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PACIFIC HORIZON INTERNATIONAL EQUITY FUND
ANNUAL REPORT
February 28, 1999
International Equity Fund
Investing For All
The Times Of Your Life
NOT FDIC INSURED
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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.
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INVESTMENTS IN PACIFIC HORIZON FUNDS, INC. ARE NOT BANK
DEPOSITS AND ARE NOT OBLIGATIONS OF, OR GUARANTEED BY, NOT
BANK OF AMERICA OR ANY AFFILIATES. AN INVESTMENT IN FDIC
MUTUAL FUNDS INVOLVES INVESTMENT RISKS, INCLUDING THE INSURED
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
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Contents
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FUND FACTS 2-3
UNDERSTANDING YOUR SHAREHOLDER
REPORT 4-6
ECONOMIC REVIEW FROM THE
INVESTMENT ADVISER 8-9
FUND OVERVIEW AND INTERVIEW
WITH YOUR INVESTMENT MANAGER 10-14
PACIFIC HORIZON INTERNATIONAL
EQUITY FUND 15-17
PORTFOLIO OF INVESTMENTS 18-23
STATEMENT OF ASSETS
AND LIABILITIES 24
STATEMENT OF OPERATIONS 25
STATEMENTS OF CHANGES
IN NET ASSETS 26
NOTES TO FINANCIAL
STATEMENTS 27-36
FINANCIAL HIGHLIGHTS 37-39
REPORT OF INDEPENDENT
ACCOUNTANTS 40
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PACIFIC HORIZON FUND FACTS
The Pacific Horizon Family of Funds offers a variety of mutual funds with
different investment objectives to help you diversify your portfolio and meet
your investment goals. Some Funds offer greater growth potential, while others
such as the money market funds, strive to maintain a stable net asset value but
offer no growth potential.
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FUND NAME INVESTMENT OBJECTIVE
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International Equity Long-Term Capital Growth
...........................................................................
Aggressive Growth Maximum Capital Appreciation
...........................................................................
Blue Chip Long-Term Capital Appreciation
...........................................................................
Capital Income Total Investment Return
...........................................................................
Asset Allocation Long-Term Growth
...........................................................................
Corporate Bond High Current Income
...........................................................................
Intermediate Bond Income and Capital Appreciation
...........................................................................
U.S. Government Securities High Level of Current Income
...........................................................................
Short-Term Government High Current Income with Relative
Stability of Principal
...........................................................................
National Municipal Bond* High Level of Federal Tax-Free
Current Income
...........................................................................
California Tax-Exempt Bond* High Level of Federal and California
Tax-Free Current Income
...........................................................................
Money Market Funds+ Current Income, Stable Share Price and
- Prime Daily Liquidity
- Treasury
- Government
- Treasury Only
...........................................................................
Tax-Exempt Money Market Funds*+
- Tax-Exempt Money Federal Tax-Free Current Income, Stable
Share Price and Daily Liquidity
- California Tax-Exempt Money Federal and California Tax-Free Current
Market Income, Stable Share Price and Daily
Liquidity
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* 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.
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3
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.
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PORTFOLIO CONSISTS PRIMARILY OF... APPROPRIATE FOR INVESTORS WHO SEEK
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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.
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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.
[TABLE OF CONTENTS 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.
[FUND OVERVIEW GRAPHIC]
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5
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
[PORTFOLIO OF INVESTMENTS 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
[ASSETS AND LIABILITIES GRAPHIC]
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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
[STATEMENT OF OPERATIONS GRAPHIC]
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
[STATEMENTS OF CHANGES IN NET ASSETS GRAPHIC]
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.
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ECONOMIC REVIEW
FROM THE INVESTMENT ADVISER
The past 12 months will be remembered as the one of the most volatile periods in
financial market history. The crisis in Asia, the Russian default and the
devaluation of the Brazilian Real caused dramatic swings in equity valuations,
interest rates, and spreads and commodity prices. The Federal Reserve, in order
to calm the markets and restore liquidity, lowered short term interest rates by
0.75%. The Dow Jones Industrial Average* after dropping to 7,539, rebounded to
close the period at 9,306. The yield on the benchmark 10-year U.S. Treasury Note
which was at 5.16% on 3/19/99, fluctuated over a 1.2% range with a high of 5.81%
on 4/29/98 and low of 4.16% on 10/5/98. Spreads on 10-year "A" rated finance
debt over 10-year U.S. Treasuries started the period at a spread of 0.75% and
widened to as much as 1.45% only to end the period at 1.05% over comparable
maturity U.S. Treasury notes. International turmoil and the Asian recession also
took its toll on commodities. Demand for oil all but evaporated and crude oil
prices declined from almost $18.00 a barrel to just under $11.50 a barrel only
to rebound to $15.00 on strong U.S. growth and expectations of and a quick
recovery in Asia.
Throughout this turmoil, the U.S. remained an "oasis of prosperity" with the
U.S. Gross Domestic Product growing at an estimated 4.3% for 1998. The U.S.
consumer, unfazed by the recent volatility, continued to spend, pushing the
economy through its ninth year of expansion.
Unemployment remained near historical lows and there was continued strength in
real disposable income that translated into a high level of consumer confidence.
At the same time, the industrial side of the economy, burdened by slower exports
as well as the effects of the strong dollar, remained sluggish.
Inflation, as measured by the Consumer Price Index (CPI), remained benign over
the past year, increasing only 1.6% in 1998. Huge declines in commodities and
weakness on the manufacturing side of the economy offset relatively full
employment and money supply growth.
Despite turmoil abroad, the U.S. equity markets, as tracked by the Standard &
Poor's 500 Composite Stock Price Index**, posted a solid return of 18.01%.
Unfortunately, the Russell 2000*** proved that not all stocks are created equal
with a negative return of (15.06%) over the same period. While an era of
consolidation and low inflation should bode well for large cap stocks, we doubt
that this can continue.
The fixed income markets also put in a strong performance for the past 12
months, with the benchmark Salomon Smith Barney Broad Investment-Grade (BIG)
Index# posting a positive return of 6.31%. The top performing sector for the
period was U.S. agency debt which outperformed comparable maturity U.S.
Treasuries by 0.44% followed by U.S. agency mortgage-backed securities which
outperformed by 0.28%. The worst performing sector was U.S. corporate bonds
which underperformed U.S. Treasuries by 0.60% with "AA", "A", and "BBB" rated
corporate debt underperforming by 0.03%, 0.27%, and 1.61% respectively.
OUTLOOK FOR 1999
While the consensus of Wall Street economists is for a growth rate of 3.5% in
1999, we believe the risk is faster than anticipated growth because of the
momentum of the U.S. economy. The wildcard over the next year is the timing of
Asia's economic turnaround.
8
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Asia remains a big question mark, with many economists calling for a "v" shaped
recovery. Although we believe the Asian economies have bottomed, we suspect that
the recovery in the region will be slower than anticipated. While Korea has
recently shown strength in industrial production and exports, Japan, which
constitutes two-thirds of the region's GDP, continues to show signs of weakness.
If Japan chooses to monetize their debt by printing currency, they may cause
another round of devaluations in the region. China has stated their intentions
to maintain the value of the Yuan, but if they fail to meet their growth targets
and the Yen declines substantially in value, all bets are off.
Sincerely,
/s/ Kirk Hartman
Kirk Hartman
Chief Investment Officer of
Fixed Income Management
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* The Dow Jones Industrial Average is a price-weighted index of 30 of the
largest, most widely held stocks traded on the New York Stock Exchange. It
is unmanaged and unavailable for investment.
** The Standard & Poor's 500 Composite Stock Price Index is an unmanaged
market-capitalization-weighted index consisting of 500 common stocks that
measures the market value of 400 industrial stocks, 60 transportation and
utility company stocks and 40 financial issues. It is unavailable for
investment
*** The Russell 2000 Growth Index is a widely used unmanaged index which
measures the performance of small-cap stocks and cannot be invested in
directly.
# The BIG Index is market-capitalization weighted and includes fixed-rate
Treasury, Government-sponsored, mortgage and investment-grade corporates
with a maturity of one year or longer. The minimum amount outstanding for US
Treasury and mortgage issues is $1 billion for both entry and exit. For
Government sponsored and corporate issues the entry and exit amounts are
$100 million.
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10
PACIFIC HORIZON
INTERNATIONAL EQUITY FUND
[TROND SKRAMSTAD PHOTO]
TROND SKRAMSTAD
Senior Vice President and Partner
Wellington Management Co., LLP
Sub-Adviser to the Fund
Mr. Skramstad directs the Global Equity Strategy Group and plays a key role in
the management of this Fund.
GOAL:
The Pacific Horizon International Equity Fund seeks long-term capital growth.
INVESTMENTS:
The Fund invests in a diversified portfolio of equity securities of companies
that are domiciled or have their principal activities in countries outside the
U.S.
APPROPRIATE FOR:
Investors who want to diversify their investments in foreign equity markets and
who are prepared to accept the risks associated with such investments.
INCEPTION:
May 13, 1996
SIZE OF FUND AS OF
FEBRUARY 28, 1999:
Over $40 million
Q
DESCRIBE THE FUND'S INVESTMENT STRATEGY AND OBJECTIVES.
A
The investment objective of the Fund is to seek long-term capital
appreciation, primarily through investments in equity securities of companies
that are typically domiciled or have their principal activities in countries
outside the U.S. The base currency of the Fund is U.S. dollars.
Wellington Management Company, LLP employs an active international equity
management style based on intensive fundamental research. The Fund is managed by
Wellington Management Company's Global Equity Strategy Group (GESG). Trond
Skramstad, Chairman of the GESG, and Andrew S. Offit, Associate Portfolio
Manager, have primary day-to-day responsibility for the Fund relying on the
input of the GESG. This management team emphasizes high quality, large-cap
stocks within the established markets but may also invest in smaller companies
and emerging markets. The Fund will generally be fully invested, and currency
management is used for defensive hedging purposes.
The cornerstone of Wellington Management's international investment approach is
fundamental research. The Global Equity Strategy Group combines inputs from
regional analysts, global industry analysts and global economists. As a core
portfolio, the Fund will be diversified by country, industry, and company.
Q
HOW DID THE FUND PERFORM IN THE TWELVE MONTHS ENDED 2/28/99?*
A
A Shares of the Fund returned 3.84% for the twelve months ended February 28,
1999, well ahead of both the 1.7% return of the MSCI All Country World Free
ex-U.S. Index and the 1.6% return of the Lipper International Funds Average.
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The Fund benefited significantly from country and regional allocation decisions
over the last year. The biggest positive was in Europe as the Fund was
overweight in the region throughout the year. Within Europe, the Fund benefited
the most from overweights in Germany, France, and Finland. In other regions
performance was enhanced by our overweight in Australia and underweights in Hong
Kong, Malaysia, and the Emerging Markets overall. Our underweight in Japan was
also additive to performance. On the whole, stock selection detracted slightly
from Fund returns for the year. This was most evident in Europe, mainly in
France and the U.K., although strong stock selection in the Netherlands was a
partial offset. Elsewhere, stock selection was additive to performance in both
Japan and Hong Kong.
Q
WHAT IS THE FUND'S BENCHMARK? WILL THE FUND'S PORTFOLIO DIFFER FROM THAT OF
THE BENCHMARK?
A
The Fund's benchmark is the MSCI All Country World Free ex-US Index. The
Index is market capitalization-weighted and reflects the actual universe of
opportunities for a global investor in 46 developed and emerging markets. The
market capitalization profile of the Fund will, in general, be relatively
similar to the MSCI All Country Free ex-US Index.
The portfolio management process incorporates macroeconomic and valuation
research (top down) and fundamental security analysis (bottom up views). We
expect to add value by making judgments on country, industry and security
selection. As a result, we expect the Fund to diverge from the Index on a
country, industry, and security basis.
Q
HOW DID THE PERFORMANCES OF THE NON-US MARKETS COMPARE TO THAT OF THE US
STOCK MARKET FOR THE 12 MONTHS ENDING FEBRUARY 28, 1999?**
A
Returns for stock markets around the world for the twelve month period ended
February 28, 1999 varied considerably by country and by region and exhibited
substantial volatility over the period. The US market ended the year up +19.7%,
as measured by the S&P 500 Composite Stock Price Index, while non-U.S. markets
overall returned +1.7% over the same period, as measured in U.S. Dollar terms by
the MSCI All Country World Free ex-US index. Outside the U.S., European markets
were relatively strong (+11.1%), as these markets benefited from declining
interest rates, continued corporate restructuring, growing emphasis on
shareholder value, and exuberance related to the introduction of the Euro on
January 1, 1999. Within the major markets in Europe, Italy was the strongest
performer, rising +25.8%, as the country continued along the path of increasing
economic and political stability and benefited from interest rate declines
related to EMU convergence. France also performed well, rising +21.7%. Germany
(+10.6%) fared less well, especially later in the year, as investors worried
about slowing demand for capital equipment and industrial goods. The U.K.
(+6.3%) was relatively weak as its economy entered recession mid-year. The
Japanese market declined -5.3% in an up and down year as investors questioned
the ability of the government to effect much needed economic and regulatory
change and the export oriented side of the economy was jolted by a sharply
stronger Yen later in the year. The Pacific Basin ex-Japan returned -13.7% for
the year in sympathy with sharp declines in Emerging Asia and
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amidst a weak commodity price environment. The Emerging Markets overall were
down -27.1% in a very difficult environment as the aftershocks of the 1997 Asia
crisis continued.
Q
WHAT IS THE INVESTMENT APPROACH?***
A
Wellington Management Company, LLP began managing the Fund in December of
1996, and the approach employed has been consistent since the Fund's inception.
Currently, the Fund is invested in 24 countries and 140 equity names. The Fund's
exposure by region is as follows: Europe: 73%, Japan: 16%, Pacific Basin ex
Japan: 6%, Latin America/Canada: 4%, Other Emerging: 1%, and cash: 0%. Going
forward, we intend to continue to diversify across industries and countries to
take full advantage of opportunities as we find them.
Q
WHAT IS THE OUTLOOK FOR THE FUND AND OVERSEAS MARKETS IN THE YEAR AHEAD?#
EUROPE (73% OF PORTFOLIO)
As we head into the new fiscal year, the portfolio remains overweight in the
European markets. We believe the fundamental case for owning European equities
remains intact, although our enthusiasm in the short run is tempered by our near
term outlook for somewhat slower growth. On the Continent, the ongoing theme of
corporate restructuring will continue to accelerate, bolstered by the advent of
the Euro currency area. This has been borne out in the two months since the
introduction of the Euro on January 1, 1999, as there have been several
significant deals announced recently, including Volvo's sale of its car division
to Ford, Olivetti's bid for Telecom Italia, the fight over Gucci by luxury goods
maker LVMH and comglomerate Pinault-Printemps-Redoute, and the merger agreement
between French banks Paribas and Societe Generale followed by Banque Nationale
de Paris's (BNP) bid for the other two. As of February 28, 1999, the Fund owned
shares in Telecom Italia, Gucci, Paribas, and BNP. Changes of this sort, and the
accompanying increase in attention to shareholder returns should provide a
powerful tailwind to European equities for the foreseeable future.
Within Europe we have been reducing our overweight in the U.K., which paid off
significantly in the last several months of the fiscal year. We had felt that
the U.K. would rebound on the back of lower interest rates and that analysts'
growth projections were too low. We were especially intrigued by names such as
Orange, Vodafone, and Cable and Wireless Communications in the
telecommunications sector. Now that stronger than consensus economic growth has
come through, as we expected, and additional interest rate cuts are less likely,
we are less optimistic about the U.K. market. The yield curve will likely remain
inverted, stifling liquidity growth in the economy. We are also concerned that
downward pressures on prices will put a crimp in U.K. profits as the costs of
most goods and services now far exceed those on the Continent. Finally, the U.K.
market's strong performance relative to other European markets has caused the
valuation gap between U.K. and Continental markets to close significantly. As a
result, we have been taking some profits in the UK., trimming or eliminating
names like Orange, Allied Domecq, National Westminster Bank, Compass Group and
Glaxo Welcome.
Among Continental European markets, we had been quite cautious on Germany, but
are now reviewing this position. Our outlook for an upturn in world economic
growth later this year will benefit Germany's relatively more industrially
oriented economy and should help it recover
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from the sharp slowdown in the fourth quarter of 1998. The recent resignation of
Finance Minister Oscar LaFontaine is also a positive for Germany and the rest of
the EMU by helping to promote an environment which is more likely to be oriented
toward business interests and economic growth. We recently purchased or added to
Daimler Chrysler and Allianz, the leading global insurance and financial
services company. We also added to French tire maker Michelin which we believe
will also be a beneficiary of the renewed growth in Europe later this year. In
light of our new outlook for stronger growth later this year we eliminated our
holdings in consumer oriented names such as Groupe Danone and Carrefour.
JAPAN (16% OF THE PORTFOLIO)
In Japan, we remain cautious and underweight. The fundamentals are still poor,
and fiscal 1999 will be another significant down year for corporate profits.
Having said that, the substantial fiscal and monetary stimulus measures
implemented by the Japanese government over the last six to nine months should
provide at least a short-term boost to the Japanese economy. The latest effort
to recapitalize the banking sector is also a major positive. The key question is
whether the economy can enter a self-sustaining growth path once the effects of
the latest stimulus efforts wear off later this year. Prior experience suggests
that the stimulus package alone will not be enough to provide a long-term lift
to the economy. We believe that Japan is still in need of substantial regulatory
and corporate reform and, until evidence appears that such reforms gain serious
momentum, the Japanese economy will be unlikely to break out of its current
malaise. Recent announcements by companies such as Toshiba, Matsushita
Electrical Industries and, after the end of the fiscal year, Sony, are
significant positives as these companies are "trend setters" and provide some
hope that Japan's corporations are beginning to address issues such as
profitability and return on capital more aggressively. However, even many these
announcements, which have been welcomed by analysts and heralded by the press,
fall far short of what will be necessary for these companies to become as
efficient users of assets and shareholder capital as the leading global firms.
DEVELOPED ASIA (6% OF THE PORTFOLIO)
With respect to Asia outside of Japan, we maintain a neutral to slightly
overweight position, with an emphasis on Australia. We feel that the fairly
strong Australian economy, weak Australian dollar, bottoming commodity prices,
and the prospects for an uptick in Japan and the rest of Asia make the
Australian market attractive. We have added to our natural resource holdings,
such as Rio Tinto Ltd and WMC Ltd (no relation to Wellington Management Company,
LLP), and have maintained our holdings in the dominant banking and insurance
franchises, such as AMP Limited and Australia & New Zealand Banking. Outside of
Australia, we have little exposure to the region. Australia remains preferable
over New Zealand, its sister market, although we do own Telecom of New Zealand,
which yields 5% and is benefiting from the expansion of Internet and high value
added data services. Hong Kong and Singapore have rallied strongly from their
lows of last year and now look close to fully valued. Although we have a few
select holdings in these two markets we do not plan to add to these
significantly in the near future.
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EMERGING MARKETS (3% OF THE PORTFOLIO)
Emerging Asia (1% of the Portfolio)
As with Hong Kong and Singapore, we are maintaining our cautious stance toward
Emerging Asia. Although there have been some important steps forward in these
countries over the last few months, such as the likely return to positive
economic growth in South Korea, much more remains to be done before the region
will be able to return to its previously strong economic growth. As many of
these markets have rallied strongly in recent months, we plan to wait until
additional substantive changes occur before we commit more of the portfolio to
the region.
LATIN AMERICA (2% OF THE PORTFOLIO)
The devaluation of the Brazilian Real this past January finally lifted a
significant cloud hanging over Brazil and the rest of the region. The Brazilian
market rebounded strongly on the news, rising almost 30% in local currency terms
by the end of February, although US dollar returns (-7.5%) were still negative
as a result of the devaluation. We took advantage of market weakness post
devaluation and bought several of the larger, more liquid bank and
telecommunications stocks. While the market has rallied, we see significant
longer term potential in the region. Meanwhile, the path to recovery will be
uneven, causing us to tactically adjust our positions over time, although we
anticipate retaining a degree of exposure to Latin America for some time to
come.
* Return figures for the Fund include change in share price, reinvestment of
dividends and capital gain distributions. Performance figures do not reflect
the maximum 5.75% front-end sales load. The Fund is currently waiving a
portion of the advisory, administrative and/or shareholder servicing fee.
This voluntary waiver may be modified or terminated at any time, which would
reduce the Fund's performance.
The Morgan Stanley Capital Index (MSCI) All Country World Free ex-U.S. Index
is an unmanaged index generally representative of the international equity
market as a whole (excluding the U.S.) and cannot be invested in directly.
Lipper Inc., is an independent mutual fund performance monitor. Funds
included in the Lipper International Funds Universe invest their assets in
securities whose primary trading marets are outside the U.S.
** The Standard & Poor's 500 Composite Stock Price Index is an unmanaged index
generally representative of the U.S. equity market as a whole and cannot be
invested in directly.
*** Portfolio characteristics are subject to change and may not be
representative of current characteristics.
# Portfolio holdings are subject to change and may not be representative of
current holdings.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
Investments in international investments may involve special risks, including
foreign taxation, currency risks, risks associated with possible differences in
financial standards and other monetary and political risks associated with
future political and economic developments.
<PAGE> 17
15
PACIFIC HORIZON
INTERNATIONAL EQUITY FUND
(AS OF FEBRUARY 28, 1999)
GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)
[INTERNATIONAL EQUITY FUND GRAPH]
<TABLE>
<CAPTION>
A SHARES B SHARES K SHARES LIPPER MSCI ALL
-------- -------- -------- INTERNATIONAL COUNTRY WORLD
EQUITY FUND FREE EX-U.S.
AVERAGE INDEX
------------- -------------
<S> <C> <C> <C> <C> <C>
5/13/96 9425.00 10000.00 10000.00 10000.00 10000.00
8/31/96 9161.00 9720.00 9720.00 9807.00 9774.00
2/28/97 9351.00 9921.00 9891.00 10528.00 10175.00
8/31/97 9941.00 10548.00 10478.00 10493.00 10354.00
2/28/98 10316.00 10945.00 10816.00 11982.00 11412.00
8/31/98 9465.00 10021.00 9905.00 11041.00 10046.00
2/28/99 10712.00 11289.00 11185.00 12169.00 11576.00
</TABLE>
HOW PERFORMANCE COMPARES
The chart compares the Pacific Horizon International Equity Fund to the Morgan
Stanley Capital International (MSCI) All Country World Free ex-U.S. Index, which
is an unmanaged index typically used as a performance benchmark for
international equity investments.
As illustrated, the Fund tracked the performance of other international equity
funds. The average of inter- national equity funds as reported by Lipper
Analytical Services, Inc. measures the performance of other funds with
investment objectives and policies similar to those of the Pacific Horizon
International Equity Fund. An initial $10,000 investment in the Fund made on May
13, 1996 would now be worth $10,712 for A Shares.* The same investment made in
the Lipper International Equity Fund Average would now be worth $12,169.
Correspondingly, a $10,000 investment in B Shares for the same period would now
be worth $11,289** and a $10,000 investment in K Shares for the same period
would now be worth $11,185.***
----------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
INTERNATIONAL EQUITY FUND
AGGREGATE TOTAL RETURN
<CAPTION>
-----------------------------------------------------------------
A SHARES B SHARES K SHARES***
Without With Without With
Sales Sales Sales Sales
Load Load* Load Load**
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Year 3.84% (2.10%) 3.14% (0.86%) 3.41%
----------------------------------------------------------------
Since Inception 4.68% 2.49% 4.43% 3.43% 4.08%
(5/13/96)
</TABLE>
------------------------------------------
Performance quoted is not annualized. Return figures for the Fund include change
in share price, reinvestment of dividends and capital gains distributions.
FEDERAL INCOME TAX STATUS OF DIVIDENDS (UNAUDITED)
The Pacific Horizon International Equity Fund distributed a total Capital Gain
Dividend of $0.020316 for the year ended February 28, 1999.
SEE INVESTMENT MANAGER INTERVIEW FOR FACTORS AFFECTING FUND PERFORMANCE.
The performance data quoted represents past performance and is not an indication
of future results. The investment return and principal value are historical and
will vary with market conditions, so an investor's shares, when redeemed, may be
worth more or less than their original cost.
<PAGE> 18
16
Lipper Analytical Services, Inc. is an independent mutual fund-monitoring
organization. Neither the Lipper International Equity Fund Average, nor the
Morgan Stanley Capital International (MSCI) All Country World Free ex-U.S. Index
may be invested in directly. The hypothetical investment in the Morgan Stanley
Capital International (MSCI) All Country World Free ex-U.S. Index does not
reflect any sales or management fees that would be incurred if an investor were
to actually purchase individual securities or mutual funds, while the
performance of the Fund reflects all expenses and management fees and the effect
of the maximum sales charge.
* A share performance assumes the deduction of the maximum front-end sales
charge of 5.75%.
** Average annual return figures assume the deduction of the maximum contingent
deferred sales charge of 5.00%, however, the line graph does not. B shares
were first offered on July 15, 1998. Performance results shown prior to July
15, 1998 are those of Class A shares without the sales charge. B shares have
an ongoing 0.75% distribution and administrative services fee which does not
apply to A sharers and which if reflected, would have lowered performance
shown.
*** The inception date of the K Shares (the date K shares were initially funded)
was July 22, 1996. The K shares did not commence operations until October
25, 1996. For this reason, the performance results for K Shares are those of
A Shares without the sales charge prior to such date. The performance
results for K Shares included in the Financial Highlights table in the
financial statements represent actual performance from the inception date of
the K Shares. K Shares, unlike A Shares, are sold without a front-end load
but have an ongoing .75% distribution or administrative services fee (of
which .25% are currently being waived), which would have reduced prior
performance.
<PAGE> 19
17
PACIFIC HORIZON
INTERNATIONAL EQUITY FUND
(AS OF FEBRUARY 28, 1999)
A WORLD OF INVESTMENT OPPORTUNITY
An investment in the Pacific Horizon International Equity Fund offers
shareholders the potential to take advantage of the expanding universe of
international equity investments.
As you can see on the chart below, stocks of companies headquartered outside the
United States increasingly make up a larger portion of the world's capital
markets.
U.S. versus non-U.S. securities, as a percent of the World's Capital Markets
[PIE CHART]
<TABLE>
<CAPTION>
1970
--------
<S> <C>
Non-U.S. 34%
U.S. 66%
</TABLE>
[PIE CHART]
<TABLE>
<CAPTION>
1998
--------
<S> <C>
Non-U.S. 51%
U.S. 49%
</TABLE>
Primary areas of investment opportunity currently include the countries in the
adjacent table, which reflects the current largest country holdings of the MSCI
All Country World Free ex-U.S. Index as of December 31, 1998.
<TABLE>
<CAPTION>
TOP TEN COUNTRIES IN MSCI+*
ALL COUNTRY FREE EX-U.S. INDEX
(AS OF 12/31/98)
PERCENT OF NET ASSETS
AS OF FEBRUARY 28, 1999
<S> <C> <C>
- --------------------------------------------
<CAPTION>
FUND
ALLOCATION
MSCI AS A
COUNTRY PERCENT OF
WEIGHTS NET ASSETS
<S> <C> <C>
- --------------------------------------------
United Kingdom 19.0% 24.1%
............................................
Japan 18.7% 14.8%
............................................
Germany 9.5% 7.2%
............................................
France 8.4% 13.1%
............................................
Switzerland 7.2% 4.8%
............................................
Netherlands 5.8% 6.9%
............................................
Italy 4.7% 3.9%
............................................
Canada 3.4% 1.5%
............................................
Spain 3.0% 2.9%
............................................
Sweden 2.4% 3.8%
............................................
TOTAL 82.1% 83.0%
- --------------------------------------------
</TABLE>
+ Calculation is based on investment securities and futures contracts.
* The composition of the Fund's holdings is subject to change.
The International Equity Fund employs a "blue-chip" approach to the world's
markets. The Fund aims to select stocks from major industries in the 47
countries represented by the Morgan Stanley Capital International (MSCI) All
Country World Free ex-U.S. Index. Fund managers will strive to add value by
carefully screening stocks to select what they believe to be the best stocks in
each industry, with a focus on stock of large, well-established companies.
Source: MSCI, 1998
<PAGE> 20
18
PACIFIC HORIZON INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- --------- -----------
<S> <C> <C>
COMMON STOCKS -- 97.6%
ARGENTINA -- 0.1%
Banco de Galicia ADR....................................... 3,600 $ 45,225
-----------
AUSTRALIA -- 4.4%
AMP Ltd.*.................................................. 32,240 365,022
Australia & New Zealand Bank Group Ltd. ................... 64,855 418,812
Coles Myer Ltd. ........................................... 10,934 58,388
News Corp. Ltd. ........................................... 32,362 227,068
Pasminco Ltd. ............................................. 213,872 172,639
Rio Tinto Ltd. ............................................ 11,935 149,209
Telstra Corp. Ltd.*........................................ 31,416 160,271
WMC Ltd. .................................................. 80,368 249,515
-----------
1,800,924
-----------
BRAZIL -- 1.0%
Embratel Participacoes S.A. ADR*........................... 7,700 104,913
Telesp Celular Participacoes S.A. ADR...................... 6,300 132,300
Telesp Participacoes S.A. ................................. 6,700 109,475
Uniao de Bancos Brasileiros S.A. GDR....................... 3,900 52,650
-----------
399,338
-----------
CANADA -- 1.5%
Canadian National Railway Co. ............................. 5,000 241,563
Newbridge Networks Corp.*.................................. 5,200 126,766
Seagram Co., Ltd. ......................................... 5,600 259,700
-----------
628,029
-----------
DENMARK -- 1.0%
Unidanmark A/S............................................. 5,560 395,704
-----------
FINLAND -- 1.7%
Nokia Oyj -- A Shares...................................... 4,940 675,665
-----------
FRANCE -- 13.1%
Alcatel.................................................... 4,070 437,831
Axa -- UAP................................................. 4,160 542,496
Banque Nationale de Paris.................................. 8,389 669,470
Compagnie de Saint Gobain.................................. 1,200 186,522
Compagnie Generale des Etablissements Michelin............. 6,100 271,858
Elf Aquitaine.............................................. 2,590 270,091
Establissements Economiques du Casino Guichard-Perrachon
S.A........................................................ 1,400 128,629
Paribas.................................................... 5,730 493,754
Renault S.A. .............................................. 4,230 197,340
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 21
19
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- --------- -----------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
FRANCE -- (CONTINUED)
Rhone-Poulenc.............................................. 3,000 $ 137,488
STMicroelectronics N.V.*................................... 1,700 148,538
Suez Lyonnaise des Eaux.................................... 2,050 409,779
Total S.A. ................................................ 5,290 551,653
Vivendi S.A. .............................................. 3,350 873,363
-----------
5,318,812
-----------
GERMANY -- 7.2%
Allianz AG................................................. 1,000 297,479
Bayer AG................................................... 9,080 318,950
DaimlerChrysler AG*........................................ 3,290 307,335
Hoechst AG................................................. 13,400 616,319
Karstadt AG................................................ 785 295,563
Mannesmann AG.............................................. 4,920 665,368
Siemens AG................................................. 6,980 434,435
-----------
2,935,449
-----------
HONG KONG -- 1.4%
Cheung Kong Holdings Ltd. ................................. 31,000 211,061
China Telecom, Ltd.*....................................... 55,800 99,029
China Telecom, Ltd. ADR*................................... 1,900 66,975
Sun Hung Kai Properties.................................... 26,000 177,019
-----------
554,084
-----------
IRELAND -- 1.7%
Allied Irish Banks PLC..................................... 39,197 681,311
-----------
ITALY -- 3.9%
Banca Commerciale Italiana................................. 52,500 327,913
ENI SPA.................................................... 70,200 404,560
Telecom Italia SPA......................................... 82,044 863,678
-----------
1,596,151
-----------
JAPAN -- 14.8%
Asahi Bank, Ltd. .......................................... 34,000 149,010
Bank of Tokyo -- Mitsubishi, Ltd.(c)....................... 18,000 216,940
Bridgestone Corp. ......................................... 5,000 111,884
Daiwa Securities Co., Ltd. ................................ 59,000 243,658
Eisai Co., Ltd. ........................................... 14,000 261,947
Fuji Bank, Ltd. ........................................... 20,000 78,719
Fuji Machine Manufacturing Co.(c).......................... 5,000 159,713
Fuji Photo Film Co. ....................................... 8,000 293,974
Fujisawa Pharmaceutical Co., Ltd.(c)....................... 21,000 269,734
Hitachi, Ltd. ............................................. 15,000 94,817
Jafco Co., Ltd. ........................................... 2,000 67,762
Mabuchi Motor.............................................. 2,700 181,593
Matsumotokiyoshi........................................... 9,200 374,513
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 22
20
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- --------- -----------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
JAPAN -- (CONTINUED)
Matsushita Communication Industrial Co., Ltd. ............. 3,000 $ 155,246
NEC Corp. ................................................. 18,000 181,745
Nichiei Co., Ltd. ......................................... 3,000 209,608
NTT Data Corp. ............................................ 30 173,198
NTT DoCoMo................................................. 8 324,989
Olympus Optical Co., Ltd. ................................. 37,000 402,275
Rohm Co., Ltd.(c).......................................... 3,000 293,299
Sakura Bank, Ltd. ......................................... 38,000 82,630
Sony Corp.(c).............................................. 6,700 507,088
Takeda Chemical Industries................................. 6,000 206,321
Takefuji Corp. ............................................ 1,900 137,876
Tokyo Style Co., Ltd. ..................................... 10,000 103,835
Toshiba Corp. ............................................. 60,000 372,187
Uni-Charm Corp. ........................................... 5,400 231,656
Yamanouchi Pharmaceutical Co., Ltd. ....................... 5,000 152,549
-----------
6,038,766
-----------
MEXICO -- 0.9%
Grupo Financiero Banamex Accival. S.A. de C.V. B Shares*... 115,100 175,743
Fomento Economico Mexicano S.A. de C.V. ADR................ 1,900 49,994
Telefonos de Mexico S.A. ADR............................... 2,300 131,531
-----------
357,268
-----------
NETHERLANDS -- 6.9%
Gucci Group N.V. ADR....................................... 7,400 518,000
ING Groep N.V. ............................................ 8,020 448,984
Koninklijke (Royal) Philips Electronics N.V. .............. 8,900 620,369
Koninklijke Ahold N.V. .................................... 6,800 261,254
Royal Dutch Petroleum...................................... 4,100 180,024
TNT Post Group N.V. ....................................... 11,533 394,354
Unilever N.V. ............................................. 4,800 346,173
United Pan Europe.......................................... 1,000 37,267
-----------
2,806,425
-----------
NEW ZEALAND -- 0.3%
Telecom Corp. of New Zealand, Ltd. ADR..................... 3,100 124,000
-----------
SINGAPORE -- 0.2%
Overseas Chinese Banking Corp., Ltd. ...................... 10,000 66,782
-----------
SOUTH AFRICA -- 0.3%
De Beers Consolidated Mines Ltd. .......................... 2,500 43,099
Edgars Stores Ltd. ........................................ 323 1,376
Liberty Life Association of Africa Ltd. ................... 1,600 22,031
South African Breweries Ltd. .............................. 4,419 64,198
-----------
130,704
-----------
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 23
21
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- --------- -----------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
SOUTH KOREA -- 0.7%
Korea Telecom Corp.*....................................... 4,490 $ 132,113
Samsung Electronics Co. ................................... 1,150 81,022
SK Telecom Co., Ltd. ADR................................... 6,953 70,394
-----------
283,529
-----------
SPAIN -- 2.9%
Endesa S.A. ............................................... 25,860 685,255
Telefonica S.A. ADR........................................ 3,641 500,585
-----------
1,185,840
-----------
SWEDEN -- 3.8%
Ericsson, (L.M.) Telephone Co. Cl-B........................ 7,260 191,844
Hennes & Mauritz AB -- B................................... 1,950 150,073
Nordbanken Holding AB...................................... 69,590 420,320
Pharmacia & Upjohn, Inc. Depository Share.................. 14,800 779,470
-----------
1,541,707
-----------
SWITZERLAND -- 4.8%
Holderbank Financiere Glarus AG............................ 210 218,542
Nestle S.A. ............................................... 143 269,903
Novartis AG Reg. Shares.................................... 310 543,815
Roche Holdings AG.......................................... 20 253,268
Swisscom AG Reg. Shares*................................... 960 379,612
UBS AG..................................................... 860 267,663
-----------
1,932,803
-----------
UNITED KINGDOM -- 24.1%
Bank of Scotland........................................... 16,400 236,981
Barclays PLC............................................... 8,800 234,866
Billiton PLC............................................... 76,700 166,493
BP Amoco PLC............................................... 44,559 634,599
British Airways PLC........................................ 39,600 292,296
British American Tobacco PLC............................... 42,450 387,288
British Telecommunications PLC............................. 18,407 318,765
BTR Siebe PLC.............................................. 110,000 463,899
Cable & Wireless Communications PLC........................ 17,400 205,437
Cadbury Schweppes PLC...................................... 18,300 280,560
Compass Group PLC.......................................... 16,900 208,874
Diageo PLC................................................. 38,656 426,986
Dixons Group PLC........................................... 7,500 141,356
Glaxo Wellcome PLC......................................... 9,100 290,252
Granada Group PLC.......................................... 19,300 389,111
HSBC Holdings PLC.......................................... 7,100 207,010
Imperial Chemical Industries PLC........................... 9,500 83,020
National Westminster Bank PLC.............................. 23,100 478,120
Next PLC................................................... 38,100 441,902
Orange PLC*................................................ 11,100 160,662
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 24
22
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- --------- -----------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
UNITED KINGDOM -- (CONTINUED)
Pearson PLC................................................ 6,400 $ 140,668
Reckitt & Colman PLC....................................... 14,900 198,239
Reed International PLC..................................... 14,500 139,548
Rentokil Initial PLC....................................... 49,500 366,361
Scottish Power PLC......................................... 38,500 355,568
SmithKline Beecham PLC..................................... 69,253 975,192
Standard Chartered Bank PLC................................ 24,800 323,399
Vodafone Group PLC......................................... 48,858 896,197
Zeneca Group PLC........................................... 8,100 336,862
-----------
9,780,511
-----------
UNITED STATES -- 0.9%
Schlumberger Ltd. ......................................... 7,500 364,219
-----------
Total Common Stocks (Cost $35,878,583)..................... 39,643,246
-----------
</TABLE>
<TABLE>
<CAPTION>
MATURITY PRINCIPAL
RATE DATE AMOUNT
----- -------- ---------
<S> <C> <C> <C> <C>
U. S. TREASURY OBLIGATIONS -- 0.1%
U.S. Treasury Bills (b) (Cost $29,786).................. 4.355% 04/29/99 $ 30,000 29,773
-----------
REPURCHASE AGREEMENT -- 1.6%
Warburg Dillon Read, dated 2/26/99, with a maturity
value of $667,263 (Collateralized by $569,000 U.S.
Treasury Bond, 7.50%, 11/15/16, market value --
$672,843)
(Cost $667,000; Note 2)................................. 4.74% 03/01/99 667,000 667,000
-----------
TOTAL INVESTMENTS -- 99.3% (COST $36,575,369)(a)......... 40,340,019
OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.7%............ 279,958
-----------
NET ASSETS -- 100.0%..................................... $40,619,977
===========
</TABLE>
- ---------------
Percentages indicated are based on net assets of $40,619,977.
(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..................................... $ 4,958,096
Unrealized depreciation..................................... (1,193,446)
-----------
Net unrealized appreciation................................. $ 3,764,650
===========
</TABLE>
(b) Segregated as collateral for futures contracts.
(c) Segregated as collateral for forward foreign currency exchange contracts.
* Non-income producing securities.
ADR -- American Depositary Receipt.
GDR -- Global Depositary Receipt.
PLC -- Public Limited Company.
See Notes to Financial Statements.
<PAGE> 25
23
The following is a breakdown of the common stock portion of the Portfolio, by
industry classification, as of February 28, 1999 (Unaudited). Percentages are
based on total common stock value.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY
--------
<S> <C>
Automobile 1.6%
Banking 13.5%
Beverages & Tobacco 2.9%
Building Materials & Components 1.0%
Chemicals 6.5%
Computer Software 0.3%
Electrical & Electronics 9.5%
Energy 3.0%
Financial Services 3.2%
Food & Household Products 2.6%
Forest Products & Paper 0.6%
Health & Personal Care 9.7%
Insurance 3.1%
Leisure & Tourism 1.2%
Machinery & Equipment 3.1%
Merchandising 0.7%
Metals-Non Ferrous 1.9%
Multi-Industry 7.4%
Real Estate 1.0%
Recreational/Other Consumer Goods 2.1%
Retail 5.5%
Telecommunications 16.3%
Transportation 2.3%
Utilities -- Electric & Gas 1.0%
-----
TOTAL COMMON STOCKS 100.0%
=====
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 26
24
PACIFIC HORIZON INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (cost $36,575,369)..... $40,340,019
Cash....................................................... 489
Interest and dividend receivable........................... 115,324
Receivable from investment adviser......................... 12,494
Receivable for capital shares sold......................... 40,424
Receivable for investment securities sold.................. 1,034,451
Unrealized appreciation on forward currency contracts...... 106,276
Deferred organization costs................................ 28,717
-----------
Total Assets................................................ 41,678,194
-----------
LIABILITIES:
Payable for capital shares redeemed........................ 51,675
Payable for investment securities purchased................ 988,893
Unrealized depreciation on forward currency contracts...... 4,147
Net payable for variation margin on futures contracts...... 2,242
Other accrued expenses..................................... 11,260
-----------
Total Liabilities........................................... 1,058,217
-----------
NET ASSETS.................................................. $40,619,977
===========
Net Assets
A Shares................................................... $39,401,830
B Shares................................................... 290,891
K Shares................................................... 927,256
-----------
Total....................................................... $40,619,977
===========
Shares Outstanding ($0.001 par value, 300 million shares
authorized):
A Shares................................................... 3,633,155
B Shares................................................... 27,034
K Shares................................................... 86,668
-----------
Total....................................................... 3,746,857
===========
Net Asset Value
A Shares -- Net asset value and redemption price per
share...................................................... $10.85
-----
-----
Maximum Sales Charge (A Shares)............................ 5.75%
Maximum Offering Price (A Shares)
(Net Asset Value of A Shares/(100% -- Maximum Sales
Charge))............................................... $11.51
-----
-----
B Shares -- Net asset value, offering and redemption price
per share.................................................. $10.76
-----
-----
K Shares -- Net asset value, offering and redemption price
per share.................................................. $10.70
-----
-----
COMPOSITION OF NET ASSETS:
Shares of common stock, at par............................. $3,747
Additional paid-in capital................................. 38,587,660
Distributions in excess of net investment income........... (103,604)
Accumulated net realized losses on investments and foreign
currency
transactions, forward currency contracts and futures
contracts.............................................. (1,740,630)
Net unrealized appreciation on investments, forward
currency contracts, futures contracts and foreign
currency translations.................................... 3,872,804
-----------
NET ASSETS, FEBRUARY 28, 1999............................... $40,619,977
===========
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 27
25
PACIFIC HORIZON INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the year ended February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $59,171)..... $ 764,953
Interest.................................................. 113,140
---------
878,093
---------
EXPENSES:
Investment advisory fees.................................. 328,642
Administration fees....................................... 87,638
Shareholder service fees (A shares)....................... 107,387
Shareholder service fees (B shares)....................... 256
Shareholder service fees (K shares)....................... 1,904
Custodian and fund accounting fees........................ 223,123
Distribution fees (B shares).............................. 769
Distribution fees (K shares).............................. 5,713
Reports to shareholders................................... 48,652
Transfer agent fees....................................... 38,508
Audit fees................................................ 18,710
Legal fees................................................ 1,291
Organizational expense.................................... 3,441
Directors fees............................................ 976
Other expenses............................................ 32,353
---------
Total Expenses.......................................... 899,363
Less: Fee waivers and expense reimbursements.............. (378,144)
---------
Total Net Expenses.......................................... 521,219
---------
NET INVESTMENT INCOME....................................... 356,874
---------
NET REALIZED/UNREALIZED GAINS ON INVESTMENTS:
Net realized gains on investment and foreign currency
transactions, forward currency contracts and futures
contracts............................................... 188,214
Net change in unrealized appreciation on investments,
forward currency contracts, futures contracts and
foreign currency translations........................... 439,518
---------
Net realized/unrealized gains on investments.............. 627,732
---------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $ 984,606
=========
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 28
26
PACIFIC HORIZON INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------
FEBRUARY 28, FEBRUARY 28,
1999 1998
------------ ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income............................... $ 356,874 $ 324,762
Net realized gains (losses) on investment and
foreign currency transactions, forward currency
contracts and futures contracts................... 188,214 (1,317,018)
Net change in unrealized appreciation on
investments, forward currency contracts, futures
contracts and foreign currency translations....... 439,518 3,437,500
----------- -----------
Change in net assets resulting from operations........ 984,606 2,445,244
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Class A Shares.................................... (308,733) (293,996)
Class B Shares(a)................................. (1,969) --
Class K Shares.................................... (7,253) (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... (404,855) (1,238,976)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued......................... 15,652,352 32,932,837
Dividends reinvested................................ 252,717 685,188
Cost of shares redeemed............................. (18,066,597) (8,956,017)
----------- -----------
Change in net assets from capital share
transactions........................................ (2,161,528) 24,662,008
----------- -----------
Change in net assets.................................. (1,581,777) 25,868,276
NET ASSETS:
Beginning of Year................................... 42,201,754 16,333,478
----------- -----------
End of Year (including distributions in excess of
net investment income of $103,604 and $84,161,
respectively)..................................... $40,619,977 $42,201,754
=========== ===========
</TABLE>
- ---------------
(a) Period from July 15, 1998 (inception date) to February 28, 1999.
See Notes to Financial Statements.
<PAGE> 29
27
PACIFIC HORIZON INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 -- ORGANIZATION
Pacific Horizon Funds, Inc. (the "Company"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended (the "Act"), as
an open-end management investment company. At February 28, 1999, 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, 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 and administrator.
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 Fund 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.
<PAGE> 30
28
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.
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
<PAGE> 31
29
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.
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
<PAGE> 32
30
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, 1999, 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>
DISTRIBUTIONS IN EXCESS OF ACCUMULATED NET REALIZED
NET INVESTMENT INCOME GAIN/(LOSS) ON INVESTMENTS
--------------------------- --------------------------
<S> <C> <C>
$ 58,362 $(235,107)
</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.
At February 28, 1999, the Fund had a capital loss carryover of $1,484,107
due to expire February 28, 2007.
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.
FOREIGN CURRENCY TRANSLATION:
The accounting records of the Fund are maintained in U.S. dollars. Foreign
currency amounts are translated into U.S. dollars at the current rate of
exchange to determine the value of investments, assets and liabilities.
Purchases and sales of securities, and income and expenses are translated at the
prevailing rate of exchange on the respective dates of such transactions. Any
resulting gain or loss on such translation is reported in the Fund's statement
of operations. The Fund does not isolate that portion of the results of
operations resulting from changes in foreign exchange rates on investments from
the fluctuations arising from changes in market prices of securities. Such
fluctuations are included with the net realized and unrealized gains or losses
from investments.
<PAGE> 33
31
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, and 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.
<PAGE> 34
32
The Fund had the following outstanding forward foreign currency exchange
contracts at February 28, 1999:
<TABLE>
<CAPTION>
VALUE AT
FORWARD FOREIGN SETTLEMENT SETTLEMENT CURRENT UNREALIZED
CURRENCY CONTRACTS DATE DATE VALUE GAIN/(LOSS)
------------------ ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Purchase Contracts:
Australian Dollar............. 03/01/99 $ 58 $ 57 $ (1)
Australian Dollar............. 03/02/99 119 118 (1)
European Currency Unit........ 03/01/99 420,332 420,291 (41)
European Currency Unit........ 03/31/99 106,970 106,500 (470)
Swiss Franc................... 03/01/99 57,677 57,700 23
UK Pounds..................... 03/04/99 15,506 15,474 (32)
---------- ---------- --------
$ 600,662 $ 600,140 $ (522)
========== ========== ========
Sale Contracts:
European Currency Unit........ 03/31/99 $ 16,323 $ 16,258 $ 65
Japanese Yen.................. 03/01/99 47,592 48,850 (1,258)
Japanese Yen.................. 04/16/99 1,180,882 1,074,958 105,924
UK Pounds..................... 03/02/99 39,237 38,973 264
UK Pounds..................... 03/03/99 645,088 647,432 (2,344)
---------- ---------- --------
$1,929,122 $1,826,471 $102,651
========== ========== ========
</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 investments, forward currency contracts, futures contracts and
foreign currency translations" 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 losses on investments and
foreign currency transactions, forward currency contracts and futures contracts"
in the Statement and Assets and Liabilities. The Fund enters into futures
contracts to hedge a portion of its portfolio.
<PAGE> 35
33
The use of futures contracts involves, to varying degrees, elements of
market risk. Risks arise from the possible imperfect correlation in movements in
the price of futures contracts, interest rates and the underlying hedged assets,
and the possible inability of counterparties to meet the terms of their
contracts. However, the Fund's activities in futures contracts are conducted
through regulated exchanges which minimize counterparty credit risks.
The Fund had the following open futures contracts at February 28, 1999:
<TABLE>
<CAPTION>
NUMBER CONTRACT EXPIRATION UNREALIZED
OF CONTRACTS VALUE DATE GAIN/(LOSS)
------------ -------- ---------- -----------
<S> <C> <C> <C> <C>
Purchased:
TOPIX Index (Japan)..................... 4 $8,024 03/19/99 $(2,242)
</TABLE>
The aggregate market value of cash or eligible securities pledged to cover
margin requirements for open futures positions at February 28, 1999 was $29,786.
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 year ended February 28, 1999, Bank of America agreed to waive $309,519 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 year ended February 28, 1999, Bank of America agreed
to waive $32,201 of its administration fee for the Fund. For the same period,
Bank of America reimbursed $34,541 for operating expenses of the Fund.
For the year ended February 28, 1999, PDI advised the Fund that it retained
$802 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 $448 from
commissions earned on sales of shares of the Fund.
The Fund has a Shareholder Service Plan (the "Plan") under which the Fund
pays PDI for shareholder servicing expenses incurred in connection with A Shares
of the Fund. Under the Plan, payments for shareholder servicing expenses may not
exceed 0.25% of the Fund's average daily net assets for A Shares. For the year
ended February 28, 1999, the Fund incurred charges of $107,387, pursuant to the
Plan. The Fund was advised that of these amounts PDI retained $1,073 and
affiliates of Bank of America retained $72,463. The Plan provides that if, in
any month, the fees paid to PDI are less than the costs
<PAGE> 36
34
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 February 28, 1999, the Fund incurred charges of
$1,025, pursuant to the Plan. The Fund was advised that of this amount,
affiliates of Bank of America retained $1,020.
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 year ended February 28, 1999, the Fund incurred charges
of $7,617, pursuant to the Distribution and the Administration Plans. PDI waived
$1,883 and retained $25 of the distribution and administrative servicing fees
for the year ended February 28, 1999.
For the year ended February 28, 1999, PFPC earned $38,508 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.
<PAGE> 37
35
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 an annual
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 $676 for the Fund, for the year ended February 28,
1999. A director who comes into office after March 18, 1998 is ineligible to
participate in the Retirement Plan.
NOTE 5 -- SECURITIES TRANSACTIONS
For the year ended February 28, 1999, the cost of purchases and the proceeds
from the sales of the Fund's portfolio securities (excluding short-term
investments) amounted to $63,452,234 and $61,405,490, respectively.
<PAGE> 38
36
NOTE 6 -- CAPITAL SHARE TRANSACTIONS
Transactions in capital shares for the Fund are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
FEBRUARY 28, 1999 FEBRUARY 28, 1998
------------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ --------- -----------
<S> <C> <C> <C> <C>
A Shares
Issued.............................. 1,358,264 $ 14,783,487 3,093,208 $32,373,676
Reinvested.......................... 22,660 241,865 68,417 671,344
Redeemed............................ (1,695,627) (17,823,679) (849,866) (8,810,729)
---------- ------------ --------- -----------
Net increase........................ (314,703) $ (2,798,327) 2,311,759 $24,234,291
========== ============ ========= ===========
B Shares (a)
Issued.............................. 29,492 $ 315,104 -- --
Reinvested.......................... 203 2,167 -- --
Redeemed............................ (2,661) (26,897) -- --
---------- ------------ --------- -----------
Net increase........................ 27,034 $ 290,374 -- --
========== ============ ========= ===========
K Shares
Issued.............................. 52,628 $ 553,761 53,867 $ 559,161
Reinvested.......................... 822 8,685 1,423 13,844
Redeemed............................ (20,248) (216,021) (13,574) (145,288)
---------- ------------ --------- -----------
Net increase........................ 33,202 $ 346,425 41,716 $ 427,717
========== ============ ========= ===========
</TABLE>
- ---------------
(a) Period from July 15, 1998 (inception date) to February 28, 1999.
NOTE 7 -- PROPOSED REORGANIZATION
The Board of Directors of the Pacific Horizon Funds, Inc. has approved an
Agreement and Plan of Reorganization ("Agreement") between Pacific Horizon
Funds, Inc. and the Nations Fund, Inc. The Agreement, which is part of a broader
reorganization of Pacific Horizon Funds, Inc. into the Nations family of funds,
provides for the transfer of all the assets of the Pacific Horizon International
Equity Fund ("Fund") to the Nations International Equity Fund in exchange solely
for the number of shares of the Nations International Equity Fund Investor A
Shares, Investor B Shares and Investor C Shares, having the same aggregate net
asset value as the outstanding shares of Class A, Class B and Class K of the
Fund as of the close of business of the New York Stock Exchange on the day that
the Reorganization is effective and the assumption by the Nations International
Equity Fund of all of the liabilities of the Fund. The Reorganization can be
consummated only if, among other things, it is approved by the vote of a
majority of the outstanding shares of the Fund and a majority of outstanding
shares of all the funds of Pacific Horizon Funds, Inc. A Special Meeting of
Shareholders ("Meeting") of the Fund is scheduled to be held on May 3, 1999, to
vote on the Agreement. A detailed description of the proposed transaction and
voting information was sent to shareholders of the Fund on or about February 12,
1999. If the Agreement is approved at the Meeting, the Reorganization is
expected to become effective on or about May 14, 1999.
<PAGE> 39
37
PACIFIC HORIZON INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1999(b) 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)........................ 0.09 0.07 (0.01)
Net realized and unrealized gains (losses) on
investment transactions, forward contracts,
foreign currency transactions and futures
contracts......................................... 0.31 0.92 (0.07)
------- ------- -------
Total income (loss) from investment operations....... 0.40 0.99 (0.08)
------- ------- -------
Less: Dividends and Distributions:
Dividends to shareholders from net investment
income............................................ (0.08) (0.08) --
Distributions to shareholders from net realized
gains on investment transactions.................. (0.02) (0.27) (0.01)
------- ------- -------
Total Dividends and Distributions.................... (0.10) (0.35) (0.01)
------- ------- -------
Net change in net asset value per share.............. 0.30 0.64 (0.09)
------- ------- -------
NET ASSET VALUE PER SHARE, END OF PERIOD............. $ 10.85 $ 10.55 $ 9.91
======= ======= =======
Total return (excludes sales charge)................. 3.84% 10.32% (0.79%)(d)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000)................... $39,402 $41,643 $16,217
Ratio of expenses to average net assets............. 1.18% 1.22% 0.92% (c)
Ratio of net investment income to average
net assets........................................ 0.83% 1.05% 0.40% (c)
Ratio of expenses to average net assets*............ 2.04% 2.57% 3.92% (c)
Ratio of net investment income (loss) to average net
assets*........................................... (0.03%) (0.30%) (2.61%)(c)
Portfolio turnover rate............................. 152% 79% 114%
</TABLE>
- ---------------
<TABLE>
<S> <C>
* During the period, certain fees were voluntarily reduced
and/or reimbursed. If such voluntary fee reductions and/or
reimbursements had not occurred, the ratios would have been
as indicated.
(a) Period from May 13, 1996 (inception date of Fund) to
February 28, 1997.
(b) On October 1, 1998, BankAmerica Corp., the parent company of
the Fund's Adviser, merged with NationsBank Corporation.
(c) Annualized.
(d) Not annualized.
</TABLE>
See Notes to Financial Statements.
<PAGE> 40
38
PACIFIC HORIZON INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
FEBRUARY 28,
1999(a)(b)
------------
<S> <C>
B SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD.............. $11.64
------
Income from Investment Operations:
Net investment loss....................................... (0.02)
Net realized and unrealized losses on investment
transactions, forward contracts, foreign currency
transactions and futures contracts...................... (0.74)
------
Total income (loss) from investment operations.............. (0.76)
------
Less: Dividends and Distributions:
Dividends to shareholders from net investment income...... (0.10)
Distributions to shareholders from net realized gains on
investment transactions................................. (0.02)
------
Total Dividends and Distributions........................... (0.12)
------
Net change in net asset value per share..................... (0.88)
------
NET ASSET VALUE PER SHARE, END OF PERIOD.................... $10.76
======
Total return................................................ (6.52%)(d)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000)......................... $ 291
Ratio of expenses to average net assets................... 1.97% (c)
Ratio of net investment loss to average net assets........ (1.22%)(c)
Ratio of expenses to average net assets*.................. 3.02% (c)
Ratio of net investment loss to average net assets*....... (2.27%)(c)
Portfolio turnover rate................................... 152%
</TABLE>
- ---------------
<TABLE>
<S> <C>
* During the period, certain fees were voluntarily reduced
and/or reimbursed. If such voluntary fee reductions and/or
reimbursements had not occurred, the ratios would have been
as indicated.
(a) Period from July 15, 1998 (inception date) to February 28,
1999.
(b) On October 1, 1998, BankAmerica Corp., the parent company of
the Fund's Adviser, merged with NationsBank Corporation.
(c) Annualized.
(d) Not annualized.
</TABLE>
See Notes to Financial Statements.
<PAGE> 41
39
PACIFIC HORIZON INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1999(b) 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)...................... 0.03 0.03 (0.01)
Net realized and unrealized gains on investment
transactions, forward contracts, foreign
currency transactions and futures contracts..... 0.32 0.87 0.08
------ ------ ------
Total income from investment operations............ 0.35 0.90 0.07
------ ------ ------
Less: Dividends and Distributions:
Dividends to shareholders from net investment
income.......................................... (0.08) (0.06) --
Distributions to shareholders from net realized
gains on investment transactions................ (0.02) (0.27) (0.01)
------ ------ ------
Total Dividends and Distributions.................. (0.10) (0.33) (0.01)
------ ------ ------
Net change in net asset value per share............ 0.25 0.57 0.06
------ ------ ------
NET ASSET VALUE PER SHARE, END OF PERIOD........... $10.70 $10.45 $ 9.88
====== ====== ======
Total return....................................... 3.41% 9.35% 0.72% (d)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000)................. $ 927 $ 559 $ 116
Ratio of expenses to average net assets........... 1.69% 1.72% 1.49% (c)
Ratio of net investment income (loss) to average
net assets...................................... 0.09% 0.48% (0.31%)(c)
Ratio of expenses to average net assets*.......... 2.83% 3.30% 3.53% (c)
Ratio of net investment loss to average net
assets*......................................... (1.05%) (1.10%) (2.34%)(c)
Portfolio turnover rate........................... 152% 79% 114%
</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) On October 1, 1998, BankAmerica Corp., the parent company of
the Fund's Adviser, merged with NationsBank Corporation.
(c) Annualized.
(d) Not annualized.
</TABLE>
See Notes to Financial Statements.
<PAGE> 42
40
PACIFIC HORIZON INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Board of Directors
and Shareholders of
Pacific Horizon Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Pacific Horizon International
Equity Fund (one of the portfolios constituting Pacific Horizon Funds, Inc.,
hereafter referred to as the "Fund") at February 28, 1999 the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the periods presented, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at February 28, 1999 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
As explained in Note 7, the Board of Directors of the Pacific Horizon Funds,
Inc. has approved an agreement and plan of reorganization between Pacific
Horizon Funds, Inc. and Nations Fund, Inc. A Special Meeting of Shareholders of
the Fund is scheduled to be held on May 3, 1999 to seek approval of the merger
of the Pacific Horizon International Equity Fund and the Nations International
Equity Fund.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
April 22, 1999
<PAGE> 43
For more information, complete the following form and mail it to:
Pacific Horizon Funds, Inc.
P.O. 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> 44
Bulk Rate
U.S. Postage
PAID
New York, NY
Permit No. 8048
[PACIFIC HORIZON FUNDS LOGO]
Provident Distributor, Inc., Distributor
PHF-4009 4/99
<PAGE> 45
PACIFIC HORIZON INCOME FUND
PACIFIC HORIZON INCOME FUND
ANNUAL REPORT
February 28, 1999
Short-Term Government Fund
Investing For All
The Times Of Your Life
NOT FDIC INSURED
<PAGE> 46
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> 47
..................................
Contents
<TABLE>
<S> <C>
FUND FACTS 2-3
UNDERSTANDING YOUR SHAREHOLDER
REPORT 4-6
ECONOMIC REVIEW FROM THE
INVESTMENT ADVISER 8-9
FUND OVERVIEW AND INTERVIEW WITH
YOUR INVESTMENT MANAGER 10-13
PACIFIC HORIZON SHORT-TERM
GOVERNMENT FUND
PORTFOLIO OF INVESTMENTS 14-15
STATEMENT OF ASSETS
AND LIABILITIES 16
STATEMENT OF OPERATIONS 17
STATEMENTS OF CHANGES
IN NET ASSETS 18
NOTES TO FINANCIAL STATEMENTS 19-24
FINANCIAL HIGHLIGHTS 25
REPORT OF INDEPENDENT
ACCOUNTANTS 26
</TABLE>
<PAGE> 48
2
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+ Current Income, Stable Share Price and
- Prime Daily Liquidity
- Treasury
- Government
- Treasury Only
...........................................................................
Tax-Exempt Money Market Funds*+
- Tax-Exempt Money Federal Tax-Free Current Income, Stable
Share Price and Daily Liquidity
- California Tax-Exempt Money Federal and California Tax-Free Current
Market Income, Stable Share Price and Daily
Liquidity
</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.
<PAGE> 49
3
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>
- --------------------------------------------------------------------------------
<PAGE> 50
4
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 [GRAPHIC]
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.
The illustrations may represent the portfolio
composition, the largest holdings or a
simplification of the investment adviser's
investment style.
[GRAPHIC]
<PAGE> 51
5
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
[GRAPHIC] NET RESULTS OF ASSETS LESS LIABILITIES
THE MARKET VALUE OF THE FUND'S TOTAL NET
ASSETS DIVIDED BY THE NUMBER OF SHARES
OUTSTANDING
THE CURRENT NET ASSET VALUE PER SHARE PLUS SALES CHARGE, IF ANY
<PAGE> 52
6
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
[GRAPHIC]
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
[GRAPHIC]
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.
<PAGE> 53
7
[This page intentionally left blank.]
<PAGE> 54
8
ECONOMIC REVIEW
FROM THE INVESTMENT ADVISER
The past 12 months will be remembered as the one of the most volatile periods in
financial market history. The crisis in Asia, the Russian default and the
devaluation of the Brazilian Real caused dramatic swings in equity valuations,
interest rates, and spreads and commodity prices. The Federal Reserve, in order
to calm the markets and restore liquidity, lowered short term interest rates by
0.75%. The Dow Jones Industrial Average* after dropping to 7,539, rebounded to
close the period at 9,306. The yield on the benchmark 10-year U.S. Treasury Note
which was at 5.16% on 3/19/99, fluctuated over a 1.2% range with a high of 5.81%
on 4/29/98 and low of 4.16% on 10/5/98. Spreads on 10-year "A" rated finance
debt over 10-year U.S. Treasuries started the period at a spread of 0.75% and
widened to as much as 1.45% only to end the period at 1.05% over comparable
maturity U.S. Treasury notes. International turmoil and the Asian recession also
took its toll on commodities. Demand for oil all but evaporated and crude oil
prices declined from almost $18.00 a barrel to just under $11.50 a barrel only
to rebound to $15.00 on strong U.S. growth and expectations of and a quick
recovery in Asia.
Throughout this turmoil, the U.S. remained an "oasis of prosperity" with the
U.S. Gross Domestic Product growing at an estimated 4.3% for 1998. The U.S.
consumer, unfazed by the recent volatility, continued to spend, pushing the
economy through its ninth year of expansion.
Unemployment remained near historical lows and there was continued strength in
real disposable income that translated into a high level of consumer confidence.
At the same time, the industrial side of the economy, burdened by slower exports
as well as the effects of the strong dollar, remained sluggish.
Inflation, as measured by the Consumer Price Index (CPI), remained benign over
the past year, increasing only 1.6% in 1998. Huge declines in commodities and
weakness on the manufacturing side of the economy offset relatively full
employment and money supply growth.
Despite turmoil abroad, the U.S. equity markets, as tracked by the Standard &
Poor's 500 Composite Stock Price Index**, posted a solid return of 18.01%.
Unfortunately, the Russell 2000*** proved that not all stocks are created equal
with a negative return of (15.06%) over the same period. While an era of
consolidation and low inflation should bode well for large cap stocks, we doubt
that this can continue.
The fixed income markets also put in a strong performance for the past 12
months, with the benchmark Salomon Smith Barney Broad Investment-Grade (BIG)
Index# posting a positive return of 6.31%. The top performing sector for the
period was U.S. agency debt which outperformed comparable maturity U.S.
Treasuries by 0.44% followed by U.S. agency mortgage-backed securities which
outperformed by 0.28%. The worst performing sector was U.S. corporate bonds
which underperformed U.S. Treasuries by 0.60% with "AA", "A", and "BBB" rated
corporate debt underperforming by 0.03%, 0.27%, and 1.61% respectively.
OUTLOOK FOR 1999
While the consensus of Wall Street economists is for a growth rate of 3.5% in
1999, we believe the risk is faster than anticipated growth because of the
momentum of the U.S. economy. The wildcard over the next year is the timing of
Asia's economic turnaround.
<PAGE> 55
9
Asia remains a big question mark, with many economists calling for a "v" shaped
recovery. Although we believe the Asian economies have bottomed, we suspect that
the recovery in the region will be slower than anticipated. While Korea has
recently shown strength in industrial production and exports, Japan, which
constitutes two-thirds of the region's GDP, continues to show signs of weakness.
If Japan chooses to monetize their debt by printing currency, they may cause
another round of devaluations in the region. China has stated their intentions
to maintain the value of the Yuan, but if they fail to meet their growth targets
and the Yen declines substantially in value, all bets are off.
Sincerely,
/s/ Kirk Hartman
Kirk Hartman
Chief Investment Officer of
Fixed Income Management
- ---------------
* The Dow Jones Industrial Average is a price-weighted index of 30 of the
largest, most widely held stocks traded on the New York Stock Exchange. It
is unmanaged and unavailable for investment.
** The Standard & Poor's 500 Composite Stock Price Index is an unmanaged
market-capitalization-weighted index consisting of 500 common stocks that
measures the market value of 400 industrial stocks, 60 transportation and
utility company stocks and 40 financial issues. It is unavailable for
investment.
*** The Russell 2000 Growth Index is a widely used unmanaged index which
measures the performance of small-cap stocks and cannot be invested in
directly.
# The BIG Index is market-capitalization weighted and includes fixed-rate
Treasury, Government-sponsored, mortgage and investment-grade corporates
with a maturity of one year or longer. The minimum amount outstanding for US
Treasury and mortgage issues is $1 billion for both entry and exit. For
Government sponsored and corporate issues the entry and exit amounts are
$100 million.
<PAGE> 56
PACIFIC HORIZON
SHORT-TERM GOVERNMENT FUND
[KIRK HARTMAN PHOTO]
KIRK HARTMAN
Chief Investment Officer
Bank of America NT&SA
The Pacific Horizon Income Funds are managed by a Bank of America NT&SA
investment team led by Kirk Hartman, Chief Investment Officer.
GOAL:
The Pacific Horizon Short-Term Government Fund seeks high current income
consistent with relative stability of principal.
INVESTMENTS:
The Fund invests in securities issued or guaranteed by the U.S. Government, its
agencies, instrumentalities or sponsored enterprises.
APPROPRIATE FOR:
Investors who want income from securities issued or guaranteed by the U.S.
Government or its enterprises and relative stability of principal.
INCEPTION:
August 2, 1996
SIZE OF FUND AS OF
FEBRUARY 28, 1999:
Over $20 million
Q
HOW DID THE FUND PERFORM DURING THE 12 MONTHS ENDED 2/28/99?*
A
The Fund performed well during the 12 months ending February 1999. Pacific
Horizon Short-Term Government Fund provided a total return of 5.50%, versus
5.36% for its index, the 1-year Treasury Bill and 4.93% for its Lipper peer
group, Lipper Short-Term Government Funds.# In its Lipper universe, the Fund
ranked 19th of 72 funds, placing it in the 27th percentile. Despite its short
average maturity of just over 1 year, the Fund compares quite favorably to its
competitors, many of which can have an average maturity as long as 3 years. The
Fund's allocation to spread product helps to keep it competitive in terms of
returns. The Fund is designed to be a higher yielding alternative to money
market funds, while having a relatively stable principal value. For the past
year the Fund bested the return of the average money market instrument fund by
73 bps, while maintaining a very stable share value.
Q
HOW HAVE YOU MANAGED THE FUND SINCE ITS INCEPTION?**
A
Since the Fund's inception we have kept its average maturity at or slightly
longer than 1 year. The longest maturity or average life of any single asset
typically is less than three years. Security selection is driven by the shape of
the yield curve, the expected return of the security vs. Treasuries and other
comparable investments, and by diversification considerations. With the yield
curve's recent return to a more normal (i.e. positive) slope, we have been able
to roll out of shorter assets into longer assets at significant yield pick-ups.
We have and will continue to keep an allocation in Treasury
10
<PAGE> 57
11
notes due to their high degree of liquidity. This enables us to efficiently take
advantage of changes in the shape of the yield curve. The change in investment
guidelines approved last year was very timely, as it enabled the Fund to
purchase non-government issues close to the widest spread levels in the past six
years. This improved the Fund's return and its portfolio diversification.
Q
WHAT IS YOUR OUTLOOK FOR THE ECONOMY AND THE FUND IN THE YEAR AHEAD?
A
The U.S. economy should continue to grow in the year ahead. The first two
months of the year have started off strong, with consumers continuing to spend
at a healthy level. Tax refunds, mortgage refinancing, a booming equity market,
and high levels of employment continue to boost consumer confidence. Businesses
continue to invest in productivity enhancing equipment and inflation pressures
continue to be dormant. Increasing worker productivity has helped to offset
rising wages. The export sector continues to be the major drag on Gross Domestic
Product (GDP) growth, and will likely remain so for the foreseeable future.
Growth is expected to slow as the year progresses, partially as a result of a
slowdown in capital spending on business equipment related to year 2000 (Y2K)
upgrades. For the time being the Federal Reserve Board (the "Fed") appears to be
willing to forego any interest rate increases, despite above trend GDP growth.
In addition, Fed Chairman Greenspan has stated that the Fed stands ready to
quickly raise or lower interest rates to respond to changes in the economy.
The outlook for the Fund is favorable, as credit spreads remain wider than they
were for the first half of 1998. This enables the Fund to purchase higher
yielding assets and to augment its return versus its benchmark, the one year
Treasury Bill. In the Fund, we will continue to search for the cheapest parts of
the yield curve to take advantage of our ability to roll down both the yield and
credit curves.
* Return figures for the Fund include change in share price, reinvestment of
dividends and capital gains distributions. Performance figures for A shares
do not reflect the maximum sales charge of 3.25%.
** The composition of the Fund's holdings is subject to change.
# The Lipper Short-Term Government Funds Average includes Funds that invest at
least 65% of assets in securities issued or guaranteed by the US Government,
its agencies or its instrumentalities with dollar weighted average maturities
of less than three years.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
<PAGE> 58
12
PACIFIC HORIZON
SHORT-TERM GOVERNMENT FUND
(AS OF FEBRUARY 28, 1999)
GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)
<TABLE>
<CAPTION>
A SHARES LIPPER SHORT-TERM MERRILL LYNCH ONE-
-------- GOVERNMENT FUNDS YEAR TREASURY BILL
AVERAGE INDEX
----------------- ------------------
<S> <C> <C> <C>
8/2/96 9675.00 10000.00 10000.00
8/31/96 9696.00 10028.00 10019.00
2/28/97 9993.00 10371.00 10335.00
8/31/97 10293.00 10686.00 10658.00
2/28/98 10592.00 10989.00 10955.00
8/31/98 10921.00 11331.00 11303.00
2/28/99 11175.00 11532.00 11544.00
</TABLE>
HOW PERFORMANCE COMPARES
The chart compares the Pacific
Horizon Short-Term Government Fund to
the Merrill Lynch One-Year Treasury
Bill Index, which is an unmanaged
index typically used as a performance
benchmark for short-term fixed income
investments.
<TABLE>
<CAPTION>
<S> <C> <C>
SHORT-TERM GOVERNMENT FUND
AVERAGE ANNUAL RETURNS
<CAPTION>
------------------------------------
A SHARES
Without With
Sales Sales
Load Load*
------------------------------------
<S> <C> <C>
1 Year 5.50% 2.04%
..................................
Since Inception 5.77% 4.40%
(8/2/96)
</TABLE>
The average of short-term government funds as reported by Lipper Analytical
Services, Inc. measures the performance of other funds with investment
objectives and policies similar to those of the Pacific Horizon Short-Term
Government Fund. An initial $10,000 investment in the Fund made on August 2,
1996, would now be worth $11,175*. The same investment made in the Lipper
Short-Term Government Funds Average would now be worth $11,532.
FEDERAL INCOME TAX STATUS OF DIVIDENDS (UNAUDITED)
The Pacific Horizon Short-Term Government Fund distributed a total Capital Gain
Dividend of $0.054619 for the year ended February 28, 1999. Of this total
Capital Gain Dividend amount, the Fund made a 20 percent rate distribution of
$0.006149.
SEE INVESTMENT MANAGER INTERVIEW FOR FACTORS AFFECTING FUND PERFORMANCE.
Investment return and principal value are historical and will vary with market
conditions, so an investor's shares, when redeemed, may be worth more or less
than their original cost. Return figures for the Fund include change in share
price, reinvestment of dividends, and capital gain distributions, if any.
<PAGE> 59
13
Lipper Analytical Services, Inc. is an independent mutual fund-monitoring
organization. Neither the Lipper Short-Term Government Funds Average, nor the
Merrill Lynch One-Year Treasury Bill Index may be invested in directly. The
hypothetical investment in the Merrill Lynch One-Year Treasury Bill Index does
not reflect any sales or management fees that would be incurred if an investor
were to actually purchase individual securities or mutual funds, while the
performance of the Fund reflects all expenses and management fees and the effect
of the maximum sales charge.
* A share performance assumes the deduction of the maximum front-end sales
charge of 3.25%.
<PAGE> 60
14
PACIFIC HORIZON
SHORT-TERM GOVERNMENT FUND
(AS OF FEBRUARY 28, 1999)
QUALITY
Investing in Short-Term U.S.
Government Securities
The Pacific Horizon Short-Term
Government Fund has a policy that it
will invest primarily in securities
issued or guaranteed by the U.S.
Government, and its agencies,
instrumentalities or sponsored
enterprises. The flexibility to
invest in different types of
securities can help to increase
performance, while diversification
can help to reduce risk. By
investing primarily in high-quality
U.S. Government securities, the Fund
seeks to stabilize short-term
performance.
PORTFOLIO COMPOSITION*
(PERCENTAGE BASED ON ASSETS)
- -----------------------------------------------------------
<TABLE>
<S> <C>
ASSET BACKED SECURITIES 4.7%
CASH EQUIVALENTS 2.4%
U.S. TREASURY NOTES 16.8%
U.S. GOVERNMENT AGENCY OBLIGATIONS 50.4%
CORPORATE OBLIGATIONS 25.7%
</TABLE>
* The composition of the Fund's
holdings is subject to change.
<PAGE> 61
15
PACIFIC HORIZON SHORT-TERM GOVERNMENT FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
RATINGS MATURITY PRINCIPAL VALUE
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- --------
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 50.4%
FannieMae, Series 1993-68.............. 6.25% 09/01/99 $ 279,432 $ 280,008
FannieMae, Series 1993-227 G........... 5.50% 10/21/00 1,000,000 994,730
FannieMae, Series 1998-19 BE........... 6.50% 03/07/99 182,320 181,986
Federal Farm Credit Bank Note.......... 4.75% 12/01/99 1,000,000 996,873
Federal Farm Credit Bank Note.......... 6.10% 12/29/00 1,000,000 1,012,285
Federal Home Loan Bank................. 5.65% 04/07/00 1,000,000 1,002,787
Federal Home Loan Mortgage Corp., Pool
#1643................................ 5.50% 12/08/99 1,789,301 1,784,400
Federal Home Loan Mortgage Corp., Pool
#2068................................ 6.00% 12/22/00 1,500,000 1,499,243
Housing & Urban Development Series
96-A................................. 6.44% 08/01/99 2,500,000 2,510,975
-----------
Total U.S. Government Agency
Obligations (Cost $10,242,185)......... 10,263,287
-----------
U.S. TREASURY OBLIGATIONS -- 16.8%
U.S. Treasury Notes.................... 5.75% 11/15/00 900,000 908,346
U.S. Treasury Notes.................... 5.625% 12/31/99 1,500,000 1,508,428
U.S. Treasury Notes.................... 5.625% 11/30/00 1,000,000 1,007,763
-----------
Total U.S. Treasury Obligations
(Cost $3,435,932)...................... 3,424,537
-----------
ASSET BACKED SECURITIES -- 4.7%
Chemical Master Credit Card Trust I,
Series 1996-1, Class A............... Aaa/AAA 5.55% 01/09/01 500,000 499,106
Harley-Davidson Eaglemark Motorcycle
Trust, Series 1998-3, Class A1....... Aaa/AAA 5.41% 11/26/99 449,276 448,191
-----------
Total Asset Backed Securities
(Cost $949,262)........................ 947,297
-----------
CORPORATE OBLIGATIONS -- 25.7%
BROKERAGE -- 7.4%
Morgan Stanley Dean Witter Senior
Notes................................ Aa3/A+ 5.94% 02/28/00 1,000,000 1,004,062
Salomon Smith Barney Holdings Notes.... Aa3/A 6.625% 11/30/00 500,000 503,968
-----------
1,508,030
-----------
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 62
16
<TABLE>
<CAPTION>
MOODY'S/S&P
RATINGS MATURITY PRINCIPAL VALUE
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- --------
<S> <C> <C> <C> <C> <C>
CORPORATE OBLIGATIONS -- (CONTINUED)
FINANCIAL SERVICES -- 2.5%
Associates Corp. of North America
Debentures........................... Aa3/AA- 6.68% 09/17/99 $ 500,000 $ 503,576
-----------
TELECOMMUNICATIONS -- 3.5%
MCI Worldcom, Inc. Senior Notes........ Baa2/BBB+ 6.125% 08/15/01 700,000 704,375
-----------
UTILITIES -- 12.3%
AT&T Capital Corp. Notes, Series 4..... Baa3/BBB 6.41% 08/13/99 500,000 500,428
GTE Southwest Debentures, Series A..... A2/AA- 5.82% 12/01/99 1,000,000 1,002,500
New Century Energies, Inc. ............ NR/NR 6.24% 11/27/00 1,000,000 1,007,500
-----------
2,510,428
-----------
Total Corporate Obligations
(Cost $5,235,067)...................... 5,226,409
-----------
TOTAL INVESTMENTS -- 97.6%
(COST $19,862,446)(a).................. 19,861,530
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 2.4%.................... 495,299
-----------
NET ASSETS -- 100.0%.................... $20,356,829
===========
</TABLE>
- ---------------
Percentages indicated are based on net assets of $20,356,829.
(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..................................... $ 31,641
Unrealized depreciation..................................... (32,557)
--------
Net unrealized depreciation................................. $ (916)
========
</TABLE>
NR -- Not Rated.
See Notes to Financial Statements.
<PAGE> 63
17
PACIFIC HORIZON SHORT-TERM GOVERNMENT FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (cost $19,862,446).... $19,861,530
Cash...................................................... 404,247
Interest receivable....................................... 199,926
Deferred organization cost................................ 6,519
Prepaid assets............................................ 14,160
-----------
Total Assets................................................ 20,486,382
-----------
LIABILITIES:
Dividends payable......................................... 71,122
Payable for capital shares redeemed....................... 8,006
Custodian and fund accounting fees payable................ 5,731
Transfer agent fees payable............................... 17,000
Legal fees payable........................................ 1,499
Other accrued expenses.................................... 26,195
-----------
Total Liabilities........................................... 129,553
-----------
NET ASSETS.................................................. $20,356,829
===========
Shares Outstanding ($0.001 par value, 200 million shares
authorized)............................................... 2,040,529
===========
NET ASSET VALUE
Net Asset Value and Redemption price per share............ $ 9.98
===========
Maximum Sales Charge........................................ 3.25%
Maximum Offering Price per share (Net Asset
Value/(100% -- Maximum Sales Charge))..................... $ 10.32
===========
COMPOSITION OF NET ASSETS:
Shares of common stock, at par............................ $ 2,041
Additional paid-in capital................................ 20,330,835
Undistributed net investment income....................... 3,899
Accumulated net realized gains on investment
transactions............................................ 20,970
Net unrealized depreciation on investments................ (916)
-----------
NET ASSETS, FEBRUARY 28, 1999............................... $20,356,829
===========
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 64
18
PACIFIC HORIZON SHORT-TERM GOVERNMENT FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the year ended February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income........................................... $1,672,332
----------
EXPENSES:
Investment advisory fees.................................. 74,519
Administration fees....................................... 59,615
Shareholder service fees.................................. 74,519
Custodian and fund accounting fees........................ 44,489
Reports to shareholders................................... 38,874
Audit fees................................................ 13,846
Legal fees................................................ 2,431
Directors fees............................................ 1,091
Organizational fees....................................... 9,284
Transfer agent fees....................................... 664
Other expenses............................................ 11,825
----------
Total Expenses.......................................... 331,157
Less: Fee waivers and expense reimbursements.............. (256,784)
----------
Total Net Expenses.......................................... 74,373
----------
NET INVESTMENT INCOME....................................... 1,597,959
----------
NET REALIZED/UNREALIZED GAINS ON INVESTMENTS:
Net realized gains on investment transactions............. 130,122
Net change in unrealized depreciation on investments...... (40,935)
----------
Net realized/unrealized gains on investments.............. 89,187
----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $1,687,146
==========
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 65
19
PACIFIC HORIZON SHORT-TERM GOVERNMENT FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------
FEBRUARY 28, FEBRUARY 28,
1999 1998
------------ ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income................................. $ 1,597,959 $ 1,417,224
Net realized gains on investment transactions......... 130,122 29,888
Net change in unrealized appreciation/(depreciation)
on investments...................................... (40,935) 48,973
------------ ------------
Change in net assets resulting from operations.......... 1,687,146 1,496,085
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income................................. (1,597,959) (1,417,224)
Net realized gains on investment transactions......... (121,044) (12,533)
------------ ------------
Change in net assets from shareholder distributions..... (1,719,003) (1,429,757)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued........................... 11,363,098 27,125,076
Dividends reinvested.................................. 152,601 7,986
Cost of shares redeemed............................... (23,812,257) (10,055,621)
------------ ------------
Change in net assets from capital share transactions.... (12,296,558) 17,077,441
------------ ------------
Change in net assets.................................... (12,328,415) 17,143,769
NET ASSETS
Beginning of Year..................................... 32,685,244 15,541,475
------------ ------------
End of Year (including undistributed net investment
income of $3,899 and $4,749, respectively).......... $ 20,356,829 $ 32,685,244
============ ============
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 66
20
PACIFIC HORIZON SHORT-TERM GOVERNMENT FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 -- ORGANIZATION
Pacific Horizon Funds, Inc. (the "Company"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended (the "Act"), as
an open-end management investment company. At February 28, 1999, the Company
operated as a series company comprising 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 and administrator.
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 dividend and
distribution calculation services for the Fund. The Fund bears all fees and
expenses charged by PFPC for these services.
<PAGE> 67
21
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.
<PAGE> 68
22
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, 1999, 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>
$(850) $853
</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
<PAGE> 69
23
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 year ended February 28, 1999, Bank of America agreed to waive $74,519 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 year ended February 28, 1999, the Bank of America
waived $59,615 of their administration fee for the Fund. During the same period,
Bank of America reimbursed $48,131 in operating expenses of the fund.
For the year ended February 28, 1999, 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 year ended
February 28, 1999, shareholder service fees incurred pursuant to the Plan
totaled $74,519. 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 $74,519 during the
year ended February 28, 1999.
For the year ended February 28, 1999, PFPC earned $664 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.
<PAGE> 70
24
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 an annual
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 $550 for the Fund, for the year ended February 28, 1999. A director
who comes into office after March 18, 1998 is ineligible to participate in the
Retirement Plan.
NOTE 5 -- SECURITIES TRANSACTIONS
For the year ended February 28, 1999, the cost of purchases and the proceeds
from sales of Fund securities (excluding short-term investments) amounted to
$22,769,178 and $27,723,059, respectively.
<PAGE> 71
25
NOTE 6 -- CAPITAL SHARE TRANSACTIONS
Transactions in capital shares for the Fund are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------
FEBRUARY 28, 1999 FEBRUARY 28, 1998
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
A SHARES
Issued................... 1,132,029 $ 11,363,098 2,709,051 $ 27,125,076
Reinvested............... 15,202 152,601 797 7,986
Redeemed................. (2,366,621) (23,812,257) (1,003,872) (10,055,621)
---------- ------------ ---------- ------------
Net increase/(decrease).... (1,219,390) $(12,296,558) 1,705,976 $ 17,077,441
========== ============ ========== ============
</TABLE>
NOTE 7 -- PROPOSED REORGANIZATION
The Board of Directors of Pacific Horizon Funds, Inc. has approved an
Agreement and Plan of Reorganization ("Agreement") between Pacific Horizon
Funds, Inc. and Nations Fund Trust and the Nations Short-Intermediate Government
Fund. The Agreement, which is part of a broader reorganization of Pacific
Horizon Funds, Inc. into the Nations family of funds, provides for the transfer
of all the assets of the Pacific Horizon Short-Term Government Fund ("Fund") to
the Nations Short-Intermediate Government Fund in exchange solely for the number
of shares of Nations Short-Intermediate Government Fund having the same
aggregate net asset value as the outstanding shares of the Fund as of the close
of business of the New York Stock Exchange on the day that the Reorganization is
effective and the assumption by the Nations Short-Intermediate Government Fund
of all of the liabilities of the Fund. The Reorganization can be consummated
only if, among other things, it is approved by the vote of a majority of the
outstanding shares of the Fund and a majority of the outstanding shares of all
the funds of Pacific Horizon Funds, Inc. A Special Meeting of Shareholders
("Meeting") of the Fund is scheduled to be held on May 3, 1999, to vote on the
Agreement. A detailed description of the proposed transaction and voting
information was sent to shareholders of the Fund on or about February 12, 1999.
If the Agreement is approved at the Meeting, the Reorganization is expected to
become effective on or about May 14, 1999.
<PAGE> 72
26
PACIFIC HORIZON SHORT-TERM GOVERNMENT FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------- PERIOD ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1999(b) 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...................... 0.53 0.55 0.32
Net realized gains on investment
transactions............................. -- 0.03 0.01
------ ------ ------
Total income from investment operations..... 0.53 0.58 0.33
------ ------ ------
Less Dividends and Distributions:
Dividends to shareholders from net
investment income........................ (0.53) (0.55) (0.32)
Distributions to shareholders from net
realized gains on investment
transactions............................. (0.05) --(e) (0.01)
------ ------ ------
Total Dividends and Distributions........... (0.58) (0.55) (0.33)
------ ------ ------
Net change in net asset value per share..... (0.05) 0.03 0.00
------ ------ ------
NET ASSET VALUE PER SHARE, END OF PERIOD.... $ 9.98 $10.03 $10.00
====== ====== ======
Total return................................ 5.50% 5.99% 3.33% (d)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (millions)..... $ 20 $ 33 $ 16
Ratio of expenses to average net assets.... 0.25% 0.25% 0.11% (c)
Ratio of net investment income to average
net assets............................... 5.37% 5.49% 5.53% (c)
Ratio of expenses to average net assets*... 1.11% 1.15% 3.15% (c)
Ratio of net investment income to average
net assets*.............................. 4.51% 4.59% 2.49% (c)
Portfolio turnover rate.................... 87% 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) On October 1, 1998, BankAmerica Corp., the parent company of the Fund's
Advisor, merged with NationsBank Corporation.
(c) Annualized.
(d) Not annualized.
(e) Amount represents less than a penny per share.
See Notes to Financial Statements.
<PAGE> 73
27
PACIFIC HORIZON SHORT-TERM GOVERNMENT FUND
- --------------------------------------------------------------------------------
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Board of Directors
and Shareholders of
Pacific Horizon Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Pacific Horizon Short-Term
Government Fund (one of the portfolios constituting Pacific Horizon Funds, Inc.,
hereafter referred to as the "Fund") at February 28, 1999, the results of its
operations for the year then ended and the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the periods presented, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at February 28, 1999 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
As explained in Note 7, the Board of Directors of the Pacific Horizon Funds,
Inc. has approved an agreement and plan of reorganization between Pacific
Horizon Funds, Inc. and Nations Fund Trust. A Special Meeting of Shareholders of
the Fund is scheduled to be held on May 3, 1999 to seek approval of the merger
of Pacific Horizon Short-Term Government Fund and Nations Short-Intermediate
Government Fund.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
April 22, 1999
<PAGE> 74
28
[This page intentionally left blank.]
<PAGE> 75
PACIFIC HORIZON TAX-EXEMPT INCOME FUNDS
ANNUAL REPORT
February 28, 1999
National Municipal Bond Fund
California Municipal Bond Fund
Investing For All
The Times Of Your Life
NOT FDIC INSURED
<PAGE> 76
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> 77
<TABLE>
<CAPTION>
Contents
<S> <C>
FUND FACTS 2-3
UNDERSTANDING YOUR SHAREHOLDER
REPORT 4-6
ECONOMIC REVIEW FROM THE INVESTMENT
ADVISER 8-9
FUND OVERVIEW AND INTERVIEW WITH
YOUR INVESTMENT MANAGER 10-18
NATIONAL MUNICIPAL BOND FUND
Portfolio of Investments 19-25
Statement of Assets and
Liabilities 26
Statement of Operations 27
Statement of Changes in Net
Assets 28
CALIFORNIA MUNICIPAL BOND FUND
Portfolio of Investments 29-36
Statement of Assets and
Liabilities 37
Statement of Operations 38
Statement of Changes in Net
Assets 39
NOTES TO FINANCIAL STATEMENTS 40-48
FINANCIAL HIGHLIGHTS 49-51
REPORT OF INDEPENDENT ACCOUNTANTS 52
</TABLE>
<PAGE> 78
2
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
...........................................................................
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
Tax-Free Current Income
...........................................................................
Money Market Funds+ Current Income, Stable Share Price and
- Prime Daily Liquidity
- Treasury
- Government
- Treasury Only
...........................................................................
Tax-Exempt Money Market Funds*+
- Tax-Exempt Money Federal Tax-Free Current Income, Stable
Share Price and Daily Liquidity
- California Tax-Exempt Money Federal and California Tax-Free Current
Market Income, Stable Share Price and Daily
Liquidity
</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.
<PAGE> 79
3
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>
- --------------------------------------------------------------------------------
<PAGE> 80
4
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.
[TABLE OF CONTENTS 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.
[FUND OVERVIEW GRAPHIC]
<PAGE> 81
5
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
[PORTFOLIO OF INVESTMENTS 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
[STATEMENT OF ASSETS AND LIABILITIES GRAPHIC]
<PAGE> 82
6
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
[STATEMENT OF OPERATIONS GRAPHIC]
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
[STATEMENTS OF CHANGES IN NET ASSETS GRAPHIC]
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.
<PAGE> 83
7
[This page intentionally left blank.]
<PAGE> 84
8
ECONOMIC REVIEW
FROM THE INVESTMENT ADVISER
The past 12 months will be remembered as the one of the most volatile periods in
financial market history. The crisis in Asia, the Russian default and the
devaluation of the Brazilian Real caused dramatic swings in equity valuations,
interest rates, and spreads and commodity prices. The Federal Reserve, in order
to calm the markets and restore liquidity, lowered short term interest rates by
0.75%. The Dow Jones Industrial Average* after dropping to 7,539, rebounded to
close the period at 9,306. The yield on the benchmark 10-year U.S. Treasury Note
which was at 5.16% on 3/19/99, fluctuated over a 1.2% range with a high of 5.81%
on 4/29/98 and low of 4.16% on 10/5/98. Spreads on 10-year "A" rated finance
debt over 10-year U.S. Treasuries started the period at a spread of 0.75% and
widened to as much as 1.45% only to end the period at 1.05% over comparable
maturity U.S. Treasury notes. International turmoil and the Asian recession also
took its toll on commodities. Demand for oil all but evaporated and crude oil
prices declined from almost $18.00 a barrel to just under $11.50 a barrel only
to rebound to $15.00 on strong U.S. growth and expectations of and a quick
recovery in Asia.
Throughout this turmoil, the U.S. remained an "oasis of prosperity" with the
U.S. Gross Domestic Product growing at an estimated 4.3% for 1998. The U.S.
consumer, unfazed by the recent volatility, continued to spend, pushing the
economy through its ninth year of expansion.
Unemployment remained near historical lows and there was continued strength in
real disposable income that translated into a high level of consumer confidence.
At the same time, the industrial side of the economy, burdened by slower exports
as well as the effects of the strong dollar, remained sluggish.
Inflation, as measured by the Consumer Price Index (CPI), remained benign over
the past year, increasing only 1.6% in 1998. Huge declines in commodities and
weakness on the manufacturing side of the economy offset relatively full
employment and money supply growth.
Despite turmoil abroad, the U.S. equity markets, as tracked by the Standard &
Poor's 500 Composite Stock Price Index**, posted a solid return of 18.01%.
Unfortunately, the Russell 2000*** proved that not all stocks are created equal
with a negative return of (15.06%) over the same period. While an era of
consolidation and low inflation should bode well for large cap stocks, we doubt
that this can continue.
The fixed income markets also put in a strong performance for the past 12
months, with the benchmark Salomon Smith Barney Broad Investment-Grade (BIG)
Index# posting a positive return of 6.31%. The top performing sector for the
period was U.S. agency debt which outperformed comparable maturity U.S.
Treasuries by 0.44% followed by U.S. agency mortgage-backed securities which
outperformed by 0.28%. The worst performing sector was U.S. corporate bonds
which underperformed U.S. Treasuries by 0.60% with "AA", "A", and "BBB" rated
corporate debt underperforming by 0.03%, 0.27%, and 1.61% respectively.
OUTLOOK FOR 1999
While the consensus of Wall Street economists is for a growth rate of 3.5% in
1999, we believe the risk is faster than anticipated growth because of the
momentum of the U.S. economy. The wildcard over the next year is the timing of
Asia's economic turnaround.
<PAGE> 85
Asia remains a big question mark, with many economists calling for a "v" shaped
recovery. Although we believe the Asian economies have bottomed, we suspect that
the recovery in the region will be slower than anticipated. While Korea has
recently shown strength in industrial production and exports, Japan, which
constitutes two-thirds of the region's GDP, continues to show signs of weakness.
If Japan chooses to monetize their debt by printing currency, they may cause
another round of devaluations in the region. China has stated their intentions
to maintain the value of the Yuan, but if they fail to meet their growth targets
and the Yen declines substantially in value, all bets are off.
Sincerely,
/s/ Kirk Hartman
Kirk Hartman
Chief Investment Officer of
Fixed Income Management
- ---------------
* The Dow Jones Industrial Average is a price-weighted index of 30 of the
largest, most widely held stocks traded on the New York Stock Exchange. It
is unmanaged and unavailable for investment.
** The Standard & Poor's 500 Composite Stock Price Index is an unmanaged
market-capitalization-weighted index consisting of 500 common stocks that
measures the market value of 400 industrial stocks, 60 transportation and
utility company stocks and 40 financial issues. It is unavailable for
investment
*** The Russell 2000 Growth Index is a widely used unmanaged index which
measures the performance of small-cap stocks and cannot be invested in
directly.
# The BIG Index is market-capitalization weighted and includes fixed-rate
Treasury, Government-sponsored, mortgage and investment-grade corporates
with a maturity of one year or longer. The minimum amount outstanding for US
Treasury and mortgage issues is $1 billion for both entry and exit. For
Government sponsored and corporate issues the entry and exit amounts are
$100 million.
9
<PAGE> 86
10
PACIFIC HORIZON
NATIONAL MUNICIPAL BOND FUND AND
CALIFORNIA MUNICIPAL BOND FUND
- ----------------------
- ----------------------
STEPHEN P. SCHARRE
Portfolio Manager
Bank of America NT&SA
GOAL:
The Pacific Horizon National Municipal Bond Fund seeks to achieve as high a
level of current interest income exempt from Federal income tax as is consistent
with prudent investment management and preservation of capital.
INVESTMENTS:
The Pacific Horizon National Municipal Bond Fund invests primarily in
investment-grade municipal securities issued on behalf of states, territories
and possessions of the United States, the District of Columbia and their
respective authorities, agencies, instrumentalities and political subdivisions.
APPROPRIATE FOR:
Investors seeking monthly interest income exempt from Federal income tax.+
INCEPTION:
January 28, 1994
SIZE OF FUND AS OF
FEBRUARY 28, 1999:
Over $20 million
GOAL:
The Pacific Horizon California Municipal Bond Fund seeks to achieve as high a
level of current interest income exempt from Federal and California state income
taxes as is consistent with prudent investment management and preservation of
capital.
INVESTMENTS:
The Pacific Horizon California Municipal Bond Fund invests primarily in
municipal securities issued on behalf of the state of California and its
political subdivisions, agencies, authorities and other governmental entities.
APPROPRIATE FOR:
California residents seeking monthly interest income exempt from both Federal
and California personal income taxes.+
INCEPTION:
March 30, 1984
SIZE OF FUND AS OF
FEBRUARY 28, 1999:
Over $221 million
- ---------------
+Certain investors may be subject to the Federal Alternative Minimum Tax (AMT)
and to certain state and local taxes.
<PAGE> 87
PACIFIC HORIZON
NATIONAL MUNICIPAL BOND FUND
CALIFORNIA MUNICIPAL BOND FUND
Q
HOW DID THE MUNICIPAL BOND MARKETS AND THE FUNDS PERFORM DURING THE PAST 12
MONTHS?*
A
The municipal bond market performed solidly during the past 12 months as
falling treasury rates and three easing moves by the Federal Reserve Board
caused municipal yields to trend lower, particularly for maturities under
ten-years. The decline in municipal yields did, however, lag the decline in
Treasury yields for the second straight year as the continuing global economic
turmoil had investors focused on the safety of U.S. Treasury bonds. For the year
ended February 28, 1999, the A Shares of the Pacific Horizon National Municipal
Bond Fund had a total return of 5.43% (without the sales charge) for A Shares
outperforming its peer group, the Lipper General Municipal Debt Funds Universe
which returned 4.88% The A Shares of the Pacific Horizon California Municipal
Bond Fund returned 5.94% (without the sales charge) for A Shares during the same
time period also comparing favorably to the Lipper California Municipal Debt
Funds Universe which returned 5.43%.
Q
WHAT FACTORS AFFECTED THE FUNDS' PERFORMANCE DURING THE YEAR ENDED FEBRUARY
28, 1999?
A
As the period began, investors were already keenly aware of the financial
dislocations occurring in Asia resulting in significant currency devaluations
and International Monetary Fund intervention. Expectations were that the severe
recessions in Asia would slow the U.S. economy and help maintain very low
inflation rates. By mid-year, financial problems spread beyond Asia as Russia
devalued the Ruble and in effect defaulted on its debt throwing financial
markets into further turmoil causing a new round of investors "flight to
quality". Treasury yields plunged to 30-year lows, pushing corporate spreads
significantly wider, municipal yield ratios rose to levels not seen since the
flat tax fears of 1995, and the Dow Jones Industrial Average** fell some 1,800
points as a result. During these crises, Long Term Capital Management, a large
hedge fund collapsed and was rescued by a consortium of large Wall Street
brokerage firms at the request of the Federal Reserve Board. In response to the
situation the Federal Reserve lowered the Fed Funds rate three times between
September 29th and November 17, 1998, moving the rate down to 4.75% from 5.5%.
Despite this backdrop, the U.S. economy powered ahead posting a 4% Gross
Domestic Product (GDP) growth rate for all of 1998 propelled by strong consumer
spending and a robust housing market. Swelling trade deficits did subtract from
U.S. growth however, lower interest rates, a strong equity market and weak
commodity prices, especially oil prices, overwhelmed the effects of lower trade
with Asia.
Q
HOW DID YOU MANAGE THE FUNDS IN THAT ENVIRONMENT?
A
As the Asian crises unfolded during the fourth quarter of 1997 a shift in
portfolio strategy to increase the Funds' durations and improve call protection
was initiated in order to benefit from the expected decline in interest rates. A
continuation of that strategy was maintained through the first half of 1998 as
the Funds' average coupon was reduced and longer call protection was added. As
rates declined significantly during August and September 1998 the improved call
protection help stabilize the Funds' durations as
11
<PAGE> 88
12
record low yields caused most bonds to price to their optional call dates. The
Funds' also benefited from their overall high credit quality as the global
financial instability increased investors perception of risk resulting in a
lower appetite for lower rated securities hurting their performance relative to
higher quality investments.
Q
DID THE FUNDS' CREDIT QUALITY CHANGE OVER THE PERIOD?***
A
The average credit quality in the National Municipal Bond Fund was reduced
slightly during the period. This was accomplished by increasing the Fund's
exposure to triple B credits primarily by lowering the Fund's weighting of
single-A credits by approximately a 5% position shift. The Fund's average credit
quality remains very high at double A.
In the California Municipal Bond Fund, the average credit quality remains double
A with no significant changes in the quality distribution during the period.
Triple A quality bonds remain dominant in the Fund, ending the period at 59%, as
the mono-line insurance companies continue to increase their market share of
municipal bond issuance in California.
Q
WHAT IS YOUR OUTLOOK FOR THE ECONOMY AND THE MUNICIPAL BOND MARKET FOR THE
YEAR AHEAD?
A
The U.S. economy has defied gravity for close to three years now averaging
on a year-over-year basis GDP growth above 3% since the second quarter of 1996.
This is well above the longer-term average GDP growth rate of approximately
2.25%. The economy's strong momentum will probably continue throughout 1999 as
several strong economic drivers remain in place -- low interest rates, low
inflation rates, and a strong U.S. equity market. As long as these conditions
remain the U.S. economy will forge successfully ahead. Weakness in Asia will
continue to be drag on U.S. growth, however, it appears unlikely that Asia alone
will turn U.S. growth slower.
New issue supply for the municipal market was very strong during 1998 posting
the second highest level on record. Low interest rates helped spur the large
supply and as interest rates have retraced back some of their downward move
since November new supply for 1999 is expected to slow. Municipal yields were
much more stable than Treasury yields throughout 1998 as they were less
influenced by the international turmoil. It is expected that municipal yields
will remain relatively more stable again in 1999 as global economic
uncertainties continue. Credit quality for municipal issuers is expected to
remain strong as the strong economy has increased local and state tax
collections for several years now allowing many issuers to build financial
cushions into their budgets.
- ---------------
* Return figures for the Funds include change in share price, reinvestment of
dividends and capital gains distributions. Performance figures do not
reflect the maximum 4.75% front-end sales load which applies to some
investors. The Funds are currently waiving a portion of the advisory,
administrative and/or shareholder servicing fee. This voluntary waiver may
be modified or terminated at any time, which would reduce Fund performance.
Lipper Inc., is an independent mutual fund performance monitor. Funds
included in the Lipper General Municipal Debt Funds Universe invest at least
65% of their assets in municipal debt issues in the top four credit ratings.
Funds included in the Lipper California Municipal Debt Funds Universe limit
their assets to those securities that are exempt from taxation in
California.
** The Dow Jones Industrial Average is a price-weighted index of 30 of the
largest, most widely held stocks traded on the New York Stock Exchange. It
is unmanaged and unavailable for investment.
*** The composition of the Funds' holdings is subject to change.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
<PAGE> 89
13
PACIFIC HORIZON
NATIONAL MUNICIPAL BOND FUND
(AS OF FEBRUARY 28, 1999)
GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)
[NATIONAL MUNICIPAL BOND FUND GRAPH]
<TABLE>
<CAPTION>
A SHARES LIPPER GENERAL
-------- MUNICIPAL DEBT FUNDS LEHMAN BROTHERS
AVERAGE MUNICIPAL BOND INDEX
-------------------- --------------------
<S> <C> <C> <C>
1/28/94 9525.00 10000.00 10000.00
2/28/94 9428.00 9735.00 9741.00
8/3194 9386.00 9551.00 9657.00
2/28/95 9691.00 9896.00 9928.00
8/31/95 10259.00 10255.00 10514.00
2/29/96 10772.00 10768.00 11025.00
8/31/96 10816.00 10749.00 11065.00
2/28/97 11382.00 11270.00 11634.00
2/28/98 12367.00 12298.00 12697.00
2/28/99 13038.00 12898.00 13478.00
</TABLE>
HOW PERFORMANCE COMPARES
The chart compares the Pacific Horizon National Municipal Bond Fund to the
Lehman Brothers Municipal Bond Index, which is an unmanaged index typically used
as a performance benchmark for municipal debt investments.
As illustrated, the Fund tracked the performance of other municipal debt funds.
The average of municipal debt reported by Lipper Analytical Services, Inc.
measures the performance of other funds with investment object-ives and policies
similar to those of the Pacific Horizon National Municipal Bond Fund. An initial
$10,000 investment in the Fund made on January 28, 1994, would now be worth
$13,038 for A Shares.* The same investment made in the Lipper General Municipal
Debt Funds Average would now be worth $12,898.
----------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
NATIONAL MUNICIPAL BOND FUND
AVERAGE ANNUAL RETURNS
<CAPTION>
--------------------------------------
A SHARES
Without With*
Sales Sales
Load Load
--------------------------------------
<S> <C> <C>
1 Year 5.43% 0.46%
....................................
5 Year 6.70% 5.67%
....................................
Since Inception
(1/28/94) 6.36% 5.35%
</TABLE>
----------------------------------
FEDERAL INCOME TAX STATUS OF DIVIDENDS (UNAUDITED)
The Pacific Horizon National Municipal Bond Fund distributed a total Capital
Gain Dividend of $0.005106 for the year ended February 28, 1999. Of this total
Capital Gain Dividend amount, the Fund made a 28 percent rate distribution of
$0.000008 and a 20 percent rate distribution of $0.005097.
SEE INVESTMENT MANAGER INTERVIEW FOR FACTORS AFFECTING FUND PERFORMANCE.
Investment return and principal value are historical and will vary with market
conditions, so an investor's shares, when redeemed, may be worth more or less
than their original cost. Return figures for the Fund include change in share
price, reinvestment of dividends, and capital gain distributions, if any.
<PAGE> 90
14
Lipper Analytical Services, Inc. is an independent mutual fund-monitoring
organization. Neither the Lipper Municipal Debt Funds Average, nor the Lehman
Brothers Municipal Bond Fund Index may be invested in directly. The hypothetical
investment in the Lehman Brothers Municipal Bond Fund Index does not reflect any
sales or management fees that would be incurred if an investor were to actually
purchase individual securities or mutual funds, while the performance of the
Fund reflects all expenses and management fees and the effect of the maximum
sales charge.
* A share performance assumes the deduction of the maximum front-end sales
charge of 4.75%.
<PAGE> 91
15
PACIFIC HORIZON
NATIONAL MUNICIPAL BOND FUND
(AS OF FEBRUARY 28, 1999)
<TABLE>
<CAPTION>
1998 Federal Tax Rates+
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------
28% 31% 36% 39.6%
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Joint $42,351 $102,301 $155,951 over
Return: $102,300 $155,950 $278,450 $278,450
......................................................
Single $25,351 $61,401 $128,101 over
Return: $61,400 $128,100 $278,450 $278,450
- -------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
4.5% 6.25% 6.52% 7.03% 7.45%
....................................................................
5.0 6.94 7.25 7.81 8.28
....................................................................
5.5 7.64 7.97 8.59 9.11
....................................................................
6.0 8.33 8.70 9.38 9.93
....................................................................
6.5 9.03 9.42 10.16 10.76
....................................................................
</TABLE>
+ Source: Internal Revenue Service.
* Certain investors may be subject to the federal Alternative Minimum Tax (AMT)
and/or certain state and local taxes. Shareholders should consult with a tax
adviser.
TAX-EQUIVALENT YIELD
The Bottom Line
Today's higher federal tax rates make tax-exempt income more attractive. This
chart enables you to determine what the yield on a taxable investment would have
to be to match a hypothetical tax-exempt yield.* For example, in order to equal
a 5% tax-exempt yield, a taxable investment would have to yield between 6.94%
and 8.28%, depending on your federal tax bracket. The higher your tax bracket,
the better the potential after-tax result of investing in a tax-exempt fund. The
Pacific Horizon National Municipal Bond Fund seeks to provide a high level of
current income free from federal income tax, consistent with prudent investment
management and preservation of capital.
<PAGE> 92
16
PACIFIC HORIZON
CALIFORNIA MUNICIPAL BOND FUND
(AS OF FEBRUARY 28, 1999)
GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)
[CALIFORNIA MUNICIPAL BOND FUND GRAPH]
<TABLE>
<CAPTION>
A SHARES B SHARES LIPPER CALIFORNIA LEHMAN BROTHERS
-------- -------- MUNICIPAL BOND MUNICIPAL BOND
FUNDS AVERAGE INDEX
----------------- ---------------
<S> <C> <C> <C> <C>
2/28/89 9525.00 10000.00 10000.00 10000.00
2/28/90 9889.00 10385.00 10886.00 11026.00
2/28/91 10653.00 11187.00 11749.00 12043.00
2/29/92 11678.00 12264.00 12861.00 13246.00
2/28/93 13314.00 13983.00 14643.00 15070.00
2/28/94 14066.00 14772.00 15439.00 15902.00
2/28/95 14117.00 14825.00 15503.00 16207.00
2/29/96 15546.00 16326.00 17133.00 17998.00
2/28/97 16212.00 17026.00 17939.00 18992.00
2/28/98 17701.00 18589.00 19620.00 20727.00
2/28/99 19677.00 20525.00 20685.00 22001.00
</TABLE>
HOW PERFORMANCE COMPARES
The chart compares the Pacific Horizon California Municipal Bond Fund to the
Lehman Brothers Municipal Bond Index, which is an unmanaged index typically used
as a performance benchmark for municipal debt investments.
As illustrated, the Fund tracked the performance of other municipal debt funds.
The average of California municipal debt funds reported by Lipper Analytical
Services, Inc. measures the performance of other funds with investment
objectives and policies similar to those of the Pacific Horizon California
Municipal Bond Fund. An initial $10,000 investment in the Fund for the ten year
period commencing on February 28, 1989 would now be worth $19,677 for A Shares.*
The same investment made in the Lipper California Municipal Bond Funds Average
for the same time period would now be worth $20,685. Correspondingly, a $10,000
investment in B Shares for the same time period would now be worth $20,525.**
----------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
CALIFORNIA MUNICIPAL BOND FUND
AVERAGE ANNUAL RETURNS
<CAPTION>
-----------------------------------------
A SHARES B SHARES
Without With* Without With**
Sales Sales Sales Sales
Load Load Load Load
-----------------------------------------
<S> <C> <C> <C> <C>
1 year: 5.94% 0.92% 5.25% 1.25%
.......................................
5 years: 5.92% 4.90% 5.78% 5.62%
.......................................
10
years: 7.53% 7.00% 7.46% 7.46%
</TABLE>
----------------------------------------------
FEDERAL INCOME TAX STATUS OF DIVIDENDS (UNAUDITED)
The Pacific Horizon California Municipal Bond Fund distributed a total Capital
Gain Dividend of $0.144484 for the year ended February 28, 1999. Of this total
Capital Gain Dividend amount, the Fund made a 20 percent rate distribution of
$0.130533.
SEE INVESTMENT MANAGER INTERVIEW FOR FACTORS AFFECTING FUND PERFORMANCE.
Investment return and principal value are historical and will vary with market
conditions, so an investor's shares, when redeemed, may be worth more or less
than their original cost. Return figures for the Fund include change in share
price, reinvestment of dividends, and capital gains distributions, if any.
<PAGE> 93
17
Lipper Analytical Services, Inc. is an independent mutual fund-monitoring
organization. Neither the Lipper California Municipal Debt Funds Average, nor
the Lehman Brothers Municipal Bond Fund Index may be invested in directly. The
hypothetical investment in the Lehman Brothers Municipal Bond Fund Index does
not reflect any sales or management fees that would be incurred if an investor
were to actually purchase individual securities or mutual funds, while the
performance of the Fund reflects all expenses and management fees and the effect
of the maximum sales charge.
* A share performance assumes the deduction of the maximum front-end sales
charge of 4.75%.
** Average annual return figures assume the deduction of the maximum contingent
deferred sales charge of 5.00% however, the line graph does not. B shares
were first offered on July 15, 1998. Performance results shown prior to July
15, 1998 are those of Class A shares without the sales charge. B shares have
an ongoing 0.75% distribution and administrative services fee which does not
apply to A shares and which if reflected, would have lowered performance
shown.
<PAGE> 94
18
PACIFIC HORIZON
CALIFORNIA MUNICIPAL BOND FUND
(AS OF FEBRUARY 28, 1999)
TAX-EXEMPT
Dollars and Sense for California Residents
The top federal income tax rate is 39.6 percent on income above $278,450. In
addition, the top California State tax rate is 9.3% on income above $67,346 for
married, filing jointly or $33,673 for single filers. By investing in the
Pacific Horizon California Municipal Bond Fund, Golden State residents may
benefit from regular income that is free from federal and state taxes.*
Use the chart to determine what the hypothetical yield on a taxable investment
would have to be to match a tax-exempt yield. For example, in order to equal a 5
percent tax-exempt yield, a taxable investment would have to yield between 7.66%
and 9.13%, depending on your combined federal and state tax brackets. The higher
your tax bracket, the better the potential after-tax result of investing in a
tax-exempt fund.
- -------------
* Certain investors may be subject to the federal Alternative Minimum Tax (AMT)
and/or certain state and local taxes. Shareholders should consult with a tax
adviser. The effective rates are based on the combined Federal, State and FICA
liabilities for 1997.
<TABLE>
<CAPTION>
COMBINED 1998 CALIFORNIA
STATE & FEDERAL EFFECTIVE RATE
<S> <C> <C> <C> <C>
---------------------------------------------------------------------
---------------------------------------------------------------------
34.70% 37.42% 41.95% 45.22%
---------------------------------------------------------------------
Joint $42,351 $102,301 $155,951 over
Return: $102,300 $155,950 $278,450 $278,450
..................................................................
Single $25,351 $61,401 $128,101 over
Return: $61,400 $128,100 $278,450 $278,450
---------------------------------------------------------------------
</TABLE>
---------------------------------------------------
---------------------------------------------------
<TABLE>
A TAX-EXEMPT INVESTMENT YIELDING:
IS EQUIVALENT TO A TAXABLE INVESTMENT YIELDING:
<S> <C> <C> <C> <C>
4.5% 6.89% 7.19% 7.75% 8.21%
..................................................................
5.0 7.66 7.99 8.61 9.13
..................................................................
5.5 8.42 8.79 9.47 10.04
..................................................................
6.0 9.19 9.59 10.34 10.95
..................................................................
6.5 9.95 10.39 11.20 11.87
..................................................................
---------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
S&P/MOODY'S
LONG-TERM RATING COMPOSITION*
[PIE CHART]
<TABLE>
<S> <C>
NOMINATED 4%
AAA 62%
A 12%
BBB 9%
AA 13%
</TABLE>
- ---------------
* The composition of the Fund's holdings is subject to change.
The Pacific Horizon California Municipal Bond Fund invests primarily in
investment-grade municipal securities that are rated in the four highest
categories by an independent rating agency such as Standard & Poor's or nonrated
securities deemed by the Fund's adviser to be of comparable quality. By
maintaining high standards, the Fund seeks to minimize risk while increasing
yield, offering an investor the opportunity for capital preservation as well as
consistent monthly dividends. Tax-exempt bond funds invest in securities issued
by states, local municipalities and governments, whose financial condition will
affect the value of their securities.
<PAGE> 95
19
PACIFIC HORIZON NATIONAL MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1999
- --------------------------------------------------------------------------------
<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 -- 101.5%
CALIFORNIA -- 10.1%
Del Mar Race Track Authority, Callable
on 8/15/02 @100......................... NR/NR 6.000% 08/15/06 $250,000 $ 271,250
Del Mar Race Track Authority, Callable
on 8/15/06 @102......................... NR/NR 6.200% 08/15/11 250,000 276,250
Foothill/Eastern Corridor Agency,
California Toll Road, Senior Lien,
Series A, Callable on 1/1/05 @102....... Baa/BBB- 6.000% 01/01/34 150,000 163,500
San Francisco Bay Area Rapid
Transportation District, Sales Tax
Revenue (AMBAC Insured) Callable on
7/01/19 @100............................ Aaa/AAA 4.750% 07/01/23 500,000 483,125
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................................. Baa/BBB- 5.570%* 01/15/16 500,000 350,625
San Jose Redevelopment Agency, Callable
on 8/01/08 @102......................... A2/A 5.250% 08/01/29 400,000 405,000
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 86,344
-----------
2,036,094
-----------
COLORADO -- 8.8%
Boulder County Hospital, Longmont United
Hospital Project, Prerefunded on 12/1/00
@101.................................... NR/NR 8.200% 12/01/20 540,000 589,275
Colorado Health Facilities Authority,
National Benevolent Association, Series
B....................................... Baa1/NR 5.250% 02/01/28 300,000 292,125
E-470 Public Highway Authority Revenue,
Series A (MBIA Insured), Callable on
9/1/07 @101............................. Aaa/AAA 5.000% 09/01/26 700,000 684,250
Pueblo County Single Family Mortgage,
Series A, Callable on 6/1/02 @102....... NR/AA- 6.850% 12/01/25 190,000 200,212
-----------
1,765,862
-----------
CONNECTICUT -- 0.4%
Connecticut State Clean Water Fund,
Callable on 6/1/04 @102................. Aaa/AAA 5.650% 06/01/10 75,000 81,094
-----------
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 96
20
<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)
FLORIDA -- 4.2%
Florida State Board of Education,
Capital Outlay, Series 1994A, Callable
on 6/1/04 @101.......................... Aa2/AA+ 6.100% 06/01/24 $ 75,000 $ 83,719
Florida State Board of Education,
Capital Outlay, Series 1997A, Callable
on 6/1/07 @101.......................... Aa2/AA+ 5.000% 06/01/27 500,000 495,625
Jacksonville Electric Authority, St.
John's River, Issue 2, Series 9,
Callable on 10/1/02 @102................ Aa1/AA 5.250% 10/01/21 255,000 256,912
-----------
836,256
-----------
ILLINOIS -- 11.3%
Chicago O'Hare International Airport,
Senior Lien, Series A, Callable on
1/1/04 @102............................. A1/A+ 4.800% 01/01/05 500,000 517,500
Cook County General Obligation, Series B
(FGIC Insured), Callable on 11/15/02
@102.................................... Aaa/AAA 5.500% 11/15/22 300,000 307,500
Illinois Health Facility Authority,
Centegra Health Systems, Callable on
9/1/08 @101............................. NR/A- 5.250% 09/01/24 500,000 481,250
Illinois Health Facility Authority,
Edward Hospital, Series A, Callable on
2/15/04 @102............................ A2/A+ 6.000% 02/15/19 75,000 78,375
Illinois Health Facility Authority,
Illinois Masonic Medical Center, Series
A, Callable on 10/1/99 @102............. A3/A- 7.600% 10/01/07 300,000 311,463
Illinois State Sales Tax Revenue, Series
O, Callable 6/15/01 @100................ Aa2/AAA 6.000% 06/15/18 30,000 31,162
Illinois State Sales Tax Revenue, Series
O, Prerefunded 6/15/01 @100............. NR/NR 6.000% 06/15/18 20,000 21,150
Illinois State Sales Tax Revenue, Series
W (FGIC Insured), Callable on 6/15/06
@101.................................... Aaa/AAA 5.000% 06/15/16 520,000 516,750
-----------
2,265,150
-----------
INDIANA -- 3.1%
Bloomington Indiana Sewer Works (MBIA
Insured), Callable on 1/1/05 @102....... Aaa/AAA 5.875% 01/01/25 150,000 160,687
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 97
21
<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)
Indiana Bond Bank, State Revolving Fund,
Program A, Callable on 2/1/05 @102...... NR/AAA 6.875% 02/01/12 $100,000 $ 115,000
Indianapolis Local Public Improvement
ETM, Callable on 9/18/98 @101........... Aaa/AAA 7.900% 02/01/07 300,000 357,000
-----------
632,687
-----------
KENTUCKY -- 1.1%
Kentucky State Property & Buildings
Refunding Project No. 55................ A2/A+ 6.000% 09/01/08 200,000 226,500
-----------
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 3.200% 03/01/99 100,000 100,000
-----------
MASSACHUSETTS -- 7.7%
Massachusetts Bay Transportation
Authority, General Transportation
System, Series A, Callable on 3/1/06
@101.................................... A1/AA- 5.375% 03/01/16 500,000 523,750
Massachusetts State Housing Finance
Agency, Single Family Housing Revenue
(MBIA Insured) (AMT), Callable on 6/1/06
@102.................................... Aaa/AAA 6.250% 12/01/15 500,000 529,375
Massachusetts State Port Authority,
Series A, Callable 7/1/07 @101.......... Aa3/AA- 5.000% 07/01/27 400,000 389,000
Massachusetts State Water Resource
Authority, Series C, Callable on 12/1/04
@102.................................... A2/A 5.250% 12/01/20 100,000 100,250
-----------
1,542,375
-----------
MICHIGAN -- 2.8%
Greater Detroit Resource Recovery
Authority, Series B (AMBAC Insured)..... Aaa/AAA 6.250% 12/13/05 500,000 565,000
-----------
MINNESOTA -- 3.7%
Bass Brook Pollution Control Revenue,
Minnesota Power and Light Company
Project, Callable on 7/1/02............. Baa1/A 6.000% 07/01/22 700,000 735,000
-----------
MISSISSIPPI -- 1.0%
Jackson County, Mississippi Pollution
Control (Chevron Project) Daily Variable
Rate (final maturity 12/01/16).......... VMIG1/NR 3.200% 03/01/99 200,000 200,000
-----------
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 98
22
<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)
MISSOURI -- 2.7%
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% 02/01/14 175,000 189,000
-----------
NEVADA -- 5.2%
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% 07/01/23 500,000 535,000
Nevada Housing Division, Single Family
Mortgage, Series D1, Callable on 4/1/06
@102.................................... Aa3/NR 6.250% 04/01/14 475,000 507,063
-----------
1,042,063
-----------
NEW JERSEY -- 2.6%
New Jersey Economic Development
Authority, Market Transition Facilities,
Series A (MBIA Insured), Callable on
7/1/04 @102............................. Aaa/AAA 5.700% 07/01/05 150,000 164,438
New Jersey State Turnpike Authority,
Series C (AMBAC Insured), Callable on
1/1/01 @101.5........................... Aaa/AAA 6.400% 01/01/07 350,000 370,125
-----------
534,563
-----------
NEW YORK -- 7.2%
Long Island Power Authority, Electrical
Systems Revenue, Series 5, Callable on
12/01/30 @100........................... VMIG1/A1+ 3.200% 05/01/33 200,000 200,000
Metropolitan Transportation Authority,
Series K (MBIA Insured)................. Aaa/AAA 6.200% 07/01/04 600,000 666,750
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 54,375
New York State Urban Development
Facilities.............................. Baa1/BBB+ 5.750% 04/01/11 400,000 441,000
-----------
1,442,188
-----------
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 99
23
<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)
OHIO -- 3.6%
Ohio State Water Development Authority
Revenue (FSA Insured)................... Aaa/AAA 4.500% 12/01/05 $700,000 $ 721,875
-----------
OREGON -- 0.8%
Portland International Airport, Series
10 (FGIC Insured) (AMT), Callable on
7/1/05 @101............................. Aaa/AAA 5.875% 07/01/15 150,000 161,250
-----------
PENNSYLVANIA -- 2.5%
Philadelphia Airport, Series A (AMBAC
Insured) (AMT), Callable on 6/15/05
@102.................................... Aaa/AAA 5.700% 06/15/07 200,000 218,250
Philadelphia Water and Wastewater
(AMBAC-TCRS Insured).................... Aaa/AAA 5.500% 06/15/07 250,000 271,875
Pittsburgh Urban Redevelopment
Authority, Home Improvement, Series A
(AMT), Callable on 2/1/04 @102.......... A/A 5.650% 08/01/15 15,000 15,394
-----------
505,519
-----------
TENNESSEE -- 6.8%
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 83,531
Maury County Industrial Development
Board Pollution Control, Saturn Corp.
Project, Callable on 9/1/04 @102........ A3/A 6.500% 09/01/24 500,000 553,750
Memphis-Shelby County Airport Authority,
Federal Express Corporation............. Baa2/BBB 5.350% 09/01/12 700,000 728,875
-----------
1,366,156
-----------
TEXAS -- 6.9%
Brazos River Authority, Special
Facilities (FGIC Insured), Callable on
8/15/05 @100............................ Aaa/AAA 5.500% 08/15/15 200,000 208,250
Galveston Special Contract Revenue,
Farmland Industrial Project, Callable on
5/1/08 @102............................. Baa2/NR 5.500% 05/01/15 400,000 402,500
Lower Colorado River Authority, Junior
Lien (AMBAC Insured) ETM, Callable on
1/1/02 @100............................. NR/AAA 6.000% 01/01/17 25,000 28,031
Lower Colorado River Authority, Junior
Lien-1998 (AMBAC Insured) Prerefunded
1/1/02 @100............................. NR/AAA 6.000% 01/01/17 15,000 17,025
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 100
24
<TABLE>
<CAPTION>
MOODY'S/
S&P
RATINGS MATURITY PRINCIPAL VALUE
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- --------
<S> <C> <C> <C> <C> <C>
MUNICIPAL BONDS -- (CONTINUED)
TEXAS -- (CONTINUED)
Lower Colorado River Authority, Junior
Lien-1998 (AMBAC Insured) Callable
1/1/02 @100............................. Aaa/AAA 6.000% 01/01/17 $ 10,000 $ 10,438
Lower Neches Valley Authority, River
Treatment Project, Callable on 2/1/04
@102.................................... Aa2/AA 5.650% 02/01/29 600,000 615,000
Texas Water Development Board, State
Revolving Fund, Senior Lien, Callable on
7/15/02 @102............................ Aa1/AAA 6.000% 07/15/13 100,000 107,375
-----------
1,388,619
-----------
UTAH -- 2.4%
Ashley Valley Water and Sewer
Implementation District, Sinking Bond
(AMBAC Insured)......................... Aaa/AAA 9.500% 01/01/08 260,000 333,125
Intermountain Power Agency, Utah Power
Supply, Series C, Sinking Bond.......... A1/A+ 5.250% 07/01/14 150,000 154,500
-----------
487,625
-----------
VIRGINIA -- 3.7%
Virginia State Public School Authority,
Series A, Callable on 8/1/08 @101....... Aa1/AA+ 5.125% 08/01/12 700,000 737,625
-----------
WASHINGTON -- 1.0%
Washington State Health Care Facilities
Authority, Fred Hutchinson Cancer
Research Center, Series B LOC-Morgan
Guaranty Trust, Callable on 1/01/02
@100.................................... VMIG1/NR 3.600% 01/01/18 100,000 100,000
Washington State Health Care Facilities
Authority, Fred Hutchinson Cancer Center
Research Series A LOC-Morgan Guaranty
Trust, Callable on 1/01/00 @100......... VMIG1/NR 3.600% 01/01/18 100,000 100,000
-----------
200,000
-----------
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 101
25
<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)
WYOMING -- 0.5%
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 $ 106,750
-----------
TOTAL INVESTMENTS -- 101.5%
(COST $19,436,829)(a)................... 20,418,001
LIABILITIES IN EXCESS OF OTHER ASSETS --
(1.5%).................................. (307,891)
-----------
NET ASSETS -- 100.0%..................... $20,110,110
===========
</TABLE>
- ---------------
Percentages indicated are based on net assets of $20,110,110.
(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..................................... $1,001,200
Unrealized depreciation..................................... (20,028)
----------
Net unrealized appreciation................................. $ 981,172
==========
</TABLE>
<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>
* Rate represents effective yield at date of purchase.
See Notes to Financial Statements.
<PAGE> 102
26
PACIFIC HORIZON NATIONAL MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (cost $19,436,829).... $20,418,001
Cash...................................................... 89,553
Interest receivable....................................... 263,852
Receivable for capital shares sold........................ 89,910
Deferred organizational costs............................. 8,311
-----------
Total Assets................................................ 20,869,627
-----------
LIABILITIES:
Dividends payable......................................... 14,848
Payable for capital shares redeemed....................... 680,829
Investment advisory fees payable.......................... 12,047
Administration fees payable............................... 712
Custodian and fund accounting fees payable................ 16,318
Transfer agent fees payable............................... 3,909
Legal fees payable........................................ 1,068
Other accrued expenses.................................... 29,786
-----------
Total Liabilities........................................... 759,517
-----------
NET ASSETS.................................................. $20,110,110
===========
Shares Outstanding ($0.001 par value, 200 million shares
authorized)............................................... 1,899,285
===========
NET ASSET VALUE:
Net asset value and redemption price per share............ $ 10.59
===========
Maximum Sales Charge...................................... 4.75%
Maximum Offering Price per share (Net Asset Value of
Shares/ (100% -- Maximum Sales Charge))................. $ 11.12
===========
COMPOSITION OF NET ASSETS:
Shares of common stock, at par............................ $ 1,899
Additional paid-in capital................................ 19,126,352
Accumulated undistributed net investment income........... 5,287
Accumulated net realized losses on investment
transactions............................................ (4,600)
Net unrealized appreciation on investments................ 981,172
-----------
NET ASSETS, FEBRUARY 28, 1999............................... $20,110,110
===========
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 103
27
PACIFIC HORIZON NATIONAL MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the year ended February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................. $1,034,350
----------
EXPENSES:
Investment advisory fees.................................. 70,946
Administration fees....................................... 40,541
Shareholder service fees.................................. 50,686
Custodian and fund accounting fees........................ 53,887
Transfer agent fees....................................... 14,239
Registration and filing fees.............................. 2,257
Organizational expense.................................... 42
Legal fees................................................ 703
Other expenses............................................ 41,752
----------
Total Expenses.......................................... 275,053
Less: Fee waivers and reimbursements...................... (170,797)
Expenses paid by third parties....................... (2,902)
----------
Total Net Expenses.......................................... 101,354
----------
NET INVESTMENT INCOME....................................... 932,996
----------
NET REALIZED/UNREALIZED GAINS ON INVESTMENTS:
Net realized gain on investment transactions.............. 383
Net change in unrealized appreciation on investments...... 188,064
----------
Net realized/unrealized gains on investments................ 188,447
----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $1,121,443
==========
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 104
28
PACIFIC HORIZON NATIONAL MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------
FEBRUARY 28, FEBRUARY 28,
1999 1998
------------ ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income............................... $ 932,996 $ 672,144
Net realized gains on investment transactions....... 383 37,910
Net change in unrealized appreciation on
investments....................................... 188,064 410,519
----------- -----------
Change in net assets resulting from operations........ 1,121,443 1,120,573
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
A Shares.......................................... (932,992) (672,117)
K Shares.......................................... -- (27)
Net realized gains from investment transactions:
A Shares.......................................... (10,175) (28,694)
----------- -----------
Change in net assets from shareholder distributions... (943,167) (700,838)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued......................... 12,621,230 4,473,013
Dividends reinvested................................ 750,691 558,840
Cost of shares redeemed............................. (7,702,998) (6,603,381)
----------- -----------
Change in net assets from capital share
transactions........................................ 5,668,923 (1,571,528)
----------- -----------
Change in net assets.................................. 5,847,199 (1,151,793)
NET ASSETS
Beginning of Year................................... 14,262,911 15,414,704
----------- -----------
End of Year (including undistributed net investment
income of $5,287 and $5,033, respectively)........ $20,110,110 $14,262,911
=========== ===========
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 105
29
PACIFIC HORIZON CALIFORNIA MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1999
- --------------------------------------------------------------------------------
<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 -- 99.0%
CALIFORNIA -- 96.5%
ABAG Finance Authority For Nonprofit
Corporations, California Certificates
of Participation, Episcopal Homes
Foundation........................... NR/A- 4.625% 07/01/04 $1,465,000 $ 1,505,287
ABAG Financial Corporation,
Certificates of Participation, Series
A, Callable on 6/1/00 @102........... NR/A 6.250% 06/01/11 1,000,000 1,040,000
Alameda County Certificates of
Participation, Capital Projects
(AMBAC Insured), Callable 6/1/07
@102................................. Aaa/AAA 5.000% 06/01/22 4,780,000 4,720,250
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 3,228,750
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 2,835,662
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 1,336,087
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 1,072,500
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 1,081,250
California Health Facilities
Financing Authority, Kaiser
Permanente Medical Care, Series A,
Prerefunded on 12/1/00 @102.......... NR/NR 6.500% 12/01/20 1,000,000 1,075,000
California Health Facilities
Financing Authority, Kaiser
Permanente, Series A (FSA Insured)... Aaa/AAA 5.000% 06/01/07 2,500,000 2,656,250
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 106
30
<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, 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 2,105,000
California Housing Finance Agency
(AMT) (MBIA Insured), Callable on
8/1/07 @102.......................... Aaa/AAA 5.750% 02/01/29 3,000,000 3,116,250
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 2,073,062
California Housing Finance Authority
(AMT) (MBIA Insured), Callable on
8/1/07 @102.......................... Aaa/AAA 5.650% 08/01/17 2,750,000 2,842,812
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 1,083,750
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 1,034,570
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 1,093,750
California State Department of Water
Revenue, Residential Central Valley
Project, Series S, Callable on
12/1/07 @101......................... Aa2/AA 5.000% 12/01/17 2,000,000 2,010,000
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 4,798,125
California State General Obligation
Bond (FGIC-TCRS Insured), Callable on
10/1/05 @101......................... Aaa/AAA 5.250% 10/01/17 2,600,000 2,671,500
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 2,180,000
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 107
31
<TABLE>
<CAPTION>
MOODY'S/
S&P
RATINGS MATURITY PRINCIPAL VALUE
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- --------
<S> <C> <C> <C> <C> <C>
MUNICIPAL BONDS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
California State Public Works Board
Lease Revenue, Department of
Corrections, State Prison, Series E,
Callable on 6/1/04 @102.............. A2/A 5.500% 06/01/19 $7,970,000 $ 8,308,725
California State Unrefunded (AMBAC
Insured) TCRS, Callable on 5/1/04
@102................................. Aaa/AAA 6.000% 05/01/12 210,000 232,837
California Statewide Communities
Development Authority Revenue,
Certificates of Participation, John
Muir/Mt. Diablo Health System (MBIA
Insured), Callable on 8/15/07 @102... Aaa/AAA 5.125% 08/15/17 3,000,000 3,048,750
Capital Area Development Authority,
Series A (MBIA Insured), Callable on
4/1/02 @102.......................... Aaa/AAA 6.500% 04/01/12 1,000,000 1,098,750
Central Valley Financing Authority,
Cogeneration Project, Carson Ice,
Callable on 7/1/03 @102.............. NR/BBB- 6.000% 07/01/09 3,000,000 3,217,500
Chino Unified School District,
Certificates of Participation,
Convertible Capital Appreciation Land
Acquisition, Series A (FSA Insured),
Callable 3/29/99 @97.289 (Step
Coupon), due 9/1/14.................. Aaa/AAA 2.520%* 09/01/14 1,280,000 1,328,000
Contra Costa Water District, Series
H, Callable 10/1/07 @100............. A1/AA- 5.000% 10/01/22 4,000,000 3,950,000
Del Mar Race Track Revenue Authority,
Callable on 8/15/06 @102............. NR/NR 6.000% 08/15/08 1,200,000 1,321,500
Del Mar Race Track Revenue Authority,
Callable on 8/15/06 @102............. NR/NR 6.200% 08/15/11 1,000,000 1,105,000
Del Mar Race Track Revenue Authority,
Sinking Date 8/15/02 @100............ NR/NR 6.000% 08/15/06 1,000,000 1,085,000
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 5,306,250
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 3,026,250
Eastern Municipal Water District
California Water and Sewer Revenue,
Certificates of Participation (FGIC
Insured), Sinking Date 7/1/09 @100... Aaa/AAA 6.750% 07/01/12 1,000,000 1,231,250
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 108
32
<TABLE>
<CAPTION>
MOODY'S/
S&P
RATINGS MATURITY PRINCIPAL VALUE
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- --------
<S> <C> <C> <C> <C> <C>
MUNICIPAL BONDS -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
Elsinore Valley Municipal Water
District, Certificates of
Participation, Series A (FGIC
Insured), Sinking Date 7/1/10 @100... Aaa/AAA 6.000% 07/01/12 $1,500,000 $ 1,734,375
Emeryville California Public
Financing Authority, Redevelopment
Project, Series A, Callable on 5/1/02
@102................................. NR/A- 6.500% 05/01/21 925,000 996,687
Escondido Joint Powers Financing
Authority Lease Revenue, California
Center for the Arts (AMBAC Insured),
Callable on 9/1/05 @102.............. Aaa/AAA 6.000% 09/01/18 1,500,000 1,653,750
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 3,390,000
Fremont Public Financing Authority,
Local Improvement District 39R,
Callable on 9/2/99 @102.............. NR/NR 6.000% 09/01/11 1,965,000 2,015,029
Fresno Sewer, Series A-1 (AMBAC
Insured), Sinking Date 9/1/11 @100... Aaa/AAA 6.250% 09/01/14 5,000,000 5,893,750
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 1,095,000
Long Beach Harbor Revenue (AMT) (MBIA
Insured), Callable on 5/15/05 @102... Aaa/AAA 5.375% 05/15/20 4,000,000 4,065,000
Los Angeles Convention & Exhibition
Center Authority, Series A (MBIA
Insured)............................. Aaa/AAA 6.000% 08/15/10 3,000,000 3,461,250
Los Angeles County Transportation,
Community Sales Tax Revenue, Series
B, Callable on 7/1/01 @102........... A1/AA- 6.500% 07/01/13 2,500,000 2,696,875
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 1,575,000
Los Angeles Department of Water &
Power, Callable on 4/15/03 @102...... Aa3/AA 5.750% 04/15/12 2,000,000 2,155,000
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 2,225,000
Los Angeles Harbor Department, Series
B (AMT), Callable on 8/1/02 @102..... Aa3/AA 6.625% 08/01/25 2,000,000 2,187,500
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 109
33
<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)
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 $ 1,980,000
Metropolitan Water District, Southern
California Waterworks, Series 1993A,
Sinking Date 7/1/14 @100............. Aa2/AA 5.750% 07/01/21 4,500,000 5,028,750
Natomas Unified School District,
Series A (MBIA Insured), Callable on
9/1/03 @102.......................... Aaa/AAA 5.750% 09/01/17 1,000,000 1,076,250
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 2,180,000
Northridge Water District,
Certificates of Participation (AMBAC
Insured), Callable on 2/1/06 @102.... Aaa/AAA 5.250% 02/01/18 2,500,000 2,556,250
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 1,006,250
Orange County California Airport
Revenue (AMT) (MBIA Insured),
Callable on 7/1/07 @102.............. Aaa/AAA 5.500% 07/01/10 2,500,000 2,750,000
Orange County California Airport
Revenue (AMT) (MBIA Insured),
Callable on 7/1/07 @102.............. Aaa/AAA 5.500% 07/01/11 4,000,000 4,365,000
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 1,553,685
Pasadena Community Multi-Family
Housing, Civic Center, Series A (AMT)
(FSA Insured), Callable on 12/1/02
@102................................. Aaa/AAA 6.400% 12/01/12 2,500,000 2,650,000
Port Oakland, Port Authority, Series
H (AMT) (MBIA Insured), Callable on
11/1/07 @102......................... Aaa/AAA 5.500% 11/01/15 5,000,000 5,325,000
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 2,715,625
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 110
34
<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)
Rancho Water District Financing
Authority (AMBAC Insured), Callable
on 8/15/01 @101.5.................... Aaa/AAA 6.400% 08/15/04 $1,000,000 $ 1,086,250
Rancho Water District Financing
Authority (FGIC Insured), Callable on
11/1/05 @102......................... Aaa/AAA 5.900% 11/01/15 2,000,000 2,212,500
Riverside California Water Revenue,
Callable on 10/1/08 @101............. NR/AA 5.375% 10/01/11 1,500,000 1,621,875
Sacramento Power Authority
Cogeneration Project, Callable on
7/1/06 @102.......................... NR/BBB- 5.875% 07/01/15 2,900,000 3,099,375
San Diego Convention Center Expansion
Financing Authority Lease, Series A
(AMBAC Insured), Callable on 10/1/08
@101................................. Aaa/AAA 4.750% 04/01/28 2,000,000 1,915,000
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 2,390,000
San Francisco Building Authority,
General Service, Series A (MBIA
Insured)............................. Aaa/AAA 5.000% 10/01/08 1,000,000 1,071,250
San Francisco Bay Area Rapid
Transportation District Sales Tax
Revenue Unrefunded (FGIC Insured),
Callable on 7/1/05 @101.............. Aaa/AAA 5.500% 07/01/20 610,000 638,212
San Francisco California City &
County Airport, Communuity
International Airport, Issue 2 (MBIA
Insured) Prefunded on 5/1/03 @102.... Aaa/AAA 6.750% 05/01/13 1,450,000 1,633,063
San Francisco California City &
County Airport, Communuity
International Airport, Issue 2 (MBIA
Insured) Prerefunded on 5/1/03
@102................................. NR/AAA 6.750% 05/01/13 280,000 318,500
San Francisco City & County Airport,
Community International Airport,
Second Series Issue 10A (MBIA
Insured), Callable on 5/1/03 @102.... Aaa/AAA 5.700% 05/01/26 3,000,000 3,183,750
San Joaquin County Certificates of
Participation, Capital Facilities
Project (MBIA Insured), Sinking Date
11/15/11 @100........................ Aaa/AAA 5.500% 11/15/13 1,750,000 1,931,563
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 111
35
<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, (Zero Coupon), due
11/15/12, 5.60% beginning 1/15/07.... Baa3/BBB- 5.570%* 01/15/16 $3,000,000 $ 2,103,750
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 5,062,500
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 3,221,250
San Jose Redevelopment Agency, Tax
Allocation, Merged Area Redevelopment
Project (MBIA Insured)............... Aaa/AAA 6.000% 08/01/15 3,670,000 4,225,088
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 2,010,000
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 1,231,700
Scotts Valley Unified School
District, Series B (FGIC Insured),
Callable 8/1/05 @102................. Aaa/NR 5.375% 08/01/17 1,295,000 1,343,563
Southern California Public Power
Authority, Power Project............. A/A 6.750% 07/01/13 1,000,000 1,220,000
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 1,063,750
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 1,483,025
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 1,398,038
Turlock Industrial Refunded Revenue
District, Series A (MBIA Insured).... Aaa/AAA 6.000% 01/01/09 2,000,000 2,285,000
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 112
36
<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)
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 $ 1,339,063
University of California, Hospital
Medical Center (AMBAC Insured),
Callable on 7/1/06 @101.............. Aaa/AAA 5.750% 07/01/24 5,000,000 5,375,000
University of California, Hospital
Medical Center (AMBAC Insured),
Callable on 7/1/06 @101.............. Aaa/AAA 6.000% 07/01/26 3,000,000 3,296,250
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 3,363,750
Westwood Unified School District,
Callable on 8/1/06 @102.............. NR/BBB 6.500% 08/01/21 1,025,000 1,145,438
------------
213,426,696
------------
PUERTO RICO -- 2.5%
Puerto Rico Electric Power Authority,
Series U, Callable on 7/1/04 @102.... Baa1/BBB+ 6.000% 07/01/14 5,000,000 5,500,000
------------
TOTAL INVESTMENTS -- 99.0% (COST
$202,021,945)(a)..................... 218,926,696
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 1.0%.................. 2,259,992
------------
NET ASSETS -- 100.0%................. $221,186,688
============
</TABLE>
- ---------------
Percentages indicated are baded on net assets of $221,186,688.
(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..................................... $16,935,513
Unrealized depreciation..................................... (30,762)
-----------
Net unrealized appreciation................................. $16,904,751
===========
</TABLE>
<TABLE>
<C> <S>
AMBAC -- AMBAC Indemnity Corporation.
AMT -- Interest on securities subject to Federal Alternative
Minimum Tax.
FGIC -- Financial Guaranty Insurance Company.
FHA -- Federal Housing Authority.
FSA -- Financial Security Assurance Inc.
MBIA -- Municipal Bond Insurance Association.
TCRS -- Trust Certificate Receipts.
NR -- No rating assigned by Moody's or S&P.
</TABLE>
* Rate represents effective yield at date of purchase.
See Notes to Financial Statements.
<PAGE> 113
37
PACIFIC HORIZON CALIFORNIA MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (cost $202,021,945).... $218,926,696
Cash....................................................... 132,527
Interest receivable........................................ 2,851,438
Receivable for capital shares sold......................... 124,558
Prepaid expenses........................................... 923
------------
Total Assets................................................ 222,036,142
------------
LIABILITIES:
Dividends payable.......................................... 274,949
Payable for capital shares redeemed........................ 311,647
Investment advisory fees payable........................... 51,268
Administration fees payable................................ 34,297
Shareholder service fees payable (A Shares)................ 42,274
Custodian and fund accounting fees payable................. 30,285
Transfer agent fees payable................................ 24,168
Distribution fees payable (B Shares)....................... 2,005
Legal fees payable......................................... 3,439
Other accrued expenses..................................... 75,122
------------
Total Liabilities........................................... 849,454
------------
NET ASSETS.................................................. $221,186,688
============
Net Assets:
A Shares................................................... $218,752,961
B Shares................................................... 2,433,727
------------
Total....................................................... $221,186,688
============
Shares Outstanding ($0.001 par value, 200 million shares
authorized):
A Shares................................................... 28,770,060
B Shares................................................... 319,865
------------
Total....................................................... 29,089,925
============
NET ASSET VALUE:
A Shares -- Net asset value and redemption price per
share.................................................... $ 7.60
============
Maximum Sales Charge (A Shares)............................ 4.75%
Maximum Offering Price (A Shares) (Net Asset Value of A
Shares/(100% -- Maximum Sales Charge))................... $ 7.98
============
B Shares -- Net asset value, offering price and redemption
price per share.......................................... $ 7.61
============
COMPOSITION OF NET ASSETS:
Shares of common stock, at par............................. $ 29,090
Additional paid-in capital................................. 203,606,259
Accumulated undistributed net investment income............ 291,778
Accumulated net realized gains on investment
transactions............................................. 354,810
Net unrealized appreciation on investments................. 16,904,751
------------
NET ASSETS, FEBRUARY 28, 1999............................... $221,186,688
============
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 114
38
PACIFIC HORIZON CALIFORNIA MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the year ended February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................. $12,253,831
-----------
EXPENSES:
Investment advisory fees.................................. 687,688
Administration fees....................................... 458,461
Shareholder service fees (A Shares)....................... 570,875
Shareholder service fees (B Shares)....................... 2,198
Distribution fees (B Shares).............................. 6,593
Custodian and fund accounting fees........................ 105,975
Transfer agent fees....................................... 170,733
Printing fees............................................. 55,811
Legal fees................................................ 8,420
Other expenses............................................ 79,181
-----------
Total Expenses.......................................... 2,145,935
Less: Expenses paid by third parties........................ (5,515)
-----------
Total Net Expenses.......................................... 2,140,420
-----------
NET INVESTMENT INCOME....................................... 10,113,411
-----------
NET REALIZED/UNREALIZED GAINS ON INVESTMENTS:
Net realized gain on investment transactions.............. 2,446,540
Net change in unrealized appreciation on investments...... 1,309,875
-----------
Net realized/unrealized gains on investments................ 3,756,415
-----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $13,869,826
===========
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 115
39
PACIFIC HORIZON CALIFORNIA MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------
FEBRUARY 28, FEBRUARY 28,
1999 1998
------------ ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income............................. $10,113,411 $ 10,401,567
Net realized gains on investment transactions..... 2,446,540 2,654,339
Net change in unrealized appreciation on
investments..................................... 1,309,875 6,125,217
------------ ------------
Change in net assets resulting from operations...... 13,869,826 19,181,123
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
A Shares........................................ (10,081,160) (10,401,540)
B Shares........................................ (32,256) --
K Shares........................................ -- (27)
Net realized gains from investment transactions:
A Shares........................................ (4,298,874) (414,788)
B Shares........................................ (25,431) --
------------ ------------
Change in net assets from shareholder
distributions..................................... (14,437,721) (10,816,355)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued....................... 62,888,237 31,684,108
Dividends reinvested.............................. 9,359,233 6,597,508
Cost of shares redeemed........................... (64,477,863) (53,772,246)
------------ ------------
Change in net assets from capital share
transactions...................................... 7,769,607 (15,490,630)
------------ ------------
Change in net assets................................ 7,201,712 (7,125,862)
NET ASSETS
Beginning of Year................................. 213,984,976 221,110,838
------------ ------------
End of Year (Including undistributed net
investment income of $291,778 and $291,783,
respectively.).................................. $221,186,688 $213,984,976
============ ============
</TABLE>
<PAGE> 116
40
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 -- ORGANIZATION
Pacific Horizon Funds, Inc. (the "Company"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended (the "Act"), as
an open-end management investment company. At February 28, 1999, the Company
operated as a series company comprising 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 Shareholder
Services plan. B Shares of the California Municipal Bond Fund held for 8 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 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
terms 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 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
<PAGE> 117
41
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 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 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.
<PAGE> 118
42
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 year ended February 28,
1999, custodian fees and expenses paid by third parties were increased by $2,902
and $5,515, 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. 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
<PAGE> 119
43
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, 1999, 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............................. $250
</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 year ended February 28, 1999, Bank of America waived all
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, at an annual rate of
0.20% of the average daily net assets of the National Municipal Bond Fund and
California Municipal Bond Fund. For the year ended February 28, 1999, Bank of
America waived a portion of administrative fees totaling $37,247 for the
National Municipal Bond Fund. For the year ended February 28, 1999, Bank of
America reimbursed $11,919 of operating expenses of the National Municipal Bond
Fund.
<PAGE> 120
44
For the year ended February 28, 1999, PDI advised the Funds that it retained
$17,642, respectively from commissions earned on sales of the California
Municipal Bond Fund's shares. For the same period, Bank of America and its
affiliates advised the Funds that they retained $11,939 and $22,898,
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' 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 included in future computations of the fee, provided that any
excess costs will not be carried forward beyond the end of the fiscal year in
which such excess costs were incurred. For the year ended February 28, 1999, the
National Municipal Bond Fund and California Municipal Bond Fund incurred charges
of $50,686 and $570,875, respectively, pursuant to the Plan. The Funds were
advised that of these amounts, PDI retained $162,980 from the California
Municipal Bond Fund, and affiliates of Bank of America retained $361,875 from
the California Municipal Bond Fund. For the year ended February 28, 1999, PDI
waived $50,685 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. The California Municipal Bond Fund incurred
charges of $8,791, pursuant to the Plan for the period July 15, 1998 (inception
date) to February 28, 1999.
For the year ended February 28, 1999, PFPC earned $14,239 and $170,733 from
the National Municipal Bond Fund and California Municipal Bond 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 for the year ended February 28, 1999 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.
<PAGE> 121
45
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 an annual
retainer of $1,000 for services as Chairman of the Committee. In addition, the
Company's Chairman of the Board is entitled to an annual salary of $40,000 for
services as Chairman of the Board.
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 $1,881 and $1,222 for the National Municipal Bond
Fund and California Municipal Bond Fund, respectively, for the year ended
February 28, 1999. A Director who came into office after March 18, 1998 is
ineligible to participate in the Retirement Plan.
NOTE 5 -- SECURITIES TRANSACTIONS
For the year ended February 28, 1999, the cost of purchases and the proceeds
from sales of the National Municipal Bond Fund's portfolio securities (excluding
short-term investments) amounted to $18,172,138 and $11,956,395, respectively,
<PAGE> 122
46
and the cost of purchases and the proceeds from sales of California Municipal
Bond Fund's portfolio securities (excluding short-term investments) amounted to
$97,286,197 and $95,874,781, respectively.
NOTE 6 -- CAPITAL SHARE TRANSACTIONS
Transactions in capital shares for the Funds are summarized below:
<TABLE>
<CAPTION>
NATIONAL MUNICIPAL BOND FUND
---------------------------------------
YEAR ENDED
FEBRUARY 28, 1999 FEBRUARY 28, 1998
------------------ ------------------
SHARES AMOUNT SHARES AMOUNT
------- -------- ------- --------
<S> <C> <C> <C> <C>
A SHARES (000's)
Issued..................................................... 1,201 $12,621 432 $ 4,473
Reinvested................................................. 71 751 54 558
Redeemed................................................... (729) (7,703) (645) (6,602)
----- ------- ---- -------
Net increase/(decrease)..................................... 543 $ 5,669 (159) $(1,571)
===== ======= ==== =======
K SHARES (a)
Issued..................................................... -- $ -- -- $ --
Reinvested................................................. -- -- 3 31
Redeemed................................................... -- -- (106) (1,096)
----- ------- ---- -------
Net increase/(decrease)..................................... -- $ -- (103) $(1,065)
===== ======= ==== =======
</TABLE>
<TABLE>
<CAPTION>
CALIFORNIA MUNICIPAL BOND FUND
-------------------------------------
YEAR ENDED
FEBRUARY 28, 1999 FEBRUARY 28, 1998
----------------- -----------------
SHARES AMOUNT SHARES AMOUNT
------ -------- ------ --------
<S> <C> <C> <C> <C>
A SHARES (000's)
Issued..................................................... 7,925 $ 60,153 4,291 $ 31,684
Reinvested................................................. 1,220 9,312 885 6,597
Redeemed................................................... (8,401) (64,141) (7,234) (53,771)
------ -------- ------ --------
Net increase/(decrease)..................................... 744 $ 5,324 (2,058) $(15,490)
====== ======== ====== ========
B SHARES (000's)(b)
Issued..................................................... 358 $ 2,735 -- --
Reinvested................................................. 6 47 -- --
Redeemed................................................... (44) (336) -- --
------ -------- ------ --------
Net increase................................................ 320 $ 2,446 -- --
====== ======== ====== ========
K SHARES (a)
Issued..................................................... -- -- -- $ --
Reinvested................................................. -- -- 4 31
Redeemed................................................... -- -- (146) (1,094)
------ -------- ------ --------
Net increase/(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 February 28, 1999.
<PAGE> 123
47
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.
The Funds had the following concentrations by type of obligation at February
28, 1999 (as a percentage of total investments).
<TABLE>
<CAPTION>
NATIONAL CALIFORNIA
MUNICIPAL MUNICIPAL
BOND BOND
--------- ----------
<S> <C> <C>
Airport Facilities......................................... 9.9% 6.6%
Certificates of Participation.............................. 0.4 6.2
Education.................................................. 6.0 2.0
General Obligations........................................ 1.9 2.2
Health & Medical Facilities................................ 8.1 7.2
Home Building and Land Development......................... 3.0 5.8
Industrial Development..................................... 3.1 1.2
Leases..................................................... 1.3 3.9
Leasing.................................................... -- 1.9
Municipal Bonds & Notes.................................... -- 1.2
Pollution Control Revenue & Industrial Development......... 4.6 8.1
Power Projects............................................. -- 2.0
Property Redevelopment..................................... 1.1 1.5
Public Facilities.......................................... -- 5.9
Revenue.................................................... 32.2 28.6
Sales Tax Revenue.......................................... 0.3 1.2
Sewer Projects............................................. 0.8 --
Tax Revenue Anticipation Notes............................. 4.5 3.0
Transportation............................................. 9.5 1.8
Utilities.................................................. 6.6 2.5
Water & Power Projects..................................... 6.7 7.2
----- -----
100.0% 100.0%
===== =====
</TABLE>
NOTE 8 --
The Board of Directors of the Pacific Horizon Funds, Inc. has approved
Agreements and Plans of Reorganization ("Agreements") between Pacific Horizon
Funds, Inc. and Nations Institutional Reserves and Nations Fund Trust. The
Agreements, which are part of a broader reorganization of Pacific Horizon Funds,
<PAGE> 124
48
Inc. into the Nations family of funds, provide for the transfer of all of the
assets of the Pacific Horizon National Municipal Bond Fund and Pacific Horizon
California Municipal Bond Fund ("Funds") to the Nations Municipal Income Fund
and the Nations California Municipal Bond Fund, respectively, in exchange solely
for the number of shares of the Nations Municipal Income Fund and the Nations
California Municipal Bond Fund, respectively, having the same aggregate net
asset value as the outstanding shares of Class A of the Pacific Horizon National
Municipal Bond Fund and Class A and Class B of the Pacific Horizon California
Municipal Bond Fund as of the close of business of the New York Stock Exchange
on the day that the Reorganization is effective. The Agreements also provide for
the assumption by the Nations Municipal Income Fund and Nations California
Municipal Bond Fund of all of the liabilities of each of these Funds. The
Reorganization can be consummated only if, among other things, it is approved by
the vote of a majority of the outstanding shares of each of the Funds of Pacific
Horizon Funds, Inc. at a Special Meeting of Shareholders ("Meeting") is
scheduled to be held on May 3, 1999. A detailed description of the proposed
transactions and voting information will be sent to shareholders of the Funds on
or about February 12, 1999. If the Agreements are approved at the Meeting, the
Reorganization of the Pacific Horizon National Municipal Bond Fund is expected
to become effective on or about May 14, 1999 and the Pacific Horizon California
Municipal Bond Fund is expected to become effective on or about May 21, 1999.
<PAGE> 125
49
PACIFIC HORIZON NATIONAL MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1999(B) 1998 1997(A) 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
A SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR............... $10.52 $10.18 $10.15 $ 9.64 $ 9.89
------ ------ ------ ------ -------
Income from Investment
Operations:
Net investment income........... 0.48 0.50 0.50 0.54 0.50
Net realized and unrealized
gains/(losses) on investment
transactions.................. 0.08 0.36 0.06 0.51 (0.25)
------ ------ ------ ------ -------
Total income from investment
operations...................... 0.56 0.86 0.56 1.05 0.25
------ ------ ------ ------ -------
Less Dividends and Distributions:
Dividends to shareholders from
net investment income......... (0.48) (0.50) (0.50) (0.54) (0.50)
Distributions to shareholders
from net realized gains on
investment transactions....... (0.01) (0.02) (0.03) -- --
------ ------ ------ ------ -------
Total Dividends and
Distributions................... (0.49) (0.52) (0.53) (0.54) (0.50)
------ ------ ------ ------ -------
Net change in net asset value per
share........................... 0.07 0.34 0.03 0.51 (0.25)
------ ------ ------ ------ -------
NET ASSET VALUE PER SHARE, END OF
YEAR............................ $10.59 $10.52 $10.18 $10.15 $ 9.64
====== ====== ====== ====== =======
Total return (excludes sales
charge)......................... 5.43% 8.65% 5.66% 11.16% 2.78%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions).................... $ 20 $ 14 $ 15 $ 12 $ 3
Ratio of expenses to average net
assets........................ 0.50% 0.50% 0.49% 0.12% 0.00%
Ratio of net investment income
to average net assets......... 4.60% 4.84% 4.96% 5.24% 5.30%
Ratio of expenses to average net
assets*....................... 1.36%** 1.60%** 2.22%** 2.71%** 17.46%
Ratio of net investment
income/(loss) to average net
assets*....................... 3.76% 3.74% 3.25% 2.65% (12.16)%
Portfolio turnover rate......... 61% 36% 12% 38% 20%
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the year, certain fees were voluntarily reduced
and/or reimbursed. If such voluntary fee reductions and/or
reimbursements had not occurred, the ratios would have been
as indicated.
** During the years ended February 28, 1999, 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) On October 1, 1998, BankAmerica Corp., the parent company of
the Fund's Adviser merged with NationsBank Corporation.
</TABLE>
See Notes to Financial Statements.
<PAGE> 126
50
PACIFIC HORIZON CALIFORNIA MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1999(D) 1998 1997(A) 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
A SHARES
NET ASSET VALUE PER SHARE, BEGINNING
OF YEAR.............................. $ 7.64 $ 7.35 $ 7.45 $ 7.12 $ 7.49
------ ------ ------ ------ ------
Income from Investment Operations:
Net investment income................ 0.34 0.35 0.36 0.37 0.38
Net realized and unrealized gains
(losses) on investment
transactions....................... 0.10 0.29 (0.05) 0.33 (0.37)
------ ------ ------ ------ ------
Total income from investment
operations........................... 0.44 0.64 0.31 0.70 0.01
------ ------ ------ ------ ------
Less Dividends and Distributions:
Dividends to shareholders from net
investment income.................. (0.34) (0.35) (0.36) (0.37) (0.38)
Distributions to shareholders from
net realized gains on investment
transactions....................... (0.14) -- (0.05) -- --
------ ------ ------ ------ ------
Total Dividends and Distributions..... (0.48) (0.35) (0.41) (0.37) (0.38)
------ ------ ------ ------ ------
Net change in net asset value per
share................................ (0.04) 0.29 (0.10) 0.33 (0.37)
------ ------ ------ ------ ------
NET ASSET VALUE PER SHARE, END OF
YEAR................................. $ 7.60 $ 7.64 $ 7.35 $ 7.45 $ 7.12
====== ====== ====== ====== ======
Total return (excludes sales
charge).............................. 5.94% 9.18% 4.29% 10.12% 0.36%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions)......................... $ 219 $ 214 $ 221 $ 221 $ 195
Ratio of expenses to average net
assets............................. 0.93% 0.90% 0.90% 0.94% 0.95%
Ratio of net investment income to
average net assets................. 4.42% 4.74% 4.88% 5.11% 5.43%
Ratio of expenses to average net
assets*............................ (b)(c) 1.06%** 1.10%** 1.14%** 1.15%
Ratio of net investment income to
average net assets*................ (c) 4.58% 4.68% 4.91% 5.23%
Portfolio turnover rate.............. 42% 28% 34% 57% 20%
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the year, certain fees were voluntarily reduced
and/or reimbursed. If such voluntary fee reductions and/or
reimbursements had not occurred, the ratios would have been
as indicated.
** During the years ended February 28, 1998 and 1997 and
February 29, 1996, the Portfolio received credits from its
custodian for interest earned on uninvested balances which
were used to offset custodian fees and expenses. If such
credits had not occurred, the expense ratios would have been
as indicated. The ratio of net investment income was not
affected.
(a) As of July 22, 1996, the Fund designated the existing series
of shares as "A" Shares.
(b) Fees paid by third parties had no effect on the ratios.
(c) There were no fee waivers or expense reimbursements during
the year.
(d) On October 1, 1998, BankAmerica Corp., the parent company of
the Fund's Adviser merged with NationsBank Corporation.
</TABLE>
See Notes to Financial Statements.
<PAGE> 127
51
PACIFIC HORIZON CALIFORNIA MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
FEBRUARY 28,
1999(a)(b)
------------
<S> <C>
B SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD.............. $ 7.61
------
Income from Investment Operations:
Net investment income...................................... 0.16
Net realized and unrealized gains on investment
transactions............................................. 0.14
------
Total income from investment operations..................... 0.30
------
Less Dividends and Distributions:
Dividends to shareholders from net investment income....... (0.16)
Distributions to shareholders from net realized gains on
investment
transactions............................................. (0.14)
------
Total Dividends and Distributions........................... (0.30)
------
Net change in net asset value per share..................... --
------
NET ASSET VALUE PER SHARE, END OF PERIOD.................... $ 7.61
======
Total return (excludes sales charge)........................ 4.09%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (millions)..................... $ 2
Ratio of expenses to average net assets.................... 1.70%(d)
Ratio of net investment income to average net assets....... 3.67%(d)
Ratio of expenses to average net assets*................... 1.71%**(c)(d)
Ratio of net investment income to average net assets*...... 3.67%(c)(d)
Portfolio turnover rate.................................... 42%
</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 February 28, 1999, 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 February 28,
1999.
(b) On October 1, 1998, BankAmerica Corp., the parent company of
the Fund's Adviser merged with NationsBank Corporation.
(c) There were no fee waivers or expense reimbursements during
the year.
(d) Annualized.
</TABLE>
See Notes to Financial Statements.
<PAGE> 128
52
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors
and Shareholders of
Pacific Horizon Funds, Inc.
In our opinion, the accompanying statements of assets and liabilities, including
the portfolios of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Pacific Horizon National Municipal
Bond Fund and Pacific Horizon California Municipal Bond Fund (formerly "Pacific
Horizon California Tax-Exempt Bond Fund") (two of the portfolios constituting
Pacific Horizon Funds, Inc., hereafter referred to as the "Funds") at February
28, 1999, the results of each of their operations for the year then ended, the
changes in each of their net assets for each of the two years in the period then
ended and the financial highlights for each of the periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Funds' management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at February 28, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
As explained in Note 8, the Board of Directors of the Pacific Horizon Funds,
Inc. has approved an agreement and plan of reorganization between Pacific
Horizon Funds, Inc. and Nations Institutional Reserves and Nations Fund Trust. A
Special Meeting of Shareholders of the Funds is scheduled to be held on May 3,
1999 to seek approval of the merger of Pacific Horizon National Municipal Bond
Fund and Pacific Horizon California Municipal Bond Fund and Nations Municipal
Income Fund and Nations California Municipal Bond Fund, respectively.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
April 22, 1999
<PAGE> 129
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
[ ] 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
Money Market Funds
[ ] Prime Fund [ ] Treasury Only Fund
[ ] Treasury Fund [ ] Tax-Exempt Money Fund
[ ] Government Fund [ ] California Tax-Exempt Money Market Fund
Additional Comments:
................................................................................
................................................................................
................................................................................
................................................................................
................................................................................
................................................................................
NOT FDIC INSURED - NO BANK GUARANTEE - MAY LOSE VALUE
<PAGE> 130
Bulk Rate
U.S. Postage
PAID
New York, NY
Permit No. 8048
[PACIFIC HORIZON FUNDS LOGO]
Provident Distributor, Inc., Distributor
PH7-4004 4/99
<PAGE> 131
PACIFIC HORIZON TAXABLE MONEY MARKET FUNDS
PACIFIC HORIZON TAXABLE MONEY MARKET FUNDS
ANNUAL REPORT
February 28, 1999
Prime Fund
Treasury Fund
Government Fund
Treasury Only Fund
Investing For All
The Times Of Your Life
NOT FDIC INSURED
<PAGE> 132
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> 133
Contents
<TABLE>
<S> <C>
FUND FACTS 2-3
UNDERSTANDING YOUR SHAREHOLDER
REPORT 4-6
ECONOMIC REVIEW FROM THE
INVESTMENT ADVISER 8-9
PORTFOLIO OF INVESTMENTS 10-26
STATEMENTS OF ASSETS
AND LIABILITIES 27
STATEMENTS OF OPERATIONS 28
STATEMENTS OF CHANGES
IN NET ASSETS 30-31
NOTES TO FINANCIAL
STATEMENTS 32-42
FINANCIAL HIGHLIGHTS 43-59
REPORT OF INDEPENDENT
ACCOUNTANTS 60
</TABLE>
<PAGE> 134
2
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+ Current Income, Stable Share Price and
- Prime Daily Liquidity
- Treasury
- Government
- Treasury Only
...........................................................................
Tax-Exempt Money Market Funds*+
- Tax-Exempt Money Federal Tax-Free Current Income, Stable
Share Price and Daily Liquidity
- California Tax-Exempt Money Federal and California Tax-Free Current
Market Income, Stable Share Price and Daily
Liquidity
</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.
<PAGE> 135
3
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>
- --------------------------------------------------------------------------------
<PAGE> 136
4
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.
[TABLE OF CONTENTS 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.
[FUND OVERVIEW GRAPHIC]
<PAGE> 137
5
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
[PORTFOLIO OF INVESTMENTS GRAPHICS]
The STATEMENT OF ASSETS AND LIABILITIES lists all the assets and liabilities of
the Fund as of the date of the statement. This is an individual fund's "balance
sheet." Also disclosed in this statement are the Fund's net asset value per
share and its maximum offering price per share as of the date of the statement.
The statement also lists the accounts that comprise the Fund's net assets
(capital stock, undistributed income, etc.).
SUMMARY OF THE FUND'S INVESTMENTS AND ALL
OTHER ASSETS OWNED BY THE FUND, INCLUDING
AMOUNTS OWED TO THE FUND BY OUTSIDE PARTIES
SUMMARY OF ALL AMOUNTS OWED TO OUTSIDE PARTIES
BY THE FUND
NET RESULTS OF ASSETS LESS LIABILITIES
THE MARKET VALUE OF THE FUND'S TOTAL NET
ASSETS DIVIDED BY THE NUMBER OF SHARES
OUTSTANDING
THE CURRENT NET ASSET VALUE PER SHARE PLUS SALES CHARGE, IF ANY
[STATEMENTS OF ASSETS AND LIABILITIES GRAPHIC]
<PAGE> 138
6
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
[STATEMENT OF OPERATIONS GRAPHIC]
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
[STATEMENTS OF CHANGES IN NET ASSETS GRAPHIC]
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.
<PAGE> 139
7
[This page intentionally left blank.]
<PAGE> 140
8
ECONOMIC REVIEW
FROM THE INVESTMENT ADVISER
The past 12 months will be remembered as one of the most volatile periods in
financial market history. The crisis in Asia, the Russian default and the
devaluation of the Brazilian Real caused dramatic swings in equity valuations,
interest rates, and spreads and commodity prices. The Federal Reserve, in order
to calm the markets and restore liquidity, lowered short term interest rates by
0.75%. The Dow Jones Industrial Average* after dropping to 7,539, rebounded to
close the period at 9,306. The yield on the benchmark 10-year U.S. Treasury Note
which was at 5.16% on 3/19/99, fluctuated over a 1.2% range with a high of 5.81%
on 4/29/98 and low of 4.16% on 10/5/98. Spreads on 10-year "A" rated finance
debt over 10-year U.S. Treasuries started the period at a spread of 0.75% and
widened to as much as 1.45% only to end the period at 1.05% over comparable
maturity U.S. Treasury notes. International turmoil and the Asian recession also
took its toll on commodities. Demand for oil all but evaporated and crude oil
prices declined from almost $18.00 a barrel to just under $11.50 a barrel only
to rebound to $15.00 on strong U.S. growth and expectations of and a quick
recovery in Asia.
Throughout this turmoil, the U.S. remained an "oasis of prosperity" with the
U.S. Gross Domestic Product growing at an estimated 4.3% for 1998. The U.S.
consumer, unfazed by the recent volatility, continued to spend, pushing the
economy through its ninth year of expansion.
Unemployment remained near historical lows and there was continued strength in
real disposable income that translated into a high level of consumer confidence.
At the same time, the industrial side of the economy, burdened by slower exports
as well as the effects of the strong dollar, remained sluggish.
Inflation, as measured by the Consumer Price Index (CPI), remained benign over
the past year, increasing only 1.6% in 1998. Huge declines in commodities and
weakness on the manufacturing side of the economy offset relatively full
employment and money supply growth.
Despite turmoil abroad, the U.S. equity markets, as tracked by the Standard &
Poor's 500 Composite Stock Price Index**, posted a solid return of 18.01%.
Unfortunately, the Russell 2000*** proved that not all stocks are created equal
with a negative return of (15.06%) over the same period. While an era of
consolidation and low inflation should bode well for large cap stocks, we doubt
that this can continue.
The fixed income markets also put in a strong performance for the past 12
months, with the benchmark Salomon Smith Barney Broad Investment-Grade (BIG)
Index# posting a positive return of 6.31%. The top performing sector for the
period was U.S. agency debt which outperformed comparable maturity U.S.
Treasuries by 0.44% followed by U.S. agency mortgage-backed securities which
outperformed by 0.28%. The worst performing sector was U.S. corporate bonds
which underperformed U.S. Treasuries by 0.60% with "AA", "A", and "BBB" rated
corporate debt underperforming by 0.03%, 0.27%, and 1.61% respectively.
OUTLOOK FOR 1999
While the consensus of Wall Street economists is for a growth rate of 3.5% in
1999, we believe the risk is faster than anticipated growth because of the
momentum of the U.S. economy. The wildcard over the next year is the timing of
Asia's economic turnaround.
Asia remains a big question mark, with many economists calling for a "v" shaped
recovery. Although we believe the Asian economies have bottomed, we suspect that
the recovery in the region will be slower than anticipated. While Korea has
<PAGE> 141
9
recently shown strength in industrial production and exports, Japan, which
constitutes two-thirds of the region's GDP, continues to show signs of weakness.
If Japan chooses to monetize their debt by printing currency, they may cause
another round of devaluations in the region. China has stated their intentions
to maintain the value of the Yuan, but if they fail to meet their growth targets
and the Yen declines substantially in value, all bets are off.
Sincerely,
/s/ Kirk Hartman
Kirk Hartman
Chief Investment Officer of
Fixed Income Management
- ---------------
* The Dow Jones Industrial Average is a price-weighted index of 30 of the
largest, most widely held stocks traded on the New York Stock Exchange. It
is unmanaged and unavailable for investment.
** The Standard & Poor's 500 Composite Stock Price Index is an unmanaged
market-capitalization-weighted index consisting of 500 common stocks that
measures the market value of 400 industrial stocks, 60 transportation and
utility company stocks and 40 financial issues. It is unavailable for
investment.
*** The Russell 2000 Growth Index is a widely used unmanaged index which
measures the performance of small-cap stocks and cannot be invested in
directly.
# The BIG Index is market-capitalization weighted and includes fixed-rate
Treasury, Government-sponsored, mortgage and investment-grade corporates
with a maturity of one year or longer. The minimum amount outstanding for US
Treasury and mortgage issues is $1 billion for both entry and exit. For
Government sponsored and corporate issues the entry and exit amounts are
$100 million.
<PAGE> 142
10
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1999
- --------------------------------------------------------------------------------
<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 -- 2.9%
DOMESTIC -- 2.9%
First Union National Bank of North
Carolina, Quarterly Variable Rate
(final maturity 11/23/99)*............. A1/P1 5.03% 05/19/99 $ 50,000,000 $ 50,000,000
Key Bank N.A., Daily Variable Rate
(final maturity 9/16/99)*.............. A1/P1 4.98% 03/01/99 100,000,000 99,978,939
Key Bank N.A., Quarterly Variable Rate
(final maturity 10/29/99)*............. A1/P1 4.99% 04/29/99 50,000,000 50,000,000
Morgan Guaranty Trust Company, New
York, Monthly Variable Rate (final
maturity 9/27/99)*..................... A1+/P1 4.889% 03/29/99 100,000,000 99,972,078
Morgan Guaranty Trust Company, New
York, Monthly Variable Rate (final
maturity 10/15/99)*.................... A1+/P1 4.936% 03/15/99 50,000,000 49,990,758
PNC Bank N.A., Monthly Variable Rate
(final maturity 10/13/99)*............. A1/P1 4.936% 03/15/99 50,000,000 49,993,972
U.S. Bank N.A., Monthly Variable Rate
(final maturity 9/15/99)*.............. A1/P1 4.888% 03/17/99 50,000,000 49,997,327
---------------
Total Bank Notes (Amortized Cost
$449,933,074).......................... 449,933,074
---------------
CERTIFICATES OF DEPOSIT -- 13.3%
EURO -- 0.9%
Abbey National PLC..................... A1+/P1 4.95% 04/06/99 50,000,000 50,000,427
Bank of Scotland....................... A1/P1 4.90% 05/11/99 47,000,000 47,000,855
Westdeutsche Landesbank Girozentrale,
London................................. A1+/P1 4.94% 04/08/99 50,000,000 50,000,000
---------------
147,001,282
---------------
YANKEE -- 12.4%
Australia New Zealand Banking Group
Ltd. .................................. A1+/P1 5.04% 01/14/00 50,000,000 50,000,000
Bank Austria A.G. ..................... A1+/P1 5.075% 12/31/99 100,000,000 99,979,861
Bank of Nova Scotia, New York.......... A1+/P1 5.16% 02/25/00 50,000,000 49,980,949
Banque Paribas, New York............... A1/P1 5.66% 03/01/99 90,000,000 90,000,000
Banque Paribas, New York............... A1/P1 5.73% 03/29/99 50,000,000 49,998,164
Bayerische Hypo-Und Vereinsbank A.G.,
New York............................... A1+/P1 5.01% 02/07/00 25,000,000 24,989,806
Bayerische Hypo-Und Vereinsbank A.G.,
New York............................... A1+/P1 5.075% 02/09/00 50,000,000 49,984,055
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 143
11
<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)
Bayerische Hypo-Und Vereinsbank A.G.,
New York............................... A1+/P1 5.075% 02/10/00 $ 50,000,000 $ 49,981,728
Bayerische Hypo-Und Vereinsbank A.G.,
New York............................... A1+/P1 5.13% 02/23/00... 50,000,000 49,983,426
Bayerische Landesbank Girozentrale, New
York................................... A1+/P1 5.635% 03/15/99 75,000,000 74,997,390
Bayerische Landesbank Girozentrale, New
York................................... A1+/P1 4.98% 11/17/99 50,000,000 49,982,754
Bayerische Landesbank Girozentrale, New
York................................... A1+/P1 4.93% 11/18/99 100,000,000 99,965,360
Commerzbank A.G., New York............. A1+/P1 5.14% 09/15/99 27,000,000 27,052,480
Commerzbank A.G., New York............. A1+/P1 5.19% 09/21/99 200,000,000 200,371,332
Commerzbank A.G., New York............. A1+/P1 5.08% 09/28/99 22,000,000 22,039,201
Commerzbank A.G., New York............. A1+/P1 5.065% 02/08/00 50,000,000 49,988,642
Commerzbank A.G., New York............. A1+/P1 5.085% 02/17/00 50,000,000 49,983,689
Commerzbank A.G., New York............. A1+/P1 5.31% 03/01/00 25,000,000 24,992,768
Credit Suisse First Boston, Weekly
Variable Rate (final maturity
8/11/99)*.............................. A1+/P1 5.246% 03/02/99 100,000,000 100,000,000
Deutsche Bank A.G., New York........... A1+/P1 4.89% 05/11/99 150,000,000 150,000,000
Deutsche Bank A.G., New York........... A1+/P1 4.90% 05/11/99 88,000,000 88,001,715
Deutsche Bank A.G., New York........... A1+/P1 4.98% 01/07/00 43,000,000 42,974,180
Dresdner Bank A.G., New York........... A1+/P1 5.73% 04/19/99 80,000,000 80,051,718
Istituto Bancario San Paolo Di Torino,
New York, Daily Variable Rate (final
maturity 3/19/99)*..................... A1/P1 5.00% 03/01/99 50,000,000 49,999,038
Rabobank Nederland, New York........... A1+/P1 5.00% 01/04/00 50,000,000 49,987,750
Societe Generale Bank, New York,
Monthly Variable Rate (final maturity
5/7/99)*............................... A1+/P1 4.85% 03/08/99 25,000,000 24,997,050
Societe Generale Bank, New York,
Monthly Variable Rate (final maturity
6/1/99)*............................... A1+/P1 4.849% 03/01/99 50,000,000 49,990,219
Societe Generale Bank,
New York............................... A1+/P1 5.69% 03/02/99 50,000,000 49,999,934
Svenska Handelsbanken,
New York............................... A1/P1 5.61% 08/17/99 50,000,000 50,184,173
UBS AG, Stamford, CT................... A1+/P1 5.075% 01/13/00 50,000,000 49,989,501
UBS AG, Stamford, CT................... A1+/P1 5.05% 02/09/00 50,000,000 49,986,331
---------------
1,950,433,214
---------------
Total Certificates of Deposit (Amortized
Cost $2,097,434,496)................... 2,097,434,496
---------------
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 144
12
<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 -- 36.8%
DOMESTIC -- 34.6%
ASSET BACKED SECURITIES -- 18.3%
Asset Securitization Cooperative
Corp.++................................ A1+/P1 5.08% 03/19/99 $ 50,000,000 $ 49,873,000
Asset Securitization Cooperative
Corp.++................................ A1+/P1 5.03% 04/15/99 50,000,000 49,685,625
Beta Finance, Inc.++................... A1+/P1 4.97% 04/06/99 50,000,000 49,751,500
CC USA, Inc.++......................... A1+/P1 4.85% 05/18/99 50,000,000 49,474,583
Citibank Capital Markets Assets,
LLC++.................................. A1+/P1 5.11% 03/10/99 50,000,000 49,936,125
Citibank Capital Markets Assets,
LLC++.................................. A1+/P1 4.84% 05/19/99 65,000,000 64,309,628
Citibank Capital Markets Assets,
LLC++.................................. A1+/P1 4.81% 06/11/99 25,000,000 24,659,292
Falcon Asset Securitization Corp++..... A1/P1 4.86% 03/11/99 38,735,000 38,682,708
Falcon Asset Securitization Corp++..... A1/P1 4.87% 03/15/99 75,000,000 74,857,958
Greyhawk Funding, LLC++................ A1+/P1 4.90% 03/01/99 62,000,000 62,000,000
Greyhawk Funding, LLC++................ A1+/P1 4.84% 04/09/99 74,000,000 73,611,993
Greyhawk Funding, LLC++................ A1+/P1 4.90% 04/12/99 50,000,000 49,714,167
Greyhawk Funding, LLC++................ A1+/P1 4.84% 04/14/99 50,000,000 49,704,222
Greyhawk Funding, LLC++................ A1+/P1 4.85% 04/19/99 32,000,000 31,788,756
Greyhawk Funding, LLC++................ A1+/P1 4.83% 04/23/99 50,000,000 49,644,458
Greyhawk Funding, LLC++................ A1+/P1 4.83% 05/07/99 50,000,000 49,550,542
Greyhawk Funding, LLC++................ A1+/P1 4.83% 05/14/99 60,000,000 59,404,300
International Securitization Corp.++... A1/P1 5.25% 03/03/99 50,935,000 50,920,144
International Securitization Corp.++... A1/P1 4.94% 04/08/99 28,180,000 28,033,057
International Securitization Corp.++... A1/P1 4.88% 04/09/99 44,450,000 44,215,008
International Securitization Corp.++... A1/P1 4.83% 04/15/99 37,030,000 36,806,431
International Securitization Corp.++... A1/P1 4.83% 04/20/99 74,485,000 73,985,330
International Securitization Corp.++... A1/P1 4.84% 05/10/99 50,000,000 49,529,444
International Securitization Corp.++... A1/P1 4.94% 06/23/99 29,805,000 29,338,750
K2 (USA), LLC++........................ A1+/P1 4.85% 04/15/99 23,000,000 22,860,562
K2 (USA), LLC++........................ A1+/P1 4.85% 05/17/99 20,000,000 19,792,528
K2 (USA), LLC++........................ A1+/P1 4.88% 06/15/99 40,500,000 39,918,060
Moat Funding LLC++..................... P1/F1+ 4.94% 04/13/99 76,261,000 75,811,018
Moat Funding LLC++..................... P1/F1+ 5.20% 04/16/99 50,000,000 49,667,778
Moat Funding LLC++..................... P1/F1+ 4.85% 04/21/99 200,000,000 198,625,833
Moat Funding LLC++..................... P1/F1+ 4.82% 05/28/99 50,000,000 49,410,889
Moat Funding LLC++..................... P1/F1+ 4.85% 06/03/99 26,328,000 25,994,585
Moat Funding LLC++..................... P1/F1+ 5.00% 06/11/99 50,000,000 49,291,667
Moat Funding LLC++..................... P1/F1+ 4.85% 06/30/99 50,000,000 49,184,930
Republic Industries Funding Corp....... A1/P1 4.91% 04/14/99 100,000,000 99,399,889
Republic Industries Funding Corp....... A1/P1 4.89% 04/23/99 100,000,000 99,280,083
Riverwoods Funding Corporation......... A1+/P1 4.84% 04/01/99 90,000,000 89,624,900
Riverwoods Funding Corporation......... A1+/P1 4.84% 04/07/99 100,000,000 99,502,556
Riverwoods Funding Corporation......... A1+/P1 4.88% 04/16/99 100,000,000 99,376,444
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 145
13
<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)
Riverwoods Funding Corporation......... A1+/P1 4.84% 05/10/99 $ 47,403,000 $ 46,956,885
Riverwoods Funding Corporation......... A1+/P1 4.84% 05/14/99 25,000,000 24,751,278
Thames Asset Global Securitization No.
1, Inc.++.............................. A1/P1 4.87% 03/15/99 19,619,000 19,581,844
Thames Asset Global Securitization No.
1, Inc.++.............................. A1/P1 5.09% 03/19/99 209,139,000 208,611,321
Thames Asset Global Securitization No.
1, Inc.++.............................. A1/P1 4.88% 04/15/99 50,000,000 49,695,000
Thames Asset Global Securitization No.
1, Inc.++.............................. A1/P1 4.88% 04/29/99 50,000,000 49,600,111
Thames Asset Global Securitization No.
1, Inc.++.............................. A1/P1 4.86% 05/20/99 50,853,000 50,303,771
World Omni Vehicle Leasing Inc.++...... A1/P1 4.85% 04/07/99 75,000,000 74,626,146
World Omni Vehicle Leasing Inc.++...... A1/P1 4.84% 04/09/99 42,244,000 42,022,005
World Omni Vehicle Leasing Inc.++...... A1/P1 4.85% 04/09/99 50,000,000 49,737,246
---------------
2,873,104,350
---------------
AUTOMOBILES -- 0.3%
Hertz Corporation...................... P1/F1 5.10% 04/09/99 50,000,000 49,723,750
---------------
BANKING & FINANCE -- 9.1%
Bankers Trust New York Corp. .......... P1/F1 4.92% 05/18/99 50,000,000 49,467,000
Banc One Corporation................... A1+/P1 4.82% 04/30/99 25,000,000 24,799,167
BHF Finance (Delaware), Inc. .......... P1/F1 4.88% 04/28/99 100,000,000 99,213,778
BHF Finance (Delaware), Inc. .......... P1/F1 4.89% 05/24/99 100,000,000 98,859,000
General Electric Capital Corp. ........ A1+/P1 4.90% 03/01/99 300,000,000 300,000,000
General Electric Capital Corp. ........ A1+/P1 4.78% 07/14/99 50,000,000 49,103,750
General Electric Capital Corp. ........ A1+/P1 4.77% 08/03/99 50,000,000 48,973,125
Generale Bank, Inc. ................... A1/P1 4.88% 04/07/99 50,000,000 49,749,222
Generale Bank, Inc. ................... A1/P1 4.88% 04/09/99 50,000,000 49,735,667
Generale Bank, Inc. ................... A1/P1 4.84% 05/04/99 40,000,000 39,655,822
J.P. Morgan & Company, Inc. ........... A1+/P1 4.82% 04/13/99 45,000,000 44,740,925
National Australia Funding (Delaware),
Inc. .................................. A1+/P1 4.82% 03/01/99 300,000,000 300,000,000
Sigma Finance Inc.++................... A1+/P1 4.85% 05/19/99 50,000,000 49,467,847
Sigma Finance Inc.++................... A1+/P1 4.90% 06/15/99 50,000,000 49,278,611
UBS Finance (Delaware), Inc. .......... A1+/P1 4.82% 06/07/99 99,000,000 97,701,010
UBS Finance (Delaware), Inc. .......... A1+/P1 4.82% 06/09/99 27,365,000 26,998,613
UBS Finance (Delaware), Inc. .......... A1+/P1 4.80% 07/08/99 50,000,000 49,140,000
---------------
1,426,883,537
---------------
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 146
14
<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 -- 1.3%
BT Alex Brown, Inc. ................... P1/F1 4.89% 05/05/99 $ 50,000,000 $ 49,558,542
BT Alex Brown, Inc. ................... P1/F1 4.89% 05/12/99 50,000,000 49,511,000
Lehman Brothers Holdings, Inc., Weekly
Variable Rate (final maturity
5/7/99)*............................... A1/F1 5.296% 03/02/99 100,000,000 100,000,000
---------------
199,069,542
---------------
CHEMICALS -- 0.3%
Akzo Nobel Inc. ....................... A1/P1 5.08% 03/23/99 50,000,000 49,844,778
---------------
CONGLOMERATES -- 2.3%
B.A.T. Capital Corporation............. P1/F1 4.975% 04/07/99 200,000,000 198,977,361
B.A.T. Capital Corporation............. P1/F1 4.97% 04/16/99 75,000,000 74,523,708
B.A.T. Capital Corporation............. P1/F1 4.965% 04/30/99 90,000,000 89,255,333
---------------
362,756,402
---------------
ELECTRONICS -- 0.1%
Hitachi America, Ltd. ................. A1+/P1 5.315% 05/06/99 23,985,000 23,751,286
---------------
INSURANCE -- 2.3%
Aetna Services, Inc.................... A1/D1 4.95% 04/27/99 100,000,000 99,216,250
Aetna Services, Inc.................... A1/D1 4.98% 04/28/99 40,000,000 39,679,067
Marsh Mclennan Companies, Inc.++....... A1+/P1 5.15% 03/15/99 17,379,000 17,344,194
Marsh Mclennan Companies, Inc.++....... A1+/P1 5.20% 03/25/99 50,000,000 49,826,667
Marsh Mclennan Companies, Inc.++....... A1+/P1 5.15% 03/26/99 33,800,000 33,679,118
Safeco Credit Company++................ A1/D1 5.11% 04/09/99 75,000,000 74,584,000
Safeco Credit Company++................ A1/D1 5.12% 04/14/99 55,000,000 54,655,822
---------------
368,985,118
---------------
MINING -- 0.2%
Rio Tinto America Inc.++............... A1+/P1 4.90% 05/20/99 24,200,000 23,936,489
---------------
SOVEREIGN -- 0.4%
Government Development Bank For Puerto
Rico................................... A1+/TBW1 5.16% 03/04/99 45,120,000 45,100,598
Government Development Bank For Puerto
Rico................................... A1+/TBW1 5.12% 03/25/99 25,000,000 24,914,667
---------------
70,015,265
---------------
FOREIGN -- 2.2%
AUTOMOBILES -- 0.3%
FCE Bank (formerly Ford Credit
Europe)................................ A1/P1 5.07% 03/12/99 50,000,000 49,922,542
---------------
NATURAL GAS -- 1.6%
British Gas Capital Inc. .............. A1/P1 5.01% 04/15/99 100,000,000 99,373,750
British Gas Capital Inc. .............. A1/P1 5.00% 04/16/99 150,000,000 149,041,667
---------------
248,415,417
---------------
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 147
15
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
COMMERCIAL PAPER -- (CONTINUED)
FOREIGN -- (CONTINUED)
TRANSPORTATION -- 0.3%
BAA PLC++.............................. A1+/P1 5.12% 03/19/99 $ 41,627,000 $ 41,520,435
---------------
Total Commercial Paper (Amortized Cost
$5,787,928,911)........................ 5,787,928,911
---------------
CORPORATE OBLIGATIONS -- 22.7%
ASSET BACKED SECURITIES -- 2.9%
Beta Finance Inc., Daily Variable Rate
(final maturity 10/27/99)* 144A........ A1+/P1 5.16% 03/01/99 50,000,000 50,000,000
Beta Finance Inc., Monthly Variable
Rate (final maturity 10/26/99)* 144A... A1+/P1 5.009% 03/30/99 50,000,000 50,000,000
Beta Finance Inc. 144A................. A1+/P1 5.05% 02/08/00 22,000,000 22,000,000
CC USA, Inc., Quarterly Variable Rate
(final maturity 11/2/99)* 144A......... A1+/P1 4.96% 05/03/99 50,000,000 49,971,862
CC USA, Inc. 144A...................... A1+/P1 5.715% 03/10/99 20,000,000 20,000,663
CC USA, Inc. 144A...................... A1+/P1 5.80% 04/09/99 50,000,000 50,000,000
CC USA, Inc. 144A...................... A1+/P1 5.14% 01/19/00 25,000,000 25,000,000
CC USA, Inc. 144A...................... A1+/P1 5.05% 02/08/00 50,000,000 50,000,000
CC USA, Inc. 144A...................... A1+/P1 5.083% 02/16/00 50,000,000 49,996,514
CC USA, Inc. 144A...................... A1+/P1 5.135% 02/16/00 50,000,000 49,998,794
Racers Series 1998, Monthly Variable
Rate (final maturity 3/31/99)* 144A.... A1+/P1 4.939% 03/31/99 43,280,000 43,279,672
---------------
460,247,505
---------------
AUTOMOBILES -- 3.2%
American Honda Finance Corp., Quarterly
Variable Rate (final maturity 4/20/99)*
144A................................... A1/P1 4.952% 04/20/99 65,000,000 65,000,000
American Honda Finance Corp., Quarterly
Variable Rate (final maturity 4/26/99)*
144A................................... A1/P1 4.938% 04/26/99 25,000,000 24,999,618
American Honda Finance Corp., Quarterly
Variable Rate (final maturity 6/16/99)*
144A................................... A1/P1 5.20% 03/16/99 50,000,000 50,000,000
American Honda Finance Corp., Quarterly
Variable Rate (final maturity 6/25/99)*
144A................................... A1/P1 5.23% 03/25/99 25,000,000 25,000,000
American Honda Finance Corp., Quarterly
Variable Rate (final maturity
11/15/99)* 144A........................ A1/P1 5.07% 05/17/99 50,000,000 50,000,000
American Honda Finance Corp., Quarterly
Variable Rate (final maturity 1/20/00)*
144A................................... A1/P1 4.972% 04/20/99 50,000,000 49,977,740
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 148
16
<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)
Chrysler Financial Corp., Monthly
Variable Rate (final maturity
6/23/99)*.............................. A1/P1 4.938% 03/17/99 $ 50,000,000 $ 49,999,853
General Motors Acceptance Corp.,
Quarterly Variable Rate (final maturity
10/8/99)*.............................. A1/P1 4.96% 04/08/99 35,000,000 34,973,208
General Motors Acceptance Corp.,
Quarterly Variable Rate (final maturity
1/20/00)*.............................. A1/P1 4.912% 04/20/99 25,000,000 24,988,136
General Motors Acceptance Corp. ....... A1/P1 6.15% 09/20/99 20,300,000 20,413,629
Toyota Motor Credit Corp., Daily
Variable Rate (final maturity
10/18/99)*............................. A1+/P1 5.11% 03/01/99 100,000,000 100,000,000
---------------
495,352,184
---------------
BANKING & FINANCE -- 10.3%
Bankers Trust New York Corp., Daily
Variable Rate (final maturity 8/6/99)*
144A................................... P1/F1 5.04% 03/01/99 100,000,000 99,995,671
Bankers Trust New York Corp., Daily
Variable Rate (final maturity 8/9/99)*
144A................................... P1/F1 5.05% 03/01/99 100,000,000 99,976,021
Beneficial Corp. ...................... A1/P1 8.17% 11/09/99 15,000,000 15,315,356
CIT Group, Inc., Daily Variable Rate
(final maturity 10/20/99)*............. A1/P1 4.95% 03/01/99 100,000,000 100,000,000
CIT Group, Inc., Daily Variable Rate
(final maturity 11/2/99)*.............. A1/P1 4.93% 03/01/99 33,000,000 32,988,893
CIT Group Inc. ........................ A1/P1 6.625% 09/13/99 20,000,000 20,191,496
CIT Group Inc. ........................ A1/P1 5.875% 12/09/99 22,500,000 22,626,839
Countrywide Home Loans Inc., Series G
Daily Variable Rate (final maturity
7/26/99)*.............................. A1/F1 4.94% 03/01/99 100,000,000 100,000,000
Countrywide Home Loans Inc., Daily
Variable Rate (final maturity
7/26/99)*.............................. A1/F1 5.07% 03/01/99 50,000,000 50,000,000
Countrywide Home Loans Inc., Series G
Quarterly Variable Rate (final maturity
8/30/99)*.............................. A1/F1 5.004% 05/28/99 100,000,000 100,000,000
Countrywide Home Loans, Inc............ A1/F1 5.25% 01/13/00 50,000,000 50,000,000
Credit Suisse First Boston Inc., Daily
Variable Rate (final maturity 9/13/99)*
144A................................... A1+/P1 4.85% 03/01/99 150,000,000 149,960,747
Credit Suisse First Boston, Inc.,
Weekly Variable Rate (final maturity
7/30/99)* 144A......................... A1+/P1 5.226% 03/02/99 100,000,000 100,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 149
17
<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 4.839% 03/29/99 $ 25,000,000 $ 24,998,678
Household Finance Corp., Monthly
Variable Rate (final maturity
10/14/99)*............................. A1/P1 5.036% 03/05/99 75,000,000 75,000,000
Household Finance Corp., Quarterly
Variable Rate (final maturity
3/9/99)*............................... A1/P1 5.189% 03/09/99 50,000,000 50,000,000
Household Finance Corp., Quarterly
Variable Rate (final maturity
4/8/99)*............................... A1/P1 5.21% 04/08/99 20,000,000 20,003,521
J.P. Morgan & Company, Inc., Weekly
Variable Rate (final maturity
10/4/99)*.............................. A1+/P1 5.446% 03/02/99 100,000,000 100,000,000
J.P. Morgan & Company, Inc., Quarterly
Variable Rate (final maturity
2/29/00)*.............................. A1+/P1 4.95% 05/02/99 50,000,000 50,000,000
Sigma Finance Inc., Daily Variable Rate
(final maturity 9/15/99)* 144A......... A1+/P1 4.91% 03/01/99 50,000,000 50,000,000
Sigma Finance Inc., Weekly Variable
Rate (final maturity 7/19/99)* 144A.... A1+/P1 5.226% 03/02/99 50,000,000 50,000,000
Sigma Finance Inc., Weekly Variable
Rate (final maturity 8/26/99)* 144A.... A1+/P1 5.346% 03/02/99 50,000,000 50,000,000
Sigma Finance Inc. 144A................ A1+/P1 5.76% 03/31/99 25,000,000 25,000,000
Sigma Finance Inc. 144A................ A1+/P1 5.775% 03/31/99 25,000,000 25,000,000
Sigma Finance Inc. 144A................ A1+/P1 5.20% 02/22/00 50,000,000 50,000,000
Transamerica Finance Corp., Quarterly
Variable Rate (final maturity
2/11/00)*.............................. A1/P1 5.05% 05/11/99 105,000,000 105,000,000
---------------
1,616,057,222
---------------
BUSINESS SERVICES -- 0.3%
Xerox Credit Corp...................... A1/P1 5.113% 03/20/00 50,000,000 49,981,218
---------------
BROKERAGE SERVICES -- 4.7%
Bear Stearns Companies, Inc., Monthly
Variable Rate (final maturity
3/17/99)*.............................. A1/P1 4.908% 03/17/99 100,000,000 100,000,000
Goldman Sachs Group LP., Quarterly
Variable Rate (final maturity 1/7/00)*
144A................................... A1+/P1 5.26% 04/07/99 100,000,000 100,000,000
Goldman Sachs Group LP., Quarterly
Variable Rate (final maturity 2/1/00)*
144A................................... A1+/P1 5.16% 05/01/99 50,000,000 50,000,000
Goldman Sachs Group LP. 144A........... A1+/P1 5.25% 03/26/99 100,000,000 99,996,307
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 150
18
<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
9/23/99)*.............................. A1+/P1 5.04% 03/01/99 $100,000,000 $ 100,000,000
Merrill Lynch & Co., Inc., Daily
Variable Rate (final maturity
10/1/99)*.............................. A1+/P1 4.90% 03/01/99 100,000,000 100,000,000
Merrill Lynch & Co., Inc., Weekly
Variable Rate (final maturity
10/4/99)*.............................. A1+/P1 5.446% 03/02/99 100,000,000 100,000,000
Merrill Lynch & Co., Inc. ............. A1+/P1 5.085% 11/26/99 50,000,000 50,000,000
Salomon Smith Barney Holdings Inc. .... A1/P1 6.25% 10/01/99 43,200,000 43,475,005
---------------
743,471,312
---------------
LEASING -- 0.1%
International Lease Finance Corp. ..... A1+/P1 4.85% 11/08/99 17,500,000 17,482,696
---------------
RELOCATION SERVICES -- 1.2%
PHH Corporation, Daily Variable Rate
(final maturity 3/16/99)*.............. F1/D1 5.075% 03/01/99 90,000,000 90,000,000
PHH Corporation, Quarterly Variable
Rate (final maturity 8/24/99)*......... F1/D1 5.275% 05/24/99 100,000,000 100,000,000
---------------
190,000,000
---------------
Total Corporate Obligations (Amortized
Cost $3,572,592,137)................... 3,572,592,137
---------------
MASTER NOTES -- 5.7%
Goldman Sachs Group L.P. (final
maturity 7/9/99)*...................... A1+/P1 5.00% 03/01/99 300,000,000 300,000,000
Morgan Stanley Dean Witter & Co. (final
maturity 9/14/99)*..................... A1+/P1 5.00% 03/01/99 600,000,000 600,000,000
---------------
Total Master Notes (Amortized Cost
$900,000,000).......................... 900,000,000
---------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 0.5%
Federal Home Loan Bank................. 4.82% 02/10/00 45,000,000 44,943,455
Federal Home Loan Bank................. 4.95% 02/17/00 25,000,000 24,988,394
Federal Home Loan Bank................. 4.995% 02/24/00 15,000,000 14,992,307
---------------
Total U.S. Government Agency Obligations
(Amortized Cost $84,924,156)........... 84,924,156
---------------
U.S. TREASURY OBLIGATIONS -- 0.2%
U.S. Treasury Bill (Amortized Cost
$23,958,281)........................... 4.632%+ 02/03/00 25,000,000 23,958,281
---------------
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 151
19
<TABLE>
<CAPTION>
AMORTIZED
MATURITY PRINCIPAL COST
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
REPURCHASE AGREEMENTS -- 17.8%
HSBC Securities, Inc., dated 2/26/99,
with a maturity value of $420,169,750
(Collateralized by $428,384,000,
various U.S. Government Obligations,
0.00%-9.375%, 3/01/99-1/15/21, market
value -- $428,400,584)................. 4.85% 03/01/99 $420,000,000 $ 420,000,000
Lehman Brothers, Inc., dated 2/26/99,
with a maturity value of $510,203,150
(Collateralized by $1,482,611,119
various U.S. Government Obligations,
5.00%-16.00%, 5/01/00-1/01/29, market
value -- $520,198,049)................. 4.78% 03/01/99 510,000,000 510,000,000
Morgan Stanley Dean Witter & Co., dated
2/26/99, with a maturity value of
$475,191,710 (Collateralized by
$600,157,075, various U.S. Government
Obligations, 5.50%-7.50%,
12/01/99-2/01/29, market
value -- $484,736,439)................. 4.90% 03/01/99 475,000,000 475,000,000
Prudential Securities, Inc., dated
2/26/99, with a maturity value of
$775,313,229 (Collateralized by
$929,758,392, various U.S. Government
Obligations, 0.00%-11.50%,
12/01/00-2/01/29, market
value -- $790,501,046)................. 4.85% 03/01/99 775,000,000 775,000,000
Salomon Brothers, Inc., dated 2/26/99,
with a maturity value of $600,242,500
(Collateralized by $699,576,853,
GinnieMae, 5.50%-12.00%,
6/15/00-2/15/29, market
value -- $612,000,000)................. 4.85% 03/01/99 600,000,000 600,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 152
20
<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, dated 2/26/99,
with a maturity value of $20,586,317
(Collateralized by $20,127,000, U.S.
Treasury Note, 6.50%, 5/31/01, market
value -- $20,990,474).................. 4.85% 03/01/99 $ 20,578,000 $ 20,578,000
---------------
Total Repurchase Agreements (Amortized
Cost $2,800,578,000)................... 2,800,578,000
---------------
TOTAL INVESTMENTS -- 99.9%
(AMORTIZED COST $15,717,349,055)(a).... 15,717,349,055
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 0.1%.................... 17,767,292
---------------
NET ASSETS -- 100.0%.................... $15,735,116,347
===============
</TABLE>
- ---------------
Percentages indicated are based on net assets of $15,735,116,347.
(a) Cost for Federal income tax and financial reporting purposes are
substantially the same.
PLC -- Public Limited 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.
+ Rate represents effective yield at date of purchase.
++ Security is restricted as to resale and may not be resold except to qualified
institutional buyers. At the end of the year, these securities amounted to
17.2% of investments.
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 year, these securities amounted
to 10.7% of net assets.
See Notes to Financial Statements.
<PAGE> 153
21
PACIFIC HORIZON TREASURY FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATURITY PRINCIPAL AMORTIZED COST
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
----------- ---- -------- --------- --------------
<S> <C> <C> <C> <C>
U.S. TREASURY OBLIGATIONS -- 33.3%
U.S. TREASURY BILL -- 7.3%
U.S. Treasury Bill.............................. 4.764%+ 04/22/99 $275,000,000 $ 273,120,417
--------------
U.S. TREASURY NOTES -- 26.0%
U.S. Treasury Note.............................. 6.375% 04/30/99 25,000,000 25,033,005
U.S. Treasury Note.............................. 6.50% 04/30/99 25,000,000 25,037,560
U.S. Treasury Note.............................. 6.375% 05/15/99 50,000,000 50,191,789
U.S. Treasury Note.............................. 6.25% 05/31/99 75,000,000 75,309,283
U.S. Treasury Note.............................. 6.75% 05/31/99 100,000,000 100,525,564
U.S. Treasury Note.............................. 5.875% 07/31/99 50,000,000 50,225,805
U.S. Treasury Note.............................. 5.875% 08/31/99 100,000,000 100,550,667
U.S. Treasury Note.............................. 6.875% 08/31/99 100,000,000 101,032,443
U.S. Treasury Note.............................. 7.125% 09/30/99 50,000,000 50,684,023
U.S. Treasury Note.............................. 7.50% 10/31/99 25,000,000 25,446,111
U.S. Treasury Note.............................. 5.875% 11/15/99 73,000,000 73,571,875
U.S. Treasury Note.............................. 5.625% 11/30/99 50,000,000 50,310,804
U.S. Treasury Note.............................. 7.75% 11/30/99 25,000,000 25,540,890
U.S. Treasury Note.............................. 7.75% 12/31/99 75,000,000 76,828,650
U.S. Treasury Note.............................. 6.375% 01/15/00 25,000,000 25,339,753
U.S. Treasury Note.............................. 5.375% 01/31/00 107,000,000 107,589,299
--------------
963,217,521
--------------
Total U.S. Treasury Obligations (Amortized Cost
$1,236,337,938)................................. 1,236,337,938
--------------
REPURCHASE AGREEMENTS -- 66.2%
Barclays Capital, Inc., dated 2/26/99, with a
maturity value of $100,039,000,
(Collateralized by $97,882,000, U.S. Treasury
Note, 7.125%, 9/30/99, market value --
$102,000,143)................................. 4.68% 03/01/99 100,000,000 100,000,000
Barclays Capital, Inc., dated 2/26/99, with a
maturity value of $400,158,333,
(Collateralized by $413,615,000, U.S. Treasury
Notes, 0.00%-6.875%, 5/15/99-2/15/06, market
value -- $408,000,511)........................ 4.75% 03/01/99 400,000,000 400,000,000
CIBC Oppenheimer, Corp., dated 2/26/99, with a
maturity value of $92,578,246, (Collateralized
by $91,234,000, U.S. Treasury Note, 7.75%,
12/31/99, market value -- $94,428,383)........ 4.70% 03/01/99 92,542,000 92,542,000
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 154
22
<TABLE>
<CAPTION>
MATURITY PRINCIPAL AMORTIZED COST
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
----------- ---- -------- --------- --------------
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENTS -- (CONTINUED)
CIBC Oppenheimer, Corp., dated 2/26/99, with a
maturity value of $400,158,000,
(Collateralized by $383,136,000, U.S.
Government Securities, 5.25%-10.375%,
7/31/99-8/15/28, market value --
$408,003,007)................................. 4.74% 03/01/99 $400,000,000 $ 400,000,000
Credit Suisse First Boston, Corp., dated
2/26/99, with a maturity value of
$170,067,292, (Collateralized by $216,792,590,
U.S. Government Securities, 0.00%-5.625%,
12/31/99-2/15/08, market value --
$175,312,213)................................. 4.75% 03/01/99 170,000,000 170,000,000
J.P. Morgan Securities, Inc., dated 2/26/99,
with a maturity value of $170,066,583,
(Collateralized by $152,611,000, U.S. Treasury
Obligations, 5.50%-14.00%, 3/31/03-8/15/27,
market value -- $173,400,240)................. 4.70% 03/01/99 170,000,000 170,000,000
Lehman Brothers, Inc., dated 2/26/99, with a
maturity value of $170,066,300,
(Collateralized by $253,615,000, U.S. Treasury
Obligations, 0.00%-12.00%, 11/15/01-2/15/26,
market value -- $173,388,844)................. 4.68% 03/01/99 170,000,000 170,000,000
Merrill Lynch, Inc., dated 2/26/99, with a
maturity value of $170,067,150,
(Collateralized by $273,151,000, U.S. Treasury
Notes, 0.00%, 2/15/01-8/15/11, market value --
$173,401,952)................................. 4.74% 03/01/99 170,000,000 170,000,000
Morgan Stanley & Co. Inc, dated 2/26/99, with a
maturity value of $170,067,150,
(Collateralized by $157,127,000, U.S. Treasury
Obligations, 0.00%-12.50%, 5/15/00-11/15/22,
market value -- $175,944,489)................. 4.74% 03/01/99 170,000,000 170,000,000
Salomon Smith Barney Holdings, Inc., dated
2/26/99, with a maturity value of
$600,238,000, (Collateralized by $601,976,000,
U.S. Treasury Notes, 5.25%-7.50%,
7/31/99-5/15/08, market value --
$612,015,159)................................. 4.76% 03/01/99 600,000,000 600,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 155
23
<TABLE>
<CAPTION>
MATURITY PRINCIPAL AMORTIZED COST
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
----------- ---- -------- --------- --------------
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENTS -- (CONTINUED)
The Bank of New York, dated 2/26/99, with a
maturity value of $10,597,193, (Collateralized
by $10,361,000, U.S. Treasury Note, 6.50%,
5/31/01, market value -- $10,805,500)......... 4.75% 03/01/99 $ 10,593,000 $ 10,593,000
--------------
Total Repurchase Agreements
(Amortized Cost $2,453,135,000)................. 2,453,135,000
--------------
TOTAL INVESTMENTS -- 99.5%
(AMORTIZED COST $3,689,472,938)(a).............. 3,689,472,938
OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.5%.... 18,046,508
--------------
NET ASSETS -- 100.0%............................. $3,707,519,446
==============
</TABLE>
- ---------------
Percentages are based on net assets of $3,707,519,446.
(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.
<PAGE> 156
24
PACIFIC HORIZON GOVERNMENT FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
MATURITY PRINCIPAL COST
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 66.7%
U.S. GOVERNMENT AGENCY OBLIGATIONS -- DISCOUNT -- 52.2%
FannieMae........................................... 5.055%+ 03/15/99 $20,000,000 $ 19,961,344
FannieMae........................................... 4.768%+ 04/01/99 10,000,000 9,960,389
FannieMae........................................... 4.795%+ 04/12/99 25,000,000 24,861,750
FannieMae........................................... 4.771%+ 05/06/99 20,000,000 19,827,117
FannieMae........................................... 4.828%+ 05/10/99 10,000,000 9,908,222
FannieMae........................................... 4.831%+ 05/17/99 10,000,000 9,897,761
FannieMae........................................... 4.817%+ 05/19/99 25,000,000 24,738,861
FannieMae........................................... 4.827%+ 05/24/99 20,000,000 19,777,400
FannieMae........................................... 4.718%+ 07/16/99 7,625,000 7,491,230
Federal Home Loan Bank.............................. 4.758%+ 05/07/99 25,000,000 24,781,319
Federal Home Loan Bank.............................. 4.721%+ 06/30/99 15,000,000 14,767,075
Federal Home Loan Mortgage Corporation.............. 5.041%+ 03/05/99 30,000,000 29,983,578
Federal Home Loan Mortgage Corporation.............. 5.053%+ 03/09/99 10,000,000 9,988,911
Federal Home Loan Mortgage Corporation.............. 5.028%+ 03/26/99 10,000,000 9,965,625
Federal Home Loan Mortgage Corporation.............. 4.768%+ 03/29/99 24,702,000 24,611,124
Federal Home Loan Mortgage Corporation.............. 4.711%+ 07/06/99 9,463,000 9,309,103
------------
Total U.S. Government Agency Obligations -- Discount
(Amortized Cost $269,830,809)....................... 269,830,809
------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- FIXED -- 7.7%
FannieMae........................................... 9.55% 03/10/99 3,000,000 3,002,862
FannieMae........................................... 4.82% 01/28/00 8,855,000 8,845,940
Federal Farm Credit Bank............................ 6.13% 05/03/99 2,000,000 2,003,970
Federal Farm Credit Bank............................ 6.72% 06/22/99 1,200,000 1,206,428
Federal Home Loan Bank.............................. 5.45% 03/24/99 5,000,000 5,001,890
Federal Home Loan Bank.............................. 4.98% 01/19/00 10,000,000 10,003,822
Federal Home Loan Bank.............................. 4.82% 02/10/00 5,000,000 4,993,270
Federal Home Loan Bank.............................. 4.995% 02/24/00 5,000,000 4,997,436
------------
Total U.S. Government Agency Obligations -- Fixed
(Amortized Cost $40,055,618)........................ 40,055,618
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 157
25
<TABLE>
<CAPTION>
AMORTIZED
MATURITY PRINCIPAL COST
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- (CONTINUED)
U.S. GOVERNMENT AGENCY OBLIGATIONS -- VARIABLE -- 6.8%
Federal Home Loan Bank, Weekly Variable Rate (final
maturity 8/12/99)*.................................. 5.084% 03/03/99 $15,000,000 $ 14,996,538
Student Loan Marketing Association, Weekly Variable
Rate (final maturity 11/9/99)*...................... 5.396% 03/02/99 20,000,000 19,991,821
------------
Total U.S. Government Agency Obligations -- Variable
(Amortized Cost $34,988,359)........................ 34,988,359
------------
Total U.S. Government Agency Obligations (Amortized
Cost $344,874,786).................................. 344,874,786
------------
REPURCHASE AGREEMENTS -- 33.3%
HSBC Securities, Inc., dated 2/26/99, with a
maturity value of $40,016,167 (Collateralized by
$39,035,000, various U.S. Government Obligations,
4.75%-7.40%, 3/15/01-4/15/08, market
value -- $40,803,644)............................... 4.85% 03/01/99 40,000,000 40,000,000
Lehman Brothers, Inc., dated 2/26/99, with a
maturity value of $12,369,925 (Collateralized by
$43,530,089, various U.S. Government Obligations,
5.50%-10.50%, 2/1/00-9/1/28, market
value -- $12,613,188)............................... 4.78% 03/01/99 12,365,000 12,365,000
Morgan Stanley Dean Witter & Co., dated 2/26/99,
with a maturity value of $40,016,133 (Collateralized
by $79,558,000, various U.S. Government Obligations,
6.50%-7.50%, 11/1/09-11/1/28, market
value -- $41,560,061)............................... 4.84% 03/01/99 40,000,000 40,000,000
Prudential Securities, Inc., dated 2/26/99, with a
maturity value of $40,016,167 (Collateralized by
$60,794,656, various U.S. Government Obligations,
0.00%-10.00%, 6/1/99-2/1/29, market value --
$40,802,404)........................................ 4.85% 03/01/99 40,000,000 40,000,000
Salomon Smith Barney Holdings, Inc., dated 2/26/99,
with a maturity value of $40,016,167 (Collateralized
by $66,897,509, FannieMae, 5.50%-7.00%, 12/1/01-
2/1/14, market value -- $40,850,497)................ 4.85% 03/01/99 40,000,000 40,000,000
------------
Total Repurchase Agreements (Amortized Cost
$172,365,000)....................................... 172,365,000
------------
TOTAL INVESTMENTS -- 100.0% (AMORTIZED COST
$517,239,786)(a).................................... 517,239,786
OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.0%........ 30,454
------------
NET ASSETS -- 100.0%................................. $517,270,240
============
</TABLE>
- ---------------
Percentages indicated are based on net assets of $517,270,240.
(a) Cost for Federal income tax and financial reporting purposes are
substantially the same.
* Variable rate security maturity date reflects the next interest rate change
date.
+ Rate represents effective yield at date of purchase.
See Notes to Financial Statements.
<PAGE> 158
26
PACIFIC HORIZON TREASURY ONLY FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
MATURITY PRINCIPAL COST
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
----------- ---- -------- --------- ---------
<S> <C> <C> <C> <C>
U.S. TREASURY OBLIGATIONS -- 98.7%
U.S. TREASURY BILLS -- 29.8%
U.S. Treasury Bill............................... 4.451%+ 03/11/99 $ 25,000,000 $ 24,969,549
U.S. Treasury Bill............................... 4.576%+ 04/22/99 126,097,000 125,266,307
------------
150,235,856
------------
U.S. TREASURY NOTES -- 68.9%
U.S. Treasury Note............................... 5.875% 03/31/99 7,940,000 7,948,510
U.S. Treasury Note............................... 6.25% 03/31/99 129,445,000 129,613,800
U.S. Treasury Note............................... 7.00% 04/15/99 75,685,000 75,900,592
U.S. Treasury Note............................... 6.375% 04/30/99 41,195,000 41,313,215
U.S. Treasury Note............................... 6.375% 05/15/99 3,690,000 3,702,371
U.S. Treasury Note............................... 6.25% 05/31/99 29,165,000 29,280,522
U.S. Treasury Note............................... 5.875% 07/31/99 50,000,000 50,254,908
U.S. Treasury Note............................... 6.875% 07/31/99 9,055,000 9,139,728
------------
347,153,646
------------
Total U.S. Treasury Obligations (Amortized Cost
$497,389,502).................................... 497,389,502
------------
TOTAL INVESTMENTS -- 98.7% (AMORTIZED COST
$497,389,502)(a)................................. 497,389,502
OTHER ASSETS IN EXCESS OF LIABILITIES -- 1.3%..... 6,394,463
------------
NET ASSETS -- 100.0%.............................. $503,783,965
============
</TABLE>
- ---------------
Percentages are based on net assets of $503,783,965.
(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.
<PAGE> 159
27
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities
February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRIME TREASURY GOVERNMENT TREASURY
FUND FUND FUND ONLY FUND
--------------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments in securities, at value (amortized cost
$12,916,771,055, $1,236,337,938, $344,874,786, and
$497,389,502, respectively)................................ $12,916,771,055 $1,236,337,938 $344,874,786 $497,389,502
Repurchase agreements (cost $2,800,578,000, $2,453,135,000,
$172,365,000, and $0, respectively)....................... 2,800,578,000 2,453,135,000 172,365,000 --
Cash....................................................... -- 539 597 3,103
Interest receivable........................................ 73,122,259 26,691,048 582,151 11,135,947
Prepaid expenses........................................... 288,742 51,287 -- 9,190
Receivable for investment securities sold.................. -- 275,000,000 -- 132,875,000
Deferred organizational costs.............................. -- -- -- 23,652
--------------- -------------- ------------ ------------
Total Assets................................................ 15,790,760,056 3,991,215,812 517,822,534 641,436,394
--------------- -------------- ------------ ------------
LIABILITIES:
Payable to bank............................................ 2,067,755 -- -- --
Dividends payable.......................................... 21,983,325 8,943,971 281,549 337,219
Payable for investment securities purchased................ 24,992,768 273,120,417 -- 137,006,591
Investment advisory fees payable........................... 999,117 272,902 19,459 39,137
Administration fees payable................................ 1,067,603 277,509 38,850 39,198
Special management fees payable............................ 744,351 84,869 35,912 48,744
Shareholder service fees payable........................... 1,563,749 463,741 38,526 53,315
Distribution fees payable.................................. 926,135 184,485 -- --
Custodian and fund accounting fees payable................. 168,239 76,470 44,920 37,310
Transfer agent fees payable................................ 1,265 -- 7,240 21,711
Other accrued expenses..................................... 1,129,402 272,002 85,838 69,204
--------------- -------------- ------------ ------------
Total Liabilities........................................... 55,643,709 283,696,366 552,294 137,652,429
--------------- -------------- ------------ ------------
NET ASSETS.................................................. $15,735,116,347 $3,707,519,446 $517,270,240 $503,783,965
=============== ============== ============ ============
Net Assets:
Pacific Horizon Shares..................................... $ 3,109,869,293 $ 351,055,060 $156,825,938 $195,360,772
Horizon Shares............................................. 4,500,359,953 790,223,688 165,362,645 43,133,249
Horizon Service Shares..................................... 4,443,114,459 1,949,510,612 195,081,657 265,289,944
X Shares................................................... 1,916,242,034 507,601,073 -- --
S Shares................................................... 1,559,339,729 -- -- --
Y Shares................................................... 206,190,879 109,129,013 -- --
--------------- -------------- ------------ ------------
Total....................................................... $15,735,116,347 $3,707,519,446 $517,270,240 $503,783,965
=============== ============== ============ ============
Shares Outstanding ($0.001 par value, 120 billion, 60
billion,
30 billion, and 30 billion shares authorized,
respectively):
Pacific Horizon Shares..................................... 3,110,636,067 351,198,987 156,957,670 195,400,804
Horizon Shares............................................. 4,501,288,536 790,319,487 165,384,155 43,136,405
Horizon Service Shares..................................... 4,443,776,076 1,949,619,121 195,168,830 265,317,337
X Shares................................................... 1,916,479,160 507,597,742 -- --
S Shares................................................... 1,559,544,583 -- -- --
Y Shares................................................... 206,224,882 109,127,593 -- --
--------------- -------------- ------------ ------------
Total....................................................... 15,737,949,304 3,707,862,930 517,510,655 503,854,546
=============== ============== ============ ============
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............................. $ 15,737,949 $ 3,707,863 $ 517,511 $ 503,855
Additional paid-in capital................................. 15,721,810,291 3,703,179,380 516,967,986 503,325,299
Accumulated undistributed net investment income............ 863,865 667,877 406,583 25,392
Accumulated net realized losses on investment
transactions.............................................. (3,295,758) (35,674) (621,840) (70,581)
--------------- -------------- ------------ ------------
NET ASSETS, FEBRUARY 28, 1999............................... $15,735,116,347 $3,707,519,446 $517,270,240 $503,783,965
=============== ============== ============ ============
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 160
28
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Statements of Operations
For the year ended February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRIME TREASURY GOVERNMENT TREASURY
FUND FUND FUND ONLY FUND
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest................................. $681,861,006 $174,216,273 $25,092,460 $24,008,945
------------ ------------ ----------- -----------
EXPENSES:
Investment advisory fees................. 10,763,617 3,267,262 467,644 482,044
Administration fees...................... 11,663,465 3,296,964 467,644 482,044
Special management fees (Pacific Horizon
Shares)................................ 8,814,044 1,157,345 480,732 652,064
Shareholder service fees (Horizon Service
Shares)................................ 9,958,398 4,404,739 574,870 607,019
Shareholder service fees
(X Shares)............................. 3,516,638 871,915 -- --
Shareholder service fees
(S Shares)............................. 2,625,897 -- -- --
Shareholder service fees
(Y Shares)............................. 426,317 229,988 -- --
Distribution fees
(X Shares)............................. 4,219,966 1,046,298 -- --
Distribution fees
(S Shares)............................. 7,877,692 -- -- --
Distribution fees
(Y Shares)............................. 1,278,952 689,964 -- --
Custodian and fund accounting fees....... 770,704 345,727 136,869 89,674
Transfer agent fees...................... 393,173 107,467 14,856 41,286
Legal fees............................... 338,577 119,471 16,680 15,521
Audit fees............................... 219,627 66,895 18,154 14,223
Directors' fees.......................... 267,196 89,620 11,834 11,506
Registration & Filing fees............... 2,053,050 165,461 108,579 29,566
Reports to Shareholders.................. 950,820 118,609 22,780 23,959
Other expenses........................... 735,764 240,257 36,477 52,437
------------ ------------ ----------- -----------
Total Expenses......................... 66,873,897 16,217,982 2,357,119 2,501,343
Less: Fee waivers......................... (4,726,615) -- (227,288) --
Expenses paid by third parties........ (9,126) (240) (415) (1,384)
------------ ------------ ----------- -----------
Total Net Expenses........................ 62,138,156 16,217,742 2,129,416 2,499,959
------------ ------------ ----------- -----------
NET INVESTMENT INCOME..................... 619,722,850 157,998,531 22,963,044 21,508,986
------------ ------------ ----------- -----------
NET REALIZED GAINS (LOSSES) ON
INVESTMENTS:
Net realized gains (losses) on investment
transactions........................... 104,400 21,208 93,926 (26,929)
------------ ------------ ----------- -----------
INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS............................... $619,827,250 $158,019,739 $23,056,970 $21,482,057
============ ============ =========== ===========
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 161
29
[This page intentionally left blank.]
<PAGE> 162
30
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRIME FUND
-----------------------------------
YEAR ENDED
-----------------------------------
FEBRUARY 28, FEBRUARY 28,
1999 1998
----------------- ---------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income...................................... $ 619,722,850 $ 421,424,789
Net realized gains (losses) on investment transactions..... 104,400 69,980
----------------- ---------------
Change in net assets resulting from operations.............. 619,827,250 421,494,769
----------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Pacific Horizon Shares..................................... (136,775,918) (117,152,680)
Horizon Shares............................................. (162,673,310) (100,966,269)
Horizon Service Shares..................................... (200,384,122) (170,004,484)
X Shares................................................... (66,015,458) (22,281,567)
S Shares................................................... (49,254,663) (8,606,405)(a)
Y Shares................................................... (7,269,703) (1,807,633)(b)
----------------- ---------------
Change in net assets from shareholder distributions......... (622,373,174) (420,819,038)
----------------- ---------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued................................ 120,484,393,703 65,111,897,688
Dividends reinvested....................................... 329,483,827 243,957,627
Cost of shares redeemed.................................... (114,855,891,327) (62,727,564,200)
----------------- ---------------
Change in net assets from capital share transactions........ 5,957,986,203 2,628,291,115
----------------- ---------------
Increase due to capital contribution from investment adviser
(Note 3)................................................... -- --
----------------- ---------------
Change in net assets........................................ 5,955,440,279 2,628,966,846
NET ASSETS
Beginning of Year.......................................... 9,779,676,068 7,150,709,222
----------------- ---------------
End of Year................................................ $ 15,735,116,347 $ 9,779,676,068
================= ===============
Accumulated Undistributed Net Investment Income............. $ 863,865 $ 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.
<PAGE> 163
31
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TREASURY FUND GOVERNMENT FUND TREASURY ONLY FUND
- ----------------------------------- --------------------------------- ---------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
- ----------------------------------- --------------------------------- ---------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1999 1998 1999 1998 1999 1998
- ---------------- ---------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
$ 157,998,531 $ 137,460,292 $ 22,963,044 $ 23,382,390 $ 21,508,986 $ 20,990,300
21,208 1,095 93,926 23,313 (26,929) (10,747)
- ---------------- ---------------- --------------- --------------- --------------- ---------------
158,019,739 137,461,387 23,056,970 23,405,703 21,482,057 20,979,553
- ---------------- ---------------- --------------- --------------- --------------- ---------------
(17,082,828) (16,848,276) (7,293,741) (7,118,240) (9,011,827) (9,857,218)
(37,001,849) (34,529,165) (4,411,408) (3,181,981) (1,674,119) (1,377,435)
(84,820,335) (82,004,103) (11,330,199) (13,146,010) (10,823,040) (9,755,647)
(15,391,100) (3,006,912) -- -- -- --
-- -- -- -- -- --
(3,702,419) (1,071,836)(b) -- -- -- --
- ---------------- ---------------- --------------- --------------- --------------- ---------------
(157,998,531) (137,460,292) (23,035,348) (23,446,231) (21,508,986) (20,990,300)
- ---------------- ---------------- --------------- --------------- --------------- ---------------
39,489,013,508 23,310,724,272 2,926,734,777 3,331,389,913 1,558,118,339 1,441,272,391
46,633,848 49,740,717 18,668,930 18,033,757 16,437,349 15,715,206
(38,844,388,701) (22,935,720,988) (2,917,595,718) (3,376,729,790) (1,506,751,140) (1,536,173,410)
- ---------------- ---------------- --------------- --------------- --------------- ---------------
691,258,655 424,744,001 27,807,989 (27,306,120) 67,804,548 (79,185,813)
- ---------------- ---------------- --------------- --------------- --------------- ---------------
-- -- 200,000 -- -- --
- ---------------- ---------------- --------------- --------------- --------------- ---------------
691,279,863 424,745,096 28,029,611 (27,346,648) 67,777,619 (79,196,560)
3,016,239,583 2,591,494,487 489,240,629 516,587,277 436,006,346 515,202,906
- ---------------- ---------------- --------------- --------------- --------------- ---------------
$ 3,707,519,446 $ 3,016,239,583 $ 517,270,240 $ 489,240,629 $ 503,783,965 $ 436,006,346
================ ================ =============== =============== =============== ===============
$ 667,877 $ 667,877 $ 406,583 $ 453,728 $ 25,392 $ --
================ ================ =============== =============== =============== ===============
</TABLE>
See Notes to Financial Statements.
<PAGE> 164
32
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 -- ORGANIZATION
Pacific Horizon Funds, Inc. (the "Company"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended (the "Act"), as
an open-end management investment company. At February 28, 1999, the Company
operated as a series company comprising 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 has 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 -- seeks current income, a stable share price and daily liquidity
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 -- seeks current income, a stable share price and daily
liquidity by investing in direct obligations of the U.S. Treasury and repurchase
agreements relating to Treasury obligations.
Government Fund -- provides current income, a stable share price and daily
liquidity 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.
Treasury Only Fund -- provides current income, a stable share price and
daily liquidity by investing in direct obligations of the U.S. Treasury, such as
Treasury bills, notes and bonds.
<PAGE> 165
33
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 and administrator.
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 terms 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.
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.
<PAGE> 166
34
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 year
ended February 28, 1999, custodian fees and expenses paid by third parties were
increased by $9,126, $240, $415 and $1,384, for the Prime Fund, Treasury Fund,
Government Fund and the Treasury Only Fund, respectively. There was no effect on
net investment income. The Funds could have invested such cash balances in
income producing assets if they had not agreed to a reduction of fees or
expenses under the expense offset arrangement with their custodian.
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
<PAGE> 167
35
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.
As of February 28, 1999, the following reclassifications have been made to
increase (decrease) such accounts with offsetting adjustments made to paid-in
capital:
<TABLE>
<CAPTION>
ACCUMULATED
UNDISTRIBUTED NET
INVESTMENT INCOME
-----------------
<S> <C>
Government Fund............................................. 25,159
Treasury Only Fund.......................................... 25,392
</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.
<PAGE> 168
36
At February 28, 1999, the Prime Fund, Treasury Fund, Government Fund, and
Treasury Only Fund had the following capital loss carryovers:
<TABLE>
<CAPTION>
CAPITAL LOSS EXPIRATION
FUND CARRYOVER DATE
---- ------------ ----------
<S> <C> <C>
Prime Fund............................................... $ 570,582 2002
2,725,176 2003
----------
$3,295,758
==========
Treasury Fund............................................ $ 26,248 2002
9,426 2006
----------
$ 35,674
==========
Government Fund.......................................... $ 621,840 2003
==========
Treasury Only Fund....................................... $ 23,888 2003
19,896 2007
----------
$ 43,784
==========
</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
$26,417, after October 31, 1998. During the year ended February 28, 1999, the
Prime Fund, Treasury Fund and Government Fund utilized $104,400, $21,208 and
$93,926, 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 year ended February 28, 1999, Bank of America voluntarily
waived Advisory fees of $227,288 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 in
excess of $10 billion. For the year ended February 28, 1999, the Funds were
<PAGE> 169
37
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.................................................. $11,663,465
Treasury Fund............................................... 3,296,964
Government Fund............................................. 467,644
Treasury Only Fund.......................................... 482,044
</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 Horizon Services Plan are borne solely by the Pacific Horizon Shares.
Service Organizations may include Bank of America and its affiliates and PDI.
For the year ended February 28, 1999, the Funds were advised that Bank of
America and its affiliates and PDI each earned the following amounts pursuant to
the Horizon Services Plan, respectively:
<TABLE>
<CAPTION>
BANK OF
AMERICA AND
FUND AFFILIATES PDI
---- ----------- -------
<S> <C> <C>
Prime Fund.................................................. $8,247,940 $41,991
Treasury Fund............................................... 878,799 10,306
Government Fund............................................. 453,214 166
Treasury Only Fund.......................................... 588,407 213
</TABLE>
The Funds have also adopted a Shareholder Services Plan (the "Horizon
Services Plan") pursuant to which Service Organizations agree to provide certain
services to their clients who are beneficial owners of Horizon Service Shares in
return for payment by the Funds of a fee at an annual rate of 0.25% of the
average daily net assets of the Horizon Service Shares. Fees under the Horizon
Services Plan are borne solely by the Horizon Service Shares. For the year ended
February 28, 1999, the Funds were advised that Bank of America and its
affiliates earned the following amounts pursuant to the Horizon Services Plan,
respectively:
<TABLE>
<CAPTION>
BANK OF
AMERICA AND
FUND AFFILIATES
---- -----------
<S> <C>
Prime Fund.................................................. $9,834,723
Treasury Fund............................................... 4,215,395
Government Fund............................................. 569,906
Treasury Only Fund.......................................... 546,978
</TABLE>
<PAGE> 170
38
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 year ended February 28, 1999, the Prime Fund and
Treasury Fund were advised that Bank of America and its affiliates earned
$7,693,520 and $1,918,213, 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 Fund's Y shares. For the year ended February 28, 1999, the Prime Fund and
Treasury Fund were advised that Bank of America and its affiliates earned
$1,705,269 and $919,952, respectively, pursuant to the Distribution and Services
Plan.
The Prime 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 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 $4,726,615 of distribution expenses
from the Prime Fund for the year ended February 28, 1999. For the year ended
February 28, 1999, the Prime Fund was advised that Bank of America and its
affiliates earned $5,776,974 pursuant to the Distribution and Services Plan.
On June 8, 1998, the advisor voluntarily contributed capital to the
Government Fund in the aggregate amount of approximately $200,000. The advisor
received no shares of common stock or other consideration in exchange for this
contribution which increased net asset value. For tax purposes, this capital
contribution was applied against capital loss carryovers due to expire in the
current year. Accordingly, such amounts have been reclassified from additional
paid-in capital against accumulated net realized losses on investment
transactions in the Statement of Assets and Liabilities.
For the year ended February 28, 1999, PFPC earned $393,173, $107,467,
$14,856 and $41,286 from the Prime Fund, Treasury Fund, Government Fund and
Treasury Only Fund, respectively, for transfer agency and dividend disbursing
agency services performed.
<PAGE> 171
39
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 an annual
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 $132,272, $42,855, $9,149, and $7,115, for the Prime
Fund, Treasury Fund, Government Fund and Treasury Only Fund, respectively, for
the year ended February 28, 1999. A Director who
<PAGE> 172
40
came 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
--------------------------------- ---------------------------------
YEAR ENDED YEAR ENDED
--------------------------------- ---------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
PACIFIC HORIZON SHARES
Issued..................... 4,121,827,874 3,213,898,034 1,378,990,633 1,134,991,546
Reinvest................... 118,691,692 108,696,696 13,108,290 12,406,265
Redeemed................... (3,582,193,573) (3,163,041,484) (1,377,338,860) (1,221,794,534)
--------------- --------------- --------------- ---------------
Net increase/(decrease)..... 658,325,993 159,553,246 14,760,063 (74,396,723)
=============== =============== =============== ===============
HORIZON SHARES
Issued..................... 35,802,102,304 20,455,794,396 5,089,944,318 5,229,807,041
Reinvest................... 56,343,794 39,465,419 10,055,411 12,806,288
Redeemed................... (33,771,907,501) (19,790,457,950) (5,011,814,190) (5,158,308,715)
--------------- --------------- --------------- ---------------
Net increase................ 2,086,538,597 704,801,865 88,185,539 84,304,614
=============== =============== =============== ===============
HORIZON SERVICE SHARES
Issued..................... 46,210,698,901 35,791,164,395 20,600,030,049 14,976,381,895
Reinvest................... 79,633,254 69,471,827 22,609,454 24,007,250
Redeemed................... (45,220,576,906) (35,431,800,117) (20,385,931,897) (14,844,801,907)
--------------- --------------- --------------- ---------------
Net increase................ 1,069,755,249 428,836,105 236,707,606 155,587,238
=============== =============== =============== ===============
X SHARES
Issued..................... 29,335,599,808 4,432,511,179 10,373,353,348 1,534,986,458
Reinvest................... 29,756,422 17,713,737 860,144 520,914
Redeemed................... (28,318,554,925) (3,784,327,932) (10,049,704,289) (1,358,289,848)
--------------- --------------- --------------- ---------------
Net increase................ 1,046,801,305 665,896,984 324,509,203 177,217,524
=============== =============== =============== ===============
S SHARES
Issued..................... 1,342,429,027 607,731,207 -- --
Reinvest................... 45,056,849 8,606,126 -- --
Redeemed................... (387,355,808) (56,922,818) -- --
--------------- --------------- --------------- ---------------
Net increase................ 1,000,130,068 559,414,515(a) -- --
=============== =============== =============== ===============
Y SHARES
Issued..................... 3,671,737,280 610,798,477 2,046,695,161 434,557,332
Reinvest................... 1,816 3,822 549 --
Redeemed................... (3,575,302,614) (501,013,899) (2,019,599,465) (352,525,984)
--------------- --------------- --------------- ---------------
Net increase................ 96,436,482 109,788,400(b) 27,096,245 82,031,348(b)
=============== =============== =============== ===============
</TABLE>
- ---------------
<TABLE>
<C> <S>
(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>
<PAGE> 173
41
<TABLE>
<CAPTION>
GOVERNMENT FUND TREASURY ONLY FUND
--------------------------------- ---------------------------------
YEAR ENDED YEAR ENDED
--------------------------------- ---------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
PACIFIC HORIZON SHARES
Issued................... 427,522,520 480,817,616 387,486,319 443,400,770
Reinvest................. 6,864,991 6,669,928 8,115,087 8,944,830
Redeemed................. (439,281,985) (518,067,695) (428,713,319) (449,034,109)
--------------- --------------- --------------- ---------------
Net increase/(decrease)... (4,894,474) (30,580,151) (33,111,913) 3,311,491
=============== =============== =============== ===============
HORIZON SHARES
Issued................... 390,756,279 210,022,080 216,848,698 60,587,676
Reinvest................. 3,382,710 2,397,397 391,834 399,848
Redeemed................. (291,966,549) (210,377,544) (204,272,032) (61,278,210)
--------------- --------------- --------------- ---------------
Net increase/(decrease)... 102,172,440 2,041,933 12,968,500 (290,686)
=============== =============== =============== ===============
HORIZON SERVICE SHARES
Issued................... 2,108,455,977 2,640,550,217 953,783,322 937,283,945
Reinvest................. 8,421,229 8,966,432 7,930,429 6,370,528
Redeemed................. (2,186,347,184) (2,648,284,551) (873,765,788) (1,025,861,091)
--------------- --------------- --------------- ---------------
Net increase/(decrease)... (69,469,978) 1,232,098 87,947,963 (82,206,618)
=============== =============== =============== ===============
</TABLE>
NOTE 6 -- PROPOSED REORGANIZATIONS
The Board of Directors of Pacific Horizon Funds, Inc. has approved an
Agreement and Plan of Reorganization between Pacific Horizon Funds, Inc. and
Nations Institutional Reserves. The Agreement, which is part of a broader
reorganization of Pacific Horizon Funds, Inc. into the Nations family of funds,
provide for the transfer of all of the assets of each of these Funds to the
Nations Cash Reserves Fund, Nations Treasury Reserves Fund and Nations
Government Reserves Fund in exchange solely for the number of shares of the
Investor Shares, Capital Shares, Advisor Shares of the Nations Cash Reserves,
Nations Treasury Reserves, and Nations Government Reserves Funds; Daily Shares
and Service Shares of the Nations Cash Reserves and Nations Treasury Reserves
Funds; and Daily Shares of the Nations Cash Reserves Fund, equal in number to
the outstanding shares of the Pacific Horizon Share Class, Horizon Share Class,
Horizon Service Share Class for Pacific Horizon Prime Fund, Pacific Horizon
Treasury Fund, Pacific Horizon Government Fund and Pacific Horizon Treasury Only
Fund; X Share Class and Y Share Class of the Pacific Horizon Prime and Treasury
Funds; and S Share Class of the Pacific Horizon Prime Fund as of the close of
business of the New York Stock Exchange on the day that the Reorganizations are
effective. The Agreement also provides for the assumption by the Nations Cash
Reserves Fund, Nations Treasury Reserves Fund and Nations Government Reserves
Fund of all of the liabilities of each of these Funds. The Reorganizations can
be consummated only if, among other things, it
<PAGE> 174
42
is approved by the vote of a majority of the outstanding shares of each of the
Funds and a majority of outstanding shares of all the funds of Pacific Horizon
Funds, Inc. A Special Meeting of Shareholders ("Meeting") of the Funds is
scheduled to be held on May 3, 1999, to vote on the Agreements. A detailed
description of the proposed transactions and voting information was sent to
shareholders of the Funds on or about February 12, 1999. If the Agreements are
approved at the Meeting, the Reorganizations are expected to become effective on
or about May 14, 1999 for the Pacific Horizon Prime, Treasury, Government, and
Treasury Only Funds.
<PAGE> 175
43
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1999(a) 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
PACIFIC HORIZON SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income......... 0.0495 0.0515 0.0492 0.0539 0.0424
Net realized gains/(losses) on
investment transactions..... -- -- -- 0.0004 (0.0227)
-------- -------- -------- -------- --------
Total income from investment
operations.................... 0.0495 0.0515 0.0492 0.0543 0.0197
-------- -------- -------- -------- --------
Less dividends to shareholders
from net investment income.... (0.0499) (0.0515) (0.0490) (0.0539) (0.0422)
Increase due to voluntary
capital contribution from
Investment Advisor............ -- -- -- -- 0.0233
-------- -------- -------- -------- --------
Net change in net asset value
per share..................... (0.0004) -- 0.0002 0.0004 0.0008
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END
OF YEAR....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return................... 5.10% 5.27% 5.01% 5.53% 4.30%+
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions).................. $ 3,110 $ 2,452 $ 2,292 $ 2,200 $ 1,129
Ratio of expenses to average
net assets.................. 0.55% 0.55% 0.55% 0.55% 0.51%
Ratio of net investment income
to average net assets....... 4.94% 5.15% 4.92% 5.37% 4.19%
Ratio of expenses to average
net assets*................. (b) (b) (b) 0.56% 0.56%
Ratio of net investment income
to average net assets*...... (b) (b) (b) 5.36% 4.14%
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the year, certain fees were voluntarily reduced
and/or reimbursed. If such voluntary fee reductions and/or
reimbursements had not occurred, the ratios would have been
as indicated.
+ 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) On October 1, 1998, BankAmerica Corp., the parent company of
the Fund's Advisor, merged with NationsBank Corporation.
(b) Fee waivers and fees paid by third parties had no effect on
the ratios.
</TABLE>
See Notes to Financial Statements.
<PAGE> 176
44
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1999(a) 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
HORIZON SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income....... 0.0527 0.0546 0.0524 0.0571 0.0461
Net realized gains/(losses)
on investment
transactions.............. -- -- -- 0.0004 (0.0232)
-------- -------- -------- -------- --------
Total income from investment
operations.................. 0.0527 0.0546 0.0524 0.0575 0.0229
-------- -------- -------- -------- --------
Less dividends to
shareholders from net
investment income........... (0.0531) (0.0547) (0.0522) (0.0571) (0.0454)
Increase due to voluntary
capital contribution from
Investment Advisor.......... -- -- -- -- 0.0233
-------- -------- -------- -------- --------
Net change in net asset value
per share................... (0.0004) (0.0001) 0.0002 0.0004 0.0008
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE,
END OF YEAR................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return................. 5.44% 5.60% 5.34% 5.86% 4.63%+
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions)................ $ 4,500 $ 2,415 $ 1,710 $ 1,651 $ 662
Ratio of expenses to average
net assets................ 0.23% 0.22% 0.23% 0.23% 0.16%
Ratio of net investment
income to average net
assets.................... 5.23% 5.47% 5.24% 5.69% 4.11%
Ratio of expenses to average
net assets*............... (b) (b) (b) 0.24% 0.23%
Ratio of net investment
income to average net
assets*................... (b) (b) (b) 5.68% 4.04%
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the year, certain fees were voluntarily reduced
and/or reimbursed. If such voluntary fee reductions and/or
reimbursements had not occurred, the ratios would have been
as indicated.
+ 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) On October 1, 1998, BankAmerica Corp., the parent company of
the Fund's Advisor, merged with NationsBank Corporation.
(b) Fee waivers and fees paid by third parties had no effect on
the ratios.
</TABLE>
See Notes to Financial Statements.
<PAGE> 177
45
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1999(a) 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
HORIZON SERVICE SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income............ 0.0502 0.0521 0.0499 0.0546 0.0431
Net realized gains/(losses) on
investment transactions........ -- -- -- 0.0004 (0.0227)
-------- -------- -------- -------- --------
Total income from investment
operations....................... 0.0502 0.0521 0.0499 0.0550 0.0204
-------- -------- -------- -------- --------
Less dividends to shareholders
from net investment income....... (0.0506) (0.0522) (0.0497) (0.0546) (0.0429)
Increase due to voluntary capital
contribution from Investment
Advisor.......................... -- -- -- -- 0.0233
-------- -------- -------- -------- --------
Net change in net asset value per
share............................ (0.0004) (0.0001) 0.0002 0.0004 0.0008
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END OF
YEAR............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return...................... 5.18% 5.34% 5.08% 5.60% 4.37%+
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions)..................... $ 4,443 $ 3,374 $ 2,945 $ 1,561 $ 864
Ratio of expenses to average net
assets......................... 0.48% 0.48% 0.48% 0.48% 0.44%
Ratio of net investment income to
average net assets............. 5.01% 5.23% 5.00% 5.44% 4.31%
Ratio of expenses to average net
assets*........................ (b) (b) (b) 0.49% 0.48%
Ratio of net investment income to
average net assets*............ (b) (b) (b) 5.43% 4.27%
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the year, certain fees were voluntarily reduced
and/or reimbursed. If such voluntary fee reductions and/or
reimbursements had not occurred, the ratios would have been
as indicated.
+ 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) On October 1, 1998, BankAmerica Corp., the parent company of
the Fund's Advisor, merged with NationsBank Corporation.
(b) Fee waivers and fees paid by third parties had no effect on
the ratios.
</TABLE>
See Notes to Financial Statements.
<PAGE> 178
46
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------- PERIOD ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1999(b) 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............................... 0.0472 0.0491 0.0282
Net realized gains/(losses) on investment
transactions...................................... -- -- --
-------- -------- --------
Total income from investment operations.............. 0.0472 0.0491 0.0282
-------- -------- --------
Less dividends to shareholders from net investment
income.............................................. (0.0474) (0.0491) (0.0281)
-------- -------- --------
Net change in net asset value per share.............. (0.0002) -- 0.0001
-------- -------- --------
NET ASSET VALUE PER SHARE, END OF PERIOD............. $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total return......................................... 4.84% 5.03% 2.84%(e)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (millions).............. $ 1,916 $ 869 $ 204
Ratio of expenses to average net assets............. 0.77% 0.77% 0.78%(d)
Ratio of net investment income to average net
assets............................................ 4.66% 4.92% 4.73%(d)
Ratio of expenses to average net assets*............ (c) (c) (c)
Ratio of net investment income to average net
assets*........................................... (c) (c) (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) On October 1, 1998, BankAmerica Corp., the parent company of
the Fund's Advisor, merged with NationsBank Corporation.
(c) Fees waivers and fees paid by third parties had no effect on
the ratios.
(d) Annualized.
(e) Not annualized.
</TABLE>
See Notes to Financial Statements.
<PAGE> 179
47
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
FEBRUARY 28, FEBRUARY 28,
1999(b) 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...................................... 0.0472 0.0444
Net realized gains/(losses) on investment transactions..... -- --
-------- --------
Total income from investment operations..................... 0.0472 0.0444
-------- --------
Less dividends to shareholders from net investment income... (0.0475) (0.0444)
-------- --------
Net change in net asset value per share..................... (0.0003) --
-------- --------
NET ASSET VALUE PER SHARE, END OF PERIOD.................... $ 1.00 $ 1.00
======== ========
Total return................................................ 4.85% 4.53%(e)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (millions)..................... $ 1,560 $ 559
Ratio of expenses to average net assets.................... 0.78% 0.76%(d)
Ratio of net investment income to average net assets....... 4.65% 4.92%(d)
Ratio of expenses to average net assets*................... 1.22% 1.20%(c)(d)
Ratio of net investment income to average net assets*...... 4.21% 4.48%(c)(d)
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the period, certain fees were voluntarily reduced
and/or reimbursed. If such voluntary fee reductions and/or
reimbursements had not occurred, the ratios would have been
as indicated.
(a) Period from April 7, 1997 (inception date) to February 28,
1998.
(b) On October 1, 1998, BankAmerica Corp., the parent company of
the Fund's Advisor, merged with NationsBank Corporation.
(c) Fees paid by third parties had no effect on the ratios.
(d) Annualized.
(e) Not annualized.
</TABLE>
See Notes to Financial Statements.
<PAGE> 180
48
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
FEBRUARY 28, FEBRUARY 28,
1999(b) 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...................................... 0.0427 0.0290
Net realized gains/(losses) on investment transactions..... -- --
-------- --------
Total income from investment operations..................... 0.0427 0.0290
-------- --------
Less dividends to shareholders from net investment income... (0.0429) (0.0290)
-------- --------
Net change in net asset value per share..................... (0.0002) --
-------- --------
NET ASSET VALUE PER SHARE, END OF PERIOD.................... $ 1.00 $ 1.00
======== ========
Total return................................................ 4.37% 2.93%(e)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (millions)..................... $ 206 $ 110
Ratio of expenses to average net assets.................... 1.22% 1.21%(d)
Ratio of net investment income to average net assets....... 4.24% 4.48%(d)
Ratio of expenses to average net assets*................... (c) (c)
Ratio of net investment income to average net assets*...... (c) (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) On October 1, 1998, BankAmerica Corp., the parent company of
the Fund's Advisor, merged with NationsBank Corporation.
(c) Fee waivers and fees paid by third parties had no effect on
the ratios.
(d) Annualized.
(e) Not annualized.
</TABLE>
See Notes to Financial Statements.
<PAGE> 181
49
PACIFIC HORIZON TREASURY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1999(a) 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
PACIFIC HORIZON SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income............ 0.0474 0.0497 0.0477 0.0527 0.0405
Net realized gains/(losses) on
investment transactions........ -- (0.0002) -- 0.0011 0.0001
-------- -------- -------- -------- --------
Total income from investment
operations....................... 0.0474 0.0495 0.0477 0.0538 0.0406
-------- -------- -------- -------- --------
Less dividends to shareholders
from net investment income....... (0.0474) (0.0495) (0.0477) (0.0527) (0.0405)
-------- -------- -------- -------- --------
Net change in net asset value per
share............................ -- -- -- 0.0011 0.0001
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END OF
YEAR............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return...................... 4.85% 5.07% 4.87% 5.40% 4.13%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions)..................... $ 351 $ 336 $ 411 $ 1,091 $ 1,132
Ratio of expenses to average net
assets......................... 0.56% 0.57% 0.57% 0.57% 0.55%
Ratio of net investment income to
average net assets............. 4.72% 4.96% 4.76% 5.24% 3.99%
Ratio of expenses to average net
assets*........................ (b)(c) (b)(c) (c) 0.58% (b)
Ratio of net investment income to
average net assets*............ (b)(c) (b)(c) (c) 5.23% (b)
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the year, certain fees were voluntarily reduced
and/or reimbursed. If such voluntary fee reductions and/or
reimbursements had not occurred, the ratios would have been
as indicated.
(a) On October 1, 1998, BankAmerica Corp., the parent company of
the Fund's Advisor, merged with NationsBank Corporation.
(b) There were no fee waivers or expense reimbursements during
the period.
(c) Fees paid by third parties had no effect on the ratios.
</TABLE>
See Notes to Financial Statements.
<PAGE> 182
50
PACIFIC HORIZON TREASURY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1999(a) 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
HORIZON SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income............ 0.0506 0.0527 0.0509 0.0559 0.0437
Net realized gains/(losses) on
investment transactions........ -- -- -- 0.0011 0.0001
-------- -------- -------- -------- --------
Total income from investment
operations....................... 0.0506 0.0527 0.0509 0.0570 0.0438
-------- -------- -------- -------- --------
Less dividends to shareholders
from net investment income....... (0.0506) (0.0527) (0.0509) (0.0559) (0.0437)
-------- -------- -------- -------- --------
Net change in net asset value per
share............................ -- -- -- 0.0011 0.0001
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END OF
YEAR............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return...................... 5.19% 5.40% 5.21% 5.73% 4.46%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions)..................... $ 790 $ 702 $ 618 $ 722 $ 469
Ratio of expenses to average net
assets......................... 0.24% 0.25% 0.25% 0.25% 0.23%
Ratio of net investment income to
average net assets............. 5.05% 5.27% 5.09% 5.56% 4.36%
Ratio of expenses to average net
assets*........................ (b)(c) (b)(c) (c) 0.26% (b)
Ratio of net investment income to
average net assets*............ (b)(c) (b)(c) (c) 5.55% (b)
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the year, certain fees were voluntarily reduced
and/or reimbursed. If such voluntary fee reductions and/or
reimbursements had not occurred, the ratios would have been
as indicated.
(a) On October 1, 1998, BankAmerica Corp., the parent company of
the Fund's Advisor, merged with NationsBank Corporation.
(b) There were no fee waivers or expense reimbursements during
the period.
(c) Fees paid by third parties had no effect on the ratios.
</TABLE>
See Notes to Financial Statements.
<PAGE> 183
51
PACIFIC HORIZON TREASURY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1999(a) 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
HORIZON SERVICE SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income............ 0.0481 0.0502 0.0484 0.0534 0.0412
Net realized gains/(losses) on
investment transactions........ -- -- -- 0.0011 0.0001
-------- -------- -------- -------- --------
Total income from investment
operations....................... 0.0481 0.0502 0.0484 0.0545 0.0413
-------- -------- -------- -------- --------
Less dividends to shareholders
from net investment income....... (0.0481) (0.0502) (0.0484) (0.0534) (0.0412)
-------- -------- -------- -------- --------
Net change in net asset value per
share............................ -- -- -- 0.0011 0.0001
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END OF
YEAR............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return...................... 4.92% 5.14% 4.97% 5.47% 4.20%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions)..................... $ 1,950 $ 1,713 $ 1,557 $ 1,031 $ 364
Ratio of expenses to average net
assets......................... 0.49% 0.50% 0.50% 0.50% 0.48%
Ratio of net investment income to
average net assets............. 4.81% 5.03% 4.84% 5.31% 4.01%
Ratio of expenses to average net
assets*........................ (b)(c) (b)(c) (c) 0.51% (b)
Ratio of net investment income to
average net assets*............ (b)(c) (b)(c) (c) 5.30% (b)
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the year, certain fees were voluntarily reduced
and/or reimbursed. If such voluntary fee reductions and/or
reimbursements had not occurred, the ratios would have been
as indicated.
(a) On October 1, 1998, BankAmerica Corp., the parent company of
the Fund's Advisor, merged with NationsBank Corporation.
(b) There were no fee waivers or expense reimbursements during
the period.
(c) Fees paid by third parties had no effect on the ratios.
</TABLE>
See Notes to Financial Statements.
<PAGE> 184
52
PACIFIC HORIZON TREASURY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------- PERIOD ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1999(b) 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................................ 0.0451 0.0472 0.0271
-------- -------- --------
Total income from investment operations............... 0.0451 0.0472 0.0271
-------- -------- --------
Less dividends to shareholders from net investment
income............................................... (0.0451) (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.......................................... 4.61% 4.83% 2.74%(f)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (millions)............... $ 508 $ 183 $ 6
Ratio of expenses to average net assets.............. 0.79% 0.78% 0.81%(e)
Ratio of net investment income to average net
assets............................................. 4.40% 4.73% 4.58%(e)
Ratio of expenses to average net assets*............. (c)(d) (c)(d) (c)(d)
Ratio of net investment income to average net
assets*............................................ (c)(d) (c)(d) (c)(d)
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the period, certain fees were voluntarily reduced
and/or reimbursed. If such voluntary fee reductions and/or
reimbursements had not occurred, the ratios would have been
as indicated.
(a) Period from July 22, 1996 (inception date) to February 28,
1997.
(b) On October 1, 1998, BankAmerica Corp., the parent company of
the Fund's Advisor, merged with NationsBank Corporation.
(c) There were no fee waivers or expense reimbursements during
the period.
(d) Fees paid by third parties had no effect on the ratios.
(e) Annualized.
(f) Not annualized.
</TABLE>
See Notes to Financial Statements.
<PAGE> 185
53
PACIFIC HORIZON TREASURY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
FEBRUARY 28, FEBRUARY 28,
1999(b) 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...................................... 0.0406 0.0276
-------- --------
Total income from investment operations..................... 0.0406 0.0276
-------- --------
Less dividends to shareholders from net investment income... (0.0406) (0.0276)
-------- --------
Net change in net asset value per share..................... -- --
-------- --------
NET ASSET VALUE PER SHARE, END OF PERIOD.................... $ 1.00 $ 1.00
======== ========
Total return................................................ 4.14% 2.80%(f)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (millions)..................... $ 109 $ 82
Ratio of expenses to average net assets.................... 1.24% 1.22%(e)
Ratio of net investment income to average net assets....... 4.02% 4.28%(e)
Ratio of expenses to average net assets*................... (c)(d) (c)(d)
Ratio of net investment income to average net assets*...... (c)(d) (c)(d)
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the period, certain fees were voluntarily reduced
and/or reimbursed. If such voluntary fee reductions and/or
reimbursements had not occurred, the ratios would have been
as indicated.
(a) Period from July 10, 1997 (inception date) to February 28,
1998.
(b) On October 1, 1998, BankAmerica Corp., the parent company of
the Fund's Advisor, merged with NationsBank Corporation.
(c) There were no fee waivers or expense reimbursements during
the period.
(d) Fees paid by third parties had no effect on the ratios.
(e) Annualized.
(f) Not annualized.
</TABLE>
See Notes to Financial Statements.
<PAGE> 186
54
PACIFIC HORIZON GOVERNMENT FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1999(a) 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
PACIFIC HORIZON SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income............ 0.0484 0.0503 0.0481 0.0530 0.0421
Net realized gains/(losses) on
investment transactions........ -- (0.0002) -- (0.0004)** (0.0091)
-------- -------- -------- -------- --------
Total income from investment
operations....................... 0.0484 0.0501 0.0481 0.0526 0.0330
-------- -------- -------- -------- --------
Less dividends to shareholders
from net investment income....... (0.0485) (0.0501) (0.0480) (0.0524) (0.0420)
Increase due to voluntary capital
contribution from Investment
Advisor (Note 3)................. 0.0005 -- -- -- 0.0085
-------- -------- -------- -------- --------
Net change in net asset value per
share............................ 0.0004 -- 0.0001 0.0002 (0.0005)
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END OF
YEAR............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return...................... 4.96%+ 5.13% 4.91% 5.37% 4.28%+
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions)..................... $ 157 $ 162 $ 192 $ 261 $ 355
Ratio of expenses to average net
assets......................... 0.55% 0.60% 0.55% 0.56% 0.50%
Ratio of net investment income to
average net assets............. 4.84% 4.99% 4.82% 5.34% 4.27%
Ratio of expenses to average net
assets*........................ 0.60%(b) 0.64% 0.61%(b) 0.63% 0.58%
Ratio of net investment income to
average net assets*............ 4.79%(b) 4.95% 4.76%(b) 5.27% 4.19%
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the year, certain fees were voluntarily reduced
and/or reimbursed. If such voluntary fee reductions and/or
reimbursements had not occurred, the ratios would have been
as indicated.
** 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. (See Note 3 to
Financial Statements) Without this capital contribution, the
total return would have been lower.
(a) On October 1, 1998, BankAmerica Corp., the parent company of
the Fund's Advisor, merged with NationsBank Corporation.
(b) Fees paid by third parties had no effect on the ratios.
</TABLE>
See Notes to Financial Statements.
<PAGE> 187
55
PACIFIC HORIZON GOVERNMENT FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1999(a) 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
HORIZON SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income............ 0.0512 0.0532 0.0513 0.0600 0.0454
Net realized gains/(losses) on
investment transactions........ -- 0.0001 -- (0.0042)** (0.0092)
-------- -------- -------- -------- --------
Total income from investment
operations....................... 0.0512 0.0533 0.0513 0.0558 0.0362
-------- -------- -------- -------- --------
Less dividends to shareholders
from net investment income....... (0.0517) (0.0533) (0.0512) (0.0556) (0.0452)
Increase due to voluntary capital
contribution from Investment
Advisor (Note 3)................. 0.0005 -- -- -- 0.0085
-------- -------- -------- -------- --------
Net change in net asset value per
share............................ -- (0.0000) 0.0001 0.0002 (0.0005)
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END OF
YEAR............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return...................... 5.30%+ 5.46% 5.25% 5.71% 4.61%+
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions)..................... $ 165 $ 63 $ 61 $ 55 $ 235
Ratio of expenses to average net
assets......................... 0.23% 0.27% 0.22% 0.24% 0.17%
Ratio of net investment income to
average net assets............. 5.00% 5.32% 5.15% 5.66% 4.67%
Ratio of expenses to average net
assets*........................ 0.28%(b) 0.32% 0.29%(b) 0.30% 0.25%
Ratio of net investment income to
average net assets*............ 4.95%(b) 5.27% 5.08%(b) 5.60% 4.59%
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the year, certain fees were voluntarily reduced
and/or reimbursed. If such voluntary fee reductions and/or
reimbursements had not occurred, the ratios would have been
as indicated.
** 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. (See Note 3 to
Financial Statements) Without this capital contribution, the
total return would have been lower.
(a) On October 1, 1998, BankAmerica Corp., the parent company of
the Fund's Advisor, merged with NationsBank Corporation.
(b) Fees paid by third parties had no effect on the ratios.
</TABLE>
See Notes to Financial Statements.
<PAGE> 188
56
PACIFIC HORIZON GOVERNMENT FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1999(a) 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
HORIZON SERVICE SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income....... 0.0493 0.0507 0.0488 0.0537 0.0429
Net realized gains/(losses)
on investment
transactions.............. -- 0.0001 -- (0.0004)** (0.0092)
-------- -------- -------- -------- --------
Total income from investment
operations.................. 0.0493 0.0508 0.0488 0.0533 0.0337
-------- -------- -------- -------- --------
Less dividends to
shareholders from net
investment income........... (0.0492) (0.0508) (0.0487) (0.0531) (0.0427)
Increase due to voluntary
capital contribution from
Investment Advisor
(Note 3).................... 0.0005 -- -- -- 0.0085
-------- -------- -------- -------- --------
Net change in net asset value
per share................... 0.0006 -- 0.0001 0.0002 (0.0005)
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE,
END OF YEAR................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return................. 5.03%+ 5.20% 4.98% 5.44% 4.35%+
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions)................ $ 195 $ 264 $ 263 $ 213 $ 289
Ratio of expenses to average
net assets................ 0.48% 0.52% 0.48% 0.49% 0.43%
Ratio of net investment
income to average net
assets.................... 4.92% 5.07% 4.89% 5.41% 4.32%
Ratio of expenses to average
net assets*............... 0.53%(b) 0.57% 0.54%(b) 0.56% 0.51%
Ratio of net investment
income to average net
assets*................... 4.87%(b) 5.02% 4.83%(b) 5.34% 4.24%
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the year, certain fees were voluntarily reduced
and/or reimbursed. If such voluntary fee reductions and/or
reimbursements had not occurred, the ratios would have been
as indicated.
** 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. (See Note 3 to
Financial Statements) Without this capital contribution, the
total return would have been lower.
(a) On October 1, 1998, BankAmerica Corp., the parent company of
the Fund's Advisor, merged with NationsBank Corporation.
(b) Fees paid by third parties had no effect on the ratios.
</TABLE>
See Notes to Financial Statements.
<PAGE> 189
57
PACIFIC HORIZON TREASURY ONLY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1999(a) 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
PACIFIC HORIZON SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income....... 0.0442 0.0472 0.0458 0.0495 0.0384
Net realized gains/(losses)
on investment
transactions.............. -- -- 0.0001 0.0003 (0.0002)
-------- -------- -------- -------- --------
Total income from investment
operations.................. 0.0442 0.0472 0.0459 0.0498 0.0382
-------- -------- -------- -------- --------
Less dividends to
shareholders from net
investment income........... (0.0442) (0.0472) (0.0458) (0.0495) (0.0384)
-------- -------- -------- -------- --------
Net change in net asset value
per share................... -- -- 0.0001 0.0003 (0.0002)
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE,
END OF YEAR................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return................. 4.51% 4.83% 4.68% 5.06% 3.90%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions)................ $ 195 $ 229 $ 225 $ 274 $ 90
Ratio of expenses to average
net assets................ 0.58% 0.61% 0.60% 0.63% 0.62%
Ratio of net investment
income to average net
assets.................... 4.42% 4.73% 4.59% 4.94% 3.90%
Ratio of expenses to average
net assets*............... (b)(c) (b)(c) (c) (b) 0.63%
Ratio of net investment
income to average net
assets*................... (b)(c) (b)(c) (c) (b) 3.89%
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the year, certain fees were voluntarily reduced
and/or reimbursed. If such voluntary fee reductions and/or
reimbursements had not occurred, the ratios would have been
as indicated.
(a) On October 1, 1998, BankAmerica Corp., the parent company of
the Fund's Advisor, merged with NationsBank Corporation.
(b) There were no fee waivers or expense reimbursements during
the period.
(c) Fees paid by third parties had no effect on the ratios.
</TABLE>
See Notes to Financial Statements.
<PAGE> 190
58
PACIFIC HORIZON TREASURY ONLY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------ PERIOD ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1999(b) 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..................... 0.0474 0.0504 0.0490 0.0227
Net realized gains/(losses) on investment
transactions............................ -- -- 0.0001 (0.0001)
-------- -------- -------- --------
Total income from investment operations.... 0.0474 0.0504 0.0491 0.0226
-------- -------- -------- --------
Less dividends to shareholders from net
investment income......................... (0.0474) (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............................... 4.84% 5.16% 5.02% 2.30%(f)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (millions).... $ 43 $ 30 $ 30 $ 7
Ratio of expenses to average net assets... 0.26% 0.29% 0.27% 0.70%(e)
Ratio of net investment income to average
net assets.............................. 4.72% 5.04% 4.94% 11.88%(e)
Ratio of expenses to average net
assets*................................. (c)(d) (c)(d) (c)(d) (c)
Ratio of net investment income to average
net assets*............................. (c)(d) (c)(d) (c)(d) (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 September 20, 1995 (inception date) to February
29, 1996.
(b) On October 1, 1998, BankAmerica Corp., the parent company of
the Fund's Advisor, merged with NationsBank Corporation.
(c) There were no fee waivers or expense reimbursements during
the period.
(d) Fees paid by third parties had no effect on the ratios.
(e) Annualized.
(f) Not annualized.
</TABLE>
See Notes to Financial Statements.
<PAGE> 191
59
PACIFIC HORIZON TREASURY ONLY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1999(a) 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
HORIZON SERVICE SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income......... 0.0449 0.0480 0.0465 0.0502 0.0391
Net realized gains/(losses) on
investment transactions..... -- -- 0.0001 0.0003 (0.0002)
-------- -------- -------- -------- --------
Total income from investment
operations.................... 0.0449 0.0480 0.0466 0.0505 0.0389
-------- -------- -------- -------- --------
Less dividends to shareholders
from net investment income.... (0.0449) (0.0480) (0.0465) (0.0502) (0.0391)
-------- -------- -------- -------- --------
Net change in net asset value
per share..................... -- -- 0.0001 0.0003 (0.0002)
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END
OF YEAR....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return................... 4.58% 4.90% 4.75% 5.14% 3.98%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions).................. $ 265 $ 177 $ 260 $ 186 $ 194
Ratio of expenses to average
net assets.................. 0.51% 0.54% 0.53% 0.56% 0.55%
Ratio of net investment income
to average net assets....... 4.45% 4.80% 4.66% 5.01% 3.86%
Ratio of expenses to average
net assets*................. (b)(c) (b)(c) (b)(c) (b) 0.56%
Ratio of net investment income
to average net assets*...... (b)(c) (b)(c) (b)(c) (b) 3.85%
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the year, certain fees were voluntarily reduced
and/or reimbursed. If such voluntary fee reductions and/or
reimbursements had not occurred, the ratios would have been
as indicated.
(a) On October 1, 1998, BankAmerica Corp., the parent company of
the Fund's Advisor, merged with NationsBank Corporation.
(b) There were no fee waivers or expense reimbursements during
the period.
(c) Fees paid by third parties had no effect on the ratios.
</TABLE>
See Notes to Financial Statements.
<PAGE> 192
60
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors
and Shareholders of
Pacific Horizon Funds, Inc.
In our opinion, the accompanying statements of assets and liabilities, including
the portfolios of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Pacific Horizon Prime Fund, Pacific
Horizon Treasury Fund, Pacific Horizon Government Fund and Pacific Horizon
Treasury Only Fund (four of the portfolios constituting Pacific Horizon Funds,
Inc., hereafter referred to as the "Funds") at February 28, 1999, the results of
each of their operations for the year then ended, the changes in each of their
net assets for each of the two years in the period then ended and the financial
highlights for each of the periods presented, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at February 28, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
As explained in Note 6, the Board of Directors of the Pacific Horizon Funds,
Inc. has approved an agreement and plan of reorganization between Pacific
Horizon Funds, Inc. and Nations Institutional Reserves. A Special Meeting of
Shareholders of the Funds is scheduled to be held on May 3, 1999 to seek
approval of the merger of the Pacific Horizon Prime Fund, Pacific Horizon
Treasury Fund, Pacific Horizon Government Fund and Pacific Horizon Treasury Only
Fund and the Nations Cash Reserves Fund, Nations Treasury Reserves Fund and
Nations Government Reserves Fund.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
April 22, 1999
<PAGE> 193
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> 194
Bulk Rate
U.S. Postage
PAID
New York, NY
Permit No. 8048
LOGO
Provident Distributor, Inc., Distributor
PHF-4005 4/99
<PAGE> 195
PACIFIC HORIZON TAX-EXEMPT MONEY MARKET FUNDS
PACIFIC HORIZON TAX-EXEMPT MONEY MARKET FUNDS
ANNUAL REPORT
February 28, 1999
Tax-Exempt Money Fund
California Tax-Exempt Money Market Fund
Investing For All
The Times Of Your Life
NOT FDIC INSURED
<PAGE> 196
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> 197
.....................................
Contents
<TABLE>
<S> <C>
FUND FACTS 2-3
UNDERSTANDING YOUR SHAREHOLDER
REPORT 4-6
ECONOMIC REVIEW FROM THE
INVESTMENT ADVISER 8-9
PORTFOLIO OF INVESTMENTS 10-48
STATEMENTS OF ASSETS
AND LIABILITIES 49
STATEMENTS OF OPERATIONS 50
STATEMENTS OF CHANGES
IN NET ASSETS 51
NOTES TO FINANCIAL
STATEMENTS 52-61
FINANCIAL HIGHLIGHTS 62-69
REPORT OF INDEPENDENT
ACCOUNTANTS 70
</TABLE>
<PAGE> 198
2
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+ Current Income, Stable Share Price and
- Prime Daily Liquidity
- Treasury
- Government
- Treasury Only
...........................................................................
Tax-Exempt Money Market Funds*+
- Tax-Exempt Money Federal Tax-Free Current Income, Stable
Share Price and Daily Liquidity
- California Tax-Exempt Money Federal and California Tax-Free Current
Market Income, Stable Share Price and Daily
Liquidity
</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.
<PAGE> 199
3
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>
- --------------------------------------------------------------------------------
<PAGE> 200
4
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.
[Graph of Sample Page]
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.
[Graph of Sample Page]
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.
<PAGE> 201
5
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.
[Graph of Sample Page]
TYPE OF SECURITY
INDUSTRY SECTOR AND PERCENTAGE OF THE FUND'S
NET ASSETS REPRESENTED BY INVESTMENTS IN THAT
SECTOR (IF APPLICABLE)
ACTUAL PORTFOLIO HOLDINGS WITH SHARES AND
MARKET VALUE AS OF REPORT DATE
The STATEMENT OF ASSETS AND LIABILITIES lists all the assets and liabilities of
the Fund as of the date of the statement. This is an individual fund's "balance
sheet." Also disclosed in this statement are the Fund's net asset value per
share and its maximum offering price per share as of the date of the statement.
The statement also lists the accounts that comprise the Fund's net assets
(capital stock, undistributed income, etc.).
[Graph of Sample Page]
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
<PAGE> 202
6
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
[Graph of Sample 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:
[Graph of Sample Page] 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.
<PAGE> 203
7
[This page intentionally left blank.]
<PAGE> 204
7
[This page intentionally left blank.]
<PAGE> 205
ECONOMIC REVIEW
FROM THE INVESTMENT ADVISER
The past 12 months will be remembered as one of the most volatile periods in
financial market history. The crisis in Asia, the Russian default and the
devaluation of the Brazilian Real caused dramatic swings in equity valuations,
interest rates, and spreads and commodity prices. The Federal Reserve, in order
to calm the markets and restore liquidity, lowered short term interest rates by
0.75%. The Dow Jones Industrial Average* after dropping to 7,539, rebounded to
close the period at 9,306. The yield on the benchmark 10-year U.S. Treasury Note
which was at 5.16% on 3/19/99, fluctuated over a 1.2% range with a high of 5.81%
on 4/29/98 and low of 4.16% on 10/5/98. Spreads on 10-year "A" rated finance
debt over 10-year U.S. Treasuries started the period at a spread of 0.75% and
widened to as much as 1.45% only to end the period at 1.05% over comparable
maturity U.S. Treasury notes. International turmoil and the Asian recession also
took its toll on commodities. Demand for oil all but evaporated and crude oil
prices declined from almost $18.00 a barrel to just under $11.50 a barrel only
to rebound to $15.00 on strong U.S. growth and expectations of and a quick
recovery in Asia.
Throughout this turmoil, the U.S. remained an "oasis of prosperity" with the
U.S. Gross Domestic Product growing at an estimated 4.3% for 1998. The U.S.
consumer, unfazed by the recent volatility, continued to spend, pushing the
economy through its ninth year of expansion.
Unemployment remained near historical lows and there was continued strength in
real disposable income that translated into a high level of consumer confidence.
At the same time, the industrial side of the economy, burdened by slower exports
as well as the effects of the strong dollar, remained sluggish.
Inflation, as measured by the Consumer Price Index (CPI), remained benign over
the past year, increasing only 1.6% in 1998. Huge declines in commodities and
weakness on the manufacturing side of the economy offset relatively full
employment and money supply growth.
Despite turmoil abroad, the U.S. equity markets, as tracked by the Standard &
Poor's 500 Composite Stock Price Index**, posted a solid return of 18.01%.
Unfortunately, the Russell 2000*** proved that not all stocks are created equal
with a negative return of (15.06%) over the same period. While an era of
consolidation and low inflation should bode well for large cap stocks, we doubt
that this can continue.
The fixed income markets also put in a strong performance for the past 12
months, with the benchmark Salomon Smith Barney Broad Investment-Grade (BIG)
Index# posting a positive return of 6.31%. The top performing sector for the
period was U.S. agency debt which outperformed comparable maturity U.S.
Treasuries by 0.44% followed by U.S. agency mortgage-backed securities which
outperformed by 0.28%. The worst performing sector was U.S. corporate bonds
which underperformed U.S. Treasuries by 0.60% with "AA", "A", and "BBB" rated
corporate debt underperforming by 0.03%, 0.27%, and 1.61% respectively.
OUTLOOK FOR 1999
While the consensus of Wall Street economists is for a growth rate of 3.5% in
1999, we believe the risk is faster than anticipated growth because of the
momentum of the U.S. economy. The wildcard over the next year is the timing of
Asia's economic turnaround.
Asia remains a big question mark, with many economists calling for a "v" shaped
recovery. Although we believe the Asian economies have bottomed, we suspect that
the recovery in the region will be slower than anticipated. While Korea has
8
<PAGE> 206
recently shown strength in industrial production and exports, Japan, which
constitutes two-thirds of the region's GDP, continues to show signs of weakness.
If Japan chooses to monetize their debt by printing currency, they may cause
another round of devaluations in the region. China has stated their intentions
to maintain the value of the Yuan, but if they fail to meet their growth targets
and the Yen declines substantially in value, all bets are off.
Sincerely,
Kirk Hartman
Kirk Hartman
Chief Investment Officer of
Fixed Income Management
- ---------------
* The Dow Jones Industrial Average is a price-weighted index of 30 of the
largest, most widely held stocks traded on the New York Stock Exchange. It
is unmanaged and unavailable for investment.
** The Standard & Poor's 500 Composite Stock Price Index is an unmanaged
market-capitalization-weighted index consisting of 500 common stocks that
measures the market value of 400 industrial stocks, 60 transportation and
utility company stocks and 40 financial issues. It is unavailable for
investment.
*** The Russell 2000 Growth Index is a widely used unmanaged index which
measures the performance of small-cap stocks and cannot be invested in
directly.
# The BIG Index is market-capitalization weighted and includes fixed-rate
Treasury, Government-sponsored, mortgage and investment-grade corporates
with a maturity of one year or longer. The minimum amount outstanding for US
Treasury and mortgage issues is $1 billion for both entry and exit. For
Government sponsored and corporate issues the entry and exit amounts are
$100 million.
9
<PAGE> 207
10
PACIFIC HORIZON TAX-EXEMPT MONEY FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1999
- --------------------------------------------------------------------------------
<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 -- 99.5%
ALASKA -- 1.2%
Alaska State Housing
Finance Corporation
(final maturity 12/1/19)*
144A..................... NR/NR NR/NR 2.97% 03/03/99 $ 9,995,000 $ 9,995,000
------------
ARIZONA -- 0.3%
Apache County Industrial
Development Authority,
Tucson Electric Power,
Series B (LOC -- Bank of
New York) (final maturity
12/15/18)*............... VMIG1/Aa3 A1+/AA- 2.95% 03/03/99 2,200,000 2,200,000
------------
ARKANSAS -- 0.4%
Arkansas State
Development Financing
Authority, Single Family
Mortgage, Series A (AMT)
(final maturity
7/1/30)*................. NR/NR A1+/AAA 3.70% 06/01/99 3,400,000 3,400,000
------------
CALIFORNIA -- 3.1%
California Pollution
Control Financing
Authority, Pacific Gas &
Electric, Series B (AMT)
(LOC -- Deutsche Bank)
(final maturity
11/1/26)*................ NR/NR A1+/AAA 3.15% 03/01/99 2,500,000 2,500,000
Los Angeles Community
Redevelopment Agency,
Multifamily Housing
Agency, Academy Village
Apartments, Series A
(AMT) (LOC -- Swiss Bank)
(final maturity
10/1/19)*................ VMIG1/Aaa NR/NR 2.75% 03/01/99 10,000,000 10,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 208
11
<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 Housing
Authority, Multi-Family
Housing, Nobel Court
Apartments, Series L
(final maturity
12/1/08)*................ VMIG1/A1 NR/NR 2.70% 03/04/99 $11,910,000 $ 11,910,000
------------
24,410,000
------------
COLORADO -- 0.8%
Pitkin County Industrial
Development, Aspen Skiing
Company Project, Series A
(LOC -- First National
Bank of Chicago) (final
maturity 4/1/16)*........ NR/NR A1+/AA- 3.25% 03/01/99 6,090,000 6,090,000
------------
DISTRICT OF COLUMBIA -- 6.4%
District of Columbia,
Multimodal-Medlantic,
Series B (FSA Insured)
(final maturity
8/15/38)*................ VMIG1/Aaa A1+/AAA 3.25% 03/01/99 1,500,000 1,500,000
District of Columbia,
Series A2 (LOC -- Bank of
Nova Scotia) (final
maturity 10/1/07)*....... VMIG1/Aa3 A1+/AA- 3.35% 03/01/99 13,300,000 13,300,000
District of Columbia,
Series A3 (final maturity
10/1/07)*................ VMIG1/Aa3 A1+/AA- 3.35% 03/01/99 18,800,000 18,800,000
District of Columbia,
Series A4 (final maturity
10/1/07)*................ VMIG1/Aa3 A1+/AA- 3.35% 03/01/99 2,200,000 2,200,000
District of Columbia, Tax
& Revenue Anticipation
Notes, Series B.......... MIG1/NR SP1+/NR 3.75% 09/30/99 15,000,000 15,055,380
------------
50,855,380
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 209
12
<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 -- 9.8%
Collier County Industrial
Development Authority,
Health Care Facilities
Revenue, Community Health
Care, Series A
(LOC -- First Union
National Bank) (final
maturity 11/1/19)*....... NR/NR A1/A+ 3.15% 03/03/99 $ 9,100,000 $ 9,100,000
Dade County Housing
Financing Authority,
Multifamily Mortgage
Revenue (FNMA Insured)
(final maturity
5/15/05)*................ NR/NR A1+/AAA 2.95% 03/03/99 2,500,000 2,500,000
Florida Board of
Education (final maturity
6/1/23)* 144A............ NR/Aa A1+/AA 3.20% 06/01/99 10,395,000 10,395,000
Florida State Turnpike
Authority, Turnpike
Revenue, Series 1 (final
maturity 7/1/19)*........ NR/NR NR/NR 3.07% 03/01/99 20,000,000 20,000,000
Jacksonville Pollution
Control Revenue, Florida
Power & Light Company
Project (final maturity
9/1/24)*................. VMIG1/Aa3 A1+/AA- 3.00% 03/11/99 5,000,000 5,000,000
Sarasota County Public
Hospital District,
Sarasota Hospital
Project, Series A........ P1/NR A1+/NR 3.30% 03/03/99 4,000,000 4,000,000
Sarasota County Public
Hospital District,
Sarasota Hospital
Project, Series A........ P1/NR A1+/NR 3.05% 03/11/99 5,000,000 5,000,000
St. Lucie, Florida Power
& Light, Series 92....... P1/NR A1+/NR 3.10% 03/10/99 2,300,000 2,300,000
Sunshine State Government
Finance Commission
Revenue Bonds, Series
1986..................... P1/NR A1+/NR 2.95% 03/08/99 10,000,000 10,000,000
Sunshine State Government
Finance Commission
Revenue Bonds, Series
1986..................... P1/NR A1+/NR 3.05% 03/09/99 10,000,000 10,000,000
------------
78,295,000
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 210
13
<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 -- 2.6%
Gainesville Redevelopment
Authority, Riverside
Military Academy
(LOC -- Wachovia Bank of
North Carolina) (final
maturity 1/1/23)*........ NR/Aa2 NR/NR 2.95% 03/03/99 $15,000,000 $ 15,000,000
Richmond County
Development Authority,
Solid Waste Disposal
Revenue, Evergreen Nylon
Project (final maturity
7/1/32)*................. NR/NR A1/A+ 3.05% 03/01/99 5,800,000 5,800,000
------------
20,800,000
------------
IDAHO--1.9%
Idaho State Tax
Anticipation Notes....... MIG1/NR SP1+/NR 4.50% 06/30/99 15,000,000 15,043,181
------------
ILLINOIS--8.4%
Chicago Industrial
Development Revenue,
Guernsey Bel, Inc.
Project, Series A
(LOC -- Harris Trust &
Savings Bank) (final
maturity 12/1/16)*....... NR/NR A1+/AA 3.05% 03/03/99 1,135,000 1,135,000
Chicago Park District,
Tax Anticipation Notes... MIG1/NR SP1+/NR 4.30% 09/17/99 8,000,000 8,031,627
Elmhurst Revenue, Joint
Commission Accredation
(final maturity
7/1/18)*................. VMIG1/Aa1 A1/AA+ 2.95% 03/04/99 4,450,000 4,450,000
Illinois Educational
Facilities Authority,
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 3.30% 03/01/99 22,700,000 22,700,000
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 211
14
<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)
Illinois Health
Facilities Authority,
Elmhurst Memorial
Hospital, Series B
(LOC -- Rabobank) (final
maturity 1/1/20)*........ VMIG1/A2 NR/NR 3.30% 03/01/99 $ 7,500,000 $ 7,500,000
Illinois Health
Facilities Authority,
Resurrection Health Care
Systems (final maturity
5/1/11)*................. VMIG1/A2 NR/NR 3.25% 03/01/99 9,900,000 9,900,000
Southwestern Development
Authority, Solid Waste
Disposal Revenue, Shell
Oil Company Wood River
Project (AMT) (final
maturity 4/1/22)*........ VMIG1/Aa1 A1+/AAA 3.30% 03/01/99 1,400,000 1,400,000
University of Illinois,
The Board of Trustees
Health Services
Facilities System, Series
B (LOC -- Landesbank
Hessen) (final maturity
10/1/26)*................ VMIG1/Aaa A1+/AAA 2.95% 03/03/99 6,000,000 6,000,000
------------
67,516,627
------------
INDIANA--1.4%
Jasper County Pollution
Control, Northern Indiana
Public Service, Series A
(final maturity
11/1/16)*................ NR/NR A1/A 2.50% 03/16/99 8,000,000 8,000,000
Whiting Industrial Sewer &
Solid Waste Disposal
Revenue, Amoco Oil
Company Project (AMT)
(final maturity
1/1/26)*................. VMIG1/Aa1 AA+/NR 3.35% 03/01/99 3,100,000 3,100,000
------------
11,100,000
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 212
15
<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 -- 2.1%
Iowa Finance Authority,
Solid Waste Disposal,
Cedar River Paper Company
Project (AMT) (LOC -- UBS
AG) (final maturity
2/1/32)*................. NR/NR A1+/AA+ 3.25% 03/01/99 $ 5,000,000 $ 5,000,000
Iowa Financing Authority
Hospital Facilities, Iowa
Health Systems, Series B
(AMBAC Insured) (final
maturity 7/1/07)*........ VMIG1/Aaa A1+/AAA 3.00% 03/01/99 3,300,000 3,300,000
Iowa Higher Education
Loan Authority, Private
College (MBIA Insured)
(final maturity
12/1/15)*................ VMIG1/Aaa A1+/AAA 3.05% 03/03/99 4,700,000 4,700,000
Iowa Student Loan
Liquidity Corporation,
Student Loan Revenue,
Series I (AMBAC
Insured)................. Aaa/NR AAA/NR 3.10% 12/01/99 3,500,000 3,500,000
------------
16,500,000
------------
KENTUCKY -- 2.6%
Kentucky Asset/Liability
Communication General
Fund Revenue, Tax &
Revenue Anticipation
Notes, Series A.......... MIG1/NR SP1+/NR 4.50% 06/25/99 15,000,000 15,042,797
Kentucky Asset/Liability
Communication General
Fund Revenue, Tax &
Revenue Anticipation
Notes, Series B.......... MIG1/NR SP1+/NR 4.00% 06/25/99 6,000,000 6,012,483
------------
21,055,280
------------
LOUISIANA -- 7.2%
Ascension Parish
Pollution Control, Borden
Inc. Project
(LOC -- Credit Suisse)
(final maturity
12/1/09)*................ VMIG1/A1 A1+/AA 2.90% 03/03/99 5,500,000 5,500,000
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 213
16
<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)
LOUISIANA -- (CONTINUED)
Louisiana Public
Facilities Authority,
Hospital Revenue,
Willis-Knighton Medical
Center (AMBAC Insured)
(final maturity
9/1/27)*................. VMIG1/Aaa A1+/AAA 3.10% 03/03/99 $ 9,900,000 $ 9,900,000
Louisiana State General
Obligation Bonds (AMBAC
Insured) (final maturity
5/1/09)* 144A............ NR/NR A1/AA 3.02% 03/04/99 12,775,000 12,775,000
Plaquemines Port Harbor &
Term District, Chevron
Pipe Line Company (final
maturity 9/1/08)*........ Aa2/NR AA/NR 3.65% 03/01/99 9,500,000 9,504,334
Plaquemines Port Harbor &
Term District, Port
Facilities Revenue,
International Marine
Terminals Project, Series
A (LOC -- Morgan Guaranty
Trust) (final maturity
3/15/06)*................ Aa3/NR NR/NR 3.60% 03/15/99 10,500,000 10,500,000
St. Charles Parish
Pollution Control, Shell
Oil Company Norco Project
(AMT) (final maturity
11/1/21)*................ VMIG1/Aa1 A1+/AAA 3.30% 03/01/99 1,200,000 1,200,000
West Baton Rouge Parish,
Louisiana Industrial
District No. 3 Revenue
Bonds, Dow Chemical Co.
Project (AMT) (final
maturity 11/1/25)*....... P1/A1 A1/A 3.40% 03/01/99 3,000,000 3,000,000
West Baton Rouge Parish.. P1/NR A1+/NR 2.50% 03/03/99 5,050,000 5,050,000
------------
57,429,334
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 214
17
<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 & Higher
Educational Facilities
Authority Revenue,
Veterans Housing
Authority, New England
Inc., Series B (AMBAC
Insured) (final maturity
12/1/25)*................ NR/Aaa A1+/AAA 3.05% 03/03/99 $ 2,500,000 $ 2,500,000
------------
MASSACHUSETTS -- 0.9%
Massachusetts State Water
Reserve Authority,
Multi-Modal, Series B
(final maturity
8/1/28)*................. VMIG1/Aaa A1+/AAA 2.85% 03/01/99 7,000,000 7,000,000
------------
MICHIGAN -- 0.8%
Michigan Municipal Bond
Authority Revenue, Series
D (LOC -- Bank of Nova
Scotia).................. NR/NR SP1+/NR 4.25% 08/27/99 6,500,000 6,520,592
------------
MISSOURI -- 0.7%
Missouri Higher Education
Student Loan Authority,
Series B (AMT) (GTD
Student Loans Insured)
(LOC -- National
Westminster) (final
maturity 6/1/20)*........ VMIG1/Aa2 NR/NR 3.10% 03/03/99 5,500,000 5,500,000
------------
NEVADA -- 2.1%
Clark County Industrial
Development Revenue,
Nevada Cogeneration
Association (AMT)
(LOC -- ABN AMRO Bank
N.V.) (final maturity
12/1/22)*................ VMIG1/Aa2 A1+/AA 3.40% 03/01/99 10,700,000 10,700,000
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 215
18
<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)
NEVADA -- (CONTINUED)
Nevada Housing Division,
Fort Apache Multi-Unit
Housing, Series A (AMT)
(LOC -- Heller Financial
Inc.) (LOC -- Union Bank
of Switzerland) (final
maturity 10/1/26)*....... NR/NR A1+/AAA 3.10% 03/03/99 $ 1,500,000 $ 1,500,000
Nevada Housing Division,
Judith Multi-Unit
Housing, Series C (AMT)
(final maturity
10/1/30)*................ NR/NR A1+/AAA 3.10% 03/03/99 3,525,000 3,525,000
Nevada Housing Division,
Maryland Multi-Unit
Housing, Series A (AMT)
(final maturity
10/1/30)*................ NR/NR A1+/AAA 3.10% 03/03/99 1,000,000 1,000,000
------------
16,725,000
------------
NEW HAMPSHIRE -- 0.6%
New Hampshire Business
Finance Authority,
Wheelabrator Concord
Project, Series A (LOC --
Wachovia Bank) (final
maturity 1/1/18)*........ NR/NR A1+/AA 2.95% 03/03/99 5,000,000 5,000,000
------------
NEW JERSEY -- 0.2%
New Jersey State
Transportation Authority,
Transportation System,
Series A................. AAA/NR NR/NR 4.40% 06/15/99 1,240,000 1,245,323
------------
NEW YORK -- 3.1%
New York Metropolitan
Transportation Authority,
Series 93C (AMBAC
Insured) (final maturity
10/31/07)* 144A.......... A1/NR A2+/NR 3.05% 03/03/99 10,000,000 10,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 216
19
<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 -- (CONTINUED)
New York State Energy and
Research Development
Authority (final maturity
7/1/29)*................. NR/NR NR/NR 3.14% 03/03/99 $14,850,000 $ 14,850,000
------------
24,850,000
------------
NORTH CAROLINA -- 2.2%
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 3.00% 03/04/99 1,300,000 1,300,000
North Carolina Medical
Care Community Retirement
(LOC -- LaSalle National
Bank) (final maturity
11/15/09)*............... NR/NR A1+/AA+ 2.95% 03/03/99 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+ 3.05% 03/03/99 6,200,000 6,200,000
------------
17,500,000
------------
OHIO -- 1.6%
Ohio Air Quality
Development Authority,
JMG Funding, Ltd.
Patrnership Project,
Series A (AMT) (LOC --
Societe Generale) (final
maturity 4/1/28)*........ NR/NR A1+/AA- 2.95% 03/03/99 4,000,000 4,000,000
Ohio Air Quality
Development Authority,
JMG Funding, Ltd.
Partnership Project,
Series B (AMT) (LOC --
Societe Generale) (final
maturity 4/1/28)*........ NR/NR A1+/AA- 2.95% 03/03/99 3,000,000 3,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 217
20
<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)
OHIO -- (CONTINUED)
Ohio Air Quality
Development Authority,
JMG Funding, Ltd.
Partnership Project,
Series B (AMT) (LOC --
Societe Generale) (final
maturity 4/1/29)*........ NR/NR A1+/AA- 2.95% 03/03/99 $ 4,100,000 $ 4,100,000
Ohio State Water
Development Authority,
Solid Waste Disposal
Revenue, The Timken
Company Project (AMT)
(LOC -- Wachovia Bank)
(final maturity
7/1/32)*................. VMIG1/Aa2 A1+/AAA 3.00% 03/03/99 2,000,000 2,000,000
------------
13,100,000
------------
OKLAHOMA -- 2.4%
Oklahoma Water Resources
Board, State Loan
Program, Revenue Bonds
(LOC -- Union Bank of
Switzerland) (final
maturity 9/1/24)*........ NR/NR A1+/AA 3.50% 03/01/99 18,925,000 18,925,000
------------
OREGON -- 1.3%
Medford Hospital
Facilities Authority,
Continued Care Retirement
(LOC -- Banque Paribas)
(final maturity
5/15/27)*................ NR/NR A1/AA- 3.125% 03/01/99 10,000,000 10,000,000
------------
PENNSYLVANIA -- 12.4%
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- 2.90% 03/01/99 8,225,000 8,225,000
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 218
21
<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 -- (CONTINUED)
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- 2.90% 03/01/99 $ 3,700,000 $ 3,700,000
Emmaus General Authority
Revenue, Series D (LOC --
Kredietbank) (final
maturity 3/1/24)*........ NR/NR A1+/SP1+ 2.95% 03/03/99 4,600,000 4,600,000
Pennsylvania Energy
Development Authority,
B&W Ebensburg Project
(AMT) (final maturity
12/1/11)*................ Aaa/NR NR/NR 3.05% 03/01/99 2,750,000 2,750,000
Philadelphia Tax &
Revenue Anticipation
Notes, Series A.......... MIG1/NR SP1+/NR 4.25% 06/30/99 13,250,000 13,276,031
Quakertown General
Authority, Pooled
Financing Program, Series
A (LOC -- PNC Bank)
(final maturity
7/1/26)*................. VMIG1/A1 NR/NR 3.05% 03/02/99 20,300,000 20,300,000
Quakertown Hospital
Authority, HPS Group
Pooled Financing
(LOC -- PNC Bank) (final
maturity 7/1/05)*........ VMIG1/A1 NR/NR 3.05% 03/02/99 46,600,000 46,600,000
------------
99,451,031
------------
SOUTH CAROLINA -- 1.1%
Berkeley County Exempt
Facilities Industrial
Revenue, Amoco Chemical
Company Project (AMT)
(final maturity
4/1/27)*................. VMIG1/Aa1 A1+/AA+ 3.35% 03/01/99 4,900,000 4,900,000
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 219
22
<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)
SOUTH CAROLINA -- (CONTINUED)
Berkeley County Exempt
Facilities Industrial
Revenue, Amoco Chemical
Company Project (AMT)
(final maturity
4/1/28)*................. VMIG1/Aa1 A1+/AA+ 3.35% 03/01/99 $ 3,200,000 $ 3,200,000
Piedmont Municipal Power
Agency, South Carolina
Electric Company, Series
D (MBIA Insured) (final
maturity 1/1/25)*........ VMIG1/Aaa A1+/AAA 3.00% 03/03/99 1,000,000 1,000,000
------------
9,100,000
------------
TENNESSEE -- 2.2%
Bristol Health &
Education Facilities,
Series 1995A (final
maturity 3/1/14)* 144A... NR/NR A1/AAA 3.10% 03/03/99 8,500,000 8,500,000
Metropolitan Government
Nashville & Davidson
County Health & Education
Facilities, Adventist/
Sunbelt, Series A (final
maturity 11/15/26)*...... VMIG1/Aa3 A1+/AA+ 3.00% 03/04/99 9,195,000 9,195,000
------------
17,695,000
------------
TEXAS -- 12.1%
Brazos River Harbor
Navigation District...... P1/NR A1+/NR 2.50% 03/03/99 9,250,000 9,250,000
Grand Prairie Housing
Financing Corporation,
Lincoln Property Company
(General Electric Credit
Corporation Insured)
(final maturity
6/1/10)*................. NR/NR A1+/AAA 3.05% 03/03/99 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- 3.05% 03/04/99 2,300,000 2,300,000
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 220
23
<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)
Gulf Coast Industrial
Development Authority,
Marine Terminal, Amoco
Oil Company Project (AMT)
(final maturity
4/1/28)*................. VMIG1/Aa1 A1+/AAA 3.35% 03/01/99 $ 7,600,000 $ 7,600,000
Gulf Coast Waste Disposal
Authority, Amoco Oil
Company Project (AMT)
(Guaranty Agreement
Insured) (final maturity
5/1/24)*................. VMIG1/Aa1 A1+/AAA 3.35% 03/01/99 3,600,000 3,600,000
Nueces River Authority
(final maturity 3/1/27)*
144A..................... VMIG1/NR NR/AAA 3.02% 03/03/99 16,600,000 16,600,000
Panhandle-Plains Higher
Education Authority Inc.,
Student Loan Revenue,
Series B (AMT) (GTD
Student Loans Insured)
(LOC -- Student Loan
Marketing) (final
maturity 6/1/21)*........ VMIG1/Aaa NR/NR 3.05% 03/03/99 3,300,000 3,300,000
Texas State General
Obligation............... P1/NR A1+/NR 2.95% 08/20/99 25,000,000 25,000,000
Texas State Tax & Revenue
Anticipation Notes....... MIG1/NR SP1+/NR 4.50% 08/31/99 15,000,000 15,088,022
University of Texas Board
of Regents............... P1/NR A1+/NR 2.95% 03/02/99 7,000,000 7,000,000
------------
96,438,022
------------
UTAH -- 1.2%
Intermountain Power
Agency, Utah Power Supply
Revenue (LOC -- Chase
Manhattan Bank) (final
maturity 7/1/03)* 144A... VMIG1/Aaa NR/NR 3.10% 03/03/99 9,900,000 9,900,000
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 221
24
<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 -- 0.9%
Vermont Education and
Health Financing Agency,
Middlebury College
Project, Series A (final
maturity 11/1/27)*....... Aa/NR A1+/AA 3.10% 05/01/99 $ 1,500,000 $ 1,500,000
Vermont Education and
Health Financing Agency,
Middlebury College
Project, Series A (final
maturity 5/1/28)*........ Aa/NR A1+/AA 3.75% 05/01/99 5,500,000 5,500,000
------------
7,000,000
------------
VIRGINIA -- 0.1%
Lynchburg Industrial
Development Authority
Hospital Facilities, Mid
Atlantic Capital, Series
E (AMBAC Insured) (final
maturity 12/1/25)*....... NR/Aaa A1+/AAA 3.05% 03/03/99 1,100,000 1,100,000
------------
WASHINGTON -- 2.9%
Washington State Housing
Finance Authority,
Multi-Family Mortgage
Revenue (LOC -- Harris
Trust & Savings Bank)
(final maturity
1/1/10)*................. NR/NR A1+/AA- 3.00% 03/03/99 1,000,000 1,000,000
Washington State Public
Power Supply System,
Electric Revenue, Series
3A....................... P1/NR A1+/NR 3.00% 10/06/99 10,500,000 10,500,000
Washington State Public
Power Supply System,
Nuclear Project, Electric
Revenue Bond, Series A
(MBIA Insured) (final
maturity 7/1/12)*........ VMIG1/Aaa A1+/AAA 2.85% 03/03/99 2,200,000 2,200,000
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 222
25
<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)
WASHINGTON -- (CONTINUED)
Washington State Public
Power Supply, Nuclear
Project (final maturity
7/1/15)* 144A............ NR/NR A1+/AAA 2.97% 03/03/99 $ 9,195,000 $ 9,195,000
------------
22,895,000
------------
WEST VIRGINIA -- 1.9%
West Virginia State
Building Commission Lease
Revenue (final maturity
7/1/21)*................. NR/NR NR/NR 2.97% 03/03/99 15,270,000 15,270,000
------------
WISCONSIN -- 0.3%
Wisconsin State Operating
Notes.................... MIG1/NR SP1+/NR 4.50% 06/15/99 2,500,000 2,506,087
------------
TOTAL INVESTMENTS -- 99.5%
(AMORTIZED COST
$794,910,857)(a)......... 794,910,857
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 0.5%...... 4,080,976
------------
NET ASSETS -- 100.0%...... $798,991,833
============
</TABLE>
- ---------------
Percentages indicated are based on net assets of $798,991,833.
(a) Cost for Federal income tax and financial reporting purposes is
substantially the same.
<TABLE>
<C> <S>
AMBAC -- AMBAC Indemnity Corporation.
AMT -- Interest on securities subject to Federal Alternative
Minimum Tax.
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.
+ The ratings provided consist of short-term and long-term ratings.
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 year, these securities amounted
to 10.9% of net assets.
See Notes to Financial Statements
<PAGE> 223
26
PACIFIC HORIZON CALIFORNIA TAX-EXEMPT
MONEY MARKET FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1999
- --------------------------------------------------------------------------------
<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 -- 95.1%
ABAG Financing
Authority For Nonprofit
Corporations,
Certificates of
Participation, Series C
(LOC -- Banque
Nationale de Paris)
(final maturity
10/1/27)*.............. NR/NR A1/AA 3.00% 03/01/99 $ 4,600,000 $ 4,600,000
Alameda Corridor
Transportation
Authority, Municipal
Securities Treasury
Receipts, Series CMC1
(final maturity
10/1/13)*.............. VMIG1/Aaa A1c/AAA 2.90% 03/01/99 7,740,000 7,740,000
Alameda-Contra Costa
Financing Authority,
Certificates of
Participation (final
maturity 8/1/23)*...... NR/NR A1+/AA- 2.45% 03/04/99 5,000,000 5,000,000
California General
Obligation............. P1/NR A1+/NR 2.65% 03/04/99 2,500,000 2,500,000
California General
Obligation............. P1/NR A1+/NR 2.25% 03/04/99 2,600,000 2,600,000
California General
Obligation (final
maturity 4/1/04)*
144A................... NR/NR A1+/AAA 2.70% 03/15/99 15,100,000 15,100,000
California General
Obligation, Class A
(final maturity
2/1/06)* 144A.......... A1+/AA NR/NR 2.82% 03/04/99 10,000,000 10,000,000
California Health
Facilities Authority,
Series B (final
maturity 7/1/12)*...... VMIG1/Aaa A1+/AAA 3.10% 03/01/99 1,100,000 1,100,000
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 224
27
<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 Authority,
Sutter Health, Series C
(FSA Insured) (final
maturity 7/1/22)*...... Aaa/NR A1+/AAA 1.00% 03/01/99 $10,000,000 $ 10,000,000
California Health
Facilities Financing
Authority (final
maturity 8/1/16)*
144A................... NR/Aaa NR/AAA 2.95% 03/01/99 11,950,000 11,950,000
California Health
Facilities Financing
Authority, Adventist
Hospital, Series C
(final maturity
9/1/15)*............... VMIG1/Aaa A1+/AAA 3.10% 03/03/99 1,000,000 1,000,000
California Health
Facilities Financing
Authority, Memorial
Health Services (final
maturity 10/1/24)*..... VMIG1/A1 A1+/AA- 2.60% 03/03/99 8,100,000 8,100,000
California Health
Facilities Financing
Authority, Series C
(final maturity
6/1/12)*............... VMIG1/Aaa NR/NR 2.90% 03/03/99 10,995,000 10,995,000
California Health
Facilities Financing
Authority, St Francis
Medical Center, Series
G (MBIA Insured) (final
maturity 7/1/22)*...... VMIG1/Aaa A1+/AAA 2.60% 03/03/99 1,100,000 1,100,000
California Health
Facilities Financing
Authority, Stanford
Health Care, Series B
(AMBAC Insured)........ Aaa/A1 AAA/A+ 5.00% 11/15/99 1,200,000 1,216,636
California Health
Facilities Financing
Authority, Sutter
Healthcare Facilities,
Series B (final
maturity 3/1/20)*...... VMIG1/Aa3 A1+/AA+ 3.10% 03/01/99 1,800,000 1,800,000
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 225
28
<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
Finance Agency, Single
Family Meeting
Purchase, Series B
(AMT) (GIC-FGIC
Insured) (final
maturity 2/1/00)*...... MIG1/NR SP1+/NR 3.00% 05/01/99 $ 6,865,000 $ 6,865,000
California Housing
Financing Agency (final
maturity 2/1/24)*...... VMIG1/Aa2 NR/NR 2.72% 03/01/99 4,900,000 4,900,000
California Housing
Financing Agency,
Multi-Unit Rental
Housing Revenue, Series
A (MBIA Insured) (final
maturity 8/1/23)*...... Aaa/NR AAA/NR 2.95% 05/01/99 2,000,000 2,000,000
California Housing
Financing Agency,
Multi-Unit Rental
Revenue Authority (MBIA
Insured) (final
maturity 8/1/07)*...... NR/Aaa NR/AAA 3.00% 03/01/99 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 3.00% 03/01/99 2,750,000 2,775,000
California Housing
Financing Agency,
Series E (AMT) (final
maturity 2/1/33)*...... VMIG1/Aa2 A1+/AA- 3.55% 03/12/99 2,255,000 2,255,000
California Pollution
Control Financing
Authority, Atlantic
Richfield Company
Project, Series 1994A
(AMT) (final maturity
12/1/24)*.............. VMIG1/A2 A1/A 3.20% 03/01/99 10,700,000 10,700,000
</TABLE>
- ---------------
See Notes to Financial Statements.
29
<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, Calsan, Inc.
Project, Series A (AMT)
(final maturity
12/1/11)*.............. NR/NR NR/NR 2.70% 03/03/99 $ 1,600,000 $ 1,600,000
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 226
29
<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, Delano Power
Project (AMT)
(LOC -- ABN AMRO Bank)
(final maturity
8/1/19)*............... NR/Aa2 NR/NR 3.10% 03/01/99 $ 3,600,000 $ 3,600,000
California Pollution
Control Financing
Authority, Pacific Gas
& Electric (AMT)
(LOC -- Rabobank
Nederland) (final
maturity 12/1/16)*..... NR/NR A1+/AAA 2.50% 03/03/99 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 3.10% 03/01/99 4,750,000 4,750,000
California Pollution
Control Financing
Authority, Pacific Gas
& Electric, Series
1996A (AMT) (LOC -- UBS
AG) (final maturity
12/1/16)*.............. NR/NR A1+/AAA 2.50% 03/03/99 16,000,000 16,000,000
California Pollution
Control Financing
Authority, Pacific Gas
& Electric, Series
1997B (AMT)
(LOC -- Deutsche Bank)
(final maturity
11/1/26)*.............. NR/NR A1+/AAA 3.15% 03/01/99 7,300,000 7,300,000
California Pollution
Control Financing
Authority, Pacific Gas
& Electric, Series
1997C (AMT)
(LOC -- Kredietbank
N.V.) (final maturity
11/1/26)*.............. NR/NR A1+/AA+ 3.15% 03/01/99 60,800,000 60,800,000
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 227
30
<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 A1+/AAA 3.10% 03/01/99 $ 3,100,000 $ 3,100,000
California Pollution
Control Financing
Authority, Shell Oil
Company Martinez
Project, Series B (AMT)
(final maturity
10/1/31)*.............. VMIG1/Aa1 A1+/AAA 3.10% 03/03/99 1,000,000 1,000,000
California Pollution
Control Financing
Authority, Solid Waste
Disposal, Santa Clara
Valley, Series A (AMT)
(LOC -- Commerica Bank)
(final maturity
3/1/18)*............... NR/NR NR/NR 2.70% 03/03/99 2,000,000 2,000,000
California Pollution
Control Financing
Authority, Southern
California Edison Co.
Project, Series A
(final maturity
2/28/08)*.............. VMIG1/A1 A1/A+ 3.55% 03/01/99 600,000 600,000
California Pollution
Control Financing
Authority, Southern
California Edison Co.
Project, Series 1986D
(final maturity
2/28/08)*.............. P1/A1 A1/A+ 3.55% 03/01/99 2,300,000 2,300,000
California Pollution
Control Revenue
Financing Authority,
Pacific Gas & Electric,
Series D............... P1/NR A1+/NR 2.70% 03/08/99 10,000,000 10,000,000
California Pollution
Control Revenue
Financing Authority,
Southern California
Edison, Series 1985B... P1/NR A1+/NR 2.50% 04/05/99 15,100,000 15,100,000
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 228
31
<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 1985B
(final maturity
3/1/08)*............... P1/A1 A1/A+ 2.80% 03/10/99 $ 4,200,000 $ 4,200,000
California Pollution
Control Revenue
Financing Authority,
Southern California
Edison, Series 1985D... P1/NR A1+/NR 2.65% 04/08/99 9,800,000 9,800,000
California School Cash
Reserve Program
Authority Pool, Series
A...................... MIG1/NR SP1+/NR 4.50% 07/02/99 42,050,000 42,173,126
California State
Department of Water
(final maturity
12/1/29)*.............. NR/AA A+/AA 2.82% 03/04/99 17,270,000 17,270,000
California State
Economic Development
Financing Authority,
Industrial Development
Revenue, Volk
Enterprises
Incorporation Project
(LOC -- Harris Trust &
Savings Bank) (final
maturity 6/1/21)*...... NR/NR A1+/AA- 2.65% 03/03/99 2,050,000 2,050,000
California State
Municipal Receipts
(AMBAC Insured) (final
maturity 6/1/21)*
144A................... NR/NR A1+/AA- 3.75% 03/03/99 15,950,000 15,950,000
California State
Municipal Receipts
(FGIC Insured) (final
maturity 6/1/17)*
144A................... NR/NR A1+/AA- 2.85% 03/03/99 2,000,000 2,000,000
California State
Municipal Receipts
(FGIC Insured) (final
maturity 9/1/21)*
144A................... NR/NR A1+/AAA 2.87% 03/03/99 3,975,000 3,975,000
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 229
32
<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 State
Revenue Anticipation
Notes.................. MIG1/NR SP1+/NR 4.00% 06/30/99 $33,000,000 $ 33,105,346
California State (FGIC
Insured) (final
maturity 6/1/13)*...... NR/NR A1+/AAA 2.85% 03/03/99 8,340,000 8,340,000
California State (final
maturity 8/1/15)*...... NR/NR A1+/AAA 3.15% 03/01/99 12,800,000 12,800,000
California State (final
maturity 9/1/16)*...... NR/NR A1+/AAA 2.75% 03/03/99 8,385,000 8,385,000
California State (final
maturity 2/1/21)*...... NR/NR A1+/AAA 2.75% 03/03/99 35,000,000 35,000,000
California Statewide
Community Development
Authority Revenue
Refunding, Certificates
of Participation, St.
Joseph Health System
(final maturity
7/1/08)*............... VMIG1/Aa3 A1+/AA 2.50% 03/03/99 12,750,000 12,750,000
California Statewide
Community Development
Authority, Certificates
of Participation
(LOC -- Dresdner Bank)
(final maturity
6/1/26)*............... VMIG1/Aa1 NR/NR 3.05% 03/01/99 1,700,000 1,700,000
California Statewide
Community Development
Authority, Certificates
of Participation,
Memorial Health
Services (final
maturity 10/1/26)*..... VMIG1/A1 A1+/AA- 2.60% 03/03/99 24,700,000 24,700,000
California Statewide
Community Development
Authority, Chevron USA,
Inc. Project (AMT)
(final maturity
12/15/24)*............. NR/Aa2 NR/NR 3.15% 03/01/99 1,400,000 1,400,000
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 230
33
<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, The Terraces
at PK Marino Project
(AMT) (final maturity
7/1/27)*............... NR/NR A1+/AAA 2.80% 03/03/99 $ 7,355,000 $ 7,355,000
California Statewide
Community Development,
Series B (AMT) (final
maturity 11/1/15)*..... NR/NR A1+/AA+ 2.65% 03/03/99 1,005,000 1,005,000
California
Transportation Finance
Authority (FSA Insured)
(final maturity
10/1/27)*.............. NR/NR A1+/AAA 2.60% 03/01/99 13,100,000 13,100,000
Campbell Elementary
School, Tax & Revenue
Anticipation Notes
(final maturity
8/2/99)*............... MIG1/NR NR/NR 4.00% 03/01/99 2,000,000 2,003,664
Chaffey High School
District, Series A
(FGIC Insured)......... Aaa/NR AAA/NR 4.00% 08/01/99 2,365,000 2,368,845
Chula Vista Industrial
Development, San Diego
Gas & Electric Co.,
Series 1992C (AMT)..... P1/NR A1+/NR 2.70% 03/08/99 3,000,000 3,000,000
Chula Vista Industrial
Development, San Diego
Gas & Electric Co.,
Series B (AMT) (final
maturity 12/1/21)*..... P1/A2 A1/A 3.60% 03/01/99 5,900,000 5,900,000
Chula Vista Industrial
Development, San Diego
Gas & Electric Co.,
Series B (AMT) (final
maturity 12/1/27)*..... VMIG1/A1 A1/A+ 2.65% 03/03/99 11,000,000 11,000,000
City of Long Beach
(final maturity
5/15/15)*.............. NR/NR A1+/AAA 2.82% 03/03/99 13,000,000 13,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 231
34
<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
Multi-Family Housing
Revenue, Park Regency,
Series A (AMT) (LOC --
Sumitomo Bank, Ltd)
(final maturity
8/1/32)*............... NR/NR A1+/AA 2.60% 03/03/99 $ 7,500,000 $ 7,500,000
Foothill/Eastern
Corridor Agency, Toll
Road Revenue, Series B
(LOC -- Morgan Guaranty
Trust) (final maturity
1/2/35)*............... NR/NR A1+/AA+ 2.60% 03/04/99 20,200,000 20,200,000
Foothill/Eastern
Corridor Agency, Toll
Road Revenue, Series D
(final maturity
1/2/35)*............... NR/NR A1+/AA+ 2.65% 03/04/99 15,000,000 15,000,000
Foothill/Eastern
Corridor Agency, Toll
Road Revenue, Series E
(LOC -- Banque
Nationale, Paris)
(final maturity
1/2/35)*............... NR/NR A1/A+ 1.00% 03/03/99 7,400,000 7,400,000
Fremont Certificates of
Participation, Family
Residential Center
(LOC -- Kredietbank
N.V.) (final maturity
8/1/28)*............... NR/NR A1+/AA- 2.45% 03/01/99 2,000,000 2,000,000
Fremont Multi-Family
Housing Authority,
Series E (Credit
Lyonnais) (LOC --
Bayerische Landesbank)
(final maturity
9/1/14)*............... NR/NR A1+/AAA 2.70% 03/04/99 9,790,000 9,790,000
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 232
35
<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)
Grossmont United High
School District,
Certificates of
Participation, 1997
Facility Bridge Funding
Project (FSA Insured)
(final maturity
9/1/26)*............... VMIG1/Aaa A1+/AAA 4.10% 09/01/99 $ 2,385,000 $ 2,397,901
Hayward Multi-Family
Housing Revenue,
Shorewood, Series A
(FGIC Insured) (final
maturity 8/1/14)*...... VMIG1/Aaa AAA/NR 2.60% 03/04/99 17,800,000 17,800,000
Hayward Multi-Family
Housing Revenue, Timber
Apartments, Series A
(AMT) (LOC -- Chase
Manhattan Bank) (final
maturity 3/1/33)*...... VMIG1/Aa2 NR/NR 2.70% 03/03/99 3,800,000 3,800,000
Indio Multi-Family
Housing, Western
Federal Savings Project
(LOC -- Wells Fargo &
Co.) (final maturity
6/1/05)*............... NR/NR A1+/AA- 2.45% 03/04/99 4,965,000 4,965,000
Irvine Improvement
Board Act 1915
(LOC -- National
Westminster) (final
maturity 9/2/15)*...... VMIG1/Aa2 A1+/AA 3.10% 03/01/99 7,400,000 7,400,000
Irvine Improvement
Board Act 1915
(LOC -- Canadian
Imperial Bank) (final
maturity 9/2/22)*...... VMIG1/Aa3 A1+/AA- 3.10% 03/01/99 1,700,000 1,700,000
Irvine Improvement
Board Act 1915
(LOC -- Bayerische
Vereinsbank) (final
maturity 9/2/23)*...... VMIG1/Aa2 NR/NR 3.10% 03/01/99 2,000,000 2,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 233
36
<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
1/1/21)*............... VMIG1/Aa3 A1+/AA- 3.10% 03/01/99 $ 5,900,000 $ 5,900,000
Kern County
Certificates of
Participation, Kern
Public Facilities
Project, Series B
(LOC -- UBS AG) (final
maturity 8/1/06)*...... VMIG1/Aa1 NR/NR 2.60% 03/03/99 1,200,000 1,200,000
Kern County
Certificates of
Participation, Kern
Public Facilities
Project, Series C
(LOC -- UBS AG) (final
maturity 8/1/06)*...... VMIG1/Aa1 NR/NR 2.60% 03/03/99 10,000,000 10,000,000
Long Beach Health
Facilities, Memorial
Health Service (final
maturity 10/1/16)*..... VMIG1/A1 A1+/AA- 2.60% 03/03/99 8,950,000 8,950,000
Long Beach (AMT) (final
maturity 5/15/07)*
144A................... VMIG1/Aaa NR/NR 3.00% 03/03/99 9,995,000 9,995,000
Long Beach (AMT)....... P1/NR A1+/NR 2.80% 03/09/99 10,000,000 10,000,000
Los Angeles Community
Redevelopment Agency,
Academy Village
Apartments, Series A
(AMT) (LOC -- Swiss
Bank) (final maturity
10/1/19)*.............. VMIG1/Aaa NR/NR 2.75% 03/01/99 10,000,000 10,000,000
Los Angeles Convention
& Exhibition Center
Authority, Certificates
of Participation,
Series A (final
maturity 8/15/18)*..... AAA/NR AAA/NR 7.375% 03/01/99 7,880,000 8,144,570
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 234
37
<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
Capital Asset Lease
Corporation............ P1/NR A1+/NR 2.50% 05/06/99 $ 6,000,000 $ 6,000,000
Los Angeles County
Capital Asset Lease
Corporation............ P1/NR A1+/NR 2.50% 03/01/99 10,000,000 10,000,000
Los Angeles County
Metropolitan
Transportation
Authority (AMBAC
Insured) (final
maturity 7/1/17)*
144A................... NR/NR A1+/AAA 2.75% 03/03/99 2,100,000 2,100,000
Los Angeles County
Metropolitan
Transportation
Authority, Municipal
Treasury Receipts,
Series SGB3 (FSA
Insured) (final
maturity 7/1/16)*...... NR/NR A1+/AAA 2.87% 03/04/99 5,500,000 5,500,000
Los Angeles County,
Metropolitan
Transportation
Authority, Sales Tax
Revenue, Series CMC2
(final maturity
7/1/11)* 144A.......... VMIG1/Aaa NR/NR 2.90% 03/03/99 13,355,000 13,355,000
Los Angeles County
Pension Obligation,
Series B (AMBAC
Insured) (final
maturity 6/30/07)*..... VMIG1/Aaa A1+/AAA 2.50% 03/03/99 5,200,000 5,200,000
Los Angeles County
Transportation
Commission, Sales Tax
Revenue................ P1/NR A1+/NR 2.45% 04/07/99 7,000,000 7,000,000
Los Angeles County
Transportation
Commission, Sales Tax
Revenue................ P1/NR A1+/NR 2.80% 03/11/99 10,000,000 10,000,000
Los Angeles County
Transportation
Commission, Sales Tax
Revenue................ P1/NR A1+/NR 2.80% 03/04/99 6,000,000 6,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 235
38
<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....... P1/NR A1+/NR 2.65% 03/08/99 $19,000,000 $ 19,000,000
Los Angeles Department
of Water & Power....... P1/NR A1+/NR 2.70% 03/09/99 10,000,000 10,000,000
Los Angeles Department
of Water & Power....... P1/NR A1+/NR 2.70% 03/10/99 7,000,000 7,000,000
Los Angeles Department
of Water & Power....... P1/NR A1+/NR 2.85% 03/16/99 15,000,000 15,000,000
Los Angeles Department
of Water & Power....... P1/NR A1+/NR 2.30% 03/26/99 35,000,000 35,000,000
Los Angeles Department
of Water & Power....... P1/NR A1+/NR 2.30% 05/10/99 3,500,000 3,500,000
Los Angeles Department
of Water & Power....... P1/NR A1+/NR 2.60% 07/15/99 10,000,000 10,000,000
Los Angeles Industrial
Development Authority,
Industrial Development
Revenue, Delta Tau Data
System Inc. Project
(AMT) (final maturity
8/1/23)*............... NR/NR A1+/AA+ 2.75% 03/01/99 2,000,000 2,000,000
Los Angeles
Metropolitan
Transportation
Authority.............. P1/NR A1+/NR 3.45% 03/08/99 5,000,000 5,000,000
Los Angeles United
School District,
Certificates of
Participation, Belmont
Learning Complex,
Series A (LOC --
Commerzbank AG) (final
maturity 12/1/17)*..... VMIG1/Aa2 A1+/AA- 2.50% 03/03/99 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 43,902,773
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 236
39
<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 County
Financing Authority,
Reclamation and
Distribution Project
(LOC -- Credit Local De
France) (final maturity
9/1/36)*............... VMIG1/A1 NR/NR 2.70% 03/04/99 $ 6,500,000 $ 6,500,000
Mountain View,
Mariposa, Series A
(FGIC Insured) (final
maturity 3/1/17)*...... VMIG1/Aaa AAA/NR 2.60% 03/04/99 16,500,000 16,500,000
MSR Public Power
Agency, San Juan
Project, Series E (MBIA
Insured) (final
maturity 7/1/22)*...... VMIG1/Aaa A1+/AAA 2.50% 03/03/99 11,000,000 11,000,000
North City West School
Facilities, Financing
Authority, Special Tax
Community Facilities
District No 1, Series A
(final maturity
9/1/19)*............... AAA/NR NR/NR 7.85% 09/01/99 1,525,000 1,588,731
Northern California
Power Agency,
Geothermal Project
Number 3, Series B
(AMBAC Insured)........ Aaa/NR AAA/NR 5.00% 07/01/99 8,000,000 8,036,360
Oakland JT Powers
Financing Authority
Lease Revenue, Series A
(FSA Insured) (final
maturity 8/1/21)*...... VMIG1/Aaa A1+/AAA 2.50% 08/01/21 17,000,000 17,000,000
Oakland United School
District, Alameda
County, Tax & Revenue
Anticipation Notes..... NR/NR SP1+/NR 3.25% 11/09/99 5,000,000 5,015,152
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 237
40
<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 Revenue,
Robinson Ranch
Apartments, Series Y
(LOC -- Banque Paribas)
(final maturity
11/1/08)*.............. NR/NR A2/A- 2.90% 03/03/99 $ 3,800,000 $ 3,800,000
Orange County Apartment
Development Authority,
Bear Brand Apartments,
Series Z
(LOC -- Kredietbank
N.V.) (final maturity
11/1/07)*.............. VMIG1/Aa3 NR/NR 2.55% 03/03/99 19,500,000 19,500,000
Orange County Apartment
Development Authority,
Pointe Niguel Project,
Series C (LOC -- Wells
Fargo & Company) (final
maturity 11/1/05)*..... VMIG1/Aa2 NR/NR 3.00% 03/04/99 24,600,000 24,600,000
Orange County Apartment
Development Revenue,
Villas Aliento, Series
E (FNMA Insured) (final
maturity 8/15/28)*..... NR/NR A1+/AAA 2.60% 03/01/99 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 2.60% 03/04/99 20,000,000 20,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 238
41
<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
Improvement Board
Assessment District
(LOC -- Societe
Generale) (LOC --
Kredietbank) (final
maturity 8/1/17)*...... VMIG1/Aa3 A1+/AA- 3.10% 03/01/99 $17,100,000 $ 17,100,000
Orange County
Sanitation Districts,
Cerificates of
Participation, Capital
Improvements Project
(LOC -- National
Westminster Bank)
(final maturity
8/1/15)*............... VMIG1/Aa2 A1+/AA 3.10% 03/01/99 26,700,000 26,700,000
Orange County
Sanitation Districts,
Certificates of
Participation, Series C
(FGIC Insured) (final
maturity 8/1/17)*...... VMIG1/Aaa A1+/AAA 3.05% 03/01/99 8,500,000 8,500,000
Orange County
Sanitation Districts,
Certificates of
Participation, Various
Sanitation Districts
(AMBAC Insured) (final
maturity 8/1/13)*...... VMIG1/Aaa A1+/AAA 2.60% 03/03/99 15,700,000 15,700,000
Otay Water District,
Certificates of
Participation (LOC --
Landesbank Hessen)
(final maturity
9/1/26)*............... VMIG1/Aaa A1+/AAA 2.45% 03/03/99 2,100,000 2,100,000
Paramount Uniform
School District,
Certificates of
Participation, School
Facility Bridge Funding
(AMT) (final maturity
9/1/08)*............... VMIG1/Aaa A1+/AAA 2.70% 03/03/99 1,275,000 1,275,000
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 239
42
<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)
Paramount Uniform
School District,
Certificates of
Participation, School
Facility Bridge Funding
(AMT) (final maturity
9/1/15)*............... VMIG1/Aaa A1+/AAA 2.70% 03/03/99 $ 1,925,000 $ 1,925,000
Paramount Uniform
School District,
Certificates of
Participation, School
Facility Bridge Funding
(AMT) (final maturity
9/1/27)*............... VMIG1/Aaa A1+/AAA 2.70% 03/03/99 1,940,000 1,940,000
Pasadena Certificates
of Participation, Rose
Bowl Improvement
Project (LOC --
Canadian Imperial Bank)
(LOC -- California
State) (final maturity
12/1/16)*.............. VMIG1/Aa3 NR/NR 2.50% 03/03/99 900,000 900,000
Pico Rivera
Redevelopment Agency,
Certificates of
Participation,
Crossroads Plaza
Project (LOC --
Wachovia Bank of
Georgia) (final
maturity 12/1/10)*..... NR/NR A1+/AA 5.56% 03/03/99 7,100,000 7,100,000
Riverside County Asset
Leasing Corp.,
Riverside County
Hospital Project,
Series A (final
maturity 6/1/19)*...... NR/NR A/NR 6.25% 03/01/99 9,000,000 9,066,959
Riverside County
Certificates of
Participation,
Riverside County Public
Facilities, Series B
(final maturity
12/1/15)*.............. VMIG1/Aa3 A1+/NR 2.50% 03/03/99 24,800,000 24,800,000
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 240
43
<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
Community Facilities
District, Special Tax
No. 88-4 (LOC --
Kredietbank N.V.)
(final maturity
9/1/14)*............... VMIG1/Aa2 NR/NR 2.65% 03/03/99 $ 9,400,000 $ 9,400,000
Riverside County
Community Facilities
District, Special Tax
No. 89-5 (AMBAC
Insured) (final
maturity 9/1/28)*...... VMIG1/Aaa A1+/AAA 3.50% 03/01/99 8,000,000 8,000,000
Riverside County Tax &
Revenue Anticipation
Notes.................. MIG1/NR SP1+/NR 4.50% 09/30/99 5,000,000 5,039,529
Riverside Electric
Revenue, Series CMC5
(AMBAC Insured) (final
maturity 10/1/11)*
144A................... VMIG1/Aaa NR/NR 2.90% 03/03/99 6,800,000 6,800,000
Roseville Finance
Authority Hospital
Lease Revenue, Series A
(LOC -- Toronto
Dominion Bank) (final
maturity 10/1/14)*..... NR/NR A1+/AA 2.65% 03/03/99 10,650,000 10,650,000
Sacramento County
Housing Authority,
Multifamily Housing
Revenue, Series E,
River Oaks Apartments
(final maturity
9/15/07)*.............. VMIG1/Aa2 NR/NR 2.70% 03/04/99 18,010,000 18,010,000
Sacramento County
Housing Authority,
Multifamily Housing
Revenue, Stone Creek
Apartments (FNMA
Insured) (final
maturity 11/15/27)*.... NR/NR A1+/AAA 2.60% 03/01/99 5,000,000 5,000,000
Sacramento Municipal
Utility District,
Series 1............... P1/NR A1+/NR 2.70% 03/17/99 20,000,000 20,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 241
44
<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 Municipal
Utility District,
Series 1............... P1/NR A1+/NR 2.70% 03/11/99 $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 2.70% 03/03/99 22,000,000 22,000,000
San Bernardino County,
Certificates of
Participation (final
maturity 8/1/28)*...... NR/NR A1+/AAA 2.75% 03/03/99 2,500,000 2,500,000
San Bernardino County,
Industrial Development
Authority, Aqua Service
(AMT) (final maturity
5/1/09)*............... NR/NR A1+/AA+ 2.65% 03/03/99 1,320,000 1,320,000
San Bernardino County,
Tax & Revenue
Anticipation Notes..... MIG1/NR SP1+/NR 4.50% 09/30/99 12,000,000 12,075,383
San Diego City,
Industrial Development
Authority, San Diego
Gas & Electric, Series
A...................... P1/NR A1+/NR 2.90% 03/04/99 2,000,000 2,000,000
San Diego City,
Industrial Development
Authority, San Diego
Gas & Electric, Series
A...................... P1/NR A1+/NR 2.65% 03/08/99 5,200,000 5,200,000
San Diego County Tax &
Revenue Anticipation... MIG1/NR SP1+/NR 4.50% 09/30/99 2,000,000 2,017,681
San Diego County, Water
Authority.............. P1/NR A1+/NR 3.45% 03/08/99 7,000,000 7,000,000
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 242
45
<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 Housing
Authority, Multi-
Family Housing Revenue,
La Cima Apartments,
Series K
(LOC -- Citibank N.A.)
(final maturity
12/1/08)*.............. VMIG1/Aa2 AAA/NR 2.65% 03/04/99 $ 7,740,000 $ 7,740,000
San Diego Housing
Authority, Multi-
Family Housing, Nobel
Ct. Apartments, Series
L (LOC -- Citibank)
(final maturity
12/1/08)*.............. VMIG1/Aa2 NR/NR 2.65% 03/04/99 19,165,000 19,165,000
San Francisco Bay Area,
Transit Financing
Authority, Series A.... P1/NR A1+/NR 2.65% 03/10/99 1,000,000 1,000,000
San Francisco City and
County Community
International Airport
(AMT) (MBIA Insured)
(final maturity
5/1/16)*............... NR/NR A1+/AAA 2.85% 03/03/99 11,500,000 11,500,000
San Francisco City and
County Community
International Airport
Revenue (final maturity
5/1/20)*............... NR/NR NR/NR 2.72% 03/01/99 9,775,000 9,775,000
San Francisco City and
County Community
International Airport
(final maturity
5/1/21)* 144A.......... NR/NR NR/NR 2.72% 03/04/99 5,345,000 5,345,000
San Francisco City and
County Community
International Airport
(AMT) (MBIA Insured)
(final maturity
5/1/26)* 144A.......... NR/NR A1+/AAA 2.85% 03/04/99 3,905,000 3,905,000
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 243
46
<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 Multi-Family
Housing, Winterland
Project, Series 1985-C
(LOC -- Citibank, N.A.)
(final maturity
6/1/06)*............... NR/NR A1+/AA- 2.20% 03/02/99 $ 1,500,000 $ 1,500,000
San Francisco City &
County School District
Tax & Revenue
Anticipation Notes
(final maturity
9/22/99)*.............. MIG1/NR SP1+/NR 4.50% 03/01/99 10,000,000 10,060,112
San Jose, Multi-Family
Housing Revenue, Fox
Chase Project, Series B
(FGIC Insured) (final
maturity 11/1/07)*..... VMIG1/Aaa A1+/AAA 2.60% 03/01/99 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 2.50% 03/03/99 3,518,900 3,518,900
Santa Clara County, Tax
& Revenue Anticipation
Notes (final maturity
10/1/99)*.............. MIG1/NR SP1+/NR 4.50% 10/01/99 12,000,000 12,114,358
Santa Clara Electric
Revenue Authority,
Series C (LOC --
National Westminster)
(final maturity
7/1/10)*............... VMIG1/Aa2 NR/NR 2.55% 03/03/99 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 2.55% 03/03/99 9,600,000 9,600,000
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 244
47
<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 Unified
School District (FGIC
Insured) (final
maturity 8/01/99)*..... NR/NR AAA/NR 7.00% 08/01/99 $ 2,605,000 $ 2,648,842
Southeast Resource
Recovery Facilities
Authority, California
Lease Revenue, Series A
(LOC -- State Street
Bank & Trust)
(LOC -- Bayerische)
(final maturity
12/1/18)*.............. VMIG1/Aa2 A1+/AA- 2.60% 03/03/99 20,000,000 20,000,000
Southern Kern
California, Unified
School District,
Certificates of
Participation, Series A
(FSA Insured) (final
maturity 9/1/26)*...... VMIG1/Aaa A1/AAA 2.65% 03/04/99 4,030,000 4,030,000
Southern Metropolitan
Water District......... P1/NR A1+/NR 2.85% 03/16/99 6,300,000 6,300,000
University of
California Revenue
(final maturity
9/1/19)*............... NR/NR A1+/AAA 2.72% 03/04/99 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 1,017,770
Wateruse Finance
Authority (FSA Insured)
(final maturity
5/1/28)*............... NR/Aaa A1+/AAA 2.50% 03/03/99 20,000,000 20,000,000
--------------
1,506,657,638
--------------
PUERTO RICO -- 7.3%
Puerto Rico
Commonwealth
Infrastructure
Financing Authority,
Series C (AMBAC
Insured) (final
maturity 7/1/12)*
144A................... VMIG1/Aaa NR/NR 2.90% 03/03/99 10,995,000 10,995,000
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 245
48
<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 -- (CONTINUED)
Puerto Rico
Commonwealth, Tax &
Revenue Anticipation
Notes, Series A........ MIG1/NR SP1+/NR 3.50% 07/30/99 $31,000,000 $ 31,083,112
Puerto Rico Electric
Power Authority
(LOC -- Societe
Generale) (final
maturity 7/1/22)*
144A................... NR/NR A1+/AAA 2.80% 03/03/99 27,900,000 27,900,000
Puerto Rico Electric
Power Authority, Series
SGA 44 (LOC -- Societe
Generale) (final
maturity 7/1/23)*...... NR/NR A1+/NR 2.80% 03/01/99 4,900,000 4,900,000
Puerto Rico Government
Development Bond....... P1/NR A1+/NR 2.95% 03/08/99 20,000,000 20,000,000
Puerto Rico Highway &
Transportation
Authority, Series A
(AMBAC Insured) (final
maturity 7/1/28)*...... VMIG1/Aaa A1+/AAA 2.60% 03/03/99 21,540,000 21,540,000
--------------
116,418,112
--------------
TOTAL INVESTMENTS -- 102.4% (AMORTIZED COST $1,623,075,750)(a)...................... 1,623,075,750
LIABILITIES IN EXCESS OF OTHER ASSETS -- (2.4%)..................................... (38,524,023)
--------------
NET ASSETS -- 100.0%................................................................ $1,584,551,727
==============
</TABLE>
- ---------------------
Percentages indicated are based on net assets of $1,584,551,727.
(a) Cost for Federal income tax and financial reporting purposes is
substantially the same.
<TABLE>
<C> <S>
AMBAC -- AMBAC Indemnity Corporation.
AMT -- Interest on securities subject to Federal Alternative
Minimum Tax.
FGIC -- Financial Guaranty Insurance Company.
FNMA -- Federal National Mortgage Association.
FSA -- Financial Security Assurance.
GIC -- Guaranty Insurance Company.
LOC -- Letter of Credit.
MBIA -- Municipal Bond Insurance Association.
NR -- No rating assigned by Moody's or S&P.
* -- Variable rate security. Maturity date reflects the next rate
change date.
+ The ratings provided consist of short-term and long-term
ratings.
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 8.8% of net assets.
</TABLE>
See Notes to Financial Statements
<PAGE> 246
49
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities
February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALIFORNIA
TAX-EXEMPT TAX-EXEMPT
MONEY MONEY MARKET
FUND FUND
ASSETS: ------------ --------------
<S> <C> <C>
Investments in securities, at value (amortized cost
$794,910,857 and $1,623,075,750, respectively)........... $794,910,857 $1,623,075,750
Cash....................................................... 2,426,121 180,656
Interest receivable........................................ 5,399,970 10,038,463
Receivable for investment securities sold.................. -- 2,550,000
Receivable for capital shares sold......................... 178,000 2,000
Prepaid expenses........................................... 19,647 --
------------ --------------
Total Assets................................................ 802,934,595 1,635,846,869
------------ --------------
LIABILITIES:
Dividends payable.......................................... 1,011,401 704,508
Payable for investment securities purchased................ 2,500,000 49,730,718
Payable for capital shares redeemed........................ -- 4,730
Investment advisory fees payable........................... 61,391 126,319
Administration fees payable................................ 61,314 126,163
Special management fees payable............................ 73,852 137,049
Shareholder service fees payable........................... 48,853 213,689
Distribution fees payable.................................. 14,679 72,342
Custodian and fund accounting fees payable................. 52,856 36,805
Transfer agent fees payable................................ 4,050 20,256
Legal fees payable......................................... 10,777 14,963
Other accrued expenses..................................... 103,589 107,600
------------ --------------
Total Liabilities........................................... 3,942,762 51,295,142
------------ --------------
NET ASSETS.................................................. $798,991,833 $1,584,551,727
============ ==============
Net Assets:
Pacific Horizon Shares..................................... $163,840,187 $ 539,232,835
Horizon Shares............................................. 380,343,579 --
Horizon Service Shares..................................... 191,328,694 708,947,227
X Shares................................................... -- 37,325,618
S Shares................................................... 63,479,373 299,046,047
------------ --------------
Total....................................................... $798,991,833 $1,584,551,727
============ ==============
Shares Outstanding ($0.001 par value, 50 billion and 40
billion shares authorized, respectively):
Pacific Horizon Shares..................................... 163,866,457 539,253,685
Horizon Shares............................................. 380,493,373 --
Horizon Service Shares..................................... 191,357,924 708,986,683
X Shares................................................... -- 37,327,523
S Shares................................................... 63,479,334 299,045,243
------------ --------------
Total....................................................... 799,197,088 1,584,613,134
============ ==============
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER
SHARE...................................................... $ 1.00 $ 1.00
============ ==============
COMPOSITION OF NET ASSETS:
Shares of common stock, at par............................. $ 799,197 $ 1,584,613
Additional paid-in capital................................. 798,321,821 1,582,965,060
Accumulated undistributed net investment income............ 75,152 61,339
Accumulated net realized losses on investment
transactions............................................. (204,337) (59,285)
------------ --------------
NET ASSETS, FEBRUARY 28, 1999............................... $798,991,833 $1,584,551,727
============ ==============
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 247
50
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Statements of Operations
For the year ended February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALIFORNIA
TAX-EXEMPT
TAX-EXEMPT MONEY
MONEY MARKET
FUND FUND
----------- -----------
<S> <C> <C>
INVESTMENT INCOME:
Interest................................................... $25,225,258 $48,709,796
----------- -----------
EXPENSES:
Investment advisory fees................................... 738,558 1,548,799
Administration fees........................................ 738,558 1,548,799
Special management fees (Pacific Horizon Shares)........... 456,149 2,037,930
Shareholder service fees (Horizon Service Shares).......... 492,181 1,702,931
Shareholder service fees (X Shares)........................ -- 81,640
Shareholder service fees (S Shares)........................ 118,183 636,646
Distribution fees (X Shares)............................... -- 97,966
Distribution fees (S Shares)............................... 354,550 1,890,092
Custodian and fund accounting fees......................... 176,754 187,552
Printing fees.............................................. 55,217 91,064
Directors fees............................................. 20,812 38,158
Legal fees................................................. 27,644 50,293
Transfer agent fees........................................ 10,058 23,319
Other expenses............................................. 105,345 223,339
----------- -----------
Total Expenses........................................... 3,294,009 10,158,528
Less: Fee waivers.......................................... (212,730) (1,311,622)
Expenses paid by third parties....................... (6,573) (14,087)
----------- -----------
Total Net Expenses.......................................... 3,074,706 8,832,819
----------- -----------
NET INVESTMENT INCOME....................................... 22,150,552 39,876,977
----------- -----------
NET REALIZED GAINS/(LOSSES) ON INVESTMENTS:
Net realized gains/(losses) on investment transactions..... 350 (3,147)
----------- -----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $22,150,902 $39,873,830
=========== ===========
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 248
51
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALIFORNIA TAX-EXEMPT
TAX-EXEMPT MONEY FUND MONEY MARKET FUND
----------------------------------- -----------------------------------
YEAR ENDED YEAR ENDED
----------------------------------- -----------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income....... $ 22,150,552 $ 20,845,925 $ 39,876,977 $ 34,700,392
Net realized gains (losses)
on investment
transactions.............. 350 (33,324) (3,147) (45,278)
--------------- --------------- --------------- ---------------
Change in net assets
resulting from operations... 22,150,902 20,812,601 39,873,830 34,655,114
--------------- --------------- --------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM NET INVESTMENT INCOME:
Pacific Horizon Shares...... (4,054,894) (3,710,722) (15,175,264) (15,910,817)
Horizon Shares.............. (11,119,012) (11,040,725) -- --
Horizon Service Shares...... (5,757,588) (5,881,059) (18,045,318) (16,451,344)
X Shares.................... -- -- (767,430) (1,018,847)
S Shares.................... (1,219,058) (213,419)(a) (5,889,927) (1,319,384)(b)
--------------- --------------- --------------- ---------------
Change in net assets from
shareholder distributions... (22,150,552) (20,845,925) (39,877,939) (34,700,392)
--------------- --------------- --------------- ---------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares
issued.................... 1,920,634,907 1,756,343,172 3,447,276,433 3,024,788,107
Dividends reinvested........ 7,270,826 5,686,685 29,385,958 26,426,275
Cost of shares redeemed..... (1,836,238,026) (1,574,206,334) (3,333,744,304) (2,603,253,345)
--------------- --------------- --------------- ---------------
Change in net assets from
capital share
transactions................ 91,667,707 187,823,523 142,918,087 447,961,037
--------------- --------------- --------------- ---------------
Change in net assets......... 91,668,057 187,790,199 142,913,978 447,915,759
NET ASSETS
Beginning of Year........... 707,323,776 519,533,577 1,441,637,749 993,721,990
--------------- --------------- --------------- ---------------
End of Year................. $ 798,991,833 $ 707,323,776 $ 1,584,551,727 $ 1,441,637,749
=============== =============== =============== ===============
Accumulated Undistributed
Net Investment Income....... $ 75,152 $ 52,442 $ 61,339 $ 62,301
=============== =============== =============== ===============
</TABLE>
- ---------------
(a) Period from July 8, 1997 (inception date) to February 28, 1998.
(b) Period from June 18, 1997 (inception date) to February 28, 1998.
See Notes to Financial Statements.
<PAGE> 249
52
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 -- ORGANIZATION
Pacific Horizon Funds, Inc. (the "Company"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended (the "Act"), as
an open-end management investment company. At February 28, 1999, the Company
operated as a series company comprising 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 current income exempt from Federal income taxes,
a stable share price 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 and administrator.
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 terms 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,
<PAGE> 250
53
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
daily. Realized gains and losses from security transactions are recorded on an
identified cost basis.
<PAGE> 251
54
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 year
ended February 28, 1999, custodian fees and expenses paid by third parties were
increased by $6,573 and $14,087 for the Tax-Exempt Fund and California Tax-
Exempt 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. 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.
<PAGE> 252
55
As of February 28, 1999, the following reclassifications have been made to
increase (decrease) such accounts with offsetting adjustments made to paid-in
capital:
<TABLE>
<CAPTION>
ACCUMULATED
UNDISTRIBUTED NET
FUND INVESTMENT INCOME
---- -----------------
<S> <C>
Tax-Exempt Fund............................................. $ 22,710
</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, 1999, 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
17,841 2007
--------
$204,337
========
California Tax-Exempt Fund................................ $ 4,266 2004
51,872 2006
349 2007
--------
$ 56,487
========
</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.
Capital losses incurred after October 31 for the California Tax-Exempt Fund
are deemed to arise on the first business day of the following fiscal year for
tax purposes. The Fund incurred and elected to defer capital losses of $2,798,
incurred after October 31, 1998.
<PAGE> 253
56
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 year ended February
28, 1999, the Tax-Exempt Fund and the California Tax-Exempt Fund were advised
that Bank of America and its affiliates earned $738,558 and $1,548,799
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 $174,591, in special management fees for the California Tax-Exempt Fund.
For the year ended February 28, 1999, 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............................................. $ 451,512 $4,029
California Tax-Exempt Fund.................................. 1,829,873 4,662
</TABLE>
The Funds have also adopted a Shareholder Services Plan (the "Horizon
Services Plan") pursuant to which Service Organizations agree to provide certain
services to their clients who are beneficial owners of Horizon Service Shares in
return for payment by the Funds of a fee at an annual rate of 0.25% of the
average daily net assets of the Horizon Service Shares. Fees under the Horizon
Services Plan are borne solely by the Horizon Service Shares. For the year ended
February 28, 1999, the Tax-Exempt Fund and the California Tax-Exempt Fund
<PAGE> 254
57
were advised that Bank of America and its affiliates earned $492,181 and
$1,644,119, 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 year ended February 28, 1999, the Funds were
advised that Bank of America and its affiliates earned $179,606 pursuant to the
Distribution and Services Plan.
The Funds have adopted the Distribution and Services Plan under which the
Fund pays the Distributor and Service Organizations for the provision of support
services with respect to the beneficial owners of S shares. Payments for the
distribution expenses and shareholder servicing expenses may not exceed the
annual rate of 0.75% and 0.25%, respectively, of the average daily net assets of
the Funds' S shares. For the year ended February 28, 1999, the Funds were
advised that Bank of America and it Affiliates waived $212,730 and $1,137,031
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 $260,003 and $1,389,707,
respectively, pursuant to the Distribution and Services Plan.
For the year ended February 28, 1999, PFPC earned $10,058 and $23,319 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 an annual
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.
<PAGE> 255
58
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 $8,883 and $8,149 for the Tax-Exempt Fund and
California Tax-Exempt Fund, respectively, for the year ended February 28, 1999.
A Director who came 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.
<PAGE> 256
59
The Tax-Exempt Fund and the California Tax-Exempt Fund had the following
concentrations by industry sector at February 28, 1999 (as a percentage of total
investments):
<TABLE>
<CAPTION>
CALIFORNIA
TAX-EXEMPT TAX-EXEMPT
FUND FUND
---------- ----------
<S> <C> <C>
Airport Facilities....................................... 0.3% 1.2%
Certificates of Participation............................ -- 1.2
Commercial Paper......................................... 12.7 16.9
Convention, Sports & Exhibition Centers.................. -- 0.5
Education................................................ 7.0 5.4
General Obligations...................................... 5.9 6.1
Healthcare............................................... 19.0 5.6
Housing Developments..................................... 5.9 14.9
Industrial Development Revenue........................... 1.9 1.4
Leases................................................... 1.9 3.7
Loan Pool................................................ 6.7 --
Municipal Notes & Bonds.................................. 0.9 7.0
Pollution Control........................................ 5.0 7.0
Power Projects........................................... 1.3 2.1
Public Facilities........................................ 1.0 --
Revenue.................................................. 15.7 16.6
Sewer Projects........................................... 1.5 2.1
Special Tax.............................................. 3.8 0.1
Transportation........................................... 1.4 4.4
Turnpike, Road & Bridge Development...................... 1.3 1.2
Utilities................................................ 2.0 1.0
Water Projects........................................... 4.8 1.6
------ ------
100.0% 100.0%
====== ======
</TABLE>
<PAGE> 257
60
NOTE 6 -- CAPITAL SHARE TRANSACTIONS
Transactions in shares of each Portfolio (at $1.00 per share) for the
periods indicated are summarized below:
<TABLE>
<CAPTION>
CALIFORNIA
TAX-EXEMPT TAX-EXEMPT
MONEY FUND MONEY MARKET FUND
----------------------------- --------------------------------
YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
PACIFIC HORIZON SHARES
Issued...................... 305,968,807 248,974,300 1,025,796,118 924,399,780
Reinvested.................. 4,033,532 3,683,304 15,042,302 15,765,764
Redeemed.................... (297,097,755) (188,139,622) (1,099,334,988) (835,476,867)
------------ ------------- -------------- --------------
Net increase/(decrease)...... 12,904,584 64,517,982 (58,496,568) 104,688,677
============ ============= ============== ==============
HORIZON SHARES
Issued...................... 941,841,352 1,016,879,219 -- --
Reinvested.................. 32,458 60,094 -- --
Redeemed.................... (905,374,453) (937,199,915) -- --
------------ ------------- -------------- --------------
Net increase................. 36,499,357 79,739,398 -- --
============ ============= ============== ==============
HORIZON SERVICE SHARES
Issued...................... 550,244,128 444,505,307 1,819,930,900 1,844,862,775
Reinvested.................. 1,985,735 1,729,858 7,687,183 8,320,478
Redeemed.................... (546,707,714) (429,406,739) (1,790,234,139) (1,653,155,809)
------------ ------------- -------------- --------------
Net increase................. 5,522,149 16,828,426 37,383,944 200,027,444
============ ============= ============== ==============
X SHARES
Issued...................... -- -- 84,751,490 62,397,815
Reinvested.................. -- -- 767,398 1,019,371
Redeemed.................... -- -- (78,903,271) (61,802,419)
------------ ------------- -------------- --------------
Net increase................. -- -- 6,615,617 1,614,767
============ ============= ============== ==============
S SHARES
Issued...................... 122,580,620 45,984,346 516,797,925 193,127,737
Reinvested.................. 1,219,101 213,429 5,889,075 1,320,662
Redeemed.................... (87,058,104) (19,460,058) (365,271,906) (52,818,250)
------------ ------------- -------------- --------------
Net increase................. 36,741,617 26,737,717(b) 157,415,094 141,630,149(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>
NOTE 7 -- PROPOSED REORGANIZATIONS
The Board of Directors of the Pacific Horizon Funds, Inc. has approved an
Agreement and Plan of Reorganization ("Agreements") between Pacific Horizon
Funds, Inc. and Nations Institutional Reserves. The Agreement, which is part of
a broader reorganization of Pacific Horizon Funds, Inc. into the Nations Family
of funds, provides for the transfer of all of the assets of the Pacific Horizon
Tax-
<PAGE> 258
61
Exempt Money and California Tax-Exempt Money Market Funds ("Funds") to the
Nations Municipal Reserves Fund and the Nations California Tax-Exempt Reserves
Fund in exchange solely for the number of Investor Shares, Capital Shares,
Advisor Shares and Daily Shares of the Nations Municipal Reserves Fund and
Investor Shares, Advisor Shares, Daily Shares and Daily Shares of the Nations
California Tax-Exempt Reserves Fund, equal in number to the outstanding shares
of the Pacific Horizon Share Class, Horizon Share Class, Horizon Service Share
Class, and S Share Class of the Pacific Horizon Tax-Exempt Money Fund and the
Pacific Horizon Share Class, Horizon Service Share Class, X Share Class and S
Share Class of the Pacific Horizon California Tax-Exempt Money Market Fund as of
the close of business of the New York Stock Exchange on the day that the
Reorganizations are effective. The Agreement also provides for the assumption by
the Nations Municipal Reserves Fund and Nations California Tax-Exempt Reserves
Fund of all of the liabilities of each of these Funds. The Reorganizations can
be consummated only if, among other things, they are approved by the vote of a
majority of outstanding shares of each of the Funds and a majority of the
outstanding shares of all the funds of Pacific Horizon Funds, Inc. A Special
Meeting of Shareholders ("Meeting") of the Funds is scheduled to be held on May
3, 1999, to vote on the Agreements. A detailed description of the proposed
transactions and voting information was sent to shareholders of the Funds on or
about February 12, 1999. If the Agreements are approved at the Meeting, the
Reorganization is expected to become effective on or about May 14, 1999 for the
Pacific Horizon Tax-Exempt Money Fund and on or about May 21, 1999 for the
Pacific Horizon California Tax-Exempt Money Market Fund.
<PAGE> 259
62
PACIFIC HORIZON TAX-EXEMPT MONEY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1999(a) 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
PACIFIC HORIZON SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income......... 0.0286 0.0310 0.0290 0.0327 0.0253
Less dividends to shareholders
from net investment income.... (0.0286) (0.0310) (0.0290) (0.0327) (0.0253)
-------- -------- -------- -------- --------
Net change in net asset value
per share..................... -- -- -- -- --
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END
OF YEAR....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return................... 2.89% 3.14% 2.94% 3.32% 2.56%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions).................. $ 164 $ 151 $ 86 $ 50 $ 37
Ratio of expenses to average
net assets.................. 0.57% 0.60% 0.60% 0.63% 0.60%
Ratio of net investment income
to average net assets....... 2.84% 3.09% 2.91% 3.26% 2.47%
Ratio of expenses to average
net assets*................. (b)(c) (b)(c) (b) (b) (b)
Ratio of net investment income
to average net assets*...... (b)(c) (b)(c) (b) (b) (b)
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the year, certain fees were voluntarily reduced
and/or reimbursed. If such voluntary fee reductions and/or
reimbursements had not occurred, the ratios would have been
as indicated.
(a) On October 1, 1998, BankAmerica Corp., the parent company of
the Fund's Advisor, merged with NationsBank Corporation.
(b) There were no fee waivers or expense reimbursements during
the year.
(c) Fees paid by third parties had no effect on the ratios.
</TABLE>
See Notes to Financial Statements.
<PAGE> 260
63
PACIFIC HORIZON TAX-EXEMPT MONEY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1999(a) 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
HORIZON SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income....... 0.0318 0.0342 0.0322 0.0359 0.0285
Less dividends to
shareholders from net
investment income........... (0.0318) (0.0342) (0.0322) (0.0359) (0.0285)
-------- -------- -------- -------- --------
Net change in net asset value
per share................... -- -- -- -- --
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE,
END OF YEAR................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return................. 3.22% 3.47% 3.27% 3.65% 2.89%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions)................ $ 380 $ 344 $ 264 $ 303 $ 382
Ratio of expenses to average
net assets................ 0.25% 0.28% 0.28% 0.31% 0.28%
Ratio of net investment
income to average net
assets.................... 3.16% 3.41% 3.22% 3.58% 2.81%
Ratio of expenses to average
net assets*............... (b)(c) (b)(c) (b) (b) (b)
Ratio of net investment
income to average net
assets*................... (b)(c) (b)(c) (b) (b) (b)
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the year, certain fees were voluntarily reduced
and/or reimbursed. If such voluntary fee reductions and/or
reimbursements had not occurred, the ratios would have been
as indicated.
(a) On October 1, 1998, BankAmerica Corp., the parent company of
the Fund's Advisor, merged with NationsBank Corporation.
(b) There were no fee waivers or expense reimbursements during
the year.
(c) Fees paid by third parties had no effect on the ratios.
</TABLE>
See Notes to Financial Statements.
<PAGE> 261
64
PACIFIC HORIZON TAX-EXEMPT MONEY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1999(a) 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
HORIZON SERVICE SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income......... 0.0293 0.0317 0.0297 0.0334 0.0260
Less dividends to shareholders
from net investment income.... (0.0293) (0.0317) (0.0297) (0.0334) (0.0260)
-------- -------- -------- -------- --------
Net change in net asset value
per share..................... -- -- -- -- --
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END
OF YEAR....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return................... 2.97% 3.22% 3.01% 3.39% 2.63%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions).................. $ 191 $ 186 $ 169 $ 35 $ 39
Ratio of expenses to average
net assets.................. 0.50% 0.53% 0.53% 0.56% 0.53%
Ratio of net investment income
to average net assets....... 2.92% 3.17% 2.98% 3.34% 2.57%
Ratio of expenses to average
net assets*................. (b)(c) (b)(c) (b) (b) (b)
Ratio of net investment income
to average net assets*...... (b)(c) (b)(c) (b) (b) (b)
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the year, certain fees were voluntarily reduced
and/or reimbursed. If such voluntary fee reductions and/or
reimbursements had not occurred, the ratios would have been
as indicated.
(a) On October 1, 1998, BankAmerica Corp., the parent company of
the Fund's Advisor, merged with NationsBank Corporation.
(b) There were no fee waivers or expense reimbursements during
the year.
(c) Fees paid by third parties had no effect on the ratios.
</TABLE>
See Notes to Financial Statements.
<PAGE> 262
65
PACIFIC HORIZON TAX-EXEMPT MONEY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
FEBRUARY 28, FEBRUARY 28,
1999(b) 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................................. 0.0263 0.0184
Less dividends to shareholders from net investment
income................................................ (0.0263) (0.0184)
-------- --------
Net change in net asset value per share................. -- --
-------- --------
NET ASSET VALUE PER SHARE, END OF PERIOD................ $ 1.00 $ 1.00
======== ========
Total return............................................ 2.66% 1.85%(e)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (millions)................ $ 63 $ 27
Ratio of expenses to average net assets............... 0.80% 0.81%(d)
Ratio of net investment income to average net
assets.............................................. 2.57% 2.76%(d)
Ratio of expenses to average net assets*.............. 1.25%(c) 1.25%(c)(d)
Ratio of net investment income to average net
assets*............................................. 2.12%(c) 2.32%(c)(d)
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the period, certain fees were voluntarily reduced
and/or reimbursed. If such voluntary fee reductions and/or
reimbursements had not occurred, the ratios would have been
as indicated.
(a) Period from July 8, 1997 (inception date) to February 28,
1998.
(b) On October 1, 1998, BankAmerica Corp., the parent company of
the Fund's Advisor, merged with NationsBank Corporation.
(c) Fees paid by third parties had no effect on the ratios.
(d) Annualized.
(e) Not annualized.
</TABLE>
See Notes to Financial Statements.
<PAGE> 263
66
PACIFIC HORIZON CALIFORNIA TAX-EXEMPT
MONEY MARKET FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1999(a) 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
PACIFIC HORIZON SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income....... .0261 0.0302 0.0284 0.0324 0.0249
Net realized gains/(losses)
on investment
transactions.............. -- -- -- (0.0001) (0.0001)
------- -------- -------- -------- --------
Total income from investment
operations.................. .0261 0.0302 0.0284 0.0323 0.0248
Less dividends to
shareholders from net
investment income........... (.0261) (0.0302) (0.0284) (0.0324) (0.0249)
------- -------- -------- -------- --------
Net change in net asset value
per share................... -- -- -- (0.0001) (0.0001)
------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE,
END OF YEAR................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======== ======== ======== ========
Total return................. 2.64% 3.06% 2.88% 3.29% 2.52%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions)................ $ 539 $ 598 $ 493 $ 528 $ 187
Ratio of expenses to average
net assets................ 0.56% 0.57% 0.57% 0.62% 0.62%
Ratio of net investment
income to average net
assets.................... 2.61% 3.01% 2.83% 3.35% 2.48%
Ratio of expenses to average
net assets*............... 0.59%(c) 0.60%(c) 0.60%** 0.63%** (b)
Ratio of net investment
income to average net
assets*................... 2.58%(c) 2.98%(c) 2.80% (c) (b)
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the year, certain fees were voluntarily reduced
and/or reimbursed. If such voluntary fee reductions and/or
reimbursements had not occurred, the ratios would have been
as indicated.
** During the years ended February 28, 1997 and February 29,
1996, the Portfolio received credits from its custodian for
interest earned on uninvested cash balances which were used
to offset custodian fees and expenses. If such credits had
not occurred, the expense ratio would have been as
indicated. The ratio of net investment income was not
affected.
(a) On October 1, 1998, BankAmerica Corp., the parent company of
the Fund's Advisor, merged with NationsBank Corporation.
(b) There were no fee waivers or expense reimbursements during
the year.
(c) Fees paid by third parties had no effect on the ratios.
</TABLE>
See Notes to Financial Statements.
<PAGE> 264
67
PACIFIC HORIZON CALIFORNIA TAX-EXEMPT
MONEY MARKET FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1999 (a) 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
HORIZON SERVICE SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income....... 0.0268 0.0309 0.0291 0.0331 0.0256
Net realized gains/(losses)
on investment
transactions.............. -- -- -- 0.0001 (0.0001)
-------- -------- -------- -------- --------
Total income from
investment operations....... 0.0268 0.0309 0.0291 0.0332 0.0255
Less dividends to
shareholders from net
investment income........... (0.0268) (0.0309) (0.0291) (0.0331) (0.0256)
-------- -------- -------- -------- --------
Net change in net asset
value per share............. -- -- -- 0.0001 (0.0001)
-------- -------- -------- -------- --------
NET ASSET VALUE PER
SHARE, END OF YEAR.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return................. 2.71% 3.13% 2.95% 3.36% 2.59%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions)................ $ 709 $ 671 $ 472 $ 203 $ 88
Ratio of expenses to
average net assets........ 0.49% 0.50% 0.50% 0.55% 0.55%
Ratio of net investment
income to average net
assets.................... 2.65% 3.06% 2.92% 3.43% 2.50%
Ratio of expenses to
average net assets*....... (b)(c) (b)(c) (c) 0.55%** (b)
Ratio of net investment
income to average net
assets*................... (b)(c) (b)(c) (c) 3.42% (b)
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the year, certain fees were voluntarily reduced
and/or reimbursed. If such voluntary fee reductions and/or
reimbursements had not occurred, the ratios would have been
as indicated.
** During the year ended February 29, 1996 the Portfolio
received credits from its custodian for interest earned on
uninvested cash balances which were used to offset custodian
fees and expenses. If such credits had not occurred, the
expense ratio would have been as indicated. The ratio of net
investment income was not affected.
(a) On October 1, 1998, BankAmerica Corp., the parent company of
the Fund's Advisor, merged with NationsBank Corporation.
(b) There were no fee waivers or expense reimbursements during
the year.
(c) Fees paid by third parties had no effect on the ratios.
</TABLE>
See Notes to Financial Statements.
<PAGE> 265
68
PACIFIC HORIZON CALIFORNIA TAX-EXEMPT
MONEY MARKET FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
--------------------------- -------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1999 (b) 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................... 0.0238 0.0279 0.0107
Less dividends to shareholders from net
investment income....................... (0.0238) (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.............................. 2.41% 2.83% 1.09% (f)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period
(millions)............................ $ 37 $ 31 $ 29
Ratio of expenses to average net
assets................................ 0.79% 0.80% 0.80% (e)
Ratio of net investment income to
average net assets.................... 2.35% 2.80% 2.66% (e)
Ratio of expenses to average
net assets*........................... (c)(d) (c)(d) (c)(d)
Ratio of net investment income to
average net assets*................... (c)(d) (c)(d) (c)(d)
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the period, certain fees were voluntarily reduced
and/or reimbursed. If such voluntary fee reductions and/or
reimbursements had not occurred, the ratios would have been
as indicated.
(a) Period from October 2, 1996 (inception date) to February 29,
1997.
(b) On October 1, 1998, BankAmerica Corp., the parent company of
the Fund's Advisor, merged with NationsBank Corporation.
(c) There were no fee waivers or expense reimbursements during
the year.
(d) Fees paid by third parties had no effect on the ratios.
(e) Annualized.
(f) Not annualized.
</TABLE>
See Notes to Financial Statements.
<PAGE> 266
69
PACIFIC HORIZON CALIFORNIA TAX-EXEMPT
MONEY MARKET FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
------------ -------------
FEBRUARY 28, FEBRUARY 28,
1999 (b) 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.............................. 0.0238 0.0194
Less dividends to shareholders from net investment
income............................................. (0.0238) (0.0194)
-------- --------
Net change in net asset value per share.............. -- --
-------- --------
NET ASSET VALUE PER SHARE, END OF PERIOD............. $ 1.00 $ 1.00
======== ========
Total return......................................... 2.41% 1.96% (e)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (millions)............. $ 299 $ 141
Ratio of expenses to average net assets............ 0.79% 0.79% (d)
Ratio of net investment income to average net
assets........................................... 2.33% 2.69% (d)
Ratio of expenses to average net assets*........... 1.24%(c) 1.23% (c)(d)
Ratio of net investment income to average net
assets*.......................................... 1.88%(c) 2.25% (c)(d)
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the period, certain fees were voluntarily reduced
and/or reimbursed. If such voluntary fee reductions and/or
reimbursements had not occurred, the ratios would have been
as indicated.
(a) Period from June 18, 1997 (inception date) to February 28,
1998.
(b) On October 1, 1998, BankAmerica Corp., the parent company of
the Fund's Advisor, merged with NationsBank Corporation.
(c) Fees paid by third parties had no effect on the ratios.
(d) Annualized.
(e) Not annualized.
</TABLE>
See Notes to Financial Statements.
<PAGE> 267
70
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors
and Shareholders of
Pacific Horizon Funds, Inc.
In our opinion, the accompanying statements of assets and liabilities, including
the portfolios of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Pacific Horizon Tax-Exempt Money
Fund and Pacific Horizon California Tax-Exempt Money Market Fund (two of the
portfolios constituting Pacific Horizon Funds, Inc., hereafter referred to as
the "Funds") at February 28, 1999, the results of each of their operations for
the year then ended, the changes in each of their net assets for each of the two
years in the period then ended and the financial highlights for each of the
periods presented, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Funds' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
February 28, 1999 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
As explained in Note 7, the Board of Directors of the Pacific Horizon Funds,
Inc. has approved an agreement and plan of reorganization between Pacific
Horizon Funds, Inc. and Nations Institutional Reserves. A Special Meeting of
Shareholders of the Funds is scheduled to be held on May 3, 1999 to seek
approval of the merger of Pacific Horizon Tax-Exempt Money Fund and Pacific
Horizon California Tax-Exempt Money Market Fund and the Nations Municipal
Reserves Fund and Nations California Tax-Exempt Reserves Fund, respectively.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
April 22, 1999
<PAGE> 268
71
[This page intentionally left blank.]
<PAGE> 269
72
[This page intentionally left blank.]
<PAGE> 270
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> 271
Bulk Rate
U.S. Postage
PAID
New York, NY
Permit No. 8048
[PACIFIC HORIZON FUNDS LOGO]
Provident Distributor, Inc., Distributor
PHF-4007 4/99
<PAGE> 272
PACIFIC HORIZON GROWTH & INCOME FUNDS
PACIFIC HORIZON GROWTH & INCOME FUNDS
ANNUAL REPORT
February 28, 1999
Capital Income Fund
Asset Allocation Fund
Investing For All
The Times Of Your Life
NOT FDIC INSURED
<PAGE> 273
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> 274
..................................
Contents
<TABLE>
<S> <C>
FUND FACTS 2-3
UNDERSTANDING YOUR SHAREHOLDER
REPORT 4-6
ECONOMIC REVIEW FROM THE
INVESTMENT ADVISER 8-9
FUND OVERVIEW AND INTERVIEW WITH
YOUR INVESTMENT MANAGER 10-20
PACIFIC HORIZON CAPITAL INCOME
FUND
Portfolio of Investments 21-26
Statement of Assets
and Liabilities 27
Statement of Operations 28
Statements of Changes
in Net Assets 29
PACIFIC HORIZON ASSET ALLOCATION
FUND
Portfolio of Investments 30-40
Statement of Assets
and Liabilities 41
Statement of Operations 42
Statements of Changes
in Net Assets 43
NOTES TO FINANCIAL STATEMENTS 44-53
FINANCIAL HIGHLIGHTS 54-60
REPORT OF INDEPENDENT ACCOUNTANTS 61
</TABLE>
<PAGE> 275
2
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+ Current Income, Stable Share Price and
- Prime Daily Liquidity
- Treasury
- Government
- Treasury Only
...........................................................................
Tax-Exempt Money Market Funds*+
- Tax-Exempt Money Federal Tax-Free Current Income, Stable
Share Price and Daily Liquidity
- California Tax-Exempt Money Federal and California Tax-Free Current
Market Income, Stable Share Price and Daily
Liquidity
</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.
<PAGE> 276
3
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>
- --------------------------------------------------------------------------------
<PAGE> 277
4
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.
[GRAPHIC OF 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.
[GRAPHIC OF SAMPLE PAGE]
<PAGE> 278
5
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 OF 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
[GRAPHIC OF SAMPLE PAGE]
<PAGE> 279
6
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
[GRAPHIC OF 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
[GRAPHIC OF 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.
<PAGE> 280
7
[This page intentionally left blank.]
<PAGE> 281
ECONOMIC REVIEW
FROM THE INVESTMENT ADVISER
The past 12 months will be remembered as the one of the most volatile periods in
financial market history. The crisis in Asia, the Russian default and the
devaluation of the Brazilian Real caused dramatic swings in equity valuations,
interest rates, and spreads and commodity prices. The Federal Reserve, in order
to calm the markets and restore liquidity, lowered short term interest rates by
0.75%. The Dow Jones Industrial Average* after dropping to 7,539, rebounded to
close the period at 9,306. The yield on the benchmark 10-year U.S. Treasury Note
which was at 5.16% on 3/19/99, fluctuated over a 1.2% range with a high of 5.81%
on 4/29/98 and low of 4.16% on 10/5/98. Spreads on 10-year "A" rated finance
debt over 10-year U.S. Treasuries started the period at a spread of 0.75% and
widened to as much as 1.45% only to end the period at 1.05% over comparable
maturity U.S. Treasury notes. International turmoil and the Asian recession also
took its toll on commodities. Demand for oil all but evaporated and crude oil
prices declined from almost $18.00 a barrel to just under $11.50 a barrel only
to rebound to $15.00 on strong U.S. growth and expectations of and a quick
recovery in Asia.
Throughout this turmoil, the U.S. remained an "oasis of prosperity" with the
U.S. Gross Domestic Product growing at an estimated 4.3% for 1998. The U.S.
consumer, unfazed by the recent volatility, continued to spend, pushing the
economy through its ninth year of expansion.
Unemployment remained near historical lows and there was continued strength in
real disposable income that translated into a high level of consumer confidence.
At the same time, the industrial side of the economy, burdened by slower exports
as well as the effects of the strong dollar, remained sluggish.
Inflation, as measured by the Consumer Price Index (CPI), remained benign over
the past year, increasing only 1.6% in 1998. Huge declines in commodities and
weakness on the manufacturing side of the economy offset relatively full
employment and money supply growth.
Despite turmoil abroad, the U.S. equity markets, as tracked by the Standard &
Poor's 500 Composite Stock Price Index**, posted a solid return of 18.01%.
Unfortunately, the Russell 2000*** proved that not all stocks are created equal
with a negative return of (15.06%) over the same period. While an era of
consolidation and low inflation should bode well for large cap stocks, we doubt
that this can continue.
The fixed income markets also put in a strong performance for the past 12
months, with the benchmark Salomon Smith Barney Broad Investment-Grade (BIG)
Index# posting a positive return of 6.31%. The top performing sector for the
period was U.S. agency debt which outperformed comparable maturity U.S.
Treasuries by 0.44% followed by U.S. agency mortgage-backed securities which
outperformed by 0.28%. The worst performing sector was U.S. corporate bonds
which underperformed U.S. Treasuries by 0.60% with "AA", "A", and "BBB" rated
corporate debt underperforming by 0.03%, 0.27%, and 1.61% respectively.
OUTLOOK FOR 1999
While the consensus of Wall Street economists is for a growth rate of 3.5% in
1999, we believe the risk is faster than anticipated growth because of the
momentum of the U.S. economy. The wildcard over the next year is the timing of
Asia's economic turnaround.
Asia remains a big question mark, with many economists calling for a "v" shaped
recovery. Although we believe the Asian
8
<PAGE> 282
economies have bottomed, we suspect that the recovery in the region will be
slower than anticipated. While Korea has recently shown strength in industrial
production and exports, Japan, which constitutes two-thirds of the region's GDP,
continues to show signs of weakness. If Japan chooses to monetize their debt by
printing currency, they may cause another round of devaluations in the region.
China has stated their intentions to maintain the value of the Yuan, but if they
fail to meet their growth targets and the Yen declines substantially in value,
all bets are off.
Sincerely,
/s/ Kirk Hartman
Kirk Hartman
Chief Investment Officer of
Fixed Income Management
- ---------------
* The Dow Jones Industrial Average is a price-weighted index of 30 of the
largest, most widely held stocks traded on the New York Stock Exchange. It
is unmanaged and unavailable for investment.
** The Standard & Poor's 500 Composite Stock Price Index is an unmanaged
market-capitalization-weighted index consisting of 500 common stocks that
measures the market value of 400 industrial stocks, 60 transportation and
utility company stocks and 40 financial issues. It is unavailable for
investment.
*** The Russell 2000 Growth Index is a widely used unmanaged index which
measures the performance of small-cap stocks and cannot be invested in
directly.
# The BIG Index is market-capitalization weighted and includes fixed-rate
Treasury, Government-sponsored, mortgage and investment-grade corporates
with a maturity of one year or longer. The minimum amount outstanding for US
Treasury and mortgage issues is $1 billion for both entry and exit. For
Government sponsored and corporate issues the entry and exit amounts are
$100 million.
9
<PAGE> 283
PACIFIC HORIZON
CAPITAL INCOME FUND
[PHOTO OF ED CASSENS]
ED CASSENS, CFA
Senior Portfolio Manager
Bank of America NT&SA
GOAL:
The Pacific Horizon Capital Income Fund seeks total investment return through a
combination of current income and capital appreciation consistent with prudent
risk.
INVESTMENTS:
The Fund invests primarily in convertible bonds and convertible preferred stocks
of domestic issuers.
APPROPRIATE FOR:
Investors seeking a competitive return over the long term comprised of current
income and capital appreciation.
INCEPTION:
September 25, 1987
SIZE OF FUND AS OF
FEBRUARY 28, 1999:
Over $363 million
Q
HOW DID THE FUND PERFORM DURING THE 12 MONTHS ENDED FEBRUARY 28, 1999?
A
For the year ended February 28, 1999, A Shares of the Fund returned 4.6%.*
This compares to l.6% for the CS First Boston Convertible Index.** The Fund
substantially outperformed the index, but the absolute return was lower than it
has been the last few years, due to the performance of small company stocks. The
Russell 2000 Index,*** a measure of small company stock performance returned a
0.33% for the twelve months ended February 28, 1999.
Q
WHAT FACTORS AFFECTED THE FUND'S PERFORMANCE?
A
The year had its ups and downs, with the first half generally up. In August
after the Russian devaluation, the markets started to go down, and the spreads
at which bonds trade over Treasury's widened quite a bit, a sign that economic
confidence was weak. After the market bottomed in October and the Fed showed
they had the situation in hand, the market staged a powerful rally to the end of
the year, and on through January.
Q
HOW DID YOU MANAGE THE FUND?
A
Last summer we started raising the quality of the portfolio due to our
concern about the level of the overall market and the speculation in the market.
This helped our performance when prices fell, as the higher quality issues held
up better than lower quality issues. In the fall and winter, we felt technology
issues would continue to outperform, and we raised our weighting in this area,
which did help performance. Because there were not many attractive convertibles
in the technology area, we used some common stocks. Stocks reached 20% of the
portfolio total
10
<PAGE> 284
due to appreciation, this has now been cut back to closer to 18% due to profit
taking.
Q
WHAT IS YOUR OUTLOOK FOR CONVERTIBLES GOING FORWARD?
A
If inflation stays down, which is our forecast, interest rates should also
stay down, and stock prices should have an upward bias. These would be good
conditions for convertibles, and the market does not look as speculative as last
year, so the convertible market should do fairly well in 1999.
- ---------------
* Return figures for the Fund include change in share price, reinvestment of
dividends and capital gains distributions. Performance figures for A shares
do not reflect the maximum sales charge of 5.75%.
** The CS First Boston Convertible Index is an unmanaged index generally
representative of the convertible securities market as a whole and cannot be
invested in directly.
*** The Russell 2000 Growth Index is a widely used unmanaged index which
measures the performance of small-cap stocks and cannot be invested in
directly.
Past performance is no guarantee of future results.
11
<PAGE> 285
PACIFIC HORIZON
ASSET ALLOCATION FUND
[JAMES D. MILLER PHOTO]
JAMES D. MILLER, CFA
Chief Investment Officer
of Quantitative Based
Equity Management
Bank of America
Investment Advisers Division
Mr. Miller is head of the investment management team for the Blue Chip Fund.
[KIRK HARTMAN PHOTO]
KIRK HARTMAN
Chief Investment Officer
Bank of America NT&SA
The Pacific Horizon Income Funds are managed by a Bank of America NT&SA
investment team led by Kirk Hartman, Chief Investment Officer.
ASSET ALLOCATION FUND
GOAL:
The Pacific Horizon Asset Allocation Fund seeks long-term growth from capital
appreciation and dividend and interest income.
INVESTMENTS:
The Fund uses a balanced approach by investing in stocks, bonds and cash-
equivalent securities.
APPROPRIATE FOR:
Investors seeking growth and income through a diversified portfolio of stocks
and bonds.
INCEPTION:
January 18, 1994
SIZE OF FUND AS OF
FEBRUARY 28, 1999:
Over $287 million
Q
HOW DID THE FUND PERFORM DURING THE PERIOD ENDED FEBRUARY 28, 1999?
A
For the 12-months ended February 28, 1999, A Shares of the Fund had a total
return of 14.72%*. The Fund uses two benchmarks, the Standard & Poor's 500
Composite Stock Price Index and the Lehman Brother's Aggregate Bond Index, which
returned 19.74% and 6.27% respectively.**
Q
HOW DID YOU ALLOCATE THE FUND'S PORTFOLIO AMONG STOCKS, BONDS AND CASH
DURING THE PERIOD ENDED FEBRUARY 28, 1999
A
The Fund's allocation on Feb. 28, 1999 was 58.2% equity, 40.8% fixed income
and 1.0% cash, which will remain the Fund's strategic asset allocation target.
12
<PAGE> 286
Q
HOW DID YOU MANAGE THE STOCK PORTION OF THE PORTFOLIO?
A
Within the stock component of the Fund we stayed neutral to the market in
terms of sector weightings and market capitalization. As always, we focused
on individual stock selection. Our risk-controlled strategy ensured that we were
able to fully benefit from the market's advance, despite the major disparities
in performance between sectors and the narrowness of the market.
Within the framework of our disciplined process, we select securities which
display attractive valuations, while exhibiting positive momentum and solid
earnings quality. By factoring for these three themes, we seek to provide
superior stock selection across the industry sectors. We continued to focus on
companies that exhibited rising earnings expectations and high earnings
certainty, while trading at attractive valuations. Companies with high earnings
certainty are those that have similar estimates for different analysts. Firms
with rising earnings expectations are those that have experienced the biggest
increase in analyst earnings estimates.
Dell Computer Corp., Lucent Technologies and Microsoft in the technology sector
and Pfizer Inc. and Schering-Plough Corp. in healthcare were particularly strong
performers.***
Q
HOW DID YOU MANAGE THE BONDS IN THE PORTFOLIO?
A
The past 12 months will be remembered as the one of the most volatile
periods in fixed income history. The crisis in Asia, the Russian default and the
devaluation of the Brazilian Real caused dramatic swings in both interest rates
and spreads. Despite the volatility in the fixed income markets, we maintained
our strategy of maximizing income while carefully controlling risk. While this
caused the fixed income portion of the portfolio to underperform its benchmark
13
<PAGE> 287
in the third quarter of 1998, by staying with the strategy we were able to
outperform when the markets reversed course in the fourth quarter of 1998.
Q
WHAT ECONOMIC DEVELOPMENTS DO YOU ANTICIPATE DURING THE REST OF 1999?
A
While the consensus of Wall Street economists is for a growth rate of 3.5%
in 1999, we believe the risk is faster than anticipated growth because of the
momentum of the U.S. economy. The wildcard over the next year is the timing of
Asia's economic turnaround.
Asia remains a big question mark for the next year with many economists calling
for a "v" shaped recovery. Although we believe the Asian economies have
bottomed, we suspect that the recovery in the region will be slower than
anticipated. While Korea has recently shown strength in industrial production
and exports, Japan, which constitutes two-thirds of the regions Gross Domestic
Product (GDP), continues to show signs of weakness. If Japan chooses to monetize
their debt by printing currency, they may cause another round of devaluations in
the region. China has stated their intentions to maintain the value of the Yuan,
but if they fail to meet their growth targets and the Yen declines substantially
in value, all bets are off.
Our interest rate outlook for the rest of 1999 is for rates to remain within a
0.50% range and for the Federal Reserve to move from neutral to a bias towards
tightening. U.S. interest rates are bounded on the high side by the fact that
they are high when compared to the rest of the world and on the low side by the
fact that the U.S. economy is too strong and fully employed to warrant a large
decline in rates.
- ---------------
* Return figures for the Fund include change in share price, reinvestment of
dividends and capital gains distributions. Performance figures for A shares
do not reflect the maximum sales charge of 5.75%.
** The Standard & Poor's 500 Composite Stock Price Index and the Lehman
Brothers Aggregate Bond Index are unmanaged indices generally
representative of equity investments and asset allocation investments
respectively, and cannot be invested in directly.
*** The composition of the Fund's holdings is subject to change.
Past performance is no guarantee of future results.
14
<PAGE> 288
15
PACIFIC HORIZON
CAPITAL INCOME FUND
(AS OF FEBRUARY 28, 1999)
GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)
[CAPITAL INCOME FUND LINE CHART]
<TABLE>
<CAPTION>
A SHARES B SHARES K SHARES LIPPER CS FIRST BOSTON
-------- -------- -------- CONVERTIBLE ---------------
SECURITIES
FUNDS AVERAGE
-------------
<S> <C> <C> <C> <C> <C>
2/28/89 9425.00 10000.00 10000.00 10000.00 10000.00
2/28/90 9914.00 10521.00 10521.00 10740.00 10595.00
2/28/91 10923.00 11592.00 11592.00 11560.00 11230.00
2/29/92 13786.00 14630.00 14630.00 14332.00 13818.00
2/28/93 16628.00 17646.00 17646.00 16301.00 15933.00
2/28/94 20261.00 21501.00 21501.00 19072.00 18482.00
2/28/95 19123.00 20294.00 20294.00 18550.00 17972.00
2/29/96 24088.00 25563.00 25563.00 22832.00 22252.00
2/28/97 28552.00 30300.00 30203.00 26020.00 24576.00
2/28/98 34703.00 36828.00 36537.00 31048.00 29154.00
2/28/99 41285.00 43686.00 43325.00 31042.00 29643.00
</TABLE>
HOW PERFORMANCE
COMPARES
As the chart
indicates, the
Pacific Horizon
Capital Income Fund
has consistently
outperformed the
market, as compared
to the CS First
Boston Index, a
widely-used,
unmanaged index
which measures the performance of convertible securities. An initial $10,000
investment in the Fund made on February 28, 1989, would now be worth $41,285 for
A Shares*. The same investment made in the CS First Boston Index, would now be
worth $29,643. Correspondingly, a $10,000 investment in B Shares for the same
period would now be worth $43,686,** and a $10,000 investment in K Shares for
the same period would now be worth $43,325.***
----------------------------------------------------
<TABLE>
<CAPTION>
CAPITAL INCOME FUND
AVERAGE ANNUAL RETURNS
-----------------------------------------------------------
A SHARES B SHARES K SHARES***
Without With* Without With**
Sales Sales Sales Sales
Load Load Load Load
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Year 4.64% (1.36%) 4.33% (0.67%) 4.29%
.........................................................
5 Year 12.38% 11.06% 12.31% 12.06% 12.13%
.........................................................
10 Year 15.92% 15.23% 15.89% 15.89% 15.79%
-----------------------------------------------------------
</TABLE>
The Fund also fared well compared to other convertible security funds. The
average of convertible security funds as tracked by Lipper Analytical Services,
Inc., measures the performance of other funds with investment objectives and
policies similar to those of the Pacific Horizon Capital Income Fund. The same
$10,000 investment made in the Lipper Convertible Securities Funds Average would
now be worth $31,042.
FEDERAL INCOME TAX STATUS OF DIVIDENDS (UNAUDITED)
The Pacific Horizon Capital Income Fund distributed a total Capital Gain
Dividend of $0.176054 for the year ended February 28, 1999. Of this total
Capital Gain Dividend amount, the Fund made a 20 percent rate distribution of
$0.176054.
SEE INVESTMENT MANAGER INTERVIEW FOR FACTORS AFFECTING FUND PERFORMANCE.
<PAGE> 289
16
Investment return and principal value are historical and will vary with market
conditions, so an investor's shares, when redeemed, may be worth more or less
than their original cost. Return figures for the Fund include change in share
price, reinvestment of dividends, and capital gain distributions, if any.
Lipper Analytical Services, Inc. is an independent mutual fund-monitoring
organization. Neither the Lipper Convertible Securities Funds Average, nor the
CS First Boston Index may be invested in directly. The hypothetical investment
in the CS First Boston Index does not reflect any sales or management fees that
would be incurred if an investor were to actually purchase individual securities
or mutual funds, while the performance of the Fund reflects all expenses and
management fees and the effect of the maximum sales charge.
* A share performance assumes the deduction of the maximum front-end sales
charge of 5.75%.
** Average annual return figures assume the deduction of the maximum contingent
deferred sales charge of 5.00%, however, the line graph does not. B shares
were first offered on July 15, 1998. Performance results shown prior to July
15, 1998 are those of Class A shares without the sales charge. The
performance results for B shares involved in the Financial Highlights table
in the financial statements represent actual performance from the inception
date of the B shares. B shares have an ongoing 0.75% distribution and
administrative services fee which does not apply to A shares and which if
reflected, would have lowered performance shown.
*** The inception date of the K shares (the date K shares were initially funded)
was July 22, 1996. The K shares did not commence operations until October
21, 1996. For this reason, the performance results for K Shares are those of
A Shares without the sales charge prior to such date. The performance
results for K Shares included in the Financial Highlights table in the
financial statements represent actual performance from the inception date of
the K Shares. K Shares, unlike A Shares, are sold without a front-end sales
load but have an ongoing .75% distribution or administrative services fee
(of which .25% are currently being waived), which would reduced prior
performance.
<PAGE> 290
17
PACIFIC HORIZON
CAPITAL INCOME FUND
(AS OF FEBRUARY 28, 1999)
BALANCE
Two Advantages
[FLOW CHART GRAPHIC]
The Pacific Horizon Capital Income
Fund provides investors with the
opportunity to receive regular
quarterly income while participating
in the upside potential of the
underlying equity securities.
Historically, holders of convertible
securities have enjoyed about 70
percent of the appreciation of
stocks.* Investors seeking growth
and income will appreciate the
opportunities to invest in the
Pacific Horizon Capital Income Fund.
Of course, past performance is not
reflective of future results.
*Source: Investment Advisor, March
1993.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION*
AS A PERCENTAGE OF NET ASSETS
[PORTFOLIO COMPOSITION PIE CHART]
The Pacific Horizon Capital Income Fund is professionally managed and maintains
at least a 65 percent position in
convertible securities. In order to
increase performance, the Fund also
invests in common and preferred
stocks, cash and cash equivalents
that the adviser believes to be of
high quality.
TOP TEN HOLDINGS AS OF
FEBRUARY 28, 1999*
------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
COMPANY NET ASSETS
----------------------------------------------------
<S> <C>
TCI Communications, Inc., $2.12 1.83%
......................................................
Media One Group, Inc., $3.63 1.68%
......................................................
Readers Digest Association, $1.93 1.59%
......................................................
McDonald's Corp. 1.59%
......................................................
Sealed Air Corp., Series A. $2.00 1.56%
......................................................
Bell Atlantic Financial Services 144A 1.54%
......................................................
Rite Aid Corp., 144A 1.53%
......................................................
U.S. Cellular, Corp. LYON 1.49%
......................................................
Omnicom Group, Inc., 144A 1.48%
......................................................
Cisco Systems, Inc. 1.48%
----------------------------------------------------
TOTAL 15.77%
----------------------------------------------------
</TABLE>
* The composition of the Fund's holdings is subject to change.
<PAGE> 291
18
PACIFIC HORIZON
ASSET ALLOCATION FUND
(AS OF FEBRUARY 28, 1999)
GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)
[GROWTH OF $10,000 INVESTMENT LINE CHART]
<TABLE>
<CAPTION>
A SHARES B SHARES K SHARES S&P 500
-------- -------- -------- LEHMAN BROS INDEX
AGGREGATE -------
BOND
-----------
<S> <C> <C> <C> <C> <C>
1/18/94 9425 10000 10000 10000 10000
2/28/94 9322 9893 9446 9826 10000
2/28/95 9790 10391 9921 10001 10444
2/29/96 12022 12759 12183 11224 14058
2/28/97 14143 15010 14324 11824 17741
2/28/98 17406 18473 17488 13050 23950
2/28/99 19968 21120 20923 13868 28683
<CAPTION>
LIPPER
BALANCED
FUNDS
AVERAGE
--------
<S> <C>
1/18/94 10000
2/28/94 9901
2/28/95 10039
2/29/96 12334
2/28/97 14133
2/28/98 17146
2/28/99 18341
</TABLE>
HOW PERFORMANCE
COMPARES
The chart compares
the performance of
the Pacific Horizon
Asset Allocation
Fund to the S&P 500,
an unmanaged index
typically used as a
performance
benchmark for equity
investments, and the
Lehman Brothers
Aggregate Bond
Index, an unmanaged
index with investment policies similar to the Fund. As illustrated, the Fund
fared well compared to other asset allocation funds. The average of asset
allocation funds as tracked by Lipper Analytical Services, Inc., measures the
performance of other funds with investment objectives and policies similar to
those of the Pacific Horizon Asset Allocation Fund. An initial $10,000
investment in the Fund made on January 18, 1994, would now be worth $19,968 for
A Shares.* The same investment made in the Lipper Balanced Funds Average would
now be worth $18,341. Correspondingly, a $10,000 investment in B Shares for the
same period would now be worth $21,120**, and a $10,000 investment in K Shares
for the same period would now be worth $20,923.***
----------------------------------------------------
<TABLE>
<CAPTION>
ASSET ALLOCATION FUND
AVERAGE ANNUAL RETURNS
-----------------------------------------------------------
A SHARES B SHARES K SHARES***
Without With* Without With**
Sales Sales Sales Sales
Load Load Load Load
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Year 14.72% 8.11% 14.33% 9.33% 14.23%
.........................................................
5 Year 16.46% 15.08% 16.38% 16.27% 16.16%
.........................................................
Since
Incep-
tion 15.81% 14.47% 15.73% 15.62% 15.52%
(1/18/94)
-----------------------------------------------------------
</TABLE>
FEDERAL INCOME TAX STATUS OF DIVIDENDS (UNAUDITED)
The Pacific Horizon Asset Allocation Fund distributed a total Capital Gain
Dividend of $1.489711 for the year ended February 28, 1999. Of this total
Capital Gain Dividend amount, the Fund made a 20 percent rate distribution of
$1.418027.
<PAGE> 292
19
SEE INVESTMENT MANAGER INTERVIEW FOR FACTORS AFFECTING FUND PERFORMANCE.
Investment return and principal value are historical and will vary with market
conditions, so an investor's shares, when redeemed, may be worth more or less
than their original cost. Return figures for the Fund include change in share
price, reinvestment of dividends, and capital gains distributions, if any.
Lipper Analytical Services, Inc. is an independent mutual fund-monitoring
organization. Neither the Lipper Balanced Funds Average, the S&P 500 Index, nor
the Lehman Brothers Aggregate Bond Index may be invested in directly. The
hypothetical investment in the S&P 500 and Lehman Brothers Aggregate Bond Index
do not reflect any sales or management fees that would be incurred if an
investor were to actually purchase individual securities or mutual funds, while
the performance of the Fund reflects all expenses and management fees and the
effect of the maximum sales charge.
* A share performance assumes the deduction of the maximum front-end sales
charge of 5.75%.
** Average annual return figures assume the deduction of the maximum contingent
deferred sales charge of 5.00%, however, the line graph does not. B shares
were first offered on July 15, 1998. Performance results shown prior to July
15, 1998 are those of Class A shares without the sales charge. B shares have
an ongoing 0.75% distribution and administrative services fee which does not
apply to A shares and which if reflected, would have lowered performance
shown.
*** The inception date of the K Shares (the date K Shares were initially funded)
was July 22, 1996. The K Shares did not commence operations until November
11, 1996. For this reason, the performance results for K Shares are those of
A Shares without the sales charge prior to such date. The performance
results for K Shares included in the Financial Highlights table in the
financial statements represent actual performance from the inception date of
the K Shares. K Shares, unlike A Shares, are sold without a front-end sales
load but have an ongoing .75% distribution or administrative services fee
(of which .25% are currently being waived), which would have reduced prior
performance.
<PAGE> 293
20
PACIFIC HORIZON
ASSET ALLOCATION FUND
(AS OF FEBRUARY 28, 1999)
A Market-Driven Process
The Fund's adviser seeks to
determine relative values among
stocks, bonds and cash equivalents
and weights the portfolio
accordingly.
The Fund's adviser looks for the
following characteristics within
each asset class: Stock holdings
that display above-average growth
potential and reasonable valuation.
The diversified bond portfolio may
contain mortgage-backed securities
as well as fixed-income obligations
that are undervalued in the opinion
of the Fund's adviser. The Fund's
cash holdings can be viewed as a
defensive position in changing
markets.
PORTFOLIO COMPOSITION*
[ASSET ALLOCATION FUND PIE CHART]
-------------------------------------------------------------
* The composition of the Fund's holdings is subject to change.
- --------------------------------------------------------------------------------
A BALANCED INVESTMENT
APPROACH
Allocation Among Asset Classes
The Fund may be appropriate for
investors seeking long-term growth
from capital appreciation as well as
dividend and interest income through
a balanced approach to investing
using bonds, stocks and cash
equivalents. Investors can make one
simple investment and their money
will be spread over a variety of
asset classes. The Fund's adviser
seeks a total return greater than
bonds or cash with less volatility
than an investment in stocks.
Through strategically allocating
assets among various investments,
the Fund's adviser will shift the
asset mix as market conditions
change, thereby seeking to profit
from market opportunities in any
economic environment.
[FLOW CHART GRAPH]
SHIFTING THE ASSET MIX
<PAGE> 294
21
PACIFIC HORIZON CAPITAL INCOME FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- ------- ------------
<S> <C> <C>
COMMON STOCKS -- 18.0%
CONSUMER CYCLICALS -- 3.0%
McDonald's Corp. ........................................... 68,000 $ 5,780,000
Nordstrom, Inc. ............................................ 130,000 5,232,500
------------
11,012,500
------------
CONSUMER STAPLES -- 1.0%
Proctor & Gamble Co. ....................................... 40,000 3,580,000
------------
ELECTRONICS -- 0.6%
Atmel Corp. ................................................ 12,000 206,250
Motorola, Inc. ............................................. 30,000 2,107,500
------------
2,313,750
------------
ENERGY -- 1.1%
BP Amoco PLC ADR............................................ 47,933 4,074,305
Seacor Holdings, Inc.**..................................... 2,000 78,750
------------
4,153,055
------------
FINANCIAL -- BANKS & TRUSTS -- 2.3%
Fleet Financial Group, Inc. ................................ 80,000 3,435,000
PNC Bank Corp. ............................................. 45,000 2,342,812
Sovereign Bancorp, Inc. .................................... 200,000 2,450,000
------------
8,227,812
------------
HEALTH CARE -- 1.3%
American Home Products Corp. ............................... 80,000 4,760,000
------------
INSURANCE -- 0.7%
American Bankers Insurance Group............................ 50,000 2,400,000
------------
PHARMACEUTICALS -- 2.4%
Lilly, (Eli) & Co. ......................................... 50,000 4,734,375
Pfizer, Inc. ............................................... 31,000 4,090,062
------------
8,824,437
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 295
22
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- ------- ------------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
TECHNOLOGY -- 5.6%
Cisco Systems, Inc.**....................................... 55,000 $ 5,379,687
EMC Corp.**................................................. 25,000 2,559,375
Intel Corp. ................................................ 38,000 4,557,625
Micron Technology, Inc.**................................... 65,000 3,745,625
Xilinx, Inc. ............................................... 57,843 4,034,549
------------
20,276,861
------------
Total Common Stocks (Cost $48,019,797)...................... 65,548,415
------------
CONVERTIBLE PREFERRED STOCKS -- 35.6%
BASICS -- 1.3%
International Paper Co., $2.62.............................. 93,000 4,510,500
------------
CONSUMER CYCLICALS -- 7.8%
Fleetwood Capital Trust, $3.00.............................. 1,500 68,062
Fleetwood Capital Trust 144A, $3.00......................... 89,600 4,065,600
Houston Industries, Inc., $3.29............................. 48,000 5,256,000
Owens-Illinois, Inc., $2.37................................. 95,350 3,706,731
Owens Corning Capital 144A*, $3.25.......................... 85,000 3,835,625
Readers Digest Association, $1.93........................... 180,000 5,782,500
Sealed Air Corp., Series A, $2.00........................... 110,000 5,665,000
------------
28,379,518
------------
CONSUMER STAPLES -- 3.4%
Newell Financial Trust I, $2.62............................. 90,000 4,691,250
Ralston Purina Co., $4.34................................... 86,000 4,214,000
Wendy's Financing, Inc., $2.50.............................. 64,200 3,498,900
------------
12,404,150
------------
ENERGY -- 2.9%
El Paso Energy Capital Trust I, $2.37....................... 94,000 4,629,500
Occidental Petroleum Corp., $3.00........................... 40,000 1,760,000
Unocal Corp., $3.12......................................... 85,000 4,005,625
------------
10,395,125
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 296
23
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- ------- ------------
<S> <C> <C>
CONVERTIBLE PREFERRED STOCKS -- (CONTINUED)
FINANCIAL -- 6.5%
Amerus Life Holdings, Inc., $2.21........................... 185,800 $ 4,110,825
CNB Capital Trust I, $1.50.................................. 182,300 4,648,650
Frontier Insurance Group, Inc., $3.12....................... 49,000 1,953,875
Frontier Insurance Group, Inc. 144A, $3.12.................. 50,000 1,993,750
Philadelphia Consolidated Holding Corp., Income PRIDES,
$.70...................................................... 391,000 3,567,875
Protective Life Corp., $3.25................................ 73,300 4,420,906
St. Paul Capital Corp., $3.00............................... 50,000 3,000,000
------------
23,695,881
------------
HEALTH CARE -- 1.4%
Monsanto Co., $2.60......................................... 110,000 5,108,125
------------
REAL ESTATE -- 0.8%
Apartment Investment & Management Co. REIT.................. 120,000 2,992,500
------------
TECHNOLOGY -- 1.4%
Microsoft Corp., Series A, $2.20............................ 50,000 4,903,125
------------
TELECOMMUNICATIONS -- 4.4%
Media One Group, Inc., $3.63................................ 78,500 6,098,469
Media One Group, Inc., $2.25................................ 30,000 3,270,000
TCI Communications, Inc., $2.12............................. 50,000 6,661,719
------------
16,030,188
------------
TRANSPORTATION -- 1.4%
Union Pacific Capital Trust, $3.12.......................... 18,000 850,500
Union Pacific Capital Trust 144A*, $3.12.................... 90,000 4,252,500
------------
5,103,000
------------
UTILITIES -- 4.3%
Avista Corp., $1.24......................................... 224,500 3,956,812
Calenergy Capital Trust II, $3.12........................... 25,000 1,103,125
Calenergy Capital Trust II 144A, $3.12...................... 70,000 3,088,750
Citizens Utilities Trust, $2.50............................. 85,000 3,384,063
Texas Utilities Co., Income PRIDES, $4.62................... 80,000 4,175,000
------------
15,707,750
------------
Total Convertible Preferred Stocks (Cost $126,696,934)............... 129,229,862
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 297
24
<TABLE>
<CAPTION>
MATURITY PRINCIPAL VALUE
RATE DATE AMOUNT (NOTE 2)
---- -------- ----------- ------------
<S> <C> <C> <C> <C>
CONVERTIBLE BONDS -- 45.4%
BASICS -- 1.4%
Agnico Eagle Mines, Ltd. ............... 3.50% 01/27/04 $ 7,350,000 $ 4,998,000
------------
CAPITAL GOODS -- 4.8%
Mark IV Industries, Inc................. 4.75% 11/01/04 2,135,000 1,756,038
Thermo Electron Corp. 144A*............. 4.25% 01/01/03 2,720,000 2,444,600
U.S. Filter Corp. ...................... 4.50% 12/15/01 4,500,000 4,365,000
Waste Management, Inc. ................. 4.00% 02/01/02 3,500,000 4,375,000
WMX Technologies, Inc. ................. 2.00% 01/24/05 4,500,000 4,539,375
------------
17,480,013
------------
COMPUTERS -- 1.2%
Hewlett-Packard Co. LYON................ 3.20%+ 10/14/17 8,400,000 4,452,000
------------
CONSUMER CYCLICALS -- 12.4%
Clear Channel Communications, Inc. ..... 2.63% 04/01/03 4,440,000 5,078,250
Hilton Hotels Corp. .................... 5.00% 05/15/06 5,080,000 4,965,700
Home Depot, Inc. ....................... 3.25% 10/01/01 1,890,000 4,838,400
Magna International, Inc. 144A*......... 4.88% 02/15/05 4,100,000 4,094,875
Omnicom Group, Inc. 144A*............... 2.25% 01/06/13 3,600,000 5,386,500
Pep Boys, Inc. LYON..................... 4.26%+ 09/20/11 8,800,000 4,554,000
Protection One Alarm Monitoring......... 6.75% 09/15/03 4,215,000 4,220,269
Rite Aid Corp. 144A*.................... 5.25% 09/15/02 4,350,000 5,546,250
Times Mirror Co. LYON................... 4.31%+ 04/15/17 10,525,000 4,854,656
Tower Automotive, Inc. 144A............. 5.00% 08/01/04 1,600,000 1,536,000
------------
45,074,900
------------
ENERGY -- 2.9%
Loews Corp. ............................ 3.13% 09/15/07 3,000,000 2,362,500
Pennzenergy Co. ........................ 4.95% 04/15/08 4,500,000 4,320,000
Seacor Holdings, Inc. .................. 5.38% 11/15/06 2,400,000 2,172,000
Seacor Holdings, Inc. 144A.............. 5.38% 11/15/06 1,700,000 1,538,500
------------
10,393,000
------------
FINANCIAL SERVICES -- 2.9%
Bank Atlantic Bancorp, Inc. ............ 5.63% 12/01/07 4,300,000 3,418,500
Berkshire Hathaway, Inc. ............... 1.00% 12/02/01 1,125,000 2,005,313
Penn Treaty American Corp. ............. 6.25% 12/01/03 4,180,000 4,341,975
Penn Treaty American Corp. ............. 6.25% 12/01/03 890,000 924,488
------------
10,690,276
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 298
25
<TABLE>
<CAPTION>
MATURITY PRINCIPAL VALUE
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
----------- ---- -------- ----------- ------------
<S> <C> <C> <C> <C>
CONVERTIBLE BONDS -- (CONTINUED)
HEALTH CARE -- 7.4%
Alza Corp. ............................. 5.00% 05/01/06 $ 2,790,000 $ 4,010,625
Athena Neurosciences, Inc. ............. 4.75% 11/15/04 3,950,000 4,937,500
Elan Finance Corp. 144A LYON............ 3.28%+ 12/14/18 8,500,000 5,131,875
Healthsouth Corp. 144A*................. 3.25% 04/01/03 2,600,000 2,171,000
Roche Holdings, Inc. Notes 144A LYON.... 5.40%+ 04/20/10 5,000,000 3,300,000
Roche Holdings, Inc. Notes 144A LYON.... 5.80%+ 05/06/12 9,000,000 4,871,250
Total Renal Care Holdings, CV B 144A*... 7.00% 05/15/09 3,400,000 2,350,250
------------
26,772,500
------------
HEALTH CARE SERVICES -- 1.1%
Omnicare, Inc. 144A*.................... 5.00% 12/01/07 4,300,000 3,891,500
------------
INDUSTRIAL & COMMERCIAL SERVICES -- 1.4%
Xerox Corp. ............................ 0.57% 04/21/18 8,100,000 4,951,125
------------
TECHNOLOGY -- 4.6%
Affiliated Computer Services............ 4.00% 03/15/05 150,000 187,688
Atmel Corp. 144A, 3.25% due 6/1/02;
8.25%, beginning 6/1/00++............. 3.25% 06/01/02 5,660,000 4,902,975
Micron Technology, Inc. ................ 7.00% 07/01/04 1,800,000 1,966,500
Motorola, Inc. LYON..................... 1.87%+ 09/27/13 3,350,000 2,667,438
Photronics, Inc. ....................... 6.00% 06/01/04 2,875,000 2,968,437
Solectron Corp. 144A* LYON.............. 4.00%+ 01/27/19 8,600,000 4,085,000
------------
16,778,038
------------
UTILITIES -- 4.3%
Bell Atlantic Financial Services
144A*................................. 5.75% 04/01/03 4,500,000 4,803,750
Bell Atlantic Financial Services
144A*................................. 4.25% 09/15/05 5,000,000 5,581,250
U.S. Cellular, Corp. LYON............... 5.75%+ 06/15/15 12,000,000 5,400,000
------------
15,785,000
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 299
26
<TABLE>
<CAPTION>
MATURITY PRINCIPAL VALUE
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
----------- ---- -------- ----------- ------------
<S> <C> <C> <C> <C>
CONVERTIBLE BONDS -- (CONTINUED)
UTILITIES -- ELECTRIC -- 1.0%
Aes Corp. .............................. 4.50% 08/15/05 $ 3,850,000 $ 3,696,000
------------
Total Convertible Bonds (Cost
$158,296,099)......................... 164,962,352
------------
TOTAL INVESTMENTS -- 99.0% (COST
$333,012,830)(a)...................... 359,740,629
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 1.0%................... 3,693,210
------------
NET ASSETS -- 100.0%.................... $363,433,839
============
</TABLE>
- ---------------
Percentages indicated are based on net assets of $363,433,839.
(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.............................. $44,711,389
Unrealized depreciation.............................. (17,983,590)
-----------
Net unrealized appreciation.......................... $26,727,799
===========
</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 year, these securities amounted
to 21.7% of net assets.
* Private placement security.
** Non-income producing security.
+ Rate shown is the effective yield at purchase date.
++ Step-Up Bond. Rate shown is the rate in effect at year end.
ADR -- American Depositary Receipt.
LYON -- Liquid Yield Option Note: Callable, zero coupon securities priced at a
deep discount from par. They include a "put" feature that enables
holders to redeem them on a specific date, at a specific price. Put
prices reflect fixed interest rates and therefore increase over time.
PLC -- Public Limited Company.
PRIDES -- Preferred Redeemable Increased Dividend Security.
REIT -- Real Estate Investment Trust.
See Notes to Financial Statements.
<PAGE> 300
27
PACIFIC HORIZON CAPITAL INCOME FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (cost $333,012,830).... $359,740,629
Cash....................................................... 1,877,920
Interest and dividends receivable.......................... 1,653,093
Receivable for capital shares sold......................... 427,007
Receivable for investment securities sold.................. 911,910
Prepaid expenses........................................... 49,168
------------
Total Assets................................................ 364,659,727
------------
LIABILITIES:
Payable for capital shares redeemed........................ 849,883
Investment advisory fees payable........................... 132,700
Administration fees payable................................ 59,173
Shareholder service fees payable........................... 71,112
Distribution fees payable.................................. 3,351
Custodian and fund accounting fees payable................. 12,030
Legal fees payable......................................... 4,724
Transfer agent fees payable................................ 60,287
Other accrued expenses..................................... 32,628
------------
Total Liabilities........................................... 1,225,888
------------
NET ASSETS.................................................. $363,433,839
============
Net Assets:
A Shares................................................... $356,067,613
B Shares................................................... 3,363,402
K Shares................................................... 4,002,824
------------
Total....................................................... $363,433,839
============
Shares Outstanding ($0.001 par value, 300 million shares
authorized):
A Shares................................................... 20,534,598
B Shares................................................... 194,408
K Shares................................................... 230,404
------------
Total....................................................... 20,959,410
============
NET ASSET VALUE:
A Shares -- Net asset value and redemption price per
share.................................................... $ 17.34
============
Maximum Sales Charge (A Shares)............................ 5.75%
Maximum Offering Price per share (A Shares) (Net Asset
Value of A Shares/ (100% -- Maximum Sales Charge))....... $ 18.40
============
B Shares -- Net asset value and offering price per share... $ 17.30
============
K Shares -- Net asset value, offering and redemption price
per share................................................ $ 17.37
============
COMPOSITION OF NET ASSETS:
Shares of common stock, at par............................. $ 20,959
Additional paid-in capital................................. 322,919,649
Accumulated undistributed net investment income............ 1,459,977
Accumulated net realized gain on investment transactions... 12,305,455
Net unrealized appreciation on investments................. 26,727,799
------------
NET ASSETS, FEBRUARY 28, 1999............................... $363,433,839
============
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 301
28
PACIFIC HORIZON CAPITAL INCOME FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the year ended February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividend income........................................... $ 7,881,972
Interest income........................................... 8,037,821
-----------
Total Income................................................ 15,919,793
-----------
EXPENSES:
Investment advisory fees.................................. 1,740,699
Administration fees....................................... 773,648
Shareholder service fees (A Shares)....................... 955,581
Shareholder service fees (B Shares) (a)................... 3,329
Shareholder service fees (K Shares)....................... 8,142
Distribution fees (B Shares) (a).......................... 9,842
Distribution fees (K Shares).............................. 24,570
Custodian and fund accounting fees........................ 81,753
Registration fees......................................... 19,561
Reports to shareholders................................... 95,389
Transfer agent fees....................................... 726,888
Audit fees................................................ 14,129
Directors fees............................................ 10,677
Legal fees................................................ 14,151
Other expenses............................................ 34,917
-----------
Total Expenses.......................................... 4,513,276
Less: Fee waivers & expense reimbursements................ (8,190)
Expenses paid by third parties...................... (44,485)
-----------
Total Net Expenses.......................................... 4,460,601
-----------
NET INVESTMENT INCOME....................................... 11,459,192
-----------
NET REALIZED/UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gain on investment transactions.............. 12,406,163
Net change in unrealized appreciation on investments...... (8,323,165)
-----------
Net realized/unrealized gains on investments.............. 4,082,998
-----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $15,542,190
===========
</TABLE>
- ---------------
(a) Period from July 15, 1998 (date of initial offering) to February 28, 1999.
See Notes to Financial Statements.
<PAGE> 302
29
PACIFIC HORIZON CAPITAL INCOME FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------
FEBRUARY 28, FEBRUARY 28,
1999 1998
------------- ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income............................... $ 11,459,192 $ 12,184,863
Net realized gains on investment transactions....... 12,406,163 40,172,797
Net change in unrealized appreciation/(depreciation)
on investments.................................... (8,323,165) 15,462,278
------------- ------------
Change in net assets resulting from operations........ 15,542,190 67,819,938
------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
A Shares.......................................... (11,927,899) (11,941,341)
B Shares(a)....................................... (76,860) --
K Shares.......................................... (32,376) (44,897)
Net realized gains from investment transactions:
A Shares.......................................... (4,002,223) (58,050,678)
B Shares(a)....................................... (34,031) --
K Shares.......................................... (18,272) (294,934)
------------- ------------
Change in net assets from shareholder distributions... (16,091,661) (70,331,850)
------------- ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued......................... 74,472,445 95,805,004
Dividends reinvested................................ 14,660,424 65,580,717
Cost of shares redeemed............................. (118,820,579) (75,563,249)
------------- ------------
Change in net assets from capital share
transactions........................................ (29,687,710) 85,822,472
------------- ------------
Change in net assets.................................. (30,237,181) 83,310,560
NET ASSETS:
Beginning of Year................................... 393,671,020 310,360,460
------------- ------------
End of Year (including undistributed net investment
income of $1,459,977, and $2,096,055,
respectively)..................................... $ 363,433,839 $393,671,020
============= ============
</TABLE>
- ---------------
(a) Period from July 15, 1998 (date of initial offering) to February 28, 1999.
See Notes to Financial Statements.
<PAGE> 303
30
PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- ------ -----------
<S> <C> <C>
COMMON STOCKS -- 58.1%
AEROSPACE -- 0.9%
United Technologies Corp. ................................ 20,100 $ 2,489,887
-----------
AIRLINES -- 0.3%
Delta Air Lines, Inc. .................................... 11,000 668,937
UAL Corp.**............................................... 3,900 233,025
-----------
901,962
-----------
APPAREL/TEXTILE -- 0.2%
Tommy Hilfiger Corp.**.................................... 8,000 552,500
-----------
AUTOMOBILES -- 0.9%
Ford Motor Co. ........................................... 26,300 1,559,919
General Motors Corp. ..................................... 14,600 1,205,412
-----------
2,765,331
-----------
BEVERAGES -- 1.7%
Anheuser-Busch Cos., Inc. ................................ 27,800 2,131,912
Coca-Cola Co. ............................................ 29,000 1,854,187
Coca-Cola Enterprises, Inc. .............................. 12,000 372,000
PepsiCo, Inc. ............................................ 11,000 413,875
-----------
4,771,974
-----------
BUILDING & RELATED/APPLIANCE -- 0.9%
Centex Corp. ............................................. 16,800 618,450
Fluor Corp. .............................................. 10,900 383,544
Lowe's Cos., Inc. ........................................ 28,600 1,696,337
-----------
2,698,331
-----------
CHEMICALS -- 0.8%
Dow Chemical Co. ......................................... 13,800 1,357,575
Du Pont (E. I.) De Nemours & Co. ......................... 11,000 564,437
Rohm & Haas Co. .......................................... 800 25,000
Solutia, Inc. ............................................ 18,000 320,625
-----------
2,267,637
-----------
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 304
31
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- ------ -----------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
COMMUNICATIONS -- 2.2%
Cisco Systems, Inc.**..................................... 23,900 $ 2,337,719
Lucent Technologies, Inc. ................................ 27,100 2,752,344
Sprint Corp. (PCS Group)**................................ 4,050 129,094
Tellabs, Inc.**........................................... 14,100 1,128,881
-----------
6,348,038
-----------
COMPUTER HARDWARE -- 3.2%
Dell Computer Corp.**..................................... 39,100 3,132,887
EMC Corp.**............................................... 35,000 3,583,125
International Business Machines........................... 5,900 1,003,000
Sun Microsystems, Inc.**.................................. 16,300 1,586,194
-----------
9,305,206
-----------
COMPUTER SERVICES & SOFTWARE -- 3.8%
America Online, Inc. ..................................... 10,400 924,950
Compuware Corp.**......................................... 10,100 564,969
Microsoft Corp.**......................................... 50,900 7,641,362
Oracle Corp.**............................................ 31,400 1,754,475
-----------
10,885,756
-----------
COMPUTER SOFTWARE/HARDWARE -- 0.2%
Seagate Technology, Inc.**................................ 18,000 520,875
-----------
CONSUMER PRODUCTS & SERVICES -- 0.1%
Bausch & Lomb, Inc. ...................................... 2,900 174,906
-----------
COSMETICS & TOILETRIES -- 1.6%
Avon Products, Inc. ...................................... 22,400 932,400
Clorox Co. ............................................... 8,600 1,017,487
Procter & Gamble Co. ..................................... 30,700 2,747,650
-----------
4,697,537
-----------
ELECTRIC -- 0.6%
Edison International...................................... 30,500 777,750
FPL Group, Inc. .......................................... 18,500 951,594
-----------
1,729,344
-----------
ELECTRICAL EQUIPMENT -- 1.9%
General Electric Co. ..................................... 54,400 5,457,000
-----------
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 305
32
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- ------ -----------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
ENERGY RELATED -- 0.8%
PECO Energy Co. .......................................... 30,400 $ 1,077,300
Reliant Energy, Inc. ..................................... 26,000 697,125
Transocean Offshore, Inc. ................................ 21,300 439,312
-----------
2,213,737
-----------
ENTERTAINMENT -- 2.2%
Carnival Corp. ........................................... 29,500 1,312,750
Time Warner, Inc. ........................................ 48,600 3,134,700
Viacom, Inc., Cl-B**...................................... 22,500 1,988,437
-----------
6,435,887
-----------
FINANCIAL -- BANKS & TRUSTS -- 5.3%
Banc One Corp. ........................................... 27,540 1,480,275
Bank of New York Co., Inc. ............................... 39,600 1,383,525
Chase Manhattan Corp. .................................... 43,000 3,423,875
Fleet Financial Group, Inc. .............................. 62,700 2,692,181
Freddie Mac............................................... 23,400 1,377,675
Mellon Bank Corp. ........................................ 24,900 1,683,862
National City Corp. ...................................... 16,800 1,173,900
PNC Bank Corp. ........................................... 12,800 666,400
Wells Fargo Co. .......................................... 36,000 1,323,000
-----------
15,204,693
-----------
FINANCIAL SERVICES -- 2.7%
American Express Co. ..................................... 10,400 1,128,400
Citigroup Inc. ........................................... 19,200 1,128,000
Hartford Financial Services, Inc. ........................ 25,300 1,367,781
Morgan Stanley Dean Witter & Co. ......................... 19,600 1,773,800
Providian Financial Corp. ................................ 22,800 2,328,450
-----------
7,726,431
-----------
FOOD & RELATED -- 1.0%
Conagra, Inc. ............................................ 23,600 710,950
Heinz (H.J.) Co. ......................................... 11,800 642,362
Quaker Oats Co. .......................................... 20,700 1,130,737
Sara Lee Corp. ........................................... 10,100 274,594
-----------
2,758,643
-----------
HOSPITAL MANAGEMENT -- 0.3%
United Healthcare Corp. .................................. 15,300 754,481
-----------
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 306
33
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- ------ -----------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
HOSPITAL SUPPLY -- 1.8%
Allergan, Inc. ........................................... 13,300 $ 1,083,950
Biomet, Inc. ............................................. 24,800 909,850
Guidant Corp. ............................................ 22,400 1,276,800
Johnson & Johnson Co. .................................... 9,700 828,137
Medtronic, Inc. .......................................... 15,600 1,101,750
-----------
5,200,487
-----------
INSURANCE -- 1.4%
Allstate Corp. ........................................... 38,600 1,447,500
Conseco, Inc. ............................................ 37,700 1,128,644
Equitable Cos., Inc. ..................................... 22,400 1,513,400
-----------
4,089,544
-----------
MACHINERY -- 0.3%
Ingersoll-Rand Co. ....................................... 17,200 817,000
-----------
METALS & MINING -- 0.4%
Alcoa, Inc. .............................................. 8,000 324,000
USX-U.S. Steel Group, Inc. ............................... 31,300 792,281
-----------
1,116,281
-----------
MULTI-INDUSTRY -- 1.6%
AlliedSignal, Inc. ....................................... 15,700 649,588
Rockwell International Corp. ............................. 24,800 1,102,050
Tyco International Ltd. .................................. 38,700 2,880,731
-----------
4,632,369
-----------
OIL (DOMESTIC) -- 0.4%
Sunoco, Inc. ............................................. 16,900 514,394
USX-Marathon Group........................................ 27,200 562,700
-----------
1,077,094
-----------
OIL (INTERNATIONAL) -- 2.4%
Chevron Corp. ............................................ 18,500 1,422,188
Exxon Corp. .............................................. 50,900 3,388,031
Mobil Corp. .............................................. 23,900 1,988,181
-----------
6,798,400
-----------
PAPER & FOREST PRODUCTS -- 0.6%
Fort James Corp. ......................................... 11,500 343,563
Kimberly-Clark Corp. ..................................... 15,700 741,825
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 307
34
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- ------ -----------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
Owens-Illinois, Inc.**.................................... 23,400 $ 560,138
-----------
1,645,526
-----------
PHARMACEUTICALS -- 5.2%
Biogen, Inc.**............................................ 12,800 1,230,400
Bristol-Meyers Squibb Co. ................................ 21,100 2,657,281
Cardinal Health, Inc. .................................... 11,300 815,719
Lilly, (Eli) & Co. ....................................... 24,400 2,310,375
Merck & Co., Inc. ........................................ 17,000 1,389,750
Pfizer, Inc. ............................................. 12,700 1,675,606
Schering-Plough Corp. .................................... 43,000 2,405,313
Warner-Lambert Co. ....................................... 36,200 2,500,063
-----------
14,984,507
-----------
PRINTING & PUBLISHING -- 0.5%
McGraw-Hill Cos., Inc. ................................... 8,700 952,106
New York Times Co., Cl-A.................................. 11,000 341,000
-----------
1,293,106
-----------
RESTAURANTS/LODGING -- 0.2%
McDonald's Corp. ......................................... 8,200 697,000
-----------
RETAIL -- 2.7%
Gap, Inc. ................................................ 29,900 1,934,156
Home Depot, Inc. ......................................... 24,000 1,432,500
TJX Cos., Inc. ........................................... 20,600 588,388
Wal-Mart Stores, Inc. .................................... 45,100 3,895,513
-----------
7,850,557
-----------
RETAIL FOOD/DRUG -- 0.7%
Albertson's, Inc. ........................................ 11,700 666,900
Safeway, Inc.**........................................... 23,200 1,339,800
-----------
2,006,700
-----------
SEMI-CONDUCTORS/INSTRUMENTATION -- 2.0%
Intel Corp. .............................................. 42,100 5,049,369
Solectron Corp.**......................................... 18,400 822,250
-----------
5,871,619
-----------
TOBACCO -- 0.7%
Philip Morris Cos., Inc. ................................. 49,700 1,944,513
-----------
TRANSPORTATION -- 0.2%
Burlington Northern Santa Fe Corp. ....................... 17,100 566,438
-----------
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 308
35
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- ------ -----------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
UTILITIES -- GAS & PIPELINE -- 0.3%
Coastal Corp. ............................................ 31,400 $ 1,004,800
-----------
UTILITIES -- TELEPHONE -- 5.1%
Ameritech Corp. .......................................... 5,400 353,025
AT&T Corp. ............................................... 32,600 2,677,275
BellSouth Corp. .......................................... 70,600 3,265,250
GTE Corp. ................................................ 26,300 1,706,213
MCI Worldcom, Inc.**...................................... 56,424 4,654,980
Sprint Corp. ............................................. 8,100 695,081
U.S. West, Inc. .......................................... 23,900 1,274,169
-----------
14,625,993
-----------
Total Common Stocks (Cost $118,560,759)..................... 166,882,090
-----------
CONVERTIBLE PREFERRED STOCK -- 0.1%
Sealed Air Corp.** (Cost $245,177)........................ 4,845 249,518
-----------
</TABLE>
<TABLE>
<CAPTION>
MOODY'S/S&P
RATINGS MATURITY PRINCIPAL
(UNAUDITED) RATE DATE AMOUNT
----------- ------ -------- -----------
<S> <C> <C> <C> <C> <C>
ASSET-BACKED SECURITIES -- 0.8%
Chevy Chase Auto
Receivables Trust,
Series 1998-2, Class
A..................... Aaa/AAA 5.91% 12/15/04 $ 1,030,773 1,035,516
Circuit City Credit Card
Master Trust, Series
1995-1, Class A....... Aaa/AAA 6.375% 08/15/05 1,300,000 1,311,140
-----------
Total Asset Backed Securities (Cost $2,340,891)........................ 2,346,656
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 9.8%
AESOP Funding II, Series
1997-1, Class A1,
144A.................. Aaa/AAA 6.22% 10/20/01 1,000,000 1,005,990
Asset Securitization
Corp., Series 1997-D5,
Class A1C............. Aaa/AAA 6.75% 02/14/41 1,750,000 1,784,300
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 309
36
<TABLE>
<CAPTION>
MOODY'S/S&P
RATINGS MATURITY PRINCIPAL VALUE
(UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ------ -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS -- (CONTINUED)
Commercial Mortgage
Acceptance Corp.,
Series 1998-C1, Class
A2.................... Aaa/AAA 6.49% 05/15/08 $ 1,715,000 1,726,653
Credit Suisse First
Boston Mortgage
Securities Corp.,
Series 1998-C1, Class
A1B................... Aaa/AAA 6.48% 05/17/08 1,800,000 1,789,191
Criimi Mae CMBS Corp.,
Series 1998-1, Class
A1, 144A*............. Aaa/AAA 5.697% 10/20/01 1,910,041 1,880,794
Donaldson, Lufkin,
Jenrette, Commercial
Mortgage Corp., Series
1998-CG1, Class A1B... NR/AAA 6.41% 05/10/08 1,900,000 1,902,290
Fingerhut Master Trust,
Series 1998-1, Class
A..................... Aaa/AAA 6.07% 02/15/05 1,300,000 1,311,863
First Union-Lehman
Brothers-Bank of
America Trust, Series
1998-C2, Class A2..... Aaa/AAA 6.56% 11/18/08 2,000,000 2,022,130
General Growth
Properties, Series 1,
Class A2, 144A*....... Aaa/NR 6.602% 11/15/07 1,600,000 1,617,176
GMAC Commercial Mortgage
Securities, Inc.,
Series 1997-C2, Class
A3.................... Aaa/AAA 6.566% 11/15/07 2,075,000 2,100,761
Lehman Brothers
Commercial Conduit
Mortgage Trust, Series
1998-C1, Class A3..... Aaa/AAA 6.48% 01/18/08 2,350,000 2,360,986
Mortgage Capital
Funding, Inc., Series
1998-MC1, Class A2.... NR/AAA 6.663% 01/18/08 750,000 754,309
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 310
37
<TABLE>
<CAPTION>
MOODY'S/S&P
RATINGS 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... Aaa/NR 6.423% 05/18/08 $ 1,850,000 $ 1,853,154
Nomura Asset Securities
Corp., Series
1998-D6, Class A1B... Aaa/AAA 6.59% 03/17/28 2,050,000 2,054,418
Pemex Corp., Series
144A................. Aaa/AAA 5.72% 11/15/02 1,800,000 1,757,250
UAF Auto Grantor Trust,
Series 1998-A, Class
A, 144A.............. Aaa/AAA 6.10% 05/17/04 850,260 852,386
Vendee Mortgage Trust,
Series 1998-1, Class
2, Interest Only
Obligation........... NR/NR 0.455% 02/15/28 50,519,565 777,547
Vendee Mortgage Trust,
Series 1998-3, Class
1, Interest Only
Obligation........... NR/NR 0.317% 09/01/28 51,871,974 628,118
------------
Total Collateralized Mortgage Obligations (Cost $28,718,100)............ 28,179,316
------------
CORPORATE OBLIGATIONS -- 15.2%
AON Corp. Notes........ A3/AA- 7.40% 10/01/02 1,000,000 1,043,750
Associates Corp. of
North America
Debentures........... Aa3/AA- 6.95% 11/01/18 1,000,000 1,031,250
Banco Latinoamericano
Bank Guaranteed Notes
144A................. Baa1/BBB 6.59% 10/16/01 1,400,000 1,328,250
Bear Stearns Co. Senior
Notes................ A2/A 6.15% 03/02/04 1,100,000 1,089,777
BHP Finance USA Ltd.
Debentures........... A3/A- 6.42% 03/01/26 1,600,000 1,588,000
Cable & Wireless
Communications
Notes................ Baa1/A- 6.375% 03/06/03 1,200,000 1,209,000
Capital One Bank
Notes................ Baa3/BBB- 7.00% 04/30/01 1,400,000 1,412,250
Case Credit Corp.
Notes................ Baa1/A- 6.125% 02/15/03 1,400,000 1,398,250
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 311
38
<TABLE>
<CAPTION>
MOODY'S/S&P
RATINGS MATURITY PRINCIPAL VALUE
(UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ------ -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
CORPORATE OBLIGATIONS -- (CONTINUED)
Coastal Corp. Notes..... Baa3/BBB- 8.125% 09/15/02 $ 1,605,000 1,711,331
Consumer Energy Co.
Bonds, Series B....... Baa3/BBB+ 6.20% 05/01/03 1,300,000 1,290,250
Cox Radio, Inc. Company
Guaranteed Notes...... Baa2/A- 6.25% 05/15/03 1,200,000 1,203,000
Crown Cork & Seal PLC
Company Guaranteed
Notes................. Baa2/BBB 6.75% 12/15/03 1,050,000 1,050,000
Finova Capital Corp.
Notes................. Baa1/A- 6.625% 09/15/01 2,200,000 2,227,500
GMAC Notes.............. A2/A 5.75% 11/10/03 1,000,000 991,250
GTE Corp. Debentures.... Baa1/A 9.10% 06/01/03 1,200,000 1,333,500
Hanson Overseas B.V.
Senior Notes.......... A3/A 7.375% 01/15/03 1,350,000 1,400,625
James River Corp.
Debentures............ Baa2/BBB- 8.375% 11/15/01 1,250,000 1,325,000
KN Energy, Inc. Senior
Notes................. Baa2/BBB- 6.45% 03/01/03 1,000,000 1,002,500
Lehman Brothers Holdings
Co. Senior Notes...... Baa1/A 7.20% 08/15/09 1,200,000 1,209,000
MCN Investment Corp.
Notes................. Baa3/BBB 6.89% 01/16/02 1,500,000 1,524,375
Nabisco, Inc. Notes..... Baa2/BBB 6.125% 02/01/03 1,500,000 1,455,000
Newcourt Credit Group
Notes 144A............ Baa3/BBB 6.875% 02/16/05 1,200,000 1,177,500
News America Inc. Senior
Notes................. Baa3/BBB- 6.625% 01/09/08 1,250,000 1,259,375
Paine Webber Group, Inc.
Senior Notes.......... Baa1/BBB+ 7.015% 02/10/04 1,250,000 1,270,313
Praxair, Inc. Notes..... A3/BBB+ 6.75% 03/01/03 1,500,000 1,501,875
PSEG Capital Corp. Notes
144A.................. Baa2/BBB 6.74% 10/23/01 1,100,000 1,116,500
Salomon Smith Barney
Holdings, Inc.
Notes................. Aa3/A 6.25% 05/15/03 1,300,000 1,293,500
Sears Roebuck Acceptance
Corp. Notes........... A2/A- 6.00% 03/20/03 1,200,000 1,192,500
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 312
39
<TABLE>
<CAPTION>
MOODY'S/S&P
RATINGS MATURITY PRINCIPAL VALUE
(UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ------ -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
CORPORATE OBLIGATIONS -- (CONTINUED)
Service Corp.
International Senior
Notes................. Baa1/BBB+ 6.30% 03/15/03 $ 1,100,000 1,080,750
Thermo Electron Corp.
Notes................. Baa2/A 7.625% 10/30/08 1,200,000 1,149,000
Time Warner Inc., Pass-
Through Certificates
144A*................. Baa3/BBB 6.10% 12/30/01 1,250,000 1,256,250
USG Corp. Senior Notes.. Baa3/BBB 9.25% 09/15/01 1,100,000 1,170,125
Williams Cos., Inc.
Notes................. Baa2/BBB- 6.125% 02/01/01 1,000,000 1,000,000
Worldcom, Inc. Senior
Notes................. Baa2/BBB+ 6.40% 08/15/05 1,400,000 1,417,500
-----------
Total Corporate Obligations (Cost $43,640,144)........................... 43,709,046
-----------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 12.3%
FHLMC Pool #533301...... 10.50% 04/01/19 9,180 10,072
FHLMC Pool #E60891...... 6.50% 07/01/10 2,163,715 2,181,296
FHLMC Pool #G10304...... 6.50% 04/01/09 565,319 569,913
FNCI Pool #400028....... 6.50% 02/01/13 2,527,532 2,545,699
FNCL Pool #313349....... 10.00% 09/01/18 705,817 764,268
FNCL Pool #313644....... 7.00% 08/01/27 3,766,993 3,815,258
FNCL Pool #325602....... 6.50% 10/01/10 276,900 278,890
FNCX Pool #323191....... 6.50% 06/01/05 1,012,811 1,026,104
FNMA Pool #1997-M5 Class
C..................... 6.74% 08/25/07 2,000,000 2,054,370
FNMA Pool #345858....... 6.241% 08/01/36 996,067 1,015,988
FNMA Pool #405210....... 7.00% 05/01/28 3,459,249 3,503,570
FNMA Pool #405307....... 6.50% 12/01/27 5,986,299 5,948,885
FNMA Pool #437420....... 7.00% 08/01/28 3,032,000 3,070,847
GNMA Pool #146301....... 10.00% 02/15/16 43,670 47,586
GNMA Pool #436800....... 8.00% 07/15/27 2,708,661 2,825,472
GNMA Pool #448913....... 8.00% 06/15/28 2,416,539 2,520,752
GNMA Pool #448958....... 8.00% 09/15/27 521,105 543,578
GNMA Pool #449104....... 8.00% 06/15/28 934,958 975,278
GNMA Pool #467788....... 8.00% 04/15/28 137,541 143,473
GNSF Pool #231236....... 9.00% 01/15/20 151,393 161,706
GNSF Pool #258039....... 9.00% 01/15/20 140,809 150,402
GNSF Pool #276635....... 9.00% 10/15/19 186,580 199,290
GNSF Pool #278853....... 9.00% 11/15/19 182,898 195,358
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 313
40
<TABLE>
<CAPTION>
MATURITY
DATE PRINCIPAL VALUE
RATE (UNAUDITED) AMOUNT (NOTE 2)
------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- (CONTINUED)
GNSF Pool #780330....... 9.00% 12/15/19 $ 693,689 741,380
-----------
Total U.S. Government Agency Obligations (Cost $35,203,892)................. 35,289,435
-----------
U.S. GOVERNMENT OBLIGATIONS -- 2.7%
U.S. Treasury Strips.... 5.34%+ 08/15/12 6,150,000 2,818,876
U.S. Treasury Strips.... 5.66%+ 08/15/14 1,200,000 483,981
U.S. Treasury Strips.... 5.72%+ 05/15/18 2,700,000 862,582
U.S. Treasury Strips.... 5.41%+ 02/15/27 17,400,000 3,575,446
-----------
Total U.S. Government Obligations (Cost $8,361,610)......................... 7,740,885
-----------
<CAPTION>
SHARES
-----------
<S> <C> <C> <C> <C> <C>
TEMPORARY INVESTMENTS -- 0.9%
Temporary Investment Cash Fund.............................. 1,303,929 1,303,929
Temporary Investment Fund................................... 1,303,929 1,303,929
-----------
Total Temporary Investments (Cost $2,607,858)................. 2,607,858
-----------
TOTAL INVESTMENTS -- 99.9% (COST $239,678,431)(A)............. 287,004,804
OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.1%................. 255,005
-----------
NET ASSETS -- 100.0%.......................................... $287,259,809
===========
</TABLE>
- ---------------
Percentages indicated are based on net assets of $287,259,809.
(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.............................. $53,552,418
Unrealized depreciation.............................. (6,226,045)
-----------
Net unrealized appreciation.......................... $47,326,373
===========
</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 year, these securities amounted
to 4.2% of net assets.
* Private Placement Security.
** Non-income producing security.
+ Rate shown is the effective yield at purchase date.
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.
FNMA -- Federal National Mortgage Association.
GNMA -- Government National Mortgage Association.
GNSF -- Government National Mortgage Association -- 30 Year Fixed.
Interest only obligation -- security pays coupon proceeds based on a notional
principal amount.
NR -- Not Rated.
PLC -- Public Limited Company.
- ---------------
See Notes to Financial Statements.
<PAGE> 314
41
PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (cost $239,678,431)..... $287,004,804
Interest and dividends receivable.......................... 1,479,541
Receivable for capital shares sold......................... 380,287
Receivable for investment securities sold.................. 166,685
Prepaid expenses........................................... 14,722
Other assets............................................... 17,186
------------
Total Assets................................................ 289,063,225
------------
LIABILITIES:
Payable for capital shares redeemed........................ 208,936
Payable for investment securities purchased................ 1,361,094
Investment advisory fees payable........................... 118,064
Administration fees payable................................ 62,738
Shareholder service fees payable........................... 48,763
Distribution fees payable (K Shares)....................... 3,821
------------
Total Liabilities........................................... 1,803,416
------------
NET ASSETS.................................................. $287,259,809
============
Net Assets:
A Shares................................................... $ 72,081,239
B Shares................................................... 5,565,973
K Shares................................................... 1,792,227
SRF Shares................................................. 207,820,370
------------
Total....................................................... $287,259,809
============
Shares Outstanding ($0.001 par value, 400 million shares
authorized):
A Shares................................................... 3,202,949
B Shares................................................... 247,913
K Shares................................................... 79,830
SRF Shares................................................. 12,217,313
------------
Total....................................................... 15,748,005
============
NET ASSET VALUE:
A Shares -- Net asset value and redemption price per
share.................................................... $ 22.50
============
Maximum Sales Charge (A Shares)............................ 5.75%
Maximum Offering Price per share (A Shares) (Net Asset
Value of A Shares/ (100% -- Maximum Sales Charge))..... $ 23.87
============
B Shares -- Net asset value, offering and redemption price
per share................................................ $ 22.45
============
K Shares -- Net asset value, offering and redemption price
per share................................................ $ 22.45
============
SRF Shares -- Net asset value, offering and redemption
price per share.......................................... $ 17.01
============
COMPOSITION OF NET ASSETS:
Shares of common stock, at par............................. $ 15,748
Additional paid-in capital................................. 232,541,405
Accumulated undistributed net investment income............ 1,029,034
Accumulated net realized gains on investment
transactions............................................. 6,347,249
Net unrealized appreciation on investments................. 47,326,373
------------
NET ASSETS, FEBRUARY 28, 1999............................... $287,259,809
============
</TABLE>
See Notes to Financial Statements.
<PAGE> 315
42
PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the year ended February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividend income............................................ $ 1,978,265
Interest income............................................ 7,781,781
-----------
Total Income................................................ 9,760,046
-----------
EXPENSES:
Advisory fees.............................................. 1,089,007
Administration fees........................................ 408,379
Administrative and shareholder service fees (K Shares)..... 3,789
Shareholder service fees (A Shares)........................ 169,809
Shareholder service fees (B Shares) (a).................... 3,502
Shareholder service fees (SRF Shares)...................... 503,529
Distribution fees (B Shares) (a)........................... 10,505
Distribution fees (K Shares)............................... 11,332
Custodian and fund accounting fees......................... 117,107
Transfer agent fees........................................ 133,027
Registration fees.......................................... 16,137
Reports to shareholders.................................... 52,470
Audit fees................................................. 11,266
Directors fees............................................. 6,278
Legal fees................................................. 9,080
Other expenses............................................. 47,597
-----------
Total Expenses........................................... 2,592,814
Less: Fee waivers and expense reimbursements............... (28,398)
-----------
Total Net Expenses.......................................... 2,564,416
-----------
NET INVESTMENT INCOME....................................... 7,195,630
-----------
NET REALIZED/UNREALIZED GAINS ON INVESTMENTS:
Net realized gains on investment transactions.............. 23,764,494
Net change in unrealized appreciation on investments....... 6,281,484
-----------
Net realized/unrealized gains on investments............... 30,045,978
-----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $37,241,608
===========
</TABLE>
- ---------------
(a) Period from July 15, 1998 (date of initial offering) to February 28, 1999.
See Notes to Financial Statements.
<PAGE> 316
43
PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------
FEBRUARY 28, FEBRUARY 28,
1999 1998
------------ ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income.............................. $ 7,195,630 $ 4,657,471
Net realized gain on investment transactions....... 23,764,494 16,121,025
Net change in unrealized appreciation on
investments...................................... 6,281,484 10,917,084
------------ ------------
Change in net assets resulting from operations....... 37,241,608 31,695,580
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
A Shares......................................... (1,374,728) (948,423)
B Shares(a)...................................... (20,292) --
K Shares......................................... (25,004) (16,758)
SRF Shares....................................... (5,495,494) (2,815,255)(b)
Net realized gains from investment transactions
A Shares......................................... (4,627,382) (3,507,686)
B Shares(a)...................................... (164,418) --
K Shares......................................... (105,795) (82,265)
SRF Shares....................................... (17,214,123) (9,820,897)(b)
------------ ------------
Change in net assets from shareholder
distributions...................................... (29,027,236) (17,191,284)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares issued........................ 54,174,467 208,437,645
Dividends reinvested............................... 28,787,784 16,979,819
Cost of shares redeemed............................ (51,715,342) (27,709,016)
------------ ------------
Change in net assets from capital share
transactions....................................... 31,246,909 197,708,448
------------ ------------
Change in net assets................................. 39,461,281 212,212,744
NET ASSETS
Beginning of Year.................................. 247,798,528 35,585,784
------------ ------------
End of Year (including undistributed net investment
income of $1,029,034 and $951,491,
respectively).................................... $287,259,809 $247,798,528
============ ============
</TABLE>
- ---------------
(a) Period from July 15, 1998 (date of initial offering) to February 28, 1999.
(b) Period from June 23, 1997 (inception date) to February 28, 1998.
See Notes to Financial Statements.
<PAGE> 317
44
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 -- ORGANIZATION
Pacific Horizon Funds, Inc. (the "Company"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended (the "Act"), as
an open-end management investment company. At February 28, 1999, 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 will
automatically convert into A Shares of the Fund at the end of the month on which
the eighth anniversary of the date of purchase occurs.
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, serves as the Funds' investment adviser
and administrator.
<PAGE> 318
45
On October 1, 1998, BankAmerica Corporation, 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 identical terms 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
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those of estimates.
<PAGE> 319
46
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 Capital Income Fund maintains a cash balance with its custodian and
receives a reduction of its custody fees and expenses for the amount of interest
earned on such uninvested cash balances. For financial reporting purposes for
the year ended February 28, 1999, custodian fees and expenses paid by third
parties were increased by $44,485. There was no effect on net investment income.
The Fund could have invested such cash amounts in an income producing asset if
<PAGE> 320
47
it had not agreed to a reduction of fees or expenses under the expense offset
arrangement with its custodian.
Effective October 1, 1996 the earnings credit account for the Capital Income
Fund converted to an interest bearing account. Earnings credit balances were
available until February 28, 1999.
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, 1999, 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 INVESTMENT GAIN/(LOSS) ON
INCOME INVESTMENTS
-------------- --------------
<S> <C> <C>
Capital Income Fund.................................... $ (58,135) $ 58,135
Asset Allocation Fund.................................. $(202,569) $201,234
</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
<PAGE> 321
48
timely, all of its net investment company taxable income and net capital gains
to shareholders. Therefore, no Federal income tax provision is required.
NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
The Funds have an Investment Advisory Agreement and an Administration
Agreement with Bank of America. Pursuant to the terms of the Investment Advisory
Agreement, Bank of America is entitled to a fee from the Funds, which is accrued
daily and payable monthly, at an annual rate of 0.45% and 0.40% of the Capital
Income Fund and the Asset Allocation Fund, respectively, of average daily net
assets. Pursuant to the terms of the Administration Agreement, Bank of America
is entitled to a fee, which is accrued daily and payable monthly, at an annual
rate of 0.20% and 0.15%, of the average daily net assets of the Capital Income
and Asset Allocation Fund, respectively.
For the year ended February 28, 1999, PDI advised the Funds that it retained
$31,995 and $14,981 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 $32,029
and $19,154 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 an annual rate of 0.25% of each Fund's average daily net assets
for A Shares. For the year ended February 28, 1999, the Capital Income Fund and
Asset Allocation Fund incurred charges of $955,581 and $169,809, respectively,
pursuant to the Plan. The Funds were advised that of these amounts, PDI retained
$24,957 and $1,750 from the Capital Income Fund and Asset Allocation Fund,
respectively, and affiliates of Bank of America retained $805,488 and $142,425,
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,
<PAGE> 322
49
of the average daily net assets of the Fund's B Shares. For the period ended
February 28, 1999, the Capital Income Fund and the Asset Allocation Fund
incurred charges of $13,171 and $14,007, pursuant to the Plan. The Funds were
advised that of these amounts, affiliates of Bank of America retained $13,155
and $13,959 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
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 an annual rate of 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 an
annual rate of 0.25% and 0.75%, respectively, of the average daily net assets of
each Fund's K Shares. The total of all payments under the Distribution Plan and
the Administrative Plan may not exceed, in the aggregate, the annual rate of
1.00% of the average daily net assets of each Fund's K Shares. For the year
ended February 28, 1999, the Capital Income Fund and Asset Allocation Fund
incurred charges of $32,712 and $15,121, respectively, pursuant to Distribution
and Administrative Plans. The Funds were advised that of these amounts PDI
retained $325 and affiliates of Bank of America retained $1,999 from the Capital
Income Fund. For the same period, shareholder services fees of $8,190 and $3,781
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 an annual rate of 0.25% of the Fund's average daily net assets for SRF
shares. For the year ended February 28, 1999, Asset Allocation Fund incurred
charges of $503,529, pursuant to the Plan. The Fund was advised that of this
amount the affiliates of Bank of America retained $478,936. For the same period,
shareholder service fees of $24,617 were waived by the Asset Allocation Fund.
<PAGE> 323
50
For the year ended February 28, 1999, PFPC earned $726,888 and $133,027 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
Committee meeting, and the Chairman of each Committee receives an annual
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 $1,448 and $365 for the Capital Income Fund and
Asset Allocation Fund, respectively, for the year ended February 28, 1999. A
<PAGE> 324
51
director who comes into office after March 18, 1998 is ineligible to participate
in the Retirement Plan.
NOTE 5 -- SECURITIES TRANSACTIONS
Purchases and sales of securities, other than short-term obligations, during
the year ended February 28, 1999, were as follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT
SECURITIES OTHER SECURITIES
--------------------------- ---------------------------
PURCHASES SALES PURCHASES SALES
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Capital Income.............. $ -- $ -- $245,619,508 $280,065,728
Asset Allocation............ $119,887,063 $128,512,378 $203,420,754 $176,987,392
</TABLE>
NOTE 6 -- CAPITAL SHARE TRANSACTIONS
Transactions in shares of common stock of the Funds are summarized below:
<TABLE>
<CAPTION>
CAPITAL INCOME FUND
----------------------------------------
YEAR ENDED
----------------------------------------
FEBRUARY 28, 1999 FEBRUARY 28, 1998
------------------ -----------------
SHARES AMOUNT SHARES AMOUNT
------ --------- ------ --------
<S> <C> <C> <C> <C>
A SHARES (000'S)
Issued................................ 3,936 $ 68,014 5,211 $ 94,279
Reinvested............................ 867 14,499 3,816 65,240
Redeemed.............................. (6,909) (116,880) (4,209) (75,226)
------ --------- ------ --------
Net increase (decrease)................. (2,106) $ (34,367) 4,818 $ 84,293
====== ========= ====== ========
B SHARES (000'S)(a)
Issued................................ 220 $ 3,707 -- $ --
Reinvested............................ 3 50 -- --
Redeemed.............................. (29) (488) -- --
------ --------- ------ --------
Net increase............................ 194 $ 3,269 -- $ --
====== ========= ====== ========
K SHARES (000'S)
Issued................................ 162 $ 2,751 84 $ 1,526
Reinvested............................ 7 111 20 341
Redeemed.............................. (85) (1,453) (18) (337)
------ --------- ------ --------
Net Increase............................ 84 $ 1,409 86 $ 1,530
====== ========= ====== ========
</TABLE>
<PAGE> 325
52
<TABLE>
<CAPTION>
ASSET ALLOCATION FUND
----------------------------------------
YEAR ENDED
----------------------------------------
FEBRUARY 28, 1999 FEBRUARY 28, 1998
------------------ -----------------
SHARES AMOUNT SHARES AMOUNT
------ --------- ------ --------
<S> <C> <C> <C> <C>
A SHARES (000'S)
Issued................................ 1,494 $ 32,957 734 $ 14,942
Reinvested............................ 265 5,769 211 4,243
Redeemed.............................. (856) (18,891) (441) (8,989)
------ --------- ------ --------
Net increase............................ 903 $ 19,835 504 $ 10,196
====== ========= ====== ========
B SHARES (000'S)(a)
Issued................................ 246 $ 5,456 -- $ --
Reinvested............................ 8 183 -- --
Redeemed.............................. (6) (139) -- --
------ --------- ------ --------
Net increase............................ 248 $ 5,500 -- $ --
====== ========= ====== ========
K SHARES (000'S)
Issued................................ 48 $ 1,051 58 $ 1,194
Reinvested............................ 6 131 5 99
Redeemed.............................. (52) (1,161) (24) (485)
------ --------- ------ --------
Net increase............................ 2 $ 21 39 $ 808
====== ========= ====== ========
SRF SHARES (000'S)
Issued................................ 860 $ 14,710 12,164 $192,302
Reinvested............................ 1,370 22,704 797 12,637
Redeemed.............................. (1,854) (31,524) (1,120) (18,235)
------ --------- ------ --------
Net increase............................ 376 $ 5,890 11,841(b) $186,704(b)
====== ========= ====== ========
</TABLE>
- ---------------
<TABLE>
<S> <C>
(a) Period from July 15, 1998 (date of initial offering) to
February 28, 1999.
(b) Period from June 23, 1997 (inception date) to February 28,
1998.
</TABLE>
NOTE 7 -- PROPOSED REORGANIZATIONS
The Board of Directors of the Pacific Horizon Funds, Inc. has approved an
Agreement and Plan of Reorganization ("Agreement") between Pacific Horizon
Funds, Inc. and Nations Institutional Reserves. The Agreements, which are part
of a broader reorganization of Pacific Horizon Funds, Inc. into the Nations
family of Funds, provide for the transfer of all of the assets of the Pacific
Horizon Capital Income and Asset Allocation Funds to the Nations Capital Income
Fund and the Nations Asset Allocation Fund, respectively, in exchange solely for
the number of shares Investor A, Investor B, Investor C and with respect to the
Asset Allocation Fund only, Seafirst shares, of the Nations Capital Income Fund
and the Nations Asset Allocation Fund, respectively, having the same aggregate
net asset value as the outstanding shares of Class A, Class B, and Class K of
the Pacific Horizon Capital Income Fund and Class A, Class B, Class K, and Class
SRF of the Pacific Horizon Asset Allocation Fund as of the close of business of
the New York Stock
<PAGE> 326
53
Exchange on the day that the Reorganizations are effective. The Agreements also
provide for the assumption by the Nations Capital Income Fund and Nations Asset
Allocation Fund of all of the liabilities of each of these respective Funds. The
Reorganization can be consummated only if, among other things, it is approved by
the vote of a majority (as defined by the 1940 Act) of outstanding shares of
each of the Funds of Pacific Horizon Funds, Inc. at a Special Meeting of
Shareholders ("Meeting") is scheduled to be held on May 3, 1999. A detailed
description of the proposed transactions and voting information was sent to
shareholders of the Funds on or about February 12, 1999. If the Agreements are
approved at the Meeting, the Reorganizations are expected to become effective on
or about May 21, 1999.
<PAGE> 327
54
PACIFIC HORIZON CAPITAL INCOME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1999(b) 1998 1997(a) 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
A SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF
YEAR................................... $17.28 $17.35 $16.42 $13.65 $15.42
------ ------ ------ ------ ------
Income from Investment
Operations:
Net investment income.................. 0.51 0.58 0.57 0.62 0.57
Net realized and unrealized gains
(losses) on investment
transactions......................... 0.25 2.89 2.34 2.84 (1.43)
------ ------ ------ ------ ------
Total income (loss) from investment
operations............................. 0.76 3.47 2.91 3.46 (0.86)
------ ------ ------ ------ ------
Less Dividends and Distributions:
Dividends to shareholders from net
investment income.................... (0.52) (0.59) (0.57) (0.69) (0.54)
Distributions to shareholders from net
realized gains on investment
transactions......................... (0.18) (2.95) (1.41) -- (0.37)
------ ------ ------ ------ ------
Total Dividends and Distributions....... (0.70) (3.54) (1.98) (0.69) (0.91)
------ ------ ------ ------ ------
Net change in net asset value per
share.................................. 0.06 (0.07) 0.93 2.77 (1.77)
------ ------ ------ ------ ------
NET ASSET VALUE PER SHARE, END OF
YEAR................................... $17.34 $17.28 $17.35 $16.42 $13.65
====== ====== ====== ====== ======
Total Return (excludes sales charge).... 4.64% 21.54% 18.53% 25.96% (5.61%)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year (millions)... $ 356 $ 391 $ 309 $ 247 $ 198
Ratio of expenses to average net
assets............................... 1.15% 1.10% 1.18% 1.23% 0.97%
Ratio of net investment income to
average net assets................... 2.97% 3.35% 3.40% 4.05% 4.48%
Ratio of expenses to average net
assets*.............................. 1.16%**(c) 1.12%** 1.19%** 1.26%** 1.14%
Ratio of net investment income to
average net assets*.................. 2.96%**(c) 3.33% (c) (c) 4.31%
Portfolio turnover rate................ 66% 69% 124% 57% 94%
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the year, certain fees were voluntarily reduced
and/or reimbursed. If such voluntary fee reductions and/or
reimbursements had not occurred, the ratios would have been
as indicated.
** During the years ended February 28, 1999, 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) On October 1, 1998, BankAmerica Corp., the parent company of
the Fund's Advisor, merged with NationsBank Corporation.
(c) There were no waivers or reimbursements during the period.
</TABLE>
See Notes to Financial Statements.
<PAGE> 328
55
PACIFIC HORIZON CAPITAL INCOME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
FEBRUARY 28,
1999(a)(b)
------------
<S> <C>
B SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD.............. $17.67
------
Income from Investment Operations:
Net investment income..................................... 0.22
Net realized losses on investment transactions............ (0.17)
------
Total income from investment operations..................... 0.05
------
Less: Dividends and Distributions:
Dividends to shareholders from net investment income...... (0.24)
Distributions to shareholders from net realized gains on
investment transactions................................. (0.18)
------
Total Dividends and Distributions........................... (0.42)
------
Net change in net asset value per share..................... (0.37)
------
NET ASSET VALUE PER SHARE, END OF PERIOD.................... $17.30
======
Total Return................................................ 0.44% (e)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (millions).................... $ 3
Ratio of expenses to average net assets................... 1.96% (d)
Ratio of net investment income to average net assets...... 2.14% (d)
Ratio of expenses to average net assets................... 1.97%*(c)
Ratio of net investment income to average net assets...... 2.13%*(c)
Portfolio turnover rate................................... 66%
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the period ended February 28, 1999, 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 (date of initial offering) to
February 28, 1999.
(b) On October 1, 1998, BankAmerica Corp., the parent company of
the Fund's Advisor, merged with NationsBank Corporation.
(c) There were no waivers or reimbursements during the period.
(d) Annualized.
(e) Not annualized.
</TABLE>
See Notes to Financial Statements.
<PAGE> 329
56
PACIFIC HORIZON CAPITAL INCOME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD
--------------------------- ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1999(b) 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.............. 0.40 0.48 0.32
Net realized gains on investment
transactions..................... 0.31 2.89 2.43
------ ------ ------
Total income from investment
operations......................... 0.71 3.37 2.75
------ ------ ------
Less: Dividends and Distributions:
Dividends to shareholders from net
investment income................ (0.40) (0.48) (0.28)
Distributions to shareholders from
net realized gains on investment
transactions..................... (0.18) (2.95) (1.41)
------ ------ ------
Total Dividends and Distributions.... (0.58) (3.43) (1.69)
------ ------ ------
Net change in net asset value per
share.............................. 0.13 (0.06) 1.06
------ ------ ------
NET ASSET VALUE PER SHARE, END OF
PERIOD............................. $17.37 $17.24 $17.30
====== ====== ======
Total Return......................... 4.29% 20.97% 17.47% (d)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period
(millions)....................... $ 4 $ 3 $ 1
Ratio of expenses to average net
assets........................... 1.65% 1.60% 1.66% (c)
Ratio of net investment income to
average net assets............... 2.45% 2.85% 2.85% (c)
Ratio of expenses to average net
assets*.......................... 1.91%+ 1.86% 1.91% (c)**
Ratio of net investment income to
average net assets*.............. 2.19%+ 2.59% 2.60% (c)
Portfolio turnover rate............ 66% 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.
+ During the period ended February 28, 1999, 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) On October 1, 1998, BankAmerica Corp., the parent company of
the Fund's Advisor, merged with NationsBank Corporation.
(c) Annualized.
(d) Not annualized.
</TABLE>
See Notes to Financial Statements.
<PAGE> 330
57
PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1999(b) 1998 1997(a) 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
A SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR............... $21.41 $19.40 $17.52 $15.15 $14.84
------ ------ ------ ------ ------
Income from Investment
Operations:
Net investment income........... 0.55 0.52 0.48 0.52 0.48
Net realized and unrealized
gains on investment
transactions.................. 2.48 3.72 2.50 2.86 0.24
------ ------ ------ ------ ------
Total income from investment
operations...................... 3.03 4.24 2.98 3.38 0.72
------ ------ ------ ------ ------
Less Dividends and Distributions:
Dividends to shareholders from
net investment income......... (0.45) (0.47) (0.46) (0.53) (0.41)
Dividends to shareholders from
net realized gains on
investment transactions....... (1.49) (1.76) (0.64) (0.48) --
------ ------ ------ ------ ------
Total Dividends and
Distributions................... (1.94) (2.23) (1.10) (1.01) (0.41)
------ ------ ------ ------ ------
Net change in net asset value per
share........................... 1.09 2.01 1.88 2.37 0.31
------ ------ ------ ------ ------
NET ASSET VALUE PER SHARE, END OF
YEAR............................ $22.50 $21.41 $19.40 $17.52 $15.15
====== ====== ====== ====== ======
Total Return (excludes sales
charge)......................... 14.72% 23.07% 17.64% 22.80% 5.03%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions).................... $ 72 $ 49 $ 35 $ 22 $ 6
Ratio of expenses to average net
assets........................ 0.94% 1.03% 1.25% 0.62% 0.00%
Ratio of net investment income
to average net assets......... 2.64% 2.67% 2.59% 3.49% 4.25%
Ratio of expenses to average net
assets*....................... (c) 1.09% 1.94% 2.92% 7.89%
Ratio of net investment income
(loss) to average net
assets*....................... (c) 2.61% 1.90% 1.19% (3.64%)
Portfolio turnover rate......... 114% 67% 116% 157% 142%
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the year, certain fees were voluntarily reduced
and/or reimbursed. If such voluntary fee reductions and/or
reimbursements had not occurred, the ratios would have been
as indicated.
(a) As of July 22, 1996, the Fund designated the existing series
of shares as "A" Shares.
(b) On October 1, 1998, BankAmerica Corp., the parent company of
the Fund's Advisor, merged with NationsBank Corporation.
(c) There were no waivers or reimbursements during the period.
</TABLE>
See Notes to Financial Statements.
<PAGE> 331
58
PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
FEBRUARY 28,
1999(a)(b)
------------
<S> <C>
B SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD.............. $23.17
------
Income from Investment Operations:
Net investment income..................................... 0.22
Net realized and unrealized gains on investment
transactions............................................ 0.75
------
Total income from investment operations..................... 0.97
------
Less Dividends and Distributions:
Dividends to shareholders from net investment income...... (0.20)
Distributions to shareholders from net realized gains..... (1.49)
------
Total Dividends and Distributions........................... (1.69)
------
Net change in net asset value per share..................... (0.72)
------
NET ASSET VALUE PER SHARE, END OF PERIOD.................... $22.45
======
Total Return................................................ 4.59%(e)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (millions)...................... $ 6
Ratio of expenses to average net assets................... 1.74%(d)
Ratio of net investment income to average net assets...... 1.92%(d)
Ratio of expenses to average net assets*.................. (c)
Ratio of net investment income to average net assets*..... (c)
Portfolio turnover rate................................... 114%
</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 (date of initial offering) to
February 28, 1999.
(b) On October 1, 1998, BankAmerica Corp., the parent company of
the Fund's Advisor, merged with NationsBank Corporation.
(c) There were no waivers or reimbursements during the period.
(d) Annualized.
(e) Not annualized.
</TABLE>
See Notes to Financial Statements.
<PAGE> 332
59
PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------- PERIOD ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1999(b) 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.................... 0.44 0.41 0.19
Net realized gains on investment
transactions........................... 2.49 3.66 2.80
------ ------ ------
Total income from investment operations.... 2.93 4.07 2.99
------ ------ ------
Less: Dividends and Distributions:
Dividends to shareholders from net
investment income...................... (0.35) (0.36) (0.18)
Distributions to shareholders from net
realized gains on investment
transactions........................... (1.49) (1.75) (0.64)
------ ------ ------
Total Dividends and Distributions.......... (1.84) (2.11) (0.82)
------ ------ ------
Net change in net asset value per share.... 1.09 1.96 2.17
------ ------ ------
NET ASSET VALUE PER SHARE, END OF
PERIOD................................... $22.45 $21.36 $19.40
====== ====== ======
Total Return............................... 14.23% 22.10% 17.69%(d)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (millions)... $ 2 $ 2 $ 1
Ratio of expenses to average net
assets................................. 1.44% 1.52% 1.94%(c)
Ratio of net investment income to average
net assets............................. 2.14% 2.17% 2.31%(c)
Ratio of expenses to average net
assets*................................ 1.69% 1.58% 3.26%(c)
Ratio of net investment income to average
net assets*............................ 1.89% 2.11% 0.99%(c)
Portfolio turnover rate.................. 114% 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) On October 1, 1998, BankAmerica Corp., the parent company of
the Fund's Advisor, merged with NationsBank Corporation.
(c) Annualized.
(d) Not annualized.
</TABLE>
See Notes to Financial Statements.
<PAGE> 333
60
PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
FEBRUARY 28, FEBRUARY 28,
1999(b) 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.................................. 0.45 0.30
Net realized and unrealized gains on investment
transactions......................................... 1.88 1.65
------ ------
Total income from investment operations.................. 2.33 1.95
------ ------
Less Dividends and Distributions:
Dividends to shareholders from net investment income... (0.46) (0.24)
Distributions to shareholders from net realized
gains................................................ (1.49) (0.87)
------ ------
Total Dividends and Distributions........................ (1.95) (1.11)
------ ------
Net change in net asset value per share.................. 0.38 0.84
------ ------
NET ASSET VALUE PER SHARE, END OF PERIOD................. $17.01 $16.63
====== ======
Total Return............................................. 14.76% 13.56%(e)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (millions)................... $ 208 $ 197
Ratio of expenses to average net assets................ 0.93% 0.95%(d)
Ratio of net investment income to average net assets... 2.65% 2.73%(d)
Ratio of expenses to average net assets*............... 0.94% 0.97%(d)
Ratio of net investment income to average net
assets*.............................................. 2.64% 2.71%(d)
Portfolio turnover rate................................ 114% 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) On October 1, 1998, BankAmerica Corp., the parent company of
the Fund's Advisor, merged with NationsBank Corporation.
(d) Annualized.
(e) Not annualized.
</TABLE>
See Notes to Financial Statements.
<PAGE> 334
61
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors
and Shareholders of
Pacific Horizon Funds, Inc.
In our opinion, the accompanying statements of assets and liabilities, including
the portfolios of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Pacific Horizon Capital Income
Fund and Pacific Horizon Asset Allocation Fund (two of the portfolios
constituting Pacific Horizon Funds, Inc., hereafter referred to as the "Funds")
at February 28, 1999, the results of each of their operations for the year then
ended, the changes in each of their net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Funds' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
February 28, 1999 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
As explained in Note 7, the Board of Directors of the Pacific Horizon Funds,
Inc. has approved an agreement and plan of reorganization between Pacific
Horizon Funds, Inc. and Nations Institutional Reserves. A Special Meeting of
Shareholders of the Funds is scheduled to be held on May 3, 1999 to seek
approval of the merger of Pacific Horizon Capital Income Fund and Asset
Allocation Fund and Nations Capital Income Fund and Asset Allocation Fund,
respectively.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
April 22, 1999
<PAGE> 335
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> 336
Bulk
Rate
U.S.
Postage
PAID
New
York,
NY
Permit
No.
[PACIFIC HORIZON FUNDS LOGO] 8048
Provident Distributor, Inc., Distributor
PHF-4011 4/99
<PAGE> 337
PACIFIC HORIZON GROWTH FUNDS
ANNUAL REPORT
February 28, 1999
Aggressive Growth Fund
Blue Chip Fund
Investing For All
The Times Of Your Life
NOT FDIC INSURED
<PAGE> 338
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> 339
..................................
Contents
<TABLE>
<S> <C>
FUND FACTS 2-3
UNDERSTANDING YOUR SHAREHOLDER
REPORT 4-6
ECONOMIC REVIEW FROM THE
INVESTMENT ADVISER 8-9
FUND OVERVIEW AND INTERVIEW WITH
YOUR INVESTMENT MANAGER 10-20
PACIFIC HORIZON AGGRESSIVE GROWTH
FUND
Portfolio of Investments 21-25
Statement of Assets
and Liabilities 26
Statement of Operations 27
Statements of Changes
in Net Assets 28
PACIFIC HORIZON BLUE CHIP 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
REPORT OF INDEPENDENT ACCOUNTANTS 50
MASTER INVESTMENT TRUST, SERIES
I -- BLUE CHIP PORTFOLIO
Portfolio of Investments 51-56
Statement of Assets
and Liabilities 57
Statement of Operations 58
Statements of Changes
in Net Assets 59
Notes to Financial Statements 60-63
Supplementary Data 64
Report of Independent
Accountants 65
</TABLE>
<PAGE> 340
2
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* High Level of Federal and California
(formerly California Tax-Exempt Tax-Free Current Income
Bond)
...........................................................................
Money Market Funds+ Current Income, Stable Share Price and
- Prime Daily Liquidity
- Treasury
- Government
- Treasury Only
...........................................................................
Tax-Exempt Money Market Funds*+
- Tax-Exempt Money Federal Tax-Free Current Income, Stable
Share Price and Daily Liquidity
- California Tax-Exempt Money Federal and California Tax-Free Current
Market Income, Stable Share Price and Daily
Liquidity
</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.
<PAGE> 341
3
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>
- --------------------------------------------------------------------------------
<PAGE> 342
4
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 [Graphic of Sample Pages]
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 of 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.
[GRAPHIC OF SAMPLE PAGE]
<PAGE> 343
5
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.
[Graphic of Sample Pages] TYPE OF SECURITY
INDUSTRY SECTOR AND PERCENTAGE OF THE FUND'S
NET ASSETS REPRESENTED BY INVESTMENTS IN THAT
SECTOR (IF APPLICABLE)
ACTUAL PORTFOLIO HOLDINGS WITH SHARES AND
MARKET VALUE AS OF REPORT DATE
The STATEMENT OF ASSETS AND LIABILITIES lists all the assets and liabilities of
the Fund as of the date of the statement. This is an individual fund's "balance
sheet." Also disclosed in this statement are the Fund's net asset value per
share and its maximum offering price per share as of the date of the statement.
The statement also lists the accounts that comprise the Fund's net assets
(capital stock, undistributed income, etc.).
[Graphic of Sample Pages] 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
<PAGE> 344
6
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 of Sample Pages] 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 of Sample Pages] 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.
<PAGE> 345
7
[This page intentionally left blank.]
<PAGE> 346
ECONOMIC REVIEW
FROM THE INVESTMENT ADVISER
The past 12 months will be remembered as the one of the most volatile periods in
financial market history. The crisis in Asia, the Russian default and the
devaluation of the Brazilian Real caused dramatic swings in equity valuations,
interest rates, and spreads and commodity prices. The Federal Reserve, in order
to calm the markets and restore liquidity, lowered short term interest rates by
0.75%. The Dow Jones Industrial Average* after dropping to 7,539, rebounded to
close the period at 9,306. The yield on the benchmark 10-year U.S. Treasury Note
which was at 5.16% on 3/19/99, fluctuated over a 1.2% range with a high of 5.81%
on 4/29/98 and low of 4.16% on 10/5/98. Spreads on 10-year "A" rated finance
debt over 10-year U.S. Treasuries started the period at a spread of 0.75% and
widened to as much as 1.45% only to end the period at 1.05% over comparable
maturity U.S. Treasury notes. International turmoil and the Asian recession also
took its toll on commodities. Demand for oil all but evaporated and crude oil
prices declined from almost $18.00 a barrel to just under $11.50 a barrel only
to rebound to $15.00 on strong U.S. growth and expectations of and a quick
recovery in Asia.
Throughout this turmoil, the U.S. remained an "oasis of prosperity" with the
U.S. Gross Domestic Product growing at an estimated 4.3% for 1998. The U.S.
consumer, unfazed by the recent volatility, continued to spend, pushing the
economy through its ninth year of expansion.
Unemployment remained near historical lows and there was continued strength in
real disposable income that translated into a high level of consumer confidence.
At the same time, the industrial side of the economy, burdened by slower exports
as well as the effects of the strong dollar, remained sluggish.
Inflation, as measured by the Consumer Price Index (CPI), remained benign over
the past year, increasing only 1.6% in 1998. Huge declines in commodities and
weakness on the manufacturing side of the economy offset relatively full
employment and money supply growth.
Despite turmoil abroad, the U.S. equity markets, as tracked by the Standard &
Poor's 500 Composite Stock Price Index**, posted a solid return of 18.01%.
Unfortunately, the Russell 2000*** proved that not all stocks are created equal
with a negative return of (15.06%) over the same period. While an era of
consolidation and low inflation should bode well for large cap stocks, we doubt
that this can continue.
The fixed income markets also put in a strong performance for the past 12
months, with the benchmark Salomon Smith Barney Broad Investment-Grade (BIG)
Index# posting a positive return of 6.31%. The top performing sector for the
period was U.S. agency debt which outperformed comparable maturity U.S.
Treasuries by 0.44% followed by U.S. agency mortgage-backed securities which
outperformed by 0.28%. The worst performing sector was U.S. corporate bonds
which underperformed U.S. Treasuries by 0.60% with "AA", "A", and "BBB" rated
corporate debt underperforming by 0.03%, 0.27%, and 1.61% respectively.
OUTLOOK FOR 1999
While the consensus of Wall Street economists is for a growth rate of 3.5% in
1999, we believe the risk is faster than anticipated growth because of the
momentum of the U.S. economy. The wildcard over the next year is the timing of
Asia's economic turnaround.
Asia remains a big question mark, with many economists calling for a "v" shaped
recovery. Although we believe the Asian economies have bottomed, we suspect that
the recovery in the region will be slower than anticipated. While Korea has
8
<PAGE> 347
recently shown strength in industrial production and exports, Japan, which
constitutes two-thirds of the region's GDP, continues to show signs of weakness.
If Japan chooses to monetize their debt by printing currency, they may cause
another round of devaluations in the region. China has stated their intentions
to maintain the value of the Yuan, but if they fail to meet their growth targets
and the Yen declines substantially in value, all bets are off.
Sincerely,
/s/ Kirk Hartman
Kirk Hartman
Chief Investment Officer of
Fixed Income Management
- ---------------
* The Dow Jones Industrial Average is a price-weighted index of 30 of the
largest, most widely held stocks traded on the New York Stock Exchange. It
is unmanaged and unavailable for investment.
** The Standard & Poor's 500 Composite Stock Price Index is an unmanaged
market-capitalization-weighted index consisting of 500 common stocks that
measures the market value of 400 industrial stocks, 60 transportation and
utility company stocks and 40 financial issues. It is unavailable for
investment
*** The Russell 2000 Growth Index is a widely used unmanaged index which
measures the performance of small-cap stocks and cannot be invested in
directly.
# The BIG Index is market-capitalization weighted and includes fixed-rate
Treasury, Government-sponsored, mortgage and investment-grade corporates with
a maturity of one year or longer. The minimum amount outstanding for US
Treasury and mortgage issues is $1 billion for both entry and exit. For
Government sponsored and corporate issues the entry and exit amounts are $100
million.
9
<PAGE> 348
PACIFIC HORIZON
AGGRESSIVE GROWTH FUND
[PHOTO OF SCOTT BILLEADEAU]
SCOTT BILLEADEAU
GOAL:
The Pacific Horizon Aggressive Growth Fund seeks to maximize capital
appreciation.
INVESTMENTS:
The Fund invests primarily in a diversified portfolio of common stocks and
securities convertible into common stocks of smaller-capitalized domestic
companies deemed to have potential for above-average growth in revenues and
earnings.
APPROPRIATE FOR:
Investors who are interested in long-term capital appreciation and can assume
above-average investment risk. The Fund is designed to help investors benefit
from the long-term upward potential in stock prices through a diversified
portfolio.
INCEPTION:
March 31, 1984
SIZE OF FUND AS OF
FEBRUARY 28, 1999:
Over $161 million
Q
WHAT FACTORS AFFECTED THE FUND'S PERFORMANCE DURING THE 12 MONTHS ENDED
2/28/99?
A
Pacific Horizon Aggressive Growth Fund, like the overall market, experienced
considerable volatility during the year. Small-cap stocks peaked in early April
1998 before falling off in performance. However, unlike large-cap stocks that
have gone on to new highs, small-cap stocks have yet to return to those April
1998 levels. At the close of the fiscal period in February 1999, small-cap stock
prices remained almost 20% off the highs of the previous April. It was a year in
which Internet stocks drove the performance of the small cap stock indices, such
as the Russell 2000 Index.* Almost any company with ".com" at the end of its
name had strong stock market performance as the business possibilities
associated with the Internet captured investors' imaginations and dollars.
The 12-month period proved to be difficult for the Fund. Our focus on
high-growth stocks helped performance, as growth was a popular theme. However,
the rigorous valuation process that we use in determining how much to pay for a
company's future growth did not help performance -- at least during the 12
months. The market was willing to pay any price for growth, as evidenced by the
extremely strong performance of some Internet stocks. However, our investment
discipline led us away from many Internet-related stocks early because their
prices seemed fully valued relative to their growth potential.
During the reporting period, investors focused their attention on large
capitalization companies to the detriment of other market segments. As a general
matter the market was divided along capitalization lines, with larger
10
<PAGE> 349
companies outperforming smaller companies. Over the period, the Fund varied its
capitalization focus within the small-cap universe. At the beginning of the
period, the Fund concentrated on relatively smaller capitalization issues within
the universe. During the middle of the period, the Fund emphasized relatively
larger capitalization names within the universe, which tended to benefit
performance. The second half of the period brought about a renewed emphasis on
smaller capitalization issues.
The Fund's performance was in line with that of non-Internet, small-cap, growth-
oriented sectors, which tended to have returns of between (15%) and (25%) during
the 12-month period. For the 12-month period ending February 1999, the A Shares
of the Fund underperformed the Lipper Small Cap Funds Universe**, returning
(14.64%)*** versus the Universe's average return of (13.31%).
Q
WHAT PARTICULAR SECTORS OR STOCKS WERE FAVORABLE OR UNFAVORABLE FOR THE
FUND?****
A
Small-cap technology stocks did well both because of the growth of the
Internet and because of the expanding demand for wide-band fiber optic networks
in the telecommunications industry. Several telecommunications equipment company
stocks involved in fiber optics performed extremely well, including SDL, Inc.,
ANTEC Corporation, Harmonic Lightwaves, Inc. and E-Tek Dynamics Inc. The Fund
also had a number of successful investments in telecommunications-related
companies involved in wireless networks, including RF Micro Devices, Inc.,
Proxim Inc., Gilat Satellite Networks Ltd. and Sawtek Inc.
A healthy domestic economy and relatively low vulnerability to the Asian
financial crisis benefited the consumer cyclical sector. Among the better
performers for the Fund in this domestically oriented sector were Quiksilver,
Inc., and Fossil Inc., a watchmaker.
Energy stocks showed poor returns, as energy companies were hurt as falling oil
prices led to reduced drilling and lower cash flows for the sector in general.
The capital goods and business services areas also proved disappointing.
In our review process, we seek to identify the sources of weak performance in
every stock and to use this analysis to evaluate whether to continue to own
specific stocks. Our decision on whether to retain a disappointing investment
basically comes down to whether we consider the underperformance to be a
short-term disruption to the company or whether we consider it to be related to
lasting fundamental problems. Some examples of companies that did not meet
expectations were SmarTalk Teleservices Inc, IMC Mortgage Company and 3DLabs
Inc., Ltd.
Q
WHAT ARE THE FUND'S PROSPECTS FOR THE COMING YEAR?
A
We consider small capitalization stocks to be very attractive investment
opportunities. At the close of the fiscal period, small-cap stock valuations
were at all time lows in relation to large company valuations. Many small-cap
stocks have earnings growth prospects of 20% or higher per year, and yet are
trading at substantial discounts to large capitalization stocks.
Our primary focus will be on identifying companies with excellent business plans
and rapidly growing and predictable earnings streams. We expect to continue to
position the Fund in traditional high growth sectors such as technology, health-
care, capital goods and business services.
11
<PAGE> 350
The economic environment can have a significant effect on the fortunes of small
companies and deserves careful attention. Changing economic conditions affect
the large capitalization companies that are the customers of many of our
small-cap holdings. In spite of this reality, we believe our portfolio has some
degree of protection because we have chosen stocks with good earnings growth and
reasonable valuations.
We intend to identify and invest in those companies that we believe have very
visible, rapid and sustainable earnings growth. We believe the market's
preference for growth stocks and our disciplined valuation process should reward
shareholders in the long run.
- ---------------
NOTE: SMALL-COMPANY FUNDS TYPICALLY CARRY ADDITIONAL RISKS SINCE SMALLER
COMPANIES HAVE A HIGHER COMPANY-SPECIFIC RISK, AND HISTORICALLY, THEIR STOCKS
HAVE EXPERIENCED A GREATER DEGREE OF MARKET VOLATILITY THAN LARGER-COMPANY
STOCKS.
* The Russell 2000 is a capitalization-weighted index that includes 2,000 of
the smallest stocks representing approximately 11% of the U.S. equity
market. It is unmanaged and unavailable for investment.
** The Lipper Small Cap Funds Universe average consists of Funds that invest
primarily in companies with market-capitalization of less than $1 billion
at the time of purchase.
*** Return figures for the Fund include change in share price, reinvestment of
dividends and capital gains distributions. Performance figures do not
reflect the maximum 5.75% front-end sales load.
**** The composition of the Fund's holdings is subject to change.
The performance data quoted represents past performance and is not an indication
of future results. The investment return and Net Asset Value will fluctuate so
that an investor's shares when redeemed, may be worth more or less than their
original cost.
12
<PAGE> 351
PACIFIC HORIZON
BLUE CHIP FUND
[James D. Miller Photo]
JAMES D. MILLER, CFA
Chief Investment Officer
of Quantitative Based
Equity Management
Bank of America
Investment Advisers Division
Mr. Miller is head of the investment management team for the Blue Chip Fund.
GOAL:
The Pacific Horizon Blue Chip Fund seeks long-term capital appreciation.
INVESTMENTS:
The Fund invests primarily in a diversified portfolio of "blue chip" common
stocks, the majority of which are included in either the Dow Jones Industrial
Average** or the Standard & Poor's 500 Index.***
APPROPRIATE FOR:
Investors who want to participate in the growth potential of some of America's
major companies. The Fund is a diversified equity product that can be used as
part of many investment strategies.
INCEPTION:
January 13, 1994
SIZE OF FUND AS OF
FEBRUARY 28, 1999:
Over $844 million
Q
WHAT FACTORS AFFECTED THE FUND'S PERFORMANCE DURING THE RECENT PERIOD?
A
The market has benefited from the continued economic expansion, which has
become the longest to occur during peacetime. However, the major stock indexes
performance was driven in large part by a relatively small number of large
growth stock names. Investors continued to reward the large capitalization
stocks, but avoided stocks with any earnings disappointments. With market
turmoil surfacing last year, money flowed into the largest and safest, blue-chip
names. This resulted in the greatest disparity ever between large cap growth and
value stocks. Most of these large growth stock names managed to post strong
earnings growth over the past year, while many of the value names suffered
earnings declines.
The Fund posted a total return of 18.58%* for A shares (at NAV) and 17.96% for K
shares, compared to 19.74% for the S&P 500 Composite Stock Price Index for the
twelve months ended Feb. 28, 1999.
Q
HOW DID YOU MANAGE THE FUND IN THAT ENVIRONMENT?
A
We continued to keep the Fund fully invested in equities, while staying
neutral to the market in terms of sector weightings and market capitalization.
As always, we focused on individual stock selection. Our risk-controlled
strategy ensured that we were able to fully benefit from the market's advance,
despite the major disparities in performance between sectors and the narrowness
of the market.
Within the framework of our disciplined process, we select securities which
display attractive valuations, while exhibiting
13
<PAGE> 352
positive momentum and solid earnings quality. By factoring for these three
themes, we seek to provide superior stock selection across the industry sectors.
We continued to focus on companies that exhibited rising earnings expectations
and high earnings certainty, while trading at attractive valuations. Companies
with high earnings certainty are those that have similar estimates for different
analysts. Firms with rising earnings expectations are those that have
experienced the biggest increase in analyst earnings estimates.
Q
WHAT ARE SOME STOCKS OR SECTORS THAT PERFORMED WELL FOR THE FUND DURING THE
YEAR?****
A
The sectors which benefited most from the recent market run up were
technology, communication services and healthcare. Some of our major holdings in
the technology sector included Dell Computer Corp., Lucent Technologies and
Microsoft, while Pfizer Inc. and Schering-Plough Corp. were prominent holdings
in the healthcare sector. Energy continued to underperform, as world commodity
prices remain in a slump driven by the decline in Asian demand and Mobil was our
biggest holding in this industry sector. This same phenomenon also drove the
poor performance of the basic materials sector. The finance sector posted anemic
returns after stellar performance over recent years, as many of the money center
banks suffered losses due to trading operations related to the ruble crisis late
in 1998.
Q
WHAT'S AHEAD FOR THE FUND?
A
We will continue to maintain a fully invested portfolio broadly diversified
among market sectors according to the benchmark that we use to compare our
Fund's performance. We will continue to add value by stock selection that offer
a combination of growth, value, earnings momentum and earnings certainty. Our
philosophy will not change based on short-term trends or conditions in the
market. Instead, we will remain focused on meeting the goals of long-term
investors, while attempting to outperform the S&P 500 on a consistent basis.
- ---------------
* Return figures for the Fund include change in share price, reinvestment of
dividends and capital gains distributions. Performance figures for A shares
do not reflect the maximum sales charge of 5.75%.
** The Dow Jones Industrial Average is a price-weighted index of 30 of the
largest, most widely held stocks traded on the New York Stock Exchange. It
is unmanaged and unavailable for investment.
*** The Standard & Poor's 500 Composite Stock Price Index is an unmanaged index
generally representative of the equity market as a whole and cannot be
invested in directly.
**** The composition of the Fund's holdings is subject to change.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
14
<PAGE> 353
15
PACIFIC HORIZON
AGGRESSIVE GROWTH FUND
(AS OF FEBRUARY 28, 1999)
GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)
[AGGRESSIVE GROWTH FUND GRAPH]
<TABLE>
<CAPTION>
LIPPER SMALL
A SHARES B SHARES K SHARES RUSSELL 2000 CAP AVERAGE
-------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
2/28/89 9425.00 10000.00 10000.00 10000.00 10000.00
2/28/90 9744.00 10966.00 10996.00 10395.00 11043.00
2/28/91 13350.00 15025.00 15025.00 10780.00 12436.00
2/29/92 18838.00 21202.00 21202.00 14450.00 17022.00
2/28/93 17187.00 19344.00 19344.00 15530.00 17830.00
2/28/94 19000.00 21383.00 21383.00 18789.00 21719.00
2/28/95 18317.00 20615.00 20615.00 18462.00 21495.00
2/29/96 25805.00 29042.00 29042.00 23748.00 28651.00
2/28/97 28161.00 31694.00 31610.00 26743.00 32553.00
2/28/98 34741.00 39099.00 38785.00 34752.00 42303.00
2/28/99 33996.00 35918.00 35617.00 29838.00 36651.00
</TABLE>
HOW PERFORMANCE
COMPARES
As the chart
indicates, the
Pacific Horizon
Aggressive Growth
Fund has
consistently
outperformed the
market, as measured
by the Russell 2000,
a widely used
unmanaged index
which measures the performance of small capitalization stocks. An initial
$10,000 investment made for the ten year period commencing on February 28, 1989
would now be worth $33,996 for A Shares*. The same investment made in the
Russell 2000, representing a broader market, would now be worth $29,838.
Correspondingly, a $10,000 investment in B Shares for the same period would now
be worth $35,918**, and a $10,000 investment in K Shares would now be worth
$35,617.***
-------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
AGGRESSIVE GROWTH FUND
AVERAGE ANNUAL RETURNS
<CAPTION>
----------------------------------------------------------------
A SHARES B SHARES K SHARES***
Without With* Without With**
Sales Sales Sales Sales
Load Load Load Load
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 year: (14.64%) (19.55%) (14.98%) (18.80%) (15.01%)
................................................................
5 years: 9.31% 8.02% 9.22% 9.04% 9.04%
................................................................
10 years: 13.69% 13.02% 13.64% 13.64% 13.54%
</TABLE>
-------------------------------------------------------
The Fund fared well relative to other capital appreciation funds. The average of
capital appreciation funds reported by Lipper Analytical Services, Inc. measures
the performance of other funds with investment objectives and policies similar
to those of the Pacific Horizon Aggressive Growth Fund. The Lipper Small Cap
Funds Average on the same $10,000 investment over the same period would have
been $36,651.
<PAGE> 354
16
FEDERAL INCOME TAX STATUS OF DIVIDENDS (UNAUDITED)
The Pacific Horizon Aggressive Growth Fund distributed a total Capital Gain
Dividend of $18,840,794 for the year ended February 28, 1999. Of this total
Capital Gain Dividend amount, the Fund made a 20 percent distribution of
$17,641,577.
SEE INVESTMENT MANAGER INTERVIEW FOR FACTORS AFFECTING FUND PERFORMANCE:
Investment return and principal value are historical and will vary with market
conditions, so an investor's shares, when redeemed, may be worth more or less
than their original cost. Return figures for the Fund include change in share
price, reinvestment of dividends, and capital gains distributions, if any.
Lipper Analytical Services, Inc. is an independent mutual fund-monitoring
organization. Neither Lipper Small Cap Funds Average, nor the Russell 2000 may
be invested in directly. The hypothetical investment in the Russell 2000 Index
does not reflect any sales or management fees that would be incurred if an
investor were to actually purchase individual securities or mutual funds, while
the performance of the Fund reflects all expenses and management fees and the
effect of the maximum sales charge.
* A share performance assumes the deduction of the maximum front-end sales
charge of 5.75%.
** Average annual return figures assume the deduction of the maximum contingent
deferred sales charge of 5.00%, however, the line graph does not. B shares
were first offered on July 15, 1998. Performance results shown prior to July
15, 1998 are those of Class A shares without the sales charge. B shares have
an ongoing 0.75% distribution and administrative services fee which does not
apply to A shares and which if reflected, would have lowered performance
shown.
*** The inception date of the K Shares (the date K Shares were initially funded)
was July 22, 1996. The K Shares did not commence operations until October
25, 1996. For this reason, the performance results for K Shares are those of
A Shares without the sales charge prior to such date. The performance
results for K Shares included in the Financial Highlights table in the
financial statements represent actual performance from the inception date of
the K Shares. K Shares, unlike A Shares, are sold without a front-end sales
load but have an ongoing .75% distribution or administrative services fee
(of which .25% are currently being waived), which would have reduced prior
performance.
<PAGE> 355
17
PACIFIC HORIZON
AGGRESSIVE GROWTH FUND
(AS OF FEBRUARY 28, 1999)
PORTFOLIO COMPOSITION*
The Pacific Horizon Aggressive Growth
Fund invests in those sectors of the
small-capitalization universe that the
adviser believes will generate superior
long-term growth. The adviser currently
expects the technology, health-care and
consumer sectors to provide the
greatest potential for capital
appreciation during this decade and
beyond.
[Portfolio Composition Pie Chart]
<TABLE>
<S> <C>
Transportation &
Services 1.4%
Energy 3.5%
Financial 8.6%
Capital Goods/
Business Services 8.7%
Healthcare 14.4%
Communication
Services 0.7%
Consumer
Staples 0.6%
Technology 39.3%
Consumer Cyclical 22.9%
</TABLE>
<TABLE>
<CAPTION>
TOP TEN HOLDINGS*
<S> <C>
-----------------------------------------
<CAPTION>
PERCENT OF
COMPANY NET ASSETS
<S> <C>
-----------------------------------------
ANTEC Corp. 3.90%
................................................
Proxim, Incorporated 3.08%
................................................
Gilat Satellite Networks 2.87%
................................................
Quicksilver, Inc. 2.69%
................................................
Com21 Inc 2.21%
................................................
Delphi Financial Group-Class
A 2.14%
................................................
Orthodontic Centers of
America, Inc. 1.96%
................................................
Sawtek Inc 1.93%
................................................
Harmonic Lightwaves, Inc. 1.92%
................................................
Affiliated Managers Groups 1.90%
-----------------------------------------
TOTAL 24.60%
-----------------------------------------
</TABLE>
* The composition of the Fund's
holdings is subject to
change.
<PAGE> 356
18
PACIFIC HORIZON
BLUE CHIP FUND
(AS OF FEBRUARY 28, 1999)
GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)
[BLUE CHIP FUND PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
LIPPER GROWTH
A SHARES B SHARES K SHARES FUNDS AVERAGE S&P 500 INDEX
-------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C>
1/13/94 9425.00 10000.00 10000.00 10000.00 10000.00
2/28/94 9403.00 9980.00 9980.00 9844.00 9729.00
8/31/94 9739.00 10337.00 10337.00 9814.00 10046.00
2/28/95 10118.00 10738.00 10730.00 9941.00 10444.00
8/31/95 11769.00 12491.00 12491.00 11856.00 12197.00
2/29/96 13496.00 14323.00 14023.00 13066.00 14064.00
8/31/96 13885.00 14737.00 14737.00 13397.00 14481.00
2/28/97 17140.00 18192.00 18158.00 15454.00 17741.00
2/28/98 22961.00 24369.00 24177.00 20150.00 23950.00
2/28/99 27227.00 28790.00 28520.00 22816.00 27866.00
</TABLE>
HOW PERFORMANCE COMPARES
The chart compares the
performance of the
Pacific Horizon Blue Chip
Fund to the S&P 500,
which is an unmanaged
index typically used as a
performance benchmark for
equity investments. As
illustrated, the Fund has
fared well compared to
other growth funds. The
average of growth
funds as tracked by
Lipper Analytical Services, Inc. measures the performance of other funds with
investment objectives and policies similar to those of the Pacific Horizon Blue
Chip Fund.
-------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
BLUE CHIP FUND
AVERAGE ANNUAL RETURN
<CAPTION>
-----------------------------------------------
A SHARES B SHARES K SHARES***
Without With* Without With**
Sales Sales Sales Sales
Load Load Load Load
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 year: 18.58% 11.78% 18.14% 14.14% 17.96%
...................................................................
5 years: 23.69% 22.24% 23.60% 23.52% 23.37%
...................................................................
Since Inception:
(1/13/94) 22.97% 21.55% 22.88% 22.81% 22.66%
</TABLE>
-------------------------------------------------
An initial $10,000 investment in the Fund made on January 13, 1994, would now be
worth $27,227 for A Shares*. The same investment made in the Lipper Growth Funds
Average, would now be worth only $22,816. Correspondingly, a $10,000 investment
in B Shares for the same period would now be worth $28,790**, and a $10,000 in K
Shares for the same period would now be worth $28,520.***
FEDERAL INCOME TAX STATUS OF DIVIDENDS (UNAUDITED)
The Pacific Horizon Blue Chip Fund distributed a total Capital Gain Dividend of
$44,896,398 for the year ended February 28, 1999. Of this total Capital Gain
Dividend amount, the Fund made a 20 percent distribution of $44,587,674.
<PAGE> 357
19
SEE INVESTMENT MANAGER INTERVIEW FOR FACTORS AFFECTING FUND PERFORMANCE.
Investment return and principal value are historical and will vary with market
conditions, so an investor's shares, when redeemed, may be worth more or less
than their original cost. Return figures for the Fund include change in share
price, reinvestment of dividends, and capital gain distributions, if any.
Lipper Analytical Services, Inc., is an independent mutual fund-monitoring
organization. Neither Lipper Growth Funds Average or the S&P 500 can be invested
in directly. The hypothetical investment if the S&P 500 does not reflect any
sales or management fees that would be incurred if an investor were to actually
purchase individual securities or mutual funds, while the performance of the
Fund reflects all expenses and management fees and the effect of the maximum
sales charge.
* A share performance assumes the deduction of the maximum front-end sales
charge of 5.75%.
** Average annual return figures assume the deduction of the maximum contingent
deferred sales charge of 5.00% however, the line graph does not. B shares
were first offered on July 15, 1998. Performance results shown prior to July
15, 1998 are those of Class A shares without the sales charge. B shares have
an ongoing 0.75% distribution and administrative services fee which does not
apply to A shares and which if reflected, would have lowered performance
shown.
*** The inception date of the K Shares (the date K shares were initially funded)
was July 22, 1996. The K shares did not commence operations until November
11, 1996. For this reason, the performance results for K Shares are those of
A Shares without the sales charge prior to such date. The performance
results for K Shares included in the Financial Highlights table in the
financial statements represent actual performance from the inception date of
the K Shares. K Shares, unlike A Shares, are sold without a front-end sales
load but have an ongoing .75% distribution or administrative services fee
(of which .25% are currently being waived), which would have reduced prior
performance.
<PAGE> 358
20
PACIFIC HORIZON
BLUE CHIP FUND
(AS OF FEBRUARY 28, 1999)
FUND QUALITY
A Strategy for Long-Term Capital
Appreciation
The Fund maintains a "quality"
investment orientation by placing an
emphasis on the securities of
well-known established companies.
This "blue chip" approach may be
appropriate for investors seeking
long-term growth of capital. At
least 80% of the Fund's assets are
normally invested in blue chip
stocks. To meet the criteria set by
the Fund's investment objectives,
these stocks must be components of
the Dow Jones Industrial Average or
the Standard & Poor's 500 Index.
<TABLE>
<CAPTION>
TOP TEN HOLDINGS*
<S> <C>
----------------------------------------------
<CAPTION>
PERCENT OF
COMPANY NET ASSETS
<S> <C>
----------------------------------------------
Microsoft Corp. 4.40%
......................................................
General Electric Co. 3.08%
......................................................
Intel Corp. 3.01%
......................................................
Wal-Mart Stores, Inc. 2.29%
......................................................
EMC Corp Mass 2.11%
......................................................
Exxon Corporation 2.07%
......................................................
AT & T 1.97%
......................................................
BellSouth Corp. 1.92%
......................................................
Chase Manhattan Corp. 1.91%
......................................................
Schering Plough Corp. 1.88%
----------------------------------------------
TOTAL 24.64%
----------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
The Fund adviser's research
orientation seeks to
identify individual stocks,
within the sector
allocations mirroring those
of the S&P 500, with the
greatest potential for
long-term growth. The Fund's
primary emphasis is on
stocks that, in the opinion
of the Fund's adviser, have
the greatest potential of
superior performance with
the least amount of risk.
PORTFOLIO COMPOSITION*
[Portfolio Composition Pie Chart]
<TABLE>
<S> <C>
Consumer Cyclicals 14.3%
Transportation 0.9%
Basic Industry 3.1%
Energy 5.0%
Capital Goods 8.0%
Technology 19.9%
Health Care 12.2%
Consumer
Surplus 9.0%
Finance 16.4%
Utilities 11.2%
</TABLE>
* The composition of the Fund's holdings is subject to change.
<PAGE> 359
21
PACIFIC HORIZON AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- ------ --------
<S> <C> <C>
COMMON STOCKS -- 101.2%
ADVERTISING & MARKETING SERVICES -- 1.2%
Ha-Lo Industries, Inc.*.................................. 183,300 $ 1,959,019
------------
AEROSPACE -- 2.4%
Aeroflex, Inc. .......................................... 135,200 1,816,750
BE Aerospace, Inc.*...................................... 54,300 800,925
Tristar Aerospace Co.*................................... 157,200 1,326,375
------------
3,944,050
------------
AIRLINES -- 1.5%
Air Express International Corp. ......................... 72,600 1,275,037
Midway Airlines Corp. ................................... 82,700 1,064,762
------------
2,339,799
------------
BIOTECHNOLOGY -- 1.7%
Human Genome Sciences, Inc.*............................. 62,700 1,873,162
Martek Biosciences Corp. ................................ 137,900 879,112
------------
2,752,274
------------
BROADCASTING -- 0.6%
Entercom Communications Corp. ........................... 32,900 1,032,238
------------
BUILDING RELATED/MATERIALS -- 3.2%
Advanced Lighting Technologies, Inc.*.................... 114,600 830,850
Group Maintenance America Corp. ......................... 194,300 2,659,481
Pulte Corp. ............................................. 27,200 654,500
Service Experts, Inc. ................................... 85,300 1,071,581
------------
5,216,412
------------
CLOTHING & APPAREL -- 4.0%
Columbia Sportswear Co. ................................. 60,700 728,400
Quicksilver, Inc.*....................................... 127,800 4,337,212
Tefron, Ltd. ............................................ 176,900 1,393,087
------------
6,458,699
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 360
22
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- ------ --------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
COMMERCIAL SERVICES -- 10.7%
AHL Services, Inc. ...................................... 72,600 $ 1,896,675
Barra Inc.*.............................................. 102,600 2,257,200
Lason Holdings, Inc. .................................... 43,400 2,351,737
Nova Corp. .............................................. 95,800 2,395,000
Perceptron, Inc. ........................................ 107,800 545,737
Personnel Group of America, Inc. ........................ 179,200 2,363,200
Plexus Corp.*............................................ 66,100 2,160,644
Romac International, Inc.*............................... 93,300 1,119,600
Select Appointments Holdings PLC ADR..................... 83,550 2,182,744
------------
17,272,537
------------
COMMUNICATIONS EQUIPMENT & SYSTEMS -- 1.8%
Allen Telecom, Inc.*..................................... 143,100 688,669
CellStar Corp. .......................................... 136,920 1,557,465
Spectrian Corp.*......................................... 61,400 717,612
------------
2,963,746
------------
COMPUTER HARDWARE -- 1.5%
Cybex Computer Products Corp.*........................... 91,200 2,359,800
------------
COMPUTER SERVICES & SOFTWARE -- 5.8%
3D Labs, Inc., Ltd.*..................................... 11,900 53,550
Avid Technology, Inc. ................................... 95,300 2,793,481
INSO Corp.*.............................................. 63,400 441,819
Peerless Systems Corp. .................................. 31,600 296,250
Rogue Wave Software, Inc.*............................... 161,600 1,333,200
SCB Computer Technology Inc. ............................ 334,200 2,339,400
Segue Software, Inc. .................................... 138,800 1,708,975
Smith-Gardner & Associates, Inc.*........................ 31,500 401,625
------------
9,368,300
------------
CONSTRUCTION -- 1.3%
Horizon Offshore, Inc.*.................................. 157,200 894,075
Kaufman & Broad Home Corp. .............................. 54,100 1,217,250
------------
2,111,325
------------
CONSUMER PRODUCTS -- 1.1%
Fossil, Inc. ............................................ 58,800 1,852,200
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 361
23
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- ------ --------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
EDUCATION FACILITIES -- 2.5%
Career Education Corp. .................................. 94,600 $ 2,660,625
ITT Educational Services, Inc.*.......................... 38,000 1,384,625
------------
4,045,250
------------
ELECTRONIC COMPONENTS & EQUIPMENT -- 12.2%
Anaren Microwave, Inc.*.................................. 103,500 2,490,469
Astropower, Inc. ........................................ 67,400 674,000
C-COR Electronics, Inc.*................................. 109,600 1,965,950
Dionex Corp. ............................................ 42,700 1,574,562
E-Tek Dynamics, Inc. .................................... 61,000 2,074,000
Esterline Technologies Corp. ............................ 90,100 1,542,962
REMEC, Inc.*............................................. 168,000 2,887,500
Sawtek, Inc. ............................................ 140,100 3,117,225
SDL, Inc.*............................................... 53,800 2,932,100
SIPEX Corp. ............................................. 35,800 409,463
------------
19,668,231
------------
FINANCIAL -- BANKS & TRUSTS -- 3.3%
First Republic Bank, Inc. ............................... 125,700 3,032,512
National Commerce Bancorp................................ 106,900 2,218,175
------------
5,250,687
------------
FOOD PRODUCTS -- 0.0%
Northland Cranberries, Inc. ............................. 800 6,025
------------
HEALTH CARE & HOSPITAL MANAGEMENT -- 7.4%
Cerner Corp.*............................................ 76,700 1,083,388
Orthalliance, Inc., Cl-A................................. 149,100 1,341,900
Orthodontic Centers of America, Inc.*.................... 210,300 3,154,500
Physician Reliance Network, Inc.*........................ 238,400 2,160,500
Physicians' Specialty Corp. ............................. 131,700 888,975
Province Healthcare Co. ................................. 117,800 1,789,088
Respironics, Inc. ....................................... 114,000 1,460,625
------------
11,878,976
------------
INSURANCE -- 2.8%
Delphi Financial Group, Inc., Cl-A*...................... 72,086 3,455,623
Triad Guaranty, Inc.*.................................... 60,000 1,110,000
------------
4,565,623
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 362
24
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- ------ --------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
INVESTMENT MANAGEMENT -- 1.9%
Affiliated Managers Group, Inc.*......................... 117,600 $ 3,057,600
------------
MACHINERY & EQUIPMENT -- 0.9%
Applied Power, Inc. ..................................... 59,900 1,445,088
------------
MEDICAL SUPPLIES & EQUIPMENT -- 2.8%
Acuson Corp. ............................................ 27,500 412,500
Coherent, Inc. .......................................... 82,600 1,233,838
Invacare Corp. .......................................... 63,200 1,501,000
Schein (Henry), Inc.*.................................... 53,000 1,358,125
------------
4,505,463
------------
OIL & GAS -- 1.9%
Kinder Morgan Energy Partners, L.P. ..................... 83,300 2,993,594
Newpark Resources, Inc. ................................. 3,100 16,275
------------
3,009,869
------------
OIL FIELD SERVICES & EQUIPMENT -- 1.0%
Core Laboratories N.V. .................................. 91,100 1,679,656
------------
PHARMACEUTICALS -- 3.3%
Dura Pharmaceuticals, Inc.*.............................. 181,100 2,546,719
Shire Pharmaceuticals Group ADR.......................... 79,100 1,621,550
Vical, Inc.*............................................. 96,200 1,226,550
------------
5,394,819
------------
REAL ESTATE -- 0.5%
Trammell Crow Co.* REIT.................................. 52,000 806,000
------------
RESTAURANTS/LODGING -- 0.7%
Garden Fresh Restaurant Corp.*........................... 68,700 1,051,969
------------
RETAIL & MERCHANDISING -- 3.4%
Blue Rhino Corp. ........................................ 106,700 1,820,569
Ethan Allen Interiors, Inc.*............................. 46,300 2,083,500
Shopko Stores, Inc. ..................................... 48,800 1,537,200
------------
5,441,269
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 363
25
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- ------ --------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
TELECOMMUNICATIONS -- 19.8%
ANTEC Corp.*............................................. 225,500 $ 6,285,813
Com21, Inc. ............................................. 151,200 3,562,650
Gilat Communications, Ltd.*.............................. 115,600 1,098,200
Gilat Satellite Networks, Ltd.*.......................... 78,100 4,627,425
Harmonic Lightwaves, Inc. ............................... 129,500 3,091,813
Ortel Corp.*............................................. 163,800 1,310,400
P-Com, Inc. ............................................. 275,400 1,747,069
Proxim, Inc. ............................................ 159,200 4,975,000
RF Micro Devices, Inc. .................................. 29,500 2,271,500
Stanford Telecommunications, Inc.*....................... 173,100 2,082,609
TTI Team Telecom International, Ltd.*.................... 100,300 752,250
------------
31,804,729
------------
Total Common Stocks (Cost $163,022,353)................... 163,241,653
------------
</TABLE>
<TABLE>
<CAPTION>
EXPIRATION
DATE
----------
<S> <C> <C> <C>
WARRANTS -- 0.0%
Sound Advice* (Cost $0).................. 06/14/99 15 0
------------
TOTAL INVESTMENTS -- 101.2%
(COST $163,022,353)(a).................. 163,241,653
LIABILITIES IN EXCESS OF OTHER ASSETS --
(1.2%).................................. (1,904,062)
------------
NET ASSETS -- 100.0%...................... $161,337,591
============
</TABLE>
- ---------------
Percentages indicated are based on net assets of $161,337,591.
(a) Represents cost for Federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation................................ $ 20,110,924
Unrealized depreciation................................ (19,891,624)
------------
Net unrealized appreciation............................ $ 219,300
============
</TABLE>
ADR -- American Depositary Receipt.
PLC -- Public Limited Company.
REIT -- Real Estate Investment Trust.
* Non-income producing security.
See Notes to Financial Statements.
<PAGE> 364
26
PACIFIC HORIZON AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (cost $163,022,353).... $163,241,653
Cash....................................................... 3,064,311
Interest receivable........................................ 426
Receivable for investment securities sold.................. 1,286,942
Receivable for capital shares sold......................... 99,024
Prepaid expenses........................................... 8,846
------------
Total Assets................................................ 167,701,202
------------
LIABILITIES:
Payable for investment securities purchased................ 5,541,517
Payable for capital shares redeemed........................ 507,869
Interest payable........................................... 3,757
Investment advisory fees payable........................... 78,271
Administration fees payable................................ 95,508
Shareholder service fees payable........................... 32,639
Distribution fees payable.................................. 1,858
Custodian and fund accounting fees payable................. 15,660
Legal fees payable......................................... 1,817
Transfer agent fees payable................................ 58,605
Other accrued expenses..................................... 26,110
------------
Total Liabilities........................................... 6,363,611
------------
NET ASSETS.................................................. $161,337,591
============
Net Assets:
A Shares................................................... $156,769,354
B Shares................................................... 460,137
K Shares................................................... 4,108,100
------------
Total....................................................... $161,337,591
============
Shares Outstanding ($0.001 par value, 200 million shares
authorized):
A Shares................................................... 9,036,697
B Shares................................................... 26,642
K Shares................................................... 240,402
------------
Total....................................................... 9,303,741
============
NET ASSET VALUE:
A Shares -- Net asset value and redemption price per
share.................................................... $ 17.35
============
Maximum Sales Charge (A Shares)............................ 5.75%
Maximum Offering Price (A Shares) (Net Asset Value of A
Shares/(100% -- Maximum Sales Charge))................... $ 18.41
============
B Shares -- Net asset value and offering price per share... $ 17.27
============
K Shares -- Net asset value, offering and redemption price
per share................................................ $ 17.09
============
COMPOSITION OF NET ASSETS:
Shares of common stock, at par............................. $ 9,304
Additional paid-in capital................................. 161,536,839
Accumulated undistributed net investment loss.............. (702)
Accumulated net realized loss on investment transactions... (427,150)
Net unrealized appreciation on investments................. 219,300
------------
NET ASSETS, FEBRUARY 28, 1999............................... $161,337,591
============
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 365
27
PACIFIC HORIZON AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the year ended February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividend.................................................. $ 390,216
Interest.................................................. 432,604
------------
Total Income................................................ 822,820
------------
EXPENSES:
Advisory fees............................................. 1,168,366
Administration fees....................................... 584,183
Shareholder service fees (A Shares)....................... 477,654
Shareholder service fees (B Shares)(a).................... 425
Shareholder service fees (K Shares)....................... 8,857
Distribution fees (B Shares)(a)........................... 1,272
Distribution fees (K Shares).............................. 26,570
Custodian and fund accounting fees........................ 104,099
Interest fees............................................. 49,567
Registration fees......................................... 21,440
Reports to shareholders................................... 49,975
Transfer agent fees....................................... 518,383
Audit fees................................................ 16,267
Legal fees................................................ 6,085
Directors fees............................................ 5,715
Other expenses............................................ 17,697
------------
Total Expenses.......................................... 3,056,555
Less: Fee waivers & expense reimbursements.................. (8,857)
Expenses paid by third parties......................... (54,380)
------------
Total Net Expenses.......................................... 2,993,318
------------
NET INVESTMENT LOSS......................................... (2,170,498)
------------
NET REALIZED/UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gain on investment transactions.............. 16,710,095
Net change in unrealized appreciation on investments...... (44,108,800)
------------
Net realized/unrealized loss on investments................. (27,398,705)
------------
DECREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $(29,569,203)
============
</TABLE>
- ---------------
(a) Period from July 15, 1998 (date of initial offering) to February 28, 1999.
See Notes to Financial Statements.
<PAGE> 366
28
PACIFIC HORIZON AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------
FEBRUARY 28, FEBRUARY 28,
1999 1998
------------- -------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment loss................................. $ (2,170,498) $ (2,442,022)
Net realized gains on investment transactions....... 16,710,095 8,159,465
Net change in unrealized appreciation on
investments....................................... (44,108,800) 39,076,574
------------- -------------
Change in net assets resulting from operations........ (29,569,203) 44,794,017
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gains from investment transactions:
A Shares.......................................... (18,482,641) (12,977,267)
B Shares.......................................... (336,960)(a) --
K Shares.......................................... (21,193) (71,786)
------------- -------------
Change in net assets from shareholder distributions... (18,840,794) (13,049,053)
------------- -------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued......................... 148,600,203 151,652,363
Dividends reinvested................................ 17,563,193 12,251,824
Cost of shares redeemed............................. (178,074,364) (176,237,358)
------------- -------------
Change in net assets from capital share
transactions........................................ (11,910,968) (12,333,171)
------------- -------------
Change in net assets.................................. (60,320,965) 19,411,793
NET ASSETS:
Beginning of Year................................... 221,658,556 202,246,763
------------- -------------
End of Year (including undistributed net investment
losses of $702, and $2,877, respectively.)........ $ 161,337,591 $ 221,658,556
============= =============
</TABLE>
- ---------------
(a) Period from July 15, 1998 (date of initial offering) to February 28, 1999.
See Notes to Financial Statements.
<PAGE> 367
29
PACIFIC HORIZON BLUE CHIP FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investment in Master Investment Trust, Series I -- Blue
Chip Portfolio, at value................................. $844,822,753
Prepaid expenses........................................... 14,341
------------
Total Assets................................................ 844,837,094
------------
LIABILITIES:
Payable for capital shares redeemed........................ 736
Administration fees payable................................ 72,397
Shareholder service fees payable........................... 113,331
Distribution fees payable.................................. 13,583
Fund accounting fees and expenses payable.................. 4,840
Legal fees payable......................................... 3,274
Other accrued expenses..................................... 13,370
------------
Total Liabilities........................................... 221,531
------------
NET ASSETS.................................................. $844,615,563
============
Net Assets:
A Shares................................................... $400,663,545
B Shares................................................... 12,859,526
K Shares................................................... 13,308,716
SRF Shares................................................. 417,783,776
------------
Total....................................................... $844,615,563
============
Shares Outstanding ($0.001 par value, 400 million shares
authorized):
A Shares................................................... 11,985,320
B Shares................................................... 385,661
K Shares................................................... 400,367
SRF Shares................................................. 14,188,494
------------
Total....................................................... 26,959,842
============
NET ASSET VALUE:
A Shares -- Net asset value and redemption price per
share.................................................... $ 33.43
============
Maximum Sales Charge (A Shares)............................ 5.75%
Maximum Offering Price (A Shares)
(Net Asset Value of A Shares/(100% -- Maximum Sales
Charge))............................................... $ 35.47
============
B Shares -- Net asset value, offering price and redemption
price per share.......................................... $ 33.34
============
K Shares -- Net asset value, offering price and redemption
price per share.......................................... $ 33.24
============
SRF Shares -- Net asset value, offering price and
redemption price per share............................... $ 29.45
============
COMPOSITION OF NET ASSETS:
Shares of common stock, at par............................. $ 26,960
Additional paid-in capital................................. 581,602,704
Undistributed net investment income........................ 279,487
Accumulated net realized gains on investment
transactions............................................. 26,264,177
Net unrealized appreciation on investments................. 236,442,235
------------
NET ASSETS, FEBRUARY 28, 1999............................... $844,615,563
============
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 368
30
PACIFIC HORIZON BLUE CHIP FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the year ended February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Investment Income from Master Investment Trust,
Series I -- Blue Chip Portfolio:
Dividend income......................................... $ 10,071,631
Interest income......................................... 1,242,581
------------
11,314,212
------------
Expenses.................................................. 4,774,901
Less: Fee waivers and expense reimbursements.............. (60,782)
------------
4,714,119
------------
Net Investment Income from Master Investment Trust,
Series I -- Blue Chip Portfolio........................... 6,600,093
------------
EXPENSES:
Administration fees....................................... 1,155,027
Shareholder service fees (A Shares)....................... 920,154
Shareholder service fees (B Shares) (a)................... 9,773
Shareholder service fees (K Shares)....................... 23,412
Shareholder service fees (SRF Shares)..................... 971,730
Distribution fees (B Shares) (a).......................... 29,318
Distribution fees (K Shares).............................. 70,117
Transfer agent fees....................................... 826,462
Fund accounting fees and expenses......................... 29,999
Legal fees................................................ 22,717
Directors fees............................................ 18,171
Reports to shareholders................................... 139,449
Other expenses............................................ 122,079
------------
Total Expenses.......................................... 4,338,408
Less: Fee waivers and expense reimbursements................ (855,850)
------------
Total Net Expenses.......................................... 3,482,558
------------
NET INVESTMENT INCOME....................................... 3,117,535
------------
REALIZED/UNREALIZED GAINS ON INVESTMENTS FROM INVESTMENT
TRUST, SERIES I -- BLUE CHIP PORTFOLIO:
Net realized gains on investment transactions............. 58,970,885
Net change in unrealized appreciation on investments...... 67,560,696
------------
Net realized/unrealized gains on investments from Master
Investment Trust, Series I -- Blue Chip Portfolio......... 126,531,581
------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $129,649,116
============
</TABLE>
- ---------------
(a) Period from July 15, 1998 (date of initial offering) to February 28, 1999.
See Notes to Financial Statements.
<PAGE> 369
31
PACIFIC HORIZON PACIFIC HORIZON BLUE CHIP FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------
FEBRUARY 28, FEBRUARY 28,
1999 1998
------------ ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income............................... $ 3,117,535 $ 3,219,113
Net realized gains on investment transactions....... 58,970,885 45,222,647
Net change in unrealized appreciation on
investments....................................... 67,560,696 72,902,865
------------ ------------
Change in net assets resulting from operations........ 129,649,116 121,344,625
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
A Shares.......................................... (1,252,152) (1,127,669)
B Shares (a)...................................... (2,615) --
K Shares.......................................... (198) (3,838)
SRF Shares........................................ (2,302,330) (1,629,501)(b)
Net realized gains from investment transactions:
A Shares.......................................... (20,306,882) (24,949,427)
B Shares (a)...................................... (335,964) --
K Shares.......................................... (573,737) (388,442)
SRF Shares........................................ (23,679,815) (19,671,559)(b)
------------ ------------
Change in net assets from shareholder distributions... (48,453,693) (47,770,436)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued......................... 250,159,978 475,502,874
Dividends reinvested................................ 45,963,643 44,254,196
Cost of shares redeemed............................. (198,118,661) (82,117,652)
------------ ------------
Change in net assets from capital share
transactions........................................ 98,004,960 437,639,418
------------ ------------
Change in net assets.................................. 179,200,383 511,213,607
NET ASSETS:
Beginning of Year................................... 665,415,180 154,201,573
------------ ------------
End of Year (including undistributed net investment
income of $279,487 and $636,250, respectively.)... $844,615,563 $665,415,180
============ ============
</TABLE>
- ---------------
(a) Period from July 15, 1998 (date of initial offering) to February 28, 1999.
(b) Period from June 23, 1997 (inception date) to February 28, 1998.
See Notes to Financial Statements.
<PAGE> 370
32
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 -- ORGANIZATION
Pacific Horizon Funds, Inc. (the "Company"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended (the "Act"), as
an open-end management investment company. At February 28, 1999, the Company
operated as a series company comprising 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 will automatically convert into
A Shares of the Fund at the end of the month on which the eighth anniversary of
the date of purchase occurs.
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 investment objective of the Portfolio is long term capital appreciation
through investments in blue chip stocks. 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 (93.1% at February 28, 1999). 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.
<PAGE> 371
33
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 and administrator.
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
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
<PAGE> 372
34
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
PORTFOLIO VALUATIONS:
The Aggressive Growth Fund values portfolio securities (other than debt
securities with remaining maturities of 60 days or less) at the last reported
sales price on the securities exchange on which such securities are primarily
traded or at the last reported sales price on the NASDAQ National Securities
Market. Securities not listed on an exchange or the NASDAQ National Securities
Market or securities for which there were no transactions are valued at the mean
between the current quoted bid and ask prices on the date of valuation. Bid
price is used when no ask price is available. The Aggressive Growth Fund may
also use an independent pricing service, approved by the Board of Directors, to
value certain of their securities. Such prices reflect market values which may
be established through the use of electronic data processing techniques and
matrix systems. Restricted securities and securities for which market quotations
are not readily available, if any, are valued at fair value using methods
approved by the Board of Directors. Debt securities with remaining maturities of
60 days or less are valued at amortized cost, which approximates market value.
The valuation of securities of the Blue Chip Fund's investment in the
Portfolio is discussed in Note 2 of the Portfolio's financial statements.
SECURITIES TRANSACTIONS AND RELATED INCOME:
The Aggressive Growth Fund records security transactions on a trade date
basis. Interest income, including accretion of discount and amortization of
premium, is accrued daily. Dividend income is recognized on the ex-dividend
date. Realized gains and losses from security transactions are recorded on an
identified cost basis.
The Blue Chip Fund records its share of the investment income, expenses and
realized and unrealized gains and losses recorded by the Portfolio on a daily
basis. The investment income, expenses and realized and unrealized gains and
losses are allocated daily to investors in the Portfolio based upon the value of
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.
<PAGE> 373
35
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 Aggressive Growth Fund maintains a cash balance with its custodian and
receives a reduction of its custody fees and expenses for the amount of interest
earned on such uninvested cash balances. For financial reporting purposes for
the year ended February 28, 1999, custodian fees and expenses paid by third
parties were increased by $54,380. There was no effect on net investment income.
The Fund could have invested such cash amounts in an income producing asset if
it had not agreed to a reduction of fees or expenses under the expense offset
arrangement with its custodian.
Effective October 1, 1996 the earnings credit account for the Aggressive
Growth Fund converted to an interest bearing account. Earnings credit balances
were available until February 28, 1999.
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.
<PAGE> 374
36
As of February 28, 1999, 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....... $2,172,673 $ 410,744
Blue Chip Fund............... $ 82,997 $ (82,997)
</TABLE>
FEDERAL INCOME TAXES:
It is the Funds' policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
timely, all of its net investment company taxable income and net capital gains
to shareholders. Therefore, no Federal income tax provision is required.
Capital losses incurred after October 31 for the Aggressive Growth Fund are
deemed to arise on the first business day of the following fiscal year for tax
purposes. The Fund has incurred and will elect to defer capital losses of
$359,588 after October 31, 1998.
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 year ended February 28, 1999, Bank of America waived
$82,094 of its fee as Administrator for the Blue Chip Fund. For the same period,
Bank of America reimbursed $38,230 for operating expenses of the Blue Chip Fund.
For the year ended February 28, 1999, PDI advised the Funds that it retained
$9,785 and $93,031 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 $8,322 and
$209,302 from commissions earned on sales of shares of the Aggressive Growth
Fund and Blue Chip Fund, respectively.
<PAGE> 375
37
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 year ended February 28, 1999, the Aggressive Growth Fund and Blue Chip Fund
incurred charges of $477,654 and $920,154, respectively, pursuant to the Plan.
The Funds were advised that of these amounts, PDI retained $184,734 and $19,250
from the Aggressive Growth Fund and Blue Chip Fund, respectively, and affiliates
of Bank of America retained $210,186 and $827,207, 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.
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 February
28, 1999, the Aggressive Growth Fund and the Blue Chip Fund incurred charges of
$1,697 and $39,091, pursuant to the Plan. The Funds were advised that of these
amounts, affiliates of Bank of America retained $1,682 and $38,863 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 period ended February 28, 1999, the Blue Chip Fund
incurred charges of $70,257 pursuant to the plan. For the same period, $8,857
and $22,963 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 ser-
<PAGE> 376
38
vices may not exceed 0.25% and 0.75%, respectively, of the average daily net
assets of each Fund's K Shares. For the year ended February 28, 1999, the
Aggressive Growth Fund and the Blue Chip Fund incurred charges of $35,427 and
$93,529, respectively, pursuant to the Administrative Plan. The Blue Chip Fund
was advised that of these amounts, PDI retained $388. The total of all payments
under the Distribution Plan and the Administrative Plan may not exceed, in the
aggregate, the annual rate of 1.00% of the average daily net assets of each
Fund's K Shares.
The Blue Chip Fund has a Shareholder Services Plan under which the Fund pays
the Distributor for shareholder servicing expenses incurred in connection with
the SRF shares. Under the Plan, payments for shareholder servicing expenses may
not exceed 0.25% of the Fund's average daily net assets for SRF Shares. For the
year ended February 28, 1999, The Blue Chip Fund incurred charges of $971,730,
pursuant to the Plan. The Fund was advised that of this amount the affiliates of
Bank of America retained $198,386. For the same period Bank of America waived
$773,344 of shareholder servicing fees for the Blue Chip Fund.
For the year ended February 28, 1999, PFPC earned $518,383 and $826,462 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 for
each Fund.
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 an annual
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,
<PAGE> 377
39
or (ii) 50% of the annual Director's retainer then in effect for Directors of
the Company during the year of such payment. A director will receive an
additional 10% of their annual Director's retainer for each year of service
between years six and nine, plus one half of the difference between 100% and the
director's applicable percentage. A Director who dies or resigns after ten years
of service as a director will be entitled to receive ten annual payments equal
to the greater of: (i) 100% of the annual Director's retainer that was payable
during the year of that Director's death or resignation, or (ii) 100% of the
annual Director's retainer then in effect for Directors of the Company during
the year of such payment. In addition, the amount payable each year to a
Director who dies or resigns shall be increased by $1,000 for each year of
service that the Director served as Chairman of the Board. Each Director may
receive any benefits payable under the Retirement Plan, at his or her election,
either in one lump sum payment or ten annual installments. A Director's years of
service for the purpose of calculating the payments described above shall be
based upon service as a Director after February 28, 1994; however, a director in
office on March 18, 1998 who either resigns in good standing or dies before
completing five years of service as a director should be assigned an Applicable
Percentage of 50 percent. Aggregate costs pursuant to the Retirement Plan
amounted to $1,873 and $1,491 for the Aggressive Growth Fund and Blue Chip Fund,
respectively, for the year ended February 28, 1999. A director who comes into
office after March 18, 1998 is ineligible to participate in the Retirement Plan.
NOTE 5 -- SECURITIES TRANSACTIONS
For the year ended February 28, 1999, the cost of purchases and the proceeds
from sales of the Aggressive Growth Fund's portfolio securities (excluding
short-term investments) amounted to $685,275,949, and $708,030,915,
respectively.
<PAGE> 378
40
NOTE 6 -- CAPITAL SHARE TRANSACTIONS
Transactions in shares of common stock of the Funds are summarized below:
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH FUND
------------------------------------------
YEAR ENDED YEAR ENDED
FEBRUARY 28, 1999 FEBRUARY 28, 1998
------------------- -------------------
SHARES AMOUNT SHARES AMOUNT
------ --------- ------ ---------
<S> <C> <C> <C> <C>
A SHARES (000's)
Issued............................. 7,208 $ 144,553 7,237 $ 148,823
Reinvested......................... 960 17,204 610 12,180
Redeemed........................... (8,786) (176,044) (8,496) (175,796)
------ --------- ------ ---------
Net increase (decrease).............. (618) $ (14,287) (649) $ (14,793)
====== ========= ====== =========
B SHARES (000's)(a)
Issued............................. 29 $ 553 -- $ --
Reinvested......................... 1 21 -- --
Redeemed........................... (4) (69) -- --
------ --------- ------ ---------
Net increase......................... 26 $ 505 -- $ --
====== ========= ====== =========
K SHARES (000's)
Issued............................. 177 $ 3,494 136 $ 2,829
Reinvested......................... 19 338 4 72
Redeemed........................... (92) (1,962) (21) (441)
------ --------- ------ ---------
Net increase......................... 104 $ 1,870 119 $ 2,460
====== ========= ====== =========
</TABLE>
- ---------------
(a) Period from July 15, 1998 (inception date) to February 28, 1999.
<PAGE> 379
41
<TABLE>
<CAPTION>
BLUE CHIP FUND
-----------------------------------------
YEAR ENDED YEAR ENDED
FEBRUARY 28, 1999 FEBRUARY 28, 1998
------------------- ------------------
SHARES AMOUNT SHARES AMOUNT
------ --------- ------ --------
<S> <C> <C> <C> <C>
A SHARES (000's)
Issued............................. 5,779 $ 181,139 4,831 $131,727
Reinvested......................... 625 19,069 835 22,562
Redeemed........................... (4,060) (125,766) (2,082) (56,813)
------ --------- ------ --------
Net increase......................... 2,344 $ 74,442 3,584 $ 97,476
====== ========= ====== ========
B SHARES (000's)(a)
Issued............................. 390 $ 12,295 -- $ --
Reinvested......................... 11 336 -- --
Redeemed........................... (15) (480) -- --
------ --------- ------ --------
Net increase......................... 386 $ 12,151 -- $ --
====== ========= ====== ========
K SHARES (000's)
Issued............................. 277 $ 8,600 186 $ 5,146
Reinvested......................... 19 577 15 392
Redeemed........................... (126) (4,046) (29) (785)
------ --------- ------ --------
Net increase......................... 170 $ 5,131 172 $ 4,753
====== ========= ====== ========
SRF SHARES (000's)
Issued............................. 1,723 $ 48,126 14,066 $338,628
Reinvested......................... 964 25,981 875 21,300
Redeemed........................... (2,459) (67,827) (981) (24,519)
------ --------- ------ --------
Net increase......................... 228 $ 6,280 13,960(b) $335,409(b)
====== ========= ====== ========
</TABLE>
- ---------------
(a) Period from July 15, 1998 (date of initial offering) to February 28, 1999.
(b) Period from June 23, 1997 (inception date) to February 28, 1998.
NOTE 7 -- PROPOSED REORGANIZATIONS
The Board of Directors of the Pacific Horizon Funds, Inc has approved
Agreements and Plans of Reorganization ("Agreements") between Pacific Horizon
Funds, Inc. and Nations Institutional Reserves. The Agreements, which are part
of a broader reorganization of Pacific Horizon Funds, Inc. into the Nations
family of Funds, provide for the transfer of all of the assets of the Pacific
Horizon Aggressive Growth and Blue Chip Funds to the Nations Small Company
Growth Fund and the Nations Blue Chip Fund, respectively, in exchange solely for
the number of shares of the Nations Small Company Growth Fund and the Nations
Blue Chip Fund, Investor A, Investor B and Investor C Shares, and with respect
to the Blue Chip Fund, Seafirst Shares, respectively, having the same aggregate
net asset value as the outstanding shares of Class A, Class B, and Class K of
the Pacific Horizon Aggressive Growth Fund and Class A, Class B, Class K and
<PAGE> 380
42
Class SRF of the Pacific Horizon Blue Chip Fund as of the close of business of
the New York Stock Exchange on the day that the Reorganizations are effective.
The Agreements also provide for the assumption by the Nations Small Company
Growth Fund and Nations Blue Chip Fund of all of the liabilities of each of
these respective Funds. The Reorganization can be consummated only if, among
other things, it is approved by the vote of a majority (as defined by the 1940
Act) of outstanding shares of each of the funds of Pacific Horizon Funds, Inc.,
at a Special Meeting of Shareholders ("Meeting") is scheduled to be held on May
3, 1999. A detailed description of the proposed transactions and voting
information was sent to shareholders of the Funds on or about February 12, 1999.
If the Agreements are approved at the Meeting, the Reorganization is expected to
become effective on or about May 14, 1999 for the Pacific Horizon Aggressive
Growth Fund and on or about May 21, 1999 for the Pacific Horizon Blue Chip Fund.
<PAGE> 381
43
PACIFIC HORIZON AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1999(b) 1998 1997(a) 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
A SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR.............. $ 22.64 $19.60 $23.49 $20.61 $25.70
------- ------ ------ ------ ------
Income from Investment
Operations:
Net investment income (loss)... (0.23) (0.25) (0.25) (0.27) (0.22)
Net realized and unrealized
gains (losses) on investment
transactions................. (3.04) 4.62 2.26 8.35 (0.95)
------- ------ ------ ------ ------
Total income (loss) from
investment operations.......... (3.27) 4.37 2.01 8.08 (1.17)
------- ------ ------ ------ ------
Less Dividends and
Distributions:
Distributions to shareholders
from net realized gains on
investment transactions...... (2.02) (1.33) (5.90) (5.20) (3.92)
------- ------ ------ ------ ------
Net change in net asset value
per share...................... (5.29) 3.04 (3.89) 2.88 (5.09)
------- ------ ------ ------ ------
NET ASSET VALUE PER SHARE, END
OF YEAR........................ $ 17.35 $22.64 $19.60 $23.49 $20.61
======= ====== ====== ====== ======
Total return (excludes sales
charge)........................ (14.64%) 23.30% 9.13% 40.88% (3.59%)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions)................... $ 157 $ 219 $ 202 $ 180 $ 132
Ratio of expenses to average
net assets................... 1.53% 1.46% 1.42% 1.51% 1.46%
Ratio of net investment
income/loss to average net
assets....................... (1.13%) (1.18%) (1.26%) 1.35% 1.04%
Ratio of expenses to average
net assets*.................. 1.56%**(c) 1.52%**(c) 1.44%** 1.64%** (c)
Ratio of net investment
income/loss to average net
assets*...................... (1.13%)**(c) (1.18%)**(c) (c) (c) (c)
Portfolio turnover rate........ 385% 83% 99% 93% 92%
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the year, certain fees were voluntarily reduced
and/or reimbursed. If such voluntary fee reductions and/or
reimbursements had not occurred, the ratios would have been
as indicated.
** During the years ended February 28, 1999, 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) On October 1, 1998, BankAmerica Corp., the parent company of
the Fund's Advisor, merged with NationsBank Corporation.
(c) There were no waivers or reimbursements during the period.
</TABLE>
See Notes to Financial Statements.
<PAGE> 382
44
PACIFIC HORIZON AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
FEBRUARY 28,
1999(a)(b)
------------
<S> <C>
B SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD.............. $ 23.27
-------
Income from Investment Operations:
Net investment loss........................................ (0.15)
Net realized losses on investment transactions............. (3.83)
-------
Total income from investment operations..................... (3.98)
-------
Less Dividends and Distributions:
Distributions to shareholders from net realized gains on
investment transactions.................................. (2.02)
-------
Net change in net asset value per share..................... (6.00)
-------
Net asset value per share, end of period.................... $ 17.27
=======
Total return................................................ (17.29%)(e)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000).......................... $ 460
Ratio of expenses to average net assets.................... 2.87% (d)
Ratio of net investment loss to average net assets......... (2.47%)(d)
Ratio of expenses to average net assets*................... 2.91%**(c)(d)
Ratio of net investment loss to average net assets*........ (2.47%)**(c)(d)
Portfolio turnover rate.................................... 385%
</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 February 28, 1999, 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 (date of initial offering) to
February 28, 1999.
(b) On October 1, 1998, BankAmerica Corp., the parent company of
the Fund's Advisor, merged with NationsBank Corporation.
(c) There were no waivers or reimbursements during the period.
(d) Annualized.
(e) Not annualized.
</TABLE>
See Notes to Financial Statements.
<PAGE> 383
45
PACIFIC HORIZON AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1999(b) 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........................... (0.29) (0.32) (0.06)
Net realized gains (losses) on investment
transactions................................ (3.04) 4.56 1.29
------- ------ ------
Total income from investment operations........ (3.33) 4.24 1.23
------- ------ ------
Less Dividends and Distributions:
Distributions to shareholders from net
realized gains on investment transactions... (2.02) (1.33) (5.90)
------- ------ ------
Net change in net asset value per share........ (5.35) 2.91 (4.67)
------- ------ ------
Net asset value per share, end of period....... $ 17.09 $22.44 $19.53
======= ====== ======
Total return................................... (15.01%) 22.70% 5.65% (d)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000)............. $ 4,108 $3,051 $ 340
Ratio of expenses to average net assets....... 2.04% 1.93% 1.95% (c)
Ratio of net investment loss to average net
assets...................................... (1.64%) (1.63%) (1.78%)(c)
Ratio of expenses to average net assets*...... 2.32%** 2.24%** 2.22% (c)**
Ratio of net investment loss to average net
assets*..................................... (1.89%)** (1.88%) (2.03%)(c)
Portfolio turnover rate....................... 385% 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 periods ended February 28, 1999, 1998 and 1997,
the Fund received credits from its custodian for interest
earned on uninvested balances which were used to offset
custodian fees and expenses. If such credits had not
occurred, the expense ratios would have been as indicated.
The ratio of net investment income was not affected.
(a) Period from July 22, 1996 (inception date) to February 28,
1997.
(b) On October 1, 1998, BankAmerica Corp., the parent company of
the Fund's Advisor, merged with NationsBank Corporation.
(c) Annualized.
(d) Not annualized.
</TABLE>
See Notes to Financial Statements.
<PAGE> 384
46
PACIFIC HORIZON BLUE CHIP FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1999 1998 1997(a) 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
A SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR............... $29.90 $25.22 $20.53 $15.81 $14.97
------ ------ ------ ------ ------
Income from Investment
Operations:
Net investment income........... 0.09 0.16 0.23 0.26 0.31
Net realized and unrealized
gains on investment
transactions.................. 5.26 7.91 5.21 4.96 0.80
------ ------ ------ ------ ------
Total income from investment
operations...................... 5.35 8.07 5.44 5.22 1.11
------ ------ ------ ------ ------
Less Dividends and Distributions:
Dividends to shareholders from
net investment income......... (0.10) (0.15) (0.22) (0.28) (0.27)
Dividends to shareholders from
net realized gains on
investment transactions....... (1.72) (3.24) (0.53) (0.22) --
------ ------ ------ ------ ------
Total Dividends and
Distributions................... (1.82) (3.39) (0.75) (0.50) (0.27)
------ ------ ------ ------ ------
Net change in net asset value per
share........................... 3.53 4.68 4.69 4.72 0.84
------ ------ ------ ------ ------
NET ASSET VALUE PER SHARE, END OF
YEAR............................ $33.43 $29.90 $25.22 $20.53 $15.81
====== ====== ====== ====== ======
Total return (excludes sales
charge)......................... 18.58% 33.96% 27.01% 33.39% 7.60%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
(millions).................... $ 401 $ 288 $ 153 $ 67 $ 6
Ratio of expenses to average net
assets........................ 1.16% 1.18% 1.28% 0.83% 0.00%
Ratio of net investment income
to average net assets......... 0.31% 0.63% 0.99% 1.63% 2.46%
Ratio of expenses to average net
assets*....................... 1.17% 1.22% 1.71% 2.28% 6.32%
Ratio of net investment income
to average net assets*........ 0.30% 0.59% 0.56% 0.18% (3.86%)
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the year, certain fees were voluntarily reduced
and/or reimbursed. If such voluntary fee reductions and/or
reimbursements had not occurred, the ratios would have been
as indicated.
(a) As of July 22, 1996, the Fund designated the existing series
of shares as "A" Shares.
</TABLE>
See Notes to Financial Statements.
<PAGE> 385
47
PACIFIC HORIZON BLUE CHIP FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
FEBRUARY 28,
1999(a)
------------
<S> <C>
B SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD.............. $33.73
------
Income from Investment Operations:
Net investment loss........................................ (0.05)
Net realized gains on investment transactions.............. 1.39
------
Total income from investment operations..................... 1.34
------
Less: Dividends and Distributions:
Dividends to shareholders from net investment income....... (0.01)
Distributions to shareholders from net realized gains on
investment transactions.................................. (1.72)
------
Total Dividends and Distributions........................... (1.73)
------
Net change in net asset value per share..................... (0.39)
------
NET ASSET VALUE PER SHARE, END OF PERIOD.................... $33.34
======
Total return................................................ 4.53%(c)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (millions)..................... $ 13
Ratio of expenses to average net assets.................... 1.97% (b)
Ratio of net investment loss to average net assets......... (0.58%)(b)
Ratio of expenses to average net assets*................... 1.99% (b)
Ratio of net investment loss to average net assets*........ (0.60%)(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 (date of initial offering) to
February 28, 1999.
(b) Annualized.
(c) Not annualized.
</TABLE>
See Notes to Financial Statements.
<PAGE> 386
48
PACIFIC HORIZON BLUE CHIP FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD
YEAR ENDED YEAR ENDED ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1999 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).................... (0.06) 0.04 0.07
Net realized gains on investment transactions..... 5.23 7.83 5.35
------ ------ ------
Total income from investment operations............ 5.17 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................ (1.72) (3.24) (0.53)
------ ------ ------
Total Dividends and Distributions.................. (1.72) (3.28) (0.60)
------ ------ ------
Net change in net asset value per share............ 3.45 4.59 4.82
------ ------ ------
NET ASSET VALUE PER SHARE, END OF PERIOD........... $33.24 $29.79 $25.20
====== ====== ======
Total return....................................... 17.96% 33.08% 26.96%(c)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (millions)............ $ 13 $ 7 $ 1
Ratio of expenses to average net assets........... 1.66% 1.67% 1.92%(b)
Ratio of net investment income/(loss) to average
net assets...................................... (0.22%) 0.12% 0.45%(b)
Ratio of expenses to average net assets*.......... 1.92% 1.69% 2.12%(b)
Ratio of net investment income/(loss) to average
net assets*..................................... (0.48%) 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.
<PAGE> 387
49
PACIFIC HORIZON BLUE CHIP FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE
PERIOD
JUNE 23,
1997(a)
YEAR ENDED THROUGH
FEBRUARY 28, FEBRUARY 28,
1999 1998
------------ ------------
<S> <C> <C>
SRF SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD.............. $26.53 $24.02
------ ------
Income from Investment Operations:
Net investment income...................................... 0.14 0.14
Net realized and unrealized gains on investment
transactions............................................. 4.66 3.99
------ ------
Total income from investment operations..................... 4.80 4.13
------ ------
Less Dividends and Distributions:
Dividends to shareholders from net investment income....... (0.16) (0.12)
Distributions to shareholders from net realized gains...... (1.72) (1.50)
------ ------
Total Dividends and Distributions........................... (1.88) (1.62)
------ ------
Net change in net asset value per share..................... 2.92 2.51
------ ------
NET ASSET VALUE PER SHARE, END OF PERIOD.................... $29.45 $26.53
====== ======
Total Return................................................ 18.89% 19.30%(c)
RATIO/SUPPLEMENTAL DATA:
Net assets, end of period (millions)........................ $ 418 $ 370
Ratio of expenses to average net assets.................... 0.95% 0.95%(b)
Ratio of net investment income to average net assets....... 0.52% 0.81%(b)
Ratio of expenses to average net assets*................... 1.17% 1.15%(b)
Ratio of net investment income to average net assets*...... 0.30% 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) Date of commencement of operations of SRF Shares of the
Fund.
(b) Annualized.
(c) Not annualized.
</TABLE>
See Notes to Financial Statements.
<PAGE> 388
50
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors
and Shareholders of
Pacific Horizon Funds, Inc.
In our opinion, the accompanying statements of assets and liabilities, including
the portfolios of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Pacific Horizon Aggressive Growth
Fund and Pacific Horizon Blue Chip Fund (two of the portfolios constituting the
Pacific Horizon Funds, Inc., hereafter referred to as the "Funds") at February
28, 1999, the results of each of their operations for the year then ended, the
changes in each of their net assets for each of the two years in the period then
ended and the financial highlights for each of the periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Funds' management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at February 28, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
As explained in Note 7, the Board of Directors of the Pacific Horizon Funds,
Inc. has approved an agreement and plan of reorganization between Pacific
Horizon Funds, Inc. and Nations Institutional Reserves. A Special Meeting of
Shareholders of the Funds is scheduled to be held on May 3, 1999 to seek
approval of the merger of the Pacific Horizon Aggressive Growth Fund and Blue
Chip Fund and Nations Small Company Growth Fund and Blue Chip Fund,
respectively.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
April 22, 1999
<PAGE> 389
PACIFIC HORIZON INCOME FUNDS
PACIFIC HORIZON INCOME FUNDS
ANNUAL REPORT
February 28, 1999
U.S. Government Securities Fund
Flexible Income Fund
Intermediate Bond Fund
Investing For All
The Times Of Your Life
NOT FDIC INSURED
<PAGE> 390
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> 391
..................................
Contents
<TABLE>
<S> <C>
FUND FACTS 2-3
UNDERSTANDING YOUR
SHAREHOLDER REPORT 4-6
ECONOMIC REVIEW FROM THE INVESTMENT
ADVISER 7-8
FUND OVERVIEW AND INTERVIEW WITH YOUR
INVESTMENT MANAGER 9-25
PACIFIC HORIZON U.S. GOVERNMENT
SECURITIES FUND
Portfolio of Investments 27-28
Statement of Assets and Liabilities 29
Statement of Operations 30
Statements of Changes
in Net Assets 31
PACIFIC HORIZON FLEXIBLE INCOME FUND
Portfolio of Investments 32-38
Statement of Assets and Liabilities 39
Statement of Operations 40
Statements of Changes
in Net Assets 41
PACIFIC HORIZON INTERMEDIATE BOND
FUND
Statement of Assets and Liabilities 42
Statement of Operations 43
Statements of Changes
in Net Assets 44
Notes to Financial Statements 45-56
Financial Highlights 57-63
Report of Independent Accountants 64
MASTER INVESTMENT TRUST, SERIES
I -- INVESTMENT
GRADE BOND PORTFOLIO
Portfolio of Investments 65-72
Statement of Assets and Liabilities 73
Statement of Operations 74
Statements of Changes
in Net Assets 75
Notes to Financial Statements 76-79
Supplementary Data 80
Report of Independent Accountants 81
</TABLE>
<PAGE> 392
2
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+ Current Income, Stable Share Price and
- Prime Daily Liquidity
- Treasury
- Government
- Treasury Only
..............................................................................
Tax-Exempt Money Market Funds*+
- Tax-Exempt Money Federal Tax-Free Current Income, Stable
Share Price and Daily Liquidity
- California Tax-Exempt Money Federal and California Tax-Free Current
Market Income, Stable Share Price and Daily
Liquidity
</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.
<PAGE> 393
3
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>
- --------------------------------------------------------------------------------
<PAGE> 394
4
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.
LOGO
Because a picture or chart can help clarify the
text, the investment management team may have
illustrated the most important features of the Fund.
The illustrations may represent the portfolio
composition, the largest holdings or a
simplification of the investment adviser's
investment style.
LOGO
<PAGE> 395
5
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
LOGO
The STATEMENT OF ASSETS AND LIABILITIES lists all the assets and liabilities of
the Fund as of the date of the statement. This is an individual fund's "balance
sheet." Also disclosed in this statement are the Fund's net asset value per
share and its maximum offering price per share as of the date of the statement.
The statement also lists the accounts that comprise the Fund's net assets
(capital stock, undistributed income, etc.).
SUMMARY OF THE FUND'S INVESTMENTS AND ALL
OTHER ASSETS OWNED BY THE FUND, INCLUDING
AMOUNTS OWED TO THE FUND BY OUTSIDE PARTIES
SUMMARY OF ALL AMOUNTS OWED TO OUTSIDE PARTIES
BY THE FUND
NET RESULTS OF ASSETS LESS LIABILITIES
THE MARKET VALUE OF THE FUND'S TOTAL NET
ASSETS DIVIDED BY THE NUMBER OF SHARES
OUTSTANDING
THE CURRENT NET ASSET VALUE PER SHARE PLUS SALES CHARGE, IF ANY
LOGO
<PAGE> 396
6
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. The financial
highlights or supplementary data show 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.
<PAGE> 397
7
ECONOMIC REVIEW
FROM THE INVESTMENT ADVISER
The past 12 months will be remembered as one of the most volatile periods in
financial market history. The crisis in Asia, the Russian default and the
devaluation of the Brazilian Real caused dramatic swings in equity valuations,
interest rates, and spreads and commodity prices. The Federal Reserve, in order
to calm the markets and restore liquidity, lowered short term interest rates by
0.75%. The Dow Jones Industrial Average* after dropping to 7,539, rebounded to
close the period at 9,306. The yield on the benchmark 10-year U.S. Treasury Note
which was at 5.16% on 3/19/99, fluctuated over a 1.2% range with a high of 5.81%
on 4/29/98 and low of 4.16% on 10/5/98. Spreads on 10-year "A" rated finance
debt over 10-year U.S. Treasuries started the period at a spread of 0.75% and
widened to as much as 1.45% only to end the period at 1.05% over comparable
maturity U.S. Treasury notes. International turmoil and the Asian recession also
took its toll on commodities. Demand for oil all but evaporated and crude oil
prices declined from almost $18.00 a barrel to just under $11.50 a barrel only
to rebound to $15.00 on strong U.S. growth and expectations of and a quick
recovery in Asia.
Throughout this turmoil, the U.S. remained an "oasis of prosperity" with the
U.S. Gross Domestic Product growing at an estimated 4.3% for 1998. The U.S.
consumer, unfazed by the recent volatility, continued to spend, pushing the
economy through it ninth year of expansion.
Unemployment remained near historical lows and there was continued strength in
real disposable income that translated into a high level of consumer confidence.
At the same time, the industrial side of the economy, burdened by slower exports
as well as the effects of the strong dollar, remained sluggish.
Inflation, as measured by the Consumer Price Index (CPI), remained benign over
the past year, increasing only 1.6% in 1998. Huge declines in commodities and
weakness on the manufacturing side of the economy offset relatively full
employment and money supply growth.
Despite turmoil abroad, the U.S. equity markets, as tracked by the Standard &
Poor's 500 Composite Stock Price Index**, posted a solid return of 18.01%.
Unfortunately, the Russell 2000*** proved that not all stocks are created equal
with a negative return of (15.06%) over the same period. While an era of
consolidation and low inflation should bode well for large cap stocks, we doubt
that this can continue.
The fixed income markets also put in a strong performance for the past 12
months, with the benchmark Salomon Smith Barney Broad Investment-Grade (BIG)
Index# posting a positive return of 6.31%. The top performing sector for the
period was U.S. agency debt which outperformed comparable maturity U.S.
Treasuries by 0.44% followed by U.S. agency mortgage-backed securities which
outperformed by 0.28%. The worst performing sector was U.S. corporate bonds
which underperformed U.S. Treasuries by 0.60% with "AA", "A", and "BBB" rated
corporate debt underperforming by 0.03%, 0.27%, and 1.61% respectively.
OUTLOOK FOR 1999
While the consensus of Wall Street economists is for a growth rate of 3.5% in
1999, we believe the risk is faster than anticipated growth because of the
momentum of the U.S. economy. The wildcard over the next year is the timing of
Asia's economic turnaround.
Asia remains a big question mark, with many economists calling for a "v" shaped
recovery. Although we believe the Asian
<PAGE> 398
8
economies have bottomed, we suspect that the recovery in the region will be
slower than anticipated. While Korea has recently shown strength in industrial
production and exports, Japan, which constitutes two-thirds of the region's GDP,
continues to show signs of weakness. If Japan chooses to monetize their debt by
printing currency, they may cause another round of devaluations in the region.
China has stated their intentions to maintain the value of the Yuan, but if they
fail to meet their growth targets and the Yen declines substantially in value,
all bets are off.
Sincerely,
/s/ Kirk Hartman
Kirk Hartman
Chief Investment Officer of
Fixed Income Management
- ---------------
* The Dow Jones Industrial Average is a price-weighted index of 30 of the
largest, most widely held stocks traded on the New York Stock Exchange. It
is unmanaged and unavailable for investment.
** The Standard & Poor's 500 Composite Stock Price Index is an unmanaged
market-capitalization-weighted index consisting of 500 common stocks that
measures the market value of 400 industrial stocks, 60 transportation and
utility company stocks and 40 financial issues. It is unavailable for
investment.
*** The Russell 2000 Growth Index is a widely used unmanaged index which
measures the performance of small-cap stocks and cannot be invested in
directly.
# The BIG Index is market-capitalization weighted and includes fixed-rate
Treasury, Government-sponsored, mortgage and investment-grade corporates
with a maturity of one year or longer. The minimum amount outstanding for US
Treasury and mortgage issues is $1 billion for both entry and exit. For
Government sponsored and corporate issues the entry and exit amounts are
$100 million.
<PAGE> 399
9
PACIFIC HORIZON
U.S. GOVERNMENT SECURITIES FUND
FLEXIBLE INCOME FUND
INTERMEDIATE BOND FUND
[KIRK HARTMAN PHOTO]
KIRK HARTMAN
Chief Investment Officer
Bank of America NT&SA
The Pacific Horizon Income Funds are managed by a Bank of America NT&SA
investment team led by Kirk Hartman, Chief Investment Officer.
U.S. GOVERNMENT SECURITIES FUND
GOAL:
The Pacific Horizon U.S. Government Securities Fund seeks to achieve a high
level of current income consistent with preservation of capital.
INVESTMENTS:
The Fund invests primarily in instruments issued by the Government National
Mortgage Association (GNMA), which are backed by the full faith and credit of
the U.S. Government, and other securities of the U.S. Government, its agencies
and instrumentalities.
APPROPRIATE FOR:
Investors who want to participate in a diversified portfolio of U.S. Government
securities and who are willing to accept some price and yield fluctuations.
INCEPTION:
January 7, 1988
SIZE OF FUND AS OF
FEBRUARY 28, 1999:
Over $64 million
FLEXIBLE INCOME FUND
GOAL:
The Pacific Horizon Flexible Income Fund seeks to provide investors with high
current income consistent with reasonable investment risk.
INVESTMENTS:
The Fund invests primarily in a diversified portfolio of investment-grade
corporate debt securities, although it may invest a portion of its assets in
other types of securities and money-market instruments.
APPROPRIATE FOR:
Investors looking for high current income who are willing to accept some price
and yield fluctuations.
SIZE OF FUND AS OF
FEBRUARY 28, 1999:
Approximately $38 million
<PAGE> 400
10
INTERMEDIATE BOND FUND
GOAL:
The Pacific Horizon Intermediate Bond Fund (formerly the Pacific Horizon
Flexible Bond Fund) seeks interest income and capital appreciation.
INVESTMENTS:
The Fund invests in a diversified portfolio of investment-grade, intermediate-
and longer-term bonds, including corporate and government fixed-income
obligations, mortgage-backed securities, municipal securities and cash
equivalents.
APPROPRIATE FOR:
Investors who want interest income and capital appreciation from a diversified
portfolio of fixed-income securities.
INCEPTION:
January 24, 1994
SIZE OF FUND AS OF
FEBRUARY 28, 1999:
Over $97 million
PACIFIC HORIZON U.S. GOVERNMENT FUND
Q
WHAT WERE ECONOMIC AND MARKET CONDITIONS LIKE DURING THE REPORTING PERIOD?
A
The past 12 months will be remembered as the one of the most volatile
periods in fixed income history. The crisis in Asia, the Russian default and the
devaluation of the Brazilian Real caused dramatic swings in both interest rates
and spreads. The Federal Reserve Board, in order to calm the markets and restore
liquidity, lowered short term interest rates by 0.75%. The yield on the
benchmark 10-year U.S. Treasury Note which was at 5.16% on 3/19/99, fluctuated
over a 1.2% range with a high of 5.81% on 4/29/98 and low of 4.16% on 10/5/98.
Spreads on 10-year "A" rated finance debt over 10-year U.S. Treasuries started
the period at a spread of 0.75% and widened to as much as 1.45% only to end the
period at 1.05% over comparable maturity U.S. Treasury notes. International
turmoil and the Asian recession also took its toll on commodities. Demand for
oil all but evaporated and crude oil prices declined from almost $18.00 a barrel
to just under $11.50 a barrel only to rebound to $15.00 on strong U.S. growth
and expectations of a quick recovery in Asia.
Throughout this turmoil, the U.S. remained an "oasis of prosperity" with the
U.S. Gross Domestic Product growing at an estimated 4.3% for 1998. The U.S.
consumer, unfazed by the recent volatility, continued to spend, pushing the
economy through its 9th year of expansion.
Unemployment remained near historical lows and there was continued strength in
real disposable income that translated into a high level of consumer confidence.
At the same time, the industrial side of the economy, burdened by slower exports
as well as the effects of the strong dollar, remained sluggish.
Inflation, as measured by the Consumer Price Index (CPI), remained benign over
the past year, increasing only 1.6% in 1998. Huge declines in commodities and
weakness on the manufacturing side of the economy offset relatively full
employment and money supply growth.
The overall performance of fixed income for the past 12 months was strong, with
the benchmark Salomon Smith Barney Mortgage Index* posting a positive return of
6.31%. The top performing sector for the period was U.S. Agency debt which
outperformed comparable maturity U.S.
<PAGE> 401
11
Treasuries by 0.44% followed by U.S. Agency Mortgage Backed Securities which
outperformed by 0.28%. The worst performing sector was U.S. Corporates which
underperformed U.S. Treasuries by 0.60% with "AA", "A", and "BBB" rated
corporate debt underperforming by 0.03%, 0.27%, and 1.61% respectively.
Q
HOW DID YOU MANAGE THE FUND IN THIS ENVIRONMENT?
A
For the reporting period, A Shares of the Fund provided shareholders with a
return of 5.09%.** Despite the volatility in the fixed income markets, we
maintained our strategy of seeking to maximize income while carefully
controlling risk. Our main focus for the past 12 months was to increase the
prepayment protection of the securities in the Fund. To do this, we purchased
moderately seasoned securities as well as newer issue high coupon securities.
Moderately seasoned securities are less sensitive to refinancing opportunities
because many of the homeowners who aggressively seek refinancing opportunities
have already left the group of borrowers within the mortgage pool. The new issue
high coupon borrowers have borrowed at above market rates, probably because they
did not want to pay points on their mortgage at the closing. This implies that
they have less cash available and they are less likely to refinance their home.
Q
WHAT INVESTMENT DECISIONS CONTRIBUTED TO THE FUND'S PERFORMANCE?
A
We held the portfolio allocation to GNMA mortgage backed securities to 83 to
90% of the total market value of the Fund. Lower interest rates in the fall of
1998 created tremendous refinancing opportunities for homeowners. This, in turn,
increased the supply of new issue mortgage backed securities. The supply pushed
mortgage spread to levels that have not been seen since the middle 80's. Spreads
on GNMA mortgage backed securities widen to as much as 2.00% over comparable
maturity U.S. Treasury Notes.
Q
WHAT INVESTMENT DECISIONS HINDERED THE OVERALL PERFORMANCE OF THE FUND?
A
The investment decision that most hindered the performance for the Fund over
the past 12 months, was our decision not to lower our U.S. Treasury allocation
during the fourth quarter of 1998. When mortgage spreads widened dramatically,
we needed our U.S. Treasury position to control our interest rate risk profile.
This prevented us from adding additional mortgage backed securities while they
were extremely attractive.
Q
WHAT ECONOMIC DEVELOPMENTS DO YOU ANTICIPATE DURING THE REST OF 1999?
A
While the consensus of Wall Street economists is for a growth rate of 3.5%
in 1999, we believe the risk is faster than anticipated growth because of the
momentum of the U.S. economy. The wildcard over the next year is the timing of
Asia's economic turnaround.
Asia remains a big question mark for the next year with many economists calling
for a "v" shaped recovery. Although we believe the Asian economies have
bottomed, we suspect that the recovery in the region will be slower than
anticipated. While Korea has recently shown strength in industrial production
and exports, Japan, which constitutes two-thirds of the region's GDP, continues
to show signs of weakness. If Japan chooses to monetize their debt by printing
currency, they may
C
<PAGE> 402
cause another round of devaluations in the region. China has stated their
intentions to maintain the value of the Yuan, but if they fail to meet their
growth targets and the Yen declines substantially in value, all bets are off.
Our interest rate outlook for the rest of 1999 is for rates to remain within a
0.50% range and for the Federal Reserve to move from neutral to a bias towards
tightening. U.S. interest rates are bounded on the high side by the fact that
they are high when compared to the rest of the world and on the low side by the
fact that the U.S. economy is too strong and fully employed to warrant a large
decline in rates.
Q
HOW IS THE FUND POSITIONED TO TAKE ADVANTAGE OF THESE ANTICIPATED
DEVELOPMENTS?***
A
With our expectations of fairly stable interest rates and a strong U.S.
economy, we believe the top performing sectors will be the "spread" sectors.
These include corporate, asset-backed, and mortgage backed debt. These products
will add income to the portfolio and, when spreads revert to a more normal
level, the prices of these securities should increase relative to comparable
maturity U.S. Treasury securities. With this in mind, we are planning to add
exposure to U.S. Agency mortgage backed securities.
Another area of focus for the coming year is "AAA" commercial mortgage backed
securities. These securities are rated "AAA" and are backed by loans on
commercial properties. Unlike traditional residential mortgage backed
securities, the loans underlying these securities are in many cases prevented
from prepayment. At 1.25% over comparable maturity U.S. Treasuries, these
securities offer little credit risk and a tremendous increase in yield.
Finally, to maximize the return of the portfolio, we will look to selectively
rotate high quality sectors like U.S. Agency mortgage backed and "AAA" asset
backed securities. Temporary supply/demand imbalances often create relative
value opportunities between these sectors.
- ---------------
* The Salomon Smith Barney Mortgage Index (Mortgage component of the BIG
Index) is market capitalization weighted and composed of 30- and 15-year
GNMA, FNMA and FHLMC securities, FNMA and FHLMC balloons.
** Return figures for the Fund include change in share price, reinvestment of
dividends and capital gains distributions. Performance figures for A shares
do not reflect the maximum sales charge of 4.75%.
*** The composition of the Fund's holdings is subject to change.
PACIFIC HORIZON FLEXIBLE INCOME FUND
Q
WHAT WERE ECONOMIC AND MARKET CONDITIONS LIKE DURING THE REPORTING PERIOD?
A
The past 12 months will be remembered as the one of the most volatile
periods in fixed income history. The crisis in Asia, the Russian default and the
devaluation of the Brazilian Real caused dramatic swings in both interest rates
and spreads. The Federal Reserve Board, in order to calm the markets and restore
liquidity, lowered short term interest rates by 0.75%. The yield on the
benchmark 10-year U.S. Treasury Note which was at 5.16% on 3/19/99, fluctuated
over a 1.2% range with a high of 5.81% on 4/29/98 and low of 4.16% on 10/5/98.
Spreads on 10-year "A" rated finance debt over 10-year U.S. Treasuries started
the period at a spread of 0.75% and widened to as much as 1.45% only to end the
period at 1.05% over comparable maturity U.S.
12
<PAGE> 403
13
Treasury notes. International turmoil and the Asian recession also took its toll
on commodities. Demand for oil all but evaporated and crude oil prices declined
from almost $18.00 a barrel to just under $11.50 a barrel only to rebound to
$15.00 on strong U.S. growth and expectations of and a quick recovery in Asia.
Throughout this turmoil, the U.S. remained an "oasis of prosperity" with the
U.S. Gross Domestic Product growing at an estimated 4.3% for 1998. The U.S.
consumer, unfazed by the recent volatility, continued to spend, pushing the
economy through its 9th year of expansion.
Unemployment remained near historical lows and there was continued strength in
real disposable income that translated into a high level of consumer confidence.
At the same time, the industrial side of the economy, burdened by slower exports
as well as the effects of the strong dollar, remained sluggish.
Inflation, as measured by the Consumer Price Index (CPI), remained benign over
the past year, increasing only 1.6% in 1998. Huge declines in commodities and
weakness on the manufacturing side of the economy offset relatively full
employment and money supply growth.
The overall performance of fixed income for the past 12 months was strong, with
the benchmark Salomon Investment Grade Corporate Index# posting a positive
return of 9.08%. The top performing sector for the period was U.S. Agency debt
which outperformed comparable maturity U.S. Treasuries by 0.44% followed by U.S.
Agency Mortgage Backed Securities which outperformed by 0.28%. The worst
performing sector was U.S. Corporates which underperformed U.S. Treasuries by
0.60% with "AA", "A", and "BBB" rated corporate debt underperforming by 0.03%,
0.27%, and 1.61% respectively.
Q
HOW DID YOU MANAGE THE FUND IN THIS ENVIRONMENT?
A
Despite the volatility in the fixed income markets, we maintained our
strategy of maximizing our exposure to investment grade corporates to enhance
the income to the portfolio while carefully controlling risk. This focus helped
the portfolio to outperform both its benchmark and its peers for the 12 months
ended February 28, 1999. For the reporting period, A Shares of the Fund provided
shareholders with a return of 4.84%.*
Q
WHAT INVESTMENT DECISIONS CONTRIBUTED TO THE FUND'S PERFORMANCE?
A
The most important investment decision that was made in the past year was to
maintain or focus on investment grade corporates. Many funds in the Lipper BBB
Corporate Universe are heavily weighted towards high yield securities. This
sector of the market dramatically underperformed investment grade corporates. In
addition, we carefully maintain the duration of our portfolio to limit the
performance volatility of the Fund.**
Q
WHAT INVESTMENT DECISIONS HINDERED THE OVERALL PERFORMANCE OF THE FUND?
A
The investment decision that most hindered the performance of the Fund was
continuing the focus on higher quality corporates which began in November 1998.
In the 4th quarter lower quality corporates tightened dramatically as liquidity
returned to the financial markets. This caused the Fund to underperform its
peers over the past few months.
<PAGE> 404
14
Q
WHAT ECONOMIC DEVELOPMENTS DO YOU ANTICIPATE DURING THE REST OF 1999?
A
While the consensus of Wall Street economists is for a growth rate of 3.5%
in 1999, we believe the risk is faster than anticipated growth because of the
momentum of the U.S. economy. The wildcard over the next year is the timing of
Asia's economic turnaround.
Asia remains a big question mark for the next year with many economists calling
for a "v" shaped recovery. Although we believe the Asian economies have
bottomed, we suspect that the recovery in the region will be slower than
anticipated. While Korea has recently shown strength in industrial production
and exports, Japan, which constitutes 2/3rds of the region's GDP, continues to
show signs of weakness. If Japan chooses to monetize their debt by printing
currency, they may cause another round of devaluations in the region. China has
stated their intentions to maintain the value of the Yuan, but if they fail to
meet their growth targets and the Yen declines substantially in value, all bets
are off.
Our interest rate outlook for the rest of 1999 is for rates to remain within a
0.50% range and for the Federal Reserve to move from neutral to a bias towards
tightening. U.S. interest rates are bounded on the high side by the fact that
they are high when compared to the rest of the world and on the low side by the
fact that the U.S. economy is too strong and fully employed to warrant a large
decline in rates.
Q
HOW IS THE FUND POSITIONED TO TAKE ADVANTAGE OF THESE ANTICIPATED
DEVELOPMENTS?***
A
With our expectations of fairly stable interest rates and a strong U.S.
economy, we believe the top performing sectors will be the lower quality
"spread" sectors (i.e. lower quality investment grade and high yield
corporates). To capture this performance, we will selectively add high yield
positions to the portfolio. These securities will add income to the portfolio
and, when spreads revert to a more normal level, the prices of these securities
should increase relative to comparable maturity U.S. Treasury securities.
- ---------------
* Return figures for the Fund include change in share price, reinvestment of
dividends and capital gains distributions. Performance figures for A shares
do not reflect the maximum sales charge of 4.75%.
** Funds in the Lipper Corporate Debt BBB Funds Average invest at least 65% of
their assets in corporate and government debt issues rated in the top four
grades.
*** The composition of the Fund's holdings is subject to change.
# The Salomon Smith Barney Investment Grade Corporate Index (Corporate
Component of the BIG Index) is market capitalization weighted and composed
of corporates with a maturity of 1 year or longer.
PACIFIC HORIZON INTERMEDIATE BOND FUND
Q
WHAT WERE ECONOMIC AND MARKET CONDITIONS LIKE DURING THE REPORTING PERIOD?
A
The past 12 months will be remembered as the one of the most volatile
periods in fixed income history. The crisis in Asia, the Russian default and the
devaluation of the Brazilian Real caused dramatic swings in both interest rates
and spreads. The Federal Reserve, in order to calm the markets and restore
liquidity, lowered short term interest rates by 0.75%. The yield on the
benchmark 10-year U.S. Treasury Note which
<PAGE> 405
15
was at 5.16% on 3/19/99, fluctuated over a 1.2% range with a high of 5.81% on
4/29/98 and low of 4.16% on 10/5/98. Spreads on 10-year "A" rated finance debt
over 10-year U.S. Treasuries started the period at a spread of 0.75% and widened
to as much as 1.45% only to end the period at 1.05% over comparable maturity
U.S. Treasury notes. International turmoil and the Asian recession also took its
toll on commodities. Demand for oil all but evaporated and crude oil prices
declined from almost $18.00 a barrel to just under $11.50 a barrel only to
rebound to $15.00 on strong U.S. growth and expectations of and a quick recovery
in Asia.
Throughout this turmoil, the U.S. remained an "oasis of prosperity" with the
U.S. Gross Domestic Product growing at an estimated 4.3% for 1998. The U.S.
consumer, unfazed by the recent volatility, continued to spend, pushing the
economy through its 9th year of expansion.
Unemployment remained near historical lows and there was continued strength in
real disposable income that translated into a high level of consumer confidence.
At the same time, the industrial side of the economy, burdened by slower exports
as well as the effects of the strong dollar, remained sluggish.
Inflation, as measured by the Consumer Price Index (CPI), remained benign over
the past year, increasing only 1.6% in 1998. Huge declines in commodities and
weakness on the manufacturing side of the economy offset relatively full
employment and money supply growth.
The overall performance of fixed income for the past 12 months was strong, with
the benchmark Salomon Broad 1 to 10 year Investment Grade Government/ Corporate
Index posting a positive return of 6.16%. The top performing sector for the
period was U.S. Agency debt which outperformed comparable maturity U.S.
Treasuries by 0.44% followed by U.S. Agency Mortgage Backed Securities which
outperformed by 0.28%. The worst performing sector was U.S. Corporates which
underperformed U.S. Treasuries by 0.60% with "AA", "A", and "BBB" rated
corporate debt underperforming by 0.03%, 0.27%, and 1.61% respectively.
Q
HOW DID YOU MANAGE THE FUND IN THIS ENVIRONMENT?
A
Despite the volatility in the fixed income markets, we maintained our
strategy of maximizing income while carefully controlling risk. While this
caused the portfolio to underperform its benchmark in the 3rd quarter of 1998,
by staying with the strategy we were able to outperform when the markets
reversed course in the 4th quarter of 1998. For the reporting period, A Shares
of the Fund provided shareholders with a return of 4.89%.*
Q
WHAT INVESTMENT DECISIONS CONTRIBUTED TO THE FUND'S PERFORMANCE?
A
The most important investment decision that was made in the past year was to
increase our weightings to commercial mortgage backed securities during the 4th
quarter. "AAA" rated commercial mortgage backed securities were trading as wide
as 2.00% over U.S. Treasuries. This was the absolute widest level that this
sector has ever traded. Spreads widened to these levels for two reasons. First,
many Wall Street firms had begun issuing commercial mortgage backed securities
in 1998. At the beginning of the third quarter, the dealer community had close
to $10 billion worth of these securities in inventory. When the markets became
volatile, investment firms, because of the levered nature of their business,
were forced to liquidate positions to reduce the
<PAGE> 406
16
size of their balance sheets. Second, hedge funds, like Long Term Capital
Management, found these securities very attractive. These firms were also forced
to liquidate their holdings of commercial mortgage backed securities to meet
margin calls. This caused spreads to widen from 0.85% to 2.00% over U.S.
Treasuries. While we believed the U.S. economy would slow, we also believed that
the combination of strong levels of consumer spending and an attentive Federal
Reserve Board would prevent a recession. It was our belief that once the market
absorbed the excess supply, commercial mortgage spreads would tighten to more
reasonable levels. Spreads have since tightened to 0.80% to 1.20% over 10-year
U.S. Treasury notes. This means that the price of a 10-year commercial mortgage
backed securities has increased 5.6% relative to a 10-year U.S. Treasury Note.
Q
WHAT INVESTMENT DECISIONS HINDERED THE OVERALL PERFORMANCE OF THE FUND?**
A
The investment decision that most hindered the performance for the Fund was
our systematic overweight to the "spread sectors" (i.e. corporates, asset-
backed, and commercial mortgage backed securities). Our process relies on
overweighting these products to add income to the portfolio in exchange for a
slightly higher risk profile. The past 12 months have been an extremely
difficult period for all but the most liquid sectors of the fixed income
markets. Since our focus is on higher yielding investment grade corporates and
other "spread" products, the portfolio had a strong positive return, but the
prices of the securities in the portfolio did not increase as much as comparable
maturity U.S. Treasury securities. Over the past few months this trend has
reversed itself and the portfolio has performed extremely well.
Q
WHAT ECONOMIC DEVELOPMENTS DO YOU ANTICIPATE DURING THE REST OF 1999?
A
While the consensus of Wall Street economists is for a growth rate of 3.5%
in 1999, we believe the risk is faster than anticipated growth because of the
momentum of the U.S. economy. The wildcard over the next year is the timing of
Asia's economic turnaround.
Asia remains a big question mark for the next year with many economists calling
for a "v" shaped recovery. Although we believe the Asian economies have
bottomed, we suspect that the recovery in the region will be slower than
anticipated. While Korea has recently shown strength in industrial production
and exports, Japan, which constitutes 2/3rds of the region's GDP, continues to
show signs of weakness. If Japan chooses to monetize their debt by printing
currency, they may cause another round of devaluations in the region. China has
stated their intentions to maintain the value of the Yuan, but if they fail to
meet their growth targets and the Yen declines substantially in value, all bets
are off.
Our interest rate outlook for the rest of 1999 is for rates to remain within a
0.50% range and for the Federal Reserve to move from neutral to a bias towards
tightening. U.S. interest rates are bounded on the high side by the fact that
they are high when compared to the rest of the world and on the low side by the
fact that the U.S. economy is too strong and fully employed to warrant a large
decline in rates.
<PAGE> 407
17
Q
HOW IS THE FUND POSITIONED TO TAKE ADVANTAGE OF THESE ANTICIPATED
DEVELOPMENTS?
A
With our expectations of fairly stable interest rates and a strong U.S.
economy, we believe the top performing sectors will be the "spread" sectors.
These include corporate, asset-backed, and mortgage backed debt. These products
will add income to the portfolio and, when spreads revert to a more normal
level, the prices of these securities should increase relative to comparable
maturity U.S. Treasury securities. With this in mind, we will continue to hold
sizeable positions in corporates, asset-backed and U.S. Agency mortgage backed
securities.
In addition, to maximize the return of the portfolio, we will look to
selectively rotate high quality sectors like U.S. Agency mortgage backed and
"AAA" asset backed securities. Temporary supply/demand imbalances often create
relative value opportunities between these sectors.
- ---------------
* Return figures for the Fund include change in share price, reinvestment of
dividends and capital gains distributions. Performance figures for A shares
do not reflect the maximum sales charge of 3.25%.
** The composition of the Fund's holdings is subject to change.
Past performance is no guarantee of future results.
<PAGE> 408
18
PACIFIC HORIZON
U.S. GOVERNMENT SECURITIES FUND
(AS OF FEBRUARY 28, 1999)
GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)
[U.S. GOVERNMENT SECURITIES FUND GRAPH]
<TABLE>
<CAPTION>
LIPPER GNMA LEHMAN BROTHERS
A SHARES K SHARES FUNDS AVERAGE GNMA INDEX
-------- -------- ------------- ---------------
<S> <C> <C> <C> <C>
2/28/89 9525 10000 10000 10000
2/28/90 9752 10753 11182 11422
2/28/91 10994 12122 12551 12961
2/29/92 12363 13631 14038 14667
2/28/93 13713 15120 15448 16158
2/28/94 14179 15633 16050 16873
2/28/95 14222 15681 16319 17363
2/29/96 15426 17009 18082 19368
2/28/97 16233 17873 19128 20699
2/28/98 17738 19467 20883 22686
2/28/99 20412 21245 21946 24066
</TABLE>
HOW PERFORMANCE COMPARES
The chart compares the performance of the Pacific Horizon U.S. Government
Securities Fund to the Lehman Brothers GNMA Index, which is an unmanaged index
typically used as a performance benchmark for mortgage-backed investments.
As illustrated, the Fund tracked the performance of other GNMA funds. The
average of GNMA funds reported by Lipper Analytical Services, Inc. measures the
performance of other funds with investment objectives and policies similar to
those of the Pacific Horizon U.S. Government Securities Fund. An initial $10,000
investment in the Fund made for the ten year period commencing on February 28,
1989 would now be worth $20,412 for A Shares.* The same investment made in the
Lipper GNMA Funds Average would now be worth $21,946. Correspondingly, a $10,000
investment in K Shares for the same period would now be worth $21,245.**
----------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
U.S. GOVERNMENT SECURITIES FUND
AVERAGE ANNUAL RETURNS
<CAPTION>
-------------------------------------------------
A SHARES K SHARES**
Without With*
Sales Sales
Load Load
-------------------------------------------------
<S> <C> <C> <C>
1 Year 5.09% 0.14% 4.63%
...............................................
5 Year 5.62% 4.60% 5.43%
...............................................
10 Year 7.92% 7.40% 7.83%
</TABLE>
----------------------------------
SEE INVESTMENT MANAGER INTERVIEW FOR FACTORS AFFECTING FUND PERFORMANCE.
Investment return and principal value are historical and will vary with market
conditions, so an investor's shares, when redeemed, may be worth more or less
than their original cost. Return figures for the Fund include change in share
price, reinvestment of dividends, and capital gain distributions, if any.
Lipper Analytical Services, Inc. is an independent mutual fund-monitoring
organization. Neither the Lipper GNMA Funds Average, nor the Lehman Brothers
GNMA Index may be invested in directly. The hypothetical investment in the GNMA
indices do not reflect any sales or management fees that would be incurred if an
investor were to actually purchase
<PAGE> 409
19
individual securities or mutual funds, while the performance of the Fund
reflects all expenses and management fees and the effect of the maximum sales
charge.
* A share performance assumes the deduction of the maximum front-end sales
charge of 4.75%.
**The inception date of the K Shares (the date K Shares were initially funded)
was July 22, 1996. The K Shares did not commence operations until November 20,
1996. For this reason, the performance results for K Shares are those of A
Shares without the sales charge for the period prior to November 20, 1996
combined with actual K Share performance from November 20, 1996 through February
28, 1999. The performance results for K Shares included in the Financial
Highlights table in the financial statements represent actual performance from
the inception date of the K Shares. K Shares, unlike A Shares are sold without a
front-end sales load but have an ongoing 0.75% distribution or administrative
services fee (of which 0.25% are currently being waived), which would have
reduced prior performance.
QUALITY
Investing Only in U.S.
Government-Backed Securities
The Pacific Horizon U.S. Government
Securities Fund maintains at least a
65% position in securities of the
U.S. Government, its agencies,
instrumentalities or sponsored
entities and may invest in other
types of high-quality
government-backed securities such as
Treasury and Mortgage obligations.
The flexibility to invest in
different types of securities can
help to increase performance, while
diversification can help to reduce
risk. By investing only in
high-quality government-backed
securities, the Fund may provide the
anchor for an investor's long-range
strategy.
PORTFOLIO COMPOSITION*
(PERCENTAGE BASED ON NET ASSETS)
[PIE CHART]
<TABLE>
<S> <C>
Cash & Other Asset & Liabilities.........4.5%
Treasury Obligations....................12.8%
Mortgage Obligations....................82.7%
</TABLE>
- -----------------------------------------------------------
* The composition of the Fund's
holdings is subject to change.
<PAGE> 410
20
PACIFIC HORIZON
FLEXIBLE INCOME FUND
(AS OF FEBRUARY 28, 1999)
GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)
[FLEXIBLE INCOME FUND GRAPH]
<TABLE>
<CAPTION>
A SHARES K SHARES LIPPER CORPORATE LEHMAN BROTHERS
-------- -------- DEBT FUNDS BBB CORPORATE BOND
RATED AVERAGE INDEX
---------------- ---------------
<S> <C> <C> <C> <C>
2/28/89 9525 10000 10000 10000
2/28/90 11706 12288 10671 11199
2/28/91 11453 12023 11711 12468
2/29/92 13372 14037 13383 14301
2/28/93 14606 15332 15244 16322
2/28/94 15771 16555 16550 17407
2/28/95 16386 17201 16378 17652
2/29/96 18700 19630 18806 20179
2/28/97 19488 20437 20018 21331
2/28/98 21545 22456 22198 23651
2/28/99 21519 22335 22957 25028
</TABLE>
HOW PERFORMANCE COMPARES
The chart compares the performance of the Pacific Horizon Flexible Income Fund
to the Lehman Brothers Corporate Bond Index, which is an unmanaged index
typically used as a performance benchmark for corporate debt investments.
As illustrated, the Fund tracked the performance of other corporate debt funds.
The average of corporate debt funds reported by Lipper Analytical Services, Inc.
measures the performance of other funds with investment objectives and policies
similar to those of the Pacific Horizon Flexible Income Fund. An initial $10,000
investment in the Fund made for the ten year period commencing on February 28,
1989 would now be worth $21,519 for A Shares.* The same investment made in the
Lipper Corporate Debt Funds BBB Rated Average would now be worth $22,957.
Correspondingly, a $10,000 investment in K Shares for the same period would now
be worth $22,335.**
----------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FLEXIBLE INCOME FUND
AVERAGE ANNUAL RETURN
<CAPTION>
--------------------------------------------------
A SHARES K SHARES**
Without With*
Sales Sales
Load Load
--------------------------------------------------
<S> <C> <C> <C>
1 Year 4.84% (0.15%) 4.38%
................................................
5 Year 7.46% 6.41% 7.21%
................................................
10 Year 8.49% 7.97% 8.37%
</TABLE>
----------------------------------
SEE INVESTMENT MANAGER INTERVIEW FOR FACTORS AFFECTING FUND PERFORMANCE.
Investment return and principal value are historical and will vary with market
conditions, so an investor's shares, when redeemed, may be worth more or less
than their original cost. Return figures for the Fund include change in share
price, reinvestment of dividends, and capital gains distributions, if any.
Lipper Analytical Services, Inc. is an independent mutual fund-monitoring
organization. Neither the Lipper Corporate Debt Funds BBB Rated Average, nor the
Lehman Brothers Corporate Bond Index may be invested in directly. The
hypothetical investment in the Lehman Brothers Corporate Bond Index does not
reflect any sales or management fees that would be incurred if an investor were
to actually purchase individual securities or mutual funds, while the
performance of the Fund reflects all expenses and management fees and the effect
of the maximum sales charge.
<PAGE> 411
21
* A share performance assumes the deduction of the maximum front-end sales
charge of 4.75%.
**The inception date of the K Shares (the date K Shares were initially funded)
was July 22, 1996. The K Shares did not commence operations until November 20,
1996. For this reason, the performance results for K Shares are those of A
Shares without the sales charge for the period prior to November 20, 1996
combined with actual K Share performance prior to February 28, 1999. The
performance results for K Shares included in the Financial Highlights table in
the financial statements represent actual performance from the inception date of
the K Shares. K Shares, unlike A Shares, are sold without a front-end sales load
but have an ongoing .75% distribution or administrative services fee (of which
.25% are currently being waived), which would have reduced prior performance.
<PAGE> 412
22
PACIFIC HORIZON
FLEXIBLE INCOME FUND
(AS OF FEBRUARY 28, 1999)
The Pacific Horizon Flexible Income
Fund is a diversified portfolio of
investment-grade corporate debt
obligations and other obligations
issued or guaranteed by the U.S.
Government, its agencies or
instrumentalities. The portfolio
manager's diversification strategy
focuses on industries that are
positioned for growth and companies
that provide high current income
potential consistent with reasonable
investment risk. While the portfolio
is heavily invested in banking and
finance, it is diversified with
investments in other business
sectors.
PORTFOLIO COMPOSITION*
[PIE CHART]
<TABLE>
<S> <C>
Telecommunications.........3.6%
Banking Finance...........48.5%
Insurance..................2.0%
Utilities.................15.3%
Industrials................6.6%
Cable-Media................3.7%
Retail.....................5.4%
Food & Beverages...........7.8%
Commercial Services........3.6%
Other......................3.5%
</TABLE>
- ---------------
* The composition of the Fund's holdings is subject to change.
<PAGE> 413
23
PACIFIC HORIZON
INTERMEDIATE BOND FUND
(AS OF FEBRUARY 28, 1999)
GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)
[INTERMEDIATE BOND FUND GRAPH]
<TABLE>
<CAPTION>
A SHARES K SHARES LIPPER
-------- -------- INTERMEDIATE LEHMAN BROTHERS
INVESTMENT FUNDS GOVERNMENT
AVERAGE CORPORATION BOND
---------------- ----------------
<S> <C> <C> <C> <C>
1/24/94 9675 10000 10000 10000
2/28/94 9565 9890 9891 9852
8/31/94 9514 9837 9839 9800
2/28/95 9782 10115 10116 10066
8/31/95 10412 10766 10767 10727
2/29/96 10804 11172 11173 11148
8/31/96 10793 11160 11162 11203
2/28/97 11228 11596 11586 11705
2/28/98 12059 12385 12617 12708
2/28/99 12649 12974 13219 13486
</TABLE>
HOW PERFORMANCE COMPARES
The chart compares the performance of the Pacific Horizon Intermediate Bond Fund
to the Lehman Brothers Intermediate Government/Corporate Bond Index, which is an
unmanaged index typically used as a performance benchmark for intermediate term
investments.
As illustrated, the Fund tracked the performance of other intermediate bond
funds. The average of intermediate investment funds reported by Lipper
Analytical Services, Inc. measures the performance of other funds with
investment objectives and policies similar to those of the Pacific Horizon
Intermediate Bond Fund. An initial $10,000 investment in the Fund made on
January 24, 1994, would now be worth $12,649 for A Shares.* The same investment
made in the Lipper Intermediate Investment Funds Average would now be worth
$13,219. Correspondingly, a $10,000 investment in K Shares for the same period
would now be worth $12,974.**
----------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INTERMEDIATE BOND FUND
AVERAGE ANNUAL RETURN
<CAPTION>
--------------------------------------------------
A SHARES K SHARES**
Without With*
Sales Sales
Load Load
--------------------------------------------------
<S> <C> <C> <C>
1 Year 4.89% 1.44% 4.76%
.................................................
5 Year 5.75% 5.05% 5.58%
.................................................
Since
Inception 5.40% 4.71% 5.24%
(1/24/94)
--------------------------------------------------
</TABLE>
FEDERAL INCOME TAX STATUS OF DIVIDENDS (UNAUDITED)
The Pacific Horizon Intermediate Bond Fund distributed a total Capital Gain
Dividend of $0.113781 for the year ended February 28, 1999. Of this total
Capital Gain Dividend amount the Fund made a 20 percent rate distribution of
$0.063770.
SEE INVESTMENT MANAGER INTERVIEW FOR FACTORS AFFECTING FUND PERFORMANCE.
Investment return and principal value are historical and will vary with market
conditions, so an investor's shares, when redeemed, may be worth more or less
than their original cost. Return figures for the Fund include change in share
price, reinvestment of dividends, and capital gains distributions, if any.
<PAGE> 414
24
Lipper Analytical Services, Inc. is an independent mutual fund-monitoring
organization. Neither the Lipper Intermediate Investment Funds Average, nor the
Lehman Brothers Intermediate Government/Corporate Bond Index may be invested in
directly. The hypothetical investment in the Lehman Brothers Intermediate
Government/Corporate Bond Index does not reflect any sales or management fees
that would be incurred if an investor were to actually purchase individual
securities or mutual funds, while the performance of the Fund reflects all
expenses and management fees and the effect of the maximum sales charge.
* A share performance assumes the deduction of the maximum front-end sales
charge of 3.25%.
**The inception date of the K Shares (the date K Shares were initially funded)
was July 22, 1996. The K Shares did not commence operations until November 20,
1996. For this reason, the performance results for K Shares are those of A
Shares without the sales charge for the period prior to November 20, 1996
combined with actual K Share performance from November 20, 1996 through February
28, 1999. The performance results for K Shares included in the Financial
Highlights table in the financial statements represent actual performance from
the inception date of the K Shares. K Shares, unlike A Shares, are sold without
a front-end sales load but have an ongoing .75% distribution or administrative
services fee (of which .25% are currently being waived), which would have
reduced prior performance.
<PAGE> 415
25
PACIFIC HORIZON
INTERMEDIATE BOND FUND
(AS OF FEBRUARY 28, 1999)
QUALITY
This fund invests in a diversified
portfolio of investment-grade U.S.
Government, mortgage-backed,
asset-backed, corporate and
municipal bonds in order to provide
current income and capital
appreciation. The security selection
process also depends on information
about broad economic factors that
can affect the bond markets.
<PAGE> 416
26
[This page intentionally left blank.]
<PAGE> 417
27
PACIFIC HORIZON U.S. GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATURITY PRINCIPAL VALUE
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
----------- ---- -------- --------- --------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 81.3%
FannieMae, Pool #345858..... 6.249% 08/01/36 $ 573,758 $ 585,233
Government National Mortgage
Association*.............. 6.00% 12/15/10 337,408 337,512
Government National Mortgage
Association*.............. 7.00% 12/15/08 to 03/15/28 26,251,711 26,802,365
Government National Mortgage
Association*.............. 7.50% 04/15/22 to 12/15/25 14,227,630 14,710,942
Government National Mortgage
Association*.............. 8.00% 06/15/22 to 07/15/26 3,969,352 4,164,831
Government National Mortgage
Association*.............. 8.50% 10/15/09 to 12/15/22 2,969,787 3,173,713
Government National Mortgage
Association*.............. 9.00% 06/15/01 to 06/15/07 160,321 168,713
Government National Mortgage
Association*.............. 9.50% 02/20/01 to 04/20/06 643,162 674,117
Government National Mortgage
Association*.............. 10.00% 09/15/00 to 03/15/21 511,495 548,403
Government National Mortgage
Association*.............. 10.50% 06/15/99 to 04/15/21 682,753 731,397
Government National Mortgage
Association*.............. 11.00% 11/15/15 to 09/20/19 123,804 137,912
-----------
Total U.S. Government Agency
Obligations (Cost
$51,123,038)................ 52,035,138
-----------
U.S. TREASURY OBLIGATIONS -- 12.8%
U.S. Treasury Principal Only
Obligation Strips......... 4.86%+ 05/15/03 1,200,000 963,732
U.S. Treasury Principal Only
Obligation Strips......... 5.36%+ 08/15/03 2,750,000 2,183,280
U.S. Treasury Principal Only
Obligation Strips......... 5.44%+ 05/15/07 4,850,000 3,109,529
U.S. Treasury Principal Only
Obligation Strips......... 4.72%+ 05/15/09 2,775,000 1,572,898
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 418
28
<TABLE>
<CAPTION>
MATURITY PRINCIPAL VALUE
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
----------- ---- -------- --------- --------
<S> <C> <C> <C> <C>
U.S. TREASURY OBLIGATIONS -- (CONTINUED)
U.S. Treasury Principal Only
Obligation Strips......... 4.96%+ 02/15/13 $ 500,000 $ 222,025
U.S. Treasury Principal Only
Obligation Strips......... 5.86%+ 02/15/27 800,000 164,384
-----------
Total U.S. Treasury
Obligations (Cost
$8,487,658)................. 8,215,848
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 1.4%
Vendee Mortgage Trust,
Series 1998-1, Class 2,
Interest Only
Obligation................ 0.455% 09/15/27 35,096,514 548,383
Vendee Mortgage Trust,
Series 1998-3, Class 1,
Interest Only
Obligation................ 0.317% 03/15/29 28,316,604 340,684
-----------
Total Collateralized Mortgage
Obligations (Cost
$1,146,130)................. 889,067
-----------
TOTAL INVESTMENTS -- 95.5%
(COST $60,756,826)(a)....... 61,140,053
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 4.5%......... 2,907,387
-----------
NET ASSETS -- 100.0%.......... $64,047,440
===========
</TABLE>
- ---------------
Percentages indicated are based on net assets of $64,047,440.
(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................................. $956,969
Unrealized depreciation................................. (573,742)
--------
Net unrealized appreciation............................. $383,227
========
</TABLE>
* Mortgage-backed pass-through obligations.
+ Effective yield at purchase date.
See Notes to Financial Statements.
<PAGE> 419
29
PACIFIC HORIZON U.S. GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (cost $60,756,826)..... $61,140,053
Cash....................................................... 1,236,703
Interest receivable........................................ 364,516
Receivable for investment securities sold.................. 1,538,496
Receivable for capital shares sold......................... 42,287
Prepaid expenses........................................... 2,283
-----------
Total Assets................................................ 64,324,338
-----------
LIABILITIES:
Dividends payable.......................................... 96,315
Payable for capital shares redeemed........................ 61,156
Investment advisory fees payable........................... 4,119
Administration fees payable................................ 3,447
Shareholder service fees payable........................... 4,985
Distribution fees payable.................................. 660
Custodian and fund accounting fees payable................. 37,087
Other accrued expenses..................................... 69,129
-----------
Total Liabilities........................................... 276,898
-----------
NET ASSETS.................................................. $64,047,440
===========
Net Assets:
A Shares................................................... $62,258,473
K Shares................................................... 1,788,967
-----------
Total....................................................... $64,047,440
===========
Shares Outstanding ($0.001 par value, 200 million shares
authorized):
A Shares................................................... 6,629,463
K Shares................................................... 190,402
-----------
Total....................................................... 6,819,865
===========
NET ASSET VALUE
A Shares -- Net asset value and redemption price per
share.................................................... $9.39
===========
4.75%
Maximum Sales Charge (A Shares)............................
Maximum Offering Price per share (A Shares)
(Net Asset Value of A Shares/(100% -- Maximum Sales
Charge))................................................. $9.86
===========
K Shares -- Net asset value, offering price and redemption
price per share.......................................... $9.40
===========
COMPOSITION OF NET ASSETS:
$ 6,820
Shares of common stock, at par.............................
72,644,208
Additional paid-in capital.................................
(97,790)
Accumulated undistributed net investment loss..............
Accumulated net realized losses on investment (8,889,025)
transactions.............................................
383,227
Net unrealized appreciation on investments.................
-----------
$64,047,440
NET ASSETS, FEBRUARY 28, 1999...............................
===========
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 420
30
PACIFIC HORIZON U.S. GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the year ended February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income........................................... $4,933,344
----------
EXPENSES:
Investment advisory fees.................................. 241,972
Administration fees....................................... 138,271
Shareholder service fees (A Shares)....................... 169,689
Shareholder service fees (K Shares)....................... 3,150
Distribution fees (K Shares).............................. 9,450
Custodian and fund accounting fees........................ 104,205
Transfer agent fees....................................... 172,081
Audit fees................................................ 14,078
Reports to shareholders................................... 44,650
Legal fees................................................ 2,582
Directors fees............................................ 2,451
Other expenses............................................ 24,905
----------
Total Expenses.......................................... 927,484
Less: Fee waivers......................................... (387,066)
----------
Total Net Expenses.......................................... 540,418
----------
NET INVESTMENT INCOME....................................... 4,392,926
----------
NET REALIZED/UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized losses on investment transactions............ (129,411)
Net change in unrealized appreciation on investments...... (776,379)
----------
Net realized/unrealized losses on investments............. (905,790)
----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $3,487,136
==========
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 421
31
PACIFIC HORIZON U.S. GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------
FEBRUARY 28, FEBRUARY 28,
1999 1998
------------ ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income............................... $ 4,392,926 $ 4,644,420
Net realized gains (losses) on investment
transactions...................................... (129,411) 912,695
Net change in unrealized appreciation on
investments....................................... (776,379) 1,017,576
------------ ------------
Change in net assets resulting from operations........ 3,487,136 6,574,691
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
A Shares.......................................... (4,319,019) (4,608,261)
K Shares.......................................... (73,915) (36,159)
Excess of net investment income:
A Shares.......................................... -- (166,337)
K Shares.......................................... -- (1,076)
------------ ------------
Change in net assets from shareholder distributions... (4,392,934) (4,811,833)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued......................... 11,119,287 8,331,747
Dividends reinvested................................ 3,044,497 3,575,522
Cost of shares redeemed............................. (21,231,345) (16,551,786)
------------ ------------
Change in net assets from capital share
transactions........................................ (7,067,561) (4,644,517)
------------ ------------
Change in net assets.................................. (7,973,359) (2,881,659)
NET ASSETS
Beginning of Year................................... 72,020,799 74,902,458
------------ ------------
End of Year (including accumulated undistributed net
investment income (loss) of $(97,790) and $40,670,
respectively)..................................... $ 64,047,440 $ 72,020,799
============ ============
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 422
32
PACIFIC HORIZON FLEXIBLE INCOME FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
RATINGS MATURITY PRINCIPAL VALUE
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- --------
<S> <C> <C> <C> <C> <C>
ASSET BACKED SECURITIES -- 8.6%
Chevy Chase Auto
Receivables Trust,
Series 1998-2, Class
A..................... Aaa/AAA 5.91% 12/15/04 $ 396,451 $ 398,275
Circuit City Credit Card
Master Trust, Series
1995-1, Class A....... Aaa/AAA 6.375% 08/15/05 600,000 606,813
Citibank Credit Card
Master Trust I, Series
1997-6, Class A ZCB... Aaa/AAA 5.04%* 08/15/06 1,500,000 1,088,640
First Chicago Master
Trust II 144A......... Aaa/AAA 5.166% 02/15/02 430,000 431,344
Pemex Finance LTD,
Series 1A, Class A1
144A.................. Aaa/AAA 5.72% 11/15/03 400,000 390,500
UAF Auto Grantor Trust,
Series 1998-A, Class A
144A.................. Aaa/AAA 6.10% 06/15/04 327,319 328,137
-----------
Total Asset Backed
Securities
(Cost $3,194,051)....... 3,243,709
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 11.9%
Asset Securitization
Corp., Series 1997-D5,
Class A1-C............ Aaa/AAA 6.75% 02/14/41 550,000 560,780
Credit Suisse First
Boston Mortgage
Securities Corp.,
Series 1998-C1, Class
A1-B.................. Aaa/AAA 6.48% 05/17/08 700,000 695,796
Criimi Mae CMBS Corp.,
Series 1998-1, Class
A1 144A............... Aaa/AAA 5.697% 10/20/01 477,510 470,198
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 423
33
<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.................. NR/AAA 6.41% 06/10/31 $ 725,000 $ 725,874
First Union-Lehman
Brothers-Bank of
America, Series
1998-C2, Class A2..... Aaa/AAA 6.56% 11/18/08 500,000 505,533
Mortgage Capital
Funding, Inc., Series
1998-MC2, Class A2.... Aaa/NR 6.423% 05/18/08 650,000 651,108
Newcourt Credit Group
144A.................. Baa3/BBB 6.875% 02/16/05 400,000 392,264
Prudential Mortgage
Cap................... Aaa/AAA 11.581% 12/15/13 3,638 3,638
Vendee Mortgage Trust
Co., Series 1998-1,
Class 2, Interest Only
Obligation............ NR/NR 0.455% 09/15/27 17,994,387 276,952
Vendee Mortgage Trust
Co., Series 1998-3,
Class 1, Interest Only
Obligation............ NR/NR 0.317% 09/01/28 18,064,040 218,737
-----------
Total Collateralized
Mortgage Obligations
(Cost $4,634,810)....... 4,500,880
-----------
CORPORATE OBLIGATIONS -- 67.7%
BANKS -- 11.5%
ABN-AMRO Bank NV Sub
Notes, Series B....... Aa3/AA- 7.75% 05/15/23 1,350,000 1,453,955
Banco Latinoamericano
Bank Guaranteed Notes
144A.................. Baa1/BBB 6.59% 10/16/01 375,000 355,781
Capital One Bank Notes.. Baa3/BBB- 7.00% 04/30/01 400,000 401,005
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 424
34
<TABLE>
<CAPTION>
MOODY'S/S&P
RATINGS MATURITY PRINCIPAL VALUE
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- --------
<S> <C> <C> <C> <C> <C>
CORPORATE OBLIGATIONS -- (CONTINUED)
BANKS -- (CONTINUED)
Comerica Bank Sub
Notes................. A2/A- 8.375% 07/15/24 $1,000,000 $ 1,074,420
Midland Bank PLC Sub
Notes................. Aa3/A 7.625% 06/15/06 1,000,000 1,071,489
-----------
4,356,650
-----------
BEVERAGES -- 2.7%
Anheuser-Busch
Companies, Inc.
Debentures............ A1/A+ 7.00% 12/01/25 1,000,000 1,007,755
-----------
BROKERAGE -- 3.3%
Bear Stearns Co. Senior
Notes................. A2/A 6.15% 03/02/04 380,000 376,466
Lehman Brothers Holdings
Co. Senior Notes...... Baa1/A 7.20% 08/15/09 400,000 394,662
Salomon Smith Barney
Holdings Notes........ Aa3/A 6.25% 05/15/03 500,000 496,649
-----------
1,267,777
-----------
CABLE & MEDIA -- 2.5%
Cox Radio Inc., Company
Guaranteed Notes...... Baa2/A- 6.25% 05/15/03 500,000 501,250
Time Warner Pass-
Through, Series
Certificates 144A..... Baa3/BBB 6.10% 12/30/01 450,000 452,250
-----------
953,500
-----------
CHEMICALS -- 1.1%
Praxair, Inc. Notes..... A3/BBB+ 6.75% 03/01/03 400,000 401,822
-----------
COMMERCIAL SERVICES -- 2.5%
News America Inc. Senior
Notes................. Baa3/BBB- 6.625% 01/09/08 530,000 533,839
Service Corp.
International Senior
Notes................. Baa1/BBB+ 6.30% 03/15/03 400,000 399,104
-----------
932,943
-----------
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 425
35
<TABLE>
<CAPTION>
MOODY'S/S&P
RATINGS MATURITY PRINCIPAL VALUE
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- --------
<S> <C> <C> <C> <C> <C>
CORPORATE OBLIGATIONS -- (CONTINUED)
CONTAINERS -- 1.3%
Crown Cork & Seal
Notes................. Baa2/BBB 6.75% 04/15/03 $ 500,000 $ 497,771
-----------
DIVERSIFIED MANUFACTURING -- 3.5%
Allied Signal
Debentures............ NR/A 9.065% 06/01/33 719,000 898,980
Belo (A.H.) Corp. Senior
Notes................. Baa2/BBB- 6.875% 06/01/02 425,000 431,643
-----------
1,330,623
-----------
ENERGY -- 2.1%
PSEG Capital Corp.
Notes................. Baa2/BBB 6.74% 10/23/01 400,000 406,000
Williams Cos, Inc.
Notes................. Baa2/BBB- 6.125% 02/01/01 400,000 399,745
-----------
805,745
-----------
FINANCIAL SERVICES -- 17.9%
Associates Corp. of
North America
Debentures............ Aa3/AA- 6.95% 11/01/18 300,000 309,375
BHP Finance USA Ltd.
Company Guaranteed
Notes................. A3/A- 6.42% 03/01/26 600,000 595,163
Case Credit Corp.
Company Guaranteed
Notes................. Baa1/A- 6.125% 02/15/03 400,000 386,795
Commercial Credit Co.
Notes................. Aa3/A+ 7.875% 02/01/05 1,000,000 1,118,019
Countrywide Funding
Corp. Company
Guaranteed Notes...... A3/A 6.54% 04/14/00 1,000,000 1,006,040
Ford Motor Credit Corp.
Notes................. A1/A 6.55% 09/10/02 700,000 712,969
GMAC Notes.............. A2/A 5.75% 11/10/03 375,000 371,719
Hanson Overseas B.V.
Senior Notes.......... A3/A 7.375% 01/15/03 500,000 519,473
Homeside Lending, Inc.
Senior Notes.......... A1/A+ 6.20% 05/15/03 500,000 491,358
Household Finance Corp.
Senior Unsub. Notes... A2/A 5.875% 02/01/09 300,000 286,875
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 426
36
<TABLE>
<CAPTION>
MOODY'S/S&P
RATINGS MATURITY PRINCIPAL VALUE
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- --------
<S> <C> <C> <C> <C> <C>
CORPORATE OBLIGATIONS -- (CONTINUED)
FINANCIAL SERVICES -- (CONTINUED)
MCN Investment Corp.
Notes................. Baa3/BBB 6.89% 01/16/02 $ 500,000 $ 508,125
USG Corp. Senior Notes,
Series B.............. Baa3/BBB 9.25% 09/15/01 450,000 477,003
-----------
6,782,914
-----------
FOOD & KINDRED PRODUCTS -- 2.6%
James River Corp.
Debentures............ Baa2/BBB- 8.375% 11/15/01 450,000 473,328
Nabisco, Inc. Notes..... Baa2/BBB 6.125% 02/01/03 525,000 507,690
-----------
981,018
-----------
INDUSTRIAL -- 1.0%
Thermo Electron Corp.
Notes................. Baa2/A 7.625% 10/30/08 375,000 359,063
-----------
INSURANCE -- 1.4%
Hartford Life, Inc.
Notes................. A2/A 6.90% 06/15/04 500,000 513,096
-----------
RETAIL STORES -- 3.7%
Penney (JC) Co., Inc.
Notes................. A2/A 6.50% 12/15/07 1,000,000 984,091
Sears Roebuck Acceptance
Corp. Notes........... A2/A- 6.00% 03/20/03 400,000 396,414
-----------
1,380,505
-----------
TELECOMMUNICATIONS -- 2.4%
Cable & Wireless
Communications
Notes................. Baa1/A- 6.375% 03/06/03 400,000 403,000
MCI Worldcom, Inc.
Senior Notes.......... Baa2/BBB+ 6.40% 08/15/05 500,000 506,250
-----------
909,250
-----------
UTILITIES -- 8.2%
Consumers Energy Co.
Bonds................. Baa3/BBB+ 6.20% 05/01/03 500,000 496,250
GTE Corp. Debentures.... Baa1/A 9.10% 06/01/03 500,000 561,641
KN Energy, Inc. Senior
Notes................. Baa2/BBB- 6.45% 03/01/03 375,000 376,927
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 427
37
<TABLE>
<CAPTION>
MOODY'S/S&P
RATINGS MATURITY PRINCIPAL VALUE
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
----------- ----------- ---- -------- --------- --------
<S> <C> <C> <C> <C> <C>
CORPORATE OBLIGATIONS -- (CONTINUED)
UTILITIES -- (CONTINUED)
Pacific Gas & Electric
Notes................. A2/A 7.88% 04/08/14 $1,000,000 $ 1,174,171
US West Capital Funding
Inc. Company
Guaranteed Notes...... A3/A- 6.125% 07/15/02 500,000 505,216
-----------
3,114,205
-----------
Total Corporate
Obligations (Cost
$24,922,639)............ 25,594,637
-----------
U.S. TREASURY OBLIGATIONS -- 10.8%
U.S. Treasury Notes..... 4.25% 11/15/03 400,000 383,642
U.S. Treasury Principal
Only Obligation
Strips................ 4.798%* 05/15/07 1,850,000 1,186,116
U.S. Treasury Principal
Only Obligation
Strips................ 4.995%* 05/15/09 1,450,000 821,886
U.S. Treasury Principal
Only Obligation
Strips................ 5.533%* 11/15/18 50,000 15,506
U.S. Treasury Principal
Only Obligation
Strips................ 6.106%* 05/15/23 2,350,000 571,094
U.S. Treasury Principal
Only Obligation
Strips................ 6.035%* 08/15/23 4,400,000 1,056,025
U.S. Treasury Principal
Only Obligation
Strips................ 5.29%* 02/15/27 200,000 41,097
-----------
Total U.S. Treasury
Obligations (Cost
$4,294,111)............. 4,075,366
-----------
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 428
38
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<S> <C> <C> <C> <C> <C>
SHORT TERM INVESTMENTS -- 1.7%
Temporary Investment Cash Fund........................... 322,914 $ 322,914
Temporary Investment Fund................................ 322,914 322,914
-----------
Total Short Term Investments (Cost $645,828)............... 645,828
-----------
TOTAL INVESTMENTS -- 100.7% (COST $37,691,439)(a).......... 38,060,420
LIABILITIES IN EXCESS OF OTHER ASSETS -- (0.7%)............ (258,203)
-----------
NET ASSETS -- 100.0%....................................... $37,802,217
===========
</TABLE>
- ---------------
Percentages indicated are based on net assets of $37,802,217.
(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............................... $ 884,343
Unrealized depreciation............................... (515,362)
----------
Net unrealized appreciation........................... $ 368,981
==========
</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 year, these securities amounted
to 7.5% of net assets.
NR -- Not Rated.
Interest Only Obligation -- Security pays coupon proceeds based on a notional
principal amount.
ZCB -- Zero Coupon Bond.
PLC -- Public Limited Company.
* Effective yield at purchase date.
See Notes to Financial Statements.
<PAGE> 429
39
PACIFIC HORIZON FLEXIBLE INCOME FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (cost $37,691,439)..... $38,060,420
Interest receivable........................................ 491,385
Receivable for capital shares sold......................... 51,441
Prepaid expenses........................................... 7,400
-----------
Total Assets................................................ 38,610,646
-----------
LIABILITIES:
Payable to bank............................................ 11,769
Dividends payable.......................................... 105,600
Payable for capital shares redeemed........................ 48,953
Payable for investment securities purchased................ 598,703
Shareholder service fees payable........................... 16,952
Custodian and fund accounting fees payable................. 2,290
Transfer agent fees payable................................ 15,521
Legal fees payable......................................... 1,191
Other accrued expenses..................................... 7,450
-----------
Total Liabilities........................................... 808,429
-----------
NET ASSETS.................................................. $37,802,217
===========
Net Assets:
A Shares................................................... $37,182,306
K Shares................................................... 619,911
-----------
Total....................................................... $37,802,217
===========
Shares Outstanding ($0.001 par value, 200 million shares
authorized):
A Shares................................................... 2,299,396
K Shares................................................... 38,298
-----------
Total....................................................... 2,337,694
===========
NET ASSET VALUE
A Shares -- Net asset value and redemption price per
share.................................................... $16.17
===========
4.75%
Maximum Sales Charge (A Shares)............................
Maximum Offering Price per share (A Shares)
(Net Asset Value of A Shares/(100% -- Maximum Sales
Charge))................................................. $16.98
===========
K Shares -- Net asset value, offering price and redemption
price per share.......................................... $16.19
===========
COMPOSITION OF NET ASSETS:
$ 2,338
Shares of common stock, at par.............................
38,334,354
Additional paid-in capital.................................
241
Accumulated undistributed net investment income............
Accumulated net realized losses on investment (903,697)
transactions.............................................
368,981
Net unrealized appreciation on investments.................
-----------
NET ASSETS, FEBRUARY 28, 1999............................... $37,802,217
===========
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 430
40
PACIFIC HORIZON FLEXIBLE INCOME FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the year ended February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income........................................... $ 2,742,406
-----------
EXPENSES:
Advisory fees............................................. 181,943
Administration fees....................................... 80,864
Shareholder service fees (A Shares)....................... 99,959
Shareholder service fees (K Shares)....................... 1,121
Distribution fees (K Shares).............................. 3,361
Custodian and fund accounting fees........................ 43,723
Transfer agent fees....................................... 101,833
Audit fees................................................ 13,966
Legal fees................................................ 1,292
Directors fees............................................ 1,031
Registration and filing fees.............................. 9,598
Reports to shareholders................................... 26,895
Other expenses............................................ 10,344
-----------
Total Expenses.......................................... 575,930
Less: Fee waivers and reimbursements........................ (365,444)
-----------
Total Net Expenses.......................................... 210,486
-----------
NET INVESTMENT INCOME....................................... 2,531,920
-----------
NET REALIZED/UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gains on investment transactions............. 1,258,981
Net change in unrealized appreciation on investments...... (1,729,277)
-----------
Net realized/unrealized losses on investments............. (470,296)
-----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $ 2,061,624
===========
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 431
41
PACIFIC HORIZON FLEXIBLE INCOME FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------
FEBRUARY 28, FEBRUARY 28,
1999 1998
------------ ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income......................... $ 2,531,920 $ 2,240,565
Net realized gains on investment
transactions................................ 1,258,981 233,565
Net change in unrealized appreciation on
investments................................. (1,729,277) 1,251,636
------------ ------------
Change in net assets from operations............ 2,061,624 3,725,766
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
A Shares.................................... (2,506,384) (2,226,390)
K Shares.................................... (25,536) (14,175)
------------ ------------
Change in net assets from shareholder
distributions................................. (2,531,920) (2,240,565)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued................... 17,019,166 14,033,161
Dividends reinvested.......................... 1,040,228 777,336
Cost of shares redeemed....................... (17,204,438) (11,905,633)
------------ ------------
Change in net assets from capital share
transactions.................................. 854,956 2,904,864
------------ ------------
Change in net assets............................ 384,660 4,390,065
NET ASSETS
Beginning of Year............................. 37,417,557 33,027,492
------------ ------------
End of Year (including accumulated
undistributed net investment income of $241
and $0, respectively)....................... $37,802,217 $ 37,417,557
============ ============
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 432
42
PACIFIC HORIZON INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investment in Master Investment Trust, Series
I -- Investment Grade Bond Portfolio, at value........... $97,659,131
Interest receivable........................................ 1,266
Prepaid expenses........................................... 11,662
-----------
Total Assets................................................ 97,672,059
-----------
LIABILITIES:
Dividends payable.......................................... 202,238
Administration fees payable................................ 5,655
Shareholder service fees payable........................... 28,536
Distribution fees.......................................... 480
Reports to shareholders fees payable....................... 28,456
Audit fees payable......................................... 4,900
Legal fees payable......................................... 2,554
Other accrued expenses..................................... 50,798
-----------
Total Liabilities........................................... 323,617
-----------
NET ASSETS.................................................. $97,348,442
===========
Net Assets:
A Shares................................................... $63,403,892
K Shares................................................... 495,086
SRF Shares................................................. 33,449,464
-----------
Total....................................................... $97,348,442
===========
Shares Outstanding ($0.001 par value, and 300 million shares
authorized):
A Shares................................................... 6,660,871
K Shares................................................... 51,643
SRF Shares................................................. 3,107,319
-----------
Total....................................................... 9,819,833
===========
NET ASSET VALUE
A Shares -- Net asset value and redemption price per
share.................................................... $9.52
===========
3.25%
Maximum Sales Charge (A Shares)............................
Maximum Offering Price per share (A Shares) (Net Asset
Value of A Shares/ (100% -- Maximum Sales Charge))....... $9.84
===========
K Shares -- Net asset value, offering price and redemption
price per share.......................................... $9.59
===========
SRF Shares -- Net asset value, offering price and
redemption price per share............................... $10.76
===========
COMPOSITION OF NET ASSETS:
$ 9,820
Shares of common stock, at par.............................
98,586,493
Additional paid-in capital.................................
(86,115)
Distributions in excess of net investment income...........
Accumulated net realized gains on investment 5,922
transactions.............................................
(1,167,678)
Net unrealized depreciation on investments.................
-----------
NET ASSETS, FEBRUARY 28, 1999............................... $97,348,442
===========
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 433
43
PACIFIC HORIZON INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the year ended February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Investment Income from Master Investment Trust, Series I --
Investment Grade Bond Portfolio:
Interest income........................................... $5,370,427
Less Expenses............................................. (314,701)
----------
Net Investment Income from Master Investment Trust, Series
I -- Investment Grade Bond Portfolio...................... 5,055,726
----------
EXPENSES:
Administration fees....................................... 133,058
Shareholder service fees (A Shares)....................... 134,963
Shareholder service fees (K Shares)....................... 1,191
Shareholder service fees (SRF Shares)..................... 85,610
Distribution fees (K Shares).............................. 3,563
Fund accounting fees and expenses......................... 30,000
Reports to shareholders................................... 39,024
Transfer agent fees....................................... 25,977
Registration fees......................................... 10,089
Audit fees................................................ 4,460
Legal fees................................................ 3,244
Other operating expenses.................................. 19,840
----------
Total Expenses.......................................... 491,019
Less: Fee waivers and reimbursements........................ (1,707)
----------
Total Net Expenses.......................................... 489,312
----------
NET INVESTMENT INCOME....................................... 4,566,414
----------
NET REALIZED/UNREALIZED GAINS (LOSSES) ON INVESTMENTS FROM
MASTER INVESTMENT TRUST, SERIES I -- INVESTMENT GRADE BOND
PORTFOLIO
Net realized gains on investment transactions............. 1,017,451
Net change in unrealized depreciation on investments...... (1,825,215)
----------
Net realized/unrealized losses on investments from Master
Investment Trust Series I -- Investment Grade Bond
Portfolio............................................... (807,764)
----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $3,758,650
==========
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE> 434
44
PACIFIC HORIZON INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------
FEBRUARY 28, FEBRUARY 28,
1999 1998
------------ ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income............................. $ 4,566,414 $ 3,224,372
Net realized gains on investment transactions..... 1,017,451 185,294
Net change in unrealized
appreciation/(depreciation) on investments...... (1,825,215) 785,462
----------- -----------
Change in net assets resulting from operation....... 3,758,650 4,195,128
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
A Shares........................................ (2,957,272) (1,917,899)
K Shares........................................ (23,092) (19,507)
SRF Shares...................................... (1,621,803) (1,259,022)(a)
Net realized gains from investment transactions:
A Shares........................................ (772,161) --
K Shares........................................ (5,402) --
SRF Shares...................................... (352,884) --
----------- -----------
Change in net assets from shareholder
distributions..................................... (5,732,614) (3,196,428)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued....................... 42,998,811 68,314,617
Dividends reinvested.............................. 3,051,322 1,826,828
Cost of shares redeemed........................... (24,277,192) (16,859,701)
----------- -----------
Change in net assets from capital share
transactions...................................... 21,772,941 53,281,744
----------- -----------
Change in net assets................................ 19,798,977 54,280,444
NET ASSETS
Beginning of Year................................. 77,549,465 23,269,021
----------- -----------
End of Year (including distributions in excess of
net investment income of $86,115 and
undistributed net investment income of $34,547,
respectively)................................... $97,348,442 $77,549,465
=========== ===========
</TABLE>
- ---------------
(a) Period from June 23, 1997 (inception date) to February 28, 1998.
See Notes to Financial Statements.
<PAGE> 435
45
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 -- ORGANIZATION
Pacific Horizon Funds, Inc. (the "Company"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended (the "Act"), as
an open-end management investment company. At February 28, 1999, 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 (62.1% at February 28, 1999). The financial
statements of the Portfolio, including its portfolio of investments, are
included elsewhere
<PAGE> 436
46
within 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, serves as the Fund's investment adviser
and administrator.
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.
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.
<PAGE> 437
47
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.
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
<PAGE> 438
48
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.
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 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, 1999, the following reclassifications have been made to
increase (decrease) such accounts with offsetting adjustments made to paid-in
<PAGE> 439
49
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................... $(138,452) $ 367,111
Flexible Income Fund.............................. 241 4,144,007
Intermediate Bond Fund............................ (84,909) 96,620
</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, 1999, the U.S. Government Securities Fund and the Flexible
Income Fund had the following net capital loss carryovers:
<TABLE>
<CAPTION>
CAPITAL LOSS
FUND CARRYOVER
------------ ---------
<S> <C> <C>
U.S. Government Securities.......................... $7,138,744 2003
1,663,915 2005
----------
$8,802,659
==========
Flexible Income Fund................................ $ 882,649 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.
During the year ended February 28, 1999, the U.S. Government Securities Fund and
Flexible Income Fund utilized $360,929 and $1,257,745, respectively, of its
available capital loss carryover to offset realized capital gains for Federal
income tax purposes, while capital loss carryovers of $4,144,248 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
U.S. Government Securities Fund has incurred and elected to defer such capital
losses of $86,367 after October 31, 1998.
<PAGE> 440
50
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 year ended February 28, 1999, Bank
of America agreed to waive advisory fees of $190,332 and $181,943 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%, 0.20%
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
year ended February 28, 1999, Bank of America waived $90,049 and $80,864 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 $80,928 of
operating expenses of the Flexible Income Fund.
For the year ended February 28, 1999, PDI advised the Funds that it retained
$3,103, $2,927, and $3,744, from commissions earned on sales of the U.S.
Government Securities Fund, the Flexible Income Fund and the Intermedi-
<PAGE> 441
51
ate Bond Fund's shares, respectively. For the same period, Bank of America and
its affiliates advised the Funds that they retained $1,200, $887, and $585 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 year ended February 28, 1999, the U.S. Government Securities Fund, Flexible
Income Fund, and Intermediate Bond Fund incurred charges of $169,689, $99,959,
and $134,963, respectively, pursuant to the Plan. The Funds were advised that of
these amounts, PDI retained $1,349, $28,899, and $116, from the U.S. Government
Securities Fund, Flexible Income Fund, and Intermediate Bond Fund, respectively,
Bank of America and affiliates retained $58,976, $33,361, and $118,649,
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 year ended February 28, 1999, PDI waived $101,648 and $19,932
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 year ended February 28, 1999, the U.S. Government
Securities Fund, Flexible Income Fund and the Intermediate Bond Fund incurred
charges of $9,450, $3,361 and $3,563, respectively, pursuant to the Distribution
Plan. Under the Administrative Plan, the Funds paid for expenses incurred in
connection with shareholder services provided by PDI and payments to Service
Organizations for the provision of support services with respect to beneficial
owners of K Shares. Under the Administrative Plan, payments for shareholder
services and administrative services may not exceed 0.25% and 0.75%,
respectively, of the average daily net assets of each Fund's K Shares. The total
of all payments under the Distribution Plan and the Administrative Plan may not
exceed, in the aggregate, the annual rate of 1.00% of the average daily net
assets of each Fund's K Shares. For the year ended February 28, 1999, the
<PAGE> 442
52
U.S. Government Securities Fund, Flexible Income Fund and Intermediate Bond Fund
incurred charges of $3,150, $1,121 and $1,191, respectively, pursuant to the
Administrative Plan. For the year ended February 28, 1999, $5,037, $1,777 and
$1,243 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 year ended February 28, 1999, The Intermediate Bond Fund incurred charges of
$85,610, pursuant to the Services Plan, the Fund was advised that of this amount
Bank of America and affiliates retained $85,146. For the same period $464 of
shareholder servicing fees were waived by Bank of America and affiliates.
For the year ended February 28, 1999, PFPC earned $172,081, $101,833, and
$25,977 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 an annual
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
<PAGE> 443
53
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 $635, $793 and $365
for the U.S. Government Securities Fund, Flexible Income Fund and Intermediate
Bond Fund, respectively, for the year ended February 28, 1999. A director who
came into office after March 18, 1998 is ineligible to participate in the
Retirement Plan.
NOTE 5 -- SECURITIES TRANSACTIONS
Purchases and sales of securities, other than short-term obligations, during
the year ended February 28, 1999, were as follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES OTHER SECURITIES
--------------------------- -------------------------
PURCHASES SALES PURCHASES SALES
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
U.S. Government Securities Fund..... $26,849,902 $36,996,090 $ 351,654 $ --
Flexible Income Fund................ 15,913,470 12,804,120 21,598,420 24,041,561
</TABLE>
<PAGE> 444
54
NOTE 6 -- CAPITAL SHARE TRANSACTIONS
Transactions in capital shares for the Funds are summarized below:
U.S. GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------
FEBRUARY 28, 1999 FEBRUARY 28, 1998
------------------ ------------------
SHARES AMOUNT SHARES AMOUNT
------- -------- ------ --------
<S> <C> <C> <C> <C>
A SHARES (000's)
Issued.......................................... 1,030 $ 9,804 838 $ 7,775
Reinvested...................................... 312 2,970 376 3,536
Redeemed........................................ (2,178) (20,734) (1,758) (16,443)
------- -------- ------ --------
Net decrease..................................... (836) $(7,960) (544) $ (5,132)
======= ======== ====== ========
K SHARES (000's)
Issued.......................................... 138 $ 1,315 59 $ 556
Reinvested...................................... 8 74 4 39
Redeemed........................................ (52) (497) (11) (107)
------- -------- ------ --------
Net increase..................................... 94 $ 892 52 $ 488
======= ======== ====== ========
</TABLE>
FLEXIBLE INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------
FEBRUARY 28, 1999 FEBRUARY 28, 1998
------------------- ------------------
SHARES AMOUNT SHARES AMOUNT
------- --------- ------ --------
<S> <C> <C> <C> <C>
A SHARES (000's)
Issued......................................... 1,011 $ 16,621 871 $ 13,949
Reinvested..................................... 61 1,015 47 762
Redeemed....................................... (1,033) (17,099) (735) (11,872)
------- --------- ------ --------
Net increase.................................... 39 $ 537 183 $ 2,839
======= ========= ====== ========
K SHARES (000's)
Issued......................................... 24 $ 398 5 $ 84
Reinvested..................................... 1 26 1 15
Redeemed....................................... (6) (106) (2) (34)
------- --------- ------ --------
Net increase.................................... 19 $ 318 4 $ 65
======= ========= ====== ========
</TABLE>
<PAGE> 445
55
INTERMEDIATE BOND FUND
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------
FEBRUARY 28, 1999 FEBRUARY 28, 1998
------------------- ------------------
SHARES AMOUNT SHARES AMOUNT
------- --------- ------ --------
<S> <C> <C> <C> <C>
A SHARES (000's)
Issued......................................... 3,819 $ 37,589 3,051 $ 29,325
Reinvested..................................... 108 1,049 52 496
Redeemed....................................... (1,588) (15,485) (1,184) (11,407)
------- --------- ------ --------
Net increase.................................... 2,339 $ 23,153 1,919 $ 18,414
======= ========= ====== ========
K SHARES (000's)
Issued......................................... 25 $ 246 34 $ 329
Reinvested..................................... 3 28 2 18
Redeemed....................................... (29) (285) (18) (174)
------- --------- ------ --------
Net increase/(decrease)......................... (1) $ (11) 18 $ 173
======= ========= ====== ========
SRF SHARES (000's)
Issued......................................... 469 $ 5,164 3,617 $ 38,661
Reinvested..................................... 180 1,974 104 1,313
Redeemed....................................... (776) (8,507) (487) (5,279)
------- --------- ------ --------
Net increase/(decrease)......................... (127) $ (1,369) 3,234(a) $ 34,695(a)
======= ========= ====== ========
</TABLE>
- ---------------
(a) Period from June 23, 1997 (inception date) to February 28, 1998.
NOTE 7 -- PROPOSED REORGANIZATIONS
The Board of Directors of Pacific Horizon Funds, Inc. has approved
Agreements and Plans of Reorganization ("Agreements") between Pacific Horizon
Funds, Inc. and Nations Fund Trust, Nations Fund, Inc. and Nations Institutional
Reserves ("Nations Funds"). The Agreement, which is part of a broader
reorganization of Pacific Horizon Funds, Inc. into the Nations family of funds,
provides for the transfer of all of the assets of each of Pacific Horizon U.S.
Government Securities Fund, Pacific Horizon Flexible Income Fund and Pacific
Horizon Intermediate Bond Fund (the "Funds") to the Nations Government
Securities Fund, Nations Diversified Income Fund and the Nations Intermediate
Bond Fund, respectively, in exchange solely for the number of shares of the
Investor A Shares and Investor C Shares of the Nations Government Securities
Fund, Investor A Shares and Investor C Shares of the Nations Diversified Income
Fund and the Investor A Shares, Investor C Shares and Seafirst Shares of the
Nations Intermediate Bond Fund, respectively, having the same aggregate net
asset value as the outstanding shares of Class A and Class K of the Pacific
Horizon U.S. Government Securities Fund and Pacific Horizon Flexible Income
Fund, and Class A, Class K and Class SRF of the Pacific Horizon Intermediate
Bond Fund as of the close of business of the New York Stock Exchange on the day
that the Reorganizations are effective. The Agreements also provide for the
<PAGE> 446
56
assumption by the Nations Government Securities Fund, Nations Diversified Income
Fund and the Nations Intermediate Bond Fund, of all of the liabilities of each
of these respective Funds. The Reorganizations can be consummated only if, among
other things, it is approved by the vote of a majority of the outstanding shares
of the Funds and a majority of the outstanding shares of all the funds of
Pacific Horizon Funds, Inc. A Special Meeting of Shareholders ("Meeting") of
each of the Funds is scheduled to be held on May 3, 1999, to vote on the
Agreements. A detailed description of the proposed transactions and voting
information were sent to shareholders of the Funds on or about February 12,
1999. If the Agreements are approved at the Meeting, the Reorganizations are
expected to become effective on or about May 14, 1999 for the Pacific Horizon
U.S. Government Securities Fund and the Pacific Horizon Flexible Income Fund and
on or about May 21, 1999 for the Pacific Horizon Intermediate Bond Fund.
<PAGE> 447
57
PACIFIC HORIZON U.S. GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1999(b) 1998 1997(a) 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
A SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR................. $ 9.52 $ 9.30 $ 9.43 $ 9.31 $ 9.85
------- ------- ------- ------- --------
Income from Investment Operations:
Net investment income............. 0.60 0.62 0.59 0.61 0.55
Net realized and unrealized gains
(losses) on investment
transactions.................... (0.13) 0.22 (0.12) 0.16 (0.54)
------- ------- ------- ------- --------
Total income from investment
operations........................ 0.47 0.84 0.47 0.77 0.01
------- ------- ------- ------- --------
Less Dividends and Distributions:
Dividends to shareholders from net
investment income............... (0.60) (0.62) (0.59) (0.61) (0.52)
Distributions to shareholders from
net realized gains on investment
transactions.................... -- -- -- (0.01) --
Tax return of capital............. -- -- (0.01) (0.03) (0.03)
------- ------- ------- ------- --------
Total Dividends and
Distributions:.................... (0.60) (0.62) (0.60) (0.65) (0.55)
------- ------- ------- ------- --------
Net change in net asset value per
share............................. (0.13) 0.22 (0.13) 0.12 (0.54)
------- ------- ------- ------- --------
NET ASSET VALUE PER SHARE, END OF
YEAR.............................. $ 9.39 $ 9.52 $ 9.30 $ 9.43 $ 9.31
======= ======= ======= ======= ========
Total return (excludes sales
charge)........................... 5.09% 9.27% 5.23% 8.47% 0.30%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year (000)... $62,258 $71,101 $74,485 $89,491 $ 87,354
Ratio of expenses to average net
assets.......................... 0.77% 0.75% 0.85% 1.15% 1.15%
Ratio of net investment income to
average net assets.............. 6.37% 6.32% 6.11% 6.36% 5.57%
Ratio of expenses to average net
assets*......................... 1.33% 1.26%** 1.25%** 1.26%** (c)
Ratio of net investment income to
average net assets*............. 5.81% 5.81% 5.71% 6.28% (c)
Portfolio turnover rate........... 40% 51% 94% 137% 189%
</TABLE>
- ---------------
* During the year, certain fees were voluntarily reduced and/or reimbursed. If
such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
** During the years ended February 28, 1998 and 1997 and February 29, 1996, the
Portfolio received credits from its custodian for interest earned on
uninvested balances which were used to offset custodian fees and expenses.
If such credits had not occurred, the expense ratios would have been as
indicated. The ratio of net investment income was not affected.
(a) As of July 22, 1996, the Portfolio designated the existing series of shares
as "A" Shares.
(b) On October 1, 1998, BankAmerica Corp., the parent company of the Fund's
Advisor, merged with NationsBank Corporation.
(c) There were no fee waivers or expense reimbursements during the year.
See Notes to Financial Statements.
<PAGE> 448
58
PACIFIC HORIZON U.S. GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------- PERIOD ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1999(b) 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................ 0.53 0.59 0.35
Net realized and unrealized gains
(losses) on investment
transactions....................... (0.10) 0.22 0.08
------ ------ ------
Total income from investment
operations........................... 0.43 0.81 0.43
------ ------ ------
Less dividends to shareholders from net
investment income.................... (0.56) (0.58) (0.35)
------ ------ ------
Net change in net asset value per
share................................ (0.13) 0.23 0.08
------ ------ ------
NET ASSET VALUE PER SHARE, END OF
PERIOD............................... $ 9.40 $ 9.53 $ 9.30
====== ====== ======
Total return........................... 4.63% 8.92% 4.75%(d)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000).... $1,789 $ 920 $ 418
Ratio of expenses to average net
assets............................. 1.28% 1.21% 1.35%(c)
Ratio of net investment income to
average net assets................. 5.85% 5.86% 6.11%(c)
Ratio of expenses to average net
assets*............................ 2.08% 1.99%** 2.06%(c)**
Ratio of net investment income to
average net assets*................ 5.05% 5.08% 5.73%(c)
Portfolio turnover rate................ 40% 51% 94%
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
** During the years ended February 28, 1998 and 1997, the Portfolio received
credits from its custodian for interest earned on uninvested balances which
were used to offset custodian fees and expenses. If such credits had not
occurred, the expense ratios would have been as indicated. The ratio of net
investment income was not affected.
(a) Period from July 22, 1996 (inception date) to February 28, 1997.
(b) On October 1, 1998, BankAmerica Corp., the parent company of the Fund's
Advisor, merged with NationsBank Corporation.
(c) Annualized.
(d) Not annualized.
See Notes to Financial Statements.
<PAGE> 449
59
PACIFIC HORIZON FLEXIBLE INCOME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE
PERIOD
OCTOBER 1,
YEAR ENDED 1994 YEAR
------------------------------------------------------------- THROUGH ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, SEPTEMBER 30,
1999(c) 1998 1997 1996(a) 1995 1994(b)
------------ ------------ ------------ ------------ ------------ -------------
<S> <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
------- ------- ------- ------- ------- -------
Income from Investment
Operations:
Net investment income........ 1.04 0.99 0.93 0.98 0.45 1.58
Net realized and unrealized
gains (losses) on
investment transactions.... (0.25) 0.63 (0.30) 1.11 0.17 (2.06)
------- ------- ------- ------- ------- -------
Total income (loss) from
investment operations........ 0.79 1.62 0.63 2.09 0.62 (0.48)
------- ------- ------- ------- ------- -------
Less Dividends and
Distributions:
Dividends to shareholders
from net investment
income..................... (1.04) (0.99) (0.93) (0.98) (0.45) (1.58)
Distributions to shareholders
from net realized gains on
investment transactions.... -- -- -- (0.05) -- (0.02)
------- ------- ------- ------- ------- -------
Total Dividends and
Distributions................ (1.04) (0.99) (0.93) (1.03) (0.45) (1.60)
------- ------- ------- ------- ------- -------
Net change in net asset value
per share.................... (0.25) 0.63 (0.30) 1.06 0.17 (2.08)
------- ------- ------- ------- ------- -------
NET ASSET VALUE PER SHARE, END
OF PERIOD.................... $ 16.17 $ 16.42 $ 15.79 $ 16.09 $ 15.03 $ 14.86
======= ======= ======= ======= ======= =======
Total return (excludes sales
charge)...................... 4.84% 10.55% 4.13% 14.12% 4.26%(e) (2.29%)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period
(000)...................... $37,182 $37,105 $32,790 $32,387 $31,372 $33,046
Ratio of expenses to average
net assets................. 0.52% 0.85% 1.27% 1.33% 1.04%(d) 0.91%
Ratio of net investment
income to average net
assets..................... 6.27% 6.15% 6.01% 6.12% 7.32%(d) 7.85%
Ratio of expenses to average
net assets*................ 1.42% 1.56% 1.88% 2.23% 1.94%(d) 1.07%
Ratio of net investment
income to average net
assets*.................... 5.37% 5.44% 6.62% 7.02% 8.22%(d) 8.01%
Portfolio turnover rate...... 94% 63% 59% N/A N/A N/A
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
(a) As of July 22, 1996, the Portfolio designated the existing series of shares
as "A" Shares.
(b) Includes the results of operations of Bunker Hill Income Securities, Inc.
and the Fund.
(c) On October 1, 1998, BankAmerica Corp., the parent company of the Fund's
Advisor, merged with NationsBank Corporation.
(d) Annualized.
(e) Not annualized.
See Notes to Financial Statements.
<PAGE> 450
60
PACIFIC HORIZON FLEXIBLE INCOME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------- PERIOD ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1999(b) 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..................... 0.94 0.90 0.53
Net realized and unrealized gains
(losses) on investment transactions... (0.23) 0.62 0.24
------ ------ ------
Total income from investment operations... 0.71 1.52 0.77
------ ------ ------
Less Dividends and Distributions:
Dividends to shareholders from net
investment income..................... (0.94) (0.90) (0.53)
Distributions to shareholders from net
realized gains on investment
transactions.......................... -- -- --
------ ------ ------
Total Dividends and Distributions......... (0.94) (0.90) (0.53)
------ ------ ------
Net change in net asset value per share... (0.23) 0.62 0.24
------ ------ ------
NET ASSET VALUE PER SHARE, END OF
PERIOD.................................. $16.19 $16.42 $15.80
====== ====== ======
Total return.............................. 4.38% 9.88% 5.01%(d)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000)....... $ 620 $ 312 $ 237
Ratio of expenses to average net
assets................................ 0.92% 1.40% 1.64%(c)
Ratio of net investment income to
average net assets.................... 5.88% 5.58% 5.60%(c)
Ratio of expenses to average net
assets*............................... 2.17% 2.30% 2.25%(c)
Ratio of net investment income to
average net assets*................... 4.63% 4.68% 4.99%(c)
Portfolio turnover rate................. 94% 63% 59%
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
(a) Period from July 22, 1996 (inception date) to February 28, 1997.
(b) On October 1, 1998, BankAmerica Corp., the parent company of the Fund's
Advisor, merged with NationsBank Corporation.
(c) Annualized.
(d) Not annualized.
See Notes to Financial Statements.
<PAGE> 451
61
PACIFIC HORIZON INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1999 1998 1997(a) 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
A SHARES
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR................. $ 9.69 $ 9.54 $ 9.75 $ 9.44 $ 9.81
------- ------- ------- ------- ------
Income from Investment Operations:
Net investment income............. 0.50 0.49 0.52 0.59 0.59
Net realized and unrealized gains
(losses) on investment
transactions.................... (0.03) 0.20 (0.15) 0.33 (0.37)
------- ------- ------- ------- ------
Total income gains (losses) from
investment operations............. 0.47 0.69 0.37 0.92 0.22
------- ------- ------- ------- ------
Less Dividends and Distributions:
Dividends to shareholders from net
investment income............... (0.53) (0.51) (0.52) (0.59) (0.59)
Distributions to shareholders from
net realized gains on investment
transactions.................... (0.11) (0.03) (0.06) (0.02) --
------- ------- ------- ------- ------
Total Dividends and
Distributions..................... (0.64) (0.54) (0.58) (0.61) (0.59)
------- ------- ------- ------- ------
Net change in net asset value per
share............................. (0.17) 0.15 (0.21) 0.31 (0.37)
------- ------- ------- ------- ------
NET ASSET VALUE PER SHARE, END OF
YEAR.............................. $ 9.52 $ 9.69 $ 9.54 $ 9.75 $ 9.44
======= ======= ======= ======= ======
Total return (excludes sales
charge)........................... 4.89% 7.40% 3.92% 10.45% 2.27%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year (000)... $63,404 $41,875 $22,937 $13,179 $1,964
Ratio of expenses to average net
assets.......................... 0.90% 0.90% 0.75% 0.27% 0.00%
Ratio of net investment income to
average net assets.............. 5.14% 5.50% 5.45% 6.13% 6.43%
Ratio of expenses to average net
assets*......................... (b) 1.21% 2.26% 5.00% 17.95%
Ratio of net investment income
(loss) to average net assets*... (b) 5.19% 3.94% 1.40% (11.52%)
</TABLE>
- ---------------
* During the year, 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) As of July 22, 1996 the Fund designated the existing series of shares as
"A" shares.
(b) There were no fee waivers or expense reimbursements during the year.
See Notes to Financial Statements.
<PAGE> 452
62
PACIFIC HORIZON INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------- PERIOD ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1999 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................... 0.46 0.44 0.31
Net realized and unrealized gains on
investments........................... -- 0.19 0.07
----- ----- -----
Total income from investment
operations............................ 0.46 0.63 0.38
----- ----- -----
Less Dividends and Distributions:
Dividends to shareholders from net
investment income..................... (0.48) (0.42) (0.31)
Distributions to shareholders from net
realized gains on investments......... (0.11) (0.03) (0.06)
----- ----- -----
Total Dividends and Distributions......... (0.59) (0.45) (0.37)
----- ----- -----
Net change in net asset value per share... (0.13) 0.18 0.01
----- ----- -----
NET ASSET VALUE PER SHARE, END OF
PERIOD.................................. $9.59 $9.72 $9.54
===== ===== =====
Total return.............................. 4.76% 6.80% 3.73%(c)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000)....... $ 495 $ 513 $ 332
Ratio of expenses to average net
assets................................ 1.39% 1.39% 1.43%(b)
Ratio of net investment income to
average net assets.................... 4.67% 4.99% 5.41%(b)
Ratio of expenses to average net
assets*............................... 1.65% 1.73% 2.71%(b)
Ratio of net investment income to
average net assets*................... 4.41% 4.65% 4.13%(b)
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced and expenses
reimbursed. If such voluntary fee reductions and expense reimbursements had
not occurred, the ratios would have been as indicated.
(a) Period from July 22, 1996 (inception date) to February 28, 1997.
(b) Annualized.
(c) Not annualized.
See Notes to Financial Statements.
<PAGE> 453
63
PACIFIC HORIZON INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
FEBRUARY 28, FEBRUARY 28,
1999 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.............................. 0.57 0.40
Net realized and unrealized gains (losses) on
investment transactions.......................... (0.05) 0.13
------- -------
Total income from investment operations.............. 0.52 0.53
------- -------
Less Dividends and Distributions:
Dividends to shareholders from net investment
income........................................... (0.52) (0.38)
Distributions to shareholders from net realized
gains............................................ (0.11) --
------- -------
Total Dividends and Distributions.................... (0.63) (0.38)
------- -------
Net change in net asset value per share.............. (0.11) 0.15
------- -------
NET ASSET VALUE PER SHARE, END OF PERIOD............. $ 10.76 $ 10.87
======= =======
Total Return......................................... 4.88% 4.86%(d)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).................... $33,449 $35,161
Ratio of expenses to average net assets............ 0.90% 0.95%(c)
Ratio of net investment income to average net
assets........................................... 5.16% 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>
- ---------------
* 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) Fee waivers had no effect on the ratios.
(c) Annualized.
(d) Not annualized.
See Notes to Financial Statements.
<PAGE> 454
64
- --------------------------------------------------------------------------------
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Board of Directors
and Shareholders of
Pacific Horizon Funds, Inc.
In our opinion, the accompanying statements of assets and liabilities, including
the portfolios of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Pacific Horizon U.S. Government
Securities Fund, Pacific Horizon Flexible Income Fund (formerly "Pacific Horizon
Corporate Bond Fund") and Pacific Horizon Intermediate Bond Fund (three of the
portfolios constituting Pacific Horizon Funds, Inc., hereafter referred to as
the "Funds") at February 28, 1999, the results of each of their operations for
the year then ended, the changes in each of their net assets for each of the two
years in the period then ended and the financial highlights for each of the
periods presented, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Funds' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
February 28, 1999 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
As explained in Note 7, the Board of Directors of the Pacific Horizon Funds,
Inc. has approved an agreement and plan of reorganization between Pacific
Horizon Funds, Inc. and Nations Fund Trust, Nations Fund, Inc. and Nations
Institutional Reserves. A Special Meeting of Shareholders of the Funds is
scheduled to be held on May 3, 1999 to seek approval of the merger of Pacific
Horizon U.S. Government Securities Fund, Pacific Horizon Flexible Income Fund
and Pacific Horizon Intermediate Bond Fund and the Nations Government Securities
Fund, Nations Diversified Income Fund and the Nations Intermediate Bond Fund,
respectively.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
April 22, 1999
