<PAGE> 1
PACIFIC HORIZON INTERNATIONAL EQUITY FUND
SEMI-ANNUAL REPORT
August 31, 1998
International Equity Fund
Investing For All
The Times Of Your Life
NOT FDIC INSURED
PACIFIC HORIZON INTERNATIONAL EQUITY FUND
<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
PricewaterhouseCoopers 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>
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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
SHAREHOLDER VOTING RESULTS 10-12
PACIFIC HORIZON INTERNATIONAL
EQUITY FUND
PORTFOLIO OF INVESTMENTS 13-17
STATEMENT OF ASSETS
AND LIABILITIES 18
STATEMENT OF OPERATIONS 19
STATEMENTS OF CHANGES
IN NET ASSETS 20
NOTES TO FINANCIAL
STATEMENTS 21-30
FINANCIAL HIGHLIGHTS 31-33
</TABLE>
<PAGE> 4
PACIFIC HORIZON FUND FACTS
The Pacific Horizon Family of Funds offers a variety of mutual funds with
different investment objectives to help you diversify your portfolio and meet
your investment goals. Some Funds offer greater growth potential, while others
such as the money market funds, strive to maintain a stable net asset value but
offer no growth potential.
<TABLE>
<CAPTION>
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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
...........................................................................
Flexible Income High Current Income
(formerly Corporate Bond)
...........................................................................
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 Municipal Bond High Level of Federal and California
(formerly California Tax-Exempt Tax-Free Current Income
Bond)*
...........................................................................
Money Market Funds+ High Current Income Plus Principal
- Prime Stability
- Treasury
- Government
- Treasury Only
...........................................................................
Tax-Exempt Money Market Funds*+
- Tax-Exempt Money High Level of Federal Tax-Free Current
Income Plus Principal Stability
- California Tax-Exempt Money 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.
+ 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
- ---------------------------------------------------------------------------
<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
MANAGER enables you to gain
insight into the Fund's
investments and learn more
about the Fund manager's
strategies.
[3 Sample Pages]
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.
[Chart Page]
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
[SAMPLE PAGE]
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
[SAMPLE PAGE]
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
[SAMPLE PAGE]
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
[SAMPLE PAGE]
The NOTES TO FINANCIAL STATEMENTS are footnotes to the statements listed above.
These notes include information on accounting methods used by the Fund,
contractual arrangements between the Fund and its service providers, certain
transactions effected by the Fund and other general information about the Fund.
The FINANCIAL HIGHLIGHTS shows, for a single share outstanding throughout each
period presented, the net investment income, the realized and unrealized gains
and losses and the dividends and distributions of the Fund. It also shows key
data and ratios (such as the total investment return for each period), the
portfolio turnover rate for Funds other than money market mutual funds, the
ratio of expenses to average net assets and the ratio of net investment income
to average net assets.
6
<PAGE> 9
[This page intentionally left blank.]
7
<PAGE> 10
ECONOMIC REVIEW
FROM THE INVESTMENT ADVISER
The global financial crisis has dominated the economic news in recent months.
There are renewed fears that the effect of the Asian currency crisis is
spreading to other economies in the world, including North and South America.
The Russian Ruble has experienced a sharp decline as debate continues regarding
political and economic changes. The pace of economic reform in Japan has been
alarmingly slow, with the recent interest rate reduction reflecting only the
first significant action taken in this regard. Markets in Canada and Mexico
continue to reflect concerns relating to commodities. Moreover, investors have
become increasingly concerned about the sustainability of U.S. corporate
profits, resulting in a significant decline in the U.S. equity markets. The
current global economic crisis is generating greater concern, as it increasingly
affects a larger number of key American trading partners.
The U.S. economy has been affected both positively and negatively by the global
financial crisis. Low interest and inflation rates have stimulated domestic
demand for housing, autos and other consumer goods. However, manufacturing
activity is slowing, particularly in trade exports, and cutbacks have been made
in production and personnel within some industries. The Gross Domestic Product
("GDP") rose at a 1.8%(1) rate in the second quarter, below the first quarter's
5.5%(1) growth rate, reflecting the deterioration in the trade balance and a
slowdown in business investment in equipment and inventories. While the U.S.
economy remains strong in the third quarter, it is no longer immune from the
effects of the crisis. Additionally, prospects for U.S. growth and corporate
profits are less secure.
Economic reports continue to indicate that inflation is under control in
manufacturing and consumer-related areas. The prices paid to U.S. factories,
farmers and other producers (as measured by the Producer Price Index "PPI") fell
0.4%(1) in August, the largest drop in seven months. In the first eight months
of 1998, consumer prices rose at an annual rate of 1.6%(1), which is the same as
the first eight months of 1997. Inflation has remained innocuous as weakening
economies in Asia have depressed commodity prices and the cost of goods imported
into the U.S.
In a departure from the recent past, it appears that the Federal Reserve Board
(the "Fed") now has a higher level of anxiety about the outlook for the global
economy and is becoming more concerned about the increasing risks of slowing
economic growth rather than the dangers of rising inflation. In a recent speech,
Fed Chairman Alan Greenspan hinted that the Fed might consider lowering interest
rates if it becomes increasingly likely that the Asian currency crisis will
spread to the U.S. economy. Although the Federal Open Market Committee ("FOMC")
left the Fed Funds' target interest rate unchanged at 5.50% at the most recent
FOMC meeting held in August; some analysts now expect a reduction in rates
sometime soon.
The main benefactor of the global financial uncertainty has clearly been the
U.S. Treasury market. U.S. Treasuries have replaced gold as the safe haven of
choice, as many investors are reaping the financial rewards of owning these
types of securities. On July 17, the day that the equity markets peaked, the
Treasury 10-year note had a closing yield of approximately 5.5%(1). As of August
31, the yield on this note was 4.97%(1). The fixed income markets now reflect
expectations of an interest rate reduction, as evidenced by the entire Treasury
yield curve trading below 5.50%.
The turmoil in overseas markets, the decline in commodity prices, and the
8
<PAGE> 11
global competition from cheaper imports have also caused the credit sectors to
widen appreciably against Treasuries. Credit risk is now at a heightened level,
as the expectation of lower profit prospects has become more apparent to
investors. Additional downward revisions to corporate earnings estimates will
put further pressure on corporate spreads until the economic situation begins to
improve in Asia.
The Standard & Poor's 500 stock index ("S&P 500") fell 8.0%(2) on a total return
basis during the 6-month period ended August 31. While the stocks of large,
name-brand companies have been battered during the month of August, smaller
company stocks have been hit even harder. The S&P 500 declined 19%(2) from its
high on July 17 and the Russell 2000 Index dropped 30%(3) from its high recorded
in April. Year-to-date, the performance disparity has been even larger between
large cap and small cap stocks. Since the beginning of the year, the S&P 500 is
down 0.4%(2) and the Russell 2000 Index has dropped 22.1%(3), constituting a
spread of 21.7 percentage points.
Investors are becoming increasingly concerned about the sustainability of U.S.
corporate profits. Investors had been willing to pay record-high valuations for
stocks because interest rates were low, inflation was under control and
economies around the world were expanding. Not only are the developed Asian
countries faltering, but the economic turmoil has also extended to Russia and
several emerging market countries. So far, the U.S. market has been fairly well
insulated from the economic problems overseas, but U.S. companies are now
beginning to feel the negative impact from depressed overseas business
conditions. Investor confidence in a continued economic expansion will not occur
until Asia and Russia implement appropriate measures to rectify their economic
and political problems.
LOOKING FORWARD
The U.S. government is still expected to post a budget surplus when the fiscal
year ends on September 30. Rising incomes, low unemployment and stock market
gains earlier in the year have generated abundant tax collections. Reduced
government spending has also contributed to decreasing interest payments on
government debt.
The outlook for the remainder of 1998 is unclear. 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 2.5% in the third quarter. Just as
the market was overly optimistic at the beginning of the summer, we suspect that
the markets' current doldrums are too extreme.
Sincerely,
/s/ Kirk Hartman
Kirk Hartman
Chief Investment Officer
Fixed Income Management
- ---------------
(1) Source - Bloomberg, 1998.
(2) Source - Bloomberg, 1998. The S&P 500 Index is an index that is
representative of the large capitalization U.S. equity market as a whole
and cannot be invested in directly.
(3) Source - Bloomberg, 1998. The Russell 2000 is an index that is
representative of the small capitalization U.S. equity market as a whole
and cannot be invested in directly.
9
<PAGE> 12
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Results (Unaudited) of Annual Meeting of Shareholders
Convened on June 19, 1998
Reconvened on June 26, 1998 and July 1,
1998 Reconvened and Adjourned on July 20, 1998
- --------------------------------------------------------------------------------
The Annual Meeting of Shareholders of Pacific Horizon Funds, Inc. (the
"Company") was convened on June 19, 1998, reconvened on June 26, 1998 and July
1, 1998, and reconvened and adjourned on July 20, 1998. The Funds of the Company
are: Aggressive Growth Fund, Asset Allocation Fund, Blue Chip Fund, California
Municipal Bond Fund (formerly California Tax-Exempt Bond Fund), California
Tax-Exempt Money Market Fund, Capital Income Fund, Flexible Income Fund
(formerly Corporate Bond Fund), Government Fund, Intermediate Bond Fund,
International Equity Fund, National Municipal Bond Fund, Prime Fund, Short-Term
Government Fund, Tax-Exempt Money Fund, Treasury Fund, Treasury Only Fund, and
U.S. Government Securities Fund. The Annual Meeting was held in order to vote on
the following purposes:
<TABLE>
<CAPTION>
PROPOSAL
NUMBER ISSUE
- -------- -----
<C> <S>
1. To elect Messrs. Edward S. Bottum, William P. Carmichael,
Thomas M. Collins, Douglas B. Fletcher, Robert E. Greeley,
and Cornelius J. Pings, Directors of the Company;
2. With respect to each Fund except the Blue Chip and
Intermediate Bond Funds, to approve or disapprove a new
Investment Advisory Agreement between the Company and Bank
of America NT&SA;
3. With respect to the International Equity Fund, to approve or
disapprove a new Sub-Advisory Agreement between Bank of
America NT&SA and Wellington Management Company, LLP;
4. To approve or disapprove an amendment to the Company's
Charter;
5. To approve or disapprove changes to the following
fundamental investment limitations of each Fund of the
Company:
a) limitation on underwriting of securities;
b) limitation on real estate transactions;
c) limitation on commodity transactions;
d) limitation on industry concentration;
e) limitation on lending;
f) limitation on borrowing and issuance of senior
securities; and
g) limitation on issuer concentration
6. To approve or disapprove certain changes to the following
fundamental investment policies and limitations, including a
change to make all of such policies and limitations
non-fundamental:
a) with respect to each Fund, the limitation on short sales
and purchasing securities on margin;
</TABLE>
10
<PAGE> 13
<TABLE>
<CAPTION>
PROPOSAL
NUMBER ISSUE
- -------- -----
<C> <S>
b) with respect to the National Municipal Bond, Aggressive
Growth, California Municipal Bond, Prime, Treasury and
California Tax-Exempt Money Market Funds, the limitation on
purchasing securities of companies for the purpose of
exercising control;
c) with respect to each Fund except the Government and
Treasury Only Funds, the limitation on purchasing securities
of other investment companies;
d) with respect to each Fund except the Aggressive Growth,
Short-Term Government, Prime, Treasury, Government and
Treasury Only Funds, the limitation on put, call, straddle
and spread transactions;
e) with respect to each Fund except the National Municipal
Bond, International Equity, Flexible Income, Short-Term
Government and California Tax-Exempt Money Market Funds, the
limitation on illiquid securities;
f) with respect to the Intermediate Bond, Blue Chip and
Asset Allocation Funds, the limitation on transactions in
certain securities by Board members;
g) with respect to the U.S. Government Securities, Capital
Income, California Municipal Bond and California Tax-Exempt
Money Market Funds, the limitation on unseasoned issuers;
h) with respect to the Aggressive Growth Fund, the policy on
investment in equity securities;
i) with respect to the U.S. Government Securities Fund, the
policy with respect to investment in certificates of the
Government National Mortgage Association;
j) with respect to the Capital Income Fund, the policy with
respect to investment in convertible securities;
k) with respect to the California Municipal Bond Fund, the
policy with respect to investment in California municipal
securities;
l) with respect to the Tax-Exempt Money Fund, the policy
with respect to investment in municipal securities; and
m) with respect to the California Tax-Exempt Money Market
Fund, the policy with respect to investment in California
municipal securities;
7. To approve or disapprove a change in the fundamental
investment objective to a non-fundamental investment
objective of the following Funds: National Municipal Bond,
International Equity, Flexible Income, Intermediate Bond,
Blue Chip, Asset Allocation, Aggressive Growth, U.S.
Government Securities, Capital Income, California Municipal
Bond, Short-Term Government, Prime, Treasury, Tax-Exempt
Money and California Tax-Exempt Money Market Funds;
8. To approve or disapprove a new fundamental investment
limitation of the Prime Fund with regard to its industry
concentration;
9. To ratify or reject the selection of PricewaterhouseCoopers
LLP as the Company's independent accountants for the fiscal
year ending February 28, 1999; and
10. The transaction of such other business as may properly come
before the meeting or any adjournment.
</TABLE>
11
<PAGE> 14
At the adjournment of the annual meeting on July 20, 1998, the voting
results for each proposal were as follows:
PACIFIC HORIZON FUNDS, INC. -- ALL FUNDS
<TABLE>
<CAPTION>
TOTAL SHARES TOTAL ABSTAIN/
OUTSTANDING SHARES VOTED FOR AGAINST WITHHELD
----------------- ---------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
PROPOSAL 1 16,453,350,969.00 8,803,335,110.00
EDWARD S. BOTTUM 8,469,012,940.00 None 334,322,170.00
WILLIAM P. CARMICHAEL 8,468,803,120.00 None 334,531,990.00
THOMAS M. COLLINS 8,472,897,540.00 None 330,437,570.00
DOUGLAS B. FLETCHER 8,473,089,329.00 None 330,245,781.00
ROBERT E. GREELEY 8,475,491,285.00 None 327,843,225.00
CORNELIUS J. PINGS 8,473,521,034.00 None 329,806,076.00
PROPOSAL 4 16,453,350,969.00 8,803,335,110.00 7,332,890,744.00 502,659,743.00 373,195,844.00
PROPOSAL 9 16,453,350,969.00 8,803,335,091.00 8,429,896,332.00 85,027,748.00 288,411,011.00
<CAPTION>
BROKER PASS/
NON VOTE FAIL
-------------- -----
<S> <C> <C>
PROPOSAL 1 PASS
EDWARD S. BOTTUM None
WILLIAM P. CARMICHAEL None
THOMAS M. COLLINS None
DOUGLAS B. FLETCHER None
ROBERT E. GREELEY None
CORNELIUS J. PINGS None
PROPOSAL 4 594,588,779.00 FAIL
PROPOSAL 9 None PASS
</TABLE>
PACIFIC HORIZON INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
TOTAL SHARES TOTAL ABSTAIN/ BROKER
OUTSTANDING SHARES VOTED FOR AGAINST WITHHELD NON VOTE
----------------- ---------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
PROPOSAL 2 4,019,888.00 3,335,021.00 3,251,973.00 1,963.00 81,085.00 None
PROPOSAL 3 4,019,888.00 3,335,021.00 3,248,943.00 4,161.00 22,747.00 59,170.00
PROPOSAL 5a 4,019,888.00 3,335,021.00 3,247,101.00 5,897.00 22,852.00 59,171.00
PROPOSAL 5b 4,019,888.00 3,335,021.00 3,246,469.00 11,881.00 17,500.00 59,171.00
PROPOSAL 5c 4,019,888.00 3,335,021.00 3,250,870.00 7,374.00 17,607.00 59,170.00
PROPOSAL 5d 4,019,888.00 3,335,021.00 3,248,718.00 7,594.00 19,538.00 59,171.00
PROPOSAL 5e 4,019,888.00 3,335,021.00 3,243,267.00 9,800.00 22,783.00 59,171.00
PROPOSAL 5f 4,019,888.00 3,335,021.00 3,244,034.00 7,085.00 24,731.00 59,171.00
PROPOSAL 5g 4,019,888.00 3,335,021.00 3,249,070.00 7,422.00 19,359.00 59,170.00
PROPOSAL 6a 4,019,888.00 3,335,021.00 3,249,981.00 7,169.00 18,700.00 59,171.00
PROPOSAL 6c 4,019,888.00 3,335,021.00 3,250,624.00 5,921.00 19,306.00 59,170.00
PROPOSAL 6d 4,019,888.00 3,335,021.00 3,249,381.00 7,947.00 18,522.00 59,171.00
PROPOSAL 7 4,019,888.00 3,335,021.00 3,246,490.00 5,924.00 23,436.00 59,171.00
<CAPTION>
PASS/
FAIL
-----
<S> <C>
PROPOSAL 2 Pass
PROPOSAL 3 Pass
PROPOSAL 5a Pass
PROPOSAL 5b Pass
PROPOSAL 5c Pass
PROPOSAL 5d Pass
PROPOSAL 5e Pass
PROPOSAL 5f Pass
PROPOSAL 5g Pass
PROPOSAL 6a Pass
PROPOSAL 6c Pass
PROPOSAL 6d Pass
PROPOSAL 7 Pass
</TABLE>
12
<PAGE> 15
PACIFIC HORIZON INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- --------- ----------
<S> <C> <C>
COMMON STOCKS -- 91.1%
AUSTRALIA -- 3.5%
AMP Ltd.................................................... 32,940 $ 403,193
Australia & New Zealand Bank Group Ltd..................... 75,144 379,780
News Corp. Ltd............................................. 66,046 404,020
Pasminco Ltd............................................... 192,505 125,581
WMC Ltd.................................................... 48,205 118,339
----------
1,430,913
----------
BRAZIL -- 0.6%
Companhia Energetica de Minas Gerais....................... 4,235,998 79,181
Telecomunicacoes Brasileiras SA............................ 2,500,500 184,837
----------
264,018
----------
CANADA -- 0.5%
Canadian National Railway Co............................... 4,100 184,756
----------
DENMARK -- 1.2%
Unidanmark A/S............................................. 6,110 500,321
----------
FINLAND -- 2.3%
Metsa Serla-B Shares....................................... 20,910 159,743
Nokia Oyj ADR.............................................. 1,800 120,262
Nokia Oyj-A Shares......................................... 9,520 679,392
----------
959,397
----------
FRANCE -- 14.9%
Alcatel Alsthom............................................ 4,660 753,012
Assurance Generales de France.............................. 2,951 161,781
Axa-UAP.................................................... 4,150 477,496
Banque Nationale de Paris.................................. 9,389 620,373
Carrefour SA............................................... 330 193,198
Compagnie de Saint Gobain.................................. 570 81,787
Compagnie Financiere de Paribas............................ 1,120 94,281
Compagnie Generale des Eaux................................ 5,750 1,146,108
Compagnie Generale des Etablissements Micheli.............. 6,188 262,807
Elf Aquitaine.............................................. 3,650 361,294
Equant NV.................................................. 2,000 84,264
Rhone-Poulenc.............................................. 10,831 520,658
Societe Generale........................................... 3,605 634,382
STMicroelectronics NV...................................... 3,700 202,112
Total SA................................................... 5,210 506,014
----------
6,099,567
----------
</TABLE>
- ---------------
See Notes to Financial Statements.
13
<PAGE> 16
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- --------- ----------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
GERMANY -- 11.5%
Bayer AG................................................... 22,350 $ 859,269
Dresdner Bank AG........................................... 7,730 357,239
Henkel KGaA................................................ 4,480 358,195
Hoechst AG................................................. 17,240 711,690
Karstadt AG................................................ 1,425 622,197
Mannesmann AG.............................................. 4,720 437,605
SAP AG 144A................................................ 530 311,957
Siemens AG................................................. 15,610 1,031,219
----------
4,689,371
----------
HONG KONG -- 0.5%
China Telecom, Ltd. ADR.................................... 1,900 47,975
Hong Kong & China Gas Company Ltd.......................... 63,000 65,852
Hong Kong Telecommunications Ltd........................... 50,541 89,353
----------
203,180
----------
HUNGARY -- 0.0%
Magyar Tavkozlesi RT ADR................................... 800 16,500
----------
IRELAND -- 1.7%
Allied Irish Banks PLC..................................... 43,197 590,244
Jefferson Smurfit Group PLC................................ 53,700 108,355
----------
698,599
----------
ITALY -- 4.6%
Banca Commerciale Italiana................................. 55,600 373,251
Banco di Roma.............................................. 174,200 336,336
ENI SPA.................................................... 72,600 383,234
Olivetti Group SPA......................................... 104,800 234,512
Telecom Italia SPA......................................... 71,644 553,305
----------
1,880,638
----------
JAPAN -- 13.3%
Advantest Corp............................................. 2,700 115,695
Dai Nippon Printing Co., Ltd............................... 17,000 237,318
Daiwa Securities Co., Ltd.................................. 93,000 307,607
Eisai Co., Ltd............................................. 14,000 166,584
Fuji Machine Manufacturing Co.............................. 7,000 217,154
Fuji Photo Film Co......................................... 15,000 483,391
Fujisawa Pharmaceutical Co., Ltd........................... 21,000 181,160
Hitachi, Ltd............................................... 38,000 190,283
Kao Corp................................................... 13,000 200,262
Mabuchi Motor.............................................. 3,200 215,539
Matsumotokiyoshi........................................... 9,400 299,596
Nichiei Co., Ltd........................................... 5,200 368,298
Nippon Telegraph & Telephone Corp.......................... 45,000 341,030
Nippon Television Network Corp............................. 580 168,015
</TABLE>
- ---------------
See Notes to Financial Statements.
14
<PAGE> 17
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- --------- ----------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
JAPAN -- (CONTINUED)
Olympus Optical Co., Ltd................................... 28,000 $ 301,438
Rohm Co., Ltd.............................................. 4,000 407,961
Sanwa Bank................................................. 13,000 74,396
Shohkoh Fund Ltd........................................... 400 91,366
Sony Corp.................................................. 7,100 518,457
Toshiba Corp............................................... 97,000 348,318
Uni-Charm Corp............................................. 5,500 199,837
----------
5,433,705
----------
MEXICO -- 0.6%
Coca Cola Femsa SA......................................... 5,900 6,676
Grupo Financiero Banamex Accival. SA de C.V................ 93,300 81,419
Telefonos de Mexico SA ADR................................. 4,100 146,319
----------
234,414
----------
NETHERLANDS -- 5.2%
Gucci Group NV ADR......................................... 7,200 252,000
ING Groep NV............................................... 10,320 607,763
Philips Electronics NV..................................... 7,800 508,741
TNT Post Group NV.......................................... 6,990 146,818
Unilever NV................................................ 8,800 607,571
----------
2,122,893
----------
NEW ZEALAND -- 0.5%
Telecom Corp. New Zealand, Ltd............................. 14,423 55,760
Telecom Corp. of New Zealand, Ltd.......................... 9,600 18,176
Telecom Corp. of New Zealand, Ltd. ADR..................... 3,580 109,190
----------
183,126
----------
PHILIPPINES -- 0.0%
Ayala Land, Inc............................................ 17,800 2,804
----------
RUSSIA -- 0.1%
LUKoil Holding ADR......................................... 3,600 41,756
----------
SOUTH AFRICA -- 0.3%
De Beers Consolidated Mines Ltd............................ 2,500 30,154
Liberty Life Association of Africa Ltd..................... 3,540 41,597
South African Breweries Ltd................................ 3,200 45,072
----------
116,823
----------
SOUTH KOREA -- 0.3%
Pohang Iron & Steel Co., Ltd. ADR.......................... 6,960 77,430
SK Telecom Co., Ltd. ADR................................... 6,750 42,609
----------
120,039
----------
</TABLE>
- ---------------
See Notes to Financial Statements.
15
<PAGE> 18
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- --------- ----------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
SPAIN -- 2.4%
Empresa Nacional de Electridad, SA......................... 21,960 $ 417,161
Endesa SA ADR.............................................. 5,600 102,550
Telefonica SA ADR.......................................... 4,081 459,113
----------
978,824
----------
SWEDEN -- 5.5%
Astra AB................................................... 13,320 223,144
Electrolux AB Series B..................................... 7,910 126,156
Hennes & Mauritz AB -- B................................... 1,580 109,588
Nordbanken Holding AB...................................... 71,260 424,653
Pharmacia & Upjohn, Inc.................................... 18,800 820,492
Sparbanken Sverige AB, Swedbank............................ 2,250 50,907
Volvo AB -- B Shares....................................... 18,610 513,089
----------
2,268,029
----------
SWITZERLAND -- 3.5%
Compagnie Financiere Richemont AG.......................... 350 366,131
Credit Suisse Group........................................ 1,310 229,604
Holderbank Financiere Glarus AG............................ 340 346,502
Nestle SA.................................................. 263 487,690
----------
1,429,927
----------
TAIWAN -- 0.5%
Taiwan Semiconductor Manufacturing Co., Ltd................ 20,300 222,031
----------
UNITED KINGDOM -- 17.6%
B.A.T. Industries PLC...................................... 80,200 788,316
British Petroleum Co. PLC.................................. 51,094 644,675
British Steel PLC.......................................... 104,200 186,698
British Telecommunications PLC............................. 28,200 382,492
COLT Telecom Group PLC..................................... 2,500 107,587
Compass Group PLC.......................................... 63,300 573,441
Diageo PLC................................................. 24,056 243,706
Great Universal Stores PLC................................. 33,700 405,174
Imperial Chemical Industries PLC........................... 24,900 272,270
National Westminster Bank PLC.............................. 35,200 620,667
Next PLC................................................... 57,000 422,831
Orange PLC................................................. 32,600 387,582
Reckitt & Colman PLC....................................... 18,700 306,871
Siebe PLC.................................................. 80,600 283,428
SmithKline Beecham PLC..................................... 24,655 291,060
Standard Chartered Bank PLC................................ 39,800 306,569
Vodafone Group PLC......................................... 36,400 507,732
</TABLE>
- ---------------
See Notes to Financial Statements.
16
<PAGE> 19
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- --------- ----------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
UNITED KINGDOM -- (CONTINUED)
WPP Group PLC.............................................. 39,300 $ 215,193
Zeneca Group PLC........................................... 7,100 277,609
----------
7,223,901
----------
Total Common Stocks (Cost $39,465,696)...................... 37,305,532
----------
RIGHTS -- 0.0%
Banco Santader.............................................. 9,200 61
Banco Santader.............................................. 9,200 3,440
Compnhia Brasileira......................................... 424 0
----------
Total Rights................................................ 3,501
----------
</TABLE>
<TABLE>
<CAPTION>
MATURITY PRINCIPAL
RATE DATE AMOUNT
---- -------- ---------
<S> <C> <C> <C> <C>
U. S. TREASURY OBLIGATIONS -- 0.9%
U.S. Treasury Bill (b) 4.93% 10/29/98 $190,000 188,576
U.S. Treasury Bill (b) 4.83% 10/29/98 50,000 49,625
U.S. Treasury Bill (b) 4.95% 11/05/98 120,000 118,977
-----------
Total U.S. Treasury Obligations (Cost $357,029)........... 357,178
-----------
REPURCHASE AGREEMENT -- 7.1%
JP Morgan, Securities, Inc., dated 8/31/98, with a
maturity value of $2,908,462 (Collateralized by
$2,908,000 U.S. Treasury Bonds, 11.625%, 11/15/04, market
value -- $2,977,886) (Cost $2,908,000; Note 2)........... 5.73% 09/01/98 2,908,000 2,908,000
-----------
TOTAL INVESTMENTS -- 99.1% (COST $42,730,725)(a).......... 40,574,211
OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.9%............. 390,646
-----------
NET ASSETS -- 100.0%...................................... $40,964,857
===========
</TABLE>
- ---------------
Percentages indicated are based on net assets of $40,964,857.
(a) Represents cost for Federal income tax purposes and differs from value by
net unrealized depreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation..................................... $ 1,822,392
Unrealized depreciation..................................... (3,978,906)
-----------
Net unrealized depreciation................................. $(2,156,514)
===========
</TABLE>
(b) Segregated as collateral for forwards and futures.
ADR -- American Depository Receipt
PLC -- Public Limited Company
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 0.8% of net assets.
See Notes to Financial Statements.
17
<PAGE> 20
PACIFIC HORIZON INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (cost $39,822,725 ).... $37,666,211
Repurchase agreements (cost $2,908,000 )................... 2,908,000
Cash....................................................... 2,305
Interest and dividend receivable........................... 135,022
Receivable for capital shares sold......................... 69,545
Receivable for investment securities sold.................. 1,563,569
Prepaid expenses........................................... 9,089
Deferred organization costs................................ 32,102
-----------
Total Assets................................................ 42,385,843
-----------
LIABILITIES:
Payable for capital shares redeemed........................ 48,514
Payable for investment securities purchased................ 1,324,853
Forward currency contracts -- net amount payable to
counterparties........................................... 25,884
Investment advisory fee payable............................ 6,942
Administration fee payable................................. 7,635
Net payable for variation margin on futures contracts...... 5,671
Other accrued expenses..................................... 1,487
-----------
Total Liabilities........................................... 1,420,986
-----------
NET ASSETS.................................................. $40,964,857
===========
Net Assets
A Shares................................................... $40,156,393
B Shares................................................... 128,142
K Shares................................................... 680,322
-----------
Total....................................................... $40,964,857
===========
Shares Outstanding ($0.001 par value, 200 million shares
authorized):
A Shares................................................... 4,156,693
B Shares................................................... 13,293
K Shares................................................... 71,232
-----------
Total....................................................... 4,241,218
===========
Net Asset Value
A Shares -- Net Asset Value and Redemption Price Per
Share.................................................... $ 9.66
-----
-----
Maximum Sales Charge (A Shares)............................ 5.50%
Maximum Offering Price (A Shares) (Net Asset Value of A
Shares/ (100% -- Maximum Sales Charge)).................. $10.22
-----
-----
B Shares -- Net Asset Value, Offering and Redemption Price
Per Share.................................................. $ 9.64
-----
-----
K Shares -- Net Asset Value, Offering and Redemption Price
Per Share.................................................. $ 9.55
-----
-----
COMPOSITION OF NET ASSETS:
Shares of common stock, at par............................. $4,241
Additional paid-in capital................................. 43,761,443
Accumulated undistributed net investment income............ 351,927
Accumulated net realized losses on investment and foreign
currency transactions, forward currency contracts and
futures contracts........................................ (690,453)
Net unrealized depreciation on investments, forward
currency contracts, futures contracts and foreign
currency translations.................................... (2,462,301)
-----------
NET ASSETS, AUGUST 31, 1998................................. $40,964,857
===========
</TABLE>
See Notes to Financial Statements.
18
<PAGE> 21
PACIFIC HORIZON INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the six months ended August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $42,973)..... $ 580,871
Interest.................................................. 130,968
-----------
711,839
-----------
EXPENSES:
Investment advisory fees.................................. 177,034
Administration fees....................................... 47,209
Shareholder service fees (A shares)....................... 58,113
Shareholder service fees (B shares)....................... 20
Shareholder service fees (K shares)....................... 878
Custodian and fund accounting fees........................ 100,179
Distribution fees (B shares).............................. 59
Distribution fees (K shares).............................. 2,635
Reports to shareholders................................... 21,926
Transfer agent fees....................................... 14,026
Audit fees................................................ 16,121
Legal fees................................................ 627
Other expenses............................................ 7,056
-----------
Total Expenses.......................................... 445,883
Less: Fee waivers and expense reimbursements.............. (170,132)
-----------
Total Net Expenses.......................................... 275,751
-----------
NET INVESTMENT INCOME....................................... 436,088
-----------
NET REALIZED/UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gains on investment and foreign currency
transactions, forward currency contracts and futures
contracts............................................... 1,473,498
Net change in unrealized depreciation on investments,
forward currency contracts, futures contracts and
foreign currency translations........................... (5,895,587)
-----------
Net realized/unrealized losses on investments............. (4,422,089)
-----------
DECREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $(3,986,001)
===========
</TABLE>
See Notes to Financial Statements.
19
<PAGE> 22
PACIFIC HORIZON INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AUGUST 31, YEAR ENDED
1998 FEBRUARY 28,
(UNAUDITED) 1998
---------------- ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income.......................... $ 436,088 $ 324,762
Net realized gains (losses) on investment and
foreign currency transactions, forward
currency contracts and futures contracts..... 1,473,498 (1,317,018)
Net change in unrealized appreciation
(depreciation) on investments, forward
currency contracts, futures contracts and
foreign currency translations................ (5,895,587) 3,437,500
----------- -----------
Change in net assets resulting from operations... (3,986,001) 2,445,244
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Class A Shares............................... -- (293,996)
Class B Shares(a)............................ -- --
Class K Shares............................... -- (3,725)
Net realized gains on investment transactions:
Class A Shares............................... (85,216) (930,184)
Class B Shares(a)............................ (239) --
Class K Shares............................... (1,445) (11,071)
----------- -----------
Change in net assets from shareholder
distributions.................................. (86,900) (1,238,976)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued.................... 10,970,800 32,932,837
Dividends reinvested........................... 53,235 685,188
Cost of shares redeemed........................ (8,188,031) (8,956,017)
----------- -----------
Change in net assets from capital share
transactions................................... 2,836,004 24,662,008
----------- -----------
Change in net assets............................. (1,236,897) 25,868,276
NET ASSETS:
Beginning of Period............................ 42,201,754 16,333,478
----------- -----------
End of Period (including undistributed net
investment income of $351,927 and
distributions in excess of net investment
income of $84,161, respectively)............. $40,964,857 $42,201,754
=========== ===========
</TABLE>
- ---------------
(a) Period from July 15, 1998 (inception date) to August 31, 1998.
See Notes to Financial Statements.
20
<PAGE> 23
PACIFIC HORIZON INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
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 August 31, 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, K Shares and effective July 15, 1998, the Fund began
offering B Shares. A Shares have a Shareholder Services Plan, B Shares have a
Distribution and Services plan, and K Shares have a Distribution Plan and
Administrative and Shareholder Services Plan. B Shares of the Fund held for 9
years will automatically convert into A Shares of the Fund.
The investment objectives of the Fund is as follows:
The Fund seeks to achieve its investment objective of long-term capital
growth by investing primarily in foreign equity securities.
Adviser and Administrator
Bank of America National Trust and Savings Association ("Bank of America"),
a subsidiary of BankAmerica Corporation ("BankAmerica"), serves as the Fund's
investment adviser. On September 15, 1997, Bank of America assumed the
responsibility of administrator for each of the Fund pursuant to the terms of an
Administration Agreement between the Company and Bank of America (the
"Administration Agreement").
On October 1, 1998, BankAmerica, the Adviser's and Administrator's parent
company, completed its merger with NationsBank Corporation. The combined company
operates under the name BankAmerica. BankAmerica, continues to serve the Funds
on substantially identical terms as described in Note 3.
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 Fund's prospectuses and
statements of additional information, providing periodic reports to the
21
<PAGE> 24
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.
Distributor and Transfer Agent
Provident Distributors, Inc. ("PDI"), serves as principal underwriter and
distributor of shares of the Fund. PFPC serves as the Fund's transfer agent and
dividend disbursing agent.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
PORTFOLIO VALUATIONS:
The securities of the Fund for which market quotations are readily available
(other than debt securities with remaining maturities of 60 days or less) are
valued at the last reported 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
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.
22
<PAGE> 25
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.
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.
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.
23
<PAGE> 26
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 in the Fund's
Statement of Assets and Liabilities have been made to increase (decrease) such
accounts primarily due to reclassification of foreign currency losses:
<TABLE>
<CAPTION>
ACCUMULATED UNDISTRIBUTED ACCUMULATED NET REALIZED
NET INVESTMENT INCOME GAIN/(LOSS) ON INVESTMENTS
------------------------- --------------------------
<S> <C> <C>
$(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
$2,225,022, after October 31, 1997.
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
24
<PAGE> 27
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 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 August 31, 1998:
<TABLE>
<CAPTION>
VALUE AT
FORWARD FOREIGN SETTLEMENT SETTLEMENT CURRENT UNREALIZED
CURRENCY CONTRACTS DATE DATE VALUE GAIN/(LOSS)
------------------ ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Purchase Contracts:
Canadian Dollar............... 09/17/98 $ 999,005 $ 939,726 $(59,279)
French Franc.................. 09/30/98 77,974 77,715 (259)
</TABLE>
25
<PAGE> 28
<TABLE>
<CAPTION>
VALUE AT
FORWARD FOREIGN SETTLEMENT SETTLEMENT CURRENT UNREALIZED
CURRENCY CONTRACTS DATE DATE VALUE GAIN/(LOSS)
------------------ ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
French Franc.................. 09/30/98 126,202 128,605 2,403
German Marks.................. 09/02/98 56,425 56,333 (92)
Japanese Yen.................. 09/01/98 19,937 20,070 133
Netherland Guilder............ 09/01/98 102,208 104,078 1,870
Netherland Guilder............ 09/02/98 13,859 13,811 (48)
Spanish Peseta................ 09/18/98 266,882 271,939 5,057
Swedish Krona................. 09/01/98 64,893 66,704 1,811
Swedish Krona................. 09/01/98 121,727 125,124 3,397
UK Pounds..................... 09/01/98 51,307 52,384 1,077
UK Pounds..................... 09/02/98 29,512 30,168 656
UK Pounds..................... 09/04/98 54,854 55,598 744
UK Pounds..................... 09/18/98 462,189 478,866 16,677
---------- ---------- --------
$2,446,974 $2,421,121 $(25,853)
========== ========== ========
Sale Contracts:
Australian Dollar............. 09/01/98 $ 39,630 $ 39,299 $ 331
Australian Dollar............. 09/02/98 7,165 7,196 (31)
Australian Dollar............. 09/03/98 7,425 7,671 (246)
Japanese Yen.................. 09/02/98 18,013 18,200 (187)
Mexican Pesos................. 09/02/98 13,739 13,779 (40)
Swedish Krona................. 09/02/98 60,683 60,132 551
UK Pounds..................... 09/03/98 48,794 49,893 (1,099)
UK Pounds..................... 09/08/98 140,492 139,803 689
---------- ---------- --------
$ 335,941 $ 335,973 $ (32)
========== ========== ========
</TABLE>
FUTURES:
A futures contract is an agreement to purchase or sell a specified quantity
of an underlying instrument at a specified future date, or to make or receive a
cash payment based on the value of a securities index. During the period the
futures contract is open, changes in the value of the contract are recognized as
unrealized gains or losses by "marked 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
26
<PAGE> 29
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 August 31, 1998:
<TABLE>
<CAPTION>
NUMBER CONTRACT EXPIRATION UNREALIZED
OF CONTRACTS VALUE DATE GAIN/(LOSS)
------------ -------- ---------- -----------
<S> <C> <C> <C> <C>
Purchased:
FTSE Index (UK)......................... 50 $ 28,539 09/18/98 $(28,539)
IBEX Index (Spain)...................... 4,000 48,453 09/18/98 (481)
Toronto Index (Canada).................. 3,500 206,173 09/19/98 (5,146)
-------- --------
Totals.................................. $283,165 $(34,166)
======== ========
</TABLE>
The aggregate market value of cash or eligible securities pledged to cover
margin requirements for open futures positions at August 31, 1998 was
$1,173,089.
NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund has 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 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 six months ended August 31, 1998, Bank of America agreed to waive $162,096
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. For the six months ended August 31, 1998, Bank of America
agreed to waive $461 of its administration fee for the Fund. For the same
period, Bank of America reimbursed $6,702 for operating expenses of the Fund.
For the six months ended August 31, 1998, PDI advised the Fund that it
retained $436 from commissions earned on sales of the Fund's shares. For the
same period, Bank of America and its affiliates advised the Fund that they
retained $4,223 from commissions earned on sales of shares of the Fund.
27
<PAGE> 30
The Fund has a Shareholder Service Plan (the "Plan") under which the Fund
pays PDI 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 six
months ended August 31, 1998, the Fund incurred charges of $58,113, pursuant to
the Plan. The Fund was advised that of these amounts PDI retained $484 and
affiliates of Bank of America retained $24,102. The Plan provides that if, in
any month, the fees paid to PDI are less than the costs incurred by PDI, 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 Fund has adopted a Distribution and Services Plan pursuant to Rule 12b-1
under the 1940 act, under which the B Shares of the Fund pay Bank of America for
costs incurred in connection with distribution of the B Shares and for
shareholder servicing fees to Service Organizations. 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 Fund's B
Shares. For the period ended August 31, 1998, the Fund incurred charges of $79,
pursuant to the Plan.
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 for expenses primarily intended
to result in the sale of the Fund's K Shares. Under the Distribution Plan,
payments by the Fund for distribution expenses may not exceed 0.75% of the
average daily net assets of the Fund's K Shares. Payments for distribution
expenses under the Distribution Plan are subject to Rule 12b-1 under the Act.
Under the Administrative Plan, the Fund pays for expenses incurred in connection
with shareholder services provided by PDI 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 six months ended August 31, 1998, the Fund incurred
charges of $3,513, pursuant to the Distribution and the Administration Plans.
PDI waived $873 of the distribution and administrative servicing fees for the
six months ended August 31, 1998.
28
<PAGE> 31
For the six months ended August 31, 1998, PFPC earned $14,026 from the Fund
for transfer agency and dividend disbursing agency services performed.
A partner of Drinker Biddle & Reath LLP ("DBR") serves as Secretary of the
Company. Legal fees earned by DBR are stated in the statement of operations.
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 $60,000,
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 $40,000 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 $263 for the Fund, for the six months ended August
31, 1998. A director who comes into office after March 18, 1998 is ineligible to
participate in the Retirement Plan.
29
<PAGE> 32
NOTE 5 -- SECURITIES TRANSACTIONS
For the six months ended August 31, 1998, the cost of purchases and the
proceeds from the sales of the Fund's portfolio securities (excluding short-term
investments) amounted to $37,384,272 and $32,657,874, respectively.
NOTE 6 -- CAPITAL SHARE TRANSACTIONS
Transactions in capital shares for the Fund are summarized below:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AUGUST 31, 1998 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 1998
----------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
-------- ----------- --------- -----------
<S> <C> <C> <C> <C>
A Shares
Issued...................... 933,272 $10,531,798 3,093,208 $32,373,676
Reinvested.................. 5,072 51,566 68,417 671,344
Redeemed.................... (729,509) (8,086,358) (849,866) (8,810,729)
-------- ----------- --------- -----------
Net increase.................. 208,835 $ 2,497,006 2,311,758 $24,234,291
======== =========== ========= ===========
B Shares (a)
Issued...................... 13,269 $ 144,597 -- --
Reinvested.................. 24 237 -- --
Redeemed.................... -- -- -- --
-------- ----------- --------- -----------
Net increase.................. 13,293 $ 144,834 -- --
======== =========== ========= ===========
K Shares
Issued...................... 26,838 $ 294,405 53,867 $ 559,161
Reinvested.................. 142 1,432 1,423 13,844
Redeemed.................... (9,214) (101,673) (13,574) (145,288)
-------- ----------- --------- -----------
Net increase.................. 17,766 $ 194,164 41,715 $ 427,717
======== =========== ========= ===========
</TABLE>
- ---------------
(a) Period from July 15, 1998 (inception date) to August 31, 1998.
30
<PAGE> 33
PACIFIC HORIZON INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AUGUST 31, YEAR ENDED PERIOD ENDED
1998 FEBRUARY 28, FEBRUARY 28,
(UNAUDITED) 1998 1997(a)
---------------- ------------ ------------
<S> <C> <C> <C>
A SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF PERIOD............. $ 10.55 $ 9.91 $ 10.00
------- ------- -------
Income from Investment Operations:
Net investment income (loss).... 0.12 0.07 (0.01)
Net realized and unrealized
gains (losses) on investment
transactions, forward
contracts, foreign currency
transactions and futures
contracts..................... (0.99) 0.92 (0.07)
------- ------- -------
Total income (loss) from
investment operations........... (0.87) 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....... (0.02) (0.27) (0.01)
------- ------- -------
Total Dividends and
Distributions................... (0.02) (0.35) (0.01)
Net change in net asset value per
share........................... (0.89) 0.64 (0.09)
------- ------- -------
NET ASSET VALUE PER SHARE, END OF
PERIOD.......................... $ 9.66 $ 10.55 $ 9.91
======= ======= =======
Total return (excludes sales
charge)......................... (8.25%)(c) 10.32% (0.79%)(c)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period
(000)......................... $40,157 $41,643 $16,217
Ratio of expenses to average net
assets........................ 1.16%(b) 1.22% 0.92%(b)
Ratio of net investment income
(loss) to average net
assets........................ 1.54%(b) 1.05% 0.40%(b)
Ratio of expenses to average net
assets*....................... 1.85%(b) 2.57% 3.92%(b)
Ratio of net investment income
to average net assets*........ 0.85%(b) (0.30%) (2.61%)(b)
Portfolio turnover rate......... 79% 79% 114%
</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 May 13, 1996 (inception date of Fund) to February 28, 1997.
(b) Annualized.
(c) Not annualized.
See Notes to Financial Statements.
31
<PAGE> 34
PACIFIC HORIZON INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
AUGUST 31,
1998
(Unaudited)(a)
--------------
<S> <C>
B SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD.... $ 11.64
--------
Income from Investment Operations:
Net investment income........................... 0.01
Net realized and unrealized losses on investment
transactions, forward contracts, foreign
currency transactions and futures contracts... (1.99)
--------
Total income (loss) from investment operations.... (1.98)
--------
Less: Dividends and Distributions:
Dividends to shareholders from net investment
income........................................ --
Distributions to shareholders from net realized
gains on investment transactions.............. (0.02)
--------
Total Dividends and Distributions................. (0.02)
Net change in net asset value per share........... (2.00)
--------
NET ASSET VALUE PER SHARE, END OF PERIOD.......... $ 9.64
========
Total return...................................... (17.02%)(c)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000)............... $ 128
Ratio of expenses to average net assets......... 2.03%(b)
Ratio of net investment income to average net
assets........................................ 5.33%(b)
Ratio of expenses to average net assets*........ 2.82%(b)
Ratio of net investment income to average net
assets*....................................... 4.54%(b)
Portfolio turnover rate......................... 79%
</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 15, 1998 (inception date) to August 31, 1998.
(b) Annualized.
(c) Not annualized.
See Notes to Financial Statements.
32
<PAGE> 35
PACIFIC HORIZON INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
AUGUST 31, YEAR ENDED PERIOD ENDED
1998 FEBRUARY 28, FEBRUARY 28,
(UNAUDITED) 1998 1997(a)
----------- ------------ ------------
<S> <C> <C> <C>
K SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF
PERIOD................................. $ 10.45 $ 9.88 $ 9.82
--------- --------- ---------
Income from Investment Operations:
Net investment income (loss)........... 0.01 0.03 (0.01)
Net realized and unrealized gains
(losses) on investment transactions,
forward contracts, foreign currency
transactions and futures contracts... (0.89) 0.87 0.08
--------- --------- ---------
Total income loss from investment
operations............................. (0.88) 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......................... (0.02) (0.27) (0.01)
--------- --------- ---------
Total Dividends and Distributions........ (0.02) (0.33) (0.01)
Net change in net asset value per
share.................................. (0.90) 0.57 0.06
--------- --------- ---------
NET ASSET VALUE PER SHARE, END OF
PERIOD................................. $ 9.55 $ 10.45 $ 9.88
========= ========= =========
Total return............................. (8.43%)(c) 9.35% 0.72%(c)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000)...... $ 680 $ 559 $ 116
Ratio of expenses to average net
assets............................... 1.66%(b) 1.72% 1.49%(b)
Ratio of net investment income (loss)
to average net assets................ 1.16%(b) 0.48% (0.31%)(b)
Ratio of expenses to average net
assets*.............................. 2.36%(b) 3.30% 3.53%(b)
Ratio of net investment income (loss)
to average net assets*............... 0.46%(b) (1.10%) (2.34%)(b)
Portfolio turnover rate................ 79% 79% 114%
</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) Annualized.
(c) Not annualized.
See Notes to Financial Statements.
33
<PAGE> 36
[This page intentionally left blank.]
<PAGE> 37
[This page intentionally left blank.]
<PAGE> 38
[This page intentionally left blank.]
<PAGE> 39
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 Municipal Bond Fund
[ ] Flexible Income Fund
Money Market Funds
[ ] Prime Fund [ ] Treasury Only Fund
[ ] Treasury Fund [ ] Tax-Exempt Money Fund
[ ] Government Fund [ ] California Tax-Exempt Money Market
</TABLE>
Additional Comments:
................................................................................
................................................................................
................................................................................
................................................................................
................................................................................
................................................................................
NOT FDIC INSURED - NO BANK GUARANTEE - MAY LOSE VALUE
<PAGE> 40
Bulk Rate
U.S. Postage
PAID
Secaucus, NJ
Permit No. 237
[Pacific Horizon Funds]
Provident Distributor, Inc., Distributor
PH7-5009 8/98
<PAGE> 41
PACIFIC HORIZON TAXABLE MONEY MARKET FUNDS
SEMI-ANNUAL REPORT
August 31, 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> 42
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
PricewaterhouseCoopers 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> 43
.....................................
Contents
<TABLE>
<S> <C>
FUND FACTS 2-3
UNDERSTANDING YOUR SHAREHOLDER
REPORT 4-6
ECONOMIC REVIEW FROM THE
INVESTMENT ADVISER 8-9
SHAREHOLDER VOTING RESULTS 10-13
PORTFOLIO OF INVESTMENTS 14-38
STATEMENTS OF ASSETS
AND LIABILITIES 39
STATEMENTS OF OPERATIONS 40
STATEMENTS OF CHANGES
IN NET ASSETS 42-43
NOTES TO FINANCIAL
STATEMENTS 44-53
FINANCIAL HIGHLIGHTS 54-70
</TABLE>
<PAGE> 44
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
...........................................................................
Flexible Income High Current Income
(formerly Corporate Bond)
...........................................................................
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 Municipal Bond* High Level of Federal and California
(formerly California Tax-Exempt Tax-Free Current Income
Bond)
...........................................................................
Money Market Funds+ High Current Income Plus Principal
- Prime Stability
- Treasury
- Government
- Treasury Only
...........................................................................
Tax-Exempt Money Market Funds*+
- Tax-Exempt Money High Level of Federal Tax-Free Current
Income Plus Principal Stability
- California Tax-Exempt Money 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.
+ 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> 45
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> 46
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 [Illustration of 3 pages of document]
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.
[Illustration of Because a picture or chart can help clarify the
page with graphs] text, the investment management team may have
illustrated the most important features of the Fund.
The illustrations may represent the portfolio
composition, the largest holdings or a
simplification of the investment adviser's
investment style.
4
<PAGE> 47
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
[Illustration of INDUSTRY SECTOR AND PERCENTAGE OF THE FUND'S
document page] NET ASSETS REPRESENTED BY INVESTMENTS IN THAT
SECTOR (IF APPLICABLE)
ACTUAL PORTFOLIO HOLDINGS WITH SHARES AND
MARKET VALUE AS OF REPORT DATE
The STATEMENT OF ASSETS AND LIABILITIES lists all the assets and liabilities of
the Fund as of the date of the statement. This is an individual fund's "balance
sheet." Also disclosed in this statement are the Fund's net asset value per
share and its maximum offering price per share as of the date of the statement.
The statement also lists the accounts that comprise the Fund's net assets
(capital stock, undistributed income, etc.).
[Illustration of SUMMARY OF THE FUND'S INVESTMENTS AND ALL
document page] 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
5
<PAGE> 48
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.
[Illustration of ANY INCOME EARNED FROM THE FUND'S INVESTMENTS
document page]
OPERATING EXPENSES INCURRED BY THE FUND DURING
THE PERIOD
GAINS OR LOSSES REALIZED UPON THE SALE OF THE
FUND'S INVESTMENTS AND ANY CHANGE IN
UNREALIZED GAINS OR LOSSES ON FUND HOLDINGS
DURING THE PERIOD
NET CHANGE IN NET ASSETS DUE TO FUND
OPERATIONS
The STATEMENTS OF CHANGES IN NET ASSETS shows the changes in the net assets of
the Fund during each of the two most recent reporting periods. The changes in
net assets are generally broken down into four distinct sections:
[Illustration of OPERATIONS: SEE STATEMENT OF OPERATIONS
document page]
DIVIDENDS TO SHAREHOLDERS: TOTAL INCOME
DIVIDENDS PAID TO SHAREHOLDERS DURING THE
PERIODS
DISTRIBUTIONS TO SHAREHOLDERS: TOTAL REALIZED
GAINS DISTRIBUTED TO SHAREHOLDERS DURING THE
PERIODS
FUND SHARE TRANSACTIONS: DOLLAR VALUE OF FUND
SHARES PURCHASED, REDEEMED OR REINVESTED
DURING THE PERIODS
The NOTES TO FINANCIAL STATEMENTS are footnotes to the statements listed above.
These notes include information on accounting methods used by the Fund,
contractual arrangements between the Fund and its service providers, certain
transactions effected by the Fund and other general information about the Fund.
The FINANCIAL HIGHLIGHTS shows, for a single share outstanding throughout each
period presented, the net investment income, the realized and unrealized gains
and losses and the dividends and distributions of the Fund. It also shows key
data and ratios, such as the total investment return for each period, the
portfolio turnover rate for Funds other than money market mutual funds, the
ratio of expenses to average net assets and the ratio of net investment income
to average net assets.
6
<PAGE> 49
[This page intentionally left blank.]
7
<PAGE> 50
ECONOMIC REVIEW
FROM THE INVESTMENT ADVISER
The global financial crisis has dominated the economic news in recent months.
There are renewed fears that the effect of the Asian currency crisis is
spreading to other economies in the world, including North and South America.
The Russian Ruble has experienced a sharp decline as debate continues regarding
political and economic changes. The pace of economic reform in Japan has been
alarmingly slow, with the recent interest rate reduction reflecting only the
first significant action taken in this regard. Markets in Canada and Mexico
continue to reflect concerns relating to commodities. Moreover, investors have
become increasingly concerned about the sustainability of U.S. corporate
profits, resulting in a significant decline in the U.S. equity markets. The
current global economic crisis is generating greater concern, as it increasingly
affects a larger number of key American trading partners.
The U.S. economy has been affected both positively and negatively by the global
financial crisis. Low interest and inflation rates have stimulated domestic
demand for housing, autos and other consumer goods. However, manufacturing
activity is slowing, particularly in trade exports, and cutbacks have been made
in production and personnel within some industries. The Gross Domestic Product
("GDP") rose at a 1.8%(1) rate in the second quarter, below the first quarter's
5.5%(1) growth rate, reflecting the deterioration in the trade balance and a
slowdown in business investment in equipment and inventories. While the U.S.
economy remains strong in the third quarter, it is no longer immune from the
effects of the crisis. Additionally, prospects for U.S. growth and corporate
profits are less secure.
Economic reports continue to indicate that inflation is under control in
manufacturing and consumer-related areas. The prices paid to U.S. factories,
farmers and other producers (as measured by the Producer Price Index "PPI") fell
0.4%(1) in August, the largest drop in seven months. In the first eight months
of 1998, consumer prices rose at an annual rate of 1.6%(1), which is the same as
the first eight months of 1997. Inflation has remained innocuous as weakening
economies in Asia have depressed commodity prices and the cost of goods imported
into the U.S.
In a departure from the recent past, it appears that the Federal Reserve Board
(the "Fed") now has a higher level of anxiety about the outlook for the global
economy and is becoming more concerned about the increasing risks of slowing
economic growth rather than the dangers of rising inflation. In a recent speech,
Fed Chairman Alan Greenspan hinted that the Fed might consider lowering interest
rates if it becomes increasingly likely that the Asian currency crisis will
spread to the U.S. economy. Although the Federal Open Market Committee ("FOMC")
left the Fed Funds' target interest rate unchanged at 5.50% at the most recent
FOMC meeting held in August; some analysts now expect a reduction in rates
sometime soon.
The main benefactor of the global financial uncertainty has clearly been the
U.S. Treasury market. U.S. Treasuries have replaced gold as the safe haven of
choice, as many investors are reaping the financial rewards of owning these
types of securities. On July 17, the day that the equity markets peaked, the
Treasury 10-year note had a closing yield of approximately 5.5%(1). As of August
31, the yield on this note was 4.97%(1). The fixed income markets now reflect
expectations of an interest rate reduction, as evidenced by the entire Treasury
yield curve trading below 5.50%.
The turmoil in overseas markets, the decline in commodity prices, and the
8
<PAGE> 51
global competition from cheaper imports have also caused the credit sectors to
widen appreciably against Treasuries. Credit risk is now at a heightened level,
as the expectation of lower profit prospects has become more apparent to
investors. Additional downward revisions to corporate earnings estimates will
put further pressure on corporate spreads until the economic situation begins to
improve in Asia.
The Standard & Poor's 500 stock index ("S&P 500") fell 8.0%(2) on a total return
basis during the 6-month period ended August 31. While the stocks of large,
name-brand companies have been battered during the month of August, smaller
company stocks have been hit even harder. The S&P 500 declined 19%(2) from its
high on July 17 and the Russell 2000 Index dropped 30%(3) from its high recorded
in April. Year-to-date, the performance disparity has been even larger between
large cap and small cap stocks. Since the beginning of the year, the S&P 500 is
down 0.4%(2) and the Russell 2000 Index has dropped 22.1%(3), constituting a
spread of 21.7 percentage points.
Investors are becoming increasingly concerned about the sustainability of U.S.
corporate profits. Investors had been willing to pay record-high valuations for
stocks because interest rates were low, inflation was under control and
economies around the world were expanding. Not only are the developed Asian
countries faltering, but the economic turmoil has also extended to Russia and
several emerging market countries. So far, the U.S. market has been fairly well
insulated from the economic problems overseas, but U.S. companies are now
beginning to feel the negative impact from depressed overseas business
conditions. Investor confidence in a continued economic expansion will not occur
until Asia and Russia implement appropriate measures to rectify their economic
and political problems.
LOOKING FORWARD
The U.S. government is still expected to post a budget surplus when the fiscal
year ends on September 30. Rising incomes, low unemployment and stock market
gains earlier in the year have generated abundant tax collections. Reduced
government spending has also contributed to decreasing interest payments on
government debt.
The outlook for the remainder of 1998 is unclear. 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 2.5% in the third quarter. Just as
the market was overly optimistic at the beginning of the summer, we suspect that
the markets' current doldrums are too extreme.
Sincerely,
/s/ Kirk Hartman
Kirk Hartman
Chief Investment Officer
Fixed Income Management
- ---------------
(1) Source - Bloomberg, 1998.
(2) Source - Bloomberg, 1998. The S&P 500 Index is an index that is
representative of the large capitalization U.S. equity market as a whole
and cannot be invested in directly.
(3) Source - Bloomberg, 1998. The Russell 2000 is an index that is
representative of the small capitalization U.S. equity market as a whole
and cannot be invested in directly.
9
<PAGE> 52
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Results (Unaudited) of Annual Meeting of Shareholders
Convened on June 19, 1998
Reconvened on June 26, 1998 and July 1, 1998
Reconvened and Adjourned on July 20, 1998
- --------------------------------------------------------------------------------
The Annual Meeting of Shareholders of Pacific Horizon Funds, Inc. (the
"Company") was convened on June 19, 1998, reconvened on June 26, 1998 and July
1, 1998, and reconvened and adjourned on July 20, 1998. The Funds of the Company
are: Aggressive Growth Fund, Asset Allocation Fund, Blue Chip Fund, California
Municipal Bond Fund (formerly California Tax-Exempt Bond Fund), California
Tax-Exempt Money Market Fund, Capital Income Fund, Flexible Income Fund
(formerly Corporate Bond Fund), Government Fund, Intermediate Bond Fund,
International Equity Fund, National Municipal Bond Fund, Prime Fund, Short-Term
Government Fund, Tax-Exempt Money Fund, Treasury Fund, Treasury Only Fund, and
U.S. Government Securities Fund. The Annual Meeting was held in order to vote on
the following purposes:
<TABLE>
<CAPTION>
PROPOSAL
NUMBER ISSUE
- -------- -----
<C> <S>
1. To elect Messrs. Edward S. Bottum, William P. Carmichael,
Thomas M. Collins, Douglas B. Fletcher, Robert E. Greeley,
and Cornelius J. Pings, Directors of the Company;
2. With respect to each Fund except the Blue Chip and
Intermediate Bond Funds, to approve or disapprove a new
Investment Advisory Agreement between the Company and Bank
of America NT&SA;
3. With respect to the International Equity Fund, to approve or
disapprove a new Sub-Advisory Agreement between Bank of
America NT&SA and Wellington Management Company, LLP;
4. To approve or disapprove an amendment to the Company's
Charter;
5. To approve or disapprove changes to the following
fundamental investment limitations of each Fund of the
Company:
a) limitation on underwriting of securities;
b) limitation on real estate transactions;
c) limitation on commodity transactions;
d) limitation on industry concentration;
e) limitation on lending;
f) limitation on borrowing and issuance of senior
securities; and
g) limitation on issuer concentration.
</TABLE>
10
<PAGE> 53
<TABLE>
<CAPTION>
PROPOSAL
NUMBER ISSUE
- -------- -----
<C> <S>
6. To approve or disapprove certain changes to the following
fundamental investment policies and limitations, including a
change to make all of such policies and limitations
non-fundamental:
a) with respect to each Fund, the limitation on short sales
and purchasing securities on margin;
b) with respect to the National Municipal Bond, Aggressive
Growth, California Municipal Bond, Prime, Treasury and
California Tax-Exempt Money Market Funds, the limitation on
purchasing securities of companies for the purpose of
exercising control;
c) with respect to each Fund except the Government and
Treasury Only Funds, the limitation on purchasing securities
of other investment companies;
d) with respect to each Fund except the Aggressive Growth,
Short-Term Government, Prime, Treasury, Government and
Treasury Only Funds, the limitation on put, call, straddle
and spread transactions;
e) with respect to each Fund except the National Municipal
Bond, International Equity, Flexible Income, Short-Term
Government and California Tax-Exempt Money Market Funds, the
limitation on illiquid securities;
f) with respect to the Intermediate Bond, Blue Chip and
Asset Allocation Funds, the limitation on transactions in
certain securities by Board members;
g) with respect to the U.S. Government Securities, Capital
Income, California Municipal Bond and California Tax-Exempt
Money Market Funds, the limitation on unseasoned issuers;
h) with respect to the Aggressive Growth Fund, the policy on
investment in equity securities;
i) with respect to the U.S. Government Securities Fund, the
policy with respect to investment in certificates of the
Government National Mortgage Association;
j) with respect to the Capital Income Fund, the policy with
respect to investment in convertible securities;
k) with respect to the California Municipal Bond Fund, the
policy with respect to investment in California municipal
securities;
l) with respect to the Tax-Exempt Money Fund, the policy
with respect to investment in municipal securities; and
m) with respect to the California Tax-Exempt Money Market
Fund, the policy with respect to investment in California
municipal securities;
7. To approve or disapprove a change in the fundamental
investment objective to a non-fundamental investment
objective of the following Funds: National Municipal Bond,
International Equity, Flexible Income, Intermediate Bond,
Blue Chip, Asset Allocation, Aggressive Growth, U.S.
Government Securities, Capital Income, California Municipal
Bond, Short-Term Government, Prime, Treasury, Tax-Exempt
Money and California Tax-Exempt Money Market Funds;
8. To approve or disapprove a new fundamental investment
limitation of the Prime Fund with regard to its industry
concentration;
</TABLE>
11
<PAGE> 54
<TABLE>
<CAPTION>
PROPOSAL
NUMBER ISSUE
- -------- -----
<C> <S>
9. To ratify or reject the selection of PricewaterhouseCoopers
LLP as the Company's independent accountants for the fiscal
year ending February 28, 1999; and
10. The transaction of such other business as may properly come
before the meeting or any adjournment.
</TABLE>
At the adjournment of the annual meeting on July 20, 1998, the voting
results for each proposal were as follows:
The voting results for each proposal are shown below:
PACIFIC HORIZON FUNDS, INC. -- ALL FUNDS
<TABLE>
<CAPTION>
TOTAL SHARES TOTAL ABSTAIN/
OUTSTANDING SHARES VOTED FOR AGAINST WITHHELD
----------------- ---------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
PROPOSAL 1 16,453,350,969.00 8,803,335,110.00
EDWARD S. BOTTUM 8,469,012,940.00 None 334,322,170.00
WILLIAM P. CARMICHAEL 8,468,803,120.00 None 334,531,990.00
THOMAS M. COLLINS 8,472,897,540.00 None 330,437,570.00
DOUGLAS B. FLETCHER 8,473,089,329.00 None 330,245,781.00
ROBERT E. GREELEY 8,475,491,285.00 None 327,843,225.00
CORNELIUS J. PINGS 8,473,521,034.00 None 329,806,076.00
PROPOSAL 4 16,453,350,969.00 8,803,335,110.00 7,332,890,744.00 502,659,743.00 373,195,844.00
PROPOSAL 9 16,453,350,969.00 8,803,335,091.00 8,429,896,332.00 85,027,748.00 288,411,011.00
<CAPTION>
BROKER PASS/
NON VOTE FAIL
-------------- -----
<S> <C> <C>
PROPOSAL 1 PASS
EDWARD S. BOTTUM None
WILLIAM P. CARMICHAEL None
THOMAS M. COLLINS None
DOUGLAS B. FLETCHER None
ROBERT E. GREELEY None
CORNELIUS J. PINGS None
PROPOSAL 4 594,588,779.00 FAIL
PROPOSAL 9 None PASS
</TABLE>
PACIFIC HORIZON PRIME FUND
<TABLE>
<CAPTION>
TOTAL SHARES TOTAL ABSTAIN/ BROKER
OUTSTANDING SHARES VOTED FOR AGAINST WITHHELD NON VOTE
----------------- ---------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
PROPOSAL 2 10,091,450,217.00 5,193,612,901.00 4,893,350,586.00 70,838,075.00 229,424,240.00 None
PROPOSAL 5a 10,091,450,217.00 5,193,612,903.00 4,529,909,034.00 192,779,051.00 230,123,819.00 240,800,999.00
PROPOSAL 5b 10,091,450,217.00 5,193,612,903.00 4,516,832,069.00 206,430,066.00 229,549,769.00 240,800,999.00
PROPOSAL 5c 10,091,450,217.00 5,193,612,903.00 4,547,587,009.00 174,971,810.00 230,253,084.00 240,801,000.00
PROPOSAL 5d 10,091,450,217.00 5,193,612,903.00 4,383,616,953.00 336,697,294.00 232,497,657.00 240,800,999.00
PROPOSAL 5e 10,091,450,217.00 5,193,612,903.00 4,546,707,470.00 174,161,824.00 231,942,610.00 240,800,999.00
PROPOSAL 5f 10,091,450,217.00 5,193,612,903.00 4,529,656,200.00 174,787,337.00 248,368,368.00 240,800,998.00
PROPOSAL 5g 10,091,450,217.00 5,193,612,903.00 4,403,317,285.00 308,751,854.00 240,742,764.00 240,801,000.00
PROPOSAL 6a 10,091,450,217.00 5,193,612,903.00 4,278,030,790.00 437,539,397.00 237,241,716.00 240,801,000.00
PROPOSAL 6b 10,091,450,217.00 5,193,612,903.00 4,385,872,104.00 332,337,982.00 234,601,818.00 240,800,999.00
PROPOSAL 6c 10,091,450,217.00 5,193,612,903.00 4,376,709,949.00 339,551,959.00 236,549,995.00 240,801,000.00
PROPOSAL 6e 10,091,450,217.00 5,193,612,903.00 4,286,105,539.00 429,880,209.00 236,826,156.00 240,800,999.00
PROPOSAL 7 10,091,450,217.00 5,193,612,903.00 4,261,630,456.00 431,457,131.00 259,724,317.00 240,800,999.00
PROPOSAL 8 10,091,450,217.00 5,193,612,903.00 4,231,178,020.00 485,438,219.00 236,195,665.00 240,800,999.00
<CAPTION>
PASS/
FAIL
-----
<S> <C>
PROPOSAL 2 PASS
PROPOSAL 5a PASS
PROPOSAL 5b PASS
PROPOSAL 5c PASS
PROPOSAL 5d PASS
PROPOSAL 5e PASS
PROPOSAL 5f PASS
PROPOSAL 5g PASS
PROPOSAL 6a PASS
PROPOSAL 6b PASS
PROPOSAL 6c PASS
PROPOSAL 6e PASS
PROPOSAL 7 PASS
PROPOSAL 8 PASS
</TABLE>
12
<PAGE> 55
PACIFIC HORIZON TREASURY FUND
<TABLE>
<CAPTION>
TOTAL SHARES TOTAL ABSTAIN/ BROKER
OUTSTANDING SHARES VOTED FOR AGAINST WITHHELD NON VOTE
----------------- ---------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
PROPOSAL 2 3,161,979,400.00 1,645,396,029.00 1,548,784,358.00 8,997,588.00 87,614,083.00 None
PROPOSAL 5a 3,161,979,400.00 1,645,396,029.00 1,512,199,311.00 36,493,648.00 71,103,384.00 25,599,686.00
PROPOSAL 5b 3,161,979,400.00 1,645,396,029.00 1,474,592,075.00 74,088,339.00 71,115,929.00 25,599,686.00
PROPOSAL 5c 3,161,979,400.00 1,645,396,029.00 1,472,659,722.00 75,670,030.00 71,466,592.00 25,599,685.00
PROPOSAL 5d 3,161,979,400.00 1,645,396,029.00 1,407,141,939.00 142,191,240.00 70,463,164.00 25,599,686.00
PROPOSAL 5e 3,161,979,400.00 1,645,396,029.00 1,513,385,084.00 36,791,694.00 69,619,566.00 25,599,685.00
PROPOSAL 5f 3,161,979,400.00 1,645,396,029.00 1,472,890,489.00 75,738,185.00 71,167,669.00 25,599,686.00
PROPOSAL 5g 3,161,979,400.00 1,645,396,029.00 1,406,436,091.00 142,650,755.00 70,709,497.00 25,599,686.00
PROPOSAL 6a 3,161,979,400.00 1,645,396,029.00 1,438,593,823.00 116,994,442.00 64,208,078.00 25,599,686.00
PROPOSAL 6b 3,161,979,400.00 1,645,396,029.00 1,504,065,772.00 51,396,520.00 64,334,052.00 25,599,685.00
PROPOSAL 6c 3,161,979,400.00 1,645,396,029.00 1,473,744,635.00 81,982,787.00 64,068,921.00 25,599,686.00
PROPOSAL 6e 3,161,979,400.00 1,645,396,029.00 1,409,848,517.00 145,395,657.00 64,552,170.00 25,599,685.00
PROPOSAL 7 3,161,979,400.00 1,645,396,029.00 1,468,199,155.00 84,025,973.00 67,571,215.00 25,599,686.00
<CAPTION>
PASS/
FAIL
-----
<S> <C>
PROPOSAL 2 PASS
PROPOSAL 5a PASS
PROPOSAL 5b PASS
PROPOSAL 5c PASS
PROPOSAL 5d PASS
PROPOSAL 5e PASS
PROPOSAL 5f PASS
PROPOSAL 5g PASS
PROPOSAL 6a PASS
PROPOSAL 6b PASS
PROPOSAL 6c PASS
PROPOSAL 6e PASS
PROPOSAL 7 PASS
</TABLE>
PACIFIC HORIZON GOVERNMENT FUND
<TABLE>
<CAPTION>
TOTAL SHARES TOTAL ABSTAIN/ BROKER
OUTSTANDING SHARES VOTED FOR AGAINST WITHHELD NON VOTE
----------------- ---------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
PROPOSAL 2 496,212,095.00 276,852,036.00 252,535,083.00 3,707,555.00 20,609,398.00 None
PROPOSAL 5a 496,212,095.00 276,852,036.00 235,390,745.00 5,907,866.00 19,219,735.00 16,333,690.00
PROPOSAL 5b 496,212,095.00 276,852,036.00 234,498,296.00 6,497,501.00 19,522,550.00 16,333,689.00
PROPOSAL 5c 496,212,095.00 276,852,036.00 217,979,634.00 23,299,229.00 19,239,483.00 16,333,690.00
PROPOSAL 5d 496,212,095.00 276,852,036.00 234,265,255.00 6,822,229.00 19,430,863.00 16,333,689.00
PROPOSAL 5e 496,212,095.00 276,852,036.00 234,356,366.00 7,255,829.00 18,906,151.00 16,333,690.00
PROPOSAL 5f 496,212,095.00 276,852,036.00 233,928,944.00 7,369,579.00 19,219,824.00 16,333,689.00
PROPOSAL 5g 496,212,095.00 276,852,036.00 233,258,094.00 7,468,342.00 19,791,909.00 16,333,691.00
PROPOSAL 6a 496,212,095.00 276,852,036.00 220,533,113.00 8,424,078.00 31,561,155.00 16,333,690.00
PROPOSAL 6e 496,212,095.00 276,852,036.00 221,197,685.00 7,659,115.00 31,661,546.00 16,333,690.00
<CAPTION>
PASS/
FAIL
-----
<S> <C>
PROPOSAL 2 PASS
PROPOSAL 5a PASS
PROPOSAL 5b PASS
PROPOSAL 5c PASS
PROPOSAL 5d PASS
PROPOSAL 5e PASS
PROPOSAL 5f PASS
PROPOSAL 5g PASS
PROPOSAL 6a PASS
PROPOSAL 6e PASS
</TABLE>
PACIFIC HORIZON TREASURY ONLY FUND
<TABLE>
<CAPTION>
TOTAL SHARES TOTAL ABSTAIN/ BROKER
OUTSTANDING SHARES VOTED FOR AGAINST WITHHELD NON VOTE
----------------- ---------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
PROPOSAL 2 431,211,217.00 243,328,841.00 237,275,145.00 771,825.00 5,281,871.00 None
PROPOSAL 5a 431,211,217.00 243,328,843.00 170,698,171.00 3,387,015.00 7,375,331.00 61,868,326
PROPOSAL 5b 431,211,217.00 243,328,843.00 170,053,858.00 4,373,412.00 7,033,247.00 61,868,326
PROPOSAL 5c 431,211,217.00 243,328,843.00 170,225,439.00 3,880,163.00 7,354,915.00 61,868,326
PROPOSAL 5d 431,211,217.00 243,328,843.00 169,427,204.00 4,633,235.00 7,400,078.00 61,868,326
PROPOSAL 5e 431,211,217.00 243,328,843.00 170,076,798.00 3,987,746.00 7,395,973.00 61,868,326
PROPOSAL 5f 431,211,217.00 243,328,843.00 170,508,959.00 3,660,850.00 7,290,708.00 61,868,326
PROPOSAL 5g 431,211,217.00 243,328,843.00 170,011,674.00 3,958,236.00 7,490,607.00 61,868,326
PROPOSAL 6a 431,211,217.00 243,328,843.00 169,226,319.00 5,639,993.00 6,594,206.00 61,868,325
PROPOSAL 6e 431,211,217.00 243,328,843.00 169,516,543.00 5,602,814.00 6,341,161.00 61,868,325.00
<CAPTION>
PASS/
FAIL
-----
<S> <C>
PROPOSAL 2 PASS
PROPOSAL 5a PASS
PROPOSAL 5b PASS
PROPOSAL 5c PASS
PROPOSAL 5d PASS
PROPOSAL 5e PASS
PROPOSAL 5f PASS
PROPOSAL 5g PASS
PROPOSAL 6a PASS
PROPOSAL 6e PASS
</TABLE>
13
<PAGE> 56
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<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 -- 0.8%
DOMESTIC -- 0.8%
Bank One Wisconsin N.A................. A1+/P1 5.550% 02/26/99 $ 25,000,000 $ 24,983,639
Key Bank N.A., Monthly Variable Rate
(final maturity 9/23/98)*............. A1/P1 5.515% 09/23/98 22,000,000 21,998,563
U.S. Bank N.A., Monthly Variable Rate
(final maturity 9/15/99)*............. A1/P1 5.602% 09/16/98 50,000,000 49,994,884
---------------
Total Bank Notes (Amortized Cost
$96,977,086).......................... 96,977,086
---------------
CERTIFICATES OF DEPOSIT -- 12.3%
DOMESTIC -- 1.0%
Bankers Trust Company, Daily Variable
Rate (final maturity 9/11/98)*........ A1/P1 5.640% 09/01/98 25,000,000 24,999,615
Bankers Trust Company, Weekly Variable
Rate (final maturity 10/7/98)*........ A1/P1 5.630% 09/01/98 50,000,000 50,000,000
Crestar Bank........................... A1/P1 5.920% 10/16/98 50,000,000 49,996,464
---------------
124,996,079
---------------
EURO -- 0.4%
Istituto Bancario San Paolo Di Torino,
London................................ A1/P1 5.650% 10/06/98 25,000,000 24,998,089
Svenska Handelsbanken, Inc., London.... A1/P1 5.655% 12/07/98 25,000,000 24,999,841
---------------
49,997,930
---------------
</TABLE>
- ---------------
See Notes to Financial Statements.
14
<PAGE> 57
<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 -- 10.9%
Bank of Tokyo, Mitsubishi, New York.... A1/P1 5.750% 09/11/98 $100,000,000 $ 100,000,000
Banque National de Paris, New York..... A1/P1 5.710% 10/29/98 50,000,000 50,000,783
Banque National de Paris, New York..... A1/P1 5.730% 03/31/99 50,000,000 49,986,158
Banque Paribas, New York............... A1/P1 5.660% 03/01/99 90,000,000 89,978,605
Banque Paribas, New York............... A1/P1 5.730% 03/29/99 50,000,000 49,986,294
Bayerische Landesbank Girozentrale, New
York.................................. A1+/P1 5.635% 03/15/99 75,000,000 74,963,641
Canadian Imperial Bank of Commerce, New
York.................................. A1+/P1 5.880% 10/14/98 50,000,000 49,997,183
Canadian Imperial Bank of Commerce, New
York.................................. A1+/P1 5.705% 03/30/99 50,000,000 49,979,337
Credit Suisse First Boston, Weekly
Variable Rate (final maturity
8/11/99)*............................. A1+/P1 5.650% 09/01/98 100,000,000 100,000,000
Deutsche Bank A.G., New York........... A1+/P1 5.940% 10/22/98 25,000,000 24,997,997
Istituto Bancario San Paolo Di Torino,
New York, Daily Variable Rate (final
maturity 3/19/99)*.................... A1/P1 5.620% 09/01/98 50,000,000 49,989,360
Istituto Bancario San Paolo Di Torino,
New York.............................. A1/P1 5.850% 04/29/99 50,000,000 49,984,274
Istituto Bancario San Paolo Di Torino,
New York.............................. A1/P1 5.690% 07/23/99 50,000,000 49,974,409
</TABLE>
- ---------------
See Notes to Financial Statements.
15
<PAGE> 58
<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)
National Westminster Bank, PLC New
York.................................. A1+/P1 5.740% 04/28/99 $ 25,000,000 $ 24,981,201
Royal Bank of Canada, New York......... A1+/P1 5.630% 02/26/99 50,000,000 49,983,419
Societe Generale Bank, New York, Daily
Variable Rate (final maturity
10/23/98)*............................ A1+/P1 5.590% 09/01/98 50,000,000 49,995,873
Societe Generale Bank, New York, Daily
Variable Rate (final maturity
1/22/99)*............................. A1+/P1 5.610% 09/01/98 25,000,000 24,995,271
Societe Generale Bank, New York,
Monthly Variable Rate (final maturity
5/7/99)*.............................. A1+/P1 5.567% 09/08/98 25,000,000 24,989,082
Societe Generale Bank, New York,
Monthly Variable Rate (final maturity
6/1/99)*.............................. A1+/P1 5.566% 09/21/98 50,000,000 49,970,976
Societe Generale Bank, New York........ A1+/P1 5.910% 10/15/98 25,000,000 24,998,559
Societe Generale Bank, New York........ A1+/P1 5.660% 02/26/99 50,000,000 49,992,988
Societe Generale Bank, New York........ A1+/P1 5.700% 02/26/99 50,000,000 49,990,655
Societe Generale Bank, New York........ A1+/P1 5.690% 03/02/99 50,000,000 49,988,058
Societe Generale Bank, New York........ A1+/P1 5.750% 04/15/99 25,000,000 24,992,589
Societe Generale Bank, New York........ A1+/P1 5.760% 04/16/99 25,000,000 24,993,301
</TABLE>
- ---------------
See Notes to Financial Statements.
16
<PAGE> 59
<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)
Svenska Handelsbanken, New York........ A1/P1 5.750% 04/26/99 $100,000,000 $ 99,968,921
---------------
1,339,678,934
---------------
Total Certificates of Deposit (Amortized
Cost $1,514,672,943).................. 1,514,672,943
---------------
COMMERCIAL PAPER -- 37.7%
DOMESTIC -- 36.9%
ASSET BACKED SECURITIES -- 12.9%
Aesop Funding Corp..................... A1/P1 5.650% 09/11/98 49,980,000 49,902,739
CC USA Inc............................. A1+/P1 5.520% 09/10/98 37,261,000 37,209,580
CC USA Inc............................. A1+/P1 5.570% 09/24/98 36,500,000 36,370,111
CC USA Inc............................. A1+/P1 5.540% 09/29/98 25,000,000 24,892,278
CC USA Inc............................. A1+/P1 5.550% 10/30/98 47,500,000 47,067,948
CC USA Inc............................. A1+/P1 5.530% 11/19/98 30,000,000 29,635,942
CC USA Inc............................. A1+/P1 5.530% 11/20/98 30,000,000 29,631,333
Citibank Capital Markets............... A1+/P1 5.550% 09/23/98 30,000,000 29,898,250
Citibank Capital Markets............... A1+/P1 5.530% 09/28/98 50,000,000 49,792,625
Citibank Capital Markets............... A1+/P1 5.540% 11/02/98 50,000,000 49,522,944
Citibank Capital Markets............... A1+/P1 5.530% 11/04/98 50,000,000 49,508,444
Citibank Capital Markets............... A1+/P1 5.490% 12/21/98 25,000,000 24,577,198
Corporate Asset Funding Corp., Inc..... A1+/P1 5.520% 09/09/98 50,000,000 49,938,667
Falcon Asset Securitization Corp....... A1/P1 5.580% 09/01/98 17,410,000 17,410,000
Falcon Asset Securitization Corp....... A1/P1 5.540% 10/26/98 31,200,000 30,935,927
Falcon Asset Securitization Corp....... A1/P1 5.540% 10/27/98 22,765,000 22,568,816
</TABLE>
- ---------------
See Notes to Financial Statements.
17
<PAGE> 60
<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)
Moat Funding LLC....................... P1/F1+ 5.570% 10/09/98 $ 38,220,000 $ 37,995,288
Moat Funding LLC....................... P1/F1+ 5.560% 10/28/98 32,505,000 32,218,848
Moat Funding LLC....................... P1/F1+ 5.540% 11/23/98 22,941,000 22,647,980
Moat Funding LLC....................... P1/F1+ 5.540% 11/24/98 142,480,000 140,638,208
Moat Funding LLC....................... P1/F1+ 5.540% 11/25/98 71,004,000 70,075,228
Moat Funding LLC....................... P1/F1+ 5.530% 12/11/98 58,273,000 57,368,911
Republic Industries Funding Corp....... A1/P1 5.560% 09/18/98 40,000,000 39,894,978
Republic Industries Funding Corp....... A1/P1 5.550% 10/02/98 50,000,000 49,761,042
Republic Industries Funding Corp....... A1/P1 5.550% 10/09/98 100,000,000 99,414,167
Republic Industries Funding Corp....... A1/P1 5.550% 10/16/98 60,000,000 59,583,750
Republic Industries Funding Corp....... A1/P1 5.550% 10/27/98 25,000,000 24,784,167
Riverwoods Funding Corp................ A1+/P1 5.540% 09/17/98 50,000,000 49,876,889
Sigma Finance Inc...................... A1+/P1 5.520% 10/08/98 50,000,000 49,716,333
Sigma Finance Inc...................... A1+/P1 5.520% 10/19/98 25,000,000 24,816,000
Sigma Finance Inc...................... A1+/P1 5.560% 11/09/98 50,000,000 49,467,167
Sigma Finance Inc...................... A1+/P1 5.530% 11/30/98 50,000,000 49,308,750
World Omni Vehicle Leasing Inc......... A1/P1 5.550% 09/11/98 50,000,000 49,922,917
World Omni Vehicle Leasing Inc......... A1/P1 5.550% 10/07/98 27,161,000 27,010,256
World Omni Vehicle Leasing Inc......... A1/P1 5.550% 10/16/98 25,000,000 24,826,562
World Omni Vehicle Leasing Inc......... A1/P1 5.540% 10/20/98 50,000,000 49,622,972
---------------
1,587,813,215
---------------
</TABLE>
- ---------------
See Notes to Financial Statements.
18
<PAGE> 61
<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)
AUTOMOBILES -- 1.8%
Daimler-Benz North America Corp........ A1/P1 5.510% 09/24/98 $ 74,500,000 $ 74,237,977
Hertz Corporation...................... P1/F1 5.550% 10/01/98 50,000,000 49,768,750
Hertz Corporation...................... P1/F1 5.550% 10/02/98 50,000,000 49,761,042
Hertz Corporation...................... P1/F1 5.520% 12/11/98 50,000,000 49,225,667
---------------
222,993,436
---------------
AUTOMOTIVE PARTS AND EQUIPMENT -- 0.8%
Johnson Controls Inc................... P1/F1 5.590% 09/17/98 50,000,000 49,875,667
Johnson Controls Inc................... P1/F1 5.580% 09/29/98 25,000,000 24,891,500
Johnson Controls Inc................... P1/F1 5.580% 09/30/98 20,000,000 19,910,019
---------------
94,677,186
---------------
BANKING & FINANCE -- 6.6%
Associate Financial Services Company of
Puerto Rico........................... A1/P1 5.560% 09/24/98 17,900,000 17,836,415
Bankers Trust, New York, Daily Variable
Rate (final maturity 9/4/98)*......... A1/P1 5.680% 09/01/98 25,000,000 25,000,000
Bankers Trust, New York, Daily Variable
Rate (final maturity 9/4/98)*......... A1/P1 5.760% 09/01/98 50,000,000 50,000,000
Bankers Trust, New York................ A1/P1 5.520% 10/21/98 50,000,000 49,616,667
BHF Finance (Delaware), Inc............ P1/TBW1 5.530% 11/25/98 50,000,000 49,347,153
General Electric Capital Corp.......... A1+/P1 5.850% 09/01/98 150,000,000 150,000,000
General Electric Capital Corp.......... A1+/P1 5.530% 09/09/98 100,000,000 99,877,111
General Electric Capital Corp.......... A1+/P1 5.540% 10/21/98 50,000,000 49,615,278
General Electric Capital Corp.......... A1+/P1 5.480% 12/29/98 50,000,000 49,094,278
General Electric Capital Services...... A1+/P1 5.540% 10/16/98 50,000,000 49,653,750
</TABLE>
- ---------------
See Notes to Financial Statements.
19
<PAGE> 62
<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)
BANKING & FINANCE -- (CONTINUED)
General Electric Capital Services...... A1+/P1 5.480% 12/29/98 $ 50,000,000 $ 49,094,278
Generale Bank Inc...................... A1/P1 5.530% 10/21/98 25,000,000 24,807,986
Household International, Inc........... A1/D1 5.560% 10/01/98 50,000,000 49,768,333
National Australia Funding, Inc........ A1+/P1 5.480% 12/29/98 50,000,000 49,095,104
National Bank of Canada................ A1/P1 5.490% 12/28/98 50,000,000 49,101,069
---------------
811,907,422
---------------
BROKERAGE SERVICES -- 6.0%
Bear Stearns Companies, Inc............ A1/P1 5.490% 12/18/98 100,000,000 98,353,000
Lehman Brothers Holdings, Inc.......... A1/F1 5.550% 11/18/98 50,000,000 49,398,750
Lehman Brothers Holdings, Inc.,
Quarterly Variable Rate (final
maturity 5/21/99)*.................... A1/F1 5.687% 11/24/98 100,000,000 100,000,000
Lehman Brothers Holdings, Inc., Weekly
Variable Rate (final maturity
1/19/99)*............................. A1/F1 5.760% 09/01/98 50,000,000 50,000,000
Lehman Brothers Holdings, Inc., Weekly
Variable Rate (final maturity
5/7/99)*.............................. A1/F1 5.700% 09/01/98 100,000,000 100,000,000
Merrill Lynch & Co., Inc............... A1+/P1 5.520% 09/04/98 50,000,000 49,976,979
Merrill Lynch & Co., Inc............... A1+/P1 5.520% 10/21/98 100,000,000 99,233,333
Salomon Smith Barney Holdings, Inc..... A1/P1 5.530% 11/04/98 100,000,000 99,016,889
</TABLE>
- ---------------
See Notes to Financial Statements.
20
<PAGE> 63
<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 -- (CONTINUED)
Salomon Smith Barney Holdings, Inc..... A1/P1 5.520% 11/18/98 $ 50,000,000 $ 49,402,000
Salomon Smith Barney Holdings, Inc..... A1/P1 5.500% 12/04/98 50,000,000 49,281,944
---------------
744,662,895
---------------
CONGLOMERATES -- 2.4%
B.A.T. Capital Corporation............. P1/F1 5.650% 09/22/98 100,000,000 99,670,417
B.A.T. Capital Corporation............. P1/F1 5.650% 09/23/98 150,000,000 149,482,083
B.A.T. Capital Corporation............. P1/F1 5.620% 10/01/98 50,000,000 49,765,833
---------------
298,918,333
---------------
ELECTRONICS -- 0.5%
Hitachi America, Ltd................... A1+/P1 5.510% 11/10/98 17,000,000 16,817,864
Hitachi America, Ltd................... A1+/P1 5.520% 11/30/98 20,000,000 19,724,000
Hitachi America, Ltd................... A1+/P1 5.500% 12/16/98 20,000,000 19,676,111
---------------
56,217,975
---------------
INSURANCE -- 2.0%
Aetna Services Inc..................... A1/D1 5.560% 10/09/98 95,000,000 94,441,954
Safeco Credit Company.................. A1/D1 5.570% 10/07/98 20,000,000 19,888,600
Safeco Credit Company.................. A1/D1 5.540% 11/17/98 49,320,000 48,735,585
Safeco Credit Company.................. A1/D1 5.530% 11/25/98 35,000,000 34,542,594
Safeco Credit Company.................. A1/D1 5.520% 12/03/98 50,000,000 49,287,000
---------------
246,895,733
---------------
OIL PRODUCTION -- 1.6%
Atlantic Richfield Co.................. A1/P1 5.540% 09/14/98 200,000,000 199,599,889
---------------
</TABLE>
- ---------------
See Notes to Financial Statements.
21
<PAGE> 64
<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)
RELOCATION SERVICES -- 0.6%
PHH Corporation........................ A1/P1 5.720% 10/01/98 $ 25,000,000 $ 24,880,833
PHH Corporation........................ A1/P1 5.630% 12/16/98 50,000,000 49,171,139
---------------
74,051,972
---------------
SOVEREIGN ISSUES -- 0.5%
Government Development Bank of Puerto
Rico.................................. A1+/TBW1 5.550% 10/16/98 24,400,000 24,230,725
Government Development Bank of Puerto
Rico.................................. A1+/TBW1 5.530% 11/10/98 43,164,000 42,699,447
---------------
66,930,172
---------------
UTILITIES -- 1.2%
Duke Capital Corp...................... A1/F1 5.540% 09/11/98 25,000,000 24,961,528
Duke Capital Corp...................... A1/F1 5.550% 10/20/98 25,000,000 24,811,146
Duke Capital Corp...................... A1/F1 5.540% 10/29/98 40,000,000 39,642,978
Duke Capital Corp...................... A1/F1 5.540% 11/13/98 30,000,000 29,662,983
Duke Capital Corp...................... A1/F1 5.530% 11/24/98 25,000,000 24,677,417
---------------
143,756,052
---------------
Total Domestic.......................... 4,548,424,280
---------------
FOREIGN -- 0.8%
Food and Beverages -- 0.8%
Diageo Capital PLC..................... A1/P1 5.510% 09/29/98 50,000,000 49,785,722
Diageo Capital PLC..................... A1/P1 5.490% 12/01/98 50,000,000 49,306,125
---------------
Total Foreign........................... 99,091,847
---------------
Total Commercial Paper (Amortized Cost
$4,647,516,127)....................... 4,647,516,127
---------------
</TABLE>
- ---------------
See Notes to Financial Statements.
22
<PAGE> 65
<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 -- 16.7%
ASSET BACKED SECURITIES -- 2.0%
CC USA, Inc............................ A1+/P1 5.800% 04/09/99 $ 50,000,000 $ 50,000,000
Racers Series 1998, Monthly Variable
Rate (final maturity 3/31/99)*........ A1+/P1 5.656% 09/30/98 43,280,000 43,277,691
Sigma Finance Inc., Weekly Variable
Rate (final maturity 7/19/99)*........ A1+/P1 5.630% 09/01/98 50,000,000 50,000,000
Sigma Finance Inc., Weekly Variable
Rate (final maturity 8/26/99)*........ A1+/P1 5.750% 09/02/98 50,000,000 50,000,000
Sigma Finance Inc...................... A1+/P1 5.760% 03/31/99 25,000,000 25,000,000
Sigma Finance Inc...................... A1+/P1 5.775% 03/31/99 25,000,000 25,000,000
---------------
243,277,691
---------------
AUTOMOBILES -- 2.3%
American Honda Finance Corp., Quarterly
Variable Rate (final maturity
1/20/99)*............................. A1/P1 5.687% 10/20/98 25,000,000 25,000,000
American Honda Finance Corp., Quarterly
Variable Rate (final maturity
1/21/99)*............................. A1/P1 5.687% 10/21/98 50,000,000 49,998,055
American Honda Finance Corp., Quarterly
Variable Rate (final maturity
4/20/99)*............................. A1/P1 5.668% 10/20/98 65,000,000 65,000,000
American Honda Finance Corp., Quarterly
Variable Rate (final maturity
4/26/99)*............................. A1/P1 5.658% 10/26/98 25,000,000 24,998,386
</TABLE>
- ---------------
See Notes to Financial Statements.
23
<PAGE> 66
<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
6/16/99)*............................. A1/P1 5.668% 09/16/98 $ 50,000,000 $ 50,000,000
American Honda Finance Corp., Quarterly
Variable Rate (final maturity
6/25/99)*............................. A1/P1 5.668% 09/25/98 25,000,000 25,000,000
General Motors Acceptance Corp.,
Quarterly Variable Rate (final
maturity 9/3/98)*..................... A1/P1 5.668% 09/03/98 46,393,000 46,393,031
---------------
286,389,472
---------------
BANKING & FINANCE -- 7.1%
Banco Popular de Puerto Rico, Quarterly
Variable Rate (final maturity
1/15/99)*............................. D1+/P1 5.867% 10/21/98 25,000,000 25,014,152
Bank of Scotland, PLC, Quarterly
Variable Rate (final maturity
9/22/98)*............................. A1/P1 5.587% 09/22/98 25,000,000 24,999,443
Bankers Trust New York Corp., Quarterly
Variable Rate (final maturity
8/6/99)*.............................. A1/P1 5.660% 11/06/98 100,000,000 99,990,712
Bankers Trust New York Corp., Monthly
Variable Rate (final maturity
2/10/99)*............................. A1/P1 5.602% 09/10/98 105,000,000 104,981,559
Beneficial Corporation, Weekly Variable
Rate (final maturity 9/9/98)*......... A1/P1 5.400% 09/09/98 50,000,000 49,997,303
</TABLE>
- ---------------
See Notes to Financial Statements.
24
<PAGE> 67
<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 & FINANCE -- (CONTINUED)
Compaigne Bancaire USA Funding, Weekly
Variable Rate (final maturity
10/1/98)*............................. A1/P1 5.580% 09/01/98 $ 50,000,000 $ 50,000,000
Compaigne Bancaire USA Funding, Weekly
Variable Rate (final maturity
10/1/98)*............................. A1/P1 5.580% 09/01/98 25,000,000 24,999,589
Compagnie Bancaire USA Funding, Weekly
Variable Rate (final maturity
11/25/98)*............................ A1/P1 5.700% 09/01/98 50,000,000 50,000,000
Countrywide Home Loans Inc., Daily
Variable Rate (final maturity
7/26/99)*............................. A1/F1 5.690% 09/01/98 100,000,000 100,000,000
Countrywide Home Loans Inc., Daily
Variable Rate (final maturity
7/26/99)*............................. A1/F1 5.690% 09/01/98 50,000,000 50,000,000
Countrywide Home Loans Inc., Quarterly
Variable Rate (final maturity
8/30/99)*............................. A1/F1 5.687% 11/30/98 100,000,000 100,000,000
Household Finance Corp., Monthly
Variable Rate (final maturity
9/15/98)*............................. A1/P1 5.691% 09/15/98 50,000,000 50,001,606
Household Finance Corp., Monthly
Variable Rate (final maturity
1/19/99)*............................. A1/P1 5.615% 09/21/98 25,000,000 25,000,000
Household Finance Corp., Monthly
Variable Rate (final maturity
1/21/99)*............................. A1/P1 5.618% 09/21/98 25,000,000 25,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
25
<PAGE> 68
<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 & FINANCE -- (CONTINUED)
Household Finance Corp., Monthly
Variable Rate (final maturity
3/29/99)*............................. A1/P1 5.556% 09/29/98 $ 25,000,000 $ 24,990,129
Household Finance Corp., Quarterly
Variable Rate (final maturity
3/9/99)*.............................. A1/P1 5.637% 09/09/98 50,000,000 50,000,000
Household Finance Corp., Quarterly
Variable Rate (final maturity
4/8/99)*.............................. A1/P1 5.838% 10/08/98 20,000,000 20,020,294
---------------
874,994,787
---------------
BROKERAGE SERVICES -- 2.6%
Bear Stearns Companies, Inc., Monthly
Variable Rate (final maturity
3/17/99)*............................. A1/P1 5.611% 09/17/98 100,000,000 100,000,000
Credit Suisse First Boston, Inc.,
Weekly Variable Rate (final maturity
7/30/99)*............................. A1+/P1 5.630% 09/01/98 100,000,000 100,000,000
Lehman Brothers Holdings, Inc., Monthly
Variable Rate (final maturity
7/23/99)*............................. A1/F1 5.695% 09/21/98 50,000,000 50,000,000
Lehman Brothers Holdings, Inc.,
Quarterly Variable Rate (final
maturity 2/12/99)*.................... A1/F1 5.717% 11/12/98 25,000,000 25,000,000
Merrill Lynch & Co., Inc., Daily
Variable Rate (final maturity
11/23/98)*............................ A1+/P1 5.700% 09/01/98 25,000,000 25,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
26
<PAGE> 69
<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
12/9/98)*............................. A1+/P1 5.660% 09/01/98 $ 25,000,000 $ 24,999,324
---------------
324,999,324
---------------
LEASING -- 0.2%
Sanwa Business Credit Corp., Daily
Variable Rate (final maturity
9/18/98)*............................. P1/D1 5.720% 09/01/98 25,000,000 25,000,000
---------------
RELOCATION SERVICES -- 2.5%
PHH Corporation, Daily Variable Rate
(final maturity 10/06/98)*............ A1/P1 5.680% 09/01/98 45,000,000 44,991,477
PHH Corporation, Daily Variable Rate
(final maturity 10/15/98)*............ A1/P1 5.630% 09/01/98 40,000,000 39,991,293
PHH Corporation, Monthly Variable Rate
(final maturity 9/25/98)*............. A1/P1 5.588% 09/25/98 36,000,000 35,996,933
PHH Corporation, Quarterly Variable
Rate (final maturity 10/16/98)*....... A1/P1 5.587% 10/16/98 35,000,000 34,992,897
PHH Corporation, Quarterly Variable
Rate (final maturity 10/30/98)*....... A1/P1 5.587% 10/30/98 50,000,000 49,984,118
</TABLE>
- ---------------
See Notes to Financial Statements.
27
<PAGE> 70
<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)
RELOCATION SERVICES -- (CONTINUED)
PHH Corporation, Quarterly Variable
Rate (final maturity 8/24/99)*........ A1/P1 5.817% 11/24/98 $100,000,000 $ 100,000,000
---------------
305,956,718
---------------
Total Corporate Obligations (Amortized
Cost $2,060,617,992).................. 2,060,617,992
---------------
MASTER NOTES -- 7.3%
Goldman Sachs Group L.P. (final
maturity 10/13/98)*................... A1+/P1 5.952% 09/01/98 400,000,000 400,000,000
Morgan Stanley, Dean Witter, Discover
Group (final maturity 12/18/98)*...... A1/P1 5.938% 09/01/98 500,000,000 500,000,000
---------------
Total Master Notes (Amortized Cost
$900,000,000)......................... 900,000,000
---------------
REPURCHASE AGREEMENTS -- 25.7%
First Chicago Capital Markets, Inc.,
dated 8/31/98, with a maturity value
of $200,032,389 (Collateralized by
$198,715,000, various U.S. Government
Obligations, 5.25%-5.875%, 11/15/99-
5/15/08, market value --
$204,000,408)......................... 5.830% 09/01/98 200,000,000 200,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
28
<PAGE> 71
<TABLE>
<CAPTION>
AMORTIZED
MATURITY PRINCIPAL COST
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
REPURCHASE AGREEMENTS -- (CONTINUED)
Goldman Sachs & Co, dated 8/31/98, with
a maturity value of $350,056,583
(Collateralized by $523,710,262, vari-
ous U.S. Government Obligations,
5.00%-10.00%, 3/1/99-8/1/28, market
value -- $357,000,000)................ 5.820% 09/01/98 $350,000,000 $ 350,000,000
J.P. Morgan Securities, Inc., dated
8/31/98, with a maturity value of
$500,080,972 (Collateralized by
$501,664,000,various U.S. Government
Obligations, 0.00%-7.90%, 9/4/98-
7/30/08, market value --
$510,000,573)......................... 5.830% 09/01/98 500,000,000 500,000,000
NationsBanc Montgomery Securities,
dated 8/31/98, with a maturity value
of $550,089,069 (Collateralized by
$609,608,457, FannieMae, 6.50%-7.00%,
9/1/11-1/1/13, market value --
$561,000,000)......................... 5.830% 09/01/98 550,000,000 550,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
29
<PAGE> 72
<TABLE>
<CAPTION>
AMORTIZED
MATURITY PRINCIPAL COST
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
REPURCHASE AGREEMENTS -- (CONTINUED)
Nomura Securities International, Inc.,
dated 8/31/98, with a maturity value
of $481,457,224 (Collateralized by
$630,463,740, FannieMae, 6.00%-8.50%,
market value -- $491,006,580)......... 5.850% 09/01/98 $481,379,000 $ 481,379,000
Prudential Securities, Inc., dated
8/31/98, with a maturity value of
$525,085,021 (Collateralized by
$605,091,817, various U.S. Govern-
ment Obligations, 0.00%-12.00%,
9/14/98-8/1/28, market value --
$535,500,852)......................... 5.830% 09/01/98 525,000,000 525,000,000
Salomon Brothers, Inc., dated 8/31/98,
with a maturity value of $500,080,972
(Collateralized by $658,996,689, Fan-
nieMae, 6.00%-11.50%, 1/1/04-8/1/28,
market value -- $510,959,964)......... 5.830% 09/01/98 500,000,000 500,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
30
<PAGE> 73
<TABLE>
<CAPTION>
AMORTIZED
MATURITY PRINCIPAL COST
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
REPURCHASE AGREEMENTS -- (CONTINUED)
The Bank of New York, Inc., dated
8/31/98, with a maturity value of
$63,960,339 (Collateralized by
$62,676,710, various U.S. Government
Obligations, 5.625%-7.875%, 11/30/99-
7/1/28, market value -- $65,229,850).. 5.820% 09/01/98 $ 63,950,000 $ 63,950,000
---------------
Total Repurchase Agreements
(Amortized Cost $3,170,329,000)........ 3,170,329,000
---------------
TOTAL INVESTMENTS -- 100.4%
(AMORTIZED COST $12,390,113,148)(a).... 12,390,113,148
LIABILITIES IN EXCESS OF OTHER ASSETS --
(0.4%)................................ (49,706,410)
---------------
NET ASSETS -- 100.0%.................... $12,340,406,738
===============
</TABLE>
- ---------------
Percentages indicated are based on net assets of $12,340,406,738.
(a) Cost for Federal income tax and financial reporting purposes are
substantially the same.
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.
31
<PAGE> 74
PACIFIC HORIZON TREASURY FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
MATURITY PRINCIPAL COST
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C>
U.S. TREASURY OBLIGATIONS -- 32.4%
U.S. TREASURY BILL -- 15.4%
U.S. Treasury Bill................ 5.520%* 09/15/98 $500,000,000 $ 498,942,028
--------------
U.S. TREASURY NOTES -- 17.0%
U.S. Treasury Note................ 6.375% 01/15/99 25,000,000 25,073,276
U.S. Treasury Note................ 5.875% 01/31/99 150,000,000 150,172,216
U.S. Treasury Note................ 8.875% 02/15/99 50,000,000 50,725,653
U.S. Treasury Note................ 5.500% 02/28/99 25,000,000 24,994,255
U.S. Treasury Note................ 5.875% 02/28/99 250,000,000 250,364,918
U.S. Treasury Note................ 6.375% 04/30/99 25,000,000 25,132,571
U.S. Treasury Note................ 6.500% 04/30/99 25,000,000 25,150,866
--------------
551,613,755
--------------
Total U.S. Treasury Obligations
(Amortized Cost $1,050,555,783)... 1,050,555,783
--------------
REPURCHASE AGREEMENTS -- 68.0%
Barclays Capital, Inc., dated
8/31/98, with a maturity value
of $145,023,281 (Collateralized
by $146,165,000, U.S. Treasury
Note, 5.375%, 7/31/00, market
value -- $147,900,249).......... 5.780% 09/01/98 145,000,000 145,000,000
CIBC Oppenheimer, Corp., dated
8/31/98, with a maturity value
of $145,023,240 (Collateralized
by $141,200,000, U.S. Treasury
Obligations, 0.00%-8.125%,
2/28/99-8/15/25, market value --
$147,904,151)................... 5.770% 09/01/98 145,000,000 145,000,000
Credit Suisse First Boston, Corp.,
dated 8/31/98, with a maturity
value of $400,064,444
(Collateralized by $764,479,000,
U.S. Treasury Notes, 0.00%,
8/15/01-8/15/12, market value --
$414,420,850)................... 5.800% 09/01/98 400,000,000 400,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
32
<PAGE> 75
<TABLE>
<CAPTION>
AMORTIZED
MATURITY PRINCIPAL COST
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENTS -- (CONTINUED)
Goldman Sachs & Co., dated
8/31/98, with a maturity value
of $400,064,111 (Collateralized
by $363,149,000, U.S. Treasury
Obligations, 0.00%-12.75%,
12/3/98-5/15/21, market value --
$408,001,080)................... 5.770% 09/01/98 $400,000,000 $ 400,000,000
HSBC Securities, Inc., dated
8/31/98, with a maturity value
of $145,023,281 (Collateralized
by $212,337,000, U.S. Treasury
Notes, 0.00%, 11/15/98-5/15/13,
market value -- $147,902,575)... 5.780% 09/01/98 145,000,000 145,000,000
J.P. Morgan Securities, Inc.,
dated 8/31/98, with a maturity
value of $145,023,281
(Collateralized by $148,376,000,
U.S. Treasury Obligations,
0.00%-6.625%, 11/15/99-11/15/05,
market value -- $147,900,339)... 5.780% 09/01/98 145,000,000 145,000,000
Lehman Brothers, Inc., dated
8/31/98, with a maturity value
of $84,405,948 (Collateralized
by $117,218,000, U.S. Treasury
Notes, 0.00%, 2/15/99-8/15/12,
market value -- $86,080,113).... 5.950% 09/01/98 84,392,000 84,392,000
Merrill Lynch Government
Securities, Inc., dated 8/31/98,
with a maturity value of
$145,023,160 (Collateralized by
$142,307,000, U.S. Treasury
Obligations, 5.625%-6.625%,
11/30/99-8/15/07, market
value -- $147,902,997).......... 5.750% 09/01/98 145,000,000 145,000,000
Morgan Stanley & Co., dated
8/31/98, with a maturity value
of $145,023,281 (Collateralized
by $154,690,000, U.S. Treasury
Bill, 0.00%, 6/24/99, market
value -- $148,579,745).......... 5.780% 09/01/98 145,000,000 145,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
33
<PAGE> 76
<TABLE>
<CAPTION>
AMORTIZED
MATURITY PRINCIPAL COST
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENTS -- (CONTINUED)
Nomura Securities International,
Inc., dated 8/31/98, with a
maturity value of $300,048,083
(Collateralized by $503,593,000,
U.S. Treasury Notes,
0.00%-6.25%, 6/30/00-8/15/13,
market value -- $306,000,671)... 5.770% 09/01/98 $300,000,000 $ 300,000,000
Salomon Brothers, Inc., dated
8/31/98, with a maturity value
of $145,023,240 (Collateralized
by $147,383,000, U.S. Treasury
Note, 5.125%, 8/31/00, market
value -- $147,935,681).......... 5.770% 09/01/98 145,000,000 145,000,000
The Bank of New York, dated
8/31/98, with a maturity value
of $10,001,606 (Collateralized
by $8,719,000, U.S. Treasury
Note, 7.875%, 11/15/04, market
value -- $10,201,112 ).......... 5.780% 09/01/98 10,000,000 10,000,000
--------------
Total Repurchase Agreements
(Amortized Cost $2,209,392,000)..... 2,209,392,000
--------------
TOTAL INVESTMENTS -- 100.4%
(AMORTIZED COST $3,259,947,783)(a).. 3,259,947,783
LIABILITIES IN EXCESS OF OTHER
ASSETS -- (0.4%).................. (12,395,240)
--------------
NET ASSETS -- 100.0%................ $3,247,552,543
==============
</TABLE>
- ---------------
Percentages indicated are based on net assets of $3,247,552,543.
(a) Cost for Federal income tax and financial reporting purposes are
substantially the same.
* Rate represents effective yield at date of purchase.
See Notes to Financial Statements.
34
<PAGE> 77
PACIFIC HORIZON GOVERNMENT FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
MATURITY PRINCIPAL COST
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
----------- ----- -------- ----------- ------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 57.7%
U.S. GOVERNMENT AGENCY OBLIGATIONS (DISCOUNT) -- 25.4%
FannieMae............................... 5.510%+ 09/23/98 $18,565,000 $ 18,503,308
FannieMae............................... 5.510%+ 09/25/98 10,000,000 9,963,767
FannieMae............................... 5.510%+ 09/28/98 5,600,000 5,577,131
FannieMae............................... 5.510%+ 10/26/98 10,000,000 9,916,965
FannieMae............................... 5.510%+ 11/20/98 25,000,000 24,698,333
Federal Home Loan Mortgage Corporation.. 5.510%+ 09/25/98 10,000,000 9,963,833
Federal Home Loan Mortgage Corporation.. 5.510%+ 10/09/98 25,000,000 24,856,603
Federal Home Loan Mortgage Corporation.. 5.510%+ 10/13/98 10,000,000 9,936,533
------------
Total U.S. Government Agency Obligations
(Discount)............................. 113,416,473
------------
U.S. GOVERNMENT AGENCY OBLIGATIONS (FIXED) -- 24.5%
FannieMae............................... 5.710% 09/09/98 5,000,000 4,999,842
FannieMae............................... 6.090% 10/02/98 5,325,000 5,326,637
FannieMae............................... 5.910% 10/16/98 5,000,000 5,001,372
FannieMae............................... 5.680% 10/23/98 5,000,000 5,000,082
FannieMae............................... 5.050% 11/10/98 11,245,000 11,232,013
FannieMae............................... 9.550% 03/10/99 3,000,000 3,060,432
FannieMae............................... 5.570% 05/07/99 5,000,000 4,994,191
FannieMae............................... 5.490% 08/03/99 5,000,000 4,993,887
Federal Farm Credit Bank................ 5.750% 09/11/98 5,000,000 4,999,869
Federal Farm Credit Bank................ 5.600% 10/01/98 5,000,000 5,000,190
Federal Farm Credit Bank................ 5.700% 11/03/98 5,000,000 4,999,326
Federal Home Loan Bank.................. 5.700% 09/10/98 5,000,000 4,999,843
Federal Home Loan Bank.................. 5.710% 10/01/98 9,915,000 9,914,779
Federal Home Loan Bank.................. 5.690% 10/02/98 2,500,000 2,499,826
Federal Home Loan Bank.................. 5.800% 10/27/98 5,000,000 4,999,701
Federal Home Loan Bank.................. 5.335% 01/11/99 8,400,000 8,389,857
Federal Home Loan Bank.................. 5.723% 05/05/99 5,000,000 4,998,807
Federal Home Loan Bank.................. 5.718% 05/06/99 5,000,000 4,998,638
Federal Home Loan Mortgage Corporation.. 5.600% 04/21/99 5,000,000 4,997,242
</TABLE>
- ---------------
See Notes to Financial Statements.
35
<PAGE> 78
<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 (FIXED) -- (CONTINUED)
Tennessee Valley Authority Note......... 5.950% 09/15/98 $ 3,770,000 $ 3,770,335
------------
Total U.S. Government Agency Obligations
(Fixed)................................ 109,176,869
------------
U.S. GOVERNMENT AGENCY OBLIGATIONS (VARIABLE) -- 7.8%
FannieMae, Weekly Variable Rate (final
maturity 10/20/98)*.................... 5.515% 09/01/98 20,000,000 19,998,832
Federal Home Loan Bank, Weekly Varia-
ble Rate (final maturity 8/12/99)*..... 5.488% 09/02/98 15,000,000 14,992,718
------------
Total U.S. Government Agency Obligations
(Variable)............................. 34,991,550
------------
Total U.S. Government Agency Obligations
(Amortized Cost $257,584,892).......... 257,584,892
------------
REPURCHASE AGREEMENTS -- 42.2%
NationsBanc Montgomery Securities, dated
8/31/98, with a maturity value of
$50,008,097 (Collateralized by
$61,258,747, FannieMae, 7.50%, 5/1/12,
market value -- $51,000,000)........... 5.830% 09/01/98 50,000,000 50,000,000
Nomura Securities International, Inc.,
dated 8/31/98, with a maturity value of
$68,632,151 (Collateralized by
$77,490,258, FannieMae, 6.00%-8.50%,
8/1/13-8/1/28, market
value -- $69,993,420).................. 5.850% 09/01/98 68,621,000 68,621,000
Prudential Securities, Inc., dated
8/31/98, with a maturity value of
$50,008,097 (Collateralized by
$74,555,330, various U.S. Government
Obligations, 0.00%-11.00%,
9/3/98-8/20/28, market
value -- $51,000,355).................. 5.830% 09/01/98 50,000,000 50,000,000
Salomon Brothers, Inc., dated 8/31/98,
with a maturity value of $20,003,239
(Collateralized by $21,703,715, Fan-
nieMae, 6.00%-7.00%, 8/1/13-3/1/28,
market value -- $20,404,552)........... 5.830% 09/01/98 20,000,000 20,000,000
------------
Total Repurchase Agreements
(Amortized Cost $188,621,000).......... 188,621,000
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
36
<PAGE> 79
<TABLE>
<CAPTION>
AMORTIZED
COST
(NOTE 2)
------------
<S> <C>
TOTAL INVESTMENTS -- 99.9%
(AMORTIZED COST
$446,205,892)(a).......................................... $446,205,892
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 0.1%....................................... 360,732
------------
NET ASSETS -- 100.0%........................................ $446,566,624
============
</TABLE>
- ---------------
Percentages indicated are based on net assets of $446,566,624.
(a) Cost for Federal income tax and financial reporting purposes are
substantially the same.
+ Rate represents effective yield at date of purchase.
* Variable rate security. Maturity date reflects the next interest rate change
date.
See Notes to Financial Statements.
37
<PAGE> 80
PACIFIC HORIZON TREASURY ONLY FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
MATURITY PRINCIPAL COST
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C>
U.S. TREASURY OBLIGATIONS -- 99.0%
U.S. TREASURY BILL -- 24.6%
U.S. Treasury Bill................ 5.600%* 09/15/98 $113,660,000 $ 113,416,116
--------------
U.S. TREASURY NOTES --74.4%
U.S. Treasury Note................ 4.750% 09/30/98 10,475,000 10,470,223
U.S. Treasury Note................ 6.000% 09/30/98 84,350,000 84,393,236
U.S. Treasury Note................ 4.750% 10/31/98 74,300,000 74,217,871
U.S. Treasury Note................ 5.875% 10/31/98 33,050,000 33,071,038
U.S. Treasury Note................ 5.500% 11/15/98 70,000,000 70,018,831
U.S. Treasury Note................ 8.875% 11/15/98 30,000,000 30,208,094
U.S. Treasury Note................ 5.125% 11/30/98 40,000,000 39,987,946
--------------
342,367,239
--------------
Total U.S. Treasury Obligations
(Amortized Cost $455,783,355)..... 455,783,355
--------------
TOTAL INVESTMENTS -- 99.0%
(AMORTIZED COST $455,783,355)(a).. 455,783,355
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 1.0%............... 4,553,987
--------------
NET ASSETS -- 100.0%................ $ 460,337,342
==============
</TABLE>
- ---------------
Percentages indicated are based on net assets of $460,337,342.
(a) Cost for Federal income tax and financial reporting purposes are
substantially the same.
* Rate represents effective yield at date of purchase.
See Notes to Financial Statements.
38
<PAGE> 81
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRIME TREASURY GOVERNMENT TREASURY
FUND FUND FUND ONLY FUND
--------------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments in securities, at value (amortized cost
$9,219,784,148 $1,050,555,783, $257,584,892 and
$455,783,355, respectively)............................... $ 9,219,784,148 $1,050,555,783 $257,584,892 $455,783,355
Repurchase agreements (cost $3,170,329,000, $2,209,392,000
$188,621,000 and $0, respectively)........................ 3,170,329,000 2,209,392,000 188,621,000 --
Cash....................................................... 10,548 -- 377 864
Interest receivable........................................ 7,723,388 2,637,607 2,445,790 6,686,424
Prepaid expenses........................................... 707,001 61,394 25,371 31,791
--------------- -------------- ------------ ------------
Total Assets................................................ 12,398,554,085 3,262,646,784 448,677,430 462,502,434
--------------- -------------- ------------ ------------
LIABILITIES:
Payable to bank............................................ -- 49,152 -- --
Dividends payable.......................................... 53,169,608 13,576,998 1,869,262 1,855,806
Investment advisory fees payable........................... 887,546 268,305 18,240 39,186
Administration fees payable................................ 963,429 269,662 36,411 39,246
Special management fees payable............................ 731,144 97,182 39,440 54,477
Shareholder service fees payable........................... 1,333,472 450,225 49,039 50,113
Distribution fees payable.................................. 689,160 129,063 -- --
Custodian and fund accounting fees payable................. 173,243 79,409 35,660 39,724
Transfer agent fees payable................................ 80,391 33,151 10,655 17,807
Other accrued expenses..................................... 119,354 141,094 52,099 68,733
--------------- -------------- ------------ ------------
Total Liabilities........................................... 58,147,347 15,094,241 2,110,806 2,165,092
--------------- -------------- ------------ ------------
NET ASSETS.................................................. $12,340,406,738 $3,247,552,543 $446,566,624 $460,337,342
=============== ============== ============ ============
Net Assets:
Pacific Horizon Shares..................................... $ 2,787,749,236 $ 401,824,012 $150,921,520 $202,103,475
Horizon Shares............................................. 3,168,681,588 739,400,742 56,831,862 25,805,016
Horizon Service Shares..................................... 3,921,683,921 1,722,407,749 238,813,242 232,428,851
X Shares................................................... 1,278,650,178 291,047,305 -- --
S Shares................................................... 1,026,803,398 -- -- --
Y Shares................................................... 156,838,417 92,872,735 -- --
--------------- -------------- ------------ ------------
Total....................................................... $12,340,406,738 $3,247,552,543 $446,566,624 $460,337,342
=============== ============== ============ ============
Shares Outstanding ($0.001 par value, 120 billion, 60
billion, 30 billion, and 30 billion shares authorized,
respectively):
Pacific Horizon Shares..................................... 2,788,204,426 401,968,102 151,057,871 202,134,864
Horizon Shares............................................. 3,169,226,212 739,496,942 56,859,988 25,806,524
Horizon Service Shares..................................... 3,921,892,918 1,722,517,118 238,908,407 232,444,352
X Shares................................................... 1,278,721,814 291,044,278 -- --
S Shares................................................... 1,026,880,814 -- -- --
Y Shares................................................... 156,852,277 92,871,367 -- --
--------------- -------------- ------------ ------------
Total....................................................... 12,341,778,461 3,247,897,807 446,826,266 460,385,740
=============== ============== ============ ============
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............................. $ 12,341,778 $ 3,247,898 $ 446,826 $ 460,386
Additional paid-in capital................................. 12,329,035,619 3,243,674,223 446,579,441 459,925,354
Accumulated undistributed net investment income............ 2,420,683 667,877 453,728 --
Accumulated net realized losses on investment
transactions.............................................. (3,391,342) (37,455) (913,371) (48,398)
--------------- -------------- ------------ ------------
NET ASSETS, AUGUST 31, 1998................................. $12,340,406,738 $3,247,552,543 $446,566,624 $460,337,342
=============== ============== ============ ============
</TABLE>
- ---------------
See Notes to Financial Statements.
39
<PAGE> 82
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Statements of Operations
For the six months ended August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRIME TREASURY GOVERNMENT TREASURY
FUND FUND FUND ONLY FUND
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest..................... $314,588,501 $88,630,604 $12,311,603 $12,199,328
------------ ----------- ----------- -----------
EXPENSES:
Investment advisory fees..... 4,820,210 1,584,286 218,884 232,089
Administration fees.......... 5,273,757 1,592,287 218,884 232,089
Special management fees
(Pacific Horizon Shares)... 4,180,198 527,944 241,512 330,552
Shareholder service fees
(Horizon Service Shares)... 4,624,511 2,239,546 289,380 279,249
Shareholder service fees (X
Shares).................... 1,396,800 324,471 -- --
Shareholder service fees (S
Shares).................... 1,019,186 -- -- --
Shareholder service fees (Y
Shares).................... 181,837 102,039 -- --
Distribution fees (X
Shares).................... 1,676,160 389,365 -- --
Distribution fees (S
Shares).................... 3,057,557 -- -- --
Distribution fees (Y
Shares).................... 545,511 306,115 -- --
Custodian and fund accounting
fees....................... 327,419 167,947 66,864 48,241
Transfer Agent fees.......... 165,908 35,425 7,208 20,490
Legal fees................... 161,483 57,887 8,025 7,532
Audit fees................... 44,600 25,231 11,368 12,044
Other expenses............... 1,370,556 255,876 82,333 49,620
------------ ----------- ----------- -----------
Total Expenses................. 28,845,693 7,608,419 1,144,458 1,211,906
Less: Fee waivers............ (1,834,534) -- (109,442) --
Expenses paid by third
parties...................... (4,680) -- (112) --
------------ ----------- ----------- -----------
Total Net Expenses............. 27,006,479 7,608,419 1,034,904 1,211,906
------------ ----------- ----------- -----------
Net Investment Income.......... 287,582,022 81,022,185 11,276,699 10,987,422
------------ ----------- ----------- -----------
NET REALIZED GAINS (LOSSES) ON
INVESTMENTS:
Net realized gains (losses)
on investment
transactions............... 8,816 19,427 2,395 (4,746)
------------ ----------- ----------- -----------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS.... $287,590,838 $81,041,612 $11,279,094 $10,982,676
============ =========== =========== ===========
</TABLE>
- ---------------
See Notes to Financial Statements.
40
<PAGE> 83
(This page intentionally left blank)
41
<PAGE> 84
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRIME FUND
---------------------------------
SIX MONTHS
ENDED
AUGUST 31, YEAR ENDED
1998 FEBRUARY 28,
(UNAUDITED) 1998
--------------- ---------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income...................................... $ 287,582,022 $ 421,424,789
Net realized gains (losses) on investment transactions..... 8,816 69,980
--------------- ---------------
Change in net assets resulting from operations.............. 287,590,838 421,494,769
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Pacific Horizon Shares..................................... (67,640,456) (117,152,680)
Horizon Shares............................................. (72,886,402) (100,966,269)
Horizon Service Shares..................................... (97,068,293) (170,004,484)
X Shares................................................... (27,642,338) (22,281,567)
S Shares................................................... (20,166,650) (8,606,405)(a)
Y Shares................................................... (3,271,389) (1,807,633)(b)
--------------- ---------------
Change in net assets from shareholder distributions......... (288,675,528) (420,819,038)
--------------- ---------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares Issued................................ 54,822,615,272 65,111,897,688
Dividends reinvested....................................... 135,537,447 243,957,627
Cost of shares redeemed.................................... (52,396,337,359) (62,727,564,200)
--------------- ---------------
Change in net assets from capital share transactions........ 2,561,815,360 2,628,291,115
--------------- ---------------
Change in net assets........................................ 2,560,730,670 2,628,966,846
NET ASSETS
Beginning of Period........................................ 9,779,676,068 7,150,709,222
--------------- ---------------
End of Period.............................................. $12,340,406,738 $ 9,779,676,068
=============== ===============
Accumulated Undistributed Net Investment Income............. $ 2,420,683 $ 3,514,189
=============== ===============
</TABLE>
- ---------------
(a) Period from April 7, 1997 (inception date) to February 28, 1998.
(b) Period from July 10, 1997 (inception date) to February 28, 1998.
See Notes to Financial Statements.
42
<PAGE> 85
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TREASURY FUND GOVERNMENT FUND TREASURY ONLY FUND
- ----------------------------------- --------------------------------- -------------------------------
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED
AUGUST 31, YEAR ENDED AUGUST 31, YEAR ENDED AUGUST 31, YEAR ENDED
1998 FEBRUARY 28, 1998 FEBRUARY 28, 1998 FEBRUARY 28,
(UNAUDITED) 1998 (UNAUDITED) 1998 (UNAUDITED) 1998
- ---------------- ---------------- --------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
$ 81,022,185 $ 137,460,292 $ 11,276,699 $ 23,382,390 $ 10,987,422 $ 20,990,300
19,427 1,095 2,395 23,313 (4,746) (10,747)
- ---------------- ---------------- --------------- --------------- ------------- ---------------
81,041,612 137,461,387 11,279,094 23,405,703 10,982,676 20,979,553
- ---------------- ---------------- --------------- --------------- ------------- ---------------
(8,273,642) (16,848,276) (3,830,892) (7,118,240) ( 4,834,213) (9,857,218)
(19,243,109) (34,529,165) (1,492,002) (3,181,981) (854,067) (1,377,435)
(45,531,392) (82,004,103) (5,953,805) (13,146,010) (5,299,142) (9,755,647)
(6,205,539) (3,006,912) -- -- -- --
-- -- -- -- -- --
(1,768,503) (1,071,836)(b) -- -- -- --
- ---------------- ---------------- --------------- --------------- ------------- ---------------
(81,022,185) (137,460,292) (11,276,699) (23,446,231) (10,987,422) (20,990,300)
- ---------------- ---------------- --------------- --------------- ------------- ---------------
20,601,340,224 23,310,724,272 1,475,049,401 3,331,389,913 831,641,827 1,441,272,391
20,748,000 49,740,717 7,352,844 18,033,757 6,951,973 15,715,206
(20,390,794,691) (22,935,720,988) (1,525,078,645) (3,376,729,790) (814,258,058) (1,536,173,410)
- ---------------- ---------------- --------------- --------------- ------------- ---------------
231,293,533 424,744,001 (42,676,400) (27,306,120) 24,335,742 (79,185,813)
- ---------------- ---------------- --------------- --------------- ------------- ---------------
231,312,960 424,745,096 (42,674,005) (27,346,648) 24,330,996 (79,196,560)
3,016,239,583 2,591,494,487 489,240,629 516,587,277 436,006,346 515,202,906
- ---------------- ---------------- --------------- --------------- ------------- ---------------
$ 3,247,552,543 $ 3,016,239,583 $ 446,566,624 $ 489,240,629 $ 460,337,342 $ 436,006,346
================ ================ =============== =============== ============= ===============
$ 667,877 $ 667,877 $ 453,728 $ 453,728 $ -- $ --
================ ================ =============== =============== ============= ===============
</TABLE>
43
<PAGE> 86
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
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 August 31, 1998, the Company
operated as a series company comprised of seventeen funds. The accompanying
financial statements and notes are those of the 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). In addition, The Prime Fund offers
X, S, and Y Shares and the Treasury Fund offers X and Y Shares only. The
Treasury Fund is authorized, but have not issued S shares 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.
44
<PAGE> 87
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.
Adviser and Administrator
Bank of America National Trust and Savings Association ("Bank of America"),
a subsidiary of BankAmerica Corporation ("BankAmerica"), 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").
On October 1, 1998, BankAmerica, the Adviser's and Administrator's parent
company, completed its merger with NationsBank Corporation. The combined company
operates under the name BankAmerica. BankAmerica, continues to serve the Funds
on substantially identical terms as described in Note 3.
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
Provident Distributors, Inc. ("PDI"), serves as principal underwriter and
distributor of shares of the funds. PFPC serves as the Funds' transfer agent and
dividend disbursing agent.
45
<PAGE> 88
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 in accordance with rule 2a-7 of the
Act, 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.
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 six
months ended August 31, 1998, custodian fees and expenses paid by third parties
were increased by $4,680 and $112, for the Prime Fund and Government 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
46
<PAGE> 89
agreed to a reduction of fees or expenses under the expense offset arrangement
with their custodian.
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 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
47
<PAGE> 90
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, 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 ended February 28, 1998, 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.
NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
Bank of America serves as the Funds' Manager, providing Investment Advisory
and Administrative services. 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 six months ended August 31, 1998, Bank of America
voluntarily waived Advisory fees of $109,442 for the Government Fund. 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
48
<PAGE> 91
in excess of $10 billion. For the six months ended August 31, 1998, the funds
were advised that Bank of America and its affiliates earned the following
amounts pursuant to the Administrative Agreement:
<TABLE>
<CAPTION>
BANK OF
AMERICA
AND
FUND AFFILIATES
---- ----------
<S> <C>
Prime Fund.................................................. $5,273,757
Treasury Fund............................................... 1,592,287
Government Fund............................................. 218,884
Treasury Only Fund.......................................... 232,089
</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 and PDI. For the
six months ended August 31, 1998, the Funds were advised that Bank of America
and its affiliates and PDI each earned the following amounts pursuant to the
Services Plan, respectively:
<TABLE>
<CAPTION>
BANK OF
AMERICA AND
FUND AFFILIATES PDI
---- ----------- -------
<S> <C> <C>
Prime Fund.................................................. $3,940,383 $21,861
Treasury Fund............................................... 400,905 5,004
Government Fund............................................. 225,708 83
Treasury Only Fund.......................................... 294,392 102
</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 six months
ended August 31, 1998, the Funds were advised that Bank of America and its
49
<PAGE> 92
affiliates earned the following amounts pursuant to the Horizon Services Plan,
respectively:
<TABLE>
<CAPTION>
BANK OF
AMERICA
FUND AND AFFILIATES
---- --------------
<S> <C>
Prime Fund.................................................. $4,561,610
Treasury Fund............................................... 2,130,559
Government Fund............................................. 286,982
Treasury Only Fund.......................................... 247,348
</TABLE>
The Prime Fund and Treasury Fund have adopted the Distribution and Services
Plan under which the Funds paid PDI 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 six months ended August 31, 1998, the Prime Fund
and Treasury Fund were advised that Bank of America and its affiliates earned
$3,055,580 and $713,816, respectively, pursuant to the Distribution and Services
Plan.
The Prime Fund and Treasury Fund have adopted the Distribution and Services
Plan under which the Funds paid PDI 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
each Funds' Y shares. For the six months ended August 31, 1998, the Prime Fund
and Treasury Fund were advised that Bank of America and its affiliates earned
$727,348 and $355,180, respectively, pursuant to the Distribution and Services
Plan.
The Prime Fund and Treasury Fund have adopted the Distribution and Services
Plan under which the Fund paid PDI 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. Bank of America waived $1,834,534 of distribution
expenses from the Prime Fund for the six months ended August 31, 1998. For the
six months ended August 31, 1998, the Prime Fund was advised that Bank of
America and its affiliates earned $2,242,048 pursuant to the Distribution and
Services Plan.
For the six months ended August 31, 1998, PFPC earned $165,908, $35,425,
$7,208 and $20,490 form the Prime Fund, Treasury Fund, Government Fund and
50
<PAGE> 93
Treasury Only Fund, respectively, for transfer agency and dividend disbursing
agency services performed.
A partner of Drinker Biddle & Reath LLP ("DBR") serves as Secretary of the
Company. Legal fees earned by DBR are stated in the statement of operations.
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 $60,000,
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 $40,000 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 $109,343, $32,150, $3,152, and $2,633, for the Prime
Fund, Treasury Fund, Government Fund and Treasury Only Fund, respectively, for
the six months ended August 31, 1998. A Director
51
<PAGE> 94
who comes into office after March 18, 1998 is ineligible to participate in the
Retirement Plan.
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
--------------------------------- ---------------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED YEAR
AUGUST 31, ENDED AUGUST 31, ENDED
1998 FEBRUARY 28, 1998 FEBRUARY 28,
(UNAUDITED) 1998 (UNAUDITED) 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
PACIFIC HORIZON SHARES
Issued..................... 2,190,393,271 3,213,898,034 831,219,126 1,134,991,546
Reinvest................... 53,133,812 108,696,696 5,089,599 12,406,265
Redeemed................... (1,907,632,731) (3,163,041,484) (770,779,547) (1,221,794,534)
--------------- --------------- --------------- ---------------
Net increase/(decrease)..... 335,894,352 159,553,246 65,529,178 (74,396,723)
=============== =============== =============== ===============
HORIZON SHARES
Issued..................... 13,029,728,586 20,455,794,396 2,473,807,231 5,229,807,041
Reinvest................... 21,555,617 39,465,419 5,292,725 12,806,288
Redeemed................... (12,296,807,930) (19,790,457,950) (2,441,736,962) (5,158,308,715)
--------------- --------------- --------------- ---------------
Net increase................ 754,476,273 704,801,865 37,362,994 84,304,614
=============== =============== =============== ===============
HORIZON SERVICE SHARES
Issued..................... 25,755,205,222 35,791,164,395 11,765,108,818 14,976,381,895
Reinvest................... 33,652,551 69,471,827 10,089,563 24,007,250
Redeemed................... (25,240,985,682) (35,431,800,117) (11,765,592,778) (14,844,801,907)
--------------- --------------- --------------- ---------------
Net increase................ 547,872,091 428,836,105 9,605,603 155,587,238
=============== =============== =============== ===============
X SHARES
Issued..................... 11,656,620,958 4,432,511,179 4,555,850,018 1,534,986,458
Reinvest................... 11,220,275 17,713,737 276,113 520,914
Redeemed................... (11,258,797,274) (3,784,327,932) (4,448,170,392) (1,358,289,848)
--------------- --------------- --------------- ---------------
Net increase................ 409,043,959 665,896,984 107,955,739 177,217,524
=============== =============== =============== ===============
S SHARES
Issued..................... 658,695,853 607,731,207 -- --
Reinvest................... 15,975,192 8,606,126 -- --
Redeemed................... (207,204,746) (56,922,818) -- --
--------------- --------------- --------------- ---------------
Net increase................ 467,466,299 559,414,515(a) -- --
=============== =============== =============== ===============
Y SHARES
Issued..................... 1,531,972,873 610,798,477 975,355,031 434,557,332
Reinvest................... -- 3,822 -- --
Redeemed................... (1,484,908,996) (501,013,899) (964,515,012) (352,525,984)
--------------- --------------- --------------- ---------------
Net increase................ 47,063,877 109,788,400(b) 10,840,019 82,031,348(b)
=============== =============== =============== ===============
</TABLE>
- ---------------
<TABLE>
<S> <C>
(a) Period from April 7, 1997 (inception date) to February 28,
1998.
(b) Period from July 10, 1997 (inception date) to February 28,
1998.
</TABLE>
52
<PAGE> 95
<TABLE>
<CAPTION>
GOVERNMENT FUND TREASURY ONLY FUND
------------------------------- -----------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED YEAR
AUGUST 31, ENDED AUGUST 31, ENDED
1998 FEBRUARY 28, 1998 FEBRUARY 28,
(UNAUDITED) 1998 (UNAUDITED) 1998
-------------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
PACIFIC HORIZON SHARES
Issued......................... 219,447,286 480,817,616 222,225,992 443,400,770
Reinvest....................... 2,990,168 6,669,928 3,581,341 8,944,830
Redeemed....................... (233,231,727) (518,067,695) (252,185,186) (449,034,109)
-------------- -------------- ------------ --------------
Net increase/(decrease)......... (10,794,273) (30,580,151) (26,377,853) 3,311,491
============== ============== ============ ==============
HORIZON SHARES
Issued......................... 152,520,704 210,022,080 99,963,050 60,587,676
Reinvest....................... 766,883 2,397,397 138,201 399,848
Redeemed....................... (159,639,314) (210,377,544) (104,462,632) (61,278,210)
-------------- -------------- ------------ --------------
Net increase/(decrease)......... (6,351,727) 2,041,933 (4,361,381) (290,686)
============== ============== ============ ==============
HORIZON SERVICE SHARES
Issued......................... 1,102,881,410 2,640,550,217 509,452,787 937,283,945
Reinvest....................... 3,595,793 8,966,432 3,232,431 6,370,528
Redeemed....................... (1,132,207,604) (2,648,284,551) (457,610,240) (1,025,861,091)
-------------- -------------- ------------ --------------
Net increase/(decrease)......... (25,730,401) 1,232,098 55,074,978 (82,206,618)
============== ============== ============ ==============
</TABLE>
53
<PAGE> 96
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
AUGUST 31, --------------------------------------------------------------------------------
1998 FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
(UNAUDITED) 1998 1997 1996 1995 1994
----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
PACIFIC HORIZON SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF PERIOD......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income....... 0.0260 0.0515 0.0492 0.0539 0.0424 0.0287
Net realized gains/(losses)
on investment
transactions............... 0.0001 -- -- 0.0004 (0.0227) (0.0016)
-------- -------- -------- -------- -------- --------
Total income from investment
operations.................. 0.0261 0.0515 0.0492 0.0543 0.0197 0.0271
Less dividends to
shareholders from net
investment income........... (0.0261) (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 PERIOD............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total return................. 2.64%(c) 5.27% 5.01% 5.53% 4.30%+ 2.91%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period
(millions)................. $ 2,788 $ 2,452 $ 2,292 $ 2,200 $ 1,129 $ 1,216
Ratio of expenses to average
net assets................. 0.54%(b) 0.55% 0.55% 0.55% 0.51% 0.52%
Ratio of net investment
income to average net
assets..................... 5.15%(b) 5.15% 4.92% 5.37% 4.19% 2.86%
Ratio of expenses to average
net assets*................ (a) (a) (a) 0.56% 0.56% 0.53%
Ratio of net investment
income to average net
assets*.................... (a) (a) (a) 5.36% 4.14% 2.85%
</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.
+ 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) Fees waivers and fees paid by third parties had no effect on
the ratios.
(b) Annualized.
(c) Not annualized.
</TABLE>
See Notes to Financial Statements.
54
<PAGE> 97
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
AUGUST 31, --------------------------------------------------------------------------------
1998 FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
(UNAUDITED) 1998 1997 1996 1995 1994
----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
HORIZON SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF PERIOD......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income....... 0.0275 0.0546 0.0524 0.0571 0.0461 0.0319
Net realized gains/(losses)
on investment
transactions............... 0.0002 -- -- 0.0004 (0.0232) (0.0016)
-------- -------- -------- -------- -------- --------
Total income from investment
operations.................. 0.0277 0.0546 0.0524 0.0575 0.0229 0.0303
Less dividends to
shareholders from net
investment income........... (0.0277) (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 PERIOD............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total return................. 2.80%(c) 5.60% 5.34% 5.86% 4.63%+ 3.24%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period
(millions)................. $ 3,168 $ 2,415 $ 1,710 $ 1,651 $ 662 $ 3,840
Ratio of expenses to average
net assets................. 0.22%(b) 0.22% 0.23% 0.23% 0.16% 0.20%
Ratio of net investment
income to average net
assets..................... 5.48%(b) 5.47% 5.24% 5.69% 4.11% 3.19%
Ratio of expenses to average
net assets*................ (a) (a) (a) 0.24% 0.23% 0.21%
Ratio of net investment
income to average net
assets*.................... (a) (a) (a) 5.68% 4.04% 3.18%
</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.
+ 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) Fees waivers and fees paid by third parties had no effect on
the ratios.
(b) Annualized.
(c) Not annualized.
</TABLE>
See Notes to Financial Statements.
55
<PAGE> 98
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
AUGUST 31, --------------------------------------------------------------------------------
1998 FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
(UNAUDITED) 1998 1997 1996 1995 1994
----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
HORIZON SERVICE SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF PERIOD......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income....... 0.0263 0.0521 0.0499 0.0546 0.0431 0.0294
Net realized gains/(losses)
on investment
transactions............... 0.0002 -- -- 0.0004 (0.0227) (0.0016)
-------- -------- -------- -------- -------- --------
Total income from investment
operations.................. 0.0265 0.0521 0.0499 0.0550 0.0204 0.0278
Less dividends to
shareholders from net
investment income........... (0.0265) (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 PERIOD............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total return................. 2.67%(c) 5.34% 5.08% 5.60% 4.37%+ 2.98%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period
(millions)................. $ 3,922 $ 3,374 $ 2,945 $ 1,561 $ 864 $ 839
Ratio of expenses to average
net assets................. 0.47%(b) 0.48% 0.48% 0.48% 0.44% 0.45%
Ratio of net investment
income to average net
assets..................... 5.23%(b) 5.23% 5.00% 5.44% 4.31% 2.94%
Ratio of expenses to average
net assets*................ (a) (a) (a) 0.49% 0.48% 0.46%
Ratio of net investment
income to average net
assets*.................... (a) (a) (a) 5.43% 4.27% 2.93%
</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.
+ 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) Fees waivers and fees paid by third parties had no effect on
the ratios.
(b) Annualized.
(c) Not annualized.
</TABLE>
See Notes to Financial Statements.
56
<PAGE> 99
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
AUGUST 31, YEAR ENDED PERIOD ENDED
1998 FEBRUARY 28, FEBRUARY 28,
(UNAUDITED) 1998 1997(a)
----------- ------------ ------------
<S> <C> <C> <C>
X SHARES
NET ASSET VALUE PER SHARE, BEGINNING
OF PERIOD......................... $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Income from Investment Operations:
Net investment income............. 0.0248 0.0491 0.0282
Net realized gains/(losses) on
investment transactions......... 0.0001 -- --
-------- -------- --------
Total income from investment
operations........................ 0.0249 0.0491 0.0282
Less dividends to shareholders from
net investment income............. (0.0249) (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 $ 1.00
======== ======== ========
Total return........................ 2.52%(d) 5.03% 2.84%(d)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period
(millions)...................... $ 1,278 $ 869 $ 204
Ratio of expenses to average net
assets.......................... 0.77%(c) 0.77% 0.78%(c)
Ratio of net investment income to
average net assets.............. 4.93%(c) 4.92% 4.73%(c)
Ratio of expenses to average net
assets*......................... (b) (b) (b)
Ratio of net investment income to
average net assets*............. (b) (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) Fees waivers and fees paid by third parties had no effect on
the ratios.
(c) Annualized.
(d) Not annualized.
</TABLE>
See Notes to Financial Statements.
57
<PAGE> 100
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AUGUST 31, PERIOD ENDED
1998 FEBRUARY 28,
(UNAUDITED) 1998(a)
---------------- ------------
<S> <C> <C>
S SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF
PERIOD..................................... $ 1.00 $ 1.00
-------- --------
Income from Investment Operations:
Net investment income...................... 0.0249 0.0444
Net realized gains/(losses) on investment
transactions............................. -- --
-------- --------
Total income from investment operations...... 0.0249 0.0444
Less dividends to shareholders from net
investment income.......................... (0.0249) (0.0444)
-------- --------
Net change in net asset value per share...... -- --
-------- --------
NET ASSET VALUE PER SHARE, END OF PERIOD..... $ 1.00 $ 1.00
======== ========
Total return................................. 2.52%(d) 4.53%(d)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (millions)..... $ 1,027 $ 559
Ratio of expenses to average net assets.... 0.77%(c) 0.76%(c)
Ratio of net investment income to average
net assets............................... 4.93%(c) 4.92%(c)
Ratio of expenses to average net assets*... 1.22%(b)(c) 1.20%(b)(c)
Ratio of net investment income to average
net assets*.............................. 4.48%(b)(c) 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.
58
<PAGE> 101
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD
AUGUST 31, ENDED
1998 FEBRUARY 28,
(UNAUDITED) 1998(a)
----------- ------------
<S> <C> <C>
Y SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF
PERIOD...................................... $ 1.00 $ 1.00
-------- --------
Income from Investment Operations:
Net investment income....................... 0.0226 0.0290
Net realized gains/(losses) on investment
transactions.............................. 0.0001 --
-------- --------
Total income from investment operations....... 0.0227 0.0290
Less dividends to shareholders from net
investment income........................... (0.0227) (0.0290)
-------- --------
Net change in net asset value per share....... -- --
-------- --------
NET ASSET VALUE PER SHARE, END OF PERIOD...... $ 1.00 $ 1.00
======== ========
Total return.................................. 2.29%(d) 2.93%(d)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (millions)...... $ 157 $ 110
Ratio of expenses to average net assets..... 1.22%(c) 1.21%(c)
Ratio of net investment income to average
net assets................................ 4.48%(c) 4.48%(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 10, 1997 (inception date) to February 28,
1998.
(b) Fees waivers and fees paid by third parties had no effect on
the ratios.
(c) Annualized.
(d) Not annualized.
</TABLE>
See Notes to Financial Statements.
59
<PAGE> 102
PACIFIC HORIZON TREASURY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
AUGUST 31, --------------------------------------------------------------------------------
1998 FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
(UNAUDITED) 1998 1997 1996 1995 1994
----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
PACIFIC HORIZON SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF PERIOD......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income....... 0.0251 0.0497 0.0477 0.0527 0.0405 0.0262
Net realized gains/(losses)
on investment
transactions............... 0.0002 (0.0002) -- 0.0011 0.0001 (0.0002)
-------- -------- -------- -------- -------- --------
Total income from investment
operations.................. 0.0253 0.0495 0.0477 0.0538 0.0406 0.0260
Less dividends to
shareholders from net
investment income........... (0.0253) (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 PERIOD............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total return................. 2.55%(d) 5.07% 4.87% 5.40% 4.13% 2.65%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period
(millions)................. $ 402 $ 336 $ 411 $ 1,091 $ 1,132 $ 1,577
Ratio of expenses to average
net assets................. 0.55%(c) 0.57% 0.57% 0.57% 0.55% 0.55%
Ratio of net investment
income to average net
assets..................... 5.02%(c) 4.96% 4.76% 5.24% 3.99% 2.62%
Ratio of expenses to average
net assets*................ (a) (a)(b) (b) 0.58% (a) (a)
Ratio of net investment
income to average net
assets*.................... (a) (a)(b) (b) 5.23% (a) (a)
</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) There were no fee waivers or expense reimbursements during
the period.
(b) Fees paid by third parties had no effect on the ratios.
(c) Annualized.
(d) Not annualized.
</TABLE>
See Notes to Financial Statements.
60
<PAGE> 103
PACIFIC HORIZON TREASURY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
AUGUST 31, --------------------------------------------------------------------------------
1998 FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
(UNAUDITED) 1998 1997 1996 1995 1994
----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
HORIZON SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF PERIOD......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income....... 0.0269 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.................. 0.0269 0.0527 0.0509 0.0570 0.0438 0.0292
Less dividends to
shareholders from net
investment income........... (0.0269) (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 PERIOD............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total return................. 2.72%(d) 5.40% 5.21% 5.73% 4.46% 2.98%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period
(millions)................. $ 739 $ 702 $ 618 $ 722 $ 469 $ 487
Ratio of expenses to average
net assets................. 0.23%(c) 0.25% 0.25% 0.25% 0.23% 0.23%
Ratio of net investment
income to average net
assets..................... 5.33%(c) 5.27% 5.09% 5.56% 4.36% 2.94%
Ratio of expenses to average
net assets*................ (a) (a)(b) (b) 0.26% (a) (a)
Ratio of net investment
income to average net
assets*.................... (a) (a)(b) (b) 5.55% (a) (a)
</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) There were no fee waivers or expense reimbursements during
the period.
(b) Fees paid by third parties had no effect on the ratios.
(c) Annualized.
(d) Not annualized.
</TABLE>
See Notes to Financial Statements.
61
<PAGE> 104
PACIFIC HORIZON TREASURY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
AUGUST 31, --------------------------------------------------------------------------------
1998 FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
(UNAUDITED) 1998 1997 1996 1995 1994
----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
HORIZON SERVICE SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF PERIOD......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income....... 0.0256 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.................. 0.0256 0.0502 0.0484 0.0545 0.0413 0.0267
Less dividends to
shareholders from net
investment income........... (0.0256) (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 PERIOD............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total return................. 2.59%(d) 5.14% 4.97% 5.47% 4.20% 2.72%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period
(millions)................. $ 1,723 $ 1,713 $ 1,557 $ 1,031 $ 364 $ 541
Ratio of expenses to average
net assets................. 0.48%(c) 0.50% 0.50% 0.50% 0.48% 0.48%
Ratio of net investment
income to average net
assets..................... 5.08%(c) 5.03% 4.84% 5.31% 4.01% 2.69%
Ratio of expenses to average
net assets*................ (a) (a)(b) (b) 0.51% (a) (a)
Ratio of net investment
income to average net
assets*.................... (a) (a)(b) (b) 5.30% (a) (a)
</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) There were no fee waivers or expense reimbursements during
the period.
(b) Fees paid by third parties had no effect on the ratios.
(c) Annualized.
(d) Not annualized.
</TABLE>
See Notes to Financial Statements.
62
<PAGE> 105
PACIFIC HORIZON TREASURY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
AUGUST 31, YEAR ENDED PERIOD ENDED
1998 FEBRUARY 28, FEBRUARY 28,
(UNAUDITED) 1998 1997(a)
----------- ------------ ------------
<S> <C> <C> <C>
X SHARES
NET ASSET VALUE PER SHARE, BEGINNING
OF PERIOD........................... $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Income from Investment Operations:
Net investment income............... 0.0241 0.0472 0.0271
-------- -------- --------
Total income from investment
operations.......................... 0.0241 0.0472 0.0271
Less dividends to shareholders from
net investment income............... (0.0241) (0.0472) (0.0271)
-------- -------- --------
Net change in net asset value per
share............................... -- -- --
-------- -------- --------
NET ASSET VALUE PER SHARE, END OF
PERIOD.............................. $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total return.......................... 2.43%(e) 4.83% 2.74%(e)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period
(millions)........................ $ 291 $ 183 $ 6
Ratio of expenses to average net
assets............................ 0.78%(d) 0.78% 0.81%(d)
Ratio of net investment income to
average net assets................ 4.78%(d) 4.73% 4.58%(d)
Ratio of expenses to average net
assets*........................... (b) (b)(c) (b)(c)
Ratio of net investment income to
average net assets*............... (b) (b)(c) (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 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.
63
<PAGE> 106
PACIFIC HORIZON TREASURY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AUGUST 31, PERIOD ENDED
1998 FEBRUARY 28,
(UNAUDITED) 1998(a)
---------------- ------------
<S> <C> <C>
Y SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF
PERIOD..................................... $ 1.00 $ 1.00
-------- --------
Income from Investment Operations:
Net investment income...................... 0.0218 0.0276
-------- --------
Total income from investment operations...... 0.0218 0.0276
Less dividends to shareholders from net
investment income.......................... (0.0218) (0.0276)
-------- --------
Net change in net asset value per share...... -- --
-------- --------
NET ASSET VALUE PER SHARE, END OF PERIOD..... $ 1.00 $ 1.00
======== ========
Total return................................. 2.20%(e) 2.80%(e)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (millions)..... $ 93 $ 82
Ratio of expenses to average net assets.... 1.23%(d) 1.22%(d)
Ratio of net investment income to average
net assets............................... 4.33%(d) 4.28%(d)
Ratio of expenses to average net assets*... (b) (b)(c)
Ratio of net investment income to average
net assets*.............................. (b) (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 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.
64
<PAGE> 107
PACIFIC HORIZON GOVERNMENT FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
AUGUST 31, --------------------------------------------------------------------------------
1998 FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
(UNAUDITED) 1998 1997 1996 1995 1994
----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
PACIFIC HORIZON SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF PERIOD......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income....... 0.0257 0.0503 0.0481 0.0530 0.0421 0.0288
Net realized gains/(losses)
on investment
transactions............... (0.0001) (0.0002) -- (0.0004)** (0.0091) (0.0006)
-------- -------- -------- -------- -------- --------
Total income from investment
operations.................. 0.0256 0.0501 0.0481 0.0526 0.0330 0.0282
Less dividends to
shareholders from net
investment income........... (0.0256) (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 PERIOD............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total return................. 2.58%(c) 5.13% 4.91% 5.37% 4.28%+ 2.92%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period
(millions)................. $ 151 $ 162 $ 192 $ 261 $ 355 $ 154
Ratio of expenses to average
net assets................. 0.55%(b) 0.60% 0.55% 0.56% 0.50% 0.60%
Ratio of net investment
income to average net
assets..................... 5.07%(b) 4.99% 4.82% 5.34% 4.27% 2.88%
Ratio of expenses to average
net assets*................ 0.60%(a)(b) 0.64% 0.61%(a) 0.63% 0.58% 0.60%
Ratio of net investment
income to average net
assets*.................... 5.02%(a)(b) 4.95% 4.76%(a) 5.27% 4.19% 2.88%
</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.
** 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.
+ 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) Fees paid by third parties had no effect on the ratios.
(b) Annualized.
(c) Not annualized.
</TABLE>
See Notes to Financial Statements.
65
<PAGE> 108
PACIFIC HORIZON GOVERNMENT FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED Year Ended
AUGUST 31, --------------------------------------------------------------------------------
1998 FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
(UNAUDITED) 1998 1997 1996 1995 1994(b)
----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
HORIZON SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF PERIOD......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income........ 0.0272 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.................. 0.0272 0.0533 0.0513 0.0558 0.0362 0.0221
Less dividends to
shareholders from net
investment income........... (0.0272) (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 PERIOD............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total return................. 2.75%(d) 5.46% 5.25% 5.71% 4.61%+ 2.29%(d)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period
(millions)................. $ 57 $ 63 $ 61 $ 55 $ 235 $ 370
Ratio of expenses to average
net assets................. 0.23%(c) 0.27% 0.22% 0.24% 0.17% 0.28%(c)
Ratio of net investment
income to average net
assets..................... 5.40%(c) 5.32% 5.15% 5.66% 4.67% 3.17%(c)
Ratio of expenses to average
net assets*................ 0.28%(a)(c) 0.32% 0.29%(a) 0.30% 0.25% 0.28%(c)
Ratio of net investment
income to average net
assets*.................... 5.35%(a)(c) 5.27% 5.08%(a) 5.60% 4.59% 3.17%(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.
** 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.
+ 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) 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.
</TABLE>
See Notes to Financial Statements.
66
<PAGE> 109
PACIFIC HORIZON GOVERNMENT FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
AUGUST 31, --------------------------------------------------------------------------------
1998 FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
(UNAUDITED) 1998 1997 1996 1995 1994
----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
HORIZON SERVICE SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF PERIOD......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income....... 0.0260 0.0507 0.0488 0.0537 0.0429 0.0300
Net realized gains/(losses)
on investment
transactions............... (0.0001) 0.0001 -- (0.0004)** (0.0092) (0.0006)
-------- -------- -------- -------- -------- --------
Total income from investment
operations.................. 0.0259 0.0508 0.0488 0.0533 0.0337 0.0294
Less dividends to
shareholders from net
investment income........... (0.0259) (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 PERIOD............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total return................. 2.62%(c) 5.20% 4.98% 5.44% 4.35%+ 3.04%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period
(millions)................. $ 239 $ 264 $ 263 $ 213 $ 289 $ 326
Ratio of expenses to average
net assets................. 0.48%(b) 0.52% 0.48% 0.49% 0.43% 0.48%
Ratio of net investment
income to average net
assets..................... 5.15%(b) 5.07% 4.89% 5.41% 4.32% 2.99%
Ratio of expenses to average
net assets*................ 0.53%(a)(b) 0.57% 0.54%(a) 0.56% 0.51% 0.53%
Ratio of net investment
income to average net
assets*.................... 5.10%(a)(b) 5.02% 4.83%(a) 5.34% 4.24% 2.94%
</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.
** 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.
+ 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) Fees paid by third parties had no effect on the ratios.
(b) Annualized.
(c) Not annualized.
</TABLE>
See Notes to Financial Statements.
67
<PAGE> 110
PACIFIC HORIZON TREASURY ONLY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
AUGUST 31, --------------------------------------------------------------------------------
1998 FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
(UNAUDITED) 1998 1997 1996 1995 1994
----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
PACIFIC HORIZON SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF PERIOD......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income....... 0.0236 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.................. 0.0236 0.0472 0.0459 0.0498 0.0382 0.0252
Less dividends to
shareholders from net
investment income........... (0.0236) (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 PERIOD............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total return................. 2.38%(d) 4.83% 4.68% 5.06% 3.90% 2.57%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period
(millions)................. $ 202 $ 229 $ 225 $ 274 $ 90 $ 72
Ratio of expenses to average
net assets................. 0.58%(c) 0.61% 0.60% 0.63% 0.62% 0.56%
Ratio of net investment
income to average net
assets..................... 4.68%(c) 4.73% 4.59% 4.94% 3.90% 2.54%
Ratio of expenses to average
net assets*................ (a) (a)(b) (b) (a) 0.63% 0.72%
Ratio of net investment
income to average net
assets*.................... (a) (a)(b) (b) (a) 3.89% 2.38%
</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) There were no fee waivers or expense reimbursements during
the period.
(b) Fees paid by third parties had no effect on the ratios.
(c) Annualized.
(d) Not annualized.
</TABLE>
See Notes to Financial Statements.
68
<PAGE> 111
PACIFIC HORIZON TREASURY ONLY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED Year Ended
AUGUST 31, --------------------------- PERIOD ENDED
1998 FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
(UNAUDITED) 1998 1997 1996(a)
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
HORIZON SHARES
NET ASSET VALUE PER SHARE, BEGINNING
OF PERIOD............................ $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
Income from Investment Operations:
Net investment income................ 0.0252 0.0504 0.0490 0.0227
Net realized gains/(losses) on
investment transactions............ -- -- 0.0001 (0.0001)
-------- -------- -------- --------
Total income from investment
operations........................... 0.0252 0.0504 0.0491 0.0226
Less dividends to shareholders from
net investment income................ (0.0252) (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 $ 1.00
======== ======== ======== ========
Total return.......................... 2.55%(e) 5.16% 5.02% 2.30%(e)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period
(millions)......................... $ 26 $ 30 $ 30 $ 7
Ratio of expenses to average net
assets............................. 0.26%(d) 0.29% 0.27% 0.70%(d)
Ratio of net investment income to
average net assets................. 5.00%(d) 5.04% 4.94% 11.88%(d)
Ratio of expenses to average net
assets*............................ (b) (b)(c) (b)(c) (b)
Ratio of net investment income to
average net assets*................ (b) (b)(c) (b)(c) (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 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.
69
<PAGE> 112
PACIFIC HORIZON TREASURY ONLY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
AUGUST 31, --------------------------------------------------------------------------------
1998 FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
(UNAUDITED) 1998 1997 1996 1995 1994
----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
HORIZON SERVICE SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF PERIOD......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income....... 0.0239 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.................. 0.0239 0.0480 0.0466 0.0505 0.0389 0.0271
Less dividends to
shareholders from net
investment income........... (0.0239) (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 PERIOD............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total return................. 2.42%(d) 4.90% 4.75% 5.14% 3.98% 2.76%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period
(millions)................. $ 232 $ 177 $ 260 $ 186 $ 194 $ 272
Ratio of expenses to average
net assets................. 0.51%(c) 0.54% 0.53% 0.56% 0.55% 0.39%
Ratio of net investment
income to average net
assets..................... 4.74%(c) 4.80% 4.66% 5.01% 3.86% 2.73%
Ratio of expenses to average
net assets*................ (a) (a)(b) (a)(b) (a) 0.56% 0.64%
Ratio of net investment
income to average net
assets*.................... (a) (a)(b) (a)(b) (a) 3.85% 2.48%
</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) There were no fee waivers or expense reimbursements during
the period.
(b) Fees paid by third parties had no effect on the ratios.
(c) Annualized.
(d) Not annualized.
</TABLE>
See Notes to Financial Statements.
70
<PAGE> 113
[This page intentionally left blank.]
<PAGE> 114
[This page intentionally left blank.]
<PAGE> 115
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 Municipal Bond Fund
[ ] Flexible Income 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> 116
Bulk Rate
U.S. Postage
PAID
Secaucus, NJ
Permit No. 237
{PACIFIC HORIZON FUNDS LOGO}
Provident Distributor, Inc., Distributor
PHF-5005 8/98
<PAGE> 117
PACIFIC HORIZON TAX-EXEMPT MONEY MARKET FUNDS
SEMI-ANNUAL REPORT
August 31, 1998
Tax-Exempt Money 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> 118
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
PricewaterhouseCoopers 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> 119
.....................................
Contents
<TABLE>
<S> <C>
FUND FACTS 2-3
UNDERSTANDING YOUR SHAREHOLDER
REPORT 4-6
ECONOMIC REVIEW FROM THE
INVESTMENT ADVISER 8-9
SHAREHOLDER VOTING RESULTS 10-13
PORTFOLIO OF INVESTMENTS 14-50
STATEMENTS OF ASSETS
AND LIABILITIES 51
STATEMENTS OF OPERATIONS 52
STATEMENTS OF CHANGES
IN NET ASSETS 53
NOTES TO FINANCIAL
STATEMENTS 54-62
FINANCIAL HIGHLIGHTS 63-70
</TABLE>
<PAGE> 120
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
...........................................................................
Flexible Income (formerly High Current Income
Corporate Bond)
...........................................................................
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 Municipal Bond Fund High Level of Federal and California
(formerly California Tax-Exempt Tax-Free Current Income
Bond)*
...........................................................................
Money Market Funds+ High Current Income Plus Principal
- Prime Stability
- Treasury
- Government
- Treasury Only
...........................................................................
Tax-Exempt Money Market Funds*+
- Tax-Exempt Money High Level of Federal Tax-Free Current
Income Plus Principal Stability
- California Tax-Exempt Money 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.
+ 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> 121
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> 122
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.
[GRAPHIC]
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.
[GRAPHIC]
4
<PAGE> 123
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
GRAPHIC
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
[GRAPHIC]
5
<PAGE> 124
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.
[GRAPHIC]
ANY INCOME EARNED FROM THE FUND'S INVESTMENTS
OPERATING EXPENSES INCURRED BY THE FUND DURING
THE PERIOD
GAINS OR LOSSES REALIZED UPON THE SALE OF THE
FUND'S INVESTMENTS AND ANY CHANGE IN
UNREALIZED GAINS OR LOSSES ON FUND HOLDINGS
DURING THE PERIOD
NET CHANGE IN NET ASSETS DUE TO FUND
OPERATIONS
The STATEMENTS OF CHANGES IN NET ASSETS shows the changes in the net assets of
the Fund during each of the two most recent reporting periods. The changes in
net assets are generally broken down into four distinct sections:
[GRAPHIC] OPERATIONS: SEE STATEMENT OF OPERATIONS
DIVIDENDS TO SHAREHOLDERS: TOTAL INCOME
DIVIDENDS PAID TO SHAREHOLDERS DURING THE
PERIODS
DISTRIBUTIONS TO SHAREHOLDERS: TOTAL REALIZED
GAINS DISTRIBUTED TO SHAREHOLDERS DURING THE
PERIODS
FUND SHARE TRANSACTIONS: DOLLAR VALUE OF FUND
SHARES PURCHASED, REDEEMED OR REINVESTED
DURING THE PERIODS
The NOTES TO FINANCIAL STATEMENTS are footnotes to the statements listed above.
These notes include information on accounting methods used by the Fund,
contractual arrangements between the Fund and its service providers, certain
transactions effected by the Fund and other general information about the Fund.
The FINANCIAL HIGHLIGHTS shows, for a single share outstanding throughout each
period presented, the net investment income, the realized and unrealized gains
and losses and the dividends and distributions of the Fund. It also shows key
data and ratios, such as the total investment return for each period, the
portfolio turnover rate for Funds other than money market mutual funds, the
ratio of expenses to average net assets and the ratio of net investment income
to average net assets.
6
<PAGE> 125
[This page intentionally left blank.]
7
<PAGE> 126
ECONOMIC REVIEW
FROM THE INVESTMENT ADVISER
The global financial crisis has dominated the economic news in recent months.
There are renewed fears that the effect of the Asian currency crisis is
spreading to other economies in the world, including North and South America.
The Russian Ruble has experienced a sharp decline as debate continues regarding
political and economic changes. The pace of economic reform in Japan has been
alarmingly slow, with the recent interest rate reduction reflecting only the
first significant action taken in this regard. Markets in Canada and Mexico
continue to reflect concerns relating to commodities. Moreover, investors have
become increasingly concerned about the sustainability of U.S. corporate
profits, resulting in a significant decline in the U.S. equity markets. The
current global economic crisis is generating greater concern, as it increasingly
affects a larger number of key American trading partners.
The U.S. economy has been affected both positively and negatively by the global
financial crisis. Low interest and inflation rates have stimulated domestic
demand for housing, autos and other consumer goods. However, manufacturing
activity is slowing, particularly in trade exports, and cutbacks have been made
in production and personnel within some industries. The Gross Domestic Product
("GDP") rose at a 1.8%(1) rate in the second quarter, below the first quarter's
5.5%(1) growth rate, reflecting the deterioration in the trade balance and a
slowdown in business investment in equipment and inventories. While the U.S.
economy remains strong in the third quarter, it is no longer immune from the
effects of the crisis. Additionally, prospects for U.S. growth and corporate
profits are less secure.
Economic reports continue to indicate that inflation is under control in
manufacturing and consumer-related areas. The prices paid to U.S. factories,
farmers and other producers (as measured by the Producer Price Index "PPI") fell
0.4%(1) in August, the largest drop in seven months. In the first eight months
of 1998, consumer prices rose at an annual rate of 1.6%(1), which is the same as
the first eight months of 1997. Inflation has remained innocuous as weakening
economies in Asia have depressed commodity prices and the cost of goods imported
into the U.S.
In a departure from the recent past, it appears that the Federal Reserve Board
(the "Fed") now has a higher level of anxiety about the outlook for the global
economy and is becoming more concerned about the increasing risks of slowing
economic growth rather than the dangers of rising inflation. In a recent speech,
Fed Chairman Alan Greenspan hinted that the Fed might consider lowering interest
rates if it becomes increasingly likely that the Asian currency crisis will
spread to the U.S. economy. Although the Federal Open Market Committee ("FOMC")
left the Fed Funds' target interest rate unchanged at 5.50% at the most recent
FOMC meeting held in August; some analysts now expect a reduction in rates
sometime soon.
The main benefactor of the global financial uncertainty has clearly been the
U.S. Treasury market. U.S. Treasuries have replaced gold as the safe haven of
choice, as many investors are reaping the financial rewards of owning these
types of securities. On July 17, the day that the equity markets peaked, the
Treasury 10-year note had a closing yield of approximately 5.5%(1). As of August
31, the yield on this note was 4.97%(1). The fixed income markets now reflect
expectations of an interest rate reduction, as evidenced by the entire Treasury
yield curve trading below 5.50%.
The turmoil in overseas markets, the decline in commodity prices, and the
8
<PAGE> 127
global competition from cheaper imports have also caused the credit sectors to
widen appreciably against Treasuries. Credit risk is now at a heightened level,
as the expectation of lower profit prospects has become more apparent to
investors. Additional downward revisions to corporate earnings estimates will
put further pressure on corporate spreads until the economic situation begins to
improve in Asia.
The Standard & Poor's 500 stock index ("S&P 500") fell 8.0%(2) on a total return
basis during the 6-month period ended August 31. While the stocks of large,
name-brand companies have been battered during the month of August, smaller
company stocks have been hit even harder. The S&P 500 declined 19%(2) from its
high on July 17 and the Russell 2000 Index dropped 30%(3) from its high recorded
in April. Year-to-date, the performance disparity has been even larger between
large cap and small cap stocks. Since the beginning of the year, the S&P 500 is
down 0.4%(2) and the Russell 2000 Index has dropped 22.1%(3), constituting a
spread of 21.7 percentage points.
Investors are becoming increasingly concerned about the sustainability of U.S.
corporate profits. Investors had been willing to pay record-high valuations for
stocks because interest rates were low, inflation was under control and
economies around the world were expanding. Not only are the developed Asian
countries faltering, but the economic turmoil has also extended to Russia and
several emerging market countries. So far, the U.S. market has been fairly well
insulated from the economic problems overseas, but U.S. companies are now
beginning to feel the negative impact from depressed overseas business
conditions. Investor confidence in a continued economic expansion will not occur
until Asia and Russia implement appropriate measures to rectify their economic
and political problems.
LOOKING FORWARD
The U.S. government is still expected to post a budget surplus when the fiscal
year ends on September 30. Rising incomes, low unemployment and stock market
gains earlier in the year have generated abundant tax collections. Reduced
government spending has also contributed to decreasing interest payments on
government debt.
The outlook for the remainder of 1998 is unclear. 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 2.5% in the third quarter. Just as
the market was overly optimistic at the beginning of the summer, we suspect that
the markets' current doldrums are too extreme.
Sincerely,
[kirk hartman]
Kirk Hartman
Chief Investment Officer
Fixed Income Management
- ---------------
( 1) Source - Bloomberg, 1998.
( 2) Source - Bloomberg, 1998. The S&P 500 Index is an index that is
representative of the large capitalization U.S. equity market as a whole
and cannot be invested in directly.
( 3) Source - Bloomberg, 1998. The Russell 2000 is an index that is
representative of the small capitalization U.S. equity market as a whole
and cannot be invested in directly.
9
<PAGE> 128
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Results (Unaudited) of Annual Meeting of Shareholders
Convened on June 19, 1998
Reconvened on June 26, 1998 and July 1, 1998
Reconvened and Adjourned on July 20, 1998
- --------------------------------------------------------------------------------
The Annual Meeting of Shareholders of Pacific Horizon Funds, Inc. (the
"Company") was convened on June 19, 1998, reconvened on June 26, 1998 and July
1, 1998, and reconvened and adjourned on July 20, 1998. The Funds of the Company
are: Aggressive Growth Fund, Asset Allocation Fund, Blue Chip Fund, California
Municipal Bond Fund (formerly California Tax-Exempt Bond Fund), California
Tax-Exempt Money Market Fund, Capital Income Fund, Flexible Income Fund
(formerly Corporate Bond Fund), Government Fund, Intermediate Bond Fund,
International Equity Fund, National Municipal Bond Fund, Prime Fund, Short-Term
Government Fund, Tax-Exempt Money Fund, Treasury Fund, Treasury Only Fund, and
U.S. Government Securities Fund. The Annual Meeting was held in order to vote on
the following purposes:
<TABLE>
<CAPTION>
PROPOSAL
NUMBER ISSUE
- -------- -----
<C> <S>
1. To elect Messrs. Edward S. Bottum, William P. Carmichael,
Thomas M. Collins, Douglas B. Fletcher, Robert E. Greeley,
and Cornelius J. Pings, Directors of the Company;
2. With respect to each Fund except the Blue Chip and
Intermediate Bond Funds, to approve or disapprove a new
Investment Advisory Agreement between the Company and Bank
of America NT&SA;
3. With respect to the International Equity Fund, to approve or
disapprove a new Sub-Advisory Agreement between Bank of
America NT&SA and Wellington Management Company, LLP;
4. To approve or disapprove an amendment to the Company's
Charter;
5. To approve or disapprove changes to the following
fundamental investment limitations of each Fund of the
Company:
A) limitation on underwriting of securities;
B) limitation on real estate transactions;
C) limitation on commodity transactions;
D) limitation on industry concentration;
E) limitation on lending;
F) limitation on borrowing and issuance of senior
securities; and
G) limitation on issuer concentration.
6. To approve or disapprove certain changes to the following
fundamental investment policies and limitations, including a
change to make all of such policies and limitations
non-fundamental:
A) with respect to each Fund, the limitation on short sales
and purchasing securities on margin;
</TABLE>
10
<PAGE> 129
<TABLE>
<CAPTION>
PROPOSAL
NUMBER ISSUE
- -------- -----
<C> <S>
B) with respect to the National Municipal Bond, Aggressive
Growth, California Municipal Bond, Prime, Treasury and
California Tax-Exempt Money Market Funds, the limitation on
purchasing securities of companies for the purpose of
exercising control;
C) with respect to each Fund except the Government and
Treasury Only Funds, the limitation on purchasing securities
of other investment companies;
D) with respect to each Fund except the Aggressive Growth,
Short-Term Government, Prime, Treasury, Government and
Treasury Only Funds, the limitation on put, call, straddle
and spread transactions;
E) with respect to each Fund except the National Municipal
Bond, International Equity, Flexible Income, Short-Term
Government and California Tax-Exempt Money Market Funds, the
limitation on illiquid securities;
F) with respect to the Intermediate Bond, Blue Chip and
Asset Allocation Funds, the limitation on transactions in
certain securities by Board members;
G) with respect to the U.S. Government Securities, Capital
Income, California Municipal Bond and California Tax-Exempt
Money Market Funds, the limitation on unseasoned issuers;
H) with respect to the Aggressive Growth Fund, the policy on
investment in equity securities;
I) with respect to the U.S. Government Securities Fund, the
policy with respect to investment in certificates of the
Government National Mortgage Association;
J) with respect to the Capital Income Fund, the policy with
respect to investment in convertible securities;
K) with respect to the California Municipal Bond Fund, the
policy with respect to investment in California municipal
securities;
L) with respect to the Tax-Exempt Money Fund, the policy
with respect to investment in municipal securities; and
M) with respect to the California Tax-Exempt Money Market
Fund, the policy with respect to investment in California
municipal securities;
7. To approve or disapprove a change in the fundamental
investment objective to a non-fundamental investment
objective of the following Funds: National Municipal Bond,
International Equity, Flexible Income, Intermediate Bond,
Blue Chip, Asset Allocation, Aggressive Growth, U.S.
Government Securities, Capital Income, California Municipal
Bond, Short-Term Government, Prime, Treasury, Tax-Exempt
Money and California Tax-Exempt Money Market Funds;
8. To approve or disapprove a new fundamental investment
limitation of the Prime Fund with regard to its industry
concentration;
9. To ratify or reject the selection of PricewaterhouseCoopers
LLP as the Company's independent accountants for the fiscal
year ending February 28, 1999; and
10. The transaction of such other business as may properly come
before the meeting or any adjournment.
</TABLE>
11
<PAGE> 130
At the adjournment of the annual meeting on July 20, 1998, the voting
results for each proposal were as follows:
The voting results for each proposal are shown below:
PACIFIC HORIZON FUNDS, INC. -- ALL FUNDS
<TABLE>
<CAPTION>
TOTAL SHARES TOTAL ABSTAIN/
OUTSTANDING SHARES VOTED FOR AGAINST WITHHELD
----------------- ---------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
PROPOSAL 1 16,453,350,969.00 8,803,335,110.00
EDWARD S. BOTTUM 8,469,012,940.00 None 334,322,170.00
WILLIAM P. CARMICHAEL 8,468,803,120.00 None 334,531,990.00
THOMAS M. COLLINS 8,472,897,540.00 None 330,437,570.00
DOUGLAS B. FLETCHER 8,473,089,329.00 None 330,245,781.00
ROBERT E. GREELEY 8,475,491,285.00 None 327,843,225.00
CORNELIUS J. PINGS 8,473,521,034.00 None 329,806,076.00
PROPOSAL 4 16,453,350,969.00 8,803,335,110.00 7,332,890,744.00 502,659,743.00 373,195,844.00
PROPOSAL 9 16,453,350,969.00 8,803,335,091.00 8,429,896,332.00 85,027,748.00 288,411,011.00
<CAPTION>
BROKER PASS/
NON VOTE FAIL
-------------- -----
<S> <C> <C>
PROPOSAL 1 PASS
EDWARD S. BOTTUM None
WILLIAM P. CARMICHAEL None
THOMAS M. COLLINS None
DOUGLAS B. FLETCHER None
ROBERT E. GREELEY None
CORNELIUS J. PINGS None
PROPOSAL 4 594,588,779.00 FAIL
PROPOSAL 9 None PASS
</TABLE>
PACIFIC HORIZON TAX-EXEMPT MONEY FUND
<TABLE>
<CAPTION>
TOTAL SHARES TOTAL ABSTAIN/
OUTSTANDING SHARES VOTED FOR AGAINST WITHHELD
----------------- ---------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
PROPOSAL 2 712,154,026.00 485,161,683.00 478,120,480.00 2,700,180.00 4,341,023.00
PROPOSAL 5A 712,154,026.00 485,161,684.00 473,622,236.00 3,631,208.00 3,736,816.00
PROPOSAL 5B 712,154,026.00 485,161,684.00 473,863,700.00 3,861,224.00 3,265,337.00
PROPOSAL 5C 712,154,026.00 485,161,684.00 474,211,387.00 3,474,132.00 3,304,742.00
PROPOSAL 5D 712,154,026.00 485,161,684.00 471,919,772.00 3,792,996.00 5,277,492.00
PROPOSAL 5E 712,154,026.00 485,161,684.00 472,073,145.00 2,930,156.00 5,986,958.00
PROPOSAL 5F 712,154,026.00 485,161,684.00 471,908.836.00 2,808,300.00 6,273,123.00
PROPOSAL 5G 712,154,026.00 485,161,684.00 472,608,227.00 2,919,147.00 5,462,885.00
PROPOSAL 6A 712,154,026.00 485,161,684.00 473,840,318.00 3,203,958.00 3,945,984.00
PROPOSAL 6C 712,154,026.00 485,161,684.00 475,148,117.00 2,350,902.00 3,491,241.00
PROPOSAL 6D 712,154,026.00 485,161,684.00 473,762,130.00 3,087,372.00 4,140,759.00
PROPOSAL 6E 712,154,026.00 485,161,684.00 473,781,525.00 3,006,235.00 4,202,500.00
PROPOSAL 6L 712,154,026.00 485,161,684.00 473,344,790.00 2,303,988.00 5,341,482.00
PROPOSAL 7 712,154,026.00 485,161,684.00 472,754,346.00 3,989,259.00 4,246,655.00
<CAPTION>
BROKER PASS/
NON VOTE FAIL
-------------- -----
<S> <C> <C>
PROPOSAL 2 None PASS
PROPOSAL 5A 4,171,424.00 PASS
PROPOSAL 5B 4,171,423.00 PASS
PROPOSAL 5C 4,171,423.00 PASS
PROPOSAL 5D 4,171,424.00 PASS
PROPOSAL 5E 4,171,425.00 PASS
PROPOSAL 5F 4,171,425.00 PASS
PROPOSAL 5G 4,171,425.00 PASS
PROPOSAL 6A 4,171,424.00 PASS
PROPOSAL 6C 4,171,424.00 PASS
PROPOSAL 6D 4,171,423.00 PASS
PROPOSAL 6E 4,171,424.00 PASS
PROPOSAL 6L 4,171,424.00 PASS
PROPOSAL 7 4,171,424.00 PASS
</TABLE>
12
<PAGE> 131
PACIFIC HORIZON CALIFORNIA TAX-EXEMPT MONEY MARKET FUND
<TABLE>
<CAPTION>
TOTAL SHARES TOTAL ABSTAIN/ BROKER
OUTSTANDING SHARES VOTED FOR AGAINST WITHHELD NON VOTE
----------------- ---------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
PROPOSAL 2 1,434,607,789.00 890,575,149.00 860,010,345.00 13,448,277.00 17,116,527.00 None
PROPOSAL 5a 1,434,607,789.00 890,575,151.00 612,334,344.00 15,657,737.00 20,725,560.00 241,857,510.00
PROPOSAL 5b 1,434,607,789.00 890,575,151.00 613,026,312.00 15,725,181.00 19,966,147.00 241,857,511.00
PROPOSAL 5c 1,434,607,789.00 890,575,151.00 610,195,969.00 14,739,831.00 23,781,841.00 241,857,510.00
PROPOSAL 5d 1,434,607,789.00 890,575,151.00 614,850,906.00 14,861,780.00 19,004,955.00 241,857,510.00
PROPOSAL 5e 1,434,607,789.00 890,575,151.00 611,718,443.00 14,276,277.00 22,722,920.00 241,857,511.00
PROPOSAL 5f 1,434,607,789.00 890,575,151.00 610,343,931.00 15,203,452.00 23,170,258.00 241,857,510.00
PROPOSAL 5g 1,434,607,789.00 890,575,151.00 612,600,420.00 14,623,848.00 21,493,372.00 241,857,511.00
PROPOSAL 6a 1,434,607,789.00 890,575,151.00 611,242,964.00 19,385,064.00 18,089,614.00 241,857,509.00
PROPOSAL 6b 1,434,607,789.00 890,575,151.00 609,524,527.00 21,369,547.00 17,823,567.00 241,857,510.00
PROPOSAL 6c 1,434,607,789.00 890,575,151.00 608,254,724.00 20,905,141.00 19,557,776.00 241,857,510.00
PROPOSAL 6d 1,434,607,789.00 890,575,151.00 608,312,644.00 19,340,687.00 21,064,309.00 241,857,511.00
PROPOSAL 6g 1,434,607,789.00 890,575,151.00 610,934,925.00 19,417,063.00 18,365,652.00 241,857,511.00
PROPOSAL 6m 1,434,607,789.00 890,575,151.00 607,251,422.00 21,805,345.00 19,660,874.00 241,857,510.00
PROPOSAL 7 1,434,607,789.00 890,575,151.00 602,409,978.00 26,814,462.00 19,493,201.00 241,857,510.00
<CAPTION>
PASS/
FAIL
-----
<S> <C>
PROPOSAL 2 PASS
PROPOSAL 5a PASS
PROPOSAL 5b PASS
PROPOSAL 5c PASS
PROPOSAL 5d PASS
PROPOSAL 5e PASS
PROPOSAL 5f PASS
PROPOSAL 5g PASS
PROPOSAL 6a PASS
PROPOSAL 6b PASS
PROPOSAL 6c PASS
PROPOSAL 6d PASS
PROPOSAL 6g PASS
PROPOSAL 6m PASS
PROPOSAL 7 PASS
</TABLE>
13
<PAGE> 132
PACIFIC HORIZON TAX-EXEMPT MONEY FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS+ RATINGS+ MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS
ALASKA -- 1.4%
Alaska State Housing
Finance Corporation
(final maturity
12/1/19)*.............. NR/NR A1+/AAA 3.50% 09/02/98 $ 9,995,000 $ 9,995,000
------------
ARIZONA -- 0.4%
Apache County
Industrial Development,
Tucson Electric Power,
Series A
(LOC -- Toronto
Dominion Bank) (final
maturity 12/15/18)*.... VMIG1/Aa2 A1+/AA 3.30% 09/02/98 1,000,000 1,000,000
Apache County
Industrial Development,
Tucson Electric Power,
Series B (LOC -- Bank
of New York) (final
maturity 12/15/18)*.... VMIG1/Aa3 A1+/AA- 3.30% 09/01/98 2,200,000 2,200,000
------------
3,200,000
------------
ARKANSAS -- 0.5%
Arkansas State
Development Financing
Authority (final
maturity 7/1/30)*...... NR/NR A1+/AAA 3.70% 06/01/99 3,400,000 3,400,000
------------
CALIFORNIA -- 2.9%
California Statewide
Community Development
Authority, Tax and
Revenue Anticipation,
Series B............... VMIG1/Aaa A1/AAA 4.75% 09/30/98 10,000,000 10,006,538
</TABLE>
- ---------------
See Notes to Financial Statements.
14
<PAGE> 133
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS+ RATINGS+ 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)
Irvine Ranch Water
District
(LOC -- Commerzbank
A.G.) (final maturity
9/1/06)*............... VMIG1/Aa2 A1+/AA- 3.15% 09/01/98 $ 4,900,000 $ 4,900,000
Ivrine Ranch Water
District
(LOC -- Toronto
Dominion Bank) (final
maturity 8/1/16)*...... VMIG1/Aa2 A1+/AA 3.15% 09/01/98 2,000,000 2,000,000
Orange County Irvine
Coast Assessment
(LOC -- Kredietbank/
Societe Generale)
(final maturity
9/2/18)*............... VMIG1/Aaa A1+/AA- 3.15% 09/01/98 2,500,000 2,500,000
Orange County
Sanitation Districts,
Certificates of
Participation, Capital
Improvements Project
(LOC -- National
Westminster Bank)
(final maturity
8/1/15)*............... VMIG1/Aa2 A1+/AA 3.15% 09/01/98 1,300,000 1,300,000
------------
20,706,538
------------
DISTRICT OF COLUMBIA -- 5.8%
District of Columbia,
Series A1
(LOC -- National
Westminster) (final
maturity 10/1/07)*..... VMIG1/Aa2 A1+/AA 3.45% 09/01/98 5,400,000 5,400,000
District of Columbia,
Series A2
(LOC -- Canadian
Imperial Bank) (final
maturity 10/1/07)*..... VMIG1/Aa3 A1+/AA- 3.45% 09/01/98 15,200,000 15,200,000
District of Columbia,
Series A3 (final
maturity 10/1/07)*..... VMIG1/Aa3 A1+/AA- 3.45% 09/01/98 21,500,000 21,500,000
------------
42,100,000
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
15
<PAGE> 134
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS+ RATINGS+ 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 -- 8.5%
Florida Board of
Education (final
maturity 6/1/23)*...... NR/Aa A1+/AA 3.75% 12/01/98 $10,395,000 $ 10,395,000
Pinellas County, Multi-
Family Housing,
Foxbridge Apartments,
Series A (final
maturity 6/15/25)*..... NR/NR A1+/AAA 3.50% 09/02/98 5,300,000 5,300,000
Sarasota County, Public
Hospital District,
Sarasota Hospital
Project, Series A...... P1/NR A1+/NR 3.55% 10/01/98 3,500,000 3,500,000
Sarasota County, Public
Hospital District,
Sarasota Hospital
Project, Series A...... P1/NR A1+/NR 3.80% 11/19/98 5,000,000 5,000,000
Sarasota County Public
Hospital District,
Series B............... P1/NR A1+/NR 3.30% 10/14/98 2,000,000 2,000,000
Sarasota County, Public
Hospital District,
Series 91.............. P1/NR A1+/NR 3.65% 12/10/98 10,000,000 10,000,000
Sarasota County, Public
Hospital, Series 93A... P1/NR A1+/NR 3.65% 12/10/98 2,500,000 2,500,000
St. Lucie County
Pollution Control
Revenue, Series A...... P1/NR A1+/NR 3.70% 09/14/98 2,500,000 2,500,000
Sunshine State
Government Finance
Commission Revenue
Bonds Series 86........ P1/NR A1+/NR 3.50% 11/17/98 10,000,000 10,000,000
Sunshine State
Government Finance
Committee.............. P1/NR A1+/NR 3.70% 09/11/98 10,000,000 10,000,000
------------
61,195,000
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
16
<PAGE> 135
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS+ RATINGS+ 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 -- 2.5%
Gainesville
Redevelopment
Authority, Riverside
Military Academy
(LOC -- Wachovia Bank
and Trust) (final
maturity 1/1/23)*...... NR/AA2 NR/NR 3.35% 09/02/98 $15,000,000 $ 15,000,000
Valdosta & Lowndes
County Hospital
Authority Revenue,
South Georgia Medical
Center Project (final
maturity 10/1/23)*..... NR/NR A1+/AAA 3.25% 09/03/98 3,090,000 3,090,000
------------
18,090,000
------------
HAWAII -- 2.1%
Hawaii State (final
maturity 4/1/09)*...... NR/NR A1+/AAA 3.45% 09/03/98 15,000,000 15,000,000
------------
IDAHO -- 2.1%
Idaho State Tax
Anticipation Notes..... MIG1/NR Sp1/NR 4.50% 06/30/99 15,000,000 15,107,774
------------
ILLINOIS -- 13.6%
Chicago Industrial
Development Revenue,
Guernsey Bel, Inc.
(final maturity
12/1/16)*.............. NR/NR A1+/AA- 3.30% 09/02/98 1,135,000 1,135,000
Chicago Park District,
Tax Anticipation
Notes.................. MIG1/NR Sp1+/NR 4.30% 09/17/99 8,000,000 8,060,249
Chicago Tender Notes
(LOC -- Morgan Guaranty
Trust)................. VMIG1/MIG1 A1/Sp1 3.55% 10/29/98 15,000,000 15,000,000
Chicago Tender Notes,
Series C
(LOC -- Societe
Generale).............. VMIG1/Aa3 A1+/Sp1 3.65% 12/31/98 12,500,000 12,500,000
Chicago Variable
Equipment Notes
(LOC -- HarrisTrust and
Savings Bank) (final
maturity 1/1/06)*...... VMIG1/MIG1 A1+/AA- 3.80% 12/31/98 6,800,000 6,800,000
</TABLE>
- ---------------
See Notes to Financial Statements.
17
<PAGE> 136
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS+ RATINGS+ 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)
Elmhurst Hospital
Revenue, Joint
Committee Health
Organization, Series 88
(final maturity
7/1/18)*............... VMIG1/NR A1/A 3.35% 09/03/98 $ 4,450,000 $ 4,450,000
Illinois Educational
Facilities Authority,
Adjustable Demand
Municipal Bond, John F.
Kennedy Health Care
Foundation
(LOC -- Lasalle
National Bank ) (final
maturity 12/1/25)*..... NR/NR A1+/AA- 3.60% 05/11/99 6,400,000 6,400,000
Illinois Health
Facilities Authority,
Elmhurst Memorial
Hospital, Series A
(final maturity
1/1/28)*............... VMIG1/A2 NR/NR 3.40% 09/01/98 26,200,000 26,200,000
Illinois Health
Facilities Authority,
Resurrection Health
Care Systems (final
maturity 5/1/11)*...... VMIG1/A2 NR/NR 3.35% 09/01/98 18,000,000 18,000,000
------------
98,545,249
------------
INDIANA -- 1.5%
Indiana Health Facility
Financing Authority,
Health Facility
Revenue, Holy Cross
Health System
Corporation............ Aaa/NR AAA/NR 4.25% 12/01/98 2,895,000 2,899,173
Jasper County,
Pollution Control
Revenue, Northern
Indiana Public Service,
Series A............... P1/NR A1+/NR 3.60% 10/08/98 8,000,000 8,000,000
------------
10,899,173
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
18
<PAGE> 137
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS+ RATINGS+ 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 3.45% 09/02/98 $ 4,700,000 $ 4,700,000
------------
KENTUCKY -- 2.4%
Kentucky Asset/
Liability Communication
General Fund Revenue,
Tax & Revenue
Anticipation, Series
A...................... MIG1/NR Sp1+/NR 4.50% 06/25/99 15,000,000 15,109,576
Kentucky Economic
Development Financing
Authority Revenue,
Sisters of Charity
(final maturity
11/1/20)*.............. VMIG1/A1 A1/A+ 3.55% 09/01/98 2,500,000 2,500,000
------------
17,609,576
------------
LOUSIANA -- 10.6%
Ascension Parish
Pollution Control,
Borden Inc. Project
(LOC -- Credit Suisse)
(final maturity
12/1/09)*.............. VMIG1/Aa2 A1+/AA 3.22% 09/02/98 5,500,000 5,500,000
Louisiana Public
Facilities Authority,
Hospital Revenue,
Willis-Knighton Medical
Center (AMBAC Insured)
(final maturity
9/1/27)*............... VMIG1/Aaa A1+/AAA 3.30% 09/02/98 7,000,000 7,000,000
Louisiana Public
Facilities Authority,
Hospital Revenue,
Willis-Knighton Medical
Center Project (AMBAC
Insured) (final
maturity 9/1/25)*...... VMIG1/Aaa AAA/A1+ 3.30% 09/02/98 5,300,000 5,300,000
</TABLE>
- ---------------
See Notes to Financial Statements.
19
<PAGE> 138
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS+ RATINGS+ MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
LOUSIANA -- (CONTINUED)
Louisiana Public
Facilities Authority,
Hospital Revenue,
Willis-Knighton Medical
Center Project, Series
1993 (LOC -- Mellon
Bank) (final maturity
9/1/23)*............... VMIG1/NR A1/NR 3.30% 09/02/98 $16,870,000 $ 16,870,000
Louisiana State General
Obligation Bonds (AMBAC
Insured) (final
maturity 5/1/09)*...... NR/NR A1/AA 3.41% 09/03/98 11,600,000 11,600,000
Plaquemines Port Harbor
& Term District,
Chevron Pipe Line
Company (final maturity
9/1/08)*............... NR/Aa2 NR/AA 3.85% 09/01/98 13,500,000 13,504,560
Plaquemines Port Harbor
& Term District, Port
Facilities Revenue,
International Marine
Terminals Project
(LOC -- Morgan Guaranty
Trust) (final maturity
3/15/06)*.............. NR/Aa2 NR/NR 3.60% 09/15/98 10,500,000 10,500,000
West Baton Rouge,
Industrial Development
Authority, Dow
Chemical............... P1/NR A1+/NR 3.45% 10/20/98 5,050,000 5,050,000
West Baton Rouge
Parish, Industrial
District No. 3 Revenue
Bonds, Dow Chemical Co.
Project, Series B
(final maturity
12/1/16)*.............. P1/A1 A1/A 3.40% 09/01/98 1,300,000 1,300,000
------------
76,624,560
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
20
<PAGE> 139
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS+ RATINGS+ MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
MAINE -- 0.3%
Maine Health and Higher
Educational Facilities
Authority, VHA New
England Inc., Series G
(final maturity
12/1/25)*.............. NR/Aaa A1+/AAA 3.35% 09/02/98 $ 1,985,000 $ 1,985,000
------------
MARYLAND -- 1.4%
Gaithersburg Economic
Development Authority,
Asbury Methodist (MBIA
Insured) (final
maturity 7/1/27)*...... NR/NR A1/AAA 3.30% 09/03/98 10,000,000 10,000,000
------------
MICHIGAN -- 0.9%
Michigan Municipal Bond
Authority Revenue,
Series D (LOC -- Bank
of Nova Scotia)........ NR/NR Sp1+/NR 4.25% 08/27/99 6,500,000 6,541,415
------------
MISSOURI -- 0.5%
Missouri State Health &
Educational Facilites
Authority Revenue,
Medical Research
Facilities, Series A
(final maturity
5/15/38)*.............. NR/NR A1+/AA+ 3.35% 09/02/98 1,800,000 1,800,000
Missouri Health &
Education, The
Washington University
Project, Series A
(final maturity
9/1/30)*............... VMIG1/Aa1 A1+/AA+ 3.35% 09/01/98 1,700,000 1,700,000
------------
3,500,000
------------
NEBRASKA -- 0.5%
Nebraska Educational
Facilities (FGIC
Insured) (final
maturity 12/1/00)*..... VMIG1/AAA A1+/AAA 3.55% 09/02/98 3,435,000 3,435,000
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
21
<PAGE> 140
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS+ RATINGS+ 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 YORK -- 3.2%
New York City General
Obligation Bonds,
Series 1993, Subseries
A-8 (LOC -- Morgan
Guaranty Trust Co)
(final maturity
8/1/18)*............... VMIG1/Aa2 A1+/AAA 3.35% 09/01/98 $ 3,600,000 $ 3,600,000
New York Local
Government (final
maturity 4/1/17)*...... VMIG1/Aaa A1+/AAA 3.31% 09/03/98 11,500,000 11,500,000
New York Metropolitan
Transportation
Authority, Series 93C
(final maturity
10/31/07)*............. A1/NR A2+/NR 3.35% 09/02/98 8,000,000 8,000,000
------------
23,100,000
------------
NORTH CAROLINA -- 5.6%
Lenoir County Hospital
Revenue, Lenoir
Memorial Hospital
(LOC -- Wachovia Bank)
(final maturity
10/1/12)*.............. VMIG1/Aa2 NR/NR 3.30% 09/03/98 200,000 200,000
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 3.25% 09/03/98 1,600,000 1,600,000
North Carolina Medical
Care Community
Retirement
(LOC -- LaSalle
National Bank) (final
maturity 11/15/09)*.... NR/NR A1+/AA+ 3.30% 09/03/98 10,000,000 10,000,000
North Carolina
Municipal Power Agency,
Catawba Project........ P1/NR A1+/NR 3.70% 09/14/98 6,200,000 6,200,000
</TABLE>
- ---------------
See Notes to Financial Statements.
22
<PAGE> 141
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS+ RATINGS+ 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
Municipal Power Agency,
Catawba Project........ P1/NR A1+/NR 3.25% 09/04/98 $ 6,500,000 $ 6,500,000
North Carolina
Municipal Power Agency,
Catawba Project........ P1/NR A1+/NR 3.75% 09/15/98 10,000,000 10,000,000
Wake County Pollution
Control, Carolina Power
& Light Co. Project,
Series B (LOC -- First
Union National Bank)
(final maturity
9/1/15)*............... P1/Aa3 A1/A+ 3.30% 09/02/98 6,200,000 6,200,000
------------
40,700,000
------------
OHIO -- 0.3%
Ohio State Water
Development Authority,
Solid Waste Disposal
Revenue, The Timken
Company Project (final
maturity 7/1/32)*...... VMIG1/NR A1/A 3.35% 09/02/98 2,000,000 2,000,000
------------
OKLAHOMA -- 3.3%
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% 03/01/99 23,925,000 23,925,000
------------
OREGON -- 1.4%
Medford Hospital
Facilities Authority,
Rogue Valley Manor
(final maturity
5/15/27)*.............. NR/NR A+/A2 3.40% 09/01/98 10,000,000 10,000,000
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
23
<PAGE> 142
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS+ RATINGS+ 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 -- 13.8%
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
Emmaus General
Authority Pooled Loan,
Series 1989G-9
(LOC -- Bayerische
Girozentrale) (final
maturity 3/1/24)*...... NR/NR A1+/Sp1+ 3.45% 09/02/98 7,200,000 7,200,000
Philadelphia Tax &
Revenue Anticipation
Notes, Series A........ MIG1/NR Sp1+/NR 4.25% 06/30/99 13,250,000 13,314,969
Quakertown General
Authority, Pooled
Financing Program,
Series A (LOC -- PNC
Bank) (final maturity
7/1/26)*............... VMIG1/A1 NR/NR 3.30% 09/01/98 20,600,000 20,600,000
Quakertown Hospital
Authority, HPS Group
Pooled Financing
(LOC -- PNC Bank)
(final maturity
7/1/05)*............... VMIG1/A1 NR/NR 3.30% 09/01/98 46,600,000 46,600,000
------------
99,639,969
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
24
<PAGE> 143
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS+ RATINGS+ 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 -- 4.7%
Bristol Health &
Education Facilities,
Series 1995A (final
maturity 3/1/14)*...... NR/NR A1/AAA 3.55% 09/02/98 $ 8,500,000 $ 8,500,000
Johnson City Health &
Educational Facilities
Board, Series A (final
maturity 10/27/99)*.... VMIG1/Aaa A1+/AAA 3.40% 09/03/98 10,000,000 10,000,000
Clarksville Public
Building Authority
(final maturity
11/1/27)*.............. A1/Aa3 NR/NR 3.30% 09/02/98 4,000,000 4,000,000
Metropolitan Government
Nashville & Davidson
County Health &
Education Facilities,
Adventist/Sunbelt,
Series A (final
maturity 11/15/26)*.... VMIG1/Aa3 A1+/AA+ 3.30% 09/03/98 9,350,000 9,350,000
Montgomery County
Public Building
Authority, Pooled
Financing Government
Obligation, Tennessee
County Loan Pool
(LOC -- Nationsbank of
Tennessee) (final
maturity 3/1/25)*...... NR/NR A1+/AA- 3.30% 09/03/98 2,000,000 2,000,000
------------
33,850,000
------------
TEXAS -- 6.9%
Bexar County Housing
Authority (final
maturity 9/15/26)*..... VMIG1/NR A1/AA2 3.50% 09/02/98 6,775,000 6,775,000
Brazos River Harbor
Navigation District,
Dow Chemical........... P1/NR A1+/NR 3.45% 10/20/98 9,250,000 9,250,000
</TABLE>
- ---------------
See Notes to Financial Statements.
25
<PAGE> 144
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS+ RATINGS+ 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)
Grand Prairie Housing
Financing Corporation,
Lincoln Property
Company (final maturity
6/1/10)*............... NR/NR A1+/AAA 3.30% 09/02/98 $ 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 3.30% 09/03/98 2,300,000 2,300,000
North Central Texas
Health Facilities,
Methodist Hospital,
Series 91-A............ P1/NR A1+/NR 3.70% 09/09/98 5,000,000 5,000,000
Nueces River Authority
(final maturity
3/1/27)*............... VMIG1/NR NR/AAA 3.41% 09/03/98 16,600,000 16,600,000
University of Texas
Board of Regents....... P1/NR A1+/NR 3.75% 09/15/98 3,000,000 3,000,000
------------
49,625,000
------------
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% 09/02/98 9,900,000 9,900,000
------------
VERMONT -- 1.3%
Vermont Education and
Health Financing
Agency, Middlebury
College Project, Series
A (final maturity
11/1/27)*.............. NR/AA NR/AA 3.85% 11/01/98 2,075,000 2,075,000
</TABLE>
- ---------------
See Notes to Financial Statements.
26
<PAGE> 145
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS+ RATINGS+ 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 -- (CONTINUED)
Vermont Education and
Health Financing
Agency, Middlebury
College Project, Series
A (final maturity
5/1/28)*............... NR/NR A1+/AA 3.75% 05/01/99 $ 5,500,000 $ 5,500,000
Vermont Educational and
Health Buildings
Financing Agency,
Vermont Housing
Authority of New
England, Series C
(final maturity
12/1/25)*.............. VMIG1/A A1/AA 3.35% 09/02/98 1,800,000 1,800,000
------------
9,375,000
------------
VIRGINIA -- 0.5%
Peninsula Ports
Authority, Dominion
Term Association,
Series B............... P1/NR A1+/NR 3.30% 10/14/98 4,035,000 4,035,000
------------
WASHINGTON -- 1.4%
Washington State
Housing Finance
Authority, Multi-
Family Mortgage Revenue
(final maturity
1/1/10)*............... AA/A1 A2/A 3.40% 09/02/98 1,000,000 1,000,000
Washington State Public
Power Supply, Nuclear
Project (final maturity
7/1/15)*............... NR/NR A1+/AAA 3.40% 09/03/98 9,195,000 9,195,000
------------
10,195,000
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
27
<PAGE> 146
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS+ RATINGS+ 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 -- 1.5%
Wisconsin State
Operating Notes........ P1/NR A1+/NR 4.50% 06/15/99 $ 2,500,000 $ 2,516,480
Wisconsin
Transportation
Revenue................ P1/NR A1+/NR 3.35% 09/08/98 8,601,000 8,601,000
------------
11,117,480
------------
TOTAL INVESTMENTS -- 103.9%
(AMORTIZED COST
$750,096,734)(a)....... 750,096,734
LIABILITIES IN EXCESS OF OTHER ASSETS -- (3.9%).... (27,815,744)
------------
NET ASSETS -- 100.0%.... $722,280,990
============
</TABLE>
- ---------------
Percentages indicated are based on net assets of $722,280,990.
(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.
+ The ratings provided consist of short-term and long-term ratings.
28
<PAGE> 147
PACIFIC HORIZON CALIFORNIA TAX-EXEMPT
MONEY MARKET FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS+ RATINGS+ MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS
CALIFORNIA -- 97.2%
Alameda-Contra Costa
Financing Authority,
Certificates of
Participation (final
maturity 8/1/23)*....... NR/NR A1+/AA- 2.55% 09/02/98 $ 5,000,000 $ 5,000,000
Anaheim Housing
Authority, Multifamily
Housing Revenue, Bel
Page Project, Series A
(FNMA Insured) (final
maturity 8/1/20)*....... NR/NR A1+/AAA 2.25% 09/02/98 1,800,000 1,800,000
California Department of
Water Resources, Water
Revenue, Series 1....... P1/NR A1+/NR 3.65% 09/15/98 2,330,000 2,330,000
California General
Obligation (final
maturity 4/1/04)* 144A.. NR/NR A1+/AAA 3.40% 09/15/98 15,100,000 15,100,000
California General
Obligation.............. P1/NR A1+/NR 3.00% 10/21/98 10,000,000 10,000,000
California General
Obligation, Class A
(final maturity 2/1/06)*
144A.................... A1+/AA NR/NR 3.21% 09/03/98 10,000,000 10,000,000
California Health
Facilities Financial
Authority, Catholic
Healthcare, Series B
(final maturity
7/1/06)*................ VMIG1/Aaa A1+/AAA 2.35% 09/02/98 5,815,000 5,815,000
California Health
Facilities Financing
Authority Revenue,
Scripps Health, Series B
(MBIA Insured) (final
maturity 10/1/22)*...... VMIG1/Aaa A1+/AAA 2.50% 09/02/98 15,700,000 15,700,000
</TABLE>
- ---------------
See Notes to Financial Statements.
29
<PAGE> 148
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS+ RATINGS+ 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 (Catholic
Health Care) Series
1996D (MBIA Insured)
(LOC -- Rabobank
Nederland N.V.) (final
maturity 7/1/21)*....... VMIG1/Aaa A1+/AAA 2.35% 09/01/98 $ 1,500,000 $ 1,500,000
California Health
Facilities Financing
Authority (final
maturity 8/1/16)*....... NR/AAA NR/AAA 3.45% 09/01/98 11,950,000 11,950,000
California Health
Facilities Financing
Authority, Memorial
Health Services (final
maturity 10/1/24)*...... VMIG1/A A1/AA 2.60% 09/02/98 1,660,000 1,660,000
California Health
Facilities Financing
Authority, Scripps
Memorial Hospital,
Series 1991B (MBIA
Insured) (final maturity
10/1/21)*............... VMIG1/AAA A1+/AAA 2.50% 09/02/98 2,500,000 2,500,000
California Health
Facilities Financing
Authority, Series C
(final maturity
6/1/12)*................ VMIG1/NR A1/NR 2.80% 09/02/98 10,995,000 10,995,000
California Housing
Financing Agency
Multi-Unit Rental
Housing Revenue, Series
A (MBIA Insured) (final
maturity 8/1/23)*....... Aaa/NR AAA/NR 3.45% 09/01/98 2,000,000 2,000,000
California Housing
Financing Agency,
Multi-Family Housing,
Series C (FNMA Insured)
(final maturity
7/15/13)*............... NR/NR A1+/AAA 2.20% 09/02/98 1,200,000 1,200,000
</TABLE>
- ---------------
See Notes to Financial Statements.
30
<PAGE> 149
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS+ RATINGS+ 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,
Multi-Family, Series B
(final maturity
7/15/13)*............... NR/NR A1+/AAA 2.20% 09/02/98 $ 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% 02/01/99 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% 02/01/99 2,775,000 2,775,000
California Housing
Financing Agency, Series
E (AMT) (final maturity
2/1/33)*................ VMIG1/AA2 A1+/AA- 3.55% 03/12/99 15,000,000 15,000,000
California Housing
Financing Agency (final
maturity 2/1/24)*....... VMIG1/Aa2 NR/NR 3.21% 09/02/99 5,615,000 5,615,000
California Pollution
Control Financing
Authority (Southern
California Edison)
Series 1985B............ P1/NR A1+/NR 3.00% 10/19/98 14,000,000 14,000,000
California Pollution
Control Financing
Authority, Atlantic
Richfield Company
Project, Series 1994A
(AMT) (final maturity
12/1/24)*............... VMIG1/A2 A1/A 3.30% 09/01/98 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)*............... P1/Aaa A1/A+ 2.50% 09/02/98 1,700,000 1,700,000
</TABLE>
- ---------------
See Notes to Financial Statements.
31
<PAGE> 150
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS+ RATINGS+ 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, Chevron USA,
Inc. Project (final
maturity 11/15/01)*..... NR/AA2 NR/AA 3.85% 11/15/98 $ 2,405,000 $ 2,407,992
California Pollution
Control Financing
Authority, Delano Power
Project (AMT)
(LOC -- Algemene Bank
Nederland) (final
maturity 8/1/19)*....... NR/AA1 NR/NR 3.30% 09/01/98 4,900,000 4,900,000
California Pollution
Control Financing
Authority, Pacific Gas &
Electric (AMT)
(LOC -- Rabobank
Nederland) (final
maturity 12/1/16)*...... NR/NR A1+/AAA 2.45% 09/02/98 1,000,000 1,000,000
California Pollution
Control Financing
Authority, Pacific Gas &
Electric (LOC -- Toronto
Dominion Bank) (final
maturity 12/1/18)*...... NR/NR A1+/AAA 3.15% 09/01/98 1,000,000 1,000,000
California Pollution
Control Financing
Authority, Pacific Gas &
Electric, Series 1996A
(AMT) (LOC -- Swiss Bank
Corporation) (final
maturity 12/1/16)*...... NR/NR A1+/AAA 2.60% 09/02/98 16,000,000 16,000,000
California Pollution
Control Financing
Authority, Pacific Gas &
Electric, Series 1997C
(AMT) (LOC-Kredietbank
N.V.) (final maturity
11/1/26)*............... NR/NR A1+/AA+ 3.25% 09/01/98 42,900,000 42,900,000
</TABLE>
- ---------------
See Notes to Financial Statements.
32
<PAGE> 151
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS+ RATINGS+ 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 Martinez
Project, Series 1994A
(AMT) (final maturity
10/1/24)*............... VMIG1/Aa1 NR/NR 3.20% 09/01/98 $25,000,000 $ 25,000,000
California Pollution
Control Financing
Authority, Shell Oil
Company Martinez
Project, Series B (AMT)
(final maturity
10/1/31)*............... VMIG1/NR A1/A 3.20% 09/02/98 10,000,000 10,000,000
California Pollution
Control Financing
Authority, Solid Waste
Disposal, Santa Clara
Valley Series A (final
maturity 3/1/18)*....... VMIG1/A A1/A 2.50% 09/02/98 2,000,000 2,000,000
California Pollution
Control Financing
Authority, Taormina
Industries, Inc. Project
(AMT) (LOC -- Sanwa
Bank, Ltd.) (final
maturity 8/1/14)*....... VMIG1/A1 NR/NR 3.20% 09/02/98 5,125,000 5,125,000
California Pollution
Control Financing
Authority, Taormina
Industries, Inc.,
Project, Series 1994B
(AMT) (final maturity
8/1/14)*................ VMIG1/A1 NR/NR 3.20% 09/02/98 2,240,000 2,240,000
California Pollution
Control Revenue
Financing Authority
(Pacific Gas & Electric)
Series D................ P1/NR A1+/NR 2.90% 10/14/98 15,000,000 15,000,000
California Pollution
Control Revenue
Financing Authority
(Southern California
Edison) Series 1985..... P1/NR A1+/NR 2.75% 09/03/98 4,700,000 4,700,000
</TABLE>
- ---------------
See Notes to Financial Statements.
33
<PAGE> 152
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS+ RATINGS+ 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 Revenue
Financing Authority,
Southern California
Edison, Series 85-C..... P1/NR A1+/NR 3.65% 09/15/98 $ 5,300,000 $ 5,300,000
California Pollution
Control Revenue
Financing Authority,
Southern California
Edison, Series 85-D..... P1/NR A1+/NR 3.60% 09/15/98 6,200,000 6,200,000
California Pollution
Control Revenue
Financing Authority,
Southern California
Edison, Series 85-D..... P1/NR A1+/NR 3.65% 09/15/98 3,600,000 3,600,000
California School Cash
Reserve Program
Authority Pool, Series
A....................... MIG1/NR Sp1+/NR 4.50% 07/02/99 32,050,000 32,248,385
California State
Department of Water
(final maturity
12/1/29)*............... NR/AA A+/AA 3.21% 09/03/98 17,270,000 17,270,000
California State (final
maturity 9/1/16)*....... NR/NR A1+/AAA 3.30% 09/02/98 8,385,000 8,385,000
California State
Municipal Receipts
(AMBAC Insured) (final
maturity 6/1/21)*....... NR/NR NR/NR 3.30% 09/02/98 15,950,000 15,950,000
California State
Municipal Receipts (FGIC
Insured) (final maturity
6/1/17)*................ NR/NR A1+/AAA 3.30% 09/02/98 2,000,000 2,000,000
California State
Municipal Receipts
(final maturity
9/1/21)*................ NR/NR A1+/AAA 3.25% 09/02/98 3,975,000 3,975,000
California State (FGIC
Insured) (final maturity
6/1/13)*................ NR/NR A1+/AAA 3.30% 09/02/98 8,340,000 8,340,000
California Statewide
Community Development
Authority, Sutter Health
Obligations (AMBAC
Insured) (final maturity
8/1/08)*................ P2/Aaa A2/AAA 3.35% 09/01/98 39,200,000 39,200,000
</TABLE>
- ---------------
See Notes to Financial Statements.
34
<PAGE> 153
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS+ RATINGS+ 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, Certificates
of Participation
(LOC -- Union Bank of
California) (final
maturity 2/1/28)*....... VMIG1/A1 A1+/AAA 3.60% 09/02/98 $ 3,000,000 $ 3,000,000
California Statewide
Community Development
Authority, Chevron USA,
Inc. Project (AMT)
(final maturity
12/15/24)*.............. NR/AA2 NR/NR 3.25% 09/01/98 1,400,000 1,400,000
California Statewide
Community Development
Authority, Merrills
Packaging, Inc. (AMT)
(LOC-Bank of Tokyo)
(final maturity
12/1/18)*............... NR/NR A1/A+ 3.10% 09/02/98 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 7,000,000 7,004,496
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 4.10% 09/02/98 7,355,000 7,355,000
California Statewide, St
Joseph Health System
Group (final maturity
7/1/24)*................ VMIG1/Aaa A+/AA 3.35% 09/01/98 1,000,000 1,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
35
<PAGE> 154
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS+ RATINGS+ 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
Transportation Finance
Authority (FSA Insured)
(final maturity
10/1/27)*............... NR/NR A1+/AAA 2.60% 09/02/98 $13,100,000 $ 13,100,000
Camarillo Multi-Family
Housing Authority,
Heritage Park Project,
Series A (FNMA Insured)
(final maturity
7/15/19)*............... NR/NR A1+/AAA 2.25% 09/02/98 5,000,000 5,000,000
Campbell Elementary
School, Tax & Revenue
Anticipation Notes
(final maturity
8/2/99)................. MIG1/NR NR/NR 4.00% 09/01/98 2,000,000 2,007,971
Central Coast Water
Authority (final
maturity 10/1/16)*...... NR/NR A1+/AAA 3.21% 09/02/98 2,250,000 2,250,000
Chaffey High School
District, Series A (FGIC
Insured)................ Aaa/NR AAA/NR 4.00% 08/01/99 2,365,000 2,373,393
Chula Vista Industrial
Development Revenue,
Series 1992C (AMT)...... P1/NR A1+/NR 3.60% 09/10/98 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 3.25% 09/01/98 6,000,000 6,000,000
Chula Vista Industrial
Development, San Diego
Gas & Electric Co.,
Series B (AMT) (final
maturity 12/1/27)*...... VMIG1/A1 A1/A+ 2.65% 09/02/98 11,000,000 11,000,000
Chula Vista Multi-
Family Housing, Terra
Nova Project, Series A
(LOC -- Dresdner Bank)
(final maturity
3/1/05)*................ P1/Aa1 A+/AA 2.35% 09/02/98 2,000,000 2,000,000
City of Long Beach
(final maturity
5/15/15)*............... NR/NR A1+/AAA 3.16% 09/02/98 13,000,000 13,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
36
<PAGE> 155
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS+ RATINGS+ 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)
Contra Costa County,
Series B (FNMA Insured)
(final maturity
11/15/22)*.............. NR/NR A1+/AAA 2.30% 09/02/98 $ 2,900,000 $ 2,900,000
Eastern Municipal Water
District, California
Water & Sewer,
Certificates of
Participation, Series B
(FGIC Insured) (final
maturity 7/1/20)*....... VMIG1/Aaa A1+/AAA 2.35% 09/02/98 26,635,000 26,635,000
Foothill/Eastern
Corridor Agency, Toll
Road Revenue, Series B
(LOC -- Morgan Guaranty
Trust) (final maturity
1/2/35)*................ NR/NR A1+/AAA 2.35% 09/03/98 17,600,000 17,600,000
Foothill/Eastern
Corridor Agency, Toll
Road, Series B (LOC --
Morgan Guaranty Trust)
(final maturity
1/2/35)*................ NR/NR A1+/AA+ 2.35% 09/03/98 15,000,000 15,000,000
Fremont Certificates of
Participation, Family
Residential Center
(final maturity
8/1/28)*................ NR/NR A1+/AA- 2.55% 09/03/98 2,000,000 2,000,000
Fremont Multi-Family
Housing Authority
(LOC-Bayerische
Landesbank) (final
maturity 9/1/14)*....... NR/NR A1+/AAA 2.45% 09/03/98 9,970,000 9,970,000
Hayward Multi-Family
Housing Revenue,
Shorewood, Series A
(FGIC Insured) (final
maturity 8/1/14)*....... VMIG1/Aaa NR/AAA 2.35% 09/02/98 17,800,000 17,800,000
Hayward Multi-Family
Housing Revenue,Timber
Apartments, Series A
(LOC -- Chase Manhattan
Bank) (final maturity
3/1/33)*................ VMIG1/Aa2 NR/NR 2.45% 09/02/98 3,800,000 3,800,000
</TABLE>
- ---------------
See Notes to Financial Statements.
37
<PAGE> 156
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS+ RATINGS+ 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)
Huntington Beach
Multi-Family Housing,
Huntington Breakers,
Series A (LOC --
Sumitomo Bank, Ltd.)
(final maturity
7/1/14)*................ VMIG1/A1 NR/NR 3.30% 09/02/98 $11,600,000 $ 11,600,000
Indio Multi-Family
Housing, Western Federal
Savings Project
(LOC -- Wells Fargo &
Co.) (final maturity
6/1/05)*................ NR/NR A1/A+ 2.35% 09/03/98 2,850,000 2,850,000
Irvine Improvement Bond
Act 1915, Assessment
District Number 89-10
(LOC -- National
Westminster) (final
maturity 9/2/15)*....... VMIG1/Aa2 A1+/AA 3.15% 09/07/98 25,000 25,000
Irvine Ranch Water
District Improvement
Bonds, District 284,
Series A (LOC --
Landesbank Hessen-
Thuringen Girozentrale)
(final maturity
11/15/13)*.............. NR/NR A1+/AAA 3.00% 09/01/98 2,000,000 2,000,000
Irvine Ranch Water
District, Consolidated
General Obligation
Revenue Refunding Bonds,
Series 1985B
(LOC -- Landesbank
Hessen-Thuringen
Girozentrale)........... VMIG1/Aa2 A1+/AA- 3.00% 09/01/98 2,800,000 2,800,000
Irvine Ranch Water
District (LOC --
Commerzbank) (final
maturity 9/1/06)*....... VMIG1/Aa2 A1+/AA- 3.15% 09/01/98 100,000 100,000
Kern County Certificates
of Participation, Kern
Public Facilities
Project, Series C
(LOC -- Union Bank of
Switzerland) (final
maturity 8/1/06)*....... VMIG1/Aaa NR/NR 2.35% 09/02/98 8,500,000 8,500,000
</TABLE>
- ---------------
See Notes to Financial Statements.
38
<PAGE> 157
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS+ RATINGS+ 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)
Kern County Certificates
of Participation, Kern
Public Facilities
Project, Series B (final
maturity 8/1/06)*....... VMIG1/A A1/AA 2.35% 09/02/98 $ 1,200,000 $ 1,200,000
Kern County Tax &
Revenue Anticipation
Notes................... NR/NR Sp1+/NR 4.75% 10/01/98 10,000,000 10,008,971
Livermore Multi-Family
Revenue (FNMA Insured)
(final maturity
7/15/18)*............... NR/NR A1+/AAA 2.20% 09/02/98 2,000,000 2,000,000
Long Beach Health
Facilities, Memorial
Health Service (final
maturity 10/1/16)*...... VMIG1/A1 A1+/AA- 2.60% 09/02/98 1,800,000 1,800,000
Long Beach (AMT) (final
maturity 5/15/05)*...... P1/Aaa A1/AAA 2.85% 09/02/98 9,995,000 9,995,000
Long Beach Harbor
Revenue, Commercial
Paper Notes, Series A
(AMT) (final maturity
3/4/23)*................ P1/NR NR/NR 3.00% 09/10/98 10,000,000 10,000,000
Los Angeles Community
Redevelopment Agency,
Academy Village
Apartments (AMT)
(LOC -- Swiss Bank)
(final maturity
10/1/19)*............... VMIG1/Aa1 NR/NR 2.50% 09/02/98 20,000,000 20,000,000
Los Angeles County
Metropolitan
Transportation
Authority, Sales Tax
Revenue, Series 1993A
(MBIA Insured) (final
maturity 7/1/20)*....... VMIG1/Aaa A1+/AAA 2.35% 09/03/98 28,520,000 28,520,000
Los Angeles County
Metropolitan
Transportation Authority
(final maturity
7/1/17)*................ NR/NR A1+/AAA 3.26% 09/02/98 2,100,000 2,100,000
</TABLE>
- ---------------
See Notes to Financial Statements.
39
<PAGE> 158
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS+ RATINGS+ 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
Pension Obligation,
Series A (AMBAC Insured)
(final maturity
6/30/07)*............... VMIG1/Aaa A1+/AAA 2.25% 09/02/98 $ 5,600,000 $ 5,600,000
Los Angeles County
Pension Obligation,
Series B (AMBAC Insured)
(final maturity
6/30/07)*............... VMIG1/Aaa A1+/AAA 2.25% 09/02/98 5,200,000 5,200,000
Los Angeles County
Transportation
Commission Sales Tax
Revenue................. P1/NR A1+/NR 3.40% 09/03/98 6,000,000 6,000,000
Los Angeles County
Transportation
Commission Sales Tax
Revenue, Series 1992A
(FGIC Insured) (final
maturity 7/1/12)*....... VMIG1/Aaa A1+/AAA 2.25% 09/02/98 4,400,000 4,400,000
Los Angeles County,
Capital Asset Lease
Corporation............. P1/NR A1+/NR 2.90% 09/04/98 16,000,000 16,000,000
Los Angeles County,
Metropolitan
Transportation
Authority, Sales Tax
Revenue, Series C (final
maturity 7/1/11)*....... VMIG1/A A/AA 2.80% 09/02/98 13,355,000 13,355,000
Los Angeles Department
of Water & Power
Electric Plant.......... P1/NR A1+/NR 3.50% 09/08/98 10,000,000 10,000,000
Los Angeles Department
of Water & Power
Electric Plant.......... P1/NR A1+/NR 3.55% 09/11/98 19,000,000 19,000,000
Los Angeles Department
of Water & Power
Electric Plant.......... P1/NR A1+/NR 3.55% 09/14/98 10,000,000 10,000,000
Los Angeles Department
of Water & Power
Electric Plant.......... P1/NR A1+/NR 3.50% 09/04/98 15,000,000 15,000,000
Los Angeles Department
of Water & Power
Electric Plant.......... P1/NR A1+/NR 3.00% 10/20/98 35,000,000 35,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
40
<PAGE> 159
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS+ RATINGS+ 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 Department
of Water & Power
Electric Plant.......... P1/NR A1+/NR 3.15% 10/22/98 $ 3,500,000 $ 3,500,000
Los Angeles Industrial
Development Authority
Industrial Development
Revenue, Delta Tau Data
System Inc. Project
(AMT) (final maturity
8/1/23)*................ NR/NR A1+/AA+ 2.40% 09/01/98 2,000,000 2,000,000
Los Angeles Unified
School District Tax &
Revenue Anticipation
Note.................... MIG1/NR SP1+/NR 4.50% 10/01/98 7,000,000 7,003,709
Los Angeles United
School District,
Certificates of
Participation, Belmont
Learning Complex, Series
A (final maturity
12/1/17)*............... VMIG1/Aa2 A1+/AA- 2.50% 09/02/98 1,000,000 1,000,000
Los Angeles United
School District, Tax &
Revenue Anticipation
Notes, Series A......... MIG1/NR Sp1+/NR 4.50% 07/01/99 43,780,000 44,084,921
Los Angeles, Wastewater
System Revenue.......... P1/NR A1+/NR 3.65% 09/04/98 1,500,000 1,500,000
Metropolitan Water
District, Southern
California Waterworks,
Series A (AMBAC Insured)
(final maturity
6/1/23)*................ VMIG1/Aaa A1+/AAA 2.35% 09/03/98 21,145,000 21,145,000
Modesto Irrigation
District................ P1/NR A1+/NR 3.30% 09/08/98 21,000,000 21,000,000
Modesto Multi-Family
Housing, Live Oaks
Apartments Project
(final maturity
9/1/24)*................ VMIG1/A A1/AA 2.25% 09/02/98 4,975,000 4,975,000
</TABLE>
- ---------------
See Notes to Financial Statements.
41
<PAGE> 160
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS+ RATINGS+ 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- 3.70% 09/02/98 $21,600,000 $ 21,600,000
Mountain View, Mariposa,
Series A (FGIC Insured)
(final maturity
3/1/17)*................ VMIG1/Aaa AAA/NR 2.35% 09/03/98 13,500,000 13,500,000
MSR Public Power Agency,
San Juan Project, Series
1997E (MBIA Insured)
(final maturity
7/1/22)*................ VMIG1/AAA A1+/AAA 2.45% 09/02/98 5,200,000 5,200,000
MSR Public Power Agency,
San Juan Project
Revenue, Series D (MBIA
Insured) (final maturity
7/1/18)*................ VMIG1/Aaa A1+/AAA 2.60% 09/02/98 9,000,000 9,000,000
Northern California
Power Agency, Geothermal
Project Number 3, Series
B (AMBAC insured)....... NR/Aaa NR/AAA 5.00% 07/01/99 8,000,000 8,090,304
Oakland JT Powers
Financing Authority
Lease Revenue (final
maturity 8/1/21)*....... VMIG1/AAA A1+/AAA 2.70% 09/02/98 12,000,000 12,000,000
Ontario Industrial
Development Authority,
L.D. Brinkman & Co.
(LOC -- Union Bank of
California) (final
maturity 4/1/15)*....... P1/NR NR/NR 3.35% 09/01/98 1,800,000 1,800,000
Orange County Apartment
Development Authority,
Bear Brand Apartments
(final maturity
11/1/07)*............... VMIG1/Aa2 NR/NR 2.30% 09/02/98 19,500,000 19,500,000
</TABLE>
- ---------------
See Notes to Financial Statements.
42
<PAGE> 161
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS+ RATINGS+ 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,
Pointe Niguel Project,
Series C (LOC -- First
Interstate Bancorp)
(final maturity
11/1/05)*............... VMIG1/Aa3 NR/NR 2.55% 09/03/98 $24,600,000 $ 24,600,000
Orange County Apartment
Development Authority,
Traboco Wood Apartments
(final maturity
4/1/23)*................ VMIG1/Aa2 NR/NR 2.45% 09/02/98 2,670,000 2,670,000
Orange County Apartment
Development Revenue,
Villas Aliento, Series E
(FNMA Insured) (final
maturity 8/15/28)*...... NR/NR A1+/AAA 2.55% 09/01/98 6,500,000 6,500,000
Orange County Housing
Authority Apartment
Development Revenue,
Oasis Martinique (FNMA
Insured) (final maturity
6/15/28)*............... NR/NR AAA/NR 2.50% 09/03/98 12,000,000 12,000,000
Orange County
Improvement Board
Assessment District
(LOC-Societe Generale)
(final maturity
9/2/18)*................ VMIG1/Aa3 A1+/AA- 3.15% 09/01/98 7,000,000 7,000,000
Otay Water District,
Certificates of
Participation (final
maturity 9/1/26)*....... P1/Aaa A+/AAA 2.40% 09/02/98 2,200,000 2,200,000
Pasadena Certificates of
Participation, Rose Bowl
Improvement Project
(LOC -- Canadian
Imperial Bank) (final
maturity 12/1/16)*...... VMIG1/Aa3 NR/NR 2.50% 09/02/98 1,000,000 1,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
43
<PAGE> 162
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS+ RATINGS+ 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)
Riverside County Asset
Leasing Corp., Riverside
County Hospital Project,
Series A, Prerefunded on
6/1/99 @ 100 (final
maturity 6/1/19)*....... NR/NR Ap/NR 6.25% 09/01/98 $ 4,500,000 $ 4,590,839
Riverside County
Certificates of
Participation, Riverside
County Public
Facilities, Series B
(final maturity
12/1/15)*............... VMIG1/Aa2 A1+/NR 2.25% 09/02/98 19,825,000 19,825,000
Riverside County
Community Facilities
District, Special Tax
No. 88-4 (LOC --
Kredietbank N.V.) (final
maturity 9/1/14)*....... VMIG1/AA2 NR/NR 2.40% 09/02/98 9,200,000 9,200,000
Riverside County School
Financing Authority,
Revenue Anticipation
Note.................... MIG1/NR NR/NR 4.50% 10/01/98 8,000,000 8,003,977
Riverside County Special
Tax, Community
Facilities District
Number 89-5 (AMBAC
Insured) (final maturity
9/1/28)*................ VMIG1/Aaa A1+/AAA 3.50% 09/01/98 8,000,000 8,000,000
Riverside Electric
Revenue (AMBAC Insured)
(final maturity
10/1/11)*............... VMIG1/Aaa NR/NR 2.80% 09/02/98 3,400,000 3,400,000
Roseville Finance
Authority Hospital Lease
Revenue, Series A
(LOC -- Toronto Dominion
Bank) (final maturity
10/1/14)*............... NR/NR A1+/AA 2.40% 09/02/98 11,000,000 11,000,000
Sacramento County
Housing Authority (final
maturity 9/15/07)*...... VMIG1/NR A1/A 2.90% 09/02/98 18,225,000 18,225,000
</TABLE>
- ---------------
See Notes to Financial Statements.
44
<PAGE> 163
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS+ RATINGS+ 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
Housing Authority,
Multi-Family Housing
Revenue, Stone Creek
Apartments (FNMA
Insured) (final maturity
11/15/27)*.............. NR/NR A1+/AAA 2.55% 09/01/98 $ 5,000,000 $ 5,000,000
Sacramento County Tax &
Revenue Anticipation
Note.................... MIG1/NR SP1+/NR 4.50% 09/30/98 30,000,000 30,015,575
Sacramento Municipal
Utility District, Series
1....................... P1/NR A1+/NR 2.85% 09/04/98 10,000,000 10,000,000
San Bernardino County
Housing Authority,
Multi-Family Housing,
Brookside Meadows,
Series A (final maturity
8/1/05)*................ VMIG1/Aa2 NR/NR 2.45% 09/02/98 22,000,000 22,000,000
San Bernardino County,
Tax & Revenue
Anticipation Notes
(final maturity
9/30/99)*............... MIG1/NR SP1+/NR 4.50% 09/01/98 12,000,000 12,139,440
San Diego Area Local
Government, Certificates
of Participation, Tax &
Revenue Anticipation
Notes................... NR/NR SP1+/NR 4.50% 10/01/98 1,500,000 1,500,736
San Diego City,
Industrial Development
Authority, San Diego Gas
& Electric, Series A.... P1/NR A1+/NR 3.25% 10/08/98 2,500,000 2,500,000
San Diego City,
Industrial Development
Authority, San Diego Gas
& Electric, Series A.... P1/NR A1+/NR 3.65% 09/14/98 5,200,000 5,200,000
San Diego County Housing
Authority, Multi-Family
Housing Revenue, Country
Hills (final maturity
8/15/13)*............... NR/NR A1+/AAA 2.20% 09/03/98 4,490,000 4,490,000
</TABLE>
- ---------------
See Notes to Financial Statements.
45
<PAGE> 164
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS+ RATINGS+ 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 County, Tax &
Revenue Anticipation
Notes................... MIG1/NR SP1+/NR 4.50% 09/30/98 $28,000,000 $ 28,014,329
San Diego County, Water
Authority............... P1/NR A1+/NR 3.45% 03/08/99 7,000,000 7,000,000
San Diego County, Water
Authority............... P1/NR A1+/NR 3.45% 03/08/99 5,000,000 5,000,000
San Diego County, Teeter
Obligation.............. P1/NR A1+/NR 3.20% 10/20/98 9,000,000 9,000,000
San Diego Housing
Authority Multi-Family
Housing Revenue, La Cima
Apartments, Series K
(LOC -- Citibank N.A.)
(final maturity
12/1/08)*............... VMIG1/Aa2 AAA/NR 2.40% 09/03/98 7,540,000 7,540,000
San Diego Housing
Authority, Multi-Family
Housing, Nobel Ct.
Apartments, Series L
(final maturity
12/1/08)*............... VMIG1/A2 NR/NR 2.45% 09/03/98 11,910,000 11,910,000
San Diego Housing
Authority, Multi-Family
Housing, Nobel Ct.
Apartments, Series L
(LOC -- Citibank, New
York) (final maturity
12/1/08)*............... VMIG1/NR A1/A 2.40% 09/02/98 17,050,000 17,050,000
San Diego Housing
Authority, Multi-Family
Housing, Paseo Point
Apartments, Series A
(final maturity
8/1/15)*................ VMIG1/AA2 NR/NR 2.75% 09/02/98 14,250,000 14,250,000
San Francisco City and
County Community
International Airport
(final maturity
5/1/21)*................ NR/NR A1+/AAA 3.21% 09/03/98 5,345,000 5,345,000
San Francisco City and
County Community
International Airport
(AMT) (MBIA Insured)
(final maturity
5/1/16)*................ NR/NR A1+/AAA 3.30% 09/02/98 11,500,000 11,500,000
</TABLE>
- ---------------
See Notes to Financial Statements.
46
<PAGE> 165
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS+ RATINGS+ 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 Community
International Airport
(AMT) (MBIA Insured)
(final maturity
5/1/26)*................ NR/NR A1+/AAA 3.30% 09/03/98 $ 3,905,000 $ 3,905,000
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- 2.75% 09/01/98 1,500,000 1,500,000
San Francisco City &
County Airport Community
International Airport
Revenue (FGIC Insured)
(final maturity
5/1/29)*................ VMIG1/Aaa NR/NR 3.36% 09/01/98 26,290,000 26,290,000
San Francisco City &
County Airport Community
International Airport
Revenue (final maturity
5/1/20)*................ NR/NR A1+/AAA 3.21% 09/01/98 9,775,000 9,775,000
San Francisco City &
County School District
Tax & Revenue
Anticipation Notes
(final maturity
9/22/99)*............... MIG1/NR Sp1+/NR 4.50% 09/01/98 10,000,000 10,112,600
San Jose Multi-Family
Housing Revenue (final
maturity 11/01/07)*..... NR/NR NR/NR 2.35% 09/01/98 3,500,000 3,500,000
San Jose, Multi-Family
Housing Revenue, Fox
Chase Project, Series B
(final maturity
11/1/07)*............... VMIG1/NR A1/NR 2.35% 09/03/98 7,900,000 7,900,000
Santa Ana Unified School
District, Certificates
of Participation (LOC --
Banque Nationale, Paris)
(final maturity
7/1/15)*................ VMIG1/Aa3 NR/NR 2.45% 09/02/98 3,100,000 3,100,000
</TABLE>
- ---------------
See Notes to Financial Statements.
47
<PAGE> 166
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS+ RATINGS+ 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)
Santa Clara County
(final maturity
2/1/13)*................ Aaa/NR AAA/NR 7.25% 02/01/99 $ 1,835,000 $ 1,898,181
Santa Clara Electric
Revenue Authority,
Series C (LOC --
National Westminster)
(final maturity
7/1/10)*................ VMIG1/Aa2 NR/NR 2.30% 09/02/98 1,600,000 1,600,000
Santa Clara, Electric
Revenue Bond, Series A
(LOC -- National
Westminster) (final
maturity 7/1/10)*....... VMIG1/Aa2 NR/NR 2.30% 09/02/98 9,800,000 9,800,000
Southern California
Metropolitan Water
District................ P1/NR A1+/NR 3.00% 10/22/98 5,700,000 5,700,000
Southern California
Metropolitan Water
District................ P1/NR A1+/NR 3.50% 09/08/98 4,000,000 4,000,000
Southern California
Public Power Authority
(AMBAC Insured) (final
maturity 7/1/19)*....... VMIG1/Aaa A1+/AAA 2.25% 09/02/98 10,300,000 10,300,000
Southern Kern
California, Unified
School District,
Certificates of
Participation, Series A
(FSA insured) (final
maturity 9/1/26)*....... VMIG1/Aaa A1/AAA 2.40% 09/03/98 4,030,000 4,030,000
Tustin Improvement Board
Act 1915, Reassessment
District 95-2-A (LOC --
Kredietbank) (final
maturity 9/2/13)*....... VMIG1/Aaa A1/AAA 3.15% 09/01/98 1,700,000 1,700,000
University of California
Revenue (final maturity
9/1/19)*................ NR/NR A1+/AAA 3.21% 09/03/98 11,300,000 11,300,000
University of California
Revenue, Multi-Purpose
Project, Series B (AMBAC
Insured)................ Aaa/NR AAA/NR 7.10% 09/01/99 1,000,000 1,035,251
</TABLE>
- ---------------
See Notes to Financial Statements.
48
<PAGE> 167
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS+ RATINGS+ 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)
Vallejo Industrial
Development Authority,
Meyer Cookware
Industries Project,
Series A (AMT)
(LOC -- Bank of Tokyo)
(final maturity
12/1/23)*............... NR/NR A1/A+ 3.45% 09/02/98 $ 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 2.60% 09/02/98 5,000,000 5,000,000
Walnut Improvement
Agency (final maturity
9/1/09)*................ VMIG1/A A1/AA 7.90% 09/01/98 2,000,000 2,040,000
Wateruse Finance
Authority, (FSA Insured)
(final maturity
5/1/28)*................ NR/Aaa A1+/AAA 2.55% 09/02/98 20,000,000 20,000,000
--------------
1,545,391,070
--------------
PUERTO RICO -- 4.0%
Puerto Rico Commercial
Paper................... P1/NR A1+/NR 3.00% 10/08/98 20,000,000 20,000,000
Puerto Rico Commonwealth
Infrastructure Financing
Authority, Series C
(final maturity
7/1/12)*................ VMIG1/Aaa NR/NR 3.50% 09/02/98 8,200,000 8,200,000
Puerto Rico Electric
Power Authority
(LOC -- Societe
Generale) (final
maturity 7/1/23)*....... NR/NR A1+/AAA 3.18% 09/01/98 4,900,000 4,900,000
Puerto Rico Electric
Power Authority (final
maturity 7/1/22)*....... NR/NR A1+/AAA 3.18% 09/02/98 27,900,000 27,900,000
</TABLE>
- ---------------
See Notes to Financial Statements.
49
<PAGE> 168
<TABLE>
<CAPTION>
MOODY'S S&P AMORTIZED
RATINGS+ RATINGS+ MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS -- (CONTINUED)
Puerto Rico Highway &
Transportation
Authority, Series A
(AMBAC insured) (final
maturity 7/1/28)*....... VMIG1/Aaa A1+/AAA 2.75% 09/02/98 $ 2,000,000 $ 2,000,000
--------------
63,000,000
--------------
TOTAL INVESTMENTS -- 101.2%
(AMORTIZED COST
$1,608,391,070)(a)...... 1,608,391,070
LIABILITIES IN EXCESS OF
OTHER ASSETS -- (1.2%).. (19,142,695)
--------------
NET ASSETS -- 100.0%..... $1,589,248,375
==============
</TABLE>
- ---------------
Percentages indicated are based on net assets of $1,589,248,375.
(a) Cost for Federal income tax and financial reporting purposes is
substantially the same.
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 1.6% of net assets.
<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.
+ The ratings provided consist of short-term and long-term ratings.
50
<PAGE> 169
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities
August 31,1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALIFORNIA
TAX-EXEMPT TAX-EXEMPT
MONEY MONEY MARKET
FUND FUND
------------ --------------
<S> <C> <C>
ASSETS:
Investments in securities, at value (amortized cost
$750,096,734, and $1,608,391,070, respectively).......... $750,096,734 $1,608,391,070
Interest Receivable........................................ 4,378,280 7,254,694
Prepaid expenses........................................... 19,642 26,794
------------ --------------
Total Assets................................................ 754,494,656 1,615,672,558
------------ --------------
LIABILITIES:
Payable to bank............................................ 1,465,052 86,479
Dividends payable.......................................... 1,931,415 3,233,353
Payable for investment securities purchased................ 28,429,560 22,252,040
Capital shares redeemed payable............................ -- 658
Investment advisory fees payable........................... 63,929 136,906
Administration fees payable................................ 63,851 136,750
Special management fees payable (Pacific Horizon Shares)... 68,886 161,576
Shareholder service fees payable........................... 54,463 220,994
Distribution fees payable (X Shares)....................... -- 9,081
Distribution fees payable (S Shares)....................... 11,899 65,331
Custodian and fund accounting fees payable................. 37,903 23,774
Transfer agent fees payable................................ 3,563 24,590
Other accrued expenses..................................... 83,145 72,651
------------ --------------
Total Liabilities........................................... 32,213,666 26,424,183
------------ --------------
NET ASSETS.................................................. $722,280,990 $1,589,248,375
============ ==============
Net Assets:
Pacific Horizon Shares..................................... $130,651,429 $ 586,649,801
Horizon Shares............................................. 348,965,126 --
Horizon Service Shares..................................... 198,010,020 679,557,872
X Shares................................................... 44,654,415 33,393,484
S Shares................................................... -- 289,647,218
------------ --------------
Total....................................................... $722,280,990 $1,589,248,375
============ ==============
Shares Outstanding ($0.001 par value, 50 billion and 40
billion shares authorized):
Pacific Horizon Shares..................................... 130,677,966 586,691,607
Horizon Shares............................................. 349,115,592 --
Horizon Service Shares..................................... 198,039,641 679,623,475
X Shares................................................... 44,654,464 33,396,507
S Shares................................................... -- 289,656,772
------------ --------------
Total....................................................... 722,487,663 1,589,368,361
============ ==============
NET ASSET VALUE, OFFERING PRICE, AND
REDEMPTION PRICE PER SHARE................................. $ 1.00 $ 1.00
============ ==============
COMPOSITION OF NET ASSETS:
Shares of common stock, at par............................. $ 722,488 $ 1,589,368
Additional paid-in capital................................. 721,711,814 1,587,715,532
Accumulated undistributed net investment income............ 52,442 62,301
Accumulated net realized losses on investment
transactions............................................. (205,754) (118,826)
------------ --------------
NET ASSETS, AUGUST 31, 1998................................. $722,280,990 $1,589,248,375
============ ==============
</TABLE>
- ---------------
See Notes to Financial Statements.
51
<PAGE> 170
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Statements of Operations
For the six months ended August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALIFORNIA
TAX-EXEMPT
TAX-EXEMPT MONEY
MONEY MARKET
FUND FUND
----------- -----------
<S> <C> <C>
INVESTMENT INCOME:
Interest................................................... $12,842,164 $24,694,146
----------- -----------
EXPENSES:
Investment advisory fees................................... 359,396 736,799
Administration fees........................................ 359,396 736,799
Special management fees (Pacific Horizon Shares)........... 223,368 1,031,267
Shareholder service fees (Horizon Service Shares).......... 246,528 803,151
Shareholder service fees (X Shares)........................ -- 38,671
Shareholder service fees (S Shares)........................ 47,163 268,440
Distribution fees (X Shares)............................... -- 46,404
Distribution fees (S Shares)............................... 141,488 785,472
Custodian and fund accounting fees......................... 86,715 81,181
Transfer Agent fees........................................ 4,819 14,758
Legal fees................................................. 13,330 24,327
Other expenses............................................. 82,629 130,592
----------- -----------
Total Expenses........................................... 1,564,832 4,697,861
Less: Fee waivers.......................................... (84,893) (562,564)
Expenses paid by third parties....................... (2,580) (4,010)
----------- -----------
Total Net Expenses.......................................... 1,477,359 4,131,287
----------- -----------
NET INVESTMENT INCOME....................................... 11,364,805 20,562,859
----------- -----------
NET REALIZED LOSSES ON INVESTMENTS:
Net realized losses on investment transactions............. (1,067) (62,688)
----------- -----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $11,363,738 $20,500,171
=========== ===========
</TABLE>
- ---------------
See Notes to Financial Statements.
52
<PAGE> 171
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALIFORNIA TAX-EXEMPT
TAX-EXEMPT MONEY FUND MONEY MARKET FUND
---------------------------------- ----------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
AUGUST 31, 1998 FEBRUARY 28, AUGUST 31, 1998 FEBRUARY 28,
(UNAUDITED) 1998 (UNAUDITED) 1998
---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income.. $ 11,364,805 $ 20,845,925 $ 20,562,859 $ 34,700,392
Net realized (losses)
on investment
transactions......... (1,067) (33,324) (62,688) (45,278)
------------- --------------- --------------- ---------------
Change in net assets
resulting from
operations............. 11,363,738 20,812,601 20,500,171 34,655,114
------------- --------------- --------------- ---------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM NET
INVESTMENT INCOME:
Pacific Horizon
Shares............. (2,101,792) (3,710,722) (8,278,495) (15,910,817)
Horizon Shares....... (5,708,490) (11,040,725) -- --
Horizon Service
Shares............. (3,031,688) (5,881,059) (9,186,507) (16,451,344)
X Shares............. -- -- (396,260) (1,018,847)
S Shares............. (522,835) (213,419)(b) (2,701,597) (1,319,384)(a)
------------- --------------- --------------- ---------------
Change in net assets
from shareholder
distributions.......... (11,364,805) (20,845,925) (20,562,859) (34,700,392)
------------- --------------- --------------- ---------------
CAPITAL SHARE
TRANSACTIONS:
Proceeds from shares
Issued............. 990,492,728 1,756,343,172 1,769,983,210 3,024,788,107
Dividends
reinvested......... 3,054,835 5,686,685 12,976,502 26,426,275
Cost of shares
redeemed........... (978,589,282) (1,574,206,334) (1,635,286,398) (2,603,253,345)
------------- --------------- --------------- ---------------
Change in net assets
from capital share
transactions........... 14,958,281 187,823,523 147,673,314 447,961,037
------------- --------------- --------------- ---------------
Change in net assets.... 14,957,214 187,790,199 147,610,626 447,915,759
NET ASSETS:
Beginning of Period.. 707,323,776 519,533,577 1,441,637,749 993,721,990
------------- --------------- --------------- ---------------
End of Period........ $ 722,280,990 $ 707,323,776 $ 1,589,248,375 $ 1,441,637,749
============= =============== =============== ===============
Accumulated
Undistributed Net
Investment Income...... $ 52,442 $ 52,442 $ 62,301 $ 62,301
============= =============== =============== ===============
</TABLE>
- ---------------
(a) Period from June 18, 1997 (inception date) to February 28, 1998.
(b) Period from July 8, 1997 (inception date) to February 28, 1998.
See Notes to Financial Statements.
53
<PAGE> 172
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 August 31, 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 S Shares) and California Tax-Exempt
Fund issues four classes of shares (Pacific Horizon Shares, Horizon Service
Shares, X Shares and S Shares). The California Tax-Exempt Fund is authorized to
issue a fifth 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 investment objectives of the Funds are as follows:
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.
Adviser and Administrator
Bank of America National Trust and Savings Association ("Bank of America"),
a subsidiary of BankAmerica Corporation ("BankAmerica"), 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").
On October 1, 1998, BankAmerica, the Adviser's and Administrator's parent
company, completed its merger with NationsBank Corporation. The combined Company
operates under the name BankAmerica. BankAmerica, continues to serve the Funds
on substantially identical terms as described in Note 3.
54
<PAGE> 173
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
Provident Distributors, Inc. ("PDI"), serves as principal underwriter and
distributor of shares of the Funds. PFPC serves as the Funds' transfer agent and
dividend disbursing agent.
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. Such 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 in accordance with rule 2a-7 of the
Act, 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
55
<PAGE> 174
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.
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 six
months ended August 31, 1998, custodian fees and expenses paid by third parties
were increased by $2,580 and $4,010 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.
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
pur-
56
<PAGE> 175
poses 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>
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
57
<PAGE> 176
following fiscal year for tax purposes. The Funds incurred and elected to defer
capital losses of $18,190 and $1,893, respectively, incurred after October 31,
1997.
NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
The Funds have an Investment Advisory Agreement and an Administration
Agreement with Bank of America. 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 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. For the six months ended
August 31, 1998, the Tax-Exempt Fund and the California Tax-Exempt Fund were
advised that Bank of America and its affiliates earned $359,396 and $736,799,
respectively, pursuant to the Administrative Agreement.
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. Under the Services Agreement and Services Plan, Bank of America and PDI
waived $88,305, in special management fees for the California Tax-Exempt Fund.
For the six months ended August 31, 1998, the Funds were advised that Bank of
America and its affiliates and PDI earned the following amounts pursuant to the
Services Agreement and Services Plan, respectively:
<TABLE>
<CAPTION>
BANK OF
AMERICA AND
FUND AFFILIATES PDI
---- ----------- ---
<S> <C> <C>
Tax-Exempt Fund............................................ $220,713 $ 2,214
California Tax-Exempt Fund................................. 921,190 2,289
</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
58
<PAGE> 177
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 six months
ended August 31, 1998, the Tax-Exempt Fund and the California Tax-Exempt Fund
were advised that Bank of America and its affiliates earned $246,528 and
$763,183, respectively, pursuant to the Horizon Services Plan.
The California Tax-Exempt Fund has adopted the Distribution and Services
Plan under which the Fund paid PDI 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 six months ended August 31, 1998, the Fund was
advised that Bank of America and its affiliates earned $85,075 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 six months ended August 31, 1998, the Funds were
advised that Bank of America and it Affiliates waived $84,893 and $474,259 for
the Tax-Exempt Fund and the California Tax-Exempt Fund, respectively. For the
same period, the Tax-Exempt Fund and the California Tax-Exempt Fund were advised
that Bank of America and its affiliates earned $103,758 and $579,654,
respectively, pursuant to the Distribution and Services Plan.
For the six months ended August 31, 1998, PFPC earned $4,819 and $14,758
from the Tax-Exempt Fund and California Tax-Exempt Fund, respectively, for
transfer agency and dividend disbursing agency services performed.
A partner of Drinker Biddle & Reath LLP ("DBR") serves as Secretary of the
Company. Legal fees earned by DBR are stated in the statement of operations.
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 $60,000,
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
59
<PAGE> 178
$1,000 for services as Chairman of the Committee. In addition, the Company's
President is entitled to an annual salary of $40,000 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 $3,293 and $6,241 for the Tax-Exempt Fund and
California Tax-Exempt Fund, respectively, for the six months ended August 31,
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.
60
<PAGE> 179
The Tax-Exempt Fund and the California Tax-Exempt Fund had the following
concentrations by industry sector at August 31, 1998 (as a percentage of total
investments):
<TABLE>
<CAPTION>
CALIFORNIA
TAX-EXEMPT TAX-EXEMPT
FUND FUND
---------- ----------
<S> <C> <C>
Airport Facilities....................................... .3% 2.8%
Certificates of Participation............................ -- .4
Commercial Paper......................................... 14.8 16.9
Education................................................ 7.9 5.0
General Obligations...................................... 14.8 4.1
Healthcare............................................... 19.4 5.9
Housing Developments..................................... 4.4 18.6
Industrial Development Revenue........................... 2.0 1.0
Leases................................................... -- 2.0
Loan Pool................................................ 5.9 --
Municipal Notes & Bonds.................................. 4.3 5.7
Pollution Control........................................ 3.4 7.7
Power Projects........................................... 1.3 3.2
Public Facilities........................................ 1.1 --
Revenue.................................................. 14.6 16.1
Sewer Projects........................................... 0.3 1.4
Special Tax.............................................. 0.3 0.6
Transportation........................................... 1.1 3.0
Turnpike, Road & Bridge Development...................... -- 0.1
Utilities................................................ -- 1.0
Water Projects........................................... 4.1 4.5
------ ------
100.0% 100.0%
====== ======
</TABLE>
61
<PAGE> 180
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
---------------------------- -----------------------------
SIX MONTHS SIX MONTHS
ENDED ENDED
AUGUST 31, YEAR ENDED AUGUST 31, YEAR ENDED
1998 FEBRUARY 28, 1998 FEBRUARY 28,
(UNAUDITED) 1998 (UNAUDITED) 1998
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
PACIFIC HORIZON SHARES
Issued.......................... 176,021,156 248,974,300 532,410,550 924,399,780
Reinvested...................... 1,775,373 3,683,304 7,002,703 15,765,764
Redeemed........................ (198,080,436) (188,139,622) (550,471,898) (835,476,867)
------------ ------------- ------------ --------------
Net increase/(decrease).......... (20,283,907) 64,517,982 (11,058,645) 104,688,677
============ ============= ============ ==============
HORIZON SHARES
Issued.......................... 472,867,373 1,016,879,219 -- --
Reinvested...................... 20,077 60,094 -- --
Redeemed........................ (467,765,875) (937,199,915) -- --
------------ ------------- ------------ --------------
Net increase..................... 5,121,575 79,739,398 -- --
============ ============= ============ ==============
HORIZON SERVICE SHARES
Issued.......................... 282,291,844 444,505,307 949,479,330 1,844,862,775
Reinvested...................... 840,934 1,729,858 3,444,431 8,320,478
Redeemed........................ (270,928,912) (429,406,739) (944,903,025) (1,653,155,809)
------------ ------------- ------------ --------------
Net increase..................... 12,203,866 16,828,426 8,020,736 200,027,444
============ ============= ============ ==============
X SHARES
Issued.......................... -- -- 38,406,862 62,397,815
Reinvested...................... -- -- 331,102 1,019,371
Redeemed........................ -- -- (36,053,363) (61,802,419)
------------ ------------- ------------ --------------
Net increase..................... -- -- 2,684,601 1,614,767
============ ============= ============ ==============
S SHARES
Issued.......................... 59,312,355 45,984,346 249,686,468 193,127,737
Reinvested...................... 418,451 213,429 2,198,266 1,320,662
Redeemed........................ (41,814,059) (19,460,058) (103,858,112) (52,818,250)
------------ ------------- ------------ --------------
Net increase.................... 17,916,747 26,737,717(b) 148,026,622 141,630,149(a)
============ ============= ============ ==============
</TABLE>
- ---------------
<TABLE>
<C> <S>
(a) Period from June 18, 1997 (inception date) to February 28, 1998.
(b) Period from July 8, 1997 (inception date) to February 28, 1998.
</TABLE>
62
<PAGE> 181
PACIFIC HORIZON TAX-EXEMPT MONEY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED PERIOD
AUGUST 31, --------------------------------------------------------- ENDED
1998 FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
(UNAUDITED) 1998 1997 1996 1995 1994(a)
----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
PACIFIC HORIZON SHARES
NET ASSET VALUE PER
SHARE, BEGINNING OF
PERIOD.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income... 0.0152 0.0310 0.0290 0.0327 0.0253 0.0124
Less dividends to
shareholders from net
investment income....... (0.0152) (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 PERIOD.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total return............. 1.53%(d) 3.14% 2.94% 3.32% 2.56% 1.25%(d)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of
period (millions)..... $ 130 $ 151 $ 86 $ 50 $ 37 $ 50
Ratio of expenses to
average net assets.... 0.57%(c) 0.60% 0.60% 0.63% 0.60% 0.60%(c)
Ratio of net investment
income to average net
assets................ 3.01%(c) 3.09% 2.91% 3.26% 2.47% 1.95%(c)
Ratio of expenses to
average net assets*... (b)(e) (b)(e) (b) (b) (b) 0.61%(c)
Ratio of net investment
income to average net
assets*............... (b)(e) (b)(e) (b) (b) (b) 1.94%(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 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.
63
<PAGE> 182
PACIFIC HORIZON TAX-EXEMPT MONEY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
AUGUST 31, ------------------------------------------------------------------------
1998 FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
(UNAUDITED) 1998 1997 1996 1995 1994
----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
HORIZON SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF PERIOD....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income..... 0.0168 0.0342 0.0322 0.0359 0.0285 0.0225
Less dividends to
shareholders from net
investment income......... (0.0168) (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 PERIOD............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total return............... 1.69%(d) 3.47% 3.27% 3.65% 2.89% 2.27%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of
period (millions)....... $ 349 $ 344 $ 264 $ 303 $ 382 $ 515
Ratio of expenses to
average net assets...... 0.25%(c) 0.28% 0.28% 0.31% 0.28% 0.28%
Ratio of net investment
income to average net
assets.................. 3.32%(c) 3.41% 3.22% 3.58% 2.81% 2.25%
Ratio of expenses to
average net assets*..... (a)(b) (a)(b) (a) (a) (a) 0.29%
Ratio of net investment
income to average net
assets*................. (a)(b) (a)(b) (a) (a) (a) 2.24%
</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) There were no fee waivers or expense reimbursements during
the period.
(b) Fees paid by third parties had no effect on the ratios.
(c) Annualized.
(d) Not Annualized.
</TABLE>
See Notes to Financial Statements.
64
<PAGE> 183
PACIFIC HORIZON TAX-EXEMPT MONEY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
AUGUST 31, ------------------------------------------------------------------------
1998 FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
(UNAUDITED) 1998 1997 1996 1995 1994
----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
HORIZON SERVICE SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF PERIOD....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income..... 0.0155 0.0317 0.0297 0.0334 0.0260 0.0200
Less dividends to
shareholders from net
investment income......... (0.0155) (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 PERIOD............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total return............... 1.56%(d) 3.22% 3.01% 3.39% 2.63% 2.02%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of
period (millions)....... $ 198 $ 186 $ 169 $ 35 $ 39 $ 48
Ratio of expenses to
average net assets...... 0.50%(c) 0.53% 0.53% 0.56% 0.53% 0.53%
Ratio of net investment
income to average net
assets.................. 3.07%(c) 3.17% 2.98% 3.34% 2.57% 2.04%
Ratio of expenses to
average net assets*..... (a)(b) (a)(b) (a) (a) (a) 0.57%
Ratio of net investment
income to average net
assets*................. (a)(b) (a)(b) (a) (a) (a) 2.00%
</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) There were no fee waivers or expense reimbursements during
the period.
(b) Fees paid by third parties had no effect on the ratios.
(c) Annualized.
(d) Not Annualized.
</TABLE>
See Notes to Financial Statements.
65
<PAGE> 184
PACIFIC HORIZON TAX-EXEMPT MONEY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED PERIOD ENDED
AUGUST 31, 1998 FEBRUARY 28,
(UNAUDITED) 1998(a)
---------------- ------------
<S> <C> <C>
S SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF
PERIOD.................................... $ 1.00 $ 1.00
-------- --------
Income from Investment Operations:
Net investment income..................... 0.0140 0.0184
Less dividends to shareholders from net
investment income......................... (0.0140) (0.0184)
-------- --------
Net change in net asset value per share..... -- --
-------- --------
NET ASSET VALUE PER SHARE, END OF PERIOD.... $ 1.00 $ 1.00
======== ========
Total return................................ 1.41%(d) 1.85%(d)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (millions).... $ 45 $ 27
Ratio of expenses to average net assets... 0.80%(b)(c) 0.81%(b)(c)
Ratio of net investment income to average
net assets.............................. 2.77%(b)(c) 2.76%(b)(c)
Ratio of expenses to average net
assets*................................. 1.25%(b)(c) 1.25%(b)(c)
Ratio of net investment income to average
net assets*............................. 2.32%(b)(c) 2.32%(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 July 8, 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.
66
<PAGE> 185
PACIFIC HORIZON CALIFORNIA TAX-EXEMPT
MONEY MARKET FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
AUGUST 31, ------------------------------------------------------------------------
1998 FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
(UNAUDITED) 1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
PACIFIC HORIZON SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF PERIOD....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income..... 0.0142 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..... 0.0142 0.0302 0.0284 0.0323 0.0248 0.0188
Less dividends to
shareholders from net
investment income......... (0.0142) (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 PERIOD............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total return............... 1.43%(d) 3.06% 2.88% 3.29% 2.52% 1.88%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of
period (millions)....... $ 587 $ 598 $ 493 $ 528 $ 187 $ 204
Ratio of expenses to
average net assets...... 0.55%(c) 0.57% 0.57% 0.62% 0.62% 0.66%
Ratio of net investment
income to average net
assets.................. 2.81%(c) 3.01% 2.83% 3.35% 2.48% 1.86%
Ratio of expenses to
average net assets*..... 0.58%(b)(c) 0.60%(b) 0.60%** 0.63%** (a) 0.68%
Ratio of net investment
income to average net
assets*................. 2.78%(b)(c) 2.98%(b) 2.80% (b) (a) 1.84%
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the period, certain fees were voluntarily reduced
and/or reimbursed. If such voluntary fee reductions and/or
reimbursements had not occurred, the ratios would have been
as indicated.
** During the years ended February 28, 1997 and February 29,
1996, the Portfolio received credits from its custodian for
interest earned on uninvested 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.
(c) Annualized.
(d) Not annualized.
</TABLE>
See Notes to Financial Statements.
67
<PAGE> 186
PACIFIC HORIZON CALIFORNIA TAX-EXEMPT
MONEY MARKET FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
AUGUST 31, ------------------------------------------------------------------------
1998 FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
(UNAUDITED) 1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
HORIZON SERVICE SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF PERIOD....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income..... 0.0146 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..... 0.0146 0.0309 0.0291 0.0332 0.0255 0.0197
Less dividends to
shareholders from net
investment income......... (0.0146) (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 PERIOD............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total return............... 1.47%(d) 3.13% 2.95% 3.36% 2.59% 2.00%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of
period (millions)....... $ 679 $ 671 $ 472 $ 203 $ 88 $ 124
Ratio of expenses to
average net assets...... 0.48%(c) 0.50% 0.50% 0.55% 0.55% 0.53%
Ratio of net investment
income to average net
assets.................. 2.86%(c) 3.06% 2.92% 3.43% 2.50% 1.98%
Ratio of expenses to
average net assets*..... (a)(b) (a)(b) (b) 0.55%** (a) 0.60%
Ratio of net investment
income to average net
assets*................. (a)(b) (a)(b) (b) 3.42% (a) 1.91%
</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 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.
(c) Annualized.
(d) Not annualized.
</TABLE>
See Notes to Financial Statements.
68
<PAGE> 187
PACIFIC HORIZON CALIFORNIA TAX-EXEMPT
MONEY MARKET FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
AUGUST 31, YEAR ENDED PERIOD ENDED
1998 FEBRUARY 28, FEBRUARY 28,
(UNAUDITED) 1998 1997(a)
------------ ------------ ------------
<S> <C> <C> <C>
X SHARES
NET ASSET VALUE PER SHARE, BEGINNING
OF PERIOD......................... $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Income from Investment Operations:
Net investment income............. 0.0131 0.0279 0.0107
Less dividends to shareholders from
net investment income............. (0.0131) (0.0279) (0.0107)
-------- -------- --------
Net change in net asset value per
share............................. -- -- --
-------- -------- --------
NET ASSET VALUE PER SHARE, END OF
PERIOD............................ $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total return........................ 1.31%(e) 2.83% 1.09%(e)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period
(millions)...................... $ 33 $ 31 $ 29
Ratio of expenses to average net
assets.......................... 0.78%(d) 0.80% 0.80%(d)
Ratio of net investment income to
average net assets.............. 2.56%(d) 2.80% 2.66%(d)
Ratio of expenses to average net
assets*......................... (c) (b) (b)
Ratio of net investment income to
average net assets*............. (c) (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 29,
1997.
(b) Fees paid by third parties had no effect on the ratios.
(c) There were no fee waivers or expense reimbursements during
the period.
(d) Annualized.
(e) Not annualized.
</TABLE>
See Notes to Financial Statements.
69
<PAGE> 188
PACIFIC HORIZON CALIFORNIA TAX-EXEMPT
MONEY MARKET FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED PERIOD ENDED
AUGUST 31, 1998 FEBRUARY 28,
(UNAUDITED) 1998(a)
---------------- ------------
<S> <C> <C>
S SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF
PERIOD...................................... $ 1.00 $ 1.00
-------- --------
Income from Investment Operations:
Net investment income....................... 0.0131 0.0194
Less dividends to shareholders from net
investment income........................... (0.0131) (0.0194)
-------- --------
Net change in net asset value per share....... -- --
-------- --------
NET ASSET VALUE PER SHARE, END OF PERIOD...... $ 1.00 $ 1.00
======== ========
Total return.................................. 1.31%(d) 1.96%(d)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (millions)...... $ 290 $ 141
Ratio of expenses to average net assets..... 0.78%(c) 0.79%(c)
Ratio of net investment income to average
net assets................................ 2.56%(c) 2.69%(c)
Ratio of expenses to average net assets*.... 1.23%(b)(c) 1.23%(b)(c)
Ratio of net investment income to average
net assets*............................... 2.11%(b)(c) 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.
70
<PAGE> 189
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 Municipal Bond Fund
[ ] Flexible Income 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> 190
Bulk Rate
U.S. Postage
PAID
Secaucus, NJ
Permit No. 237
[PACIFIC HORIZONS FUNDS LOGO]
Provident Distributor, Inc., Distributor
PHF-5007 8/98
<PAGE> 191
PACIFIC HORIZON INCOME FUNDS
SEMI-ANNUAL REPORT
August 31, 1998
U.S. Government Securities Fund
Flexible Income Fund
Intermediate Bond Fund
Investing For All
The Times Of Your Life
NOT FDIC INSURED
PACIFIC HORIZON INCOME FUNDS
<PAGE> 192
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
PricewaterhouseCoopers 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>
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<PAGE> 193
..................................
Contents
<TABLE>
<S> <C>
FUND FACTS 2-3
UNDERSTANDING YOUR SHAREHOLDER REPORT 4-6
ECONOMIC REVIEW FROM THE INVESTMENT ADVISER 8-9
SHAREHOLDER VOTING RESULTS 10-14
PACIFIC HORIZON U.S. GOVERNMENT SECURITIES
FUND
Portfolio of Investments 15-16
Statement of Assets and Liabilities 17
Statement of Operations 18
Statements of Changes in Net Assets 19
PACIFIC HORIZON FLEXIBLE INCOME FUND
Portfolio of Investments 20-25
Statement of Assets and Liabilities 26
Statement of Operations 27
Statements of Changes in Net Assets 28
PACIFIC HORIZON INTERMEDIATE BOND FUND
Statement of Assets and Liabilities 29
Statement of Operations 30
Statements of Changes in Net Assets 31
NOTES TO FINANCIAL STATEMENTS 32-42
FINANCIAL HIGHLIGHTS 43-49
MASTER INVESTMENT TRUST, SERIES I --
INVESTMENT GRADE BOND PORTFOLIO
Portfolio of Investments 50-55
Statement of Assets and Liabilities 56
Statement of Operations 57
Statements of Changes in Net Assets 58
NOTES TO FINANCIAL STATEMENTS 59-61
SUPPLEMENTARY DATA 62
</TABLE>
<PAGE> 194
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
..............................................................................
Flexible Income High Current Income
(formerly Corporate Bond)
..............................................................................
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 Municipal Bond High Level of Federal and California
(formerly California Tax-Exempt Tax-Free Current Income
Bond)*
..............................................................................
Money Market Funds+ High Current Income Plus Principal
- Prime Stability
- Treasury
- Government
- Treasury Only
..............................................................................
Tax-Exempt Money Market Funds*+
- Tax-Exempt Money High Level of Federal Tax-Free Current
Income Plus Principal Stability
- California Tax-Exempt Money 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.
+ 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> 195
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
- ---------------------------------------------------------------------------
<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> 196
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.
[art of 3 pages of documents]
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.
[art of page with illustration of charts]
4
<PAGE> 197
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
[ILLUSTRATION OF DOCUMENT PAGE]
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
[ILLUSTRATION OF DOCUMENT PAGE]
5
<PAGE> 198
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
[ILLUSTRATION OF DOCUMENT PAGE]
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
[ILLUSTRATION OF DOCUMENT PAGE]
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> 199
[This page intentionally left blank.]
7
<PAGE> 200
ECONOMIC REVIEW
FROM THE INVESTMENT ADVISER
The global financial crisis has dominated the economic news in recent months.
There are renewed fears that the effect of the Asian currency crisis is
spreading to other economies in the world, including North and South America.
The Russian Ruble has experienced a sharp decline as debate continues regarding
political and economic changes. The pace of economic reform in Japan has been
alarmingly slow, with the recent interest rate reduction reflecting only the
first significant action taken in this regard. Markets in Canada and Mexico
continue to reflect concerns relating to commodities. Moreover, investors have
become increasingly concerned about the sustainability of U.S. corporate
profits, resulting in a significant decline in the U.S. equity markets. The
current global economic crisis is generating greater concern, as it increasingly
affects a larger number of key American trading partners.
The U.S. economy has been affected both positively and negatively by the global
financial crisis. Low interest and inflation rates have stimulated domestic
demand for housing, autos and other consumer goods. However, manufacturing
activity is slowing, particularly in trade exports, and cutbacks have been made
in production and personnel within some industries. The Gross Domestic Product
("GDP") rose at a 1.8%(1) rate in the second quarter, below the first quarter's
5.5%(1) growth rate, reflecting the deterioration in the trade balance and a
slowdown in business investment in equipment and inventories. While the U.S.
economy remains strong in the third quarter, it is no longer immune from the
effects of the crisis. Additionally, prospects for U.S. growth and corporate
profits are less secure.
Economic reports continue to indicate that inflation is under control in
manufacturing and consumer-related areas. The prices paid to U.S. factories,
farmers and other producers (as measured by the Producer Price Index "PPI") fell
0.4%(1) in August, the largest drop in seven months. In the first eight months
of 1998, consumer prices rose at an annual rate of 1.6%(1), which is the same as
the first eight months of 1997. Inflation has remained innocuous as weakening
economies in Asia have depressed commodity prices and the cost of goods imported
into the U.S.
In a departure from the recent past, it appears that the Federal Reserve Board
(the "Fed") now has a higher level of anxiety about the outlook for the global
economy and is becoming more concerned about the increasing risks of slowing
economic growth rather than the dangers of rising inflation. In a recent speech,
Fed Chairman Alan Greenspan hinted that the Fed might consider lowering interest
rates if it becomes increasingly likely that the Asian currency crisis will
spread to the U.S. economy. Although the Federal Open Market Committee ("FOMC")
left the Fed Funds' target interest rate unchanged at 5.50% at the most recent
FOMC meeting held in August; some analysts now expect a reduction in rates
sometime soon.
The main benefactor of the global financial uncertainty has clearly been the
U.S. Treasury market. U.S. Treasuries have replaced gold as the safe haven of
choice, as many investors are reaping the financial rewards of owning these
types of securities. On July 17, the day that the equity markets peaked, the
Treasury 10-year note had a closing yield of approximately 5.5%(1). As of August
31, the yield on this note was 4.97%(1). The fixed income markets now reflect
expectations of an interest rate reduction, as evidenced by the entire Treasury
yield curve trading below 5.50%.
The turmoil in overseas markets, the decline in commodity prices, and the
8
<PAGE> 201
global competition from cheaper imports have also caused the credit sectors to
widen appreciably against Treasuries. Credit risk is now at a heightened level,
as the expectation of lower profit prospects has become more apparent to
investors. Additional downward revisions to corporate earnings estimates will
put further pressure on corporate spreads until the economic situation begins to
improve in Asia.
The Standard & Poor's 500 stock index ("S&P 500") fell 8.0%(2) on a total return
basis during the 6-month period ended August 31. While the stocks of large,
name-brand companies have been battered during the month of August, smaller
company stocks have been hit even harder. The S&P 500 declined 19%(2) from its
high on July 17 and the Russell 2000 Index dropped 30%(3) from its high recorded
in April. Year-to-date, the performance disparity has been even larger between
large cap and small cap stocks. Since the beginning of the year, the S&P 500 is
down 0.4%(2) and the Russell 2000 Index has dropped 22.1%(3), constituting a
spread of 21.7 percentage points.
Investors are becoming increasingly concerned about the sustainability of U.S.
corporate profits. Investors had been willing to pay record-high valuations for
stocks because interest rates were low, inflation was under control and
economies around the world were expanding. Not only are the developed Asian
countries faltering, but the economic turmoil has also extended to Russia and
several emerging market countries. So far, the U.S. market has been fairly well
insulated from the economic problems overseas, but U.S. companies are now
beginning to feel the negative impact from depressed overseas business
conditions. Investor confidence in a continued economic expansion will not occur
until Asia and Russia implement appropriate measures to rectify their economic
and political problems.
LOOKING FORWARD
The U.S. government is still expected to post a budget surplus when the fiscal
year ends on September 30. Rising incomes, low unemployment and stock market
gains earlier in the year have generated abundant tax collections. Reduced
government spending has also contributed to decreasing interest payments on
government debt.
The outlook for the remainder of 1998 is unclear. 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 2.5% in the third quarter. Just as
the market was overly optimistic at the beginning of the summer, we suspect that
the markets' current doldrums are too extreme.
Sincerely,
/s/ Kirk Hartman
Kirk Hartman
Chief Investment Officer
Fixed Income Management
- ---------------
( 1) Source - Bloomberg, 1998.
( 2) Source - Bloomberg, 1998. The S&P 500 Index is an index that is
representative of the large capitalization U.S. equity market as a whole
and cannot be invested in directly.
( 3) Source - Bloomberg, 1998. The Russell 2000 is an index that is
representative of the small capitalization U.S. equity market as a whole
and cannot be invested in directly.
9
<PAGE> 202
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Results (Unaudited) of Annual Meeting of Shareholders
Convened on June 19, 1998
Reconvened on June 26, 1998 and July 1, 1998
Reconvened and Adjourned on July 20, 1998
The Annual Meeting of Shareholders of Pacific Horizon Funds, Inc. (the
"Company") was convened on June 19, 1998, reconvened on June 26, 1998 and July
1, 1998, and reconvened and adjourned on July 20, 1998. The Funds of the Company
are: Aggressive Growth Fund, Asset Allocation Fund, Blue Chip Fund, California
Municipal Bond Fund (formerly California Tax-Exempt Bond Fund), California
Tax-Exempt Money Market Fund, Capital Income Fund, Flexible Income Fund
(formerly Corporate Bond Fund), Government Fund, Intermediate Bond Fund,
International Equity Fund, National Municipal Bond Fund, Prime Fund, Short-Term
Government Fund, Tax-Exempt Money Fund, Treasury Fund, Treasury Only Fund, and
U.S. Government Securities Fund. The Annual Meeting was held in order to vote on
the following purposes:
<TABLE>
<CAPTION>
PROPOSAL
NUMBER ISSUE
- -------- -----
<C> <S>
1. To elect Messrs. Edward S. Bottum, William P. Carmichael,
Thomas M. Collins, Douglas B. Fletcher, Robert E. Greeley,
and Cornelius J. Pings, Directors of the Company;
2. With respect to each Fund except the Blue Chip and
Intermediate Bond Funds, to approve or disapprove a new
Investment Advisory Agreement between the Company and Bank
of America NT&SA;
3. With respect to the International Equity Fund, to approve or
disapprove a new Sub-Advisory Agreement between Bank of
America NT&SA and Wellington Management Company, LLP;
4. To approve or disapprove an amendment to the Company's
Charter;
5. To approve or disapprove changes to the following
fundamental investment limitations of each Fund of the
Company:
a) limitation on underwriting of securities;
b) limitation on real estate transactions;
c) limitation on commodity transactions;
d) limitation on industry concentration;
e) limitation on lending;
f) limitation on borrowing and issuance of senior
securities; and
g) limitation on issuer concentration
6. To approve or disapprove certain changes to the following
fundamental investment policies and limitations, including a
change to make all of such policies and limitations
non-fundamental:
a) with respect to each Fund, the limitation on short sales
and purchasing securities on margin;
</TABLE>
10
<PAGE> 203
<TABLE>
<CAPTION>
PROPOSAL
NUMBER ISSUE
- -------- -----
<C> <S>
b) with respect to the National Municipal Bond, Aggressive
Growth, California Municipal Bond, Prime, Treasury and
California Tax-Exempt Money Market Funds, the limitation on
purchasing securities of companies for the purpose of
exercising control;
c) with respect to each Fund except the Government and
Treasury Only Funds, the limitation on purchasing securities
of other investment companies;
d) with respect to each Fund except the Aggressive Growth,
Short-Term Government, Prime, Treasury, Government and
Treasury Only Funds, the limitation on put, call, straddle
and spread transactions;
e) with respect to each Fund except the National Municipal
Bond, International Equity, Flexible Income, Short-Term
Government and California Tax-Exempt Money Market Funds, the
limitation on illiquid securities;
f) with respect to the Intermediate Bond, Blue Chip and
Asset Allocation Funds, the limitation on transactions in
certain securities by Board members;
g) with respect to the U.S. Government Securities, Capital
Income, California Municipal Bond and California Tax-Exempt
Money Market Funds, the limitation on unseasoned issuers;
h) with respect to the Aggressive Growth Fund, the policy on
investment in equity securities;
i) with respect to the U.S. Government Securities Fund, the
policy with respect to investment in certificates of the
Government National Mortgage Association;
j) with respect to the Capital Income Fund, the policy with
respect to investment in convertible securities;
k) with respect to the California Municipal Bond Fund, the
policy with respect to investment in California municipal
securities;
l) with respect to the Tax-Exempt Money Fund, the policy
with respect to investment in municipal securities; and
m) with respect to the California Tax-Exempt Money Market
Fund, the policy with respect to investment in California
municipal securities;
7. To approve or disapprove a change in the fundamental
investment objective to a non-fundamental investment
objective of the following Funds: National Municipal Bond,
International Equity, Flexible Income, Intermediate Bond,
Blue Chip, Asset Allocation, Aggressive Growth, U.S.
Government Securities, Capital Income, California Municipal
Bond, Short-Term Government, Prime, Treasury, Tax-Exempt
Money and California Tax-Exempt Money Market Funds;
8. To approve or disapprove a new fundamental investment
limitation of the Prime Fund with reg ard to its industry
concentration;
9. To ratify or reject the selection of PricewaterhouseCoopers
LLP as the Company's independent accountants for the fiscal
year ending February 28, 1999; and
10. The transaction of such other business as may properly come
before the meeting or any adjournment
</TABLE>
11
<PAGE> 204
At the adjournment of the annual meeting on July 20, 1998, the voting
results for each proposal were as follows:
The voting results for each proposal are shown below:
PACIFIC HORIZON FUNDS, INC. -- ALL FUNDS
<TABLE>
<CAPTION>
TOTAL SHARES TOTAL ABSTAIN/
OUTSTANDING SHARES VOTED FOR AGAINST WITHHELD
----------------- ---------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
PROPOSAL 1 16,453,350,969.00 8,803,335,110.00
EDWARD S. BOTTUM 8,469,012,940.00 None 334,322,170.00
WILLIAM P. CARMICHAEL 8,468,803,120.00 None 334,531,990.00
THOMAS M. COLLINS 8,472,897,540.00 None 330,437,570.00
DOUGLAS B. FLETCHER 8,473,089,329.00 None 330,245,781.00
ROBERT E. GREELEY 8,475,491,285.00 None 327,843,225.00
CORNELIUS J. PINGS 8,473,521,034.00 None 329,806,076.00
PROPOSAL 4 16,453,350,969.00 8,803,335,110.00 7,332,890,744.00 502,659,743.00 373,195,844.00
PROPOSAL 9 16,453,350,969.00 8,803,335,091.00 8,429,896,332.00 85,027,748.00 288,411,011.00
<CAPTION>
BROKER PASS/
NON VOTE FAIL
-------------- -----
<S> <C> <C>
PROPOSAL 1 PASS
EDWARD S. BOTTUM None
WILLIAM P. CARMICHAEL None
THOMAS M. COLLINS None
DOUGLAS B. FLETCHER None
ROBERT E. GREELEY None
CORNELIUS J. PINGS None
PROPOSAL 4 594,588,779.00 FAIL
PROPOSAL 9 None PASS
</TABLE>
PACIFIC HORIZON U.S. GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
TOTAL SHARES TOTAL ABSTAIN/
OUTSTANDING SHARES VOTED FOR AGAINST WITHHELD
----------------- ---------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
PROPOSAL 2 7,545,632.00 3,906,599.00 3,475,456.00 69,198.00 361,945.00
PROPOSAL 5a 7,545,632.00 3,906,600.00 3,157,741.00 78,396.00 398,886.00
PROPOSAL 5b 7,545,632.00 3,906,600.00 3,164,596.00 66,797.00 403,631.00
PROPOSAL 5c 7,545,632.00 3,906,600.00 3,126,712.00 92,459.00 415,852.00
PROPOSAL 5d 7,545,632.00 3,906,600.00 3,121,837.00 100,285.00 412,901.00
PROPOSAL 5e 7,545,632.00 3,906,600.00 3,141,637.00 100,677.00 392,709.00
PROPOSAL 5f 7,545,632.00 3,906,600.00 3,119,691.00 100,799.00 414,534.00
PROPOSAL 5g 7,545,632.00 3,906,600.00 3,122,022.00 77,770.00 435,232.00
PROPOSAL 6a 7,545,632.00 3,906,600.00 3,124,141.00 95,363.00 415,519.00
PROPOSAL 6c 7,545,632.00 3,906,600.00 3,153,775.00 74,796.00 406,452.00
PROPOSAL 6d 7,545,632.00 3,906,600.00 3,119,874.00 98,024.00 417,125.00
PROPOSAL 6e 7,545,632.00 3,906,600.00 3,112,367.00 107,136.00 415,520.00
PROPOSAL 6g 7,545,632.00 3,906,600.00 3,112,834.00 103,010.00 419,179.00
PROPOSAL 6l 7,545,632.00 3,906,600.00 3,140,809.00 77,607.00 416,607.00
PROPOSAL 7 7,545,632.00 3,906,600.00 3,086,483.00 91,437.00 457,103.00
<CAPTION>
BROKER PASS/
NON VOTE FAIL
-------------- -----
<S> <C> <C>
PROPOSAL 2 None PASS
PROPOSAL 5a 271,577.00 PASS
PROPOSAL 5b 271,576.00 PASS
PROPOSAL 5c 271,577.00 PASS
PROPOSAL 5d 271,577.00 PASS
PROPOSAL 5e 271,577.00 PASS
PROPOSAL 5f 271,576.00 PASS
PROPOSAL 5g 271,576.00 PASS
PROPOSAL 6a 271,577.00 PASS
PROPOSAL 6c 271,577.00 PASS
PROPOSAL 6d 271,577.00 PASS
PROPOSAL 6e 271,577.00 PASS
PROPOSAL 6g 271,577.00 PASS
PROPOSAL 6l 271,577.00 PASS
PROPOSAL 7 271,577.00 PASS
</TABLE>
PACIFIC HORIZON FLEXIBLE INCOME FUND
<TABLE>
<CAPTION>
TOTAL SHARES TOTAL ABSTAIN/ BROKER
OUTSTANDING SHARES VOTED FOR AGAINST WITHHELD NON VOTE
----------------- ---------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
PROPOSAL 2 2,323,250.00 1,676,808.00 1,616,033.00 14,053.00 46,722.00 None
PROPOSAL 5a 2,323,250.00 1,676,809.00 1,333,032.00 17,857.00 52,744.00 273,176.00
PROPOSAL 5b 2,323,250.00 1,676,809.00 1,337,058.00 16,659.00 49,916.00 273,176.00
PROPOSAL 5c 2,323,250.00 1,676,809.00 1,335,015.00 20,948.00 47,669.00 273,177.00
PROPOSAL 5d 2,323,250.00 1,676,809.00 1,321,357.00 29,871.00 52,404.00 273,177.00
PROPOSAL 5e 2,323,250.00 1,676,809.00 1,316,975.00 29,140.00 57,518.00 273,176.00
PROPOSAL 5f 2,323,250.00 1,676,809.00 1,314,662.00 35,067.00 53,903.00 273,177.00
PROPOSAL 5g 2,323,250.00 1,676,809.00 1,312,074.00 33,826.00 57,733.00 273,176.00
PROPOSAL 6a 2,323,250.00 1,676,809.00 1,323,216.00 31,795.00 48,622.00 273,176.00
PROPOSAL 6c 2,323,250.00 1,676,809.00 1,321,277.00 32,224.00 50,132.00 273,176.00
PROPOSAL 6d 2,323,250.00 1,676,809.00 1,318,281.00 34,996.00 50,355.00 273,177.00
PROPOSAL 7 2,323,250.00 1,676,809.00 1,306,888.00 41,331.00 55,414.00 273,176.00
<CAPTION>
PASS/
FAIL
-----
<S> <C>
PROPOSAL 2 PASS
PROPOSAL 5a PASS
PROPOSAL 5b PASS
PROPOSAL 5c PASS
PROPOSAL 5d PASS
PROPOSAL 5e PASS
PROPOSAL 5f PASS
PROPOSAL 5g PASS
PROPOSAL 6a PASS
PROPOSAL 6c PASS
PROPOSAL 6d PASS
PROPOSAL 7 PASS
</TABLE>
12
<PAGE> 205
PACIFIC HORIZON INTERMEDIATE BOND FUND
<TABLE>
<CAPTION>
TOTAL SHARES TOTAL ABSTAIN/ BROKER
OUTSTANDING SHARES VOTED FOR AGAINST WITHHELD NON VOTE
----------------- ---------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
PROPOSAL 5a 7,603,925.00 4,238,264.00 3,875,009.00 39,054.00 127,521.00 196,680.00
PROPOSAL 5b 7,603,925.00 4,238,264.00 3,878,122.00 38,913.00 124,548.00 196,681.00
PROPOSAL 5c 7,603,925.00 4,238,264.00 3,870,334.00 44,567.00 126,684.00 196,679.00
PROPOSAL 5d 7,603,925.00 4,238,264.00 3,872,161.00 43,345.00 126,079.00 196,679.00
PROPOSAL 5e 7,603,925.00 4,238,264.00 3,876,102.00 31,820.00 133,662.00 196,680.00
PROPOSAL 5f 7,603,925.00 4,238,264.00 3,870,396.00 44,928.00 126,260.00 196,680.00
PROPOSAL 5g 7,603,925.00 4,238,264.00 3,859,961.00 40,896.00 140,727.00 196,680.00
PROPOSAL 6a 7,603,925.00 4,238,264.00 3,863,299.00 55,104.00 123,182.00 196,679.00
PROPOSAL 6c 7,603,925.00 4,238,264.00 3,873,064.00 47,755.00 120,764.00 196,681.00
PROPOSAL 6d 7,603,925.00 4,238,264.00 3,864,895.00 40,930.00 135,758.00 196,681.00
PROPOSAL 6e 7,603,925.00 4,238,264.00 3,869,354.00 45,244.00 126,986.00 196,680.00
PROPOSAL 6f 7,603,925.00 4,238,264.00 3,869,476.00 40,866.00 131,241.00 196,681.00
PROPOSAL 7 7,603,925.00 4,238,264.00 3,839,543.00 60,562.00 141,479.00 196,680.00
<CAPTION>
PASS/
FAIL
-----
<S> <C>
PROPOSAL 5a PASS
PROPOSAL 5b PASS
PROPOSAL 5c PASS
PROPOSAL 5d PASS
PROPOSAL 5e PASS
PROPOSAL 5f PASS
PROPOSAL 5g PASS
PROPOSAL 6a PASS
PROPOSAL 6c PASS
PROPOSAL 6d PASS
PROPOSAL 6e PASS
PROPOSAL 6f PASS
PROPOSAL 7 PASS
</TABLE>
On June 26, 1998, the Pacific Horizon Intermediate Bond Fund and World
Horizon U.S. Bond Fund, representing all the interestholders of the Investment
Grade Bond Portfolio of the Trust, unanimously approved the following proposals
to interestholders by means of a unanimous consent of interestholders:
(1) to approve or disapprove a new investment advisory agreement between
the Trust and Bank of America National trust and Savings Association;
(2) to approve or disapprove changes to the following fundamental
investment limitations of the Investment Grade Bond Portfolio:
(a) limitation on underwriting of securities;
(b) limitation on real estate transactions;
(c) limitation on commodity transactions;
(d) limitation on industry concentration;
(e) limitation on lending;
(f) limitation on borrowing and issuance of senior securities; and
(g) limitation on issuer concentration.
(3) to approve or disapprove certain changes to the following
fundamental investment policies and limitations of the Investment Grade Bond
Portfolio, including a change to make all of such policies and limitations
non-fundamental:
(a) the limitation on short sales and purchasing securities on
margin;
13
<PAGE> 206
(b) the limitation on purchasing securities of other investment
companies;
(c) the limitation on put, call, straddle and spread transactions;
(d) the limitation on illiquid securities; and
(e) the limitation on transactions in certain securities by Board
members; and
(4) to approve or disapprove a change in the fundamental investment
objective to a non-fundamental investment objective of the Investment Grade
Bond Portfolio.
14
<PAGE> 207
PACIFIC HORIZON U.S. GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATURITY PRINCIPAL VALUE
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
----------- ---- -------- --------- --------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 93.0%
Government National
Mortgage
Association*.......... 11.500% 02/15/00 $ 1,836 $ 1,939
Government National
Mortgage
Association*.......... 11.000% 11/15/15 to 09/20/19 171,054 192,844
Government National
Mortgage
Association*.......... 10.500% 11/15/98 to 04/15/21 952,952 1,019,697
Government National
Mortgage
Association*.......... 10.000% 10/15/98 to 03/15/21 621,799 666,132
Government National
Mortgage
Association*.......... 9.500% 03/15/01 to 04/20/06 825,062 864,400
Government National
Mortgage
Association*.......... 9.000% 06/15/01 to 06/15/07 193,896 203,975
Government National
Mortgage
Association*.......... 8.500% 10/15/09 to 12/15/22 3,789,904 4,039,029
Government National
Mortgage
Association*.......... 8.000% 06/15/22 to 07/15/26 5,861,474 6,119,029
Government National
Mortgage
Association*.......... 7.500% 06/15/22 to 12/15/25 16,907,920 17,521,357
Government National
Mortgage
Association*.......... 7.000% 12/15/08 to 08/15/25 31,897,025 32,765,108
Government National
Mortgage
Association*.......... 6.257% 08/01/36 672,117 688,080
Government National
Mortgage
Association*.......... 6.000% 12/15/10 349,367 352,095
-----------
Total U.S. Government
Agency Obligations (Cost
$63,037,312)............ 64,433,685
-----------
</TABLE>
See Notes to Financial Statements.
15
<PAGE> 208
<TABLE>
<CAPTION>
MATURITY PRINCIPAL VALUE
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
----------- ---- -------- --------- --------
<S> <C> <C> <C> <C>
U.S. TREASURY OBLIGATIONS -- 5.8%
U.S. Treasury Principal
Only Obligation....... 4.990%+ 08/15/03 $ 1,600,000 $ 1,253,376
U.S. Treasury Principal
Only Obligation....... 5.280%+ 05/15/09 2,600,000 1,488,370
U.S. Treasury Principal
Only Obligation....... 5.480%+ 02/15/13 2,500,000 1,144,375
U.S. Treasury Principal
Only Obligation....... 5.520%+ 08/15/23 600,000 154,182
-----------
Total U. S. Treasury Obli-
gations (Cost
$3,896,627)............. 4,040,303
-----------
COLLATERALIZED MORTGAGE OBLIGATION -- 1.0%
Vendee Mortgage Trust,
Series 1998-1, Class
2, Interest Only
Obligation (Cost
$830,456)............. 0.455% 09/15/27 36,307,260 726,145
-----------
TOTAL INVESTMENTS -- 99.8%
(COST $67,764,395)(a)... 69,200,133
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 0.2%..... 103,471
-----------
NET ASSETS -- 100.0%...... $69,303,604
===========
</TABLE>
- ---------------
Percentages indicated are based on net assets of $69,303,604.
(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............................... $1,600,589
Unrealized depreciation............................... (164,851)
----------
Net unrealized appreciation........................... $1,435,738
==========
</TABLE>
* Mortgage-backed pass-through obligation.
+ Effective yield.
See Notes to Financial Statements.
16
<PAGE> 209
PACIFIC HORIZON U.S. GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (cost $67,764,395)..... $69,200,133
Cash....................................................... 951,929
Interest receivable........................................ 410,667
Receivable for capital shares sold......................... 138,927
Prepaid expenses........................................... 8,097
-----------
Total Assets................................................ 70,709,753
-----------
LIABILITIES:
Dividends Payable.......................................... 372,580
Payable for capital shares redeemed........................ 538,039
Payable for investment securities purchased................ 391,230
Investment advisory fees payable........................... 4,894
Administration fees payable................................ 4,283
Shareholder service fees payable........................... 5,954
Distribution fees payable.................................. 512
Custodian and fund accounting fees payable................. 23,560
Other accrued expenses..................................... 65,097
-----------
Total Liabilities........................................... 1,406,149
-----------
NET ASSETS.................................................. $69,303,604
===========
Net Assets
A Shares................................................... $68,034,837
K Shares................................................... 1,268,767
-----------
Total....................................................... $69,303,604
===========
Shares Outstanding ($0.001 par value, 200 million shares
authorized):
A Shares................................................... 7,129,696
K Shares................................................... 132,901
-----------
Total....................................................... 7,262,597
===========
NET ASSET VALUE
A Shares -- Net asset value and redemption price per
share.................................................... $9.54
===========
Maximum Sales Charge (A Shares)............................ 5.50%
Maximum Offering Price per share (A Shares) (Net Asset
Value of A Shares/(100% -- Maximum Sales Charge))........ $10.10
===========
K Shares -- Net asset value, offering price and redemption
price per share.......................................... $9.55
===========
COMPOSITION OF NET ASSETS:
Shares of common stock, at par............................. $ 7,263
Additional paid-in capital................................. 77,082,987
Accumulated undistributed net investment income............ 40,663
Accumulated net realized losses on investment
transactions............................................. (9,263,047)
Net unrealized appreciation on investments................. 1,435,738
-----------
NET ASSETS, AUGUST 31, 1998................................. $69,303,604
===========
</TABLE>
- ---------------
See Notes to Financial Statements.
17
<PAGE> 210
PACIFIC HORIZON U.S. GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the six months ended August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................. $2,591,018
----------
EXPENSES:
Investment advisory fees.................................. 126,705
Administration fees....................................... 72,404
Shareholder service fees (A Shares)....................... 89,124
Shareholder service fees (K Shares)....................... 1,381
Distribution fees (K Shares).............................. 4,143
Custodian and fund accounting fees........................ 52,591
Transfer agent fees....................................... 72,529
Audit fees................................................ 12,145
Legal fees................................................ 1,250
Printing fees............................................. 20,451
Other expenses............................................ 12,246
----------
Total Expenses.......................................... 464,969
Less: Fee waivers......................................... (204,168)
----------
Total Net Expenses.......................................... 260,801
----------
NET INVESTMENT INCOME....................................... 2,330,217
----------
NET REALIZED/UNREALIZED GAINS ON INVESTMENTS:
Net realized losses on investment transactions............ (136,322)
Net change in unrealized appreciation on investments...... 276,132
----------
Net realized/unrealized gains on investments.............. 139,810
----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $2,470,027
==========
</TABLE>
- ---------------
See Notes to Financial Statements.
18
<PAGE> 211
PACIFIC HORIZON U.S. GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
SIX MONTHS ENDED YEAR ENDED
AUGUST 31, 1998 FEBRUARY 28,
(UNAUDITED) 1998
------------ ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income..................... $ 2,330,217 $ 4,644,420
Net realized gains (losses) on investment
transactions............................ (136,322) 912,695
Net change in unrealized appreciation on
investments............................. 276,132 1,017,576
------------ ------------
Change in net assets resulting from
operations................................ 2,470,027 6,574,691
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
A Shares................................ (2,297,333) (4,608,261)
K Shares................................ (32,891) (36,159)
Excess of net investment income
A Shares................................ -- (166,337)
K Shares................................ -- (1,076)
------------ ------------
Change in net assets from shareholder
distributions............................. (2,330,224) (4,811,833)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued............... 8,460,302 8,331,747
Dividends reinvested...................... 1,351,336 3,575,522
Cost of shares redeemed................... (12,668,636) (16,551,786)
------------ ------------
Change in net assets from capital share
transactions.............................. (2,856,998) (4,644,517)
------------ ------------
Change in net assets........................ (2,717,195) (2,881,659)
NET ASSETS
Beginning of Period....................... 72,020,799 74,902,458
------------ ------------
End of Period (including accumulated
undistributed net investment income of
$40,663 and $40,670, respectively)...... $ 69,303,604 $ 72,020,799
============ ============
</TABLE>
- ---------------
See Notes to Financial Statements.
19
<PAGE> 212
PACIFIC HORIZON FLEXIBLE INCOME FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<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 -- 10.0%
Chevy Chase Auto
Receivables Trust,
Series 1998-2, Class
A.................... Aaa/AAA 5.910% 12/15/04 $ 479,636 $ 482,034
Circuit City Credit
Card Master Trust,
Series 1995-1, Class
A.................... Aaa/AAA 6.375% 08/15/05 600,000 611,496
Citibank Credit Card
Master Trust I,
Series 1997-6, Class
A ZCB................ Aaa/AAA 5.040%* 08/15/06 1,500,000 1,079,025
First Chicago Master
Trust II............. Aaa/AAA 5.871% 02/15/04 430,000 432,163
The Money Store Home
Equity Trust, Series
1996-B, Class A6..... Aaa/AAA 7.380% 05/15/17 1,300,000 1,330,277
UAF Auto Grantor Trust,
Series 1998-A, Class
A.................... Aaa/AAA 6.100% 06/15/04 393,395 397,820
-----------
Total Asset Backed
Securities (Cost
$4,217,838)............ 4,332,815
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 8.1%
Credit Suisse First
Boston Mortgage
Corp., Series 1998-
C1, Class A1-B....... Aaa/AAA 6.480% 05/17/08 700,000 719,474
Criimi Mae CMBS Corp.,
Series 1998-1, Class
A1................... Aaa/AAA 5.697% 10/20/01 494,233 491,085
</TABLE>
- ---------------
See Notes to Financial Statements.
20
<PAGE> 213
<TABLE>
<CAPTION>
MOODY'S/S&P
RATINGS MATURITY PRINCIPAL VALUE
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- --------
<S> <C> <C> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS -- (CONTINUED)
Donaldson Lufkin
Jenrette Commercial
Mortgage Corp.,
Series 1998-CG1,
Class A1-B........... Aaa/AAA 6.410% 06/10/31 $ 725,000 $ 741,240
First Union-Lehman
Brothers, Series
1998-C2, Class A2.... Aaa/AAA 6.560% 11/18/08 500,000 516,192
Mortgage Capital
Funding, Inc., Series
1998-MC2, Class A2... Aaa/AAA 6.423% 05/18/08 650,000 664,248
Prudential Mortgage
Cap.................. Aaa/AAA 11.581% 12/15/13 3,673 3,673
Vendee Mortgage Trust
Co., Series 1998-1,
Class 2, Interest
Only Obligation...... NR/NR 0.455% 09/15/27 18,615,151 372,303
-----------
Total Collateralized
Mortgage Obligations
(Cost $3,502,600)...... 3,508,215
-----------
CORPORATE BONDS -- 60.4%
BANKS -- 12.9%
ABN-AMRO Bank NV....... Aa2/AA- 7.750% 05/15/23 1,350,000 1,501,354
Banco Latinoamericano.. Baa2/BBB 6.590% 10/16/01 375,000 367,500
Capital One Bank....... Baa3/BBB- 7.000% 04/30/01 400,000 410,268
Chase Manhattan
Corp................. A2/A- 8.125% 06/15/02 1,000,000 1,079,987
Comerica Bank.......... A2/A 8.375% 07/15/24 1,000,000 1,152,163
Midland Bank PLC....... A1/A+ 7.625% 06/15/06 1,000,000 1,082,663
-----------
5,593,935
-----------
BROKERAGE -- 2.1%
Bear Stearns........... A2/A 6.125% 02/01/03 400,000 404,567
Salomon Smith Barney
Holdings............. A2/A 6.250% 05/15/03 500,000 505,606
-----------
910,173
-----------
</TABLE>
- ---------------
See Notes to Financial Statements.
21
<PAGE> 214
<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)
CABLE & MEDIA -- 8.9%
British Telecom
Finance.............. Aaa/AAA 9.625% 02/15/19 $1,300,000 $ 1,381,249
Cox Radio, Inc......... Baa2/A- 6.250% 05/15/03 500,000 506,250
TCI Communications
Inc.................. Baa3/BBB- 6.375% 05/01/03 450,000 457,385
Time Warner Pass-
through, Series
144A................. Ba1/BBB- 6.100% 12/30/01 450,000 450,562
Walt Disney Co......... A2/A 6.750% 03/30/06 1,000,000 1,052,647
-----------
3,848,093
-----------
CHEMICALS -- 1.0%
Praxair, Inc........... A3/BBB+ 6.750% 03/01/03 400,000 414,446
-----------
COMMERICAL SERVICES -- 0.9%
Service Corp.
International........ Baa1/BBB+ 6.300% 03/15/03 400,000 406,272
-----------
CONTAINERS -- 1.2%
Crown Cork & Seal...... Baa1/BBB 6.750% 04/15/03 500,000 513,086
-----------
DIVERSIFIED MANUFACTURING -- 3.2%
Allied Signal Corp..... A2/A 9.500% 06/01/16 719,000 956,409
Belo (A.H.) Corp. Sr.
Notes................ Baa2/BBB- 6.875% 06/01/02 425,000 439,399
-----------
1,395,808
-----------
ENERGY -- 1.9%
PSE & G Capital Corp... Baa2/BBB 6.740% 10/23/01 400,000 410,000
Williams Cos, Inc...... Baa2/BBB- 6.125% 02/01/01 400,000 402,252
-----------
812,252
-----------
FINANCIAL SERVICES -- 11.5%
Associates Corp. N.A... Aa3/AA- 6.000% 12/01/02 600,000 606,692
BHP Finance USA Ltd.... A3/A 6.420% 03/01/26 600,000 607,681
Case Credit Corp.
Financial............ Baa1/A- 6.125% 02/15/03 400,000 403,195
Commercial Credit...... A1/A+ 7.875% 02/01/05 1,000,000 1,175,236
Ford Motor Credit
Corp................. A1/A+ 6.550% 09/10/02 700,000 718,915
Hanson Overseas PLC.... A3/A1 7.375% 01/15/03 500,000 527,388
Household Finance...... A2/A 6.125% 07/15/02 450,000 455,625
USG Corp............... Baa3/BBB 9.250% 09/15/01 450,000 489,088
-----------
4,983,820
-----------
</TABLE>
- ---------------
See Notes to Financial Statements.
22
<PAGE> 215
<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)
FOOD & KINDRED PRODUCTS -- 9.2%
Anheuser Busch
Companies, Inc....... A1/A+ 7.000% 12/01/25 $1,000,000 $ 1,013,354
ConAgra, Inc........... Baa2/BBB- 9.750% 03/01/21 1,500,000 1,989,713
James River Corp....... Baa3/BBB- 8.375% 11/15/01 450,000 482,553
Nabisco, Inc........... Baa2/BBB 6.125% 02/01/03 525,000 522,667
-----------
4,008,287
-----------
INSURANCE -- 1.2%
Hartford Life, Inc..... A2/A 6.900% 06/15/04 500,000 522,646
-----------
RETAIL STORES -- 1.9%
Federated Department
Stores............... Baa2/BBB- 8.125% 10/15/02 400,000 432,855
Sears Roebuck
Acceptance Corp...... A2/A- 6.000% 03/20/03 400,000 403,897
-----------
836,752
-----------
UTILITIES -- 4.5%
Consumers Energy Co.
Series 144A.......... Baa3/BBB+ 6.200% 05/01/03 500,000 501,650
GTE Corp............... Baa1/A 9.100% 06/01/03 500,000 568,638
KN Energy, Inc......... Baa2/BBB- 6.450% 03/01/03 375,000 381,119
US West Capital Funding
Inc.................. A3/A- 6.125% 07/15/02 500,000 506,128
-----------
1,957,535
-----------
Total Corporate Bonds
(Cost $24,781,928)..... 26,203,105
-----------
MEDIUM TERM NOTES -- 13.2%
FINANCIAL SERVICES -- 4.7%
Countrywide Funding
Corp................. Baa1/A 6.540% 04/14/00 1,000,000 1,011,627
Homeside Lending,
Inc.................. NR/NR 6.200% 05/15/03 500,000 506,205
MCN Investment Corp.... Baa3/BBB+ 6.890% 01/16/02 500,000 515,000
-----------
2,032,832
-----------
INSURANCE -- 2.3%
UNUM Corp.............. A1/A+ 5.880% 10/15/03 1,000,000 999,400
-----------
RETAIL STORES -- 2.4%
J.C. Penney & Co....... A1/A+ 6.500% 12/15/07 1,000,000 1,023,849
-----------
</TABLE>
- ---------------
See Notes to Financial Statements.
23
<PAGE> 216
<TABLE>
<CAPTION>
MOODY'S/S&P
RATINGS MATURITY PRINCIPAL VALUE
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- --------
<S> <C> <C> <C> <C> <C>
MEDIUM TERM NOTES -- (CONTINUED)
TELECOMMUNICATIONS -- 1.1%
Worldcom Inc........... Baa2/BBB+ 6.400% 08/15/05 $ 500,000 $ 501,875
-----------
UTILITIES -- 2.7%
Pacific Gas &
Electric............. A3/A- 7.880% 04/08/14 1,000,000 1,180,164
-----------
Total Medium Term Notes
(Cost $5,415,944)...... 5,738,120
-----------
U. S. TREASURY OBLIGATIONS -- 6.3%
U.S. Treasury
Principal Only
Obligation Strips.... 6.110%* 05/15/09 200,000 114,490
U.S. Treasury
Principal Only
Obligation Strips.... 6.160%* 05/15/23 2,700,000 701,648
U.S. Treasury
Principal Only
Obligation Strips.... 5.620%* 08/15/23 7,400,000 1,901,601
-----------
Total U. S. Treasury
Obligations (Cost
$2,496,139)............ 2,717,739
-----------
U. S. TREASURY NOTES -- 0.8%
U.S. Treasury Notes
(Cost $326,467)...... 5.625% 05/15/01 325,000 331,202
-----------
SHORT TERM INVESTMENTS -- 0.7% SHARES
----------
Temporary Investment
Cash Fund............ 158,522 158,522
Temporary Investment
Fund................. 158,521 158,521
-----------
Total Short Term
Investments (Cost
$317,043).............. 317,043
-----------
</TABLE>
- ---------------
See Notes to Financial Statements.
24
<PAGE> 217
<TABLE>
<CAPTION>
VALUE
(NOTE 2)
--------
<S> <C> <C> <C> <C> <C>
TOTAL INVESTMENTS --
99.5% (COST
$41,057,959)(a)........ $43,148,239
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 0.5%.... 216,503
-----------
NET ASSETS -- 100.0%..... $43,364,742
===========
</TABLE>
- ---------------
Percentages indicated are based on net assets of $43,364,742.
(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............................... $2,172,875
Unrealized depreciation............................... (82,595)
----------
Net unrealized appreciation........................... $2,090,280
==========
</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 2.2% of net assets.
NR -- Not Rated.
ZCB -- Zero Coupon Bond.
PLC -- Public Liability Company.
* Effective yield at purchase date.
See Notes to Financial Statements.
25
<PAGE> 218
PACIFIC HORIZON FLEXIBLE INCOME FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (cost $41,057,959)..... $43,148,239
Cash....................................................... 13,210
Interest Receivable........................................ 635,940
Receivable for capital shares sold......................... 40,093
Prepaid expenses........................................... 6,455
-----------
Total Assets................................................ 43,843,937
-----------
LIABILITIES:
Dividends Payable.......................................... 134,085
Payable for capital shares redeemed........................ 286,801
Shareholder service fees payable........................... 20,044
Custodian and fund accounting fees payable................. 3,770
Transfer agent fees payable................................ 11,544
Legal fees payable......................................... 794
Other accrued expenses..................................... 22,157
-----------
Total Liabilities........................................... 479,195
-----------
NET ASSETS.................................................. $43,364,742
===========
Net Assets
A Shares................................................... $42,905,911
K Shares................................................... 458,831
-----------
Total....................................................... $43,364,742
===========
Shares Outstanding ($0.001 par value, 200 million shares
authorized):
A Shares................................................... 2,575,435
K Shares................................................... 27,524
-----------
Total....................................................... 2,602,959
===========
NET ASSET VALUE
A Shares -- Net asset value and redemption price per
share.................................................... $16.66
===========
Maximum Sales Charge (A Shares)............................ 5.50%
Maximum Offering Price per share (A Shares) (Net Asset
Value of A Shares/(100% -- Maximum Sales Charge))........ $17.63
===========
K Shares -- Net asset value, offering price and redemption
price per share.......................................... $16.67
===========
COMPOSITION OF NET ASSETS:
Shares of common stock, at par............................. $ 2,603
Additional paid-in capital................................. 46,919,919
Accumulated net realized losses on investment
transactions............................................. (5,648,060)
Net unrealized appreciation on investments................. 2,090,280
-----------
NET ASSETS, AUGUST 31, 1998................................. $43,364,742
===========
</TABLE>
- ---------------
See Notes to Financial Statements.
26
<PAGE> 219
PACIFIC HORIZON FLEXIBLE INCOME FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the six months ended August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................. $1,421,561
----------
EXPENSES:
Advisory fees............................................. 94,119
Administration fees....................................... 41,830
Shareholder service fees (A Shares)....................... 51,803
Shareholder service fees (K Shares)....................... 485
Distribution fees (K Shares).............................. 1,455
Custodian and fund accounting fees........................ 22,116
Transfer agent fees....................................... 42,583
Audit fees................................................ 12,405
Legal fees................................................ 628
Registration and filing fees.............................. 4,812
Reports to shareholders................................... 11,973
Other expenses............................................ 3,006
----------
Total Expenses.............................................. 287,215
Less: Fee waivers and reimbursements........................ (175,756)
----------
Total Net Expenses.......................................... 111,459
----------
NET INVESTMENT INCOME....................................... 1,310,102
----------
NET REALIZED/UNREALIZED GAINS ON INVESTMENTS:
Net realized gains on investment transactions............. 658,625
Net change in unrealized appreciation on investments...... (7,978)
----------
Net realized/unrealized gain on investments............... 650,647
----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $1,960,749
==========
</TABLE>
- ---------------
See Notes to Financial Statements.
27
<PAGE> 220
PACIFIC HORIZON FLEXIBLE INCOME FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
AUGUST 31, 1998 FEBRUARY 28,
(UNAUDITED) 1998
----------------- ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income..................... $ 1,310,102 $ 2,240,565
Net realized gains on investment
transactions............................ 658,625 233,565
Net change in unrealized appreciation on
investments............................. (7,978) 1,251,636
------------ ------------
Change in net assets from operations........ 1,960,749 3,725,766
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
A Shares................................ (1,299,024) (2,226,390)
K Shares................................ (11,078) (14,175)
------------ ------------
Change in net assets from shareholder
distributions............................. (1,310,102) (2,240,565)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued............... 12,821,484 14,033,161
Dividends reinvested...................... 494,554 777,336
Cost of shares redeemed................... (8,019,500) (11,905,633)
------------ ------------
Change in net assets from capital share
transactions.............................. 5,296,538 2,904,864
------------ ------------
Change in net assets........................ 5,947,185 4,390,065
NET ASSETS
Beginning of Period....................... 37,417,557 33,027,492
------------ ------------
End of Period............................. $ 43,364,742 $ 37,417,557
============ ============
</TABLE>
- ---------------
See Notes to Financial Statements.
28
<PAGE> 221
PACIFIC HORIZON INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investment in Master Investment Trust, Series
I -- Investment Grade Bond Portfolio, at value........... $82,824,209
Interest Receivable........................................ 1,259
Due from adviser........................................... 100,136
Prepaid expenses........................................... 13,856
-----------
Total Assets................................................ 82,939,460
-----------
LIABILITIES:
Dividends payable.......................................... 122,579
Capital gain payable....................................... 16,761
Administration fees payable................................ 4,705
Shareholder service fees payable........................... 26,944
Distribution fees.......................................... 478
Reports to shareholders expenses payable................... 48,534
Audit fees payable......................................... 6,454
Other accrued expenses..................................... 50,765
-----------
Total Liabilities........................................... 277,220
-----------
NET ASSETS.................................................. $82,662,240
===========
Net Assets:
A Shares................................................... $47,719,961
K Shares................................................... 447,541
SRF Shares................................................. 34,494,738
-----------
Total....................................................... $82,662,240
===========
Shares Outstanding ($0.001 par value, and 300 million shares
authorized):
A Shares................................................... 4,870,743
K Shares................................................... 45,380
SRF Shares................................................. 3,126,722
-----------
Total....................................................... 8,042,845
===========
NET ASSET VALUE
A Shares -- Net asset value and redemption price per
share.................................................... $9.80
===========
Maximum Sales Charge (A Shares)............................ 5.50%
Maximum Offering Price per share (A Shares) (Net Asset
Value of A Shares/ (100%--Maximum Sales Charge))......... $10.37
===========
K Shares -- Net asset value, offering price and redemption
price per share.......................................... $9.86
===========
SRF Shares -- Net asset value, offering price and
redemption price per share............................... $11.03
===========
COMPOSITION OF NET ASSETS:
Shares of common stock, at par............................. $ 8,043
Additional paid-in capital................................. 80,923,648
Distributions in excess of net investment income........... (921)
Accumulated net realized gains on investment
transactions............................................. 716,329
Net unrealized appreciation on investments................. 1,015,141
-----------
NET ASSETS, AUGUST 31, 1998................................. $82,662,240
===========
</TABLE>
- ---------------
See Notes to Financial Statements.
29
<PAGE> 222
PACIFIC HORIZON INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the six month ended August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Investment Income from Master Investment Trust, Series
I -- Investment Grade Bond Portfolio:
Interest Income........................................... $2,450,075
Less Expenses............................................. (112,648)
----------
Net Investment Income from Master Investment Trust, Series
I -- Investment Grade Bond Portfolio...................... 2,337,427
----------
EXPENSES:
Administration fees....................................... 73,771
Shareholder service fees (A Shares)....................... 55,858
Shareholder service fees (K Shares)....................... 588
Shareholder service fees (SRF Shares)..................... 42,892
Distribution fees (K Shares).............................. 1,754
Fund accounting fees and expenses......................... 15,123
Reports to shareholders................................... 17,912
Transfer agent fees....................................... 8,380
Registration fees......................................... 5,086
Audit fees................................................ 4,049
Legal fees................................................ 1,579
Other operating expenses.................................. 7,223
----------
Total Expenses.......................................... 234,215
Less: Fee waivers and reimbursements...................... (640)
----------
Total Net Expenses.......................................... 233,575
----------
NET INVESTMENT INCOME....................................... 2,103,852
----------
REALIZED/UNREALIZED GAINS ON INVESTMENTS FROM MASTER
INVESTMENT TRUST, SERIES I -- INVESTMENT GRADE BOND
PORTFOLIO
Net realized gains on investment transactions............. 720,799
Net change in unrealized appreciation on investments...... 357,604
----------
Net realized/unrealized gains on investments from Master
Investment Trust Series I -- Investment Grade Bond
Portfolio............................................... 1,078,403
----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $3,182,255
==========
</TABLE>
- ---------------
See Notes to Financial Statements.
30
<PAGE> 223
PACIFIC HORIZON INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
AUGUST 31, YEAR ENDED
1998 FEBRUARY 28,
(UNAUDITED) 1998
------------ ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income........................... $ 2,103,852 $ 3,224,372
Net realized gains on investment transactions... 720,799 185,294
Net change in unrealized appreciation on
investments................................... 357,604 785,462
------------ ------------
Change in net assets resulting from operation..... 3,182,255 4,195,128
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
A Shares...................................... (1,271,038) (1,917,899)
K Shares...................................... (12,035) (19,507)
SRF Shares.................................... (856,247) (1,259,022)(a)
Net realized gains from investment transactions:
A Shares...................................... (16,346) --
K Shares...................................... (151) --
SRF Shares.................................... (10,271) --
------------ ------------
Change in net assets from shareholder
distributions................................... (2,166,088) (3,196,428)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued..................... 14,593,384 68,314,617
Dividends reinvested............................ 1,282,460 1,826,828
Cost of shares redeemed......................... (11,779,236) (16,859,701)
------------ ------------
Change in net assets from capital share
transactions.................................... 4,096,608 53,281,744
------------ ------------
Change in net assets.............................. 5,112,775 54,280,444
NET ASSETS
Beginning of Period............................. 77,549,465 23,269,021
------------ ------------
End of Period (including distributions in excess
of net investment income of $921 and
undistributed net investment income of
$34,547, respectively)........................ $ 82,662,240 $ 77,549,465
============ ============
</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.
31
<PAGE> 224
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
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 August 31, 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
Flexible Income Fund (the "Flexible Income Fund"), (formerly, Pacific Horizon
Corporate Bond Fund) and the Pacific Horizon Intermediate Bond Fund (the
"Intermediate Bond Fund"), collectively the "Funds", individually a "Fund".
The Funds each offer A Shares and K Shares. Additionally, The Intermediate
Bond Fund offers SRF Shares. A Shares and SRF Shares have a Shareholder Services
Plan, and K Shares have a Distribution Plan and Administrative and Shareholder
Services Plan.
The investment objectives of the Funds are as follows:
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 Flexible Income Fund -- Seeks to provide investors with high current
income consistent with reasonable investment risk. The Flexible Income 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 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 (61.0% at August 31, 1998). The financial statements
of the Portfolio, including its portfolio of investments, are included elsewhere
within
32
<PAGE> 225
this report and should be read in conjunction with the Intermediate Bond Fund's
financial statements.
Adviser and Administrator
Bank of America National Trust and Savings Association ("Bank of America"),
a subsidiary of BankAmerica Corporation ("BankAmerica"), 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").
On October 1, 1998, BankAmerica, the Adviser's and Administrator's parent
company, completed its merger with NationsBank Corporation. The combined company
operates under the name BankAmerica. BankAmerica, continues to serve the Funds
on substantially identical terms as described in Note 3.
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 Flexible Income Fund and the
Intermediate Bond Fund. The Flexible Income Fund and the Intermediate Bond Fund
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 U.S. Government
Securities Fund. The U.S. Government Securities Fund bears all fees and expenses
charged by BONY for these services.
33
<PAGE> 226
Distributor and Transfer Agent
Provident Distributors, Inc. ("PDI") serves as principal underwriter and
distributor of shares of the Funds. PFPC serves as the Fund's transfer agent and
dividend disbursing agent.
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. The policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
PORTFOLIO VALUATIONS:
The U.S. Government Securities Fund and the Flexible Income 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, which approximates market value.
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.
SECURITIES TRANSACTIONS AND RELATED INCOME:
The U.S. Government Securities Fund and Flexible Income 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.
34
<PAGE> 227
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 Flexible Income 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
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
35
<PAGE> 228
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)
Flexible Income 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 Flexible
Income 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
==========
Flexible Income Fund..................................... $5,401,993 1999
882,649 2003
----------
$6,284,642
==========
</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.
During the year ended February 28, 1998, the U.S. Government Securities Fund,
Flexible Income Fund and Intermediate Bond Fund utilized $862,277, $229,356 and
$160,488, respectively, of its available capital loss carryover to offset
realized
36
<PAGE> 229
capital gains for Federal income tax purposes, while capital loss carryovers of
$213,111 expired for the Flexible Income 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
Flexible Income 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.
NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
The U.S. Government Securities Fund and Flexible Income Fund have an
Investment Advisory Agreement 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 U.S. Government Securities Fund and Flexible Income
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 Flexible Income Fund's
respective average daily net assets. For the six months ended August 31, 1998,
Bank of America agreed to waive advisory fees of $101,412 and $94,119 for the
U.S. Government Securities Fund and Flexible Income 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, Flexible Income Fund, and Intermediate Bond Fund, respectively.
For the six months ended August 31, 1998, Bank of America
37
<PAGE> 230
waived $47,079 and $41,830 of its fee as Administrator for the U.S. Government
Securities Fund and Flexible Income Fund, respectively. For the same period,
Bank of America reimbursed $28,319 of operating expenses of the Flexible Income
Fund.
For the six months ended August 31, 1998, PDI advised the Funds that it
retained $766, $1,490, and $122, from commissions earned on sales of the U.S.
Government Securities Fund, the Flexible Income 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 $7,081, $9,109, and $35,416 from
commissions earned on sales of shares of the U.S. Government Securities Fund,
Flexible Income Fund, and Intermediate Bond Fund, respectively.
The Funds have a Shareholder Services Plan (the "Plan") under which each
Fund paid PDI 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 six months ended August 31, 1998, the U.S. Government Securities Fund,
Flexible Income Fund, and Intermediate Bond Fund incurred charges of $89,124,
$51,803, and $55,858, respectively, pursuant to the Plan. The Funds were advised
that of these amounts, PDI retained $647, $14,836, and $48, from the U.S.
Government Securities Fund, Flexible Income Fund, and Intermediate Bond Fund,
respectively, and affiliates of Bank of America retained $30,268, $16,317, and
$41,360, respectively. The Plan provides that if, in any month, the fees paid to
PDI are less than the costs incurred by PDI, 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 six months ended August 31, 1998, PDI waived $53,470 and
$10,301 for the U.S. Government Securities Fund and the Flexible Income 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 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 six months ended August 31, 1998, the U.S. Government
Securities Fund, Flexible Income Fund and the Intermediate Bond Fund incurred
charges of $4,143, $1,455 and $1,754, respectively, pursuant to the Distribution
Plan. Under the Administrative Plan, the Funds paid for expenses
38
<PAGE> 231
incurred in connection with shareholder services provided by PDI 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 six months ended August 31, 1998, the
U.S. Government Securities Fund, Flexible Income Fund and Intermediate Bond Fund
incurred charges of $1,381, $485 and $588, respectively, pursuant to the
Administrative Plan. For the six months ended August 31, 1998, $2,207, $1,187
and $640 of shareholder services and administrative services were waived by the
U.S. Government Securities Fund, Flexible Income Fund and Intermediate Bond
Fund, respectively.
The Intermediate Bond Fund has a Shareholder Services Plan under which the
Fund pays PDI 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 six months ended August 31, 1998, The Intermediate Bond Fund incurred
charges of $42,892, pursuant to the Services Plan, the Fund was advised that of
this amount the affiliates of Bank of America retained $42,892.
For the six months ended August 31, 1998, PFPC earned $72,529, $42,583, and
$8,380 from the U.S. Government Securities Fund, Flexible Income Fund, and
Intermediate Bond Fund, respectively, for the transfer agency and dividend
disbursing agency services performed.
A partner of Drinker Biddle & Reath LLP ("DBR") serves as Secretary of the
Company. Legal fees earned by DBR are stated in the statement of operations.
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 $60,000,
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 $40,000 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
39
<PAGE> 232
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 $253, $293 and $184 for the U.S. Government
Securities Fund, Corporate and Fund and Intermediate Bond Fund, respectively,
for the six months ended August 31, 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 six months ended August 31, 1998, the cost of purchases and the
proceeds from sales of U.S. Government Securities Fund portfolio securities
(excluding short-term investments) amounted to $12,048,163 and $14,664,829,
respectively. The cost of purchases and the proceeds from sales of Flexible
Income Fund portfolio securities (excluding short-term investments) amounted to
$26,204,473 and $21,120,602, respectively.
40
<PAGE> 233
NOTE 6 -- CAPITAL SHARE TRANSACTIONS
Transactions in capital shares for the Funds are summarized below:
U.S. GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AUGUST 31, 1998 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 1998
----------------- ------------------
SHARES AMOUNT SHARES AMOUNT
------ -------- ------ --------
<S> <C> <C> <C> <C>
A SHARES (000'S)
Issued.......................................... 837 $ 7,966 838 $ 7,775
Reinvested...................................... 139 1,324 376 3,536
Redeemed........................................ (1,312) (12,494) (1,758) (16,443)
------ -------- ------ --------
Net decrease..................................... (336) $(3,204) (544) $ (5,132)
====== ======== ====== ========
K SHARES (000'S)Issued........................... 52 $ 494 59 $ 556
Reinvested...................................... 2 27 4 39
Redeemed........................................ (18) (174) (11) (107)
------ -------- ------ --------
Net increase..................................... 36 $ 347 52 $ 488
====== ======== ====== ========
</TABLE>
FLEXIBLE INCOME FUND
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AUGUST 31, 1998 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 1998
----------------- ------------------
SHARES AMOUNT SHARES AMOUNT
------ -------- ------ --------
<S> <C> <C> <C> <C>
A SHARES (000'S)
Issued.......................................... 772 $12,662 871 $ 13,949
Reinvested...................................... 29 484 47 762
Redeemed........................................ (486) (7,989) (735) (11,872)
------ -------- ------ --------
Net increase..................................... 315 $ 5,157 183 $ 2,839
====== ======== ====== ========
K SHARES (000'S)
Issued.......................................... 10 $ 159 5 $ 84
Reinvested...................................... 1 11 1 15
Redeemed........................................ (2) (30) (2) (34)
------ -------- ------ --------
Net increase..................................... 9 $ 140 4 $ 65
====== ======== ====== ========
</TABLE>
41
<PAGE> 234
INTERMEDIATE BOND FUND
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AUGUST 31, 1998 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 1998
----------------- -----------------
SHARES AMOUNT SHARES AMOUNT
------ -------- ------ -------
<S> <C> <C> <C> <C>
A SHARES (000'S)
Issued.......................................... 1,244 $12,092 3,051 $29,325
Reinvested...................................... 41 404 52 496
Redeemed........................................ (737) (7,168) (1,184) (11,407)
------ -------- ------ -------
Net increase..................................... 548 $ 5,328 1,919 $18,414
====== ======== ====== =======
K SHARES (000'S)
Issued.......................................... 13 $ 133 34 $ 329
Reinvested...................................... 1 12 2 18
Redeemed........................................ (22) (218) (18) (174)
------ -------- ------ -------
Net increase/(decrease).......................... (8) $ (73) 18 $ 173
====== ======== ====== =======
SRF SHARES (000'S)
Issued.......................................... 216 $ 2,368 3,617 $38,661
Reinvested...................................... 79 866 104 1,313
Redeemed........................................ (402) (4,393) (487) (5,279)
------ -------- ------ -------
Net increase/(decrease).......................... (107) $(1,159) 3,234(a) $34,695(a)
====== ======== ====== =======
</TABLE>
- ---------------
(a) Period from June 23, 1997 (inception date) to February 28, 1998.
42
<PAGE> 235
PACIFIC HORIZON U.S. GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
AUGUST 31, --------------------------------------------------------------------------------
1998 FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
(UNAUDITED) 1998 1997(B) 1996 1995 1994
----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
A SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF PERIOD........... $ 9.52 $ 9.30 $ 9.43 $ 9.31 $ 9.85 $ 10.21
------- ------- ------- ------- ------- --------
Income from Investment
Operations:
Net investment income......... 0.31 0.62 0.59 0.61 0.55 0.45
Net realized and unrealized
gains (losses) on investment
transactions................ 0.02 0.22 (0.12) 0.16 (0.54) (0.11)
------- ------- ------- ------- ------- --------
Total income from investment
operations.................... 0.33 0.84 0.47 0.77 0.01 0.34
------- ------- ------- ------- ------- --------
Less Dividends and
Distributions:
Dividends to shareholders from
net investment income....... (0.31) (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:................ (0.31) (0.62) (0.60) (0.65) (0.55) (0.70)
------- ------- ------- ------- ------- --------
Net change in net asset value
per share..................... 0.02 0.22 (0.13) 0.12 (0.54) (0.36)
------- ------- ------- ------- ------- --------
NET ASSET VALUE PER SHARE, END
OF PERIOD..................... $ 9.54 $ 9.52 $ 9.30 $ 9.43 $ 9.31 $ 9.85
======= ======= ======= ======= ======= ========
Total return (excludes sales
charge)....................... 3.51%(d) 9.27% 5.23% 8.47% 0.30% 3.40%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period
(000)....................... $68,035 $71,101 $74,485 $89,491 $87,354 $157,984
Ratio of expenses to average
net assets.................. 0.71%(c) 0.75% 0.85% 1.15% 1.15% 0.96%
Ratio of net investment income
to average net assets....... 6.44%(c) 6.32% 6.11% 6.36% 5.57% 4.45%
Ratio of expenses to average
net assets*................. 1.27%(c) 1.26%** 1.25%** 1.26%** (a) 1.00%
Ratio of net investment income
to average net assets*...... 5.88%(c) 5.81% 5.71% 6.28% (a) 4.41%
Portfolio turnover rate....... 18% 51% 94% 137% 189% 255%
</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 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 desiginated the existing
series of shares as "A" Shares.
(c) Annualized.
(d) Not annualized.
</TABLE>
See Notes to Financial Statements
43
<PAGE> 236
PACIFIC HORIZON U.S. GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
AUGUST 31, YEAR ENDED PERIOD ENDED
1998 FEBRUARY 28, FEBRUARY 28,
(UNAUDITED) 1998 1997(a)
----------- ------------ ------------
<S> <C> <C> <C>
K SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF
PERIOD............................... $ 9.53 $ 9.30 $9.22
------ ------ -----
Income from Investment Operations:
Net investment income................ 0.27 0.59 0.35
Net realized and unrealized gains on
investment transactions............ 0.04 0.22 0.08
------ ------ -----
Total income from investment
operations........................... 0.31 0.81 0.43
------ ------ -----
Less dividends to shareholders from net
investment income.................... (0.29) (0.58) (0.35)
------ ------ -----
Net change in net asset value per
share................................ 0.02 0.23 0.08
------ ------ -----
NET ASSET VALUE PER SHARE, END OF
PERIOD............................... $ 9.55 $ 9.53 9.30
====== ====== =====
Total return........................... 3.28%(c) 8.92% 4.75%(c)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000).... $1,269 $ 920 $ 418
Ratio of expenses to average net
assets............................. 1.22%(b) 1.21% 1.35%(b)
Ratio of net investment income to
average net assets................. 5.95%(b) 5.86% 6.11%(b)
Ratio of expenses to average net
assets*............................ 2.03%(b) 1.99%** 2.06%(b)**
Ratio of net investment income to
average net assets*................ 5.14%(b) 5.08% 5.73%(b)
Portfolio turnover rate.............. 18% 51% 94%
</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) Annualized.
(c) Not annualized.
</TABLE>
See Notes to Financial Statements.
44
<PAGE> 237
PACIFIC HORIZON FLEXIBLE INCOME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS OCT. 1,
ENDED YEAR ENDED 1994 YEAR ENDED
AUG. 31, -------------------------------- THROUGH ---------------------
1998 FEB. 28, FEB. 28, FEB. 29, FEB. 28, SEP. 30, SEP. 30,
(UNAUDITED) 1998 1997 1996(a) 1995 1994(b) 1993(c)
----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
A SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF PERIOD............. $ 16.42 $ 15.79 $ 16.09 $ 15.03 $ 14.86 $ 16.94 $ 16.12
------- ------- ------- ------- ------- ------- -------
Income from Investment
Operations:
Net investment income........... 0.52 0.99 0.93 0.98 0.45 1.58 1.34
Net realized and unrealized
gains (losses) on investment
transactions.................. 0.24 0.63 (0.30) 1.11 0.17 (2.06) 0.82
------- ------- ------- ------- ------- ------- -------
Total income (loss) from
investment operations........... 0.76 1.62 0.63 2.09 0.62 (0.48) 2.16
------- ------- ------- ------- ------- ------- -------
Less Dividends and Distributions:
Dividends to shareholders from
net investment income......... (0.52) (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................... (0.52) (0.99) (0.93) (1.03) (0.45) (1.60) (1.34)
------- ------- ------- ------- ------- ------- -------
Net change in net asset value per
share........................... 0.24 0.63 (0.30) 1.06 0.17 (2.08) 0.82
------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE PER SHARE, END OF
PERIOD.......................... $ 16.66 $ 16.42 $ 15.79 $ 16.09 $ 15.03 $ 14.86 $ 16.94
======= ======= ======= ======= ======= ======= =======
Total return (excludes sales
charge)......................... 4.71%(e) 10.55% 4.13% 14.12% 4.26% (2.29)% 7.05%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period
(000)......................... $42,906 $37,105 $32,790 $32,387 $31,372 $33,046 $46,999
Ratio of expenses to average net
assets........................ 0.53%(d) 0.85% 1.27% 1.33% 1.04%(d) 0.91% 1.02%
Ratio of net investment income
to average net assets......... 6.27%(d) 6.15% 6.01% 6.12% 7.32%(d) 7.85% 8.14%
Ratio of expenses to average net
assets*....................... 1.29%(d) 1.56% 1.88% 2.23% 1.94%(d) 1.07% --
Ratio of net investment income
to average net assets*........ 5.51%(d) 5.44% 6.62% 7.02% 8.22%(d) 8.01% --
Portfolio turnover rate......... 52% 63% 59% N/A N/A N/A 154.34%
</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) 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 six months ended September
30, 1993 are for the Bunker Hill Income Securities Inc., a
closed end fund.
(d) Annualized.
(e) Not annualized.
</TABLE>
See Notes to Financial Statements.
45
<PAGE> 238
PACIFIC HORIZON FLEXIBLE INCOME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
AUGUST 31, YEAR ENDED PERIOD ENDED
1998 FEBRUARY 28, FEBRUARY 28,
(UNAUDITED) 1998 1997(a)
----------- ------------ ------------
<S> <C> <C> <C>
K SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF
PERIOD.................................. $ 16.42 $ 15.80 $15.56
------- ------- ------
Income from Investment Operations:
Net investment income................... 0.47 0.90 0.53
Net realized and unrealized gains on
investment transactions............... 0.25 0.62 0.24
------- ------- ------
Total income from investment operations... 0.72 1.52 0.77
------- ------- ------
Less Dividends and Distributions:
Dividends to shareholders from net
investment income..................... (0.47) (0.90) (0.53)
Distributions to shareholders from net
realized gains on investment
transactions.......................... -- -- --
------- ------- ------
Total Dividends and Distributions......... (0.47) (0.90) (0.53)
------- ------- ------
Net change in net asset value per share... 0.25 0.62 0.24
------- ------- ------
NET ASSET VALUE PER SHARE, END OF
PERIOD.................................. $ 16.67 $ 16.42 $15.80
======= ======= ======
Total return.............................. 4.48%(c) 9.88% 5.01%(c)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000)....... $ 459 $ 312 $ 237
Ratio of expenses to average net
assets................................ 1.03%(b) 1.40% 1.64%(b)
Ratio of net investment income to
average net assets.................... 5.78%(b) 5.58% 5.60%(b)
Ratio of expenses to average net
assets*............................... 2.05%(b) 2.30% 2.25%(b)
Ratio of net investment income to
average net assets*................... 4.76%(b) 4.68% 4.99%(b)
Portfolio turnover rate................. 52% 63% 59%
</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) Annualized.
(c) Not annualized.
</TABLE>
See Notes to Financial Statements.
46
<PAGE> 239
PACIFIC HORIZON INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED PERIOD
AUGUST 31, ------------------------------------------------------------- ENDED
1998 FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
(UNAUDITED) 1998 1997(b) 1996 1995 1994(a)
----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
A SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF PERIOD......... $ 9.69 $ 9.54 $ 9.75 $ 9.44 $ 9.81 $ 10.00
------- ------- ------- ------- ------ -------
Income from Investment
Operations:
Net investment income....... 0.26 0.49 0.52 0.59 0.59 0.08
Net realized and unrealized
gain (loss) on investment
transactions.............. 0.13 0.20 (0.15) 0.33 (0.37) (0.19)
------- ------- ------- ------- ------ -------
Total income gain(loss) from
investment operations....... 0.39 0.69 0.37 0.92 0.22 (0.11)
------- ------- ------- ------- ------ -------
Less Dividends and
Distributions:
Dividends to shareholders
from net investment
income.................... (0.28) (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............... (0.28) (0.54) (0.58) (0.61) (0.59) (0.08)
------- ------- ------- ------- ------ -------
Net change in net asset value
per share................... 0.11 0.15 (0.21) 0.31 (0.37) (0.19)
------- ------- ------- ------- ------ -------
NET ASSET VALUE PER SHARE,
END OF PERIOD............... $ 9.80 $ 9.69 $ 9.54 $ 9.75 $ 9.44 $ 9.81
======= ======= ======= ======= ====== =======
Total return (excludes sales
charge)..................... 4.10%(e) 7.40% 3.92% 10.45% 2.27% (1.10%)(e)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period
(000)..................... $47,720 $41,875 $22,937 $13,179 $1,964 $ 356
Ratio of expenses to average
net assets................ 0.87%(d) 0.90% 0.75% 0.27% 0.00% 0.00%(d)
Ratio of net investment
income to average net
assets.................... 5.30%(d) 5.50% 5.45% 6.13% 6.43% 5.70%(d)
Ratio of expenses to average
net assets*............... (c) 1.21% 2.26% 5.00% 17.95% 160.20%(d)
Ratio of net investment
income (loss) to average
net assets*............... (c) 5.19% 3.94% 1.40% (11.52%) (154.50%)(d)
</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 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) There were no fee waivers or expense reimbursements during
the period.
(d) Annualized.
(e) Not annualized.
</TABLE>
See Notes to Financial Statements.
47
<PAGE> 240
PACIFIC HORIZON INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD
AUGUST 31, YEAR ENDED ENDED
1998 FEBRUARY 28, FEBRUARY 28,
(UNAUDITED) 1998 1997(a)
----------- ------------ ------------
<S> <C> <C> <C>
K SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF
PERIOD..................................... $9.72 $9.54 $9.53
----- ----- -----
Income from Investment Operations:
Net investment income...................... 0.24 0.44 0.31
Net realized and unrealized gains on
investments.............................. 0.15 0.19 0.07
----- ----- -----
Total income from investment operations..... 0.39 0.63 0.38
----- ----- -----
Less Dividends and Distributions:
Dividends to shareholders from net
investment income........................ (0.25) (0.42) (0.31)
Distributions to shareholders from net
realized gains on investments............ -- (0.03) (0.06)
----- ----- -----
Total Dividends and Distributions........... (0.25) (0.45) (0.37)
----- ----- -----
Net change in net asset value per share..... 0.14 0.18 0.01
----- ----- -----
NET ASSET VALUE PER SHARE, END OF PERIOD.... $9.86 $9.72 $9.54
===== ===== =====
Total return................................ 4.13%(c) 6.80% 3.73%(c)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000).......... $ 447 $ 513 $ 332
Ratio of expenses to average net assets.... 1.34%(b) 1.39% 1.43%(b)
Ratio of net investment income to average
net assets............................... 4.83%(b) 4.99% 5.41%(b)
Ratio of expenses to average net assets*... 1.61%(b) 1.73% 2.71%(b)
Ratio of net investment income to average
net assets*.............................. 4.56%(b) 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.
48
<PAGE> 241
PACIFIC HORIZON INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD
AUGUST 31, ENDED
1998 FEBRUARY 28,
(UNAUDITED) 1998(a)
----------- ------------
<S> <C> <C>
SRF SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD........ $ 10.87 $ 10.72
------- -------
Income from Investment Operations:
Net investment income............................... 0.29 0.40
Net realized and unrealized gain on investment
transactions...................................... 0.15 0.13
------- -------
Total income from investment operations............... 0.44 0.53
Less Dividends and Distributions:
Dividends to shareholders from net investment
income............................................ (0.28) (0.38)
Distributions to shareholders from net realized
gains............................................. -- --
------- -------
Total Dividends and Distributions..................... (0.28) (0.38)
------- -------
Net change in net asset value per share............... 0.16 0.15
------- -------
NET ASSET VALUE PER SHARE, END OF PERIOD.............. $ 11.03 $ 10.87
======= =======
Total Return.......................................... 4.10%(d) 4.86%(d)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)..................... $34,495 $35,161
Ratio of expenses to average net assets............. 0.87%(c) 0.95%(c)
Ratio of net investment income to average net
assets............................................ 5.30%(c) 5.45%(c)
Ratio of expenses to average net assets*............ (b) 1.07%(c)
Ratio of net investment income to average net
assets*........................................... (b) 5.33%(c)
</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 June 23, 1997 (inception date) to February 28,
1998.
(b) There were no fee waivers or expense reimbursements during
the period.
(c) Annualized.
(d) Not annualized.
</TABLE>
See Notes to Financial Statements.
49
<PAGE> 242
[This page intentionally left blank.]
<PAGE> 243
[This page intentionally left blank.]
<PAGE> 244
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 Municipal Bond Fund
[ ] Flexible Income 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> 245
Bulk Rate
U.S. Postage
PAID
Secaucus, NJ
Permit No. 237
[PACIFIC HORIZON FUNDS LOGO]
Provident Distributor, Inc., Distributor
PHF 5006 8/98
<PAGE> 246
PACIFIC HORIZON GROWTH FUNDS
SEMI-ANNUAL REPORT
August 31, 1998
Aggressive Growth Fund
Blue Chip Fund
Investing For All
The Times Of Your Life
NOT FDIC INSURED
PACIFIC HORIZON GROWTH FUNDS
<PAGE> 247
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
PricewaterhouseCoopers, 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> 248
..................................
Contents
<TABLE>
<S> <C>
FUND FACTS 2-3
UNDERSTANDING YOUR SHAREHOLDER
REPORT 4-6
ECONOMIC REVIEW FROM THE
INVESTMENT ADVISER 8-9
SHAREHOLDER VOTING RESULTS 10-14
PACIFIC HORIZON AGGRESSIVE GROWTH
FUND
Portfolio of Investments 15-19
Statement of Assets
and Liabilities 20
Statement of Operations 21
Statements of Changes
in Net Assets 22
PACIFIC HORIZON BLUE CHIP FUND
Statement of Assets
and Liabilities 23
Statement of Operations 24
Statements of Changes
in Net Assets 25
NOTES TO FINANCIAL STATEMENTS 26-35
FINANCIAL HIGHLIGHTS 36-41
MASTER INVESTMENT TRUST, SERIES
I -- BLUE CHIP PORTFOLIO
Portfolio of Investments 42-48
Statement of Assets
and Liabilities 49
Statement of Operations 50
Statements of Changes
in Net Assets 51
NOTES TO FINANCIAL STATEMENTS 52-55
SUPPLEMENTARY DATA 56
</TABLE>
<PAGE> 249
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
...........................................................................
Flexible Income High Current Income
(formerly Corporate Bond)
...........................................................................
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 Municipal Bond* High Level of Federal and California
(formerly California Tax-Exempt Tax-Free Current Income
Bond)
...........................................................................
Money Market Funds+ High Current Income Plus Principal
- Prime Stability
- Treasury
- Government
- Treasury Only
...........................................................................
Tax-Exempt Money Market Funds*+
- Tax-Exempt Money High Level of Federal Tax-Free Current
Income Plus Principal Stability
- California Tax-Exempt Money 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.
+ 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> 250
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> 251
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 LOGO
brief overview of the economy
and how it affects the
financial markets.
The FUND OVERVIEW AND
INTERVIEW WITH YOUR INVESTMENT
MANAGER enables you to gain
insight into the Fund's
investments and learn more
about the Fund manager's
strategies.
Because a picture or chart can help clarify the
text, the investment management team may have
illustrated the most important features of the Fund.
LOGO The illustrations may represent the portfolio
composition, the largest holdings or a
simplification of the investment adviser's
investment style.
4
<PAGE> 252
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
LOGO NET ASSETS REPRESENTED BY INVESTMENTS IN THAT
SECTOR (IF APPLICABLE)
ACTUAL PORTFOLIO HOLDINGS WITH SHARES AND
MARKET VALUE AS OF REPORT DATE
The STATEMENT OF ASSETS AND LIABILITIES lists all the assets and liabilities of
the Fund as of the date of the statement. This is an individual fund's "balance
sheet." Also disclosed in this statement are the Fund's net asset value per
share and its maximum offering price per share as of the date of the statement.
The statement also lists the accounts that comprise the Fund's net assets
(capital stock, undistributed income, etc.).
SUMMARY OF THE FUND'S INVESTMENTS AND ALL
OTHER ASSETS OWNED BY THE FUND, INCLUDING
AMOUNTS OWED TO THE FUND BY OUTSIDE PARTIES
SUMMARY OF ALL AMOUNTS OWED TO OUTSIDE PARTIES
BY THE FUND
NET RESULTS OF ASSETS LESS LIABILITIES
LOGO 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> 253
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
LOGO 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
LOGO 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> 254
[This page intentionally left blank.]
7
<PAGE> 255
ECONOMIC REVIEW
FROM THE INVESTMENT ADVISER
The global financial crisis has dominated the economic news in recent months.
There are renewed fears that the effect of the Asian currency crisis is
spreading to other economies in the world, including North and South America.
The Russian Ruble has experienced a sharp decline as debate continues regarding
political and economic changes. The pace of economic reform in Japan has been
alarmingly slow, with the recent interest rate reduction reflecting only the
first significant action taken in this regard. Markets in Canada and Mexico
continue to reflect concerns relating to commodities. Moreover, investors have
become increasingly concerned about the sustainability of U.S. corporate
profits, resulting in a significant decline in the U.S. equity markets. The
current global economic crisis is generating greater concern, as it increasingly
affects a larger number of key American trading partners.
The U.S. economy has been affected both positively and negatively by the global
financial crisis. Low interest and inflation rates have stimulated domestic
demand for housing, autos and other consumer goods. However, manufacturing
activity is slowing, particularly in trade exports, and cutbacks have been made
in production and personnel within some industries. The Gross Domestic Product
("GDP") rose at a 1.8%(1) rate in the second quarter, below the first quarter's
5.5%(1) growth rate, reflecting the deterioration in the trade balance and a
slowdown in business investment in equipment and inventories. While the U.S.
economy remains strong in the third quarter, it is no longer immune from the
effects of the crisis. Additionally, prospects for U.S. growth and corporate
profits are less secure.
Economic reports continue to indicate that inflation is under control in
manufacturing and consumer-related areas. The prices paid to U.S. factories,
farmers and other producers (as measured by the Producer Price Index "PPI") fell
0.4%(1) in August, the largest drop in seven months. In the first eight months
of 1998, consumer prices rose at an annual rate of 1.6%(1), which is the same as
the first eight months of 1997. Inflation has remained innocuous as weakening
economies in Asia have depressed commodity prices and the cost of goods imported
into the U.S.
In a departure from the recent past, it appears that the Federal Reserve Board
(the "Fed") now has a higher level of anxiety about the outlook for the global
economy and is becoming more concerned about the increasing risks of slowing
economic growth rather than the dangers of rising inflation. In a recent speech,
Fed Chairman Alan Greenspan hinted that the Fed might consider lowering interest
rates if it becomes increasingly likely that the Asian currency crisis will
spread to the U.S. economy. Although the Federal Open Market Committee ("FOMC")
left the Fed Funds' target interest rate unchanged at 5.50% at the most recent
FOMC meeting held in August; some analysts now expect a reduction in rates
sometime soon.
The main benefactor of the global financial uncertainty has clearly been the
U.S. Treasury market. U.S. Treasuries have replaced gold as the safe haven of
choice, as many investors are reaping the financial rewards of owning these
types of securities. On July 17, the day that the equity markets peaked, the
Treasury 10-year note had a closing yield of approximately 5.5%(1). As of August
31, the yield on this note was 4.97%(1). The fixed income markets now reflect
expectations of an interest rate reduction, as evidenced by the entire Treasury
yield curve trading below 5.50%.
The turmoil in overseas markets, the decline in commodity prices, and the
8
<PAGE> 256
global competition from cheaper imports have also caused the credit sectors to
widen appreciably against Treasuries. Credit risk is now at a heightened level,
as the expectation of lower profit prospects has become more apparent to
investors. Additional downward revisions to corporate earnings estimates will
put further pressure on corporate spreads until the economic situation begins to
improve in Asia.
The Standard & Poor's 500 stock index ("S&P 500") fell 8.0%(2) on a total return
basis during the 6-month period ended August 31. While the stocks of large,
name-brand companies have been battered during the month of August, smaller
company stocks have been hit even harder. The S&P 500 declined 19%(2) from its
high on July 17 and the Russell 2000 Index dropped 30%(3) from its high recorded
in April. Year-to-date, the performance disparity has been even larger between
large cap and small cap stocks. Since the beginning of the year, the S&P 500 is
down 0.4%(2) and the Russell 2000 Index has dropped 22.1%(3), constituting a
spread of 21.7 percentage points.
Investors are becoming increasingly concerned about the sustainability of U.S.
corporate profits. Investors had been willing to pay record-high valuations for
stocks because interest rates were low, inflation was under control and
economies around the world were expanding. Not only are the developed Asian
countries faltering, but the economic turmoil has also extended to Russia and
several emerging market countries. So far, the U.S. market has been fairly well
insulated from the economic problems overseas, but U.S. companies are now
beginning to feel the negative impact from depressed overseas business
conditions. Investor confidence in a continued economic expansion will not occur
until Asia and Russia implement appropriate measures to rectify their economic
and political problems.
LOOKING FORWARD
The U.S. government is still expected to post a budget surplus when the fiscal
year ends on September 30. Rising incomes, low unemployment and stock market
gains earlier in the year have generated abundant tax collections. Reduced
government spending has also contributed to decreasing interest payments on
government debt.
The outlook for the remainder of 1998 is unclear. 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 2.5% in the third quarter. Just as
the market was overly optimistic at the beginning of the summer, we suspect that
the markets' current doldrums are too extreme.
Sincerely,
/S/ Kirk Hartman
Kirk Hartman
Chief Investment Officer
Fixed Income Management
- ---------------
(1) Source - Bloomberg, 1998.
(2) Source - Bloomberg, 1998. The S&P 500 Index is an index that is
representative of the large capitalization U.S. equity market as a whole and
cannot be invested in directly.
(3) Source - Bloomberg, 1998. The Russell 2000 is an index that is
representative of the small capitalization U.S. equity market as a whole and
cannot be invested in directly.
9
<PAGE> 257
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Results (Unaudited) of Annual Meeting of Shareholders
Convened on June 19, 1998
Reconvened on June 26, 1998 and July 1, 1998
Reconvened and Adjourned on July 20, 1998
- --------------------------------------------------------------------------------
The Annual Meeting of Shareholders of Pacific Horizon Funds, Inc. (the
"Company") was convened on June 19, 1998, reconvened on June 26, 1998 and July
1, 1998, and reconvened and adjourned on July 20, 1998. The Funds of the Company
are: Aggressive Growth Fund, Asset Allocation Fund, Blue Chip Fund, California
Municipal Bond Fund (formerly California Tax-Exempt Bond Fund), California
Tax-Exempt Money Market Fund, Capital Income Fund, Flexible Income Fund
(formerly Corporate Bond Fund), Government Fund, Intermediate Bond Fund,
International Equity Fund, National Municipal Bond Fund, Prime Fund, Short-Term
Government Fund, Tax-Exempt Money Fund, Treasury Fund, Treasury Only Fund, and
U.S. Government Securities Fund. The Annual Meeting was held in order to vote on
the following purposes:
<TABLE>
<CAPTION>
PROPOSAL
NUMBER ISSUE
- -------- -----
<C> <S>
1. To elect Messrs. Edward S. Bottum, William P. Carmichael,
Thomas M. Collins, Douglas B. Fletcher, Robert E. Greeley,
and Cornelius J. Pings, Directors of the Company;
2. With respect to each Fund except the Blue Chip and
Intermediate Bond Funds, to approve or disapprove a new
Investment Advisory Agreement between the Company and Bank
of America NT&SA;
3. With respect to the International Equity Fund, to approve or
disapprove a new Sub-Advisory Agreement between Bank of
America NT&SA and Wellington Management Company, LLP;
4. To approve or disapprove an amendment to the Company's
Charter;
5. To approve or disapprove changes to the following
fundamental investment limitations of each Fund of the
Company:
a) limitation on underwriting of securities;
b) limitation on real estate transactions;
c) limitation on commodity transactions;
d) limitation on industry concentration;
e) limitation on lending;
f) limitation on borrowing and issuance of senior
securities; and
g) limitation on issuer concentration.
6. To approve or disapprove certain changes to the following
fundamental investment policies and limitations, including a
change to make all of such policies and limitations
non-fundamental:
a) with respect to each Fund, the limitation on short sales
and purchasing securities on margin;
</TABLE>
10
<PAGE> 258
<TABLE>
<CAPTION>
PROPOSAL
NUMBER ISSUE
- -------- -----
<C> <S>
b) with respect to the National Municipal Bond, Aggressive
Growth, California Municipal Bond, Prime, Treasury and
California Tax-Exempt Money Market Funds, the limitation on
purchasing securities of companies for the purpose of
exercising control;
c) with respect to each Fund except the Government and
Treasury Only Funds, the limitation on purchasing securities
of other investment companies;
d) with respect to each Fund except the Aggressive Growth,
Short-Term Government, Prime, Treasury, Government and
Treasury Only Funds, the limitation on put, call, straddle
and spread transactions;
e) with respect to each Fund except the National Municipal
Bond, International Equity, Flexible Income, Short-Term
Government and California Tax-Exempt Money Market Funds, the
limitation on illiquid securities;
f) with respect to the Intermediate Bond, Blue Chip and
Asset Allocation Funds, the limitation on transactions in
certain securities by Board members;
g) with respect to the U.S. Government Securities, Capital
Income, California Municipal Bond and California Tax-Exempt
Money Market Funds, the limitation on unseasoned issuers;
h) with respect to the Aggressive Growth Fund, the policy on
investment in equity securities;
i) with respect to the U.S. Government Securities Fund, the
policy with respect to investment in certificates of the
Government National Mortgage Association;
j) with respect to the Capital Income Fund, the policy with
respect to investment in convertible securities;
k) with respect to the California Municipal Bond Fund, the
policy with respect to investment in California municipal
securities;
l) with respect to the Tax-Exempt Money Fund, the policy
with respect to investment in municipal securities; and
m) with respect to the California Tax-Exempt Money Market
Fund, the policy with respect to investment in California
municipal securities;
7. To approve or disapprove a change in the fundamental
investment objective to a non-fundamental investment
objective of the following Funds: National Municipal Bond,
International Equity, Flexible Income, Intermediate Bond,
Blue Chip, Asset Allocation, Aggressive Growth, U.S.
Government Securities, Capital Income, California Municipal
Bond, Short-Term Government, Prime, Treasury, Tax-Exempt
Money and California Tax-Exempt Money Market Funds;
8. To approve or disapprove a new fundamental investment
limitation of the Prime Fund with regard to its industry
concentration;
9. To ratify or reject the selection of PricewaterhouseCoopers
LLP as the Company's independent accountants for the fiscal
year ending February 28, 1999; and
10. The transaction of such other business as may properly come
before the meeting or any adjournment.
</TABLE>
11
<PAGE> 259
At the adjournment of the annual meeting on July 20, 1998, the voting
results for each proposal were as follows:
The voting results for each proposal are shown below:
PACIFIC HORIZON FUNDS, INC. -- ALL FUNDS
<TABLE>
<CAPTION>
TOTAL SHARES TOTAL ABSTAIN/
OUTSTANDING SHARES VOTED FOR AGAINST WITHHELD
----------------- ---------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
PROPOSAL 1 16,453,350,969.00 8,803,335,110.00
EDWARD S. BOTTUM 8,469,012,940.00 None 334,322,170.00
WILLIAM P. CARMICHAEL 8,468,803,120.00 None 334,531,990.00
THOMAS M. COLLINS 8,472,897,540.00 None 330,437,570.00
DOUGLAS B. FLETCHER 8,473,089,329.00 None 330,245,781.00
ROBERT E. GREELEY 8,475,491,285.00 None 327,843,225.00
CORNELIUS J. PINGS 8,473,521,034.00 None 329,806,076.00
PROPOSAL 4 16,453,350,969.00 8,803,335,110.00 7,332,890,744.00 502,659,743.00 373,195,844.00
PROPOSAL 9 16,453,350,969.00 8,803,335,091.00 8,429,896,332.00 85,027,748.00 288,411,011.00
<CAPTION>
BROKER PASS/
NON VOTE FAIL
-------------- ------
<S> <C> <C>
PROPOSAL 1 PASS
EDWARD S. BOTTUM None
WILLIAM P. CARMICHAEL None
THOMAS M. COLLINS None
DOUGLAS B. FLETCHER None
ROBERT E. GREELEY None
CORNELIUS J. PINGS None
PROPOSAL 4 594,588,779.00 FAIL
PROPOSAL 9 None PASS
</TABLE>
PACIFIC HORIZON AGGRESSIVE GROWTH FUND
<TABLE>
<CAPTION>
TOTAL SHARES TOTAL ABSTAIN/
OUTSTANDING SHARES VOTED FOR AGAINST WITHHELD
----------------- ---------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
PROPOSAL 2 9,592,539.00 4,914,952.00 4,497,869.00 122,760.00 294,323.00
PROPOSAL 5a 9,592,539.00 4,914,953.00 3,843,173.00 185,929.00 350,195.00
PROPOSAL 5b 9,592,539.00 4,914,953.00 3,841,797.00 202,707.00 334,793.00
PROPOSAL 5c 9,592,539.00 4,914,953.00 3,845,934.00 223,352.00 310,012.00
PROPOSAL 5d 9,592,539.00 4,914,953.00 3,802,400.00 252,957.00 323,940.00
PROPOSAL 5e 9,592,539.00 4,914,953.00 3,843,692.00 220,823.00 314,782.00
PROPOSAL 5f 9,592,539.00 4,914,953.00 3,827,323.00 223,260.00 328,714.00
PROPOSAL 5g 9,592,539.00 4,914,953.00 3,814,984.00 218,644.00 345,670.00
PROPOSAL 6a 9,592,539.00 4,914,953.00 3,819,403.00 232,309.00 327,585.00
PROPOSAL 6b 9,592,539.00 4,914,953.00 3,773,253.00 279,987.00 326,058.00
PROPOSAL 6c 9,592,539.00 4,914,953.00 3,812,583.00 233,977.00 332,738.00
PROPOSAL 6e 9,592,539.00 4,914,953.00 3,741,489.00 280,162.00 357,646.00
PROPOSAL 6h 9,592,539.00 4,914,953.00 3,836,622.00 194,722.00 347,953.00
PROPOSAL 7 9,592,539.00 4,914,953.00 3,704,802.00 305,050.00 369,445.00
<CAPTION>
BROKER PASS/
NON VOTE FAIL
-------------- -----
<S> <C> <C>
PROPOSAL 2 None PASS
PROPOSAL 5a 535,656.00 PASS
PROPOSAL 5b 535,656.00 PASS
PROPOSAL 5c 535,655.00 PASS
PROPOSAL 5d 535,656.00 PASS
PROPOSAL 5e 535,656.00 PASS
PROPOSAL 5f 535,656.00 PASS
PROPOSAL 5g 535,655.00 PASS
PROPOSAL 6a 535,656.00 PASS
PROPOSAL 6b 535,655.00 PASS
PROPOSAL 6c 535,655.00 PASS
PROPOSAL 6e 535,656.00 PASS
PROPOSAL 6h 535,656.00 PASS
PROPOSAL 7 535,656.00 PASS
</TABLE>
12
<PAGE> 260
PACIFIC HORIZON BLUE CHIP FUND
<TABLE>
<CAPTION>
TOTAL SHARES TOTAL ABSTAIN/ BROKER
OUTSTANDING SHARES VOTED FOR AGAINST WITHHELD NON VOTE
----------------- ---------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
PROPOSAL 5a 24,292,729.00 12,337,122.00 9,929,750.00 507,295.00 1,110,788.00 789,289.00
PROPOSAL 5b 24,292,729.00 12,337,122.00 9,947,625.00 501,454.00 1,098,754.00 789,289.00
PROPOSAL 5c 24,292,729.00 12,337,122.00 9,906,805.00 527,592.00 1,113,435.00 789,290.00
PROPOSAL 5d 24,292,729.00 12,337,122.00 9,878,806.00 518,079.00 1,150,947.00 789,290.00
PROPOSAL 5e 24,292,729.00 12,337,122.00 9,970,640.00 485,027.00 1,092,166.00 789,289.00
PROPOSAL 5f 24,292,729.00 12,337,122.00 9,932,296.00 472,985.00 1,142,551.00 789,290.00
PROPOSAL 5g 24,292,729.00 12,337,122.00 9,886,393.00 450,515.00 1,210,924.00 789,290.00
PROPOSAL 6a 24,292,729.00 12,337,122.00 9,858,576.00 592,711.00 1,096,546.00 789,289.00
PROPOSAL 6c 24,292,729.00 12,337,122.00 9,869,998.00 590,933.00 1,086,902.00 789,289.00
PROPOSAL 6d 24,292,729.00 12,337,122.00 9,859,252.00 585,964.00 1,102,615.00 789,291.00
PROPOSAL 6e 24,292,729.00 12,337,122.00 9,888,387.00 554,377.00 1,105,067.00 789,291.00
PROPOSAL 6f 24,292,729.00 12,337,122.00 9,921,446.00 540,732.00 1,085,654.00 789,290.00
PROPOSAL 7 24,292,729.00 12,337,122.00 9,655,257.00 729,052.00 1,163,524.00 789,289.00
<CAPTION>
PASS/
FAIL
-----
<S> <C>
PROPOSAL 5a PASS
PROPOSAL 5b PASS
PROPOSAL 5c PASS
PROPOSAL 5d PASS
PROPOSAL 5e PASS
PROPOSAL 5f PASS
PROPOSAL 5g PASS
PROPOSAL 6a PASS
PROPOSAL 6c PASS
PROPOSAL 6d PASS
PROPOSAL 6e PASS
PROPOSAL 6f PASS
PROPOSAL 7 PASS
</TABLE>
On July 20, 1998, the Pacific Horizon Blue Chip Fund and World Horizon U.S.
Equity Fund, representing all the interestholders of the Blue Chip Portfolio of
the Trust, unanimously approved the following proposals to interestholders by
means of a unanimous consent of interestholders:
(1) to approve or disapprove a new investment advisory agreement between
the Trust and Bank of America National Trust and Savings Association;
(2) to approve or disapprove changes to the following fundamental
investment limitations of the Blue Chip Portfolio:
(a) limitation on underwriting of securities;
(b) limitation on real estate transactions;
(c) limitation on commodity transactions;
(d) limitation on industry concentration;
(e) limitation on lending;
(f) limitation on borrowing and issuance of senior securities; and
(g) limitation on issuer concentration.
(3) to approve or disapprove certain changes to the following
fundamental investment policies and limitations of the Blue Chip Portfolio,
including a change to make all of such policies and limitations
non-fundamental:
(a) the limitation on short sales and purchasing securities on
margin;
13
<PAGE> 261
(b) the limitation on purchasing securities of other investment
companies;
(c) the limitation on put, call, straddle and spread transactions;
(d) the limitation on illiquid securities; and
(e) the limitation on transactions in certain securities by Board
members; and
(4) to approve or disapprove a change in the fundamental investment
objective to a non-fundamental investment objective of the Blue Chip
Portfolio.
14
<PAGE> 262
PACIFIC HORIZON AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- ------ --------
<S> <C> <C>
COMMON STOCKS -- 99.0%
AEROSPACE/DEFENSE -- 1.2%
Sundstrand Corp.......................................... 39,500 $ 1,799,719
------------
AIRLINES -- 0.9%
Alaska Air Group, Inc .**................................ 32,200 1,253,787
Mesaba Holdings, Inc .**................................. 10,400 164,450
------------
1,418,237
------------
APPAREL/TEXTILE -- 2.7%
Jones Apparel Group, Inc. **............................. 97,300 1,885,187
Tommy Hilfiger Corp. **.................................. 48,400 2,262,700
------------
4,147,887
------------
AUTOMOTIVE PARTS AND EQUIPMENT -- 1.3%
Federal-Mogul Corp....................................... 36,700 1,958,862
------------
BANKS -- 3.6%
Amsouth Bancorp.......................................... 55,400 1,904,375
Old Kent Financial Corp.................................. 32,200 1,038,450
Zions Bancorporation..................................... 69,100 2,651,712
------------
5,594,537
------------
BEVERAGES -- 3.0%
Canandaigua Brands, Inc.**............................... 26,500 1,106,375
Coca Cola Enterprises, Inc............................... 90,700 2,154,125
Whitman Corp............................................. 88,400 1,370,200
------------
4,630,700
------------
BUILDING RELATED/APPLIANCE -- 4.7%
Hon Industries, Inc...................................... 46,400 997,600
Martin Marietta Materials, Inc........................... 30,300 1,291,537
Miller (Herman), Inc..................................... 58,600 1,201,300
Mohawk Industries, Inc. **............................... 95,500 2,536,719
Southdown, Inc........................................... 28,500 1,204,125
------------
7,231,281
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
15
<PAGE> 263
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- ------ --------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
CHEMICALS -- 2.4%
Cytec Industries, Inc. **................................ 33,600 $ 768,600
Lyondell Petrochemical Co................................ 56,300 1,213,969
Solutia, Inc............................................. 77,000 1,727,687
------------
3,710,256
------------
COMMERCIAL SERVICES -- 5.3%
AccuStaff, Inc. **....................................... 78,400 980,000
ACNielsen Corp. **....................................... 63,400 1,271,962
ACSYS, Inc .**........................................... 4,800 39,000
Robert Half International, Inc. **....................... 56,500 2,712,000
Select Appointments Holdings Public Limited Company
ADR..................................................... 83,550 1,827,656
Viad Corp................................................ 67,000 1,390,250
------------
8,220,868
------------
COMMUNICATIONS -- 1.1%
American Power Conversion Corp. **....................... 65,300 1,763,100
------------
COMPUTER HARDWARE -- 5.8%
Comverse Technology, Inc. **............................. 37,200 1,432,200
Lexmark International Group, Inc. **..................... 47,800 2,894,887
Solectron Corp. **....................................... 63,900 2,639,869
Symbol Technologies, Inc................................. 49,900 2,045,900
------------
9,012,856
------------
COMPUTERS-SERVICES AND SOFTWARE -- 17.6%
America Online, Inc. **.................................. 88,600 7,259,662
BMC Software, Inc . **................................... 100,700 4,260,869
Cadence Design Systems, Inc .**.......................... 84,500 1,785,062
CIBER, Inc. **........................................... 28,700 721,087
Citrix Systems, Inc. **.................................. 20,000 1,152,500
Compuware Corp. **....................................... 93,600 4,252,950
CPS Systems, Inc. **..................................... 56,700 184,275
FileNET Corp. **......................................... 41,300 676,287
Keane, Inc. **........................................... 49,700 2,087,400
Network Associates, Inc. **.............................. 64,100 2,067,225
Siebel Systems, Inc. **.................................. 42,500 796,875
Sterling Commerce, Inc .**............................... 46,200 1,524,600
Synopsys, Inc. .**....................................... 26,100 681,862
------------
27,450,654
------------
COSMETICS AND TOILETRIES -- 0.9%
Dial Corp................................................ 72,700 1,417,650
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
16
<PAGE> 264
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- ------ --------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
ELECTRIC -- 3.2%
AES Corp. **............................................. 35,300 $ 961,925
BEC Energy............................................... 52,400 2,076,350
Energy East Corp......................................... 42,400 1,908,000
------------
4,946,275
------------
ELECTRONIC COMPONENTS & EQUIPMENT -- 0.9%
AMETEK, Inc.............................................. 67,700 1,320,150
------------
ENERGY RELATED -- 1.2%
Transocean Offshore, Inc................................. 45,200 1,110,225
Varco International, Inc. **............................. 95,800 682,575
------------
1,792,800
------------
FINANCIAL SERVICES -- 1.3%
Paine Webber Group, Inc.................................. 39,300 1,365,675
Willis Lease Finance Corp. **............................ 48,500 666,875
------------
2,032,550
------------
FOOD -- 3.1%
Dole Food Co., Inc....................................... 16,900 730,925
Earthgrains Co........................................... 26,500 728,750
Interstate Bakeries Corp................................. 73,500 1,915,594
Ralcorp Holdings, Inc. **................................ 76,200 1,471,613
------------
4,846,882
------------
HOSPITAL MANAGEMENT -- 4.1%
Health Management Associates, Inc. **.................... 150,000 2,709,375
Total Renal Care Holdings, Inc. **....................... 67,500 1,282,500
Trigon Healthcare, Inc. **............................... 52,800 1,458,600
Wellpoint Health Networks, Inc. **....................... 19,000 1,014,125
------------
6,464,600
------------
HOSPITAL SUPPLY -- 6.2%
Allegiance Corp.......................................... 59,000 1,666,750
Hillenbrand Industries, Inc.............................. 59,800 3,203,038
McKesson Corp............................................ 27,700 2,077,500
PSS World Medical, Inc. **............................... 98,700 1,517,513
Safeskin Corp. **........................................ 35,800 1,208,250
------------
9,673,051
------------
INSURANCE -- 1.3%
EXEL Limited............................................. 5,344 357,046
SunAmerica, Inc.......................................... 27,600 1,709,475
------------
2,066,521
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
17
<PAGE> 265
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- ------ --------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
MACHINERY -- 1.3%
Aeroquip-Vickers, Inc.................................... 31,100 $ 1,253,719
Metrika Systems Corp. **................................. 81,500 815,000
------------
2,068,719
------------
OIL (DOMESTIC) -- 0.7%
Ashland Oil.............................................. 23,900 1,088,944
------------
PAPER & FOREST PRODUCTS -- 0.8%
Owens-Illinois, Inc. **.................................. 39,600 1,235,025
------------
PHARMACEUTICALS -- 4.9%
Biogen, Inc. **.......................................... 53,100 2,455,875
ICN Pharmaceuticals, Inc................................. 54,400 836,400
Mylan Laboratories, Inc.................................. 81,000 1,852,875
Watson Pharmaceuticals, Inc. **.......................... 54,500 2,455,906
------------
7,601,056
------------
PRINTING & PUBLISHING -- 1.9%
Houghton Mifflin Co...................................... 51,300 1,548,619
Washington Post Co....................................... 2,900 1,486,250
------------
3,034,869
------------
RESTAURANTS/LODGING -- 3.1%
CKE Restaurants, Inc..................................... 57,300 1,776,300
Outback Steakhouse, Inc. **.............................. 62,300 1,872,894
Promus Hotel Corp. **.................................... 38,900 1,196,175
------------
4,845,369
------------
RETAIL & MERCHANDISING -- 7.0%
1-800-Contacts, Inc. **.................................. 85,800 530,888
Bed Bath and Beyond, Inc. **............................. 134,400 2,427,600
Best Buy Co., Inc. **.................................... 94,800 3,732,750
Family Dollar Stores, Inc................................ 184,400 2,339,575
OfficeMax, Inc. **....................................... 171,600 1,801,800
------------
10,832,613
------------
SECURITY SERVICES -- 0.7%
Pittston Brink's Group................................... 37,500 1,176,563
------------
SEMI-CONDUCTORS/INSTRUMENTATION -- 3.9%
Altera Corp.**........................................... 33,700 981,513
Cylink Corp. **.......................................... 52,200 424,125
Level One Communications, Inc. **........................ 40,800 711,450
</TABLE>
- ---------------
See Notes to Financial Statements.
18
<PAGE> 266
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- ------ --------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
SEMI-CONDUCTORS/INSTRUMENTATION -- (CONTINUED)
Maxim Integrated Products, Inc .**....................... 61,500 $ 1,691,250
Microchip Technology, Inc.**............................. 54,800 1,003,525
Uniphase Corp.**......................................... 32,500 1,297,969
------------
6,109,832
------------
TRANSPORTATION -- 0.4%
J.B. Hunt Transport Services, Inc........................ 36,100 611,444
------------
UTILITIES-GAS & PIPELINE -- 0.5%
El Paso Energy Corp...................................... 33,800 838,663
------------
UTILITIES-TELEPHONE -- 2.0%
Century Telephone Enterprises, Inc....................... 29,700 1,347,638
Cincinnati Bell, Inc..................................... 73,500 1,727,250
------------
3,074,888
------------
Total Common Stock (Cost $201,505,236).................... 154,017,421
------------
</TABLE>
<TABLE>
<CAPTION>
EXPIRATION
DATE
----------
<S> <C> <C> <C>
WARRANTS -- 0.0%
Sound Advice (b)** (Cost $0)..................... 06/14/99 15 0
------------
TOTAL INVESTMENTS -- 99.0%
COST ($201,505,236)(A)........................... 154,017,421
OTHER ASSETS IN EXCESS OF LIABILITIES -- 1.0%..... 1,540,800
------------
NET ASSETS -- 100.0%.............................. $155,558,221
============
</TABLE>
- ---------------
Percentages indicated are based on net assets of $155,558,221.
(a) Represents cost for Federal income tax purposes and differs from value by
net unrealized depreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation..................................... $ 1,303,220
Unrealized depreciation..................................... (48,791,035)
------------
Net unrealized depreciation................................. $(47,487,815)
============
</TABLE>
(b) Fair value as determined by the Board of Directors.
ADR -- American Depositary Receipt.
** Non-income producing security.
See Notes to Financial Statements.
19
<PAGE> 267
PACIFIC HORIZON AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (cost $201,505,236).... $154,017,421
Cash....................................................... 283,927
Dividends receivable....................................... 66,237
Receivable for investment securities sold.................. 1,805,802
Receivable for capital shares sold......................... 1,349,062
------------
Total Assets................................................ 157,522,449
------------
LIABILITIES:
Payable for investment securities purchased................ 1,121,746
Payable for capital shares redeemed........................ 526,301
Investment advisory fees payable........................... 96,592
Administration fees payable................................ 104,576
Shareholder service fees payable........................... 40,246
Distribution fees payable.................................. 1,370
Legal fees payable......................................... 79
Other accrued expenses..................................... 73,318
------------
Total Liabilities........................................... 1,964,228
------------
NET ASSETS.................................................. $155,558,221
============
Net Assets
A Shares................................................... $152,764,675
B Shares................................................... 167,162
K Shares................................................... 2,626,384
------------
Total....................................................... $155,558,221
============
Shares Outstanding ($0.001 par value, 200 million shares
authorized):
A Shares................................................... 9,863,062
B Shares................................................... 10,794
K Shares................................................... 171,631
------------
Total....................................................... 10,045,487
============
NET ASSET VALUE:
A Shares -- Net asset value and redemption price per
share.................................................... $ 15.49
============
Maximum Sales Charge (A Shares)............................ 5.50%
Maximum Offering Price (A Shares)
(Net Asset Value of A Shares/(100% -- Maximum Sales
Charge))................................................. $ 16.39
============
B Shares -- Net asset value, offering price and redemption
price per share.......................................... $ 15.49
============
K Shares -- Net asset value, offering price and redemption
price per share.......................................... $ 15.30
============
COMPOSITION OF NET ASSETS:
Shares of common stock, at par............................. $ 10,045
Additional paid-in capital................................. 178,154,588
Accumulated undistributed net investment loss.............. (1,148,443)
Accumulated net realized gains on investment
transactions............................................. 26,029,846
Net unrealized depreciation on investments................. (47,487,815)
------------
NET ASSETS, AUGUST 31, 1998................................. $155,558,221
============
</TABLE>
- ---------------
See Notes to Financial Statements.
20
<PAGE> 268
PACIFIC HORIZON AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the six months ended August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividend income............................................ $ 6,014
Interest income............................................ 401,227
------------
Total Income................................................ 407,241
------------
EXPENSES:
Advisory fees.............................................. 650,241
Administration fees........................................ 325,121
Shareholder service fees (A Shares)........................ 266,583
Shareholder service fees (B Shares)........................ 32(a)
Shareholder service fees (K Shares)........................ 4,318
Distribution fees (B Shares)............................... 96(a)
Distribution fees (K Shares)............................... 12,947
Custodian and fund accounting fees......................... 24,329
Transfer agent fees........................................ 214,942
Legal fees................................................. 3,518
Other expenses............................................. 54,996
------------
Total Expenses........................................... 1,557,123
------------
Less: Fee waivers........................................... (4,316)
------------
Total Net Expenses.......................................... 1,552,807
------------
NET INVESTMENT LOSS......................................... (1,145,566)
------------
NET REALIZED/UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gain on investment transactions............... 39,737,041
Net change in unrealized depreciation on investments....... (91,815,915)
------------
Net realized/unrealized losses on investments............... (52,078,874)
------------
Decrease in Net Assets Resulting from Operations............ $(53,224,440)
============
</TABLE>
- ---------------
(a) Period from July 15, 1998 (inception date) to August 31, 1998.
See Notes to Financial Statements.
21
<PAGE> 269
PACIFIC HORIZON AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
AUGUST 31, YEAR ENDED
1998 FEBRUARY 28,
(UNAUDITED) 1998
------------ ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment (losses)............................ $ (1,145,566) $ (2,442,022)
Net realized gains on investment transactions...... 39,737,041 8,159,465
Net change in unrealized appreciation
(depreciation) on investments.................... (91,815,915) 39,076,574
------------ ------------
Change in net assets resulting from operations..... (53,224,440) 44,794,017
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gains from investment transactions
A Shares......................................... (14,732,877) (12,977,267)
B Shares......................................... (14,345)(a) --
K Shares......................................... (252,778) (71,786)
------------ ------------
Change in net assets from shareholder
distributions...................................... (15,000,000) (13,049,053)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued........................ 79,725,010 151,652,363
Dividends reinvested............................... 13,961,637 12,251,824
Cost of shares redeemed............................ (91,562,542) (176,237,358)
------------ ------------
Change in net assets from capital share
transactions....................................... 2,124,105 (12,333,171)
------------ ------------
Change in net assets................................. (66,100,335) 19,411,793
NET ASSETS:
Beginning of Period................................ 221,658,556 202,246,763
------------ ------------
End of Period (including undistributed net
investment losses of $1,148,443 and $2,877,
respectively.)................................... $155,558,221 $221,658,556
============ ============
</TABLE>
- ---------------
(a) Period from July 15, 1998 (inception date) to August 31, 1998.
See Notes to Financial Statements.
22
<PAGE> 270
PACIFIC HORIZON BLUE CHIP FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investment in Master Investment Trust, Series I -- Blue
Chip Portfolio, at value................................. $664,795,008
Prepaid expenses........................................... 35,908
------------
Total Assets................................................ 664,830,916
------------
LIABILITIES:
Dividend payable........................................... 930
Administration fees........................................ 97,191
Shareholder service fees payable........................... 173,455
Fund accounting fees and expense payable................... 5,087
------------
Total Liabilities........................................... 276,663
------------
NET ASSETS.................................................. $664,554,253
============
Net Assets:
A Shares................................................... $323,612,162
B Shares................................................... 3,104,544
K Shares................................................... 7,419,893
SRF Shares................................................. 330,417,654
------------
Total....................................................... $664,554,253
============
Shares Outstanding ($0.001 par value, 300 million shares
authorized):
A Shares................................................... 12,191,347
B Shares................................................... 116,840
K Shares................................................... 280,843
SRF Shares................................................. 14,059,529
------------
Total....................................................... 26,648,559
============
NET ASSET VALUE:
A Shares -- Net asset value and redemption price per
share.................................................... $ 26.54
============
Maximum Sales Charge (A Shares)............................ 5.50%
Maximum Offering Price (A Shares)
(Net Asset Value of A Shares/(100% -- Maximum Sales
Charge))............................................... $ 28.08
============
B Shares -- Net asset value, offering price and redemption
price per share.......................................... $ 26.57
============
K Shares -- Net asset value, offering price and redemption
price per share.......................................... $ 26.42
============
SRF Shares -- Net asset value, offering price and
redemption price per share............................... $ 23.50
============
COMPOSITION OF NET ASSETS:
Shares of common stock, at par............................. $ 26,649
Additional paid-in capital................................. 572,225,565
Undistributed net investment income........................ 738,657
Accumulated net realized gains on investment
transactions............................................. 38,305,324
Net unrealized appreciation on investments................. 53,258,058
------------
NET ASSETS, AUGUST 31, 1998................................. $664,554,253
============
</TABLE>
- ---------------
See Notes to Financial Statements.
23
<PAGE> 271
PACIFIC HORIZON BLUE CHIP FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the six months ended August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Investment Income from Master Investment Trust,
Series I -- Blue Chip Portfolio:
Dividend income....................................... $ 4,980,178
Interest income....................................... 890,409
------------
5,870,587
------------
Expenses.................................................. 2,362,026
Less: Fee waivers and expense reimbursements.............. (14,432)
------------
2,347,594
------------
Net Investment Income from Master Investment Trust, Series
I -- Blue Chip Portfolio.................................. 3,522,993
------------
EXPENSES:
Administration fees....................................... 574,701
Shareholder service fees (A Shares)....................... 456,010
Shareholder service fees (B Shares)....................... 540(a)
Shareholder service fees (K Shares)....................... 9,953
Shareholder service fees (SRF Shares)..................... 491,355
Distribution fees (B Shares).............................. 1,621(a)
Distribution fees (K Shares).............................. 29,740
Transfer agent fees....................................... 200,401
Fund accounting fees and expenses......................... 15,123
Legal fees................................................ 11,066
Other expenses............................................ 112,298
------------
Total Expenses........................................ 1,902,808
Less: Fee waivers and expense reimbursements................ (298,227)
------------
Total Net Expenses........................................ 1,604,581
------------
NET INVESTMENT INCOME....................................... 1,918,412
------------
NET REALIZED/UNREALIZED GAINS (LOSSES) ON INVESTMENTS FROM
INVESTMENT TRUST, SERIES I -- BLUE CHIP PORTFOLIO:
Net realized gains on investment transactions......... 38,606,222
Net change in unrealized appreciation on
investments......................................... (115,623,481)
------------
Net realized/unrealized losses on investments from Master
Investment Trust, Series I -- Blue Chip Portfolio......... (77,017,259)
------------
DECREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $(75,098,847)
============
</TABLE>
- ---------------
(a) Period from July 15, 1998 (inception date) to August 31, 1998.
See Notes to Financial Statements.
24
<PAGE> 272
PACIFIC HORIZON BLUE CHIP FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
AUGUST 31, 1998 FEBRUARY 28,
(UNAUDITED) 1998
----------------- ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income............................. $ 1,918,412 $ 3,219,113
Net realized gains on investment transactions..... 38,606,222 45,222,647
Net change in unrealized appreciation
(depreciation) on investments................... (115,623,481) 72,902,865
------------ ------------
Change in net assets resulting from operations.... (75,098,847) 121,344,625
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
A Shares........................................ (669,510) (1,127,669)
K Shares........................................ (195) (3,838)
SRF Shares...................................... (1,146,300) (1,629,501)(b)
Net realized gains from investment transactions:
A Shares........................................ (5,785,962) (24,949,427)
B Shares (a).................................... (46,618) --
K Shares........................................ (132,149) (388,442)
SRF Shares...................................... (6,608,856) (19,671,559)(b)
------------ ------------
Change in net assets from shareholder
distributions..................................... (14,389,590) (47,770,436)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued....................... 170,379,484 475,502,874
Dividends reinvested.............................. 13,663,814 44,254,196
Cost of shares redeemed........................... (95,415,788) (82,117,652)
------------ ------------
Change in net assets from capital share
transactions...................................... 88,627,510 437,639,418
------------ ------------
Change in net assets................................ (860,927) 511,213,607
NET ASSETS:
Beginning of Period............................... 665,415,180 154,201,573
------------ ------------
End of Period (including undistributed net
investment income of $738,657 and $636,250,
respectively.).................................. $664,554,253 $665,415,180
============ ============
</TABLE>
- ---------------
(a) Period from July 15, 1998 (inception date) to August 31, 1998.
(b) Period from June 23, 1997 (inception date) to February 28, 1998.
See Notes to Financial Statements.
25
<PAGE> 273
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
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 August 31, 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".
The Funds each offer A Shares, K Shares and effective July 15, 1998, began
offering B Shares. Additionally, The Blue Chip Fund offers SRF Shares. A Shares
and SRF Shares have a Shareholder Services Plan, B Shares have a Distribution
and Services Plan, and K Shares have a Distribution Plan and Administrative and
Shareholder Services Plan. B Shares of the Funds held for 9 years will
automatically convert into A Shares of the Fund.
The investment objectives of the Funds are as follows:
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 (93.43% at
August 31, 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 Blue Chip Fund's financial statements.
Adviser and Administrator
Bank of America National Trust and Savings Association ("Bank of America"),
a subsidiary of BankAmerica Corporation ("BankAmerica"), 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
26
<PAGE> 274
pursuant to the terms of an Administration Agreement between the Company and
Bank of America (the "Administration Agreement").
On October 1, 1998, BankAmerica Corp., the Adviser's and Administrator's
parent company, completed its merger with NationsBank Corporation. The combined
company operates under the name BankAmerica. BankAmerica continues to serve the
Funds on substantially identical terms as described in Note 3.
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 Blue Chip Fund. The Blue Chip Fund
bears 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 Aggressive Growth
Fund. The Aggressive Growth Fund bears all fees and expenses charged by BONY for
these services.
Distributor and Transfer Agent
Provident Distributors, Inc. ("PDI") serves as principal underwriter and
distributor of shares of the Funds. PFPC serves as the Funds' transfer agent and
dividend disbursing agent.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Funds in the preparation of their financial statements. The policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
27
<PAGE> 275
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
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
28
<PAGE> 276
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.
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
29
<PAGE> 277
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.
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. 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 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 is 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 six months ended August 31, 1998, PDI advised the Funds that it
retained $5,431 and $37,983 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 $30,425
and $320,003 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 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 six months ended August 31, 1998, the Aggressive Growth Fund and Blue Chip
Fund incurred charges of $266,583 and $456,010, respectively, pursuant to the
Plan. The Funds were advised that of these amounts, PDI retained $102,457 and
$8,181 from the Aggressive Growth Fund and Blue Chip Fund, respectively, and
affiliates of Bank of America retained $107,338 and $404,954, respectively. The
Plan provides that if, in any month, the fees paid to PDI are less than the
costs incurred by PDI, 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.
30
<PAGE> 278
The Funds have adopted a Distribution and Services Plan pursuant to Rule
12b-1 under the 1940 act, under which the B Shares of the Aggressive Growth Fund
and the Blue Chip Fund pay Bank of America for costs incurred in connection with
distribution of the B Shares and for shareholder servicing fees to Service
Organizations. 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 Fund's B Shares. For the period ended August 31,
1998, the Aggressive Growth Fund and the Blue Chip Fund incurred charges of $128
and $2,161, pursuant to the Plan. The Funds were advised that of these amounts,
affiliates of Bank of America retained $113 and $1,935 from the Aggressive
Growth Fund and Blue Chip 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 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 six months ended August 31, 1998, the Aggressive Growth
Fund and the Blue Chip Fund incurred charges of $17,265 and $39,693,
respectively, pursuant to the Administrative Plan. The Blue Chip Fund was
advised that of these amounts, PDI retained $140. For the same period, $4,316
and $9,502 of distribution fees were waived by PDI for the Aggressive Growth
Fund and Blue Chip Fund, respectively. 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
six months ended August 31, 1998, The Blue Chip Fund incurred charges of
$491,355, pursuant to the Plan. The Fund was advised that of this amount the
affiliates of Bank of America retained $191,631. For the same period
31
<PAGE> 279
Bank of America waived $288,725 of shareholder servicing fees for the Blue Chip
Fund.
For the six months ended August 31, 1998, PFPC earned $214,942 and $200,401
from the Aggressive Growth Fund and Blue Chip Fund, respectively, for transfer
agency and dividend disbursing agency services performed.
A partner of Drinker Biddle & Reath LLP ("DBR") serves as Secretary of the
Company. Legal fees earned by DBR are stated in the statement of operations.
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 $60,000,
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 $40,000 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
32
<PAGE> 280
should be assigned an Applicable Percentage of 50 percent. Aggregate costs
pursuant to the Retirement Plan amounted to $841 and $653 for the Aggressive
Growth Fund and Blue Chip Fund, respectively, for the six months ended August
31, 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 six months ended August 31, 1998, the cost of purchases and the
proceeds from sales of the Aggressive Growth Fund's portfolio securities
(excluding short-term investments) amounted to $485,380,465 and $492,679,494,
respectively.
NOTE 6 -- CAPITAL SHARE TRANSACTIONS
Transactions in shares of common stock of the Funds are summarized below:
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH FUND
------------------------------------------------
SIX MONTHS ENDED
AUGUST 31, 1998 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 1998
--------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
------- ---------- -------- -----------
<S> <C> <C> <C> <C>
A SHARES (000'S)
Issued......................... 3,451 $ 77,628 7,237 $ 148,823
Reinvested..................... 760 13,694 610 12,180
Redeemed....................... (4,002) (90,110) (8,496) (175,796)
------- ---------- -------- -----------
Net increase (decrease).......... 209 $ 1,212 (649) $ (14,793)
======= ========== ======== ===========
B SHARES (a)
Issued......................... 10,023 $ 211,167 -- --
Reinvested..................... 795 14,345 -- --
Redeemed....................... (24) (1,206) -- --
------- ---------- -------- -----------
Net increase..................... 10,794 $ 224,306 -- --
======= ========== ======== ===========
K SHARES
Issued......................... 84,682 $1,885,788 136,140 $ 2,829,063
Reinvested..................... 14,240 253,611 3,605 71,789
Redeemed....................... (63,251) (1,451,835) (21,194) (441,284)
------- ---------- -------- -----------
Net increase..................... 35,671 $ 687,564 118,551 $ 2,459,568
======= ========== ======== ===========
</TABLE>
33
<PAGE> 281
<TABLE>
<CAPTION>
BLUE CHIP FUND
----------------------------------------------
SIX MONTHS ENDED
AUGUST 31, 1998 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 1998
--------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
------- ---------- ------- ----------
<S> <C> <C> <C> <C>
A SHARES (000'S)
Issued.......................... 4,418 $ 139,030 4,831 $ 131,727
Reinvested...................... 188 5,728 835 22,562
Redeemed........................ (2,056) (64,118) (2,082) (56,813)
------- ---------- ------- ----------
Net increase...................... 2,550 $ 80,640 3,584 $ 97,476
======= ========== ======= ==========
B SHARES (a)
Issued.......................... 116,175 $3,649,653 -- --
Reinvested...................... 1,526 46,324 -- --
Redeemed........................ (861) (26,736) -- --
------- ---------- ------- ----------
Net increase...................... 116,840 $3,669,241 -- --
======= ========== ======= ==========
K SHARES
Issued.......................... 132,521 $4,139,053 186,266 $5,146,299
Reinvested...................... 4,469 135,106 14,517 392,327
Redeemed........................ (86,093) (2,771,705) (28,532) (785,092)
------- ---------- ------- ----------
Net increase...................... 50,897 $1,502,454 172,251 $4,753,534
======= ========== ======= ==========
SRF SHARES (000'S)
Issued.......................... 843 $ 23,561 14,066 $ 338,628
Reinvested...................... 287 7,755 875 21,300
Redeemed........................ (1,031) (28,500) (981) (24,519)
------- ---------- ------- ----------
Net increase...................... 99 $ 2,816 13,960(b) $ 335,409(b)
======= ========== ======= ==========
</TABLE>
- ---------------
(a) Period from July 15, 1998 (inception date) to August 31, 1998.
(b) Period from June 23, 1997 (inception date) to February 28, 1998.
34
<PAGE> 282
PACIFIC HORIZON AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
AUGUST 31, --------------------------------------------------------------------------------
1998 FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
(UNAUDITED) 1998 1997(a) 1996 1995 1994
----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
A SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF PERIOD............ $ 22.64 $19.60 $23.49 $20.61 $25.70 $24.68
------- ------ ------ ------ ------ ------
Income from Investment
Operations:
Net investment income (loss)... (0.11) (0.25) (0.25) (0.27) (0.22) (0.37)
Net realized and unrealized
gains (losses) on investment
transactions................. (5.41) 4.62 2.26 8.35 (0.95) 3.02
------- ------ ------ ------ ------ ------
Total income (loss) from
investment operations.......... (5.52) 4.37 2.01 8.08 (1.17) 2.65
------- ------ ------ ------ ------ ------
Less dividends and
distributions:
Dividends to shareholders from
net realized gains on
investment transactions...... (1.63) (1.33) (5.90) (5.20) (3.92) (1.63)
------- ------ ------ ------ ------ ------
Net change in net asset value
per share...................... (7.15) 3.04 (3.89) 2.88 (5.09) 1.02
------- ------ ------ ------ ------ ------
NET ASSET VALUE PER SHARE, END
OF PERIOD...................... $ 15.49 $22.64 $19.60 $23.49 $20.61 $25.70
======= ====== ====== ====== ====== ======
Total return (excludes sales
charge)........................ (25.42%)(d) 23.30% 9.13% 40.88% (3.59%) 10.54%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period
(millions)................... $ 153 $ 219 $ 202 $ 180 $ 132 $ 158
Ratio of expenses to average
net assets................... 1.42%(c) 1.46% 1.42% 1.51% 1.46% 1.52%
Ratio of net investment income
(loss) to average net
assets....................... (1.05%)(c) (1.18%) (1.26%) 1.35% 1.04% 1.20%
Ratio of expenses to average
net assets*.................. (b) 1.52%** 1.44%** 1.64%** (b) (b)
Ratio of net investment income
to average net assets*....... (b) (1.25%)** (b) (b) (b) (b)
Portfolio turnover rate........ 252% 83% 99% 93% 92% 43%
</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 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) Annualized.
(d) Not annualized.
</TABLE>
See Notes to Financial Statements.
35
<PAGE> 283
PACIFIC HORIZON AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
AUGUST 31,
1998(a)
(UNAUDITED)
------------
<S> <C>
B SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD.............. $ 23.27
-------
Income from Investment Operations:
Net investment (loss)..................................... (0.02)
Net realized (losses) on investment transactions.......... (6.14)
-------
Total (loss) from investment operations..................... (6.16)
-------
Less Dividends and Distributions:
Dividends to shareholders from net realized gains on
investment transactions................................. (1.62)
-------
Net change in net asset value per share..................... (7.78)
-------
NET ASSET VALUE PER SHARE, END OF PERIOD.................... $ 15.49
=======
Total return................................................ (27.44%)(d)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000)......................... $ 167
Ratio of expenses to average net assets................... 2.28% (c)
Ratio of net investment (loss) to average net assets...... (1.75%)(c)
Ratio of expenses to average net assets*.................. (b)
Ratio of net investment (loss) to average net assets*..... (b)
Portfolio turnover rate................................... 252%
</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 15, 1998 (inception date) to August 31,
1998.
(b) There were no waivers or reimbursements during the period.
(c) Annualized.
(d) Not annualized.
</TABLE>
See Notes to Financial Statements.
36
<PAGE> 284
PACIFIC HORIZON AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD
AUGUST 31, YEAR ENDED ENDED
1998 FEBRUARY 28, FEBRUARY 28,
(UNAUDITED) 1998 1997(a)
----------- ------------ ------------
<S> <C> <C> <C>
K SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF
PERIOD............................... $ 22.44 $19.53 $24.20
------- ------ ------
Income from Investment Operations:
Net investment (loss)................ (0.18) (0.32) (0.06)
Net realized gains (losses) on
investment transactions............ (5.34) 4.56 1.29
------- ------ ------
Total income (loss) from investment
operations........................... (5.52) 4.24 1.23
------- ------ ------
Less Dividends and Distributions:
Dividends to shareholders from net
realized gains on investment
transactions....................... (1.62) (1.33) (5.90)
------- ------ ------
Net change in net asset value per
share................................ (7.14) 2.91 (4.67)
------- ------ ------
NET ASSET VALUE PER SHARE, END OF
PERIOD............................... $ 15.30 $22.44 $19.53
======= ====== ======
Total return........................... (25.60%)(c) 22.70% 5.65% (c)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000).... $ 2,626 $3,051 $ 340
Ratio of expenses to average net
assets............................. 1.93%(b) 1.93% 1.95% (b)
Ratio of net investment (loss) to
average net assets................. (1.54%)(b) (1.63%) (1.78%)(b)
Ratio of expenses to average net
assets*............................ 2.18%(b) 2.24%** 2.22% (b)**
Ratio of net investment (loss) to
average net assets*................ (1.79%)(b) (1.88%) (2.03%)(b)
Portfolio turnover rate.............. 252% 83% 99%
</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) Annualized.
(c) Not annualized.
</TABLE>
See Notes to Financial Statements.
37
<PAGE> 285
PACIFIC HORIZON BLUE CHIP FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
AUGUST 31, ------------------------------------------------------------------------
1998 FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
(UNAUDITED) 1998 1997(a) 1996 1995 1994(c)
----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
A SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF
PERIOD................................. $ 29.90 $ 25.22 $ 20.53 $ 15.81 $14.97 $15.00
------- ------- ------- ------- ------ ------
Income from Investment Operations:
Net investment income.................. 0.06 0.16 0.23 0.26 0.31 0.02
Net realized and unrealized gains
(losses) on investment
transactions......................... (2.88) 7.91 5.21 4.96 0.80 (0.05)
------- ------- ------- ------- ------ ------
Total income (loss) from investment
operations............................. (2.82) 8.07 5.44 5.22 1.11 (0.03)
------- ------- ------- ------- ------ ------
Less Dividends and Distributions:
Dividends to shareholders from net
investment income.................... (0.06) (0.15) (0.22) (0.28) (0.27) --
Dividends to shareholders from net
realized gains on investment
transactions......................... (0.48) (3.24) (0.53) (0.22) -- --
------- ------- ------- ------- ------ ------
Total Dividends and Distributions....... (0.54) (3.39) (0.75) (0.50) (0.27) --
------- ------- ------- ------- ------ ------
Net change in net asset value per
share.................................. (3.36) 4.68 4.69 4.72 0.84 (0.03)
------- ------- ------- ------- ------ ------
NET ASSET VALUE PER SHARE, END OF
PERIOD................................. $ 26.54 $ 29.90 $ 25.22 $ 20.53 $15.81 $14.97
======= ======= ======= ======= ====== ======
Total return (excludes sales charge).... (9.68%)(e) 33.96% 27.01% 33.39% 7.60% (0.20%)(e)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period
(millions)........................... $ 324 $ 288 $ 153 $ 67 $ 6 $ 1
Ratio of expenses to average net
assets............................... 1.11%(d) 1.18% 1.28% 0.83% 0.00% 0.00%(d)
Ratio of net investment income to
average net assets................... 0.43%(d) 0.63% 0.99% 1.63% 2.46% 2.92%(d)
Ratio of expenses to average net
assets*.............................. (b) 1.22% 1.71% 2.28% 6.32% 55.00%(d)
Ratio of net investment income to
average net assets*.................. (b) 0.59% 0.56% 0.18% (3.86%) (52.08%)(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) As of July 22, 1996, the Fund designated the existing series
of shares as "A" Shares.
(b) There were no waivers or reimbursements during the period.
(c) Period from January 13, 1994 (inception date) to February
28, 1994.
(d) Annualized.
(e) Not annualized.
</TABLE>
See Notes to Financial Statements.
38
<PAGE> 286
PACIFIC HORIZON BLUE CHIP FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
AUGUST 31,
1998(a)
(UNAUDITED)
------------
<S> <C>
B SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD.............. $ 33.73
-------
Income from Investment Operations:
Net investment income..................................... --
Net realized (losses) on investment transactions.......... (6.68)
-------
Total (loss) from investment operations..................... (6.68)
-------
Less: Dividends and Distributions:
Dividends to shareholders from net investment income...... --
Distributions to shareholders from net realized gains on
investment transactions................................. (0.48)
-------
Total Dividends and Distributions........................... (0.48)
-------
Net change in net asset value per share..................... (7.16)
-------
NET ASSET VALUE PER SHARE, END OF PERIOD.................... $ 26.57
=======
Total return................................................ (19.99%)(d)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (millions).................... $ 3
Ratio of expenses to average net assets................... 1.91% (c)
Ratio of net investment loss to average net assets........ (0.14%)(c)
Ratio of expenses to average net assets *................. (b)
Ratio of net investment loss 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 15, 1998 (inception date) to August 31,
1998.
(b) There were no waivers or reimbursements during the period.
(c) Annualized.
(d) Not annualized.
</TABLE>
See Notes to Financial Statements.
39
<PAGE> 287
PACIFIC HORIZON BLUE CHIP FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
AUGUST 31, YEAR ENDED PERIOD ENDED
1998 FEBRUARY 28, FEBRUARY 28,
(UNAUDITED) 1998 1997(a)
----------- ------------ ------------
<S> <C> <C> <C>
K SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF
PERIOD................................. $29.79 $25.20 $20.38
------ ------ ------
Income from Investment Operations:
Net investment income (losses)......... (0.01) 0.04 0.07
Net realized gains (losses) on
investment transactions.............. (2.88) 7.83 5.35
------ ------ ------
Total income (loss) from investment
operations............................. (2.89) 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......................... (0.48) (3.24) (0.53)
------ ------ ------
Total Dividends and Distributions........ (0.48) (3.28) (0.60)
------ ------ ------
Net change in net asset value per
share.................................. (3.37) 4.59 4.82
------ ------ ------
NET ASSET VALUE PER SHARE, END OF
PERIOD................................. $26.42 $29.79 $25.20
====== ====== ======
Total return............................. (9.91%)(c) 33.08% 26.96%(c)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period
(millions)........................... $ 8 $ 7 $ 1
Ratio of expenses to average net
assets............................... 1.61% (b) 1.67% 1.92%(b)
Ratio of net investment income (loss)
to average net assets................ (.08%)(b) 0.12% 0.45%(b)
Ratio of expenses to average net
assets*.............................. 1.85% (b) 1.69% 2.12%(b)
Ratio of net investment income (loss)
to average net assets*............... (.32%)(b) 0.10% 0.25%(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) Annualized.
(c) Not annualized.
</TABLE>
See Notes to Financial Statements.
40
<PAGE> 288
PACIFIC HORIZON BLUE CHIP FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD
AUGUST 31, ENDED
1998 FEBRUARY 28,
(UNAUDITED) 1998(a)
----------- ------------
<S> <C> <C>
SRF SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD.......... $ 26.53 $ 24.02
-------- --------
Income from Investment Operations:
Net investment income................................. 0.08 0.14
Net realized and unrealized gains (losses) on
investment transactions............................. (2.55) 3.99
-------- --------
Total income (loss) from investment operations.......... (2.47) 4.13
-------- --------
Less Dividends and Distributions:
Dividends to shareholders from net investment income.. (0.08) (0.12)
Distributions to shareholders from net realized
gains............................................... (0.48) (1.50)
-------- --------
Total Dividends and Distributions....................... (0.56) (1.62)
-------- --------
NET CHANGE IN NET ASSET VALUE PER SHARE................. (3.03) 2.51
-------- --------
Net asset value per share, end of period................ $ 23.50 $ 26.53
======== ========
Total Return............................................ (9.59%)(c) 19.30%(c)
RATIO/SUPPLEMENTAL DATA:
Net assets, end of period (millions).................. $ 330 $ 370
Ratio of expenses to average net assets............... 0.95%(b) 0.95%(b)
Ratio of net investment income to average net
assets.............................................. 0.58%(b) 0.81%(b)
Ratio of expenses to average net assets*.............. 1.10%(b) 1.15%(b)
Ratio of net investment income to average net
assets*............................................. 0.43%(b) 0.61%(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 June 23, 1997 (inception date) to February 28,
1998.
(b) Annualized.
(c) Not annualized.
</TABLE>
See Notes to Financial Statements.
41
<PAGE> 289
[This page intentionally left blank.]
<PAGE> 290
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 Municipal Bond Fund
[ ] Flexible Income 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> 291
Bulk Rate
U.S. Postage
PAID
Secaucus, NJ
Permit No. 237
[Pacific Horizon Logo]
Provident Distributor, Inc., Distributor
GRW-0069 10/98
<PAGE> 292
PACIFIC HORIZON GROWTH & INCOME FUNDS
SEMI-ANNUAL REPORT
August 31, 1998
Capital Income Fund
Asset Allocation Fund
Investing For All
The Times Of Your Life
NOT FDIC INSURED
PACIFIC HORIZON GROWTH & INCOME FUNDS
<PAGE> 293
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
PricewaterhouseCoopers 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> 294
----------------------------------
Contents
<TABLE>
<S> <C>
FUND FACTS 2-3
UNDERSTANDING YOUR SHAREHOLDER
REPORT 4-6
ECONOMIC REVIEW FROM THE
INVESTMENT ADVISER 8-9
SHAREHOLDER VOTING RESULTS 10-13
PACIFIC HORIZON CAPITAL INCOME
FUND
Portfolio of Investments 14-18
Statement of Assets
and Liabilities 19
Statement of Operations 20
Statements of Changes
in Net Assets 21
PACIFIC HORIZON ASSET ALLOCATION
FUND
Portfolio of Investments 22-32
Statement of Assets
and Liabilities 33
Statement of Operations 34
Statements of Changes
in Net Assets 35
NOTES TO FINANCIAL STATEMENTS 36-44
FINANCIAL HIGHLIGHTS 45-51
</TABLE>
<PAGE> 295
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
...........................................................................
Flexible Income High Current Income
(formerly Corporate Bond)
...........................................................................
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 Municipal Bond* High Level of Federal and California
(formerly California Tax-Exempt Tax-Free Current Income
Bond)
...........................................................................
Money Market Funds+ High Current Income Plus Principal
- Prime Stability
- Treasury
- Government
- Treasury Only
...........................................................................
Tax-Exempt Money Market Funds*+
- Tax-Exempt Money High Level of Federal Tax-Free Current
Income Plus Principal Stability
- California Tax-Exempt Money 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.
+ 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> 296
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> 297
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.
[Sample Document]
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.
[Sample Picture/Graph]
4
<PAGE> 298
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
[SAMPLE TABLE]
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
[SAMPLE TABLE]
THE CURRENT NET ASSET VALUE PER SHARE PLUS SALES CHARGE, IF ANY
5
<PAGE> 299
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
[SAMPLE TABLE]
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
[SAMPLE TABLE]
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> 300
[This page intentionally left blank.]
7
<PAGE> 301
ECONOMIC REVIEW
FROM THE INVESTMENT ADVISER
The global financial crisis has dominated the economic news in recent months.
There are renewed fears that the effect of the Asian currency crisis is
spreading to other economies in the world, including North and South America.
The Russian Ruble has experienced a sharp decline as debate continues regarding
political and economic changes. The pace of economic reform in Japan has been
alarmingly slow, with the recent interest rate reduction reflecting only the
first significant action taken in this regard. Markets in Canada and Mexico
continue to reflect concerns relating to commodities. Moreover, investors have
become increasingly concerned about the sustainability of U.S. corporate
profits, resulting in a significant decline in the U.S. equity markets. The
current global economic crisis is generating greater concern, as it increasingly
affects a larger number of key American trading partners.
The U.S. economy has been affected both positively and negatively by the global
financial crisis. Low interest and inflation rates have stimulated domestic
demand for housing, autos and other consumer goods. However, manufacturing
activity is slowing, particularly in trade exports, and cutbacks have been made
in production and personnel within some industries. The Gross Domestic Product
("GDP") rose at a 1.8%(1) rate in the second quarter, below the first quarter's
5.5%(1) growth rate, reflecting the deterioration in the trade balance and a
slowdown in business investment in equipment and inventories. While the U.S.
economy remains strong in the third quarter, it is no longer immune from the
effects of the crisis. Additionally, prospects for U.S. growth and corporate
profits are less secure.
Economic reports continue to indicate that inflation is under control in
manufacturing and consumer-related areas. The prices paid to U.S. factories,
farmers and other producers (as measured by the Producer Price Index "PPI") fell
0.4%(1) in August, the largest drop in seven months. In the first eight months
of 1998, consumer prices rose at an annual rate of 1.6%(1), which is the same as
the first eight months of 1997. Inflation has remained innocuous as weakening
economies in Asia have depressed commodity prices and the cost of goods imported
into the U.S.
In a departure from the recent past, it appears that the Federal Reserve Board
(the "Fed") now has a higher level of anxiety about the outlook for the global
economy and is becoming more concerned about the increasing risks of slowing
economic growth rather than the dangers of rising inflation. In a recent speech,
Fed Chairman Alan Greenspan hinted that the Fed might consider lowering interest
rates if it becomes increasingly likely that the Asian currency crisis will
spread to the U.S. economy. Although the Federal Open Market Committee ("FOMC")
left the Fed Funds' target interest rate unchanged at 5.50% at the most recent
FOMC meeting held in August; some analysts now expect a reduction in rates
sometime soon.
The main benefactor of the global financial uncertainty has clearly been the
U.S. Treasury market. U.S. Treasuries have replaced gold as the safe haven of
choice, as many investors are reaping the financial rewards of owning these
types of securities. On July 17, the day that the equity markets peaked, the
Treasury 10-year note had a closing yield of approximately 5.5%(1). As of August
31, the yield on this note was 4.97%(1). The fixed income markets now reflect
expectations of an interest rate reduction, as evidenced by the entire Treasury
yield curve trading below 5.50%.
The turmoil in overseas markets, the decline in commodity prices, and the
8
<PAGE> 302
global competition from cheaper imports have also caused the credit sectors to
widen appreciably against Treasuries. Credit risk is now at a heightened level,
as the expectation of lower profit prospects has become more apparent to
investors. Additional downward revisions to corporate earnings estimates will
put further pressure on corporate spreads until the economic situation begins to
improve in Asia.
The Standard & Poor's 500 stock index ("S&P 500") fell 8.0%(2) on a total return
basis during the 6-month period ended August 31. While the stocks of large,
name-brand companies have been battered during the month of August, smaller
company stocks have been hit even harder. The S&P 500 declined 19%(2) from its
high on July 17 and the Russell 2000 Index dropped 30%(3) from its high recorded
in April. Year-to-date, the performance disparity has been even larger between
large cap and small cap stocks. Since the beginning of the year, the S&P 500 is
down 0.4%(2) and the Russell 2000 Index has dropped 22.1%(3), constituting a
spread of 21.7 percentage points.
Investors are becoming increasingly concerned about the sustainability of U.S.
corporate profits. Investors had been willing to pay record-high valuations for
stocks because interest rates were low, inflation was under control and
economies around the world were expanding. Not only are the developed Asian
countries faltering, but the economic turmoil has also extended to Russia and
several emerging market countries. So far, the U.S. market has been fairly well
insulated from the economic problems overseas, but U.S. companies are now
beginning to feel the negative impact from depressed overseas business
conditions. Investor confidence in a continued economic expansion will not occur
until Asia and Russia implement appropriate measures to rectify their economic
and political problems.
LOOKING FORWARD
The U.S. government is still expected to post a budget surplus when the fiscal
year ends on September 30. Rising incomes, low unemployment and stock market
gains earlier in the year have generated abundant tax collections. Reduced
government spending has also contributed to decreasing interest payments on
government debt.
The outlook for the remainder of 1998 is unclear. 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 2.5% in the third quarter. Just as
the market was overly optimistic at the beginning of the summer, we suspect that
the markets' current doldrums are too extreme.
Sincerely,
/s/ Kirk Hartman
Kirk Hartman
Chief Investment Officer
Fixed Income Management
- ---------------
(1) Source - Bloomberg, 1998.
(2) Source - Bloomberg, 1998. The S&P 500 Index is an index that is
representative of the large capitalization U.S. equity market as a whole and
cannot be invested in directly.
(3) Source - Bloomberg, 1998. The Russell 2000 is an index that is
representative of the small capitalization U.S. equity market as a whole and
cannot be invested in directly.
9
<PAGE> 303
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Results (Unaudited) of Annual Meeting of Shareholders
Convened on June 19, 1998
Reconvened on June 26, 1998 and July 1, 1998
Reconvened and Adjourned on July 20, 1998
- --------------------------------------------------------------------------------
The Annual Meeting of Shareholders of Pacific Horizon Funds, Inc. (the
"Company") was convened on June 19, 1998, reconvened on June 26, 1998 and July
1, 1998, and reconvened and adjourned on July 20, 1998. The Funds of the Company
are: Aggressive Growth Fund, Asset Allocation Fund, Blue Chip Fund, California
Municipal Bond Fund (formerly California Tax-Exempt Bond Fund), California
Tax-Exempt Money Market Fund, Capital Income Fund, Flexible Income Fund
(formerly Corporate Bond Fund), Government Fund, Intermediate Bond Fund,
International Equity Fund, National Municipal Bond Fund, Prime Fund, Short-Term
Government Fund, Tax-Exempt Money Fund, Treasury Fund, Treasury Only Fund, and
U.S. Government Securities Fund. The Annual Meeting was held in order to vote on
the following purposes:
<TABLE>
<CAPTION>
PROPOSAL
NUMBER ISSUE
- -------- -----
<C> <S>
1. To elect Messrs. Edward S. Bottum, William P. Carmichael,
Thomas M. Collins, Douglas B. Fletcher, Robert E. Greeley,
and Cornelius J. Pings, Directors of the Company;
2. With respect to each Fund except the Blue Chip and
Intermediate Bond Funds, to approve or disapprove a new
Investment Advisory Agreement between the Company and Bank
of America NT&SA;
3. With respect to the International Equity Fund, to approve or
disapprove a new Sub-Advisory Agreement between Bank of
America NT&SA and Wellington Management Company, LLP;
4. To approve or disapprove an amendment to the Company's
Charter;
5. To approve or disapprove changes to the following
fundamental investment limitations of each Fund of the
Company:
A) limitation on underwriting of securities;
B) limitation on real estate transactions;
C) limitation on commodity transactions;
D) limitation on industry concentration;
E) limitation on lending;
F) limitation on borrowing and issuance of senior
securities; and
G) limitation on issuer concentration
6. To approve or disapprove certain changes to the following
fundamental investment policies and limitations, including a
change to make all of such policies and limitations
non-fundamental:
A) with respect to each Fund, the limitation on short sales
and purchasing securities on margin;
</TABLE>
10
<PAGE> 304
<TABLE>
<CAPTION>
PROPOSAL
NUMBER ISSUE
- -------- -----
<C> <S>
b) with respect to the National Municipal Bond, Aggressive
Growth, California Municipal Bond, Prime, Treasury and
California Tax-Exempt Money Market Funds, the limitation on
purchasing securities of companies for the purpose of
exercising control;
c) with respect to each Fund except the Government and
Treasury Only Funds, the limitation on purchasing securities
of other investment companies;
d) with respect to each Fund except the Aggressive Growth,
Short-Term Government, Prime, Treasury, Government and
Treasury Only Funds, the limitation on put, call, straddle
and spread transactions;
e) with respect to each Fund except the National Municipal
Bond, International Equity, Flexible Income, Short-Term
Government and California Tax-Exempt Money Market Funds, the
limitation on illiquid securities;
f) with respect to the Intermediate Bond, Blue Chip and
Asset Allocation Funds, the limitation on transactions in
certain securities by Board members;
g) with respect to the U.S. Government Securities, Capital
Income, California Municipal Bond and California Tax-Exempt
Money Market Funds, the limitation on unseasoned issuers;
h) with respect to the Aggressive Growth Fund, the policy on
investment in equity securities;
i) with respect to the U.S. Government Securities Fund, the
policy with respect to investment in certificates of the
Government National Mortgage Association;
j) with respect to the Capital Income Fund, the policy with
respect to investment in convertible securities;
k) with respect to the California Municipal Bond Fund, the
policy with respect to investment in California municipal
securities;
l) with respect to the Tax-Exempt Money Fund, the policy
with respect to investment in municipal securities; and
m) with respect to the California Tax-Exempt Money Market
Fund, the policy with respect to investment in California
municipal securities;
7. To approve or disapprove a change in the fundamental
investment objective to a non-fundamental investment
objective of the following Funds: National Municipal Bond,
International Equity, Flexible Income, Intermediate Bond,
Blue Chip, Asset Allocation, Aggressive Growth, U.S.
Government Securities, Capital Income, California Municipal
Bond, Short-Term Government, Prime, Treasury, Tax-Exempt
Money and California Tax-Exempt Money Market Funds;
8. To approve or disapprove a new fundamental investment
limitation of the Prime Fund with regard to its industry
concentration;
9. To ratify or reject the selection of PricewaterhouseCoopers
LLP as the Company's independent accountants for the fiscal
year ending February 28, 1999; and
10. The transaction of such other business as may properly come
before the meeting or any adjournment.
</TABLE>
11
<PAGE> 305
At the adjournment of the annual meeting on July 20, 1998, the voting
results for each proposal were as follows:
The voting results for each proposal are shown below:
PACIFIC HORIZON FUNDS, INC. -- ALL FUNDS
<TABLE>
<CAPTION>
TOTAL SHARES TOTAL ABSTAIN/
OUTSTANDING SHARES VOTED FOR AGAINST WITHHELD
----------------- ---------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
PROPOSAL 1 16,453,350,969.00 8,803,335,110.00
EDWARD S. BOTTUM 8,469,012,940.00 None 334,322,170.00
WILLIAM P. CARMICHAEL 8,468,803,120.00 None 334,531,990.00
THOMAS M. COLLINS 8,472,897,540.00 None 330,437,570.00
DOUGLAS B. FLETCHER 8,473,089,329.00 None 330,245,781.00
ROBERT E. GREELEY 8,475,491,285.00 None 327,843,225.00
CORNELIUS J. PINGS 8,473,521,034.00 None 329,806,076.00
PROPOSAL 4 16,453,350,969.00 8,803,335,110.00 7,332,890,744.00 502,659,743.00 373,195,844.00
PROPOSAL 9 16,453,350,969.00 8,803,335,091.00 8,429,896,332.00 85,027,748.00 288,411,011.00
<CAPTION>
BROKER PASS/
NON VOTE FAIL
-------------- -----
<S> <C> <C>
PROPOSAL 1 PASS
EDWARD S. BOTTUM None
WILLIAM P. CARMICHAEL None
THOMAS M. COLLINS None
DOUGLAS B. FLETCHER None
ROBERT E. GREELEY None
CORNELIUS J. PINGS None
PROPOSAL 4 594,588,779.00 FAIL
PROPOSAL 9 None PASS
</TABLE>
PACIFIC HORIZON ASSET ALLOCATION FUND
<TABLE>
<CAPTION>
TOTAL SHARES TOTAL ABSTAIN/ BROKER PASS/
OUTSTANDING SHARES VOTED FOR AGAINST WITHHELD NON VOTE FAIL
------------- ------------- ------------- ---------- ------------ ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
PROPOSAL 2 14,289,019.00 7,469,655.00 6,522,860.00 223,405.00 723,390.00 None PASS
PROPOSAL 5a 14,289,019.00 7,469,656.00 6,020,133.00 370,484.00 757,505.00 321,534.00 PASS
PROPOSAL 5b 14,289,019.00 7,469,656.00 6,063,152.00 319,045.00 765,925.00 321,534.00 PASS
PROPOSAL 5c 14,289,019.00 7,469,656.00 6,011,592.00 359,454.00 777,077.00 321,533.00 PASS
PROPOSAL 5d 14,289,019.00 7,469,656.00 6,008,308.00 362,204.00 777,609.00 321,535.00 PASS
PROPOSAL 5e 14,289,019.00 7,469,656.00 6,066,074.00 302,389.00 779,658.00 321,535.00 PASS
PROPOSAL 5f 14,289,019.00 7,469,656.00 5,994,891.00 326,223.00 827,007.00 321,535.00 PASS
PROPOSAL 5g 14,289,019.00 7,469,656.00 5,999,745.00 281,846.00 866,531.00 321,534.00 PASS
PROPOSAL 6a 14,289,019.00 7,469,656.00 5,990,746.00 365,804.00 791,572.00 321,534.00 PASS
PROPOSAL 6c 14,289,019.00 7,469,656.00 5,982,380.00 374,032.00 791,710.00 321,534.00 PASS
PROPOSAL 6d 14,289,019.00 7,469,656.00 5,917,651.00 401,065.00 829,407.00 321,533.00 PASS
PROPOSAL 6e 14,289,019.00 7,469,656.00 5,961,715.00 339,685.00 846,722.00 321,534.00 PASS
PROPOSAL 6f 14,289,019.00 7,469,656.00 6,015,608.00 346,534.00 785,980.00 321,534.00 PASS
PROPOSAL 7 14,289,019.00 7,469,656.00 5,802,321.00 463,916.00 881,885.00 321,534.00 PASS
</TABLE>
12
<PAGE> 306
PACIFIC HORIZON CAPITAL INCOME FUND
<TABLE>
<CAPTION>
TOTAL SHARES TOTAL ABSTAIN/ BROKER PASS/
OUTSTANDING SHARES VOTED FOR AGAINST WITHHELD NON VOTE FAIL
------------- ------------- ------------- ---------- ------------ ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
PROPOSAL 2 23,049,520.00 11,623,676.00 10,595,199.00 227,121.00 801,356.00 None PASS
PROPOSAL 5a 23,049,520.00 11,623,677.00 9,209,494.00 349,247.00 997,295.00 1,067,641.00 PASS
PROPOSAL 5b 23,049,520.00 11,623,677.00 9,156,958.00 377,815.00 1,021,264.00 1,067,640.00 PASS
PROPOSAL 5c 23,049,520.00 11,623,677.00 9,090,834.00 460,476.00 1,004,727.00 1,067,640.00 PASS
PROPOSAL 5d 23,049,520.00 11,623,677.00 9,122,368.00 454,332.00 979,336.00 1,067,641.00 PASS
PROPOSAL 5e 23,049,520.00 11,623,677.00 9,186,868.00 394,177.00 974,992.00 1,067,640.00 PASS
PROPOSAL 5f 23,049,520.00 11,623,677.00 9,139,135.00 395,062.00 1,021,840.00 1,067,640.00 PASS
PROPOSAL 5g 23,049,520.00 11,623,677.00 9,100,446.00 366,161.00 1,089,430.00 1,067,640.00 PASS
PROPOSAL 6a 23,049,520.00 11,623,677.00 9,131,347.00 438,248.00 986,442.00 1,067,640.00 PASS
PROPOSAL 6c 23,049,520.00 11,623,677.00 9,151,705.00 475,005.00 929,327.00 1,067,640.00 PASS
PROPOSAL 6d 23,049,520.00 11,623,677.00 9,101,902.00 393,511.00 1,060,624.00 1,067,640.00 PASS
PROPOSAL 6e 23,049,520.00 11,623,677.00 9,106,135.00 472,921.00 976,981.00 1,067,640.00 PASS
PROPOSAL 6g 23,049,520.00 11,623,677.00 9,208,180.00 362,952.00 984,905.00 1,067,640.00 PASS
PROPOSAL 6j 23,049,520.00 11,623,677.00 9,229,870.00 314,638.00 1,011,529.00 1,067,640.00 PASS
PROPOSAL 7 23,049,520.00 11,623,677.00 8,980,361.00 664,351.00 1,011,325.00 1,067,640.00 PASS
</TABLE>
13
<PAGE> 307
PACIFIC HORIZON CAPITAL INCOME FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- ------- ------------
<S> <C> <C>
COMMON STOCKS -- 15.5%
CONSUMER CYCLICALS -- 2.8%
Media One Group, Inc...................................... 86,500 $ 4,800,750
Nordstrom, Inc............................................ 166,600 4,987,587
------------
9,788,337
------------
CONSUMER STAPLES -- 2.2%
McDonald's Corp........................................... 85,000 4,765,312
Proctor & Gamble Co....................................... 40,000 3,060,000
------------
7,825,312
------------
ENERGY -- 1.0%
Amoco Corp................................................ 80,000 3,625,000
------------
FINANCIAL-BANK & TRUST -- 3.1%
BankBoston Corp........................................... 60,000 2,141,250
Fleet Financial Group, Inc................................ 60,000 3,933,750
PNC Bank Corp............................................. 55,000 2,365,000
Sovereign Bancorp, Inc.................................... 200,000 2,437,500
------------
10,877,500
------------
HEALTH CARE -- 3.1%
American Home Products Corp............................... 90,000 4,511,250
Lilly, (Eli) & Co......................................... 54,000 3,537,000
Pfizer, Inc............................................... 31,000 2,883,000
------------
10,931,250
------------
MACHINERY -- 0.5%
McDermott International, Inc.............................. 85,104 1,707,399
------------
TECHNOLOGY -- 2.8%
Intel Corp................................................ 54,800 3,901,075
Micron Technology, Inc.*.................................. 120,000 2,730,000
Xilinx, Inc............................................... 100,000 3,050,000
------------
9,681,075
------------
Total Common Stocks (Cost $58,342,450)...................... 54,435,873
------------
CONVERTIBLE PREFERRED STOCKS -- 35.5%
BASICS -- 1.7%
Freeport -- McMoran, Inc.................................. 112,400 1,629,800
International Paper Co.................................... 93,000 4,254,750
------------
5,884,550
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
14
<PAGE> 308
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- ------- ------------
<S> <C> <C>
CONVERTIBLE PREFERRED STOCKS -- (CONTINUED)
CAPITAL GOODS -- 1.5%
Elsag Bailey Corp......................................... 110,000 $ 4,482,500
McDermott Inc., Series A.................................. 20,000 630,000
------------
5,112,500
------------
CONSUMER CYCLICALS -- 8.6%
Fleetwood Capital Trust 144A.............................. 89,600 4,312,000
Houston Industries, Inc................................... 75,000 5,362,500
Media One Group, Inc...................................... 60,000 5,100,000
Owens Corning Capital 144A................................ 85,000 4,388,125
Owens -- Illinois, Inc.................................. 95,350 3,778,244
Readers Digest Association................................ 200,000 3,925,000
Sealed Air Corp., Series A................................ 77,200 3,174,850
------------
30,040,719
------------
CONSUMER STAPLES -- 2.5%
Newell Financial Trust I.................................. 81,300 4,664,587
Ralston-Ralston Purina Co................................. 81,000 4,293,000
------------
8,957,587
------------
ENERGY -- 3.6%
El Paso Energy Capital Trust I............................ 94,000 3,995,000
MCN Energy Group, Inc..................................... 142,500 2,573,906
Occidental Petroleum Corp................................. 40,000 2,000,000
Unocal Corp............................................... 85,000 4,239,375
------------
12,808,281
------------
FINANCIAL -- 8.5%
Amerus Life Holdings, Inc................................. 120,000 3,285,000
CNB Capital Trust I....................................... 168,300 4,291,650
Conseco Finance Trust IV, Series F........................ 71,600 2,689,475
Frontier Insurance Group, Inc............................. 19,000 871,625
Frontier Insurance Group, Inc., 144A...................... 50,000 2,293,750
Golden State Bancorp, Series A............................ 45,500 2,320,500
Life Re Capital Trust II.................................. 50,300 3,709,625
Philadelphia Consolidated Holding Corp.*.................. 391,000 3,274,625
Protective Life Corp...................................... 73,300 4,049,825
St. Paul Capital Corp..................................... 50,000 2,950,000
------------
29,736,075
------------
TECHNOLOGY -- 1.4%
Microsoft Corp., Series A................................. 50,000 4,800,000
------------
TELECOMMUNICATIONS -- 1.5%
TCI Communications, Inc................................... 75,000 5,325,000
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
15
<PAGE> 309
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- ------- ------------
<S> <C> <C>
CONVERTIBLE PREFERRED STOCKS -- (CONTINUED)
TRANSPORTATION -- 1.4%
Union Pacific Capital Trust............................... 18,000 $ 803,250
Union Pacific Capital Trust 144A.......................... 90,000 4,016,250
------------
4,819,500
------------
UTILITIES -- 4.8%
Calenergy Capital Trust II 144A........................... 70,000 2,896,250
Citizens Utilities Trust.................................. 85,000 3,516,875
Sprint Corp............................................... 91,000 5,363,312
Texas Utilities Co........................................ 96,500 5,072,281
------------
16,848,718
------------
Total Convertible Preferred Stock (Cost $132,163,955)....... 124,332,930
------------
</TABLE>
<TABLE>
<CAPTION>
MATURITY PRINCIPAL
RATE DATE AMOUNT
----- -------- -----------
<S> <C> <C> <C> <C>
CONVERTIBLE BONDS -- 46.7%
BASICS -- 1.2%
Agnico Eagle Mines, Ltd............. 3.500% 01/27/04 $ 7,350,000 4,336,500
------------
CAPITAL GOODS -- 7.0%
EMCOR Group, Inc.................... 5.750% 04/01/05 1,375,000 1,139,531
Kellstrom Industries................ 5.500% 06/15/03 4,300,000 4,058,125
Mark IV Industries.................. 4.750% 11/01/04 2,135,000 1,814,750
Mark IV Industries, Inc. 144A....... 4.750% 11/01/04 3,000,000 2,550,000
Thermo Electron Corp. 144A.......... 4.250% 01/01/03 4,920,000 4,280,400
U.S. Filter Corp.................... 4.500% 12/15/01 3,500,000 3,154,375
Waste Management, Inc............... 4.000% 02/01/02 2,500,000 2,912,500
WMX Technologies, Inc............... 2.000% 01/24/05 4,500,000 4,410,000
------------
24,319,681
------------
CONSUMER CYCLICALS -- 14.0%
Clear Channel Communications, Inc... 2.625% 04/01/03 4,840,000 4,906,550
Family Golf Centers, Inc. 144A...... 5.750% 10/15/04 1,990,000 1,888,012
Hilton Hotels Corp.................. 5.000% 05/15/06 4,580,000 4,225,050
Home Depot, Inc..................... 3.250% 10/01/01 2,800,000 4,774,000
Magna International, Inc. 144A...... 4.875% 02/15/05 4,100,000 4,202,500
Omnicom Group, Inc. 144A............ 2.250% 01/06/13 4,400,000 5,390,000
Pep Boys, Inc....................... 4.600%+ 09/20/11 8,800,000 4,862,000
Protection One Alarm Monitoring..... 6.750% 09/15/03 4,215,000 4,952,625
Rite Aid Corp. 144A................. 5.250% 09/15/02 4,350,000 5,263,500
Times Mirror Co..................... 4.350%+ 04/15/17 10,525,000 4,762,563
Tower Automotive, Inc. 144A......... 5.000% 08/01/04 4,000,000 3,965,000
------------
49,191,800
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
16
<PAGE> 310
<TABLE>
<CAPTION>
MATURITY PRINCIPAL VALUE
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
----------- ----- -------- ----------- ------------
<S> <C> <C> <C> <C>
CONVERTIBLE BONDS -- (CONTINUED)
ENERGY -- 1.9%
Loews Corp.......................... 3.125% 09/15/07 $ 3,000,000 $ 2,310,000
Parker Drilling Corp................ 5.500% 08/01/04 2,065,000 1,450,663
Seacor Holdings, Inc................ 5.375% 11/15/06 1,300,000 1,173,250
Seacor Holdings, Inc. 144A.......... 5.375% 11/15/06 1,700,000 1,534,250
------------
6,468,163
------------
FINANCIAL SERVICES -- 3.5%
Bank Atlantic Bancorp, Inc.......... 5.625% 12/01/07 4,300,000 3,945,250
Berkshire Hathaway, Inc............. 1.000% 12/02/01 2,125,000 3,089,219
Penn Treaty American Corp........... 6.250% 12/01/03 3,780,000 4,096,575
Penn Treaty American Corp........... 6.250% 12/01/03 890,000 964,538
------------
12,095,582
------------
HEALTH CARE -- 4.8%
Alza Corp........................... 5.000% 05/01/06 4,400,000 5,038,000
Healthsouth Corp.................... 3.250% 04/01/03 4,900,000 4,477,375
Roche Holdings, Inc. Notes.......... 4.730%+ 04/20/10 5,000,000 2,903,125
Roche Holdings, Inc. Notes 144A..... 5.240%+ 05/06/12 9,000,000 4,432,500
------------
16,851,000
------------
HEALTH CARE SERVICES -- 4.9%
American Retirement Corp............ 5.750% 10/01/02 4,200,000 3,701,250
ARV Assisted Living................. 6.750% 04/01/06 4,765,000 3,466,538
Carematrix Corp. 144A............... 6.250% 08/15/04 3,000,000 2,598,750
NCS Healthcare, Inc. 144A........... 5.750% 08/15/04 3,310,000 2,821,775
Omnicare, Inc. 144A................. 5.000% 12/01/07 4,300,000 4,568,750
------------
17,157,063
------------
TECHNOLOGY -- 5.5%
Atmel Corp. 144A, 3.25% due 6/1/02;
8.25%, beginning 6/1/00++......... 3.250% 06/01/02 5,660,000 3,940,775
Itron, Inc.......................... 6.750% 03/31/04 900,000 703,125
Itron, Inc. 144A.................... 6.750% 03/31/04 2,250,000 1,757,813
Motorola, Inc. LYON................. 2.260%+ 09/27/13 3,350,000 2,386,875
Photronics, Inc..................... 6.000% 06/01/04 4,550,000 4,129,125
Solectron Corp. 144A................ 6.000% 03/01/06 2,000,000 2,735,000
Xilinx, Inc......................... 5.250% 11/01/02 4,000,000 3,635,000
------------
19,287,713
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
17
<PAGE> 311
<TABLE>
<CAPTION>
MATURITY PRINCIPAL VALUE
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
----------- ----- -------- ----------- ------------
<S> <C> <C> <C> <C>
CONVERTIBLE BONDS -- (CONTINUED)
UTILITIES -- 3.9%
Bell Atlantic Financial Services
144A.............................. 5.750% 04/01/03 $ 4,500,000 $ 4,511,250
Bell Atlantic Financial Services
144A.............................. 4.250% 09/15/05 5,000,000 4,912,500
U.S. Cellular, Corp................. 6.140%+ 06/15/15 12,000,000 4,350,000
------------
13,773,750
------------
Total Convertible Bonds (Cost
$167,864,867)....................... 163,481,252
------------
TOTAL INVESTMENTS -- 97.7%
(COST $358,371,272)............... 342,250,055
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 2.3%................. 8,121,154
------------
NET ASSETS -- 100.0%.................. $350,371,209
============
</TABLE>
- ---------------
Percentages indicated are based on net assets of $350,371,209.
(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............................. $ 18,597,064
Unrealized depreciation............................. (34,718,281)
------------
Net unrealized depreciation......................... $(16,121,217)
============
</TABLE>
<TABLE>
<S> <C> <C>
144A -- Security was purchased pursuant to Rule 144A under the
Securities Act of 1993 and may not be resold subject to that
rule except to qualified institutional buyers. At the end of
the period, these securities amount to 22.6% of net assets.
+ Effective Yield.
++ 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 the specific date, at
a specific price. Put prices reflect fixed interest rate
increase over time.
* Non-income producing securities.
</TABLE>
See Notes to Financial Statements.
18
<PAGE> 312
PACIFIC HORIZON CAPITAL INCOME FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (cost $358,371,272).... $342,250,055
Interest and dividends receivable.......................... 2,278,628
Receivable for capital shares sold......................... 310,800
Receivable for investment securities sold.................. 8,131,404
------------
Total Assets................................................ 352,970,887
------------
LIABILITIES:
Payable to Bank............................................ 89,264
Payable for capital shares redeemed........................ 2,030,728
Payable for investment securities purchased................ 89,000
Investment advisory fees payable........................... 152,515
Administration fees payable................................ 67,980
Shareholder service fees payable........................... 82,120
Distribution fees payable.................................. 2,140
Other accrued expenses..................................... 46,941
Other liabilities.......................................... 38,990
------------
Total Liabilities........................................... 2,599,678
------------
NET ASSETS.................................................. $350,371,209
============
Net Assets:
A Shares................................................... $345,693,562
B Shares................................................... 1,684,031
K Shares................................................... 2,993,616
------------
Total....................................................... $350,371,209
============
Shares Outstanding ($0.001 par value, 200 million shares
authorized):
A Shares................................................... 22,823,491
B Shares................................................... 111,188
K Shares................................................... 197,890
------------
Total....................................................... 23,132,569
============
NET ASSET VALUE:
A Shares -- Net asset value and redemption price per
share.................................................... $ 15.15
============
Maximum Sales Charge (A Shares)............................ 5.50%
Maximum Offering Price per share (A Shares)
(Net Asset Value of A Shares/(100% -- Maximum Sales
Charge))............................................... $ 16.03
============
B Shares -- Net asset value, offering and redemption price
per share................................................ $ 15.15
============
K Shares -- Net asset value, offering and redemption price
per share................................................ $ 15.13
============
COMPOSITION OF NET ASSETS:
Shares of common stock, at par............................. $ 23,133
Additional paid-in capital................................. 359,083,826
Accumulated undistributed net investment income............ 1,860,985
Accumulated net realized gains on investment
transactions............................................. 5,524,482
Net unrealized depreciation on investments................. (16,121,217)
------------
NET ASSETS, AUGUST 31, 1998................................. $350,371,209
============
</TABLE>
- ---------------
See Notes to Financial Statements.
19
<PAGE> 313
PACIFIC HORIZON CAPITAL INCOME FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the Six Months ended August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividend income........................................... $ 4,135,500
Interest income........................................... 4,336,526
------------
Total Income............................................ 8,472,026
------------
EXPENSES:
Investment advisory fees.................................. 927,796
Administration fees....................................... 412,356
Shareholder service fees (A Shares)....................... 511,340
Shareholder service fees (B Shares)....................... 301(a)
Shareholder service fees (K Shares)....................... 3,798
Distribution fees (B Shares).............................. 905(a)
Distribution fees (K Shares).............................. 11,394
Custodian and fund accounting fees........................ 18,771
Transfer Agent fees....................................... 290,570
Legal fees................................................ 6,828
Other expenses............................................ 83,707
------------
Total Expenses.......................................... 2,267,766
Less: Fee waivers......................................... (3,798)
------------
Total Net Expenses.......................................... 2,263,968
------------
NET INVESTMENT INCOME....................................... 6,208,058
------------
NET REALIZED/UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gain on investment transactions.............. 5,683,325
Net change in unrealized depreciation on investments...... (51,172,181)
------------
Net realized/unrealized losses on investments............. (45,488,856)
------------
DECREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $(39,280,798)
============
</TABLE>
- ---------------
(a) Period from July 15, 1998 (inception date) to August 31, 1998.
See Notes to Financial Statements.
20
<PAGE> 314
PACIFIC HORIZON CAPITAL INCOME FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
AUGUST 31, YEAR ENDED
1998 FEBRUARY 28,
(UNAUDITED) 1998
------------ ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income................................ $ 6,208,058 $ 12,184,863
Net realized gains on investment transactions........ 5,683,325 40,172,797
Net change in unrealized appreciation/(depreciation)
on investments..................................... (51,172,181) 15,462,278
------------ ------------
Change in net assets resulting from operations......... (39,280,798) 67,819,938
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
A Shares........................................... (6,400,443) (11,941,341)
K Shares........................................... (42,685) (44,897)
Net realized gains from investment transactions:
A Shares........................................... (4,002,223) (58,050,678)
B Shares (a)....................................... (18,272) --
K Shares........................................... (34,031) (294,934)
------------ ------------
Change in net assets from shareholder distributions.... (10,497,654) (70,331,850)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued.......................... 58,796,482 95,805,004
Dividends reinvested................................. 9,625,042 65,580,717
Cost of shares redeemed.............................. (61,942,883) (75,563,249)
------------ ------------
Change in net assets from capital share transactions... 6,478,641 85,822,472
------------ ------------
Change in net assets................................... (43,299,811) 83,310,560
NET ASSETS:
Beginning of Period.................................. 393,671,020 310,360,460
------------ ------------
End of Period (including undistributed net investment
income of $1,860,985, and $2,096,055,
respectively.)..................................... $350,371,209 $393,671,020
============ ============
</TABLE>
- ---------------
(a) Period from July 15, 1998 (inception date) to August 31, 1998.
See Notes to Financial Statements.
21
<PAGE> 315
PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- ------ ------------
<S> <C> <C>
COMMON STOCK -- 50.8%
AEROSPACE -- 0.5%
United Technologies Corp.................................. 18,600 $ 1,349,662
------------
AIRLINES -- 0.3%
AMR Corp.**............................................... 10,000 545,000
UAL Corp.**............................................... 3,900 235,219
------------
780,219
------------
APPAREL/TEXTILE -- 0.1%
Tommy Hilfiger Corp. **................................... 8,000 374,000
------------
AUTOMOTIVE -- 1.1%
Chrysler Corp............................................. 16,400 731,850
Dana Corp................................................. 10,800 423,225
Ford Motor Co............................................. 34,000 1,496,000
------------
2,651,075
------------
BANKS/SAVINGS & LOANS -- 4.5%
BankBoston Corp........................................... 21,000 749,437
Chase Manhattan Corp...................................... 36,500 1,934,500
Citicorp.................................................. 15,700 1,697,562
First Chicago NBD Corp.................................... 17,000 1,077,375
First Union Corp.......................................... 32,600 1,581,100
Fleet Financial Group, Inc................................ 27,200 1,783,300
Mellon Bank Corp.......................................... 19,000 988,000
National City Corp........................................ 15,400 904,750
PNC Bank Corp............................................. 12,800 550,400
State Street Corp......................................... 5,300 275,931
------------
11,542,355
------------
BEVERAGES -- 1.6%
Anheuser-Busch Cos., Inc.................................. 10,900 502,762
Coca-Cola Co.............................................. 35,500 2,311,937
PepsiCo, Inc.............................................. 48,700 1,348,381
------------
4,163,080
------------
BUILDING RELATED/APPLIANCE -- 0.3%
Masco Corp................................................ 28,800 662,400
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
22
<PAGE> 316
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- ------ ------------
<S> <C> <C>
COMMON STOCK -- (CONTINUED)
CHEMICALS -- 1.1%
Dow Chemical Co........................................... 12,700 $ 990,600
Du Pont (E. I.) De Nemours & Co........................... 11,000 634,562
PPG Industries, Inc....................................... 8,200 416,662
Praxair, Inc.............................................. 14,900 534,537
Solutia, Inc.............................................. 12,600 282,713
------------
2,859,074
------------
COMMUNICATIONS -- 2.1%
Cisco Systems, Inc.**..................................... 35,800 2,931,125
Lucent Technologies, Inc.................................. 35,800 2,537,325
------------
5,468,450
------------
COMPUTER HARDWARE -- 2.8%
Compaq Computer Corp...................................... 9,300 259,819
Dell Computer Corp.**..................................... 25,400 2,540,000
Eastman Kodak Co.......................................... 8,400 656,250
EMC Corp.**............................................... 35,000 1,581,562
Sun Microsystems, Inc.**.................................. 19,300 764,762
Xerox Corp................................................ 14,600 1,282,062
------------
7,084,455
------------
COMPUTER SERVICES & SOFTWARE -- 2.3%
HBO & Co.................................................. 41,400 879,750
Microsoft Corp.**......................................... 50,800 4,873,625
------------
5,753,375
------------
COSMETICS & TOILETRIES -- 1.8%
Avon Products, Inc........................................ 22,100 1,389,537
Clorox Co................................................. 4,400 424,325
Newell Co................................................. 10,600 506,150
Procter & Gamble Co....................................... 16,600 1,269,900
Unilever NV, New York..................................... 14,600 925,275
------------
4,515,187
------------
ELECTRIC -- 1.4%
Edison International...................................... 58,500 1,663,594
FPL Group, Inc............................................ 27,300 1,817,156
------------
3,480,750
------------
ELECTRICAL EQUIPMENT -- 1.8%
General Electric Co....................................... 57,800 4,624,000
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
23
<PAGE> 317
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- ------ ------------
<S> <C> <C>
COMMON STOCK -- (CONTINUED)
ENERGY RELATED -- 0.3%
Baker Hughes, Inc......................................... 20,250 $ 369,563
Halliburton Co............................................ 10,400 276,250
------------
645,813
------------
ENTERTAINMENT -- 1.4%
Brunswick Corp............................................ 15,000 224,062
Carnival Corp............................................. 21,100 609,262
Time Warner, Inc.......................................... 14,500 1,165,438
Viacom, Inc., Class B**................................... 19,200 952,800
Walt Disney Co............................................ 22,800 625,575
------------
3,577,137
------------
FINANCIAL SERVICES -- 1.7%
American Express Co....................................... 16,200 1,263,600
Morgan Stanley Dean Witter Discover & Co.................. 19,600 1,138,025
Providian Financial Corp.................................. 31,700 2,034,744
------------
4,436,369
------------
FOOD & RELATED -- 1.2%
Campbell Soup Co.......................................... 22,400 1,128,400
Pioneer Hi-Bred International, Inc........................ 10,300 347,625
Quaker Oats Co............................................ 20,700 1,099,687
Sara Lee Corp............................................. 9,600 434,400
------------
3,010,112
------------
HOSPITAL MANAGEMENT -- 0.1%
United Healthcare Corp.................................... 4,100 148,112
------------
HOSPITAL SUPPLY -- 1.6%
Abbott Laboratories....................................... 44,900 1,728,650
Biomet, Inc............................................... 24,800 666,500
Guidant Corp.............................................. 11,200 691,600
Johnson & Johnson Co...................................... 13,100 903,900
------------
3,990,650
------------
INDUSTRIAL SERVICES -- 0.0%
ACNielsen Corp.**......................................... 1 20
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
24
<PAGE> 318
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- ------ ------------
<S> <C> <C>
COMMON STOCK -- (CONTINUED)
INSURANCE -- 2.0%
Allstate Corp............................................. 38,600 $ 1,447,500
American General Corp..................................... 16,500 1,060,125
Conseco, Inc.............................................. 32,400 895,050
Equitable Cos., Inc....................................... 5,000 285,938
SunAmerica, Inc........................................... 23,400 1,449,338
------------
5,137,951
------------
MACHINERY -- 0.4%
Deere & Co................................................ 13,600 447,950
Ingersoll-Rand Co......................................... 15,300 608,175
------------
1,056,125
------------
METALS & MINING -- 0.3%
Aluminum Company of America............................... 1,600 95,800
USX-U.S. Steel Group, Inc................................. 31,300 655,344
------------
751,144
------------
MULTI-INDUSTRY -- 1.6%
AlliedSignal, Inc......................................... 19,400 665,662
Honeywell, Inc............................................ 16,000 1,000,000
Tyco International Ltd.................................... 41,600 2,308,800
------------
3,974,462
------------
OIL (DOMESTIC) -- 0.6%
Phillips Petroleum Co..................................... 13,000 530,563
Sun Co., Inc.............................................. 12,400 409,975
USX -- Marathon Group................................... 23,800 618,800
------------
1,559,338
------------
OIL (INTERNATIONAL) -- 2.9%
Amoco Corp................................................ 12,700 575,469
Chevron Corp.............................................. 9,600 711,000
Exxon Corp................................................ 54,600 3,572,888
Mobil Corp................................................ 26,200 1,811,075
Texaco, Inc............................................... 14,100 783,431
------------
7,453,863
------------
PAPER & FOREST PRODUCTS -- 0.4%
Owens-Illinois, Inc....................................... 19,400 605,038
Temple Inland, Inc........................................ 8,700 389,869
------------
994,907
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
25
<PAGE> 319
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- ------ ------------
<S> <C> <C>
COMMON STOCK -- (CONTINUED)
PHARMACEUTICALS -- 4.5%
Bristol-Meyers Squibb Co.................................. 30,700 $ 3,004,763
Merck & Co., Inc.......................................... 8,500 985,469
Pfizer, Inc............................................... 30,000 2,790,000
Schering-Plough Corp...................................... 16,400 1,410,400
Warner-Lambert Co......................................... 48,000 3,132,000
------------
11,322,632
------------
PRINTING & PUBLISHING -- 0.6%
McGraw-Hill Cos., Inc..................................... 8,700 663,375
Meredith Corp............................................. 7,300 245,006
New York Times Co., Class A............................... 18,200 527,800
------------
1,436,181
------------
RESTAURANTS/LODGING -- 0.4%
Marriott International, Inc., Class A..................... 14,300 401,294
McDonald's Corp........................................... 11,000 616,688
------------
1,017,982
------------
RETAIL -- 2.5%
Gap, Inc.................................................. 22,000 1,123,375
Home Depot, Inc........................................... 41,200 1,586,200
TJX Cos., Inc............................................. 51,600 1,151,325
Wal-Mart Stores, Inc...................................... 43,600 2,561,500
------------
6,422,400
------------
RETAIL FOOD/DRUG -- 0.6%
Albertson's, Inc.......................................... 11,700 591,581
Safeway, Inc.**........................................... 23,200 913,500
------------
1,505,081
------------
SEMICONDUCTORS/INSTRUMENTATION -- 0.9%
Harris Corp............................................... 19,000 605,625
Intel Corp................................................ 13,400 953,913
Maxim Integrated Products, Inc. **........................ 23,800 654,500
------------
2,214,038
------------
TOBACCO -- 0.8%
Philip Morris Cos., Inc................................... 49,700 2,065,656
------------
TRANSPORTATION -- 0.2%
Burlington Northern Santa Fe Corp......................... 5,700 530,456
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
26
<PAGE> 320
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- ------ ------------
<S> <C> <C>
COMMON STOCK -- (CONTINUED)
UTILITIES-GAS & PIPELINE -- 0.3%
Coastal Corp.............................................. 31,400 $ 816,400
------------
UTILITIES-TELEPHONE -- 3.8%
AT&T Corp................................................. 32,600 1,634,075
BellSouth Corp............................................ 35,300 2,420,256
GTE Corp.................................................. 27,100 1,355,000
MCI Communications Corp................................... 49,300 2,465,000
Sprint Corp............................................... 8,100 543,206
U.S. West, Inc............................................ 23,900 1,242,800
------------
9,660,337
------------
Total Common Stock (Cost $116,374,717)...................... 129,035,248
------------
CONVERTIBLE PREFERRED STOCK -- 0.1%
Sealed Air Corp.
(Cost $245,177)........................................... 4,845 199,251
------------
</TABLE>
<TABLE>
<CAPTION>
RATINGS
S&P/MOODY'S MATURITY PRINCIPAL
(UNAUDITED) RATE DATE AMOUNT
----------- ------ -------- -----------
<S> <C> <C> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS -- 13.8%
AESOP Funding II,
Series 1997-1, Class
A1................... NR/Aaa 6.220% 10/20/01 $ 1,000,000 1,010,000
Asset Securitization
Corp., Series 1997-
D5, Class A1C........ AAA/Aaa 6.750% 02/14/41 1,750,000 1,833,965
Chevy Chase Auto
Receivables Trust,
Series 1998-2, Class
A.................... AAA/Aaa 5.910% 12/15/04 1,247,053 1,253,288
Circuit City Credit
Card Master Trust,
Series 1995-1, Class
A.................... AAA/Aaa 6.375% 08/15/05 1,300,000 1,321,724
Commercial Mortgage
Acceptance Corp.,
Series 1998-C1, Class
A2................... AAA/Aaa 6.490% 05/15/08 1,715,000 1,761,734
</TABLE>
- ---------------
See Notes to Financial Statements.
27
<PAGE> 321
<TABLE>
<CAPTION>
RATINGS
S&P/MOODY'S MATURITY PRINCIPAL VALUE
(UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ------ -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS -- (CONTINUED)
Credit Suisse First
Boston Mortgage
Securities Corp.,
Series 1998-C1, Class
A1B.................. AAA/Aaa 6.480% 05/17/08 $ 1,800,000 $ 1,850,076
Criimi Mae CMBS Corp.,
Series 1998-1, Class
A1+.................. AAA/Aaa 5.697% 10/20/01 1,976,931 1,964,338
Donaldson, Lufkin,
Jenrette, Commercial
Mortgage Corp.,
Series 1998-CG1,
Class A1B............ AAA/NR 6.410% 05/10/08 1,900,000 1,942,560
Fingerhut Master Trust,
Series 1998-1, Class
A.................... AAA/Aaa 6.070% 02/15/05 1,300,000 1,320,917
First Union-Lehman
Brothers-Bank of
America Trust, Series
1998-C2, Class A2.... AAA/Aaa 6.560% 11/18/08 2,000,000 2,063,520
General Growth
Properties, Series 1,
Class A2, 144A+...... NR/Aaa 6.602% 11/15/07 1,600,000 1,644,501
GMAC Commercial
Mortgage Securities,
Inc., Series 1997-C2,
Class A3............. AAA/Aaa 6.566% 11/15/07 2,075,000 2,143,703
Lehman Brothers
Commercial Conduit
Mortgage Trust,
Series 1998-C1, Class
A3................... NR/Aaa 6.480% 01/18/08 2,350,000 2,410,959
Mortgage Capital
Funding, Inc., Series
1998-MC1, Class A2... AAA/NR 6.663% 01/18/08 2,750,000 2,857,965
</TABLE>
- ---------------
See Notes to Financial Statements.
28
<PAGE> 322
<TABLE>
<CAPTION>
RATINGS
S&P/MOODY'S MATURITY PRINCIPAL VALUE
(UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ------ -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS -- (CONTINUED)
Mortgage Capital
Funding, Inc., Series
1998-MC2, Class A2... NR/Aaa 6.423% 05/18/08 $ 1,850,000 $ 1,890,552
Nomura Asset Securities
Corp., Series
1998-D6, Class A1B... AAA/Aaa 6.590% 03/17/28 2,050,000 2,124,415
The Money Store Home
Equity Trust, Series
1996-B, Class A6..... AAA/Aaa 7.380% 03/15/17 3,500,000 3,587,500
UAF Auto Grantor Trust,
Series 1998-A, Class
A+................... AAA/Aaa 6.100% 05/17/04 1,021,901 1,033,397
Vendee Mortgage Trust,
Series 1998-1, Class
2, Interest Only
Obligation........... NR/NR 0.455% 09/15/27 53,505,678 1,070,114
-----------
Total Collateralized Mortgage Obligations (Cost $34,684,242)............ 35,085,228
-----------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
CORPORATE OBLIGATIONS -- 16.2%
CORPORATE BONDS -- 14.1%
AON Corp............... AA-/A3 7.400% 10/01/02 $ 1,000,000 1,062,500
BHP Finance USA Ltd.... A/A3 6.420% 03/01/26 1,600,000 1,564,000
Capital One Bank....... BBB-/Baa3 7.000% 04/30/01 1,400,000 1,429,750
Case Credit Corp....... A-/Baa1 6.125% 02/15/03 1,400,000 1,417,500
Coastal Corp........... BBB-/Baa3 8.125% 09/15/02 1,605,000 1,737,413
Consumers Energy Co.
144A+................ BBB+/Baa3 6.200% 05/01/03 1,300,000 1,317,875
Cox Radio, Inc. 144A+.. A-/Baa2 6.250% 05/15/03 1,200,000 1,215,000
Federated Department
Stores............... BBB-/Baa2 8.125% 10/15/02 1,000,000 1,076,250
Finova Capital Corp.... A-/Baa1 6.625% 09/15/01 2,200,000 2,257,750
General Motors
Acceptance Corp...... A/A2 6.875% 07/15/01 2,000,000 2,070,000
GTE Corp............... A/Baa1 9.100% 06/01/03 1,200,000 1,357,500
</TABLE>
- ---------------
See Notes to Financial Statements.
29
<PAGE> 323
<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)
CORPORATE BONDS -- (CONTINUED)
Hanson Overseas B.V... A-/A3 7.375% 01/15/03 $ 1,350,000 $ 1,425,938
James River Corp...... BBB-/Baa2 8.375% 11/15/01 1,250,000 1,345,313
KN Energy, Inc........ BBB-/Baa2 6.450% 03/01/03 1,000,000 997,500
Nabisco, Inc.......... BBB/Baa2 6.125% 02/01/03 1,500,000 1,490,625
News America Holdings,
Inc................. BBB-/Baa3 8.625% 02/01/03 1,250,000 1,365,625
Praxair, Inc.......... BBB+/A3 6.750% 03/01/03 1,500,000 1,543,125
Salomon Smith Barney
Holdings, Inc....... A/Aa3 6.250% 05/15/03 1,300,000 1,324,375
Sears Roebuck
Acceptance Corp..... A-/A2 6.000% 03/20/03 1,200,000 1,209,000
Service Corp.
International....... BBB+/Baa1 6.300% 03/15/03 1,100,000 1,116,500
TCI Communications,
Inc................. BBB-/Baa3 6.375% 05/01/03 1,300,000 1,324,375
Time Warner Inc.,
Pass-Through,
144A+............... BBB-/Baa3 6.100% 12/30/01 1,250,000 1,251,563
U.S. West Capital
Funding, Inc........ A-/A3 6.125% 07/15/02 1,200,000 1,218,000
USG Corp.............. BBB/Baa2 9.250% 09/15/01 1,100,000 1,179,750
Williams Cos., Inc.... BBB-/Baa2 6.125% 02/01/01 1,000,000 1,010,000
Worldcom, Inc......... BBB+/Baa2 6.400% 08/15/05 1,400,000 1,405,250
------------
35,712,477
------------
MEDIUM TERM NOTES -- 2.1%
Banco Latinoamericano,
144A+............... BBB/Baa1 6.590% 10/16/01 1,400,000 1,372,000
MCN Investment
Corp................ BBB/Baa3 6.890% 01/16/02 1,500,000 1,545,000
Paine Webber Group,
Inc................. BBB+/Baa1 7.015% 02/10/04 1,250,000 1,306,250
PSE&G Capital
Corp.+.............. BBB/Baa2 6.740% 10/23/01 1,100,000 1,127,500
------------
5,350,750
------------
Total Corporate Obligations (Cost $40,499,442)......................... 41,063,227
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
30
<PAGE> 324
<TABLE>
<CAPTION>
MATURITY PRINCIPAL VALUE
RATE DATE AMOUNT (NOTE 2)
------ -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 14.6%
FHLMC Pool #533301................. 10.500% 04/01/19 $ 18,583 $ 20,384
FHLMC Pool #E60891................. 6.500% 07/01/10 2,414,581 2,446,272
FHLMC Pool #G10304................. 6.500% 04/01/09 644,086 652,539
FNCI Pool #400028.................. 6.500% 02/01/13 2,829,855 2,865,229
FNCL Pool #313349.................. 10.000% 09/01/18 873,557 946,171
FNCL Pool #313644.................. 7.000% 08/01/27 4,622,403 4,706,184
FNCL Pool #325602.................. 6.500% 10/01/10 346,681 351,014
FNCX Pool #323191.................. 6.500% 06/01/05 1,170,959 1,183,035
FNMA Pool #1997-M5 Class C......... 6.740% 08/25/07 2,000,000 2,153,540
FNMA Pool #345858.................. 6.248% 08/01/36 1,166,823 1,194,535
FNMA Pool #405210.................. 7.000% 05/01/28 3,607,462 3,672,847
FNMA Pool #437420.................. 7.000% 08/01/28 3,675,003 3,741,612
GNMA Pool #146301.................. 10.000% 02/15/16 56,642 61,863
GNMA Pool #436800.................. 8.000% 07/15/27 3,547,242 3,680,263
GNMA Pool #448913.................. 8.000% 06/15/28 2,612,446 2,710,413
GNMA Pool #448958.................. 8.000% 09/15/27 2,954,530 3,065,325
GNMA Pool #449104.................. 8.000% 06/15/28 970,243 1,006,627
GNMA Pool #467788.................. 8.000% 04/15/28 161,093 167,134
GNMA Pool #469406.................. 8.000% 03/15/28 469,297 486,896
GNSF Pool #231236.................. 9.000% 01/15/20 204,615 218,555
GNSF Pool #258039.................. 9.000% 01/15/20 167,870 179,306
GNSF Pool #276635.................. 9.000% 10/15/19 196,956 210,374
GNSF Pool #278853.................. 9.000% 11/15/19 299,727 320,146
GNSF Pool #780330.................. 9.000% 12/15/19 858,224 926,882
------------
Total U.S. Government Agency Obligations (Cost $36,664,704)............ 36,967,146
------------
U.S. GOVERNMENT OBLIGATIONS -- 3.8%
U.S. Treasury Strips............... 5.564%* 05/15/09 4,000,000 2,289,801
U.S. Treasury Strips............... 5.862%* 08/15/18 6,500,000 2,180,280
U.S. Treasury Strips............... 5.888%* 08/15/22 18,900,000 5,092,849
------------
Total U.S. Government Obligations (Cost $8,982,564).................... 9,562,930
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
---------
<S> <C> <C>
TEMPORARY INVESTMENTS -- 0.3%
Temporary Investment Cash Fund.......................... 409,620 409,620
Temporary Investment Fund............................... 409,619 409,619
------------
Total Temporary Investments (Cost $819,239)............... 819,239
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
31
<PAGE> 325
<TABLE>
<CAPTION>
VALUE
(NOTE 2)
------------
<S> <C>
TOTAL INVESTMENTS -- 99.6% (COST $238,270,085)(A)...................... $252,732,269
OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.4%.......................... 993,632
------------
NET ASSETS -- 100.0%................................................... $253,725,901
============
</TABLE>
- ---------------
Percentages indicated are based on net assets of $253,725,901.
(a) Represents cost for Federal income tax and book purposes and differs from
value by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.............................. $26,591,591
Unrealized depreciation.............................. (12,129,407)
-----------
Net unrealized appreciation.......................... $14,462,184
===========
</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 2.7% 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.
FNCX -- Federal National Mortgage Association -- 30/7 Year Balloon.
GNMA -- Government National Mortgage Association.
GNSF -- Government National Mortgage Association -- 30 Year Fixed.
NR -- Not Rated.
* Effective Yield.
** Non-income producing security.
+ Private Placement Security.
See Notes to Financial Statements.
32
<PAGE> 326
PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (cost $238,270,085)..... $252,732,269
Interest and dividends receivable.......................... 1,561,677
Receivable for capital shares sold......................... 195,075
Receivable for investment securities sold.................. 1,350,009
Prepaid expenses........................................... 20,733
------------
Total Assets................................................ 255,859,763
------------
LIABILITIES:
Dividend payable........................................... 12,456
Payable for capital shares redeemed........................ 1,137,558
Payable for investment securities purchased................ 667,761
Investment advisory fees payable........................... 122,489
Administration fees payable................................ 64,080
Shareholder service fees payable........................... 58,089
Audit Fees Payable......................................... 36,298
Distribution fees payable.................................. 1,192
Other accrued expenses..................................... 33,939
------------
Total Liabilities........................................... 2,133,862
------------
NET ASSETS.................................................. $253,725,901
============
Net Assets:
A Shares................................................... $ 66,281,258
B Shares................................................... 683,506
K Shares................................................... 1,262,693
SRF Shares................................................. 185,498,444
------------
Total....................................................... $253,725,901
============
Shares Outstanding ($0.001 par value, 400 million shares
authorized):
A Shares................................................... 3,238,041
B Shares................................................... 33,393
K Shares................................................... 61,809
SRF Shares................................................. 11,750,298
------------
Total....................................................... 15,083,541
============
NET ASSET VALUE:
A Shares -- Net asset value and redemption price per
share.................................................... $ 20.47
============
Maximum Sales Charge (A Shares)............................ 5.50%
Maximum Offering Price per share (A Shares) (Net Asset
Value of A Shares / (100% -- Maximum Sales Charge)).... $ 21.66
============
B Shares -- Net asset value, offering and redemption price
per share................................................ $ 20.47
============
K Shares -- Net asset value, offering and redemption price
per share................................................ $ 20.43
============
SRF Shares -- Net asset value, offering and redemption
price per share.......................................... $ 15.79
============
COMPOSITION OF NET ASSETS:
Shares of common stock, at par............................. $ 15,084
Additional paid-in capital................................. 220,818,797
Accumulated undistributed net investment income............ 1,197,610
Accumulated net realized gains on investment
transactions............................................. 17,232,226
Net unrealized appreciation on investments................. 14,462,184
------------
NET ASSETS, AUGUST 31, 1998................................. $253,725,901
============
</TABLE>
- ---------------
See Notes to Financial Statements.
33
<PAGE> 327
PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the six months ended August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividend income........................................... $ 985,198
Interest income........................................... 3,833,675
-----------
Total Income................................................ 4,818,873
-----------
EXPENSES:
Advisory fees............................................. 541,174
Administration fees....................................... 202,940
Administrative and Shareholder service fees (K Shares).... 1,803
Shareholder service fees (A Shares)....................... 82,603
Shareholder service fees (B Shares)....................... 109(a)
Shareholder service fees (SRF Shares)..................... 253,716
Distribution fees (B Shares).............................. 326(a)
Distribution fees (K Shares).............................. 5,376
Accounting fees........................................... 36,296
Custodian fees............................................ 22,739
Transfer Agent fees....................................... 32,011
Registration fees......................................... 8,135
Reports to shareholders................................... 21,401
Audit fees................................................ 10,855
Legal fees................................................ 4,420
Directors' fees........................................... 2,418
Other expenses............................................ 15,695
-----------
Total Expenses.......................................... 1,242,017
Less: Fee waivers and expense reimbursements................ (1,796)
-----------
Total Net Expenses.......................................... 1,240,221
-----------
NET INVESTMENT INCOME....................................... 3,578,652
-----------
REALIZED/UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gains on investment transactions............. 17,243,692
Net change in unrealized appreciation on investments...... (26,582,705)
-----------
Net realized/unrealized losses on investments............... (9,339,013)
-----------
Decrease in Net Assets Resulting from Operations............ $(5,760,361)
===========
</TABLE>
- ---------------
(a) Period from July 15, 1998 (inception date) to August 31, 1998.
See Notes to Financial Statements.
34
<PAGE> 328
PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
AUGUST 31, YEAR ENDED
1998 FEBRUARY 28,
(UNAUDITED) 1998
------------ ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income............................. $ 3,578,652 $ 4,657,471
Net realized gain on investment transactions...... 17,243,692 16,121,025
Net change in unrealized appreciation
(depreciation) on investments................... (26,582,705) 10,917,084
------------ ------------
Change in net assets resulting from operations...... (5,760,361) 31,695,580
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
A Shares........................................ (646,610) (948,423)
K Shares........................................ (12,208) (16,758)
SRF Shares...................................... (2,673,715) (2,815,255)(a)
Net realized gains from investment transactions A
Shares.......................................... (973,060) (3,507,686)
B Shares (b).................................... (8,758) --
K Shares........................................ (18,237) (82,265)
SRF Shares...................................... (3,504,650) (9,820,897)(a)
------------ ------------
Change in net assets from shareholder
distributions..................................... (7,837,238) (17,191,284)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares issued....................... 35,533,799 208,437,645
Dividends reinvested.............................. 7,765,506 16,979,819
Cost of shares redeemed........................... (23,774,333) (27,709,016)
------------ ------------
Change in net assets from capital share
transactions...................................... 19,524,972 197,708,448
------------ ------------
Change in net assets................................ 5,927,373 212,212,744
NET ASSETS
Beginning of Period............................... 247,798,528 35,585,784
------------ ------------
End of Period (including undistributed net
investment income of $1,197,610 and $951,491,
respectively.).................................. $253,725,901 $247,798,528
============ ============
</TABLE>
- ---------------
(a) Period from June 23, 1997 (inception date) to February 28, 1998.
(b) Period from July 15, 1998 (inception date) to August 31, 1998.
See Notes to Financial Statements.
35
<PAGE> 329
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
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 August 31, 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".
The Funds each offer A Shares, K Shares and effective July 15, 1998, began
offering B Shares. Additionally, the Asset Allocation Fund offers SRF Shares. A
Shares and SRF Shares have a Shareholder Services Plan, B Shares have a
Distribution and Services Plan, and K Shares have a Distribution Plan and
Administrative and Shareholder Services Plan. B Shares of the Funds held for 9
years will automatically convert into A Shares of the Fund.
The investment objectives of the Funds are as follows:
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 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.
Adviser and Administrator
Bank of America National Trust and Savings Association ("Bank of America"),
a subsidiary of BankAmerica Corporation ("BankAmerica"), serves as the Funds'
investment adviser. On September 15, 1997, Bank of America
36
<PAGE> 330
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").
On October 1, 1998, BankAmerica Corp., the Adviser's and Administrator's
parent company, completed its merger with NationsBank Corporation. The combined
company operates under the name BankAmerica. BankAmerica continues to serve the
Funds on substantially identical terms as described in Note 3.
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 Asset Allocation Fund. The Asset
Allocation Fund bears 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 Capital Income Fund.
The Capital Income Fund bears all fees and expenses charged by BONY for these
services.
Distributor and Transfer Agent
Provident Distributors, Inc. ("PDI"), serves as principal underwriter and
distributor of shares of the Funds. PFPC serves as the Fund's transfer agent and
dividend disbursing agent.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Funds in the preparation of their financial statements. The policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
37
<PAGE> 331
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 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, 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 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.
EXPENSES:
The Company accounts separately for the assets, liabilities and operations
of each fund. Direct expenses of a fund are charged to that fund while general
Company expenses are allocated among the Company's respective portfolios.
The investment income and expenses of a fund (other than class specific
expenses) and realized and unrealized gains and losses on investments of a fund
are allocated to each class of shares based upon their relative net asset value
on the date income is earned or expenses and realized and unrealized gains and
losses are incurred.
The Asset Allocation Fund incurred certain costs in connection with its
organization. Such costs have been deferred and are being amortized on a
straight line basis over five years.
38
<PAGE> 332
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
The Funds' net investment income is declared and paid as a dividend,
quarterly, to shareholders of record at the close of business on record date.
Net realized gains on portfolio securities, if any, are distributed at least
annually. However, to the extent that net realized gains of the Funds can be
offset by capital loss carryovers of the Funds, such gains will not be
distributed. Dividends and distributions are recorded by the Funds on the
ex-dividend date.
The amount of dividends from net investment income and of distributions from
net realized gains are determined in accordance with Federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the composition of net assets based on their Federal
tax-basis treatment; temporary differences do not require reclassification.
Dividends and distributions to shareholders which exceed net investment income
and net realized capital gains for financial reporting purposes but not for tax
purposes are reported as dividends in excess of net investment income or
distributions in excess of net realized gains. To the extent they exceed net
investment income and net realized gains for tax purposes, they are reported as
distributions of capital.
As of February 28, 1998, the following reclassifications have been made to
increase (decrease) such accounts primarily due to paydown adjustments for tax
purposes:
<TABLE>
<CAPTION>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED NET REALIZED
NET GAIN/(LOSS)
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
39
<PAGE> 333
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.
For the six months ended August 31, 1998, PDI advised the Funds that it
retained $21,599 and $4,357 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
$133,285 and $38,799 from commissions earned on sales of shares of the Capital
Income Fund and Asset Allocation Fund, respectively.
The Funds have a Shareholder Services Plan (the "Plan") under which each
Fund paid PDI 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 six months ended August 31, 1998, the Capital Income Fund and Asset
Allocation Fund incurred charges of $511,340 and $82,603, respectively, pursuant
to the Plan. The Funds were advised that of these amounts, PDI retained $13,470
and $807 from the Capital Income Fund and Asset Allocation Fund, respectively,
and affiliates of Bank of America retained $425,125 and $63,615, respectively.
The Plan provides that if, in any month, the fees paid to PDI are less than the
costs incurred by PDI, 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 and Services Plan pursuant to Rule
12b-1 under the 1940 act, under which the B Shares of the Capital Income Fund
and the Asset Allocation Fund pay Bank of America for costs incurred in
connection with distribution of the B Shares and for shareholder servicing fees
to Service Organizations. 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 Fund's B Shares. For the
period ended August 31, 1998, the Capital Income Fund and the Asset Allocation
Fund incurred charges of $1,206 and $435, pursuant to the Plan. The Funds were
advised that of these amounts, affiliates of Bank of America retained $1,068 and
$388 from the Capital Income Fund and the Asset Allocation Fund, respectively.
The Funds have adopted a Distribution Plan and an Administrative and
Shareholder Services Plan (the "Administrative Plan") with respect to K Shares
40
<PAGE> 334
of the Funds. Under the Distribution Plan, the Funds pay PDI 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 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 six months ended August 31, 1998, the
Capital Income Fund and Asset Allocation Fund incurred charges of $15,192 and
$7,179, respectively, pursuant to Distribution and Administrative Plans. The
Funds were advised that of these amounts PDI retained $138 and affiliates of
Bank of America retained $359 from the Capital Income Fund. For the same period,
shareholder services fees of $3,798 and $1,796 were waived by the Capital Income
Fund and Asset Allocation Fund, respectively.
The Asset Allocation Fund has a Shareholder Services Plan under which the
Fund paid PDI 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 six
months ended August 31, 1998, Asset Allocation Fund incurred charges of
$253,716, pursuant to the Plan. The Asset Allocation Fund was advised that of
this amount the affiliates of Bank of America retained $253,716.
For the six months ended August 31, 1998, PFPC earned $290,570 and $32,011
from the Capital Income Fund and Asset Allocation Fund, respectively, for
transfer agency and dividend disbursing agency services performed.
A partner of Drinker Biddle & Reath LLP ("DBR") serves as Secretary of the
Company. Legal fees earned by DBR are stated in the statement of operations.
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 $60,000,
plus $1,000 for each day the director participates in all or part of a Board or
41
<PAGE> 335
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 $40,000 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 shall be
assigned an Applicable Percentage of 50 percent. Aggregate costs pursuant to the
Retirement Plan amounted to $824 and $127 for the Capital Income Fund and Asset
Allocation Fund, respectively, for the six months ended August 31, 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 six months ended August 31, 1998, the cost of purchases and the
proceeds from sales of Capital Income Fund's securities (excluding short-term
investments) amounted to $164,848,728 and $166,787,585, respectively. The cost
of purchases and the proceeds from sales of Asset Allocation Fund's securities
(excluding short-term investments) amounted to $230,647,777 and $211,310,041,
respectively.
42
<PAGE> 336
NOTE 6 -- CAPITAL SHARE TRANSACTIONS
Transactions in shares of common stock of the Funds are summarized below:
<TABLE>
<CAPTION>
CAPITAL INCOME FUND
-------------------------------------------------
SIX MONTHS ENDED
AUGUST 31, 1998 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 1998
--------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
------- ---------- ------- ----------
<S> <C> <C> <C> <C>
A SHARES (000'S)
Issued..................... 3,130 $ 55,104 5,211 $ 94,279
Reinvested................. 560 9,530 3,816 65,240
Redeemed................... (3,508) (60,923) (4,209) (75,226)
------- ---------- ------- ----------
Net increase................. 182 $ 3,711 4,818 $ 84,293
======= ========== ======= ==========
B SHARES (a)
Issued..................... 115,867 $1,967,244 -- --
Reinvested................. 1,105 17,993 -- --
Redeemed................... (5,784) (96,278) -- --
------- ---------- ------- ----------
Net increase................. 111,188 $1,888,959 -- --
======= ========== ======= ==========
K SHARES
Issued..................... 99,198 $1,725,517 84,437 $1,526,087
Reinvested................. 4,534 76,738 20,132 340,801
Redeemed................... (52,512) (923,200) (18,691) (337,379)
------- ---------- ------- ----------
Net Increase................. 51,220 $ 879,055 85,878 $1,529,509
======= ========== ======= ==========
</TABLE>
<TABLE>
<CAPTION>
ASSET ALLOCATION FUND
-------------------------------------------------
SIX MONTHS ENDED
AUGUST 31, 1998 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 1998
--------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
------- ---------- ------- ----------
<S> <C> <C> <C> <C>
A SHARES (000'S)
Issued..................... 1,245 $ 27,476 734 $ 14,942
Reinvested................. 70 1,553 211 4,243
Redeemed................... (377) (8,364) (441) (8,989)
------- ---------- ------- ----------
Net increase................. 938 $ 20,665 504 $ 10,196
======= ========== ======= ==========
B SHARES(a)
Issued..................... 33,433 $ 747,017 -- --
Reinvested................. 391 8,581 -- --
Redeemed................... (431) (9,801) -- --
------- ---------- ------- ----------
Net Increase................. 33,393 $ 745,797 -- --
======= ========== ======= ==========
</TABLE>
43
<PAGE> 337
<TABLE>
<CAPTION>
ASSET ALLOCATION FUND
-------------------------------------------------
SIX MONTHS ENDED
AUGUST 31, 1998 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 1998
--------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
------- ---------- ------- ----------
<S> <C> <C> <C> <C>
K SHARES
Issued..................... 21,265 $ 470,675 58,580 $1,194,200
Reinvested................. 1,383 30,467 4,918 99,023
Redeemed................... (38,853) (871,024) (24,034) (485,133)
------- ---------- ------- ----------
Net increase................. (16,205) $ (369,882) 39,464 $ 808,090
======= ========== ======= ==========
SRF SHARES (000'S)
Issued..................... 397 $ 6,840 12,164 $ 192,302
Reinvested................. 362 6,174 797 12,637
Redeemed................... (850) (14,529) (1,120) (18,235)
------- ---------- ------- ----------
Net Increase................. (91) $ (1,515) 11,841(b) $ 186,704(b)
======= ========== ======= ==========
</TABLE>
- ---------------
<TABLE>
<C> <S>
(a) Period from July 15, 1998 (inception date) to August 31,
1998.
(b) Period from June 23, 1997 (inception date) to February 28,
1998.
</TABLE>
44
<PAGE> 338
PACIFIC HORIZON CAPITAL INCOME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
AUGUST 31, --------------------------------------------------------------------------------
1998 FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
(UNAUDITED) 1998 1997(a) 1996 1995 1994
----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
A SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF PERIOD............ $ 17.28 $17.35 $16.42 $13.65 $15.42 $13.32
-------- ------ ------ ------ ------ ------
Income from Investment Operations:
Net investment income.......... 0.27 0.58 0.57 0.62 0.57 0.50
Net realized and unrealized
gains (losses) on investment
transactions................. (1.94) 2.89 2.34 2.84 (1.43) 2.36
-------- ------ ------ ------ ------ ------
Total income (loss) from
investment operations........ (1.67) 3.47 2.91 3.46 (0.86) 2.86
-------- ------ ------ ------ ------ ------
Less Dividends and Distributions:
Dividends to shareholders from
net investment income........ (0.28) (0.59) (0.57) (0.69) (0.54) (0.48)
Dividends to shareholders from
net realized gains on
investment transactions...... (0.18) (2.95) (1.41) -- (0.37) (0.28)
-------- ------ ------ ------ ------ ------
Total Dividends and
Distributions................ (0.46) (3.54) (1.98) (0.69) (0.91) (0.76)
-------- ------ ------ ------ ------ ------
Net change in net asset value
per share.................... (2.13) (0.07) 0.93 2.77 (1.77) 2.10
-------- ------ ------ ------ ------ ------
NET ASSET VALUE PER SHARE, END
OF PERIOD.................... $ 15.15 $17.28 $17.35 $16.42 $13.65 $15.42
======== ====== ====== ====== ====== ======
Total return (excludes sales
charge)........................ (10.04%)(d) 21.54% 18.53% 25.96% (5.61%) 21.85%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period
(millions)................... $ 346 $ 391 $ 309 $ 247 $ 198 $ 191
Ratio of expenses to average
net assets................... 1.09%(c) 1.10% 1.18% 1.23% 0.97% 0.46%
Ratio of net investment income
to average net assets........ 3.01%(c) 3.35% 3.40% 4.05% 4.48% 4.19%
Ratio of expenses to average
net assets*.................. (b) 1.12%** 1.19%** 1.26%** 1.14% 1.20%
Ratio of net investment income
to average net assets*....... (b) 3.33% (b) (b) 4.31% 3.45%
Portfolio turnover rate........ 42% 69% 124% 57% 94% 103%
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the period, 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) Annualized.
(d) Not annualized.
</TABLE>
See Notes to Financial Statements.
45
<PAGE> 339
PACIFIC HORIZON CAPITAL INCOME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
AUGUST 31,
1998(a)
(UNAUDITED)
------------
<S> <C>
B SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD.............. $ 17.67
-------
Income from Investment Operations:
Net investment income..................................... 0.03
Net realized gains on investment transactions............. (2.37)
-------
Total income from investment operations..................... (2.34)
-------
Less: Dividends and Distributions:
Dividends to shareholders from net investment income...... --
Distributions to shareholders from net realized gains on
investment transactions................................. (0.18)
-------
Total Dividends and Distributions........................... (0.18)
-------
Net change in net asset value per share..................... (2.52)
-------
NET ASSET VALUE PER SHARE, END OF PERIOD.................... $ 15.15
=======
Total return................................................ (13.39%)(d)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (millions).................... $ 1
Ratio of expenses to average net assets................... 1.91% (c)
Ratio of net investment income to average net assets...... 2.48% (c)
Ratio of expenses to average net assets................... (b)
Ratio of net investment income to average net assets...... (b)
Portfolio turnover rate................................... 42%
</TABLE>
- ---------------
<TABLE>
<C> <S>
(a) Period from July 15, 1998 (inception date) to August 31,
1998.
(b) There were no waivers or reimbursements during the period.
(c) Annualized.
(d) Not annualized.
</TABLE>
See Notes to Financial Statements.
46
<PAGE> 340
PACIFIC HORIZON CAPITAL INCOME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD
AUGUST 31, YEAR ENDED ENDED
1998 FEBRUARY 28, FEBRUARY 28,
(UNAUDITED) 1998 1997(a)
----------- ------------ ------------
<S> <C> <C> <C>
K SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF
PERIOD................................ $ 17.24 $17.30 $16.24
------- ------ ------
Income from Investment Operations:
Net investment income................. 0.21 0.48 0.32
Net realized gains on investment
transactions........................ (1.90) 2.89 2.43
------- ------ ------
Total income from investment
operations............................ (1.69) 3.37 2.75
------- ------ ------
Less: Dividends and Distributions:
Dividends to shareholders from net
investment income................... (0.24) (0.48) (0.28)
Distributions to shareholders from net
realized gains on investment
transactions........................ (0.18) (2.95) (1.41)
------- ------ ------
Total Dividends and Distributions....... (0.42) (3.43) (1.69)
------- ------ ------
Net change in net asset value per
share................................. (2.11) (0.06) 1.06
------- ------ ------
NET ASSET VALUE PER SHARE, END OF
PERIOD................................ $ 15.13 $17.24 $17.30
======= ====== ======
Total return............................ (10.11%)(c) 20.97% 17.47%(c)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period
(millions).......................... $ 3 $ 3 $ 1
Ratio of expenses to average net
assets.............................. 1.60%(b) 1.60% 1.66% (b)
Ratio of net investment income to
average net assets.................. 2.52%(b) 2.85% 2.85% (b)
Ratio of expenses to average net
assets*............................. 1.85%(b) 1.86% 1.91% (b)**
Ratio of net investment income to
average net assets*................. 2.27%(b) 2.59% 2.60% (b)
Portfolio turnover rate............... 42% 69% 124%
</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) Annualized.
(c) Not annualized.
</TABLE>
See Notes to Financial Statements.
47
<PAGE> 341
PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED PERIOD
AUGUST 31, --------------------------------------------------------- ENDED
1998 FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
(UNAUDITED) 1998 1997(b) 1996 1995 1994(a)
----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
A SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF
PERIOD................................. $ 21.41 $ 19.40 $ 17.52 $ 15.15 $14.84 $15.00
------- ------- ------- ------- ------ ------
Income from Investment Operations:
Net investment income.................. 0.26 0.52 0.48 0.52 0.48 0.03
Net realized and unrealized gains
(losses) on investment
transactions......................... (0.67) 3.72 2.50 2.86 0.24 (0.19)
------- ------- ------- ------- ------ ------
Total income (loss) from investment
operations............................. (0.41) 4.24 2.98 3.38 0.72 (0.16)
------- ------- ------- ------- ------ ------
Less Dividends and Distributions:
Dividends to shareholders from net
investment income.................... (0.23) (0.47) (0.46) (0.53) (0.41) --
Dividends to shareholders from net
realized gains on investment
transactions......................... (0.30) (1.76) (0.64) (0.48) -- --
------- ------- ------- ------- ------ ------
Total Dividends and Distributions....... (0.53) (2.23) (1.10) (1.01) (0.41) --
------- ------- ------- ------- ------ ------
Net change in net asset value per
share.................................. (0.94) 2.01 1.88 2.37 0.31 (0.16)
------- ------- ------- ------- ------ ------
NET ASSET VALUE PER SHARE, END OF
PERIOD................................. $ 20.47 $ 21.41 $ 19.40 $ 17.52 $15.15 $14.84
======= ======= ======= ======= ====== ======
Total return (excludes sales charge).... (2.09%)(e) 23.07% 17.64% 22.80% 5.03% (1.07%)(e)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000)...... $66,281 $49,240 $34,838 $22,355 $5,694 $ 666
Ratio of expenses to average net
assets............................... 0.91%(d) 1.03% 1.25% 0.62% 0.00% 0.00%(d)
Ratio of net investment income to
average net assets................... 2.66%(d) 2.67% 2.59% 3.49% 4.25% 4.20%(d)
Ratio of expenses to average net
assets*.............................. (c) 1.09% 1.94% 2.92% 7.89% 83.95%(d)
Ratio of net investment income (loss)
to average net assets*............... (c) 2.61% 1.90% 1.19% (3.64%) (79.75%)(d)
Portfolio turnover rate................ 82% 67% 116% 157% 142% 67%
</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 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) There were no waivers or reimbursements during the period.
(d) Annualized.
(e) Not annualized.
</TABLE>
See Notes to Financial Statements.
48
<PAGE> 342
PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
AUGUST 31,
1998 (a)
(UNAUDITED)
------------
<S> <C>
B SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD.............. $ 23.15
-------
Income from Investment Operations:
Net investment income..................................... 0.03
Net realized and unrealized gains (losses) on investment
transactions............................................ (2.41)
-------
Total (loss) from investment operations..................... (2.38)
-------
Less: Dividends and Distributions:
Dividends to shareholders from net investment income...... --
Distributions to shareholders from net realized gains..... (0.30)
-------
Total Dividends and Distributions........................... (0.30)
-------
Net change in net asset value per share..................... (2.68)
-------
NET ASSET VALUE PER SHARE, END OF PERIOD.................... $ 20.47
=======
Total Return................................................ (10.44%)(d)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........................... $ 684
Ratio of expenses to average net assets................... 1.69%(c)
Ratio of net investment income to average net assets...... 2.28%(c)
Ratio of expenses to average net assets*.................. (b)
Ratio of net investment income to average net assets*..... (b)
Portfolio turnover rate................................... 82%
</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 15, 1998 (inception date) to August 31,
1998.
(b) There were no waivers or reimbursements during the period.
(c) Annualized.
(d) Not annualized.
</TABLE>
See Notes to Financial Statements.
49
<PAGE> 343
PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
AUGUST 31, YEAR ENDED PERIOD ENDED
1998 FEBRUARY 28, FEBRUARY 28,
(UNAUDITED) 1998 1997(a)
----------- ------------ ------------
<S> <C> <C> <C>
K SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF
PERIOD................................. $21.36 $19.40 $17.23
------ ------ ------
Income from Investment Operations:
Net investment income.................. 0.24 0.41 0.19
Net realized gains (losses) on
investment transactions.............. (0.70) 3.66 2.80
------ ------ ------
Total income (loss) from investment
operations............................. (0.46) 4.07 2.99
------ ------ ------
Less: Dividends and Distributions:
Dividends to shareholders from net
investment income.................... (0.17) (0.36) (0.18)
Distributions to shareholders from net
realized gains on investment
transactions......................... (0.30) (1.75) (0.64)
------ ------ ------
Total Dividends and Distributions........ (0.47) (2.11) (0.82)
------ ------ ------
Net change in net asset value per
share.................................. (0.93) 1.96 2.17
------ ------ ------
NET ASSET VALUE PER SHARE, END OF
PERIOD................................. $20.43 $21.36 $19.40
====== ====== ======
Total return............................. (2.28%)(c) 22.10% 17.69%(c)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000)...... $1,263 $1,667 $ 748
Ratio of expenses to average net
assets............................... 1.41%(b) 1.52% 1.94%(b)
Ratio of net investment income to
average net assets................... 2.15%(b) 2.17% 2.31%(b)
Ratio of expenses to average net
assets*.............................. 1.66%(b) 1.58% 3.26%(b)
Ratio of net investment income to
average net assets*.................. 1.90%(b) 2.11% 0.99%(b)
Portfolio turnover rate................ 82% 67% 116%
</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) Annualized.
(c) Not annualized.
</TABLE>
See Notes to Financial Statements.
50
<PAGE> 344
PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD
AUGUST 31, ENDED
1998 FEBRUARY 28,
(UNAUDITED) 1998 (a)
----------- ------------
<S> <C> <C>
SRF SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD.......... $ 16.63 $ 15.79
-------- --------
Income from Investment Operations:
Net investment income................................. 0.23 0.30
Net realized and unrealized gains (losses) on
investment transactions............................. (0.54) 1.65
-------- --------
Total income (loss) from investment operations.......... (0.31) 1.95
-------- --------
Less: Dividends and Distributions:
Dividends to shareholders from net investment income.. (0.23) (0.24)
Distributions to shareholders from net realized
gains............................................... (0.30) (0.87)
-------- --------
Total Dividends and Distributions....................... (0.53) (1.11)
-------- --------
Net change in net asset value per share................. (0.84) 0.84
-------- --------
NET ASSET VALUE PER SHARE, END OF PERIOD................ $ 15.79 $ 16.63
======== ========
Total Return............................................ (2.07%)(d) 13.56%(d)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)....................... $185,498 $196,892
Ratio of expenses to average net assets............... 0.91%(c) 0.95%(c)
Ratio of net investment income (loss) to average net
assets.............................................. 2.65%(c) 2.73%(c)
Ratio of expenses to average net assets*.............. (b) 0.97%(c)
Ratio of net investment income to average net
assets*............................................. (b) 2.71%(c)
Portfolio turnover rate............................... 82% 67%
</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 June 23, 1997 (inception date) to February 28,
1998.
(b) There were no waivers or reimbursements during the period.
(c) Annualized.
(d) Not annualized.
</TABLE>
See Notes to Financial Statements.
51
<PAGE> 345
[This page intentionally left blank.]
<PAGE> 346
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 Municipal Bond Fund
[ ] Flexible Income 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> 347
Bulk Rate
U.S. Postage
PAID
Secaucus, NJ
Permit No. 237
[Pacific Horizon Funds Logo]
Provident Distributor, Inc., Distributor
PHF-5011 8/98
<PAGE> 348
PACIFIC HORIZON TAX-EXEMPT INCOME FUNDS
SEMI-ANNUAL REPORT
August 31, 1998
National Municipal Bond Fund
California Municipal Bond Fund
Investing For All
The Times Of Your Life
NOT FDIC INSURED
PACIFIC HORIZON TAX-EXEMPT INCOME FUNDS
<PAGE> 349
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
PricewaterhouseCoopers 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> 350
..................................
Contents
<TABLE>
<S> <C>
FUND FACTS 2-3
UNDERSTANDING YOUR SHAREHOLDER
REPORT 4-6
ECONOMIC REVIEW FROM THE INVESTMENT
ADVISER 8-9
SHAREHOLDER VOTING RESULTS 10-13
PORTFOLIO OF INVESTMENTS
National Municipal Bond Fund 14-23
California Municipal Bond Fund 24-36
NATIONAL MUNICIPAL BOND FUND
Statement of Assets and
Liabilities 37
Statement of Operations 38
Statements of Changes in Net
Assets 39
CALIFORNIA MUNICIPAL BOND FUND
Statement of Assets and
Liabilities 40
Statement of Operations 41
Statements of Changes in Net
Assets 42
NOTES TO FINANCIAL STATEMENTS 43-51
FINANCIAL HIGHLIGHTS 52-54
</TABLE>
<PAGE> 351
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
...........................................................................
Flexible Income High Current Income
(formerly Corporate Bond)
...........................................................................
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 Municipal Bond* High Level of Federal and California
(formerly California Tax-Exempt Tax-Free Current Income
Bond)
...........................................................................
Money Market Funds+ High Current Income Plus Principal
- Prime Stability
- Treasury
- Government
- Treasury Only
...........................................................................
Tax-Exempt Money Market Funds*+
- Tax-Exempt Money High Level of Federal Tax-Free Current
Income Plus Principal Stability
- California Tax-Exempt Money 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.
+ 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> 352
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> 353
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.
[art of 3 pages of documents]
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.
[art of page with illustration of charts]
4
<PAGE> 354
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
[ILLUSTRATION OF DOCUMENT PAGE]
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
[ILLUSTRATION OF DOCUMENT PAGE]
5
<PAGE> 355
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
[ILLUSTRATION OF DOCUMENT PAGE]
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
[ILLUSTRATION OF DOCUMENT PAGE]
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> 356
[This page intentionally left blank.]
7
<PAGE> 357
ECONOMIC REVIEW
FROM THE INVESTMENT ADVISER
The global financial crisis has dominated the economic news in recent months.
There are renewed fears that the effect of the Asian currency crisis is
spreading to other economies in the world, including North and South America.
The Russian Ruble has experienced a sharp decline as debate continues regarding
political and economic changes. The pace of economic reform in Japan has been
alarmingly slow, with the recent interest rate reduction reflecting only the
first significant action taken in this regard. Markets in Canada and Mexico
continue to reflect concerns relating to commodities. Moreover, investors have
become increasingly concerned about the sustainability of U.S. corporate
profits, resulting in a significant decline in the U.S. equity markets. The
current global economic crisis is generating greater concern, as it increasingly
affects a larger number of key American trading partners.
The U.S. economy has been affected both positively and negatively by the global
financial crisis. Low interest and inflation rates have stimulated domestic
demand for housing, autos and other consumer goods. However, manufacturing
activity is slowing, particularly in trade exports, and cutbacks have been made
in production and personnel within some industries. The Gross Domestic Product
("GDP") rose at a 1.8%(1) rate in the second quarter, below the first quarter's
5.5%(1) growth rate, reflecting the deterioration in the trade balance and a
slowdown in business investment in equipment and inventories. While the U.S.
economy remains strong in the third quarter, it is no longer immune from the
effects of the crisis. Additionally, prospects for U.S. growth and corporate
profits are less secure.
Economic reports continue to indicate that inflation is under control in
manufacturing and consumer-related areas. The prices paid to U.S. factories,
farmers and other producers (as measured by the Producer Price Index "PPI") fell
0.4%(1) in August, the largest drop in seven months. In the first eight months
of 1998, consumer prices rose at an annual rate of 1.6%(1), which is the same as
the first eight months of 1997. Inflation has remained innocuous as weakening
economies in Asia have depressed commodity prices and the cost of goods imported
into the U.S.
In a departure from the recent past, it appears that the Federal Reserve Board
(the "Fed") now has a higher level of anxiety about the outlook for the global
economy and is becoming more concerned about the increasing risks of slowing
economic growth rather than the dangers of rising inflation. In a recent speech,
Fed Chairman Alan Greenspan hinted that the Fed might consider lowering interest
rates if it becomes increasingly likely that the Asian currency crisis will
spread to the U.S. economy. Although the Federal Open Market Committee ("FOMC")
left the Fed Funds' target interest rate unchanged at 5.50% at the most recent
FOMC meeting held in August; some analysts now expect a reduction in rates
sometime soon.
The main benefactor of the global financial uncertainty has clearly been the
U.S. Treasury market. U.S. Treasuries have replaced gold as the safe haven of
choice, as many investors are reaping the financial rewards of owning these
types of securities. On July 17, the day that the equity markets peaked, the
Treasury 10-year note had a closing yield of approximately 5.5%(1). As of August
31, the yield on this note was 4.97%(1). The fixed income markets now reflect
expectations of an interest rate reduction, as evidenced by the entire Treasury
yield curve trading below 5.50%.
The turmoil in overseas markets, the decline in commodity prices, and the
8
<PAGE> 358
global competition from cheaper imports have also caused the credit sectors to
widen appreciably against Treasuries. Credit risk is now at a heightened level,
as the expectation of lower profit prospects has become more apparent to
investors. Additional downward revisions to corporate earnings estimates will
put further pressure on corporate spreads until the economic situation begins to
improve in Asia.
The Standard & Poor's 500 stock index ("S&P 500") fell 8.0%(2) on a total return
basis during the 6-month period ended August 31. While the stocks of large,
name-brand companies have been battered during the month of August, smaller
company stocks have been hit even harder. The S&P 500 declined 19%(2) from its
high on July 17 and the Russell 2000 Index dropped 30%(3) from its high recorded
in April. Year-to-date, the performance disparity has been even larger between
large cap and small cap stocks. Since the beginning of the year, the S&P 500 is
down 0.4%(2) and the Russell 2000 Index has dropped 22.1%(3), constituting a
spread of 21.7 percentage points.
Investors are becoming increasingly concerned about the sustainability of U.S.
corporate profits. Investors had been willing to pay record-high valuations for
stocks because interest rates were low, inflation was under control and
economies around the world were expanding. Not only are the developed Asian
countries faltering, but the economic turmoil has also extended to Russia and
several emerging market countries. So far, the U.S. market has been fairly well
insulated from the economic problems overseas, but U.S. companies are now
beginning to feel the negative impact from depressed overseas business
conditions. Investor confidence in a continued economic expansion will not occur
until Asia and Russia implement appropriate measures to rectify their economic
and political problems.
LOOKING FORWARD
The U.S. government is still expected to post a budget surplus when the fiscal
year ends on September 30. Rising incomes, low unemployment and stock market
gains earlier in the year have generated abundant tax collections. Reduced
government spending has also contributed to decreasing interest payments on
government debt.
The outlook for the remainder of 1998 is unclear. 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 2.5% in the third quarter. Just as
the market was overly optimistic at the beginning of the summer, we suspect that
the markets' current doldrums are too extreme.
Sincerely,
/s/ Kirk Hartman
Kirk Hartman
Chief Investment Officer
Fixed Income Management
- ---------------
(1) Source - Bloomberg, 1998.
(2) Source - Bloomberg, 1998. The S&P 500 Index is an index that is
representative of the large capitalization U.S. equity market as a whole
and cannot be invested in directly.
(3) Source - Bloomberg, 1998. The Russell 2000 is an index that is
representative of the small capitalization U.S. equity market as a whole
and cannot be invested in directly.
9
<PAGE> 359
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Results (Unaudited) of Annual Meeting of Shareholders
Convened on June 19, 1998
Reconvened on June 26, 1998 and July 1, 1998
Reconvened and Adjourned on July 20, 1998
- --------------------------------------------------------------------------------
The Annual Meeting of Shareholders of Pacific Horizon Funds, Inc. (the
"Company") was convened on June 19, 1998, reconvened on June 26, 1998 and July
1, 1998, and reconvened and adjourned on July 20, 1998. The Funds of the Company
are: Aggressive Growth Fund, Asset Allocation Fund, Blue Chip Fund, California
Municipal Bond Fund (formerly California Tax-Exempt Bond Fund), California
Tax-Exempt Money Market Fund, Capital Income Fund, Flexible Income Fund
(formerly Corporate Bond Fund), Government Fund, Intermediate Bond Fund,
International Equity Fund, National Municipal Bond Fund, Prime Fund, Short-Term
Government Fund, Tax-Exempt Money Fund, Treasury Fund, Treasury Only Fund, and
U.S. Government Securities Fund. The Annual Meeting was held in order to vote on
the following purposes:
<TABLE>
<CAPTION>
PROPOSAL
NUMBER ISSUE
- -------- -----
<C> <S>
1. To elect Messrs. Edward S. Bottum, William P. Carmichael,
Thomas M. Collins, Douglas B. Fletcher, Robert E. Greeley,
and Cornelius J. Pings, Directors of the Company;
2. With respect to each Fund except the Blue Chip and
Intermediate Bond Funds, to approve or disapprove a new
Investment Advisory Agreement between the Company and Bank
of America NT&SA;
3. With respect to the International Equity Fund, to approve or
disapprove a new Sub-Advisory Agreement between Bank of
America NT&SA and Wellington Management Company, LLP;
4. To approve or disapprove an amendment to the Company's
Charter;
5. To approve or disapprove changes to the following
fundamental investment limitations of each Fund of the
Company:
a) limitation on underwriting of securities;
b) limitation on real estate transactions;
c) limitation on commodity transactions;
d) limitation on industry concentration;
e) limitation on lending;
f) limitation on borrowing and issuance of senior
securities; and
g) limitation on issuer concentration
</TABLE>
10
<PAGE> 360
<TABLE>
<CAPTION>
PROPOSAL
NUMBER ISSUE
- -------- -----
<C> <S>
6. To approve or disapprove certain changes to the following
fundamental investment policies and limitations, including a
change to make all of such policies and limitations
non-fundamental:
a) with respect to each Fund, the limitation on short sales
and purchasing securities on margin;
b) with respect to the National Municipal Bond, Aggressive
Growth, California Municipal Bond, Prime, Treasury and
California Tax-Exempt Money Market Funds, the limitation on
purchasing securities of companies for the purpose of
exercising control;
c) with respect to each Fund except the Government and
Treasury Only Funds, the limitation on purchasing securities
of other investment companies;
d) with respect to each Fund except the Aggressive Growth,
Short-Term Government, Prime, Treasury, Government and
Treasury Only Funds, the limitation on put, call, straddle
and spread transactions;
e) with respect to each Fund except the National Municipal
Bond, International Equity, Flexible Income, Short-Term
Government and California Tax-Exempt Money Market Funds, the
limitation on illiquid securities;
f) with respect to the Intermediate Bond, Blue Chip and
Asset Allocation Funds, the limitation on transactions in
certain securities by Board members;
g) with respect to the U.S. Government Securities, Capital
Income, California Municipal Bond and California Tax-Exempt
Money Market Funds, the limitation on unseasoned issuers;
h) with respect to the Aggressive Growth Fund, the policy on
investment in equity securities;
i) with respect to the U.S. Government Securities Fund, the
policy with respect to investment in certificates of the
Government National Mortgage Association;
j) with respect to the Capital Income Fund, the policy with
respect to investment in convertible securities;
k) with respect to the California Municipal Bond Fund, the
policy with respect to investment in California municipal
securities;
l) with respect to the Tax-Exempt Money Fund, the policy
with respect to investment in municipal securities; and
m) with respect to the California Tax-Exempt Money Market
Fund, the policy with respect to investment in California
municipal securities;
7. To approve or disapprove a change in the fundamental
investment objective to a non-fundamental investment
objective of the following Funds: National Municipal Bond,
International Equity, Flexible Income, Intermediate Bond,
Blue Chip, Asset Allocation, Aggressive Growth, U.S.
Government Securities, Capital Income, California Municipal
Bond, Short-Term Government, Prime, Treasury, Tax-Exempt
Money and California Tax-Exempt Money Market Funds;
8. To approve or disapprove a new fundamental investment
limitation of the Prime Fund with regard to its industry
concentration;
</TABLE>
11
<PAGE> 361
<TABLE>
<CAPTION>
PROPOSAL
NUMBER ISSUE
- -------- -----
<C> <S>
9. To ratify or reject the selection of PricewaterhouseCoopers
LLP as the Company's independent accountants for the fiscal
year ending February 28, 1999; and
10. The transaction of such other business as may properly come
before the meeting or any adjournment
</TABLE>
At the adjournment of the annual meeting on July 20, 1998, the voting
results for each proposal were as follows:
The voting results for each proposal are shown below:
PACIFIC HORIZON FUNDS, INC. -- ALL FUNDS
<TABLE>
<CAPTION>
TOTAL SHARES TOTAL ABSTAIN/
OUTSTANDING SHARES VOTED FOR AGAINST WITHHELD
----------------- ---------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
PROPOSAL 1 16,453,350,969.00 8,803,335,110.000
EDWARD S. BOTTUM 8,469,012,940.00 None 334,322,170.00
WILLIAM P. CARMICHAEL 8,468,803,120.00 None 334,531,990.00
THOMAS M. COLLINS 8,472,897,540.00 None 330,437,570.00
DOUGLAS B. FLETCHER 8,473,089,329.00 None 330,245,781.00
ROBERT E. GREELEY 8,475,491,285.00 None 327,843,225.00
CORNELIUS J. PINGS 8,473,521,034.00 None 329,806,076.00
PROPOSAL 4 16,453,350,969.00 8,803,335,110.00 7,332,890,744.00 502,659,743.00 373,195,844.00
PROPOSAL 9 16,453,350,969.00 8,803,335,091.00 8,429,896,332.00 85,027,748.00 288,411,011.00
<CAPTION>
BROKER PASS/
NON VOTE FAIL
-------------- -----
<S> <C> <C>
PROPOSAL 1 PASS
EDWARD S. BOTTUM None
WILLIAM P. CARMICHAEL None
THOMAS M. COLLINS None
DOUGLAS B. FLETCHER None
ROBERT E. GREELEY None
CORNELIUS J. PINGS None
PROPOSAL 4 594,588,779.00 FAIL
PROPOSAL 9 None PASS
</TABLE>
PACIFIC HORIZON NATIONAL MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
TOTAL SHARES TOTAL ABSTAIN/ BROKER
OUTSTANDING SHARES VOTED FOR AGAINST WITHHELD NON VOTE
----------------- ---------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
PROPOSAL 2 1,511,389.00 792,829.00 648,540.00 22,157.00 122,132.00 None
PROPOSAL 5a 1,511,389.00 792,833.00 656,003.00 12,520.00 124,306.00 4.00
PROPOSAL 5b 1,511,389.00 792,833.00 656,099.00 13,450.00 123,280.00 4.00
PROPOSAL 5c 1,511,389.00 792,833.00 646,560.00 21,963.00 124,306.00 4.00
PROPOSAL 5d 1,511,389.00 792,833.00 661,094.00 7,429.00 124,306.00 4.00
PROPOSAL 5e 1,511,389.00 792,833.00 649,158.00 11,636.00 132,035.00 4.00
PROPOSAL 5f 1,511,389.00 792,833.00 644,371.00 16,423.00 132,035.00 4.00
PROPOSAL 5g 1,511,389.00 792,833.00 639,111.00 19,012.00 134,706.00 4.00
PROPOSAL 6a 1,511,389.00 792,833.00 644,682.00 22,157.00 125,990.00 4.00
PROPOSAL 6b 1,511,389.00 792,833.00 629,359.00 37,480.00 125,990.00 4.00
PROPOSAL 6c 1,511,389.00 792,833.00 639,082.00 20,028.00 133,719.00 4.00
PROPOSAL 6d 1,511,389.00 792,833.00 627,322.00 26,047.00 139,460.00 4.00
PROPOSAL 7 1,511,389.00 792,833.00 622,674.00 31,869.00 138,285.00 5.00
<CAPTION>
PASS/
FAIL
-----
<S> <C>
PROPOSAL 2 PASS
PROPOSAL 5a PASS
PROPOSAL 5b PASS
PROPOSAL 5c PASS
PROPOSAL 5d PASS
PROPOSAL 5e PASS
PROPOSAL 5f PASS
PROPOSAL 5g PASS
PROPOSAL 6a PASS
PROPOSAL 6b PASS
PROPOSAL 6c PASS
PROPOSAL 6d PASS
PROPOSAL 7 PASS
</TABLE>
12
<PAGE> 362
PACIFIC HORIZON CALIFORNIA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
TOTAL SHARES TOTAL ABSTAIN/ BROKER
OUTSTANDING SHARES VOTED FOR AGAINST WITHHELD NON VOTE
----------------- ---------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
PROPOSAL 2 28,230,943.00 15,026,876.00 13,681,781.00 477,809.00 867,286.00 None
PROPOSAL 5a 28,230,943.00 15,026,877.00 12,967,806.00 650,277.00 968,116.00 440,678.00
PROPOSAL 5b 28,230,943.00 15,026,877.00 13,024,842.00 649,514.00 911,844.00 440,677.00
PROPOSAL 5c 28,230,943.00 15,026,877.00 12,909,811.00 739,554.00 936,834.00 440,678.00
PROPOSAL 5d 28,230,943.00 15,026,877.00 12,853,832.00 743,719.00 988,648.00 440,678.00
PROPOSAL 5e 28,230,943.00 15,026,877.00 12,878,031.00 783,596.00 924,571.00 440,679.00
PROPOSAL 5f 28,230,943.00 15,026,877.00 12,942,096.00 733,052.00 911,051.00 440,678.00
PROPOSAL 5g 28,230,943.00 15,026,877.00 12,833,934.00 792,436.00 959,829.00 440,678.00
PROPOSAL 6a 28,230,943.00 15,026,877.00 12,806,152.00 798,968.00 981,079.00 440,678.00
PROPOSAL 6b 28,230,943.00 15,026,877.00 12,859,520.00 807,708.00 918,971.00 440,678.00
PROPOSAL 6c 28,230,943.00 15,026,877.00 12,935,050.00 776,373.00 874,776.00 440,678.00
PROPOSAL 6d 28,230,943.00 15,026,877.00 12,927,146.00 701,300.00 957,752.00 440,679.00
PROPOSAL 6e 28,230,943.00 15,026,877.00 12,892,853.00 774,320.00 919,025.00 440,679.00
PROPOSAL 6g 28,230,943.00 15,026,877.00 12,832,581.00 825,566.00 928,052.00 440,678.00
PROPOSAL 6k 28,230,943.00 15,026,877.00 12,930,477.00 815,952.00 839,770.00 440,678.00
PROPOSAL 7 28,230,943.00 15,026,877.00 12,930,706.00 791,900.00 863,593.00 440,678.00
<CAPTION>
PASS/
FAIL
-----
<S> <C>
PROPOSAL 2 PASS
PROPOSAL 5a PASS
PROPOSAL 5b PASS
PROPOSAL 5c PASS
PROPOSAL 5d PASS
PROPOSAL 5e PASS
PROPOSAL 5f PASS
PROPOSAL 5g PASS
PROPOSAL 6a PASS
PROPOSAL 6b PASS
PROPOSAL 6c PASS
PROPOSAL 6d PASS
PROPOSAL 6e PASS
PROPOSAL 6g PASS
PROPOSAL 6k PASS
PROPOSAL 7 PASS
</TABLE>
13
<PAGE> 363
PACIFIC HORIZON NATIONAL MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<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 -- 7.1%
Del Mar Race Track
Authority, Callable on
8/15/06 @102.............. NR/NR 6.200% 08/15/11 $250,000 $ 273,750
Del Mar Race Track
Authority, Sinking Bond... NR/NR 6.000% 08/15/06 250,000 270,625
Foothill/Eastern Corridor
Agency, California Toll
Road, Senior Lien, Series
A, Callable on 1/1/05
@102...................... Baa/BBB- 6.000% 01/01/34 150,000 160,312
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%+ 01/15/16 500,000 334,375
San Jose Redevelopment
Agency, Callable on 8/1/08
@102...................... A2/A 5.250% 08/01/29 400,000 399,500
West Covina, Certificates
of Participation, Queen of
the Valley Hospital,
Callable on 8/15/04
@102...................... NR/NR 6.500% 08/15/24 75,000 85,781
-----------
1,524,343
-----------
COLORADO -- 8.0%
Boulder County Hospital,
Longmont United Hospital
Project, Prerefunded on
12/1/00 @101.............. NR/NR 8.200% 12/01/20 540,000 596,700
Colorado Health Facilities
Authority, National
Benevolent Association,
Series B.................. Baa1/NR 5.250% 02/01/28 300,000 292,500
</TABLE>
- ---------------
See Notes to Financial Statements.
14
<PAGE> 364
<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)
COLORADO -- (CONTINUED)
E-470 Public Highway
Authority Revenue, Series
A, (MBIA Insured) Callable
on 9/1/07 @101............ Aaa/AAA 5.000% 09/01/26 $600,000 $ 596,250
Pueblo County Single Family
Mortgage, Series A,
Callable on 6/1/02 @102... NR/AA- 6.850% 12/01/25 200,000 213,000
-----------
1,698,450
-----------
CONNECTICUT -- 0.4%
Connecticut State Clean
Water Fund, Callable on
6/1/04 @102............... Aaa/AAA 5.650% 06/01/10 75,000 80,719
-----------
FLORIDA -- 3.9%
Florida State Board of
Education, Capital Outlay,
Series 1994A, Callable on
6/1/04 @101............... Aa2/AA+ 6.100% 06/01/24 75,000 81,656
Florida State Board of
Education, Capital Outlay,
Series 1997A, Callable on
6/1/07 @101............... Aa2/AA+ 5.000% 06/01/27 500,000 499,375
Jacksonville Electric
Authority, St. John's
River, Issue 2, Series 9,
Callable on 10/1/02
@102...................... Aa1/AA 5.250% 10/01/21 255,000 257,231
-----------
838,262
-----------
ILLINOIS -- 11.2%
Chicago O'Hare
International Airport,
Senior Lien, Series A,
Callable on 1/1/04 @102... A1/A+ 4.800% 01/01/05 500,000 515,000
Cook County General
Obligation, Series B (FGIC
Insured), Callable on
11/15/02 @102............. Aaa/AAA 5.500% 11/15/22 300,000 310,875
</TABLE>
- ---------------
See Notes to Financial Statements.
15
<PAGE> 365
<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 Health Facilities
Authority, Elmhurst
Memorial Hospital, Series
A, Daily Variable Rate
(final maturity
1/1/28)*.................. VMIG1/NR 3.400% 09/01/98 $100,000 $ 100,000
Illinois Health Facility
Authority, Centegra Health
Systems, Callable on
9/1/08 @101............... NR/A- 5.250% 09/01/24 500,000 495,625
Illinois Health Facility
Authority, Edward
Hospital, Series A,
Callable on 2/15/04
@102...................... A2/A+ 6.000% 02/15/19 75,000 79,219
Illinois Health Facility
Authority, Illinois
Masonic Medical Center,
Series A, Callable on
10/1/99 @102.............. A3/A- 7.600% 10/01/07 300,000 315,543
Illinois State Sales Tax
Revenue, Series O,
Callable 6/15/01 @100..... Aa2/AAA 6.000% 06/15/18 30,000 31,387
Illinois State Sales Tax
Revenue, Series O,
Prerefunded 6/15/01 @100.. NR/NR 6.000% 06/15/18 20,000 21,175
Illinois State Sales Tax
Revenue, Series W (FGIC
Insured) Callable on
6/15/06 @101.............. Aaa/AAA 5.000% 06/15/16 520,000 524,550
-----------
2,393,374
-----------
INDIANA -- 3.0%
Bloomington Indiana Sewer
Works (MBIA Insured),
Callable on 1/1/05 @102... Aaa/AAA 5.875% 01/01/25 150,000 159,000
Indiana Bond Bank, State
Revolving Fund, Program A,
Callable on 2/1/05 @102... NR/AAA 6.875% 02/01/12 100,000 116,000
</TABLE>
- ---------------
See Notes to Financial Statements.
16
<PAGE> 366
<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)
INDIANA -- (CONTINUED)
Indianapolis Local Public
Improvement ETM, Callable
on 9/18/98 @101........... Aaa/AAA 7.900% 02/01/07 $300,000 $ 359,625
-----------
634,625
-----------
KENTUCKY -- 2.0%
Kentucky Economic
Development Financing
Authority Revenue, Sisters
of Charity, Daily Variable
Rate (final maturity
11/1/20)*................. VMIG1/A-1 3.550% 09/01/98 200,000 200,000
Kentucky State Property &
Buildings Refunding
Project No. 55............ A2/A+ 6.000% 09/01/08 200,000 227,000
-----------
427,000
-----------
LOUISIANA -- 0.5%
Louisiana Offshore Terminal
Authority, Deepwater Port
Revenue (LOC -- Union Bank
of Switzerland) Daily
Variable Rate (final
maturity 9/1/06)*......... Aaa/NR 3.250% 09/01/98 100,000 100,000
-----------
MASSACHUSETTS -- 7.3%
Massachusetts Bay
Transportation Authority,
General Transportation
System, Series A, Callable
on 3/1/06 @101............ A1/AA- 5.375% 03/01/16 500,000 516,875
Massachusetts State Housing
Finance Agency, Single
Family Housing Revenue,
(MBIA Insured) (AMT),
Callable on 6/1/06 @102... Aaa/AAA 6.250% 12/01/15 500,000 540,000
Massachusetts State Port
Authority, Series A,
Callable 7/1/07 @101...... Aa3/AA- 5.000% 07/01/27 400,000 397,500
</TABLE>
- ---------------
See Notes to Financial Statements.
17
<PAGE> 367
<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 $ 102,125
-----------
1,556,500
-----------
MICHIGAN -- 2.6%
Greater Detroit Resource
Recovery Authority, Series
B (AMBAC Insured)......... Aaa/AAA 6.250% 12/13/05 500,000 562,500
-----------
MINNESOTA -- 5.6%
Bass Brook Pollution
Control Revenue, Minnesota
Power and Light Company
Project, Callable on
7/1/02.................... Baa1/A 6.000% 07/01/22 700,000 739,375
Northern Municipal Power
Agency, Series A, Callable
on 1/1/99 @102............ A2/A 7.250% 01/01/16 445,000 459,191
-----------
1,198,566
-----------
MISSISSIPPI -- 1.9%
Perry County Pollution
Control, Leaf River Forest
Project, (LOC-Wachovia
Bank) Daily Variable Rate
(final maturity
3/1/02)*.................. Aa2/NR 3.250% 09/01/98 400,000 400,000
-----------
MISSOURI -- 2.6%
Sikeston Electric Revenue,
ETM....................... Aaa/AAA 6.250% 06/01/08 500,000 548,750
-----------
NEBRASKA -- 0.9%
Omaha Public Power District,
Nebraska Electric Company,
Series C.................. Aa2/AA 5.500% 02/01/14 175,000 190,312
-----------
</TABLE>
- ---------------
See Notes to Financial Statements.
18
<PAGE> 368
<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 -- 5.0%
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 $ 530,000
Nevada Housing Division,
Single Family Mortgage,
Series D1, Callable on
4/1/06 @102............... Aa3/NR 6.250% 04/01/14 490,000 534,100
-----------
1,064,100
-----------
NEW JERSEY -- 2.5%
New Jersey Economic
Development Authority,
Market Transition
Facilities, Series A (MBIA
Insured), Callable on
7/1/04 @102............... Aaa/AAA 5.700% 07/01/05 150,000 164,250
New Jersey State Turnpike
Authority, Series C (AMBAC
Insured), Callable on
1/1/01 @101.5............. Aaa/AAA 6.400% 01/01/07 350,000 373,187
-----------
537,437
-----------
NEW YORK -- 5.8%
Metropolitan Transportation
Authority, Series K, (MBIA
Insured).................. Aaa/AAA 6.200% 07/01/04 600,000 663,750
New York City, Industrial
Development Agency,
Special Facilities
Revenue, Terminal One
Group Assistant Project
(AMT), Callable on 1/1/04
@102...................... A3/A 6.000% 01/01/15 75,000 80,063
New York State Local
Government Assistance
Corp., Series B, Callable
on 4/1/02 @102............ A3/A+ 6.000% 04/01/18 50,000 53,563
</TABLE>
- ---------------
See Notes to Financial Statements.
19
<PAGE> 369
<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)
NEW YORK -- (CONTINUED)
New York State Urban
Development Facilities.... Baa1/BBB+ 5.750% 04/01/11 $400,000 $ 442,000
-----------
1,239,376
-----------
OHIO -- 3.4%
Ohio State Water
Development Authority
Revenue (FSA Insured)..... Aaa/AAA 4.500% 12/01/05 700,000 715,750
-----------
OREGON -- 0.7%
Portland International
Airport, Series 10 (FGIC
Insured) (AMT), Callable
on 7/1/05 @101............ Aaa/AAA 5.875% 07/01/15 150,000 160,313
-----------
PENNSYLVANIA -- 2.4%
Philadelphia Airport,
Series A (AMBAC Insured)
(AMT), Callable on 6/15/05
@102...................... Aaa/AAA 5.700% 06/15/07 200,000 217,750
Philadelphia Water and
Wastewater (AMBAC-TCRS
Insured).................. Aaa/AAA 5.500% 06/15/07 250,000 272,188
Pittsburgh Urban
Redevelopment Authority,
Home Improvement, Series A
(AMT), Callable on 2/1/04
@102...................... A/A 5.650% 08/01/15 20,000 20,700
-----------
510,638
-----------
TENNESSEE -- 6.4%
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 83,438
Maury County Industrial
Development Board
Pollution Control, Saturn
Corp. Project, Callable on
9/1/04 @102............... A3/A 6.500% 09/01/24 500,000 554,375
</TABLE>
- ---------------
See Notes to Financial Statements.
20
<PAGE> 370
<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)
TENNESSEE -- (CONTINUED)
Memphis-Shelby County
Airport Authority, Federal
Express Corporation....... Baa2/BBB 5.350% 09/01/12 $700,000 $ 725,375
-----------
1,363,188
-----------
TEXAS -- 7.0%
Brazos River Authority,
Special Facilities (FGIC
Insured), Callable on
8/15/05 @100.............. Aaa/AAA 5.500% 08/15/15 200,000 208,500
Galveston Special Contract
Revenue, Farmland
Industrial Project,
Callable on 5/1/08 @102... Baa2/NR 5.500% 05/01/15 400,000 407,000
Lower Colorado River
Authority, Junior Lien
(AMBAC Insured) ETM,
Callable on 1/1/02 @100... NR/AAA 6.000% 01/01/17 25,000 28,094
Lower Colorado River
Authority, Junior Lien-
1998 (AMBAC Insured)
Callable 1/1/02 @100...... NR/AAA 6.000% 01/01/17 15,000 16,725
Lower Colorado River
Authority, Junior Lien-
1998 (AMBAC Insured)
Callable 1/1/02 @100...... Aaa/AAA 6.000% 01/01/17 10,000 10,450
Lower Neches Valley
Authority, River Treatment
Project, Callable on
2/1/04 @102............... Aa2/AA 5.650% 02/01/29 600,000 619,500
Lubbock Health Facilities
Development Corporation,
St. Joseph Health System,
Series 1985 A, Daily
Variable Rate (final
maturity 7/1/13)*......... Aa3/AA 3.250% 09/01/98 100,000 100,000
</TABLE>
- ---------------
See Notes to Financial Statements.
21
<PAGE> 371
<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)
Texas Water Development
Board, State Revolving
Fund, Senior Lien,
Callable on 7/15/02
@102...................... Aa1/AAA 6.000% 07/15/13 $100,000 $ 107,125
-----------
1,497,394
-----------
UTAH -- 2.4%
Ashley Valley Water and
Sewer Implementation
District, Sinking Bond
(AMBAC Insured)........... Aaa/AAA 9.500% 01/01/08 285,000 366,225
Intermountain Power Agency,
Utah Power Supply, Series
C, Sinking Bond........... A1/A+ 5.250% 07/01/14 150,000 156,000
-----------
522,225
-----------
VIRGINIA -- 3.4%
Virginia State Public
School Authority, Series
A, Callable on 8/1/08
@101...................... Aa1/AA+ 5.125% 08/01/12 700,000 729,750
-----------
WYOMING -- 3.8%
Unita County Pollution
Control Revenue, Chevron
USA, Daily Variable Rate
(final maturity
8/15/20)*................. Aa2/NR 3.250% 09/01/98 700,000 700,000
Wyoming Community
Development Authority,
Single Family Mortgage,
Series G, Sinking Bond
(AMT), Callable on
11/26/01 @103............. Aa2/AA 7.200% 06/01/10 100,000 108,625
-----------
808,625
-----------
</TABLE>
- ---------------
See Notes to Financial Statements.
22
<PAGE> 372
<TABLE>
<CAPTION>
VALUE
(NOTE 2)
--------
<S> <C> <C> <C> <C> <C>
TOTAL INVESTMENTS -- 99.8%
(COST $20,272,367)(a) $21,302,197
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 0.2% 45,747
-----------
NET ASSETS -- 100.0%........ $21,347,944
===========
</TABLE>
- ---------------
Percentages indicated are based on net assets of $21,347,944.
(a) Represents cost for Federal income tax and book purposes and differs from
value by unrealized appreciation of $1,029,830.
+ Rate represents effective yield at date of purchase.
* Variable rate security. Maturity date reflects the next interest rate change.
<TABLE>
<C> <S>
AMBAC -- AMBAC Indemnity Corporation.
AMT -- Interest on securities subject to Federal Alternative
Minimum Tax.
ETM -- Escrowed to Maturity.
FGIC -- Financial Guaranty Insurance Company.
FSA -- Financial Security Assurance Inc.
LOC -- Letter of Credit.
MBIA -- Municipal Bond Insurance Association.
TCRS -- Trust Certificate Receipts.
NR -- No rating assigned by Moody's or S&P.
</TABLE>
See Notes to Financial Statements.
23
<PAGE> 373
PACIFIC HORIZON CALIFORNIA MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<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 -- 99.6%
CALIFORNIA -- 97.3%
ABAG Finance Authority For
Nonprofit Corporation,
California Certificates of
Participation, Episcopal
Homes Foundation.......... NR/A- 4.625% 07/01/04 $1,465,000 $ 1,481,481
ABAG Financial Corporation,
Certificates of
Participation, Series A,
Callable on 6/1/00 @102... NR/A 6.250% 06/01/11 1,000,000 1,042,500
Alameda County Certificates
of Participation, Capital
Projects (AMBAC Insured),
Callable 6/1/07 @102...... Aaa/AAA 5.000% 06/01/22 4,780,000 4,738,175
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 3,206,250
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 2,725,631
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 1,321,275
</TABLE>
- ---------------
See Notes to Financial Statements.
24
<PAGE> 374
<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 $ 1,078,750
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 1,086,250
California Health
Facilities Financing
Authority, Kaiser
Permanente Medical Care,
Series A, Callable on
12/1/00 @102.............. A2/A+ 6.500% 12/01/20 1,000,000 1,065,000
California Health
Facilities Financing
Authority, Kaiser
Permanente, Series A (FSA
Insured).................. Aaa/AAA 5.000% 06/01/07 2,500,000 2,646,875
California Health
Facilities Financing
Authority, Sutter Health
Facilities, Series C (FSA
Insured), Callable 8/15/07
@102...................... Aaa/AAA 5.125% 08/15/22 3,000,000 3,007,500
California Housing Finance
Agency (AMT) (MBIA
Insured), Callable on
8/1/05 @102............... Aaa/AAA 6.100% 08/01/15 2,000,000 2,142,500
California Housing Finance
Agency (AMT) (MBIA
Insured), Callable on
8/1/07 @102............... Aaa/AAA 5.750% 02/01/29 3,000,000 3,131,250
California Housing Finance
Agency, Series B (AMT)
(FHA Insured), Callable on
2/1/08 @101.5............. Aaa/AAA 5.400% 08/01/28 2,050,000 2,075,625
</TABLE>
- ---------------
See Notes to Financial Statements.
25
<PAGE> 375
<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 Housing Finance
Authority (AMT) (MBIA
Insured), Callable on
8/1/07 @102............... Aaa/AAA 5.650% 08/01/17 $2,750,000 $ 2,853,125
California Pollution
Control Financing
Authority, Pacific Gas &
Electric Co., Series A
(AMT), Callable on 6/1/02
@102...................... A1/AA- 6.625% 06/01/09 1,000,000 1,092,500
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 1,048,630
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 1,076,250
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 2,007,500
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 4,725,000
California State General
Obligation Bond (FGIC-TCRS
Insured), Callable on
10/1/05 @101.............. Aaa/AAA 5.250% 10/01/17 2,600,000 2,655,250
California State Public
Works Board, Department of
Corrections, Series A
(AMBAC Insured), Callable
on 1/1/06 @102............ Aaa/AAA 5.500% 01/01/10 2,000,000 2,167,500
</TABLE>
- ---------------
See Notes to Financial Statements.
26
<PAGE> 376
<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, Department of
Corrections, State Prison,
Series E, Callable on
6/1/04 @102............... A2/A 5.500% 06/01/19 $7,970,000 $ 8,179,212
California State Unrefunded
(AMBAC Insured) TCRS,
Callable on 5/1/04 @102... Aaa/AAA 6.000% 05/01/12 210,000 231,262
California Statewide
Communities Development
Authority Revenue,
Certificates of
Participation, John Muir/
Mt Diablo Health System
(MBIA Insured), Callable
on 8/15/07 @102........... Aaa/A1 5.125% 08/15/17 5,000,000 5,050,000
Capital Area Development
Authority, Series A (MBIA
Insured), Callable on
4/1/02 @102............... Aaa/AAA 6.500% 04/01/12 1,000,000 1,097,500
Central Valley Financing
Authority, Cogeneration
Project, Carson Ice,
Callable on 7/1/03 @102... NR/BBB- 6.000% 07/01/09 3,000,000 3,195,000
Chino Unified School
District, Certificates of
Participation, Convertible
Capital Appreciation Land
Acquisition, Series A (FSA
Insured), Callable 9/16/98
@93.966 (Zero Coupon), due
9/1/14, 6.6% beginning
3/1/00.................... Aaa/AAA 2.520%+ 09/01/14 2,000,000 2,025,000
Contra Costa Water
District, Series H,
Callable 10/1/07 @100..... A1/AA- 5.000% 10/01/22 4,000,000 3,965,000
Del Mar Race Track Revenue
Authority, Callable on
8/15/06 @102.............. NR/NR 6.000% 08/15/08 1,200,000 1,308,000
</TABLE>
- ---------------
See Notes to Financial Statements.
27
<PAGE> 377
<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 6.200% 08/15/11 $1,000,000 $ 1,095,000
Del Mar Race Track Revenue
Authority, Sinking Date
8/15/02 @100.............. NR/NR 6.000% 08/15/06 1,000,000 1,082,500
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 5,300,000
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 3,022,500
Eastern Municipal Water
District, Certificates of
Participation (FGIC
Insured), Sinking Date
7/1/09 @100............... Aaa/AAA 6.750% 07/01/12 1,000,000 1,226,250
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 1,725,000
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 1,612,500
Escondido Joint Powers
Financing Authority,
California Center for the
Arts, (AMBAC Insured),
Callable on 9/1/05 @102... Aaa/AAA 6.000% 09/01/18 1,500,000 1,642,500
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 3,258,750
</TABLE>
- ---------------
See Notes to Financial Statements.
28
<PAGE> 378
<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)
Fremont Public Financing
Authority, Local
Improvement District 39R,
Callable on 9/2/98 @102... NR/NR 6.000% 09/01/11 $1,965,000 $ 2,012,003
Fresno Health Facilities
Agency, Holy Cross Health
Systems, St. Agnes
Project, Prerefunded on
6/1/02 @102............... NR/NR 6.625% 06/01/21 2,450,000 2,728,688
Fresno Sewer, Series A-1
(AMBAC Insured), Sinking
Date 9/1/11 @100.......... Aaa/AAA 6.250% 09/01/14 5,000,000 5,906,250
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 1,093,750
Irvine Ranch Water District
(LOC-Commerzbank A.G.)
Daily Variable Rate (final
maturity 1/1/21)*......... Aa2/AA- 3.150% 09/01/98 400,000 400,000
Irvine Ranch Water
District, Joint Powers
Agency, Issue II.......... NR/A+ 8.250% 08/15/23 2,400,000 2,404,104
Long Beach Harbor Revenue,
(AMT) (MBIA Insured),
Callable on 5/15/05
@102...................... Aaa/AAA 5.375% 05/15/20 4,000,000 4,060,000
Los Angeles Convention &
Exhibition Center
Authority, Series A (MBIA
Insured).................. Aaa/AAA 6.000% 08/15/10 3,000,000 3,446,250
Los Angeles County
Transportation, Sales Tax
Revenue, Series A,
Callable on 7/1/99 @102... A1/AA- 7.400% 07/01/15 2,000,000 2,103,180
Los Angeles County
Transportation, Sales Tax
Revenue, Series B,
Callable on 7/1/01 @102... A1/AA- 6.500% 07/01/13 2,500,000 2,703,125
</TABLE>
- ---------------
See Notes to Financial Statements.
29
<PAGE> 379
<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 $ 1,560,000
Los Angeles Department of
Water & Power, Callable on
4/15/03 @102.............. Aa/A+ 5.750% 04/15/12 2,000,000 2,140,000
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 2,205,000
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 1,932,500
Metropolitan Water
District, Southern
California Waterworks,
Series 1993A, Sinking Date
7/1/14 @100............... Aa2/AA 5.750% 07/01/21 4,500,000 5,062,500
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 3,191,250
Natomas Unified School
District, Series A (MBIA
Insured), Callable on
9/1/03 @102............... Aaa/AAA 5.750% 09/01/17 1,000,000 1,065,000
</TABLE>
- ---------------
See Notes to Financial Statements.
30
<PAGE> 380
<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)
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 $ 2,172,500
Northridge Water District,
Certificates of
Participation (AMBAC
Insured), Callable on
2/1/06 @102............... Aaa/AAA 5.250% 02/01/18 2,500,000 2,546,875
Oakland California State
Building Authority Lease
Revenue, Elihu M. Harris,
Series A (AMBAC Insured),
Callable on 4/1/08 @101... Aaa/AAA 5.000% 04/01/17 1,000,000 1,003,750
Orange County California
Airport Revenue (AMT)
(MBIA Insured), Callable
on 7/1/07 @102............ Aaa/AAA 5.500% 07/01/10 2,500,000 2,715,625
Orange County California
Airport Revenue (AMT)
(MBIA Insured), Callable
on 7/1/07 @102............ Aaa/AAA 5.500% 07/01/11 4,000,000 4,325,000
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 1,575,150
Orange County Community
Facilities District,
Special Tax No. 87-4,
Foothill Ranch, Series A,
Prerefunded on 8/15/02
@102...................... NR/AAA 7.200% 08/15/08 2,000,000 2,275,000
</TABLE>
- ---------------
See Notes to Financial Statements.
31
<PAGE> 381
<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)
Orange County Improvement
Board Assessment District
(LOC-Societe Generale)
Daily Variable Rate (final
maturity 9/2/18)*......... Aa3/AA- 3.150% 09/01/98 $ 100,000 $ 100,000
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 2,656,250
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 5,256,250
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 1,088,750
Rancho Water District
Financing Authority (FGIC
Insured), Callable on
11/1/05 @102.............. Aaa/AAA 5.900% 11/01/15 2,000,000 2,192,500
Riverside California Water
Revenue, Callable on
10/1/08 @101.............. NR/AA 5.375% 10/01/11 1,500,000 1,603,125
Sacramento Power Authority
Cogeneration Project,
Callable on 7/1/06 @102... NR/BBB- 5.875% 07/01/15 2,900,000 3,077,625
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 1,612,500
</TABLE>
- ---------------
See Notes to Financial Statements.
32
<PAGE> 382
<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 Diego Special Tax
Community Facilities
District No. 1, Series B,
Prerefunded on 9/1/05
@102...................... NR/NR 7.000% 09/01/15 $2,000,000 $ 2,380,000
San Francisco Building
Authority, General
Service, Series A (MBIA
Insured).................. Aaa/AAA 5.000% 10/01/08 1,000,000 1,061,250
San Francisco California
Bay Area Rapid
Transportation District
Sales Tax Revenue
Prerefunded (FGIC
Insured).................. NR/AAA 5.500% 07/01/20 485,000 530,469
San Francisco California
Bay Area Rapid
Transportation District
Sales Tax Revenue
Unrefunded (FGIC Insured),
Callable on 7/1/05 @101... Aaa/AAA 5.500% 07/01/20 610,000 631,350
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 3,146,250
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 1,946,250
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 1,925,000
</TABLE>
- ---------------
See Notes to Financial Statements.
33
<PAGE> 383
<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 Joaquin Hills
Transportation Corridor
Agency, Series A ,
Callable 1/15/14 @102,
5.324% due 1/15/16, 5.60%,
beginning 1/15/07......... Baa3/BBB- 5.57%+ 01/15/16 $3,000,000 $ 2,006,250
San Jose California
Redevelopment Agency Tax
Allocation, Merged Area
Redevelopment Project,
Callable on 8/1/08 @102... A2/A 5.250% 08/01/29 5,000,000 4,993,750
San Jose Financing
Authority, Convention
Center Project, Series C,
Callable on 9/1/01 @102... A1/A+ 6.400% 09/01/17 3,000,000 3,210,000
San Jose Redevelopment
Agency, Tax Allocation,
Merged Area Redevelopment
Project (MBIA Insured).... Aaa/AAA 6.000% 08/01/15 3,670,000 4,211,325
San Mateo County California
Joint Powers Authority
Lease Revenue Capital
Projects, Series A (FSA
Insured), Callable on
7/15/08 @101.............. Aaa/AAA 5.125% 07/15/32 2,000,000 2,005,000
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 1,224,638
Scotts Valley Unified
School District, Series B
(FGIC Insured), Callable
8/1/05 @102............... Aaa/NR 5.375% 08/01/17 1,295,000 1,333,850
Southern California Public
Power Authority, Power
Project................... A/A 6.750% 07/01/13 1,000,000 1,210,000
</TABLE>
- ---------------
See Notes to Financial Statements.
34
<PAGE> 384
<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)
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 1,469,325
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 1,388,363
Turlock Industrial Refunded
Revenue District, Series A
(MBIA Insured)............ Aaa/AAA 6.000% 01/01/09 2,000,000 2,275,000
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 1,328,125
University of California,
Hospital Medical Center
(AMBAC Insured), Callable
on 7/1/06 @101............ Aaa/AAA 5.750% 07/01/24 5,000,000 5,325,000
University of California,
Hospital Medical Center
(AMBAC Insured), Callable
on 7/1/06 @101............ Aaa/AAA 6.000% 07/01/26 3,500,000 3,823,750
</TABLE>
- ---------------
See Notes to Financial Statements.
35
<PAGE> 385
<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)
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 $ 3,345,000
Westwood Unified School
District, Callable on
8/1/06 @102............... NR/BBB 6.500% 08/01/21 1,025,000 1,137,750
------------
229,463,611
------------
PUERTO RICO -- 2.3%
Puerto Rico Electric Power
Authority, Series U,
Callable on 7/1/04 @102... Baa1/BBB 6.000% 07/01/14 5,000,000 5,412,500
------------
TOTAL INVESTMENTS -- 99.6%
(COST $217,880,269)(a).... 234,876,111
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 0.4%....... 1,020,091
------------
NET ASSETS -- 100.0%....... $235,896,202
============
</TABLE>
- ---------------
Percentages indicated are based on net assets of $235,896,202.
(a) Represents cost for Federal income tax and book purposes and differs from
value by unrealized appreciation of $16,995,842.
<TABLE>
<C> <S>
AMBAC -- AMBAC Indemnity Corporation.
AMT -- Interest on securities subject to Federal Alternative
Minimum Tax.
ETM -- Escrowed to Maturity.
FGIC -- Financial Guaranty Insurance Company.
FHA -- Federal Housing Authority.
FSA -- Financial Security Assurance Inc.
LOC -- Letter of Credit.
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.
* Variable rate security. Maturity date reflects the next rate change date.
See Notes to Financial Statements.
36
<PAGE> 386
PACIFIC HORIZON NATIONAL MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (cost $20,272,367).... $21,302,197
Interest receivable....................................... 273,685
Receivable for capital shares sold........................ 200
Deferred organizational costs............................. 8,311
-----------
Total Assets................................................ 21,584,393
-----------
LIABILITIES:
Payable to Bank........................................... 62,686
Dividends payable......................................... 83,313
Payable for capital shares redeemed....................... 35,088
Investment advisory fees payable.......................... 12,046
Custodian and fund accounting fees payable................ 5,375
Transfer agent fees payable............................... 7,606
Legal fees payable........................................ 874
Other accrued expenses.................................... 29,461
-----------
Total Liabilities........................................... 236,449
-----------
NET ASSETS.................................................. $21,347,944
===========
Shares Outstanding ($0.001 par value, 200 million shares
authorized)............................................... 2,010,849
===========
NET ASSET VALUE
Net asset value and redemption price per share............ $ 10.62
===========
Maximum Sales Charge...................................... 5.50%
Maximum Offering Price per share
(Net Asset Value of Shares/ (100% -- Maximum Sales
Charge)).............................................. $ 11.24
===========
COMPOSITION OF NET ASSETS:
Shares of common stock, at par............................ $ 2,011
Additional paid-in capital................................ 20,306,069
Accumulated undistributed net investment income........... 5,033
Accumulated net realized gains on investment
transactions............................................ 5,001
Net unrealized appreciation on investments................ 1,029,830
-----------
NET ASSETS, AUGUST 31, 1998................................. $21,347,944
===========
</TABLE>
- ---------------
See Notes to Financial Statements.
37
<PAGE> 387
PACIFIC HORIZON NATIONAL MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the six months ended August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................. $497,234
--------
EXPENSES:
Investment advisory fees.................................. 34,315
Administration fees....................................... 19,608
Shareholder service fees.................................. 24,521
Custodian and fund accounting fees........................ 28,037
Transfer agent fees....................................... 7,191
Registration and filing fees.............................. 11,512
Organizational expense.................................... 42
Legal fees................................................ 370
Other expenses............................................ 14,724
--------
Total Expenses.......................................... 140,320
Less: Fee waivers and reimbursements........................ (88,901)
Expenses paid by third parties.......................... (2,331)
--------
Total Net Expenses.......................................... 49,088
--------
NET INVESTMENT INCOME....................................... 448,146
--------
NET REALIZED/UNREALIZED GAINS ON INVESTMENTS:
Net realized gain on investment transactions.............. 5,000
Net change in unrealized appreciation on investments...... 236,722
--------
Net realized/unrealized gains on investments................ 241,722
--------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $689,868
========
</TABLE>
- ---------------
See Notes to Financial Statements.
38
<PAGE> 388
PACIFIC HORIZON NATIONAL MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
AUGUST 31, 1998 FEBRUARY 28,
(UNAUDITED) 1998
---------------- ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income....................... $ 448,146 $ 672,144
Net realized gains on investment
transactions.............................. 5,000 37,910
Net change in unrealized appreciation on
investments............................... 236,722 410,519
----------- -----------
Change in net assets resulting from
operations.................................. 689,868 1,120,573
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
A Shares.................................. (448,146) (672,117)
K Shares.................................. -- (27)
Net realized gains from investment
transactions:
A Shares.................................. (5,191) (28,694)
----------- -----------
Change in net assets from shareholder
distributions............................... (453,337) (700,838)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued................. 9,800,327 4,473,013
Dividends reinvested........................ 292,283 558,840
Cost of shares redeemed..................... (3,244,108) (6,603,381)
----------- -----------
Change in net assets from capital share
transactions................................ 6,848,502 (1,571,528)
----------- -----------
Change in net assets.......................... 7,085,033 (1,151,793)
NET ASSETS
Beginning of Period......................... 14,262,911 15,414,704
----------- -----------
End of Period (including undistributed net
investment income of $5,033 and $5,033,
respectively)............................. $21,347,944 $14,262,911
=========== ===========
</TABLE>
- ---------------
See Notes to Financial Statements.
39
<PAGE> 389
PACIFIC HORIZON CALIFORNIA MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (cost $217,880,269)... $234,876,111
Interest receivable....................................... 3,032,887
Receivable for capital shares sold........................ 141,774
Prepaid expenses.......................................... 1,897
------------
Total Assets................................................ 238,052,669
------------
LIABILITIES:
Dividends payable......................................... 887,736
Payable for capital shares redeemed....................... 535,067
Payable to Bank........................................... 464,089
Investment advisory fees payable.......................... 60,117
Administration fees payable............................... 40,183
Shareholder service fees payable (A Shares)............... 49,911
Custodian and fund accounting fees payable................ 12,077
Transfer agent fees payable............................... 3,481
Distribution fees payable (B Shares)...................... 541
Legal fees payable........................................ 629
Other accrued expenses.................................... 102,636
------------
Total Liabilities........................................... 2,156,467
------------
NET ASSETS.................................................. $235,896,202
============
Net Assets:
A Shares.................................................. $234,885,886
B Shares.................................................. 1,010,316
------------
Total....................................................... $235,896,202
============
Shares Outstanding ($0.001 par value, 200 million shares
authorized):
A Shares.................................................. 30,788,591
B Shares.................................................. 132,348
------------
Total....................................................... 30,920,939
============
NET ASSET VALUE:
A Shares -- Net asset value and redemption price per
share................................................... $ 7.63
============
Maximum Sales Charge (A Shares)........................... 5.50%
Maximum Offering Price (A Shares) (Net Asset Value of A
Shares/(100% -- Maximum Sales Charge)).................. $ 8.07
============
B Shares -- Net asset value, offering price and redemption
price per share......................................... $ 7.63
============
COMPOSITION OF NET ASSETS:
Shares of common stock, at par............................ $ 30,921
Additional paid-in capital................................ 217,691,345
Accumulated undistributed net investment income........... 291,782
Accumulated net realized gains on investment
transactions............................................ 886,312
Net unrealized appreciation on investments................ 16,995,842
------------
Net Assets, August 31, 1998................................. $235,896,202
============
</TABLE>
- ---------------
See Notes to Financial Statements.
40
<PAGE> 390
PACIFIC HORIZON CALIFORNIA MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the six months ended August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................. $6,337,279
----------
EXPENSES:
Investment advisory fees.................................. 351,771
Administration fees....................................... 234,515
Shareholder service fees (A Shares)....................... 292,937
Shareholder service fees (B Shares)....................... 205
Distribution fees (B Shares).............................. 614
Custodian and fund accounting fees........................ 48,745
Transfer agent fees....................................... 72,312
Legal fees................................................ 4,094
Other expenses............................................ 70,559
----------
Total Expenses.......................................... 1,075,752
Less: Expenses paid by third parties........................ (1,433)
----------
Total Net Expenses.......................................... 1,074,319
----------
NET INVESTMENT INCOME....................................... 5,262,960
----------
NET REALIZED/UNREALIZED GAINS ON INVESTMENTS:
Net realized gain on investment transactions.............. 886,312
Net change in unrealized appreciation on investments...... 1,400,966
----------
Net realized/unrealized gains on investments................ 2,287,278
----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $7,550,238
==========
</TABLE>
- ---------------
See Notes to Financial Statements.
41
<PAGE> 391
PACIFIC HORIZON CALIFORNIA MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
AUGUST 31, 1998 FEBRUARY 28,
(UNAUDITED) 1998
---------------- ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income...................... $ 5,262,960 $ 10,401,567
Net realized gains on investment
transactions............................. 886,312 2,654,339
Net change in unrealized
appreciation(depreciation) on
investments.............................. 1,400,966 6,125,217
------------ ------------
Change in net assets resulting from
operations............................... 7,550,238 19,181,123
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
A Shares................................. (5,259,700) (10,401,540)
K Shares................................. (3,261) (27)
Net realized gains from investment
transactions:
A Shares................................. (2,223,061) (414,788)
B Shares................................. (9,514) --
------------ ------------
Change in net assets from shareholder
distributions.............................. (7,495,536) (10,816,355)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued................ 52,559,444 31,684,108
Dividends reinvested....................... 4,202,898 6,597,508
Cost of shares redeemed.................... (34,905,818) (53,772,246)
------------ ------------
Change in net assets from capital share
transactions............................... 21,856,524 (15,490,630)
------------ ------------
Change in net assets......................... 21,911,226 (7,125,862)
NET ASSETS
Beginning of Period........................ 213,984,976 221,110,838
------------ ------------
End of Period (Including undistributed net
investment income of $291,782 and
$291,783, respectively).................. $235,896,202 $213,984,976
============ ============
</TABLE>
- ---------------
See Notes to Financial Statements.
42
<PAGE> 392
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
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 August 31, 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 Municipal Bond Fund (the "California Municipal Bond Fund") (formerly,
Pacific Horizon California Tax-Exempt Bond Fund), collectively the "Funds",
individually the "Fund". The Funds offer A Shares and effective July 15, 1998,
the California Municipal Bond Fund began offering B Shares. A Shares have a
Shareholder Services Plan and B Shares have a Distribution and Services plan. B
Shares of the California Municipal Bond Fund held for 9 years will automatically
convert into A Shares of the California Municipal Bond Fund.
The investment objectives of the Funds are as follows:
The Funds seek to achieve a high level of current income exempt from Federal
income tax and in the case of the California Municipal Bond Fund, exempt from
California State personal income tax as well, as is consistent with prudent
investment management and preservation of capital.
Adviser and Administrator
Bank of America National Trust and Savings Association ("Bank of America"),
a subsidiary of BankAmerica Corporation ("BankAmerica"), serves as the Funds'
investment adviser and administrator. 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").
On October 1, 1998, BankAmerica, the Adviser's and Administrator's parent
company, completed its merger with NationsBank Corporation. The combined company
operates under the name BankAmerica. BankAmerica, continues to serve the Funds
on substantially identical terms as described in Note 3.
Bank of America entered into an agreement with PFPC Inc. ("PFPC"), an
indirect wholly-owned subsidiary of PNC Bank Corp., pursuant to which PFPC
43
<PAGE> 393
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
Provident Distributors, Inc. ("PDI"), serves as principal underwriter and
distributor of shares of the funds. PFPC serves as the Funds' transfer agent and
dividend disbursing agent.
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 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 Funds 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
44
<PAGE> 394
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 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.
The National Municipal Bond Fund and the California Municipal 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 six months ended August
31, 1998, custodian fees and expenses paid by third parties were increased by
$2,331 and $1,433 for the National Municipal Bond Fund and the California
Municipal Bond Fund, 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.
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.
45
<PAGE> 395
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
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 were 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 Municipal 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.
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 and payable
monthly, at an annual rate of 0.35% and 0.30% of the National Municipal Bond
Fund's and California Municipal Bond Fund's average daily net assets,
respectively. For the six months ended August 31, 1998, Bank of America waived
$34,315 of Investment Advisory fees from the National Municipal Bond Fund.
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,
46
<PAGE> 396
at an annual rate of 0.20% and 0.20% of the average daily net assets of the
National Municipal Bond Fund and California Municipal Bond Fund, respectively.
For the six months ended August 31, 1998, Bank of America waived a portion of
administrative fees totaling $19,609 for the National Municipal Bond Fund. For
the six months ended August 31, 1998, Bank of America reimbursed $10,456 of
operating expenses of the National Municipal Bond Fund.
For the six months ended August 31, 1998, PDI advised the Funds that it
retained $1,480 and $7,365, respectively from commissions earned on sales of the
National Municipal Bond Fund's and California Municipal Bond Fund's shares,
respectively. For the same period, Bank of America and its affiliates advised
the Funds that they retained $12,106 and $45,520, respectively, from commissions
earned on sales of the National Municipal Bond Fund's and California Municipal
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' A 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 are less than the costs incurred by PDI, 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 six months ended August 31,
1998, the National Municipal Bond Fund and California Municipal Bond Fund
incurred charges of $24,521 and $292,937, respectively, pursuant to the Plan.
The Funds were advised that of these amounts, PDI retained $82,037 from the
California Municipal Bond Fund, and Bank of America and its affiliates retained
$185,190 from the California Municipal Bond Fund. For the six months ended
August 31, 1998, PDI waived $24,521 for the National Municipal Bond Fund.
The Funds have adopted a Distribution and Services Plan pursuant to Rule
12b-1 under the 1940 act, under which the B Shares of the California Municipal
Bond Fund pay Bank of America for costs incurred in connection with distribution
of the B Shares and for shareholder servicing fees to Service Organizations.
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 Fund's B Shares. For the period ended August 31, 1998, the
California Municipal Bond Fund incurred charges of $819, pursuant to the Plan.
For the six months ended August 31, 1998, PFPC earned $7,191 and $72,312
from the National Municipal Bond Fund and California Municipal Bond Fund,
47
<PAGE> 397
respectively, for transfer agency and dividend disbursing agency services
performed.
A partner of Drinker Biddle & Reath LLP ("DBR") serves as Secretary of the
Company. Legal fees earned by DBR are stated in the statement of operations.
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 $60,000,
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 $40,000 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 $571 and $675 for the National Municipal Bond Fund
and California Municipal Bond Fund, respectively, for the
48
<PAGE> 398
six months ended August 31, 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 six months ended August 31, 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 $15,305,537 and $8,272,495,
respectively, and the cost of purchases and the proceeds from sales of
California Municipal Bond Fund's portfolio securities (excluding short-term
investments) amounted to $76,600,027 and $57,669,312, respectively.
NOTE 6 -- CAPITAL SHARE TRANSACTIONS
Transactions in capital shares for the Funds are summarized below:
<TABLE>
<CAPTION>
NATIONAL MUNICIPAL BOND FUND
---------------------------------------
SIX MONTHS ENDED
AUGUST 31, 1998 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 1998
----------------- ------------------
SHARES AMOUNT SHARES AMOUNT
------ ------- ------ --------
<S> <C> <C> <C> <C>
A SHARES (000'S)
Issued........................................... 936 $9,800 432 $ 4,473
Reinvested....................................... 28 292 54 558
Redeemed......................................... (309) (3,243) (645) (6,602)
---- ------- ---- --------
Net increase/(decrease)........................... 655 $6,849 (159) $ (1,571)
==== ======= ==== ========
K SHARES (a)
Issued........................................... -- -- -- $ --
Reinvested....................................... -- -- 3 31
Redeemed......................................... -- -- (106) (1,096)
---- ------- ---- --------
Net (decrease).................................... -- -- (103) $ (1,065)
==== ======= ==== ========
</TABLE>
<TABLE>
<CAPTION>
CALIFORNIA MUNICIPAL BOND FUND
----------------------------------------
SIX MONTHS ENDED
AUGUST 31, 1998 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 1998
------------------ ------------------
SHARES AMOUNT SHARES AMOUNT
------ -------- ------ --------
<S> <C> <C> <C> <C>
A SHARES (000'S)
Issued............................................ 6,795 $51,509 4,291 $ 31,684
Reinvested....................................... 551 4,194 885 6,597
Redeemed......................................... (4,583) (34,855) (7,234) (53,771)
------ -------- ------ --------
Net increase/(decrease)........................... 2,763 $20,848 (2,058) $(15,490)
====== ======== ====== ========
B SHARES (000'S)(b)
Issued........................................... 137 $ 1,050 -- --
Reinvested....................................... 1 9 -- --
Redeemed......................................... (6) (50) -- --
------ -------- ------ --------
Net increase...................................... 132 $ 1,009 -- --
====== ======== ====== ========
</TABLE>
49
<PAGE> 399
<TABLE>
<CAPTION>
CALIFORNIA MUNICIPAL BOND FUND
----------------------------------------
SIX MONTHS ENDED
AUGUST 31, 1998 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 1998
------------------ ------------------
SHARES AMOUNT SHARES AMOUNT
------ -------- ------ --------
<S> <C> <C> <C> <C>
K SHARES (a)
Issued........................................... -- -- -- $ --
Reinvested....................................... -- -- 4 31
Redeemed......................................... -- -- (146) (1,094)
------ -------- ------ --------
Net (decrease).................................... -- -- (142) $ (1,063)
====== ======== ====== ========
</TABLE>
- ---------------
(a) 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 Municipal Bond Fund valued at
$1,096 and $1,094, respectively, which resulted in a complete liquidation of
this class of shares.
(b) Period from July 15, 1998 (inception date) to August 31, 1998.
NOTE 7 -- CONCENTRATION OF CREDIT RISK
The California Municipal 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.
50
<PAGE> 400
The Funds had the following concentrations by type of obligation at August
31, 1998 (as a percentage of total investments).
<TABLE>
<CAPTION>
NATIONAL CALIFORNIA
MUNICIPAL MUNICIPAL
BOND BOND
--------- ----------
<S> <C> <C>
Airport Facilities...................................... 9.4% 6.1%
Certificates of Participation........................... 0.4 6.9
Education............................................... 5.7 2.1
General Obligations..................................... 1.8 2.0
Health & Medical Facilities............................. 8.3 9.0
Home Building and Land Development...................... 3.0 5.5
Industrial Development.................................. 3.0 1.8
Leases.................................................. 1.3 2.8
Leasing................................................. -- 1.7
Pollution Control Revenue & Industrial Development...... 3.5 7.5
Power Projects.......................................... -- 1.8
Property Redevelopment.................................. 1.1 1.4
Public Facilities....................................... -- 5.4
Revenue................................................. 38.4 29.2
Sales Tax Revenue....................................... 0.3 2.1
Sewer Projects.......................................... 0.7 --
Tax Revenue Anticipation Notes.......................... 4.3 3.7
Transportation.......................................... 6.8 1.9
Utilities............................................... 5.4 2.3
Water & Power Projects.................................. 6.6 6.8
----- -----
100.0% 100.0%
===== =====
</TABLE>
51
<PAGE> 401
PACIFIC HORIZON NATIONAL MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED YEAR PERIOD
AUGUST 31, ENDED ENDED
1998 FEB. 28, FEB. 28, FEB. 29, FEB. 28, FEB. 28,
(UNAUDITED) 1998 1997(a) 1996 1995 1994(b)
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
A SHARES
NET ASSET VALUE PER SHARE, BEGINNING
OF PERIOD............................ $ 10.52 $ 10.18 $ 10.15 $ 9.64 $ 9.89 $ 10.00
-------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income................. 0.24 0.50 0.50 0.54 0.50 0.01
Net realized and unrealized
gains/(losses) on investment
transactions......................... 0.10 0.36 0.06 0.51 (0.25) (0.11)
-------- -------- -------- -------- -------- --------
Total income/(loss) from investment
operations........................... 0.34 0.86 0.56 1.05 0.25 (0.10)
-------- -------- -------- -------- -------- --------
Less Dividends and Distributions:
Dividends to shareholders from net
investment income.................... (0.24) (0.50) (0.50) (0.54) (0.50) (0.01)
Dividends to shareholders from net
realized gains on investment
transactions......................... (0.00)(e) (0.02) (0.03) -- -- --
-------- -------- -------- -------- -------- --------
Total Dividends and Distributions..... (0.24) (0.52) (0.53) (0.54) (0.50) (0.01)
-------- -------- -------- -------- -------- --------
Net change in net asset value per
share................................ 0.10 0.34 0.03 0.51 (0.25) (0.11)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END OF
PERIOD............................... $ 10.62 $ 10.52 $ 10.18 $ 10.15 $ 9.64 $ 9.89
======== ======== ======== ======== ======== ========
Total return (excludes sales
charge).............................. 3.32%(c) 8.65% 5.66% 1.16% 2.78% (1.00%)(c)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000).... $ 21,348 $ 14,263 $ 15,414 $ 12,242 $ 2,520 $ 733
Ratio of expenses to average net
assets............................. 0.50%(d) 0.50% 0.49% 0.12% 0.00% 0.00%(d)
Ratio of net investment income to
average net assets................. 4.57%(d) 4.84% 4.96% 5.24% 5.30% 1.15%(d)
Ratio of expenses to average net
assets*............................ 1.43%(d)** 1.60%** 2.22%** 2.71%** 17.46% 170.99%(d)
Ratio of net investment income/(loss)
to average net assets*............. 3.64%(d) 3.74% 3.25% 2.65% (12.16%) (169.84%)(d)
Portfolio turnover rate............... 43% 36% 12% 38% 20% 15%
</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 six months ended August 31, 1998 and 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 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.
(e) Includes distribution in excess of less than $0.01 per
share.
</TABLE>
See Notes to Financial Statements.
52
<PAGE> 402
PACIFIC HORIZON CALIFORNIA MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED -------------------------------------------------------
AUGUST 31, FEB. FEB. FEB. FEB. FEB.
1998 28, 28, 29, 28, 28,
(UNAUDITED) 1998 1997(a) 1996 1995 1994
----------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
A SHARES
NET ASSET VALUE PER SHARE, BEGINNING
OF PERIOD........................... $ 7.64 $ 7.35 $ 7.45 $ 7.12 $ 7.49 $ 7.51
------ ------ ------ ------ ------ ------
Income from Investment Operations:
Net investment income............... 0.17 0.35 0.36 0.37 0.38 0.38
Net realized and unrealized gains
(losses) on investment
transactions...................... 0.06 0.29 (0.05) 0.33 (0.37) 0.04
------ ------ ------ ------ ------ ------
Total income from investment
operations.......................... 0.23 0.64 0.31 0.70 0.01 0.42
------ ------ ------ ------ ------ ------
Less Dividends and Distributions:
Dividends to shareholders from net
investment income................. (0.17) (0.35) (0.36) (0.37) (0.38) (0.38)
Dividends to shareholders from net
realized gains on investment
transactions...................... (0.07) -- (0.05) -- -- (0.06)
------ ------ ------ ------ ------ ------
Total Dividends and Distributions.... (0.24) (0.35) (0.41) (0.37) (0.38) (0.44)
------ ------ ------ ------ ------ ------
Net change in net asset value per
share............................... (0.01) 0.29 (0.10) 0.33 (0.37) (0.02)
------ ------ ------ ------ ------ ------
NET ASSET VALUE PER SHARE, END OF
PERIOD.............................. $ 7.63 $ 7.64 $ 7.35 $ 7.45 $ 7.12 $ 7.49
====== ====== ====== ====== ====== ======
Total return (excludes sales
charge)............................. 3.13% (b) 9.18% 4.29% 10.12% 0.36% 5.65%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period
(millions)........................ $ 235 $ 214 $ 221 $ 221 $ 195 $ 245
Ratio of expenses to average net
assets............................ 0.92% (c) 0.90% 0.90% 0.94% 0.95% 0.96%
Ratio of net investment income to
average net assets................ 4.49% (c) 4.74% 4.88% 5.11% 5.43% 4.96%
Ratio of expenses to average net
assets*........................... 0.92%***(c) 1.06%** 1.10%** 1.14%** 1.15% 1.11%
Ratio of net investment income to
average net assets*............... 4.49%***(c) 4.58% 4.68% 4.91% 5.23% 4.81%
Portfolio turnover rate.............. 25% 28% 34% 57% 20% 15%
</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 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.
*** Fees paid to third parties had no effect on the ratios.
(a) As of July 22, 1996, the Fund designated the existing series
of shares as "A" Shares.
(b) Not annualized.
(c) Annualized.
</TABLE>
See Notes to Financial Statements.
53
<PAGE> 403
PACIFIC HORIZON CALIFORNIA MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
AUGUST 31, 1998(a)
(UNAUDITED)
------------------
<S> <C>
B SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD.............. $ 7.61
------
Income from Investment Operations:
Net investment income..................................... 0.03
Net realized and unrealized gains (losses) on investment
transactions............................................ 0.09
------
Total income from investment operations..................... 0.12
Less Dividends and Distributions:
Dividends to shareholders from net investment income...... (0.03)
Dividends to shareholders from net realized gains on
investment transactions................................. (0.07)
------
Total Dividends and Distributions........................... (0.10)
------
Net change in net asset value per share..................... 0.02
------
NET ASSET VALUE PER SHARE, END OF PERIOD.................... $ 7.63
======
Total return (excludes sales charge)........................ 1.68% (b)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000)......................... $1,010
Ratio of expenses to average net assets................... 1.65% (c)
Ratio of net investment income to average net assets...... 3.82% (c)
Ratio of expenses to average net assets*.................. 1.66%**(c)
Ratio of net investment income to average net assets*..... 3.82% (c)
Portfolio turnover rate..................................... 25%
</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 period ended August 31, 1998, 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 15, 1998 (inception date) to August 31,
1998.
(b) Not annualized.
(c) Annualized.
(d) Includes distributions in excess of less than $0.01 per
share.
</TABLE>
See Notes to Financial Statements.
54
<PAGE> 404
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 Municipal Bond Fund
[ ] Flexible Income 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> 405
Bulk Rate
U.S. Postage
PAID
Secaucus, NJ
Permit No. 237
[PACIFIC HORIZON LOGO]
Provident Distributor, Inc., Distributor
PHF-5004 8/98
<PAGE> 406
PACIFIC HORIZON INCOME FUND
SEMI-ANNUAL REPORT
August 31, 1998
Short-Term Government Fund
Investing For All
The Times Of Your Life
NOT FDIC INSURED
PACIFIC HORIZON INCOME FUND
<PAGE> 407
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
PricewaterhouseCoopers 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> 408
..................................
Contents
<TABLE>
<S> <C>
FUND FACTS 2-3
UNDERSTANDING YOUR SHAREHOLDER
REPORT 4-6
ECONOMIC REVIEW FROM THE
INVESTMENT ADVISER 8-9
SHAREHOLDER VOTING RESULTS 10-12
PACIFIC HORIZON SHORT-TERM
GOVERNMENT FUND
PORTFOLIO OF INVESTMENTS 13-14
STATEMENT OF ASSETS
AND LIABILITIES 15
STATEMENT OF OPERATIONS 16
STATEMENTS OF CHANGES
IN NET ASSETS 17
NOTES TO FINANCIAL STATEMENTS 18-23
FINANCIAL HIGHLIGHTS 24
</TABLE>
<PAGE> 409
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
...........................................................................
Flexible Income High Current Income
(formerly Corporate Bond)
...........................................................................
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 Municipal Bond* High Level of Federal and California
(formerly California Tax-Exempt Tax-Free Current Income
Bond)
...........................................................................
Money Market Funds+ High Current Income Plus Principal
- Prime Stability
- Treasury
- Government
- Treasury Only
...........................................................................
Tax-Exempt Money Market Funds*+
- Tax-Exempt Money High Level of Federal Tax-Free Current
Income Plus Principal Stability
- California Tax-Exempt Money 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.
+ 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> 410
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> 411
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.
[3 SAMPLE PAGES]
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
[CHART PAGES] 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> 412
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)
[SAMPLE PAGE]
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
[SAMPLE PAGE]
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> 413
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
LOGO
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
LOGO
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> 414
[This page intentionally left blank.]
7
<PAGE> 415
ECONOMIC REVIEW
FROM THE INVESTMENT ADVISER
The global financial crisis has dominated the economic news in recent months.
There are renewed fears that the effect of the Asian currency crisis is
spreading to other economies in the world, including North and South America.
The Russian Ruble has experienced a sharp decline as debate continues regarding
political and economic changes. The pace of economic reform in Japan has been
alarmingly slow, with the recent interest rate reduction reflecting only the
first significant action taken in this regard. Markets in Canada and Mexico
continue to reflect concerns relating to commodities. Moreover, investors have
become increasingly concerned about the sustainability of U.S. corporate
profits, resulting in a significant decline in the U.S. equity markets. The
current global economic crisis is generating greater concern, as it increasingly
affects a larger number of key American trading partners.
The U.S. economy has been affected both positively and negatively by the global
financial crisis. Low interest and inflation rates have stimulated domestic
demand for housing, autos and other consumer goods. However, manufacturing
activity is slowing, particularly in trade exports, and cutbacks have been made
in production and personnel within some industries. The Gross Domestic Product
("GDP") rose at a 1.8%(1) rate in the second quarter, below the first quarter's
5.5%(1) growth rate, reflecting the deterioration in the trade balance and a
slowdown in business investment in equipment and inventories. While the U.S.
economy remains strong in the third quarter, it is no longer immune from the
effects of the crisis. Additionally, prospects for U.S. growth and corporate
profits are less secure.
Economic reports continue to indicate that inflation is under control in
manufacturing and consumer-related areas. The prices paid to U.S. factories,
farmers and other producers (as measured by the Producer Price Index "PPI") fell
0.4%(1) in August, the largest drop in seven months. In the first eight months
of 1998, consumer prices rose at an annual rate of 1.6%(1), which is the same as
the first eight months of 1997. Inflation has remained innocuous as weakening
economies in Asia have depressed commodity prices and the cost of goods imported
into the U.S.
In a departure from the recent past, it appears that the Federal Reserve Board
(the "Fed") now has a higher level of anxiety about the outlook for the global
economy and is becoming more concerned about the increasing risks of slowing
economic growth rather than the dangers of rising inflation. In a recent speech,
Fed Chairman Alan Greenspan hinted that the Fed might consider lowering interest
rates if it becomes increasingly likely that the Asian currency crisis will
spread to the U.S. economy. Although the Federal Open Market Committee ("FOMC")
left the Fed Funds' target interest rate unchanged at 5.50% at the most recent
FOMC meeting held in August; some analysts now expect a reduction in rates
sometime soon.
The main benefactor of the global financial uncertainty has clearly been the
U.S. Treasury market. U.S. Treasuries have replaced gold as the safe haven of
choice, as many investors are reaping the financial rewards of owning these
types of securities. On July 17, the day that the equity markets peaked, the
Treasury 10-year note had a closing yield of approximately 5.5%(1). As of August
31, the yield on this note was 4.97%(1). The fixed income markets now reflect
expectations of an interest rate reduction, as evidenced by the entire Treasury
yield curve trading below 5.50%.
The turmoil in overseas markets, the decline in commodity prices, and the
8
<PAGE> 416
global competition from cheaper imports have also caused the credit sectors to
widen appreciably against Treasuries. Credit risk is now at a heightened level,
as the expectation of lower profit prospects has become more apparent to
investors. Additional downward revisions to corporate earnings estimates will
put further pressure on corporate spreads until the economic situation begins to
improve in Asia.
The Standard & Poor's 500 stock index ("S&P 500") fell 8.0%(2) on a total return
basis during the 6-month period ended August 31. While the stocks of large,
name-brand companies have been battered during the month of August, smaller
company stocks have been hit even harder. The S&P 500 declined 19%(2) from its
high on July 17 and the Russell 2000 Index dropped 30%(3) from its high recorded
in April. Year-to-date, the performance disparity has been even larger between
large cap and small cap stocks. Since the beginning of the year, the S&P 500 is
down 0.4%(2) and the Russell 2000 Index has dropped 22.1%(3), constituting a
spread of 21.7 percentage points.
Investors are becoming increasingly concerned about the sustainability of U.S.
corporate profits. Investors had been willing to pay record-high valuations for
stocks because interest rates were low, inflation was under control and
economies around the world were expanding. Not only are the developed Asian
countries faltering, but the economic turmoil has also extended to Russia and
several emerging market countries. So far, the U.S. market has been fairly well
insulated from the economic problems overseas, but U.S. companies are now
beginning to feel the negative impact from depressed overseas business
conditions. Investor confidence in a continued economic expansion will not occur
until Asia and Russia implement appropriate measures to rectify their economic
and political problems.
LOOKING FORWARD
The U.S. government is still expected to post a budget surplus when the fiscal
year ends on September 30. Rising incomes, low unemployment and stock market
gains earlier in the year have generated abundant tax collections. Reduced
government spending has also contributed to decreasing interest payments on
government debt.
The outlook for the remainder of 1998 is unclear. 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 2.5% in the third quarter. Just as
the market was overly optimistic at the beginning of the summer, we suspect that
the markets' current doldrums are too extreme.
Sincerely,
Kirk Hartman
Kirk Hartman
Chief Investment Officer
Fixed Income Management
- ---------------
( 1) Source - Bloomberg, 1998.
( 2) Source - Bloomberg, 1998. The S&P 500 Index is an index that is
representative of the large capitalization U.S. equity market as a whole
and cannot be invested in directly.
( 3) Source - Bloomberg, 1998. The Russell 2000 is an index that is
representative of the small capitalization U.S. equity market as a whole
and cannot be invested in directly.
9
<PAGE> 417
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Results (Unaudited) of Annual Meeting of Shareholders
Convened on June 19, 1998
Reconvened on June 26, 1998 and July 1, 1998
Reconvened and Adjourned on July 20, 1998
The Annual Meeting of Shareholders of Pacific Horizon Funds, Inc. (the
"Company") was convened on June 19, 1998, reconvened on June 26, 1998 and July
1, 1998, and reconvened and adjourned on July 20, 1998. The Funds of the Company
are: Aggressive Growth Fund, Asset Allocation Fund, Blue Chip Fund, California
Municipal Bond Fund (formerly California Tax-Exempt Bond Fund), California
Tax-Exempt Money Market Fund, Capital Income Fund, Flexible Income Fund
(formerly Corporate Bond Fund), Government Fund, Intermediate Bond Fund,
International Equity Fund, National Municipal Bond Fund, Prime Fund, Short-Term
Government Fund, Tax-Exempt Money Fund, Treasury Fund, Treasury Only Fund, and
U.S. Government Securities Fund. The Annual Meeting was held in order to vote on
the following purposes:
<TABLE>
<CAPTION>
PROPOSAL
NUMBER ISSUE
- -------- -----
<C> <S>
1. To elect Messrs. Edward S. Bottum, William P. Carmichael,
Thomas M. Collins, Douglas B. Fletcher, Robert E. Greeley,
and Cornelius J. Pings, Directors of the Company;
2. With respect to each Fund except the Blue Chip and
Intermediate Bond Funds, to approve or disapprove a new
Investment Advisory Agreement between the Company and Bank
of America NT&SA;
3. With respect to the International Equity Fund, to approve or
disapprove a new Sub-Advisory Agreement between Bank of
America NT&SA and Wellington Management Company, LLP;
4. To approve or disapprove an amendment to the Company's
Charter;
5. To approve or disapprove changes to the following
fundamental investment limitations of each Fund of the
Company:
A) limitation on underwriting of securities;
B) limitation on real estate transactions;
C) limitation on commodity transactions;
D) limitation on industry concentration;
E) limitation on lending;
F) limitation on borrowing and issuance of senior
securities; and
G) limitation on issuer concentration.
6. To approve or disapprove certain changes to the following
fundamental investment policies and limitations, including a
change to make all of such policies and limitations
non-fundamental:
A) with respect to each Fund, the limitation on short sales
and purchasing securities on margin;
</TABLE>
10
<PAGE> 418
<TABLE>
<CAPTION>
PROPOSAL
NUMBER ISSUE
- -------- -----
<C> <S>
B) with respect to the National Municipal Bond, Aggressive
Growth, California Municipal Bond, Prime, Treasury and
California Tax-Exempt Money Market Funds, the limitation on
purchasing securities of companies for the purpose of
exercising control;
C) with respect to each Fund except the Government and
Treasury Only Funds, the limitation on purchasing securities
of other investment companies;
D) with respect to each Fund except the Aggressive Growth,
Short-Term Government, Prime, Treasury, Government and
Treasury Only Funds, the limitation on put, call, straddle
and spread transactions;
E) with respect to each Fund except the National Municipal
Bond, International Equity, Flexible Income, Short-Term
Government and California Tax-Exempt Money Market Funds, the
limitation on illiquid securities;
F) with respect to the Intermediate Bond, Blue Chip and
Asset Allocation Funds, the limitation on transactions in
certain securities by Board members;
G) with respect to the U.S. Government Securities, Capital
Income, California Municipal Bond and California Tax-Exempt
Money Market Funds, the limitation on unseasoned issuers;
H) with respect to the Aggressive Growth Fund, the policy on
investment in equity securities;
I) with respect to the U.S. Government Securities Fund, the
policy with respect to investment in certificates of the
Government National Mortgage Association;
J) with respect to the Capital Income Fund, the policy with
respect to investment in convertible securities;
K) with respect to the California Municipal Bond Fund, the
policy with respect to investment in California municipal
securities;
L) with respect to the Tax-Exempt Money Fund, the policy
with respect to investment in municipal securities; and
M) with respect to the California Tax-Exempt Money Market
Fund, the policy with respect to investment in California
municipal securities;
7. To approve or disapprove a change in the fundamental
investment objective to a non-fundamental investment
objective of the following Funds: National Municipal Bond,
International Equity, Flexible Income, Intermediate Bond,
Blue Chip, Asset Allocation, Aggressive Growth, U.S.
Government Securities, Capital Income, California Municipal
Bond, Short-Term Government, Prime, Treasury, Tax-Exempt
Money and California Tax-Exempt Money Market Funds;
8. To approve or disapprove a new fundamental investment
limitation of the Prime Fund with regard to its industry
concentration;
9. To ratify or reject the selection of PricewaterhouseCoopers
LLP as the Company's independent accountants for the fiscal
year ending February 28, 1999; and
10. The transaction of such other business as may properly come
before the meeting or any adjournment.
</TABLE>
11
<PAGE> 419
At the adjournment of the annual meeting on July 20, 1998, the voting
results for each proposal were as follows:
The voting results for each proposal are shown below:
PACIFIC HORIZON FUNDS, INC. -- ALL FUNDS
<TABLE>
<CAPTION>
TOTAL SHARES TOTAL ABSTAIN/
OUTSTANDING SHARES VOTED FOR AGAINST WITHHELD
----------------- ---------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
PROPOSAL 1 16,453,350,969.00 8,801,633,895.00
EDWARD S. BOTTUM 8,467,391,981.00 None 334,241,914.00
WILLIAM P. CARMICHAEL 8,467,179,418.00 None 334,454,477.00
THOMAS M. COLLINS 8,471,273,838.00 None 330,360,057.00
DOUGLAS B. FLETCHER 8,471,465,627.00 None 330,168,268.00
ROBERT E. GREELEY 8,473,868,183.00 None 327,765,712.00
CORNELIUS J. PINGS 8,471,905,332.00 None 329,728,563.00
PROPOSAL 4 16,453,350,969.00 8,801,633,895.00 7,331,226,557.00 502,598,566.00 373,049,306.00
PROPOSAL 9 16,453,350,969.00 8,801,633,878.00 8,428,348,263.00 85,000,838.00 288,284,777.00
<CAPTION>
BROKER PASS/
NON VOTE FAIL
-------------- -----
<S> <C> <C>
PROPOSAL 1 PASS
EDWARD S. BOTTUM None
WILLIAM P. CARMICHAEL None
THOMAS M. COLLINS None
DOUGLAS B. FLETCHER None
ROBERT E. GREELEY None
CORNELIUS J. PINGS None
PROPOSAL 4 594,759,466.00 FAIL
PROPOSAL 9 None PASS
</TABLE>
PACIFIC HORIZON SHORT-TERM GOVERNMENT FUND
<TABLE>
<CAPTION>
TOTAL SHARES TOTAL ABSTAIN/ BROKER PASS/
OUTSTANDING SHARES VOTED FOR AGAINST WITHHELD NON VOTE FAIL
------------ ------------ ------------ ------- -------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
PROPOSAL 2 3,277,391.00 3,086,652.00 3,086,652.00 None None None PASS
PROPOSAL 5A 3,277,391.00 3,086,652.00 3,084,912.00 None None 1,740.00 PASS
PROPOSAL 5B 3,277,391.00 3,086,652.00 3,084,912.00 None None 1,740.00 PASS
PROPOSAL 5C 3,277,391.00 3,086,652.00 3,084,912.00 None None 1,740.00 PASS
PROPOSAL 5D 3,277,391.00 3,086,652.00 3,084,912.00 None None 1,740.00 PASS
PROPOSAL 5E 3,277,391.00 3,086,652.00 3,084,912.00 None None 1,740.00 PASS
PROPOSAL 5F 3,277,391.00 3,086,652.00 3,084,912.00 None None 1,740.00 PASS
PROPOSAL 5G 3,277,391.00 3,086,652.00 3,084,912.00 None None 1,740.00 PASS
PROPOSAL 6A 3,277,391.00 3,086,652.00 3,084,912.00 None None 1,740.00 PASS
PROPOSAL 6C 3,277,391.00 3,086,652.00 3,084,912.00 None None 1,740.00 PASS
PROPOSAL 7 3,277,391.00 3,086,652.00 3,084,912.00 None None 1,740.00 PASS
</TABLE>
12
<PAGE> 420
PACIFIC HORIZON SHORT-TERM GOVERNMENT FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATURITY PRINCIPAL VALUE
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
----------- ----- -------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 72.6%
Fannie Mae, Series 1993-68.......................... 6.250% 07/27/99 $ 385,482 $ 386,352
Fannie Mae, Series 1997-14 QA....................... 6.000% 11/21/98 382,964 382,027
Fannie Mae, Series 1997-227 G....................... 5.500% 10/25/00 1,000,000 995,419
Fannie Mae, Series 1998-19 BE....................... 6.500% 09/07/98 799,903 800,735
Fannie Mae, Series X-188A........................... 5.800% 10/04/99 1,971,399 1,969,544
Federal Farm Credit Bank Note....................... 5.940% 03/19/99 1,000,000 1,002,584
Federal Farm Credit Bank Note....................... 5.700% 05/04/00 1,500,000 1,512,476
Federal Farm Credit Bank Note....................... 6.100% 12/29/00 1,000,000 1,019,626
Federal Home Loan Bank.............................. 5.650% 04/07/00 1,000,000 1,007,223
Federal Home Loan Bank Discount Note................ 5.710% 10/01/98 2,000,000 2,000,267
Federal Home Loan Mortgage Corp., Pool 1625......... 5.500% 09/16/98 235,480 234,956
Federal Home Loan Mortgage Corp., Pool 1643......... 5.500% 12/05/99 2,000,000 1,993,866
Federal Home Loan Mortgage Corp., Pool 1645......... 5.500% 10/08/98 190,740 190,381
Federal Home Loan Mortgage Corp., Pool 2068......... 6.000% 12/20/00 1,500,000 1,504,919
Government National Mortgage Assoc. Series
1995-5AA........................................... 7.000% 10/15/98 209,234 208,840
Housing & Urban Development Series 96-A............. 6.440% 08/01/99 2,500,000 2,517,150
Housing & Urban Development Series 96-A............. 6.590% 08/01/00 1,000,000 1,019,860
Student Loan Marketing Association.................. 7.723% 01/25/99 1,000,000 1,008,733
Student Loan Marketing Association.................. 5.890% 11/17/99 2,500,000 2,512,484
Student Loan Marketing Association.................. 7.500% 03/08/00 2,000,000 2,068,706
Tennessee Valley Authority Note..................... 6.000% 11/01/00 1,000,000 1,010,000
-----------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (COST
$25,236,812)........................................ 25,346,148
-----------
U.S. TREASURY OBLIGATIONS -- 17.7%
U.S. Treasury Note.................................. 5.625% 11/30/98 2,250,000 2,253,136
U.S. Treasury Note.................................. 6.250% 03/31/99 2,000,000 2,013,087
U.S. Treasury Note.................................. 6.375% 04/30/99 1,900,000 1,915,184
-----------
TOTAL U.S. TREASURY OBLIGATIONS (COST $6,154,805)... 6,181,407
-----------
ASSET-BACKED SECURITIES -- 2.9%
Chemical Credit Card Master Trust I, Series 1996-1,
Class A (Cost $1,000,039).......................... 5.550% 09/15/03 1,000,000 1,003,380
-----------
COMMERCIAL PAPER -- 4.3%
Transamerica Finance (Cost $1,500,000).............. 5.870% 09/01/98 1,500,000 1,500,000
-----------
CORPORATE BONDS -- 2.0%
Worldcom, Inc. (Cost $701,100)...................... 6.125% 08/15/01 700,000 703,500
-----------
</TABLE>
- ---------------
See Notes to Financial Statements
13
<PAGE> 421
<TABLE>
<CAPTION>
MATURITY PRINCIPAL VALUE
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
----------- ----- -------- ---------- -----------
<S> <C> <C> <C> <C>
MEDIUM-TERM NOTES -- 2.9%
AT&T Corp. Series 4 (Cost $1,005,390)............... 6.410% 08/13/99 $1,000,000 $ 1,004,060
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES
------
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS -- 2.5%
Temporary Investment -- FedFunds 5.36% (Cost
$867,720)........................................... 867,720 867,720
-----------
TOTAL INVESTMENTS -- 104.9% (COST $36,465,866)(a).... 36,606,215
LIABILITIES IN EXCESS OF OTHER ASSETS -- (4.9%)...... (1,717,500)
-----------
NET ASSETS -- 100.0%................................. $34,888,715
===========
</TABLE>
- ---------------
Percentages indicated are based on net assets of $34,888,715.
(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..................................... $146,060
Unrealized depreciation..................................... (5,711)
--------
Net unrealized appreciation................................. $140,349
========
</TABLE>
- ---------------
See Notes to Financial Statements
14
<PAGE> 422
PACIFIC HORIZON SHORT-TERM GOVERNMENT FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (cost $36,465,866).... $36,606,215
Cash...................................................... 1,115
Interest Receivable....................................... 476,728
Prepaid expenses.......................................... 30,927
Receivable for capital shares sold........................ 8,314
-----------
Total Assets................................................ 37,123,299
-----------
LIABILITIES:
Dividends payable......................................... 154,470
Payable for capital shares redeemed....................... 2,795
Payable for securities purchased.......................... 2,011,077
Custodian and fund accounting fees payable................ 5,735
Transfer agent fees payable............................... 17,996
Other accrued expenses.................................. 42,511
-----------
Total Liabilities........................................... 2,234,584
-----------
NET ASSETS.................................................. $34,888,715
===========
Shares Outstanding ( $0.001 par value, 200 million shares
authorized):.............................................. 3,468,786
===========
NET ASSET VALUE
Net Asset Value and Redemption price per share............ $ 10.06
===========
COMPOSITION OF NET ASSETS:
Shares of common stock, at par............................ $ 3,469
Additional paid-in capital................................ 34,718,111
Undistributed net investment income....................... 4,749
Accumulated net realized gains on investment
transactions............................................ 22,037
Net unrealized appreciation on investments................ 140,349
-----------
NET ASSETS, AUGUST 31, 1998................................. $34,888,715
===========
</TABLE>
- ---------------
See Notes to Financial Statements
15
<PAGE> 423
PACIFIC HORIZON SHORT-TERM GOVERNMENT FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the six months ended August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................. $ 1,042,145
-----------
Expenses:
Investment advisory fees.................................. 45,592
Administration fees....................................... 36,474
Shareholder service fees.................................. 45,592
Custodian and fund accounting fees........................ 22,440
Printing fee.............................................. 15,843
Audit fees................................................ 12,243
Legal fees................................................ 685
Other expenses............................................ 4,980
-----------
Total Expenses.......................................... 183,849
Less: Fee waivers and expense reimbursements................ (138,403)
-----------
Total Net Expenses.......................................... 45,446
-----------
NET INVESTMENT INCOME....................................... 996,699
-----------
NET REALIZED/UNREALIZED GAINS ON INVESTMENTS:
Net realized gains on investment transactions............. 22,036
Net change in unrealized appreciation on investments...... 100,330
-----------
Net realized/unrealized gains on investments.............. 122,366
-----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $ 1,119,065
===========
</TABLE>
- ---------------
See Notes to Financial Statements
16
<PAGE> 424
PACIFIC HORIZON SHORT-TERM GOVERNMENT FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
AUGUST 31, YEAR ENDED
1998 FEBRUARY 28,
(UNAUDITED) 1998
----------- ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income............................... $ 996,699 $ 1,417,224
Net realized gains on investment transactions....... 22,036 29,888
Net change in unrealized appreciation on
investments....................................... 100,330 48,973
----------- ------------
Change in net assets resulting from operations........ 1,119,065 1,496,085
----------- ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................... (996,699) (1,417,224)
Net realized gains on investment transactions....... (11,038) (12,533)
----------- ------------
Change in net assets from shareholder distributions... (1,007,737) (1,429,757)
----------- ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued......................... 10,186,859 27,125,076
Dividends reinvested................................ 81,403 7,986
Cost of shares redeemed............................. (8,176,119) (10,055,621)
----------- ------------
Change in net assets from capital share
transactions........................................ 2,092,143 17,077,441
----------- ------------
Change in net assets.................................. 2,203,471 17,143,769
NET ASSETS
Beginning of Period................................. 32,685,244 15,541,475
----------- ------------
End of Period (Including undistributed net
investment income of $4,749 and $4,749,
respectively)..................................... $34,888,715 $ 32,685,244
=========== ============
</TABLE>
- ---------------
See Notes to Financial Statements.
17
<PAGE> 425
PACIFIC HORIZON SHORT-TERM GOVERNMENT FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
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 August 31, 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 investment objectives of the Funds are as follows:
The Fund seeks to provide investors with high current income, consistent
with relative stability of principal.
Adviser and Administrator
Bank of America National Trust and Savings Association ("Bank of America"),
a subsidiary of BankAmerica Corporation ("BankAmerica"), 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").
On October 1, 1998, BankAmerica, the Adviser's and Administrator's parent
company, completed its merger with NationsBank Corporation. The combined company
operates under the name BankAmerica. BankAmerica, continues to serve the Funds
on substantially identical terms as described in Note 3.
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 Fund's 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 divi-
18
<PAGE> 426
dend and distribution calculation services for the Fund. The Fund bears all fees
and expenses charged by PFPC for these services.
Distributor and Transfer Agent
Provident Distributors, Inc. ("PDI"), serves as principal underwriter and
distributor of shares of the Fund. PFPC serves as the Fund's transfer agent and
dividend disbursing agent.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
PORTFOLIO VALUATIONS:
The 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 trade date basis. Interest income,
including accretion of discount and amortization of premium, is accrued daily.
Realized gains and losses from securities transactions are recorded on the
identified cost basis.
19
<PAGE> 427
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 in the Fund's
Statement of Assets and Liabilities 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>
$4,749 ($4,749)
</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
20
<PAGE> 428
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. 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 six months ended August 31, 1998, Bank of America agreed to waive $45,592 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. For the six months ended August 31, 1998, the Bank of America
waived $36,474 of their administration fee for the Fund. During the same period,
Bank of America reimbursed $10,745 in operating expenses of the fund.
For the six months ended August 31, 1998, PDI 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
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 six months ended
August 31, 1998, shareholder service fees incurred pursuant to the Plan totaled
$45,592. The Plan provides that if, in any month, the fees paid to PDI are less
than the costs incurred by the PDI, 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 waived the shareholder servicing fees of $45,592 during the six
months ended August 31, 1998.
For the six months ended August 31, 1998, PFPC earned $525 from the Fund for
transfer agency and dividend disbursing agency services performed.
A partner of Drinker Biddle & Reath LLP ("DBR") serves as Secretary of the
Company. Legal fees earned by DBR are stated in the statement of operations.
Certain officers of the Company are affiliated with PFPC. Such persons are
not paid directly by the Company for serving in these capacities.
21
<PAGE> 429
NOTE 4 -- DIRECTORS' COMPENSATION
Each Director of the Company is entitled to an annual retainer of $60,000,
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 $40,000 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 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 $231 for the Fund, for the six months ended August 31, 1998. A
director who comes into office after March 18, 1998 is eligible to participate
in the Retirement Plan.
NOTE 5 -- SECURITIES TRANSACTIONS
For the six months ended August 31, 1998, the cost of purchases and the
proceeds from sales of Fund securities (excluding short-term investments)
amounted to $13,789,814 and $4,586,778, respectively.
22
<PAGE> 430
NOTE 6 -- CAPITAL SHARE TRANSACTIONS
Transactions in capital shares for the Fund are summarized below:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AUGUST 31, 1998 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 1998
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
A SHARES
Issued................. 1,015,269 $ 10,186,859 2,709,051 $ 27,125,076
Reinvested............. 8,111 81,403 797 7,986
Redeemed............... (814,513) (8,176,119) (1,003,872) (10,055,621)
----------- ------------ ----------- ------------
Net increase............. 208,867 $ 2,092,143 1,705,976 $ 17,077,441
=========== ============ =========== ============
</TABLE>
23
<PAGE> 431
PACIFIC HORIZON SHORT-TERM GOVERNMENT FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AUGUST 31, YEAR ENDED PERIOD ENDED
1998 FEBRUARY 28, FEBRUARY 28,
(UNAUDITED) 1998 1997(a)
---------------- ------------ ------------
<S> <C> <C> <C>
NET ASSET VALUE PER SHARE, BEGINNING
OF PERIOD.......................... $10.03 $10.00 $10.00
------ ------ ------
Income from Investment Operations:
Net investment income.............. 0.28 0.55 0.32
Net realized gains on investment
transactions..................... 0.03 0.03 0.01
------ ------ ------
Total income from investment
operations......................... 0.31 0.58 0.33
------ ------ ------
Less Dividends and Distributions:
Dividends to shareholders from net
investment income................ (0.28) (0.55) (0.32)
Distributions to shareholders from
net realized gains on investment
transactions..................... --(d) --(d) (0.01)
------ ------ ------
Total Dividends and Distributions.... (0.28) (0.55) (0.33)
------ ------ ------
Net change in net asset value per
share.............................. 0.03 0.03 --
------ ------ ------
NET ASSET VALUE PER SHARE, END OF
PERIOD............................. $10.06 $10.03 $10.00
====== ====== ======
Total return......................... 3.10%(c) 5.99% 3.33%(c)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period
(millions)....................... $ 35 $ 33 $ 16
Ratio of expenses to average net
assets........................... 0.25%(b) 0.25% 0.11%(b)
Ratio of net investment income to
average net assets............... 5.46%(b) 5.49% 5.53%(b)
Ratio of expenses to average net
assets*.......................... 1.01%(b) 1.15% 3.15%(b)
Ratio of net investment income to
average net assets*.............. 4.70%(b) 4.59% 2.49%(b)
Portfolio turnover rate............ 14% 82% 81%
</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.
24
<PAGE> 432
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 Municipal Bond Fund
[ ] Flexible Income 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> 433
Bulk Rate
U.S. Postage
PAID
Secaucus, NJ
Permit No. 237
[PAC HORIZON LOGO]
Provident Distributor, Inc., Distributor
PHF-5003 8/98
