3.30% 03/04/98 $11,000,000 $ 11,000,000
City of Long Beach
(final maturity
5/15/15)*............ NR/NR A1+/AAA 3.31% 03/04/98 6,500,000 6,500,000
Contra Costa County
Tax & Revenue
Anticipation Notes,
Series A............. MIG1/NR SP1+/NR 4.50% 07/01/98 10,021,559 10,021,559
Eastern Municipal
Water District,
California Water &
Sewer, Certificates
of Participation,
Series B (FGIC
Insured) (final
maturity 7/1/20)*.... VMIG1/Aaa A1+/AAA 2.90% 03/04/98 25,640,000 25,640,000
Foothill/Eastern
Corridor Agency, Toll
Road Revenue, Series
B (LOC -- Morgan
Guaranty Trust)
(final maturity
1/2/35)*............. NR/NR A1+/AAA 2.90% 03/05/98 7,100,000 7,100,000
Fremont Certificates
of Participation,
Family Residential
Center (final
maturity 8/1/28)*.... NR/NR A1+/AA- 2.95% 03/04/98 2,000,000 2,000,000
Fremont Multi-Family
Housing Authority
(LOC -- Bayerische
Landesbank) (final
maturity 9/1/14)*.... NR/NR A1+/AAA 3.00% 03/05/98 6,000,000 6,000,000
Grand Terrace
Community
Redevelopment Agency,
Mt. Vernon Villas
(LOC -- Industrial
Bank of Japan) (final
maturity 12/1/11)*... NR/NR A2/A- 4.10% 03/04/98 1,650,000 1,650,000
</TABLE>
- ---------------
See Notes to Financial Statements.
95
<PAGE> 547
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
Hayward Multi-Family
Housing Authority,
Series A (final
maturity 8/1/14)*.... VMIG1/Aaa NR/AAA 2.90% 03/04/98 $9,600,000 $ 9,600,000
Huntington Beach
Multi-Family Housing,
Huntington Breakers,
Series A (LOC --
Sumitomo Bank, Ltd.)
(final maturity
7/1/14)*............. VMIG1/A1 NR/NR 3.65% 03/04/98 10,300,000 10,300,000
Indio Multi-Family
Housing, Western
Federal Savings
Project (LOC -- Wells
Fargo & Co.) (final
maturity 6/1/05)*.... NR/NR A1/A+ 2.75% 03/05/98 2,900,000 2,900,000
Irvine Improvement
Board Act 1915,
District 94-13
(LOC -- Canadian
Imperial Bank) (final
maturity 9/2/22)*.... VMIG1/Aa3 A1+/AA- 3.65% 03/02/98 2,800,000 2,800,000
Irvine Improvement
Board Act 1915,
District 94-15
(LOC -- Dai-Ichi
Kangyo Bank, Ltd.)
(final maturity
9/2/20)*............. VMIG1/A1 A2/BBB+ 3.85% 03/02/98 12,733,000 12,733,000
Irvine Ranch Water
District (LOC --
National Westminster)
(final maturity
8/1/16)*............. VMIG1/AA2 A1/A 3.65% 03/04/98 2,700,000 2,700,000
Long Beach Health
Facilities, Memorial
Health Service (final
maturity 10/1/16)*... VMIG1/A1 A1+/AA- 3.05% 03/04/98 11,600,000 11,600,000
Long Beach (AMT)
(final maturity
5/15/05)*............ P1/Aaa A1/AAA 3.45% 03/04/98 4,995,000 4,995,000
Long Beach County,
Capital Asset........ P1/NR A1/NR 3.20% 03/11/98 1,000,000 1,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
96
<PAGE> 548
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
Los Angeles Community
Redevelopment Agency,
Academy Village
Apartments (AMT)
(LOC -- Swiss Bank)
(final maturity
10/1/19)*............ VMIG1/Aa1 NR/NR 3.05% 03/02/98 $15,000,000 $ 15,000,000
Los Angeles County
Metro Transportation
Sales Tax Revenue,
Series 1993A (MBIA
Insured) (final
maturity 7/1/20)*.... VMIG1/Aaa A1+/AAA 2.90% 03/05/98 31,150,000 31,150,000
Los Angeles County
Metropolitan
Transportation
Authority, Series
SG-54 (final maturity
7/1/17)*............. NR/NR A1+/AAA 3.41% 03/04/98 2,100,000 2,100,000
Los Angeles County
Pension Obligation,
Series B (AMBAC
Insured) (final
maturity 6/30/07)*... VMIG1/Aaa A1+/AAA 3.00% 03/04/98 1,200,000 1,200,000
Los Angeles County
Tranportation
Authority............ P1/NR A1+/NR 2.85% 03/12/98 5,337,000 5,337,000
Los Angeles County
Transportation
Authority, Series
A.................... P1/NR A1+/NR 3.70% 03/09/98 4,900,000 4,900,000
Los Angeles County
Transportation
Commission Sales Tax
Revenue, Series 1992A
(FGIC Insured) (final
maturity 7/1/12)*.... VMIG1/Aaa A1+/AAA 3.00% 03/04/98 2,400,000 2,400,000
Los Angeles County
Transportation
Commission Sales Tax
Revenue, Series A.... P1/NR A1+/NR 3.70% 03/09/98 100,000 100,000
Los Angeles County
Water Authority...... P1/NR A1+/NR 3.15% 04/03/98 15,000,000 15,000,000
Los Angeles County
Waste Water
Systems.............. P1/NR A1+/NR 3.60% 03/12/98 1,500,000 1,500,000
Los Angeles County
Capital Asset........ P1/NR A1/NR 3.30% 03/06/98 1,000,000 1,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
97
<PAGE> 549
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
Los Angeles County
Capital Asset........ P1/NR A1/NR 3.40% 03/25/98 $10,000,000 $ 10,000,000
Los Angeles County
Capital Asset........ P1/NR A1/NR 3.40% 03/06/98 5,000,000 5,000,000
Los Angeles
Department of Water
and Power............ P1/NR A1+/NR 3.35% 05/11/98 19,000,000 19,000,000
Los Angeles
Department of Water
and Power............ P1/NR A1+/NR 3.10% 03/17/98 5,000,000 5,000,000
Los Angeles
Department of Water
and Power............ P1/NR A1+/NR 3.75% 04/08/98 15,000,000 15,000,000
Los Angeles
Department of Water
and Power............ P1/NR A1+/NR 3.00% 03/06/98 10,000,000 10,000,000
Los Angeles
Department of Water
and Power............ P1/NR A1+/NR 3.10% 03/17/98 35,000,000 35,000,000
Los Angeles Tax &
Revenue Anticipation
Notes................ MIG1/NR SP1+/NR 4.50% 06/30/98 15,028,671 15,028,671
Los Angeles
Transportation
Authority............ P1/NR A1+/NR 2.95% 03/05/98 6,000,000 6,000,000
Los Angeles Unified
School District Tax &
Revenue Anticipation
Note................. MIG1/NR SP1+/NR 4.50% 10/01/98 7,026,456 7,026,456
Marin County Tax &
Revenue Anticipation
Notes................ MIG1/NR NR/NR 4.50% 07/31/98 20,052,238 20,052,238
Metropolitan Water
District, Southern
California
Waterworks, Series A
(AMBAC Insured)
(final maturity
6/1/23)*............. VMIG1/Aaa A1+/AAA 2.90% 03/05/98 6,980,000 6,980,000
Modesto County....... P1/NR A1+/NR 2.95% 03/12/98 8,000,000 8,000,000
Modesto Irrigation
District............. P1/NR A1/NR 3.10% 03/19/98 7,000,000 7,000,000
Monterey County
Financing Authority,
Reclamation and
Distribution Project
(LOC -- Dai-Ichi
Kangyo Bank, Ltd.)
(final maturity
9/1/36)*............. VMIG1/A1 NR/NR 3.90% 03/05/98 19,100,000 19,100,000
</TABLE>
- ---------------
See Notes to Financial Statements.
98
<PAGE> 550
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
Monterey Peninsula
Water Management
District,
Certificates of
Participation,
Wastewater
Reclamation Project
(LOC -- Sumitomo
Bank, Ltd.) (final
maturity 7/1/22)*.... VMIG1/A1 A2/A- 3.50% 03/05/98 $21,600,000 $ 21,600,000
Monterey Waste
Management Authority
(LOC -- Dai Ichi
Kangyo Bank, Ltd.)
(final maturity
4/1/15)*............. NR/NR A2/BBB+ 3.90% 03/02/98 3,400,000 3,400,000
MSR Public Power
Agency, California
San Jaun Project,
Series 1997E (MBIA
Insured) (final
maturity 7/1/22)*.... VMIG1/AAA A1+/AAA 3.00% 03/04/98 15,200,000 15,200,000
Ontario Industrial
Development
Authority, L.D.
Brinkman & Co.
(LOC -- Union Bank of
California) (final
maturity 4/1/15)*.... P1/NR NR/NR 3.55% 03/02/98 3,000,000 3,000,000
Orange County
Apartment Development
Authority, Bear Brand
Apartments (final
maturity 11/1/07)*... VMIG1/Aa2 NR/NR 3.00% 03/04/98 19,500,000 19,500,000
Orange County
Apartment Development
Authority, Pointe
Niguel Project,
Series C
(LOC -- First
Interstate Bancorp)
(final maturity
11/1/05)*............ VMIG1/Aa3 NR/NR 3.25% 03/05/98 13,000,000 13,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
99
<PAGE> 551
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
Orange County
Apartment Development
Authority, Traboco
Wood Apartments
(final maturity
4/1/23)*............. VMIG1/A1 NR/NR 2.70% 03/04/98 $2,670,000 $ 2,670,000
Orange County Housing
Authority, Costa
Partner Development,
Series BB (final
maturity 12/1/09)*... VMIG1/Aa2 NR/NR 3.20% 03/03/98 12,000,000 12,000,000
Orange County Special
Finance Authority,
Tetter Plan, Series B
(LOC-IBJ Schroder
Bank & Trust) (final
maturity 11/1/14)*... P1/A2 A2/A- 3.75% 03/04/98 5,825,000 5,825,000
Otay Water District,
Certificates of
Participation (final
maturity 9/1/26)*.... P1/Aaa A+/AAA 3.00% 03/04/98 2,200,000 2,200,000
Riverside County
Community Facilities
District, Special Tax
No. 88-4 (LOC --
Kredietbank N.V.)
(final maturity
9/1/14)*............. VMIG1/AA2 NR/NR 3.05% 03/04/98 5,700,000 5,700,000
Riverside County
Housing Authority,
Multi-Family Mortgage
Revenue, Woodcreek
Development (final
maturity 7/15/18)*... NR/NR A1+/AAA 2.95% 03/04/98 2,000,000 2,000,000
Riverside County
Housing, Multi-Family
Mortgage Revenue,
Emirtus Park, Series
B (final maturity
7/15/18)*............ NR/NR A1+/AAA 2.95% 03/04/98 3,100,000 3,100,000
Riverside County
School Financing
Authority, Revenue
Anticipation Note.... MIG1/NR NR/NR 4.50% 10/01/98 8,028,373 8,028,373
Riverside County
Transportation
Authority............ P1/NR A1/NR 3.00% 03/12/98 5,000,000 5,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
100
<PAGE> 552
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
Sacramento County
Multi-Family Housing,
Series A (LOC --
Dai-Ichi Kangyo Bank,
Ltd.) (final maturity
4/15/07)*............ VMIG1/A1 NR/NR 3.90% 03/05/98 $8,800,000 $ 8,800,000
Sacramento County Tax
& Revenue
Anticipation Note.... MIG1/NR SP1+/NR 4.50% 09/30/98 3,010,504 3,010,504
Sacramento Municipal
Utility Authority.... P1/NR A1+/NR 3.15% 03/27/98 8,000,000 8,000,000
Sacramento County.... P1/NR A1+/NR 3.35% 05/12/98 11,293,000 11,293,000
San Bernardino County
Housing Authority,
Multi-Family Housing,
Brookside Meadows,
Series A (final
maturity 8/1/05)*.... VMIG1/Aa2 NR/NR 3.10% 03/04/98 22,000,000 22,000,000
San Diego Area Local
Government,
Certificates of
Participation, Tax &
Revenue Anticipation
Notes................ NR/NR SP1+/NR 4.50% 10/01/98 1,505,247 1,505,247
San Diego City,
Industrial
Development
Authority, San Diego
Gas & Electric....... P1/NR A1+/NR 3.70% 03/09/98 1,500,000 1,500,000
San Diego City,
Industrial
Development
Authority, San Diego
Gas & Electric,
Series A............. P1/NR A1+/NR 3.65% 03/09/98 6,400,000 6,400,000
San Diego County
Housing Authority,
Multi-Family Housing
Revenue, Country
Hills (final maturity
8/15/13)*............ NR/NR A1+/AAA 2.95% 03/05/98 4,590,000 4,590,000
San Diego County Tax
& Revenue
Anticipation Notes... MIG1/NR SP1+/NR 4.50% 09/30/98 45,165,796 45,165,796
San Diego County
Water District
Authority............ P1/NR A1+/NR 3.70% 03/09/98 5,000,000 5,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
101
<PAGE> 553
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
San Diego Housing
Authority, Multi-
Family Housing, Nobel
Ct. Apartments,
Series L (final
maturity 12/1/08)*... VMIG1/A2 NR/NR 3.00% 03/05/98 $11,910,000 $ 11,910,000
San Diego Housing
Authority, Multi-
Family Housing, Paseo
Point Apartments,
Series A (final
maturity 8/1/15)*.... VMIG1/AA2 NR/NR 3.50% 03/04/98 1,500,000 1,500,000
San Diego Industrial
Development Revenue.. P1/NR A1+/NR 3.35% 05/13/98 5,200,000 5,200,000
San Francisco Airport
Authority............ P1/NR A1+/NR 3.10% 03/25/98 4,020,000 4,020,000
San Francisco City
and County Community
International
Airport, Series SG 88
(final maturity
5/1/21)*............. NR/NR A1+/AAA 3.38% 03/05/98 5,345,000 5,345,000
San Francisco City
and County Community
International
Airport, Series SGA
50 (AMT) (MBIA
Insured) (final
maturity 5/1/16)*.... NR/NR A1+/AAA 3.40% 03/04/98 7,500,000 7,500,000
San Francisco City
and County Community
International
Airport, Series SGA
56 (AMT) (MBIA
Insured) (final
maturity 5/1/26)*.... NR/NR A1+/AAA 3.40% 03/05/98 3,905,000 3,905,000
San Francisco City
and County
Multi-Family Housing,
Bayside Village
Project D, Series A
(LOC -- Industrial
Bank of Japan) (final
maturity 12/1/05)*... VMIG1/A2 NR/NR 3.85% 03/05/98 1,000,000 1,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
102
<PAGE> 554
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
San Francisco City
and County
Multi-Family Housing,
Winterland Project,
Series 1985-C
(LOC -- Citibank,
N.A.) (final maturity
6/1/06)*............. NR/NR A1+/AA- 2.70% 03/03/98 $1,500,000 $ 1,500,000
San Francisco
Commercial Paper..... P1/NR A1+/NR 3.65% 03/10/98 7,500,000 7,500,000
San Francisco
Commercial Paper..... P1/NR A1+/NR 3.70% 03/19/98 5,000,000 5,000,000
San Mateo County Tax
& Revenue
Anticipation Notes... NR/NR SP1+/NR 4.50% 07/01/98 7,015,770 7,015,770
Santa Ana Unified
School District,
Certificates of
Participation (LOC --
Banque Nationale,
Paris) (final
maturity 7/1/15)*.... VMIG1/Aa3 NR/NR 3.00% 03/04/98 3,200,000 3,200,000
Santa Clara County
Multi-Family Housing
Authority, Foxchase
Apartments (FGIC
Insured) (final
maturity 11/1/07)*... VMIG1/AAA A1+/AAA 2.90% 03/05/98 1,500,000 1,500,000
Santa Clara County,
Transit Authority,
Series 1985-A (LOC --
Sumitomo Bank) (final
maturity 6/1/15)*.... VMIG1/A1 NR/NR 4.05% 03/02/98 11,760,000 11,760,000
Santa Clara Electric
Revenue Authority,
Series C (LOC --
National Westminster)
(final maturity
7/1/10)*............. VMIG1/Aa2 NR/NR 3.05% 03/02/98 1,700,000 1,700,000
Southeast Recovery
Facility, Series A
(LOC -- Industrial
Bank of Japan Ltd.)
(final maturity
12/1/18)*............ VMIG1/A2 A2/A- 3.95% 03/02/98 19,100,000 19,100,000
</TABLE>
- ---------------
See Notes to Financial Statements.
103
<PAGE> 555
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
Southeast Recovery
Facility, Series B
(AMT) (LOC --
Industrial Bank of
Japan Ltd.) (final
maturity 12/1/18)*... VMIG1/A2 A2/A- 4.10% 03/04/98 $3,300,000 $ 3,300,000
Southern California
Metropolitan Water
District............. P1/NR A1+/NR 2.80% 03/06/98 4,000,000 4,000,000
Southern California
Metropolitan Water
District............. P1/NR A1+/NR 3.70% 03/11/98 5,700,000 5,700,000
Southern California
Public Power
Authority (AMBAC
Insured) (final
maturity 7/1/19)*.... VMIG1/Aaa A1+/AAA 3.00% 03/02/98 10,300,000 10,300,000
Southern California
Public Power
Authority, Palo Verde
Project (AMBAC
Insured) (final
maturity 7/1/17)*.... VMIG1/AAA A1+/AAA 3.00% 03/02/98 1,200,000 1,200,000
Vallejo Industrial
Development
Authority, Meyer
Cookware Industries
Project, Series A
(AMT) (LOC -- Bank of
Tokyo) (final
maturity 12/1/23)*... NR/NR A1/A+ 3.80% 03/02/98 3,300,000 3,300,000
Victor Valley
Community College,
Certificates of
Participation,
Capital Improvement
Refining Project
(LOC -- Banque
Nationale, Paris)
(final maturity
12/1/28)*............ NR/NR A1/A 3.05% 03/04/98 5,000,000 5,000,000
Washington Township
Hospital, Alameda
County, Series A
(LOC -- Industrial
Bank of Japan) (final
maturity 1/1/16)*.... VMIG1/A2 NR/NR 3.70% 03/05/98 5,900,000 5,900,000
</TABLE>
- ---------------
See Notes to Financial Statements.
104
<PAGE> 556
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS(dagger) RATINGS(dagger) MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
Woodland Multi-Family
Mortgage Revenue
(final maturity
8/1/18)*............. NR/NR A1+/AAA 2.95% 03/04/98 $1,800,000 $ 1,800,000
-------------
1,388,466,694
-------------
PUERTO RICO -- 3.5%
Puerto Rico
Commercial Paper..... P1/NR A1+/NR 2.85% 03/10/98 27,350,000 27,350,000
Puerto Rico
Commercial Paper..... P1/NR A1+/NR 2.90% 03/13/98 20,000,000 20,000,000
Puerto Rico Electric
Power Authority,
Series SGA 43 (final
maturity 7/1/22)*.... NR/NR A1+/AAA 3.35% 03/02/98 2,900,000 2,900,000
-------------
50,250,000
-------------
TOTAL INVESTMENTS -- 99.8%
(AMORTIZED COST
$1,438,716,694)(a)... 1,438,716,694
OTHER ASSETS IN EXCESS
OF
LIABILITIES -- 0.2%... 2,921,055
-------------
NET ASSETS -- 100.0%.. $1,441,637,749
=============
</TABLE>
- ---------------
Percentages indicated are based on net assets of $1,441,637,749.
(a) Cost for Federal income tax and financial reporting purposes is
substantially the same.
<TABLE>
<S> <C>
AMBAC -- AMBAC Indemnity Corporation.
AMT -- Interest on securities subject to Federal Alternative
Minimum Tax.
FGIC -- Financial Guaranty Insurance Company.
FNMA -- Federal National Mortgage Association.
FSA -- Financial Security Assurance.
LOC -- Letter of Credit.
MBIA -- Municipal Bond Insurance Association.
NR -- No rating assigned by Moody's or S&P.
</TABLE>
* Variable rate security. Maturity date reflects the next rate change date.
** Security includes put feature.
*** Security includes call feature.
(dagger) The ratings provided consist of short-term and long-term ratings.
(double dagger) 144A -- Security was purchased pursuant to Rule 144A under the
Securities Act of 1933 and may not be resold subject to that
rule except to qualified institutional buyers. At the end of
the period, these securities amounted to 17.4% of net assets.
See Notes to Financial Statements.
105
<PAGE> 557
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALIFORNIA
TAX-EXEMPT TAX-EXEMPT
MONEY MONEY MARKET
FUND FUND
------------ --------------
<S> <C> <C>
ASSETS:
Investments in securities, at value (amortized cost
$738,223,760, and $1,438,716,694, respectively).......... $738,223,760 $1,438,716,694
Cash....................................................... 93,018 284,558
Interest Receivable........................................ 4,892,966 9,195,297
Prepaid expenses........................................... 34,227 --
------------ --------------
Total Assets................................................ 743,243,971 1,448,196,549
------------ --------------
LIABILITIES:
Dividends payable.......................................... 1,080,905 813,814
Payable for investment securities purchased................ 34,410,000 5,000,000
Investment advisory fees payable........................... 54,741 109,687
Administration fees payable................................ 54,663 109,531
Special management fees payable (Pacific Horizon Shares)... 69,563 142,473
Shareholder service fees payable (Horizon Service
Shares).................................................. 34,905 131,670
Shareholder service fees payable (X Shares)................ -- 6,000
Shareholder service fees payable (S Shares)................ 5,382 25,219
Distribution fees payable (X Shares)....................... -- 7,197
Distribution fees payable (S Shares)....................... 39,748 30,269
Custodian and fund accounting fees payable................. 53,706 46,471
Transfer agent fees payable................................ 14,191 45,653
Legal fees payable......................................... 7,219 13,367
Other accrued expenses..................................... 95,172 77,449
------------ --------------
Total Liabilities........................................... 35,920,195 6,558,800
------------ --------------
NET ASSETS.................................................. $707,323,776 $1,441,637,749
============ ==============
Net Assets:
Pacific Horizon Shares..................................... $150,935,560 $ 597,734,078
Horizon Shares............................................. 343,844,011 --
Horizon Service Shares..................................... 185,806,464 671,563,654
X Shares................................................... -- 30,710,096
S Shares................................................... 26,737,741 141,629,921
------------ --------------
Total....................................................... $707,323,776 $1,441,637,749
============ ==============
Shares Outstanding ($0.001 par value, 50 billion and 40
billion shares authorized, respectively):
Pacific Horizon Shares..................................... 150,961,873 597,750,253
Horizon Shares............................................. 343,994,016 --
Horizon Service Shares..................................... 185,835,775 671,602,739
X Shares................................................... -- 30,711,906
S Shares................................................... 26,737,717 141,630,149
------------ --------------
Total....................................................... 707,529,381 1,441,695,047
============ ==============
NET ASSET VALUE, OFFERING PRICE, AND
REDEMPTION PRICE PER SHARE................................. $ 1.00 $ 1.00
============ ==============
COMPOSITION OF NET ASSETS:
Shares of common stock, at par............................. $ 707,479 $ 1,441,695
Additional paid-in capital................................. 706,768,542 1,440,189,891
Accumulated undistributed net investment income............ 52,442 62,301
Accumulated net realized losses on investment
transactions............................................. (204,687) (56,138)
------------ --------------
NET ASSETS, FEBRUARY 28, 1998............................... $707,323,776 $1,441,637,749
============ ==============
</TABLE>
- ---------------
See Notes to Financial Statements.
106
<PAGE> 558
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Statements of Operations
For the year ended February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALIFORNIA
TAX-EXEMPT
TAX-EXEMPT MONEY
MONEY MARKET
FUND FUND
----------- -----------
<S> <C> <C>
INVESTMENT INCOME:
Interest................................................... $23,523,919 $41,030,924
----------- -----------
EXPENSES:
Investment advisory fees................................... 636,863 1,149,877
Administration fees........................................ 636,863 1,149,877
Special management fees (Pacific Horizon Shares)........... 384,228 1,851,005
Shareholder service fees (Horizon Service Shares).......... 464,176 1,340,735
Shareholder service fees (X Shares)........................ -- 91,193
Shareholder service fees (S Shares)........................ 19,016 116,192
Distribution fees (X Shares)............................... -- 109,431
Distribution fees (S Shares)............................... 57,047 368,434
Custodian and fund accounting fees......................... 193,481 147,835
Transfer agent fees........................................ 48,601 98,992
Legal fees................................................. 36,242 65,288
Other expenses............................................. 246,990 225,316
----------- -----------
Total Expenses........................................... 2,723,507 6,714,175
Less: Fee waivers.......................................... (34,227) (377,448)
Expenses paid by third parties....................... (11,286) (6,195)
----------- -----------
Total Net Expenses.......................................... 2,677,994 6,330,532
----------- -----------
NET INVESTMENT INCOME....................................... 20,845,925 34,700,392
NET REALIZED LOSSES ON INVESTMENTS:
Net realized losses on investment transactions............. (33,324) (45,278)
----------- -----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $20,812,601 $34,655,114
=========== ===========
</TABLE>
- ---------------
See Notes to Financial Statements.
107
<PAGE> 559
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALIFORNIA TAX-EXEMPT
TAX-EXEMPT MONEY FUND MONEY MARKET FUND
----------------------------------- -----------------------------------
YEAR ENDED YEAR ENDED
----------------------------------- -----------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1998 1997 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income........ $ 20,845,925 $ 13,859,405 $ 34,700,392 $ 24,332,592
Net realized gains (losses)
on investment
transactions............... (33,324) (26,740) (45,278) 26,388
--------------- --------------- --------------- ---------------
Change in net assets resulting
from operations.............. 20,812,601 13,832,665 34,655,114 24,358,980
--------------- --------------- --------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM NET INVESTMENT INCOME:
Pacific Horizon Shares..... (3,710,722) (1,704,176) (15,910,817) (14,425,062)
Horizon Shares............. (11,040,725) (8,858,516) -- --
Horizon Service Shares..... (5,881,059) (3,296,713) (16,451,344) (9,708,150)
S Shares................... (213,419)(c) -- (1,319,384)(b) --
X Shares................... -- -- (1,018,847) (199,380)(a)
--------------- --------------- --------------- ---------------
Change in net assets from
shareholder distributions.... (20,845,925) (13,859,405) (34,700,392) (24,332,592)
--------------- --------------- --------------- ---------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares
issued................... 1,756,343,172 1,611,040,281 3,024,788,107 2,140,307,421
Dividends reinvested....... 5,686,685 2,774,538 26,426,275 19,760,377
Cost of shares redeemed.... (1,574,206,334) (1,481,260,268) (2,603,253,345) (1,897,767,756)
--------------- --------------- --------------- ---------------
Change in net assets from
capital share transactions... 187,823,523 132,554,551 447,961,037 262,300,042
--------------- --------------- --------------- ---------------
Change in net assets.......... 187,790,199 132,527,811 447,915,759 262,326,430
NET ASSETS:
Beginning of year.......... 519,533,577 387,005,766 993,721,990 731,395,560
--------------- --------------- --------------- ---------------
End of year................ $ 707,323,776 $ 519,533,577 $ 1,441,637,749 $ 993,721,990
=============== =============== =============== ===============
Accumulated Undistributed Net
Investment Income............ $ 52,442 $ 52,442 $ 62,301 $ 62,301
=============== =============== =============== ===============
</TABLE>
- ---------------
(a) Period from October 2, 1996 (inception date) to February 28, 1997.
(b) Period from June 18, 1997 (inception date) to February 28, 1998.
(c) Period from July 8, 1997 (inception date) to February 28, 1998.
See Notes to Financial Statements.
108
<PAGE> 560
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, 1998, the Company
operated as a series company comprised of seventeen portfolios. The accompanying
financial statements and notes are those of the Pacific Horizon Tax-Exempt Money
Fund (the "Tax-Exempt Fund") and Pacific Horizon California Tax-Exempt Money
Market Fund (the "California Tax-Exempt Fund"), collectively the "Funds",
individually the "Fund".
The Tax-Exempt Fund issues four classes of shares (Pacific Horizon Shares,
Horizon Shares, Horizon Service Shares and effective July 8, 1997, S Shares) and
California Tax-Exempt Fund issues four classes of shares (Pacific Horizon
Shares, Horizon Service Shares, and effective October 2, 1996, X Shares and
effective June 18, 1997, S Shares). The California Tax-Exempt Fund is authorized
to issue a fourth class of shares (Horizon Shares). Pacific Horizon Shares have
a Special Management Services Plan while the Horizon Service Shares have a
Shareholder Services Plan. X Shares and S Shares have a Distribution and
Services Plan.
The Funds' seek to provide as high a level of current interest income exempt
from federal income taxes as is consistent with relative stability of principal
and daily liquidity. In addition, the California Tax-Exempt Fund seeks to
provide income that is also exempt from California state income taxes.
Bank of America National Trust and Savings Association ("Bank of America"),
a subsidiary of BankAmerica Corporation, serves as the Fund's investment
adviser. On September 15, 1997, Bank of America assumed the responsibility of
administrator for each of the Funds pursuant to the terms of an Administration
Agreement between the Company and Bank of America (the "Administration
Agreement"). Prior to September 15, 1997 BISYS Group, Inc. ("BISYS") through its
wholly-owned subsidiary, BISYS Fund Services, Limited Partnership, served as the
Funds' Administrator.
Bank of America has entered into an agreement with PFPC Inc. ("PFPC"), an
indirect wholly-owned subsidiary of PNC Bank Corp., pursuant to which PFPC has
agreed to provide certain sub-administration services to the Funds, including,
but not limited to, assisting in the developing and monitoring of compliance
procedures, participating in periodic updating of the Funds' prospec-
109
<PAGE> 561
tuses and statements of additional information, providing periodic reports to
the Company's Board and providing certain record-keeping services. Bank of
America will bear all fees and expenses charged by PFPC for such services.
In addition, pursuant to authority granted in the Administration Agreement,
Bank of America has entered into an agreement with The Bank of New York ("BONY")
under which BONY has agreed to provide certain accounting, bookkeeping, pricing
and dividend and distribution calculation services for the Funds. The Funds bear
all fees and expenses charged by BONY for these services.
DISTRIBUTOR AND TRANSFER AGENT
Effective September 15, 1997, Provident Distributors, Inc. ("PDI"), assumed
responsibility as principal underwriter and distributor of shares of the Funds.
Prior to such date, Concord Financial Group, Inc. (the "Former Distributor"),
also a wholly-owned subsidiary of BISYS, served as distributor of the Funds.
Additionally on October 24, 1997, PFPC assumed responsibility as the Fund's
transfer agent and dividend disbursing agent. BISYS Fund Services, Inc. ("BISYS
Ohio") also a wholly-owned subsidiary of BISYS, served the Funds in such
capacity prior to such date.
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. These policies are
in conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
PORTFOLIO VALUATIONS:
The securities of the Funds are valued at amortized cost, which approximates
market value. The amortized cost method involves valuing a security at its cost
on the date of purchase and thereafter assuming a constant amortization to
maturity of the difference between principal amount due at maturity and initial
cost.
SECURITIES TRANSACTIONS AND RELATED INCOME:
The Funds record security transactions on a trade date basis. Interest
income, including accretion of discount and amortization of premium, is accrued
110
<PAGE> 562
daily. Realized gains and losses from security transactions are recorded on an
identified cost basis.
EXPENSES:
The Company accounts separately for the assets, liabilities and operations
of each fund. Direct expenses of a fund are charged to that fund while general
Company expenses are allocated among the Company's respective portfolios.
The investment income and expenses (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.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
The Funds' net investment income is declared as a dividend daily, and paid
monthly, 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, 1998, the following reclassifications have been made to
increase (decrease) such accounts with offsetting adjustments made to paid-in
capital:
<TABLE>
<CAPTION>
ACCUMULATED ACCUMULATED NET
UNDISTRIBUTED NET REALIZED GAIN/(LOSS)
FUND INVESTMENT INCOME ON INVESTMENTS
---- ------------------ --------------------
<S> <C> <C>
Tax-Exempt Fund........................... $ -- $(16,664)
</TABLE>
111
<PAGE> 563
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
annually all of its net investment company taxable income and net capital gains
to shareholders. Therefore, no Federal income tax provision is required.
At February 28, 1998, the Tax-Exempt Fund and California Tax-Exempt Fund had
the following capital loss carryovers:
<TABLE>
<CAPTION>
CAPITAL LOSS EXPIRATION
FUND CARRYOVER DATE
---- ------------ ----------
<S> <C> <C>
Tax-Exempt Fund........................................... $ 14,011 2000
71,218 2002
19,132 2003
36,425 2004
30,577 2005
15,133 2006
--------
$186,496
========
California Tax-Exempt Fund................................ $ 4,266 2004
51,872 2006
--------
56,138
========
</TABLE>
To the extent that these loss carryovers are used to offset future capital
gains, it is probable that the gains so offset will not be distributed to
shareholders. During the year ended February 28, 1998, $16,664 of capital loss
carryovers expired for the Tax-Exempt Fund.
Capital losses incurred after October 31 for the Tax-Exempt Fund and the
California Tax-Exempt Fund are deemed to arise on the first business day of the
following fiscal year for tax purposes. The Funds have incurred and elected to
defer capital losses of $18,190 and $1,893, respectively, incurred after October
31, 1997.
OTHER:
The Funds maintain 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, 1998, custodian fees and expenses paid by third parties were
increased by $11,286 and $6,195 for the Tax-Exempt Fund and California Tax-
Exempt Fund, respectively. There was no effect on net investment income. The
Fund could have invested such cash amounts in income producing assets if it had
not agreed to a reduction of fees or expenses under the expense offset
arrangement with its custodian.
112
<PAGE> 564
NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
The Funds have an Investment Advisory Agreement and an Administration
Agreement with Bank of America. For the period ended September 15, 1997, the
Fund's had an Administration Agreement with BISYS and a Distribution Agreement
with the Former Distributor. Bank of America is entitled to an Advisory fee from
each Fund, which is accrued daily and payable monthly, at an annual rate of
0.10% of each Fund's first $3 billion of net assets, plus 0.09% of each Fund's
next $2 billion of net assets, plus 0.08% of each Fund's net assets in excess of
$5 billion. The Administration Agreement entitled Bank of America to fees from
each Fund for Administrative services performed, which is accrued daily and
payable monthly, at an annual rate of 0.10% of each Fund's first $7 billion of
net assets, plus 0.09% of each Fund's next $3 billion of net assets, plus 0.08%
of each Fund's net assets in excess of $10 billion. During the period March 1,
1997 through September 15, 1997, the Funds had an Administration Agreement with
BISYS. Administration fee rates paid to BISYS were the same as those currently
paid to Bank of America. The Funds were advised that for the period September
15, 1997 through February 28, 1998, Bank of America and for the period March 1,
1997 through September 15, 1997, BISYS earned the following amounts pursuant to
the respective Administrative Agreements:
<TABLE>
<CAPTION>
BANK OF
AMERICA AND
FUND AFFILIATES BISYS
---- ----------- -----
<S> <C> <C>
Tax-Exempt Fund.......................................... $322,955 $313,908
California Tax-Exempt Fund............................... 575,370 574,507
</TABLE>
The Funds have adopted a Special Management Services Plan (the "Services
Plan") pursuant to which Service Organizations agree to provide certain services
to their clients who are beneficial owners of Pacific Horizon Shares in return
for a payment by the Funds of a fee at an annual rate of 0.32% and 0.35% for the
Tax-Exempt Money Fund and California Tax-Exempt Fund, respectively, of the
average daily net assets of the outstanding Pacific Horizon Shares of each Fund.
Currently, the California Tax-Exempt Fund is waiving 0.03% in special management
fees. Fees under the Services Plan are borne solely by the Pacific Horizon
Shares. Service Organizations may include Bank of America and its affiliates,
and PDI (from September 15 through February 28, 1998), and BISYS (prior to
September 15, 1997). Under the Services Agreement and Services Plan, Bank of
America, PDI (from September 15 through February 28, 1998), and BISYS (prior to
September 15, 1997) waived $158,626, $218 and $525, respectively, in special
management fees for the California Tax-Exempt Fund. For the year ended February
28, 1998, for the period September 15, 1997 through February 28, 1998 and for
the period March 1, 1997 through September 15, 1997, the Funds were
113
<PAGE> 565
advised that Bank of America and its affiliates, PDI and BISYS earned the
following amounts pursuant to the Services Agreement and Services Plan,
respectively:
<TABLE>
<CAPTION>
BANK OF
AMERICA AND
FUND AFFILIATES PDI BISYS
---- ----------- ------ -----
<S> <C> <C> <C>
Tax-Exempt Fund.................................. $ 377,885 $2,580 $2,939
California Tax-Exempt Fund....................... 1,676,744 2,304 5,548
</TABLE>
The Funds have also adopted a Shareholder Services Plan (the "Horizon
Services Plan") pursuant to which Service Organizations agree to provide certain
services to their clients who are beneficial owners of Horizon Service Shares in
return for payment by the Funds of a fee at an annual rate of 0.25% of the
average daily net assets of the Horizon Service Shares. Fees under the Horizon
Services Plan are borne solely by the Horizon Service Shares. For the year ended
February 28, 1998, the Funds were advised that Bank of America and its
affiliates earned the following amounts pursuant to the Horizon Services Plan,
respectively:
<TABLE>
<CAPTION>
BANK OF
AMERICA AND
FUND AFFILIATES
---- -----------
<S> <C>
Tax-Exempt Fund............................................. $ 422,932
California Tax-Exempt Fund.................................. 1,187,827
</TABLE>
The California Tax-Exempt Fund has adopted the Distribution and Services
Plan under which the Fund paid PDI and the Former Distributor and Service
Organizations for the provision of support services with respect to the
beneficial owners of X Shares. Payments for distribution expenses and
shareholder servicing expenses may not exceed the annual rate of 0.30% and
0.25%, respectively, of the average daily net assets of such Fund's X Shares.
For the year ended February 28, 1998, the Fund was advised that Bank of America
and its affiliates earned $200,624 pursuant to the Distribution and Services
Plan.
The Funds have adopted the Distribution and Services Plan under which the
Fund pays the Distributor and Service Organizations for the provision of support
services with respect to the beneficial owners of S shares. Payments for the
distribution expenses and shareholder servicing expenses may not exceed the
annual rate of 0.75% and 0.25%, respectively, of the average daily net assets of
the Funds' S shares. For the year ended February 28, 1998, the Funds were
114
<PAGE> 566
advised that Bank of America and its affiliates earned the following amounts
pursuant to the Distribution and Services Plan, respectively:
<TABLE>
<CAPTION>
BANK OF
AMERICA AND
FUND AFFILIATES
---- -----------
<S> <C>
Tax-Exempt Fund............................................. $ 41,836
California Tax-Exempt Fund.................................. 266,540
</TABLE>
For the same period, the Funds were advised that Bank of America and its
Affiliates waived $34,227 and $218,079 for the Tax-Exempt Fund and the
California Tax-Exempt Fund, respectively.
From the period October 24, 1997 through February 28, 1998 PFPC earned
$5,088 and $43,682 from the Tax-Exempt Fund and California Tax-Exempt Fund,
respectively, for transfer agency and dividend disbursing agency services
performed. BISYS Ohio served the Funds as transfer agent and dividend disbursing
agent through October 24, 1997. In these capacities for the Funds, BISYS Ohio
earned $43,513 and $55,310 from the Tax-Exempt Fund and California Tax-Exempt
Fund, respectively, for the period ended October 24, 1997.
For the year ended February 28, 1998, the Tax-Exempt Fund and California
Tax-Exempt Fund incurred legal charges totaling $36,242 and $65,288,
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 PFPC. 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 $50,000,
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 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 will
receive an additional 10% of their annual Director's retainer for each year of
service between years six
115
<PAGE> 567
and nine, plus one half of the difference between 100% and the director's
applicable percentage. A Director who dies or resigns after ten 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 after February 28, 1994; however a director in office on March 18,
1998 who either resigns in good standing or dies before completing five years of
service as a director should be assigned an applicable percentage of 50 percent.
Aggregate costs pursuant to the Retirement Plan amounted to $33,960 and $5,064
for the Tax-Exempt Fund and California Tax-Exempt Fund, respectively, for the
year ended February 28, 1998. A director who comes into office after March 18,
1998 is ineligible to participate in the Retirement Plan.
NOTE 5 -- CONCENTRATION OF CREDIT RISK
The Tax-Exempt Fund invests substantially all of its assets in a diversified
portfolio of tax-exempt debt obligations. The California Tax-Exempt Fund invests
substantially all of its assets in a nondiversified portfolio of tax-exempt debt
obligations primarily consisting of issuers in the State of California. The
issuers' abilities to meet their obligations may be affected by economic,
regional or political developments.
116
<PAGE> 568
The Tax-Exempt Fund and the California Tax-Exempt Fund had the following
concentrations by industry sector at February 28, 1998 (as a percentage of total
investments):
<TABLE>
<CAPTION>
CALIFORNIA
TAX-EXEMPT TAX-EXEMPT
FUND FUND
---------- ----------
<S> <C> <C>
Airport Facilities....................................... 1.2% 0.6%
Certificates of Participation............................ -- 0.5
Commercial Paper......................................... 11.4 25.4
Education................................................ 8.1 0.3
General Obligations...................................... 12.3 4.9
Healthcare............................................... 21.7 7.9
Housing Developments..................................... 0.9 16.6
Industrial Development Revenue........................... 4.7 3.4
Municipal Notes & Bonds.................................. 4.4 1.3
Pollution Control........................................ 2.7 10.5
Power Projects........................................... 2.5 1.0
Revenue.................................................. 14.0 12.9
Sewer Projects........................................... -- 3.9
Special Tax.............................................. 7.2 6.2
Transportation........................................... 2.4 1.5
Turnpike, Road & Bridge Development...................... 0.1 --
Utilities................................................ 3.3 0.1
Water Projects........................................... 3.1 3.0
------ ------
100.0% 100.0%
====== ======
</TABLE>
117
<PAGE> 569
NOTE 6 -- CAPITAL SHARE TRANSACTIONS
Transactions in shares of each Portfolio (at $1.00 per share) for the
periods indicated are summarized below:
<TABLE>
<CAPTION>
CALIFORNIA
TAX-EXEMPT TAX-EXEMPT
MONEY FUND MONEY MARKET FUND
-------------------------------- ------------------------------
YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
PACIFIC HORIZON SHARES
Issued...................... 248,974,300 230,496,897 924,399,780 917,590,384
Reinvested.................. 3,683,304 1,545,273 15,765,764 13,790,272
Redeemed.................... (188,139,622) (195,234,875) (835,476,867) (966,354,368)
-------------- -------------- -------------- ------------
Net increase/(decrease)...... 64,517,982 36,807,295 104,688,677 (34,973,712)
============== ============== ============== ============
HORIZON SHARES
Issued...................... 1,016,879,219 997,203,792 -- --
Reinvested.................. 60,094 135,161 -- --
Redeemed.................... (937,199,915) (1,035,902,063) -- --
-------------- -------------- -------------- ------------
Net increase/(decrease)...... 79,739,398 (38,563,110) -- --
============== ============== ============== ============
HORIZON SERVICE SHARES
Issued...................... 444,505,307 383,339,592 1,844,862,775 1,184,396,760
Reinvested.................. 1,729,858 1,094,104 8,320,478 5,770,710
Redeemed.................... (429,406,739) (250,123,330) (1,653,155,809) (921,990,855)
-------------- -------------- -------------- ------------
Net increase................. 16,828,426 134,310,366 200,027,444 268,176,615
============== ============== ============== ============
X SHARES
Issued...................... -- -- 62,397,815 38,320,277
Reinvested.................. -- -- 1,019,371 199,395
Redeemed.................... -- -- (61,802,419) (9,422,533)
-------------- -------------- -------------- ------------
Net increase................. -- -- 1,614,767 29,097,139(a)
============== ============== ============== ============
S SHARES
Issued...................... 45,984,346 -- 193,127,737 --
Reinvested.................. 213,429 -- 1,320,662 --
Redeemed.................... (19,460,058) -- (52,818,250) --
-------------- -------------- -------------- ------------
Net increase................. 26,737,717(c) -- 141,630,149(b) --
============== ============== ============== ============
</TABLE>
- ---------------
<TABLE>
<C> <S>
(a) Period from October 2, 1996 (inception date) to February 28,
1997.
(b) Period from June 18, 1997 (inception date) to February 28,
1998.
(c) Period from July 8, 1997 (inception date) to February 28,
1998.
</TABLE>
118
<PAGE> 570
PACIFIC HORIZON TAX-EXEMPT MONEY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD
--------------------------------------------------------------- ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994(a)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
PACIFIC HORIZON SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income......... 0.0310 0.0290 0.0327 0.0253 0.0124
Less dividends to shareholders
from net investment income.... (0.0310) (0.0290) (0.0327) (0.0253) (0.0124)
-------- -------- -------- -------- --------
Net change in net asset value
per share..................... -- -- -- -- --
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END
OF YEAR....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return................... 3.14% 2.94% 3.32% 2.56% 1.25%(d)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions).................. $ 151 $ 86 $ 50 $ 37 $ 50
Ratio of expenses to average
net assets.................. 0.60% 0.60% 0.63% 0.60% 0.60%(c)
Ratio of net investment income
to average net assets....... 3.09% 2.91% 3.26% 2.47% 1.95%(c)
Ratio of expenses to average
net assets*................. (b)(e) (b) (b) (b) 0.61%(c)
Ratio of net investment income
to average net assets*...... (b)(e) (b) (b) (b) 1.94%(c)
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the year, 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.
(a) Period from July 9, 1993 (inception date) to February 28,
1994.
(b) There were no fee waivers or expense reimbursements during
the period.
(c) Annualized.
(d) Not annualized.
(e) Fees paid by third parties had no effect on the ratios.
</TABLE>
See Notes to Financial Statements.
119
<PAGE> 571
PACIFIC HORIZON TAX-EXEMPT MONEY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
HORIZON SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income......... 0.0342 0.0322 0.0359 0.0285 0.0225
Less dividends to shareholders
from net investment income.... (0.0342) (0.0322) (0.0359) (0.0285) (0.0225)
-------- -------- -------- -------- --------
Net change in net asset value
per share..................... -- -- -- -- --
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END
OF YEAR....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return................... 3.47% 3.27% 3.65% 2.89% 2.27%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions).................. $ 344 $ 264 $ 303 $ 382 $ 515
Ratio of expenses to average
net assets.................. 0.28% 0.28% 0.31% 0.28% 0.28%
Ratio of net investment income
to average net assets....... 3.41% 3.22% 3.58% 2.81% 2.25%
Ratio of expenses to average
net assets*................. (a)(b) (a) (a) (a) 0.29%
Ratio of net investment income
to average net assets*...... (a)(b) (a) (a) (a) 2.24%
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the year, 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.
(a) There were no fee waivers or expense reimbursements during
the period.
(b) Fees paid by third parties had no effect on the ratios.
</TABLE>
See Notes to Financial Statements.
120
<PAGE> 572
PACIFIC HORIZON TAX-EXEMPT MONEY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
HORIZON SERVICE SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- ---------
Income from Investment
Operations:
Net investment income......... 0.0317 0.0297 0.0334 0.0260 0.0200
Less dividends to shareholders
from net investment income.... (0.0317) (0.0297) (0.0334) (0.0260) (0.0200)
-------- -------- -------- -------- --------
Net change in net asset value
per share..................... -- -- -- -- --
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END
OF YEAR....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return................... 3.22% 3.01% 3.39% 2.63% 2.02%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions).................. $ 186 $ 169 $ 35 $ .39 $ 48
Ratio of expenses to average
net assets.................. 0.53% 0.53% 0.56% 0.53% 0.53%
Ratio of net investment income
to average net assets....... 3.17% 2.98% 3.34% 2.57% 2.04%
Ratio of expenses to average
net assets*................. (a)(b) (a) (a) (a) 0.57%
Ratio of net investment income
to average net assets*...... (a)(b) (a) (a) (a) 2.00%
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the year, 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.
(a) There were no fee waivers or expense reimbursements during
the period.
(b) Fees paid by third parties had no effect on the ratios.
</TABLE>
See Notes to Financial Statements.
121
<PAGE> 573
PACIFIC HORIZON TAX-EXEMPT MONEY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
FEBRUARY 28,
1998(a)
------------
<S> <C>
S SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD.............. $ 1.00
Income from Investment Operations:
Net investment income..................................... 0.0184
Less dividends to shareholders from net investment income... (0.0184)
--------
Net change in net asset value per share..................... --
--------
NET ASSET VALUE PER SHARE, END OF PERIOD.................... $ 1.00
========
Total return................................................ 1.85%(c)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (millions).................... $ 27
Ratio of expenses to average net assets................... 0.81%(b)
Ratio of net investment income to average net assets...... 2.76%(b)
Ratio of expenses to average net assets*.................. 1.25%(b)(d)
Ratio of net investment income to average net assets*..... 2.32%(b)(d)
</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.
(a) Period from July 8, 1997 (inception date) to February 28,
1998.
(b) Annualized.
(c) Not annualized.
(d) Fees paid by third parties had no effect on the ratios.
</TABLE>
See Notes to Financial Statements.
122
<PAGE> 574
PACIFIC HORIZON CALIFORNIA TAX-EXEMPT
MONEY MARKET FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
PACIFIC HORIZON SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income......... 0.0302 0.0284 0.0324 0.0249 0.0186
Net realized gains/(losses) on
investment transactions..... -- -- (0.0001) (0.0001) 0.0002
-------- -------- -------- -------- --------
Total income from investment
operations.................... 0.0302 0.0284 0.0323 0.0248 0.0188
Less dividends to shareholders
from net investment income.... (0.0302) (0.0284) (0.0324) (0.0249) (0.0186)
-------- -------- -------- -------- --------
Net change in net asset value
per share..................... -- -- (0.0001) (0.0001) 0.0002
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END
OF YEAR....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return................... 3.06% 2.88% 3.29% 2.52% 1.88%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions).................. $ 598 $ 493 $ 528 $ 187 $ 204
Ratio of expenses to average
net assets.................. 0.57% 0.57% 0.62% 0.62% 0.66%
Ratio of net investment income
to average net assets....... 3.01% 2.83% 3.35% 2.48% 1.86%
Ratio of expenses to average
net assets*................. 0.60%(b) 0.60%** 0.63%** (a) 0.68%
Ratio of net investment income
to average net assets*...... 2.98%(b) 2.80% (b) (a) 1.84%
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the year, 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 cash balances which were used
to offset custodian fees and expenses. If such credits had
not occurred, the expense ratio would have been as
indicated. The ratio of net investment income was not
affected.
(a) There were no fee waivers or expense reimbursements during
the period.
(b) Fees paid by third parties had no effect on the ratios.
</TABLE>
See Notes to Financial Statements.
123
<PAGE> 575
PACIFIC HORIZON CALIFORNIA TAX-EXEMPT
MONEY MARKET FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
HORIZON SERVICE SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income......... 0.0309 0.0291 0.0331 0.0256 0.0198
Net realized gains/(losses) on
investment transactions..... -- -- 0.0001 (0.0001) (0.0001)
-------- -------- -------- -------- --------
Total income from investment
operations.................... 0.0309 0.0291 0.0332 0.0255 0.0197
Less dividends to shareholders
from net investment income.... (0.0309) (0.0291) (0.0331) (0.0256) (0.0198)
-------- -------- -------- -------- --------
Net change in net asset value
per share..................... -- -- 0.0001 (0.0001) (0.0001)
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END
OF YEAR....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return................... 3.13% 2.95% 3.36% 2.59% 2.00%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions).................. $ 671 $ 472 $ 203 $ 88 $ 124
Ratio of expenses to average
net assets.................. 0.50% 0.50% 0.55% 0.55% 0.53%
Ratio of net investment income
to average net assets....... 3.06% 2.92% 3.43% 2.50% 1.98%
Ratio of expenses to average
net assets*................. (a)(b) (b) 0.55%** (a) 0.60%
Ratio of net investment income
to average net assets*...... (a)(b) (b) 3.42% (a) 1.91%
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the year, 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 year ended February 29, 1996 the Portfolio
received credits from its custodian for interest earned on
uninvested cash balances which were used to offset custodian
fees and expenses. If such credits had not occurred, the
expense ratio would have been as indicated. The ratio of net
investment income was not affected.
(a) There were no fee waivers or expense reimbursements during
the period.
(b) Fees paid by third parties had no effect on the ratios.
</TABLE>
See Notes to Financial Statements.
124
<PAGE> 576
PACIFIC HORIZON CALIFORNIA TAX-EXEMPT
MONEY MARKET FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
FEBRUARY 28, FEBRUARY 28,
1998 1997(a)
------------ ------------
<S> <C> <C>
X SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD......... $ 1.00 $ 1.00
Income from Investment Operations:
Net investment income................................ 0.0279 0.0107
Less dividends to shareholders from net investment
income............................................... (0.0279) (0.0107)
-------- --------
Net change in net asset value per share................ -- --
-------- --------
NET ASSET VALUE PER SHARE, END OF PERIOD............... $ 1.00 $ 1.00
======== ========
Total return........................................... 2.83% 1.09%(d)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (millions)............... $ 31 $ 29
Ratio of expenses to average net assets.............. 0.80% 0.80%(c)
Ratio of net investment income to average net
assets............................................. 2.80% 2.66%(c)
Ratio of expenses to average net assets*............. (b) (b)
Ratio of net investment income to average net
assets*............................................ (b) (b)
</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.
(a) Period from October 2, 1996 (inception date) to February 28,
1997.
(b) Fees paid by third parties had no effect on the ratios.
(c) Annualized.
(d) Not annualized.
</TABLE>
See Notes to Financial Statements.
125
<PAGE> 577
PACIFIC HORIZON CALIFORNIA TAX-EXEMPT
MONEY MARKET FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
FEBRUARY 28,
1998(a)
------------
<S> <C>
S SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD.............. $ 1.00
--------
Income from Investment Operations:
Net investment income..................................... 0.0194
Less dividends to shareholders from net investment income... (0.0194)
--------
Net change in net asset value per share..................... --
--------
NET ASSET VALUE PER SHARE, END OF PERIOD.................... $ 1.00
========
Total return................................................ 1.96%(d)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (millions).................... $ 141
Ratio of expenses to average net assets................... 0.79%(c)
Ratio of net investment income to average net assets...... 2.69%(c)
Ratio of expenses to average net assets*.................. 1.23%(b)(c)
Ratio of net investment income to average net assets*..... 2.25%(b)(c)
</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.
(a) Period from June 18, 1997 (inception date) to February 28,
1998.
(b) Fees paid by third parties had no effect on the ratios.
(c) Annualized.
(d) Not annualized.
</TABLE>
See Notes to Financial Statements.
126
<PAGE> 578
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 portfolios 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 Pacific Horizon Tax-Exempt Money
Fund and Pacific Horizon California Tax-Exempt Money Market Fund (two of the
seventeen portfolios constituting Pacific Horizon Funds, Inc., hereafter
referred to as the "Funds") at February 28, 1998, 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, 1998 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
April 21, 1998
127
<PAGE> 579
For more information, complete the following form and mail it to:
Pacific Horizon Funds, Inc.
PO Box 8968
Wilmington, DE 19899-8968
................................................................................
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> 580
Bulk Rate
U.S. Postage
PAID
New York, NY
Permit No. 8048
IST-0037 4/98
<PAGE> 581
PACIFIC HORIZON INCOME FUNDS
ANNUAL REPORT
February 28, 1998
U.S. Government Securities Fund
Corporate Bond Fund
Intermediate Bond Fund
Investing For All
The Times Of Your Life
NOT FDIC INSURED
PACIFIC HORIZON INCOME FUNDS
<PAGE> 582
PACIFIC HORIZON FUNDS, INC.
103 Bellevue Parkway
Wilmington, DE 19809
1-800-332-3863
INVESTMENT ADVISER
Bank of America National Trust
and Savings Association
555 California Street
San Francisco, CA 94104
ADMINISTRATOR
Bank of America National
Trust and Savings Association
555 California Street
San Francisco, CA 94104
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
Provident Distributors, Inc.
Four Falls Corporate Center
6th Floor
Conshohocken, PA 19428
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 Provident
Distributors, Inc. which is unaffiliated with the Bank of America. Bank of
America serves as investment adviser to the Funds 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, NOT
BANK OF AMERICA OR ANY AFFILIATES. AN INVESTMENT IN FDIC
MUTUAL FUNDS INVOLVES INVESTMENT RISKS, INCLUDING THE INSURED
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
- ----------------------------------------------------------------------------
</TABLE>
-----------------------------------------------------------------------------
--------------------------------------------------------------------------
<PAGE> 583
..................................
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 MANAGER 10-21
PACIFIC HORIZON U.S.
GOVERNMENT SECURITIES FUND,
CORPORATE BOND FUND AND
INTERMEDIATE BOND FUND
Portfolios of Investments 22-27
Statements of Assets
and Liabilities 28-29
Statements of Operations 30-31
Statements of Changes
in Net Assets 32-33
Statement of Assets
and Liabilities 34
Statement of Operations 35
Statements of Changes
in Net Assets 36
Notes to Financial Statements 37-48
Financial Highlights 49-55
Report of Independent
Accountants 56
MASTER INVESTMENT TRUST, SERIES
I -- INVESTMENT
GRADE BOND PORTFOLIO
Portfolio of Investments 57-60
Statement of Assets
and Liabilities 61
Statement of Operations 62
Statements of Changes
in Net Assets 63
Notes to Financial Statements 64-66
Supplementary Data 67
Report of Independent
Accountants 68
</TABLE>
<PAGE> 584
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>
- ------------------------------------------------------------------------------
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(dagger) High Current Income Plus Principal
- Prime Stability
- Treasury
- Government
- Treasury Only
..............................................................................
Tax-Exempt Money Market Funds*(dagger)
- Tax-Exempt Money High Level of Federal Tax-Free Current
Income Plus Principal Stability
- California Tax-Exempt Money High Level of Federal and California
Market 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.
(dagger) 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> 585
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
Preferred Stocks and capital appreciation.
...........................................................................
Stocks, Bonds and Cash Long-term growth potential and current
Equivalents income from stocks and bonds.
...........................................................................
Investment-Grade Corporate Debt High monthly income potential with
reasonable investment risk.
...........................................................................
Investment-Grade Corporate and Regular monthly income from a
U.S. Government Securities diversified portfolio of
investment-grade securities.
...........................................................................
GNMAs and Other U.S. Government High monthly income potential and low
Securities credit risk.
...........................................................................
U.S. Government and Government Monthly income and relative stability
Agency Securities of investment.
...........................................................................
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 A flexible, convenient way to manage or
U.S. Government Short-Term accumulate cash while waiting for other
Obligations 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
Obligations cash while waiting for other investment
opportunities.
</TABLE>
- --------------------------------------------------------------------------------
3
<PAGE> 586
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
MANAGER enables you to gain
insight into the Fund's
investments and learn more
about the Fund manager's
strategies.
[GRAPHICS]
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.
[GRAPHICS]
4
<PAGE> 587
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
[GRAPHICS]
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
[GRAPHICS]
THE MARKET VALUE OF THE FUND'S TOTAL NET
ASSETS DIVIDED BY THE NUMBER OF SHARES
OUTSTANDING
THE CURRENT NET ASSET VALUE PER SHARE PLUS SALES CHARGE, IF ANY
5
<PAGE> 588
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
[GRAPHICS]
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
[GRAPHICS]
The NOTES TO FINANCIAL STATEMENTS are footnotes to the statements listed above.
These notes include information on accounting methods used by the Fund,
contractual arrangements between the Fund and its service providers, certain
transactions effected by the Fund and other general information about the Fund.
The FINANCIAL HIGHLIGHTS shows, for a single share outstanding throughout each
period presented, the net investment income, the realized and unrealized gains
and losses and the dividends and distributions of the Fund. It also shows key
data and ratios, such as the total investment return for each period, the
portfolio turnover rate for Funds other than money market mutual funds, the
ratio of expenses to average net assets and the ratio of net investment income
to average net assets.
6
<PAGE> 589
[This page intentionally left blank.]
7
<PAGE> 590
ECONOMIC REVIEW
FROM THE INVESTMENT ADVISER
Fourth quarter Gross Domestic Product was reported at a 3.7%* annualized rate,
with inflation continuing to be non-existent and a positive factor for the
economy and the domestic financial markets. Changes in consumer prices are
negligible and producer prices are actually declining. Historically high
consumer confidence, resulting from strong job growth, wage gains and the
positive wealth effect created by the buoyant stock market, has created solid
income growth and has fueled the robust housing market in the first quarter of
1998. Consumers have been the primary beneficiaries of the turmoil in the Asian
markets. Lower bond yields, a by-product of the Asian financial crisis, have
resulted in lower mortgages payments for households looking to buy a home.
THE CASE FOR
STOCKS AND BONDS
The Standard & Poor's Stock Index posted a total return of 35.1%** during the 12
month period ended February 28, 1998, amply rewarding long-term investors who
rode out volatility that accompanied the Asian financial crisis. The best
performers were concentrated among shares of large company stocks, which
significantly outpaced shares of smaller firms.
Companies have been issuing reduced earnings forecasts at an increasing rate.
Despite the early warnings, the reduced earnings expectations have not put a
damper on the stock market. The bullish sentiment for low inflation and
continuing strong profits for 1998 are propelling the stock markets to new
highs. The Dow*** has gained 8.4% during the first two months of the year,
significantly higher than expected. Overall, the U.S. economy seems poised for
continued moderate growth, which is good news for stocks. We think it is
reasonable to expect P/E ratios to stay at current levels of 22 times 1998
earnings. That gives an estimated market return over the next 12 months of 9%
(7.8% from earnings growth and 1.2% from dividend yield).
Fixed income investors remain optimistic due to the lack of price pressures, the
strong dollar and the expectation of an Asia-led slowdown in the U.S. Interest
rates on Treasuries have fallen across the yield curve over the last twelve
months and are currently below 6%, the lowest level in 25 years. The finance
sector has been outperforming expectations as of late, which has a lot to do
with the wave of colossal merger and acquisition activity sweeping across
financial institutions.
The prospects for a government budget surplus in fiscal 1998 are growing. Some
economists are predicting as much as a $50 billion surplus due to revenues as
well as efforts to reduce government spending. These revenue flows will serve to
reduce immediate government financing needs. Already, we have seen cuts in the
size of Treasury auctions so far this year.
POTENTIAL RISKS
The Asian financial crisis, which began in the third quarter of 1997, is
expected to modestly impact U.S. domestic growth. As expected, trade between
U.S. and Asian trade partners has sharply deteriorated, with the current account
deficit widening to its highest level in ten years. The deficit widened to
$166.5 billion in 1997, up from $148.2 billion for 1996. The largest threat to
the U.S. economy, according to The Organization for Economic Cooperation and
Development (OECD), would be a second round of currency devaluations in Asia. It
could happen again if Japan fails to jumpstart its economy.
While the final outcome of the Asian financial crisis remains unclear, the
initial predictions of a global financial crisis have not been supported by the
evidence.
8
<PAGE> 591
With the Asian crisis potentially constraining corporate profitability in the
second or third quarter, we expect that growth will slow during the remainder of
the year.
Tame inflation continues to be the theme du jour as the Consumer Price Index's
1.4% increase over the past 12 months is the second lowest reading in 33 years,
outdone only by the collapse in oil prices in 1986. The lack of inflationary
pressures and the uncertainty surrounding the Asian financial crisis have kept
the Federal Reserve from raising interest rates. The Fed funds rate has remained
at 5.50% since last March. However, the labor market is stretched and wage
pressures are intensifying. So far, increased productivity has compensated for
wage increases; however, recent significant increases in real asset values, such
as housing and land, have not gone unnoticed by Chairman Greenspan and may play
a factor in determining monetary policy over the coming months.
LOOKING FORWARD
It is now a widely accepted view that the U.S. economy is growing at a faster
pace early in 1998 than analysts had projected last year at the height of the
Asian turmoil. Although the preliminary GDP figure will not be released until
the end of April, the early estimate for the first quarter lies somewhere
between 3.5 - 4.0%. In order to reach the projected 1998 growth rate of 2.8%,
U.S. growth will have to sustain a considerable slowdown in the latter part of
the year to compensate for the strengths it is exhibiting now.
Looking forward, there are a lot of crosscurrents in the U.S. corporate earnings
picture. Ironically, the impact from the Asian financial crisis so far have been
positive, with lower interest rates boosting the economy. In the first quarter,
currency and oil earnings will be negative factors, but stronger economic growth
will offset any weaknesses. In the second and third quarters, we expect the
impact from Asia should be mitigated by strong growth in Europe. We continue to
believe that the economic impact from Asia will be moderate with the U.S.
economy slowing, but sustaining a near normal growth rate of 2.8% in 1998. Given
these projections, we expect equities and fixed income securities to perform
well in 1998, although below 1997 levels.
Sincerely,
/s/ Kirk Hartman
Kirk Hartman
Chief Investment Officer of
Fixed Income Management
- ---------------
* Source: Bloomberg, 1998.
** Source: Bloomberg, 1998. 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 Dow Jones Industrial Average is a price-weighted average of 30 actively
traded blue chip stocks and cannot be invested in directly.
9
<PAGE> 592
PACIFIC HORIZON
U.S. GOVERNMENT SECURITIES FUND
CORPORATE BOND FUND
INTERMEDIATE BOND FUND
KIRK HARTMAN PHOTO
KIRK HARTMAN
Chief Investment Officer
Bank of America NT&SA
The Pacific Horizon Income Funds are managed by a Bank of America NT&SA
investment team led by Kirk
Hartman, Chief Investment Officer.
U.S. GOVERNMENT SECURITIES FUND
GOAL:
The Pacific Horizon U.S. Government Securities Fund seeks to achieve a high
level of current income consistent with preservation of capital.
INVESTMENTS:
The Fund invests primarily in instruments issued by the Government National
Mortgage Association (GNMA), which are backed by the full faith and credit of
the U.S. Government, and other securities of the U.S. Government, its agencies
and instrumentalities.
APPROPRIATE FOR:
Investors who want to participate in a diversified portfolio of U.S. Government
securities and who are willing to accept some price and yield fluctuations.
INCEPTION:
January 7, 1988
SIZE OF FUND AS OF
FEBRUARY 28, 1998:
Over $72 million
CORPORATE BOND FUND
GOAL:
The Pacific Horizon Corporate Bond Fund seeks to provide investors with high
current income consistent with reasonable investment risk.
INVESTMENTS:
The Fund invests primarily in a diversified portfolio of investment-grade
corporate debt securities, although it may invest a portion of its assets in
other types of securities and money-market instru-
ments.
APPROPRIATE FOR:
Investors looking for high current income who are willing to accept some price
and yield fluctuations.
SIZE OF FUND AS OF
FEBRUARY 28, 1998:
Approximately $37 million
10
<PAGE> 593
INTERMEDIATE BOND FUND
GOAL:
The Pacific Horizon Intermediate Bond Fund (formerly the Pacific Horizon
Flexible Bond Fund) seeks interest income and capital appreciation.
INVESTMENTS:
The Fund invests in a diversified portfolio of investment-grade, intermediate-
and longer-term bonds, including corporate and government fixed-income
obligations, mortgage-backed securities, municipal securities and cash
equivalents.
APPROPRIATE FOR:
Investors who want interest income and capital appreciation from a diversified
portfolio of fixed-income securities.
INCEPTION:
January 24, 1994
SIZE OF FUND AS OF
FEBRUARY 28, 1998:
Over $77 million
Q
WHAT FACTORS AFFECTED THE FUNDS' PERFORMANCE DURING THE 12 MONTHS ENDED
FEBRUARY 28, 1998?
A
The two primary themes during the past year were the continuation of
above-trend growth combined with below-trend inflation and the emergence of
economic crisis in Asia. The net results of these factors were lower interest
rates, a flatter yield curve and higher risk premiums. After rising early in the
period, interest rates generally fell for the remainder of the fiscal year,
bottoming in early January and ending the period with rates down as much as 90
basis points. The shorter end of the curve was essentially unchanged with longer
maturities falling more than shorter ones. The yield curve, as measured by the 2
to 30 year spread, flattened by 0.33% and ended the fiscal year at 0.39%.*
On the domestic front, the economy continues to grow at an above-trend pace with
inflation well under control growth, although expected to slow from the 3.1%
growth rate of 1996, actually accelerated in 1997, with Gross Domestic Product
("GDP") growth rate of 3.7%. In spite of the continued strong growth, inflation
turned in a stellar performance with year-over-year Producer Price Index ("PPI")
falling from 2.2% in February 1997 to - 1.7% in February 1998, and year-over-
year Consumer Price Index ("CPI") slowing from 3.0% to 1.4%. The inflation gains
are due, at least in part, to productivity gains, capacity expansion and global
disinflation.
In late October, the evolving crisis in Asia took center stage on the global
financial scene. The anticipated slowdown in global growth and continued
declines in global inflation associated with the mounting problems in Asia
caused worldwide equity indicies to tumble. Interest rates fell and
11
<PAGE> 594
corporate spreads, especially those of Asian and emerging market issuers,
widened. The widening in corporate spreads was not restricted to Asian and
emerging market credits, however, but affected all sectors and all maturities.
These problems, however, are likely to have limited effects in the United States
as the underlying economic fundamentals of the U.S. market remain quite
positive. Although a deteriorating trade sector could lower the GDP by 0.5-1.0%,
domestic demand remains strong and falling interest rates and a strong jobs
market will support an already healthy consumer market.
Nonetheless, with foreign demand falling, U.S. growth could fall as well. This
would not be entirely unwelcome. Any slowing in the economy will likely
alleviate inflationary pressures in the labor markets and, combined with the
falling cost of imported goods, should lead to additional declines in inflation.
Lastly, with the economy and inflation expected to slow, the Federal Reserve,
although likely remaining vigilant on the inflation watch, is apt to take a
wait-and-see attitude. We anticipate that the economy and corporate profits will
continue to expand, albeit at a slower pace than last year. Productivity growth,
imported deflation, and falling commodity prices will keep inflation low. It is
expected that Federal Reserve Board action will be on hold for some time to come
and interest rates will remain in a gradually declining trading range.
Q
WHAT WERE THE FUNDS' RETURNS IN THAT ENVIRONMENT?
A
The Pacific Horizon US Government Securities Fund, which invests primarily
in GNMA mortgage-backed securities posted a total return for the one year period
ended February 28, 1998 of 9.27%*** and 8.92%*** for the A and K shares,
respectively, marginally behind the funds benchmark, the Lehman Brothers GNMA
Index** which reported a total return of 9.6%.
The Pacific Horizon Corporate Bond Fund, which invests primarily in investment
grade corporate debt asset-backed securities and US Treasuries, had a total
return for the one year period ended February 28, 1998 of 10.55%*** and 9.88%***
for the A and K shares, respectively. Performance was marginally behind the
fund's benchmark, the Lehman Brothers All Corporate Bond Index, which returned
10.88%.**
The Pacific Horizon Intermediate Bond Fund, which invests in investment grade
corporate securities, asset-backed securities, and U.S. Treasuries, had a total
return of 7.40%*** and 6.80%*** for the A and K Shares, respectively. The Fund's
benchmark, the Lehman Brothers Intermediated Government/Corporate Index** had a
total return of 8.57%.
Q
HOW DID YOU STRUCTURE THE FUNDS' DURATIONS?
A
The Funds seek to use a duration-neutral philosophy. This is because
duration, a measure of a bond's price sensitivity to changes in interest rates,
is the principal component of both risk and return. We seek to deliver returns
consistent with the returns of the appropriate benchmark by maintaining the
duration of the fund close to that of the benchmark. We then attempt to add
value using a risk-budgeting approach to strategic allocation. In doing this we
analyze the expected return and the related risks of the universe of market
sectors and develop a base case allocation to the sectors that maximizes
expected returns for an acceptable level of risk. We then attempt to further
enhance value using sector value, rotation and relative value as appropriate for
each Fund.
12
<PAGE> 595
Q
WHAT OPPORTUNITIES DID YOU FIND TO ADD VALUE THROUGH SECTOR ALLOCATION IN
THE U.S. GOVERNMENT SECURITIES, INTERMEDIATE BOND AND CORPORATE BOND FUNDS?
A
The Pacific Horizon US Government Securities Fund invests primarily in
obligations that carry the full faith and credit of the US Government, such as
GNMA mortgage-backed securities and US Treasury securities. As such, the Fund
has limited opportunities to allocate across sectors*. We did however, increase
our allocation to seasoned mortgages that have already been through one
prepayment cycle, and thus prepay slower than newer issues, even as rates fall.
Additionally, when interest rates reached their recent lows, we added a small
derivative position that we believe will enhance the yield on the portfolio in a
stable or rising interest rate environment.****
In the Pacific Horizon Corporate Bond and Intermediate Bond Funds, we increased
the allocations to shorter maturity and lower credit quality issuers in the
corporate sector. This move proved beneficial as BBB rated securities again
outperformed their A and AA counterparts. Within the corporate market, we
favored the finance sector and increased our exposure to some of the lower rated
electric and natural gas pipeline companies, as their performance was improving
and there were possible merger and acquisition candidates. Additionally, as
mortgages became more inexpensive or expensive, we opportunistically added or
sold positions in the Intermediate Bond Fund. As with the US Government
Securities Fund, we also added a small derivative position to take advantage of
the substantial decrease in interest rates.****
- ---------------
* Source: Bloomberg, using Merrill Lynch Taxable Bond Indices which reflects
the One-Year Treasury Bill return. The One-Year Treasury Bill Index is an
unmanaged index generally representative of the Treasury bond market as a
whole, and cannot be invested in directly.
** The Lehman family of indices including the Lehman Brothers Corporate Bond,
Intermediate Government/Corporate Bond and the Mortgage Bond are unmanaged
indices generally representative of the different sectors within the bond
market as a whole, and cannot be invested in directly.
*** Return figures for the Fund include changes 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 for the
U.S. Government Securities, Corporate Bond and Intermediate Bond Fund was
4.33%, 5.61% and 2.57% respectively, for the period. The Funds are
currently waiving a portion of the advisory, administrative and/or
shareholder servicing fee. These voluntary waivers may be modified or
terminated at any time, which would reduce the Fund's performance.
**** The composition of the Fund's holdings is subject to change.
Total return for the Pacific Horizon Corporate Bond Fund from 1984 through April
25, 1994 reflects performance of the predecessor fund, Bunker Hill Income
Securities, Inc., a closed-end fund. Total return of the closed-end fund is
calculated assuming a purchase of common stock at market value on the opening of
the first day of each period reported. Total return for the closed-end fund does
not reflect brokerage commissions. The annual operating expenses of the
predecessor fund were less than the current operating expenses of the Pacific
Horizon Corporate Bond Fund. Had current expenses been reflected in the
predecessor fund's performance, such performance would have been reduced.
13
<PAGE> 596
PACIFIC HORIZON
U.S. GOVERNMENT SECURITIES FUND
(AS OF FEBRUARY 28, 1998)
GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)
<TABLE>
<CAPTION>
LIPPER GNMA LEHMAN
MEASUREMENT PERIOD FUNDS BROTHERS
(FISCAL YEAR COVERED) A SHARES K SHARES AVERAGE GNMA INDEX
<S> <C> <C> <C> <C>
2/29/88 9550 10000 10000 10000
2/28/89 9964 10430 10400 10430
2/28/90 11175 11698 11629 11913
2/28/91 12598 13188 13053 13518
2/29/92 14166 14830 14600 15298
2/28/93 15713 16449 16066 16853
2/28/94 16247 17008 16692 17599
2/28/95 16296 17059 16972 18110
2/29/96 17677 18505 18805 20201
2/28/97 18601 19445 19893 21589
2/28/98 20325 21179 21718 23662
</TABLE>
HOW PERFORMANCE COMPARES
The chart compares the performance of the U.S. Government Securities Fund to the
Lehman Brothers GNMA Index, which is an unmanaged index typically used as a
performance benchmark for mortgage-backed investments.
As illustrated, the Fund tracked the performance of other GNMA funds. The
average of GNMA funds reported by Lipper Analytical Services, Inc. measures the
performance of other funds with investment objectives and policies similar to
those of the Pacific Horizon U.S. Government Securities Fund. An initial $10,000
investment in the Fund made for the ten year period commencing on February 29,
1988 would now be worth $20,325 for A Shares. The same investment made in the
Lipper GNMA Funds Average would now be worth $21,718. Correspondingly, a $10,000
investment in K Shares for the same period would now be worth $21,179*.
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.
U.S. GOVERNMENT SECURITIES FUND
AVERAGE ANNUAL RETURN
<TABLE>
<CAPTION>
- ------------------------------------------------
A SHARES K SHARES*
Without With
Sales Sales
Charge Charge
- ------------------------------------------------
<S> <C> <C> <C>
1 Year 9.27% 4.33% 8.92%
................................................
5 Year 5.28% 4.32% 5.18%
................................................
10 Year 7.84% 7.35% 7.79%
</TABLE>
*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 20,
1996. For this reason, the performance results for K Shares are those of A
Shares without the sales charge for the period prior to November 19, 1996
combined with actual K Share performance from November 20, 1996 through February
28, 1998. The performance results for K Shares
14
<PAGE> 597
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 GNMA Funds Average, nor the Lehman Brothers
GNMA Index may be invested in directly. The hypothetical investment in the GNMA
indices 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.
QUALITY
Investing Only in U.S.
Government-Backed Securities
The Pacific Horizon U.S. Government
Securities Fund maintains at least a
65% position in GNMA securities and
may invest in other types of
high-quality government-backed
securities such as Treasury and
Mortgage obligations. The
flexibility to invest in different
types of securities can help to
increase performance, while
diversification can help to reduce
risk. By investing only in
high-quality government-backed
securities, the Fund may provide the
anchor for an investor's long-range
strategy.
PORTFOLIO COMPOSITION*
(PERCENTAGE BASED ON ASSETS)
<TABLE>
<S> <C> <C> <C> <C>
CASH & EQUIVALENTS 0.5
TREASURY OBLIGATIONS 0.4
GNMA SECURITIES 99.1
</TABLE>
- -----------------------------------------------------------
* The composition of the Fund's
holdings is subject to change.
15
<PAGE> 598
PACIFIC HORIZON
CORPORATE BOND FUND
(AS OF FEBRUARY 28, 1998)
GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)
<TABLE>
<CAPTION>
MEASUREMENT LIPPER
PERIOD CORPORATE LEHMAN
(FISCAL DEBT FUNDS BROTHERS
YEAR BBB RATED CORPORATE
COVERED) A SHARES K SHARES AVERAGE BOND INDEX
<S> <C> <C> <C> <C>
2/29/88 9550 10000 10000 10000
2/28/89 9099 9529 10550 10462
2/28/90 10650 11257 11258 11716
2/28/91 10423 10916 12355 13044
2/29/92 12170 12745 14119 14962
2/28/93 13293 13921 16082 17076
2/28/94 14353 15031 17460 18211
2/28/95 14918 15622 17279 18468
2/29/96 17024 17828 19840 21111
2/28/97 17742 18561 21119 22316
2/28/98 19614 20395 23419 24744
</TABLE>
HOW PERFORMANCE COMPARES
The chart compares the performance of
the Pacific Horizon Corporate Bond
Fund to the Lehman Brothers Corporate
Bond Index, which is an unmanaged
index typically used as a performance
benchmark for corporate debt
investments.
As illustrated, the Fund tracked the
performance of other corporate debt
funds. The average of corporate debt
funds reported by Lipper Analytical
Services, Inc. measures the
<TABLE>
<CAPTION>
------------------------------------------------
CORPORATE BOND FUND
AVERAGE ANNUAL RETURN
------------------------------------------------
A SHARES K SHARES*
Without With
Sales Sales
Charge Charge
------------------------------------------------
<S> <C> <C> <C>
1 Year 10.55% 5.61% 9.88%
..............................................
5 Year 8.09% 7.10% 7.94%
..............................................
10 Year 7.46% 6.97% 7.39%
------------------------------------------------
</TABLE>
performance of other funds with investment objectives and policies similar to
those of the Pacific Horizon Corporate Bond Fund. An initial $10,000 investment
in the Fund made for the ten year period commencing on February 29, 1988 would
now be worth $19,614 for A Shares. The same investment made in the Lipper
Corporate Debt Funds BBB Rated Average would now be worth $23,419.
Correspondingly, a $10,000 investment in K Shares for the same period would now
be worth $20,395*.
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 20,
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 19, 1996 combined with actual K Share performance prior to February 28,
1998. 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
16
<PAGE> 599
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 Corporate Debt Funds BBB Rated Average, nor the
Lehman Brothers Corporate Bond Index may be invested in directly. The
hypothetical investment in the Lehman Brothers Corporate Bond 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.
17
<PAGE> 600
PACIFIC HORIZON
CORPORATE BOND FUND
(AS OF FEBRUARY 28, 1998)
The Pacific Horizon Corporate Bond
Fund is a diversified portfolio of
investment-grade corporate debt
obligations and other obligations
issued or guaranteed by the U.S.
Government, its agencies or
instrumentalities. The portfolio
manager's diversification strategy
focuses on industries that are
positioned for growth and companies
that provide high current income
potential consistent with reasonable
investment risk. While the portfolio
is heavily invested in banking and
finance, it is diversified with
investments in other business
sectors.
PORTFOLIO COMPOSITION*
<TABLE>
<S> <C>
BANKING/FINANCE 48.9
AUTOMOBILES 3.2
UTILITIES 6.2
RETAIL 6.6
FOOD & BEVERAGES 9.3
INDUSTRIAL 2.5
INSURANCE 6.7
OTHER 4.0
CABLE/MEDIA 12.6
- ----------------------------------------
* The composition of the Fund's holdings is subject to change.
</TABLE>
18
<PAGE> 601
PACIFIC HORIZON
INTERMEDIATE BOND FUND
(AS OF FEBRUARY 28, 1998)
GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)
<TABLE>
<CAPTION>
MEASUREMENT LIPPER LEHMAN
PERIOD INTERMEDIATE BROTHERS
(FISCAL INVESTMENT INTERMEDIATE
YEAR FUNDS GOVERNMENT/CORPORATE
COVERED) A SHARES K SHARES AVERAGE BOND INDEX
<S> <C> <C> <C> <C>
1/24/94 9551.10 10000 10000.00 10000
2/28/94 9456.02 9819.37 9891.12 9852
8/31/94 9395.02 9626.41 9838.56 9800
2/28/95 9660.90 9939.23 10116.12 10066
8/31/95 10282.74 10596.36 10767.27 10727
2/29/96 10670.30 11000.04 11173.09 11148
8/31/96 10569.34 10985.88 11161.61 11203
2/28/97 11088.51 11553.85 11586.00 11705
2/28/98 11909 12385.00 12617.00 12708
</TABLE>
HOW PERFORMANCE COMPARES
The chart compares the performance of
the Pacific Horizon Intermediate Bond
Fund to the Lehman Brothers
Intermediate Government/Corporate
Bond Index, which is an unmanaged
index typically used as a performance
benchmark for intermediate term
investments.
As illustrated, the Fund tracked the
performance of other intermediate
bond funds. The average of
intermediate investment funds
reported by Lipper Analytical Services, Inc.
<TABLE>
<CAPTION>
----------------------------------
INTERMEDIATE BOND FUND
AVERAGE ANNUAL RETURN
--------------------------------------------------
A SHARES K SHARES*
Without With
Sales Sales
Charge Charge
--------------------------------------------------
<S> <C> <C> <C>
1 Year 7.40% 2.57% 6.80%
.................................................
3 Year 7.22% 5.61% 6.98%
.................................................
Since
Inception 5.53% 4.35% 5.35%
(1/24/1994)
-----------------------------------------
</TABLE>
measures the performance of other funds with investment objectives and policies
similar to those of the Pacific Horizon Intermediate Bond Fund. An initial
$10,000 investment in the Fund made on January 24, 1994, would now be worth
$11,909 for A Shares. The same investment made in the Lipper Intermediate
Investment Funds Average would now be worth $12,617. Correspondingly, a $10,000
investment in K Shares for the same period would now be worth $12,385.*
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 20,
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 19, 1996 combined with actual K Share
19
<PAGE> 602
performance from November 20, 1996 through February 28, 1998. 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 Intermediate Investment Funds Average, nor the
Lehman Brothers Intermediate Government/Corporate Bond Index may be invested in
directly. The hypothetical investment in the Lehman Brothers Intermediate
Government/Corporate Bond 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.
20
<PAGE> 603
PACIFIC HORIZON
INTERMEDIATE BOND FUND
(AS OF FEBRUARY 28, 1998)
QUALITY
This fund invests in a diversified
portfolio of investment-grade U.S.
Government, mortgage-backed,
asset-backed, corporate and
municipal bonds in order to provide
current income and capital
appreciation. The security selection
process also depends on information
about broad economic factors that
can affect the bond markets.
PORTFOLIO COMPOSITION*
<TABLE>
Percent
-------
<S> <C>
ASSET-BACKED
SECURITIES 12.2
CORPORATE BONDS 23.5
MEDIUM TERM NOTES 13.2
CASH EQUIVALENTS 1.5
U.S. TREASURY
OBLIGATIONS 33.8
COLLATERALIZED
MORTGAGE OBLIGATIONS 1.2
U.S. GOV'T AGENCY
OBLIGATIONS 14.6
</TABLE>
- -----------------------------------------------------------
* THE COMPOSITION OF THE FUND'S
HOLDINGS IS SUBJECT TO CHANGE.
- --------------------------------------------------------------------------------
FLEXIBILITY
Capitalizing on Changing Markets
The Fund invests in a varied
portfolio of quality bonds in an
effort to protect principal against
sharp price fluctuations and
stabilize net asset value. The
Fund's adviser has great latitude in
deciding how assets are invested
among corporate, government and
mortgage-backed obligations. That
means the Fund enjoys total
flexibility to make the most of
changing market conditions.
[FLOWCHART]
U.S. Treasury Bonds
Mortgage-Backed Securities
Corporate Bonds
21
<PAGE> 604
PACIFIC HORIZON U.S. GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATURITY PRINCIPAL VALUE
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
----------- ---- -------- --------- --------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 97.9%
Government National
Mortgage Association*... 11.50% 02/15/00 $ 3,675 $ 3,913
Government National
Mortgage Association*... 11.00% 04/15/98 to 09/20/19 232,359 257,278
Government National
Mortgage Association*... 10.50% 03/15/98 to 04/15/21 1,440,014 1,545,941
Government National
Mortgage Association*... 10.00% 10/15/98 to 03/15/21 773,017 831,282
Government National
Mortgage Association*... 9.50% 03/15/98 to 04/20/06 1,007,105 1,064,307
Government National
Mortgage Association*... 9.00% 06/15/01 to 06/15/07 259,339 272,877
Government National
Mortgage Association*... 8.50% 10/15/09 to 12/15/22 4,581,684 4,892,016
Government National
Mortgage Association*... 8.00% 06/15/22 to 07/15/26 8,027,828 8,359,563
Government National
Mortgage Association*... 7.50% 04/15/22 to 12/15/25 18,490,620 19,081,818
Government National
Mortgage Association*... 7.00% 12/15/08 to 08/15/25 28,222,065 28,748,429
Government National
Mortgage Association,
TBA**................... 7.00% 03/01/02 5,000,000 5,056,250
Government National
Mortgage Association*... 6.00% 12/15/10 381,687 380,134
-----------
Total U.S. Government Agency
Obligations (Cost
$69,334,202).............. 70,493,808
-----------
U.S. TREASURY OBLIGATIONS -- 0.4%
U.S. Treasury Principal
Only Obligation (Cost
$306,040)............... 6.06%*** 08/15/23 1,400,000 306,040
-----------
</TABLE>
22
<PAGE> 605
<TABLE>
<CAPTION>
MATURITY PRINCIPAL VALUE
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
----------- ---- -------- --------- --------
<S> <C> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS -- 1.2%
Vendee Mortgage Trust,
Series 1998-1, Class 2,
Interest Only Obligation
(Cost $850,212)......... 0.455% 09/15/27 $37,171,000 $ 850,212
-----------
TOTAL INVESTMENTS -- 99.5%
(COST $70,490,454)(a)..... 71,650,060
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 0.5%....... 370,739
-----------
NET ASSETS -- 100.0%........ $72,020,799
===========
</TABLE>
- ---------------
Percentages indicated are based on net assets of $72,020,799.
(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............................... $1,274,407
Unrealized depreciation............................... (114,801)
----------
Net unrealized appreciation........................... $1,159,606
==========
</TABLE>
* Mortgage-backed pass-through obligation.
** TBA: Securities purchased on a forward commitment basis with an approximate
principal amount and maturity date. The actual principal amount and the
maturity will be determined upon settlement.
*** Rate shown is the effective yield at purchase date.
See Notes to Financial Statements.
23
<PAGE> 606
PACIFIC HORIZON CORPORATE BOND FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
RATINGS MATURITY PRINCIPAL VALUE
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- --------
<S> <C> <C> <C> <C> <C>
ASSET-BACKED SECURITIES -- 8.5%
The Money Store Home
Equity Trust Series
1996-B................. Aaa/AAA 7.380% 05/15/17 $1,300,000 $ 1,333,754
Citibank Credit Card
Master Trust I, Series
1996-1(dagger)......... Aaa/AAA 4.900%* 02/07/03 1,000,000 842,085
Citibank Credit Card
Master Trust I, Series
1997-6(dagger)......... Aaa/AAA 5.040%* 08/15/06 1,500,000 1,011,075
-----------
Total Asset Backed
Securities (Cost
$3,107,046).............. 3,186,914
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 1.2%
Prudential Mortgage Cap.. Aaa/AAA 11.581% 12/15/13 3,750 3,750
Vendee Mortgage Trust,
Series 1998-1, Class 2,
Interest Only
Obligation............. NR/NR 0.455% 02/15/28 19,058,000 435,914
-----------
Total Collateralized
Mortgage Obligations
(Cost $438,871).......... 439,664
-----------
CORPORATE BONDS -- 69.9%
AUTOMOBILES -- 1.9%
Ford Motor Credit Corp.
U.S. Global Note....... A1/A+ 6.550% 09/10/02 700,000 710,317
-----------
BANKS -- 16.2%
ABN-AMRO Bank NV......... Aa2/AA- 7.750% 05/15/23 1,350,000 1,470,558
Banco Latinoamericano
144A................... Baa2/BBB 6.590% 10/16/01 375,000 373,594
Capital One Bank......... Baa3/BBB- 7.000% 04/30/01 400,000 406,460
Chase Manhattan Corp..... A2/A- 8.125% 06/15/02 1,000,000 1,072,734
Comerica Bank............ A2/A 8.375% 07/15/24 1,000,000 1,158,959
Korea Development Bank... A1/AA- 7.125% 09/17/01 560,000 519,110
Midland Bank PLC......... A1/A+ 7.625% 06/15/06 1,000,000 1,067,608
-----------
6,069,023
-----------
</TABLE>
- ---------------
See Notes to Financial Statements.
24
<PAGE> 607
<TABLE>
<CAPTION>
MOODY'S/S&P
RATINGS MATURITY PRINCIPAL VALUE
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- --------
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS -- (CONTINUED)
BROKERAGE -- 1.1%
Bear Stearns............. A2/A 6.125% 02/01/03 $ 400,000 $ 397,577
-----------
CABLE & MEDIA -- 12.6%
British Telecom Finance.. Aaa/AAA 9.625% 02/15/19 1,300,000 1,404,347
Tele-Communications,
Inc.................... Ba1/BBB- 9.875% 06/15/22 1,400,000 1,844,532
Time Warner, Inc......... Ba1/BBB- 7.950% 02/01/00 400,000 412,222
Walt Disney Co........... A2/A 6.750% 03/30/06 1,000,000 1,039,074
-----------
4,700,175
-----------
DIVERSIFIED MANUFACTURING -- 2.5%
Allied Signal Corp....... A2/A 9.500% 06/01/16 719,000 939,286
-----------
ENERGY -- 3.2%
Enron Corp............... Baa2/BBB+ 6.450% 11/15/01 400,000 402,884
PSE & G Capital Corp..... Baa2/BBB 6.740% 10/23/01 400,000 405,000
Williams COS Inc......... Baa2/BBB- 6.125% 02/01/01 400,000 398,688
-----------
1,206,572
-----------
FINANCIAL SERVICES -- 8.1%
BHP Finance USA Ltd...... A2/A 6.420% 03/01/26 600,000 611,250
Commercial Credit........ A1/A+ 7.875% 02/01/05 1,000,000 1,158,021
International Lease
Finance Corp........... A1/A+ 6.875% 05/01/01 1,250,000 1,278,596
-----------
3,047,867
-----------
FOOD & KINDRED PRODUCTS -- 9.3%
Anheuser Busch Cos.,
Inc.................... A1/A+ 7.000% 12/01/25 1,000,000 1,012,261
Conagra, Inc............. Baa2/BBB- 9.750% 03/01/21 1,500,000 2,001,544
James River Corp......... Baa3/BBB- 8.375% 11/15/01 450,000 481,068
-----------
3,494,873
-----------
INSURANCE -- 4.1%
Hartford Life Inc........ A2/A 6.900% 06/15/04 1,500,000 1,550,632
-----------
RENTAL & LEASE EQUIPMENT -- 2.8%
Hertz Corp............... A3/A 7.375% 06/15/01 1,000,000 1,034,513
-----------
RETAIL -- 3.9%
Federated Department
Stores................. Baa2/BBB- 8.125% 10/15/02 400,000 429,296
Sears Roebuck Acceptance
Corp................... A2/A- 7.000% 06/15/07 1,000,000 1,038,257
-----------
1,467,553
-----------
</TABLE>
- ---------------
See Notes to Financial Statements.
25
<PAGE> 608
<TABLE>
<CAPTION>
MOODY'S/S&P
RATINGS MATURITY PRINCIPAL VALUE
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- --------
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS -- (CONTINUED)
SECURITY BROKER/DEALERS -- 4.2%
Merrill Lynch & Co.,
Inc.................... A1/A+ 7.000% 03/15/06 $1,500,000 $ 1,553,960
-----------
Total Corporate Bonds (Cost
$24,388,728)............. 26,172,348
-----------
MEDIUM TERM NOTES -- 16.7%
AUTOMOBILES -- 1.3%
General Motors Acceptance
Corp................... A3/A- 6.600% 01/17/01 500,000 506,345
-----------
FINANCIAL SERVICES -- 7.1%
Associates Corp. N.A..... Aa2/AA- 6.950% 08/01/02 1,000,000 1,026,850
Countrywide Funding
Corp................... Baa1/A 6.540% 04/14/00 1,000,000 1,005,079
Ikon Capital, Inc........ A3/A- 6.730% 06/15/01 600,000 609,128
-----------
2,641,057
-----------
INSURANCE -- 2.6%
UNUM Corp................ A1/A+ 5.880% 10/15/03 1,000,000 980,873
-----------
RETAIL STORES -- 2.7%
J.C. Penney & Co......... A1/A+ 6.500% 12/15/07 1,000,000 1,003,847
-----------
UTILITIES -- 3.0%
Pacific Gas & Electric... A3/A- 7.880% 04/08/14 1,000,000 1,122,872
-----------
Total Medium Term Notes
(Cost $6,013,436)........ 6,254,994
-----------
U.S. TREASURY OBLIGATIONS -- 1.8%
U.S. Treasury Principal
Only Obligation
Strips................. 6.110%* 05/15/23 2,700,000 601,128
U.S. Treasury Principal
Only Obligation
Strips................. 6.160%* 08/15/23 350,000 75,106
-----------
Total U.S. Treasury
Obligations (Cost
$683,815)................ 676,234
-----------
</TABLE>
- ---------------
See Notes to Financial Statements.
26
<PAGE> 609
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<S> <C> <C> <C> <C> <C>
SHORT TERM INVESTMENTS -- 0.7%
Temporary Investment
Fund.................. 125,251 $ 125,251
Temporary Investment
Cash Fund............. 125,251 125,252
-----------
Total Short Term
Investments (Cost
$250,503)............... 250,503
-----------
TOTAL INVESTMENTS -- 98.8%
(COST $34,882,399)(A)... 36,980,657
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 1.2%..... 436,900
-----------
NET ASSETS -- 100.0%...... $37,417,557
===========
</TABLE>
- ---------------
Percentages indicated are based on net assets of $37,417,557.
(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............................... $2,176,408
Unrealized depreciation............................... $ (78,150)
----------
Net unrealized appreciation........................... $2,098,258
==========
</TABLE>
144A -- Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may not be resold subject to that rule except to qualified
institutional buyers. At the end of the period, these securities
amounted to 1.0% of net assets.
NR -- Not Rated
(dagger) Zero Coupon Bond.
* Rates shown are the effective yields at purchase date.
See Notes to Financial Statements.
27
<PAGE> 610
PACIFIC HORIZON U.S. GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (cost $70,490,454)..... $71,650,060
Receivable for investment securities sold.................. 6,262,624
Interest receivable........................................ 449,144
Receivable for capital shares sold......................... 6,551
Other assets............................................... 41,237
-----------
Total Assets................................................ 78,409,616
-----------
LIABILITIES:
Payable to the bank........................................ 572,851
Dividends payable.......................................... 124,837
Payable for capital shares redeemed........................ 122,953
Payable for investment securities purchased................ 5,375,571
Investment advisory fees payable........................... 3,343
Administration fees payable................................ 3,900
Shareholder service fees payable (A Shares)................ 13,741
Shareholder service fees payable (K Shares)................ 189
Distribution fees payable (K Shares)....................... 349
Custodian and fund accounting fees payable................. 32,615
Transfer agent fees payable................................ 42,217
Legal fees payable......................................... 850
Other accrued expenses..................................... 55,022
Other liabilities.......................................... 40,379
-----------
Total Liabilities........................................... 6,388,817
-----------
NET ASSETS.................................................. $72,020,799
===========
Net Assets
A Shares................................................... $71,101,297
K Shares................................................... 919,502
-----------
Total....................................................... $72,020,799
===========
Shares Outstanding ($0.001 par value, 200 million shares
authorized):
A Shares................................................... 7,465,492
K Shares................................................... 96,502
-----------
Total....................................................... 7,561,994
===========
NET ASSET VALUE
A Shares -- Net asset value and redemption price per
share.................................................... $9.52
===========
Maximum Sales Charge (A Shares)............................ 4.50%
Maximum Offering Price per share (A Shares)
(Net Asset Value of A Shares/(100% -- Maximum Sales
Charge))................................................. $9.97
===========
K Shares -- Net asset value, offering price and redemption
price per share.......................................... $9.53
===========
COMPOSITION OF NET ASSETS:
Shares of common stock, at par............................. $ 7,562
Additional paid-in capital................................. 79,939,686
Accumulated undistributed net investment income............ 40,670
Accumulated net realized losses on investment
transactions............................................. (9,126,725)
Net unrealized appreciation on investments................. 1,159,606
-----------
NET ASSETS, FEBRUARY 28, 1998............................... $72,020,799
===========
</TABLE>
- ---------------
See Notes to Financial Statements.
28
<PAGE> 611
PACIFIC HORIZON CORPORATE BOND FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (cost $34,882,399)..... $36,980,657
Interest receivable........................................ 637,214
Receivable for capital shares sold......................... 165,830
-----------
Total Assets................................................ 37,783,701
-----------
LIABILITIES:
Dividends payable.......................................... 116,987
Payable for investment securities purchased................ 76,510
Payable for capital shares redeemed........................ 48,544
Payable to advisor......................................... 15,209
Shareholder service fees payable (A and K Shares).......... 18,527
Distribution fees payable (K Shares)....................... 125
Custodian and fund accounting fees payable................. 5,616
Transfer agent fees payable................................ 44,997
Legal fees payable......................................... 1,237
Other accrued expenses..................................... 38,392
-----------
Total Liabilities........................................... 366,144
-----------
NET ASSETS.................................................. $37,417,557
===========
Net Assets
A Shares................................................... $37,105,146
K Shares................................................... 312,411
-----------
Total....................................................... $37,417,557
===========
Shares Outstanding ($0.001 par value, 200 million shares
authorized):
A Shares................................................... 2,259,885
K Shares................................................... 19,023
-----------
Total....................................................... 2,278,908
===========
NET ASSET VALUE
A Shares -- Net asset value and redemption price per
share.................................................... $16.42
===========
Maximum Sales Charge (A Shares)............................ 4.50%
Maximum Offering Price per share (A Shares)
(Net Asset Value of A Shares/(100% -- Maximum Sales
Charge))................................................. $17.19
===========
K Shares -- Net asset value, offering price and redemption
price per share.......................................... $16.42
===========
COMPOSITION OF NET ASSETS:
Shares of common stock, at par............................. $ 2,279
Additional paid-in capital................................. 41,623,705
Accumulated net realized losses on investment
transactions............................................. 6,306,685
Net unrealized appreciation on investments................. 2,098,258
-----------
NET ASSETS, FEBRUARY 28, 1998............................... $37,417,557
===========
</TABLE>
- ---------------
See Notes to Financial Statements.
29
<PAGE> 612
PACIFIC HORIZON U.S. GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the year ended February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................. $5,197,044
----------
EXPENSES:
Investment advisory fees.................................. 257,392
Administration fees....................................... 147,083
Shareholder service fees (A Shares)....................... 182,327
Shareholder service fees (K Shares)....................... 1,534
Distribution fees (K Shares).............................. 4,601
Custodian and fund accounting fees........................ 127,391
Transfer agent fees....................................... 109,522
Legal fees................................................ 3,444
Other expenses............................................ 97,939
----------
Total Expenses.......................................... 931,233
Less: Fee waivers......................................... (369,871)
Expenses paid by third parties.......................... (8,738)
----------
Total Net Expenses.......................................... 552,624
----------
NET INVESTMENT INCOME....................................... 4,644,420
----------
NET REALIZED/UNREALIZED GAINS ON INVESTMENTS:
Net realized gains on investment transactions............. 912,695
Net change in unrealized appreciation on investments...... 1,017,576
----------
Net realized/unrealized gains on investments.............. 1,930,271
----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $6,574,691
==========
</TABLE>
- ---------------
See Notes to Financial Statements.
30
<PAGE> 613
PACIFIC HORIZON CORPORATE BOND FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the year ended February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................. $2,552,465
----------
EXPENSES:
Advisory fees............................................. 164,104
Administration fees....................................... 72,935
Shareholder service fees (A Shares)....................... 90,532
Shareholder service fees (K Shares)....................... 637
Distribution fees (K Shares).............................. 1,907
Custodian and fund accounting fees........................ 55,692
Transfer agent fees....................................... 100,200
Audit fees................................................ 30,065
Legal fees................................................ 1,226
Organization costs........................................ 1,071
Registration and filing fees.............................. 32,036
Reports to shareholders................................... 17,308
Other expenses............................................ 2,720
----------
Total Expenses.......................................... 570,433
Less: Fee waivers and reimbursements........................ (258,533)
----------
Total Net Expenses.......................................... 311,900
----------
NET INVESTMENT INCOME....................................... 2,240,565
----------
NET REALIZED/UNREALIZED GAINS ON INVESTMENTS:
Net realized gains on investment transactions............. 233,565
Net change in unrealized appreciation on investments...... 1,251,636
----------
Net realized/unrealized gain on investments............... 1,485,201
----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $3,725,766
==========
</TABLE>
- ---------------
See Notes to Financial Statements.
31
<PAGE> 614
PACIFIC HORIZON U.S. GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
----------------------------
FEBRUARY 28, FEBRUARY 28,
1998 1997
------------ ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income......................... $ 4,644,420 $ 4,945,657
Net realized gain (loss) on investment
transactions................................ 912,695 (1,656,989)
Net change in unrealized appreciation on
investments................................. 1,017,576 682,024
------------ ------------
Change in net assets resulting from
operations.................................... 6,574,691 3,970,692
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
A Shares.................................... (4,608,261) (4,941,264)
K Shares.................................... (36,159) (4,394)(a)
Excess of net investment income
A Shares.................................... (166,337) (183,185)
K Shares.................................... (1,076) --
Tax return of capital
A Shares.................................... -- (126,969)
K Shares.................................... -- (712)(a)
------------ ------------
Change in net assets from shareholder
distributions................................. (4,811,833) (5,256,524)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued................... 8,331,747 8,846,354
Dividends reinvested.......................... 3,575,522 3,659,415
Cost of shares redeemed....................... (16,551,786) (25,808,410)
------------ ------------
Change in net assets from capital share
transactions.................................. (4,644,517) (13,302,641)
------------ ------------
Change in net assets............................ (2,881,659) (14,588,473)
NET ASSETS
Beginning of Year............................. 74,902,458 89,490,931
------------ ------------
End of Year (including accumulated
undistributed net investment income, $40,670
and distributions in excess of net
investment income, $391,623,
respectively)............................... $72,020,799 $ 74,902,458
============ ============
</TABLE>
- ---------------
(a) Period from July 22, 1996 (inception date) to February 28, 1997.
See Notes to Financial Statements.
32
<PAGE> 615
PACIFIC HORIZON CORPORATE BOND FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------
FEBRUARY 28, FEBRUARY 28,
1998 1997
------------ ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income......................... $ 2,240,565 $ 1,877,912
Net realized gains on investment
transactions................................ 233,565 63,577
Net change in unrealized appreciation on
investments................................. 1,251,636 (691,865)
------------ -----------
Change in net assets from operations............ 3,725,766 1,249,624
------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
A Shares.................................... (2,226,390) (1,874,744)
K Shares.................................... (14,175) (3,168)(a)
------------ -----------
Change in net assets from shareholder
distributions................................. (2,240,565) (1,877,912)
------------ -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued................... 14,033,161 8,896,314
Dividends reinvested.......................... 777,336 623,621
Cost of shares redeemed....................... (11,905,633) (8,251,569)
------------ -----------
Change in net assets from capital share
transactions.................................. 2,904,864 1,268,366
------------ -----------
Change in net assets............................ 4,390,065 640,078
NET ASSETS:
Beginning of Year............................. 33,027,492 32,387,414
------------ -----------
End of Year................................... $37,417,557 $33,027,492
============ ===========
</TABLE>
- ---------------
(a) Period from July 22, 1996 (inception date) to February 28, 1997.
See Notes to Financial Statements.
33
<PAGE> 616
PACIFIC HORIZON INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investment in Master Investment Trust, Series
I -- Investment Grade Bond Portfolio, at value........... $77,809,358
Prepaid expenses........................................... 1,266
-----------
Total Assets................................................ 77,810,624
-----------
LIABILITIES:
Dividends payable.......................................... 127,215
Administration fees payable................................ 8,968
Shareholder service fees payable (A Shares, K Shares, and
SRF Shares) 24,505
Distribution fees payable (K shares)....................... 532
Reports to shareholders expenses payable................... 40,000
Transfer agent fees payable................................ 10,116
Audit fees payable......................................... 7,349
Other accrued expenses..................................... 42,474
-----------
Total Liabilities........................................... 261,159
-----------
NET ASSETS.................................................. $77,549,465
===========
Net Assets:
A Shares................................................... $41,874,875
K Shares................................................... 513,286
SRF Shares................................................. 35,161,304
-----------
Total....................................................... $77,549,465
===========
Shares Outstanding ($0.001 par value, and 300 million shares
authorized):
A Shares................................................... 4,322,374
K Shares................................................... 52,791
SRF Shares................................................. 3,233,868
-----------
Total....................................................... 7,609,033
===========
NET ASSET VALUE
A Shares -- Net asset value and redemption price per
share.................................................... $9.69
===========
Maximum Sales Charge (A Shares)............................ 4.50%
Maximum Offering Price per share (A Shares) (Net Asset
Value of A Shares/ (100% -- Maximum Sales Charge))....... $10.15
===========
K Shares -- Net asset value, offering price and redemption
price per share.......................................... $9.72
===========
SRF Shares -- Net asset value, offering price and
redemption price per share............................... $10.87
===========
COMPOSITION OF NET ASSETS:
Shares of common stock, at par............................. $ 7,609
Additional paid-in capital................................. 76,827,474
Accumulated undistributed net investment income............ 34,547
Accumulated net realized gains on investment
transactions............................................. 22,298
Net unrealized appreciation on investments................. 657,537
-----------
NET ASSETS, FEBRUARY 28, 1998............................... $77,549,465
===========
</TABLE>
- ---------------
See Notes to Financial Statements.
34
<PAGE> 617
PACIFIC HORIZON INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the year ended February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Investment Income from Master Investment Trust, Series I --
Investment Grade Bond Portfolio:
Interest Income........................................... $3,770,380
----------
Expenses.................................................. 205,307
Less: Fee waivers and expense reimbursements.............. (20,793)
----------
184,514
----------
Net Investment Income from Master Investment Trust, Series
I -- Investment Grade Bond Portfolio...................... 3,585,866
----------
EXPENSES:
Administration fees....................................... 94,118
Shareholder service fees (A Shares)....................... 85,538
Shareholder service fees (K Shares)....................... 1,035
Shareholder service fees (SRF Shares)..................... 62,182(a)
Registration fees......................................... 27,231
Distribution fees (K Shares).............................. 2,060
Transfer agent fees....................................... 33,916
Fund accounting fees and expenses......................... 48,518
Reports to shareholders................................... 35,191
Amortization of organization costs........................ 15,825
Audit fees................................................ 11,687
Legal fees................................................ 9,384
Directors fees............................................ 1,158
Other operating expenses.................................. 6,090
----------
Total Expenses.......................................... 433,933
Less: Fee waivers and reimbursements...................... (72,439)
----------
Total Net Expenses.......................................... 361,494
----------
NET INVESTMENT INCOME....................................... 3,224,372
----------
REALIZED/UNREALIZED GAINS ON INVESTMENTS FROM MASTER
INVESTMENT TRUST, SERIES I -- INVESTMENT GRADE BOND
PORTFOLIO
Net realized gain on investment transactions.............. 185,294
Net change in unrealized appreciation on investments...... 785,462
----------
Net realized/unrealized gains on investments from Master
Investment Trust Series I -- Investment Grade Bond
Portfolio............................................... 970,756
----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $4,195,128
==========
</TABLE>
- ---------------
(a) On June 23, 1997, The Bond Fund of Seafirst Retirement Funds withdrew its
investments in Master Investment Trust Series I and merged its assets with
the Intermediate Bond Fund creating a new class of SRF Shares on that date.
See Notes to Financial Statements.
35
<PAGE> 618
PACIFIC HORIZON INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------
FEBRUARY 28, FEBRUARY 28,
1998 1997
------------ ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income............................. $ 3,224,372 $ 878,883
Net realized gains/(losses) on investment
transactions.................................... 185,294 (159,361)
Net change in unrealized
appreciation/(depreciation) on investments...... 785,462 (86,639)
----------- -----------
Change in net assets resulting from operations.... 4,195,128 632,883
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
A Shares........................................ (1,917,899) (874,813)
K Shares........................................ (19,507) (4,070)(a)
SRF Shares...................................... (1,259,022)(b) --
Net realized gains from investment transactions:
A Shares........................................ -- (93,821)
K Shares........................................ -- (7)(a)
SRF Shares...................................... -- --
----------- -----------
Change in net assets from shareholder
distributions..................................... (3,196,428) (972,711)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued....................... 68,314,617 16,917,463
Dividends reinvested.............................. 1,826,828 488,201
Cost of shares redeemed........................... (16,859,701) (6,976,214)
----------- -----------
Change in net assets from capital share
transactions...................................... 53,281,744 10,429,450
----------- -----------
Change in net assets................................ 54,280,444 10,089,622
NET ASSETS:
Beginning of Year................................. 23,269,021 13,179,399
----------- -----------
End of Year (including undistributed net
investment income of $34,547 and $4,095,
respectively)................................... $77,549,465 $23,269,021
=========== ===========
</TABLE>
- ---------------
(a) Period from July 22, 1996 (inception date) to February 28, 1997.
(b) On June 23, 1997, The Bond Fund of Seafirst Retirement Funds withdrew its
investments in Master Investment Trust Series I and merged its assets with
the Intermediate Bond Fund creating a new class of SRF Shares on that date.
See Notes to Financial Statements.
36
<PAGE> 619
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, 1998, the Company
operated as a series company comprised of seventeen funds. The accompanying
financial statements and notes are those of the Pacific Horizon U.S. Government
Securities Fund (the "U.S. Government Securities Fund"), the Pacific Horizon
Corporate Bond Fund (the "Corporate Bond Fund") and the Pacific Horizon
Intermediate Bond Fund (the "Intermediate Bond Fund"), collectively the "Funds",
individually the "Fund".
On June 23, 1997 the Seafirst Bond Fund was reorganized with the
Intermediate Bond Fund pursuant to a tax free reorganization. Pursuant to the
terms of the reorganization, the Seafirst Bond Fund transferred all of its
assets and liabilities, including $123,475 unrealized appreciation, to the
Intermediate Bond Fund in exchange for SRF Shares of the Intermediate Bond Fund.
In connection with the reorganization, the Seafirst Bond Fund's shareholders
received 3,440,150 SRF shares of the Intermediate Bond Fund (valued at
$36,928,027). The aggregate net assets of the Intermediate Bond Fund and the
Seafirst Bond Fund immediately before the reorganization were $29,466,360 and
$36,928,027, respectively. Immediately following the reorganization the net
assets of the Intermediate Bond Fund were $66,394,387. As a result of this
reorganization the Intermediate Bond Fund began issuing three classes of shares,
A shares, K shares (effective July 22, 1996) and SRF shares.
The U.S. Government Securities Fund and Corporate Bond Fund offer A Shares
and effective July 22, 1996, began offering K Shares. A Shares and SRF Shares
have a Shareholder Services Plan, while K Shares have a Distribution Plan and
Administrative and Shareholder Services Plan.
The U.S. Government Securities Fund seeks to provide investors with a high
level of current income, consistent with preservation of capital. The U.S.
Government Securities Fund does so by investing primarily in instruments issued
by the Government National Mortgage Association. The Corporate Bond Fund seeks
to provide investors with high current income consistent with reasonable
investment risk. The Corporate Bond Fund invests primarily in a diversified
portfolio of investment grade corporate debt securities. The Intermediate Bond
Fund seeks to achieve its investment objective by investing substantially all of
its
37
<PAGE> 620
assets in the Investment Grade Bond Portfolio (the "Portfolio") of the Master
Investment Trust, Series I (the "Trust"), an open-end management investment
company, that has the same investment objectives as that of the Fund. The value
of the Intermediate Bond Fund's investment in the Portfolio included in the
accompanying Statement of Assets and Liabilities reflects the Intermediate Bond
Fund's proportionate beneficial interest in the net assets of the Portfolio
(62.0% at February 28, 1998). 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 Intermediate Bond Fund's
financial statements.
Bank of America National Trust and Savings Association ("Bank of America"),
a subsidiary of BankAmerica Corporation, serves as the Fund's investment
adviser. On September 15, 1997, Bank of America assumed the responsibility of
administrator for each of the Funds pursuant to the terms of an Administration
Agreement between the Company and Bank of America (the "Administration
Agreement"). Prior to September 15, 1997, The BISYS Group, Inc. ("BISYS")
through its wholly-owned subsidiary, BISYS Fund Services, Limited Partnership,
served as the Funds' administrator.
Bank of America has entered into an agreement with PFPC Inc. ("PFPC"), an
indirect wholly-owned subsidiary of PNC Bank Corp., pursuant to which PFPC has
agreed to provide certain sub-administration services to the Funds, including,
but not limited to, assisting in the developing and monitoring of compliance
procedures, participating in periodic updating of the Funds' prospectuses and
statements of additional information, providing periodic reports to the
Company's Board and providing certain record-keeping services. Bank of America
will bear all fees and expenses charged by PFPC for such services.
Furthermore, pursuant to authority granted in the Administration Agreement,
Bank of America has entered into an agreement with PFPC under which PFPC has
agreed to provide certain accounting, bookkeeping, pricing and dividend and
distribution calculation services for the Funds. The Funds bear all fees and
expenses charged by PFPC for these services.
In addition, pursuant to authority granted in the Administration Agreement,
Bank of America has entered into an agreement with The Bank of New York ("BONY")
under which BONY has agreed to provide certain accounting, bookkeeping, pricing
and dividend and distribution calculation services for the Funds. The Funds bear
all fees and expenses charged by BONY for these services.
38
<PAGE> 621
DISTRIBUTOR AND TRANSFER AGENT:
Effective September 15, 1997, Provident Distributors, Inc. ("PDI") assumed
responsibility as principal underwriter and distributor of shares of the Funds.
Prior to such date, Concord Financial Group, Inc. (the "Former Distributor")
also a wholly-owned subsidiary of BISYS served the Funds as distributor.
Additionally on October 24, 1997, PFPC assumed responsibility as the Fund's
transfer agent and dividend disbursing agent. BISYS Fund Services, Inc. ("BISYS
Ohio") also a wholly-owned subsidiary of BISYS served the Funds in such capacity
prior to such date.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Funds in the preparation of its financial statements. These policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
PORTFOLIO VALUATIONS:
The U.S. Government Securities Fund and the Corporate Bond Fund value
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 valuation. Bid price is used when no ask price is
available. The Funds 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 Intermediate Bond Fund's investment in
the Portfolio is discussed in Note 2 to the Portfolio's financial statements.
39
<PAGE> 622
SECURITIES TRANSACTIONS AND RELATED INCOME:
The U.S. Government Securities Fund and Corporate Bond Fund record 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 the identified cost basis.
The Intermediate Bond 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 Intermediate Bond 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.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
The U.S. Government Fund and Corporate Bond Fund's net investment income is
declared daily and paid monthly as a dividend to shareholders of record at the
close of business on record date. Intermediate Bond Fund's net investment income
is declared monthly and paid within five business days after the end of each
month as a dividend to shareholders of record. Net realized gains on portfolio
securities, if any, are distributed at least annually. However, to the extent
net realized gains 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
40
<PAGE> 623
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, 1998, the following reclassifications have been made to
increase (decrease) such accounts with offsetting adjustments made to paid-in
capital, due to reclassification of paydowns, expiration of capital loss
carryover and over distribution of net investment income:
<TABLE>
<CAPTION>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED NET REALIZED
NET INVESTMENT GAIN/(LOSS)
INCOME ON INVESTMENTS
-------------- --------------
<S> <C> <C>
U.S. Government Securities Fund................... $462,539 $ (50,418)
Corporate Bond Fund............................... -- 213,111
Intermediate Bond Fund............................ 2,508 (2,508)
</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.
At February 28, 1998, the U.S. Government Securities Fund, the Corporate
Bond Fund and the Intermediate Bond Fund had the following net capital loss
carryovers:
<TABLE>
<CAPTION>
CAPITAL LOSS
FUND CARRYOVER
------------ ---------
<S> <C> <C>
U.S. Government Securities.......................... $7,462,810 2003
1,663,916 2005
----------
$9,126,726
==========
Corporate Bond Fund................................. $5,401,993 1999
882,649 2003
----------
$6,284,642
==========
</TABLE>
41
<PAGE> 624
To the extent that these carryovers are used to offset future capital gains,
it is probable that the gains so offset will not be distributed to shareholders.
During the year the U.S. Government Securities Fund, Corporate Bond Fund and
Intermediate Bond Fund utilized $862,277, $229,356 and $160,488, respectively,
of its available capital loss carryover to offset realized capital gains for
Federal income tax purposes, while capital loss carryovers of $213,111 expired
for the Corporate Bond Fund.
Capital losses incurred after October 31 for the Funds' are deemed to arise
on the first business day of the following fiscal year for tax purposes. The
Corporate Bond Fund has incurred and elected to defer such capital losses of
$22,043 after October 31, 1997.
MORTGAGE DOLLAR ROLLS:
The U.S. Government Securities Fund enters into mortgage dollar roll
transactions ("MDRs") in which it sells mortgage-backed securities ("MBS") from
its portfolio to a counter-party from whom it simultaneously agrees to buy a
similar security on a delayed delivery basis. The MDR transactions of the U.S.
Government Securities Fund are classified as purchase and sale transactions. The
securities sold in connection with the MDRs are removed from the portfolio and a
realized gain or loss is recognized. The securities the U.S. Government
Securities Fund has agreed to acquire are included at market value in the
portfolio of investments and liabilities for such purchase commitments are
included as payables for investments purchased. The U.S. Government Securities
Fund maintains with its custodian securities from its portfolio having a value
not less than the repurchase price of MDR transactions, including accrued
interest. MDR transactions involve certain risks, including the risk that the
MBS returned to the Fund at the end of the transaction, while substantially
similar, could be inferior to what was initially sold to the counterparty.
OTHER:
The U.S. Government Securities 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, 1998, custodian fees and
expenses paid by third parties were increased by $8,738. There was no effect on
net investment income. The Fund could have invested such cash amounts in an
income producing asset if it had not agreed to a reduction of fees or expenses
under the expense offset arrangement with its custodian.
42
<PAGE> 625
NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
The U.S. Government Securities Fund and Corporate Bond Fund have an
Investment Advisory Agreement and Administration Agreement with Bank of America.
For the period ended September 15, 1997 the Funds had an Administration
Agreement with BISYS and a Distribution Agreement with the Former Distributor.
Pursuant to the terms of the Investment Advisory Agreement, Bank of America is
entitled to a fee from the U.S. Government Securities Fund and Corporate Bond
Fund, which is accrued daily and payable monthly, at an annual rate of 0.35% and
0.45% of the U.S. Government Securities Fund's and Corporate Bond Fund's
respective average daily net assets. For the period ended February 28, 1998,
Bank of America agreed to waive advisory fees of $211,393 and $164,104 for the
U.S. Government Securities Fund and Corporate Bond Fund, respectively. Pursuant
to the terms of the Administration Agreement, Bank of America is entitled to a
fee, which is accrued daily and payable monthly, at an annual rate of 0.20%,
0.15% and 0.15% of the average daily net assets of the U.S. Government
Securities Fund, Corporate Bond Fund, and Intermediate Bond Fund, respectively.
For the period ended September 15, 1997, the Funds had an Administration
Agreement with BISYS. Administrative fee rates paid to BISYS were the same as
those currently paid to Bank of America. For the period ended February 28, 1998,
Bank of America waived $49,555, $34,613 and $4,035 of its fee as Administrator
for the U.S. Government Securities Fund, Corporate Bond Fund and Intermediate
Bond Fund, respectively. For the period ended September 15, 1997, BISYS agreed
to waive $67,006, $38,327 and $35,332 of its fee as Administrator for the U.S.
Government Securities Fund, Corporate Bond Fund and Intermediate Bond Fund,
respectively. For the same period, Bank of America and BISYS reimbursed
operating expenses totaling $2,889 for the Corporate Bond Fund.
For the year ended February 28, 1998, PDI and the Former Distributor advised
the Funds that it retained $2,003, $1,079, and $505, from commissions earned on
sales of the U.S. Government Securities Fund, the Corporate Bond Fund and the
Intermediate Bond Fund's shares, respectively. For the same period, Bank of
America and its affiliates advised the Funds that they retained $15,798, $8,452,
and $3,950 from commissions earned on sales of shares of the U.S. Government
Securities Fund, Corporate Bond Fund, and Intermediate Bond Fund, respectively.
The Funds have a Shareholder Services Plan (the "Plan") under which each
Fund paid PDI and the Former 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
43
<PAGE> 626
daily net assets for A Shares. For the year ended February 28, 1998, the U.S.
Government Securities Fund, Corporate Bond Fund, and Intermediate Bond Fund
incurred charges of $182,327, $90,532, and $85,538, respectively, pursuant to
the Plan. The Funds were advised that of these amounts, PDI and the Former
Distributor retained $7,155, $40,731, and $9,818, from the U.S. Government
Securities Fund, Corporate Bond Fund, and Intermediate Bond Fund, respectively,
and affiliates of Bank of America retained $129,541, $18,541, and $40,786,
respectively. The Plan provides that if, in any month, the fees paid to PDI and
the Former Distributor are less than the costs incurred by PDI and the Former
Distributor, the excess costs will be included in future computations of the
fee, provided that any excess costs will not be carried forward beyond the end
of the fiscal year in which such excess costs were incurred. For the year ended
February 28, 1998, PDI and the Former Distributor waived $39,898, $17,972 and
$26,307 for the U.S. Government Securities Fund, Corporate Bond Fund and
Intermediate Bond Fund, respectively.
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 paid PDI and the Former
Distributor for expenses primarily intended to result in the sale of the Funds'
K Shares. Under the Distribution Plan, payments by the Funds for 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. For the year ended February 28, 1998, PDI
and the Former Distributor incurred charges $4,601, $1,907 and $2,060 to the
U.S. Government Securities Fund, Corporate Bond Fund and the Intermediate Bond
Fund, respectively, pursuant to the Distribution Plan. Under the Administrative
Plan, the Funds paid for expenses incurred in connection with shareholder
services provided by PDI and the Former 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 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 year ended February 28, 1998, the U.S.
Government Securities Fund, Corporate Bond Fund and Intermediate Bond Fund
incurred charges of $1,534, $637 and $1,035, respectively, pursuant to the
Administrative Plan. The Funds were advised that of these amounts PDI and the
Former Distributor retained $817, $430 and $462, from the U.S. Government Fund,
Corporate Bond Fund and the Intermediate Bond Fund, respectively. For
44
<PAGE> 627
the year ended February 28, 1998, $2,019, $628 and $359 of shareholder services
and administrative services were waived by the U.S. Government Securities Fund,
Corporate Bond Fund and Intermediate Bond Fund, respectively.
The Intermediate Bond Fund has a Shareholder Services Plan under which the
Fund pays PDI and the Former Distributor for shareholder servicing expenses
incurred in connection with the SRF Shares. Under the Services Plan, payments
for shareholder servicing expenses may not exceed 0.25% of the Fund's average
daily net assets for SRF Shares. For the year ended February 28, 1998, The
Intermediate Bond Fund incurred charges of $62,182, pursuant to the Services
Plan, the Fund was advised that of this amount the affiliates of Bank of America
retained $55,252. For the same period $6,406 of shareholder servicing fees were
waived by PDI and the Former Distributor for the Intermediate Bond Fund.
From the period October 24, 1997 through February 28, 1998, PFPC earned
$31,616, $74,118, and $5,319 from the U.S. Government Securities Fund, Corporate
Bond Fund, and Intermediate Bond Fund, respectively, for the transfer agency and
dividend disbursing agency services performed. BISYS Ohio served the Funds as
transfer agent and dividend disbursing agent through October 24, 1997. In these
capacities, BISYS Ohio earned $77,906, $26,082, and $28,597 from the U.S.
Government Securities Fund, Corporate Bond Fund, and Intermediate Bond Fund,
respectively, for the period ended October 24, 1997.
For the year ended February 28, 1998, the U.S. Government Securities Fund,
Corporate Bond Fund, and Intermediate Bond Fund incurred legal charges totaling
$3,444, $1,226, and $9,384, 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 PFPC. 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 $50,000,
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 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
45
<PAGE> 628
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 will
receive an additional 10% of their annual Director's retainer for each year of
service between years six and nine, plus one half of the difference between 100%
and the director's applicable percentage. A Director who dies or resigns after
ten 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 after February 28,
1994; however a director in office on March 18, 1998 who either resigns in good
standing or dies before completing five years of service as a director should be
assigned an applicable percentage of 50 percent. Aggregate costs pursuant to the
Retirement Plan amounted to $691, $1,584 and $251 for the U.S. Government
Securities Fund, Corporate Bond Fund and Intermediate Bond Fund, respectively,
for the year ended February 28, 1998. A director who comes into office after
March 18, 1998 is ineligible to participate in the Retirement Plan.
NOTE 5 -- SECURITIES TRANSACTIONS
For the year ended February 28, 1998, the cost of purchases and the proceeds
from sales of U.S. Government Securities Fund portfolio securities (excluding
short-term investments) amounted to $35,888,707 and $40,968,167, respectively.
The cost of purchases and the proceeds from sales of Corporate Bond Fund
portfolio securities (excluding short-term investments) amounted to $26,784,148
and $22,233,802, respectively.
46
<PAGE> 629
NOTE 6 -- CAPITAL SHARE TRANSACTIONS
Transactions in capital shares for the Funds are summarized below:
U.S. GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------
FEBRUARY 28, 1998 FEBRUARY 28, 1997
------------------- ------------------
SHARES AMOUNT SHARES AMOUNT
------- --------- ------ --------
<S> <C> <C> <C> <C>
A SHARES (000'S)
Issued......................................... 838 $ 7,775 909 $ 8,426
Reinvested..................................... 376 3,536 394 3,657
Redeemed....................................... (1,758) (16,443) (2,780) (25,808)
------- --------- ------ --------
Net decrease.................................... (544) $ (5,132) (1,477) $(13,725)
======= ========= ====== ========
K SHARES
Issued......................................... 58,875 $ 556,388 44,725 $420,128
Reinvested..................................... 4,181 39,466 244 2,282
Redeemed....................................... (11,473) (107,883) (50) (465)
------- --------- ------ --------
Net increase.................................... 51,583 $ 487,971 44,919(a) $421,945(a)
======= ========= ====== ========
</TABLE>
CORPORATE BOND FUND
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------
FEBRUARY 28, 1998 FEBRUARY 28, 1997
------------------- ------------------
SHARES AMOUNT SHARES AMOUNT
------- --------- ------ --------
<S> <C> <C> <C> <C>
A SHARES (000'S)
Issued......................................... 871 $ 13,949 549 $ 8,657
Reinvested..................................... 47 762 40 622
Redeemed....................................... (735) (11,872) (525) (8,251)
------- --------- ------ --------
Net increase.................................... 183 $ 2,839 64 $ 1,028
======= ========= ====== ========
K SHARES
Issued......................................... 5,193 $ 84,070 14,923 $238,773
Reinvested..................................... 946 15,211 135 2,144
Redeemed....................................... (2,139) (33,761) (35) (561)
------- --------- ------ --------
Net increase.................................... 4,000 $ 65,520 15,023(a) $240,356(a)
======= ========= ====== ========
</TABLE>
47
<PAGE> 630
INTERMEDIATE BOND FUND
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------
FEBRUARY 28, 1998 FEBRUARY 28, 1997
------------------- ------------------
SHARES AMOUNT SHARES AMOUNT
------- --------- ------ --------
<S> <C> <C> <C> <C>
A SHARES (000'S)
Issued......................................... 3,051 $ 29,325 1,730 $ 16,588
Reinvested..................................... 52 496 51 485
Redeemed....................................... (1,184) (11,407) (728) (6,976)
------- --------- ------ --------
Net increase.................................... 1,919 $ 18,414 1,053 $ 10,097
======= ========= ====== ========
K SHARES
Issued......................................... 34,286 $ 329,306 34,567 $329,738
Reinvested..................................... 1,822 17,516 285 2,728
Redeemed....................................... (18,168) (174,117) (1) (1)
------- --------- ------ --------
Net increase.................................... 17,940 $ 172,705 34,851(a) $332,465(a)
======= ========= ====== ========
SRF SHARES (000'S)(B)...........................
Issued......................................... 3,617 $ 38,661 -- $ --
Reinvested..................................... 104 1,313 -- --
Redeemed....................................... (487) (5,279) -- --
------- --------- ------ --------
Net increase.................................... 3,234 $ 34,695 -- $ --
======= ========= ====== ========
</TABLE>
- ---------------
(a) Period from July 22, 1996 (inception date) to February 28, 1997.
(b) Period from June 23, 1997 (inception date) to February 28, 1998.
48
<PAGE> 631
PACIFIC HORIZON U.S. GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997(b) 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
A SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR................. $ 9.30 $ 9.43 $ 9.31 $ 9.85 $ 10.21
------- ------- ------- ------- --------
Income from Investment Operations:
Net investment income............. 0.62 0.59 0.61 0.55 0.45
Net realized and unrealized gains
losses on investment
transactions.................... 0.22 (0.12) 0.16 (0.54) (0.11)
------- ------- ------- ------- --------
Total income from investment
operations........................ 0.84 0.47 0.77 0.01 0.34
------- ------- ------- ------- --------
Less Dividends and Distributions:
Dividends to shareholders from net
investment income............... (0.62) (0.59) (0.61) (0.52) (0.45)
Dividends to shareholders from net
realized gains on investment
transactions.................... -- -- (0.01) -- (0.16)
Tax return of capital............. -- (0.01) (0.03) (0.03) (0.09)
------- ------- ------- ------- --------
Total Dividends and
Distributions:.................... (0.62) (0.60) (0.65) (0.55) (0.70)
------- ------- ------- ------- --------
Net change in net asset value per
share............................. 0.22 (0.13) 0.12 (0.54) (0.36)
------- ------- ------- ------- --------
NET ASSET VALUE PER SHARE, END OF
YEAR.............................. $ 9.52 $ 9.30 $ 9.43 $ 9.31 $ 9.85
======= ======= ======= ======= ========
Total return (excludes sales
charge)........................... 9.27% 5.23% 8.47% 0.30% 3.40%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year (000)... $71,101 $74,485 $89,491 $87,354 $157,984
Ratio of expenses to average net
assets.......................... 0.75% 0.85% 1.15% 1.15% 0.96%
Ratio of net investment income to
average net assets.............. 6.32% 6.11% 6.36% 5.57% 4.45%
Ratio of expenses to average net
assets*......................... 1.26%** 1.25%** 1.26%** (a) 1.00%
Ratio of net investment income to
average net assets*............. 5.81% 5.71% 6.28% (a) 4.41%
Portfolio turnover rate........... 51% 94% 137% 189% 255%
</TABLE>
- ---------------
* During the year, 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, 1998 and 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) There were no fee waivers or expense reimbursements during the period.
(b) As of July 22, 1996, the Portfolio designated the existing series of shares
as "A" Shares.
See Notes to Financial Statements.
49
<PAGE> 632
PACIFIC HORIZON U.S. GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
FEBRUARY 28, FEBRUARY 28,
1998 1997(a)
------------ ------------
<S> <C> <C>
K SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD....... $ 9.30 $9.22
------ -----
Income from Investment Operations:
Net investment income.............................. 0.59 0.35
Net realized and unrealized gains on investment
transactions..................................... 0.22 0.08
------ -----
Total income from investment operations.............. 0.81 0.43
------ -----
Less dividends to shareholders from net investment
income............................................. (0.58) (0.35)
------ -----
Net change in net asset value per share.............. 0.23 0.08
------ -----
NET ASSET VALUE PER SHARE, END OF PERIOD............. $ 9.53 9.30
====== =====
Total return......................................... 8.92% 4.75%(b)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000).................. $ 920 $ 418
Ratio of expenses to average net assets............ 1.21% 1.35%(c)
Ratio of net investment income to average net
assets........................................... 5.86% 6.11%(c)
Ratio of expenses to average net assets*........... 1.99%** 2.06%(c)**
Ratio of net investment income to average net
assets*.......................................... 5.08% 5.73%(c)
Portfolio turnover rate.............................. 51% 94%
</TABLE>
- ---------------
* 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, 1998 and 1997 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) Period from July 22, 1996 (inception date) to February 28, 1997.
(b) Not annualized.
(c) Annualized.
See Notes to Financial Statements.
50
<PAGE> 633
PACIFIC HORIZON CORPORATE BOND FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE
PERIOD
OCTOBER 1,
YEAR ENDED 1994 YEAR ENDED
----------------------------------- THROUGH ---------------------------
FEBRUARY FEBRUARY FEBRUARY FEBRUARY SEPTEMBER SEPTEMBER
28, 1998 28, 1997 29, 1996(A) 28, 1995 30, 1994(B) 30, 1993(C)
-------- -------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
A SHARES
NET ASSET VALUE PER SHARE, BEGINNING
OF PERIOD........................... $ 15.79 $ 16.09 $ 15.03 $ 14.86 $ 16.94 $ 16.12
------- ------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income............... 0.99 0.93 0.98 0.45 1.58 1.34
Net realized and unrealized gains
(losses) on investment
transactions...................... 0.63 (0.30) 1.11 0.17 (2.06) 0.82
------- ------- ------- ------- ------- -------
Total income (loss) from investment
operations.......................... 1.62 0.63 2.09 0.62 (0.48) 2.16
------- ------- ------- ------- ------- -------
Less Dividends and Distributions:
Dividends to shareholders from net
investment income................. (0.99) (0.93) (0.98) (0.45) (1.58) (1.34)
Distributions to shareholders from
net realized gains on investment
transactions...................... -- -- (0.05) -- (0.02) --
------- ------- ------- ------- ------- -------
Total Dividends and Distributions.... (0.99) (0.93) (1.03) (0.45) (1.60) (1.34)
------- ------- ------- ------- ------- -------
Net change in net asset value per
share............................... 0.63 (0.30) 1.06 0.17 (2.08) 0.82
------- ------- ------- ------- ------- -------
NET ASSET VALUE PER SHARE, END OF
PERIOD.............................. $ 16.42 $ 15.79 $ 16.09 $ 15.03 $ 14.86 $ 16.94
------- ------- ------- ------- ------- -------
Total return (excludes sales
charge)............................. 10.55% 4.13% 14.12% 4.26% (2.29%) 7.05%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000)... $37,105 $32,790 $32,387 $31,372 $33,046 $46,999
Ratio of expenses to average net
assets............................ 0.85% 1.27% 1.33% 1.04%(d) 0.91% 1.02%
Ratio of net investment income to
average net assets................ 6.15% 6.01% 6.12% 7.32%(d) 7.85% 8.14%
Ratio of expenses to average net
assets*........................... 1.56% 1.88% 2.23% 1.94%(d) 1.07% --
Ratio of net investment income to
average net assets*............... 5.44% 6.62% 7.02% 8.22%(d) 8.01% --
Portfolio turnover rate............. 63% 59% N/A N/A N/A 154.34%
</TABLE>
- ---------------
* 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.
(a) As of July 22, 1996, the Portfolio designated the existing series of shares
as "A" Shares.
(b) Includes the results of operations of Bunker Hill Income Securities, Inc.
and the Fund.
(c) The financial highlights for the year ended September 30, 1993 are for the
Bunker Hill Income Securities Inc., a closed end fund.
(d) Annualized.
See Notes to Financial Statements.
51
<PAGE> 634
PACIFIC HORIZON CORPORATE BOND FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
FEBRUARY 28, FEBRUARY 28,
1998 1997(a)
------------ ------------
<S> <C> <C>
K SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD......... $ 15.80 $15.56
------- ------
Income from Investment Operations:
Net investment income.................................. 0.90 0.53
Net realized and unrealized gains on investment
transactions....................................... 0.62 0.24
------- ------
Total income from investment operations................ 1.52 0.77
------- ------
Less Dividends and Distributions:
Dividends to shareholders from net investment
income............................................. (0.90) (0.53)
Distributions to shareholders from net realized gains
on investment transactions......................... -- --
------- ------
Total Dividends and Distributions...................... (0.90) (0.53)
------- ------
Net change in net asset value per share................ 0.62 0.24
------- ------
NET ASSET VALUE PER SHARE, END OF PERIOD............... $ 16.42 $15.80
======= ======
Total return........................................... 9.88% 5.01%(b)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000).................... $ 312 $ 237
Ratio of expenses to average net assets.............. 1.40% 1.64%(c)
Ratio of net investment income to average net
assets............................................. 5.58% 5.60%(c)
Ratio of expenses to average net assets*............. 2.30% 2.25%(c)
Ratio of net investment income to average net
assets*............................................ 4.68% 4.99%(c)
Portfolio turnover rate.............................. 63% 59%
</TABLE>
- ---------------
* 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.
(a) Period from July 22, 1996 (inception date) to February 28, 1997.
(b) Not annualized.
(c) Annualized.
See Notes to Financial Statements.
52
<PAGE> 635
PACIFIC HORIZON INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD
------------------------------------------------------------- ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997(b) 1996 1995 1994(a)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
A SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF PERIOD............... $ 9.54 $ 9.75 $ 9.44 $ 9.81 $ 10.00
------- ------- ------- ------ -------
Income from Investment Operations:
Net investment income............. 0.49 0.52 0.59 0.59 0.08
Net realized and unrealized gain
(loss) on investment
transactions.................... 0.20 (0.15) 0.33 (0.37) (0.19)
------- ------- ------- ------ -------
Total income gain (loss) from
investment operations............. 0.69 0.37 0.92 0.22 (0.11)
------- ------- ------- ------ -------
Less Dividends and Distributions:
Dividends to shareholders from net
investment income............... (0.51) (0.52) (0.59) (0.59) (0.08)
Dividends to shareholders from net
realized gains on investment
transactions.................... (0.03) (0.06) (0.02) -- --
------- ------- ------- ------ -------
Total Dividends and
Distributions..................... (0.54) (0.58) (0.61) (0.59) (0.08)
------- ------- ------- ------ -------
Net change in net asset value per
share............................. 0.15 (0.21) 0.31 (0.37) (0.19)
------- ------- ------- ------ -------
NET ASSET VALUE PER SHARE, END OF
PERIOD............................ $ 9.69 $ 9.54 $ 9.75 $ 9.44 $ 9.81
======= ======= ======= ====== =======
Total return (excludes sales
charge)........................... 7.40% 3.92% 10.45% 2.27% (1.10%)(double dagger)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period
(000)........................... $41,875 $22,937 $13,179 $1,964 $ 356
Ratio of expenses to average net
assets.......................... 0.90% 0.75% 0.27% 0.00% 0.00%(dagger)
Ratio of net investment income to
average net assets.............. 5.50% 5.45% 6.13% 6.43% 5.70%(dagger)
Ratio of expenses to average net
assets*......................... 1.21% 2.26% 5.00% 17.95% 160.20%(dagger)
Ratio of net investment income
(loss) to average net assets*... 5.19% 3.94% 1.40% (11.52)% (154.50%)(dagger)
</TABLE>
- ---------------
<TABLE>
<C> <S>
* 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.
(dagger) Annualized.
(double dagger) Not Annualized.
(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.
53
<PAGE> 636
PACIFIC HORIZON INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
FEBRUARY 28, FEBRUARY 28,
1998 1997(a)
------------ ------------
<S> <C> <C>
K SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD....... $9.54 $9.53
----- -----
Income from Investment Operations:
Net investment income.............................. 0.44 0.31
Net realized and unrealized gain on investments.... 0.19 0.07
----- -----
Total income from investment operations............ 0.63 0.38
----- -----
Less Dividends and Distributions:
Dividends to shareholders from net investment
income........................................... (0.42) (0.31)
Distributions to shareholders from net realized
gains on investments............................. (0.03) (0.06)
----- -----
Total Dividends and Distributions.................... (0.45) (0.37)
----- -----
Net change in net asset value per share.............. 0.18 0.01
----- -----
NET ASSET VALUE PER SHARE, END OF PERIOD............. $9.72 $9.54
===== =====
Total return......................................... 6.80% 3.73%(c)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000).................. $ 513 $ 332
Ratio of expenses to average net assets............ 1.39% 1.43%(b)
Ratio of net investment income to average net
assets........................................... 4.99% 5.41%(b)
Ratio of expenses to average net assets*........... 1.73% 2.71%(b)
Ratio of net investment income to average net
assets*.......................................... 4.65% 4.13%(b)
</TABLE>
- ---------------
<TABLE>
<C> <S>
* 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.
(b) Annualized.
(c) Not annualized.
</TABLE>
See Notes to Financial Statements.
54
<PAGE> 637
PACIFIC HORIZON INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE
PERIOD
JUNE 23,
1997(A) THROUGH
FEBRUARY 28,
1998
---------------
<S> <C>
SRF SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD.............. $ 10.72
-------
Income from Investment Operations:
Net investment income..................................... 0.40
Net realized and unrealized gain (loss) on investment
transactions............................................ 0.13
-------
Total income gain (loss) from investment operations......... 0.53
-------
Less Dividends and Distributions:
Dividends to shareholders from net investment income...... (0.38)
Distributions to shareholders from net realized gains..... --
-------
Total Dividends and Distributions........................... (0.38)
-------
Net change in net asset value per share..................... 0.15
-------
NET ASSET VALUE PER SHARE, END OF PERIOD.................... $ 10.87
=======
Total Return................................................ 4.86%(c)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........................... $35,161
Ratio of expenses to average net assets................... 0.95%(b)
Ratio of net investment income (loss) to average net
assets.................................................. 5.45%(b)
Ratio of expenses to average net assets*.................. 1.07%(b)
Ratio of net investment income to average net assets*..... 5.33%(b)
</TABLE>
- ---------------
<TABLE>
<C> <S>
* 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) Date of commencement of operations of SRF Shares of the
Fund.
(b) Annualized.
(c) Not Annualized.
</TABLE>
See Notes to Financial Statements.
55
<PAGE> 638
- --------------------------------------------------------------------------------
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 portfolios 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 U.S. Government
Securities Fund, Pacific Horizon Corporate Bond Fund and Pacific Horizon
Intermediate Bond Fund (three of the seventeen portfolios constituting Pacific
Horizon Funds, Inc., hereafter referred to as the "Funds") at February 28, 1998,
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, 1998 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide
a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
April 21, 1998
56
<PAGE> 639
PACIFIC HORIZON GROWTH FUNDS
ANNUAL REPORT
February 28, 1998
Aggressive Growth Fund
Blue Chip Fund
Investing For All
The Times Of Your Life
NOT FDIC INSURED
PACIFIC HORIZON GROWTH FUNDS
<PAGE> 640
PACIFIC HORIZON FUNDS, INC.
103 Bellevue Parkway
Wilmington, DE 19809
1-800-332-3863
INVESTMENT ADVISER
Bank of America National Trust
and Savings Association
555 California Street
San Francisco, CA 94104
ADMINISTRATOR
Bank of America National
Trust and Savings Association
555 California Street
San Francisco, CA 94104
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
Provident Distributors, Inc.
Four Falls Corporate Center
6th Floor
Conshohocken, PA 19428
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 Provident
Distributors, Inc. which is unaffiliated with the Bank of America. Bank of
America serves as investment adviser to the Funds 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, NOT
BANK OF AMERICA OR ANY AFFILIATES. AN INVESTMENT IN FDIC
MUTUAL FUNDS INVOLVES INVESTMENT RISKS, INCLUDING THE INSURED
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
- ----------------------------------------------------------------------------
</TABLE>
-----------------------------------------------------------------------------
--------------------------------------------------------------------------
<PAGE> 641
..................................
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 MANAGER 10-19
PACIFIC HORIZON AGGRESSIVE GROWTH
FUND
Portfolio of Investments 20-24
Statement of Assets
and Liabilities 25
Statement of Operations 26
Statements of Changes
in Net Assets 27
PACIFIC HORIZON BLUE CHIP FUND
Statement of Assets
and Liabilities 28
Statement of Operations 29
Statements of Changes
in Net Assets 30
NOTES TO FINANCIAL STATEMENTS 31-39
FINANCIAL HIGHLIGHTS 40-44
REPORT OF INDEPENDENT ACCOUNTANTS 45
MASTER INVESTMENT TRUST, SERIES
I -- BLUE CHIP PORTFOLIO
Portfolio of Investments 46-51
Statement of Assets
and Liabilities 52
Statement of Operations 53
Statements of Changes
in Net Assets 54
Notes to Financial Statements 55-58
Supplementary Data 59
Report of Independent
Accountants 60
</TABLE>
<PAGE> 642
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>
- ---------------------------------------------------------------------------
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*(dagger)
- Tax-Exempt Money High Level of Federal Tax-Free Current
Income Plus Principal Stability
- California Tax-Exempt Money High Level of Federal and California
Market 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.
(dagger) 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> 643
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
Preferred Stocks and capital appreciation.
...........................................................................
Stocks, Bonds and Cash Long-term growth potential and current
Equivalents income from stocks and bonds.
...........................................................................
Investment-Grade Corporate Debt High monthly income potential with
reasonable investment risk.
...........................................................................
Investment-Grade Corporate and Regular monthly income from a
U.S. Government Securities diversified portfolio of
investment-grade securities.
...........................................................................
GNMAs and Other U.S. Government High monthly income potential and low
Securities credit risk.
...........................................................................
U.S. Government and Government Monthly income and relative stability
Agency Securities of investment.
...........................................................................
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 A flexible, convenient way to manage or
U.S. Government Short-Term accumulate cash while waiting for other
Obligations 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
Obligations cash while waiting for other investment
opportunities.
</TABLE>
- --------------------------------------------------------------------------------
3
<PAGE> 644
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
MANAGER enables you to gain
insight into the Fund's
investments and learn more
about the Fund manager's
strategies.
[GRAPHICS]
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.
[GRAPHICS]
4
<PAGE> 645
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
[GRAPHICS]
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
[GRAPHICS] OUTSTANDING
THE CURRENT NET ASSET VALUE PER SHARE PLUS SALES CHARGE, IF ANY
5
<PAGE> 646
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
[GRAPHICS]
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
[GRAPHICS]
The NOTES TO FINANCIAL STATEMENTS are footnotes to the statements listed above.
These notes include information on accounting methods used by the Fund,
contractual arrangements between the Fund and its service providers, certain
transactions effected by the Fund and other general information about the Fund.
The FINANCIAL HIGHLIGHTS shows, for a single share outstanding throughout each
period presented, the net investment income, the realized and unrealized gains
and losses and the dividends and distributions of the Fund. It also shows key
data and ratios, such as the total investment return for each period, the
portfolio turnover rate for Funds other than money market mutual funds, the
ratio of expenses to average net assets and the ratio of net investment income
to average net assets.
6
<PAGE> 647
[This page intentionally left blank.]
7
<PAGE> 648
ECONOMIC REVIEW
FROM THE INVESTMENT ADVISER
Fourth quarter Gross Domestic Product was reported at a 3.7%* annualized rate,
with inflation continuing to be non-existent and a positive factor for the
economy and the domestic financial markets. Changes in consumer prices are
negligible and producer prices are actually declining. Historically high
consumer confidence, resulting from strong job growth, wage gains and the
positive wealth effect created by the buoyant stock market, has created solid
income growth and has fueled the robust housing market in the first quarter of
1998. Consumers have been the primary beneficiaries of the turmoil in the Asian
markets. Lower bond yields, a by-product of the Asian financial crisis, have
resulted in lower mortgages payments for households looking to buy a home.
THE CASE FOR
STOCKS AND BONDS
The Standard & Poor's Stock Index posted a total return of 35.1%** during the 12
month period ended February 28, 1998, amply rewarding long-term investors who
rode out volatility that accompanied the Asian financial crisis. The best
performers were concentrated among shares of large company stocks, which
significantly outpaced shares of smaller firms.
Companies have been issuing reduced earnings forecasts at an increasing rate.
Despite the early warnings, the reduced earnings expectations have not put a
damper on the stock market. The bullish sentiment for low inflation and
continuing strong profits for 1998 are propelling the stock markets to new
highs. The Dow*** has gained 8.4% during the first two months of the year,
significantly higher than expected. Overall, the U.S. economy seems poised for
continued moderate growth, which is good news for stocks. We think it is
reasonable to expect P/E ratios to stay at current levels of 22 times 1998
earnings. That gives an estimated market return over the next 12 months of 9%
(7.8% from earnings growth and 1.2% from dividend yield).
Fixed income investors remain optimistic due to the lack of price pressures, the
strong dollar and the expectation of an Asia-led slowdown in the U.S. Interest
rates on Treasuries have fallen across the yield curve over the last twelve
months and are currently below 6%, the lowest level in 25 years. The finance
sector has been outperforming expectations as of late, which has a lot to do
with the wave of colossal merger and acquisition activity sweeping across
financial institutions.
The prospects for a government budget surplus in fiscal 1998 are growing. Some
economists are predicting as much as a $50 billion surplus due to large tax
revenues as well as efforts to reduce government spending. These revenue flows
will serve to reduce immediate government financing needs. Already, we have seen
cuts in the size of Treasury auctions so far this year.
POTENTIAL RISKS
The Asian financial crisis, which began in the third quarter of 1997, is
expected to modestly impact U.S. domestic growth. As expected, trade between
U.S. and Asian trade partners has sharply deteriorated, with the current account
deficit widening to its highest level in ten years. The deficit widened to
$166.5 billion in 1997, up from $148.2 billion for 1996. The largest threat to
the U.S. economy, according to The Organization for Economic Cooperation and
Development (OECD), would be a second round of currency devaluations in Asia. It
could happen again if Japan fails to jumpstart its economy.
While the final outcome of the Asian financial crisis remains unclear, the
initial predictions of a global financial crisis have not been supported by the
evidence.
8
<PAGE> 649
With the Asian crisis potentially constraining corporate profitability in the
second or third quarter, we expect that growth will slow during the remainder of
the year.
Tame inflation continues to be the theme du jour as the Consumer Price Index's
1.4% increase over the past 12 months is the second lowest reading in 33 years,
outdone only by the collapse in oil prices in 1986. The lack of inflationary
pressures and the uncertainty surrounding the Asian financial crisis have kept
the Federal Reserve from raising interest rates. The Fed funds rate has remained
at 5.50% since last March. However, the labor market is stretched and wage
pressures are intensifying. So far, increased productivity has compensated for
wage increases; however, recent significant increases in real asset values, such
as housing and land, have not gone unnoticed by Chairman Greenspan and may play
a factor in determining monetary policy over the coming months.
LOOKING FORWARD
It is now a widely accepted view that the U.S. economy is growing at a faster
pace early in 1998 than analysts had projected last year at the height of the
Asian turmoil. Although the preliminary GDP figure will not be released until
the end of April, the early estimate for the first quarter lies somewhere
between 3.5 - 4.0%. In order to reach the projected 1998 growth rate of 2.8%*,
U.S. growth will have to sustain a considerable slowdown in the latter part of
the year to compensate for the strengths it is exhibiting now.
Looking forward, there are a lot of crosscurrents in the U.S. corporate earnings
picture. Ironically, the impact from the Asian financial crisis so far have been
positive, with lower interest rates boosting the economy. In the first quarter,
currency and oil earnings will be negative factors, but stronger economic growth
will offset any weaknesses. In the second and third quarters, we expect the
impact from Asia should be mitigated by strong growth in Europe. We continue to
believe that the economic impact from Asia will be moderate with the U.S.
economy slowing, but sustaining a near normal growth rate of 2.8% in 1998. Given
these projections, we expect equities and fixed income securities to perform
well in 1998, although below 1997 levels.
Sincerely,
/s/ Kirk Hartman
Kirk Hartman
Chief Investment Officer of
Fixed Income Management
- ---------------
* Source: Bloomberg, 1998.
** Source: Bloomberg, 1998. 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 Dow Jones Industrial Average
is a price-weighted average of 30 actively traded blue chip stocks and
cannot be invested in directly.
9
<PAGE> 650
PACIFIC HORIZON
AGGRESSIVE GROWTH FUND
[ROBERT PYLES PHOTO]
ROBERT PYLES, CFA
Sr. Vice President &
Director of Equity
Bank of America NT&SA
GOAL:
The Pacific Horizon Aggressive Growth Fund seeks to maximize capital
appreciation.
INVESTMENTS:
The Fund invests primarily in a diversified portfolio of common stocks and
securities convertible into common stocks of smaller-capitalized domestic
companies deemed to have potential for above-average growth in revenues and
earnings.
APPROPRIATE FOR:
Investors who are interested in long-term capital appreciation and can assume
above-average investment risk. The Fund is designed to help investors benefit
from the long-term upward potential in stock prices through a diversified
portfolio.
INCEPTION:
March 31, 1984
SIZE OF FUND AS OF
FEBRUARY 28, 1998:
Over $221 million
Q
WHAT FACTORS AFFECTED THE FUND'S PERFORMANCE DURING THE 12 MONTHS ENDED
FEBRUARY 28, 1998?
A
The small cap market has generally remained in a pattern of under
performance vs. large cap stocks. One period of exception was a relatively short
period of sharp recovery from April to October 1997, when small cap stocks
substantially outperformed large-cap indices. Earnings performance began to
improve for small cap stocks in the second half of the year, while some highly
visible large-cap multinationals began to slow due to currency and impact from
Asian economies. However, as the Asian financial crisis expanded and deepened,
the overall market turned more defensive in October, an unfavorable development
for small-cap issues. In addition, the Technology and Energy sectors, which are
heavily-weighted in small-cap indices, were particularly weak toward year end.
The IPO calendar was also running at record levels, creating substantial supply
in the marketplace.
For the 12 months ended February 28, 1998, the Fund returned 23.3% and 22.7% for
the A and K shares, respectively.* By comparison, the Fund's Benchmark, the
Russell 2000 Growth Index, returned 25.9%.**
Q
HOW DID YOU MANAGE THE FUND IN THAT ENVIRONMENT?
A
The composition of the Pacific Horizon Aggressive Growth Fund continues to
change as we actively monitor the Fund's holdings and position it to take
advantage of the opportunities presented by the marketplace. Our investment
style continues to emphasize a high growth but risk-managed approach which
maintains reasonable sector diversification relative to the benchmark and
controls position sizes to less than 3 percent. Sector
10
<PAGE> 651
weights will continue to be reasonably diversified. Within the Consumer sector,
our emphasis is on specialty retailers, apparel and services. We continue to
overweight business services (especially outsourcing).
Our Technology overweight is moderate given less consistent earnings performance
in small cap Technology. We have reduced telecom equipment selectively while
adding to service providers and computer software. Our largest underweights
include Finance, due to fewer growth stocks, and Health Care, where managed care
stocks have experienced difficulty.
Q
WHAT WERE SOME OF THE INDIVIDUAL HOLDINGS THAT AFFECTED THE FUND'S
PERFORMANCE?
A
Individual stocks in several industries did very well during the year,
especially in services such as SEI Investments Co. (2.3% of net assets as of
February 28, 1998), Cablevision Systems (1.8% of net assets as of February 28,
1998), Mesaba Airlines (1.4% of net assets as of February 28, 1998) and Volt
Information Sciences (1.4% of net assets as of February 28, 1998). Telecom
stocks continued to also be leaders in the Fund, including Nice Systems (1.9% of
net assets as of February 28, 1998) and Intermedia Communications (1.5% of net
assets as of February 28, 1998).****
Q
WHAT ARE THE FUND'S PROSPECTS DURING THE COMING QUARTER?
A
While small cap stocks recovered some performance lag during part of 1997,
the past three year performance differential remains substantially in favor of
the S&P 500, up 32 percent annually compared with 23.5 percent annually for the
Russell 2000. This leaves a lot of room for catch up, especially with improving
earnings performance and favorable valuation. We continue to view this
performance divergence between large cap stocks and small cap stocks as an
opportunity for growth-oriented investors to adjust allocations of small cap
stocks to targeted investment policy levels within their portfolios. The
relative earnings per share outlook and valuation of the small cap sector
continue to be favorable. On a bottom-up basis, Russell 2000 earnings are
estimated to increase 50 percent faster than the S&P in 1998 while the valuation
of small cap stocks is lower. For the Russell 2000 Growth Index, estimated
earnings increases are twice the S&P with only a slightly higher price/earnings.
- ---------------
Note: Small-company funds typically carry additional risks since smaller
companies have a higher company-specific risk, and historically, their stocks
have experienced a greater degree of market volatility than larger-company
stocks.
* Return figures for the Fund include change in share price, reinvestment of
dividends and capital gains distributions. Performance figures for A Shares
do not reflect the maximum 4.50% sales load, which applies to some
investors.
** Source: Standard & Poor's Micropal, 1998. The Russell 2000 Growth Index is
a widely used unmanaged index which measures the performance of small-cap
stocks and cannot be invested in directly.
*** Source: Standard & Poor's Micropal, 1998. The S&P 500 is an unmanaged index
generally representative of the equity market as a whole and cannot be
invested in directly.
**** The composition of the Fund's holdings is subject to change.
The performance data quoted represents past performance and is not an indication
of future results. The investment return and Net Asset Value will fluctuate so
that an investor's shares when redeemed, may be worth more or less than their
original cost.
11
<PAGE> 652
PACIFIC HORIZON
BLUE CHIP FUND
[JAMES D. MILLER PHOTO]
JAMES D. MILLER, CFA
Chief Investment Officer
of Quantitative Based
Equity Management
Bank of America
Investment Advisers Division
Mr. Miller is head of the investment management team for the Blue Chip Fund.
GOAL:
The Pacific Horizon Blue Chip Fund seeks long-term capital appreciation.
INVESTMENTS:
The Fund invests primarily in a diversified portfolio of "blue chip" common
stocks, which are included in either the Dow Jones Industrial Average or the
Standard & Poor's 500 Index.
APPROPRIATE FOR:
Investors who want to participate in the growth potential of some of America's
major companies. The Fund is a diversified equity product that can be used as
part of many investment strategies.
INCEPTION:
January 13, 1994
SIZE OF FUND AS OF
FEBRUARY 28, 1998:
Over $665 million
Q
WHAT FACTORS AFFECTED THE FUND'S PERFORMANCE DURING THE RECENT PERIOD?
A
The market continued to benefit from the current U.S. economic environment
of steady growth without inflation. With the current expansion almost seven
years old, there still is no recession in sight. The Fund posted a total return
of 33.96%* (without the sales charge) for A shares and 33.08% for K shares,
compared to 35.10%** for the Standard & Poors 500 Stock Index for the 12 months
ended Feb. 28, 1998.
Investors continued to reward large capitalization stocks in the United States,
which outpaced the foreign markets. There also was a continuation of heavy
sector rotation. For example, the technology sector has lead the market early in
1998 but had lagged the market the previous ten months. The financial sector is
off to a slower start this year while it outperformed other industries in 1997.
In addition, growth stocks outperformed value stocks over the last twelve
months.
Q
HOW DID YOU MANAGE THE FUND IN THAT ENVIRONMENT?
A
We continued to keep the Fund fully invested in the equities market while
staying neutral to the market in market capitalization and sector weights. As
always, we continued to focus on individual stock selection. Within the
framework of our disciplined process, the dominant investment theme has been the
outperformance of stocks that appear attractive to our value factors and possess
positive earnings momentum. By factoring for these themes, we seek to provide
superior stock selection across the majority of economic sectors. We continued
to focus on companies that exhibit "using earnings expectations," "high earnings
certainty" and were trading below fair
12
<PAGE> 653
value. Companies with "high earnings certainty" are those that have similar
earnings estimates from different analysts. Firms with "using earnings
expectations" are those that have experienced the biggest increase in analysts
earnings estimates. Low price to earnings, low price to cash flow and dividend
discount measures represent our value factors.
Q
WHAT ARE SOME STOCKS OR SECTORS THAT PERFORMED WELL FOR THE FUND DURING THE
YEAR?
A
The four sectors that outperformed the market for the twelve month period
ending February 28, 1998 were the technology, health care, financial and
consumer cyclical sectors. Our holdings included Dell Computer Corp. (2.33% of
net assets as of February 28, 1998) and Microsoft (3.78% of net assets as of
February 28, 1998) in the technology sector. Pfizer Inc. (1.65% of net assets as
of February 28, 1998) and Schering-Plough Corp. (1.93% of net assets as of
February 28, 1998) did very well in the health sector. T.J.X. Companies Inc.
(1.27% of net assets as of February 28, 1998) and Home Depot Inc. (1.89% of net
assets as of February 28, 1998) also did very well in the Consumer Cyclical
area. Finally, Morgan Stanley Dean Witter (1.71% of net assets as of February
28, 1998)*** performed well in the financial sector.
Q
WHAT'S AHEAD FOR THE FUND?
A
We will continue to maintain a fully invested portfolio broadly diversified
among market sectors according to the benchmark that we use to compare our
Fund's performance. We will continue to add value by stock selections that offer
a combination of growth, value, earnings momentum and earnings certainty. Our
philosophy will not change based on short-term trends or conditions in the
market. Instead, we will remain focused on meeting the goals of long-term
investors, while attempting to outperform the S&P 500 on a consistent basis.
- ---------------
* Return figures for the Fund include change in share price, reinvestment of
dividends and capital gains distributions. Performance figures for A shares
do not reflect the maximum 4.50% sales load, which applies to some
investors.
** Source: Standard & Poor's Micropal, 1998. The S&P 500 is an unmanaged index
generally representative of the equity market as a whole and cannot be
invested in directly.
*** The composition of the Fund's holdings is subject to change.
The performance data quoted represents past performance and is not an indication
of future results. The investment return and Net Asset Value will fluctuate so
that an investor's shares when redeemed, may be worth more or less than their
original cost.
13
<PAGE> 654
PACIFIC HORIZON
AGGRESSIVE GROWTH FUND
(AS OF FEBRUARY 28, 1998)
GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)
<TABLE>
<CAPTION>
MEASUREMENT
PERIOD LIPPER CAP
(FISCAL LIPPER SMALL APPRECITATION
YEAR CAP FUNDS FUNDS
COVERED) A SHARES K SHARES AVERAGE RUSSELL 2000 AVERAGE
<S> <C> <C> <C> <C> <C>
2/29/88 9550 10000 10000 10000 10000
2/28/89 10321 10605 11474 11556 11022
2/28/90 12229 12804 12671 12012 12534
2/28/91 16756 17543 14269 12458 13717
2/29/92 23643 24754 19531 16698 17445
2/28/93 21571 22585 20458 17947 18308
2/28/94 23846 24966 24920 21712 21649
2/28/95 22989 24069 24663 21334 21445
2/29/96 32387 33908 32874 27444 28110
2/28/97 35344 36906 37351 30904 31614
2/28/98 43602 45284 48538 40160 39966
</TABLE>
HOW PERFORMANCE COMPARES
We have changed the Fund's benchmark
index from the Lipper Capital
Appreciation Funds Average to the
Lipper Small Cap Funds Average which
more closely resembles the
composition of the Fund and, we
believe, is a more appropriate
benchmark for the Fund's holdings. In
order to complete the transition to
the new benchmark we are providing a
hypothetical comparison of the Fund's
performance since inception through February 28, 1998 with both its former
benchmark and its new benchmark, Lipper Small Cap Funds Average.
As the chart indicates, the Pacific Horizon Aggressive Growth Fund has
consistently outperformed the market, as measured by the Russell 2000, a widely
used unmanaged index which measures the performance of small capitalization
stocks. An initial $10,000 investment made for the ten year period commencing on
February 28, 1988 would now be worth $43,602 for A Shares. The same investment
made in the Russell 2000, representing a broader market, would now be worth
$40,160. Correspondingly, a $10,000 investment in K Shares for the same period
would now be worth $45,284.*
<TABLE>
<CAPTION>
------------------------------------------------
AGGRESSIVE GROWTH FUND
AVERAGE ANNUAL RETURN
------------------------------------------------
A SHARES K SHARES*
Without With
Sales Sales
Charge Charge
------------------------------------------------
<S> <C> <C> <C>
1 year: 23.30% 17.75% 22.70%
................................................
5 years: 15.11% 14.06% 14.93%
................................................
10 years: 16.40% 15.86% 16.30%
------------------------------------------------
</TABLE>
The Fund fared well relative to other capital appreciation funds. The average of
capital appreciation funds reported by Lipper Analytical Services, Inc. measures
the performance of other funds with investment objectives and policies similar
to those of the Pacific Horizon Aggressive Growth Fund. The Lipper Small Cap
Funds Average on the same $10,000 investment over the same period would have
been $48,538.
14
<PAGE> 655
FEDERAL INCOME TAX STATUS OF DIVIDENDS (UNAUDITED)
The Pacific Horizon Aggressive Growth Fund distributed a total Capital Gain
Dividend of $1.266149 for the year ended February 28, 1998. Of this total
Capital Gain Dividend amount, the Fund made a 28 percent rate distribution of
$0.620556.
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 October 25,
1996. For this reason, the performance results for K Shares are those of A
Shares without the sales charge prior to such date. 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 Lipper Small Cap Funds Average, nor the Russell 2000 may
be invested in directly. The hypothetical investment in the Russell 2000 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.
15
<PAGE> 656
PACIFIC HORIZON
AGGRESSIVE GROWTH FUND
(AS OF FEBRUARY 28, 1998)
PORTFOLIO COMPOSITION*
The Pacific Horizon Aggressive Growth
Fund invests in those sectors of the
small-capitalization universe that the
adviser believes will generate superior
long-term growth. The adviser currently
expects the technology, health-care and
consumer sectors to provide the
greatest potential for capital
appreciation during this decade and
beyond.
[GRAPH]
<TABLE>
<S> <C>
Technology 27.8
Consumer Cylicals 13.8
Health Care 9.6
Basics 1.3
Capital Goods 19.9
Cash 4.1
Utilities/Wireless 7.1
Finance 9.0
Consumer Staples 2.7
Transportation 1.4
Energy 3.3
</TABLE>
<TABLE>
<CAPTION>
TOP TEN HOLDINGS*
-----------------------------------------
PERCENT OF
COMPANY NET ASSETS
<S> <C>
-----------------------------------------
PMT Services, Inc. 2.44%
................................................
SEI Corp. 2.31%
................................................
Imperial Credit Industries,
Inc. 2.19%
................................................
Smartalk Teleservices Inc. 2.10%
................................................
Nice Systems Ltd. ADR 1.90%
................................................
WMS Industries, Inc. 1.89%
................................................
Wet Seal, Inc. 1.83%
................................................
GST Telecommunications Inc. 1.83%
................................................
ALGOS Pharmaceuticals Corp. 1.81%
................................................
Select Appointments Holdings
Public Limited Co. 1.79%
-----------------------------------------
TOTAL 20.09%
-----------------------------------------
</TABLE>
* The composition of the Fund's
holdings is subject to
change.
16
<PAGE> 657
PACIFIC HORIZON
BLUE CHIP FUND
(AS OF FEBRUARY 28, 1998)
GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)
<TABLE>
<CAPTION>
MEASUREMENT
PERIOD LIPPER
(FISCAL GROWTH
YEAR FUNDS
COVERED) A SHARES K SHARES AVERAGE S&P 500
<S> <C> <C> <C> <C>
1/13/94 10000 9551.50 10000 10000
2/28/94 9980.00 9530.90 9844.07 9729.00
8/31/94 10336.54 9871.39 9814.06 10046.00
2/28/95 10738.15 10254.93 9941.24 10444.00
8/31/95 12491.22 11929.12 11855.52 12197.00
2/29/96 14323.35 13678.80 13066.27 14064.27
8/31/96 14736.58 14073.42 13396.59 14481.00
2/28/97 18167.77 17373.06 15454.30 17741.00
2/28/98 24176.00 23950.00 20150.00 23268.00
</TABLE>
HOW PERFORMANCE COMPARES
The chart compares the performance of
the Pacific Horizon Blue Chip Fund to
the S&P 500, which is an unmanaged
index typically used as a performance
benchmark for equity investments. As
illustrated, the Fund has fared well
compared to other growth funds. The
average of growth 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 Blue Chip Fund.
<TABLE>
<CAPTION>
-----------------------------------------------
BLUE CHIP FUND
AVERAGE ANNUAL RETURN
-----------------------------------------------
K
A SHARES SHARES*
Without With
Sales Sales
Charge Charge
-----------------------------------------------
<S> <C> <C> <C>
1 year: 33.96% 27.92% 33.08%
...............................................
3 years: 31.41% 29.42% 31.07%
...............................................
Since inception:
1/13/94 24.06% 22.68% 23.82%
-----------------------------------------------
</TABLE>
An initial $10,000 investment in the Fund made on January 13, 1994, would now be
worth $23,268 for A Shares. The same investment made in the Lipper Growth Funds
Average, would now be worth only $20,150. Correspondingly, a $10,000 investment
in K Shares for the same period would now be worth $24,176.*
FEDERAL INCOME TAX STATUS OF DIVIDENDS (UNAUDITED)
The Pacific Horizon Blue Chip Fund distributed a total Capital Gain Dividend of
$3.238529 for the year ended February 28, 1998. Of this total Capital Gain
Dividend amount, the Fund made a 28 percent rate distribution of $1.907599 and a
20 percent rate distribution of $0.560264.
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.
17
<PAGE> 658
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 November 11,
1996. For this reason, the performance results for K Shares are those of A
Shares without the sales charge prior to such date. 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 Lipper Growth Funds Average or the S&P 500 can be invested
in directly. The hypothetical investment in the S&P 500 does not reflect any
sales or management fees that would be incurred in 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> 659
PACIFIC HORIZON
BLUE CHIP FUND
(AS OF FEBRUARY 28, 1998)
FUND QUALITY
A Strategy for Long-Term Capital
Appreciation
The Fund maintains a "quality"
investment orientation by placing an
emphasis on the securities of
well-known established companies.
This "blue chip" approach may be
appropriate for investors seeking
long-term growth of capital. At
least 80% of the Fund's assets are
normally invested in blue chip
stocks. To meet the criteria set by
the Fund's investment objectives,
these stocks must be components of
the Dow Jones Industrial Average or
the Standard & Poor's 500 Index.
<TABLE>
<CAPTION>
TOP TEN HOLDINGS*
----------------------------------------------
PERCENT OF
COMPANY NET ASSETS
<S> <C>
----------------------------------------------
Microsoft Corp. 3.28%
......................................................
General Electric Co. 2.80%
......................................................
Exxon Corporation 2.40%
......................................................
Dell Computer 2.33%
......................................................
Merck & Co., Inc. 2.07%
......................................................
Schering Plough Corp. 1.93%
......................................................
Home Depot, Inc. 1.89%
......................................................
AT & T 1.78%
......................................................
Morgan Stanley Dean Witter
Discovery 1.71%
......................................................
Disney Walt Co. 1.69%
----------------------------------------------
TOTAL 21.88%
----------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
The Fund adviser's research
orientation seeks to
identify individual stocks,
within the sector
allocations mirroring those
of the S&P 500, with the
greatest potential for
long-term growth. The Fund's
primary emphasis is on
stocks that, in the opinion
of the Fund's adviser, have
the greatest potential of
superior performance with
the least amount of risk.
PORTFOLIO COMPOSITION*
[GRAPH]
<TABLE>
<S> <C>
Utilities 10.1
Finance 17.5
Consumer Surplus 10.5
Health Care 11.6
Technology 14.2
Capital Goods 9.3
Energy 7.8
Basic Industry 4.6
Transportation 1.2
Consumer Cyclicals 13.2
</TABLE>
* The composition of the Fund's holdings is subject to change.
19
<PAGE> 660
PACIFIC HORIZON AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- ------ --------
<S> <C> <C>
COMMON STOCKS -- 96.3%
AIRLINES -- 1.4%
Mesaba Holdings, Inc.**.................................. 105,800 $ 3,068,200
------------
BIOTECHNOLOGY -- 3.0%
Corixa Corp.**........................................... 268,650 2,249,944
Human Genome Sciences, Inc.**............................ 44,300 1,882,750
Protein Design Labs, Inc.**.............................. 60,550 2,603,650
------------
6,736,344
------------
BROADCASTING -- 3.3%
Cablevision Systems Corp.**.............................. 40,050 3,914,887
United International Holdings, Inc.**.................... 228,250 3,323,891
------------
7,238,778
------------
BUILDING AND HOME FURNISHINGS -- 1.5%
Advanced Lighting Technologies, Inc.**................... 120,750 3,245,156
------------
BUSINESS SERVICES -- 6.3%
Accustaff, Inc.**........................................ 67,400 1,904,050
Professional Staff PLC ADR**............................. 155,850 2,688,412
Select Appointments Holdings Public Limited Company
ADR..................................................... 187,850 3,944,850
SOS Staffing Services, Inc.**............................ 173,050 3,547,525
Tier Technologies, Inc.**................................ 137,750 1,876,844
------------
13,961,681
------------
CHEMICALS -- 1.9%
Nanophase Technologies Corporation**..................... 183,750 1,148,438
TETRA Technologies, Inc.**............................... 124,200 2,996,325
------------
4,144,763
------------
CHILD CARE -- 0.4%
Childrens Comprehensive Services, Inc.**................. 53,750 1,001,094
------------
CLOTHING & APPAREL -- 1.8%
Novel Denim Holdings Limited**........................... 59,450 1,478,819
Quicksilver, Inc.**...................................... 82,750 2,441,125
------------
3,919,944
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
20
<PAGE> 661
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- ------ --------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
COMMERCIAL SERVICES -- 3.7%
NCO Group, Inc.**........................................ 110,350 $ 2,786,337
PMT Services, Inc.**..................................... 304,250 5,400,437
------------
8,186,774
------------
COMPUTER SERVICES & SOFTWARE -- 8.7%
3D Labs, Inc., Ltd.**.................................... 127,200 3,466,200
Cimatron Ltd.**.......................................... 297,350 1,412,412
Documentum, Inc. **...................................... 81,800 3,793,475
HNC Software, Inc.**..................................... 44,850 1,597,781
Rogue Wave Software, Inc.**.............................. 228,700 2,973,100
Symantec Corp.**......................................... 119,500 3,009,906
Visio Corp. **........................................... 84,050 3,025,800
------------
19,278,674
------------
COMPUTERS -- 4.2%
Acxiom**................................................. 133,900 2,811,900
Box Hill Systems Corp.**................................. 179,850 2,045,794
Concord Communications, Inc.**........................... 44,750 1,286,562
Cybex Computer Products Corp.**.......................... 125,900 3,273,400
------------
9,417,656
------------
CONSUMER PRODUCTS & SERVICES -- 2.2%
Equity Corp. International**............................. 169,900 3,567,900
Meade Instruments Corp.**................................ 134,250 1,275,375
------------
4,843,275
------------
PERSONAL SERVICES -- 1.0%
Enamelon, Inc.**......................................... 159,200 2,208,900
------------
DIVERSIFIED OPERATIONS -- 1.4%
Volt Information Sciences, Inc.**........................ 59,550 3,130,097
------------
ELECTRONIC COMPONENTS & EQUIPMENT -- 5.4%
Actel Corp.**............................................ 112,450 1,757,031
Anaren Microwave Inc.**.................................. 110,750 2,353,437
EMCORE Corp.**........................................... 144,000 1,908,000
Photronics Labs Inc.**................................... 91,400 2,684,875
REMEC, Inc.**............................................ 69,150 1,897,303
Ultrak, Inc.**........................................... 135,200 1,275,950
------------
11,876,596
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
21
<PAGE> 662
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- ------ --------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
ENTERTAINMENT & LEISURE -- 5.3%
Family Golf Centers, Inc.**.............................. 108,000 $ 3,631,500
Gametech International Inc.**............................ 138,400 986,100
Play By Play Toy & Novelties, Inc.**..................... 145,600 2,930,200
WMS Industries, Inc.**................................... 156,950 4,178,794
------------
11,726,594
------------
ENVIRONMENTAL SERVICES -- 2.1%
Culligan Water Technologies, Inc.**...................... 53,900 3,105,987
Flanders Corp.**......................................... 247,600 1,671,300
------------
4,777,287
------------
FINANCIAL SERVICES -- 6.6%
Franchise Mortgage Acceptance Company**.................. 149,300 2,687,400
Imperial Credit Industries, Inc.**....................... 229,300 4,843,962
SEI Investments Co....................................... 86,350 5,094,650
Willis Lease Finance Corp.**............................. 96,400 1,976,200
------------
14,602,212
------------
HEALTHCARE SERVICES -- 1.8%
Envoy Corp.**............................................ 75,500 3,067,187
ProMedCo Management Co.**................................ 67,400 850,925
------------
3,918,112
------------
INSTRUMENTS-CONTROLS -- 0.6%
Metrika Systems Corp. **................................. 87,300 1,320,413
------------
MACHINERY & EQUIPMENT -- 1.7%
ITEQ, Inc.**............................................. 312,548 3,711,508
------------
MANUFACTURING -- 0.8%
Coastcast Corp.**........................................ 89,850 1,864,388
------------
MEDICAL SUPPLIES & EQUIPMENT -- 2.8%
SeaMED Corp.**........................................... 187,000 3,506,250
Sofamor/Danek Group Inc.**............................... 35,500 2,671,375
------------
6,177,625
------------
METALS & MINING -- 0.8%
Titanium Metals Corp.**.................................. 59,150 1,781,894
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
22
<PAGE> 663
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- ------ --------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
OIL & GAS -- 3.9%
Costilla Energy, Inc.**.................................. 189,500 $ 1,942,375
Eagle Geophysical, Inc.**................................ 59,200 806,600
Eastern Enterprises...................................... 28,150 1,247,397
Meridian Resource Corp.**................................ 193,320 1,606,973
Mitcham Industries, Inc.**............................... 80,000 1,420,000
Ocean Energy, Inc.**..................................... 36,100 1,687,675
------------
8,711,020
------------
PHARMACEUTICALS -- 1.8%
Algos Pharmaceuticals Corp.**............................ 119,200 3,993,200
------------
RESTAURANTS -- 1.7%
Landry's Seafood Restaurants, Inc.**..................... 141,250 3,743,125
------------
RETAIL & MERCHANDISING -- 1.2%
Kenneth Cole Productions, Inc.**......................... 153,400 2,761,200
------------
RETAIL & MERCHANDISING -- 3.4%
Petco Animal Supplies, Inc.**............................ 178,150 2,549,772
Stage Stores, Inc.**..................................... 21,650 909,300
The Wet Seal, Inc.**..................................... 131,850 4,046,147
------------
7,505,219
------------
TELECOMMUNICATIONS -- 14.7%
Boston Communications Group, Inc.**...................... 201,100 1,784,763
GST Telecommunications, Inc.**........................... 279,350 4,033,116
Intermedia Communications, Inc.**........................ 43,350 3,310,856
Iridium World Communications, Ltd.**..................... 50,550 2,448,516
Level One Communications, Inc.**......................... 44,650 2,006,459
Lightbridge, Inc.**...................................... 174,600 2,444,400
NICE-Systems Ltd. ADR **................................. 95,500 4,207,969
NTL, Inc.**.............................................. 86,150 2,864,488
Omnipoint Corp.**........................................ 132,600 3,712,800
Ortel Corp **............................................ 91,850 1,159,606
Smartalk Teleservices, Inc. **........................... 138,150 4,645,294
------------
32,618,267
------------
TRANSPORTATION-COMMERCIAL SERVICES -- 0.9%
Budget Group, Inc.**..................................... 60,850 1,897,759
------------
TOTAL COMMON STOCKS (COST $169,039,655)................... 213,367,755
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
23
<PAGE> 664
<TABLE>
<CAPTION>
EXPIRATION VALUE
DATE SHARES (NOTE 2)
---------- --------- ------------
<S> <C> <C> <C>
WARRANTS -- 0.0%
Sound Advice (b)** (Cost $0)..................... 06/14/99 15 $ 0
------------
TOTAL INVESTMENTS -- 96.3%
COST ($169,039,655)(A)........................... 213,367,755
Other Assets in Excess of Liabilities -- 3.7%..... 8,290,801
------------
NET ASSETS -- 100.0%.............................. $221,658,556
============
</TABLE>
- ---------------
Percentages indicated are based on net assets of $221,658,556.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation..................................... $52,047,874
Unrealized depreciation..................................... (7,719,774)
-----------
Net unrealized appreciation................................. $44,328,100
===========
</TABLE>
(b) Fair valued as determined by the Board of Directors.
ADR -- American Depositary Receipt.
** Non-income producing security.
- ---------------
See Notes to Financial Statements.
24
<PAGE> 665
PACIFIC HORIZON AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (cost $169,039,655).... $213,367,755
Cash....................................................... 9,112,232
Dividends Receivable....................................... 37,044
Receivable for capital shares sold......................... 139,173
------------
Total Assets................................................ 222,656,204
------------
LIABILITIES:
Payable for capital shares redeemed........................ 514,130
Investment advisory fees payable........................... 98,614
Administration fees payable................................ 105,588
Shareholder service fees payable (A Shares)................ 40,486
Shareholder service fees payable (K Shares)................ 603
Distribution fees payable (K Shares)....................... 1,068
Transfer agent fees payable................................ 136,893
Legal fees payable......................................... 2,450
Other accrued expenses..................................... 97,816
------------
Total Liabilities........................................... 997,648
------------
NET ASSETS.................................................. $221,658,556
============
Net Assets:
A Shares................................................... $218,607,479
K Shares................................................... 3,051,077
------------
Total....................................................... $221,658,556
============
Shares Outstanding ($0.001 par value, 200 million shares
authorized):
A Shares................................................... 9,654,371
K Shares................................................... 135,960
------------
Total....................................................... 9,790,331
============
NET ASSET VALUE:
A Shares -- redemption price per share..................... $ 22.64
------------
Maximum Sales Charge (A Shares)............................ 4.50%
Maximum Offering Price (A Shares)..........................
(Net Asset Value of A Shares/(100% -- Maximum Sales
Charge))............................................... $ 23.71
------------
K Shares -- offering and redemption price per share........ $ 22.44
------------
COMPOSITION OF NET ASSETS:
Shares of common stock, at par............................. $ 9,790
Additional paid-in capital................................. 176,030,738
Accumulated undistributed net investment income (loss)..... (2,877)
Accumulated net realized gains on investment
transactions............................................. 1,292,805
Net unrealized appreciation on investments................. 44,328,100
------------
NET ASSETS, FEBRUARY 28, 1998............................... $221,658,556
============
</TABLE>
- ---------------
See Notes to Financial Statements.
25
<PAGE> 666
PACIFIC HORIZON AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the year ended February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividend.................................................. $ 145,791
Interest.................................................. 428,108
-----------
Total Income................................................ 573,899
-----------
EXPENSES:
Advisory fees............................................. 1,239,141
Administration fees....................................... 619,570
Shareholder service fees (A Shares)....................... 513,046
Shareholder service fees (K Shares)....................... 3,261
Distribution fees (K Shares).............................. 9,783
Custodian and fund accounting fees........................ 194,383
Transfer agent fees....................................... 422,391
Legal fees................................................ 9,062
Other expenses............................................ 156,482
-----------
Total Expenses.......................................... 3,167,119
Less: Fee waivers........................................... (3,261)
Expenses paid by third parties.............................. (147,937)
-----------
Total Net Expenses.......................................... 3,015,921
-----------
NET INVESTMENT LOSS......................................... (2,442,022)
-----------
NET REALIZED/UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gain on investment transactions.............. 8,159,465
Net change in unrealized appreciation on investments...... 39,076,574
-----------
Net realized/unrealized gains on investments................ 47,236,039
-----------
Increase in Net Assets Resulting from Operations............ $44,794,017
===========
</TABLE>
- ---------------
See Notes to Financial Statements.
26
<PAGE> 667
PACIFIC HORIZON AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------
FEBRUARY 28, FEBRUARY 28,
1998 1997
------------ ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment (losses)............................ $ (2,442,022) $ (2,598,857)
Net realized gains on investment transactions...... 8,159,465 53,488,080
Net change in unrealized appreciation/depreciation
on investments................................... 39,076,574 (30,785,939)
------------ ------------
Change in net assets resulting from operations..... 44,794,017 20,103,284
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gains from investment transactions
A Shares......................................... (12,977,267) (48,764,827)
K Shares......................................... (71,786) (22,851)(a)
------------ ------------
Change in net assets from distributions to
shareholders....................................... (13,049,053) (48,787,678)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued........................ 151,652,363 554,405,607
Dividends reinvested............................... 12,251,824 46,851,878
Cost of shares redeemed............................ (176,237,358) (550,673,264)
------------ ------------
Change in net assets from capital share
transactions....................................... (12,333,171) 50,584,221
------------ ------------
Change in net assets................................. 19,411,793 21,899,827
NET ASSETS:
Beginning of Year.................................. 202,246,763 180,346,936
------------ ------------
End of Year (including undistributed net investment
losses of $2,877, and $1,417, respectively.)..... $221,658,556 $202,246,763
============ ============
</TABLE>
- ---------------
(a) Period from July 22, 1996 (inception date) to February 28, 1997.
See Notes to Financial Statements.
27
<PAGE> 668
PACIFIC HORIZON BLUE CHIP FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
For the year ended February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investment in Master Investment Trust, Series I -- Blue
Chip Portfolio, at value................................. $665,788,485
Prepaid expenses........................................... 3,099
------------
Total Assets................................................ 665,791,584
------------
LIABILITIES:
Dividend payable........................................... 3,102
Administration fees........................................ 74,035
Transfer agent fees payable................................ 94,923
Shareholder service fees payable (A Shares)................ 52,553
Shareholder service fees payable (K Shares)................ 1,212
Shareholder service fees payable (SRF Shares).............. 68,145
Audit fees payable......................................... 4,700
Fund accounting fees and expense payable................... 4,849
Legal fees payable......................................... 4,640
Other accrued expenses..................................... 68,245
------------
Total Liabilities........................................... 376,404
------------
NET ASSETS.................................................. $665,415,180
============
Net Assets:
A Shares................................................... $288,256,185
K Shares................................................... 6,850,942
SRF Shares................................................. 370,308,053
------------
Total....................................................... $665,415,180
============
Shares Outstanding ($0.001 par value, 300 million shares
authorized):
A Shares................................................... 9,640,840
K Shares................................................... 229,946
SRF Shares................................................. 13,960,375
------------
Total....................................................... 23,831,161
============
NET ASSET VALUE:
A Shares -- Net asset value and redemption price per
share.................................................... $ 29.90
------------
Maximum Sales Charge (A Shares)............................ 4.50%
Maximum Offering Price (A Shares)
(Net Asset Value of A Shares/(100% -- Maximum Sales
Charge))............................................... $ 31.31
------------
K Shares -- Net asset value, offering price and redemption
price per share.......................................... $ 29.79
------------
SRF Shares -- Net asset value, offering price and
redemption price per share............................... $ 26.53
------------
COMPOSITION OF NET ASSETS:
Shares of common stock, at par............................. $ 23,831
Additional paid-in capital................................. 483,600,873
Undistributed investment income............................ 636,250
Accumulated net realized gains on investment
transactions............................................. 12,272,687
Net unrealized appreciation on investments................. 168,881,539
------------
NET ASSETS, FEBRUARY 28, 1998............................... $665,415,180
============
</TABLE>
- ---------------
See Notes to Financial Statements.
28
<PAGE> 669
PACIFIC HORIZON BLUE CHIP FUND
- --------------------------------------------------------------------------------
Statement of Operations
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Investment Income from Master Investment Trust,
Series I -- Blue Chip Portfolio:
Dividend income....................................... $ 7,368,293
Interest income....................................... 624,972
------------
7,993,265
------------
Expenses.................................................. 2,882,413
Less: Fee waivers and expense reimbursements.............. (33,438)
------------
2,848,975
------------
Net Investment Income from Master Investment Trust, Series
I -- Blue Chip Portfolio.................................. 5,144,290
------------
EXPENSES:
Shareholder service fees (A Shares)....................... 539,237
Shareholder service fees (K Shares)....................... 8,457
Shareholder service fees (SRF Shares)..................... 576,234
Distribution fees (K Shares).............................. 16,862(a)
Administration fees....................................... 673,969
Transfer agent fees....................................... 332,532
Reports to shareholders................................... 159,406
Fund accounting fees and expenses......................... 50,279
Legal fees................................................ 14,066
Other expenses............................................ 63,637
------------
Total Expenses........................................ 2,434,679
Less: Fee waivers and expense reimbursements................ (509,502)
------------
Total Net Expenses........................................ 1,925,177
------------
NET INVESTMENT INCOME....................................... 3,219,113
------------
NET REALIZED/UNREALIZED GAINS ON INVESTMENTS FROM MASTER
INVESTMENT TRUST, SERIES I -- BLUE CHIP PORTFOLIO:
Net realized gains on investment transactions......... 45,222,647
Net change in unrealized appreciation on
investments......................................... 72,902,865
------------
Net realized/unrealized gains on investments from Master
Investment Trust, Series I -- Blue Chip Portfolio......... 118,125,572
------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $121,344,625
============
</TABLE>
- ---------------
(a) Period from July 22, 1996 (inception date) to February 28, 1997.
See Notes to Financial Statements.
29
<PAGE> 670
PACIFIC HORIZON BLUE CHIP FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28,
1998 1997
------------ ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income............................... $ 3,219,113 $ 1,022,481
Net realized gains on investment transactions....... 45,222,647 14,059,189
Net change in unrealized appreciation on
investments....................................... 72,902,865 12,101,556
------------ ------------
Change in net assets resulting from operations...... 121,344,625 27,183,226
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
A Shares.......................................... (1,127,669) (980,276)
K Shares.......................................... (3,838) (998)(a)
SRF Shares........................................ (1,629,501) -- (b)
Net realized gains from investment transactions:
A Shares.......................................... (24,949,427) (2,731,645)
K Shares.......................................... (388,442) (8,357)(a)
SRF Shares........................................ (19,671,559) -- (b)
------------ ------------
Change in net assets from shareholder distributions... (47,770,436) (3,721,276)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued......................... 475,502,874 87,766,406
Dividends reinvested................................ 44,254,196 3,417,983
Cost of shares redeemed............................. (82,117,652) (27,378,220)
------------ ------------
Change in net assets from capital share
transactions........................................ 437,639,418 63,806,169
------------ ------------
Change in net assets.................................. 511,213,607 87,268,119
NET ASSETS:
Beginning of Year................................... 154,201,573 66,933,454
------------ ------------
End of Year (including undistributed net investment
income of $636,250, and $178,145,
respectively.).................................... $665,415,180 $154,201,573
============ ============
</TABLE>
- ---------------
(a) Period from July 22, 1996 (inception date) to February 28, 1997.
(b) Period from June 23, 1997 (inception date) to February 28, 1998.
See Notes to Financial Statements.
30
<PAGE> 671
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, 1998, the Company
operated as a series company comprised of seventeen funds. The accompanying
financial statements and notes are those of the Pacific Horizon Aggressive
Growth Fund (the "Aggressive Growth Fund") and the Pacific Horizon Blue Chip
Fund (the "Blue Chip Fund"), collectively the "Funds", individually the "Fund".
On June 23, 1997 the Seafirst Blue Chip Fund was reorganized with the Blue
Chip Fund in a tax-free reorganization. Pursuant to the terms of the
reorganization, the Seafirst Blue Chip Fund transferred all of its assets and
liabilities, including $77,389,390 unrealized appreciation, to the Blue Chip
Fund in exchange for SRF Shares of the Blue Chip Fund. In connection with the
reorganization, the Seafirst Blue Chip Fund's shareholders received 13,220,970
SRF shares of the Blue Chip Fund (valued at $317,544,783). The aggregate net
assets of the Blue Chip Fund and the Seafirst Blue Chip Fund immediately before
the reorganization were $198,168,133 and $317,544,783, respectively. Immediately
following the reorganization the net assets of the Blue Chip Fund were
$515,712,916. As a result of this reorganization the Blue Chip Fund began
issuing three classes of shares, A shares, K shares (effective July 22, 1996)
and SRF shares.
The Aggressive Growth Fund offers A Shares and effective July 22, 1996,
began offering K Shares. A Shares and SRF Shares have a Shareholder Services
Plan, while K Shares have a Distribution Plan and Administrative and Shareholder
Services Plan.
The Aggressive Growth Fund seeks to maximize capital appreciation through
investments in common stocks and convertible securities. The Blue Chip Fund
seeks to achieve its investment objective by investing substantially all of its
assets in the Blue Chip Portfolio (the "Portfolio") of the Master Investment
Trust, Series I (the "Trust"), an open-end management company that has the same
investment objective as that of the Blue Chip Fund. The value of the Blue Chip
Fund's investment in the Portfolio included in the accompanying Statement of
Assets and Liabilities reflects the Fund's proportionate beneficial interest in
the net assets of the Portfolio (92.64% at February 28, 1998). The financial
31
<PAGE> 672
statements of the Portfolio, including its portfolio of investments, are
included elsewhere within this report and should be read in conjunction with the
Blue Chip Fund's financial statements.
Bank of America National Trust and Savings Association ("Bank of America"),
a subsidiary of BankAmerica Corporation, serves as the Aggressive Growth Fund's
investment adviser. On September 15, 1997, Bank of America assumed the
responsibility of administrator for each of the Funds pursuant to the terms of
an Administration Agreement between the Company and Bank of America (the
"Administration Agreement"). Prior to September 15, 1997 The BISYS Group, Inc.,
("BISYS") through its wholly-owned subsidiary, BISYS Fund Services, Limited
Partnership, served as the Funds' administrator.
Bank of America has entered into an agreement with PFPC Inc. ("PFPC"), and
indirect wholly-owned subsidiary of PNC Bank Corp., pursuant to which PFPC has
agreed to provide certain sub-administration services to the Funds, including,
but not limited to, assisting in the developing and monitoring of compliance
procedures, participating in periodic updating of the Funds' prospectuses and
statements of additional information, providing periodic reports to the
Company's Board and providing certain record-keeping services. Bank of America
will bear all fees and expenses charged by PFPC for such services.
Furthermore, pursuant to authority granted in the Administration Agreement,
Bank of America has entered into an agreement with PFPC under which PFPC has
agreed to provide certain accounting, bookkeeping, pricing and dividend and
distribution calculation services for the Funds. The Funds bear all fees and
expenses charged by PFPC for these services.
In addition, pursuant to authority granted in the Administration Agreement,
Bank of America has entered into an agreement with The Bank of New York ("BONY")
under which BONY has agreed to provide certain accounting, bookkeeping, pricing
and dividend and distribution calculation services for the Funds. The Funds bear
all fees and expenses charged by BONY for these services.
DISTRIBUTOR AND TRANSFER AGENT
Effective September 15, 1997, Provident Distributors, Inc. ("PDI"), assumed
responsibility as principal underwriter and distributor of shares of the Funds.
Prior to such date, Concord Financial Group, Inc., (the "Former Distributor") a
wholly-owned subsidiary of BISYS served the Funds as distributor. Additionally,
on October 24, 1997, PFPC serves as the Funds' transfer agent and dividend
32
<PAGE> 673
disbursing agent. BISYS Fund Services, Inc., ("BISYS Ohio") also a wholly-owned
subsidiary of BISYS, served the Funds in such capacity prior to such date.
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. These policies are
in conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
PORTFOLIO VALUATIONS:
The Aggressive Growth 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 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 are valued at the mean
between the current quoted bid and ask prices on the date of valuation. Bid
price is used when no ask price is available. The Aggressive Growth 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, which approximates market value.
The valuation of securities of the Blue Chip Fund's investment in the
Portfolio is discussed in Note 2 of the Portfolio's financial statements.
SECURITIES TRANSACTIONS AND RELATED INCOME:
The Aggressive Growth 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 Blue Chip 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
33
<PAGE> 674
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 Blue Chip 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.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
The Funds' net investment income, if any, is declared and paid as a dividend
to shareholders of record at the close of business on record date at least
annually for the Aggressive Growth Fund and quarterly for the Blue Chip Fund.
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.
34
<PAGE> 675
As of February 28, 1998, 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>
Aggressive Growth
Fund................ $2,440,562 $ (2,440,562)
</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.
Capital losses incurred after October 31 for the Aggressive Growth Fund are
deemed to arise on the first business day of the following fiscal year for tax
purposes. The Fund has incurred and will elect to defer capital losses of
$2,749,100 after October 31, 1997.
OTHER:
The Aggressive Growth 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, 1998, custodian fees and expenses paid by third
parties were increased by $147,937. There was no effect on net investment
income. The Fund could have invested such cash amounts in an income producing
asset 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 the Aggressive
Growth Fund converted to an interest bearing account. Earnings credit balances
are available until February 28, 1999.
NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
The Aggressive Growth Fund has an Investment Advisory Agreement and an
Administration Agreement with Bank of America. During the period March 1, 1997
through September 15, 1997 the Funds had an Administration Agreement with BISYS
and a Distribution Agreement with the PDI and the Former Distributor. Pursuant
to the terms of the Investment Advisory Agreement, Bank of America is entitled
to a fee from the Aggressive Growth Fund, which is accrued
35
<PAGE> 676
daily and payable monthly, at an annual rate of 0.60% of the Fund's average
daily net assets. Pursuant to the terms of the Administration Agreement, Bank of
America and BISYS are entitled to a fee which is accrued daily and payable
monthly, at an annual rate of 0.30% and 0.15% of the average daily net assets of
the Aggressive Growth Fund and Blue Chip Fund, respectively. For the period
ended September 15, 1997, BISYS agreed to waive $73,397 of its fee as
Administrator for the Blue Chip Fund.
For the year ended February 28, 1998, PDI and the Former Distributor advised
the Funds that they retained $25,976 and $91,344 from commissions earned on
sales of the Aggressive Growth Fund's and Blue Chip Fund's shares, respectively.
For the same period, Bank of America and its affiliates advised the Funds that
they retained $152,093 and $709,034 from commissions earned on sales of shares
of the Aggressive Growth Fund and Blue Chip Fund, respectively.
The Funds have a Shareholder Services Plan (the "Plan") under which each
Fund pays PDI and the Former 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, 1998, the Aggressive
Growth Fund and Blue Chip Fund incurred charges of $513,046 and $539,237,
respectively, pursuant to the Plan. The Funds were advised that of these
amounts, PDI and the Former Distributor retained $244,047 and $32,170 from the
Aggressive Growth Fund and Blue Chip Fund, respectively, and affiliates of Bank
of America retained $209,931 and $476,702, respectively. The Plan provides that
if, in any month, the fees paid to PDI and the Former Distributor are less than
the costs incurred by PDI and the Former Distributor, the excess costs will be
included in future computations of the fee, provided that any excess costs 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 paid PDI and the Former
Distributor for expenses primarily intended to result in the sale of the Funds'
K Shares. Under the Distribution Plan, payments by the Funds for 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. For the year ended February 28, 1998, PDI
and the Former Distributor incurred charges of $9,783 and $16,862 for the
Aggressive Growth and Blue Chip Funds, respectively. For the same period, $3,261
of distribution fees were waived by PDI and the Former Distributor for
36
<PAGE> 677
the Aggressive Growth Fund. 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 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.
The Blue Chip Fund has a Shareholder Services Plan under which the Fund pays
the Distributor for shareholder servicing expenses incurred in connection with
the SRF shares. Under the Plan, payments for shareholder servicing expenses may
not exceed 0.25% of the Fund's average daily net assets for SRF Shares. For the
year ended February 28, 1998, The Blue Chip Fund incurred charges of $576,234,
pursuant to the Plan, the Fund was advised that of this amount the affiliates of
Bank of America retained $140,129. For the same period $436,105 of shareholder
servicing were waived by The Blue Chip Fund.
From the period October 24, 1997 through February 28, 1998, PFPC earned
$141,188 and $161,721 from the Aggressive Growth Fund and Blue Chip Fund,
respectively, for transfer agency and dividend disbursing agency services
performed. BISYS Ohio served the Funds as transfer agent and dividend disbursing
agent through October 24, 1997. In these capacities, BISYS Ohio earned $281,203
and $170,811 from the Aggressive Growth Fund and Blue Chip Fund, respectively,
for the period ended October 24, 1997.
For the year ended February 28, 1998, the Aggressive Growth Fund and Blue
Chip Fund incurred legal charges totaling $9,062 and $14,066, 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 PFPC. 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 $50,000,
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.
37
<PAGE> 678
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 will
receive an additional 10% of their annual Director's retainer for each year of
service between years six and nine, plus one half of the difference between 100%
and the director's applicable percentage. A Director who dies or resigns after
ten 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 after February 28,
1994; however, a director in office on March 18, 1998 who either resigns in good
standing or dies before completing five years of service as a director should be
assigned an Applicable Percentage of 50 percent. Aggregate costs pursuant to the
Retirement Plan amounted to $6,363 and $753 for the Aggressive Growth Fund and
Blue Chip Fund, respectively, for the year ended February 28, 1998. A director
who comes into office after March 18, 1998 is ineligible to participate in the
Retirement Plan.
NOTE 5 -- SECURITIES TRANSACTIONS
For the year ended February 28, 1998, the cost of purchases and the proceeds
from sales of the Aggressive Growth Fund's portfolio securities (excluding
short-term investments) amounted to $159,645,714 and $191,985,376, respectively.
38
<PAGE> 679
NOTE 6 -- CAPITAL SHARE TRANSACTIONS
Transactions in shares of common stock of the Funds are summarized below:
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH FUND
---------------------------------------------
YEAR ENDED YEAR ENDED
FEBRUARY 28, 1998 FEBRUARY 28, 1997
--------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
------- ---------- ------- ---------
<S> <C> <C> <C> <C>
A SHARES (000'S)
Issued............................ 7,237 $ 148,823 22,844 $ 554,053
Reinvested........................ 610 12,180 2,367 46,829
Redeemed.......................... (8,496) (175,796) (22,585) (550,667)
------- ---------- ------- ---------
Net increase (decrease)............. (649) $ (14,793) 2,626 $ 50,215
======= ========== ======= =========
K SHARES
Issued............................ 136,140 $2,829,063 16,509 $ 352,493
Reinvested........................ 3,605 71,789 1,198 22,851
Redeemed.......................... (21,194) (441,284) (298) (6,029)
------- ---------- ------- ---------
Net increase........................ 118,551 $2,459,568 17,409(a) $ 369,315(a)
======= ========== ======= =========
</TABLE>
- ---------------
(a) Period from July 22, 1996 (inception date) to February 28, 1997.
<TABLE>
<CAPTION>
BLUE CHIP FUND
---------------------------------------------
YEAR ENDED YEAR ENDED
FEBRUARY 28, 1998 FEBRUARY 28, 1997
--------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
------- ---------- ------ -----------
<S> <C> <C> <C> <C>
A SHARES (000'S)
Issued........................... 4,831 $ 131,727 3,838 $ 86,308
Reinvested....................... 835 22,562 152 3,409
Redeemed......................... (2,082) (56,813) (1,193) (27,364)
------- ---------- ------ ----------
Net increase....................... 3,584 $ 97,476 2,797 $ 62,353
======= ========== ====== ==========
K SHARES
Issued........................... 186,266 $5,146,299 57,851 $1,458,223
Reinvested....................... 14,517 392,327 405 9,313
Redeemed......................... (28,532) (785,092) (561) (13,822)
------- ---------- ------ ----------
Net increase....................... 172,251 $4,753,534 57,695(a) $1,453,714(a)
======= ========== ====== ==========
SRF SHARES (000'S)(B)
Issued........................... 14,066 $ 338,628 -- $ --
Reinvested....................... 875 21,300 -- --
Redeemed......................... (981) (24,519) -- --
------- ---------- ------ ----------
Net increase....................... 13,960 $ 335,409 -- $ --
======= ========== ====== ==========
</TABLE>
- ---------------
(a) Period from July 22, 1996 (inception date) to February 28, 1997.
(b) Period from June 23, 1997 (inception date) to February 28, 1998.
39
<PAGE> 680
PACIFIC HORIZON AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997(A) 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
A SHARES
NET ASSET VALUE PER SHARE, BEGINNING
OF YEAR.............................. $ 19.60 $ 23.49 $ 20.61 $ 25.70 $ 24.68
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income (loss)......... (0.25) (0.25) (0.27) (0.22) (0.37)
Net realized and unrealized gains
(losses) on investment
transactions....................... 4.62 2.26 8.35 (0.95) 3.02
-------- -------- -------- -------- --------
Total income (loss) from investment
operations........................... 4.37 2.01 8.08 (1.17) 2.65
-------- -------- -------- -------- --------
Less dividends and distributions:
Dividends to shareholders from net
realized gains on investment
transactions....................... (1.33) (5.90) (5.20) (3.92) (1.63)
-------- -------- -------- -------- --------
Net change in net asset value per
share................................ 3.04 (3.89) 2.88 (5.09) 1.02
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END OF
YEAR................................. $ 22.64 $ 19.60 $ 23.49 $ 20.61 $ 25.70
======== ======== ======== ======== ========
Total return (excludes sales
charge).............................. 23.30% 9.13% 40.88% (3.59%) 10.54%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions)......................... $ 219 $ 202 $ 180 $ 132 $ 158
Ratio of expenses to average net
assets............................. 1.46% 1.42% 1.51% 1.46% 1.52%
Ratio of net investment income (loss)
to average net assets.............. (1.18%) (1.26%) 1.35% 1.04% 1.20%
Ratio of expenses to average net
assets*............................ 1.52%**(b) 1.44%** 1.64%** (b) (b)
Ratio of net investment income (loss)
to average net assets*............. (1.25%)**(b) (b) (b) (b) (b)
Portfolio turnover rate.............. 83% 99% 93% 92% 43%
Average commission rate paid(c)...... $ 0.0566 $ 0.0312 $ -- $ -- $ --
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the year, 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, 1998 and 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 amounts 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.
40
<PAGE> 681
PACIFIC HORIZON AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
FEBRUARY 28, FEBRUARY 28,
1998 1997(a)
------------ ------------
<S> <C> <C>
K SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF
PERIOD....................................... $ 19.53 $ 24.20
------- -------
Income from Investment Operations:
Net investment (loss)........................ (0.32) (0.06)
Net realized gains on investment
transactions............................... 4.56 1.29
------- -------
Total income from investment operations........ 4.24 1.23
------- -------
Less Dividends and Distributions:
Dividends to shareholders from net realized
gains on investment transactions........... (1.33) (5.90)
------- -------
Net change in net asset value per share........ 2.91 (4.67)
------- -------
Net asset value per share, end of period....... $ 22.44 $ 19.53
======= =======
Total return................................... 22.70% 5.65% (c)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000)............ $ 3,051 $ 340
Ratio of expenses to average net assets...... 1.93% 1.95% (d)
Ratio of net investment (loss) to average net
assets..................................... (1.63%) (1.78%)(d)
Ratio of expenses to average net assets*..... 2.24%** 2.22% (d)**
Ratio of net investment (loss) to average net
assets*.................................... (1.88%) (2.03%)(d)
Portfolio turnover rate...................... 83% 99%
Average commission rate paid(b).............. $0.0566 $0.0312
</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, 1998, and 1997, 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) Period from July 22, 1996 (inception date) to February 28,
1997.
(b) Represents the dollar amounts 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.
41
<PAGE> 682
PACIFIC HORIZON BLUE CHIP FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997(a) 1996 1995 1994(b)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
A SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR............... $ 25.22 $ 20.53 $ 15.81 $ 14.97 $ 15.00
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income........... 0.16 0.23 0.26 0.31 0.02
Net realized and unrealized
gains (losses) on investment
transactions.................. 7.91 5.21 4.96 0.80 (0.05)
-------- -------- -------- -------- --------
Total income (loss) from
investment operations........... 8.07 5.44 5.22 1.11 (0.03)
-------- -------- -------- -------- --------
Less Dividends and Distributions:
Dividends to shareholders from
net investment income......... (0.15) (0.22) (0.28) (0.27) --
Dividends to shareholders from
net realized gains on
investment transactions....... (3.24) (0.53) (0.22) -- --
-------- -------- -------- -------- --------
Total Dividends and
Distributions................... (3.39) (0.75) (0.50) (0.27) --
-------- -------- -------- -------- --------
Net change in net asset value per
share........................... 4.68 4.69 4.72 0.84 (0.03)
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END OF
YEAR............................ $ 29.90 $ 25.22 $ 20.53 $ 15.81 $ 14.97
======== ======== ======== ======== ========
Total return (excludes sales
charge)......................... 33.96% 27.01% 33.39% 7.60% (0.20)%(double dagger)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions).................... $ 288 $ 153 $ 67 $ 6 $ 1
Ratio of expenses to average net
assets........................ 1.18% 1.28% 0.83% 0.00% 0.00%(dagger)
Ratio of net investment income
to average net assets......... 0.63% 0.99% 1.63% 2.46% 2.92%(dagger)
Ratio of expenses to average net
assets*....................... 1.22% 1.71% 2.28% 6.32% 55.00%(dagger)
Ratio of net investment
income/(loss) to average net
assets*....................... 0.59% 0.56% 0.18% (3.86%) (52.08%)(dagger)
</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.
(dagger) Annualized.
(double dagger) Not annualized.
(a) As of July 22, 1996, the Fund designated the existing series
of shares as "A" Shares.
(b) Period from January 13, 1994 (inception date) to February
28, 1994.
</TABLE>
See Notes to Financial Statements.
42
<PAGE> 683
PACIFIC HORIZON BLUE CHIP FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD
YEAR ENDED ENDED
FEBRUARY 28, FEBRUARY 28,
1998 1997(a)
------------ ------------
<S> <C> <C>
K SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD......... $25.20 $20.38
------ ------
Income from Investment Operations:
Net investment income................................ 0.04 0.07
Net realized gains on investment transactions........ 7.83 5.35
------ ------
Total income from investment operations................ 7.87 5.42
------ ------
Less: Dividends and Distributions:
Dividends to shareholders from net investment
income............................................. (0.04) (0.07)
Distributions to shareholders from net realized gains
on investment transactions......................... (3.24) (0.53)
------ ------
Total Dividends and Distributions...................... (3.28) (0.60)
------ ------
Net change in net asset value per share................ 4.59 4.82
------ ------
NET ASSET VALUE PER SHARE, END OF PERIOD............... $29.79 $25.20
====== ======
Total return........................................... 33.08% 26.96%(double dagger)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (millions)............... $7 $1
Ratio of expenses to average net assets.............. 1.67% 1.92%(dagger)
Ratio of net investment income to average net
assets............................................. 0.12% 0.45%(dagger)
Ratio of expenses to average net assets*............. 1.69% 2.12%(dagger)
Ratio of net investment income to average net
assets*............................................ 0.10% 0.25%(dagger)
</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.
(dagger) Annualized.
(double dagger) Not annualized.
(a) Period from July 22, 1996 (inception date) to February 28,
1997.
</TABLE>
See Notes to Financial Statements.
43
<PAGE> 684
PACIFIC HORIZON BLUE CHIP FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE
PERIOD
JUNE 23,
1997(a) THROUGH
FEBRUARY 28,
1998
---------------
<S> <C>
SRF SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF YEAR................ $ 24.02
------------
Income from Investment Operations:
Net investment income..................................... 0.14
Net realized and unrealized gains (losses) on investment
transactions............................................ 3.99
------------
Total income from investment operations..................... 4.13
------------
Less Dividends and Distributions:
Dividends to shareholders from net investment income...... (0.12)
Distributions to shareholders from net realized gains..... (1.50)
------------
Total Dividends and Distributions........................... (1.62)
------------
NET CHANGE IN NET ASSET VALUE PER SHARE..................... 2.51
------------
Net asset value per share, end of year...................... $ 26.53
============
Total Return................................................ 19.30%(double dagger)
RATIO/SUPPLEMENTAL DATA:
Net assets, end of year (millions)........................ $ 370
Ratio of expenses to average net assets................... 0.95%(dagger)
Ratio of net investment income to average net assets...... 0.81%(dagger)
Ratio of expenses to average net assets*.................. 1.15%(dagger)
Ratio of net investment income to average net assets*..... 0.61%(dagger)
</TABLE>
- ---------------
* 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) Date of commencement of operations of SRF Shares of the Fund.
(dagger) Annualized.
(double dagger) Not annualized.
See Notes to Financial Statements.
44
<PAGE> 685
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 portfolios 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 Pacific Horizon Aggressive Growth
Fund and Pacific Horizon Blue Chip Fund (two of the seventeen portfolios
constituting the Pacific Horizon Funds, Inc., hereafter referred to as the
"Funds") at February 28, 1998, 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, 1998 by correspondence with the custodian and brokers and the
application of alternative auditing procedures where confirmations from brokers
were not received, provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
April 21, 1998
45
<PAGE> 686
PACIFIC HORIZON FUNDS, INC.
ANNUAL REPORT
February 28, 1998
SRF SHARES OF THE
Asset Allocation Fund
Blue Chip Fund
Intermediate Bond Fund
PACIFIC HORIZON FUNDS, INC.
Prime Fund
NOT FDIC INSURED
Provident Distributor, Inc., Distributor
PACIFIC HORIZON FUNDS, INC.
<PAGE> 687
PACIFIC HORIZON FUNDS, INC.
103 Bellevue Parkway
Wilmington, DE 19809
1-800-332-3863
INVESTMENT ADVISER
Bank of America National Trust
and Savings Association
555 California Street
San Francisco, CA 94104
ADMINISTRATOR
Bank of America National
Trust and Savings Association
555 California Street
San Francisco, CA 94104
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
Provident Distributors, Inc.
Four Falls Corporate Center
6th Floor
Conshohocken, PA 19428
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 Provident
Distributors, Inc. which is unaffiliated with the Bank of America. Bank of
America serves as investment adviser to the Funds 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, NOT
BANK OF AMERICA OR ANY AFFILIATES. AN INVESTMENT IN FDIC
MUTUAL FUNDS INVOLVES INVESTMENT RISKS, INCLUDING THE INSURED
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
- ----------------------------------------------------------------------------
</TABLE>
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
<PAGE> 688
...........................................
Contents
<TABLE>
<S> <C>
ECONOMIC REVIEW 2-3
FUND OVERVIEW AND INTERVIEW WITH
YOUR INVESTMENT MANAGER 4-19
PACIFIC HORIZON ASSET ALLOCATION
FUND
Portfolio of Investments 20-28
Statement of Assets and
Liabilities 29
Statement of Operations 30
Statements of Changes
in Net Assets 31
PACIFIC HORIZON BLUE CHIP FUND
AND PACIFIC HORIZON
INTERMEDIATE BOND FUND
Statements of Assets and
Liabilities 32-33
Statements of Operations 34-35
Statements of Changes
in Net Assets 36-37
Notes to Financial Statements 38-48
Financial Highlights 49-57
Report of Independent
Accountants 58
MASTER INVESTMENT TRUST --
SERIES I
Portfolios of Investments 59-68
Statements of Assets
and Liabilities 69-70
Statements of Operations 71-72
Statements of Changes
in Net Assets 73-74
Notes to Financial Statements 75-78
Supplementary Data 79-80
Report of Independent
Accountants 81
PACIFIC HORIZON PRIME FUND
Portfolio of Investments 82-100
Statement of Assets
and Liabilities 101
Statement of Operations 102
Statements of Changes
in Net Assets 103
Notes to Financial Statements 104-112
Financial Highlights 113-118
Report of Independent
Accountants 119
</TABLE>
<PAGE> 689
ECONOMIC REVIEW
FROM THE INVESTMENT ADVISER
Fourth quarter Gross Domestic Product was reported at a 3.7%* annualized rate,
with inflation continuing to be non-existent and a positive factor for the
economy and the domestic financial markets. Changes in consumer prices are
negligible and producer prices are actually declining. Historically high
consumer confidence, resulting from strong job growth, wage gains and the
positive wealth effect created by the buoyant stock market, has created solid
income growth and has fueled the robust housing market in the first quarter of
1998. Consumers have been the primary beneficiaries of the turmoil in the Asian
markets. Lower bond yields, a by-product of the Asian financial crisis, have
resulted in lower mortgage payments for households looking to buy a home.
THE CASE FOR
STOCKS AND BONDS
The Standard & Poor's Stock Index posted a total return of 35.1%** during the 12
month period ended February 28, 1998, amply rewarding long-term investors who
rode out volatility that accompanied the Asian financial crisis. The best
performers were concentrated among shares of large company stocks, which
significantly outpaced shares of smaller firms.
Companies have been issuing reduced earnings forecasts at an increasing rate.
Despite the early warnings, the reduced earnings expectations have not put a
damper on the stock market. The bullish sentiment for low inflation and
continuing strong profits for 1998 are propelling the stock markets to new
highs. The Dow*** has gained 8.4% during the first two months of the year,
significantly higher than expected. Overall, the U.S. economy seems poised for
continued moderate growth, which is good news for stocks. We think it is
reasonable to expect P/E ratios to stay at current levels of 22 times 1998
earnings. That gives an estimated market return over the next 12 months of 9%
(7.8% from earnings growth and 1.2% from dividend yield).
Fixed income investors remain optimistic due to the lack of price pressures, the
strong dollar and the expectation of an Asia-led slowdown in the U.S. Interest
rates on Treasuries have fallen across the yield curve over the last twelve
months and are currently below 6%, the lowest level in 25 years. The finance
sector has been outperforming expectations as of late, which has a lot to do
with the wave of colossal merger and acquisition activity sweeping across
financial institutions.
The prospects for a government budget surplus in fiscal 1998 are growing. Some
economists are predicting as much as a $50 billion surplus due to revenues as
well as efforts to reduce government spending. These revenue flows will serve to
reduce immediate government financing needs. Already, we have seen cuts in the
size of Treasury auctions so far this year.
POTENTIAL RISKS
The Asian financial crisis, which began in the third quarter of 1997, is
expected to modestly impact U.S. domestic growth. As expected, trade between
U.S. and Asian trade partners has sharply deteriorated, with the current account
deficit widening to its highest level in ten years. The deficit widened to
$166.5 billion in 1997, up from $148.2 billion for 1996. The largest threat to
the U.S. economy, according to The Organization for Economic Cooperation and
Development (OECD), would be a second round of currency devaluations in Asia. It
could happen again if Japan fails to jumpstart its economy.
While the final outcome of the Asian financial crisis remains unclear, the
initial predictions of a global financial crisis have not been supported by the
evidence. With the Asian crisis potentially con-
2
<PAGE> 690
straining corporate profitability in the second or third quarter, we expect that
growth will slow during the remainder of the year.
Tame inflation continues to be the theme du jour as the Consumer Price Index's
1.4% increase over the past 12 months is the second lowest reading in 33 years,
outdone only by the collapse in oil prices in 1986. The lack of inflationary
pressures and the uncertainty surrounding the Asian financial crisis have kept
the Federal Reserve from raising interest rates. The Fed funds rate has remained
at 5.50% since last March. However, the labor market is stretched and wage
pressures are intensifying. So far, increased productivity has compensated for
wage increases; however, recent significant increases in real asset values, such
as housing and land, have not gone unnoticed by Chairman Greenspan and may play
a factor in determining monetary policy over the coming months.
LOOKING FORWARD
It is now a widely accepted view that the U.S. economy is growing at a faster
pace early in 1998 than analysts had projected last year at the height of the
Asian turmoil. Although the preliminary GDP figure will not be released until
the end of April, the early estimate for the first quarter lies somewhere
between 3.5 - 4.0%. In order to reach the projected 1998 growth rate of 2.8%,
U.S. growth will have to sustain a considerable slowdown in the latter part of
the year to compensate for the strengths it is exhibiting now.
Looking forward, there are a lot of crosscurrents in the U.S. corporate earnings
picture. Ironically, the impact from the Asian financial crisis so far have been
positive, with lower interest rates boosting the economy. In the first quarter,
currency and oil earnings will be negative factors, but stronger economic growth
will offset any weaknesses. In the second and third quarters, we expect the
impact from Asia should be mitigated by strong growth in Europe. We continue to
believe that the economic impact from Asia will be moderate with the U.S.
economy slowing, but sustaining a near normal growth rate of 2.8% in 1998. Given
these projections, we expect equities and fixed income securities to perform
well in 1998, although below 1997 levels.
Sincerely,
/s/ Kirk Hartman
Kirk Hartman
Chief Investment Officer of
Fixed Income Management
- ---------------
* Source: Bloomberg, 1998.
** Source: Bloomberg, 1998. 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 Dow Jones Industrial Average is a price-weighted average of 30 actively
traded blue chip stocks and cannot be invested in directly.
3
<PAGE> 691
PACIFIC HORIZON
ASSET ALLOCATION SRF SHARES
[ROBER PYLES PHOTO]
- ----------------------
- ----------------------
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:
June 23, 1997
SIZE OF FUND AS OF
FEBRUARY 28, 1998:
Over $247 million
[STEVEN L. VIELHABER
PHOTO]
- ----------------------
- ----------------------
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 PERIOD ENDED
FEBRUARY 28, 1998?
A
For the period ended February 28, 1998, the Fund had a total return of
13.56%*. The Fund uses two benchmarks, the Standard & Poor's 500 Stock Index and
the Lehman Brothers Aggregate Bond Index, which returned 35.1% and 10.4%,
respectively.**
Q
HOW DID YOU ALLOCATE THE FUND'S
PORTFOLIO AMONG STOCKS, BONDS
AND CASH DURING THE PERIOD ENDED FEBRUARY 28, 1998?
A
The Fund seeks to determine relative values among three major asset
categories -- equities, bonds and cash equivalents -- and weights the portfolio
accordingly. Early in the year, we felt that stocks and bonds would outperform
cash and consequently changed our target normal asset allocation by increasing
equities from 55% to 56%, bonds from 40% to 42% and by decreasing cash from 5%
to 2%. This remained our target mix throughout the year and strong portfolio
equity per-
4
<PAGE> 692
formance caused us to rebalance the portfolio on three occasions to return to
our targets. Our weightings as of the period ended February 28, 1998 were 58%
stocks, 40% bonds, and 2% cash.***
Q
HOW DID YOU MANAGE THE STOCK PORTION OF THE PORTFOLIO?
A
Within the stock component of the Fund, we looked for companies with market
capitalization above $1 billion with favorable future earnings prospects and
reasonable valuation levels relative to their expected growth rates.
Among portfolio stocks, strong performance for the Fund included Pfizer (1.1% of
net assets as of February 28, 1998), General Electric (2.5%, of net assets as of
February 28, 1998), American Express (0.9% of net assets as of February 28,
1998) and Monsanto (0.5% of net assets as of February 28, 1998).***
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. In keeping with our philosophy for managing
fixed income assets, we managed this portfolio to be duration neutral to have
roughly the same average maturity as the Index. To enhance its yield, the Fund
increased its exposure to lower quality and shorter maturity corporate issues.
The mortgage holdings in the portfolio were held roughly neutral to the holdings
of the Index. Early in the year we added to our position in seasoned mortgage
securities, and, as mortgages became cheap or expensive, we opportunistically
added or sold positions to enhance returns.
Q
WHAT IS YOUR OUTLOOK FOR THE ECONOMY AND THE FUND?
A
Our analysis of the economic environment over the past year continued to
point to an economy that was in an expansion phase, which we also forecast for
1998. As soon as it became clear in early January that events in Southeast Asia
were not derailing the U.S. economy or corporate profits, the market shrugged
off the fears and uncertainty of the fourth quarter and has made almost daily
new highs.
- ---------------
* Return figures for the Fund include change in share price, reinvestment of
dividends and capital gains distributions for the period June 23, 1997 to
February 28, 1998. The Fund is currently waiving a portion of the advisory,
administrative and/or shareholder servicing fees. 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 Index are unmanaged
indices generally representative of equity investments and asset allocation
investments respectively, and cannot be invested in directly.
*** Percentage figures shown are calculated as a percentage of net assets as of
February 28, 1998. The composition of the Fund's holdings is subject to
change.
The performance data quoted represents past performance and is not an indication
of future results. The investment return and Net Asset Value will fluctuate so
that an investor's shares when redeemed, may be worth more or less than their
original cost.
5
<PAGE> 693
PACIFIC HORIZON
ASSET ALLOCATION FUND
SRF SHARES
(AS OF FEBRUARY 28, 1998)
GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)
<TABLE>
<CAPTION>
LEHMAN
MEASUREMENT LIPPER BROTHERS LIPPER
PERIOD FLEXIBLE AGGREGATE BALANCED
(FISCAL YEAR SRF FUNDS BOND FUNDS
COVERED) SHARES AVERAGE INDEX S&P 500 AVERAGE
<S> <C> <C> <C> <C> <C>
3/9/88 10037 10000 10000 10000 10000
2/28/89 11120 10438 10470 11536 11120
2/28/90 12654 11620 11805 13713 12654
2/28/91 14116 13013 13247 15730 14116
2/29/92 15986 15110 14942 18247 15986
2/28/93 17211 16230 16763 20192 17211
2/28/94 18651 18084 17668 21872 18651
2/28/95 19452 18136 19167 23480 19485
2/29/96 23817 22403 20183 31604 23858
2/28/97 28160 26209 21266 39720 28160
2/28/98 34677 31781 23471 53622 32714
</TABLE>
HOW PERFORMANCE COMPARES
We have changed the Fund's benchmark
index from the Lipper Flexible Funds
Average to the Lipper Balanced Funds
Average which more closely resembles
the composition of the Fund and, we
believe, is a more appropriate
benchmark for the Fund's holdings. In
order to complete the transition to the new benchmark, we are providing a
hypothetical comparison to the Fund's performance since March 9, 1988 with both
its former benchmark and its new benchmark, the Lipper Balanced Funds Average.
----------------------------------
<TABLE>
<CAPTION>
ASSET ALLOCATION FUND
AVERAGE ANNUAL RETURN*
------------------------------------
<S> <C>
1 Year 23.14%
..................................
5 Year 15.04%
..................................
Since Inception
(3/9/88) 13.26%
</TABLE>
----------------------------------
The chart compares the performance of the SRF Shares 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 SRF Shares of the Pacific Horizon, Asset
Allocation Fund. An initial $10,000 investment in the Fund made on March 9,
1988, would now be worth $34,677. The same investment made in the Lipper
Balanced Funds Average would now be worth $32,714.
FEDERAL INCOME TAX STATUS OF DIVIDENDS (UNAUDITED)
The Pacific Horizon Asset Allocation Fund distributed a total Capital Gain
Dividend of $1.758483 for the year ended February 28, 1998. Of this total
Capital Gain Dividend
6
<PAGE> 694
amount, the Fund made a 28 percent rate distribution of $0.534818 and a 20
percent rate distribution of $0.325801.
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. The SRF
Share class performance prior to June 23, 1997 represents the performance of
the Seafirst Asset Allocation Fund of the former Seafirst Retirement Funds and
its predecessor Seafirst Asset Allocation Fund of the Collective Investment
Trust (CIT) for Seafirst Retirement Accounts. The inception date of the CIT
Fund was 3/9/88.
Lipper Analytical Services, Inc. is an independent mutual fund-monitoring
organization. Neither the Lipper Balanced 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 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.
7
<PAGE> 695
PACIFIC HORIZON
ASSET ALLOCATION FUND
(AS OF FEBRUARY 28, 1998)
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.
PORTFOLIO COMPOSITION*
Common Stocks 57.9%
Cash & Equivalents 2.0%
Bonds 40.1%
- -------------------------------------------------------------
* The composition of the Fund's holdings is subject to change.
- --------------------------------------------------------------------------------
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.
SHIFTING THE ASSET MIX
[FLOW CHART]
Stocks provide Bonds provide
growth steady
opportunity income
Cash
8
<PAGE> 696
PACIFIC HORIZON
BLUE CHIP FUND
SRF SHARES
[JAMES D. MILLER PHOTO]
- ----------------------
- ----------------------
JAMES D. MILLER, CFA
Chief Investment Officer
Quantitative Based
Equity Management
Bank of America
Investment Advisers Division
Mr. Miller is head of the investment management team for the Blue Chip Fund.
GOAL:
The Pacific Horizon Blue Chip Fund seeks long-term capital appreciation.
INVESTMENTS:
The Fund invests primarily in a diversified portfolio of "blue chip" common
stocks, which are included in either the Dow Jones Industrial Average or the
Standard & Poor's 500 Index.
APPROPRIATE FOR:
Investors who want to participate in the growth potential of some of America's
major companies. The Fund is a diversified equity product that can be used as
part of many investment strategies.
INCEPTION:
June 23, 1997
SIZE OF FUND AS OF
FEBRUARY 28, 1998:
Over $665 million
Q
WHAT FACTORS AFFECTED THE FUND'S PERFORMANCE DURING THE PERIOD ENDED
FEBRUARY 28, 1998?
A
The market continued to benefit from the current U.S. economic environment
of steady growth without inflation. With the current expansion almost seven
years old, there still is no recession in sight. The Fund posted a total return
of 19.30%* for SRF Shares compared to 35.10%** for the Standard & Poors 500
Stock Index for the 12 months ended Feb. 28, 1998.
Investors continued to reward large capitalization stocks in the United States,
which outpaced the foreign markets. There also was a continuation of heavy
sector rotation. For example, the technology sector has lead the market early in
1998 but had lagged the market the previous ten months. The financial sector is
off to a slower start this year and while it outperformed other industries in
1997. In addition, growth stocks outperformed value stocks over the last twelve
months.
Q
HOW DID YOU MANAGE THE FUND IN THAT ENVIRONMENT?
A
We continued to keep the Fund fully invested in the equities market while
staying neutral to the market in market capitalization and sector weights. As
always, we continued to focus on individual stock selection. Within the
framework of our disciplined process, the dominant investment theme has been the
outperformance of stocks that appear attractive to our value factors and possess
positive earnings momentum. By factoring for these themes, we seek to provide
superior stock selection across the majority of economic sectors. We continued
to focus on companies that exhibit "using earnings expectations," "high earnings
9
<PAGE> 697
certainty" and were trading below fair value. Companies with "high earnings
certainty" are those that have similar earnings estimates from different
analysts. Firms with "using earnings expectations" are those that have
experienced the biggest increase in analysts earnings estimates. Low price to
earnings, low price to cash flow and dividend discount measures represent our
value factors.
Q
WHAT ARE SOME STOCKS OR SECTORS THAT PERFORMED WELL FOR THE FUND DURING THE
YEAR?
A
The four sectors that outperformed the market for the twelve month period
ending February 28, 1998 were the technology, health care, financial and
consumer cyclical sectors. Our holdings included Dell Computer Corp. (2.33% of
net assets as of February 28, 1998) and Microsoft (3.78% of net assets as of
February 28, 1998) in the technology sector. Pfizer Inc. (1.65% of net assets as
of February 28, 1998) and Schering-Plough Corp. (1.93% of net assets as of
February 28, 1998) did very well in the health sector. T.J.X. Companies Inc.
(1.27% of net assets as of February 28, 1998) and Home Depot Inc. (1.89% of net
assets as of February 28, 1998) also did very well in the Consumer Cyclical
area.*** Finally, Morgan Stanley Dean Witter (1.71% of net assets as of February
28, 1998) performed well in the financial sector.***
Q
WHAT'S AHEAD FOR THE FUND?
A
We will continue to maintain a fully invested portfolio broadly diversified
among market sectors according to the benchmark that we use to compare our
Fund's performance. We will continue to add value by stock selections that offer
a combination of growth, value, earnings momentum and earnings certainty. Our
philosophy will not change based on short-term trends or conditions in the
market. Instead, we will remain focused on meeting the goals of long-term
investors, while attempting to outperform the S&P 500 on a consistent basis.
- ---------------
* Return figures for the Fund include change in share price, reinvestment of
dividends and capital gains distributions for the period June 23, 1997 to
February 28, 1998. The Fund is currently waiving a portion of the
shareholder servicing fee. This voluntary waiver may be modified or
terminated at any time, which would reduce the Funds's performance.
** Source: Standard & Poor's Micropal, 1998. The S&P 500 is an unmanaged index
generally representative of the equity market as a whole and cannot be
invested in directly.
*** The composition of the Fund's holdings is subject to change.
The performance data quoted represents past performance and is not an indication
of future results. The investment return and Net Asset Value will fluctuate so
that an investor's shares when redeemed, may be worth more or less than their
original cost.
10
<PAGE> 698
PACIFIC HORIZON
BLUE CHIP FUND
SRF SHARES
(AS OF FEBRUARY 28, 1998)
GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)
<TABLE>
<CAPTION>
LIPPER
PACIFIC GROWTH
MEASUREMENT PERIOD HORIZON BLUE FUNDS
(FISCAL YEAR COVERED) CHIP FUND AVERAGE S&P 500
<S> <C> <C> <C>
3/9/88 10000 10000 10000.00
2/28/89 11596 10916 11535.92
2/28/90 13830 12572 13713.33
2/28/91 15552 14427 15730.40
2/29/92 17796 17637 18246.67
2/28/93 18682 18632 20191.65
2/28/94 21062 21104 21871.58
2/28/95 22526 21855 24175
2/29/96 30043 27893 31604
2/28/97 38280 34802.59 39720
2/28/98 51417 45380 53622
</TABLE>
HOW PERFORMANCE COMPARES
The chart compares the performance of
the Pacific Horizon Blue Chip Fund to
the S&P 500, which is an unmanaged
index typically used as a performance
benchmark for equity investments. As
illustrated, the Fund has fared well
compared to other growth funds.
The average of growth funds as tracked by
----------------------------------
<TABLE>
<CAPTION>
BLUE CHIP FUND
AVERAGE ANNUAL RETURN*
------------------------------------
<S> <C>
1 Year 34.32%
..................................
5 Year 22.44%
..................................
Since Inception
3/9/88 17.82%
</TABLE>
----------------------------------
Lipper Analytical Services, Inc. measures the performance of other funds with
investment objectives and policies similar to those of the SRF Shares of the
Pacific Horizon Blue Chip Fund. An initial $10,000 investment in the Fund made
on March 9, 1988, would now be worth $51,417. The same investment made in the
Lipper Growth Funds Average, would now be worth only $45,380.
FEDERAL INCOME TAX STATUS OF DIVIDENDS (UNAUDITED)
The Pacific Horizon Blue Chip Fund distributed a total Capital Gain Dividend of
$3.238529 for the year ended February 28, 1998. Of this total Capital Gain
Dividend amount, the Fund made a 28 percent rate distribution of $1.907599 and a
20 percent rate distribution of $0.560264.
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. The SRF Share
class performance prior to June 23, 1997 represents the performance of the
Seafirst Blue Chip Fund of the former Seafirst Retirement Funds and its
predecessor Seafirst Blue Chip Fund of the Collective Investment Trust (CIT) for
Seafirst Retirement Accounts. The inception date of the CIT fund was 3/9/88.
11
<PAGE> 699
Lipper Analytical Services, Inc., is an independent mutual fund-monitoring
organization. Neither the Lipper Growth Funds Average nor the S&P 500 can be
invested in directly. The hypothetical investment in the S&P 500 does not
reflect any sales or management fees that would be incurred in an investor were
to actually purchase individual securities or mutual funds, while the
performance of the Fund reflects all expenses and management fees.
12
<PAGE> 700
PACIFIC HORIZON
BLUE CHIP FUND
(AS OF FEBRUARY 28, 1998)
PORTFOLIO COMPOSITION
FUND QUALITY
A Strategy for Long-Term Capital
Appreciation
The Fund maintains a "quality"
investment orientation by placing
an emphasis on the securities of
well-known established companies.
This "blue chip" approach may be
appropriate for investors seeking
long-term growth of capital. At
least 80% of the Fund's assets are
normally invested in blue chip
stocks. To meet the criteria set
by the Fund's investment
objectives, these stocks must be
components of the Dow Jones
Industrial Average or the Standard
& Poor's 500 Index.
<TABLE>
<CAPTION>
TOP TEN HOLDINGS*
----------------------------------------------
PERCENT OF
COMPANY NET ASSETS
<S> <C>
---------------------------------------------
Microsoft Corp. 3.28%
.............................................
General Electric Co. 2.80%
.............................................
Exxon Corporation 2.40%
.............................................
Dell Computer 2.33%
.............................................
Merck & Co., Inc. 2.07%
.............................................
Schering Plough Corp. 1.93%
.............................................
Home Depot, Inc. 1.89%
.............................................
AT & T 1.78%
.............................................
Morgan Stanley Dean Witter
Discovery 1.71%
.............................................
Disney Walt Co. 1.69%
---------------------------------------------
TOTAL 21.88%
---------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
The Fund adviser's research
orientation seeks to
identify individual stocks,
within the sector
allocations mirroring those
of the S&P 500, with the
greatest potential for
long-term growth. The Fund's
primary emphasis is on
stocks that, in the opinion
of the Fund's adviser, have
the greatest potential of
superior performance with
the least amount of risk.
PORTFOLIO COMPOSITION*
<TABLE>
<CAPTION>
Percent
-------
<S> <C>
Utilities 10.1
Finance 17.5
Consumer Suplies 10.5
Health Care 11.6
Technology 14.2
Capital Goods 9.3
Energy 7.8
Basics 4.6
Transportation 1.2
Consumer Cyclicals 13.2
</TABLE>
* THE COMPOSITION OF THE FUND'S HOLDINGS IS SUBJECT TO CHANGE.
13
<PAGE> 701
PACIFIC HORIZON
INTERMEDIATE BOND FUND
SRF SHARES
(AS OF FEBRUARY 28, 1998)
- ----------------------
- ----------------------
KIRK HARTMAN
Chief Investment Officer
Bank of America NT&SA
The Pacific Horizon Income Funds are managed by a Bank of America NT&SA
investment team led by Kirk Hartman, Chief Investment Officer.
GOAL:
The Pacific Horizon Intermediate Bond Fund (formerly the Pacific Horizon
Flexible Bond Fund) seeks interest income and capital appreciation.
INVESTMENTS:
The Fund invests in a diversified portfolio of investment-grade, intermediate-
and longer-term bonds, including corporate and government fixed-income
obligations, mortgage-backed securities, municipal securities and cash
equivalents.
APPROPRIATE FOR:
Investors who want interest income and capital appreciation from a diversified
portfolio of fixed-income securities.
INCEPTION:
June 23, 1997
SIZE OF FUND AS OF
FEBRUARY 28, 1998:
Over $77 million
Q
WHAT FACTORS AFFECTED THE FUND'S PERFORMANCE DURING THE PERIOD ENDED
FEBRUARY 28, 1998?
A
The two primary themes during the past year were the continuation of
above-trend growth combined with below-trend inflation and the emergence of
financial crisis in Asia. The net results of these factors were lower interest
rates, a flatter yield curve and higher risk premiums. After rising early in the
period, interest rates generally fell for the remainder of the fiscal year,
bottoming in early January and ending the period with rates down as much as 90
basis points. The shorter end of the curve was essentially unchanged with longer
maturities falling more than shorter ones. The yield curve, as measured by the 2
to 30 year spread, flattened by 33 basis points and ended the fiscal year at 39
basis points.
On the domestic front, the economy continues to grow at an above-trend pace with
inflation well under control. Growth, although expected to slow from the 3.1%
growth rate of 1996, actually accelerated in 1997, with a Gross Domestic Product
("GDP") growth rate of 3.7%. In spite of the continued strong growth, inflation
turned in a stellar performance with year-over-year Producer Price Index ("PPI")
falling from 2.2% in February 1997 to - 1.7% in February 1998, and year-over-
year Consumer Price Index ("CPI") slowing from 3.0% to 1.4%. The inflation gains
are due, at least in part, to productivity gains, capacity expansion and global
disinflation.
In late October, the evolving crisis in Asia took center stage on the global
financial scene. The anticipated slowdown in global growth and continued
declines in global inflation associated with the mounting problems in Asia
caused worldwide equity
14
<PAGE> 702
indicies to tumble. Interest rates fell and corporate spreads, especially those
of Asian and emerging market issuers, widened. The widening in corporate spreads
was not restricted to Asian and emerging market credits, however, but affected
all sectors and all maturities. These problems, however, are likely to have
limited effects in the United States as the underlying economic fundamentals of
the U.S. market remain quite positive. Although a deteriorating trade sector
could lower the GDP by 0.5-1.0%, domestic demand remains strong and falling
interest rates and a strong jobs market will support an already healthy consumer
market.
Nonetheless, with foreign demand falling, U.S. growth could fall as well. This
would not be entirely unwelcome. Any slowing in the economy will likely
alleviate inflationary pressures in the labor markets and, combined with the
falling cost of imported goods, should lead to additional declines in inflation.
Lastly, with the economy and inflation expected to slow, the Federal Reserve,
although likely remaining vigilant on the inflation watch, is apt to take a
wait-and-see attitude. We anticipate that the economy and corporate profits will
continue to expand, albeit at a slower pace than last year. Productivity growth,
imported deflation, and falling commodity prices will keep inflation low. It is
expected that Federal Reserve Board action will be on hold for some time to come
and interest rates will remain in a gradually declining trading range.
Q
WHAT WERE THE FUND'S RETURNS IN THAT ENVIRONMENT?
A
The Pacific Horizon Intermediate Bond Fund, which invests in investment
grade corporate securities, asset-backed securities, and U.S. Treasuries, had a
total return of 4.86%* for the SRF Shares. The Fund's benchmark, the Lehman
Brothers Intermediate Government/Corporate Index, had a total return of 8.57%.**
Q
HOW DID YOU STRUCTURE THE FUND'S DURATIONS?
A
The Fund seeks to use a duration-neutral philosophy. Since duration, a
measure of a bond's price sensitivity to changes in interest rates, is the
principal component of both risk and return. We seek to deliver returns
consistent with the returns of the appropriate benchmark by maintaining the
duration of the fund close to that of the benchmark. We then attempt to add
value using a risk-budgeting approach to strategic allocation. In doing this we
analyze the expected return and the related risks of the universe of market
sectors and develop a base case allocation to the sectors that maximizes
expected returns for an acceptable level of risk. We then attempt to further
enhance value using sector value, rotation and relative value as appropriate for
the Fund.
Q
WHAT OPPORTUNITIES DID YOU FIND TO ADD VALUE THROUGH SECTOR
ALLOCATION IN THE FUND?
A
We increased the allocations to shorter maturity and lower credit quality
issuers in the corporate sector. This move proved beneficial as BBB securities
again outperformed their A and AA counterparts. Within the corporate market, we
favored the finance sector and increased our exposure to some of the lower rated
electric and natural gas pipeline companies, as their performance was improving
and there were possible merger and acquisition candidates. Additionally, as
mortgages became more inexpensive or expensive, we opportunistically added or
sold positions in the Intermediate Bond Fund.
- ---------------
15
<PAGE> 703
* Return figures for the Fund include changes in share price, reinvestment of
dividends and capital gain distri
butions for the period June 23, 1997 to February 28, 1998. The Fund is
currently waiving a portion of the advisory, administrative and/or share
holder servicing fee. These voluntary waivers may be modified or terminated
at any time, which would reduce the Fund's performance.
** The Lehman family of indices including the Lehman Brothers Corporate Bond,
Intermediate Government/Corporate Bond and the Mortgage Bond are unmanaged
indices generally representative of the different sectors within the bond
market as a whole, and cannot be invested in directly.
16
<PAGE> 704
PACIFIC HORIZON
INTERMEDIATE BOND FUND
SRF SHARES
(AS OF FEBRUARY 28, 1998)
GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)
<TABLE>
<CAPTION>
LIPPER LEHMAN
PACIFIC INTERMEDIATE BROTHERS
HORIZON INVESTMENT INTERMEDIATE
MEASUREMENT PERIOD INTERMEDIATE FUNDS GOVERNMENT/CORPORATE
(FISCAL YEAR COVERED) BOND FUND AVERAGE BOND INDEX
<S> <C> <C> <C>
3/9/88 10000 10000 10000.00
2/28/89 10632 10297 10391.66
2/28/90 11833 11332 11613.74
2/28/91 13131 12504 12944.41
2/29/92 14548 14086 14493.55
2/28/93 16073 15817 16170.70
2/28/94 16571 16690 16803.17
2/28/95 16830 16821 17029
2/29/96 18496 18715 18861
2/28/97 19188 20073.65 20107
2/28/98 20566 21921 20832
</TABLE>
HOW PERFORMANCE COMPARES
The chart compares the performance of
the Pacific Horizon Intermediate Bond
Fund to the Lehman Brothers
Intermediate Government/Corporate
Bond Index, which is an unmanaged
index typically used as a performance
benchmark for intermediate term
investments.
----------------------------------
<TABLE>
<CAPTION>
INTERMEDIATE BOND FUND
AVERAGE ANNUAL RETURN*
------------------------------------
<S> <C>
1 Year 7.18%
..................................
5 Year 5.05%
..................................
Since Inception
(3/9/88) 7.49%
</TABLE>
----------------------------------
As illustrated, the Fund tracked the performance of other intermediate bond
funds. The average of intermediate investment funds reported by Lipper
Analytical Services, Inc. measures the performance of other funds with
investment objectives and policies similar to those of the Pacific Horizon
Intermediate Bond Fund. An initial $10,000 investment in the Fund made on March
9, 1988, would now be worth $20,566. The same investment made in the Lipper
Intermediate Investment Funds Average would now be worth $21,921.
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. The SRF Share
class performance prior to June 23, 1997 represents the performance of the
Seafirst Intermediate Bond Fund of the former Seafirst Retirement Funds and its
predecessor Seafirst Intermediate Bond Fund of the Collective Investment Trust
(CIT) for Seafirst Retirement Accounts. The inception date of the CIT Fund was
3/9/88.
Lipper Analytical Services, Inc. is an independent mutual fund-monitoring
organization. Neither the Lipper Intermediate Investment Funds Average, nor the
Lehman Brothers
17
<PAGE> 705
Intermediate Government/Corporate Bond Index may be invested in directly. The
hypothetical investment in the Lehman Brothers Intermediate Government/Corporate
Bond 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.
18
<PAGE> 706
PACIFIC HORIZON
INTERMEDIATE BOND FUND
(AS OF FEBRUARY 28, 1998)
QUALITY
This fund invests in a diversified
portfolio of investment-grade U.S.
Government, mortgage-backed,
asset-backed, corporate and
municipal bonds in order to provide
current income and capital
appreciation. The security selection
process also depends on information
about broad economic factors that
can affect the bond markets.
PORTFOLIO COMPOSITION*
<TABLE>
<S> <C>
Asset- Backed
Securities 12.2
Corporate Bonds 23.5
Medium Term Notes 13.2
Cash Equivalents 1.5
U.S. Treasury
Obligations 33.8
Collateralized
Mortgage Obligations 1.2
U.S. Gov't Agency
Obligations 14.6
</TABLE>
- --------------------------------------------------------------------------------
* The composition of the Fund's
holdings is subject to change.
- --------------------------------------------------------------------------------
FLEXIBILITY
Capitalizing on Changing Markets
The Fund invests in a varied
portfolio of quality bonds in an
effort to protect principal against
sharp price fluctuations and
stabilize net asset value. The
Fund's adviser has great latitude in
deciding how assets are invested
among corporate, government and
mortgage-backed obligations. That
means the Fund enjoys total
flexibility to make the most of
changing market conditions.
[FLOW CHART]
U.S Mortgage-
Treasury Backed
Bonds Securities
Corporate
Bonds
19
<PAGE> 707
PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- ------ ------------
<S> <C> <C>
COMMON STOCKS -- 57.9%
AEROSPACE/AIRLINES -- 0.9%
AMR Corporation**......................................... 4,500 $ 569,531
Boeing Co................................................. 19,200 1,041,600
FDX Corporation**......................................... 10,960 698,015
------------
2,309,146
------------
AUTOMOBILES -- 0.7%
Ford Motor Co............................................. 12,700 718,344
General Motors Corp....................................... 15,700 1,082,319
------------
1,800,663
------------
BANKS -- 5.4%
Banc One Corp............................................. 55,990 3,163,435
Chase Manhattan Corp...................................... 16,000 1,985,000
Citicorp.................................................. 25,500 3,378,750
U.S.Bancorp............................................... 21,200 2,439,325
Wells Fargo & Co.......................................... 7,600 2,447,200
------------
13,413,710
------------
BEVERAGES -- 1.4%
Coca-Cola Co.............................................. 33,400 2,294,162
PepsiCo, Inc.............................................. 37,200 1,360,125
------------
3,654,287
------------
BUILDING MATERIALS -- 0.3%
Masco Corp................................................ 14,800 804,750
------------
CHEMICALS -- 1.5%
E.I. Du Pont de Nemours & Co.............................. 14,700 901,294
Monsanto Corp............................................. 26,000 1,322,750
Praxair, Inc.............................................. 5,500 262,969
W.R. Grace & Co........................................... 13,500 1,133,156
------------
3,620,169
------------
COMPUTER SOFTWARE/HARDWARE -- 5.0%
First Data Corp........................................... 54,300 1,846,200
Hewlett-Packard Co........................................ 25,100 1,681,700
IBM....................................................... 21,700 2,266,294
</TABLE>
- ---------------
See Notes to Financial Statements.
20
<PAGE> 708
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- ------ ------------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
COMPUTER SOFTWARE/HARDWARE -- (CONTINUED)
Microsoft Corp.**......................................... 67,400 $ 5,712,150
Seagate Technology, Inc.**................................ 32,800 797,450
------------
12,303,794
------------
CONTAINERS & PACKAGING -- 0.1%
Bemis Co., Inc............................................ 6,300 283,894
------------
COSMETICS/HOUSEHOLD PRODUCTS -- 2.4%
Gillette Co............................................... 15,100 1,628,912
Kimberly-Clark Corp....................................... 24,300 1,353,206
Newell Co................................................. 14,200 651,425
Procter & Gamble Co....................................... 26,200 2,225,362
------------
5,858,905
------------
ELECTRIC UTILITIES -- 0.9%
Duke Energy Co............................................ 23,200 1,289,050
GPU, Inc.................................................. 25,700 1,032,819
------------
2,321,869
------------
ELECTRONIC PRODUCTS -- 2.5%
General Electric Co....................................... 81,200 6,313,300
------------
ELECTRONIC SEMICONDUCTORS -- 1.2%
Intel Corp................................................ 19,200 1,722,000
National Semiconductor Corp.**............................ 53,700 1,282,088
------------
3,004,088
------------
FINANCIAL SERVICES -- 3.5%
American Express.......................................... 24,300 2,188,519
Equifax, Inc.............................................. 27,400 984,687
Household International, Inc.............................. 17,200 2,233,850
Morgan Stanley Group, Inc................................. 20,100 1,400,719
Providian Financial Corporation........................... 32,600 1,850,050
------------
8,657,825
------------
FOOD -- 1.2%
Archer Daniels Midland Co................................. 38,600 866,087
Ralston Purina Group...................................... 15,100 1,531,706
Sara Lee Corp............................................. 9,900 559,350
------------
2,957,143
------------
FOOD CHAINS -- 0.2%
Albertson's, Inc.......................................... 12,000 561,750
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
21
<PAGE> 709
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- ------ ------------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
GAS UTILITIES -- 0.3%
Columbia Energy Group, Inc................................ 11,100 $ 847,069
------------
HOSPITAL CARE -- 1.3%
Baxter International, Inc................................. 15,100 855,038
Boston Scientific Corp.**................................. 21,600 1,290,600
Johnson & Johnson Co...................................... 13,500 1,019,250
------------
3,164,888
------------
HOTEL & MOTELS -- 0.3%
Hilton Hotels Corp........................................ 10,600 316,012
Starwood Hotels & Resorts................................. 7,532 426,029
------------
742,041
------------
INSURANCE-PROPERTY & CASUALTY -- 0.7%
Progressive Corp.......................................... 14,000 1,622,250
------------
LEISURE -- 0.7%
Disney (Walt) Co.......................................... 12,400 1,388,025
Mattel, Inc............................................... 7,700 325,806
------------
1,713,831
------------
MANUFACTURING -- MACHINERY -- 0.6%
Illinois Tool Works, Inc.................................. 22,900 1,372,569
------------
MEDIA -- 1.1%
ACNielsen Corp.**......................................... 1 25
Gannett, Inc.............................................. 5,200 335,725
McGraw Hill Companies..................................... 4,900 370,562
Meredith Corp............................................. 6,600 283,387
Time Warner, Inc.......................................... 12,300 830,250
Tribune Co................................................ 12,700 819,944
------------
2,639,893
------------
MULTI-INDUSTRY -- 3.0%
Cendant Corp.**........................................... 55,030 2,063,625
Dover Corp................................................ 41,200 1,591,350
Ikon Office Solutions, Inc................................ 36,900 1,206,169
Tyco International Ltd.................................... 49,400 2,507,050
------------
7,368,194
------------
NATURAL ENERGY -- 1.0%
Coastal Corp.............................................. 16,100 1,024,362
Williams Cos., Inc........................................ 42,600 1,392,488
------------
2,416,850
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
22
<PAGE> 710
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- ------ ------------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
OIL DOMESTIC & CRUDE -- 0.6%
Pennzoil Co............................................... 10,600 $ 709,537
USX -- Marathon Group..................................... 19,500 673,969
------------
1,383,506
------------
OIL INTERNATIONAL -- 2.0%
Chevron Corp.............................................. 9,900 803,138
Exxon Corp................................................ 36,500 2,331,438
Mobil Corp................................................ 14,900 1,079,319
Texaco, Inc............................................... 14,500 809,281
------------
5,023,176
------------
OIL SERVICE -- 0.6%
Halliburton Co............................................ 10,700 497,550
Schlumberger, Ltd......................................... 6,500 489,937
Western Atlas, Inc.**..................................... 7,700 584,719
------------
1,572,206
------------
PAPER PRODUCTS -- 0.3%
Champion International Corp............................... 7,700 393,181
International Paper Co.................................... 7,600 354,350
------------
747,531
------------
PHARMACEUTICALS -- 7.5%
Bristol-Meyers Squibb Co.................................. 29,500 2,955,531
Lilly, (Eli) & Co......................................... 27,800 1,829,588
Medtronic, Inc............................................ 22,300 1,184,688
Merck & Co., Inc.......................................... 48,000 6,123,000
Pfizer, Inc............................................... 30,800 2,725,800
Schering-Plough Corp...................................... 16,800 1,277,850
Warner Lambert Co......................................... 16,400 2,398,500
------------
18,494,957
------------
PHOTOGRAPHY -- 0.1%
Eastman Kodak Co.......................................... 4,200 275,625
------------
RAILROADS -- 0.4%
Burlington Northern Santa Fe.............................. 5,900 587,788
Union Pacific Corp........................................ 6,100 311,100
------------
898,888
------------
RESTAURANTS -- 0.7%
McDonald's Corp........................................... 21,100 1,155,225
Sysco Corp................................................ 12,700 597,694
------------
1,752,919
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
23
<PAGE> 711
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- ------ ------------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
RETAIL -- 2.2%
CVS Corp.................................................. 13,000 $ 962,812
Home Depot, Inc........................................... 21,200 1,352,825
Nordstrom, Inc............................................ 19,200 1,101,000
Wal-Mart Stores, Inc...................................... 44,800 2,074,800
------------
5,491,437
------------
RETAIL MANUFACTURING -- 0.7%
Costco Companies, Inc.**.................................. 14,200 694,025
Dayton Hudson Corp........................................ 13,600 1,051,450
------------
1,745,475
------------
TELECOMMUNICATIONS -- 2.6%
3 Com Corp.**............................................. 38,900 1,390,675
Cisco Systems, Inc.**..................................... 44,850 2,954,494
Lucent Technologies, Inc.................................. 18,400 1,994,100
------------
6,339,269
------------
TELEPHONE -- 3.0%
AT&T Corp................................................. 27,300 1,661,888
Bell Atlantic Corp........................................ 14,500 1,301,375
GTE Corp.................................................. 27,800 1,504,675
MCI Communications Corp................................... 50,600 2,419,313
Sprint Corp............................................... 8,300 547,800
------------
7,435,051
------------
TOBACCO -- 1.0%
Philip Morris Cos., Inc................................... 59,100 2,567,156
------------
Total Common Stocks (Cost $104,458,793)..................... 143,480,074
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
24
<PAGE> 712
<TABLE>
<CAPTION>
RATINGS
S&P/MOODY'S MATURITY PRINCIPAL VALUE
(UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ------ -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CORPORATE OBLIGATIONS -- 16.1%
CORPORATE BONDS -- 14.0%
AESOP Funding II Series
1997-1, Class A1......... AAA/Aaa 6.220% 10/20/01 $1,000,000 $1,006,366
AON Corp................... AA-/A3 7.400% 10/01/02 1,000,000 1,046,250
Capital One Bank........... BBB-/Baa3 7.000% 04/30/01 1,400,000 1,419,250
Citibank Credit Card Master
Trust, ZCB............... AAA/Aaa 0.000% 02/07/03 3,500,000 2,878,106
Citibank Credit Card Master
Trust I, ZCB............. AAA/Aaa 0.000% 08/15/06 2,000,000 1,341,832
Enron Corp................. BBB+/Baa2 6.450% 11/15/01 1,100,000 1,109,625
Federated Department
Stores................... BBB-/Baa2 8.125% 10/15/02 1,000,000 1,072,500
Finova Capital Corp........ A-/Baa1 6.625% 09/15/01 2,200,000 2,227,500
First Union Corp........... A-/A2 6.550% 10/15/05 3,600,000 3,685,500
Ford Motor Credit Co....... A+/A1 5.750% 01/25/01 2,500,000 2,484,375
General Growth Properties,
Series 1, Class A2,
144A++................... NR/Aaa 6.602% 11/15/07 1,600,000 1,634,116
General Motors Acceptance
Corp..................... A-/A3 7.125% 05/01/01 2,000,000 2,055,000
General Motors Acceptance
Corp..................... A-/A3 6.875% 07/15/01 2,000,000 2,042,500
James River Corp........... BBB-/Baa3 8.375% 11/15/01 1,250,000 1,335,938
PSE & G Capital Corp....... BBB/Baa2 6.740% 10/23/01 1,100,000 1,112,375
Sears Roebuck Acceptance
Corp..................... A-/A2 7.000% 06/15/07 1,500,000 1,554,375
TCI Communications Inc..... BBB/Ba1 6.375% 09/15/99 950,000 951,188
The Money Store Home Equity
Trust, Series
1996 -- B................ AAA/Aaa 7.380% 05/15/17 3,500,000 3,571,148
Time Warner, Inc........... BBB-/Ba1 7.950% 02/01/00 1,200,000 1,245,000
Williams Cos., Inc......... BBB-/Baa2 6.125% 02/01/01 1,000,000 998,750
----------
34,771,694
----------
MEDIUM TERM NOTES -- 2.1%
Banco Latinoamericano,
144A++................... NR/Baa2 6.590% 10/16/01 1,400,000 1,393,000
Bear Stearns & Co.......... A/A2 6.125% 02/01/03 1,100,000 1,086,250
Korea Development Bank..... BB+/Ba1 7.125% 09/17/01 1,550,000 1,439,563
Paine Webber Group, Inc.... BBB+/Baa1 7.015% 02/10/04 1,250,000 1,278,125
----------
5,196,938
----------
Total Corporate Obligations (Cost $39,433,070)............................. 39,968,632
----------
</TABLE>
- ---------------
See Notes to Financial Statements.
25
<PAGE> 713
<TABLE>
<CAPTION>
MATURITY PRINCIPAL VALUE
RATE DATE AMOUNT (NOTE 2)
------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 18.2%
Federal Home Loan Mortgage
Corp. Pool #297505...... 8.000% 06/01/17 $ 9,082 $ 9,593
Federal Home Loan Mortgage
Corp. Pool #533301...... 10.500% 04/01/19 18,764 20,641
Federal Home Loan Mortgage
Corp. Pool #544066...... 8.000% 12/01/19 7,775 8,184
Federal National Mortgage
Association Pool #1997-
M5 Cl-C................. 6.740% 08/25/07 2,000,000 2,036,620
FGLMC Pool #D66935........ 7.500% 01/01/26 305,429 314,019
FGLMC Pool #D66969........ 7.500% 01/01/26 735,224 756,361
FGLMC Pool #D68671........ 7.500% 02/01/26 528,148 543,002
FGLMC Pool #D69671........ 7.500% 03/01/26 27,416 28,196
FGLMC Pool #D69839........ 7.500% 04/01/26 455,663 468,621
FGLMC Pool #D69930........ 7.500% 04/01/26 382,236 393,106
FGLMC Pool #D70086........ 7.500% 04/01/26 507,491 521,923
FGLMC Pool #D70402........ 7.500% 03/01/26 93,310 96,080
FGLMC Pool #D71116........ 7.500% 05/01/26 96,290 98,998
FGLMC Pool #D71404........ 7.500% 05/01/26 1,156,727 1,189,621
FHLMC Pool #E60891........ 6.500% 07/01/10 2,728,208 2,750,374
FHLMC Pool #G10304........ 6.500% 04/01/09 714,797 717,701
FNCI Pool #400028......... 6.500% 02/01/13 3,000,000 3,010,313
FNCL Pool #251116......... 8.000% 08/01/27 6,677,014 6,921,142
FNCL Pool #313349......... 10.000% 01/01/27 1,109,983 1,204,678
FNCL Pool #325602......... 6.500% 10/01/10 421,022 424,048
GNMA Pool #146301......... 10.000% 02/15/16 62,957 69,115
GNMA Pool #187160......... 7.000% 03/01/28 10,500,000 10,618,125
GNSF Pool #231236......... 9.000% 01/15/20 232,624 253,269
GNSF Pool #234214......... 8.000% 03/15/20 97,921 102,879
GNSF Pool #258039......... 9.000% 01/15/20 179,566 195,502
GNSF Pool #276635......... 9.000% 10/15/19 208,872 227,409
GNSF Pool #278853......... 9.000% 11/15/19 301,987 328,788
GNSF Pool #283578......... 8.000% 01/15/20 64,353 67,611
GNSF Pool #295283......... 7.500% 11/15/22 704,265 727,374
GNSF Pool #311456......... 8.000% 04/15/22 462,647 483,610
GNSF Pool #312656......... 8.000% 02/15/22 345,837 361,832
GNSF Pool #316108......... 8.000% 03/15/22 392,371 410,396
GNSF Pool #316859......... 8.000% 03/15/22 686,448 717,767
GNSF Pool #317275......... 8.000% 02/15/22 12,443 13,015
GNSF Pool #318567......... 8.000% 01/15/22 13,644 14,279
GNSF Pool #321799......... 8.000% 04/15/22 378,404 395,550
GNSF Pool #323085......... 8.000% 05/15/22 778,828 814,118
GNSF Pool #326465......... 7.000% 11/15/23 966,375 981,777
GNSF Pool #342065......... 8.000% 11/15/22 298,631 311,509
</TABLE>
- ---------------
See Notes to Financial Statements.
26
<PAGE> 714
<TABLE>
<CAPTION>
MATURITY PRINCIPAL VALUE
RATE DATE AMOUNT (NOTE 2)
------- -------- ---------- ----------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- (CONTINUED)
<S> <C> <C> <C> <C>
GNSF Pool #350519......... 7.000% 06/15/23 $ 17,460 $ 17,744
GNSF Pool #369671......... 7.000% 12/15/23 2,030,952 2,063,320
GNSF Pool #371045......... 8.000% 02/15/24 232,488 242,151
GNSF Pool #373336......... 7.500% 05/15/22 609,550 628,789
GNSF Pool #373346......... 7.500% 06/15/22 677,934 699,332
GNSF Pool #388995......... 7.500% 07/15/22 797,372 822,539
GNSF Pool #389002......... 7.500% 08/15/22 608,161 627,356
GNSF Pool #780227......... 8.000% 12/15/22 164,554 171,188
GNSF Pool #780330......... 9.000% 12/15/19 1,048,306 1,136,101
-----------
Total U.S. Government Agency Obligations (Cost $44,344,593)..................... 45,015,666
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 0.5%
Vendee Mortgage Trust,
Series 1998-1, Class 2,
Interest Only Obligation
(Cost $1,222,827)....... 0.455% 02/15/28 53,505,678 1,230,631
-----------
CERTIFICATES OF DEPOSIT -- YANKEE -- 0.7%
BHP Finance+ (Cost
$1,553,415)............. 6.420% 03/01/26 1,600,000 1,626,000
-----------
U.S. GOVERNMENT OBLIGATIONS -- 5.3%
U.S. TREASURY BONDS -- 3.3%
U.S. Treasury Bond........ 8.125% 08/15/21 6,000,000 7,571,879
U.S. Treasury Bond........ 6.375% 08/15/27 500,000 529,750
-----------
8,101,629
-----------
U.S. TREASURY STRIPS -- 2.0%
U.S. Treasury Strips*..... 6.050%* 02/15/13 5,900,000 2,433,926
U.S. Treasury Strips*..... 6.180%* 08/15/23 12,000,000 2,645,279
-----------
5,079,205
-----------
Total U.S. Treasury Obligations (Cost $12,444,249).............................. 13,180,834
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES NOTES
--------- ------------
<S> <C> <C>
TEMPORARY INVESTMENTS -- 5.4%
Temporary Investment Cash Fund.......................... 6,747,969 $ 6,747,969
Temporary Investment Fund............................... 6,747,969 6,747,969
------------
Total Temporary Investments (Cost $13,495,939)............ 13,495,938
------------
TOTAL INVESTMENTS -- 104.1% (COST $216,952,886)(A)........ 257,997,775
LIABILITIES IN EXCESS OF OTHER ASSETS -- (4.1%)........... (10,199,247)
------------
NET ASSETS -- 100.0%...................................... $247,798,528
============
</TABLE>
- ---------------
See Notes to Financial Statements.
27
<PAGE> 715
- ---------------
Percentages indicated are based on net assets of $247,798,528.
(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.............................. $43,391,541
Unrealized depreciation.............................. $(2,346,652)
-----------
Net unrealized appreciation.......................... $41,044,889
===========
</TABLE>
144A -- Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may not be resold subject to that rule except to qualified
institutional buyers. At the end of the period, these securities
amounted to 1.2% of net assets.
FGLMC -- Federal Home Loan Mortgage Corporation -- Gold.
FHLMC -- Federal Home Loan Mortgage Corporation.
FNCI -- Federal National Mortgage Association -- 15 Year Fixed.
FNCL -- Federal National Mortgage Association -- 30 Year Fixed.
GNMA -- Government National Mortgage Association.
GNSF -- Government National Mortgage Association -- 30 Year Fixed.
ZCB -- Zero Coupon Bond.
NR -- Not Rated.
* Effective Yield.
** Non-income producing security.
(dagger) Foreign Issuer.
(double dagger) Private Placement Security.
See Notes to Financial Statements.
28
<PAGE> 716
PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investment in securities, at value (cost $216,952,886)..... $257,997,775
Interest and dividends receivable.......................... 1,144,638
Receivable for capital shares sold......................... 283,099
Receivable for investment securities sold.................. 1,316,492
Prepaid expenses........................................... 898
------------
Total Assets................................................ 260,742,902
------------
LIABILITIES:
Payable for capital shares redeemed........................ 399,083
Payable for investment securities purchased................ 12,219,945
Investment advisory fees payable........................... 74,915
Administration fees payable................................ 57,532
Shareholder service fees payable (A Shares)................ 9,262
Shareholder service fees payable (K Shares)................ 309
Shareholder service fees payable (SRF Shares).............. 37,603
Audit fees payable......................................... 35,301
Distribution fees payable (K Shares)....................... 990
Transfer agent fees payable................................ 10,516
Other accrued expenses..................................... 98,918
------------
Total Liabilities........................................... 12,944,374
------------
NET ASSETS.................................................. $247,798,528
============
Net Assets:
A Shares................................................... $ 49,239,679
K Shares................................................... 1,666,565
SRF Shares................................................. 196,892,284
------------
Total....................................................... $247,798,528
============
Shares Outstanding ($0.001 par value, 400 million shares
authorized):
A Shares................................................... 2,299,985
K Shares................................................... 78,014
SRF Shares................................................. 11,841,110
------------
Total....................................................... 14,219,109
============
NET ASSET VALUE
A Shares -- Net asset value and redemption price per
share.................................................... $ 21.41
============
Maximum Sales Charge (A Shares)............................ 4.50%
Maximum Offering Price per share (A Shares) (Net Asset
Value of A Shares/(100% -- Maximum Sales Charge))....... $ 22.42
============
K Shares -- Net asset value, offering price and redemption
price per share.......................................... $ 21.36
============
SRF Shares -- Net asset value, offering price and
redemption price per share............................... $ 16.63
============
COMPOSITION OF NET ASSETS:
Shares of common stock, at par............................. $ 1,422
Additional paid-in capital................................. 201,307,487
Accumulated undistributed net investment income............ 951,491
Accumulated net realized gains on investment
transactions............................................. 4,493,239
Net unrealized appreciation on investments................. 41,044,889
------------
NET ASSETS, FEBRUARY 28, 1998............................... $247,798,528
============
</TABLE>
- ---------------
See Notes to Financial Statements.
29
<PAGE> 717
PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the year ended February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Investment Income from Master Investment Trust, Series
I -- Asset Allocation Portfolio (a):
Interest income.......................................... $ 337,434
Dividend income.......................................... 98,956
-----------
436,390
-----------
Expenses................................................... 30,161
Less: Fee waivers and expense reimbursements............... (15,096)
-----------
15,065
-----------
Net Investment Income from Master Investment Trust, Series
I -- Asset Allocation Portfolio............................ 421,325
Interest income............................................ 4,684,847
Dividend income............................................ 1,210,143
-----------
Total Income................................................ 6,316,315
-----------
EXPENSES:
Investment advisory fees................................... 650,191
Administration fees........................................ 258,691
Administrative and Shareholder service fees (K Shares)..... 2,466
Shareholder service fees (A Shares)........................ 103,328
Shareholder service fees (SRF Shares) (b).................. 325,357
Distribution fees (K Shares)............................... 4,923
Accounting fees............................................ 85,965
Custodian fees............................................. 33,250
Transfer agent fees........................................ 65,521
Registration fees.......................................... 39,214
Reports to shareholders.................................... 81,963
Amortization of organization costs......................... 13,826
Audit fees................................................. 10,199
Legal fees................................................. 1,537
Directors' fees............................................ 11,159
Other expenses............................................. 3,250
-----------
Total Expenses........................................... 1,690,840
Less: Fee waivers and expense reimbursements............... (31,996)
-----------
Total Net Expenses.......................................... 1,658,844
-----------
NET INVESTMENT INCOME....................................... 4,657,471
-----------
REALIZED/UNREALIZED GAINS ON INVESTMENTS (A):
Net realized gains on investment transactions.............. 16,121,025
Net change in unrealized appreciation on investments....... 10,917,084
-----------
Net realized/unrealized gains on investments............... 27,038,109
-----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $31,695,580
===========
</TABLE>
- ---------------
(a) On June 23, 1997, the Fund withdrew its investments in Master Investment
Trust Series I and engaged Bank of America to manage its investments
directly.
(b) SRF Shares were first issued on June 23, 1997.
See Notes to Financial Statements.
30
<PAGE> 718
PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------
FEBRUARY 28, FEBRUARY 28,
1998 1997
------------ ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income.............................. $ 4,657,471 $ 712,729
Net realized gain on investment transactions....... 16,121,025 2,440,559
Net change in unrealized appreciation on
investments...................................... 10,917,084 1,517,990
------------ ------------
Change in net assets resulting from operations....... 31,695,580 4,671,278
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
A Shares......................................... (948,423) (682,373)
K Shares......................................... (16,758) (3,691)(a)
SRF Shares (b)................................... (2,815,255) --
Net realized gains from investment transactions
A Shares......................................... (3,507,686) (998,763)
K Shares......................................... (82,265) (15,739)(a)
SRF Shares (b)................................... (9,820,897) --
------------ ------------
Change in net assets from shareholder
distributions...................................... (17,191,284) (1,700,566)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued........................ 208,437,645 15,869,326
Dividends reinvested............................... 16,979,819 1,651,877
Cost of shares redeemed............................ (27,709,016) (7,260,804)
------------ ------------
Change in net assets from capital share
transactions....................................... 197,708,448 10,260,399
------------ ------------
Change in net assets................................. 212,212,744 13,231,111
NET ASSETS
Beginning of Year.................................. 35,585,784 22,354,673
------------ ------------
End of Year (including undistributed net investment
income of $951,491 and $137,447,
respectively.)................................... $247,798,528 $ 35,585,784
============ ============
</TABLE>
- ---------------
(a) Period from July 22, 1996 (inception date) to February 28, 1997.
(b) Period from June 23, 1997 (inception date) to February 28, 1998.
See Notes to Financial Statements.
31
<PAGE> 719
PACIFIC HORIZON BLUE CHIP FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
For the year ended February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investment in Master Investment Trust, Series I -- Blue
Chip Portfolio, at value................................. $665,788,485
Prepaid expenses........................................... 3,099
------------
Total Assets................................................ 665,791,584
------------
LIABILITIES:
Dividend payable........................................... 3,102
Administration fees........................................ 74,035
Transfer agent fees payable................................ 94,923
Shareholder service fees payable (A Shares)................ 52,553
Shareholder service fees payable (K Shares)................ 1,212
Shareholder service fees payable (SRF Shares).............. 68,145
Audit fees payable......................................... 4,700
Fund accounting fees and expense payable................... 4,849
Legal fees payable......................................... 4,640
Other accrued expenses..................................... 68,245
------------
Total Liabilities........................................... 376,404
------------
NET ASSETS.................................................. $665,415,180
============
Net Assets:
A Shares................................................... $288,256,185
K Shares................................................... 6,850,942
SRF Shares................................................. 370,308,053
------------
Total....................................................... $665,415,180
============
Shares Outstanding ($0.001 par value, 300 million shares
authorized):
A Shares................................................... 9,640,840
K Shares................................................... 229,946
SRF Shares................................................. 13,960,375
------------
Total....................................................... 23,831,161
============
NET ASSET VALUE:
A Shares -- Net asset value and redemption price per
share.................................................... $ 29.90
------------
Maximum Sales Charge (A Shares)............................ 4.50%
Maximum Offering Price (A Shares)
(Net Asset Value of A Shares/(100% -- Maximum Sales
Charge))............................................... $ 31.31
------------
K Shares -- Net asset value, offering price and redemption
price per share.......................................... $ 29.79
------------
SRF Shares -- Net asset value, offering price and
redemption price per share............................... $ 26.53
------------
COMPOSITION OF NET ASSETS:
Shares of common stock, at par............................. $ 23,831
Additional paid-in capital................................. 483,600,873
Undistributed investment income............................ 636,250
Accumulated net realized gains on investment
transactions............................................. 12,272,687
Net unrealized appreciation on investments................. 168,881,539
------------
NET ASSETS, FEBRUARY 28, 1998............................... $665,415,180
============
</TABLE>
- ---------------
See Notes to Financial Statements.
32
<PAGE> 720
PACIFIC HORIZON INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investment in Master Investment Trust, Series
I -- Investment Grade Bond Portfolio, at value........... $77,809,358
Prepaid expenses........................................... 1,266
-----------
Total Assets................................................ 77,810,624
-----------
LIABILITIES:
Dividends payable.......................................... 127,215
Administration fees payable................................ 8,968
Shareholder service fees payable (A Shares, K Shares, and
SRF Shares) 24,505
Distribution fees payable (K shares)....................... 532
Reports to shareholders expenses payable................... 40,000
Transfer agent fees payable................................ 10,116
Audit fees payable......................................... 7,349
Other accrued expenses..................................... 42,474
-----------
Total Liabilities........................................... 261,159
-----------
NET ASSETS.................................................. $77,549,465
===========
Net Assets:
A Shares................................................... $41,874,875
K Shares................................................... 513,286
SRF Shares................................................. 35,161,304
-----------
Total....................................................... $77,549,465
===========
Shares Outstanding ($0.001 par value, and 300 million shares
authorized):
A Shares................................................... 4,322,374
K Shares................................................... 52,791
SRF Shares................................................. 3,233,868
-----------
Total....................................................... 7,609,033
===========
NET ASSET VALUE
A Shares -- Net asset value and redemption price per
share.................................................... $9.69
===========
Maximum Sales Charge (A Shares)............................ 4.50%
Maximum Offering Price per share (A Shares) (Net Asset
Value of A Shares/ (100% -- Maximum Sales Charge))....... $10.15
===========
K Shares -- Net asset value, offering price and redemption
price per share.......................................... $9.72
===========
SRF Shares -- Net asset value, offering price and
redemption price per share............................... $10.87
===========
COMPOSITION OF NET ASSETS:
Shares of common stock, at par............................. $ 7,609
Additional paid-in capital................................. 76,827,474
Accumulated undistributed net investment income............ 34,547
Accumulated net realized gains on investment
transactions............................................. 22,298
Net unrealized appreciation on investments................. 657,537
-----------
NET ASSETS, FEBRUARY 28, 1998............................... $77,549,465
===========
</TABLE>
- ---------------
See Notes to Financial Statements.
33
<PAGE> 721
PACIFIC HORIZON BLUE CHIP FUND
- --------------------------------------------------------------------------------
Statement of Operations
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Investment Income from Master Investment Trust,
Series I -- Blue Chip Portfolio:
Dividend income....................................... $ 7,368,293
Interest income....................................... 624,972
-----------
7,993,265
-----------
Expenses.................................................. 2,882,413
Less: Fee waivers and expense reimbursements.............. (33,438)
-----------
2,848,975
-----------
Net Investment Income from Master Investment Trust, Series
I -- Blue Chip Portfolio.................................. 5,144,290
-----------
EXPENSES:
Shareholder service fees (A Shares)....................... 539,237
Shareholder service fees (K Shares)....................... 8,457
Shareholder service fees (SRF Shares)..................... 576,234
Distribution fees (K Shares).............................. 16,862(a)
Administration fees....................................... 673,969
Transfer agent fees....................................... 332,532
Reports to shareholders................................... 159,406
Fund accounting fees and expenses......................... 50,279
Legal fees................................................ 14,066
Other expenses............................................ 63,637
-----------
Total Expenses........................................ 2,434,679
Less: Fee waivers and expense reimbursements................ (509,502)
-----------
Total Net Expenses........................................ 1,925,177
-----------
NET INVESTMENT INCOME....................................... 3,219,113
-----------
NET REALIZED/UNREALIZED GAINS ON INVESTMENTS FROM MASTER
INVESTMENT TRUST, SERIES I -- BLUE CHIP PORTFOLIO:
Net realized gains on investment transactions......... 45,222,647
Net change in unrealized appreciation on
investments......................................... 72,902,865
-----------
Net realized/unrealized gains on investments from Master
Investment Trust, Series I -- Blue Chip Portfolio......... 118,125,572
-----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $121,344,625
</TABLE>
- ---------------
(a) Period from July 22, 1996 (inception date) to February 28, 1997.
See Notes to Financial Statements.
34
<PAGE> 722
PACIFIC HORIZON INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the year ended February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Investment Income from Master Investment Trust, Series I --
Investment Grade Bond Portfolio:
Interest Income........................................... $3,770,380
----------
Expenses.................................................. 205,307
Less: Fee waivers and expense reimbursements.............. (20,793)
----------
184,514
----------
Net Investment Income from Master Investment Trust, Series
I -- Investment Grade Bond Portfolio...................... 3,585,866
----------
EXPENSES:
Administration fees....................................... 94,118
Shareholder service fees (A Shares)....................... 85,538
Shareholder service fees (K Shares)....................... 1,035
Shareholder service fees (SRF Shares)..................... 62,182(a)
Registration fees......................................... 27,231
Distribution fees (K Shares).............................. 2,060
Transfer agent fees....................................... 33,916
Fund accounting fees and expenses......................... 48,518
Reports to shareholders................................... 35,191
Amortization of organization costs........................ 15,825
Audit fees................................................ 11,687
Legal fees................................................ 9,384
Directors fees............................................ 1,158
Other operating expenses.................................. 6,090
----------
Total Expenses.......................................... 433,933
Less: Fee waivers and reimbursements...................... (72,439)
----------
Total Net Expenses.......................................... 361,494
----------
NET INVESTMENT INCOME....................................... 3,224,372
----------
REALIZED/UNREALIZED GAINS ON INVESTMENTS FROM MASTER
INVESTMENT TRUST, SERIES I -- INVESTMENT GRADE BOND
PORTFOLIO
Net realized gain on investment transactions.............. 185,294
Net change in unrealized appreciation on investments...... 785,462
----------
Net realized/unrealized gains on investments from Master
Investment Trust Series I -- Investment Grade Bond
Portfolio............................................... 970,756
----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $4,195,128
==========
</TABLE>
- ---------------
(a) On June 23, 1997, The Bond Fund of Seafirst Retirement Funds withdrew its
investments in Master Investment Trust Series I and merged its assets with
the Intermediate Bond Fund creating a new class of SRF Shares on that date.
See Notes to Financial Statements.
35
<PAGE> 723
PACIFIC HORIZON BLUE CHIP FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28,
1998 1997
------------ ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income............................... $ 3,219,113 $ 1,022,481
Net realized gains on investment transactions....... 45,222,647 14,059,189
Net change in unrealized appreciation on
investments....................................... 72,902,865 12,101,556
------------ ------------
Change in net assets resulting from operations...... 121,344,625 27,183,226
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
A Shares.......................................... (1,127,669) (980,276)
K Shares.......................................... (3,838) (998)(a)
SRF Shares........................................ (1,629,501) -- (b)
Net realized gains from investment transactions:
A Shares.......................................... (24,949,427) (2,731,645)
K Shares.......................................... (388,442) (8,357)(a)
SRF Shares........................................ (19,671,559) -- (b)
------------ ------------
Change in net assets from shareholder distributions... (47,770,436) (3,721,276)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued......................... 475,502,874 87,766,406
Dividends reinvested................................ 44,254,196 3,417,983
Cost of shares redeemed............................. (82,117,652) (27,378,220)
------------ ------------
Change in net assets from capital share
transactions........................................ 437,639,418 63,806,169
------------ ------------
Change in net assets.................................. 511,213,607 87,268,119
NET ASSETS:
Beginning of Year................................... 154,201,573 66,933,454
------------ ------------
End of Year (including undistributed net investment
income of $636,250, and $178,145,
respectively.).................................... $665,415,180 $154,201,573
============ ============
</TABLE>
- ---------------
(a) Period from July 22, 1996 (inception date) to February 28, 1997.
(b) Period from June 23, 1997 (inception date) to February 28, 1998.
See Notes to Financial Statements.
36
<PAGE> 724
PACIFIC HORIZON INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------
FEBRUARY 28, FEBRUARY 28,
1998 1997
------------ ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income............................. $ 3,224,372 $ 878,883
Net realized gains/(losses) on investment
transactions.................................... 185,294 (159,361)
Net change in unrealized
appreciation/(depreciation) on investments...... 785,462 (86,639)
----------- -----------
Change in net assets resulting from operations.... 4,195,128 632,883
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
A Shares........................................ (1,917,899) (874,813)
K Shares........................................ (19,507) (4,070)(a)
SRF Shares...................................... (1,259,022)(b) --
Net realized gains from investment transactions:
A Shares........................................ -- (93,821)
K Shares........................................ -- (7)(a)
SRF Shares...................................... -- --
----------- -----------
Change in net assets from shareholder
distributions..................................... (3,196,428) (972,711)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued....................... 68,314,617 16,917,463
Dividends reinvested.............................. 1,826,828 488,201
Cost of shares redeemed........................... (16,859,701) (6,976,214)
----------- -----------
Change in net assets from capital share
transactions...................................... 53,281,744 10,429,450
----------- -----------
Change in net assets................................ 54,280,444 10,089,622
NET ASSETS:
Beginning of Year................................. 23,269,021 13,179,399
----------- -----------
End of Year (including undistributed net
investment income of $34,547 and $4,095,
respectively)................................... $77,549,465 $23,269,021
=========== ===========
</TABLE>
- ---------------
(a) Period from July 22, 1996 (inception date) to February 28, 1997.
(b) On June 23, 1997, The Bond Fund of Seafirst Retirement Funds withdrew its
investments in Master Investment Trust Series I and merged its assets with
the Intermediate Bond Fund creating a new class of SRF Shares on that date.
See Notes to Financial Statements.
37
<PAGE> 725
PACIFIC HORIZON FUNDS, INC.
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 -- GENERAL
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, 1998, the Company
operated as a series company comprised of seventeen funds. The accompanying
financial statements and notes are those of the Pacific Horizon Asset Allocation
Fund (the "Asset Allocation Fund"), Pacific Horizon Blue Chip Fund (the "Blue
Chip Fund"), and Pacific Horizon Intermediate Bond Fund (the "Intermediate Bond
Fund"), collectively the "Funds", individually the "Fund".
On June 23, 1997, the Seafirst Asset Allocation Fund, the Seafirst Blue Chip
Fund and the Seafirst Bond Fund were reorganized with the Asset Allocation Fund,
the Blue Chip Fund and the Intermediate Bond Fund, respectively, pursuant to a
tax free reorganization. Pursuant to the terms of the reorganization, the
Seafirst Asset Allocation Fund transferred all of its assets and liabilities,
including $27,278,341 unrealized appreciation, to the Asset Allocation Fund in
exchange for SRF Shares of the Asset Allocation Fund. In connection with the
reorganization, the Seafirst Asset Allocation Fund's shareholders received
11,715,709 SRF shares of the Asset Allocation Fund (valued at $185,025,928). The
aggregate net assets of the Asset Allocation Fund and the Seafirst Asset
Allocation Fund immediately before the reorganization were $40,269,960 and
$185,025,928, respectively. Immediately following the reorganization the net
assets of the Asset Allocation Fund were $225,295,888. Pursuant to the terms of
the reorganization, the Seafirst Blue Chip Fund transferred all of its assets
and liabilities, including $77,389,390 unrealized appreciation, to the Blue Chip
Fund in exchange for SRF Shares of the Blue Chip Fund. In connection with the
reorganization, the Seafirst Blue Chip Fund's shareholders received 13,220,970
SRF shares of the Blue Chip Fund (valued at $317,544,783). The aggregate net
assets of the Blue Chip Fund and the Seafirst Blue Chip Fund immediately before
the reorganization were $198,168,133 and $317,544,783, respectively. Immediately
following the reorganization the net assets of the Blue Chip Fund were
$515,712,916. Pursuant to the terms of the reorganization, the Seafirst Bond
Fund transferred all of its assets and liabilities, including $123,475
unrealized appreciation, to the Intermediate Bond Fund in exchange for SRF
Shares of the Intermediate Bond Fund. In connection with the reorganization, the
Seafirst Bond Fund's shareholders received 3,440,150 SRF shares of the
Intermediate Bond Fund (valued at $36,928,027). The aggregate net assets of the
Intermediate Bond Fund and the Seafirst Bond Fund immediately before the
reorganization
38
<PAGE> 726
were $29,466,360 and $36,928,027, respectively. Immediately following the
reorganization the net assets of the Intermediate Bond Fund were $66,394,387. As
a result of this reorganization the Asset Allocation Fund, the Blue Chip Fund
and the Intermediate Bond Fund began issuing three classes of shares: A shares,
K shares (effective July 22, 1996) and SRF shares. Additionally, A Shares and
SRF Shares have a Shareholder Services Plan, while K Shares have a Distribution
Plan and Administrative and Shareholder Services Plan.
The Asset Allocation Fund seeks to obtain long term growth from capital
appreciation, dividends and interest income. The Asset Allocation Fund seeks to
achieve its objective by actively allocating investments among the three major
asset categories: bonds, equity securities and cash equivalents. The Blue Chip
Fund and the Intermediate Bond Fund seek to achieve their investment objective
by investing substantially all of their assets in the Blue Chip Portfolio and
the Investment Grade Bond Portfolio, respectively (individually the "Portfolio",
collectively the "Portfolios") of the Master Investment Trust, Series I (the
"Trust"). The Trust is an open-ended management company that has the same
investment objectives as that of the Blue Chip Fund and the Intermediate Bond
Fund. The value of the Blue Chip Fund's and the Intermediate Bond Fund's
investment in the Portfolios included in the accompanying Statement of Assets
and Liabilities reflects the Funds' proportionate beneficial interest in the net
assets of the Portfolios. At February 28, 1998, the Blue Chip Fund and the
Intermediate Bond Fund held proportionate interests in the corresponding
Portfolios in the following amounts:
Blue Chip Fund.............................................................92.6%
Bond Fund..................................................................62.0%
The financial statements of each Portfolio, including its portfolio of
investments, are included elsewhere within this report and should be read in
conjunction with the Blue Chip Fund's and the Intermediate Bond Fund's financial
statements.
Prior to June 23, 1997, the Asset Allocation Fund sought to achieve its
investment objective by investing substantially all of its assets in the Asset
Allocation Portfolio of the Trust, which had the same investment objective as
that of the Fund. Effective June 23, 1997, the Fund withdrew its investment in
the Asset Allocation Portfolio and began investing its assets directly in
securities.
Bank of America National Trust and Savings Association ("Bank of America"),
a subsidiary of BankAmerica Corporation, serves as the Fund's investment
advisor. On September 15, 1997, Bank of America assumed the responsibility of
administrator for each of the Funds pursuant to the terms of an
39
<PAGE> 727
Administration Agreement between the Company and Bank of America (the
"Administration Agreement"). Prior to September 15, 1997, the BISYS Group, Inc.
("BISYS"), through its wholly-owned subsidiary BISYS Fund Services, Limited
Partnership, served as the Funds' administrator.
Bank of America has entered into an agreement with PFPC, Inc.("PFPC"), an
indirect wholly-owned subsidiary of PNC Bank Corp., pursuant to which PFPC has
agreed to provide certain sub-administration services to the Funds, including,
among other things, assisting in the developing and monitoring of compliance
procedures, participating in periodic updating of the Funds' prospectuses and
statements of additional information, providing periodic reports to the
Company's Board and providing certain record-keeping services. Bank of America
will bear all fees and expenses charged by PFPC for such services.
Furthermore, pursuant to authority granted in the Administration Agreement,
Bank of America has entered into an agreement with PFPC under which PFPC has
agreed to provide certain accounting, bookkeeping, pricing and dividend and
distribution calculation services for the Funds. The Funds bear all fees and
expenses charged by PFPC for these services.
DISTRIBUTOR AND TRANSFER AGENT
Effective September 15, 1997, Provident Distributors, Inc. ("PDI"), assumed
responsibility as principal underwriter and distributor of shares of the Funds.
Prior to such date, Concord Financial Group, Inc. (the "Former Distributor"),
also a wholly-owned subsidiary of BISYS, served as distributor of the Funds.
Additionally, on October 24, 1997, PFPC assumed responsibility as the Funds'
transfer agent and dividend disbursing agent. BISYS Fund Services, Inc. ("BISYS
Ohio"), also a wholly-owned subsidiary of BISYS, served the Funds in such
capacity prior to such date.
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. These policies are
in conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those of estimates.
PORTFOLIO VALUATIONS:
The Asset Allocation Fund values portfolio securities (other than debt
securities with remaining maturities of 60 days or less) at the last reported
sales price
40
<PAGE> 728
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 Blue Chip Fund's and Intermediate Bond
Fund's investments in the Portfolios are discussed in Note 2 of the Portfolios.
SECURITIES TRANSACTIONS AND RELATED INCOME:
Subsequent to June 23, 1997, the Asset Allocation 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 Blue Chip Fund, Intermediate Bond Fund, and prior to June 23, 1997, the
Asset Allocation Fund, record their 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
41
<PAGE> 729
the date income is earned or expenses and realized and unrealized gains and
losses are incurred.
The Funds incurred certain costs in connection with their organization. Such
costs have been deferred and are being amortized on a straight line basis over
five years.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
The Asset Allocation Fund and Blue Chip Fund net investment income is
declared and paid as a dividend, quarterly, to shareholders of record at the
close of business on record date. The Intermediate Bond Fund's net investment
income is declared monthly and paid within five business days after the end of
each month as a dividend to shareholders of record. Net realized gains on
portfolio securities, if any, are distributed at least annually. However, to the
extent that net realized gains 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, 1998, the following reclassifications have been made to
increase (decrease) such accounts with offsetting adjustments made to paid-in
capital due to reclassification of paydowns:
<TABLE>
<CAPTION>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED NET REALIZED
NET INVESTMENT GAIN/(LOSS)
INCOME ON INVESTMENTS
-------------- --------------
<S> <C> <C>
Asset Allocation Fund............................. $(62,991) $62,991
Intermediate Bond Fund............................ 2,508 (2,508)
</TABLE>
42
<PAGE> 730
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 Intermediate Bond Fund utilized $160,488 of its
available capital loss carryover to offset realized capital gains for Federal
income tax purposes.
NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
The Asset Allocation Fund has an Investment Advisory Agreement with Bank of
America. The Funds have Administration Agreement with Bank of America and a
Distribution Agreement with PDI. For the period ended September 15, 1997, the
Funds had an Administration Agreement with BISYS and a Distribution Agreement
with the Former Distributor.
Pursuant to the terms of the Investment Advisory Agreement, Bank of America
is entitled to a fee from the Asset Allocation Fund which is accrued daily and
payable monthly, at an annual rate of 0.40% of the average daily net assets.
Pursuant to the terms of the Administration Agreement, Bank of America is
entitled to a fee, which is accrued daily and payable monthly, at an annual rate
of 0.15% of the average daily net assets of the Funds. For the period March 1,
1997 through September 15, 1997, the Funds had an Administration Agreement with
BISYS. Administration fees paid to BISYS were at the same rate as those
currently paid to Bank of America. For the period ended February 28, 1998, Bank
of America waived $4,035 of administration fees for the Intermediate Bond Fund.
For the period ended September 15, 1997, BISYS agreed to waive $17,413, $73,397
and $35,332 of its fees as Administrator for the Asset Allocation Fund, Blue
Chip Fund and the Intermediate Bond Fund, respectively.
For the year ended February 28, 1998, PDI and the Former Distributor advised
the Funds that it retained $10,024, $91,344 and $505 from commissions earned on
sales of shares of the Asset Allocation Fund, Blue Chip Fund and Intermediate
Bond Fund, respectively. For the same period, Bank of America and its affiliates
advised the Funds that they retained $80,281, $709,034 and $3,950 from
commissions earned on sales of shares of the Asset Allocation Fund, Blue Chip
Fund and Intermediate Bond Fund, respectively.
The Funds have a Shareholder Services Plan (the "Plan") under which each
Fund pays PDI and the Former Distributor for shareholder servicing expenses
43
<PAGE> 731
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, 1998, Asset Allocation
Fund, Blue Chip Fund and Intermediate Bond Fund incurred charges of $103,328,
$539,237 and $85,538, respectively, pursuant to the Plan. The Funds were advised
that of these amounts, PDI and the Former Distributor retained $3,724, $32,170
and $9,818 from the Asset Allocation Fund, Blue Chip Fund and Intermediate Bond
Fund, respectively, and affiliates of Bank of America retained $86,340, $476,702
and $40,786, respectively. For the same period, shareholder services fee of
$2,708 and $26,307 were waived by the Asset Allocation Fund and the Intermediate
Bond Fund, respectively. The Plan provides that if, in any month, the fees paid
to PDI and the Former Distributor are less than the costs incurred by PDI and
the Former 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 paid PDI and the Former
Distributor for expenses primarily intended to result in the sale of the Funds'
K Shares. Under the Distribution Plan, payments by the Funds for 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
PDI and the Former 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 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 year ended February 28, 1998, the Asset Allocation
Fund, Blue Chip Fund and the Intermediate Bond Fund incurred charges of $7,389,
$25,319 and $3,095, respectively, pursuant to the Distribution and
Administrative Plans. For the year ended February 28, 1998, PDI and the Former
Distributor retained $1,393 and $462 for the Asset Allocation Fund and
Intermediate Bond Fund, respectively. For the year ended February 28, 1998,
shareholder services and administrative services fees of $59 and $359 were
waived by the Asset Allocation Fund and Intermediate Bond Fund, respectively.
44
<PAGE> 732
The Funds have a Shareholder Services Plan under which the Funds pay PDI and
the Former Distributor for shareholder servicing expenses incurred in connection
with the SRF shares. Under the Services Plan, payments for shareholder servicing
expenses may not exceed 0.25% of the Funds' average daily net assets for SRF
shares. For the year ended February 28, 1998, Asset Allocation Fund, Blue Chip
Fund and Intermediate Bond Fund incurred charges of $325,357, $576,234 and
$62,182, pursuant to the Services Plan. The Funds were advised that of these
amounts the affiliates of Bank of America retained $313,527, $140,129 and
$55,252. For the same period, shareholder services fees of $11,816, $436,105 and
$6,406 were waived by The Asset Allocation Fund, Blue Chip Fund and Intermediate
Bond Fund, respectively.
From the period October 24, 1997 through February 28, 1998, PFPC earned
$11,481, $161,721 and $5,319 from the Asset Allocation, Blue Chip and
Intermediate Bond Funds, respectively, for the transfer agency and dividend
disbursing agency services performed. BISYS Ohio served the Funds as transfer
agent and dividend disbursing agent for the period ended October 24, 1997. In
these capacities, BISYS Ohio earned $54,040, $170,811 and $28,597 from the Asset
Allocation Fund, Blue Chip Fund and Intermediate Bond Fund, respectively, for
the period ended October 24, 1997.
For the year ended February 28, 1998, the Asset Allocation Fund, Blue Chip
Fund and Intermediate Bond Fund incurred legal charges totaling $1,537, $14,066
and $9,384, 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 PFPC. 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 $50,000,
plus $1,000 for each day the director participates in all or part of a Board or
Committee meeting. 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 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
45
<PAGE> 733
Company during the year of such payment. A Director will receive an additional
10% of their annual Director's retainer for each year of service between years
six and nine, plus one half of the difference between 100% and the director's
applicable percentage. A Director who dies or resigns after ten 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 after February 28, 1994; however, a director in office on March
18, 1998 who either resigns in good standing or dies before completing five
years of service as a director should be assigned an Applicable Percentage of 50
percent. Aggregate costs pursuant to the Retirement Plan amounted to $1,663,
$753 and $251 for the Asset Allocation Fund, Blue Chip Fund and Intermediate
Bond Fund, respectively, for the year ended February 28, 1998. A director who
comes into office after March 18, 1998 is ineligible to participate in the
Retirement Plan.
NOTE 5 -- SECURITIES TRANSACTIONS
For the year ended February 28, 1998, the cost of purchases and the proceeds
from sales of Asset Allocation Fund's securities (excluding short-term
investments) amounted to $179,165,420 and $188,155,070, respectively.
46
<PAGE> 734
NOTE 6 -- CAPITAL SHARE TRANSACTIONS
Transactions in shares of common stock of the Funds are summarized below:
<TABLE>
<CAPTION>
ASSET ALLOCATION FUND
-------------------------------------------
YEAR ENDED YEAR ENDED
FEBRUARY 28, 1998 FEBRUARY 28, 1997
--------------------- ------------------
SHARES AMOUNT SHARES AMOUNT
------- ---------- ------ --------
<S> <C> <C> <C> <C>
A Shares (000's)
Issued............................ 734 $ 14,942 825 $ 15,144
Reinvested........................ 211 4,243 90 1,632
Redeemed.......................... (441) (8,989) (395) (7,251)
------- ---------- ------ --------
Net increase........................ 504 $ 10,196 520 $ 9,525
======= ========== ====== ========
K Shares
Issued............................ 58,580 $1,194,200 37,991 $724,963
Reinvested........................ 4,918 99,023 1,051 19,438
Redeemed.......................... (24,034) (485,133) (491) (9,394)
------- ---------- ------ --------
Net increase........................ 39,464 $ 808,090 38,551(a) $735,007(a)
======= ========== ====== ========
SRF Shares (000)(b)
Issued............................ 12,164 $ 192,302 -- $ --
Reinvested........................ 797 12,637 -- --
Redeemed.......................... (1,120) (18,235) -- --
------- ---------- ------ --------
Net Increase........................ 11,841 $ 186,704 -- $ --
======= ========== ====== ========
</TABLE>
- ---------------
(a) Period from July 22, 1996 (inception date) to February 28, 1997.
(b) Period from June 23, 1997 (inception date) to February 28, 1998.
47
<PAGE> 735
<TABLE>
<CAPTION>
BLUE CHIP FUND
---------------------------------------------
YEAR ENDED YEAR ENDED
FEBRUARY 28, 1998 FEBRUARY 28, 1997
--------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
------- ---------- ------ ----------
<S> <C> <C> <C> <C>
A Shares (000's)
Issued........................... 4,831 $ 131,727 3,838 $ 86,308
Reinvested....................... 835 22,562 152 3,409
Redeemed......................... (2,082) (56,813) (1,193) (27,364)
------- ---------- ------ ----------
Net increase....................... 3,584 $ 97,476 2,797 $ 62,353
======= ========== ====== ==========
K Shares
Issued........................... 186,266 $5,146,299 57,851 $1,458,223
Reinvested....................... 14,517 392,327 405 9,313
Redeemed......................... (28,532) (785,092) (561) (13,822)
------- ---------- ------ ----------
Net increase....................... 172,251 $4,753,534 57,695(a) $1,453,714(a)
======= ========== ====== ==========
SRF Shares(000's)(b)
Issued........................... 14,066 $ 338,628 -- $ --
Reinvested....................... 875 21,300 -- --
Redeemed......................... (981) (24,519) -- --
------- ---------- ------ ----------
Net increase....................... 13,960 $ 335,409 -- $ --
======= ========== ====== ==========
</TABLE>
- ---------------
(a) Period from July 22, 1996 (inception date) to February 28, 1997.
(b) Period from June 23, 1997 (inception date) to February 28, 1998.
<TABLE>
<CAPTION>
INTERMEDIATE BOND FUND
-------------------------------------------
YEAR ENDED YEAR ENDED
FEBRUARY 28, 1998 FEBRUARY 28, 1997
--------------------- ------------------
SHARES AMOUNT SHARES AMOUNT
------- ---------- ------ --------
<S> <C> <C> <C> <C>
A Shares (000's)
Issued............................ 3,051 $ 29,325 1,730 $ 16,588
Reinvested........................ 52 496 51 485
Redeemed.......................... (1,184) (11,407) (728) (6,976)
------- ---------- ------ --------
Net increase........................ 1,919 $ 18,414 1,053 $ 10,097
======= ========== ====== ========
K Shares
Issued............................ 34,286 $ 329,306 34,567 $329,738
Reinvested........................ 1,822 17,516 285 2,728
Redeemed.......................... (18,168) (174,117) (1) (1)
------- ---------- ------ --------
Net increase........................ 17,940 $ 172,705 34,851(a) $332,465(a)
======= ========== ====== ========
SRF Shares(000's)(b)
Issued............................ 3,617 $ 38,661 -- $ --
Reinvested........................ 104 1,313 -- --
Redeemed.......................... (487) (5,279) -- --
------- ---------- ------ --------
Net increase........................ 3,234 $ 34,695 -- $ --
======= ========== ====== ========
</TABLE>
- ---------------
(a) Period from July 22, 1996 (inception date) to February 28, 1997.
(b) Period from June 23, 1997 (inception date) to February 28, 1998.
48
<PAGE> 736
PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD
--------------------------------------------------------- ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997(b) 1996 1995 1994(a)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
A SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF PERIOD............. $ 19.40 $ 17.52 $ 15.15 $ 14.84 $ 15.00
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income........... 0.52 0.48 0.52 0.48 0.03
Net realized and unrealized
gains (losses) on investment
transactions.................. 3.72 2.50 2.86 0.24 (0.19)
------- ------- ------- ------- -------
Total income (loss) from
investment operations........... 4.24 2.98 3.38 0.72 (0.16)
------- ------- ------- ------- -------
Less Dividends and Distributions:
Dividends to shareholders from
net investment income......... (0.47) (0.46) (0.53) (0.41) --
Dividends to shareholders from
net realized gains on
investment transactions....... (1.76) (0.64) (0.48) -- --
------- ------- ------- ------- -------
Total Dividends and
Distributions................... (2.23) (1.10) (1.01) (0.41) --
------- ------- ------- ------- -------
Net change in net asset value per
share........................... 2.01 1.88 2.37 0.31 (0.16)
------- ------- ------- ------- -------
NET ASSET VALUE PER SHARE, END OF
PERIOD.......................... $ 21.41 $ 19.40 $ 17.52 $ 15.15 $ 14.84
======= ======= ======= ======= =======
Total return (excludes sales
charge)......................... 23.07% 17.64% 22.80% 5.03% (1.07%)(double dagger)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period
(000)......................... $49,240 $34,838 $22,355 $ 5,694 $ 666
Ratio of expenses to average net
assets........................ 1.03% 1.25% 0.62% 0.00% 0.00%(dagger)
Ratio of net investment income
(loss) to average net
assets........................ 2.67% 2.59% 3.49% 4.25% 4.20%(dagger)
Ratio of expenses to average net
assets*....................... 1.09% 1.94% 2.92% 7.89% 83.95%(dagger)
Ratio of net investment income
to average net assets*........ 2.61% 1.90% 1.19% (3.64%) (79.75%)(dagger)
Portfolio turnover rate......... 67% 116% 157% 142% 67%
Average commission rate
paid(c)....................... $0.0615 $0.0440 -- -- --
</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.
(dagger) Annualized.
(double dagger) Not annualized.
(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.
(c) Represents the dollar amounts 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.
49
<PAGE> 737
PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
FEBRUARY 28, FEBRUARY 28,
1998 1997(a)
------------ -------------
<S> <C> <C>
K SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD........... $ 19.40 $ 17.23
------- -------
Income from Investment Operations:
Net investment income.................................. 0.41 0.19
Net realized gains/(losses) on investment
transactions......................................... 3.66 2.80
------- -------
Total income from investment operations.................. 4.07 2.99
------- -------
Less: Dividends and Distributions:
Dividends to shareholders from net investment income... (0.36) (0.18)
Distributions to shareholders from net realized gains
on investment transactions........................... (1.75) (0.64)
------- -------
Total Dividends and Distributions........................ (2.11) (0.82)
------- -------
Net change in net asset value per share.................. 1.96 2.17
------- -------
NET ASSET VALUE PER SHARE, END OF PERIOD................. $ 21.36 $ 19.40
======= =======
Total return............................................. 22.10% 17.69%(double dagger)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000)...................... $ 1,667 $ 748
Ratio of expenses to average net assets................ 1.52% 1.94%(dagger)
Ratio of net investment income to average net assets... 2.17% 2.31%(dagger)
Ratio of expenses to average net assets*............... 1.58% 3.26%(dagger)
Ratio of net investment income to average net
assets*.............................................. 2.11% 0.99%(dagger)
Portfolio turnover rate................................ 67% 116%
Average commission rate paid(b)........................ $0.0615 $0.0440
</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.
(dagger) Annualized.
(double dagger) Not annualized.
(a) Period from July 22, 1996 (inception date) to February 28,
1997.
(b) Represents the dollar amounts 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.
50
<PAGE> 738
PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
JUNE 23,
1997(a)
THROUGH
FEBRUARY 28,
1998
--------------
<S> <C>
SRF SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD.............. $ 15.79
--------
Income from Investment Operations:
Net investment income..................................... 0.30
Net realized and unrealized gains (losses) on investment
transactions............................................ 1.65
--------
Total income from investment operations..................... 1.95
--------
Less Dividends and Distributions:
Dividends to shareholders from net investment income...... (0.24)
Distributions to shareholders from net realized gains..... (0.87)
--------
Total Dividends and Distributions........................... (1.11)
--------
Net change in net asset value per share..................... 0.84
--------
NET ASSET VALUE PER SHARE, END OF PERIOD.................... $ 16.63
========
Total Return................................................ 13.56%(double dagger)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........................... $196,892
Ratio of expenses to average net assets................... 0.95%(dagger)
Ratio of net investment income (loss) to average net
assets.................................................. 2.73%(dagger)
Ratio of expenses to average net assets*.................. 0.97%(dagger)
Ratio of net investment income to average net assets*..... 2.71%(dagger)
Portfolio turnover rate................................... 67%(double dagger)
Average commission rate paid(b)........................... $ 0.0615
</TABLE>
- ---------------
<TABLE>
<C> <S>
* 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.
(dagger) Annualized.
(double dagger) Not Annualized.
(a) Date of commencement of operations of SRF Shares of the
Fund.
(b) Represents the dollar amounts 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.
51
<PAGE> 739
PACIFIC HORIZON BLUE CHIP FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997(a) 1996 1995 1994(b)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
A SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR............... $ 25.22 $ 20.53 $ 15.81 $ 14.97 $ 15.00
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income........... 0.16 0.23 0.26 0.31 0.02
Net realized and unrealized
gains (losses) on investment
transactions.................. 7.91 5.21 4.96 0.80 (0.05)
-------- -------- -------- -------- --------
Total income (loss) from
investment operations........... 8.07 5.44 5.22 1.11 (0.03)
-------- -------- -------- -------- --------
Less Dividends and Distributions:
Dividends to shareholders from
net investment income......... (0.15) (0.22) (0.28) (0.27) --
Dividends to shareholders from
net realized gains on
investment transactions....... (3.24) (0.53) (0.22) -- --
-------- -------- -------- -------- --------
Total Dividends and
Distributions................... (3.39) (0.75) (0.50) (0.27) --
-------- -------- -------- -------- --------
Net change in net asset value per
share........................... 4.68 4.69 4.72 0.84 (0.03)
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END OF
YEAR............................ $ 29.90 $ 25.22 $ 20.53 $ 15.81 $ 14.97
======== ======== ======== ======== ========
Total return (excludes sales
charge)......................... 33.96% 27.01% 33.39% 7.60% (0.20)%(double dagger)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions).................... $ 288 $ 153 $ 67 $ 6 $ 1
Ratio of expenses to average net
assets........................ 1.18% 1.28% 0.83% 0.00% 0.00%(dagger)
Ratio of net investment income
to average net assets......... 0.63% 0.99% 1.63% 2.46% 2.92%(dagger)
Ratio of expenses to average net
assets*....................... 1.22% 1.71% 2.28% 6.32% 55.00%(dagger)
Ratio of net investment
income/(loss) to average net
assets*....................... 0.59% 0.56% 0.18% (3.86%) (52.08%)(dagger)
</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.
(dagger) Annualized.
(double dagger) Not annualized.
(a) As of July 22, 1996, the Fund designated the existing series
of shares as "A" Shares.
(b) Period from January 13, 1994 (inception date) to February
28, 1994.
</TABLE>
See Notes to Financial Statements.
52
<PAGE> 740
PACIFIC HORIZON BLUE CHIP FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD
YEAR ENDED ENDED
FEBRUARY 28, FEBRUARY 28,
1998 1997(a)
------------ ------------
<S> <C> <C>
K SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD......... $25.20 $20.38
------ ------
Income from Investment Operations:
Net investment income................................ 0.04 0.07
Net realized gains on investment transactions........ 7.83 5.35
------ ------
Total income from investment operations................ 7.87 5.42
------ ------
Less: Dividends and Distributions:
Dividends to shareholders from net investment
income............................................. (0.04) (0.07)
Distributions to shareholders from net realized gains
on investment transactions......................... (3.24) (0.53)
------ ------
Total Dividends and Distributions...................... (3.28) (0.60)
------ ------
Net change in net asset value per share................ 4.59 4.82
------ ------
NET ASSET VALUE PER SHARE, END OF PERIOD............... $29.79 $25.20
====== ======
Total return........................................... 33.08% 26.96%(double dagger)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (millions)............... $7 $1
Ratio of expenses to average net assets.............. 1.67% 1.92%(dagger)
Ratio of net investment income to average net
assets............................................. 0.12% 0.45%(dagger)
Ratio of expenses to average net assets*............. 1.69% 2.12%(dagger)
Ratio of net investment income to average net
assets*............................................ 0.10% 0.25%(dagger)
</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.
(dagger) Annualized.
(double dagger) Not annualized.
(a) Period from July 22, 1996 (inception date) to February 28,
1997.
</TABLE>
See Notes to Financial Statements.
53
<PAGE> 741
PACIFIC HORIZON BLUE CHIP FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE
PERIOD
JUNE 23,
1997(a) THROUGH
FEBRUARY 28,
1998
---------------
<S> <C>
SRF SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF YEAR................ $ 24.02
------------
Income from Investment Operations:
Net investment income..................................... 0.14
Net realized and unrealized gains (losses) on investment
transactions............................................ 3.99
------------
Total income from investment operations..................... 4.13
------------
Less Dividends and Distributions:
Dividends to shareholders from net investment income...... (0.12)
Distributions to shareholders from net realized gains..... (1.50)
------------
Total Dividends and Distributions........................... (1.62)
------------
NET CHANGE IN NET ASSET VALUE PER SHARE..................... 2.51
------------
Net asset value per share, end of year...................... $ 26.53
============
Total Return................................................ 19.30%(double dagger)
RATIO/SUPPLEMENTAL DATA:
Net assets, end of year (millions)........................ $ 370
Ratio of expenses to average net assets................... 0.95%(dagger)
Ratio of net investment income to average net assets...... 0.81%(dagger)
Ratio of expenses to average net assets*.................. 1.15%(dagger)
Ratio of net investment income to average net assets*..... 0.61%(dagger)
</TABLE>
- ---------------
* 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) Date of commencement of operations of SRF Shares of the Fund.
(dagger) Annualized.
(double dagger) Not annualized.
See Notes to Financial Statements.
54
<PAGE> 742
PACIFIC HORIZON INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD
------------------------------------------------------------- ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997(b) 1996 1995 1994(a)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
A SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF PERIOD............... $ 9.54 $ 9.75 $ 9.44 $ 9.81 $ 10.00
------- ------- ------- ------ -------
Income from Investment Operations:
Net investment income............. 0.49 0.52 0.59 0.59 0.08
Net realized and unrealized gain
(loss) on investment
transactions.................... 0.20 (0.15) 0.33 (0.37) (0.19)
------- ------- ------- ------ -------
Total income gain (loss) from
investment operations............. 0.69 0.37 0.92 0.22 (0.11)
------- ------- ------- ------ -------
Less Dividends and Distributions:
Dividends to shareholders from net
investment income............... (0.51) (0.52) (0.59) (0.59) (0.08)
Dividends to shareholders from net
realized gains on investment
transactions.................... (0.03) (0.06) (0.02) -- --
------- ------- ------- ------ -------
Total Dividends and
Distributions..................... (0.54) (0.58) (0.61) (0.59) (0.08)
------- ------- ------- ------ -------
Net change in net asset value per
share............................. 0.15 (0.21) 0.31 (0.37) (0.19)
------- ------- ------- ------ -------
NET ASSET VALUE PER SHARE, END OF
PERIOD............................ $ 9.69 $ 9.54 $ 9.75 $ 9.44 $ 9.81
======= ======= ======= ====== =======
Total return (excludes sales
charge)........................... 7.40% 3.92% 10.45% 2.27% (1.10%)(double dagger)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period
(000)........................... $41,875 $22,937 $13,179 $1,964 $ 356
Ratio of expenses to average net
assets.......................... 0.90% 0.75% 0.27% 0.00% 0.00%(dagger)
Ratio of net investment income to
average net assets.............. 5.50% 5.45% 6.13% 6.43% 5.70%(dagger)
Ratio of expenses to average net
assets*......................... 1.21% 2.26% 5.00% 17.95% 160.20%(dagger)
Ratio of net investment income
(loss) to average net assets*... 5.19% 3.94% 1.40% (11.52)% (154.50%)(dagger)
</TABLE>
- ---------------
<TABLE>
<C> <S>
* 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.
(dagger) Annualized.
(double dagger) Not Annualized.
(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.
55
<PAGE> 743
PACIFIC HORIZON INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
FEBRUARY 28, FEBRUARY 28,
1998 1997(a)
------------ ------------
<S> <C> <C>
K SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD....... $9.54 $9.53
----- -----
Income from Investment Operations:
Net investment income.............................. 0.44 0.31
Net realized and unrealized gain on investments.... 0.19 0.07
----- -----
Total income from investment operations............ 0.63 0.38
----- -----
Less Dividends and Distributions:
Dividends to shareholders from net investment
income........................................... (0.42) (0.31)
Distributions to shareholders from net realized
gains on investments............................. (0.03) (0.06)
----- -----
Total Dividends and Distributions.................... (0.45) (0.37)
----- -----
Net change in net asset value per share.............. 0.18 0.01
----- -----
NET ASSET VALUE PER SHARE, END OF PERIOD............. $9.72 $9.54
===== =====
Total return......................................... 6.80% 3.73%(c)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000).................. $ 513 $ 332
Ratio of expenses to average net assets............ 1.39% 1.43%(b)
Ratio of net investment income to average net
assets........................................... 4.99% 5.41%(b)
Ratio of expenses to average net assets*........... 1.73% 2.71%(b)
Ratio of net investment income to average net
assets*.......................................... 4.65% 4.13%(b)
</TABLE>
- ---------------
<TABLE>
<S> <C>
* 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.
(b) Annualized.
(c) Not annualized.
</TABLE>
See Notes to Financial Statements.
56
<PAGE> 744
PACIFIC HORIZON INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE
PERIOD
JUNE 23,
1997(a) THROUGH
FEBRUARY 28,
1998
---------------
<S> <C>
SRF SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD.............. $ 10.72
-------
Income from Investment Operations:
Net investment income..................................... 0.40
Net realized and unrealized gain (loss) on investment
transactions............................................ 0.13
-------
Total income gain (loss) from investment operations......... 0.53
-------
Less Dividends and Distributions:
Dividends to shareholders from net investment income...... (0.38)
Distributions to shareholders from net realized gains..... --
-------
Total Dividends and Distributions........................... (0.38)
-------
Net change in net asset value per share..................... 0.15
-------
NET ASSET VALUE PER SHARE, END OF PERIOD.................... $ 10.87
=======
Total Return................................................ 4.86%(c)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........................... $35,161
Ratio of expenses to average net assets................... 0.95%(b)
Ratio of net investment income (loss) to average net
assets.................................................. 5.45%(b)
Ratio of expenses to average net assets*.................. 1.07%(b)
Ratio of net investment income to average net assets*..... 5.33%(b)
</TABLE>
- ---------------
<TABLE>
<S> <C>
* 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) Date of commencement of operations of SRF Shares of the
Fund.
(b) Annualized.
(c) Not Annualized.
</TABLE>
See Notes to Financial Statements.
57
<PAGE> 745
- --------------------------------------------------------------------------------
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 portfolios 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 Asset
Allocation Fund, Pacific Horizon Blue Chip Fund and Pacific Horizon Intermediate
Bond Fund (three of the seventeen portfolios constituting Pacific Horizon Funds,
Inc., hereafter referred to as the "Funds") at February 28, 1998, 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, 1998 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide
a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
April 21, 1998
58
<PAGE> 746
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
BANK NOTES -- 3.3%
DOMESTIC -- 2.5%
American Express Centurion Bank Monthly
Variable Rate (final maturity
4/15/98)*............................. A1/P1 5.595% 03/16/98 $ 50,000,000 $ 50,000,000
American Express Centurion Bank Monthly
Variable Rate (final maturity
6/26/98)*............................. A1/P1 5.595% 03/26/98 25,000,000 25,000,000
The Bank of New York................... A1+/P1 6.100% 05/22/98 25,000,000 24,994,107
Bank One Wisconsin N.A................. A1+/P1 5.550% 02/26/99 25,000,000 24,966,726
Huntington National Bank............... A1/P1 5.940% 08/31/98 50,000,000 49,985,629
Key Bank N.A., Monthly Variable Rate
(final maturity 9/23/98)*............. A1/P1 5.495% 03/23/98 22,000,000 21,986,550
PNC Bank N.A........................... A1/P1 6.050% 05/28/98 20,000,000 19,996,838
Union Planters National Bank........... P1/TBW1 6.290% 08/20/98 23,470,000 23,542,622
--------------
Total Domestic Bank Notes............... 240,472,472
--------------
FOREIGN -- 0.8%
Abbey National Treasury Services,
PLC................................... A1+/P1 6.000% 06/17/98 50,000,000 49,999,150
</TABLE>
- ---------------
See Notes to Financial Statements.
82
<PAGE> 747
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
BANK NOTES -- (CONTINUED)
FOREIGN -- (CONTINUED)
General Motors Acceptance Corp......... A1/P1 7.500% 05/26/98 $ 30,000,000 $ 30,129,754
--------------
Total Foreign Bank Notes................ 80,128,904
--------------
Total Bank Notes
(Amortized Cost $320,601,376).......... 320,601,376
--------------
CERTIFICATES OF DEPOSIT -- 16.6%
DOMESTIC -- 4.1%
Bankers Trust Company, Daily Variable
Rate (final maturity 07/21/98)*....... A1/P1 5.650% 03/02/98 25,000,000 24,995,305
Bankers Trust Company, Weekly Variable
Rate (final maturity 07/07/98)*....... A1/P1 5.679% 03/04/98 50,000,000 49,988,154
Bankers Trust Company, Weekly Variable
Rate (final maturity 10/7/98)*........ A1/P1 5.859% 03/04/98 50,000,000 50,000,000
Crestar Bank........................... A1/P1 5.800% 04/08/98 50,000,000 50,000,000
Crestar Bank........................... A1/P1 5.560% 05/27/98 50,000,000 50,000,000
Crestar Bank........................... A1/P1 5.860% 06/15/98 25,000,000 25,000,000
Crestar Bank........................... A1/P1 5.860% 07/20/98 50,000,000 49,996,305
Crestar Bank........................... A1/P1 5.920% 10/16/98 50,000,000 49,982,008
Morgan Guaranty Trust Company.......... A1+/P1 5.800% 07/28/98 25,000,000 24,996,092
Morgan Guaranty Trust Company.......... A1+/P1 5.870% 08/06/98 25,000,000 24,996,895
--------------
399,954,759
--------------
EURO -- 1.0%
Bank of Tokyo Mitsubishi, London
Branch................................ A1/P1 6.040% 05/11/98 25,000,000 25,000,486
Bayerische Landesbank Girozentrale,
London Branch......................... A1+/P1 5.810% 06/03/98 25,000,000 24,999,247
</TABLE>
- ---------------
See Notes to Financial Statements.
83
<PAGE> 748
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
CERTIFICATES OF DEPOSIT -- (CONTINUED)
EURO -- (CONTINUED)
Istituto Bancario San Paolo Di Torino,
London................................ A1/P1 5.750% 04/14/98 $ 25,000,000 $ 25,000,594
Istituto Bancario San Paolo Di Torino,
London................................ A1/P1 5.840% 06/05/98 25,000,000 25,000,648
--------------
100,000,975
--------------
YANKEE -- 11.5%
Bank of Tokyo Mitsubishi, New York..... A1/P1 6.500% 03/04/98 50,000,000 50,000,000
Bank of Tokyo Mitsubishi, New York..... A1/P1 5.900% 04/28/98 25,000,000 25,000,000
Bank of Tokyo Mitsubishi, New York..... A1/P1 5.960% 04/30/98 25,000,000 25,000,000
Banque National de Paris, Chicago...... A1/P1 5.970% 07/01/98 25,000,000 24,993,614
Banque National de Paris, Chicago...... A1/P1 5.890% 07/21/98 25,000,000 24,997,028
Banque National de Paris, Chicago...... A1/P1 5.800% 07/31/98 25,000,000 24,995,018
Banque Paribas, New York............... A1/P1 5.660% 03/01/99 90,000,000 89,956,856
BHF Bank of Aktiengesellschaft, New
York, Monthly Variable Rate (final
maturity 8/13/98)*.................... A1/P1 5.555% 03/13/98 50,000,000 49,991,203
Canadian Imperial Bank of Commerce, New
York.................................. A1+/P1 5.865% 08/11/98 25,000,000 24,990,926
Canadian Imperial Bank of Commerce, New
York.................................. A1+/P1 5.880% 10/14/98 50,000,000 49,985,130
Deutsche Bank A.G., New York........... A1+/P1 5.940% 10/22/98 25,000,000 24,990,770
Istituto Bancario San Paolo Di Torino,
New York.............................. A1/P1 5.840% 06/15/98 75,000,000 75,051,980
</TABLE>
- ---------------
See Notes to Financial Statements.
84
<PAGE> 749
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
CERTIFICATES OF DEPOSIT -- (CONTINUED)
YANKEE -- (CONTINUED)
Istituto Bancario San Paolo Di Torino,
New York.............................. A1/P1 5.870% 07/20/98 $ 50,000,000 $ 49,994,458
Landesbank Hessen-Thuringen
Girozentrale, New York................ A1+/P1 5.940% 06/19/98 25,000,000 24,995,679
National Bank of Canada, New York...... A1/P1 6.150% 05/15/98 44,000,000 43,995,319
National Bank of Canada, New York...... A1/P1 6.140% 06/05/98 25,000,000 24,998,679
Royal Bank of Canada, New York......... A1+/P1 5.650% 03/03/98 80,000,000 79,999,376
Royal Bank of Canada, New York......... A1+/P1 5.630% 02/26/99 50,000,000 49,966,279
Societe Generale Bank, New York........ A1+/P1 5.910% 10/15/98 25,000,000 24,992,534
Societe Generale Bank, New York........ A1+/P1 5.660% 02/26/99 50,000,000 49,985,739
Societe Generale Bank, New York........ A1+/P1 5.700% 02/26/99 50,000,000 49,980,995
Societe Generale Bank, New York........ A1+/P1 5.690% 03/02/99 50,000,000 49,976,050
Societe Generale Bank, New York, Daily
Variable Rate (final maturity
1/22/99)*............................. A1+/P1 5.710% 03/02/98 25,000,000 24,989,187
Societe Generale Bank, New York, Daily
Variable Rate (final maturity
10/23/98)*............................ A1+/P1 5.690% 03/02/98 50,000,000 49,981,269
Societe Generale Bank, New York, Daily
Variable Rate (final maturity
6/16/98)*............................. A1+/P1 5.700% 03/02/98 25,000,000 24,995,754
Societe Generale Bank, New York, Daily
Variable Rate (final maturity
8/25/98)*............................. A1+/P1 5.700% 03/02/98 25,000,000 24,992,976
</TABLE>
- ---------------
See Notes to Financial Statements.
85
<PAGE> 750
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
CERTIFICATES OF DEPOSIT -- (CONTINUED)
YANKEE -- (CONTINUED)
Westdeutsche Landesbank Girozentrole,
New York.............................. A1+/P1 5.780% 07/31/98 $ 35,000,000 $ 34,996,687
Westpac Banking Corp., New York........ A1+/P1 5.930% 08/12/98 25,000,000 24,995,704
--------------
1,123,789,210
--------------
Total Certificates of Deposit (Amortized
Cost $1,623,744,944).................. 1,623,744,944
--------------
COMMERCIAL PAPER -- 33.2%
DOMESTIC -- 28.7%
ASSET BACKED SECURITIES -- 8.4%
Aesop Funding Corp..................... A1/P1 5.500% 04/15/98 50,000,000 49,656,250
Asset Securitization Cooperative
Corp.................................. A1/P1 5.750% 03/16/98 50,000,000 49,880,208
CC USA Inc............................. A1+/P1 5.590% 03/09/98 31,000,000 30,961,491
CC USA Inc............................. A1+/P1 5.740% 03/24/98 25,000,000 24,908,319
CC USA Inc............................. A1+/P1 5.585% 03/25/98 25,500,000 25,405,055
CC USA Inc............................. A1+/P1 5.740% 03/27/98 30,000,000 29,875,633
CC USA Inc............................. A1+/P1 5.590% 03/30/98 32,500,000 32,353,651
CC USA Inc............................. A1+/P1 5.400% 08/17/98 24,500,000 23,878,925
Enterprise Funding Corp. (b)........... A1+/P1 5.520% 03/06/98 23,696,000 23,677,833
Enterprise Funding Corp. (b)........... A1+/P1 5.490% 04/15/98 32,355,000 32,132,964
Enterprise Funding Corp. (b)........... A1+/P1 5.570% 04/27/98 50,000,000 49,559,042
Republic Industries Funding Corp....... A1/P1 5.520% 03/20/98 55,000,000 54,839,767
Riverwoods Funding Corp................ A1+/P1 5.720% 03/11/98 50,000,000 49,920,556
Riverwoods Funding Corp................ A1+/P1 5.510% 06/03/98 100,000,000 98,576,583
Sigma Finance Inc...................... A1+/P1 5.540% 03/26/98 37,000,000 36,857,653
Sigma Finance Inc...................... A1+/P1 5.475% 05/05/98 25,000,000 24,752,865
Sigma Finance Inc...................... A1+/P1 5.490% 05/12/98 50,000,000 49,451,000
Sigma Finance Inc...................... A1+/P1 5.400% 07/28/98 25,000,000 24,441,250
</TABLE>
- ---------------
See Notes to Financial Statements.
86
<PAGE> 751
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
COMMERCIAL PAPER -- (CONTINUED)
DOMESTIC -- (CONTINUED)
ASSET BACKED SECURITIES -- (CONTINUED)
World Omni Vehicle Leasing Inc......... A1/P1 5.515% 03/20/98 $ 50,000,000 $ 49,854,465
World Omni Vehicle Leasing Inc......... A1/P1 5.490% 04/24/98 56,596,000 56,129,932
--------------
817,113,442
--------------
AUTOMOBILES -- 1.7%
American Honda Finance Corp............ F1/P1 5.510% 05/29/98 40,000,000 39,455,122
Daimler-Benz North America Corp........ A1/P1 5.625% 04/22/98 50,000,000 49,593,750
General Motors Acceptance Corp......... A1/P1 5.600% 04/20/98 25,000,000 24,805,556
General Motors Acceptance Corp......... A1/P1 5.650% 04/22/98 50,000,000 49,591,944
--------------
163,446,372
--------------
BANKING -- 2.3%
Bankers Trust, New York, Daily Variable
Rate (final maturity 8/4/98)*......... A1/P1 5.700% 03/02/98 25,000,000 25,000,000
Bankers Trust, New York, Daily Variable
Rate (final maturity 9/4/98)*......... A1/P1 5.760% 03/02/98 50,000,000 50,000,000
Bankers Trust, New York, Daily Variable
Rate (final maturity 9/4/98)*......... A1/P1 5.780% 03/02/98 25,000,000 25,000,000
National Australia Funding Inc......... A1+/P1 5.460% 05/26/98 25,500,000 25,167,395
NationsBank Corporation................ A1/P1 5.470% 04/10/98 50,000,000 49,696,111
Unifunding Inc......................... A1/P1 5.660% 06/02/98 50,000,000 49,268,917
--------------
224,132,423
--------------
</TABLE>
- ---------------
See Notes to Financial Statements.
87
<PAGE> 752
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
COMMERCIAL PAPER -- (CONTINUED)
DOMESTIC -- (CONTINUED)
BROKERAGE SERVICES -- 4.0%
Lehman Brothers Holdings, Inc., Weekly
Variable Rate (final maturity
4/03/98)*............................. A1/F1 5.799% 03/04/98 $ 50,000,000 $ 50,000,000
Lehman Brothers Holdings, Inc.......... A1/F1 5.770% 03/04/98 25,000,000 24,987,979
Merrill Lynch & Co., Inc............... A1+/P1 5.510% 05/20/98 100,000,000 98,790,861
Merrill Lynch & Co., Inc............... A1+/P1 5.650% 06/03/98 25,000,000 24,631,181
Salomon Smith Barney Holdings Inc...... A1/P1 5.730% 03/06/98 25,000,000 24,980,104
Salomon Smith Barney Holdings Inc...... A1/P1 5.485% 04/22/98 50,000,000 49,603,861
Salomon Smith Barney Holdings Inc...... A1/P1 5.520% 05/07/98 50,000,000 49,486,333
Salomon Smith Barney Holdings Inc...... A1/P1 5.415% 07/29/98 50,000,000 48,871,875
Salomon Smith Barney Holdings Inc...... A1/P1 5.770% 03/17/98 24,775,000 24,711,466
--------------
396,063,660
--------------
CONGLOMERATES -- 1.3%
B.A.T. Capital Corporation............. F1/P1 5.760% 04/07/98 25,000,000 24,852,000
B.A.T. Capital Corporation............. F1/P1 5.570% 04/22/98 50,000,000 49,597,722
B.A.T. Capital Corporation............. F1/P1 5.560% 05/20/98 50,000,000 49,382,222
--------------
123,831,944
--------------
CONSUMER NON-DURABLES -- 0.4%
Newell Co.............................. A1/D1 5.585% 03/27/98 40,000,000 39,838,656
--------------
ELECTRONICS -- 0.8%
Hitachi America Ltd.................... A1+/P1 5.400% 07/15/98 31,000,000 30,367,600
Hitachi America Ltd.................... A1+/P1 5.410% 07/31/98 20,000,000 19,543,156
Hitachi America Ltd.................... A1+/P1 5.400% 08/21/98 25,000,000 24,351,250
--------------
74,262,006
--------------
</TABLE>
- ---------------
See Notes to Financial Statements.
88
<PAGE> 753
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
COMMERCIAL PAPER -- (CONTINUED)
DOMESTIC -- (CONTINUED)
FINANCE COMPANIES -- 4.7%
BTR Dunlop Finance Inc................. A1/P1 5.690% 03/26/98 $ 50,000,000 $ 49,802,431
BTR Dunlop Finance Inc................. A1/P1 5.390% 07/14/98 50,000,000 48,989,375
Countrywide Home Loans, Inc............ A1/F1 5.530% 05/20/98 50,000,000 49,385,556
Countrywide Home Loans, Inc............ A1/F1 5.530% 05/27/98 72,950,000 71,975,084
General Electric Capital Corp.......... A1+/P1 5.550% 04/27/98 25,000,000 24,780,312
General Electric Capital Corp.......... A1+/P1 5.510% 05/06/98 50,000,000 49,494,917
Safeco Credit Company.................. A1/D1 5.760% 03/04/98 20,600,000 20,590,112
Safeco Credit Company.................. A1/D1 5.765% 03/11/98 22,000,000 21,964,769
Safeco Credit Company.................. A1/D1 5.770% 03/11/98 32,000,000 31,948,711
Safeco Credit Company.................. A1/D1 5.800% 03/18/98 20,000,000 19,945,222
Safeco Credit Company.................. A1/D1 5.470% 04/30/98 20,000,000 19,817,667
Safeco Credit Company.................. A1/D1 5.500% 05/06/98 25,000,000 24,747,917
Safeco Credit Company.................. A1/D1 5.550% 05/27/98 26,000,000 25,651,275
--------------
459,093,348
--------------
MINING -- 0.9%
Rio Tinto America Inc.................. A1+/P1 5.760% 03/11/98 48,700,000 48,622,080
Rio Tinto America Inc.................. A1+/P1 5.410% 08/11/98 45,300,000 44,190,364
--------------
92,812,444
--------------
PUBLISHING -- 0.3%
Tribune Company........................ A1/P1 5.740% 03/06/98 25,000,000 24,980,069
--------------
SOVEREIGN ISSUES -- 0.4%
Government Development Bank of Puerto
Rico.................................. A1+/TBW1 5.450% 05/22/98 43,000,000 42,466,203
--------------
UTILITIES -- 3.5%
British Gas Capital Inc................ A1/P1 5.730% 04/21/98 25,000,000 24,797,062
British Gas Capital Inc................ A1/P1 5.600% 05/07/98 75,000,000 74,218,333
British Gas Capital Inc................ A1/P1 5.430% 07/27/98 50,000,000 48,883,833
</TABLE>
- ---------------
See Notes to Financial Statements.
89
<PAGE> 754
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
COMMERCIAL PAPER -- (CONTINUED)
DOMESTIC -- (CONTINUED)
UTILITIES -- (CONTINUED)
British Gas Capital Inc................ A1/P1 5.430% 08/24/98 $ 75,000,000 $ 73,006,556
Duke Capital Corp...................... A1/F1 5.770% 03/04/98 20,000,000 19,990,383
Duke Capital Corp...................... A1/F1 5.520% 04/06/98 25,000,000 24,862,000
Duke Capital Corp...................... A1/F1 5.540% 06/02/98 39,127,000 38,567,027
National Rural Utilities Cooperative
Finance Corp.......................... A1+/P1 5.700% 03/17/98 20,000,000 19,949,333
National Rural Utilities Cooperative
Finance Corp.......................... A1+/P1 5.680% 05/05/98 20,000,000 19,794,889
--------------
344,069,416
--------------
Total Domestic Commercial Paper
(Amortized Cost $2,802,109,983)....... 2,802,109,983
--------------
FOREIGN -- 4.5%
AIR TRANSPORTATION -- 0.5%
BAA PLC................................ A1+/P1 5.700% 04/06/98 50,000,000 49,715,000
--------------
AUTOMOBILES -- 1.0%
Ford Credit Europe, PLC................ A1/P1 5.720% 03/06/98 75,000,000 74,940,417
Ford Credit Europe, PLC................ A1/P1 5.530% 04/08/98 25,000,000 24,854,069
--------------
99,794,486
--------------
BANKING -- 0.5%
Abbey National Treasury Services,
PLC................................... A1+/P1 5.560% 03/11/98 25,000,000 24,961,389
Banque National de Paris, Canadian
Branch................................ A1/P1 5.730% 03/05/98 24,000,000 23,984,720
--------------
48,946,109
--------------
BUILDING SOCIETY -- 0.5%
Nationwide Building Society............ A1/P1 5.585% 05/06/98 50,000,000 49,488,042
--------------
</TABLE>
- ---------------
See Notes to Financial Statements.
90
<PAGE> 755
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
COMMERCIAL PAPER -- (CONTINUED)
FOREIGN -- (CONTINUED)
FOOD AND BEVERAGES -- 1.0%
Diageo Capital PLC..................... A1/P1 5.400% 07/06/98 $ 47,500,000 $ 46,595,125
Diageo Capital PLC..................... A1/P1 5.420% 07/27/98 50,000,000 48,885,889
--------------
95,481,014
--------------
SOVEREIGN ISSUES -- 0.8%
Cades.................................. A1+/P1 5.730% 03/05/98 30,000,000 29,980,900
Cades.................................. A1+/P1 5.650% 06/05/98 50,000,000 49,246,667
--------------
79,227,567
--------------
UTILITIES -- 0.2%
Ontario Hydro.......................... A1+/P1 5.700% 03/16/98 25,000,000 24,940,625
--------------
Total Foreign Commercial Paper
(Amortized Cost $447,592,843)......... 447,592,843
--------------
Total Commercial Paper
(Amortized Cost $3,249,702,826)........ 3,249,702,826
--------------
CORPORATE OBLIGATIONS -- 16.4%
ASSET BACKED SECURITIES -- 1.2%
CC USA, Inc............................ A1+/P1 6.175% 05/26/98 20,000,000 20,000,771
Sigma Finance Inc., Daily Variable Rate
(final maturity 7/27/98)*............. A1+/P1 5.680% 03/02/98 50,000,000 49,999,597
Sigma Finance, Inc..................... A1+/P1 5.915% 03/05/98 50,000,000 49,999,827
--------------
120,000,195
--------------
AUTOMOBILES -- 3.4%
American Honda Finance Corp., Quarterly
Variable Rate (final maturity
1/20/99)*............................. F1/P1 5.598% 04/20/98 25,000,000 25,000,000
American Honda Finance Corp., Quarterly
Variable Rate (final maturity
1/21/99)*............................. F1/P1 5.625% 04/21/98 50,000,000 49,995,534
</TABLE>
- ---------------
See Notes to Financial Statements.
91
<PAGE> 756
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
CORPORATE OBLIGATIONS -- (CONTINUED)
AUTOMOBILES -- (CONTINUED)
American Honda Finance Corp., Quarterly
Variable Rate (final maturity
4/6/98)*.............................. F1/P1 5.822% 04/06/98 $ 50,000,000 $ 49,999,048
American Honda Finance Corp., Quarterly
Variable Rate (final maturity
4/9/98)*.............................. F1/P1 5.691% 04/09/98 24,000,000 24,000,237
American Honda Finance Corp., Quarterly
Variable Rate (final maturity
6/16/98)*............................. F1/P1 5.906% 03/16/98 20,000,000 20,000,000
American Honda Finance Corp., Quarterly
Variable Rate (final maturity
7/27/98)*............................. F1/P1 5.621% 04/27/98 45,000,000 45,000,000
General Motors Acceptance Corp., Daily
Variable Rate (final maturity
4/21/98)*............................. A1/P1 5.750% 03/02/98 25,000,000 25,001,087
General Motors Acceptance Corp.,
Quarterly Variable Rate (final
maturity 5/22/98)*.................... A1/P1 5.595% 03/23/98 50,000,000 50,001,130
General Motors Acceptance Corp.,
Quarterly Variable Rate (final
maturity 9/3/98)*..................... A1/P1 5.886% 03/03/98 46,393,000 46,395,876
--------------
335,392,912
--------------
</TABLE>
- ---------------
See Notes to Financial Statements.
92
<PAGE> 757
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
CORPORATE OBLIGATIONS -- (CONTINUED)
BANKING -- 3.5%
Bankers Trust New York Corp., Monthly
Variable Rate (final maturity
2/10/99)*............................. A1/P1 5.575% 03/10/98 $105,000,000 $ 104,960,614
Bank of Scotland, PLC, Quarterly
Variable Rate (final maturity
9/22/98)*............................. A1/P1 5.806% 03/22/98 25,000,000 24,994,562
Compagnie Bancaire USA Funding, Daily
Variable Rate (final maturity
5/15/98)*............................. A1/P1 5.760% 03/02/98 50,000,000 49,998,837
Compaigne Bancaire USA Funding
Quarterly Variable Rate (final
maturity 7/16/98)*.................... A1/P1 5.563% 04/16/98 34,000,000 33,990,461
Compaigne Bancaire USA Funding Weekly
Variable Rate (final maturity
10/1/98)*............................. A1/P1 5.809% 03/04/98 50,000,000 50,000,000
Compaigne Bancaire USA Funding Weekly
Variable Rate (final maturity
10/1/98)*............................. A1/P1 5.809% 03/04/98 25,000,000 24,997,068
Compagnie Bancaire USA Funding Weekly
Variable Rate (final maturity
11/25/98)*............................ A1/P1 5.929% 03/04/98 50,000,000 50,000,000
--------------
338,941,542
--------------
BROKERAGE SERVICES -- 4.7%
Bear Stearns Companies, Inc., Daily
Variable Rate, Series B (final
maturity 3/17/98)*.................... A1/P1 5.700% 03/02/98 75,000,000 75,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
93
<PAGE> 758
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
CORPORATE OBLIGATIONS -- (CONTINUED)
BROKERAGE SERVICES -- (CONTINUED)
Bear Stearns Companies, Inc., Daily
Variable Rate, Series B (final
maturity 6/12/98)*.................... A1/P1 5.760% 03/02/98 $ 60,000,000 $ 60,000,302
Bear Stearns Companies, Inc., Monthly
Variable Rate (final maturity
8/14/98)*............................. A1/P1 5.775% 03/16/98 25,000,000 25,019,085
Bear Stearns Companies, Inc., Monthly
Variable Rate, Series B (final
maturity 4/1/98)*..................... A1/P1 5.775% 03/02/98 18,000,000 18,002,258
C. S. First Boston, Inc., Daily
Variable Rate (final maturity
7/21/98)*............................. A1+/P1 5.670% 03/02/98 50,000,000 50,000,000
C. S. First Boston, Inc., Weekly
Variable Rate (final maturity
5/15/98)*............................. A1+/P1 5.629% 03/04/98 50,000,000 50,000,000
Lehman Brothers Holdings, Inc., Daily
Variable Rate (final maturity
3/22/99)*............................. A1/F1 5.710% 03/02/98 50,000,000 50,000,000
Lehman Brothers Holdings, Inc.,
Quarterly Variable Rate (final
maturity 2/12/99)*.................... A1/F1 5.655% 04/13/98 25,000,000 25,000,000
Lehman Brothers Holdings, Inc.,
Quarterly Variable Rate (final
maturity 5/28/98)*.................... A1/F1 6.045% 05/28/98 36,000,000 36,034,395
</TABLE>
- ---------------
See Notes to Financial Statements.
94
<PAGE> 759
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
CORPORATE OBLIGATIONS -- (CONTINUED)
BROKERAGE SERVICES -- (CONTINUED)
Merrill Lynch & Co., Inc., Daily
Variable Rate (final maturity
11/23/98)*............................ A1+/P1 5.700% 03/02/98 $ 25,000,000 $ 25,000,000
Merrill Lynch & Co., Inc., Daily
Variable Rate (final maturity
12/9/98)*............................. A1+/P1 5.760% 03/02/98 25,000,000 24,998,067
Merrill Lynch & Co., Inc., Weekly
Variable Rate (final maturity
3/4/98)*.............................. A1+/P1 5.629% 03/04/98 19,000,000 18,999,759
--------------
458,053,866
--------------
CONGLOMERATES -- 0.3%
Philip Morris Co., Inc................. A1/P1 9.000% 05/15/98 22,625,000 22,750,689
--------------
FINANCE COMPANIES -- 1.7%
Dean Witter Discover & Co.............. A1/P1 6.000% 03/01/98 15,000,000 15,000,000
Household Finance Corp., Daily Variable
Rate (final maturity 5/28/98)*........ A1/P1 5.720% 03/02/98 50,000,000 50,000,000
Household Finance Corp., Monthly
Variable Rate (final maturity
1/19/99)*............................. A1/P1 5.587% 03/19/98 25,000,000 25,000,000
Household Finance Corp., Monthly
Variable Rate (final maturity
1/21/99)*............................. A1/P1 5.595% 03/23/98 25,000,000 25,000,000
Household Finance Corp., Monthly
Variable Rate (final maturity
9/15/98)*............................. A1/P1 5.675% 03/16/98 50,000,000 50,022,707
--------------
165,022,707
--------------
</TABLE>
- ---------------
See Notes to Financial Statements.
95
<PAGE> 760
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
CORPORATE OBLIGATIONS -- (CONTINUED)
LEASING -- 1.1%
Sanwa Business Credit Corp., Daily
Variable Rate (final maturity
4/17/98)*............................. P1/D1 5.810% 03/02/98 $ 25,000,000 $ 25,000,000
Sanwa Business Credit Corp., Daily
Variable Rate (final maturity
9/18/98)*............................. P1/D1 5.720% 03/02/98 25,000,000 25,000,000
Sanwa Business Credit Corp., Monthly
Variable Rate (final maturity
4/29/98)*............................. P1/D1 5.750% 03/30/98 25,000,000 25,003,319
USL Capital Corp., Series D, Quarterly
Variable Rate (final maturity
4/22/98)*............................. P1/F1 5.705% 04/22/98 34,000,000 34,005,075
--------------
109,008,394
--------------
RELOCATION SERVICES -- 0.5%
PHH Corporation, Monthly Variable Rate
(final maturity 6/24/98)*............. A1/P1 5.625% 03/24/98 50,000,000 50,000,000
--------------
Total Corporate Obligations
(Amortized Cost $1,599,170,305)........ 1,599,170,305
--------------
MASTER NOTES -- 7.1%
Goldman Sachs Group L.P. (final
maturity 10/13/98)*................... A1+/P1 5.828% 03/02/98 400,000,000 400,000,000
Morgan Stanley Group, Inc. (final
maturity 3/24/98)*.................... A1/P1 5.788% 03/02/98 300,000,000 300,000,000
--------------
Total Master Notes
(Amortized Cost $700,000,000).......... 700,000,000
--------------
</TABLE>
- ---------------
See Notes to Financial Statements.
96
<PAGE> 761
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
REPURCHASE AGREEMENTS -- 25.5%
CIBC Oppenheimer, Corp., dated 2/27/98,
with a maturity value of $135,064,013
(Collateralized by $137,095,000
various U.S. Government Obligations,
5.37%-7.75%, 3/24/98-3/8/12, market
value -- $137,701,990................. 5.690% 03/02/98 $135,000,000 $ 135,000,000
Morgan Stanley Dean Witter & Co., dated
2/27/98, with a maturity value of
$180,085,350 (Collateralized by
$246,113,822 various U.S. Government
Obligations, 5.00%-13.0%,
4/1/98-2/1/28, market value --
$183,600,518)......................... 5.690% 03/02/98 180,000,000 180,000,000
First Chicago Capital Markets, Inc.,
dated 2/27/98, with a maturity value
of $130,061,642 (Collateralized by
$132,876,000 various U.S. Government
Obligations, 0.00%-7.0%, 3/12/98-
12/13/99, market
value -- $132,603,501................. 5.690% 03/02/98 130,000,000 130,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
97
<PAGE> 762
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
REPURCHASE AGREEMENTS -- (CONTINUED)
Goldman Sachs & Co., dated 2/27/98,
with a maturity value of $118,622,726
(Collateralized by $117,146,000 U.S.
Treasury Note, 5.875%, 2/28/99, market
value -- $120,938,802)................ 5.640% 03/02/98 $118,567,000 $ 118,567,000
Goldman Sachs & Co., dated 2/27/98,
with a maturity value of $325,154,104
(Collateralized by $639,720,401
various U.S. Government Obligations,
5.50%-10.5%, 4/1/98-2/1/98, market
value -- $331,500,001)................ 5.690% 03/02/98 325,000,000 325,000,000
J.P. Morgan Securities, Inc., dated
2/27/98, with a maturity value of
$450,213,750 (Collateralized by
$455,797,296 Government National
Mortgage Association, 7.50%, 9/15/12-
1/15/28, market
value -- $459,000,001)................ 5.700% 03/02/98 450,000,000 450,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
98
<PAGE> 763
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
REPURCHASE AGREEMENTS -- (CONTINUED)
NationsBank, Inc., dated 2/27/98, with
a maturity value of $380,179,867
(Collateralized by $394,051,091
Federal National Mortgage Association,
6.5%-7.0%, 9/1/11-1/1/13, market
value -- $387,600,000)................ 5.680% 03/02/98 $380,000,000 $ 380,000,000
Nomura Securities, Inc., dated 2/27/98,
with a maturity value of $325,154,375
(Collateralized by $330,724,126
Federal National Mortgage Association,
5.5%-9.5%, 8/1/99-2/1/28, market
value -- $331,500,001)................ 5.700% 03/02/98 325,000,000 325,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
99
<PAGE> 764
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
REPURCHASE AGREEMENTS -- (CONTINUED)
Prudential Securities, Inc., dated
2/27/98, with a maturity value of
$450,213,375 (Collateralized by
$475,269,551 Federal National Mortgage
Association, 6.5%, 9/1/12, market
value -- $459,000,001)................ 5.690% 03/02/98 $450,000,000 $ 450,000,000
--------------
Total Repurchase Agreements
(Amortized Cost $2,493,567,000)........ 2,493,567,000
--------------
TOTAL INVESTMENTS -- 102.1%
(AMORTIZED COST $9,986,786,451)(a)..... 9,986,786,451
LIABILITIES IN EXCESS OF OTHER ASSETS --
(2.1%)................................ (207,110,383)
--------------
NET ASSETS -- 100.0%.................... $9,779,676,068
==============
</TABLE>
- ---------------
Percentages indicated are based on net assets of $9,779,676,068.
(a) Cost for federal income tax and financial reporting purposes are
substantially the same.
(b) Private placement security.
PLC -- Public Liability Company.
N.R.S.R.O. Nationally Recognized Statistical Ratings Organization. Rating
agencies that are included within the N.R.S.R.O. category are: S&P, Moody's,
Fitch Investors Services, Duff & Phelps, IBCA, and Thomsons Bank Watch.
<TABLE>
<C> <S>
A1 -- Highest rating assigned by S&P and IBCA.
P1 -- Highest rating assigned by Moody's.
F1 -- Highest rating assigned by Fitch Investors.
D1 -- Highest rating assigned by Duff.
TBW1 -- Highest rating assigned by Thomsons Bank Watch.
</TABLE>
Note: S&P and Moody's ratings have been used, unless another service has
assigned the security a higher rating.
* Variable rate security. Maturity date reflects the next interest rate change
date.
See Notes to Financial Statements.
100
<PAGE> 765
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (amortized cost
$7,493,219,451)............................................. $ 7,493,219,451
Repurchase agreements (cost $2,493,567,000)................ 2,493,567,000
Cash....................................................... 320,256
Interest receivable........................................ 59,383,563
Prepaid expenses........................................... 952,218
---------------
Total Assets................................................ 10,047,442,488
---------------
LIABILITIES:
Dividends payable.......................................... 16,466,456
Payable for investment securities purchased................ 247,343,494
Investment advisory fees payable........................... 662,817
Administration fees payable................................ 729,581
Special management fees payable (Pacific Horizon Shares)... 598,133
Shareholder service fees payable (Horizon Service
Shares).................................................. 661,679
Shareholder service fees payable (X Shares)................ 157,824
Shareholder service fees payable (S Shares)................ 98,598
Shareholder service fees payable (Y Shares)................ 17,874
Distribution fees payable (X Shares)....................... 189,389
Distribution fees payable (S Shares)....................... 118,308
Distribution fees payable (Y Shares)....................... 53,622
Custodian and fund accounting fees payable................. 230,934
Transfer agent fees payable................................ 244,031
Other accrued expenses..................................... 193,680
---------------
Total Liabilities........................................... 267,766,420
---------------
NET ASSETS.................................................. $ 9,779,676,068
===============
Net Assets:
Pacific Horizon Shares..................................... $ 2,452,112,326
Horizon Shares............................................. 2,414,466,836
Horizon Service Shares..................................... 3,374,174,474
X Shares................................................... 869,716,062
S Shares................................................... 559,417,598
Y Shares................................................... 109,788,772
---------------
Total....................................................... $ 9,779,676,068
===============
Shares Outstanding ($0.001 par value) 120 billion:
Pacific Horizon Shares..................................... 2,452,310,074
Horizon Shares............................................. 2,414,749,939
Horizon Service Shares..................................... 3,374,020,827
X Shares................................................... 869,677,855
S Shares................................................... 559,414,515
Y Shares................................................... 109,788,400
---------------
Total....................................................... 9,779,961,610
===============
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER
SHARE...................................................... $ 1.00
===============
COMPOSITION OF NET ASSETS:
Shares of common stock, at par............................. $ 9,779,963
Additional paid-in capital................................. 9,769,782,074
Accumulated undistributed net investment income............ 3,514,189
Accumulated net realized losses on investment
transactions............................................. (3,400,158)
---------------
NET ASSETS, FEBRUARY 28, 1998............................... $ 9,779,676,068
===============
</TABLE>
- ---------------
See Notes to Financial Statements.
101
<PAGE> 766
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the year ended February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................. $458,788,515
------------
EXPENSES:
Investment advisory fees.................................. 7,234,054
Administration fees....................................... 7,938,015
Special management fees (Pacific Horizon Shares).......... 7,285,114
Shareholder service fees (Horizon Service Shares)......... 8,141,653
Shareholder service fees (X Shares)....................... 1,126,895
Shareholder service fees (S Shares)....................... 482,149
Shareholder service fees (Y Shares)....................... 99,846
Distribution fees (X Shares).............................. 1,352,274
Distribution fees (S Shares).............................. 1,241,178
Distribution fees (Y Shares).............................. 299,538
Registration and filing fees.............................. 617,625
Custodian and fund accounting fees........................ 692,500
Transfer agent fees....................................... 508,568
Legal fees................................................ 274,244
Audit fees................................................ 40,347
Other expenses............................................ 813,512
------------
Total Expenses.......................................... 38,147,512
Less: Fee waivers......................................... (772,551)
Expenses paid by third parties........................ (11,235)
------------
Total Net Expenses.......................................... 37,363,726
------------
Net Investment Income....................................... 421,424,789
NET REALIZED GAINS
ON INVESTMENTS:
Net realized gains on investment transactions............. 69,980
------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $421,494,769
============
</TABLE>
- ---------------
See Notes to Financial Statements.
102
<PAGE> 767
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------
FEBRUARY 28, FEBRUARY 28,
1998 1997
--------------- ---------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income...................................... $ 421,424,789 $ 313,627,480
Net realized gains on investment transactions.............. 69,980 172,885
--------------- ---------------
Change in net assets resulting from operations.............. 421,494,769 313,800,365
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Pacific Horizon Shares..................................... (117,152,680) (110,595,534)
Horizon Shares............................................. (100,966,269) (79,709,197)
Horizon Service Shares..................................... (170,004,484) (119,808,778)
X Shares................................................... (22,281,567) (2,322,836)(a)
S Shares................................................... (8,606,405)(b) --
Y Shares................................................... (1,807,633)(c) --
--------------- ---------------
Change in net assets from shareholder distributions......... (420,819,038) (312,436,345)
--------------- ---------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued................................ 65,111,897,688 42,442,585,809
Dividends reinvested....................................... 243,957,627 177,262,119
Cost of shares redeemed.................................... (62,727,564,200) (40,881,572,699)
--------------- ---------------
Change in net assets from capital share transactions........ 2,628,291,115 1,738,275,229
--------------- ---------------
Change in net assets........................................ 2,628,966,846 1,739,639,249
NET ASSETS
Beginning of Year.......................................... 7,150,709,222 5,411,069,973
--------------- ---------------
End of Year................................................ $ 9,779,676,068 $ 7,150,709,222
=============== ===============
Accumulated Undistributed Net Investment Income............. $ 3,514,189 $ 2,908,438
=============== ===============
</TABLE>
- ---------------
(a) Period from July 22, 1996 (inception date) to February 28, 1997.
(b) Period from April 7, 1997 (inception date) to February 28, 1998.
(c) Period from July 10, 1997 (inception date) to February 28, 1998.
See Notes to Financial Statements.
103
<PAGE> 768
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. On February 28, 1998, the Company
operated as a series company comprised of seventeen funds. The accompanying
financial statements and notes are those of Pacific Horizon Prime Fund (the
"Prime Fund").
The Prime Fund issues six classes of shares (Pacific Horizon Shares, Horizon
Shares and Horizon Services Shares). Effective July 22, 1996, the Prime Fund
began offering X Shares. The Prime Fund began offering S Shares effective April
7, 1997 and effective July 10, 1997 the Prime Fund began offering Y Shares.
Pacific Horizon Shares have a Special Management Services Plan while the Horizon
Service Shares have a Shareholder Services Plan. X, S and Y Shares each have a
Distribution and Services Plan.
THE INVESTMENT OBJECTIVE OF THE FUND IS AS FOLLOWS:
Prime Fund -- Seek high current income and stability of principal by
investing in a broad range of government, bank and commercial obligations
available in the money markets as well as repurchase agreements relating to such
obligations.
Bank of America National Trust and Savings Association ("Bank of America"),
a subsidiary of BankAmerica Corporation, serves as the Prime Fund's investment
adviser. On September 15, 1997, Bank of America assumed the responsibility of
administrator for the Prime Fund pursuant to the terms of an Administration
Agreement between the Company and Bank of America (the "Administration
Agreement"). Prior to September 15, 1997 The BISYS Group, Inc. ("BISYS") through
its wholly-owned subsidiary, BISYS Fund Services, Limited Partnership, served as
the Prime Fund's Administrator.
Bank of America has entered into an agreement with PFPC Inc. ("PFPC"), an
indirect wholly-owned subsidiary of PNC Bank Corp., pursuant to which PFPC has
agreed to provide certain sub-administration services to the Prime Fund,
including, but not limited to, assisting in the developing and monitoring of
compliance procedures, participating in periodic updating of the Prime Fund's
prospectuses and statements of additional information, providing periodic
reports to the Company's Board and providing certain record-keeping services.
104
<PAGE> 769
Bank of America will bear all fees and expenses charged by PFPC for such
services.
In addition, pursuant to authority granted in the Administration Agreement,
Bank of America has entered into an agreement with The Bank of New York ("BONY")
under which BONY has agreed to provide certain accounting, bookkeeping, pricing
and dividend and distribution calculation services for the Prime Fund. The Fund
bears all fees and expenses charged by BONY for these services.
DISTRIBUTOR AND TRANSFER AGENT
Effective September 15, 1997, Provident Distributors, Inc. ("PDI"), assumed
responsibility as principal underwriter and distributor of shares of the Prime
Fund. Prior to such date, Concord Financial Group, Inc. (the "Former
Distributor") also a wholly-owned subsidiary of BISYS served as distributor of
the Prime Fund. Additionally on October 24, 1997, PFPC assumed responsibility as
the Prime Fund's transfer agent and dividend disbursing agent. BISYS Fund
Services, Inc. ("BISYS Ohio") also a wholly-owned subsidiary of BISYS, served
the Prime Fund in such capacity prior to such date.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Prime Fund in preparation of its financial statements. These policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
PORTFOLIO VALUATIONS:
The securities of the Prime Fund are valued at amortized cost, which
approximates market value. The amortized cost method involves valuing a security
at its cost on the date of purchase and thereafter assuming a constant
amortization to maturity of the difference between the principal amount due at
maturity and cost.
SECURITIES TRANSACTIONS AND RELATED INCOME:
The Prime Fund records security transactions on a trade date basis. Interest
income, including accretion of discount and amortization of premium, is accrued
daily. Realized gains and losses from security transactions are recorded on an
identified cost basis.
105
<PAGE> 770
EXPENSES:
The Company accounts separately for the assets, liabilities and operations
of the Prime Fund. Direct expenses of the fund are charged to that fund while
general Company expenses are allocated among the Company's respective
portfolios.
The investment income and expenses of the Prime Fund (other than class
specific expenses) and realized gains and losses on investments of the Prime
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 gains and losses are
incurred.
REPURCHASE AGREEMENTS (PRIME FUND):
The Prime Fund's custodian and other banks acting in a sub-custodian
capacity take possession of the collateral pledged for investments in repurchase
agreements. The underlying collateral is valued daily on a mark-to-market basis
to determine that the value, including accrued interest, exceeds the repurchase
price. In the event of the seller's default of the obligation to repurchase, the
Prime Fund has the right to liquidate the collateral and apply the proceeds in
satisfaction of the obligation. Under certain circumstances, in the event of
default or bankruptcy by the other party to the agreement, realization and/or
retention of the collateral may be subject to legal proceedings.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
The Prime Fund's net investment income is declared as a dividend daily, and
paid monthly, 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 Prime Fund can
be offset by capital loss carryovers of the Fund, such gains will not be
distributed. Dividends and distributions are recorded by the Prime Fund 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
106
<PAGE> 771
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.
FEDERAL INCOME TAXES:
It is the Prime Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute annually, all of its net investment company taxable income and net
capital gains to shareholders. Therefore, no Federal income tax provision is
required.
At February 28, 1998, the Prime Fund had the following capital loss
carryovers:
<TABLE>
<CAPTION>
CAPITAL LOSS
FUND CARRYOVER EXPIRATION DATE
---- ------------ ---------------
<S> <C> <C>
Prime Fund.......................................... $ 674,982 2002
2,725,176 2003
----------
$3,400,158
==========
</TABLE>
To the extent that these carryovers are used to offset future capital gains,
it is probable that the gains so offset will not be distributed to shareholders.
Capital losses incurred after October 31 for the Prime Fund are deemed to
arise on the first business day of the following fiscal year for tax purposes.
During the year, the Prime Fund utilized $69,980 of its available capital loss
carryover to offset realized capital gains for Federal income tax purposes.
OTHER:
The Prime Fund maintains a cash balance with its custodian and receives
reductions of 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, 1998, custodian fees and expenses paid by third parties were
increased by $11,235 for the Prime Fund. There was no effect on net investment
income. The Prime Fund could have invested such cash balances in income
producing assets if they had not agreed to a reduction of fees or expenses under
the expense offset arrangement with its custodian.
NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
Bank of America serves as the Prime Fund's Manager, providing Investment
Advisory and Administrative services. For the period ended September 15, 1997,
the Prime Fund had an Administration Agreement with BISYS and a Distribu-
107
<PAGE> 772
tion Agreement with the Former Distributor. Bank of America is entitled to an
Advisory fee from the Fund, which is accrued daily and payable monthly, at an
annual rate of 0.10% of the Fund's first $3 billion of net assets, plus 0.09% of
the Fund's next $2 billion of net assets, plus 0.08% of the Fund's net assets in
excess of $5 billion. The Administration Agreement entitles Bank of America to
fees from the Fund for Administrative services performed, which is accrued daily
and payable monthly, at an annual rate of 0.10% of the Fund's first $7 billion
of net assets, plus 0.09% of the Fund's next $3 billion of net assets, plus
0.08% of the Fund's net assets in excess of $10 billion. During the period March
1, 1997 through September 15, 1997, the Prime Fund had an Administration
Agreement with BISYS. Administration fee rates paid to BISYS were the same as
those currently paid to Bank of America. The Prime Fund was advised that for the
period September 15, 1997 through February 28, 1998, Bank of America and for the
period March 1, 1997 through September 15, 1997, BISYS earned the following
amounts pursuant to the respective Administrative Agreements:
<TABLE>
<CAPTION>
BANK OF
FUND AMERICA BISYS
---- ------- -----
<S> <C> <C>
Prime Fund................................................ $3,929,655 $4,008,360
</TABLE>
The Prime Fund has adopted a Special Management Services Plan (the "Services
Plan") pursuant to which Service Organizations agree to provide certain services
to their clients who are beneficial owners of Pacific Horizon Shares in return
for a payment by the Prime Fund of a fee at an annual rate 0.32% of the average
daily net assets of the outstanding Pacific Horizon Shares of the Prime Fund.
Fees under the Services Plan are borne solely by the Pacific Horizon Shares.
Service Organizations may include Bank of America and its affiliates, PDI (from
September 15, 1997 through February 28, 1998), and BISYS (prior to September 15,
1997). For the year ended February 28, 1998, for the period September 15, 1997
through February 28, 1998 and for the period March 1, 1997 through September 15,
1997, the Prime Fund was advised that Bank of America and its affiliates, PDI
and BISYS each earned the following amounts pursuant to the Services Plan,
respectively:
<TABLE>
<CAPTION>
BANK OF
FUND AMERICA PDI BISYS
---- ------- --- -----
<S> <C> <C> <C>
Prime Fund......................................... $6,742,687 $12,453 $22,110
</TABLE>
The Prime Fund has also adopted a Shareholder Services Plan (the "Horizon
Services Plan") pursuant to which Service Organizations agree to provide certain
services to their clients who are beneficial owners of Horizon Service Shares in
return for payment by the Prime Fund of a fee at an annual rate of 0.25% of the
average daily net assets of the Horizon Service Shares. Fees under the Horizon
Services Plan are borne solely by the Horizon Service Shares. For the year ended
108
<PAGE> 773
February 28, 1998, the Prime Fund was advised that Bank of America and its
affiliates earned the following amounts pursuant to the Horizon Services Plan,
respectively:
<TABLE>
<CAPTION>
BANK OF
AMERICA
AND
FUND AFFILIATES
---- ----------
<S> <C>
Prime Fund.................................................. $7,381,916
</TABLE>
The Prime Fund has adopted the Distribution and Services Plan under which
the Prime Fund paid PDI and the Former Distributor (prior to September 15, 1997)
and Service Organizations for the provision of support services with respect to
the beneficial owners of X Shares. Payments for distribution expenses and
shareholder servicing expenses may not exceed the annual rate of 0.30% and
0.25%, respectively, of the average daily net assets of the Prime Funds X
Shares. For the year ended February 28, 1998, the Prime Fund was advised that
Bank of America and its affiliates earned the following amounts pursuant to the
Distribution and Services Plan.
<TABLE>
<CAPTION>
BANK OF
AMERICA
AND
FUND AFFILIATES
---- ----------
<S> <C>
Prime Fund.................................................. $2,468,893
</TABLE>
The Prime Fund has adopted the Distribution and Services Plan under which
the Prime Fund paid PDI and the Former Distributor (prior to September 15, 1997)
and Service Organizations for the provision of support service with respect to
the beneficial owners of Y shares. Payments for distribution expenses and
shareholder servicing expenses may not exceed the annual rate of 0.75% and
0.25%; respectively, of the average daily net assets of the Prime Funds Y
shares. For the year ended February 28, 1998, the Prime Fund was advised that
Bank of America and its affiliates earned the following amounts pursuant to the
Distribution and Services Plan.
<TABLE>
<CAPTION>
BANK OF
AMERICA
AND
FUND AFFILIATES
---- ----------
<S> <C>
Prime Fund.................................................. $399,384
</TABLE>
The Prime Fund has adopted the Distribution and Services Plan under which
the Prime Fund paid PDI and the Former Distributor (prior to September 15, 1997)
and Service Organizations for the provision of support services with respect to
the beneficial owners of S shares. Payments for the distribution expenses and
shareholder servicing expenses may not exceed the annual rate of 0.75% and
0.25%, respectively, of the average daily net assets of the Prime
109
<PAGE> 774
Fund's S shares. For the year ended February 28, 1998, Bank of America waived
$772,551 of distribution expenses from the Prime Fund. For the year ended
February 28, 1998, the Prime Fund was advised that Bank of America and its
affiliates, earned the following amounts pursuant to the Distribution and
Services Plan.
<TABLE>
<CAPTION>
BANK OF
AMERICA
AND
FUND AFFILIATES
---- ----------
<S> <C>
Prime Fund.................................................. $950,478
</TABLE>
From the period October 24, 1997 through February 28, 1998 PFPC earned
$288,833 from the Prime Fund for transfer agency and dividend disbursing agency
services performed. BISYS Ohio served the Prime Fund as transfer agent and
dividend disbursing agent through October 24, 1997. In these capacities for the
Prime Fund, BISYS Ohio earned $219,735 for the period ended October 24, 1997.
For the year ended February 28, 1998, the Prime Fund incurred legal charges
totaling $274,244 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 PFPC. 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 $50,000,
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 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 will
receive an additional 10% of their annual Director's retainer for each year of
service between years six and nine, plus one half of the difference between 100%
and the director's applicable percentage. A Director who dies or resigns after
ten years of service as a director will be entitled to receive ten annual
payments equal to the greater of:
110
<PAGE> 775
(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 after February 28, 1994; however a director in office on March 18,
1998 who either resigns in good standing or dies before completing five years of
service as a director should be assigned an Applicable Percentage of 50 percent.
Aggregate costs pursuant to the Retirement Plan amounted to $37,045 for the
Prime Fund for the year ended February 28, 1998. A director who comes into
office after March 18, 1998 is ineligible to participate in the Retirement Plan.
111
<PAGE> 776
NOTE 5 -- CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Prime Fund (at $1.00 per share) for the
periods indicated are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------
FEBRUARY 28, FEBRUARY 28,
1998 1997
--------------- ---------------
<S> <C> <C>
PACIFIC HORIZON SHARES
Issued..................................................... 3,213,898,034 4,320,031,345
Reinvest................................................... 108,696,696 99,202,915
Redeemed................................................... (3,163,041,484) (4,326,928,364)
--------------- ---------------
Net increase/(decrease)..................................... 159,553,246 92,305,896
=============== ===============
HORIZON SHARES
Issued..................................................... 20,455,794,396 15,114,015,999
Reinvest................................................... 39,465,419 25,723,399
Redeemed................................................... (19,790,457,950) (15,081,065,299)
--------------- ---------------
Net increase/(decrease)..................................... 704,801,865 58,674,099
=============== ===============
HORIZON SERVICE SHARES
Issued..................................................... 35,791,164,395 22,771,276,975
Reinvest................................................... 69,471,827 50,011,411
Redeemed................................................... (35,431,800,117) (21,437,775,542)
--------------- ---------------
Net increase............................................... 428,836,105 1,383,512,844
=============== ===============
X SHARES
Issued..................................................... 4,432,511,179 237,259,971
Reinvest................................................... 17,713,737 2,324,394
Redeemed................................................... (3,784,327,932) (35,803,494)
--------------- ---------------
Net increase............................................... 665,896,984 203,780,871(a)
=============== ===============
S SHARES
Issued..................................................... 607,731,207 --
Reinvest................................................... 8,606,126 --
Redeemed................................................... (56,922,818) --
--------------- ---------------
Net increase............................................... 559,414,515(b) --
=============== ===============
Y SHARES
Issued..................................................... 610,798,477 --
Reinvest................................................... 3,822 --
Redeemed................................................... (501,013,899) --
--------------- ---------------
Net increase............................................... 109,788,400(c) --
=============== ===============
</TABLE>
- ---------------
<TABLE>
<C> <S>
(a) Period from July 22, 1996 (inception date) to February 28,
1997.
(b) Period from April 7, 1997 (inception date) to February 28,
1998.
(c) Period from July 10, 1997 (inception date) to February 28,
1998.
</TABLE>
112
<PAGE> 777
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
PACIFIC HORIZON SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income......... 0.0515 0.0492 0.0539 0.0424 0.0287
Net realized gains/(losses) on
investment transactions..... -- -- 0.0004 (0.0227) (0.0016)
-------- -------- -------- -------- --------
Total income from investment
operations.................... 0.0515 0.0492 0.0543 0.0197 0.0271
Less dividends to shareholders
from net investment income.... (0.0515) (0.0490) (0.0539) (0.0422) (0.0287)
Increase due to voluntary
capital contribution from
Investment Advisor............ -- -- -- 0.0233 --
-------- -------- -------- -------- --------
Net change in net asset value
per share -- 0.0002 0.0004 0.0008 (0.0016)
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END
OF YEAR....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return................... 5.27% 5.01% 5.53% 4.30%(dagger) 2.91%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions).................. $ 2,452 $ 2,292 $ 2,200 $ 1,129 $ 1,216
Ratio of expenses to average
net assets.................. 0.55% 0.55% 0.55% 0.51% 0.52%
Ratio of net investment income
to average net assets....... 5.15% 4.92% 5.37% 4.19% 2.86%
Ratio of expenses to average
net assets*................. (a) (a) 0.56% 0.56% 0.53%
Ratio of net investment income
to average net assets*...... (a) (a) 5.36% 4.14% 2.85%
</TABLE>
- ---------------
<TABLE>
<C> <S>
(dagger) Total return includes the effect of the voluntary capital
contribution from the Investment Advisor. Without this
capital contribution, the total return would have been
lower.
* During the year, 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.
(a) Fee waivers and fees paid by third parties had no effect on
the ratios.
</TABLE>
See Notes to Financial Statements.
113
<PAGE> 778
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
HORIZON SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income....... 0.0546 0.0524 0.0571 0.0461 0.0319
Net realized gains/(losses)
on investment
transactions.............. -- -- 0.0004 (0.0232) (0.0016)
-------- -------- -------- -------- --------
Total income from investment
operations.................. 0.0546 0.0524 0.0575 0.0229 0.0303
Less dividends to
shareholders from net
investment income........... (0.0547) (0.0522) (0.0571) (0.0454) (0.0319)
Increase due to voluntary
capital contribution from
Investment Advisor.......... -- -- -- 0.0233 --
-------- -------- -------- -------- --------
Net change in net asset value
per share................... (0.0001) 0.0002 0.0004 0.0008 (0.0016)
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE,
END OF YEAR................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return................. 5.60% 5.34% 5.86% 4.63%(dagger) 3.24%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions).................. $ 2,415 $ 1,710 $ 1,651 $ 662 $ 3,840
Ratio of expenses to average
net assets.................. 0.22% 0.23% 0.23% 0.16% 0.20%
Ratio of net investment
income to average net
assets...................... 5.47% 5.24% 5.69% 4.11% 3.19%
Ratio of expenses to average
net assets*................. (a) (a) 0.24% 0.23% 0.21%
Ratio of net investment
income to average net
assets*..................... (a) (a) 5.68% 4.04% 3.18%
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the year, 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.
(dagger) Total return includes the effect of the voluntary capital
contribution from the Investment Advisor. Without this
capital contribution, the total return would have been
lower.
(a) Fee waivers and fees paid by third parties had no effect on
the ratios.
</TABLE>
See Notes to Financial Statements.
114
<PAGE> 779
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
HORIZON SERVICE SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income............ 0.0521 0.0499 0.0546 0.0431 0.0294
Net realized gains/(losses) on
investment transactions........ -- -- 0.0004 (0.0227) (0.0016)
-------- -------- -------- -------- --------
Total income from investment
operations....................... 0.0521 0.0499 0.0550 0.0204 0.0278
Less dividends to shareholders
from net investment income....... (0.0522) (0.0497) (0.0546) (0.0429) (0.0294)
Increase due to voluntary capital
contribution from Investment
Advisor.......................... -- -- -- 0.0233 --
-------- -------- -------- -------- --------
Net change in net asset value per
share (0.0001). 0.0002 0.0004 0.0008 (0.0016)
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END OF
YEAR............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return...................... 5.34% 5.08% 5.60% 4.37%(dagger) 2.98%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions)..................... $ 3,374 $ 2,945 $ 1,561 $ 864 $ 839
Ratio of expenses to average net
assets......................... 0.48% 0.48% 0.48% 0.44% 0.45%
Ratio of net investment income to
average net assets............. 5.23% 5.00% 5.44% 4.31% 2.94%
Ratio of expenses to average net
assets*........................ (a) (a) 0.49% 0.48% 0.46%
Ratio of net investment income to
average net assets* (a) (a) 5.43% 4.27% 2.93%
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the year, 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.
(dagger) Total return includes the effect of the voluntary capital
contribution from the Investment Advisor. Without this
capital contribution, the total return would have been
lower.
(a) Fee waivers and fees paid by third parties had no effect on
the ratios.
</TABLE>
See Notes to Financial Statements.
115
<PAGE> 780
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
FEBRUARY 28, FEBRUARY 28,
1998 1997(a)
------------ ------------
<S> <C> <C>
X SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD........ $ 1.00 $ 1.00
-------- --------
Income from Investment Operations:
Net investment income............................... 0.0491 0.0282
Net realized gains/(losses) on investment
transactions...................................... -- --
-------- --------
Total income from investment operations............... 0.0491 0.0282
Less dividends to shareholders from net investment
income.............................................. (0.0491) (0.0281)
-------- --------
Net change in net asset value per share............... -- 0.0001
-------- --------
NET ASSET VALUE PER SHARE, END OF PERIOD.............. $ 1.00 $ 1.00
======== ========
Total return.......................................... 5.03% 2.84%(d)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (millions).............. $ 869 $ 204
Ratio of expenses to average net assets............. 0.77% 0.78%(c)
Ratio of net investment income to average net
assets............................................ 4.92% 4.73%(c)
Ratio of expenses to average net assets*............ (b) (b)
Ratio of net investment income to average net
assets*........................................... (b) (b)
</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.
(a) Period from July 22, 1996 (inception date) to February 28,
1997.
(b) Fee waivers and fees paid by third parties had no effect on
the ratios.
(c) Annualized.
(d) Not annualized.
</TABLE>
See Notes to Financial Statements.
116
<PAGE> 781
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
FEBRUARY 28,
1998(a)
--------------
<S> <C>
S SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD.............. $ 1.00
-----------
Income from Investment Operations:
Net investment income..................................... 0.0444
Net realized gains/(losses) on investment transactions.... --
-----------
Total income from investment operations..................... 0.0444
Less dividends to shareholders from net investment income... (0.0444)
-----------
Net change in net asset value per share..................... --
-----------
NET ASSET VALUE PER SHARE, END OF PERIOD.................... $ 1.00
===========
Total return................................................ 4.53%(d)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (millions).................... $ 110
Ratio of expenses to average net assets................... 0.76%(c)
Ratio of net investment income to average net assets...... 4.92%(c)
Ratio of expenses to average net assets*.................. 1.20%(b)(c)
Ratio of net investment income to average net assets*..... 4.48%(b)(c)
</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.
(a) Period from April 7, 1997 (inception date) to February 28,
1998.
(b) Fees paid by third parties had no effect on the ratios.
(c) Annualized.
(d) Not annualized.
</TABLE>
See Notes to Financial Statements.
117
<PAGE> 782
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
FEBRUARY 28,
1998(a)
------------
<S> <C>
Y SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD.............. $ 1.00
--------
Income from Investment Operations:
Net investment income..................................... 0.0290
Net realized gains/(losses) on investment transactions.... --
--------
Total income from investment operations..................... 0.0290
Less dividends to shareholders from net investment income... (0.0290)
--------
Net change in net asset value per share..................... --
--------
NET ASSET VALUE PER SHARE, END OF PERIOD.................... $ 1.00
========
Total return................................................ 2.93%(d)
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (millions).................... $ 559
Ratio of expenses to average net assets................... 1.21%(c)
Ratio of net investment income to average net assets...... 4.48%(c)
Ratio of expenses to average net assets*.................. (b)
Ratio of net investment income to average net assets*..... (b)
</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.
(a) Period from July 10, 1997 (inception date) to February 28,
1998.
(b) Fee waivers and fees paid by third parties had no effect on
the ratios.
(c) Annualized.
(d) Not annualized.
</TABLE>
See Notes to Financial Statements.
118
<PAGE> 783
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 Pacific Horizon Prime Fund (one of
the seventeen portfolios constituting the Pacific Horizon Funds, Inc., hereafter
referred to as the "Fund") at February 28, 1998, 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 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, 1998 by correspondence with the custodian and brokers and the
application of alternative auditing procedures where confirmations from brokers
were not received, provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
April 21, 1998
119
<PAGE> 784
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