1933 Act File No. 33-
1940 Act File No. 811-5950
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
MONEY MARKET OBLIGATIONS TRUST
(Exact Name of Registrant as Specified in Charter)
(412) 288-1900
(Area Code and Telephone Number)
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
JOHN W. MCGONIGLE, ESQUIRE
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Copy to:
Matthew G. Maloney, Esquire
Dickstein, Shapiro & Morin, L.L.P.
2101 L. Street, N.W.
Washington, D.C. 20037
(Name and Address of Agent for Service)
It is proposed that this filing will become effective thirty days
after it is filed pursuant to Rule 488.
(Approximate Date of Proposed Public Offering)
Registrant has filed with the Securities and Exchange Commission a
declaration pursuant to Rule 24f-2 under the Investment Company Act of 1940 that
it elects to register an indefinite amount of securities under the Securities
Act of 1933 during the most recent fiscal year ended July 31, 1994. Therefore,
a filing fee will not be submitted because of the Registrant's reliance on Rule
24f-2.
CROSS-REFERENCE SHEET
Pursuant to Item 1(a) of Form N-14 Showing Location in
Prospectus of Information Required by Form N-14
Item of Part A of Form N-14 and Caption Caption or Location in Combined
Proxy Statement and
Prospectus
1. Beginning of Registration Statement
and Outside Front Cover Page
of Combined Proxy Statement
and Prospectus........................ Cross-Reference Sheet; Cover Page
2. Beginning and Outside Back Cover
Page of Combined Proxy Statement
and Prospectus........................ Table of Contents
3. Synopsis Information and Risk Factors. Summary; Comparison of the Funds
4. Information About the Transaction..... Information About the Proposed
Reorganization
5. Information About the Registrant...... Additional Information About MMOT
and Pacific Horizon
6. Information About the Company
Being Acquired........................ Additional Information About MMOT
and Pacific Horizon
7. Voting Information.................... Information Relating to Voting
Matters
8. Interest of Certain Persons
and Experts........................... Not Applicable
9. Additional Information Required
for Reoffering by Persons Deemed
to be Underwriters.................... Not Applicable
Item of Part B of Form N-14 and Caption Caption or Location in Statement
of Additional Information
10. Cover Page .......................... Cover Page
11. Table of Contents ................... Table of Contents
12. Additional Information About the
Registrant.......................... Combined Statement of Additional
Information of Prime Obligations
Fund, dated November 30, 1994
13. Additional Information About the
Company Being Acquired............... Statement of Additional Information
of Prime Value Fund, dated July 1,
1995
14. Financial Statements................. Annual Report of Prime Obligations
Fund; Annual Report of Prime Value
Fund
PRELIMINARY COPY
Prime Value Fund of
Pacific Horizon Funds, Inc.
Dear Shareholder:
A special meeting of the shareholders of the Prime Value Fund of
Pacific Horizon Funds, Inc. (the "Prime Value Fund") has been called for
_______, 1995 at 10:30 a.m., Eastern time. Formal notice of the meeting appears
on the next page, followed by materials regarding the meeting.
As you are aware, many of the shareholders of the Prime Value Fund
are institutional trust clients of BankAmerica Corporation. The Board of
Directors of the Prime Value Fund considered the upcoming sale of BankAmerica
Corporation's institutional trust business and its likely effect on the Prime
Value Fund. After considering the various alternatives available to address
concerns raised by the anticipated loss of the Prime Value Fund's primary market
which would result from such sale, your Board unanimously concluded that the
proposed reorganization of the Prime Value Fund into a parallel portfolio of
Federated Investor's Money Market Obligations Trust, is in the best interests
of the Prime Value Fund and its shareholders. Shareholders will be asked at the
special meeting to consider and vote upon the proposed reorganization. Please
see the enclosed proxy/registration statement for detailed information regarding
the proposed reorganization and a comparison of the funds.
THE BOARD OF DIRECTORS OF THE FUND UNANIMOUSLY RECOMMENDS THAT YOU
VOTE "FOR" THE PROPOSED REORGANIZATION.
In order to avoid delays or resolicitation, please sign and return
the enclosed proxy card.
Sincerely,
Thomas M. Collins
Chairman and President
PRELIMINARY COPY
PACIFIC HORIZON FUNDS, INC.
125 West 55th Street
New York, New York 10019
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
OF THE PRIME VALUE FUND
To be held on ___________, 1995
To the Shareholders of the
Prime Value Fund, an
Investment Portfolio Offered by
Pacific Horizon Funds, Inc.
NOTICE IS HEREBY GIVEN THAT a Special Meeting of Shareholders of the PRIME
VALUE FUND, an investment portfolio offered by Pacific Horizon Funds, Inc.
("Pacific Horizon"), will be held at Pacific Horizon's offices, 125 West 55th
Street, New York, New York 10019 on _____________, 1995 at 10:30 a.m., Eastern
time (the "Meeting"), for the following purposes:
ITEM 1. To approve or disapprove an Agreement and Plan of Reorganization
by and between Pacific Horizon and Money Market Obligations
Trust ("MMOT") and the transactions contemplated thereby,
including (1) the transfer of all of the assets and known
liabilities of Pacific Horizon's Prime Value Fund ("Prime
Value Fund") to MMOT's Prime Obligations Fund ("Prime
Obligations Fund") in exchange for Institutional Shares of the
Prime Obligations Fund which shall thereafter be distributed
by Pacific Horizon to the holders of Pacific Horizon shares
and Horizon shares of the Prime Value Fund; and (2) the
amendment of Pacific Horizon's Charter to cancel all of the
issued and outstanding shares of the Prime Value Fund in
connection with the liquidation of the Prime Value Fund.
ITEM 2. To transact such other business as may properly come before the
Meeting or any adjournment thereof.
Your directors recommend that you vote in favor of Item 1.
The proposed reorganization and related matters are described in the attached
Combined Proxy Statement and Prospectus. A copy of the Agreement and Plan of
Reorganization is attached as Appendix A thereto.
Shareholders of record as of the close of business on ____________, 1995 are
entitled to notice of, and to vote at, the Meeting or any adjournment thereof.
SHAREHOLDERS ARE REQUESTED TO EXECUTE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE THE ACCOMPANYING PROXY CARD, WHICH IS BEING SOLICITED BY THE BOARD OF
DIRECTORS OF PACIFIC HORIZON. THIS IS IMPORTANT TO ENSURE A QUORUM AT THE
MEETING. PROXIES MAY BE REVOKED AT ANY TIME BEFORE THEY ARE EXERCISED BY
SUBMITTING TO PACIFIC HORIZON A WRITTEN NOTICE OF REVOCATION OR A SUBSEQUENTLY
EXECUTED PROXY OR BY ATTENDING THE MEETING AND ELECTING TO VOTE IN PERSON.
By the Order of the
Board of Directors
W. Bruce McConnel, III
Secretary
_________________, 1995
PRELIMINARY COPY
PACIFIC HORIZON FUNDS, INC.
125 West 55th Street, New York, New York 10019
Phone: (800) 332-3863
MONEY MARKET OBLIGATIONS TRUST
Federated Investors Tower
Pittsburgh, Pennsylvania 15222
Phone: (800) 235-4669
COMBINED PROXY STATEMENT AND PROSPECTUS
Dated ____________, 1995
This Combined Proxy Statement and Prospectus is being furnished in connection
with the solicitation of proxies by the Board of Directors of Pacific Horizon
Funds, Inc. ("Pacific Horizon") in connection with the Special Meeting of
Shareholders of the Prime Value Fund (the "Prime Value Fund") to be held at
10:30 a.m. Eastern time on _____________, 1995 (the "Meeting") at Pacific
Horizon's offices, 125 W. 55th Street, New York, New York 10019, at which
shareholders of the Prime Value Fund of Pacific Horizon will be asked to approve
a proposed Agreement and Plan of Reorganization dated as of ____________, 1995
(the "Reorganization Agreement") by and between Pacific Horizon and Money Market
Obligations Trust ("MMOT") and the transactions contemplated thereby (the
"Reorganization").
Pacific Horizon and MMOT are open-end, series type management investment
companies. The Board of Directors of Pacific Horizon, including the non-
interested Directors at the meeting, has determined that it is in the best
interests of Pacific Horizon and the shareholders of the Prime Value Fund to be
reorganized into MMOT's Prime Obligations Fund (the "Prime Obligations Fund").
The Reorganization Agreement provides that all of the assets and known
liabilities of the Prime Value Fund will be transferred to the Prime Obligations
Fund. In exchange for the transfer of these assets, and known liabilities, MMOT
will simultaneously issue a number of full and fractional shares of stock in the
Prime Obligations Fund of its Institutional Shares class (the "Institutional
Shares") equal in number to the number of full and fractional Pacific Horizon
shares and Horizon shares (the "Pacific Horizon Shares" and "Horizon Shares,"
respectively) representing interests in the Prime Value Fund outstanding
immediately prior to the time the Reorganization becomes effective (the
"Effective Time of the Reorganization"), provided that at the Effective Time of
the Reorganization the price per Pacific Horizon Share and Horizon Share of the
Prime Value Fund and the price per Institutional Share of the Prime Obligations
Fund for purposes of sales and redemptions is $1.00 based on the amortized cost
valuation procedures that have been adopted by Pacific Horizon and MMOT.
The Prime Value Fund will then make a liquidating distribution to its
shareholders of the Prime Obligations Fund's Institutional Shares received from
MMOT, so that holders of Pacific Horizon Shares and Horizon Shares of the Prime
Value Fund at the Effective Time of the Reorganization will receive a number of
full and fractional Institutional Shares of the Prime Obligations Fund having a
value equal to the value of the shareholder's shares in the Prime Value Fund
immediately before the Effective Time of the Reorganization. Holders of Pacific
Horizon Shares or Horizon Shares of the Prime Value Fund will receive shares of
the Prime Obligations Fund without the imposition of any fees or other charges.
The Reorganization Agreement further provides that following the liquidation of
the Prime Value Fund all of the issued and outstanding shares of the Prime Value
Fund will be cancelled.
This Combined Proxy Statement and Prospectus sets forth concisely the
information that a shareholder of the Prime Value Fund should know before voting
on the Reorganization Agreement (and the transactions contemplated thereby), and
should be retained for future reference. A Statement of Additional Information
relating to this Combined Proxy Statement and Prospectus dated __________, 1995,
is incorporated herein by reference and is available upon oral or written
request and at no charge from Pacific Horizon at the address or telephone number
shown above. The Reorganization Agreement is attached to this Combined Proxy
Statement and Prospectus as Appendix A and is incorporated herein by reference.
The Prospectus relating to the Institutional Shares of the Prime Obligations
Fund of MMOT dated November 30, 1994, which describes the investment objective,
policies, and operations of the Institutional Shares of the Prime Obligations
Fund, accompanies this Combined Proxy Statement and Prospectus. Additional
information is set forth in the Statement of Additional Information of the Prime
Obligations Fund dated November 30, 1994, in this Combined Proxy Statement and
Prospectus, and in Pacific Horizon's Prospectus and Statement of Additional
Information dated July 1, 1995. Each of these documents is on file with the
Securities and Exchange Commission (the "SEC"), and is available without charge
upon oral or written request by writing or calling Pacific Horizon or MMOT at
the respective addresses or telephone numbers shown above on the cover page of
this Combined Proxy Statement and Prospectus. The information contained in each
of these Prospectuses and Statements of Additional Information is incorporated
herein by reference. Copies of MMOT's and Pacific Horizon's Annual Reports and
MMOT's most recent Semi-Annual Report for the Prime Value Fund and Prime
Obligations Fund are available upon request and without charge to any
shareholder of the Prime Value Fund by writing or calling Pacific Horizon or
MMOT at the respective addresses or telephone numbers indicated above.
This Combined Proxy Statement and Prospectus constitutes the proxy statement
of Pacific Horizon for the Meeting and the Prospectus for Institutional Shares
of MMOT's Prime Obligations Fund, which shares have been registered with the SEC
and are to be issued in connection with the Reorganization.
This Combined Proxy Statement and Prospectus is expected to first be sent to
shareholders of the Prime Value Fund on or about ____________, 1995.
Shareholders of Pacific Horizon may redeem their shares of the Prime Value Fund
at any time prior to the Effective Time of the Reorganization.
Shares of the Prime Value Fund and Prime Obligations Fund (collectively, the
"Funds") are not bank deposits or obligations of, or guaranteed or endorsed by,
Bank of America National Trust and Savings Association or any of its affiliates
and are not federally insured by, guaranteed by, obligations of, or otherwise
supported by the U.S. Government, the Federal Deposit Insurance Corporation, the
Federal Reserve Board, or any other governmental agency. Each Fund seeks to
maintain its net asset value per share at $1.00 for purposes of purchases and
redemptions, although there can be no assurance that it will be able to do so on
a continuous basis. Investments in the Funds involve investment risk, including
the possible loss of principal amount invested.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS COMBINED PROXY STATEMENT AND PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. NO PERSON HAS BEEN
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN
THOSE CONTAINED IN THIS COMBINED PROXY STATEMENT AND PROSPECTUS AND IN THE
MATERIALS EXPRESSLY INCORPORATED HEREIN BY REFERENCE AND, IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY PACIFIC HORIZON OR MMOT.
Pacific Horizon Funds, Inc.
Money Market Obligations Trust
Combined Proxy Statement and Prospectus
Table of Contents
Page
SUMMARY
Proposed Reorganization
Reasons for Reorganization
Federal Income Tax Consequences
Comparison of the Investment Objectives of the Funds
Risk Factors
Comparative Fee Table
Investment Advisers and Advisory Fees
Purchase Procedures
Redemption Procedures
Exchange Procedures
Dividends, Distributions and Pricing
INFORMATION RELATING TO THE PROPOSED REORGANIZATION
Description of the Reorganization Agreement
Board Considerations
Federal Income Tax Consequences.
Capitalization.
Performance
COMPARISON OF THE FUNDS
Investment Objectives and Policies -
Prime Value Fund and Prime Obligations Fund
Fundamental Investment Limitations of the
Prime Value Fund and the Prime Obligations Fund
Other Information
INFORMATION RELATING TO VOTING MATTERS
General Information
Shareholder and Board Approval
Quorum
Appraisal Rights
Principal Shareholders.
ADDITIONAL INFORMATION ABOUT MMOT AND PACIFIC HORIZON
FINANCIAL STATEMENTS AND EXPERTS
OTHER BUSINESS
LITIGATION
NOTICE TO BANKS, BROKER-DEALERS, VOTING DIRECTORS
AND THEIR NOMINEES
SHAREHOLDER INQUIRIES
APPENDIX A - AGREEMENT AND PLAN OF REORGANIZATION
SUMMARY
Proposed Reorganization. Based upon their evaluations of the relevant
information presented to them, and in light of their fiduciary duties under
Federal and state law, Pacific Horizon's Board of Directors and MMOT's Board of
Trustees, including all of the non-interested members of each Board present at
the meetings, have determined that the proposed Reorganization is in the best
interests of the shareholders of Pacific Horizon and MMOT, respectively.
Pacific Horizon's Board recommends the approval of the Reorganization Agreement
by the shareholders of the Prime Value Fund at the Meeting.
Subject to shareholder approval, the Reorganization Agreement provides for:
(a) the acquisition by the Prime Obligations Fund of all of the assets, and the
assumption by the Prime Obligations Fund of the known liabilities of the Prime
Value Fund in exchange for Institutional Shares of the Prime Obligations Fund;
(b) the distribution of the Institutional Shares of the Prime Obligations Fund
to the holders of Pacific Horizon Shares and Horizon Shares in liquidation of
the Prime Value Fund; and (c) the amendment of Pacific Horizon's Charter to
cancel all of the issued and outstanding shares of the Prime Value Fund.
As a result of the proposed Reorganization, each holder of Pacific Horizon
Shares and Horizon Shares of the Prime Value Fund will become a holder of
Institutional Shares of the Prime Obligations Fund and will hold, immediately
after the Effective Time of the Reorganization, the same number of Institutional
Shares of the Prime Obligations Fund as the number of Pacific Horizon Shares and
Horizon Shares the shareholder held in the Prime Value Fund immediately before
the Effective Time of the Reorganization.
See "Information Relating to the Proposed Reorganization -- Description of
the Reorganization Agreement" for further information.
Reasons for Reorganization. In light of certain potential benefits and other
factors, the Board of Directors of Pacific Horizon, including the non-interested
Directors, has determined that it is in the best interests of Pacific Horizon,
and of the Prime Value Fund's shareholders, to reorganize into the Prime
Obligations Fund of MMOT. The Board of Directors considered, among other
things, as described more fully below under "Information Relating to the
Proposed Reorganization -- Board Considerations," the similarity of the
investment objectives and policies of the Prime Value Fund with those of the
Prime Obligations Fund, the relative performance and expense ratios, and
the tax-free nature of the exchange, as well as the fact that all expenses
of the
Reorganization would be borne by Bank of America National Trust and Savings
Association ("Bank of America").
Similarly, the Board of Directors of MMOT, in approving the Reorganization,
determined that it would be advantageous for MMOT, and specifically for the
Prime Obligations Fund and its shareholders, to acquire the assets and
liabilities of the Prime Value Fund.
Federal Income Tax Consequences. As a condition to the Reorganization,
Pacific Horizon and MMOT will receive an opinion of counsel that the
Reorganization will be considered a tax-free "reorganization" under applicable
provisions of the Internal Revenue Code so that no gain or loss will be
recognized by either Pacific Horizon or MMOT or their shareholders. The tax
cost basis of the Institutional Shares of Prime Obligations Fund received by
Pacific Horizon shareholders will be the same as the tax cost basis of their
shares in the Pacific Horizon Shares and Horizon Shares.
Comparison of the Investment Objectives of the Funds. The investment
objectives of Prime Value Fund and Prime Obligations Fund are similar and are
each described in the Pacific Horizon and MMOT Prospectuses dated July 1, 1995,
and November 30, 1994, respectively. The Prime Value Fund and Prime Obligations
Fund are each a money market fund that seeks to maintain a net asset value of
$1.00 per share. There can be no guarantee that the Funds will achieve their
objective or that they will maintain a net asset value of $1.00 per share.
Risk Factors. Because of the similarities of the investment objectives
and policies between the Prime Value Fund and Prime Obligations Fund, an
investment in either the Prime Value Fund or the Prime Obligations Fund involves
investment risks that are similar but different in certain respects. Investment
risks involved in investing in the Prime Value Fund and the Prime Obligations
Fund, in general, are those typically associated with investing in a portfolio
of money market instruments.
Comparative Fee Table. The following table sets forth: (i) the current
fees and expenses of the Pacific Horizon Shares and Horizon Shares of the Prime
Value Fund as of February 28, 1995, as restated for the Pacific Horizon Shares
to reflect current fees; and (ii) the fees and expenses of the Institutional
Shares of the Prime Obligations Fund based on expenses expected during the
fiscal year ended July 31, 1995. Hypothetical examples based on the table are
shown following the table.
Comparative Fee Table
<TABLE>
<CAPTION>
Prime Value Estimated Prime
Fund Prime Value Obligations Fund
Pacific Horizon Fund Institutional
Shares Horizon Shares Shares
<S> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average
daily net assets)
Management Fees (after waivers) 0.04%(1) 0.04%(2) 0.07%(3)
All Other Expenses (after 0.15%(1) 0.15%(2) 0.13%(3)
waivers)
Shareholder Services Fee 0.00%(1) ---%(2) ---%(3)
(after waivers)
Other Expenses 0.15%(1) 0.15%(2) 0.13%(3)
Total Fund Operating Expenses 0.19%(1) 0.19%(2) 0.20%(3)
(after waivers)
__________________________
(1) Management Fees consist of an investment advisory fee and an
administration fee, each fee payable at a maximum annual rate of 0.10% of
the Prime Value Fund's net assets, and a special management services fee
payable at the annual rate of 0.32% of the Prime Value Fund's average net
assets. The investment adviser and administrator may voluntarily waive a
portion of their respective fees and may voluntarily reimburse expenses
from time to time. This voluntary waiver and reimbursement may be
modified or terminated at any time. Absent such fee waivers and/or
expense reimbursements, it is estimated that the total operating expenses
for Pacific Horizon Shares of the Prime Value Fund would be 0.66%.
(2) Management Fees consist of an investment advisory fee and an
administration fee, each payable at a maximum annual rate of 0.10% of the
Prime Value Fund's net assets. The investment adviser and administrator
may voluntarily waive a portion of their respective fees and may
voluntarily reimburse expenses from time to time. This voluntary waiver
and reimbursement may be modified or terminated at any time. Absent such
waivers and/or reimbursements, it is estimated that the total operating
expenses of the Horizon Shares of the Prime Value Fund would be 0.34%.
(3) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The investment adviser can terminate this
voluntary waiver at any time at its sole discretion. The maximum
management fee is 0.20% and the maximum shareholder services fee is 0.25%.
The Total Institutional Shares Operating Expenses in the table above are
based on expenses expected during the fiscal year ending July 31, 1995.
The Total Institutional Shares Operating Expenses were 0.20% for the
fiscal year ended July 31, 1994, and would have been 0.33% absent the
voluntary waiver of a portion of the management fee. Absent the Prime
Value Fund, the total Institutional Shares Operating Expenses would have
been 0.34% absent the voluntary waiver of a portion of the management fee.
______________________________
Example: The following table illustrates the expenses on a $1,000 investment
based on the fees and expenses stated in the above Comparative Fee
Table, assuming (1) a 5% annual return and (2) redemption at the end
of each time period.
1 Year 3 Years 5 Years 10 Years
Prime Value Fund
(Pacific Horizon Shares) $2 $6 $11 $24
Prime Value Fund
(Horizon Shares) $2 $6 $11 $24
Estimated/Existing
Prime Obligations Fund
(Institutional Shares) $2 $6 $11 $26
The purpose of the Example and Table is to assist investors in
understanding the various costs and expenses of investing in shares of the
Funds. The example above should not be considered a representation of past or
future expenses of the Funds. Actual expenses in the Example and Table may vary
from year to year and may be higher or lower than those shown above.
Investment Advisers and Advisory Fees. Bank of America, 555 California
Street, San Francisco, California 94104, serves as investment adviser to the
Prime Value Fund. Bank of America is a subsidiary of BankAmerica Corporation, a
registered bank holding company. Federated Management, Federated Investors
Tower, Pittsburgh, Pennsylvania 15222, serves as investment adviser to the Prime
Obligations Fund. Federated Management ("Federated"), a Delaware business
trust, is a registered investment adviser under the Investment Advisers Act of
1940.
For investment advisory services rendered to the Prime Value Fund, Bank of
America is entitled to receive a fee accrued daily and paid monthly, at the
following annual rates: 0.10% of the first $7 billion of the Prime Value Fund's
net assets, plus 0.09% of the next $3 billion of the Prime Value Fund's net
assets, plus 0.08% of the Prime Value Fund's net assets over $10 billion.
For investment advisory services rendered to the Prime Obligations Fund,
Federated Management is entitled to receive a fee equal to 0.20 of 1% of the
Prime Obligations Fund's average daily net assets.
Purchase Procedures. Pacific Horizon Shares and Horizon Shares of the
Prime Value Fund are sold without a sales charge. Pacific Horizon Shares of the
Prime Value Fund may be purchased directly by mail or by wire from Pacific
Horizon's distributor, by clients of Bank of America through their qualified
trust and agency accounts or by clients of certain institutions such as banks or
broker-dealers ("Service Organizations") without a charge imposed by the Prime
Value Fund, although Bank of America and Service Organizations may charge a fee
for providing administrative services in connection with investments in shares
of the Prime Value Fund. The minimum initial investment in Pacific Horizon
Shares of the Prime Value Fund is $500, except for purchases through Bank of
America's trust and agency accounts or through a Service Organization whose
clients have made aggregate minimum purchases of $1,000,000, in which event the
minimum initial investment is $100. The minimum subsequent investment in
Pacific Horizon Shares of the Prime Value Fund is $50, except for investments
arising from automatic investment transactions on behalf of Bank of America's
trust and agency accounts, as to which there is no minimum. Horizon Shares of
the Prime Value Fund may be ordered directly through Pacific Horizon's transfer
agents or through broker-dealers. The minimum initial investment requirement
for Horizon Shares of the Prime Value Fund is $500,000, and there is no minimum
subsequent investment requirement. Payment for shares may be made only in
federal funds or other funds immediately available to the transfer agents.
Purchase orders for Pacific Horizon Shares of the Prime Value Fund which
are in proper form are effected on a day on which both the Prime Value Fund's
custodian and the New York Stock Exchange (the "Exchange") are open for business
(a "PH Business Day") at the net asset value per share next determined after
receipt by Pacific Horizon's transfer agent at its Kansas City office of both an
order and federal funds. Purchases of Pacific Horizon Shares will not be
effected until payments made in other than federal funds are converted to
federal funds, which is ordinarily within two PH Business Days of receipt.
Purchase orders for Pacific Horizon Shares effected through automatic investment
transactions on behalf of Bank of America's trust and agency accounts that are
received by Bank of America before 12:00 noon Pacific Time are effected as of
4:00 p.m. Eastern Time on the same day. Orders for Horizon Shares received by
Pacific Horizon's transfer agent before 12:00 noon Eastern time on a PH Business
Day will be executed at such time on that day if payment is received by 4:00
p.m. Eastern time on such PH Business Day. Orders for Horizon Shares of the
Prime Value Fund received after 12:00 noon Pacific time on a PH Business Day,
and orders for which payment has not been received by 4:00 p.m. Eastern time,
will not be accepted.
Institutional Shares of the Prime Obligations Fund are also sold without a
sales charge and may be purchased by wire or by mail to Federated Services
Company. The minimum initial investment for Institutional Shares of the Prime
Obligations Fund is $25,000. Eligibility for investment in the Prime Obligations
Fund is contingent upon an investor accumulating and maintaining a minimum
aggregate investment of $200,000,000 in those mutual funds which are distributed
by Federated Securities Corp. or are advised by or administered by investment
advisers or administrators affiliated with Federal Securities Corp. ("Federated
Funds"). Prime Value Fund shareholders who become shareholders of the Prime
Obligations Fund as a result of the Reorganization will be exempt from the
$200,000,000 investment eligibility requirement.
Federal Reserve wire orders for Institutional Shares of the Prime
Obligations Fund must be received before 3:00 p.m. Eastern time. Orders by wire
for Institutional Shares are considered received immediately. Payment for
Institutional Shares by federal funds must be received before 3:00 p.m. Eastern
time that day. Mail orders for Institutional Shares are considered received
when payment by check is converted into federal funds, which is normally the
next business day after the check is received.
Redemption Procedures. Shareholders of Pacific Horizon Shares and Horizon
Shares of the Prime Value Fund may redeem all or any part of the value of their
accounts. Shareholders of Pacific Horizon Shares may redeem their shares by
written request, by TeleTrade or by wire. Shareholders of Horizon Shares may
redeem their shares by telephone or by terminal access. Redemptions of Pacific
Horizon Shares and Horizon Shares are effected at the net asset value per share
next determined after receipt of the redemption request by the transfer agent
(or transfer agents with respect to Horizon Shares). Proceeds for Pacific
Horizon Shares redeemed by teletrade ordinarily will be on deposit in the
shareholder's account at a domestic financial institution which is an Automated
Clearing House member bank two PH Business Days after receipt of the redemption
request, unless the shareholder has requested redemption proceeds be sent by
check. A check for redemption proceeds will be sent only to the registered
owner(s) and only to the address of record. Proceeds for Pacific Horizon Shares
redeemed by wire normally will be wired in federal funds to the commercial bank
specified by the shareholder on his account application. Wire redemption
proceeds must be in an amount of at least $1,000.
The Prime Value Fund will make payment for all Pacific Horizon Shares
redeemed after receipt by the transfer agent of a request in proper form, except
as provided by the rules of the SEC. If the Pacific Horizon Shares to be
redeemed have been purchased by check or TeleTrade, Pacific Horizon will, upon
clearance of the purchase check or TeleTrade payment, mail the redemption
proceeds within seven PH Business Days. Where redemption is requested other
than by mail, Pacific Horizon Shares purchased by check or by TeleTrade will not
be redeemed for a period of seven PH Business Days after their purchase. This
procedure does not apply to situations where the Prime Value Fund receives
payment in cash or immediately available funds for the purchase of Pacific
Horizon Shares. During the period prior to the time the Pacific Horizon Shares
are redeemed, dividends on such shares will accrue and be payable, and a
shareholder will be entitled to exercise all other rights of beneficial
ownership. Payment for redeemed Horizon Shares for which a redemption order is
received by the transfer agents before 12:00 noon Eastern time on a PH Business
Day is normally made in federal funds wired to the redeeming shareholder's
account on the same PH Business Day. Payment for redeemed Horizon Shares for
which a redemption order is received by the transfer agents after 12:00 noon
Eastern time on a PH Business Day is normally made is federal funds wired to the
redeeming shareholder's account on the next PH Business Day following
redemption. Pacific Horizon Shares and Horizon Shares for which certificates
have been issued may not be redeemed unless the certificates have been submitted
to the transfer agents and endorsed for transfer. The Prime Value Fund reserves
the right to redeem Pacific Horizon Shares and Horizon Shares in any account at
their net asset value if the value of the account as a result of redemptions is
less than $500 and $500,000, respectively.
Shareholders of the Prime Obligations Fund may redeem all or any part of
the value of their accounts. Redemption may be requested by mail or by
telephone and are effected at the net asset value next determined after receipt
of the redemption request by the Prime Obligations Fund. A check for the
proceeds of redeemed shares is normally mailed within one business day, but in
no event more than seven days, after receipt of a properly written redemption
request. If a redemption request by telephone is received before 3:00 p.m.
Eastern time, the proceeds will be wired the same day to the shareholder's bank
account at a domestic commercial bank which is a member of the Federal Reserve
System, and those shares redeemed will not be entitled to that day's dividend.
A daily dividend will be paid on shares redeemed if the redemption request is
received after 3:00 p.m. Eastern time, but the proceeds will not be wired until
the following business day. The Prime Obligations Fund may redeem shares in any
account and pay the proceeds to the shareholder if the account balance falls
below a required minimum value of $25,000, or the aggregate investment in
Federated Funds falls below the required minimum of $200,000,000 to be
maintained from and after twelve months from account opening (which Prime Value
Fund shareholders will be exempted from), due to shareholder redemptions.
Exchange Procedures. Shareholders of Pacific Horizon Shares may exchange
those shares for like Shares of another fund of Pacific Horizon, or like shares
of any investment portfolio of Time Horizon Funds (an open-end investment
company managed by an affiliate of Bank of America) after it has commenced
operations provided that such other shares may be legally sold in the state of
the investor's residence. When Prime Value Fund shares are exchanged for shares
of another portfolio in Pacific Horizon which are sold with a sales load, the
applicable sales load, if any, will be deducted. The Pacific Horizon shares
that are exchanged must have a current value of at least $500 and, in
establishing a new account through use of an exchange, the shares being
exchanged must have a value at least equal to the minimum initial investment
required by the particular portfolio in which the exchange is being made.
Pacific Horizon reserves the right to reject any exchange request and the
exchange privilege may be modified or terminated at any time. At least 60 days'
notice will be given to shareholders of any material modification or termination
except where notice is not required under the regulations of the SEC. Horizon
Shares of the Prime Value Fund and Institutional Shares of the Prime Obligations
Fund do not have an exchange privilege.
Dividends, Distributions and Pricing. Dividends on Pacific Horizon Shares
and Horizon Shares of the Prime Value Fund and Institutional Shares of the Prime
Obligations Fund are declared daily and paid monthly. Pacific Horizon Shares
and Horizon Shares of the Prime Value Fund begin accruing dividends on the day
the purchase order is executed and continue to accrue dividends through and
including the day before the redemption order for the shares is executed.
Institutional Shares of the Prime Obligations Fund purchased by wire before 3:00
p.m. Eastern time begin accruing dividends that day. Institutional Shares of
the Prime Obligations Fund purchased by check begin earning dividends the day
after the check is converted into federal funds. Except as noted in "Redemption
Procedures," dividends are paid up to and including the day that a redemption
request is processed.
Although the Prime Obligations Fund and the Prime Value Fund do not expect
to realize net long-term capital gains, any such capital gains as may be
realized will be distributed no more than twice a year (after reduction for any
available loss carry-forwards with respect to the Prime Value Fund.) The
treatment of dividends and capital gains distributions received by shareholders
of Institutional Shares of the Prime Obligations Fund and by shareholders of
Pacific Horizon Shares or Horizon Shares of the Prime Value Fund is, for federal
income tax purposes, substantially the same. See also "Federal Income Tax
Consequences" below.
The Prime Value Fund and the Prime Obligations Fund each use the amortized
cost method of valuing its shares and each anticipates that its net asset value
per share for purchase and redemption purposes will remain constant at $1.00 per
share, although there can be no assurance that any Fund will be able to do so on
a continuous basis.
INFORMATION RELATING TO THE PROPOSED REORGANIZATION
The terms and conditions under which the Reorganization may be consummated
are set forth in the Reorganization Agreement. Significant provisions of the
Reorganization Agreement are summarized below; however, this summary is
qualified in its entirety by reference to the Reorganization Agreement, a copy
of which is attached as Appendix A to this Combined Proxy Statement and
Prospectus and which is incorporated herein by reference.
Description of the Reorganization Agreement. The Reorganization Agreement
provides that at the Effective Time of the Reorganization, the assets and known
liabilities of the Prime Value Fund will be transferred to and assumed by the
Prime Obligations Fund. In exchange for the transfer of the assets of, and the
assumption of the known liabilities of the Prime Value Fund, MMOT will issue at
the Effective Time of the Reorganization full and fractional Institutional
Shares of the Prime Obligations Fund equal in number to the number of full and
fractional Pacific Horizon Shares and Horizon Shares of the Prime Value Fund, as
determined at the Valuation Time (as defined below) specified in the
Reorganization Agreement. The Reorganization Agreement provides that the Prime
Value Fund will declare a dividend or dividends prior to the Effective Time of
the Reorganization which, together with all previous dividends, will have the
effect of distributing to the shareholders of the Prime Value Fund all
undistributed net investment income earned and net capital gains realized up to
and including the Effective Time of the Reorganization.
Following the transfer of assets to, and the assumption of the known
liabilities of the Prime Value Fund by the Prime Obligations Fund, Pacific
Horizon will distribute the Institutional Shares of the Prime Obligations Fund
received from MMOT to the holders of Pacific Horizon Shares and Horizon Shares
of the Prime Value Fund in liquidation of the Prime Value Fund. Each holder of
Pacific Horizon Shares and Horizon Shares of the Prime Value Fund at the
Effective Time of the Reorganization will receive an amount of Institutional
Shares of equivalent net asset value, plus the right to receive any dividends or
distributions which were declared before the Effective Time of the
Reorganization but that remained unpaid at that time with respect to the Pacific
Horizon Shares and Horizon Shares of the Prime Value Fund. Following the
liquidation of the Prime Value Fund, the outstanding Pacific Horizon Shares and
Horizon Shares of the Prime Value Fund (designated, respectively, Class P and
Class P, Special Series 2 Common Stock in Pacific Horizon's charter) will be
cancelled on the books of Pacific Horizon and become unissued shares. Articles
of Amendment further effecting the cancellation will be filed thereafter with
the Maryland State Department of Assessments and Taxation.
The stock transfer books of the Prime Value Fund will be permanently
closed at the Effective Time of the Reorganization. If any shares of the Prime
Value Fund are represented by a share certificate, the certificate must be
surrendered to MMOT's transfer agent for cancellation, or verification of such
share certificate's loss and indemnification with respect to such loss must be
established, before the Prime Obligations Fund shares issued to the shareholder
in the Reorganization can be redeemed.
Pursuant to the Reorganization Agreement, if the per share net asset value
of Pacific Horizon Shares or Horizon Shares of the Prime Value Fund exceeds the
per share net asset value of Institutional Shares of the Prime Obligations Fund
at 4:00 p.m., Eastern time, on ___________, 1995, or such earlier or later date
and time as may be mutually agreed by the President or Vice President of each of
Pacific Horizon and MMOT (the "Valuation Time") by $0.0010 or more as computed
by using the market values of a portfolio's assets, Pacific Horizon's Board of
Directors will have the right to postpone the Valuation Time and the Effective
Time of the Reorganization with respect to such portfolios until such time as
the per share difference is less than $0.0010.
Likewise, the Reorganization Agreement provides that if the per share net
asset value of Institutional Shares of the Prime Obligations Fund exceeds the
per share net asset value of Pacific Horizon Shares or Horizon Shares of the
Prime Value Fund by $0.0010 or more on the same date and time, MMOT's Board of
Trustees will have the right to postpone the Valuation Time and the Effective
Time of the Reorganization until such time as the per share difference is less
than $0.0010.
The Reorganization with respect to the Prime Value Fund is subject to a
number of conditions, including approval of the Reorganization Agreement and the
transactions contemplated thereby described in this Combined Proxy Statement and
Prospectus by the shareholders of Pacific Horizon; the receipt of certain legal
opinions described in Sections 9(d), 9(e), 10(c) and 10(d) of the Reorganization
Agreement (which include an opinion of counsel to MMOT that the shares of the
Prime Obligations Fund issued to shareholders of the Prime Value Fund in
accordance with the terms of the Reorganization Agreement will be validly
issued, fully paid and non-assessable); that at the Effective Time of the
Reorganization the number of Prime Value Fund shares outstanding is at least 60%
of the number of Prime Value Fund shares outstanding on May 30, 1995; the
receipt of certain certificates from the parties concerning the continuing
accuracy of the representations and warranties in the Reorganization Agreement
and other matters; and the parties' performance in all material respects of
their respective agreements and undertakings in the Reorganization Agreement.
Assuming satisfaction of the conditions in the Reorganization Agreement, the
Effective Time of the Reorganization will be on __________, 1995 or such other
date as is agreed to by the parties.
The Reorganization Agreement provides that Bank of America shall be
responsible for the payment of the expenses incurred by Pacific Horizon and MMOT
in connection with the Reorganization Agreement and the transactions
contemplated thereby.
The Reorganization Agreement and the Reorganization described herein may
be abandoned at any time prior to the Effective Time of the Reorganization by
the mutual consent of the parties to the Reorganization Agreement. The
Reorganization Agreement provides further that at any time prior to or (to the
fullest extent permitted by law) after approval of the Reorganization Agreement
by the shareholders of the Prime Value Fund (a) the parties thereto may, by
written agreement authorized by their respective Boards, and with or without the
approval of their respective shareholders, amend any of the provisions of the
Reorganization Agreement and (b) any party may waive any breach by the other
party for the failure to satisfy any of the conditions to its obligations (such
waiver to be in writing and authorized by the President or Vice President of the
waiving party with or without the approval of such party's shareholders).
Board Considerations. Based upon its evaluations of the information
presented to it, and in light of its fiduciary duties under Federal and state
law, the Board of Directors of Pacific Horizon at a meeting held on May 25,
1995, has determined that the proposed Reorganization is in the best interests
of the shareholders of the Prime Value Fund, and recommends the approval of the
Reorganization Agreement by such shareholders at the Meeting. The following is
a summary of the information that was presented to, and considered by, the Board
of Directors in making its determination.
At the meeting, representatives of Bank of America stated that the Prime
Value Fund as an investment product had not developed as expected and is not
likely to develop further, particularly because BankAmerica Corporation intends
to sell the business which is the Prime Value Fund's target market. However,
the Prime Obligations Fund had substantially greater assets ($____ billion as of
__________, 1995 versus $____ million for the Prime Value Fund as of __________,
1995). The Board was advised that management believed that the proposed
Reorganization would benefit the Prime Value Fund and its shareholders. These
benefits included: greater portfolio trading efficiencies, such as quantity
discounts, better securities execution, reduced portfolio volatility resulting
from shareholder purchase and redemption activity, an initial higher mark-to-
market net asset value per share, and potentially broader portfolio
diversification.
The Board of Directors reviewed the terms of the proposed Reorganization
and also considered the compatibility of the investment objectives, policies and
restrictions of the Funds. The Directors also considered the federal tax
consequences of the Reorganization. In addition, the Board of Directors
reviewed the expected costs of the Reorganization, and the fact that all
expenses of the Reorganization would be borne by Bank of America.
The Board reviewed the Prime Obligations Fund's service providers,
including without limitation, the Prime Obligations Fund's investment adviser,
administrator, custodian and transfer agent. The Board also reviewed the
relative performance and expense ratios of the Prime Obligations Fund.
Based upon their evaluation of the relevant information presented to them,
and in light of their fiduciary duties under Federal and state law, Pacific
Horizon's Board of Directors determined that the proposed Reorganization was in
the best interests of Pacific Horizon and the Prime Value Fund and its
shareholders and recommended the approval of the Reorganization Agreement by the
Prime Value Fund's shareholders at the Meeting.
Similarly, at a meeting held on _________, 1995, the Board of Trustees of
MMOT considered the proposed Reorganization with respect to the Prime
Obligations Fund. Based upon its evaluation of the relevant information
provided to it, and in light of its fiduciary duties under Federal and state
law, the Board of Trustees determined that the proposed Reorganization was in
the best interests of the Prime Obligations Fund and its shareholders.
Among the matters considered by the Board of Trustees was the
agreement of Federated Management assuring that at the Effective Time of the
Reorganization, the mark-to-market net asset value of Pacific Horizon Shares and
Horizon Shares of the Prime Value Fund shall be comparable to that of
Institutional Shares of Prime Obligations Fund.
Federal Income Tax Consequences. Consummation of the Reorganization is
subject to the condition that Pacific Horizon and MMOT receive an opinion from
Drinker Biddle & Reath to the effect that for Federal income tax purposes (i)
the transfer of all of the assets and liabilities of the Prime Value Fund to the
Prime Obligations Fund in exchange for Institutional Shares of the Prime
Obligations Fund and the liquidating distributions to holders of Pacific Horizon
Shares and Horizon Shares of the Prime Value Fund of the Institutional Shares of
the Prime Obligations Fund so received, as described in the Reorganization
Agreement, will constitute reorganizations within the meaning of Section
368(a)(1)(C) or Section 368(a)(1)(D) of the Internal Revenue Code of 1986, as
amended, and with respect to the Reorganization, the Prime Value Fund and the
Prime Obligations Fund will each be considered "a party to a reorganization"
within the meaning of 368(b) of the Code; (ii) no gain or loss will be
recognized by the Prime Value Fund as a result of such transactions; (iii) no
gain or loss will be recognized by the Prime Obligations Fund as a result of
such transactions; (iv) no gain or loss will be recognized by the holders of
Pacific Horizon Shares and Horizon Shares of the Prime Value Fund on the
distribution to such holders of Institutional Shares of the Prime Obligations
Fund in exchange for their shares of the Prime Value Fund; (v) the basis of the
Prime Obligations Fund shares received by a shareholder of the Prime Value Fund
will be the same as the basis of the shareholder's Prime Value Fund shares
immediately before the Reorganization; (vi) the basis to the Prime Obligations
Fund of the assets of the Prime Value Fund received pursuant to such
transactions will be the same as the basis of such assets in the hands of the
Prime Value Fund immediately before such transactions; (vii) a shareholder's
holding period for the Prime Obligations Fund shares will be determined by
including the period for which the shareholder held the Prime Value Fund shares
exchanged therefor, provided that the shareholder held such Prime Value Fund
shares as a capital asset; and (viii) the Prime Obligations Fund's holding
period with respect to the assets received in the Reorganization will include
the period for which such assets were held by the Prime Value Fund.
Capitalization. Because the Prime Value Fund will be combined with the
Prime Obligations Fund in the Reorganization, the total capitalization of the
Prime Obligations Fund after the Reorganization is expected to be greater than
the current capitalization of the Prime Value Fund. The following table sets
forth, as of June 30, 1995: (i) the capitalization of the Prime Value Fund; (ii)
the capitalization of the Prime Obligations Fund; and (iii) the pro forma
capitalization of the Prime Obligations Fund as adjusted to give effect to the
proposed Reorganization. There is, of course, no assurance that the
Reorganization will be consummated. Moreover, if consummated, the
capitalization of each Fund is likely to be different at the Effective Time of
the Reorganization as a result of daily share purchase and redemption activity
in the Funds.
Prime Obliga-
Prime tions Fund, as
Prime Obligations adjusted for the
Value Fund Fund Reorganization
Total Net Assets $885,807,020 $2,736,288,996 $3,622,096,016
Shares Outstanding $886,113,604 $2,736,288,996 $3,622,402,600
Net Asset Value
Per Share $1.00 $1.00 $1.00
Performance. For the seven-day period ended June 30, 1995, the annualized
and effective yields for the Pacific Horizon Shares and Horizon Shares of the
Prime Value Fund; and the Institutional Shares of the Prime Obligations Fund
were as follows:
Annualized
Annualized Effective
Yield Yield
Prime Value Fund 5.88% 6.06%
(Pacific Horizon Shares)
Prime Value Fund 5.88% 6.06%
(Horizon Shares)
Prime Obligations Fund 5.94% 6.11%
(Institutional Shares)
The annualized yield and effective yield are calculated according to
formulas prescribed by the SEC and described in the Prime Value Fund's Statement
of Additional Information dated July 1, 1995 and the Prime Obligations Fund's
Statement of Additional Information dated November 30, 1994.
COMPARISON OF THE FUNDS
Investment Objectives and Policies - Prime Value Fund and Prime
Obligations Fund. The investment objective of the Prime Value Fund is "to seek
high current income and stability of principal." The investment objective of
the Prime Obligations Fund is "to provide current income consistent with
stability of principal." Each of the Prime Value Fund's and Prime Obligations
Fund's investment objective is a fundamental policy that may not be changed
without a vote of the holders of a majority of the particular Fund's outstanding
shares (as defined in the Investment Company Act of 1940 (the "1940 Act")), and
each of the Prime Value Fund and Prime Obligations Fund is a money market fund
that seeks to maintain a net asset value of $1.00 per share. There can be no
guarantee that a Fund will achieve its objective or that it will maintain a net
asset value of $1.00 per share.
Each of the Prime Value Fund and the Prime Obligations Fund seeks to
achieve its investment objective by investing substantially all of its assets in
a diversified portfolio of U.S. dollar-denominated "money market" instruments
such as bank certificates of deposit, time deposits, demand deposits, bankers'
acceptances, commercial paper, repurchase agreements, short term notes, asset
backed securities, corporate bonds and government obligations. Each of the
Prime Obligations Fund and Prime Value Fund may enter into reverse repurchase
agreements and may lend securities. Assets of the Prime Value Fund and Prime
Obligations Fund may be invested in dollar-denominated debt securities with
remaining maturities of thirteen months or less as defined by the SEC, and the
dollar weighted average portfolio maturity of each Fund may not exceed 90 days.
Each of the Prime Value Fund and Prime Obligations Fund limits its investments
to securities that, in the opinion of their respective investment advisers,
present minimal credit risks and which are "First Tier Securities" as defined by
the SEC. First Tier Securities consist of (i) instruments that are rated at the
time of purchase in the top rating category of one or more unaffiliated
nationally recognized statistical rating organizations ("NRSROs") (if the
instrument has been rated by more than one NRSRO, then at least two NRSROs must
rate the instrument in their highest category), (ii) instruments that are issued
by issuers with a class of securities that is comparable in priority and
security having such ratings, or (iii) unrated instruments (including
instruments with long-term but no short-term ratings) that are of comparable
quality to the rated instruments that a Fund may purchase, as determined by a
Fund's investment adviser pursuant to guidelines approved by a Fund's Board.
The Prime Value Fund and the Prime Obligations Fund may each invest in
bank obligations such as certificates of deposit, demand deposits, time
deposits, and bankers' acceptances issued or supported by the credit of domestic
and foreign banks. The Prime Value Fund will invest only in banks which have
total assets at the time of purchase in excess of $1 billion. The Prime
Obligations Fund will only invest in bank instruments either issued by an
institution having capital, surplus and undivided profits over $100 million, or
insured by the Bank Insurance Fund or Savings Association Insurance Fund. In
addition, the Prime Obligations Fund may invest 25% or more of the value of its
total assets in instruments issued by a U.S. branch of a domestic bank or
savings and loan having capital, surplus, and undivided profits in excess of
$100,000,000 at the time of investment. Bank instruments eligible for
investment by both Funds include Eurodollar Certificates of Deposit and Yankee
Certificates of Deposit. The Prime Value Fund, unlike the Prime Obligations
Fund, is subject to a limitation which restricts its investments in bank
obligations consisting of interest-bearing savings deposits in commercial banks
to amounts not exceeding 5% of the Fund's assets. In addition, the Prime Value
Fund, unlike the Prime Obligations Fund, may invest in Yankee Bankers'
Acceptances.
Both of the Prime Value Fund and the Prime Obligations Fund may invest in
(1) obligations issued or guaranteed by the U.S. Government or its agencies and
instrumentalities; (2) commercial paper, short-term notes, and bonds issued by
domestic and foreign corporations, including Canadian commercial paper and
Europaper; (3) commercial paper issued in reliance on the so-called "private
placement" exemption from registration afforded by Section 4(2) of the
Securities Act of 1993; and (4) asset-backed securities, which are securities
backed by mortgages, installments sales contracts, credit card receivables or
other assets. Asset-backed securities acquired by the Funds include
collateralized mortgage obligations issued by private companies.
Both of the Funds may invest in repurchase agreements and variable and
floating rate demand instruments, engage in when-issued and delayed delivery
transactions, enter into reverse repurchase agreements, and lend portfolio
securities. Although both Funds may enter into repurchase agreements, the Prime
Value Fund, unlike the Prime Obligations Fund, intends only to enter into
repurchase agreements having maturities not exceeding 60 days. Both Funds may
invest up to 10% of their net assets in securities that are illiquid.
The Prime Value Fund, unlike the Prime Obligations Fund, may invest in (1)
U.S. dollar denominated obligations issued or guaranteed by foreign governments
or any of their political subdivisions, agencies or instrumentalities, including
debt obligations of supranational entities; (2) "Yankee" Bankers' Acceptances;
(3) municipal securities; (4) participation interests in high quality debt
securities issued by domestic financial institutions; and (5) "stripped"
securities issued by the U.S. Treasury.
The Prime Obligations Fund, unlike the Prime Value Fund, may (1) enter
into, or acquire participations in, short-term borrowing arrangements with
corporations, consisting of either a short-term credit facility or a master note
agreement payable upon demand; and (2) invest 25% or more of its total assets in
commercial paper issued by commercial finance companies and consumer finance
companies. Concentrating investments in any one industry may subject the Prime
Obligations Fund to more risk than if it did not concentrate investments.
In accordance with current regulations of the SEC and, as a matter of non-
fundamental policy that may be changed without shareholder approval, both the
Prime Value Fund and the Prime Obligations Fund generally intend to limit their
investments in the securities of any single issuer (other than securities issued
by the U.S. Government, its agencies or instrumentalities) to not more than 5%
of the respective Fund's total assets at the time of purchase.
Fundamental Investment Limitations of the Prime Value Fund and the Prime
Obligations Fund. The Prime Value Fund and Prime Obligations Fund may not
change their fundamental investment limitations without an affirmative vote of
the holders of a majority of such Fund's outstanding shares (as defined in the
1940 Act). The following is a comparison of certain fundamental investment
limitations of the Prime Value Fund and Prime Obligations Fund.
The Prime Value Fund may not purchase any securities which would cause, at
the time of purchase, less than 25% of the value of its total assets to be
invested in obligations of issuers in the banking industry or in obligations,
such as repurchase agreements, secured by such obligations (unless the Prime
Value Fund is in a temporary defensive position) or which would cause, at the
time of purchase, 25% or more of the Prime Value Fund's total assets to be
invested in the securities of one or more issuers conducting their principal
business activities in any other industry, provided that (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities or repurchase agreements secured
by such obligations; (b) wholly-owned finance companies will be considered to be
in the industries of their parents if their activities are primarily related to
financing the activities of the parents; and (c) the industry classification of
utilities will be determined according to their service. For example, gas, gas
transmission, electric and gas, electric and telephone will each be considered a
separate industry. For purposes of this investment limitation, the Prime Value
Fund treats, in accordance with the current views of the staff of the SEC and as
a matter of non-fundamental policy that may be changed without a vote of
shareholders, all supranational organizations as a single industry and each
foreign government (and all of its agencies) as a separate industry. In
addition, for purposes of the Prime Value Fund's investment limitation
concerning industry concentration, U.K. Building Societies will be considered to
be in the banking industry.
The Prime Obligations Fund will not invest 25% or more of its total assets
in any one industry, except that the Prime Obligations Fund will generally
invest 25% or more of the value of its total assets in the commercial paper
issued by finance companies. Concentrating investments in any one industry may
subject the Prime Obligations Fund to more risk than if it did not concentrate
investments.
The Prime Value Fund and the Prime Obligations Fund generally may not
borrow money or issue senior securities, except that the Funds may borrow money
from banks and may enter into reverse repurchase agreements for temporary
purposes in amounts up to one-third of the value of the total assets at the time
of such borrowing.
Other Information. Both Pacific Horizon and MMOT are registered as open-
end management investment companies under the 1940 Act. The Prime Value Fund
and Prime Obligations Fund are each classified as diversified funds. Currently,
Pacific Horizon and MMOT maintain sixteen and six separate investment portfolios
which have commenced operations, respectively.
Pacific Horizon is organized as a Maryland corporation and is subject to
the provisions of its Charter and By-laws and to the Maryland General
Corporation Law. MMOT is organized as a Massachusetts business trust, and is
subject to the provisions of its Declaration of Trust and By-Laws. Although the
rights of shareholders of a Maryland corporation vary in certain respects from
the rights of shareholders of a Massachusetts business trust, the attributes of
a share of common stock in Pacific Horizon are comparable to those of a share of
beneficial interest in MMOT. When issued for payment as described in their
respective Prospectuses, Pacific Horizon and MMOT shares are fully paid and non-
assessable by such entities except, with respect to MMOT shares, that under
Massachusetts law, shareholders may, under certain circumstances, be personally
liable for MMOT's obligations and liabilities. To protect its shareholders,
MMOT has filed legal documents with Massachusetts that expressly disclaim the
liability of its shareholders for acts or obligations of MMOT. In the unlikely
event a shareholder is held personnally liable for MMOT's obligations, MMOT is
required to use its property to protect or compensate the shareholder.
INFORMATION RELATING TO VOTING MATTERS
General Information. This Combined Proxy Statement and Prospectus is
being furnished in connection with the solicitation of proxies by the Board of
Directors of Pacific Horizon for use at the Meeting. It is expected that the
solicitation of proxies will be primarily by mail. Pacific Horizon's officers
and service providers may also solicit proxies by telephone, telegraph or
personal interview. Pacific Horizon will request that each bank or broker
holding shares for others in its name of custody, or in the names of one or more
nominees, forward copies of the proxy materials to the persons for whom it holds
such shares and to request authorization to execute the proxies. In addition,
although it has not done so to date, Pacific Horizon may retain the services of
one or more outside organizations to aid in the solicitation of proxies. Such
organizations normally charge a fee plus out-of-pocket expenses. Any
shareholder giving a proxy may revoke it at any time before it is exercised by
submitting to Pacific Horizon a written notice of revocation or a subsequently
executed proxy or by attending the Meeting and electing to vote in person.
Only shareholders of record at the close of business on _____________ 1995
will be entitled to vote at the Meeting. On that date, there were outstanding
and entitled to be voted ____________ shares of the Prime Value Fund,
(____________ Pacific Horizon Shares and ____________ Horizon Shares). Each
share or fraction thereof is entitled to one vote or fraction thereof.
If the accompanying proxy is executed and returned in time for the
Meeting, the shares covered thereby will be voted in accordance with the proxy
on all matters that may properly come before the meeting (or any adjournment
thereof).
Shareholder Approval. Approval of the Reorganization Agreement (and the
transactions contemplated thereby) requires the affirmative vote of a majority
of all votes entitled to be cast on the matter.
In tallying shareholder votes, abstentions and broker non-votes (i.e.,
proxies sent in by brokers and other nominees which cannot be voted on a
proposal because instructions have not been received from the beneficial owners)
will be counted for purposes of determining whether or not a quorum is present
for the purposes of convening the Meeting. On the Reorganization proposal,
abstentions and broker non-votes will have the same effect as a vote against the
Reorganization proposal.
The vote of the shareholders of MMOT is not being solicited, because their
approval or consent is not necessary for the Reorganization.
Quorum. In the event that a quorum is not present at the Meeting, or in
the event that a quorum is present at the Meeting but sufficient votes to
approve the Reorganization Agreement are not received, the persons named as
proxies, or their substitutes, may propose one or more adjournments of the
Meeting to permit further solicitation of proxies. Any such adjournment will
require the affirmative vote of a majority of those shares affected by the
adjournment represented at the Meeting in person or by proxy. If a quorum is
present, the persons named as proxies will vote those proxies which they are
entitled to vote FOR the Reorganization Agreement in favor of such adjournment,
and will vote those proxies required to be voted AGAINST such proposal, against
any adjournment. Under Pacific Horizon's By-laws, a quorum is constituted with
respect to the Prime Value Fund by the presence in person or by proxy of the
holders of more than 50% of the outstanding shares of the Prime Value Fund
entitled to vote at the Meeting.
Appraisal Rights. Shareholders of Pacific Horizon Shares and Horizon
Shares are not entitled to any rights of share appraisal under Pacific Horizon's
Charter or under the laws of the State of Maryland in connection with the
Reorganization. Shareholders have, however, the right to redeem from the Prime
Value Fund their shares at net asset value until the Effective Time of the
Reorganization, and thereafter shareholders may redeem from MMOT the shares
acquired by them in the Reorganization at net asset value subject to the forward
pricing requirements of Rule 22c-1 under the 1940 Act.
Principal Shareholders. As of ____________, 1995, the name, address and
percentage ownership of the persons which may have owned beneficially or of
record more than 5% of the outstanding Pacific Horizon Shares and Horizon Shares
of the Prime Value Fund and the percentage of Institutional Shares of the
corresponding pro forma combined Prime Obligations Fund that would be
beneficially owned by such persons upon consummation of the reorganization based
upon their holdings and outstanding shares at ___________, 1995 are as follows:
Prime Value Fund
As of ____________, 1995, the directors and officers of Pacific Horizon as
a group owned beneficially less than 1% of the outstanding shares of the Prime
Value Fund.
As of ____________, 1995, the name, address and percentage ownership of
the persons which may have owned beneficially or of record more than 5% of the
outstanding Institutional Shares of MMOT's Prime Obligations Fund and the
percentage of Institutional Shares of the corresponding pro forma combined Prime
Obligations Fund that would be beneficially owned by such persons upon
consummation of the Reorganization based upon their holdings and outstanding
shares at _____________, 1995 are as follows:
Prime Obligations Fund
As of _______________, 1995, the trustees and officers of MMOT as a group
owned beneficially less than 1% of the outstanding shares of the Prime
Obligations Fund.
ADDITIONAL INFORMATION ABOUT MMOT AND PACIFIC HORIZON
Information about the Prime Obligations Fund and its Institutional Shares
is included in the Prospectus dated November 30, 1994, accompanying this
Combined Proxy Statement and Prospectus, and is incorporated by reference
herein, and information about the Prime Value Fund is included in the Prospectus
dated July 1, 1995, which is also incorporated herein by reference. Additional
information about the Prime Value Fund is included in the Prime Value Fund's
Statement of Additional Information dated July 1, 1995, with respect to its
Pacific Horizon Shares and Horizon Shares, which have been filed with the SEC.
Additional Information about the Prime Obligations Fund is included in the Prime
Obligations Fund's Statement of Additional Information dated November 30, 1994
which has been filed with the SEC. Copies of the Prime Obligations Fund's
Annual Report to Shareholders and most recent Semi-Annual Report to Shareholders
may be obtained without charge by writing to Federated Administrative Services,
Federated Investors Tower, Pittsburgh, PA 15222-3771 or calling 1-800-235-4669.
Copies of the Prime Value Fund's Annual Report to Shareholders may be obtained
without charge by writing to Concord, 125 West 55th Street, New York, New York
10019 or by calling 1-800-332-3863. Pacific Horizon and MMOT are subject to the
informational requirements of the Securities Exchange Act of 1934 and the 1940
Act, as applicable, and, in accordance with such requirements, file proxy
materials, reports and other information with the SEC. These materials can be
inspected and copied at the Public Reference Facilities maintained by the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549, at the office of Concord listed
above and at the SEC's Regional Offices at 7 World Trade Center, Suite 1300, New
York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can also be obtained from the Public Reference Branch,
Office of Consumer Affairs and Information Services, Securities and Exchange
Commission, Washington, D.C. 20549, at prescribed rates.
FINANCIAL STATEMENTS AND EXPERTS
The Financial Highlights of the Prime Value Fund, which are unaudited,
incorporated herein by reference and the financial statements set forth in the
Annual Report to Shareholders for the fiscal year ended February 28, 1995, and
incorporated by reference in the Statement of Additional Information dated
___________, 1995, and in the Prime Value Fund's Statement of Additional
Information dated July 1, 1995 have been audited by Price Waterhouse LLP. The
financial statements and Financial Highlights audited by Price Waterhouse LLP
have been incorporated herein by reference in reliance on their reports given on
their authority as experts in auditing and accounting.
The Financial Highlights for the Institutional Shares of the Prime
Obligations Fund for the six-month period ended January 31, 1995 are
incorporated herein by reference to MMOT's Semi-Annual Report to Shareholders
for such period. The Financial Highlights of the Prime Obligations Fund
incorporated herein by reference and the financial statements set forth in the
Annual Report to Shareholders for the fiscal year ended July 31, 1994, and
incorporated by reference in the Statement of Additional Information dated
__________, 1995 and in the Prime Obligations Funds' Statement of Additional
Information dated November 30, 1994, have been audited (except for the six month
period ended January 31, 1995) by Arthur Andersen LLP, Independent Public
Accountants, for the periods indicated in their report with respect thereto, and
are included herein in reliance upon the authority of said firm as experts in
auditing and accounting.
OTHER BUSINESS
Pacific Horizon's Board of Directors knows of no other business to be
brought before the Meeting. However, if any other matters come before the
Meeting, it is the intention of the Board that proxies that do not contain
specific restrictions to the contrary will be voted on such matters in
accordance with the judgment of the persons named in the enclosed form of proxy.
LITIGATION
Neither Pacific Horizon nor MMOT is involved in any litigation which would
have any material adverse financial effect upon either the Prime Value Fund or
the Prime Obligations Fund.
NOTICE TO BANKS, BROKER-DEALERS,
VOTING DIRECTORS AND THEIR NOMINEES
Please advise Pacific Horizon, c/o___________________________________, 125
West 55th Street, New York, New York 10019 whether other persons are the
beneficial owners of the shares for which proxies are being solicited, and if
so, the number of copies of this Combined Proxy Statement and Prospectus and
other soliciting material you wish to receive in order to supply copies to
beneficial owners. Pacific Horizon will pay persons holding shares in their
names or those of their nominees their reasonable expenses incurred in sending
soliciting materials to their principals.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to Pacific Horizon in writing at
the address on the cover page of this Combined Proxy Statement and Prospectus or
by telephoning (800) 332-3863.
* * *
SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE MEETING ARE REQUESTED
TO DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE. NO
POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
APPENDIX A TO THE COMBINED
PROXY STATEMENT AND PROSPECTUS
AGREEMENT AND PLAN OF
REORGANIZATION
BY AND BETWEEN
PACIFIC HORIZON FUNDS, INC.
AND
MONEY MARKET OBLIGATIONS TRUST
DATED , 1995
Table of Contents
Page
Transfer of Assets of the Prime Value Fund 2
Liquidating Distributions of the Prime Value Fund 5
Valuation Time 6
Certain Representations, Warranties and
Agreements of Pacific Horizon 7
Certain Representations, Warranties and Agreements of MMOT 13
Shareholder Action on Behalf of the Prime Value Fund 18
N-14 Registration Statement 19
Effective Time of the Reorganization 19
MMOT Conditions 19
Pacific Horizon Conditions 26
Tax Documents 30
Further Assurances 30
Termination of Representations and Warranties 31
Termination of Agreement 31
Amendment and Waiver 32
Governing Law 32
Successors and Assigns 32
Beneficiaries 32
MMOT Liability 32
Pacific Horizon Liability 34
Notices 34
Expenses 35
Entire Agreement 36
Counterparts 36
AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") made as of the
of , 1995 by and between Pacific Horizon Funds, Inc. ("Pacific
Horizon"), a corporation organized under the laws of the State of Maryland on
October 27, 1982, and Money Market Obligations Trust ("MMOT"), a business trust
organized under the laws of the Commonwealth of Massachusetts on October 3,
1988.
WHEREAS, each of Pacific Horizon and MMOT is an open-end management
investment company registered with the Securities and Exchange Commission (the
"SEC") under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the parties desire that all of the assets and known liabilities
of the Prime Value Fund, an investment portfolio offered by Pacific Horizon
("Prime Value Fund"), be transferred to, and be acquired and assumed by, the
Prime Obligations Fund, an investment portfolio offered by MMOT ("Prime
Obligations Fund"), as stated herein, in exchange for Institutional Class Shares
of the Prime Obligations Fund which shall thereafter be distributed by Pacific
Horizon to the holders of Pacific Horizon Shares (Class P Common Stock) and
Horizon Shares (Class P-Special Series 2 Common Stock) of the Prime Value Fund
in connection with the liquidation of the Prime Value Fund as described in this
Agreement (the "Reorganization").
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth and subject to the terms and conditions thereof, the
parties hereto, intending to be legally bound, agree as follows:
1. Transfer of Assets of the Prime Value Fund. (a) At the Effective
Time of the Reorganization (as defined below), all property of every
description, and all interests, rights, privileges and powers of the Prime Value
Fund other than cash in an amount necessary to pay any unpaid dividends and
distributions as provided in Section 2 hereof (such assets are herein referred
to as the "Prime Value Fund Assets") shall be transferred and conveyed by the
Prime Value Fund to MMOT, on behalf of its Prime Obligations Fund, and shall be
accepted by MMOT, on behalf of the Prime Obligations Fund, and MMOT on behalf of
the Prime Obligations Fund, shall assume all known liabilities whether accrued,
absolute, contingent or otherwise, of the Prime Value Fund (such known
liabilities are herein referred to as the "Prime Value Fund Liabilities") as
more particularly set forth in the following paragraph, such that at and after
the Effective Time of the Reorganization: (i) all assets of the Prime Value
Fund shall become and be the assets of the Prime Obligations Fund; and (ii) all
known liabilities of the Prime Value Fund shall attach to the Prime Obligations
Fund as aforesaid and may thenceforth be enforced against the Prime Obligations
Fund to the extent as if the same had been incurred by it. Without limiting the
generality of the foregoing, it is understood that the Prime Value Fund Assets
shall include all property and assets of any nature whatsoever, including,
without limitation, all cash, cash equivalents, securities, and claims and
receivables (including interest receivables) owned by the Prime Value Fund, at
the Effective Time of the Reorganization, and all goodwill, all other intangible
property and all books and records belonging to the Prime Value Fund. It is
further understood that recourse for the Prime Value Fund Liabilities assumed by
the Prime Obligations Fund shall, at and after the Effective Time of the
Reorganization, be limited to the assets of the Prime Obligations Fund.
(b) In exchange for the transfer of the Prime Value Fund Assets and the
assumption of the Prime Value Fund Liabilities, MMOT shall simultaneously issue
at the Effective Time of the Reorganization to the Prime Value Fund a number of
full and fractional shares of the Prime Obligations Fund (to the third decimal
place), of the Institutional Shares Class (the "Institutional Shares"), all
determined and adjusted as provided in this Section 1. The number of
Institutional Shares of the Prime Obligations Fund so issued will be equal in
number to the number of full and fractional Pacific Horizon Shares and Horizon
Shares, representing interests in the Prime Value Fund outstanding immediately
prior to the Effective Time of the Reorganization, provided that at the
Effective Time of the Reorganization the price per Pacific Horizon Share and
Horizon Share of the Prime Value Fund and the price per Institutional Share of
the Prime Obligations Fund for purposes of sales and redemptions is $1.00 based
on the amortized cost valuation procedures that have been adopted by Pacific
Horizon and MMOT, respectively.
(c) The net asset value of Institutional Shares of the Prime Obligations
Fund and the net asset value of Pacific Horizon Shares and Horizon Shares of the
Prime Value Fund shall be determined as of the Valuation Time specified in
Section 3. The net asset value of Institutional Shares of the Prime Obligations
Fund shall be computed in the manner set forth in the Prime Obligations Fund's
then current prospectus under the Securities Act of 1933, as amended (the "1933
Act"). In determining the value of the securities transferred by the Prime
Value Fund to the Prime Obligations Fund, each security shall be priced in
accordance with the policies and procedures of Pacific Horizon as described in
its then current prospectus for the Prime Value Fund. For such purposes, price
quotations and the security characteristics relating to establishing such
quotations shall be determined by Pacific Horizon, provided that such
determination shall be subject to the approval of MMOT.
(d) In addition to the computations made pursuant to Sections 1(a), 1(b),
1(c) and 3, the net asset values of Pacific Horizon Shares and Horizon Shares of
the Prime Value Fund and the Institutional Shares of the Prime Obligations Fund
will be computed as of the Valuation Time by marking to market the portfolio's
assets. If the per share net asset value of Pacific Horizon Shares or Horizon
Shares of the Prime Value Fund exceeds the per share net asset value of
Institutional Shares of the Prime Obligations Fund at the Valuation Time (as set
forth in Section 3) by $.0010 or more as computed by using the market values of
such portfolio's assets, Pacific Horizon's Board of Directors will have the
right to postpone the Valuation Time and the Effective Time of the
Reorganization (as defined in Section 8) until such time as the per share
difference is less than $.0010. If the per share net asset value of
Institutional Shares of the Prime Obligations Fund exceeds the per share net
asset value of Pacific Horizon Shares or Horizon Shares of the Prime Value Fund
at the Valuation Time (as set forth in Section 3) by $0.0010 or more as computed
by using the market values of such portfolio's assets, MMOT's Board of Trustees
will have the right to postpone the Valuation Time and the Effective Time of the
Reorganization (as defined in Section 8) until such time as the per share
difference is less than $0.0010.
2. Liquidating Distributions of the Prime Value Fund. At the Effective
Time of the Reorganization, the Prime Value Fund shall distribute in complete
liquidation, pro rata to the recordholders of Pacific Horizon Shares and Horizon
Shares at the Effective Time of the Reorganization the Institutional Shares of
the Prime Obligations Fund received by the Prime Value Fund pursuant to Section
1. In addition, each shareholder of record of the Prime Value Fund shall have
the right to receive any unpaid dividends or other distributions which were
declared before the Effective Time of the Reorganization with respect to the
shares of the Prime Value Fund that are held by the shareholder at the Effective
Time of the Reorganization. In accordance with instructions it receives from
Pacific Horizon, MMOT shall record on its books the ownership of the
Institutional Shares of the Prime Obligations Fund by the recordholders of the
Pacific Horizon Shares and the Horizon Shares of the Prime Value Fund. No
redemption or repurchase of the Prime Obligations Fund's shares credited to
former Pacific Horizon shareholders in respect to the Prime Value Fund's shares
represented by unsurrendered share certificates shall be permitted until such
certificates have been surrendered to MMOT's transfer agent for cancellation.
The holder of any certificate or certificates representing Pacific Horizon or
Horizon Shares of the Prime Value Fund shall immediately notify MMOT of any
loss, destruction or mutilation of such certificate or certificates, and MMOT
may issue a new certificate representing common stock in the Prime Obligations
Fund in the place of any certificate theretofore issued by Pacific Horizon, on
behalf of the Prime Value Fund, which the owner thereof shall allege to have
been lost or destroyed or which shall have been mutilated, and the Board of
Trustees of MMOT, in its discretion, may require such owner or his or her legal
representative to give to MMOT a bond in such sum, limited or unlimited, and in
such form and with such surety or sureties, as the Board of Trustees of MMOT in
its absolute discretion shall determine, to indemnify MMOT against any claim
that may be made against it or on account of the alleged loss or destruction of
any such certificate or certificates, or issuance of a new certificate. All of
the issued and outstanding shares of the Prime Value Fund shall be cancelled on
the books of Pacific Horizon at the Effective Time of the Reorganization and
shall thereafter represent only the right to receive Institutional Shares of the
Prime Obligations Fund, and the Prime Value Fund's transfer books shall be
closed permanently. Pacific Horizon will also file Articles of Amendment to the
Company's Charter with the Maryland State Department of Assessments and Taxation
to effect further the cancellation of such shares to unissued shares.
3. Valuation Time. Subject to Section 1(d) hereof, the Valuation Time
shall be 4:00 P.M., Eastern Time, on _______ , 1995, or such earlier or later
date and time as may be mutually agreed by the President or Vice President of
each of the parties and set forth in writing signed by such President or Vice
President.
4. Certain Representations, Warranties and Agreements of Pacific
Horizon. Pacific Horizon, on behalf of itself and the Prime Value Fund,
represents and warrants to, and agrees with, MMOT as follows:
(a) It is a corporation duly organized under the laws of the
State of Maryland on October 27, 1982, and is validly
existing and in good standing under the laws of the
State of Maryland. It is registered with the SEC as an
open-end, management investment company under the 1940
Act and its registration with the SEC as an investment
company is in full force and effect.
(b) It
has power to own all of its properties and assets and,
subject to the approval of shareholders referred to in
Section 6, to carry out and consummate the transactions
contemplated herein, and has all necessary federal,
state and local authorizations to carry on its business
as now being conducted and to consummate the
transactions contemplated by this Agreement.
(c) This Agreement has been duly authorized, executed and
delivered by Pacific Horizon, and represents Pacific
Horizon's valid and binding contract, enforceable in
accordance with its terms, subject as to enforcement to
the effect of bankruptcy, insolvency, reorganization,
arrangement, moratorium, and other similar laws of
general applicability relating to or affecting
creditors' rights and to general equity principles and
provided that the provisions of this Agreement intended
to limit liability for particular matters to the Prime
Value Fund and its assets, including but not limited to
Sections 1(a), 19 and 20 of this Agreement, may not be
enforceable. The execution and delivery of this
Agreement did not, and the consummation of the
transactions contemplated by this Agreement will not,
violate Pacific Horizon's Articles of Incorporation or
By-laws or any agreement or arrangement to which it is a
party or by which it is bound.
(d) The Prime Value Fund has elected to qualify and has
qualified as a regulated investment company under Part I
of Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), as of and since its first taxable
year; has been a regulated investment company under such
Part of the Code at all times since the end of its first
taxable year when it so qualified; and qualifies and
shall continue to qualify as a regulated investment
company for its taxable year ending on the date on which
the Effective Time of the Reorganization occurs.
(e) All federal, state, local and foreign income, profits,
franchise, sales, withholding, customs, transfer and
other taxes, including interest, additions to tax and
penalties (collectively, "Taxes") relating to the Prime
Value Fund Assets due or properly shown to be due on any
return filed by the Prime Value Fund with respect to
taxable periods ending on or prior to, and the portion
of any interim period up to, the date hereof have been
fully and timely paid or provided for; and there are no
levies, liens, or other encumbrances relating to Taxes
existing, threatened or pending with respect to the
Prime Value Fund Assets.
(f) The financial statements of the Prime Value Fund for its
fiscal year ended February 28, 1995, examined by Price
Waterhouse LLP, copies of which have been previously
furnished to MMOT, present fairly the financial position
of the Prime Value Fund as of the respective dates
indicated and the results of its operations for the
periods indicated, in conformity with generally accepted
accounting principles.
(g) Prior to the Valuation Time, the Prime Value Fund shall
have declared a dividend or dividends, with a record
date and ex-dividend date prior to the Valuation Time,
which, together with all previous dividends, shall have
the effect of distributing to its shareholders all of
its investment company taxable income, if any, for the
taxable periods or years ended on or before February 28,
1995 and for the period from said date to and including
the Effective Time of the Reorganization (computed
without regard to any deduction for dividends paid), and
all of its net capital gain, if any, realized in taxable
periods or years ended on or before December 31, 1994
and in the period from said date to and including the
Effective Time of the Reorganization.
(h) At both the Valuation Time and the Effective Time of the
Reorganization, there shall be no liabilities of the
Prime Value Fund, whether accrued, absolute, contingent
or otherwise, not reflected in the aggregate net asset
value per share of a Pacific Horizon Share and Horizon
Share of the Prime Value Fund.
(i) There are no legal, administrative or other proceedings
pending or, to its knowledge threatened, against Pacific
Horizon or the Prime Value Fund which could result in
liability on the part of Pacific Horizon or the Prime
Value Fund.
(j) Subject to the approvals of shareholders referred to in
Section 6, at both the Valuation Time and the Effective
Time of the Reorganization, it shall have full right,
power and authority to sell, assign, transfer and
deliver the Prime Value Fund Assets and, upon delivery
and payment for the Prime Value Fund Assets as
contemplated herein, the Prime Obligations Fund shall
acquire good and marketable title thereto, free and
clear of all liens and encumbrances, and subject to no
restrictions on the ownership or transfer thereof
(except as imposed by federal or state securities laws).
(k) No consent, approval, authorization or order of any
court or governmental authority is required for the
consummation by Pacific Horizon of the transactions
contemplated by this Agreement, except such as may be
required under the 1933 Act, the Securities Exchange Act
of 1934, as amended ("1934 Act"), the 1940 Act, the
rules and regulations under those Acts, or state
securities laws.
(l) Insofar as the following relate to Pacific Horizon,
(i) the registration statement filed by MMOT on Form N-
14 relating to the shares of the Prime Obligations Fund
that will be registered with the SEC pursuant to this
Agreement, which, without limitation, shall include or
incorporate by reference the proxy statement of Pacific
Horizon and the prospectuses of Pacific Horizon and MMOT
with respect to the transactions contemplated by this
Agreement, and any supplement or amendment thereto or to
the documents contained or incorporated therein by
reference (the "N-14 Registration Statement") on the
effective date of the N-14 Registration Statement, at
the time of the shareholders' meeting referred to in
Section 6 and at the Effective Time of the
Reorganization: (i) shall comply in all material
respects with the provisions of the 1933 Act, the 1934
Act and the 1940 Act, the rules and regulations
thereunder, and state securities laws, and (ii) shall
not contain any untrue statement of a material fact or
omit to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading.
(m) All of the issued and outstanding Pacific Horizon Shares
and Horizon Shares of the Prime Value Fund have been
duly and validly issued, are fully paid and non-
assessable, and were offered for sale and sold in
conformity with all applicable federal and state
securities laws, and no shareholder of the Prime Value
Fund has any preemptive right of subscription or
purchase in respect of such shares.
(n) It shall not sell or otherwise dispose of any shares of
the Prime Obligations Fund to be received in the
transactions contemplated herein, except in distribution
to its shareholders as contemplated herein.
5. Certain Representations, Warranties and Agreements of MMOT. MMOT,
on behalf of itself and the Prime Obligations Fund, represents and warrants to,
and agrees with, Pacific Horizon as follows:
(a) It is a Massachusetts business trust duly created
pursuant to its Declaration of Trust for the purpose of
acting as a management investment company under the 1940
Act and is validly existing under the laws of, and duly
authorized to transact business in, the Commonwealth of
Massachusetts. It is registered with the SEC as an
open-
end management investment company under the 1940 Act and
its registration with the SEC as an investment company
is in full force and effect.
(b) It has power to own all of its properties and assets and
to carry out and consummate the transactions
contemplated herein, and has all necessary federal,
state and local authorizations to carry on its business
as now being conducted and to consummate the
transactions contemplated by this Agreement.
(c) This Agreement has been duly authorized, executed and
delivered by MMOT, and represents MMOT's valid and
binding contract, enforceable in accordance with its
terms, subject as to enforcement to the effect of
bankruptcy, insolvency, reorganization, arrangement,
moratorium and other similar laws of general
applicability relating to or affecting creditors' rights
and to general equity principles. The execution and
delivery of this Agreement did not, and the consummation
of the transactions contemplated by this Agreement will
not, violate MMOT's Declaration of Trust or By-laws or
any agreement or arrangement to which it is a party or
by which it is bound.
(d) The Prime Obligations Fund has elected to qualify and
has qualified as a regulated investment company under
Part I of Subchapter M of the Code, as of and since its
first taxable year; has been a regulated investment
company under such Part of the Code at all times since
the end of its first taxable year when it so qualified;
and intends to continue to qualify as a regulated
investment company.
(e) The financial statements of the Prime Obligations Fund
for its fiscal year ended July 31, 1994, examined by
Arthur Andersen LLP, Independent Public Accountants,
copies of which have been previously furnished to
Pacific Horizon, present fairly the financial position
of the Prime Obligations Fund as of the date indicated
and the results of its operations for the periods
indicated, in conformity with generally accepted
accounting principles.
(f) The unaudited financial statements of the Prime
Obligations Fund for the six-month period ended January
31, 1995, copies of which have been previously furnished
to Pacific Horizon, present fairly the financial
position of the Prime Obligations Fund as of the date
indicated and the results of its operations for the
periods indicated, in conformity with generally accepted
accounting principles.
(g) At both the Valuation Time and the Effective Time of the
Reorganization, there shall be no liabilities of the
Prime Obligations Fund, whether accrued, absolute,
contingent or otherwise, not reflected in the net asset
value per share of its Institutional Shares issued
pursuant to this Agreement.
(h) There are no legal, administrative or other proceedings
pending or, to its knowledge, threatened against MMOT or
the Prime Obligations Fund which could result in
liability on the part of MMOT or the Prime Obligations
Fund.
(i) No consent, approval, authorization or order of any
court or governmental authority is required for the
consummation by MMOT of the transactions contemplated by
this Agreement, except such as may be required under the
1933 Act, the 1934 Act, the 1940 Act, the rules and
regulations under those Acts, or state securities laws.
(j) Insofar as the following relate to MMOT, the N-14
Registration Statement, on the effective date of the N-
14 Registration Statement, at the time of the
shareholders' meeting referred to in Section 6 and at
the Effective Time of the Reorganization: (i) shall
comply in all material respects with the provisions of
the 1933 Act, the 1934 Act and the 1940 Act, the rules
and regulations thereunder, and state securities laws,
and (ii) shall not contain any untrue statement of a
material fact or omit to state a material fact required
to be stated therein or necessary to make the statements
therein not misleading.
(k) The Institutional Shares of the Prime Obligations Fund
to be issued and delivered to the Prime Value Fund for
the account of recordholders of Pacific Horizon Shares
and Horizon Shares of the Prime Value Fund, pursuant to
the terms hereof, shall have been duly authorized as of
the Effective Time of the Reorganization and, when so
issued and delivered, shall be registered under the 1933
Act and shall be registered or exempt from registration
under applicable state securities laws, and shall be
duly and validly issued, fully paid and non-assessable,
and no shareholder of MMOT shall have any preemptive
right of subscription or purchase in respect thereto.
6. Shareholder Action on Behalf of the Prime Value Fund. As soon as
practicable after the effective date of the N-14 Registration Statement, but in
any event prior to the Effective Time of the Reorganization and as a condition
thereto, the Board of Directors of Pacific Horizon shall call, and Pacific
Horizon shall hold, a meeting of the shareholders of the Prime Value Fund for
the purpose of considering and voting upon:
(a) Approval of this Agreement and the transactions
contemplated hereby, including, without limitation:
(i) The transfer of the Prime Value Fund Assets to the
Prime Obligations Fund, and the assumption by the
Prime Obligations Fund of the Prime Value Fund
Liabilities, in exchange for Institutional Shares
of the Prime Obligations Fund.
(ii) The liquidation of the Prime Value Fund through
the distribution to its recordholders of Pacific
Horizon Shares and Horizon Shares of the
Institutional Shares of the Prime Obligations Fund
as described in this Agreement.
(b) Such other matters as may be determined by the Board of
Directors of Pacific Horizon.
7. N-14 Registration Statement. MMOT shall file the N-14 Registration
Statement. MMOT and Pacific Horizon have cooperated and shall continue to
cooperate with each other, and have furnished and shall continue to furnish each
other with the information relating to itself that is required by the 1933 Act,
the 1934 Act, the 1940 Act, the rules and regulations under each of those Acts
and state securities laws, to be included in the N-14 Registration Statement.
8. Effective Time of the Reorganization. Subject to Section 1(d)
hereof, delivery of the Prime Value Fund Assets and the Institutional Shares of
the Prime Obligations Fund to be issued pursuant to Section 1 and the
liquidation of the Prime Value Fund pursuant to Section 2 shall occur at the
opening of business on the next business day following the Valuation Time, or on
such other date, and at such place and time and date, agreed to by the President
or Vice President, of each of the parties. The date and time at which such
actions are taken are referred to herein as the "Effective Time of the
Reorganization." To the extent the Prime Value Fund Assets are, for any reason,
not transferred at the Effective Time of the Reorganization, Pacific Horizon
shall cause the Prime Value Fund Assets to be transferred in accordance with
this Agreement at the earliest practicable date thereafter.
9. MMOT Conditions. The obligations of MMOT hereunder shall be subject
to the following conditions precedent:
(a) This Agreement and the transactions contemplated by this
Agreement shall have been approved by the Board of
Directors of Pacific Horizon and by the shareholders of
the Prime Value Fund of Pacific Horizon, both in the
manner required by law.
(b) Pacific Horizon shall have duly executed and delivered
to MMOT such bills of sale, assignments, certificates
and other instruments of transfer ("Transfer Documents")
as MMOT may reasonably deem necessary or desirable to
transfer all of the Prime Value Fund's right, title and
interest in and to the Prime Value Fund Assets. The
Prime Value Fund Assets shall be accompanied by all
necessary state stock transfer stamps or cash for the
appropriate purchase price therefor.
(c) All representations and warranties of Pacific Horizon
made in this Agreement shall be true and correct in all
material respects as if made at and as of the Valuation
Time and the Effective Time of the Reorganization. As
of the Valuation Time and the Effective Time of the
Reorganization there shall have been no material adverse
change in the financial position of the Prime Value Fund
since the date of the financial statements referred to
in Section 4(f) other than those changes incurred in the
ordinary course of business as an investment company
since the date of the financial statement referred to in
Section 4(f). No action, suit or other proceeding shall
be threatened or pending before any court or
governmental agency in which it is sought to restrain or
prohibit, or obtain damages or other relief in
connection with, this Agreement or the transactions
contemplated herein. MMOT shall have received a
certificate from the President or Vice President of
Pacific Horizon stating that each of the conditions set
forth in this Section 9(a) and in this Section 9(c) have
been met.
(d) MMOT shall have received an opinion of Drinker Biddle &
Reath addressed to MMOT in the form reasonably
satisfactory to it and dated the Effective Time of the
Reorganization, substantially to the effect that:
(i) Pacific Horizon is a Maryland corporation duly
incorporated and validly existing and in good standing
under the laws of the State of Maryland; (ii) the shares
of the Prime Value Fund outstanding at the Effective
Time of the Reorganization are duly authorized, validly
issued, fully paid and non-assessable by the Prime Value
Fund, and to such counsel's knowledge, no shareholder of
Pacific Horizon has any option, warrant or pre-emptive
right to subscription or purchase in respect thereof;
(iii) this Agreement has been duly authorized, executed
and delivered by Pacific Horizon and represents a legal,
valid and binding contract, enforceable in accordance
with its terms, subject to the effect of bankruptcy,
insolvency, moratorium, fraudulent conveyance and
similar laws relating to or affecting creditors' rights
generally and court decisions with respect thereto and
such counsel shall express no opinion with respect to
the application of equitable principles in any
proceeding, whether at law or in equity or with respect
to the provisions of this Agreement intended to limit
liability for particular matters to the Prime Value Fund
and its assets, including but not limited to Sections
1(a), 19 and 20 of this Agreement; (iv) the execution
and delivery of this Agreement did not, and the
consummation of the transactions contemplated by this
Agreement will not, violate the Articles of
Incorporation or By-laws of Pacific Horizon or any
material agreement known to such counsel to which
Pacific Horizon is a party or by which Pacific Horizon
is bound; and (v) to such counsel's knowledge, no
consent, approval, authorization or order of any court
or governmental authority is required for the
consummation by Pacific Horizon of the transactions
contemplated by this Agreement, except such as have been
obtained under the 1933 Act, the 1934 Act, the 1940 Act,
the rules and regulations under those Acts and such as
may be required under the state securities laws. Such
opinion may rely on the opinion of other counsel to the
extent set forth in such opinion, provided such other
counsel is reasonably acceptable to MMOT.
(e) MMOT shall have received an opinion of Drinker Biddle &
Reath, addressed to MMOT and Pacific Horizon in the form
reasonably satisfactory to them and dated the Effective
Time of the Reorganization, substantially to the effect
that for federal income tax purposes (i) the transfer of
all of the Prime Value Fund Assets to the Prime
Obligations Fund, and the assumption by the Prime
Obligations Fund of the Prime Value Fund Liabilities, in
exchange for shares of the Prime Obligations Fund, and
the distribution of said shares to the shareholders of
the Prime Value Fund, as provided in this Agreement,
will constitute a reorganization within the meaning of
Section 368(a)(1)(C) or Section 368(a)(1)(D) of the Code
and with respect to the reorganization, the Prime Value
Fund and the Prime Obligations Fund will each be
considered "a party to a reorganization" within the
meaning of Section 368(b) of the Code; (ii) in
accordance with Sections 361(a), 361(c)(1) and 357(a) of
the Code, no gain or loss will be recognized by the
Prime Value Fund as a result of such transactions;
(iii) in accordance with Section 1032 of the Code, no
gain or loss will be recognized by the Prime Obligations
Fund as a result of such transactions; (iv) in
accordance with Section 354(a)(1) of the Code, no gain
or loss will be recognized by the shareholders of the
Prime Value Fund on the distribution to them by the
Prime Value Fund of shares of the Prime Obligations Fund
in exchange for their shares of the Prime Value Fund;
(v) in accordance with Section 358(a)(1) of the Code,
the basis of the Prime Obligations Fund shares received
by each shareholder of the Prime Value Fund will be the
same as the basis of the shareholder's Prime Value Fund
shares immediately prior to the transactions; (vi) in
accordance with Section 362(b) of the Code, the basis of
the Prime Value Fund Assets to the Prime Obligations
Fund will be the same as the basis of the Prime Value
Fund Assets in the hands of the Prime Value Fund
immediately prior to the exchange; (vii) in accordance
with Section 1223 of the Code, a shareholder's holding
period for the Prime Obligations Fund shares will be
determined by including the period for which the
shareholder held the shares of the Prime Value Fund
exchanged therefor, provided that the shareholder held
such shares of the Prime Value Fund as a capital asset;
and (viii) in accordance with Section 1223 of the Code,
the holding period of the Prime Obligations Fund with
respect to the Prime Value Fund Assets will include the
period for which the Prime Value Fund Assets were held
by the Prime Value Fund.
(f) The N-14 Registration Statement shall have become
effective under the 1933 Act and no stop order
suspending such effectiveness shall have been instituted
or, to the knowledge of MMOT, contemplated by the SEC
and the parties shall have received all permits and
other authorizations necessary under state securities
laws to consummate the transactions contemplated by this
Agreement.
(g) The President or Vice President of Pacific Horizon shall
have certified that Pacific Horizon has performed and
complied in all material respects with each of its
agreements and covenants required by this Agreement to
be performed or complied with by it prior to or at the
Valuation Time and the Effective Time of the
Reorganization.
(h) At the Effective Time of the Reorganization the number
of Prime Value Fund shares outstanding is at least 60%
of the number of Prime Value Fund Shares outstanding on
May 30, 1995.
10. Pacific Horizon Conditions. The obligations of Pacific Horizon
hereunder shall be subject to the following conditions precedent:
(a) This Agreement and the transactions contemplated by this
Agreement shall have been approved by the Board of
Trustees of MMOT and by the shareholders of the Prime
Value Fund of Pacific Horizon, both in the manner
required by law.
(b) All representations and warranties of MMOT made in this
Agreement shall be true and correct in all material
respects as if made at and as of the Valuation Time and
the Effective Time of the Reorganization. As of the
Valuation Time and the Effective Time of the
Reorganization there shall have been no material adverse
change in the financial position of the Prime
Obligations Fund since the date of the financial
statements referred to in Section 5(f) other than those
changes incurred in the ordinary course of business as
an investment company since the date of the financial
statements referred to in Section 5(f). No action, suit
or other proceeding shall be threatened or pending
before any court or governmental agency in which it is
sought to restrain or prohibit, or obtain damages or
other relief in connection with, this Agreement or the
transactions contemplated herein. Pacific Horizon shall
have received a certificate from the President or Vice
President of MMOT stating that each of the conditions
set forth in this Section 10(a) and Section 10(b) have
been met.
(c) Pacific Horizon shall have received an opinion of
Dickstein, Shapiro & Morin, L.L.P., addressed to Pacific
Horizon in the form reasonably satisfactory to it and
dated the Effective Time of the Reorganization,
substantially to the effect that: (i) MMOT is a
Massachusetts business trust duly organized and validly
existing under the laws of the Commonwealth of
Massachusetts; (ii) the shares of the Prime Obligations
Fund to be delivered to the Prime Value Fund as provided
for by this Agreement are duly authorized and upon
delivery will be validly issued, fully paid and non-
assessable by the Prime Obligations Fund and to such
counsel's knowledge, no shareholder of MMOT has any
option, warrant or pre-emptive right to subscription or
purchase in respect thereof; (iii) this Agreement has
been duly authorized, executed and delivered by MMOT and
represents a legal, valid and binding contract,
enforceable in accordance with its terms, subject to the
effect of bankruptcy, insolvency, moratorium, fraudulent
conveyance and similar laws relating to or affecting
creditors' rights generally and court decisions with
respect thereto and such counsel shall express no
opinion with respect to the application of equitable
principles in any proceeding, whether at law or in
equity or with respect to the provisions of this
Agreement intended to limit liability for particular
matters to the Prime Obligations Fund and its assets,
including but not limited to Sections 1(a), 19 and 20 of
this Agreement; (iv) the execution and delivery of this
Agreement did not, and the consummation of the
transactions contemplated by this Agreement will not,
violate the Declaration of Trust or By-laws of MMOT, or
any material agreement known to such counsel to which
MMOT is a party or by which MMOT is bound; and (v) to
such counsel's knowledge no consent, approval,
authorization or order of any court or governmental
authority is required for the consummation by MMOT of
the transactions contemplated by this Agreement, except
such as have been obtained under the 1933 Act, the 1934
Act, the 1940 Act, the rules and regulations under those
Acts and such as may be required under the state
securities laws. Such opinion may rely on the opinion
of other counsel to the extent set forth in such
opinion, provided such other counsel is reasonably
acceptable to Pacific Horizon.
(d) Pacific Horizon shall have received an opinion of
Drinker Biddle & Reath, addressed to MMOT and Pacific
Horizon in the form reasonably satisfactory to them and
dated the Effective Time of the Reorganization, with
respect to the matters specified in Section 9(e).
(e) The N-14 Registration Statement shall have become
effective under the 1933 Act and no stop order
suspending such effectiveness shall have been
instituted, or to the knowledge of MMOT, contemplated by
the SEC and the parties shall have received all permits
and other authorizations necessary under state
securities laws to consummate the transactions
contemplated by this Agreement.
(f) The President or Vice President of MMOT shall have
certified that MMOT has performed and complied in all
material respects with each of its agreements and
covenants required by this Agreement to be performed or
complied with by it prior to or at the Valuation Time
and the Effective Time of the Reorganization.
11. Tax Documents. Pacific Horizon shall deliver to MMOT at the
Effective Time of the Reorganization confirmations or other adequate evidence as
to the adjusted tax basis of the Prime Value Fund Assets delivered to the Prime
Obligations Fund in accordance with the terms of this Agreement.
12. Further Assurances. Subject to the terms and conditions herein
provided, each of the parties hereto shall use its best efforts to take, or
cause to be taken, such action, to execute and deliver, or cause to be executed
and delivered, such additional documents and instruments and to do, or cause to
be done, all things necessary, proper or advisable under the provisions of this
Agreement and under applicable law to consummate and make effective the
transactions contemplated by this Agreement, including without limitation,
delivering and/or causing to be delivered to MMOT, each account, book, record or
other document of Pacific Horizon required to be maintained by Section 31(a) of
the 1940 Act and Rules 31a-1 to 31a-3 thereunder (regardless of whose possession
they are in).
13. Termination of Representations and Warranties. The representations
and warranties of the parties set forth in this Agreement shall terminate upon
the delivery of the Prime Value Fund Assets to the Prime Obligations Fund and
the issuance of the shares of the Prime Obligations Fund at the Effective Time
of the Reorganization.
14. Termination of Agreement. This Agreement may be terminated by a
party at any time at or prior to the Effective Time of the Reorganization by a
vote of a majority of its Board of Trustees or Directors, as applicable, as
provided below:
(a) By MMOT if the conditions set forth in Section 9 are not
satisfied as specified in said Section;
(b) By Pacific Horizon if the conditions set forth in
Section 10 are not satisfied as specified in said
Section; or
(c) If the Effective Time of the Reorganization has not
occurred on or before _____________.
This Agreement may be terminated at any time by the mutual consent of the
parties.
15. Amendment and Waiver. At any time prior to or (to the fullest
extent permitted by law) after approval of this Agreement by the shareholders of
Pacific Horizon (a) the parties hereto may, by written agreement authorized by
their respective Boards of Trustees or Directors, as applicable, and with or
without the approval of their shareholders, amend any of the provisions of this
Agreement, and (b) any party may waive any breach by any other party or the
failure to satisfy any of the conditions to its obligations (such waiver to be
in writing and authorized by the President or Vice President of the waiving
party with or without the approval of such party's shareholders).
16. Governing Law. This Agreement and the transactions contemplated
hereby shall be governed, construed and enforced in accordance with the laws of
the Commonwealth of Pennsylvania.
17. Successors and Assigns. This Agreement shall be binding upon the
respective successors and permitted assigns of the parties hereto. This
Agreement and the rights, obligations and liabilities hereunder may not be
assigned by any party without the consent of all other parties.
18. Beneficiaries. Nothing contained in this Agreement shall be deemed
to create rights in persons not parties hereto, other than the successors and
permitted assigns of the parties.
19. MMOT Liability.
(a) The names "Money Market Obligations Trust" and "Trustees
of Money Market Obligations Trust" refer respectively to
the trust created and the trustees, as trustees but not
individually or personally, acting from time to time
under a Declaration of Trust dated October 3, 1988,
which is hereby referred to and a copy of which is on
file at the office of the State Secretary of the
Commonwealth of Massachusetts and at the principal
office of MMOT. The obligations of MMOT entered into in
the name or on behalf thereof by any of the trustees,
representatives or agents are made not individually, but
in such capacities, and are not binding upon any of the
trustees, shareholders or representatives of MMOT
personally, but bind only the trust property, and all
persons dealing with any series of shares of MMOT must
look solely to the trust property belonging to such
series for the enforcement of any claims against MMOT.
(b) Each party specifically acknowledges and agrees that all
obligations of MMOT under this Agreement are binding
only with respect to the Prime Obligations Fund; that
any liability of MMOT under this Agreement with respect
to the Prime Obligations Fund, or in connection with the
transactions contemplated herein with respect to the
Prime Obligations Fund, shall be discharged only out of
the assets of the Prime Obligations Fund; and that no
other portfolio of MMOT, nor any individual shareholder
of MMOT, including Prime Obligations Fund, shall be
liable with respect to this Agreement or in connection
with the transactions contemplated herein.
20. Pacific Horizon Liability.
(a) Each party specifically acknowledges and agrees that all
obligations of Pacific Horizon under this Agreement are
binding only with respect to the Prime Value Fund; and
that any liability of Pacific Horizon under this
Agreement with respect to the Prime Value Fund, or in
connection with the transactions contemplated herein
with respect to the Prime Value Fund, shall be
discharged only out of the assets of the Prime Value
Fund and that no other portfolio of Pacific Horizon, nor
any individual shareholder of Pacific Horizon, including
Prime Value Fund, shall be liable with respect to this
Agreement or in connection with the transactions
contemplated herein.
21. Notices. All notices required or permitted herein shall be in
writing and shall be deemed to be properly given when delivered personally or by
telecopier to the party entitled to receive the notice or when sent by certified
or registered mail, postage prepaid, or delivered to an internationally
recognized overnight courier service, in each case properly addressed to the
party entitled to receive such notice at the address or telecopier number stated
below or to such other address or telecopier number as may hereafter be
furnished in writing by notice similarly given by one party to the other party
hereto:
If to Pacific Horizon:
Pacific Horizon Funds, Inc.
c/o Concord Holding Corporation
125 West 55th Street
New York, NY 10019
With copies to:
Michael P. Malloy, Esq.
Drinker Biddle & Reath
1345 Chestnut Street
Philadelphia, PA 19107
Telecopier Number: (215) 988-2757
If to MMOT:
Money Market Obligations Trust
c/o Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222
Telecopier Number: (412) 288-8141
With copies to:
Matthew G. Maloney, Esq.
Dickstein, Shapiro & Morin, L.L.P.
2101 L Street, N. W.
Washington, D. C. 20037
Telecopier Number: (202) 887-0689
22. Expenses.
With regard to the expenses incurred by Pacific Horizon and MMOT in
connection with this Agreement and the transactions contemplated hereby, Bank of
America National Trust and Savings Association shall be responsible for the
payment of all such expenses.
23. Entire Agreement. This Agreement embodies the entire agreement and
understanding of the parties hereto and supersedes any and all prior agreements,
arrangements and understandings relating to matters provided for herein.
24. Counterparts. This Agreement may be executed in any number of
counterparts, each of which, when executed and delivered shall be deemed to be
an original, but all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their duly authorized officers designated below as of the date first
written above.
PACIFIC HORIZON FUNDS, INC.
ATTEST:
_______________________ By: ______________________________
Secretary President
MONEY MARKET OBLIGATIONS TRUST
ATTEST:
_______________________ By: ______________________________
Secretary President
BANK OF AMERICA NATIONAL TRUST AND SAVING
ASSOCIATION, hereby joins in this Agreement
with respect to, and agrees to be bound by,
Section 22.
ATTEST:
_______________________ By: ______________________________
Secretary Executive Vice President
Portfolio of Investments
July 31, 1994 (unaudited)
</TABLE>
<TABLE>
<CAPTION>
Prime Pacific Horizon Pacific
Obligations Prime Pro Forma Prime Horizon
Fund Value Fund Combined Obligations Prime Value Pro Forma
Principal Principal Principal Fund Fund Combined
Amount Amount Amount Value Value Value
Certificates of Deposit - 5.2%
Banking - 5.2%
<S> <C> <C> <C> <C> <C> <C>
$ $ 15,000,000 $15,000,000 ABN-AMRO Bank NV, Chicago, 4.52%, 9/6/94 $ $14,999,410 $14,999,410
25,000,000 25,000,000 Canadian Imperial Bank of Commerce,
New York, 4.54%, 8/12/94 25,000,000 25,000,000
20,000,00 20,000,000 Canadian Imperial Bank of Commerce,
Toronto, 3.52%, 8/5/94 20,000,000 20,000,000
20,000,000 20,000,000 Mitsubishi Bank, Ltd., New York,
4.78%, 9/6/94 20,001,165 20,001,165
15,000,000 15,000,000 NBD Bank of North America, Detroit,
4.572%, 8/18/94 15,000,000 15,000,000
5,000,000 5,000,000 Rabobank Nederland, Utrecht Bank,
3.53%, 8/16/94 4,999,960 4,999,960
20,000,000 20,000,000 Sanwa Bank, Ltd., New York, 4.57%, 8/30/94 19,999,840 19,999,840
Total Certificates of deposit 24,999,960 95,000,415 120,000,375
*Commercial paper - 53.6%
Agriculture - 1.3%
30,000,000 30,000,000 Cargill, Inc., 4.27%, 8/15/94 29,950,183 29,950,183
Banking - 9.5%
25,000,000 25,000,000 ABN AMRO N.A., Finance, Inc., (Guaranteed by
ABN AMRO Bank N.V., Amsterdam), 4.55%,
9/21/94 24,840,625 24,840,625
8,000,000 8,000,000 AKZO America, Inc., 4.47%, 8/18/94 7,983,113 7,983,113
40,000,000 40,000,000 Bankers Trust New York Corp., 4.34%-4.58%,
8/19/94 - 9/1/94 39,877,722 39,877,722
5,000,000 5,000,000 Bank of Nova Scotia, Toronto, 5.20%, 1/9/95 4,886,629 4,886,629
59,000,000 25,000,000 84,000,000 Canadian Imperial Holdings, Inc.,
(Guaranteed by Canadian Imperial
Bank of Commerce, Toronto), 3.34%-4.70%,
8/3/94-10/24/94 58,603,003 24,952,867 83,555,870
24,700,000 24,700,000 City of Cleveland, (Union Bank of
Switzerland, Zurich LOC), 4.56%, 9/7/94 24,700,000 24,700,000
4,000,000 4,000,000 Comdisco, Inc., (Union Bank of
Switzerland, Zurich LOC), 4.09%, 9/22/94 3,976,831 3,976,831
2,000,000 2,000,000 PEMEX Capital, Inc., (Swiss Bank Corp.,
New York, NY LOC), 3.43%, 8/2/94 1,999,812 1,999,812
24,871,000 24,871,000 Queensland Alumina Ltd., (Credit Suisse,
Zurich LOC),4.34%-4.85%, 8/2/94-10/14/94 $24,771,713 $ $ 24,771,713
2,000,000 2,000,000 Toronto Dominion Holdings (USA), Inc.,
5.11%, 11/9/94 1,972,278 1,972,278
TOTAL 145,750,891 72,813,702 218,564,593
Education - 0.9%
20,000,000 20,000,000 Harvard University, 4.34%, 8/18/94 19,959,011 19,959,011
Finance-Automotive - 4.2%
46,700,000 46,700,000 Ford Credit Receivables Funding Inc.,
4.28%-4.54%, 8/26/94-10/7/94 46,471,317 46,471,317
30,000,000 30,000,000 Ford Motor Credit Co., 4.48%-4.50%,
8/15/94 - 8/23/94 29,937,622 29,937,622
20,000,000 20,000,000 New Center Asset Trust, A1+P1 Series,
4.73%, 8/15/94 19,963,600 19,963,600
TOTAL 66,434,917 29,937,622 96,372,539
Finance-Commercial - 23.7%
30,000,000 30,000,000 American Express Credit Corp., 4.28%, 8/15/94 29,950,067 29,950,067
25,357,000 25,357,000 Banc One Funding Corp., 4.40%, 8/15/94 25,291,917 25,291,917
73,500,000 73,500,000 Asset Securitization Cooperative Corp.,
4.00%-5.13%, 8/4/94-1/19/95 72,823,213 72,823,213
5,000,000 5,000,000 BNP Canada, 4.48%, 8/24/94 4,985,689 4,985,689
10,066,000 10,066,000 BTR Dunlop Finance, Inc., 4.33%, 8/15/94 10,049,050 10,049,050
13,000,000 13,000,000 Beta Finance, Inc., 4.75%, 10/25/94 12,855,736 12,855,736
10,000,000 10,000,000 CIESCO, Inc., 4.06%, 9/20/94 9,944,722 9,944,722
89,000,000 89,000,000 CIT Group Holdings Inc., 3.43% - 4.91%,
9/7/94-12/19/94 88,193,429 88,193,429
14,000,000 14,000,000 Commerzbank U.S. Finance, Inc., 4.45%-
4.50%, 8/17/94 13,972,222 13,972,222
9,000,000 9,000,000 Corporate Asset Funding Co., Inc. (CAFCO),
4.18%-5.183%, 9/27/94-1/5/95 8,863,916 8,863,916
30,000,000 30,000,000 Eiger Capital Corp., 4.50%, 8/15/94 29,947,500 29,947,500
75,500,000 75,500,000 General Electric Capital Corp., 3.45%-
5.33%, 8/9/94-1/18/95 74,528,902 74,528,902
20,000,000 20,000,000 General Electic Capital Corp., 4.40%,
8/24/94 19,943,778 19,943,778
10,000,000 10,000,000 Grand Metropolitan Investment Corp.,
4.47%, 8/31/94 9,962,750 9,962,750
19,000,000 19,000,000 Hertz Corp., 4.52%, 8/11/94 18,976,145 18,976,145
20,000,000 20,000,000 ITT Financial Corp., 4.25%, 8/1/94 20,000,000 20,000,000
40,000,000 40,000,000 National Rural Utilities Cooperative
Finance Corp., 4.35%-4.45%, 8/2/94-
8/15/94 39,963,694 39,963,694
25,000,000 25,000,000 PHH Corp., 4.50%, 8/16/94 24,953,125 24,953,125
15,000,000 15,000,000 Swiss Bank Corporation Finance Delaware
Inc., 4.50%, 8/24/94 14,956,875 14,956,875
19,364,000 19,364,000 Woodside Finance Ltd., 4.70%, (National
Australia Bank LOC), 9/9/94 19,265,405 19,265,405
Total 287,209,918 262,218,217 549,428,135
Finance-Retail - 12.9%
22,000,000 30,000,000 52,000,000 Associates Corp. of North America, 4.47%-
4.50%, 8/12/94-9/13/94 21,883,852 29,958,750 51,842,602
4,000,000 4,000,000 Fuji Photo Film Finance U.S.A., Inc.,
4.45%, 9/16/94 3,977,256 3,977,256
35,000,000 35,000,000 Merrill Lynch & Co., Inc., 4.37%-4.50%,
8/15/94-8/22/94 34,926,763 34,926,763
20,000,000 20,000,000 Penney (J.C.) Funding Corp., 4.45%, 8/16/94 19,962,917 19,962,917
39,000,000 39,000,000 Xerox Credit Corp., 4.34%, 8/15/94 38,934,177 38,934,177
Total 21,883,852 127,759,863 149,643,715
Food & Beverage - 0.9%
20,000,000 20,000,000 Anheuser-Busch Companies, Inc., 3.51%-
3.54%, 9/7/94-9/9/94 19,927,767 19,927,767
Insurance-4.8%
20,000,000 20,000,000 American General Corp., 4.22%, 8/1/94 20,000,000 20,000,000
22,591,000 22,591,000 Prospect Street Senior Loan Portfolio,
L.P., (Guaranteed by Financial Security
Assurance, Inc.), 3.34%-4.97%, 8/1/94-
11/28/94 22,448,839 22,448,839
69,000,000 69,000,000 Prudential Funding Corp., 4.13%-5.01%,
10/3/94-1/20/95 68,073,991 68,073,991
Total 110,522,830 110,522,830
Pharmaceuticals-0.9%
11,000,000 11,000,000 Schering Corp., 4.29%, 10/18/94 10,899,900 10,899,900
10,000,000 10,000,000 Smithkline Beecham Corp., 4.44%, 8/15/94 9,982,733 9,982,733
Total 10,899,900 9,982,733 20,882,633
Utilities-1.0%
14,000,000 14,000,000 Ameritech Corp., 4.81%, 12/12/94 13,756,906 13,756,906
10,000,000 10,000,000 Ontario Hydro, 4.47%, 8/22/94 9,973,925 9,973,925
Total 13,756,906 9,973,925 23,730,831
Total Commerical Paper 676,386,981 562,595,256 1,238,982,237
**Variable Rate Instruments-22.4%
Banking-16.3%
4,100,000 4,100,000 500 South Front St. L.P., Series A,
(Huntington National Bank, Columbus,
OH LOC), 4.80%, 8/4/94 4,100,000 4,100,000
7,000,000 7,000,000 500 South Front St. L.P., Series B,
(Huntington National Bank, Columbus,
OH LOC), 4.80%, 8/4/94 7,000,000 7,000,000
13,156,000 13,156,000 Adesa Funding Corp., (Bank One,
Indianapolis, IN LOC), 4.72%, 8/4/94 13,156,000 13,156,000
8,750,000 8,750,000 Alexandria Executive Club L.P.,
(Huntington National Bank, Columbus, OH
LOC), 4.80%, 8/4/94 8,750,000 8,750,000
10,000,000 10,000,000 American Express Centurion Bank, Delaware,
4.50%, 8/26/94 10,000,000 10,000,000
10,000,000 10,000,000 Bank One Texas N.A., Dallas, 4.45%, 8/1/94 10,000,000 10,000,000
16,900,000 16,900,000 Beverly California Corp., (PNC Bank, N.A.
LOC), 4.72%, 8/1/94 16,900,000 16,900,000
4,085,000 4,085,000 Eastwinds Investment, Ltd., (Huntington
National Bank, Columbus, OH LOC), 4.80%,
8/4/94 4,085,000 4,085,000
100,000,000 100,000,000 Goldman Sachs Group, L.P., 4.437%, 8/1/94 100,000,000 100,000,000
2,485,000 2,485,000 Grote Family, L.P., (Huntington National
Bank, Columbus, OH LOC), 4.80%, 8/4/94 2,485,000 2,485,000
24,000,000 24,000,000 Holy Cross Health System Corp., (Swiss
Bank Corp., New York, NY LOC), 4.95%,
8/3/94 24,000,000 24,000,000
5,000,000 5,000,000 Hunt Club Apartments, Inc., (Huntington
National Bank, Columbus, OH LOC), 4.80%,
8/4/94 5,000,000 5,000,000
25,000,000 25,000,000 J.P. Morgan & Co., Delaware, 4.58%, 8/2/94 24,985,575 24,985,575
4,800,000 4,800,000 Kokosing Construction Co., Inc., (National
City Bank, Cleveland, OH LOC), 4.55%, 8/4/94 4,800,000 4,800,000
8,600,000 8,600,000 Mississippi Business Finance Corp.,
Comerica Bank LOC), 4.80%, 8/4/94 8,600,000 8,600,000
15,000,000 15,000,000 NDB Bank of North America, Detroit,
4.57%, 8/15/94 14,999,983 14,999,983
5,000,000 5,000,000 Olen Corp., (National City Bank, Cleveland,
OH LOC), 4.55%, 8/4/94 5,000,000 5,000,000
29,000,000 29,000,000 PHH/CFC Leasing, Inc., (Societe Generale,
Paris LOC), 4.78%, 8/3/94 29,000,000 29,000,000
2,800,000 2,800,000 Ramsey Real Estate Enterprises, (National
City Bank, KY LOC), 4.55%, 8/4/94 2,800,000 2,800,000
7,900,000 7,900,000 Roby Company, Ltd. Partnership, (Huntington
National Bank, Columbus, OH LOC), 4.80%,
8/4/94 7,900,000 7,900,000
13,750,000 13,750,000 Rooker, J.W., (Wachovia Bank of Atlanta,
GA, N.A. LOC). 4.78%, 8/3/94 13,750,000 13,750,000
7,360,000 7,360,000 Shenandoah Partners L.P., (Huntington
National Bank, Columbus, OH LOC), 4.80%,
8/4/94 7,360,000 7,360,000
35,000,000 35,000,000 SMM Trust, Series 1993-B (Guaranteed by
Morgan Guaranty), 4.86%, 8/12/94 35,000,000 35,000,000
15,981,000 15,981,000 Vista Funding Corp., (Bank One, Akron, OH
N.A. LOC), 4.72%, 8/4/94 15,981,000 15,981,000
2,500,000 2,500,000 YMCA of Central, OH, (Huntington National
Bank, Columbus, OH LOC), 4.80%, 8/4/94 2,500,000 2,500,000
Total 218,167,000 159,985,558 378,152,558
Electrical Equipment-1.9%
11,111,837 11,111,837 GS Funding Corp., (Guaranteed by General
Electric Co.), 4.72%, 8/1/94 11,111,837 11,111,837
6,000,000 6,000,000 Lauda Air, (Guaranteed by General
Electric Co.), 4.74%, 8/1/94 6,000,000 6,000,000
25,909,392 25,909,392 Northwest Airlines, Inc., (Guaranteed by
General Electric Co.), 4.74%, 8/1/94 25,909,392 25,909,392
Total 43,021,229 43,021,229
Finance-Automotive-3.1%
32,000,000 32,000,000 Carco Auto Loan Master Trust, Series
1993-2, 4.65%, 8/15/94 32,000,000 32,000,000
40,000,000 40,000,000 Money Market Auto Loan Trust, 4.73%,
8/15/94 40,000,000 40,000,000
Total 72,000,000 72,000,000
Insurance-1.1%
25,000,000 25,000,000 (a) Peoples Security Life Insurance, 4.58%,
8/1/94 25,000,000 25,000,000
Total Variable Rate Instruments 358,188,229 159,985,558 518,173,787
Short-Term Notes - 1.5%
Banking-0.6%
8,000,000 8,000,000 (a) A.P. Investment Co., 3.85%, 9/7/94 8,000,000 8,000,000
6,000,000 6,000,000 Bayerische Landesbank Girozentrale,
3.625%, 12/9/94 6,000,770 6,000,770
Total 14,000,770 14,000,770
Finance-Retail - 0.3%
5,000,000 5,000,000 American General Finance Corp.,
3.53%, 9/15/94 5,035,655 5,035,655
2,800,000 2,800,000 Associates Corp. of North America,
3.63%-3.65%, 11/15/94-12/1/94 2,831,615 2,831,615
Total 7,867,270 7,867,270
Government Agency-0.6%
5,000,000 5,000,000 Nebraska Higher Education Loan Program,
Inc., 4.79%, 8/2/94 5,000,000 5,000,000
5,000,000 5,000,000 Student Loan Marketing Association,
4.54%, 8/2/94 5,000,000 5,000,000
4,000,000 4,000,000 Tennessee Valley Authority, 3.82%,
10/1/94 4,208,934 4,208,934
Total 4,208,934 10,000,000 14,208,934
Total Short-Term Notes 26,076,974 10,000,000 36,076,974
**Repurchase Agreements-17.8%
40,000,000 40,000,000 Bear, Stearns and Co., Inc., 4.22%,
dated 7/29/94, due 8/1/94 40,000,000 40,000,000
60,000,000 60,000,000 Daiwa Securities America, Inc., 4.20%,
dated 7/29/94, due 8/1/94 60,000,000 60,000,000
60,000,000 60,000,000 Donaldson, Lufkin and Jenrette Securities
Corp., 4.22%, dated 7/29/94, due 8/1/94 60,000,000 60,000,000
50,000,000 50,000,000 First National Bank of Chicago, 4.25%,
dated 7/29/94, due 8/1/94 50,000,000 50,000,000
77,317,000 77,317,000 Goldman, Sachs & Co., 4.20%, dated
7/29/94, due 8/1/94 77,317,000 77,317,000
50,000,000 50,000,000 HSBC Securities, Inc., 4.20%, dated
7/29/94, due 8/1/94 50,000,000 50,000,000
24,350,000 24,350,000 Kidder, Peabody & Co., Inc., 4.22%, dated
7/29/94, due 8/1/94 24,350,000 24,350,000
50,000,000 50,000,000 Nomura Securities International, Inc.,
4.23%, dated 7/29/94, due 8/1/94 50,000,000 50,000,000
Total Repurchase Agreements, at
amortized cost 184,350,000 227,317,000 411,667,000
Total Investments, at
amortized cost (b) $1,270,002,144 $1,054,898,229 $2,324,900,373
</TABLE>
* Each issue shows the rate of discount at the time of purchase for discount
issues, or the coupon for interest bearing issues.
** Current rate and next reset date shown.
*** Repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices at the date of the
portfolio. The investments in repurchase agreements of Prime
Obligations Fund are through participation in joint accounts
with other Federated Funds.
(a) Restricted Securities - Investments in securities not registered
under the Securities Act of 1933. At the end of the period, these
securities amounted to $33,000,000 which represents 1.4% of net assets.
(b) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($2,313,352,270) at July 31, 1994.
Portfolio of Investments
July 31, 1994 (unaudited)
The following abbreviation is used in this portfolio:
LOC - Letter of Credit
(See Notes to Pro Forma Financial Statements)
Prime Obligations Fund
Pacific Horizon Prime Value Fund
Pro Forma Combining Portfolio of Investments
January 31, 1995 (unaudited)
<TABLE>
<CPATION>
Prime Pacific Horizon Pacific
Obligations Prime Pro Forma Prime Horizon
Fund Value Fund Combined Obligations Prime Value Pro Forma
Principal Principal Principal Fund Fund Combined
Amount Amount Amount Value Value Value
Commercial Paper -- 38.5%
<S> <C> <C> <C> <C> <C> <C>
Automobiles - 0.4%
$ $5,000,000 $ 5,000,000 Mitsubishi Motors Credit of America,5.75%,
(Mitsubishi Bank LOC), 2/9/1995 $ $ 4,993,611 $ 4,993,611
7,000,000 7,000,000 Toyota Motor Credit Corp., 5.98%, 3/10/1995 6,956,977 6,956,977
Total 11,950,588 11,950,588
Banking - 6.7%
6,000,000 6,000,000 Abbey National N.A. Corp., (Guaranteed by
Abbey National Bank PLC, London), 6.017%,
5/9/1995 5,905,587 5,905,587
27,000,000 27,000,000 Bank of Nova Scotia, Toronto, 5.869%,
4/25/1995 26,645,175 26,645,175
14,000,000 14,000,000 Candadian Imperial Holdings, Inc.,
(Guaranteed by Canadian Imperial Bank of
Commerce, Toronto), 5.246%-6.093%, 2/24/1995-
3/2/1995 13,946,508 13,946,508
24,700,000 24,700,000 City of Cleveland, (Union Bank of Switzerland,
Zurich LOC), 6.250%, 2/6/1995 24,700,000 24,700,000
29,000,000 29,000,000 Commerzbank U.S. Finance, Inc., (Guaranteed
by Commerzbank AG, Frankfurt), 5.583%-6.708%,
3/30/1995-7/3/1995 28,656,438 28,656,438
25,418,000 25,418,000 Queensland Alumina Ltd., (Credit Suisse,
Zurich LOC), 6.269%-6.302%, 4/13/1995-
4/21/1995 25,087,813 25,087,813
8,000,000 8,000,000 Royal Bank of Canada, Montreal, (Guaranteed
by Royal Bank of Canada), 6.134%, 4/28/1995 7,884,760 7,884,760
18,000,000 18,000,000 Toronto Dominion Holdings (USA), Inc.,
(Guaranteed by Toronto-Dominion Bank),
5.203%-5.219%, 3/8/1995-3/9/1995 17,909,314 17,909,314
30,000,000 30,000,000 UBS Finance (Delaware), Inc., (Guaranteed
by Union Bank of Switzerland, Zurich),
5.831%, 2/1/1995 30,000,000 30,000,000
Total 180,735,595 180,735,595
Diversified - 2.3%
$62,000,000 $ $62,000,000 Rockwell International Corp., 6.819%-6.824%, $ $ $
6/2/1995-6/6/1995 60,606,300 60,606,300
Finance - Commercial - 15.4%
83,500,000 83,500,000 Asset Securitization Cooperative Corp.,
5.734%-6.219%, 2/10/1995-4/28/1995 82,982,257 82,982,257
44,500,000 44,500,000 Beta Finance, Inc., 5.340%-6.746%,
3/13/1995 - 6/27/1995 44,081,347 44,081,347
34,000,000 34,000,000 CIESCO, Inc., 5.235% - 6.262%, 2/9/1995 -
5/3/1995 33,543,504 33,543,504
50,000,000 50,000,000 CIT Group Holdings, Inc., 5.782%, 2/9/1995 49,936,111 49,936,111
13,400,000 13,400,000 Corporate Asset Funding Co., Inc. (CAFCO),
5.132% - 6.677%, 2/2/1995 - 7/26/1995 13,203,678 13,203,678
127,000,000 127,000,000 General Electric Capital Corp., 5.629% -
6.718%, 4/6/1995 - 7/17/1995 124,808,948 124,808,948
66,000,000 66,000,000 Sheffield Receivables Corp., 6.253% -
6.273%, 5/1/1995 - 5/2/1995 64,989,499 64,989,499
Total 413,545,344 413,545,344
Finance - Retail - 10.8%
25,000,000 25,000,000 American General Finance Corp., 5.851%,
2/1/1995 25,000,000 25,000,000
60,000,000 60,000,000 Associates Corp. of North America, 5.831% -
6.404%, 2/1/1995 - 4/7/1995 59,601,875 59,601,875
53,700,000 53,700,000 Ford Credit Receivables Funding, Inc.,
5.883% - 6.270%, 2/23/1995 - 5/4/1995 53,091,057 53,091,057
152,000,000 152,000,000 New Center Asset Trust, A1+P1 Series,
5.209% - 6.824%, 2/17/1995 - 7/21/1995 149,359,177 149,359,177
6,000,000 6,000,000 Norwest Financial Corp., 6.255%, 4/27/1995 5,912,875 5,912,875
Total 292,964,984 292,964,984
Foreign - 0.2%
5,000,000 5,000,000 Compagnie Francaise, 5.90%, 3/1/1995 4,977,056 4,977,056
Insurance--2.1%
43,789,000 43,789,000 Prospect Street Senior Portfolio, L.P.,
(Guaranteed by Financial Security Assurance,
Inc.), 5.234% - 6.880%, 2/2/1995 - 7/19/1995 43,033,839 43,033,839
13,000,000 13,000,000 Prudential Funding Corp., 6.030%, 5/11/1995 12,790,863 12,790,863
Total 55,824,702 55,824,702
Photographic Products--0.6%
7,000,000 7,000,000 Fuji Photo Film Finance USA, Inc., 5.95%,
3/16/1995 6,950,251 6,950,251
8,000,000 8,000,000 Konica Finance U.S. Corp., 5.75%
(Mitsubishi Bank), 2/10/1995 7,988,500 7,988,500
Total 14,938,751 14,938,751
Total Commercial Paper 1,003,676,925 31,866,395 1,035,543,320
Corporate Bonds--1.1%
Banking--1.1%
$28,000,000(a) $ $28,000,000(a) SMM Trust Series 1994-H, (Guaranteed by $ $ $
Morgan Guaranty Trust Co., NY), 6.034%,
2/22/1995 27,995,249 27,995,249
**Variable Rate Instruments--17.4%
Banking--11.0%
4,045,000 4,045,000 500 South Front St. L.P., Series A,
(Huntington National Bank, Columbus, OH
LOC), 6.360%, 2/2/1995 4,045,000 4,045,000
6,500,000 6,500,000 500 South Front St. L.P., Series B,
(Huntington National Bank, Columbus, OH
LOC), 6.360%, 2/2/1995 6,500,000 6,500,000
12,064,000 12,064,000 Adesa Funding Corp., (Bank One,
Indianapolis, IN LOC), 6.220%, 2/2/1995 12,064,000 12,064,000
8,610,000 8,610,000 Alexandria Executive Club L.P.,
(Huntington National Bank, Columbus, OH
LOC), 6.360%, 2/2/1995 8,610,000 8,610,000
10,000,000 10,000,000 American Express Centurion Bank, Delaware,
6.00%, 2/27/1995 10,000,000 10,000,000
20,000,000 20,000,000 American Express Centurion Bank, Delaware,
5.88%, 2/13/1995 20,000,000 20,000,000
10,000,000 10,000,000 Bank One, Texas, N.A., Dallas, 5.91%,
2/1/1995 10,000,000 10,000,000
16,900,000 16,900,000 Beverly California Corp., (PNC Bank, N.A.
LOC), 6.304%, 2/6/1995 16,900,000 16,900,000
1,642,790 1,642,790 Bowling Green Manor L.P., (Huntington
National Bank, Columbus, OH LOC), 6.360%,
2/2/1995 1,642,790 1,642,790
17,400,000 17,400,000 CMH Funding, (Huntington National Bank,
Columbus, OH LOC), 7.040%, 7/3/1995 17,400,000 17,400,000
22,105,000 22,105,000 Capital One Funding Corp., (Bank One,
Cleveland, N.A. LOC), 6.560%, 2/2/1995 22,105,000 22,105,000
1,062,337 1,062,337 Clyde Manor L.P., (Huntington National
Bank, Columbus, OH LOC), 6.360%, 2/2/1995 1,062,337 1,062,337
4,020,000 4,020,000 Eastwinds Investment, Ltd., (Huntington
National Bank, Columbus, OH LOC), 6.360%,
2/2/1995 4,020,000 4,020,000
7,000,000 7,000,000 Goldman Sachs Group, L.P., 6.00%, 2/1/1995 7,000,000 7,000,000
2,485,000 2,485,000 Grote Family L.P., (Huntington National
Bank, Columbus, OH LOC), 6.360%, 2/2/1995 2,485,000 2,485,000
5,000,000 5,000,000 Hunt Club Apartments, Inc., (Huntington
National Bank, Columbus, OH LOC), 6.360%,
2/1/1995 5,000,000 5,000,000
25,000,000 25,000,000 J.P. Morgan, Delaware, 6.00%, 2/7/1995 24,993,137 24,993,137
$ 4,500,000 $ $ 4,500,000 Kokosing Construction Co., Inc., (National
City Bank, Cleveland, OH LOC), 6.200%,
2/1/1995 $ 4,500,000 $ $ 4,500,000
8,600,000 8,600,000 Mississippi Business Finance Corp.,
(Comercia Bank, Detroit, MI LOC),
6.360%, 2/2/1995 8,600,000 8,600,000
5,000,000 5,000,000 Olen Corp., (National City Bank, Cleveland,
OH LOC), 6.20%, 2/1/1995 5,000,000 5,000,000
29,000,000 29,000,000 PHH/CFC Leasing, Inc., (Banque Nationale de
Paris LOC), 6.320%, 2/1/1995 29,000,000 29,000,000
2,350,000 2,350,000 Ramsey Real Estate Enterprises, (National
City Bank, Kentucky LOC), 6.200%, 2/2/1995 2,350,000 2,350,000
7,900,000 7,900,000 Roby Company Ltd. Partnership, (Huntington
National Bank, Columbus, OH LOC), 6.360%,
2/2/1995 7,900,000 7,900,000
13,450,000 13,450,000 Rooker, J.W., (Wachovia Bank of Georgia NA,
Atlanta LOC), 6.339%, 2/1/1995 13,450,000 13,450,000
20,000,000(a) 20,000,000(a) SMM Trust 1994-B, (Guaranteed by Morgan
Guaranty Trust Co., NY), 5.892%, 2/11/1995 19,994,010 19,994,010
7,040,000 7,040,000 Shenandoah Partners L.P., (Huntington
National Bank, Columbus, OH LOC), 6.360%,
2/2/1995 7,040,000 7.040,000
6,100,000 6,100,000 State Industrial Development Authority
(Alabama) Miltope Project, Series 1994,
(First Alabama Bank, Birmingham LOC),
6.610%, 2/2/1995 6,100,000 6,100,000
3,526,000 3,526,000 Vista Funding Corp., (Bank One, Akron, N.A.
LOC), 6.220%, 2/2/1995 3,526,000 3,526,000
6,678,000 6,678,000 Vista Funding Corp., (Fifth Third Bank of
Northwestern OH LOC), 6.360%, 2/2/1995 6,678,000 6,678,000
1,011,431 1,011,431 Wauseon Manor II L.P., (Huntington National
Bank, Columbus, OH LOC), 6.360%, 2/2/1995 1,011,431 1,011,431
3,775,000 3,775,000 Wexner Heritage House, (Huntington National
Bank, Columbus, OH LOC), 6.360%, 2/2/1995 3,775,000 3,775,000
2,500,000 2,500,000 YMCA of Central, OH, (Huntington National
Bank, Columbus, OH LOC), 6.360%, 2/2/1995 2,500,000 2,500,000
Total 223,258,568 71,993,137 295,251,705
Electrical Equipment--1.6%
13,058,538 13,058,538 GS Funding Corp., (Guaranteed by General
Electric Co.), 6.304%, 2/6/1995 13,058,537 13,058,537
6,000,000 6,000,000 Lauda Air, (Guaranteed by General
Electric Co.), 6.337%, 2/1/1995 6,000,000 6,000,000
25,388,464 25,388,464 Northwest Airlines, Inc., (Guaranteed by
General Electric Co.), 6.337%, 2/6/1995 25,388,464 25,388,464
Total $ 44,447,001 $ $ 44,447,001
Finance - Automotive--2.7%
$32,000,000 $ $32,000,000 Carco Auto Loan Master Trust, Series 1993-2,
5.791%, 2/15/1995 32,000,000 32,000,000
40,000,000 40,000,000 Money Market Auto Loan Trust, 5.896%,
2/15/1995 40,000,000 40,000,000
Total 72,000,000 72,000,000
Government - 0.2%
5,000,000 5,000,000 Nebraska Higher Education Loan Program,
Inc., 6.21%, 2/7/1995 5,000,000 5,000,000
Insurance -- 0.9%
25,000,000(a) 25,000,000(a) Peoples Security Life Insurance, 6.290%,
2/1/1995 25,000,000 25,000,000
Municipal--1.0%
26,700,000(a) 26,700,000(a) City of Columbus, Ohio, 6.610%, 2/2/1995 26,700,000 26,700,000
Total Variable Rate Instruments 391,405,569 76,993,137 468,398,706
***Repurchase Agreements--43.3%
8,000,000 8,000,000 Barclays de Zoete Wedd Securities, Inc.,
5.800%, dated 1/31/1995, due 2/1/1995 8,000,000 8,000,000
130,000,000 130,000,000 Chase Securities, Inc., 5.800%, dated
1/31/1995, due 2/1/1995 130,000,000 130,000,000
218,000,000 218,000,000 Chemical Banking Corp., 5.820%, dated
1/31/1995, due 2/1/1995 218,000,000 218,000,000
8,000,000 8,000,000 Dean Witter Reynolds, Inc., 5.750%,
dated 1/31/1995, due 2/1/1995 8,000,000 8,000,000
250,000,000 8,000,000 258,000,000 First Chicago Capital Markets, Inc.,
5.820%-5.830%, dated 1/31/1995, due
2/1/1995 250,000,000 8,000,000 258,000,000
130,000,000 130,000,000 Fuji Government Securities, Inc., 5.820%,
dated 1/31/1995, due 2/1/1995 130,000,000 130,000,000
250,000,000 250,000,000 Lehman Government Securities, Inc., 5.830%,
dated 1/31/1995, due 2/1/1995 250,000,000 250,000,000
8,000,000 8,000,000 Lehman Government Securities, Inc., 5.830%,
dated 1/31/1995, due 2/1/1995 8,000,000 8,000,000
8,000,000 8,000,000 Merrill Lynch Government Securities Inc.,
5.750%, dated 1/31/1995, due 2/1/1995 8,000,000 8,000,000
90,000,000 90,000,000 Nationsbank of North Carolina N.A., 5.820%,
dated 1/31/1995, due 2/1/1995 90,000,000 90,000,000
37,000,000 37,000,000 Nomura Securities, International, Inc.,
5.850%, dated 1/31/1995, due 2/1/1995 37,000,000 37,000,000
20,500,000 20,500,000 State Street Bank and Trust Co., Boston,
MA, 5.820%, dated 1/31/1995, due 2/1/1995 20,500,000 20,500,000
Total Repurchase Agreements 1,088,500,000 77,000,000 1,165,500,000
Total Investments, at amortized cost(b) $2,511,577,743 $185,859,532 $2,697,437,275
</TABLE>
* Each issue shows the rate of discount at the time of purchase for
discount issues, or the coupon for interest bearing issues.
** Current rate and next reset date shown.
*** Repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices at the date of the
portfolio. The investments in repurchase agreements of Prime
Obligations Fund are through participation in joint accounts with other
Federated Funds.
(a) Restricted Securities-Investments in Securities not registered
under the Securities Act of 1933. At the end of the period, these
securities amounted to $74,700,000 which represents 3.2% of net assets.
(b) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net
assets ($2,691,226,641) at
January 31, 1995
The following abbreviation is used throughout this portfolio:
LOC --Letter of Credit
(See Notes which are an integral part of the Financial Statements.)
<TABLE>
<CAPTION>
Prime Obligations Fund
Pacific Horizon Prime Value Fund
Pro Forma Combining Statement of Assets and Liabilities
July 31, 1994 (unaudited)
<S> <C> <C> <C> <C>
Pacific
Prime Horizon
Obligations Prime Value Pro Forma Pro Forma
Fund Fund Adjustments Combined
Assets:
Investments in other securities $1,085,652,144 $ 827,581,229 $1,913,233,373
Investments in repurchase agreements 184,350,000 227,317,000 411,667,000
Total investments, at amortized cost and value 1,270,002,144 1,054,898,229 2,324,900,373
Cash 0 615 615
Interest receivable 3,014,604 1,170,576 4,185,180
Deferred expenses 790 45,988 46,778
Total assets 1,273,017,538 1,056,115,408 2,329,132,946
Liabilities:
Advisory fees payable 0 32,703 32,703
Administration fees payable 0 32,703 32,703
Payable to Bank 8,404,957 0 8,404,957
Dividends payable 3,942,438 2,986,752 6,929,190
Payable for Fund shares redeemed 3,693 0 3,693
Accrued expenses 299,979 77,451 377,430
Total liabilities 12,651,067 3,129,609 15,780,676
Net Assets $1,260,366,471 $1,052,985,799 $2,313,352,270
Net Assets:
Institutional Shares $1,250,979,261 -- 1,052,985,799 $2,303,965,060
Institutional Service Shares $ 9,387,210 -- $ 9,387,210
Pacific Horizon Shares -- $106,124,053 (106,124,053) 0
Horizon Shares -- $946,861,746 (946,861,746) 0
Shares Outstanding:
Institutional Shares 1,250,979,261 -- 1,053,279,259 2,304,258,520
Institutional Service Shares 9,387,210 -- 9,387,210
Pacific Horizon Shares -- 106,153,629 (106,153,629) 0
Horizon Shares -- 947,125,630 (947,125,630) 0
Net Asset Value, Offering Price, and
Redemption Proceeds Per Share: $ 1.00 $ 1.00 $ 1.00
(See Notes to Pro Forma Financial Statements)
</TABLE>
<TABLE>
<CAPTION>
Prime Obligations Fund
Pacific Horizon Prime Value Fund
Pro Forma Combining Statement of Assets and Liabilities
January 31, 1995 (unaudited)
<S> <C> <C> <C> <C>
Pacific
Prime Horizon
Obligations Prime Value Pro Forma Pro Forma
Fund Fund Adjustments Combined
Assets:
Investments in repurchase agreements $1,088,500,000 $ 77,000,000 $1,165,500,000
Investments in other securities 1,423,077,743 108,859,532 1,531,937,275
Total investments, at amortized cost and value 2,511,577,743 185,859,532 2,697,437,275
Cash 0 185 185
Interest receivable 2,937,444 327,512 3,264,956
Receivable from Adviser 0 34,912 34,912
Receivable for shares sold 39,237 0 39,237
Deferred expenses 0 49,193 49,193
Total assets 2,514,554,424 186,271,334 2,700,825,758
Liabilities:
Dividends payable 0 866,472 866,472
Income distribution payable 8,317,966 0 8,317,966
Accrued expenses 43,401 65,681 109,082
Payable to Bank 305,597 0 305,597
Total liabilities 8,666,964 932,153 9,599,117
Net Assets $2,505,887,460 $185,339,181 $2,691,226,641
Net Assets:
Institutional Shares $2,348,306,099 -- 185,339,181 $2,533,645,280
Institutional Service Shares $ 157,581,361 -- $ 157,581,361
Pacific Horizon Shares -- $ 70,548,544 ( 70,548,544) 0
Horizon Shares -- $114,790,637 (114,790,637) 0
Shares Outstanding:
Institutional Shares 2,348,306,099 -- 185,633,178 2,533,939,277
Institutional Service Shares 157,581,361 -- 157,581,361
Pacific Horizon Shares -- 70,823,680 ( 70,823,680) 0
Horizon Shares -- 114,809,498 (114,809,498) 0
Net Asset Value, Offering Price, and
Redemption Proceeds Per Share: $ 1.00 $ 1.00 $ 1.00
(See Notes to Pro Forma Financial Statements)
</TABLE>
<TABLE>
<CAPTION>
Prime Obligations Fund
Pacific Horizon Prime Value Fund
Pro Forma Combining Statement of Operations
Year Ended July 31, 1994 (unaudited)
<S> <C> <C>
<C> <C> <C>
Pacific
Prime
Horizon
Obligations
Prime Value Pro Forma Pro Forma
Fund
Fund Adjustments Notes Combined
Investment Income:
Interest $ 43,573,931 $
9,380,419 $ 0 $ 52,954,350
Expenses:
Investment advisory fee 2,368,688
239,168 239,208 (a) 2,847,064
Administrative personnel and services fees
and portfolio accounting fees 871,701
239,168 (72,929) (b) 1,037,940
Custodian fees 134,035
58,781 (34,822) (c) 157,994
Printing and postage 11,498
62,793 (58,793) (d) 15,498
Legal fees 11,663
67,002 (66,602) (e) 12,063
Directors'/Trustees' fees 4,244
29,479 (28,479) (f) 5,244
Transfer agent and dividend
disbursing agent fees 27,001
28,870 0 55,871
Share registration costs 247,815
19,427 0 267,242
Auditing fees 13,145
40,058 (40,058) (g) 13,145
Other Expenses 89,649
39,096 (30,208) (h) 98,537
Shareholder services fee/management fee -
Institutional Shares/Pacific Horizon Shares 205,170
447,529 (406,867) (i) 245,832
Shareholder services fee - Institutional
Service Shares 652
0 0 652
Total expenses 3,985,261
1,271,371 (499,550) 4,757,082
Deduct-
Waiver of investment advisory fee/
expense reimbursements 1,615,921
820,324 (526,878) (a) 1,909,367
Net expenses 2,369,340
451,047 27,328 2,847,715
Net investment income 41,204,591
8,929,372 (27,328) 50,106,635
Realized gain/(loss) on Investments 0
(289,567) 0 (289,567)
Net Increase in Net Assets $41,204,591
$8,639,805 (27,328) $49,817,068
(See legend to the Statement of Operations)
(See Notes to Pro Forma Financial Statements)
</TABLE>
<TABLE>
<CAPTION>
Prime Obligations Fund
Pacific Horizon Prime Value Fund
Pro Forma Combining Statement of Operations
Six Months Ended January 31, 1995 (unaudited)
<S> <C> <C> <C>
<C> <C>
Pacific
Prime Horizon
Obligations Prime Value Pro Forma
Pro Forma
Fund Fund Adjustments
Notes Combined
Investment Income:
Interest $47,165,529 $12,131,295 $ 0
$59,296,824
Expenses:
Investment advisory fee 1,767,789 245,821 245,821
(a) 2,259,431
Administrative personnel and services fees
and portfolio accounting fees 778,458 245,821 (46,843)
(b) 977,436
Custodian fees 85,117 50,256 (32,385)
(c) 102,988
Transfer agent and dividend disbursing agent
fees 27,249 13,774 0
41,023
Printing and postage 5,250 20,784 (18,784)
(d) 7,250
Legal fees 11,158 23,137 (23,137)
(e) 11,158
Directors'/Trustees' fees 7,000 11,534 (11,034)
(f) 7,500
Auditing fees 6,375 18,295 (18,295)
(g) 6,375
Other Expenses 35,845 33,955 (30,726)
(h) 39,074
Shareholder Service fees -
Institutional Service Shares 115,646 0 0
115,646
Shareholder Service fees/management fee -
Institutional Shares/Pacific Horizon Shares 0 124,526 (124,526)
(i) 0
Share registration costs 194,606 8,003 0
202,609
Total expenses 3,034,493 795,906 (59,909)
3,770,490
Deduct-
Waiver of investment advisory fee/expense
reimbursements 1,150,753 216,934 27,421
(a) 1,395,108
Net expenses 1,883,740 578,972 (87,330)
2,375,382
Net investment income 45,281,789 11,552,323 87,330
56,921,442
Net realized gain/(loss) on investments 0 (537) 0
(537)
Net Increase in Net Assets $45,281,789 $11,551,786 $ 87,330
$56,920,905
(See legend to the Statement of Operations)
(See Notes to Pro Forma Financial Statements)
</TABLE>
PRIME OBLIGATIONS FUND
PACIFIC HORIZON PRIME VALUE FUND
PRO FORMA COMBINING STATEMENT OF OPERATIONS (CONTINUED)
YEAR ENDED JULY 31, 1994 AND SIX MONTHS ENDED JANUARY 31, 1995
(UNAUDITED)
(a) Federated Management, Prime Obligations Fund's investment
Advisor is entitled to receive for its services an annual investment
advisory fee equal to 0.20% of the Prime Obligations Fund's average
daily assets. The advisor may voluntarily choose to waive a portion
of its fee. The advisor can modify or terminate this voluntary
waiver at any time at its sole discretion.
(b) Administrative personnel and services fees for the combined
fund would be charged an annual rate of 0.15 of 1% on the first $250
million of average aggregate daily net assets of the Trust; 0.125 of
1% on the next $250 million; 0.10 of 1% on the next $250 million;
and 0.075 of 1% on the average aggregate daily net assets of the
Trust in excess of $750 million, subject to a $125,000 per portfolio
and $30,000 per each additional class of shares.
(c) State Street Bank and Trust Company is custodian for the
securities and cash of the Fund. The custodian fee is based on a
percentage of assets, plus out-of-pocket expenses.
(d) Printing and postage expenses are adjusted to reflect estimated
savings to be realized by combining two portfolios into a single
portfolio.
(e) Legal expenses are adjusted to reflect estimated savings to be
realized by combining two portfolios into a single portfolio.
(f) Director expenses are adjusted to reflect estimated savings to
be realized by combining two portfolios into a single portfolio.
(g) Adjustment to reflect audit charge for one portfolio only.
(h) Other expenses are adjusted to reflect estimated savings to be
realized by combining two portfolios into a single portfolio.
(i) The Institutional Shares has a Shareholder Services Plan under
which it may pay Federated Shareholder Services, an affiliate of
Federated Investors, an amount not to exceed .25 of 1% of the
average daily net asset value of the Institutional Shares. The
distributor may voluntary chose to waive a portion of its fee.
Prime Obligations Fund
Pacific Horizon Prime Value Fund
Notes to Pro Forma Financial Statements (Unaudited)
1. Basis of Combination
The unaudited Pro Forma Combining Portfolio of Investments, Statement of
Assets and Liabilities and Statement of Operations ("Pro Forma Financial
Statements") reflect the accounts of Prime Obligations Fund and Pacific
Horizon Prime Value Fund (collectively, the "Funds") for the year ended
July 31, 1994 and for the six months ended January 31, 1995. These
statements have been derived from the books and records utilized in
calculating daily net asset values at July 31, 1994 and for the six months
ended January 31, 1995.
The Pro Forma Combining Portfolio of Investments, Statement of Assets and
Liabilities and Statement of Operations should be read in conjunction with
the historical financial statements of the Funds incorporated by reference
in the Statement of Additional Information. The Funds follow generally
accepted accounting principles applicable to management investment
companies which are disclosed in the historical financial statements of
each Fund.
The Pro Forma Financial Statements give effect to the proposed transfer of
the assets of Pacific Horizon Prime Value Fund in exchange for shares of
Prime Obligations Fund. Under generally accepted accounting principles,
Prime Obligations Fund will be the surviving entity for accounting
purposes with its historical cost of investment securities and results of
operations being carried forward.
The Pro Forma Financial Statements have been adjusted to reflect the
anticipated advisory and administration fee arrangements for the surviving
entity. Certain other operating costs have also been adjusted to reflect
anticipated expenses of the combined entity. Other costs which may change
as a result of the reorganization are currently undeterminable.
For the fiscal year ended July 31, 1994, and January 31, 1995, the Prime
Obligations Fund and Pacific Horizon Prime Value Fund paid investment
advisory fees computed at the annual rate of .20% for Prime Obligations
Fund and .10% of the Fund's net assets for the Pacific Horizon Prime Value
Fund.
The advisor and administrator may voluntarily choose to waive a portion of
their fees and reimburse certain operating expenses of Prime Obligations
Fund and Pacific Horizon Prime Value Fund.
2. Shares of Beneficial Interest
The Pro Forma net asset value per share assumes the issuance of
1,260,366,471 and 2,505,887,460 shares of Prime Obligations (1,053,279,259
and 185,633,178 shares from Pacific Horizon Prime Value Fund) which would
have been issued at July 31, 1994 and January 31, 1995, in connection with
proposed reorganization.
STATEMENT OF ADDITIONAL INFORMATION
Dated ________, 1995
Acquisition of the Assets of
PRIME VALUE FUND,
a portfolio of PACIFIC HORIZON FUNDS, INC.
By and in exchange for shares of
PRIME OBLIGATIONS FUND,
a portfolio of MONEY MARKET OBLIGATIONS TRUST
125 West 55th Street
New York, New York 10019
This Statement of Additional Information dated ________, 1995, is not a
prospectus. A Proxy Statement and Prospectus dated ________ 1995, related to
the above-referenced matter may be obtained at no charge by calling Concord
Holding Corporation at 1-800-332-3863. This Statement of Additional Information
should be read in conjunction with such Proxy Statement and Prospectus.
TABLE OF CONTENTS
1. Statements of Additional Information of the Pacific Horizon Shares of the
Prime Value Fund and the Horizon Shares of the Prime Value Fund, dated
July 1, 1995.
2. Annual Report of Prime Value Fund, dated February 28, 1995.
3. Combined Statement of Additional Information of Prime Obligations Fund
(Institutional Shares and Institutional Service Shares), dated November
30, 1994.
4. Annual Report of Prime Obligations Fund, dated July 31, 1994.
The Statements of Additional Information of the Pacific Horizon Shares of
the Prime Value Fund and the Horizon Shares of the Prime Value Fund, dated
July 1, 1995 are incorporated herein by reference to Post-Effective
Amendment No. 40 to Pacific Horizon Fund, Inc.'s Registration Statement on
Form N-1A (1933 Act File 2-81110; 1940 Act File No. 811- 4293), which was
filed with the Securities and Exchange Commission on June 21, 1995. The
financial statements and notes thereto in the Annual Report of Prime Value
Fund and the report of Price Waterhouse, LLP, are incorporated herein by
reference. The Annual Report (1933 Act File No. 2-81110; 1940 Act File
No. 811-4293) was filed with the Securities and Exchange Commission on
____________, 1995. Copies of these documents may be obtained free of
charge by calling Concord Holding Corporation at 1-800-332-3863.
The Combined Statement of Additional Information of Prime Obligations Fund
(Institutional Shares and Institutional Service Shares), dated November
30, 1994, is incorporated herein by reference to Post-Effective Amendment
No. 11 to Money Market Obligations Trust's Registration Statement on Form
N-1A (1933 Act File 33-31602; 1940 Act File No. 811- 5950), which was
filed with the Securities and Exchange Commission on November 25, 1994.
The Annual Report of Prime Obligations Fund and the report of Arthur
Andersen LLP, are incorporated herein by reference. The Annual Report
(1933 Act File No. 33-31602; 1940 Act File No. 811-5950) was filed with
the Securities and Exchange Commission on __________, 1994. Copies of
these documents may be obtained free of charge from Money Market
Obligations Trust at Federated Investors Tower, Pittsburgh, Pennsylvania
15222-3779, Telephone Number: 1-800-245-5000.
5. The pro forma financial statements required by Rule 11-01 of Regulation S-
X (attached).
PART C - OTHER INFORMATION
Item 15. Indemnification
Indemnification is provided to officers and trustees of the Registrant
pursuant to the Registrant's Declaration of Trust, except where such
indemnification is not permitted by law. However, the Declaration of Trust does
not protect the trustees from liabilities based on willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved in the
conduct of their office.
Trustees and officers of the Registrant are insured against certain
liabilities, including liabilities arising under the Securities Act of 1933 (the
"Act").
Insofar as indemnification for liabilities arising under the Act may be
permitted to trustees, officers, and controlling persons of the Registrant by
the Registrant pursuant to the Declaration of Trust or otherwise, the Registrant
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by trustees, officers, or controlling persons of the Registrant in
connection with the successful defense of any act, suit, or proceeding) is
asserted by such trustees, officers, or controlling persons in connection with
the shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Insofar as indemnification for liabilities may be permitted pursuant to
Section 17 of the Investment Company Act of 1940 for trustees, officers, and
controlling persons of the Registrant by the Registrant pursuant to the
Declaration of Trust or otherwise, the Registrant is aware of the position of
the Securities and Exchange Commission as set forth in Investment Company Act
Release No. IC-11330. Therefore, the Registrant undertakes that in addition to
complying with the applicable provisions of the Declaration of Trust or
otherwise, in the absence of a final decision on the merits by a court or other
body before which the proceeding was brought, that an indemnification payment
will not be made unless in the absence of such a decision, a reasonable
determination based upon factual review has been made: (i) by a majority vote of
a quorum of non-party trustees who are not interested persons of the Registrant;
or (ii) by independent legal counsel in a written opinion that the indemnitee
was not liable for an act of willful misfeasance, bad faith, gross negligence,
or reckless disregard of duties. The Registrant further undertakes that
advancement of expenses incurred in the defense of a proceeding (upon
undertaking for repayment unless it is ultimately determined that
indemnification is appropriate) against an officer, trustee, or controlling
person of the Registrant will not be made absent the fulfillment of at least one
of the following conditions: (i) the indemnitee provides security for his
undertaking; (ii) the Registrant is insured against losses arising by reason of
any lawful advances; or (iii) a majority of a quorum of disinterested non-party
trustees or independent legal counsel in a written opinion makes a factual
determination that there is reason to believe the indemnitee will be entitled to
indemnification.
Item 16. Exhibits
1.1 Conformed Copy of Declaration of Trust of the Registrant dated
October 3, 1988(1)
1.2 Conformed Copy of Amendment to the Declaration of Trust of the
Registrant dated October 3, 1989(1)
1.3 Conformed Copy of Amendment No. 8 to the Declaration of Trust of the
Registrant dated December 28, 1994(2)
2. Copy of Bylaws of the Registrant(1)
3. Not Applicable
4. Agreement and Plan of Reorganization is included as Appendix A to the
Combined Proxy Statement and Prospectus of this Registration Statement*
5. Not Applicable
6.1 Conformed Copy of Investment Advisory Contract of the Registrant,
including conformed copies of Exhibits A through F to the Investment
Advisory Contract(1)
6.2 Conformed Copy of Exhibit G to Investment Advisory Contract of the
Registrant(3)
6.3 Conformed Copy of Investment Advisory Contract between Registrant and
Federated Administrative Services dated March 1, 1995(4)
7.1 Conformed Copy of Distributor's Contract of the Registrant, including
conformed copies of Exhibits A, B, and E to the Distributor's
Contract(3)
7.2 Conformed Copy of Exhibits G and H to the Distributor's Contract of the
Registrant(5)
7.3 Confirmed Copy of Exhibits C and D to the Distributor's Contract of the
Registrant(4)
8. Not Applicable
9. Conformed Copy of Custodian Agreement of the Registrant(6)
10 Not Applicable
11. Opinion regarding legality of shares being issued*
12. Form of Opinion regarding tax consequences of Reorganization*
13.1 Conformed Copy of Transfer Agency and Service Agreement of the
Registrant(6)
13.2 Conformed Copy of Fund Accounting Agreement of the Registrant(2)
13.3 Conformed Copy of Shareholder Services Plan of the Registrant dated
June 1, 1994(5)
13.4 Conformed Copy of Shareholder Services Sub-Contract of the Registrant
dated June 1, 1994(5)
13.5 Conformed Copy of Exhibit B to Shareholder Services Plan of the
Registrant relating to Government Obligations Tax-Managed Fund, dated
March 1, 1995(4)
14 (i) Conformed Copy of Consent of Arthur Andersen LLP, Independent Public
Accountants*
(ii) Conformed Copy of Consent of Price Waterhouse LLP, Independent
Accountants*
(iii) Conformed Copy of Consent of Drinker Biddle & Reath*
15. Not Applicable
16. Conformed Copy of Power of Attorney(2)
17.1 Copy of Declaration under Rule 24f-2*
17.2 Form of Proxy*
17.3 Prospectuses for the: 1) Pacific Horizon Shares of the Prime Value Fund
and 2) Horizon Shares of the Prime Value Fund dated July 1, 1995.*
17.4 Statements of Additional Information for the: 1) Pacific Horizon Shares
of the Prime Value Fund and 2) Horizon Shares of the Prime Value Fund
and Treasury Fund, dated July 1, 1995.*
17.5 Prospectus for the Institutional Shares of the Prime Obligations Fund
dated November 30, 1994.(5)
17.6 Statement of Additional Information for the Institutional Shares and
Institutional Service Shares of Prime Obligations Fund dated November
30, 1994.(5)
__________________
* Filed electronically.
(1) Response is incorporated by reference to Registrant's Initial Registration
Statement on Form N-1A filed October 20, 1989 (File Nos. 33-31602 and 811-5950).
(2) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 12 on Form N-1A filed on February 21, 1995 (File Nos. 33-31602 and
811-5950).
(3) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 7 on Form N-1A filed May 6, 1994 (File Nos. 33-31602 and
811-5950).
(4) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 13 on Form N-1A filed May 5, 1995 (File Nos. 33-31602 and
811-5950).
(5) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 11 on Form N-1A filed November 25, 1994 (File Nos. 33-31602 and
811-5950).
(6) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 8 on Form N-1A filed June 1, 1994 (File Nos. 33-31602 and
811-5950).
Item 17. Undertakings
(1) The undersigned Registrant agrees that prior to any public
reofferring of the securities registered through the use of a prospectus which
is a part of this Registration Statement by any person or party who is deemed to
be an underwriter within the meaning of Rule 145(c) of the Securities Act of
1933, the reofferring prospectus will contain the information called for by the
applicable registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as part of an amendment to the
Registration Statement and will not be used until the amendment is effective,
and that, in determining any liability under the Securities Act of 1933, each
post-effective amendment shall be deemed to be a new Registration Statement for
the securities offered therein, and the offering of the securities at that time
shall be deemed to be the initial bona fide offering of them.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, Money Market Obligations Trust, has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Pittsburgh, Commonwealth of Pennsylvania, on July 28,
1995.
MONEY MARKET OBLIGATIONS TRUST
(Registrant)
By:/s/ Jeannette Fisher-Garber
Jeannette Fisher-Garber, Assistant Secretary
Attorney in Fact for John F. Donahue
July 28, 1995
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated:
NAME TITLE DATE
By: /s/Jeannette Fisher-Garber
Jeannette Fisher-Garber Attorney In Fact July 28, 1995
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
John F. Donahue* Chairman and Trustee
(Chief Executive Officer)
J. Christopher Donahue* President and Trustee
Edward C. Gonzales* Vice President and Treasurer
(Principal Financial and
Accounting Officer)
Thomas G. Bigley* Trustee
John T. Conroy, Jr.* Trustee
William J. Copeland* Trustee
James E. Dowd* Trustee
Lawrence D. Ellis, M.D.* Trustee
Edward L. Flaherty, Jr.* Trustee
Peter E. Madden* Trustee
Gregor F. Meyer* Trustee
John E. Murray, Jr.* Trustee
Wesley W. Posvar* Trustee
Marjorie P. Smuts* Trustee
* By Power of Attorney
Exhibit 11 to Form N-14
MONEY MARKET OBLIGATIONS TRUST
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Phone: 412-288-2614
Fax: 412-288-8141
July 28, 1995
The Trustees of
Money Market Obligations Trust
Federated Investors Tower
Pittsburgh, PA 15222-3779
Gentlemen:
Money Market Obligations Trust (the "Trust") proposes to issue Trust
Shares of beneficial interest representing interests in a separate portfolio of
securities known as Prime Obligations Fund (such shares of beneficial interest
being herein collectively referred to as the "Shares") in connection with the
acquisition of the assets of Prime Value Fund, a separate portfolio of Pacific
Horizon Funds, Inc., pursuant to the Agreement and Plan of Reorganization dated
as of June 26, 1995 (the "Agreement"), filed as an exhibit to the registration
statement of the Trust filed on Form N-14 (Securities Act of 1933 No. to be
assigned) under the Securities Act of 1933 as amended (the "N-14 Registration").
As counsel, I have participated in the organization of the Trust,
its registration under the Investment Company Act of 1940, as amended, the
registration of its securities on Form N-1A under the Securities Act of 1933,
and its N-14 Registration. I have examined and am familiar with the written
Declaration of Trust dated October 3, 1989, (the "Declaration of Trust"), the
Bylaws of the Trust, the Agreement and such other documents and records deemed
relevant. I have also reviewed questions of law and consulted with counsel
thereon as deemed necessary or appropriate by me for the purposes of this
opinion.
Based upon the foregoing, it is my opinion that:
1. The Trust is duly organized and validly existing pursuant to
the Declaration of Trust.
2. The Shares which are currently being registered by the N-14
Registration may be legally and validly issued in accordance with the provisions
of the Agreement and the Declaration of Trust upon receipt of consideration
sufficient to comply with the provisions of Article III, Section 3, of the
Declaration of Trust and subject to compliance with the Securities Act of 1933,
as amended, the Investment Company Act of 1940, as amended, and applicable state
laws regulating the sale of securities. Such Shares, when so issued, will be
fully paid and non-assessable.
The Trustees of
Money Market Obligations Trust
July 28, 1995
Page 2
I consent to your filing this opinion as an exhibit to the N-14
Registration referred to above and to any application or registration statement
filed under the securities laws of any of the states of the United States. I
further consent to the reference to myself under the caption "Legal Counsel" in
the prospectus filed as a part of such Registration Statement, applications, and
registration statements.
Very truly yours,
By: /s/Jeannette Fisher-Garber
Jeannette Fisher-Garber
Assistant Secretary
JFG/dlm
Exhibit 12 to Form N-14
July 28, 1995
Pacific Horizon Funds, Inc.
125 W. 55th Street, 11th Fl.
New York, NY 10019
Re: Agreement and Plan of Reorganization
By and Between Pacific Horizon Funds, Inc.
and Money Market Obligations Trust with
Respect to the Prime Value Fund
Dear Sirs and Mesdames:
We have been asked to give our opinion on the Federal income tax
consequences to shareholders of the transactions contemplated in the above
Agreement and Plan of Reorganization. In our opinion, the material Federal
income tax consequences to shareholders of such transactions are accurately
described in the subsection entitled "INFORMATION RELATING TO THE PROPOSED
REORGANIZATION -- Federal Income Tax Consequences" in the Combined Proxy
Statement and Prospectus contained in the Registration Statement being filed
this day with the Securities and Exchange Commission.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. This does not constitute a consent under section 7 of
the Securities Act of 1933,and in so consenting we have not certified any part
of the Registration Statement and do not otherwise come within the categories of
persons whose consent is required under section 7 or under the rules and
regulations of the Securities and Exchange Commission issued thereunder.
Very truly yours,
/s/ Drinker Biddle & Reath
DRINKER BIDDLE & REATH
Exhibit 14(i) to Form N-14
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use in Form N-14
Registration Statement of Prime Obligations Fund (a portfolio of Money Market
Obligations Trust) of our report dated September 15, 1994, on the financial
statements as of July 31, 1994, included in or made a part of this registration
statement.
/s/Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
July 25, 1995
Exhibit 14(ii) to Form N-14
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
related Statement of Additional Information of the Pacific Horizon Funds, Inc.
dated July 1, 1995, which Prospectus and Statement of Additional Information are
incorporated by reference in the Combined Proxy Statement and Prospectus and
related Statement of Additional Information constituting parts of this
registration statement on Form N-14, (the "Registration Statement") of our
report dated April 21, 1995, relating to the financial statements and financial
highlights appearing in the February 28, 1995 Annual Report to Shareholders of
Pacific Horizon Prime Value Fund, one of the portfolios constituting the Pacific
Horizon Funds, Inc., which report is also incorporated by reference and included
in the Registration Statement. We also consent to the references to us under
the headings "Financial Highlights" and "Financial Statements and Experts" in
the Registration Statement.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
July 24, 1995
Exhibit 14(iii) to Form N-14
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the references to
our Firm included in the Registration Statement on Form N-14 under the
Securities Act of 1933, as amended, and the Investment Company Act of 1940,
respectively,
/s/ Drinker Biddle & Reath
DRINKER BIDDLE & REATH
Philadelphia, Pennsylvania
July 28, 1995
Exhibit 17.1 to Form N-14
Rule 24f-2 Notice
MONEY MARKET OBLIGATIONS TRUST
(Fund Name)
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
1933 Act No. 33-31602
(i) fiscal period for which notice is filed July 31, 1994
(ii) The number or amount of securities of the
same class or series, if any, which had
been registered under the Securities Act
of 1933, other than pursuant to Rule 24f-2
but which remained unsold at August 1, 1993,
the beginning of the Registrant's fiscal
period -0-
(iii) The number or amount of securities, if
any, registered during the fiscal period
of this notice other than pursuant to
Rule 24f-2 -0- -0-
(iv) The number or amount of securities
sold during the fiscal period of this
notice 24,781,509,667
(v) The number or amount of securities sold
during the fiscal period of this notice
in reliance upon registration pursuant
to Rule 24f-2 (see attached Computation
of Fee) 24,781,509,667
WITNESS the due execution hereof this 15th day of September, 1994.
By: /s/ Jeannette Fisher-Garber
Fund Attorney
Assistant Secretary
COMPUTATION OF FEE
1. Actual aggregate sale price of Registrant's
securities sold pursuant to Rule 24f-2 during
the fiscal period for which the 24f-2 notice
is filed (see Section v) $24,781,509,667
2. Reduced by the difference between:
(a) actual aggregate redemption price
of such securities redeemed by the
issuer during the fiscal period for
which the 24f-2 notice is filed $24,155,454,045
(b) actual aggregate redemption price
of such redeemed securities
previously applied by the issuer
pursuant to Section 24e(2)(a) for
the fiscal period for which the
24f-2 notice is filed -0- 24,155,454,045
Total amount upon which the fee calculation specified
in Section 6(b) of the Securities Act of 1933 is
based $ 626,055,622
FEE SUBMITTED (1/29 of 1% of Total amount) $215,883
PACIFIC HORIZON FUNDS, INC.
PRIME VALUE FUND - PACIFIC HORIZON SHARES
SPECIAL MEETING OF SHAREHOLDERS _____________, 1995
KNOW ALL PERSONS BY THESE PRESENTS that the undersigned shareholders of PRIME
VALUE FUND, an investment portfolio of PACIFIC HORIZON FUNDS, INC., hereby
appoint __________________________________________________________________, or
any of them true and lawful attorneys, with power of substitution of each, to
vote all shares of PRIME VALUE FUND, which the undersigned is entitled to vote,
at the Special Meeting of Shareholders to be held on _________, 1995, at 125
West 55th Street, New York, New York 10019, at 10:30 a.m. and at any adjournment
thereof.
Discretionary authority is hereby conferred as to all other matters as may
properly come before the Special Meeting.
PROPOSAL
1. TO APPROVE OR DISAPPROVE AN AGREEMENT AND PLAN OF REORGANIZATION.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF PACIFIC HORIZON
FUNDS, INC. The attorneys named will vote the shares represented by this proxy
in accordance with the choice made on this ballot. IF NO CHOICE IS INDICATED AS
TO ANY MATTER, THIS PROXY WILL BE VOTED AFFIRMATIVELY ON THE MATTER PRESENTED.
PLEASE RETURN BOTTOM PORTION WITH YOUR VOTE IN THE ENCLOSED ENVELOPE AND RETAIN
THE TOP PORTION. Place the mail-in stub so that the return address, located on
the reverse side of the ballot, appears through the window of the envelope.
PRIME VALUE FUND-
PACIFIC HORIZON SHARES PROXY VOTING MAIL-IN STUB
RECORD DATE SHARES
PROPOSAL 1: TO APPROVE OR
DISAPPROVE AN AGREEMENT AND PLAN OF
REORGANIZATION
o FOR
o AGAINST
o ABSTAIN
Please sign EXACTLY as your name(s) appear above. When signing as attorney,
executor, administrator, guardian, trustee, custodian, etc., please give your
full title as such. If a corporation or partnership, please sign the full name
by an authorized officer or partner. If stock is owned jointly, all owners
should sign.
Dated: ___________________________________, 19_________
_______________________________________________________
_______________________________________________________
Signature(s) of Shareholder(s)
PACIFIC HORIZON FUNDS, INC.
PRIME VALUE FUND - HORIZON SHARES
SPECIAL MEETING OF SHAREHOLDERS _____________, 1995
KNOW ALL PERSONS BY THESE PRESENTS that the undersigned shareholders of PRIME
VALUE FUND, an investment portfolio of PACIFIC HORIZON FUNDS, INC., hereby
appoint __________________________________________________________________, or
any of them true and lawful attorneys, with power of substitution of each, to
vote all shares of PRIME VALUE FUND, which the undersigned is entitled to vote,
at the Special Meeting of Shareholders to be held on _________, 1995, at 125
West 55th Street, New York, New York 10019, at 10:30 a.m. and at any adjournment
thereof.
Discretionary authority is hereby conferred as to all other matters as may
properly come before the Special Meeting.
PROPOSAL
1. TO APPROVE OR DISAPPROVE AN AGREEMENT AND PLAN OF REORGANIZATION.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF PACIFIC HORIZON
FUNDS, INC. The attorneys named will vote the shares represented by this proxy
in accordance with the choice made on this ballot. IF NO CHOICE IS INDICATED AS
TO ANY MATTER, THIS PROXY WILL BE VOTED AFFIRMATIVELY ON THE MATTER PRESENTED.
PLEASE RETURN BOTTOM PORTION WITH YOUR VOTE IN THE ENCLOSED ENVELOPE AND RETAIN
THE TOP PORTION. Place the mail-in stub so that the return address, located on
the reverse side of the ballot, appears through the window of the envelope.
PRIME VALUE FUND-
HORIZON SHARES PROXY VOTING MAIL-IN STUB
RECORD DATE SHARES
PROPOSAL 1: TO APPROVE OR
DISAPPROVE AN AGREEMENT AND PLAN OF
REORGANIZATION
o FOR
o AGAINST
o ABSTAIN
Please sign EXACTLY as your name(s) appear above. When signing as attorney,
executor, administrator, guardian, trustee, custodian, etc., please give your
full title as such. If a corporation or partnership, please sign the full name
by an authorized officer or partner. If stock is owned jointly, all owners
should sign.
Dated: ___________________________________, 19_________
_______________________________________________________
_______________________________________________________
Signature(s) of Shareholder(s)
Exhibit 17.3 to Form N-14
PROSPECTUS
July 1, 1995
Pacific Horizon Shares of the
Pacific Horizon Prime Value Fund
(An Investment Portfolio Offered by Pacific Horizon Funds, Inc.)
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This Prospectus applies to Pacific Horizon Shares of the Pacific Horizon Prime
Value Fund (the "Fund"). The Fund is designed to provide investors with daily
liquidity.
The Fund's investment objective is to seek high current income and stability of
principal. It seeks to achieve this objective by investing substantially all of
its assets in a diversified portfolio of U.S. dollar-denominated "money market"
instruments such as bank certificates of deposit and bankers' acceptances,
commercial paper and repurchase agreements, in addition to obligations issued or
guaranteed by U.S. and foreign governmental entities.
Portfolio securities held by the Fund have remaining maturities of thirteen
months or less from the date of purchase by the Fund. Portfolio securities which
are subject to repurchase agreements or have certain put or demand features
exercisable by the Fund within thirteen months (as well as certain
U.S. Government obligations with floating or variable interest rates) may have
longer maturities.
Shares of the Fund may be purchased or redeemed at any time without charge or
penalty imposed by the Fund. Bank of America National Trust and Savings
Association ("Bank of America") acts as investment adviser to the Fund. Concord
Financial Group, Inc. sponsors the Fund and acts as its distributor and Concord
Holding Corporation acts as its administrator, neither of which is affiliated
with Bank of America.
This Prospectus briefly sets forth certain information about the Fund that
investors should know before investing. It should be read and retained for
future reference. Additional information about the Fund, contained in a
Statement of Additional Information dated July 1, 1995, has been filed with the
Securities and Exchange Commission and is available to investors upon request
and without charge by calling the Fund's distributor at (800) 332-3863. The
Statement of Additional Information, as it may from time to time be further
revised, is incorporated in its entirety by reference into this Prospectus.
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Shares of the Fund are not bank deposits or obligations of, or guaranteed or
endorsed by, Bank of America or any of its affiliates and are not federally
insured by, guaranteed by, obligations of or otherwise supported by the U.S.
Government, the Federal Deposit Insurance Corporation, the Federal Reserve Board
or any other governmental agency. The Fund seeks to maintain its net asset value
per share at $1.00 for purposes of purchases and redemptions, although there can
be no assurance that it will be able to do so on a continuous basis. Investment
in the Fund involves investment risk, including the possible loss of principal
amount invested.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus and in the
Statement of Additional Information, in connection with the offering of the
Fund's shares and, if given or made, such information or representations must
not be relied upon as having been authorized by the Company or its distributor.
This prospectus does not constitute an offer by the fund or by the distributor
to sell, or a solicitation of any offer to buy, any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful for the fund or
the distributor to make such offer in such jurisdiction.
Contents
Expense Information 2
Financial Highlights 3
Investment Objective and Policies 4
Management of the Fund 9
Purchases of Shares 11
Redemption of Shares 13
Shareholder Services 15
Dividends, Distributions and
Taxes 16
Description of Shares 17
Performance Calculations 19
Distributor: Investment Adviser:
Concord Financial Group, Inc. Bank of America National Trust and Savings
Association
125 West 55th Street 555 California Street
New York, NY 10019 San Francisco, CA 94104
Expense Information
The following table sets forth certain information regarding
shareholder transaction expenses imposed by the Fund and the annual operating
expenses the Fund expects to incur during its current fiscal year with respect
to its Pacific Horizon Shares. This information has been restated to assume that
current fees had been in effect during the previous fiscal year. Actual expenses
may vary.
Hypothetical examples based on the table are also shown.
Prime Value
Fund
Shareholder Transaction Expenses
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees (After Fee Waivers) .14%
All Other Expenses (After Fee Waivers) .08%
Special Management Services Fee (After Fee
Waivers) .00%
Other Expenses .08%
Total Fund Operating Expenses (After Fee Waivers) 0.22%
Example 1 Year 3 Years 5 Years 10 Years
You would pay the following expenses
on a $1,000 investment, assuming
(1) a 5% annual return and
(2) redemption at the end of each
time period: $2 $7 $12 $28
The foregoing Expense Summary and Example are intended to assist investors in
the Fund's Pacific Horizon Shares in understanding the expenses the class will
pay. Investors bear these expenses indirectly since they reduce the amount of
income paid by the Fund to investors as dividends. Management Fees consist of an
investment advisory fee and an administration fee, each fee payable at a maximum
annual rate of .10% of the Fund's net assets, and a special management services
fee payable at the annual rate of .32% of the Fund's average net assets. The
Fund's Adviser and Administrator may voluntarily waive a portion of their
respective fees and may voluntarily reimburse expenses from time to time. This
voluntary waiver and reimbursement may be modified or terminated at any time.
Absent such fee waivers and expense reimbursements, it is estimated that the
total operating expenses for Pacific Horizon Shares of the Fund would be .60%.
See "Management of the Fund" for more complete descriptions of the various
expenses referred to above.
THE EXAMPLES SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE INVESTMENT RETURNS AND OPERATING EXPENSES. ACTUAL INVESTMENT RETURNS
AND OPERATING EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
Financial Highlights
The table below sets forth certain information concerning the investment results
of Pacific Horizon Shares of the Fund for the periods indicated. The information
contained in the Financial High lights has been audited by Price Waterhouse LLP,
the Fund's independent accountants, whose unqualified report on the financial
statements containing such information is incorporated by reference in the
Statement of Additional Information. The Financial Highlights should be read in
conjunction with the Fund's audited financial statements and notes thereto and
the unqualified report of the independent accountants which are incorporated by
reference in the Statement of Additional Information.
Selected Data for a Pacific Horizon Share Outstanding Throughout Each of the
Periods Indicated:
Year Ended Period
February 28 Ended
, 1995 February 28
, 1994*
Net asset value per share, beginning of period $1.00
$1.00
Income from Investment Operations:
Net investment income 0.0456 0.0302
Less Dividends:
Dividends from net investment income (0.0456) (0.0302)
Net change in net asset value per share 0.0000 0.0000
Net asset value per share, end of period $1.00 $1.00
Total return 4.66% 3.06%
Ratios/Supplemental Data:
Net assets, end of period (000) $77,733 $151,447
Ratio of expenses to average net assets** 0.21%
0.18%_
Ratio of net investment income to average
net assets** 4.32% 3.15%_
_______________
* For the period March 16, 1993 (commencement of operations) through
February 28, 1994.
** Net of fee waivers which had the effect of reducing the ratio of expenses
to average net assets and increasing the ratio of net investment income to
average net assets by 0.44% for the year ended February 28, 1995 and 0.58%
(annualized) for the period ended February 28, 1994.
_ Annualized.
Not annualized.
Investment Objective and Policies
This section describes the investment objective and policies of the Fund. Assets
of the Fund will be invested in dollar-denominated debt securities with
remaining maturities of thirteen months or less as defined by the Securities and
Exchange Commission, and the dollar-weighted average portfolio maturity of the
Fund will not exceed 90 days. All securities acquired by the Fund will be
determined by the adviser, under guidelines established by the Board of
Directors of Pacific Horizon Funds, Inc. (the "Company"), to present minimal
credit risks and will be "First Tier Securities" as defined by the Securities
and Exchange Commission. First Tier Securities consist of instruments that are
either rated at the time of purchase in the top rating category by one (if rated
by only one) or more unaffiliated nationally recognized statistical rating
organizations ("NRSROs") including Standard and Poor's Ratings Group, Division
of McGraw Hill ("Standard & Poor's"), Moody's Investors Service, Inc.
("Moody's"), Duff & Phelps Credit Co. ("Duff & Phelps") or Fitch Investors
Service, Inc. ("Fitch") or issued by issuers with such ratings. The Appendix to
the Statement of Additional Information includes a description of the applica
ble NRSRO ratings. Unrated instruments (including instruments with long-term but
no short-term ratings) purchased by the Fund will be of comparable quality as
determined by the Fund's adviser pursuant to guidelines approved by the Board of
Directors.
The Fund's investment objective is to seek high current income and stability of
principal. The Fund invests substantially all of its assets in a diversified
portfolio of U.S. dollar-denominated money market instruments. Portfolio
securities held by the Fund have remaining maturities of thirteen months or less
from the date of purchase by the Fund. (Portfolio securities which are subject
to repurchase agreements or have certain put or demand features exercisable by
the Fund within thirteen months, as well as certain U.S. Government obligations
with floating or variable interest rates, may have longer maturities.) The money
market instruments in which the Fund invests will generally have neither as much
risk nor as high a return as longer-term or lower-rated instruments.
In pursuing its investment objective, the Fund invests in a broad range of
government, bank and commercial obligations that may be available in the money
markets. In accordance with regulations of the Securities and Exchange
Commission, the Fund intends to limit investments in the securities of any
single issuer (other than securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities) to not more than 5% of the Fund's
total assets at the time of purchase, provided that the Fund may invest up to
25% of its total assets in the securities of any one issuer for a period of up
to three business days. The following descriptions illustrate the types of
instruments in which the Fund invests.
Bank Obligations. The Fund may purchase U.S. dollar-denominated bank
obligations such as time deposits, certificates of deposit and bankers'
acceptances issued by domestic and foreign banks. Such banks must have total
assets at the time of purchase in excess of $1 billion. The Fund may also make
interest-bearing savings deposits in commercial banks in amounts not in excess
of 5% of the Fund's total assets.
Commercial Obligations. The Fund may purchase commercial paper, short-term
notes, and bonds issued by domestic and foreign corpo rations that meet the
Fund's maturity limitations. These instruments may include Canadian Commercial
Paper ("CCP"), which is U.S. dollar-denominated commercial paper issued by a
Canadian corporation or a Canadian counterpart of a U.S. corporation, and
Europaper, which is U.S. dollar-denominated commercial paper of a foreign
issuer.
The Fund may also invest in commercial paper issued in reliance on the so-called
"private placement" exemption from registration afforded by Section 4(2) of the
Securities Act of 1933 ("Section 4(2) paper"). Section 4(2) paper is restricted
as to disposition under the federal securities laws and generally is sold to
institutional investors such as the Fund that agree that they are purchasing the
paper for investment and not with a view to public distribution. Any resale by
the purchaser must be in an exempt transaction. Section 4(2) paper normally is
resold to other institutional investors like the Fund through or with the
assistance of the issuer or investment dealers that make a market in
Section 4(2) paper. Section 4(2) paper will not be subject to the Fund's 10%
limitation on illiquid securities set forth below where the Board of Directors
or the Fund's adviser (pursuant to guidelines adopted by the Board) determines
that a liquid trading market exists.
U.S. Government Obligations. The Fund may purchase obligations issued or
guaranteed by the U.S. Government or its agencies and instrumentalities.
Examples of the types of U.S. Treasury obligations that may be held by the Fund
include U.S. Treasury bills and notes, including "stripped" securities (both
interest-only and principal-only) issued by the U.S. Treasury and recorded in
the Federal Reserve book-entry record-keeping system. "Stripped" U.S. Treasury
securities include zero coupon obligations that are normally issued at a
discount to their "face value," and may exhibit greater price volatility than
ordinary debt securities. Obligations of certain agencies and instrumentalities
of the U.S. Government, such as the Small Business Administration, are backed by
the full faith and credit of the United States. Others are backed by the right
of the issuer to borrow from the U.S. Treasury (such as obligations of the
Federal Home Loan Bank), by the discretionary authority of the U.S. Government
to purchase the agency's obligations (such as obligations of the Federal
National Mortgage Association), or only by the credit of the agency or
instrumentality issuing the obligation (such as the Student Loan Marketing
Association). Securities issued or guaranteed by the U.S. Government and its
agencies and instrumentalities have historically involved little risk of loss of
principal if held to maturity. However, no assurance can be given that the U.S.
Government would provide financial support to any agency or instrumentality if
it is not obligated to do so by law.
Foreign Government Obligations. The Fund may invest in U.S. dollar-
denominated obligations issued or guaranteed by foreign governments or any of
their political subdivisions, agencies or instrumentalities. Such obligations
include debt obligations of supranational entities. Supranational entities
include international organizations designated or supported by governmental
entities to promote economic reconstruction or development and international
banking institutions and related government agencies. Examples of these include
the International Bank for Reconstruction and Development (the "World Bank"),
the Asian Development Bank and the InterAmerican Development Bank.
Asset-Backed Securities. The Fund may purchase asset-backed securities,
which are securities backed by mortgages, installment sales contracts, credit
card receivables or other assets. The average life of asset-backed securities
varies with the maturities of the underlying instruments, and the average life
of a mortgage-backed instrument, in particular, is likely to be substantially
less than the original maturity of the mortgage pools underlying the securities
as the result of mortgage prepayments. For this and other reasons, an asset-
backed security's stated maturity may be shortened, and the security's total
return may be difficult to predict precisely. Such difficulties are not,
however, expected to have a significant effect on the Fund since the remaining
maturity of any asset-backed security acquired will be thirteen months or less.
Asset-backed securities acquired by the Fund may include collateralized mortgage
obligations ("CMOs") issued by private companies.
Participations. The Fund may purchase from domestic financial institutions
participation interests in high quality debt securities. A participation
interest gives the Fund an undivided interest in the security in the proportion
that the Fund's participation interest bears to the total principal amount of
the security. Participation interests may have fixed, floating or variable rates
of interest, and will have remaining maturities of thirteen months or less (as
defined by the Securities and Exchange Commission). If a participation interest
is unrated, the adviser will have determined that the interest is of comparable
quality to those instruments in which the Fund may invest pursuant to guidelines
approved by the Company's Board of Directors. The Fund intends only to purchase
participations from an entity or syndicate, and does not intend to serve as a
co-lender in any participation. For certain participation interests, the Fund
will have the right to demand payment, on not more than 30 days' notice, for
all or any part of the Fund's participation interest in the security, plus
accrued interest. As to these instruments, the Fund intends to exercise its
right to demand payment only upon a default under the terms of the security,
as needed to provide liquidity, or to maintain or improve the quality of its
investment portfolio. It is possible that a participation interest might be
deemed to be an extension of credit by the Fund to the issuing financial
institution that is not a direct interest in the credit of the obligor of
the underlying security and is not directly entitled to the protection of
any collateral security provided by such obligor. In such event, the ability
of the Fund to obtain repayment might depend on the issuing financial
institution.
Repurchase Agreements. The Fund may agree to purchase securities from
financial institutions, such as banks and broker-dealers as are deemed
creditworthy by the adviser under guidelines approved by the Board of Directors,
subject to the seller's agreement to repurchase them at an agreed upon time and
price ("repurchase agreements"). Although the securities subject to a repurchase
agreement may bear maturities exceeding thirteen months, the Fund intends only
to enter into repurchase agreements having maturities not exceeding 60 days.
Securities subject to repurchase agreements are held either by the Fund's
custodian or subcustodian, or in the Federal Reserve/Treasury Book-Entry System.
The seller under a repurchase agreement will be required to maintain the value
of the securities subject to the agreement in an amount that exceeds the
repurchase price, and such value (including accrued interest) will be
continuously monitored by the adviser on an ongoing basis. Default by the seller
would, however, expose the Fund to possible loss because of adverse market
action or delay in connection with the disposition of the underlying
obligations. Repurchase agree ments are considered to be loans under the
Investment Company Act of 1940.
Reverse Repurchase Agreements. The Fund may borrow monies for temporary
purposes by entering into reverse repurchase agreements in accordance with the
investment restrictions described below. Pursuant to such agreements, the Fund
would sell portfolio securities to financial institutions and agree to
repurchase them at an agreed upon date and price. At the time the Fund enters
into a reverse repurchase agreement, it will place in a segregated custodial
account liquid assets or high grade debt securities having a value equal to or
greater than the repurchase price and the adviser will continuously monitor the
account to insure that the value is maintained. The Fund would only enter into
reverse repurchase agreements to avoid otherwise selling securities during
unfavorable market conditions to meet redemptions. Reverse repurchase agreements
involve the risk that the market value of the portfolio securities sold by the
Fund may decline below the price of the securities the Fund is obligated to
repurchase. Interest paid by the Fund in connection with a reverse repur chase
agreement will reduce the Fund's net investment income. Reverse repurchase
agreements are considered to be borrowings under the Investment Company Act of
1940.
Variable and Floating Rate Instruments. Securities purchased by the Fund
may include variable and floating rate instruments, which may have a stated
maturity in excess of the Fund's maturity limitations but which will, except for
certain U.S. Government obligations, permit the Fund to demand payment of the
principal of the instrument at least once every thirteen months upon not more
than thirty days' notice. Such instruments may include variable amount master
demand notes that permit the indebtedness thereunder to vary in addition to
providing for periodic adjustments in the interest rate. There may be no active
secondary market with respect to a particular variable or floating rate
instrument. Nevertheless, the periodic readjustments of their interest rates
tend to assure that their value to the Fund will approximate their par value.
Illiquid variable and floating rate instruments (instruments which are not
payable upon seven days notice and do not have an active trading market) that
are acquired by the Fund are subject to the percentage limitations described
below under "Illiquid Investments." The adviser will continuously monitor the
creditworthiness of issuers of variable and floating rate instruments in which
the Fund invests, and their ability to repay principal and interest.
Variable and floating rate instruments purchased by the Fund may include
participation certificates issued by trusts or financial institutions in
variable and floating rate obligations owned by such issuers or affiliated
organizations. A participation certificate gives the Fund a specified undivided
interest (up to 100%) in the underlying obligation and the right to demand
payment of the unpaid principal balance plus accrued interest on the
participation interest from the institution upon a specified number of days'
notice. If the credit of the obligor is of minimal credit risk, no credit
support from a bank or other financial institution will be necessary. In other
circumstances, the participation certificate will be backed by an irrevocable
letter of credit or guarantee of a bank, or will be insured by an insurer, that
the Fund's adviser has determined meets the quality standards for the Fund.
The Fund may also invest in obligations which provide for a variable or floating
interest rate which is determined through a periodic "auction process." From
time to time, holders of the obligations have the right to tender any such
obligations to a remarketing agent which then remarkets the obligations which
have been tendered and thereby determines a new interest rate for the following
period.
When-Issued Purchases, Forward Commitments and Delayed Settlements. The
Fund may purchase securities on a "when-issued basis" and may purchase or sell
securities on a "forward commitment" basis. The Fund may also purchase or sell
securities on a "delayed settlement" basis. When-issued and forward commitment
transactions, which involve a commitment by the Fund to purchase or sell
particular securities with payment and delivery taking place at a future date
(perhaps one or two months later), permit the Fund to lock in a price or yield
on a security it owns or intends to purchase, regardless of future changes in
interest rates. Delayed settlement describes a securities transaction in the
secondary market for which settlement will occur sometime in the future. When-
issued, forward commitment and delayed settlement transactions involve the risk,
however, that the yield or price obtained in a transaction may be less favorable
than the yield or price available in the market when the securities delivery
takes place. The Fund's forward commitments, when-issued purchases and delayed
settlements are not expected to exceed 25% of the value of the Fund's total
assets absent unusual market conditions. The Fund's liquidity and the ability of
the adviser to manage the Fund's portfolio may be adversely affected in the
event the Fund's forward commitments, commitments to purchase when-issued
securities and delayed settlements ever exceeded 25% of the value of the Fund's
assets. The Fund does not intend to engage in these transactions for speculative
purposes but only in furtherance of its investment objective.
Securities Lending. To increase income on portfolio securities, the Fund
may lend its portfolio securities to broker-dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned plus accrued interest. Collateral for such loans may
include cash or securities of the U.S. Government, securities of U.S. Government
agencies or instrumentalities, or an irrevocable letter of credit issued by a
bank which meets the investment standards of the Fund. Such loans will not be
made if, as a result, the aggregate of all outstanding loans of the Fund exceeds
30% of the value of its total assets. There may be risks of delay in receiving
additional collateral or in recovering the securities loaned or even a loss of
rights in the collateral should the borrower of the securities fail financially.
However, loans will be made only to borrowers deemed by the adviser to be of
good standing and when, in the adviser's judgment, the income to be earned from
the loan justifies the attendant risks.
Foreign Investments. Because the Fund may hold securities issued by
foreign issuers, the Fund may be subject to investment risks that are different
in some respects from those incurred by a fund which invests only in debt
obligations of U.S. domestic issuers. Such risks include future political and
economic developments, the possible imposition of withholding taxes on interest
income payable on the securities by the particular country in which the issuer
is located, the possible seizure or nationalization of foreign deposits, the
possible establishment of exchange controls or the adoption of other foreign
governmental restrictions which might adversely affect the payment of principal
and interest on these securities. In addition, foreign banks and other issuers
are not necessarily subject to the same regulatory requirements that apply to
domestic issuers (such as reserve requirements, loan limitations, examinations,
accounting, auditing and recordkeeping requirements, and public availability of
information) and the Fund may experience difficulties in obtaining or enforcing
a judgment against a foreign issuer.
Illiquid Investments. The Fund will not knowingly invest more than 10% of
the value of its net assets in securities that are illiquid. Repurchase
agreements, securities loans and time deposits that do not provide for payment
to the Fund within seven days after notice and securities that are not
registered under the Securities Act of 1933 but that may be purchased by
institutional buyers under Rule 144A, are subject to this 10% limit (unless such
securities are commercial paper and variable amount master demand notes with
maturities of nine months or less or unless the Board or the adviser, pursuant
to guidelines adopted by the Board, determines that a liquid trading market
exists).
Investment Limitations. The Fund's investment objective is a fundamental
policy that may not be changed without a vote of the holders of a majority of
the Fund's outstanding shares (as defined in the Investment Company Act of
1940). The Fund's policies may be changed by the Board of Directors without the
affirmative vote of the holders of a majority of the Fund's outstanding shares,
except that the investment limitations set forth below may not be changed
without such a vote of shareholders. A descrip tion of certain other fundamental
investment limitations is contained in the Statement of Additional Information.
The Fund may not:
1. Purchase any securities which would cause, at the time of purchase, less
than 25% of the value of its total assets to be invested in obligations of
issuers in the banking industry or in obligations, such as repurchase
agreements, secured by such obligations (unless the Fund is in a temporary
defensive position) or which would cause, at the time of purchase, 25% or
more of the Fund's total assets to be invested in the securities of one or
more issuers conducting their principal business activities in any other
industry, provided that (a) there is no limitation with respect to
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or repurchase agreements secured by such obligations;
(b) wholly-owned finance companies will be considered to be in the
industries of their parents if their activities are primarily related to
financing the activities of the parents; and (c) the industry
classification of utilities will be determined according to their service.
For example, gas, gas transmission, electric and gas, electric and
telephone will each be considered a separate industry.
2. Borrow money or issue senior securities, except that the Fund may borrow
from banks and enter into reverse repurchase agreements for temporary
purposes in amounts up to one-third of the value of the total assets at
the time of such borrowing; or mortgage, pledge or hypothecate any assets,
except in connection with any such borrowing and then in amounts not in
excess of one-third of the value of the Fund's total assets at the time of
such borrowings. The Fund will not purchase securities while its
borrowings (including reverse repurchase agreements) in excess of 5% of
its total assets are outstanding. Securities held in escrow or separate
accounts in connection with the Fund's investment practices described in
this Prospectus or the Statement of Additional Information are not deemed
to be pledged for purposes of this limitation.
Investment Decisions. Investment decisions for the Fund are made independently
from those for other investment companies and accounts managed by the adviser
and its affiliated entities. Such other investment companies and accounts may
also invest in the same securities as the Fund. When a purchase or sale of the
same security is made at substantially the same time on behalf of the Fund and
another investment company or account, available investments or opportunities
for sales will be allocated in a manner which the adviser believes to be
equitable. In some instances, this investment procedure may adversely affect the
price paid or received by the Fund or the size of the position obtained or sold
by the Fund. In addition, in allocating purchase and sale orders for portfolio
securities (involving the payment of brokerage commissions or dealer
concessions), the adviser may take into account the sale of shares of the Fund
by broker-dealers and other financial institutions (including affiliates of the
adviser and the Fund's Distributor), provided the adviser believes that the
quality of the transaction and the amount of the commission are not less
favorable than what they would be with any other unaffiliated qualified firm.
Management of the Fund
Board of Directors. The business of the Company is managed under the direction
of its Board of Directors. Information about the Directors and officers of the
Company is included in the Statement of Additional Information.
Investment Adviser. Bank of America National Trust and Savings Association
("Bank of America") serves as the Fund's investment adviser. Bank of America,
which has principal offices located at 555 California Street, San Francisco,
California 94104, is a national banking association formed in 1904 which
provides commercial banking and trust business through an extensive system of
branches across the western United States. Bank of America's principal bank ing
affiliates operate branches in ten U.S. states as well as corporate banking and
business credit offices in major U.S. cities and branches, corporate offices and
representative offices in 37 countries. Bank of America and its affiliates have
over $50 billion under management, including over $10 billion in mutual funds.
Bank of America is a subsidiary of BankAmerica Corporation, a registered bank
holding company.
As investment adviser, Bank of America manages the Fund's investments and is
responsible for all purchases and sales of the Fund's portfolio securities. For
its investment advisory services Bank of America is entitled to receive a fee
accrued daily and payable monthly at the follow ing annual rates: .10% of the
first $7 billion of the Fund's net assets, plus .09% of the next $3 billion of
the Fund's net assets, plus .08% of the Fund's net assets over $10 billion. This
amount may be reduced pursuant to certain undertakings by Bank of America
described below under "Fee Waivers." The Fund paid advisory fees to the Bank of
America at an effective annual rate of .07% of the Fund's net assets for the
fiscal year ended February 28, 1995, and Bank of America waived advisory fees at
an effective annual rate of .03% of the Fund's net assets for the same period.
In addition, Bank of America is also entitled to fees under the Company's
Special Management Services Agreement described below and may also receive fees
charged directly to its custom ers' accounts in connection with investments in
Fund shares.
Administrator. Concord Holding Corporation (the "Administrator") serves as the
Company's administrator and assists generally in supervising the Fund's
operations. The Administrator is a wholly-owned subsidiary of The BISYS
Group, Inc. Its offices are located at 125 West 55th Street, New York, New York
10019.
Under its basic administrative services agreement for the Fund, the
Administrator has agreed to provide facilities, equipment and personnel to carry
out administrative services for the Fund, including coordination of reports to
shareholders and the Securities and Exchange Commission; calculation of the net
asset value of Fund shares and dividends and capital gains distributions to
shareholders; payment of the costs of maintaining the Fund's offices;
preparation of tax returns; provision of internal legal and accounting
compliance services; maintenance (or oversight of the maintenance by others
approved by the Board of Directors) of the Fund's books and records; and the
provision of various shareholder services for shareholders who have made a
minimum initial investment of at least $500,000, including the provision of a
facility to receive purchase and redemption orders for the accounts of such
shareholders.
For its administrative services the Administrator is entitled to receive an
administration fee computed daily and payable monthly at the following annual
rates: .10% of the first $7 billion of the Fund's net assets, plus .09% of the
next $3 billion of the Fund's net assets, plus .08% of the Fund's net assets
over $10 billion. The Fund paid administration fees to the Administrator at an
effective annual rate of .07% of the Fund's net assets for the fiscal year ended
February 28, 1995, and the Administrator waived administration fees at an
effective annual rate of .03% of the Fund's net assets for the same period.
Pursuant to the authority granted in its agreement with the Company, the
Administrator has entered into an agreement with The Bank of New York under
which the bank performs certain of the services listed above e.g., calculating
the net asset value of Fund shares and dividends to shareholders and maintaining
the Fund's books and records. The Fund bears all fees and expenses charged by
The Bank of New York for these services.
Special Management Services Agreement. The Company has entered into a Special
Management Services Agreement with Bank of America and the Administrator with
respect to the Fund's Pacific Horizon Shares. Under the Agreement, Bank of
America and the Administrator have agreed to develop and monitor the investor
programs that are offered from time to time in connection with Pacific Horizon
Shares; provide dedicated walk-in and telephone facilities to handle shareholder
inquiries and serve investor needs; develop and maintain specialized systems for
the automatic investments of customers of Bank of America, the Administrator and
selected broker/dealers; maintain the registration or qualification of the
Fund's shares for sale under state securities laws; assume the expense of
payments made to third parties for services provided in connection with the
investments of their customers in Pacific Horizon Shares; and provide various
services (such as the provision of a facility to receive purchase and redemption
orders) for shareholders who have made a minimum initial investment of less than
$500,000.
For the services provided and expenses assumed pursuant to the Special
Management Services Agreement, Bank of America and the Administrator waived, for
the fiscal year ended February 28, 1995, an aggregate fee at the annual rate of
.32% of the average net asset value of the Fund's Pacific Horizon Shares
outstanding from time to time. As stated below under "Description of Shares,"
this fee is borne by the Fund's Pacific Horizon Shares and is not paid to the
Administrator and Bank of America with respect to the Fund's other series of
shares.
Distributor. Concord Financial Group, Inc. (the "Distributor") is the principal
underwriter and distributor of Fund shares. The Distributor is a wholly-owned
subsidiary of the Administrator organized to distribute shares of mutual funds
to institutional and retail investors. Its offices are located at 125 West 55th
Street, New York, New York 10019.
The Distributor makes a continuous offering of the Fund's shares and bears the
costs and expenses of printing and distributing to selected dealers and
prospective investors copies of any prospectuses, statements of additional
information and annual and interim reports of the Fund (after such items have
been prepared and set in type by the Fund) which are used in connection with the
offering of shares, and the costs and expenses of preparing, printing and
distributing any other literature used by the Distributor or furnished by it for
use by selected dealers in connection with the offering of the Fund's shares for
sale to the public.
Custodian and Transfer Agent. The Bank of New York, located at 90 Washington
Street, New York, New York 10286, serves as the Fund's custodian. DST Systems,
Inc. (the "Transfer Agent"), 811 Main, Kansas City, Missouri 64105-2005, serves
as the Fund's transfer agent and dividend disbursing agent.
Fee Waivers. Except as noted in this Prospectus and the Statement of Additional
Information, the Fund's service contractors bear all expenses in connection with
the performance of their services and the Fund bears the expenses incurred in
its operations. Fund expenses include taxes, interest, brokerage fees and
commissions, if any, fees of directors who are not officers, directors,
partners, employees or holders of 5% or more of the outstanding voting
securities of Bank of America or the Administrator or any of their affiliates,
Securities and Exchange Commission fees and state securities qualification fees,
advisory fees, fees payable under the Basic Administrative Services Agreement
and Special Management Services Agreement, charges of custodians, transfer and
dividend disbursing agents fees, certain insurance premiums, outside audit ing
and legal expenses, costs of maintaining corporate existence, costs attributable
to investor services, including without limitation, telephone and personnel
expenses, costs of preparing and printing prospectuses and statements of
additional information for regulatory purposes, costs of shareholders' reports
and corporate meetings and any extraordinary expenses. From time to time during
the course of the Fund's fiscal year, the Administrator and/or Bank of America
may voluntarily not receive payment of fees and/or assume certain expenses of
the Fund, while retaining the ability to be reimbursed by the Fund for such
amounts prior to the end of the fiscal year and, subject to the expense
limitations of certain states, to stop such fee waivers and expense
reimbursements at any time. This will have the effect of increasing yield to
investors at the time such fees are not received or amounts are assumed and
decreasing yield when such fees or amounts are reimbursed.
Purchases of Shares
Pacific Horizon Shares may be purchased directly from the Distributor, by
clients of Bank of America through their qualified trust and agency accounts or
by clients of certain institutions such as banks or broker-dealers ("Service
Organizations") without a charge imposed by the Fund, although Bank of America
and Service Organizations may charge a fee for providing administrative services
in connection with investments in shares of the Fund. The minimum initial
investment is $500, except for purchases through Bank of America's trust and
agency accounts or through a Service Organization whose clients have made
aggregate minimum purchases of $1,000,000, in which event the minimum initial
investment is $100, or as otherwise described below under "Shareholder
Services." The minimum subsequent investment is $50, except for investments
arising from automatic investment transactions on behalf of Bank of America's
trust and agency accounts, as to which there is no minimum. Bank of America and
Service Organizations may impose minimum customer account and other requirements
in addition to those imposed by the Fund. The Fund reserves the right to reject
any purchase order. Persons wish ing to purchase shares through their accounts
at Bank of America or a Service Organization should contact such entity directly
for appropriate instructions. Other investors may purchase shares in the manner
described below.
An investor desiring to purchase shares by mail should complete an Account
Application and mail the Application and a check payable to "Pacific Horizon
Prime Value Fund" to the Company c/o DST Systems, Inc., P.O. Box 419955, Kansas
City, Missouri 64141-6955. All subsequent payments should be mailed to DST
Systems, Inc., P.O. Box 419940, Kansas City, Missouri 64173-0298. An investor
desiring to purchase shares by wire should request his bank to transmit
immediately available funds by wire to The Bank of New York, ABA No. 021000018,
Pacific Horizon Funds, Inc. Prime Value Fund, DDA No. 8900117796 for purchase
of shares in the investor's name. It is important that the wire include the
investor's name, address and tax identification number and indicate whether a
new account is being established or a subsequent payment is being made to an
established account. If a subsequent payment is being made, the investor's Fund
account number should be included. An investor should contact his bank for
information on remitting funds in this manner, including any charges imposed by
the bank for wiring funds. Payments which are hand delivered must be delivered
directly to the Transfer Agent at 811 Main, Kansas City, Missouri 64105-2005.
A fee will be imposed by the Transfer Agent if any check used for investment in
an account does not clear. All payments should be in U.S. dollars. Purchase
orders in proper form are effected on a day on which both the Fund's custodian
and the New York Stock Exchange (the "Exchange") are open for business (a
"Business Day") at the net asset value per share next determined after receipt
by the Transfer Agent at its Kansas City office of both an order and federal
funds. Purchases will not be effected until payments made in other than federal
funds are converted to federal funds, which is ordinarily within two business
days of receipt. Purchase orders effected through automatic investment
transactions on behalf of Bank of America's trust and agency accounts are
received by Bank of America before 12:00 noon (Pacific Time) and are effected as
of 4:00 p.m. (Eastern Time) on the same day. It is the responsibility of Bank of
America or the Service Organization involved to transmit orders for the
purchases of shares by its customers to the Transfer Agent and deliver required
funds on a timely basis, in accordance with the procedures stated above. Share
purchases and redemptions executed through Bank of America or a Service
Organization are executed only on days on which the particular institution is
open for business.
The net asset value per share of the Fund is determined on each Business Day as
of 12:00 noon Eastern Time and the close of regular trading hours on the
Exchange (or 4:00 p.m. Eastern Time if the Exchange is closed). In computing net
asset value, the Fund uses the amortized cost method of valuation as described
in the Statement of Additional Information under "Purchase and Redemption of
Shares." The net asset value per share for purposes of pricing purchase and
redemption orders for the Fund is determined independently of that for other
portfolios of the Company. For voice recorded price and yield information call
(800) 227-1545.
Federal regulations require that each investor provide a certified Taxpayer
Identification Number upon opening or reopening an account. See the Fund's
Account Application for further information about this requirement.
In connection with the sale of shares of the Fund, the Company will obtain a
representation from Service Organizations (as well as from Bank of America and
the Administrator) that they will be licensed as dealers as required by
applicable law or will not engage in activities which would require them to be
so licensed.
TeleTrade. Although the privilege may not be used to make an initial purchase,
an investment in Pacific Horizon Shares of the Fund automatically entitles an
investor to purchase Fund shares (minimum of $500 and maximum of $50,000 per
transaction) without charge by telephone unless he indicates on the Account
Application or in a subsequent written notice to the Transfer Agent that he does
not wish to use the TeleTrade Privilege. Appropriate information concerning the
investor's bank must be provided in the Account Application or in a subsequent
signature guaranteed letter of instruction to the Transfer Agent before the
TeleTrade Privilege may be used. The proceeds will be transferred between the
check ing, NOW or bank money market account designated in one of these documents
and the investor's Fund account. Only an account maintained at a domestic
financial institution which is an Automated Clearing House member may be so
designated.
TeleTrade purchases will be effected at the net asset value next determined
after receipt of payment by the Fund's Transfer Agent. The Company may modify
this Privilege at any time or charge a service fee upon notice to sharehold ers.
No such fee currently is contemplated.
An investor who has selected the TeleTrade Privilege may request TeleTrade
purchases by telephoning the Transfer Agent at (800) 346-2087. The TeleTrade
Privilege may not be available to certain clients of Bank of America or
particular institutional investors.
Redemption of Shares
Investors whose shares are purchased through accounts at Bank of America or a
Service Organization may redeem all or part of their Pacific Horizon Shares in
accordance with the instructions pertaining to such accounts. If such investors
are also the shareholders of record of those accounts on the books of the
Transfer Agent, they may redeem shares in accordance with the procedures
described below under "Regular Redemption." Such investors wishing to use the
other redemption methods must arrange with Bank of America or a Service
Organization for delivery of the required application(s) to the Transfer Agent.
Redemption orders are effected on a Business Day at the net asset value per
share next determined after receipt of the order by the Transfer Agent. It is
the responsibility of Bank of America or the Service Organization to transmit
the redemption order and credit its customer's account with the redemption
proceeds on a timely basis. Other investors may redeem all or part of their
shares in accordance with one of the following procedures.
Regular Redemption. An investor may redeem shares in any amount by sending a
written request to the Prime Value Fund, c/o DST Systems, Inc., P.O. Box 419955,
Kansas City, Missouri 64141-6955. Redemption orders are effected upon receipt by
the Transfer Agent at its Kansas City office. Redemption requests delivered to
the Company other than by mail must be delivered to the offices of the Transfer
Agent at 811 Main, Kansas City, Missouri 64105-2005. Shares for which
certificates have been issued may not be redeemed unless the certificates have
been submitted to the Transfer Agent and endorsed for transfer.
Redemption requests must be signed by each shareholder, including each joint
owner on redemption requests for joint accounts. A redemption request for (i) an
amount in excess of $50,000 per day, (ii) any amount if the proceeds are to be
sent elsewhere than to the address of record, and (iii) an amount of $50,000 or
less if the address of record has not been on file with the Transfer Agent for a
period of 60 days, must be accompanied by a signature guarantee. The guarantor
of a signature must be a bank that is a member of the FDIC, a trust company, a
member firm of a national securities exchange or other eligible guarantor
institution. The Transfer Agent will not accept guarantees from notaries public.
Signatures on endorsed certificates submitted for redemption must also be
guaranteed. Guarantees must be signed by an authorized signatory of the
guarantor institution and "Signature Guaranteed" must appear with the signature.
TeleTrade. An investor may redeem shares in the same manner and subject to the
same limitations as described under "Purchases of Shares TeleTrade" above.
Redemption proceeds will be on deposit in the investor's account at a domestic
financial institution which is an Automated Clearing House member bank
ordinarily two business days after receipt of the redemption request. An
investor may also request that redemption proceeds be sent by
check. Checks will be sent only to the registered owner(s) and only to the
address of record. An investor who has selected the TeleTrade Privilege may
request TeleTrade redemptions by telephoning the Transfer Agent at (800) 346-
2087. Shares issued in certificate form are not eligible for this Privilege.
Neither the Company nor any of its service contractors will be liable for any
loss, or expense for acting upon any telephone instructions that are reasonably
believed to be genuine. In attempting to confirm that telephone instructions are
genuine, the Company will use such procedures as are considered reasonable.
Wire Redemption. An investment in Pacific Horizon Shares of the Fund
automatically entitles an investor to redeem shares by wire unless he indicates
on the Account Application or in a subsequent signature guaranteed written
notice to the Transfer Agent that he does not wish to use this method of
redemption. Appropriate information concerning the investor's bank must be
provided on the Account Application or in a subsequent signature guaranteed
letter of instruction to the Transfer Agent before shares may be redeemed by
wire. Shareholders may instruct the Transfer Agent to redeem shares in the Fund
on written, telegraphic or telephone instructions from any person representing
himself to be the investor and believed by the Transfer Agent to be genuine. The
responsibility of the Transfer Agent and certain other parties for telephonic
instructions is discussed in the preceding paragraph. The proceeds of redemption
will normally be wired in federal funds to the commercial bank specified by the
investor on the Account Application. Redemption proceeds must be in an amount of
at least $1,000, and may be subject to limits as to frequency and overall
amount. Wire redemptions may be terminated or modified by the Fund at any time.
Shares issued in certificate form are not eligible for wire redemption. A
shareholder should contact his bank for information on any charges imposed by
the bank in connection with the receipt of redemption proceeds by wire. During
periods of substantial economic or market change, telephone wire redemptions may
be difficult to implement. If an investor is unable to contact the Transfer
Agent by telephone, shares may also be redeemed by delivering the redemption
request in person to the Transfer Agent or by mail as described above under
"Regular Redemption." For additional information concerning wire redemptions,
see the Statement of Additional Information and the Fund's Account Application.
Other Redemption Information. Redemption orders are effected at the net asset
value per share next determined after receipt of the order by the Transfer
Agent. The Fund ordinarily will make payment for all shares redeemed within
three business days after receipt by the Transfer Agent of a request in proper
form, except as provided by the rules of the Securities and Exchange Commission.
However, if the shares to be redeemed have been purchased by check or TeleTrade,
the Company will, upon clearance of the purchase check or TeleTrade payment,
mail the redemption proceeds within seven business days. Where redemption is
requested other than by mail, shares purchased by check or by TeleTrade will not
be redeemed for a period of seven business days after their purchase. This
procedure does not apply to situations where the Fund receives payment in cash
or immediately available funds for the purchase of shares. During the period
prior to the time the shares are redeemed, dividends on such shares will accrue
and be payable, and an investor will be entitled to exercise all other rights of
beneficial ownership. An investor having purchased shares by wire must have
filed an Account Application before any redemption requests can be honored.
The Fund imposes no charge when shares are redeemed. However, if shares have
been purchased through Bank of America or a Service Organization, Bank of
America or the Service Organization may charge a fee for providing
administrative services in connection with investments in shares. The Fund
reserves the right to redeem accounts (other than non-working spousal IRA
accounts) involuntarily, upon sixty days' written notice, if the account's net
asset value falls below the $500 minimum balance.
Shareholder Services
The services and privileges described under this heading may not be available to
certain clients of Bank of America and particular Service Organizations, and
Bank of America and some Service Organizations may impose conditions on their
clients which are different from those described in this Prospectus. You should
consult Bank of America or your Service Organization in this regard.
Individual Retirement Accounts ("IRAs"). The Company makes available IRAs,
including IRAs set up under a Simplified Employee Pension Plan ("SEP-IRAs") and
IRA "Rollover Accounts." For details contact the Distributor at (800) 332-3863.
The minimum initial investment for IRAs and SEP- IRAs with only one participant
is normally $500, with no minimum on subsequent purchases. Individuals who open
an IRA may also open a non-working spousal IRA with a minimum investment of
$250. The minimum initial investment for SEP-IRAs with more than one participant
is $2,500, with no minimum on subsequent purchases. The investor should read the
IRA Disclosure Statement and the Bank Custodial Agreement for further details as
to eligibility, service fees and tax implications, and should consult a tax
adviser.
Exchanges. The Exchange Privilege enables an investor to exchange Pacific
Horizon Shares of the Fund for: 1) Pacific Horizon Shares in another portfolio
of the Company, or 2) Class A shares of an investment portfolio of Time Horizon
Funds, provided that such other shares may legally be sold in the state of the
investor's residence. An investment in Pacific Horizon Shares of the Fund
automatically entitles an investor to use this Privilege unless he indicates on
the Account Application or in a subsequent written notice to the Transfer Agent
that he does not wish to use this Privilege. The shares that are exchanged must
have a current value of at least $500; furthermore, in establishing a new
account through use of this Privilege, the shares being exchanged must have a
value at least equal to the minimum initial investment required by the
particular portfolio into which the exchange is being made. Prospectuses for
portfolios of the Company (as well as prospectuses for investment portfolios of
Time Horizon Funds) into which an exchange is being made may be obtained from
the investor's Service Organization or the Distributor. A shareholder may
telephone instructions by calling the Transfer Agent at (800) 346-2087. See
"Redemption of Shares TeleTrade" for a description of the Company's policy
regarding responsibility for telephone instructions. When Fund shares are
exchanged for shares of another portfolio in the Company (or for Class A shares
of an investment portfolio of Time Horizon Funds) which are sold with a sales
load, the applicable sales load, if any, will be deducted. An investor desiring
to use the Exchange Privilege should read the Statement of Additional
Information and consult his or her Service Organization or the Distributor for
further information applica ble to use of the Exchange Privilege. The Company
reserves the right to reject any exchange request and the Exchange Privilege may
be modified or terminated at any time. At least 60 days' notice will be given to
shareholders of any material modification or termination except where notice is
not required under the regulations of the Securities and Exchange Commission.
Automatic Investment Program. The Automatic Investment Program permits an
investor to purchase Pacific Horizon Shares of the Fund (minimum $50 per
transaction) at regular intervals selected by the investor. Provided the
investor's financial institution allows automatic withdrawals, shares are
purchased by transferring funds from an investor's checking, bank money market
or NOW account designated by the investor. At the investor's option, the account
designated will be debited in the specified amount, and shares will be
purchased, once a month, on either the first or fifteenth day, or twice a month,
on both days. Only an account maintained at a domestic financial institution
which is an Automated Clearing House member may be so designated. The minimum
initial investment requirement for investors establishing an Automatic
Investment account is $50. To establish an Automatic Investment Account, an
investor must check the appropriate box and supply the necessary information on
the Account Application or file a written request with the Transfer Agent. Such
applications are available from the Distributor. An investor may cancel this
Privilege or change the amount of purchase at any time by mailing written
notification to the Transfer Agent at P.O. Box 419955, Kansas City, Missouri
64141-6955 and notification will be effective three business days following
receipt. The Company may modify or terminate this Privilege at any time or
charge a service fee, although no such fee currently is contemplated.
Direct Deposit Program. If an investor receives federal salary, social security,
or certain veteran's, military or other payments from the federal government, he
or she is eligible for the Direct Deposit Program. With this Program, an
investor may purchase Pacific Horizon Shares (minimum of $100 and maximum of
$50,000 per transaction) by having these payments automatically deposited into
his or her Fund account. An investor may deposit as much of such payments as he
or she elects. For instructions on how to enroll in the Direct Deposit Program,
an investor should call the Transfer Agent at (800) 346-2087. Death or legal
incapacity will terminate an investor's participation in the Program. An
investor may elect at any time to terminate his or her participation by
notifying the appropriate federal agency. Further, the Company may terminate an
investor's participation upon 30 days' notice to the investor.
Automatic Withdrawal Plan. Investors having a $5,000 minimum account may request
withdrawal of a dollar amount in multiples of $50 on a monthly, quarterly, semi-
annual or annual basis. At the investor's option, monthly withdrawals will be
made on either the first or fifteenth day of the month and quarterly, semi-
annual or annual withdrawals will be made on either the first or fifteenth day
of the month selected. To participate in the automatic withdrawal plan, an
investor must check the appropriate box and supply the necessary information on
the Account Application which may be obtained from the Distributor or
subsequently file a signature guaranteed written request with the Transfer
Agent.
Dividends, Distributions and Taxes
Dividends and Distributions. The shareholders of the Fund are entitled to
dividends and distributions arising from the net income and realized gains, if
any, earned on investments held by the Fund. The Fund's net income is declared
daily as a dividend. Shares begin accruing dividends on the day the purchase
order for the shares is executed and continue to accrue dividends through and
including the day before the redemption order for the shares is executed.
Dividends are paid within five business days after the end of each month.
Although the Fund does not expect to realize net long-term capital gains, any
such capital gains as may be realized will be distributed no more than twice a
year after reduction for any available capital loss carry-forward. Dividends
are paid in the form of additional full and fractional shares of the same series
as the shares on which the dividends are declared at the net asset value of such
shares on the payment date, unless the shareholder elects to receive dividends
in cash. Reinvestment dividends receive the same tax treatment as dividends paid
in cash. Such election or any revocation thereof must be made in writing to
Pacific Horizon Funds, Inc. Prime Value Fund, c/o DST Systems, Inc.,
P.O. Box 419955, Kansas City, Missouri 64141-6955, and will become effective
with respect to dividends paid after its receipt by the dividend disbursing
agent.
Federal Taxes. Management of the Company believes that the Fund qualified for
its last taxable year as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended (the "Code"), and it is intended that the Fund
will qualify as a regulated investment company as long as such qualification is
in the best interest of the Fund's shareholders. Such qualification generally
will relieve the Fund of liability for federal income taxes to the extent its
earnings are distributed in accordance with the Code.
In connection with such tax qualification, the Fund contemplates declaring as
dividends at least 90% of its investment company taxable income for each taxable
year. An investor of the Fund who receives a dividend derived from net
investment company taxable income (including any excess of net short-term
capital gain over net long-term capital loss) treats it as ordinary income in
the computation of his gross income, whether such dividend is paid in the form
of cash or additional Fund shares. Because all of the net investment income of
the Fund is expected to be derived from earned interest, it is anticipated that
all dividends paid by the Fund will be taxable as ordinary income to
shareholders who are not exempt from federal income taxes and that no part of
any distribution paid by the Fund will be eligible for the dividends received
deduction for corporations.
Although the Fund anticipates that it will not have net long-term capital gains,
any distribution of the Fund's excess of net long-term capital gains over its
net short-term capital losses will be taxable to shareholders as long-term
capital gains regardless of how long the shareholder has held Fund shares.
Dividends declared in December of any year payable to shareholders of record on
a specified date in December will be deemed for federal tax purposes to have
been paid by the Fund and received by the shareholders on December 31, if such
dividends are paid during January of the following year.
The foregoing is only a brief summary of some of the important federal income
tax considerations generally affecting the Fund and its shareholders, and is
based on federal tax laws and regulations which are in effect as of the date of
this Prospectus. Such laws and regulations may be changed by legislative or
administrative actions. Potential investors in the Fund should consult their tax
advisers with specific reference to their own tax situation. Shareholders will
be advised at least annually as to the federal income tax consequences of
distributions made each year.
State and Local Taxes. Investors are advised to consult their tax advisers
concerning the application of state and local taxes, which may have different
consequences from those of the federal income tax law described above.
Description of Shares
The Company was organized on October 27, 1982 as a Maryland corporation, and is
registered under the Investment Company Act of 1940 as an open-end management
investment company.
The Company's charter authorizes the Board of Directors to issue up to two
hundred billion full and fractional shares of capital stock, and to classify and
reclassify any authorized and unissued shares into one or more classes of
shares. The Board of Directors may similarly classify or reclassify any class of
shares into one or more series.
Pursuant to such authority, the Board of Directors has authorized the issuance
of the following series of shares representing interests in the Fund, which is
classified as a diversified company under the Investment Company Act of 1940:
one and one-half billion Pacific Horizon Shares; one and one-half billion
Horizon Service Shares; and eight billion Horizon Shares. Horizon Service Shares
and Horizon Shares of the Fund are described in a separate Prospectus available
from the Distributor at the telephone number on the cover of this Prospectus.
The Board of Directors has also authorized the issuance of additional classes of
shares representing interests in other investment portfolios of the Company,
which are likewise described in separate prospectuses available from the
Distributor. This Prospectus relates primarily to Pacific Horizon Shares of the
Fund and describes only the investment objective and policies, operations,
contracts and other matters relating to such shares.
Each Pacific Horizon Share, Horizon Service Share and Horizon Share in the Fund
has a par value of $.001 and is entitled to participate equally in the dividends
and distributions declared by the Board of Directors with respect to the Fund
and in the net distributable assets of the Fund on liquidation. Holders of the
Fund's Pacific Horizon Shares bear the fees described in this Prospectus that
are paid to Bank of America and the Administrator by the Fund under the
Company's Special Management Services Agree ment for Pacific Horizon Shares.
Similarly, hold ers of Horizon Service Shares bear the fees described in the
separate Prospectus for such shares that are paid to Shareholder Organizations
by the Fund under the Company's Shareholder Services Plan. The fees paid under
the Share holder Services Plan are for services provided by institutional
investors to their customers in connection with Horizon Service Shares, and
Share holder Organizations do not receive similar fees with respect to the
Fund's Horizon Shares or Pacific Horizon Shares. As a result, at any given time,
the net yield on the Fund's Pacific Horizon Shares is expected to be
approximately .07% lower than the yield on the Fund's Horizon Service Shares and
.32% lower than the yield on the Fund's Horizon Shares. Standardized yield
quotations will be computed separately for each series of Shares.
Shareholders are entitled to one vote for each full share held and fractional
votes for fractional shares held, and will vote in the aggregate and not by
class or series except as otherwise required by law or when class voting is
permitted by the Board of Directors. It is contemplated that shareholders of the
Fund will vote separately by class on matters relating to the Fund's investment
advisory agreement and on any change in its fundamental investment limitations,
and that only holders of Pacific Horizon Shares of the Fund will be entitled to
vote on matters submitted to a vote of shareholders pertaining to the Special
Management Services Agreement. Shares have no preemptive rights and only such
conversion and exchange rights as the Board may grant at its discretion. When
issued for payment as described in this Prospectus, shares will be fully paid
and non-assessable. Certificates for shares will not be issued unless expressly
requested in writing and will not be issued for fractional shares.
The Company does not presently intend to hold annual meetings of shareholders
for the election of directors and other business unless and until such time as
less than a majority of the directors holding office have been elected by the
shareholders of the Company, at which time the directors then in office will
call a shareholders' meeting for the election of directors. Under certain
circumstances, however, shareholders have the right to call a meeting of
shareholders to consider the removal of one or more directors and such meetings
will be called when requested by the holders of record of 10% or more of the
Company's outstanding shares of common stock. To the extent required by law and
the Company's undertaking with the Securities and Exchange Commission, the
Company will assist in shareholder communications in such matters. Shares have
cumulative voting rights to the extent that may be required by applicable law.
Performance Calculations
From time to time the "yield" or "effective yield" of the Fund may be quoted in
advertisements or reports to shareholders. Both yield figures are based on
historical earnings and are not intended to indicate future performance.
The "yield" of the Fund refers to the income generated by an investment in the
Fund over a seven-day period (which period will be stated in the advertisement
or report). This income is then "annualized" that is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly but, when annualized, the income
earned by an investment in the Fund is assumed to be reinvested. The "effective
yield" will be slightly higher than the "yield" because of the compounding
effect of this assumed reinvestment.
Additionally, the Fund's yield may be compared to those of other mutual funds
with similar investment objectives and to other relevant indices or to rankings
prepared by independent services or other financial or industry publications
that monitor the performance of mutual funds. For example, the Fund's yield may
be compared to Donoghue's Money Fund Averages, which are averages compiled by
Donoghue's Money Fund Report. Yield data as reported in national financial
publications, including Money, Forbes, Bar ron's, The Wall Street Journal and
The New York Times, or in publications of a local or regional nature, may also
be used in comparing the Fund's yield. A complete listing of the indices,
rankings and publications discussed above is contained in the Statement of
Additional Information.
Since yields fluctuate, yield data cannot necessa rily be used to compare an
investment in the shares of the Fund with bank deposits, savings accounts and
similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that yield
is generally a function of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses and market conditions. Any
fees charged by Bank of America or other institutional investors directly to
their customers in connection with investments in Fund shares (which fees may
include, for example, account maintenance fees, compensating balance
requirements or fees based upon account transactions, assets or income) are not
included in the Fund's calculations of yield.
_______________
Shareholder inquiries should be addressed to the Distributor at the address or
telephone number stated on the inside cover of this prospectus.
PACIFIC HORIZON MUTUAL FUNDS
COPPVMM95P
Prime Value Fund
PROSPECTUS
July 1, 1995
NOT FDIC INSURED
Exhibit 17.3 to Form N-14
PROSPECTUS
July 1, 1995
Horizon Shares and
Horizon Service Shares of the
Prime Value Fund
(An Investment Portfolio Offered by Pacific Horizon Funds, Inc.)
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This Prospectus applies to the Horizon Shares and Horizon Service Shares of the
Pacific Horizon Prime Value Fund (the "Fund"), a separate, diversified
investment portfolio offered by Pacific Horizon Funds, Inc. (the "Company").
Horizon Shares and Horizon Service Shares may not be purchased by individuals
directly, but institutional investors may purchase shares for accounts
maintained by individuals. The Fund is designed to provide institutions with
daily liquidity.
The investment objective of the Fund is to seek high current income and
stability of principal. It seeks to achieve this objective by investing
substantially all of its assets in U.S. dollar-denominated "money market"
instruments such as bank certificates of deposit and bankers' acceptances,
commercial paper and repurchase agreements, in addition to obligations issued or
guaranteed by U.S. and foreign governmental entities.
Portfolio securities held by the Fund have remaining maturities of thirteen
months or less from the date of purchase by the Fund. Portfolio securities which
are subject to repurchase agreements or have certain put or demand features
exercisable by the Fund within thirteen months (as well as certain
U.S. Government obligations with floating or variable interest rates) may have
longer maturities.
Bank of America National Trust and Savings Association ("Bank of America") acts
as investment adviser to the Fund. Concord Financial Group, Inc. sponsors the
Fund and acts as its distributor and Concord Holding Corporation acts as its
administrator, neither of which are affiliated with Bank of America.
This Prospectus briefly sets forth certain information about the Fund that
investors should know before investing. It should be read and retained for
future reference. Additional information about the Fund, contained in a
Statement of Additional Information dated July 1, 1995, as it may from time to
time be revised, has been filed with the Securities and Exchange Commission and
is available to investors upon request and without charge by calling the Fund's
distributor at (800) 426-3863. The Statement of Additional Information is
incorporated in its entirety by reference into this Prospectus.
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Shares of the Fund are not bank deposits or obligations of, or guaranteed or
endorsed by, Bank of America or any of its affiliates, and are not federally
insured by, guaranteed by, obligations of or otherwise supported by the
U.S. Government, the Federal Deposit Insurance Corporation, the Federal Reserve
Board or any other governmental agency. The Fund seeks to maintain its net asset
value per share at $1.00 for purposes of purchases and redemptions, although
there can be no assurance that it will be able to do so on a continuous basis.
Investment in the Fund involves investment risks, including the possible loss of
principal amount invested.
[--- Unable To Translate Graphic ---]
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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Estimated Expense Information
The following table sets forth certain information regarding shareholder
transaction expenses imposed by the Fund and (i) the annual operating expenses
the Fund incurred during its last fiscal year with respect to its Horizon Shares
and (ii) the estimated annual operating expenses the Fund expects to incur for
the current fiscal year with respect to its Horizon Service Shares. Actual
expenses may vary. Hypothetical examples based on the table are also shown.
Horizon Horizon
Shares Service
Shares*
Shareholder Transaction Expenses
Sales Load Imposed on Purchases None None
Sales Load Imposed on Reinvested Dividends None None
Deferred Sales Load None None
Redemption Fees None None
Estimated Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees (After Fee Waivers) .14% .14%
All Other Expenses .08% .33%
Shareholder Service Payments .25%
Other Expenses .08% .08%
Total Fund Operating Expenses (After Fee Waivers) .22% .47%
* The Company understands that institutions that enter into agreements
("Shareholder Service Agreements") with the Company ("Shareholder
Organizations") under the Company's Shareholder Services Plan (the "Plan")
may charge fees to their customers who are the beneficial owners of Horizon
Service Shares in connection with their accounts. The Fund's Horizon Service
Shares bear fees paid to Shareholder Organizations under the Plan at the
annual rate of up to .25% of such Fund's average daily net asset value.
Example 1 3 5 10
Year Years Years Years
You would pay the following expenses on a $1,000 investment,
assuming (1) a 5% annual return and (2) redemption at the end of
each time period:
Horizon Shares $2 $7 $12 $28
Horizon Service Shares $5 $15 $26 $59
The foregoing Estimated Expense Information and Example are intended to assist
investors in Horizon Shares and Horizon Service Shares of the Fund in
understanding the expenses of each class. Investors bear these expenses
indirectly since they reduce the amount of income paid by the Fund to investors
as dividends. Management Fees consist of an investment advisory fee and an
administration fee, each payable at a maximum annual rate of .10% of the Fund's
net assets. The investment adviser and administrator may voluntarily waive a
portion of their respective fees and may voluntarily reimburse expenses from
time to time. This voluntary waiver and reimbursement may be modified or
terminated at any time.
Absent such waivers and/or reimbursements, it is estimated that the total
operating expenses of the Horizon Shares and Horizon Service Shares of the Prime
Value Fund would be .28% and .53%, respectively. See "Management of the Fund"
for a more complete description of the various expenses referred to above.
THE EXAMPLE SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RETURNS AND OPERATING EXPENSES. ACTUAL INVESTMENT RETURNS AND
OPERATING EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
Financial Highlights
The Fund commenced operations on March 16, 1993 by offering a single series of
shares known as Pacific Horizon Shares, and on May 16, 1994 began offering
Horizon Shares. As of February 28, 1995, no Horizon Service Shares of the Fund
had been issued. Pacific Horizon Shares and Horizon Service Shares bear certain
fees in excess of those borne by Horizon Shares such that at any given time the
yield on the Fund's Horizon Shares will be approximately .25% higher than the
yield on its Horizon Service Shares and approximately .32% higher than the yield
on its Pacific Horizon Shares. See "Description of Shares" below.
The tables below set forth certain audited information concerning the investment
results for:
1) Pacific Horizon Shares of the Fund for the year ended February 28, 1995 and
the period March 16, 1993 (commencement of operations) through February 28,
1994, and 2) Horizon Shares of the Fund for the period May 16, 1994 (initial
offering of Horizon Shares) to February 28, 1995. The information contained in
the Financial Highlights has been audited by Price Waterhouse LLP, the Fund's
independent accountants, whose unqualified report on the financial statements
containing such information is incorporated by reference in the Statement of
Additional Information. The Financial Highlights should be read in conjunction
with the Fund's audited financial statements and notes thereto and the
unqualified report of the independent accountants which are incorporated by
reference in the Statement of Additional Information.
Selected Data for a Pacific Horizon Share Outstanding Throughout Each of the
Periods Indicated:
Year Ended Period Ended
February 28, February 28,
1995 1994*
PACIFIC HORIZON SHARES
Net asset value per share, beginning of period $1.00 $1.00
Income from Investment Operations:
Net investment income 0.0456 0.0302
Less Dividends:
Dividends from net investment income (0.0456)
(0.0302)
Net change in net asset value per share 0.0000 0.0000
Net asset value per share, end of period $1.00 $1.00
Total return 4.66% 3.06%
Ratios/Supplemental Data:
Net assets, end of period (000) $77,733 $151,447
Ratio of expenses to average net assets** 0.21% 0.18%_
Ratio of net investment income to average net assets** 4.32% 3.15%_
_______________
* For the period March 16, 1993 (commencement of operations) through
February 28, 1994.
** Net of fee waivers which had the effect of reducing the ratio of expenses
to average net assets and increasing the ratio of net investment income to
average net assets by 0.44% for the year ended February 28, 1995 and 0.58%
(annualized) for the period ended February 28, 1994.
_ Annualized.
Not annualized.
Selected Data for a Horizon Share Outstanding Throughout the Period
Indicated.
Period Ended
February 28,
1995*
HORIZON SHARES
Net asset value per share, beginning of period $1.00
Income from Investment Operations:
Net investment income 0.0384
Less Dividends from net investment income (0.0384)
Net change in net asset value per share 0.0000
Net asset value per share, end of period $1.00
Total return 3.91%
Ratios/Supplemental Data:
Net assets, end of period (000) $109,605
Ratio of expenses to average net assets** 0.22%_
Ratio of net investment income to average net assets** 4.56%_
_______________
* For the period May 16, 1994 (initial offering of Horizon Shares) through
February 28, 1995.
** Net of fee waivers which had the effect of reducing the ratio of expenses
to average net assets and increasing the ratio of net investment income to
average net assets by 0.04% (annualized).
_ Annualized.
Not annualized.
Yield Information. From time to time the "yield" or "effective yield" of a
series of the Fund may be quoted in advertisements or reports to shareholders.
Both yield figures are based on historical earnings and are not intended to
indicate future performance. The "yield" of a series of the Fund refers to the
income generated by an investment in the particular series of the Fund over a
seven-day period (which period will be stated in the advertisement or report).
This income is then "annualized" that is, the amount of income generated by the
investment during that week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment. The "effective yield" is
calculated similarly but, when annualized, the income earned by an investment in
the particular series of the Fund is assumed to be reinvested. The "effective
yield" will be slightly higher than the "yield" because of the compounding
effect of this assumed reinvestment.
Additionally, the yield of the Fund's series may be compared to those of other
mutual funds with similar investment objectives and to other relevant indices or
to rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
yield of the Fund's series may be compared to Donoghue's Money Fund Averages,
which are averages compiled by Donoghue's Money Fund Report. Yield data as
reported in national financial publications, including Money, Forbes, Barron's,
The Wall Street Journal and The New York Times, or in publications of a local or
regional nature, may also be used in comparing the yield of the Fund's series. A
complete listing of the indices, rankings and publications discussed above is
contained in the Statement of Additional Information.
Since yields fluctuate, yield data cannot necessarily be used to compare an
investment in the shares of the Fund with bank deposits, savings accounts and
similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that yield
is generally a function of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses and market conditions. Any
fees charged by Bank of America or Shareholder Organizations (defined below)
directly to their customer accounts in connection with investments in Fund
shares (which fees may include, for example, account maintenance fees,
compensating balance requirements or fees based upon account transactions,
assets or income) will not be included in the calculations of the yield of the
Fund's series.
Investment Objective and Policies
In General. The Fund's investment objective is to seek high current income and
stability of principal. The Fund invests substantially all of its assets in a
diversified portfolio of U.S. dollar-denominated money market instruments.
Portfolio securities held by the Fund have remaining maturities of thirteen
months or less (as defined by the Securities and Exchange Commission) from the
date of purchase by the Fund. (Portfolio securities which are subject to
repurchase agreements or have certain put or demand features exercisable by the
Fund within thirteen months, as well as certain U.S. Government obligations with
floating or variable interest rates, may have longer maturities.) The money
market instruments in which the Fund invests will generally have neither as much
risk nor as high a return as longer-term or lower-rated instruments.
In pursuing its investment objective, the Fund invests in a broad range of
government, bank and commercial obligations that may be available in the money
markets. In accordance with regulations of the Securities and Exchange
Commission, the Fund intends to limit investments in the securities of any
single issuer (other than securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities) to not more than 5% of the Fund's
total assets at the time of purchase, provided that the Fund may invest up to
25% of its total assets in the securities of any one issuer for a period of up
to three business days.
Assets of the Fund will be invested in dollar-denominated debt securities and
the dollar-weighted average portfolio maturity of the Fund will not exceed
90 days. All securities acquired by the Fund will be determined by the adviser,
under guidelines established by the Board of Directors of the Company, to
present minimal credit risks and will be "First Tier Securities" as defined by
the Securities and Exchange Commission. First Tier Securities consist of
instruments that are either rated at the time of purchase in the top rating
category by one (if rated by only one) or more unaffiliated nationally
recognized statistical rating organizations ("NRSROs") including Standard and
Poor's Ratings Group, Division of McGraw Hill ("Standard & Poor's"), Moody's
Investors Service, Inc. ("Moody's"), Duff & Phelps Credit Co. ("Duff & Phelps")
or Fitch Investors Service, Inc. ("Fitch") or issued by issuers with such
ratings. The Appendix to the Statement of Additional Information includes a
description of the applicable NRSRO ratings. Unrated instruments purchased by
the Fund will be of comparable quality as determined by the Fund's adviser
pursuant to guidelines approved by the Board of Directors.
Bank Obligations. The Fund may purchase U.S. dollar-denominated bank obligations
such as time deposits, certificates of deposit and bankers' acceptances issued
by domestic and foreign banks. Such banks must have total assets at the time of
purchase in excess of $1 billion. The Fund may also make interest-bearing
savings deposits in commercial banks in amounts not in excess of 5% of the
Fund's total assets.
Commercial Obligations. The Fund may purchase commercial paper, short-term notes
and bonds issued by domestic and foreign corporations that meet the Fund's
maturity limitations. These instruments may include Canadian Commercial Paper
("CCP"), which is U.S. dollar-denominated commercial paper issued by a Canadian
corporation or a Canadian counterpart of a U.S. corporation, and Europaper,
which is U.S. dollar-denominated commercial paper of a foreign issuer.
The Fund may also invest in commercial paper issued in reliance on the so called
"private placement" exemption from registration afforded by Section 4(2) of the
Securities Act of 1933 ("Section 4(2) paper"). Section 4(2) paper is restricted
as to disposition under the federal securities laws and generally is sold to
institutional investors such as the Fund who agree that they are purchasing the
paper for investment and not with a view to public distribution. Any resale by
the purchaser must be in an exempt transaction. Section 4(2) paper normally is
resold to other institutional investors like the Fund through or with the
assistance of the issuer or investment dealers who make a market in Section 4(2)
paper. Section 4(2) paper will not be subject to the Fund's 10% limitation on
illiquid securities set forth below provided that the Board of Directors or the
Fund's adviser (pursuant to guidelines adopted by the Board) determines that a
liquid trading market exists.
U.S. Government Obligations. The Fund may purchase obligations issued or
guaranteed by the U.S. Government or its agencies and instrumentalities.
Examples of the types of U.S. Treasury obligations that may be held by the Fund
include U.S. Treasury bills and notes, including "stripped" securities (both
interest-only and principal-only) issued by the U.S. Treasury and recorded in
the Federal Reserve book-entry record-keeping system. "Stripped" U.S. Treasury
securities include zero coupon obligations that are normally issued at a
discount to their "face value," and may exhibit greater price volatility than
ordinary debt securities. Obligations of certain agencies and instrumentalities
of the U.S. Government, such as the Small Business Administration, are backed by
the full faith and credit of the United States. Others are backed by the right
of the issuer to borrow from the U.S. Treasury (such as obligations of the
Federal Home Loan Bank), by the discretionary authority of the U.S. Government
to purchase the agency's obligations (such as obligations of the Federal
National Mortgage Association) or only by the credit of the agency or
instrumentality issuing the obligation (such as the Student Loan Marketing
Association). Securities issued or guaranteed by the U.S. Government and its
agencies and instrumentalities have historically involved little risk of loss of
principal if held to maturity. However, no assurance can be given that the
U.S. Government would provide financial support to any agency or instrumentality
if it were not obligated to do so by law.
Foreign Government Obligations. The Fund may invest in U.S. dollar-denominated
obligations issued or guaranteed by foreign governments or any of their
political subdivisions, agencies or instrumentalities. Such obligations include
debt obligations of supranational entities. Supranational entities include
international organizations designated or supported by governmental entities to
promote economic reconstruction or development and international banking
institutions and related government agencies. Examples of these include the
International Bank for Reconstruction and Development (the "World Bank"), the
Asian Development Bank and the InterAmerican Development Bank.
Asset-Backed Securities. The Fund may purchase asset-backed securities, which
are securities backed by mortgages, installment sales contracts, credit card
receivables or other assets. The average life of asset-backed securities varies
with the maturities of the underlying instruments, and the average life of a
mortgage-backed instrument, in particular, is likely to be substantially less
than the original maturity of the mortgage pools underlying the securities as
the result of mortgage prepayments. For this and other reasons, an asset-backed
security's stated maturity may be shortened, and the security's total return may
be difficult to predict precisely. Such difficulties are not, however, expected
to have a significant effect on the Fund since the remaining maturity of any
asset-backed security acquired will be thirteen months or less. Asset-backed
securities acquired by the Fund may include collateralized mortgage obligations
("CMOs") issued by private companies.
Participations. The Fund may purchase from domestic financial institutions
participation interests in high quality debt securities. A participation
interest gives the Fund an undivided interest in the security in the proportion
that the Fund's participation interest bears to the total principal amount of
the security. Participation interests may have fixed, floating or variable rates
of interest, and will have remaining maturities of thirteen months or less (as
defined by the Securities and Exchange Commission). If a participation interest
is unrated, the adviser will have determined that the interest is of comparable
quality to those instruments in which the Fund may invest pursuant to guidelines
approved by the Company's Board of Directors. The Fund intends only to purchase
participations from an entity or syndicate, and does not intend to serve as a
co-lender in any participation. For certain participation interests, the Fund
will have the right to demand payment,
on not more than 30 days' notice, for all or
any part of the Fund's participation interest in the security, plus accrued
interest. As to these instruments, the Fund in tends to exercise its right to
demand payment only upon a default under the terms of the security, as needed to
provide liquidity, or to maintain or improve the quality of its investment
portfolio. It is possible that a participation interest might be deemed to be an
extension of credit by the Fund to the issuing financial institution that is not
a direct interest in the credit of the obligor of the underlying security and is
not directly entitled
to the protection of any collateral security provided by such obligor. In such
event, the ability of the Fund to obtain repayment might depend on the issuing
financial institution.
Repurchase Agreements. The Fund may agree to purchase securities from financial
institutions, such as banks and broker-dealers, as are deemed creditworthy by
the adviser under guidelines approved by the Board of Directors, subject to the
seller's agreement to repurchase them at an agreed upon time and price
("repurchase agreements"). Although the securities subject to a repurchase
agreement may bear maturities exceeding thirteen months, the Fund intends only
to enter into repurchase agreements having maturities not exceeding 60 days.
Securities subject to repurchase agreements are held either by the Fund's
custodian, or sub-custodian, or in the Federal Reserve/Treasury Book-Entry
System.
The seller under a repurchase agreement will be required to maintain the value
of the securities subject to the agreement in an amount that exceeds the
repurchase price, and such value (including accrued interest) will be
continuously monitored by the adviser on an ongoing basis. Default by the seller
would, however, expose the Fund to possible loss because of adverse market
action or delay in connection with the disposition of the underlying
obligations. Repurchase agreements are considered to be loans under the
Investment Company Act of 1940.
Reverse Repurchase Agreements. The Fund may borrow monies for temporary purposes
by entering into reverse repurchase agreements in accordance with the investment
restrictions described below. Pursuant to such agreements, the Fund would sell
portfolio securities to financial institutions and agree to repurchase them at
an agreed upon date and price. At the time the Fund enters into a reverse
repurchase agreement, it will place in a segregated custodial account liquid
assets or high grade debt securities having a value equal to or greater than the
repurchase price and the adviser will continuously monitor the account to ensure
that the value is maintained. The Fund would only enter into reverse repurchase
agreements to avoid otherwise selling securities during unfavorable market
conditions to meet redemptions. Reverse repurchase agreements involve the risk
that the market value of the portfolio securities sold by the Fund may decline
below the price of the securities the Fund is obligated to repurchase. Interest
paid by the Fund in connection with a reverse repurchase agreement will reduce
the Fund's net investment income. Reverse repurchase agreements are considered
to be borrowings under the Investment Company Act of 1940.
Variable and Floating Rate Instruments. Securities purchased by the Fund may
include variable and floating rate instruments, which may have a stated maturity
in excess of the Fund's maturity
limitations but which will, except for certain U.S. Government obligations,
permit the Fund to demand payment of the principal of the instrument at least
once every thirteen months upon not more than thirty days' notice. Such
instruments may include variable amount master demand notes that permit the
indebtedness thereunder to vary in addition to providing for periodic
adjustments in the interest rate. There may be no active secondary market with
respect to a particular variable or floating rate instrument. Nevertheless, the
periodic readjustments of their interest rates tend to assure that their value
to the Fund will approximate their par value. Illiquid variable and floating
rate instruments (instruments which are not payable upon seven days notice and
do not have an active trading market) that are acquired by the Fund are subject
to the percentage limitations described below under "Illiquid Investments." The
adviser will continuously monitor the creditworthiness of issuers of variable
and floating rate instruments in which the Fund invests, and their ability to
repay principal and interest.
Variable and floating rate instruments purchased by the Fund may include
participation certificates issued by trusts or financial institutions in
variable and floating rate obligations owned by such issuers or affiliated
organizations. A participation certificate gives the Fund a specified undivided
interest (up to 100%) in the underlying obligation and the right to demand
payment of the unpaid principal balance plus accrued interest on the
participation interest from the institution upon a specified number of days'
notice. If the credit of the obligor is of minimal credit risk, no credit
support from a bank or other financial institution will be necessary. In other
circumstances, the participation certificate will be backed by an irrevocable
letter of credit or guarantee of a bank, or will be insured by an insurer, that
the Fund's adviser has determined meets the quality standards for the Fund.
The Fund may also invest in obligations which provide for a variable or floating
interest rate which is determined through a periodic "auction process." From
time to time, holders of the obligations have the right to tender any such
obligations to a remarketing agent which then remarkets the obligations which
have been tendered and thereby determines a new interest rate for the following
period.
When-Issued Purchases, Forward Commitments and Delayed Settlements. The Fund may
purchase securities on a "when-issued basis" and may purchase or sell securities
on a "forward commitment" basis. The Fund may also purchase or sell securities
on a "delayed settlement" basis. When-issued and forward commitment
transactions, which involve a commitment by the Fund to purchase or sell
particular securities with payment and delivery taking place at a future date
(perhaps one or two months later), permit the Fund to lock in a price or yield
on a security it owns or intends to purchase, regardless of future changes in
interest rates. Delayed settlement describes a securities transaction in the
secondary market for which settlement will occur sometime in the future. When
issued, forward commitment and delayed settlement transactions involve the risk,
however, that the yield or price obtained in a transaction may be less favorable
than the yield or price available in the market when the securities delivery
takes place. The Fund's forward commitments, when-issued purchases and delayed
settlements are not expected to exceed 25% of the value of the Fund's total
assets absent unusual market conditions. The Fund's liquidity and the ability of
the adviser to manage the Fund's portfolio may be adversely affected in the
event the Fund's forward commitments, commitments to purchase when-issued
securities and delayed settlements ever exceeded 25% of the value of the Fund's
assets. The Fund does not intend to engage in these transactions for speculative
purposes but only in furtherance of its investment objective.
Securities Lending. To increase income on portfolio securities, the Fund may
lend its portfolio securities to broker-dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned plus accrued interest. Collateral for such loans may
include cash or securities of the U.S. Government, securities of U.S. Government
agencies or instrumentalities or an irrevocable letter of credit issued by a
bank which meets the investment standards of the Fund. Such loans will not be
made if, as a result, the aggregate of all outstanding loans of the Fund exceeds
30% of the value of its total assets. There may be risks of delay in receiving
additional collateral or in recovering the securities loaned or even a loss of
rights in the collateral should the borrower of the securities fail financially.
However, loans will be made only to borrowers deemed by the adviser to be of
good standing and when, in the adviser's judgment, the income to be earned from
the loan justifies the attendant risks.
Foreign Investments. Because the Fund may hold securities issued by foreign
issuers, the Fund may be subject to investment risks that are different in some
respects from those incurred by a fund which invests only in debt obligations of
U.S. domestic issuers. Such risks include future political and economic
developments, the possible imposition of withholding taxes on interest income
payable on the securities by the particular country in which the issuer is
located, the possible seizure or nationalization of foreign deposits, the
possible establishment of exchange controls or the adoption of other foreign
governmental restrictions which might adversely affect the payment of principal
and interest on these securities. In addition, foreign banks and other issuers
are not necessarily subject to the same regulatory requirements that apply to
domestic issuers (such as reserve requirements, loan limitations, examinations,
accounting, auditing and recordkeeping requirements and public availability of
information) and the Fund may experience difficulties in obtaining or enforcing
a judgment against a foreign issuer.
Illiquid Investments. The Fund will not knowingly invest more than 10% of the
value of its net assets in securities that are illiquid. Repurchase agreements,
securities loans and time deposits that do not provide for payment to the Fund
within seven days after notice and securities that are not registered under the
Securities Act of 1933 but that may be purchased by institutional buyers under
Rule 144A, are subject to this 10% limit (unless such securities are commercial
paper and variable amount master demand notes with maturities of nine months or
less or unless the Board or the adviser, pursuant to guidelines adopted by the
Board, determines that a liquid trading market exists).
Investment Limitations. The Fund's investment objective is a fundamental policy
that may not be changed without a vote of the holders of a majority of the
Fund's outstanding shares (as defined in the Investment Company Act of 1940).
The Fund's policies may be changed by the Company's Board of Directors without
the affirmative vote of the holders of a majority of the Fund's outstanding
shares, except that the investment limitations set forth below may not be
changed without such a vote of shareholders. A description of certain other
fundamental invest men limitations is contained in the Statement of Additional
Information.
The Fund may not:
1. Purchase any securities which would cause, at the time of purchase, less
than 25% of the value of its total assets to be invested in obligations of
issuers in the banking industry or in obligations, such as repurchase
agreements, secured by such obligations (unless the Fund is in a temporary
defensive position) or which would cause, at the time of purchase, 25% or
more of the Fund's total assets to be invested in the securities of one or
more issuers conducting their principal business activities in any other
industry, provided that (a) there is no limitation with respect to
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or repurchase agreements secured by such obligations;
(b) wholly-owned finance companies will be considered to be in the
industries of their parents if their activities are primarily related to
financing the activities of the parents; and (c) the industry
classification of utilities will be determined according to their service.
For example, gas, gas transmission, electric and gas, electric and
telephone will each be considered a separate industry.
2. Borrow money or issue senior securities, except that the Fund may borrow
from banks and enter into reverse repurchase agreements for temporary
purposes in amounts up to one-third of the value of the total assets at
the time of such borrowing; or mortgage, pledge or hypothecate any assets,
except in connection with any such borrowing and then in amounts not in
excess of one-third of the value of the Fund's total assets at the time of
such borrowings. The Fund will not purchase securities while its
borrowings (including reverse repurchase agreements) in excess of 5% of
its total assets are outstanding. Securities held in escrow or separate
accounts in connection with the Fund's investment practices described in
this Prospectus or the Statement of Additional Information are not deemed
to be pledged for purposes of this limitation.
Investment Decisions. Investment decisions for the Fund are made independently
from those for other investment companies and accounts managed by Bank of
America and its affiliated entities. Such other investment companies and
accounts may also invest in the same securities as the Fund. When a purchase or
sale of the same security is made at substantially the same time on behalf of
the Fund and another investment company or account, available investments or
opportunities for sales will be allocated in a manner which Bank of America
believes to be equitable. In some instances, this investment procedure may
adversely affect the price paid or received by the Fund or the size of the
position obtained or sold by the Fund. In addition, in allocating purchase and
sale orders for portfolio securities (involving the payment of brokerage
commissions or dealer concessions), Bank of America may take into account the
sale of shares of the Fund by broker-dealers and other financial institutions
(including affiliates of Bank of America and the Fund's distributor), provided
Bank of America believes that the quality of the transaction and the amount of
the commission are not less favorable than what they would be with any other
unaffiliated qualified firm.
Management of the Fund
Board of Directors. The business of the Company is managed under the direction
of its Board of Directors. Information about the Directors and officers of the
Company is included in the Statement of Additional Information.
Investment Adviser. Bank of America serves as investment adviser to the Fund.
Bank of America, which has principal offices located at 555 California Street,
San Francisco, California 94104, is a national banking association formed in
1904 which provides commercial banking and trust business through an extensive
system of branches across the western United States. Bank of America's principal
banking affiliates operate branches in ten U.S. states as well as corporate
banking and business credit offices in major U.S. cities and branches, corporate
offices and representative offices in 37 countries. Bank of America and its
affiliates have over $50 billion under management, including over $10 billion in
mutual funds. Bank of America is a subsidiary of BankAmerica Corporation, a
registered bank holding company.
As investment adviser Bank of America manages the investments of the Fund and is
responsible for all purchases and sales of the Fund's portfolio securities. For
its investment advisory services Bank of America is entitled to receive a fee
accrued daily and payable monthly at the following annual rates: .10% of the
first $7 billion of the Fund's net assets, plus .09% of the next $3 billion of
the Fund's net assets, plus .08% of the Fund's net assets over $10 billion. This
amount may be reduced pursuant to certain undertakings by Bank of America
described below under "Fee Waivers." The Fund paid advisory fees to the Bank of
America at an effective annual rate of .07% of the Fund's average net assets for
the fiscal year ended February 28, 1995, and Bank of America waived advisory
fees at an effective rate of .03% of the Fund's average net assets for the same
period.
In addition, Bank of America is also entitled to fees under the Company's
Shareholder Services Plan described below and may receive fees charged directly
to its customers' accounts in connection with investments in Fund shares.
Administrator. Concord Holding Corporation (the "Administrator") serves as the
Company's administrator and assists generally in supervising the Fund's
operations. The Administrator is a wholly-owned subsidiary of The BISYS Group,
Inc. Its offices are located at 125 West 55th Street, New York, New York 10019.
Under its basic administrative services agreement for the Fund, the
Administrator has agreed to provide facilities, equipment and personnel to carry
out administrative services that are for the benefit of the Fund, including
coordination of reports to shareholders and the Securities and Exchange
Commission; calculation of the net asset value of Fund shares and dividends and
capital gains distributions to shareholders; payment of the costs of maintaining
the Fund's offices; preparation of tax returns; provision of internal legal and
accounting compliance services; maintenance (or oversight of the maintenance by
others approved by the Board of Directors) of the Fund's books and records; and
the provision of various services for shareholders who have made a minimum
investment of at least $500,000 including the provision of a facility to receive
purchase and redemption orders for the accounts of such shareholders.
For its administrative services the Administrator is entitled to receive an
administration fee computed daily and payable monthly at the following annual
rates: .10% of the first $7 billion of the Fund's net assets, plus .09% of the
next $3 billion of the Fund's net assets, plus .08% of the Fund's net assets
over $10 billion. The Fund paid administration fees to the Administrator at an
effective annual rate of .07% of the Fund's average net assets for the fiscal
year ended February 28, 1995, and the Administrator waived administration fees
at an effective annual rate of .03% of the Fund's average net assets for the
same period.
Pursuant to the authority granted in its agreement with the Company, the
Administrator has entered into an agreement with The Bank of New York under
which the bank performs certain of the services listed above e.g. calculating
the net asset value of Fund shares and dividends to shareholders and maintaining
the Fund's books and records. The Fund bears all fees and expenses charged by
The Bank of New York for these services.
Distributor. Concord Financial Group, Inc. (the "Distributor") is the principal
underwriter and distributor of shares of the Fund. The Distributor is a wholly-
owned subsidiary of the Administrator organized to distribute shares of mutual
funds to institutional and retail investors. Its offices are located at 125 West
55th Street, New York, New York 10019.
The Distributor makes a continuous offering of the Fund's shares and bears the
costs and expenses of printing and distributing to selected dealers and
prospective investors copies of any prospectuses, statements of additional
information and annual and interim reports of the Fund (after such items have
been prepared and set in type by the Fund) which are used in connection with the
offering of shares, and the costs and expenses of preparing, printing and
distributing any other literature used by the Distributor or furnished by it for
use by selected dealers in connection with the offering of the Fund's shares for
sale to the public.
Custodian and Transfer Agent. The Bank of New York, located at 90 Washington
Street, New York, New York 10286, serves as the Fund's custodian. Concord
Financial Services, Inc., a wholly-owned subsidiary of the Administrator located
at First and Market Building, 100 First Avenue, Suite 300, Pittsburgh,
Pennsylvania 15222, serves as transfer agent and dividend disbursing agent for
Horizon Shares of the Fund. DST Systems, Inc. ("DST"), 811 Main, Kansas City,
Missouri 64105-2005, serves as transfer agent and dividend disbursing agent for
Horizon Service Shares of the Fund. Concord Financial Services, Inc. also
provides sub-transfer agency services for certain Horizon Service Share
accounts. DST Systems, Inc. and Concord Financial Services, Inc. are
collectively referred to as the "Transfer Agents." The Company has also entered
into a Cash Management and Related Services Agreement with The Bank of New York
pursuant to which The Bank of New York receives and disburses funds in
connection with the purchase and redemption of, and the payment of dividends and
other distributions with respect to, the Fund's shares.
Fee Waivers. Except as noted in this Prospectus and the Statement of Additional
Information, the Fund's service contractors bear all expenses in connection with
the performance of their services and the Fund bears the expenses incurred in
its operation. Such fund expenses include taxes, interest, brokerage fees and
commissions, if any, fees of directors who are not officers, directors,
partners, employees or holders of 5% or more of the outstanding voting
securities of Bank of America or the Administrator or any of their affiliates,
Securities and Exchange Commission fees and state securities qualification fees,
advisory fees, administration fees, fees payable to Shareholder Organizations,
fund accounting fees, charges of custodians, transfer and dividend disbursing
agents' fees, certain insurance premiums, outside auditing and legal expenses,
costs of maintaining corporate existence, costs attributable to investor
services, including without limitation certain telephone expenses, costs of
preparing and printing prospectuses and statements of additional information for
regulatory purposes, costs of shareholders' reports and corporate meetings and
any extraordinary expenses. From time to time during the course of the Fund's
fiscal year, the Administrator and/or Bank of America may voluntarily not
receive payment of fees and/or assume certain expenses of the Fund, while
retaining the ability to be reimbursed by the Fund for such amounts prior to the
end of the fiscal year and, subject to the expense limitations of certain
states, to stop such fee waivers and expense reimbursements at any time. This
will have the effect of increasing yield to investors at the time such fees are
not received or amounts are assumed and decreasing yield when such fees or
amounts are reimbursed.
Purchase and Redemption of Shares
Purchase Procedures. Fund shares are sold at the net asset value per share next
determined after receipt of a purchase order by the Transfer Agents. Purchase
orders placed directly with the Transfer Agents without the assistance of a
broker-dealer or other person are without charge. Broker-dealers (other than the
Fund's distributor) and others who process purchase orders on behalf of
customers may charge a fee for their services.
Purchase orders for shares are accepted by the Fund only on a day on which both
the Fund's custodian and the New York Stock Exchange
(the "Exchange") are open for business (a "Business Day"), and must be
transmitted to the Transfer Agents by telephone c/o the Distributor (800) 426-
3863 or terminal access. An investment in Horizon Shares and Horizon Service
Shares of the Fund automatically entitles the investor to purchase Fund shares,
subject to the minimum described below, without charge, by telephone unless they
indicate in a written notice to the Transfer Agents that they do not wish to use
this telephone privilege.
Purchase orders for the Fund that are received by the Transfer Agents before
12:00 noon Eastern time on a Business Day will be executed at such time on that
day if payment is received by 4:00 p.m. Eastern time on such Business Day.
Orders received after 12:00 noon Eastern time on a Business Day, and orders for
which payment has not been received by 4:00 p.m. Eastern time, will not be
accepted. The Fund may in its discretion reject any order for shares. Payment
for orders which are not received or paid for in a timely manner or are not
accepted by the Fund will be returned after prompt notification to the sending
institution.
Payment for shares may be made only in federal funds or other funds immediately
available to the Transfer Agents. The minimum initial investment for Horizon
Shares and Horizon Service Shares in the Fund is $500,000 (although broker-
dealers and other institutional investors may set a higher minimum for their
customers) and there is no minimum subsequent investment. The Fund
reserves the right to suspend the sale of shares to the public at any time, in
response to conditions in the securities markets or otherwise.
Federal regulations require that each investor provide a certified Taxpayer
Identification Number upon opening or reopening an account.
Redemption Procedures. Redemption orders for Horizon Shares and Horizon Service
Shares must be transmitted to the Transfer Agents by telephone c/o the
Distributor or terminal access in the manner described above under "Purchase
Procedures." Shares for which certificates have been issued may not be redeemed
unless the certificates have been submitted to the Transfer Agents and endorsed
for transfer. While the Fund seeks to maintain its net asset value per share at
$1.00 there can be no assurance that it will be able to do so, and the proceeds
paid upon redemption may be more or less than the amount invested depending upon
a share's net asset value at the time of redemption.
Redemption orders submitted directly to the Transfer Agents without the
assistance of a broker-dealer or other person, and orders submitted by the
Distributor for its own brokerage customers, are processed without charge.
Broker-dealers (other than the Distributor) and others who process redemption
orders on behalf of their customers may charge a fee for their services.
Redemption orders are effected at the net asset value per share next determined
after receipt of the order by the Transfer Agents. Payment for redeemed shares
for which a redemption order is received by the Transfer Agents before
12:00 noon Eastern time on a Business Day is normally made in federal funds
wired to the redeeming shareholder on the same Business Day. Payment for
redeemed shares for which a redemption order is received after 12:00 noon
Eastern time on a Business Day is normally made in federal funds wired to the
redeeming shareholder on the next Business Day following redemption. In order to
allow Bank of America to most effectively manage the Fund's portfolio, investors
are urged to initiate redemptions of shares as early in the day as possible and
to notify the Transfer Agents at least one day in advance of redemptions in
excess of $5 million. The Fund reserves the right to wire redemption proceeds up
to seven days after receiving the redemption order if, in the judgment of the
adviser, an earlier payment could adversely affect the Fund. In making
redemption requests the names of the registered shareholders and their account
numbers must be supplied. An investment in Horizon Shares and Horizon Service
Shares of the Fund automatically entitles the investor to redeem shares, without
charge, by telephone unless the investor indicates through a written notice to
the Transfer Agents that they do not wish to use this telephone privilege.
Neither the Fund, the Distributor nor the Transfer Agents will be responsible
for any loss or expense for acting upon any telephone instructions that are
reasonably believed to be genuine. In attempting to confirm that telephone
instructions are genuine, the Company will use such procedures as are considered
reasonable.
The Fund may suspend the right of redemption or postpone the date of payment
upon redemption (as well as suspend or postpone the recordation of the transfer
of its shares) for such periods as are permitted under the Investment Company
Act of 1940. The Fund reserves the right to redeem shares in any account at
their net asset value if the value of the account is less than $500,000 as a
result of redemptions. The shareholder having the account will first be notified
in writing that its account has a value of less than $500,000 and will be
allowed 60 days to make additional investments to bring the value of its account
to $500,000 before the redemption is processed by the Fund. In addition, the
Fund may redeem shares involuntarily under certain special circumstances
described in the Statement of Additional Information under "Purchase and
Redemption of Shares."
Net Asset Value. The net asset value per share of the Fund is determined on each
Business Day as of 12:00 noon Eastern time and the close of regular trading
hours on the Exchange (or 4:00 p.m. Eastern time if the Exchange is closed). In
computing net asset value, the Fund uses the amortized cost method of valuation
as described in the Statement of Additional Information under "Purchase and
Redemption of Shares."
Dividends and Distributions
The shareholders of the Fund are entitled to dividends and distributions arising
from the net investment income and net realized gains, if any, earned on
investments held by the Fund. Generally, the Fund's net income is declared daily
as a dividend. Shares begin accruing dividends on the day the purchase order for
the shares is executed and continue to accrue dividends through and including
the day before the redemption order for the shares is executed. Dividends are
paid within five business days after the end of each month. Although the Fund
does not expect to realize net long-term capital gains, any such capital gains
as may be realized will be distributed no more than twice a year after reduction
for any available capital loss carry-forward.
Dividends are paid in the form of additional full and fractional shares of the
same series as the shares on which the dividends are declared at the net asset
value of such shares on the payment date, unless the shareholder elects to
receive dividends in cash. Reinvestment dividends receive the same tax treatment
as dividends paid in cash. Such election or any revocation thereof must be made
in writing to Pacific Horizon Funds, Inc. Prime Value Fund, First and Market
Building, 100 First Avenue, Suite 300, Pittsburgh, Pennsylvania 15222, and will
become effective with respect to dividends paid after its receipt by the
dividend disbursing agent.
Taxes
Federal. Management of the Company believes that the Fund qualified for its last
taxable year as a "regulated investment company" under the Internal Revenue Code
of 1986, as amended (the "Code"), and it is intended that the Fund will continue
to qualify as a regulated investment company as long as such qualification is in
the best interest of the Fund's shareholders. Such qualification generally
relieves the Fund of liability for federal income taxes to the extent its
earnings are distributed in accordance with the Code.
In connection with such tax qualification, the Fund contemplates declaring as
dividends at least 90% of its investment company taxable income for each taxable
year. An investor of the Fund who receives a dividend derived from net
investment company taxable income (including any excess of net short-term
capital gain over net long-term capital loss) treats it as ordinary income in
the computation of his gross income, whether such dividend is paid in the form
of cash or additional Fund shares. Because all of the net investment income of
the Fund is expected to be derived from earned interest, it is anticipated that
all dividends paid by the Fund will be taxable as ordinary income to
shareholders who are not exempt from federal income taxes and that no part of
any distribution paid by the Fund will be eligible for the dividends received
deduction for corporations.
Although the Fund anticipates that it will not have net long-term capital gain,
any distribution of the Fund's excess of net long-term capital gain over its net
short-term capital loss will be taxable to shareholders as long-term capital
gain regardless of how long the shareholder has held Fund shares.
Dividends declared in December of any year payable to shareholders of record on
a specified date in December will be deemed for federal tax purposes to have
been paid by the Fund and received by the shareholders on December 31, if such
dividends are paid during January of the following year.
The foregoing is only a brief summary of some of the important federal income
tax considerations generally affecting the Fund and its shareholders, and is
based on federal tax laws and regulations which are in effect as of the date of
this Prospectus. Such laws and regulations may be changed by legislative or
administrative actions. Potential investors in the Fund should consult their tax
advisers with specific reference to their own tax situation. Shareholders will
be advised at least annually as to the federal income tax consequences of
distributions made each year.
State and Local. Investors are advised to consult their tax advisers concerning
the application of state and local taxes, which may have different consequences
from those of the federal income tax law described above.
Description of Shares
The Company was organized on October 27, 1982 as a Maryland corporation, and is
registered under the Investment Company Act of 1940 as an open-end management
investment company. The Fund, which is classified as diversified under the
Investment Company Act of 1940, commenced operations on March 16, 1993 as a
portfolio of the Company with a single series of shares, Pacific Horizon Shares.
Horizon Shares were first offered on May 16, 1994. As of the date of this
Prospectus, no Horizon Service Shares of the Fund have been issued. The
Company's charter authorizes the Board of Directors to issue up to two hundred
billion full and fractional shares of capital stock, and to classify and
reclassify any authorized and unissued shares into one or more classes of
shares. The Board of Directors may similarly classify or reclassify any class of
shares into one or more series. Pursuant to such authority, the Board of
Directors has authorized the issuance of the following series of shares
representing interests in the Prime Value Fund: eight billion Horizon Shares,
one and one-half billion Horizon Service Shares and one and one-half billion
Pacific Horizon Shares. Pacific Horizon Shares of the Fund are described in a
separate Prospectus available from the Distributor at the telephone number on
the cover page of this Prospectus. The Board of Directors has also authorized
the issuance of additional classes of shares representing interests in other
investment portfolios of the Company, which are likewise described in separate
prospectuses available from the Distributor. This Prospectus relates primarily
to the Horizon Shares and Horizon Service Shares of the Fund and describes only
the investment objective and policies, operations, contracts and other matters
relating to such shares.
Each Horizon Share, Horizon Service Share and Pacific Horizon Share in the Fund
has a par value of $.001 and, except as noted below, is entitled to participate
equally in the dividends and distributions declared by the Board of Directors
with respect to the Fund and in the net distributable assets of the Fund on
liquidation. Holders of the Fund's Horizon Service Shares bear the fees
described in the following section that are paid to Shareholder Organizations
(including Bank of America, the Administrator and their affiliates) by the Fund
under the Company's Shareholder Services Plan. Similarly, holders of the Fund's
Pacific Horizon Shares bear the fees described in the prospectus for such shares
that are paid to Bank of America and the Administrator by the Fund under the
Company's Special Management Services Agreement for Pacific Horizon Shares. The
fees paid under the Special Management Services Agreement are for services
related to investor programs and facilities that are offered in connection with
Pacific Horizon Shares. Holders of Horizon Shares are not subject to fees such
as those paid under the Shareholder Services Plan or the Special Management
Services Agreement. As a result, at any given time, the net yield on the Fund's
Horizon Shares is expected to be approximately .25% higher than the yield on the
Fund's Horizon Service Shares and approximately .32% higher than the yield on
its Pacific Horizon Shares. Standardized yield quotations will be computed
separately for each series of shares.
Shareholders are entitled to one vote for each full share held and fractional
votes for fractional shares held, and will vote in the aggregate and not by
class or series except as otherwise required by law or when class voting is
permitted by the Board of Directors. For example, it is contemplated that all
shareholders of the Fund will vote together as a single class on matters
relating to the Fund's investment advisory agreement and on any change in its
fundamental investment limitations, and that only holders of Horizon Service
Shares of the Fund will be entitled to vote on matters submitted to a vote of
shareholders pertaining to the Fund's arrangements with Shareholder
Organizations. Shares have no preemptive rights and only such conversion and
exchange rights as the Board may grant at its discretion. When issued for
payment as described in this Prospectus, shares will be fully paid and
nonassessable. Certificates for shares will not be issued unless expressly
requested in writing and will not be issued for fractional
shares.
The Company does not presently intend to hold annual meetings of shareholders
for the election of directors and other business unless and until such time as
less than a majority of the directors holding office have been elected by the
shareholders of the Company, at which time the directors then in office will
call a shareholders' meeting for the election of directors. Under certain
circumstances, however, shareholders have the right to call a meeting of
shareholders to consider the removal of one or more directors and such meetings
will be called when requested by the holders of record of 10% or more of the
Company's outstanding shares of common stock. To the extent required by law and
the Company's undertaking with the Securities and Exchange Commission, the
Company will assist in shareholder communications in such matters. Shares have
cumulative voting rights to the extent that may be required by applicable law.
Shareholder Services Plan. The Company has adopted the Plan pursuant to which
Horizon Service Shares are sold to Shareholder Organizations that enter into
Shareholder Service Agreements with the Company pursuant to the Plan. Such
Shareholder Organizations may include Bank of America, the Administrator and
their affiliates. The Shareholder Service Agreements require the Shareholder
Organizations to provide support services to their customers ("Customers") who
are beneficial owners of Horizon Service Shares in return for payment by the
Fund of up to .25% (on an annualized basis) of the average daily net asset value
of the Horizon Service Shares beneficially owned by Customers of the Shareholder
Organizations. Holders of the Fund's Horizon Service Shares will bear all fees
paid to Shareholder Organizations for their services with respect to such
shares. Such fees are not paid to Shareholder Organizations with respect to the
Fund's Horizon Shares or Pacific Horizon Shares.
The services provided by Shareholder Organizations may include the following:
aggregating and processing purchase and redemption requests from Customers for
Horizon Service Shares and placing net purchase and redemption orders with the
Distributor; providing Customers with a service that invests the assets of their
accounts in Horizon Service Shares pursuant to specific or preauthorized
instructions; processing dividend payments from the Fund on behalf of Customers;
providing information periodically to Customers regarding their position in
Horizon Service Shares; arranging for bank wires; responding to Customer
inquiries regarding services performed by the Shareholder Organizations;
providing sub-accounting with respect to Horizon Service Shares beneficially
owned by Customers or the information necessary for sub-accounting; forwarding
shareholder communications from the Fund to Customers; and other similar
services if requested by the Fund.
The Fund will accrue payments made pursuant to the Plan daily. The Fund will
receive an under taking from each Shareholder Organization waiving a portion of
any payment such Organization is entitled to receive pursuant to the Plan to the
extent necessary to assure that the payments made pursuant to the Plan which are
required to be accrued to the Fund's Horizon Service Shares on any day do not
exceed the income to be accrued to such shares on that day.
The Company understands that Shareholder Organizations may charge fees to their
Customers who are the beneficial owners of Horizon Service Shares in connection
with their Customer ac counts. These fees would be in addition to any amounts
which may be received by a Shareholder Organization under a Shareholder Service
Agreement. Under the terms of the Shareholder Service Agreements, Shareholder
Organizations are required to disclose the compensation payable to them by the
Company and any other compensation payable by their Customers in connection with
the investment of their assets in the Fund. Customers of Shareholder
Organizations should read this Prospectus in light of the terms governing their
accounts with their Share
holder Organizations.
Conflict-of-interest restrictions may apply to an institution's receipt of
compensation paid by the Fund in connection with the investment of fiduciary
funds in Horizon Service Shares. Institutions, including banks regulated by the
Comptroller of the Currency, the Federal Reserve Board or the Federal Deposit
Insurance Corporation, and investment advisers and other money managers subject
to the jurisdiction of the Securities and Exchange Commission, the Department of
Labor or state securities commissions, are urged to consult their legal advisers
before investing fiduciary funds in Horizon Service Shares.
Banks may act as Shareholder Organizations. The Glass-Steagall Act and other
applicable laws, among other things, prohibit banks from engaging in the
business of underwriting securities. If a bank were prohibited from acting as a
Shareholder Organization, its shareholder clients would be permitted by the
Company to remain shareholders of the Fund and alternative means for continuing
the servicing of such shareholders would be sought. In such event, changes in
the operation of the Fund might occur and a shareholder serviced by such bank
might no longer be able to avail itself of any automatic investment or other
services then being provided by the bank. It is not expected that shareholders
would suffer any adverse financial consequences as a result of any of these
occurrences.
In connection with the sale of shares of the Fund, the Company will obtain
representations from Shareholder Organizations (as well as from Bank of America
and the Administrator) that they are or will be licensed as dealers as required
by applicable law or will not engage in activities which would require them to
be so licensed.
COPIPVM95P
PACIFIC HORIZON MUTUAL FUNDS
Horizon Shares
and
Horizon Service Shares
of the
Prime Value Fund
PROSPECTUS
July 1, 1995
NOT FDIC INSURED
Exhibit 17.4 to Form N-14
PACIFIC HORIZON FUNDS, INC.
Pacific Horizon Shares
of the
Prime Value Fund
Statement of Additional Information
July 1, 1995
TABLE OF CONTENTS
PAGE
The Company 2
Investment Objective and Policies 2
Additional Purchase and Redemption Information 14
Additional Information Concerning Taxes 20
Management of the Company 22
General Information 40
Appendix A A-1
- -------------------------
This Statement of Additional Information applies to Pacific Horizon
Shares of the Prime Value Fund (the "Fund") of Pacific Horizon Funds, Inc. (the
"Company"). This Statement of Additional Information is meant to be read in
conjunction with the prospectus dated July 1, 1995, as the same may from time to
time be further revised (the "Prospectus"), describing the Fund, and is
incorporated by reference in its entirety into such Prospectus. Because this
Statement of Additional Information is not itself a prospectus, no investment in
shares of the Fund should be made solely upon the information contained herein.
Copies of the Prospectus relating to Pacific Horizon Shares of the Fund may be
obtained by calling Concord Financial Group, Inc. at (800) 332-3863.
Capitalized terms used but not defined herein have the same meanings as in the
Prospectus.
THE COMPANY
The Company was organized on October 27, 1982 as a Maryland
corporation and commenced operations on March 30, 1984.
The Company also offers other classes and series of shares,
including Horizon Shares and Horizon Service Shares, in the Fund and in other
investment portfolios which are described in separate Prospectuses and
Statements of Additional Information. For information concerning these other
shares contact the Distributor at the telephone number stated on the cover page
of this Statement of Additional Information.
INVESTMENT OBJECTIVE AND POLICIES
The Prospectus describes the Fund's investment objective. The
following information supplements and should be read in conjunction with the
description of the investment objective and policies for the Fund in the
Prospectus.
Portfolio Transactions
Subject to the general control of the Company's Board of Directors,
Bank of America National Trust and Savings Association ("Bank of America") is
responsible for, makes decisions with respect to and places orders for all
purchases and sales of portfolio securities for the Fund. Securities purchased
and sold by the Fund are generally traded in the over-the-counter market on a
net basis (i.e., without commission) through dealers, or otherwise involve
transactions directly with the issuer of an instrument. For the period March
16, 1993 (commencement of operations) through February 28, 1994 and for the
fiscal year ended February 28, 1995, the Prime Value Fund did not pay any
brokerage commissions. The cost of securities purchased by the Fund from
underwriters generally includes an underwriting commission or concession, and
the prices at which securities are purchased from and sold to dealers include a
dealer's mark-up or mark-down.
In executing portfolio transactions and selecting brokers or
dealers, it is the Company's policy to seek the best overall terms available.
The Investment Advisory Agreement between the Company and Bank of America
provides that, in assessing the best overall terms available for any
transaction, Bank of America shall consider factors it deems relevant, including
the breadth of the market in the security, the price of the security, the
financial condition and execution capability of the broker or dealer, and the
reasonableness of the commission, if any, for the specific transaction and on a
continuing basis. In addition, the Investment Advisory Agreement authorizes
Bank of America, subject to the approval of the Company's Board of Directors, to
cause the Company to pay a broker-dealer which furnishes brokerage and research
services a higher commission than that which might be charged by another broker-
dealer for effecting the same transaction, provided that such commission is
deemed reasonable in terms of either that particular transaction or the overall
responsibilities of Bank of America to the Fund and the Company. Brokerage and
research services may include: (1) advice as to the value of securities, the
advisability of investing in, purchasing or selling securities and the
availability of securities or purchasers or sellers of securities and (2)
analyses and reports concerning industries, securities, economic factors and
trends, portfolio strategy and the performance of accounts. The Board of
Directors will periodically review the commissions paid by the Company to
consider whether the commissions, if any, paid over representative periods of
time appear to be reasonable in relation to the benefits inuring to the Company.
Brokerage or research services so received are in addition to and
not in lieu of services required to be performed by Bank of America and do not
reduce the advisory fee payable to Bank of America by the Company. Such
services may be useful to Bank of America in serving both the Company and other
clients and, conversely, services obtained by the placement of business of other
clients may be useful to Bank of America in carrying out its obligations to the
Company. In particular, it is possible that certain of the brokerage or
research services received will primarily benefit one or more other investment
companies or other accounts for which investment discretion is exercised.
Conversely, the Company or the Fund may be the primary beneficiary of the
brokerage or research services received as a result of portfolio transactions
effected for such other accounts or investment companies.
The Company will not acquire certificates of deposit or other
securities issued by Bank of America or its affiliates, and will give no
preference to certificates of deposit or other securities issued by Service
Organizations. In addition, portfolio securities in general will be purchased
from and sold to Bank of America, Concord Financial Group, Inc. (the
"Distributor") and their affiliates acting as principal, underwriter, syndicate
member, market-maker, dealer, broker or in any other similar capacity, provided
such purchase, sale or dealing is permitted under the Investment Company Act of
1940 and the rules thereunder.
The Fund's annual portfolio turnover rate is calculated by dividing
the lesser of purchases or sales of portfolio securities for the year by the
monthly average value of the Fund's portfolio securities. The calculation
excludes all securities the maturities of which at the time of acquisition were
thirteen months or less. The Fund's annual portfolio turnover rate is expected
to be zero for regulatory reporting purposes.
When investing in portfolio securities, the Fund may participate, if
and when practicable, in bidding for the purchase of securities directly from an
issuer in order to take advantage of the lower purchase price available to
members of a bidding group. The Fund will engage in this practice only when
Bank of America, in its sole discretion, subject to guidelines adopted by the
Board of Directors, believes such practice to be in the Fund's interest.
Subsequent to its purchase by the Fund, an issue of securities may
cease to be rated or its rating may be reduced below the minimum rating required
for purchase by the Fund. The Board of Directors or Bank of America, pursuant
to guidelines established by the Board, will promptly consider such an event in
determining whether the Fund should continue to hold the obligation, but will
only continue to hold the obligation if retention is in accordance with the
interests of the Fund and applicable regulations of the Securities and Exchange
Commission. In addition, it is possible that unregistered securities purchased
by the Fund in reliance upon Rule 144A under the Securities Act of 1933 could
have the effect of increasing the level of the Fund's illiquidity to the extent
that qualified institutional buyers become, for a period, uninterested in
purchasing these securities.
To the extent permitted by law, Bank of America may aggregate the
securities to be sold or purchased for the Fund with those to be sold or
purchased for other investment companies or common trust funds in order to
obtain best execution.
The Company is required to identify any securities of its regular
brokers or dealers (as defined in Rule 10b-1 under the Investment Company Act of
1940) or their parents held by the Company as of the close of its most recent
fiscal year. As of February 28, 1995: (a) the Treasury Fund held the following
securities, Repurchase Agreement with Goldman, Sachs & Co. in the principal
amount of $95,000,000; Repurchase Agreement with Merrill Lynch Government
Securities, Inc. in the principal amount of $95,000,000; (b) the Prime Fund held
the following securities, Merrill Lynch & Co., Inc., commercial paper in the
principal amount of $l00,000,000; Goldman, Sachs Group L.P., Daily Variable Rate
Master Note in the principal amount of $120,000,000; Morgan Stanley Group, Inc.,
Daily Variable Rate Master Note in the principal amount of $120,000,000; Bear
Stearns Co., Inc., Series B, Monthly Variable Rate Note in the principal amount
of $100,000,000; Repurchase Agreement with Goldman, Sachs & Co. in the principal
amount of $120,000,000; (c) the Government Fund held the following securities,
Repurchase Agreement with Goldman, Sachs & Co. in the principal amount of
$40,000,000; Repurchase Agreement with Merrill Lynch Government Securities, Inc.
in the principal amount of $40,000,000; and (d) the Prime Value Fund held the
following securities, Merrill Lynch & Co., Inc., commercial paper in the
principal amount of $7,000,000; Goldman, Sachs Group L.P., Daily Variable Rate
Master Note in the principal amount of $7,000,000; Repurchase Agreement with
Dean Witter Reynolds, Inc. in the principal amount of $8,000,000; Repurchase
Agreement with Goldman, Sachs & Co. in the principal amount of $8,000,000.
Merrill Lynch & Co., Inc., Goldman, Sachs & Co., Bear Stearns Co., Inc., Morgan
Stanley & Co. Incorporated, Shearson Lehman Brothers, Inc., Dean Witter
Reynolds, Inc. and Paine Webber are considered to be regular brokers and dealers
of the Company.
Portfolio Instruments
Certificates of Deposit, Bankers' Acceptances, Commercial Paper and
Short-Term Notes. Certificates of
deposit are negotiable certificates issued against funds deposited in a
commercial bank for a definite period of time and earning a specific return.
Bankers' acceptances are negotiable deposits or bills of exchange, normally
drawn by an importer or exporter to pay for specific merchandise, which are
"accepted" by a bank (meaning, in effect, that the bank unconditionally agrees
to pay the face value of the instrument at maturity). Certificates of deposit
and bankers' acceptances acquired by the Fund will be dollar-denominated
obligations of domestic or foreign banks having total assets at the time of
purchase in excess of $1 billion (including assets of both domestic and foreign
branches). Commercial paper consists of unsecured promissory notes issued by
corporations. Short-term notes acquired by the Fund may be issued by commercial
or investment banking firms, financing companies or industrial or manufacturing
concerns. Commercial paper and short-term notes, except for variable and
floating rate instruments, will normally have maturities of less than nine
months and fixed rates of return, although such instruments may have maturities
of up to thirteen months. Commercial paper and short-term notes will consist of
issues which are "First Tier Securities" as defined by the Securities and
Exchange Commission. First Tier Securities consist of instruments that are
either rated at the time of purchase in the top rating category by one or more
unaffiliated nationally recognized statistical rating organizations ("NRSROs")
or issued by issuers with such ratings. See the Appendix to this Statement of
Additional Information for a description of the applicable NRSRO ratings.
Unrated instruments (including instruments with long-term but no short-term
ratings) purchased by the Fund will be of comparable quality as determined by
Bank of America pursuant to guidelines approved by the Board of Directors and
Bank of America.
When holding obligations of foreign issuers, the Fund may be subject
to investment risks that are different in some respects from those incurred by a
fund which invests only in obligations of domestic issuers. Such risks include
future political and economic developments, the possible imposition of
withholding taxes by the particular country in which the issuer is located on
interest income payable on the securities, the possible seizure or
nationalization of foreign deposits, the possible establishment of exchange
controls or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on these securities.
Domestic banks and foreign banks are subject to different
governmental regulations with respect to the amount and types of loans which may
be made and interest rates which may be charged. In addition, the profitability
of the banking industry is dependent largely upon the availability and cost of
funds for the purpose of financing lending operations under prevailing money
market conditions. General economic conditions as well as exposure to credit
losses arising from possible financial difficulties of borrowers play an
important part in the operations of the banking industry.
As a result of federal and state laws and regulations, domestic
banks are, among other things, required to maintain specified levels of
reserves, limited in the amount which they can loan to a single borrower, and
subject to other regulations designed to promote financial soundness. However,
such laws and regulations do not necessarily apply to the Euro Cds, Yankee Cds,
Yankee Bas and other foreign bank obligations that the Fund may acquire.
U.S. Government Obligations. Obligations of the U.S. Government and
its agencies and instrumentalities include Treasury bills, certificates of
indebtedness, notes and bonds, Treasury strips, and issues of such entities as
the Federal Home Loan Banks, Federal Land Banks, Federal Housing Administration,
Farmers Home Administration, Export-Import Bank of the United States, Small
Business Administration, Government National Mortgage Association, General
Services Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks, Maritime Administration, Resolution Funding Corporation, Tennessee
Valley Authority and Federal National Mortgage Association.
Mortgage-Related Securities. Government National Mortgage
Association ("GNMA") certificates are U.S. Government agency mortgage-backed
securities representing part ownership of a pool of mortgage loans. These
loans, issued by lenders such as mortgage bankers, commercial banks and savings
and loan associations, are either insured by the Federal Housing Administration
or guaranteed by the Veterans Administration. A "pool" or group of such
mortgages is assembled and, after being approved by GNMA, is offered to
investors through securities dealers. Once approved by GNMA, the timely payment
of interest and principal on each mortgage is guaranteed by GNMA and backed by
the full faith and credit of the U.S. Government. GNMA certificates differ from
bonds in that principal is paid back monthly by the borrower over the term of
the loan rather than returned in a lump sum at maturity. GNMA certificates are
called "pass-through" securities because both interest and principal payments
(including prepayments) are passed through to the holder of the certificate. In
addition to GNMA certificates, mortgage-backed securities issued by the Federal
National Mortgage Association ("FNMA") and by the Federal Home Loan Mortgage
Corporation ("FHLMC") may also be acquired. Securities issued and guaranteed by
FNMA and FHLMC are not backed by the full faith and credit of the United States.
If either fixed or variable rate pass-through securities issued by the U.S.
Government or its agencies or instrumentalities are developed in the future, the
Fund reserves the right to invest in them, after making appropriate disclosure
to investors. Prepayment of mortgages underlying most mortgage-backed
securities may reduce their current yield and total return. During periods of
declining interest rates, such prepayments can be expected to accelerate and the
Funds would be required to reinvest the proceeds at the lower interest rates
then available.
Variable and Floating Rate Instruments. The Fund may acquire
variable and floating rate instruments as described in the Prospectus. Variable
and floating rate instruments are frequently not rated by credit rating
agencies; however, unrated variable and floating rate instruments purchased by
the Fund will be determined by the investment adviser under guidelines
established by the Company's Board of Directors to be of comparable quality at
the time of purchase to rated instruments eligible for purchase by the Fund. In
making such determinations, the investment adviser will consider the earning
power, cash flows and other liquidity ratios of the issuers of such instruments
(such issuers include financial, merchandising, bank holding and other
companies) and will continuously monitor their financial condition. There may
not be an active secondary market with respect to a particular variable or
floating rate instrument purchased by the Fund. The absence of such an active
secondary market could make it difficult for the Fund to dispose of the variable
or floating rate instrument involved. In the event the issuer of the instrument
defaulted on its payment obligations, the Fund could, for this or other reasons,
suffer a loss to the extent of the default. Variable and floating rate
instruments may be secured by bank letters of credit and may have maturities of
more than thirteen months. In determining the Fund's average weighted maturity
and whether a variable or floating rate instrument has a remaining maturity of
thirteen months or less, each variable rate instrument having a demand feature
that entitles the Fund to receive the principal amount thereof at any time, or
at specified intervals not exceeding thirteen months, in each case on not more
than thirty days' notice, shall be deemed by the Company to have a maturity
equal to the longer of the period remaining until its next interest rate
adjustment or the period remaining until the principal amount can be recovered
through demand; each variable rate instrument not having such a demand feature
but having a stated maturity of thirteen months or less or issued or guaranteed
by the U.S. Government or its agencies will be deemed to have a maturity equal
to the period remaining until the next interest rate adjustment; each floating
rate instrument having a demand feature that entitles the Fund to receive the
principal amount thereof at any time, or at specified intervals not exceeding
thirteen months, in each case on not more than thirty days' notice, shall be
deemed to have a maturity equal to the period of time remaining until the
principal amount owed can be recovered through demand. Variable and floating
rate instruments which are not payable upon seven days' notice and which do not
have an active trading market are considered illiquid securities.
Ratings and Issuers' Obligations. The ratings of Moody's Investors
Service, Inc. ("Moody's"), Standard & Poor's Ratings Group, Division of McGraw
Hill ("S&P"), Duff & Phelps Credit Rating Co. ("D&P"), Fitch Investors Service,
Inc. ("Fitch"), Thomson Bankwatch ("Thomson") and IBCA Limited and IBCA Inc.
("IBCA") represent their opinions as to the quality of debt securities.
However, ratings are general and are not absolute standards of quality, and debt
securities with the same maturity, interest rate and rating may have different
yields while debt securities of the same maturity and interest rate with
different ratings may have the same yield.
An issuer's obligations under its debt securities are subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Code and laws which may be
enacted by federal or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations or, in the case of governmental entities, upon the ability
of such entities to levy taxes. The power or ability of an issuer to meet its
obligations for the payment of interest on, and principal of, its debt
securities may be materially adversely affected by litigation or other
conditions.
Municipal Securities. Although the Fund is authorized to invest in
municipal securities under certain circumstances, it is expected that no more
than 5% of the value of its net assets will be so invested at any one time
during the current fiscal year. The purchase of municipal securities may be
advantageous when, as a result of prevailing economic, regulatory or other
circumstances, the yield of such securities, on a pre-tax basis, is comparable
to that of corporate or U.S. Government obligations. Dividends paid by the Fund
that are derived from interest on municipal securities would be taxable to the
Fund's shareholders for federal income tax purposes.
Municipal securities include debt obligations issued by governmental
entities to obtain funds for various public purposes, including the construction
of a wide range of public facilities, the refunding of outstanding obligations,
the payment of general operating expenses and the extension of loans to public
institutions and facilities. In addition certain types of private activity
bonds are issued by or on behalf of public authorities to finance various
privately-operated facilities. Municipal securities also include short-term tax
anticipation notes, bond anticipation notes, revenue anticipation notes and
other forms of short-term loan obligations. Such notes are issued with a short-
term maturity in anticipation of the receipt of tax funds, the proceeds of bond
placements or other revenues.
There are variations in the quality of municipal securities between
classifications (such as general obligation, revenue and moral obligation
issues) and within a particular classification, and the yields on municipal
securities depend upon a variety of factors, including general money market
conditions, the financial condition of the issuer, general conditions of the
municipal bond market, the size of a particular offering, the maturity of the
obligation and the rating of the issue.
The payment of principal and interest on most municipal securities
purchased by the Fund will depend upon the ability of the issuers to meet their
obligations. The District of Columbia, each state, each of their political
subdivisions, agencies, instrumentalities and authorities and each multi-state
agency of which a state is a member is a separate "issuer" as that term is used
in this Statement of Additional Information and the Prospectus. The non-
governmental user of facilities financed by private activity bonds is also
considered to be an "issuer."
Repurchase Agreements. The Fund may enter into repurchase
agreements as indicated in the Prospectus. Pursuant to such agreements, the
Fund purchases securities from financial institutions such as banks and broker-
dealers which are deemed to be creditworthy by the investment adviser under
guidelines approved by the Board of Directors, subject to the seller's agreement
to repurchase and the Fund's agreement to resell such securities at a specified
date and price. The Fund will not enter into repurchase agreements with Bank of
America or Bank of America's affiliates, nor will the Fund give preference to
repurchase agreements with Service Organizations. The repurchase price
generally equals the price paid by the Fund plus interest negotiated on the
basis of current short-term rates (which may be more or less than the rate on
the underlying portfolio security). Securities subject to repurchase agreements
will be held by the Fund's custodian or a sub-custodian or in the Federal
Reserve/Treasury book-entry system, and the Fund will make payment for such
securities only upon receipt of evidence of physical delivery of the securities
or of such book entry. The seller under a repurchase agreement will be required
to maintain the value of the underlying securities at not less than 102% of the
repurchase price under the agreement. If the seller defaulted on its repurchase
obligation, the Fund would suffer a loss to the extent that the proceeds from a
sale of the underlying securities were less than the repurchase price under the
agreement. Bankruptcy or insolvency of such a defaulting seller may cause the
Fund's rights with respect to such securities to be delayed or limited.
Repurchase agreements are considered to be loans by the Fund under the
Investment Company Act of 1940.
Reverse Repurchase Agreements. The Fund may also enter into reverse
repurchase agreements with respect to its securities. Whenever the Fund enters
into a reverse repurchase agreement, it will place in a segregated account
maintained with the Fund's custodian liquid assets such as cash, U.S. Government
securities and other liquid high-grade debt securities having a value equal to
the repurchase price (including accrued interest) and will subsequently monitor
the account for maintenance of such equivalent value. Reverse repurchase
agreements are considered to be borrowings by the Fund under the Investment
Company Act of 1940.
Investment Practices
When-Issued Securities, Forward Commitments and Delayed Settlements.
The Fund may purchase securities on a "when-issued," forward commitment or
delayed settlement basis (i.e., for delivery beyond the normal settlement date
at a stated price and yield). When the Fund agrees to purchase securities on a
when-issued, forward commitment or delayed settlement basis, its custodian will
set aside cash or liquid portfolio securities equal to the amount of the
commitment in a separate account. Normally the custodian will set aside
portfolio securities to satisfy a purchase commitment, and in such a case the
Fund may be required subsequently to place additional assets (cash or liquid
securities) in the separate account so that the value of the account remains
equal to the amount of the Fund's commitment. The Fund does not intend to
engage in these transactions for speculative purposes but only in furtherance of
its investment objective. Because the Fund will set aside cash or liquid
investments to satisfy its purchase commitments in the manner described, the
Fund's liquidity and the ability of the investment adviser to manage it may be
affected in the event the Fund's forward commitments, commitments to purchase
when-issued securities and delayed settlements ever exceeded 25% of the value of
its assets.
The Fund will purchase securities on a when-issued, forward
commitment or delayed settlement basis only with the intention of completing the
transaction. If deemed advisable as a matter of investment strategy, however,
the Fund may dispose of or renegotiate a commitment after it is entered into,
and may sell securities it has committed to purchase before those securities are
delivered to the Fund on the settlement date. In these cases the Fund may
realize a taxable capital gain or loss.
When the Fund engages in when-issued, forward commitment and delayed
settlement transactions, it relies on the other party to consummate the trade.
Failure of such party to do so may result in the Fund's incurring a loss or
missing an opportunity to obtain a price considered to be advantageous.
The market value of the securities underlying a when-issued
purchase, a forward commitment to purchase securities, or a delayed settlement
and any subsequent fluctuations in their market value is taken into account when
determining the Fund's market value starting on the day the Fund agrees to
purchase the securities. The Fund does not earn interest on the securities it
has committed to purchase until they are paid for and delivered on the
settlement date.
Lending Securities. The Fund may lend its securities to brokers,
dealers and financial institutions, provided (1) the loan is secured
continuously by collateral consisting of U.S. Government securities (including
securities of U.S. Government agencies and instrumentalities) or cash or letters
of credit which is marked to the market daily to ensure that each loan is fully
collateralized at all times; (2) the Fund may at any time call the loan and
obtain the return of the securities loaned within five business days; (3) the
Fund will receive any interest or dividends paid on the securities loaned; and
(4) the aggregate market value of securities loaned will not at any time exceed
30% of the total assets of the Fund.
The Fund will earn income for lending its securities because cash
collateral pursuant to these loans will be invested in short term money market
instruments. In connection with lending securities, the Fund may pay reasonable
finders, administrative and custodial fees. Loans of securities involve a risk
that the borrower may fail to return the securities or may fail to provide
additional collateral.
Investment Limitations
The Prospectus for the Fund sets forth certain fundamental policies
that may not be changed without the affirmative vote of the holders of the
majority of the Fund's outstanding shares (as defined below under
"Miscellaneous"). Similarly, the following enumerated additional fundamental
policies may not be changed without such a vote of shareholders.
The Fund may not:
1. Purchase securities of any one issuer (other than obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities)
if immediately thereafter more than 5% of its total assets would be invested in
the securities of any one issuer (except that up to 25% of the Fund's total
assets may be invested without regard to this limitation).
2. Purchase or sell real estate (however, the Fund may, to the
extent appropriate to its investment objective,
purchase securities issued by companies investing in real estate or interests
therein).
3. Underwrite the securities of other issuers.
4. Purchase securities of companies for the purpose of exercising
control.
5. Purchase securities on margin, make short sales of securities
or maintain a short position.
6. Make loans except that (i) the Fund may purchase or hold debt
instruments and enter into repurchase agreements pursuant to its investment
objective and policies, and (ii) the Fund may lend portfolio securities.
* * *
If a percentage restriction is satisfied at the time of investment,
a later increase or decrease in such percentage resulting from a change in asset
value will not constitute a violation of such restriction.
For purposes of the Fund's investment limitation concerning industry
concentration, U.K. Building Societies will be considered to be in the banking
industry. The Fund will not invest more than 5% of its net assets (at the time
of purchase) in instruments issued by U.K. Building Societies.
For purposes of Investment Limitation P 1 in the Fund's Prospectus,
the Fund treats, in accordance with the current views of the staff of the
Securities and Exchange Commission and as a matter of non-fundamental policy
that may be changed without a vote of shareholders, all supranational
organizations as a single industry and each foreign government (and all of its
agencies) as a separate industry.
For purposes of Investment Limitation P 1 of this Statement of
Additional Information, the guarantor of a guaranteed security may, in certain
circumstances, also be considered to be an issuer in connection with such
guarantee. In addition, in accordance with current regulations of the
Securities and Exchange Commission and as a matter of non-fundamental policy,
the Fund presently intends to limit is investments in the securities of any
single issuer (other than securities issued by the U.S. Government, its agencies
or instrumentalities) to not more than 5% of the Fund's total assets at the time
of purchase, provided that the Fund may invest up to 25% of its total assets in
the securities of any one issuer for a period that does not exceed three
business days.
For purposes of Investment Limitation P 6 of this Statement of
Additional Information, the Fund may hold debt instruments whether such
instruments are part of a public offering or privately negotiated.
In order to permit the sale of shares in certain states, the Fund
may make commitments more restrictive than the investment policies and
limitations described above. To permit the sale of the shares of the Fund in
Texas, the Company has agreed to the following additional restrictions with
respect to the Fund:
1. The Fund will not invest in oil, gas or mineral leases.
2. The Fund will not invest in real estate limited partnership.
Should the Fund determine that these commitments or any other
commitments are no longer in the best interests of the Fund, it will revoke such
commitments by terminating sales of its shares in the state involved.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Information on how to purchase and redeem Company shares, and how
such shares are priced, is included in the Prospectus. Additional information
is contained below.
Net Asset Value
In General. The Fund's net asset value per share is calculated by
dividing the total value of the assets belonging to the Fund, less the value of
any liabilities applicable to the Fund, by the total number of outstanding
shares of the Fund. "Assets belonging to" the Fund consist of the consideration
received upon the issuance of shares representing interests in the Fund together
with all income, earnings, profits and proceeds derived from the investment
thereof, any proceeds from the sale, exchange or liquidation of such
investments, any funds or payments derived from any re-investment of such
proceeds, and a portion of any general assets of the Company not belonging to a
particular fund. The Fund is charged with its direct expenses and with a share
of the general expenses of the Company. The determinations by the Board of
Directors as to direct and allocable expenses and the allocable portion of
general assets with respect to the various portfolios are conclusive. The
expenses that are charged to the Fund are borne equally by each share of the
Fund except for certain payments that are borne solely by Pacific Horizon Shares
of the Fund and payments to Shareholder Organizations that are borne solely by
Horizon Service Shares of the Fund as described in the Prospectuses for such
Shares.
Amortized Cost Method. The Fund uses the amortized cost method of
valuation in computing the net asset value of its shares for purposes of sales
and redemptions. Under this method the Fund values each of its portfolio
securities at cost on the date of purchase and thereafter assumes a constant
proportionate amortization of any discount or premium until maturity of the
security. As a result the value of a portfolio security for purposes of
determining net asset value normally does not change in response to fluctuating
interest rates. While the amortized cost method seems to provide certainty in
portfolio valuation it may result in periods during which values, as determined
by amortized cost, are higher or lower than the amount the Fund would receive if
it sold its portfolio securities. The market value of the securities in the
Fund can be expected to vary inversely with changes in prevailing interest
rates. Thus, if interest rates have increased from the time a security was
purchased, such security, if sold, might be sold at a price less than its
amortized cost. Similarly, if interest rates have declined from the time a
security was purchased, such security, if sold, might be sold at a price greater
than its amortized cost. In either instance, if the security is held to
maturity, no gain or loss will be realized.
In connection with its use of amortized cost valuation, the Fund
limits the dollar-weighted average maturity of its portfolio to not more than 90
days and does not purchase any instrument with a remaining maturity of greater
than 397 calendar days. The Company's Board of Directors has also established,
pursuant to rules promulgated by the Securities and Exchange Commission,
procedures that are intended to stabilize the Fund's net asset value per share
for purposes of sales and redemptions at $1.00. Such procedures include the
determination, at such intervals as the Board deems appropriate, of the extent,
if any, to which the Fund's net asset value per share calculated by using
available market quotations deviates from $1.00 per share. In the event such
deviation exceeds 1/2 of 1% the Board will promptly consider what action, if
any, should be initiated. If the Board believes that the amount of any
deviation may result in material dilution or other unfair results to investors
or existing shareholders, it will take such steps as it considers appropriate to
eliminate or reduce to the extent reasonably practicable any such dilution or
unfair results. These steps may include selling portfolio instruments prior to
maturity, shortening the Fund's average portfolio maturity, withholding or
reducing dividends, reducing the number of the Fund's outstanding shares without
monetary consideration or determining net asset value per share by using
available market quotations. If the Fund reduces the number of its outstanding
shares without monetary consideration, it will mail written notice to
shareholders at least three business days before the redemption and in the
notice will state the reason for the redemption and the fact that the redemption
may result in a capital loss to shareholders.
The Funds' administrator, Concord Holding Corporation (the
"Administrator"), may use a pricing service to value certain portfolio
securities where the prices provided are believed to reflect the fair value of
such securities. In valuing the Fund's securities, the pricing service would
normally take into consideration such factors as yield, risk, quality, maturity,
type of issue, trading characteristics, special circumstances and other factors
it deems relevant in determining valuations for normal institutional-sized
trading units of debt securities and would not rely on quoted prices. The
methods used by the pricing service and the valuations so established will be
utilized under the general supervision of the Company's Board of Directors.
Additionally, in determining market-based net asset value per share all
portfolio securities for which market quotations (or appropriate substitutes
that reflect current market conditions) are not readily available shall be
valued at that fair value as determined by the valuation committee in accordance
with procedures established by the Board of Directors.
Supplementary Purchase Information
Persons wishing to purchase Pacific Horizon Shares through their
accounts at Bank of America or a Service Organization should contact such entity
directly for appropriate instructions. Depending on the terms of the particular
account, Bank of America, its affiliates, and Service Organizations also may
charge their customers fees for automatic investment, redemption and other
services provided. Such fees may include, for example, account maintenance
fees, compensating balance requirements or fees based upon account transactions,
assets or income. Bank of America or the particular Service Organization is
responsible for providing information concerning these services and any charges
to any customers who must authorize the purchase of shares prior to such
purchase.
Persons wishing to purchase Pacific Horizon Shares by wire who have
not established an account should telephone the Transfer Agent at (800) 346-
2087. The investor must furnish sufficient information to permit the account to
be opened. The investor's bank must be instructed to wire federal funds to the
Transfer Agent, referring in the wire to the Fund's name; the investor's
portfolio account number, if then established; and the investor's name.
Shares may be purchased in connection with IRAs only by direct
remittance to the Transfer Agent. Purchases for IRA accounts will be effective
only when payments received by the Transfer Agent are converted into federal
funds. Purchases for these plans may not be made in advance of receipt of
funds. The Transfer Agent may charge a fee to act as custodian for IRAs,
payment of which could require the liquidation of shares. All fees charged are
described in the appropriate form.
Supplementary Redemption Information
Pacific Horizon Shares of the Fund for which orders for wire
redemption are received on a business day before 12:00 noon (Eastern Time) will
be redeemed as of such time and the proceeds of redemption will normally be
wired in federal funds on the same business day to the commercial bank specified
by the investor on the Account Application (or other bank of record on the
investor's file with the Transfer Agent). An investor must have completed and
forwarded to the Transfer Agent an Account Application, including any required
signature guarantees, before any redemptions of shares purchased by wire may be
processed. To qualify to use the wire redemption privilege, payment for shares
must be drawn on, and redemption proceeds paid to, the same bank and account as
designated on the Account Application (or other bank of record as described
above). If the proceeds of a particular redemption are to be wired to another
bank, the request must be in writing and signature guaranteed. Pacific Horizon
Shares for which orders for wire redemption are received on a business day after
the time stated above or on a non-business day will be redeemed as of the next
determination of the Fund's net asset value and the proceeds of redemption will
normally be wired in federal funds on the next business day after receipt of the
redemption request. Redemption proceeds will be wired to a correspondent member
bank if the investor's designated bank is not a member of the Federal Reserve
System. Immediate notification by the correspondent bank to the investor's bank
is necessary to avoid a delay in crediting the funds to the investor's bank
account. Proceeds of less than $1,000 will be mailed to the investor's address.
To change the commercial bank or account designated to receive
redemption proceeds, a written request must be sent to the Company, c/o DST
Systems, Inc., P.O. Box 419955, Kansas City, Missouri 64141-6955. Such request
must be signed by each shareholder, with each signature guaranteed as described
in the Fund's Prospectus. Guarantees must be signed by an authorized signatory
and "signature guaranteed" must appear with the signature. The Transfer Agent
may request further documentation from corporations, executors, administrators,
trustees or guardians, and will accept other suitable verification arrangements
from foreign investors, such as consular verification.
For processing redemptions, the Transfer Agent may request further
documentation from corporations, executors, administrators, trustees or
guardians. The Transfer Agent will accept other suitable verification
arrangements from foreign investors, such as consular verification.
Investors should be aware that if they have selected the TeleTrade
Privilege, any request for a telephone redemption will be effected as a
TeleTrade transaction through the Automated Clearing House (ACH) system unless
more prompt transmittal specifically is requested. Redemption proceeds of a
TeleTrade transaction will be on deposit in the investor's account at the ACH
member bank normally two business days after receipt of the redemption request.
Exchange Privilege. Shareholders in the Pacific Horizon Family of
Funds have an exchange privilege whereby they may exchange all or part of their
Pacific Horizon Shares for shares of other investment portfolios in the Pacific
Horizon Family of Funds. By use of the exchange privilege, the investor
authorizes the Transfer Agent to act on telephonic, telegraphic or written
exchange instructions from any person representing himself to be the investor
and believed by the Transfer Agent to be genuine. The Transfer Agent's records
of such instructions are binding. The exchange privilege may be modified or
terminated at any time upon notice to shareholders. For federal income tax
purposes, exchange transactions are treated as sales on which a purchaser will
realize a capital gain or loss depending on whether the value of the shares
exchanged is more or less than his basis in such shares at the time of the
transaction.
Exchange transactions described in Paragraphs A, B, C and D below
will be made on the basis of the relative net asset values per share of the
investment portfolios involved in the transaction.
A. Shares of any investment portfolio purchased with a sales load, as
well as additional shares acquired through reinvestment of dividends
or distributions on such shares, may be exchanged without a sales
load for shares of any other investment portfolio in the Pacific
Horizon Family of Funds.
B. Shares of any investment portfolio in the Pacific Horizon Family of
Funds acquired by a previous exchange transaction involving shares
on which a sales load has directly or indirectly been paid (e.g.
shares purchased with a sales load or issued in connection with an
exchange transaction involving shares that had been purchased with a
sales load), as well as additional shares acquired through
reinvestment of dividends or distributions on such shares, may be
redeemed and the proceeds used to purchase without a sales load
shares of any other investment portfolio. To accomplish an exchange
transaction under the provisions of this Paragraph, investors must
notify the Transfer Agent of their prior ownership of shares and
their account number.
C. Shares of any investment portfolio in the Pacific Horizon Family of
Funds may be exchanged without a sales load for shares of any other
investment portfolio in the Family that is offered without a sales
load.
D. Shares of any investment portfolio in the Pacific Horizon Family of
Funds purchased without a sales load may be exchanged without a
sales load for shares in any other portfolio where the investor
involved maintained an account in the Pacific Horizon Family of
Funds before April 20, 1987 or was the beneficial owner of shares of
Bunker Hill Income Securities, Inc. on the date of its
reorganization into the Pacific Horizon Corporate Bond Fund.
Except as stated above, a sales load will be imposed when shares of
any investment portfolio in the Pacific Horizon Family of Funds that were
purchased or otherwise acquired without a sales load are exchanged for shares of
another investment portfolio in the Pacific Horizon Family which are sold with a
sales load.
Exchange requests received on a business day prior to the time
shares of the investment portfolios involved in the request are priced will be
processed on the date of receipt. "Processing" a request means that shares in
the investment portfolio from which the shareholder is withdrawing an investment
will be redeemed at the net asset value per share next determined on the date of
receipt. Shares of the new investment portfolio into which the shareholder is
investing will also normally be purchased at the net asset value per share next
determined coincident to or after the time of redemption. Exchange requests
received on a business day after the time shares of the investment portfolios
involved in the request are priced will be processed on the next business day in
the manner described above.
Miscellaneous. Certificates for shares will not be issued unless
expressly requested in writing and will not be issued for fractional shares.
A "business day" for purposes of processing share purchases and
redemptions received by the Transfer Agent at its Kansas City office is a day on
which the Fund's custodian and the New York Stock Exchange are open for trading,
except a "business day" does not include Martin Luther King, Jr. Day, Columbus
Day or Veteran's Day. In 1995, the holidays on which the New York Stock
Exchange is closed are: Presidents' Day, Good Friday, Memorial Day (observed),
Independence Day, Labor Day, Thanksgiving Day and Christmas.
The Company may suspend the right of redemption or postpone the date
of payment for shares during any period when (a) trading on the New York Stock
Exchange is restricted by applicable rules and regulations of the Securities and
Exchange Commission; (b) the New York Stock Exchange is closed for other than
customary weekend and holiday closings; (c) the Securities and Exchange
Commission has by order permitted such suspension; or (d) an emergency exists as
determined by the Securities and Exchange Commission. (The Company may also
suspend or postpone the recordation of the transfer of its shares upon the
occurrence of any of the foregoing conditions.)
The Company's Charter permits its Board of Directors to require a
shareholder to redeem involuntarily shares in the Fund if the balance held of
record by the shareholder drops below $500 and such shareholder does not
increase such balance to $500 or more upon 60 days' notice. The Company may
also redeem shares involuntarily if such redemption is appropriate to carry out
the Company's responsibilities under the Investment Company Act of 1940.
If the Company's Board of Directors determines that conditions exist
which make payment of redemption proceeds wholly in cash unwise or undesirable,
the Company may make payment wholly or partly in readily marketable securities
or other property. In such an event, a shareholder would incur transaction
costs in selling the securities or other property. The Company has committed
that it will pay all redemption requests by a shareholder of record in cash,
limited in amount with respect to each shareholder during any ninety-day period
to the lesser of $250,000 or 1% of the net asset value at the beginning of such
period.
ADDITIONAL INFORMATION CONCERNING TAXES
The following is only a summary of certain additional considerations
generally affecting the Fund and its shareholders that are not described in the
Fund's Prospectus. No attempt is made to present a detailed explanation of the
tax treatment of the Fund or its shareholders, and the discussion here and in
the Prospectus is not intended as a substitute for careful tax planning.
Investors are advised to consult their tax advisers with specific reference to
their own tax situations.
The Fund will be treated as a separate corporate entity under the
Internal Revenue Code of 1986, as amended (the "Code"), and intends to qualify
as a "regulated investment company." By following this policy, the Fund expects
to eliminate or reduce to a nominal amount the federal income taxes to which it
may be subject. If for any taxable year the Fund does not qualify for the
special federal tax treatment afforded regulated investment companies, all of
the Fund's taxable income would be subject to tax at regular corporate rates
(without any deduction for distributions to shareholders). In such event, the
Fund's dividend distributions to shareholders would be taxable as ordinary
income to the extent of the current and accumulated earnings and profits of the
Fund and would be eligible for the dividends received deduction in the case of
corporate shareholders.
Qualification as a regulated investment company under the Code
requires, among other things, that the Fund distribute to its shareholders an
amount equal to at least the sum of 90% of its investment company taxable income
(if any) and 90% of its tax-exempt income (if any) net of certain deductions for
each taxable year. In general, the Fund's investment company taxable income
will be its taxable income, subject to certain adjustments and excluding the
excess of any net long-term capital gain for the taxable year over the net
short-term capital loss, if any, for such year. The Fund will be taxed on its
undistributed investment company taxable income, if any.
The Fund will not be treated as a regulated investment company under
the Code if 30% or more of its gross income for a taxable year is derived from
gains realized on the sale or other disposition of securities and certain other
investments held for less than three months (the "short-short test"). Interest
(including original issue and market discount) received by the Fund upon
maturity or disposition of a security held for less than three months will not
be treated as gross income derived from the sale or other disposition of such
security within the meaning of this requirement. However, any other income
which is attributable to realized market appreciation will be treated as gross
income from the sale or other disposition of securities for this purpose.
Any distribution of the excess of net long-term capital gains over
net short-term capital losses is taxable to shareholders as long-term capital
gains, regardless of how long the shareholder has held the Fund's shares and
whether such gains are received in cash or additional Fund shares. The Fund
will designate such a distribution as a capital gain dividend in a written
notice mailed to shareholders after the close of the Fund's taxable year.
Ordinary income of individuals is taxable at a maximum nominal rate
of 39.6%, but because of limitations on itemized deductions otherwise allowable
and the phase-out of personal exemptions, the maximum effective marginal rate of
tax for some taxpayers may be higher. An individual's long-term capital gains
are taxable at a maximum nominal rate of 28%. For corporations, long-term
capital gains and ordinary income are both taxable at a maximum nominal rate of
35% (or at a maximum effective marginal rate of 39% in the case of corporations
having taxable income between $100,000 and $335,000).
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to currently distribute specified percentages of their
ordinary taxable income and capital gain net income (excess of capital gains
over capital losses). The Fund intends to make sufficient distributions or
deemed distributions of its ordinary taxable income and any capital gain net
income prior to the end of each calendar year to avoid liability for this excise
tax.
The Company will be required in certain cases to withhold and remit
to the United States Treasury 31% of taxable dividends or gross sale proceeds
realized paid to shareholders who have failed to provide a correct tax
identification number in the manner required, who are subject to withholding by
the Internal Revenue Service for failure to properly include on their return
payments of taxable interest or dividends, or who have failed to certify to the
Company that they are not subject to backup withholding when required to do so
or that are "exempt recipients."
Other Information
Depending upon the extent of activities in states and localities in
which its offices are maintained, in which its
agents or independent contractors are located, or in which it is otherwise
deemed to be conducting business, the Fund may be subject to the tax laws of
such states or localities. Shareholders are advised to consult their tax
advisers concerning the application of state and local taxes.
The foregoing discussion is based on tax laws and regulations which
are in effect on the date of this Statement of Additional Information. Such
laws and regulations may be changed by legislative or administrative action.
MANAGEMENT OF THE COMPANY
Directors and Officers
The directors and officers of the Company, their addresses, ages,
and principal occupations during the past five years are:
<TABLE>
<CAPTION>
Position with
Name and Address Age Company Principal Occupations
<S> <C> <C> <C>
Thomas M. Collins* 61 President and Chairman Of counsel, law firm of
McDermott & Trayner of the Board McDermott & Trayner;
225 S. Lake Avenue Partner of the law firm
Suite 410 of Musick, Peeler &
Pasadena, CA 91101-3005 Garrett
(until April,
Name and Address Position with Principal Occupations
Age Company
1993); Trustee, Master
Investment Trust Series I
and Master Investment
Trust, Series II
(registered investment
companies); former
Director, Bunker Hill
Income Securities, Inc.
through 1991 (registered
investment company).
Douglas B. Fletcher 70 Vice Chairman of the Chairman of the Board
Fletcher Capital Board and Chief Executive
Advisors Incorporated Officer, Fletcher
4 Upper Newport Plaza Capital Advisors
Suite 100 Incorporated(registered
Newport Beach, CA 92660-2629 investment adviser) 1991
to date;
Partner, Newport Partners
(private venture capital
management firm) 1981 to
date; Chairman of the
Board and Chief Executive
Officer, First Pacific
Advisors, Inc. (registered
investment adviser) and
seven investment companies
under its management,
prior to 1983; former
Allied Member, New York
Stock Exchange; Chairman
of the Board of FPA
Paramount Fund, Inc.
through 1984; Director,
TIS Mortgage Investment
Company (real estate
investment trust); Trustee
and former Vice Chairman
of the Board, Claremont
McKenna College; Chartered
Financial Analyst.
Robert E. Greeley 60 Director Chairman, Page Mill
Page Mill Asset Asset Management (a
Management private investment
433 California Street company) since 1991;
Suite 900 Manager, Corporate
San Francisco, CA 94104
Investments, Hewlett
Packard Company from 1979
to 1991; Director, Morgan
Grenfell Small Cap Fund
(since 1986); former
director, Bunker Hill
Income Securities, Inc.
(since 1989) (registered
investment company);
Trustee, Master Investment
Trust, Series I and Master
Investment Trust, Series
II (registered investment
companies); former
Trustee, SunAmerica Fund
Group (previously Equitec
Siebel Fund Group) from
1984 to 1992.
Kermit O. Hanson 79 Director Vice Chairman of the
17760 14th Ave., N.W. Advisory Board, 1988 to
Seattle, WA 98177 date, Executive
Director, 1977 to 1988,
Pacific Rim Bankers
Program, (a non-profit
educational institution);
Dean Emeritus, 1981 to
date, Dean, 1964-81,
Graduate School of
Business Administration,
University of Washington;
Director, Washington
Federal Savings & Loan
Association; Trustee,
Seafirst Retirement Funds
(registered investment
company).
Cornelius J. Pings 66 Director President, Association
Association of American of
American Universities
Universities,
One DuPont Circle February 1993 to date;
Suite 730 Provost, 1982 to January
Washington, DC 20036 1993, Senior Vice
President for Academic
Affairs, 1981 to January
1993, University of
Southern California.
Kenneth L. Trefftzs 83 Director Private Investor;
11131 Briarcliff Drive formerly
Distinguished
San Diego, CA 92131-1329 Emeritus
Professor
of Finance and Chairman of
the Department of Finance
and Business Economics of
the Graduate School of
Business of the University
of Southern California;
former Director, Metro
Goldwyn Mayer Inc.;
Director, Fremont General
Corporation (insurance and
financial services holding
company); Director, Source
Capital, Inc. (closed-end
investment company);
Director of three open-end
investment companies
managed by First Pacific
Advisors, Inc.; formerly
Chairman of the Board of
Directors (or Trustees) of
nineteen investment
companies managed by
American Capital Asset
Management, Inc.
Richard E. Stierwalt 40 Executive Chairman of the Board 125
West 55th Street Vice President and Chief Executive
New York, NY 10019 Officer July 1993 to
date, prior thereto Senior
Director, Managing
Director and Chief
Executive Officer of the
Administrator and
Distributor, February 1987
to July 1993; President,
Master Investment Trust,
Series I, Master
Investment Trust, Series
II and Seafirst Retirement
Funds (registered
investment companies);
First Vice President,
Trust Operation
Administration, Security
Pacific National Bank,
1983-1987.
William B. Blundin 57 Executive Vice Vice Chairman, July 1993
125 West 55th Street President to date, prior thereto
New York, NY 10019 Director and President
of the Administrator and
Distributor, February 1987
to July 1993; Executive
Vice President, Master
Investment Trust, Series
II and Seafirst Retirement
Funds (registered
investment companies);
Senior Vice President,
Shearson Lehman Brothers
(a securities firm), 1978-
1987.
Ann E. Bergin 35 Vice President Senior Vice President,
125 West 55th Street October 1994 to date,
New York, NY 10019 prior thereto First
Vice
President of the
Administrator, February
1993 to October 1994; Vice
President, Master
Investment Trust, Series
II and Seafirst Retirement
Funds (registered
investment companies);
Vice President of the
Administrator, August 1991
to February 1993;
Assistant Vice President,
The Dreyfus Corporation,
December 1982 to August
1991.
Susan L. West 37 Assistant Vice Chief Operating Officer,
125 West 55th Street President July 1993 to date, prior
New York, NY 10019 thereto Executive
Vice President of the
Administrator, May 1987 to
July 1993; Vice President,
Master Investment Trust,
Series II and Seafirst
Retirement Funds
(registered investment
companies); Assistant Vice
President, Fund
Administration and
Operations, The Vanguard
Group, October 1981 to May
1987.
Irimga McKay 35 Assistant Vice Senior Vice President,
7863 Girard Avenue President July 1993 to date, prior
Suite 306 thereto First Vice
La Jolla, CA 92037 President of the
Administrator and
Distributor, November 1988
to July 1993; Vice
President, Master
Investment Trust, Series
II and Seafirst Retirement
Funds (registered
investment companies);
Regional Vice
President,Continental
Equities, June 1987 to
November 1988; Assistant
Wholesaler, VMS Realty
Partners (a real estate
limited partnership), May
1986 to June 1987.
Richard A. Fabietti 36 Treasurer Senior Vice President of
125 West 55th Street the Administrator and
New York, NY 10019 Distributor, July 1987
to date;
Treasurer, Master
Investment Trust, Series
II and Seafirst Retirement
Funds (registered
investment companies);
Assistant Controller-
Mutual Funds, Alliance
Capital Management Corp.,
March 1986 to July 1987.
Martin G. Flanigan 31 Assistant Treasurer Vice-President of the
125 West 55th Street Administrator and
New York, NY 10019 Distributor since 1987;
Assistant Treasurer,
Master Investment Trust,
Series II and Seafirst
Retirement Funds
(registered investment
companies).
W. Bruce McConnel, III 52 Secretary Partner
of the law firm
1345 Chestnut Street Drinker Biddle & Reath;
Philadelphia National Bank
Secretary, Master
Building, Suite 1100
Investment Trust, Series
Philadelphia, PA 19107 II and
Seafirst Retirement Funds
(registered investment
companies).
Linda Mahon 38 Assistant Secretary Vice President
125 West 55th Street of the Administrator
New York, NY 10019 and Distributor, 1994
to date; Assistant
Secretary, Master
Investment Trust, Series
II and Seafirst Retirement
Funds (registered
investment companies);
Corporate Secretary of J.
& W. Seligman & Co.
Incorporated, 1991-1994;
Vice President of Paribas
Asset Management, Inc.,
1989-1991.
George O. Martinez 36 Assistant Senior Vice President
1900 East Dublin-Granville Road Secretary and Director of Legal
Columbus, OH 43229 Compliance Services
BISYS Fund Services, since
April 1995; prior thereto,
Vice President and
Associate General Counsel,
Alliance Capital
Management, L.P.
</TABLE>
* Mr. Collins is an "interested director" of the
Company as defined in the Investment Company
Act of 1940.
The Audit Committee of the Board is comprised of all directors and
is chaired by Dr. Trefftzs. The Board does not
have an Executive Committee.
Each director is entitled to receive an annual fee of $25,000 plus
$1,000 for each day that a director participates in all or a part of a Board
meeting. Mr. Collins receives an additional $40,000 per annum for his services
as President; each member of a committee of the Board is entitled to receive
$1,000 for each Committee meeting they participate in (whether or not held on
the same day as a Board meeting); and each Chairman of a Committee of the Board
shall be entitled to receive an annual retainer of $1,000 for his services as
Chairman of the Committee. The Fund, and each other Fund of the Company, pays
its proportionate share of these amounts based on relative net asset values.
For the fiscal year ended February 28, 1995, the Company paid or
accrued for the account of its directors as a group for services in all
capacities a total of $334,168; of this amount, for the fiscal year ended
February 28, 1995, $22,999 of directors' compensation was allocated to the Prime
Value Fund. Each director is also reimbursed for out-of-pocket expenses
incurred as a director. Drinker Biddle & Reath, of which Mr. McConnel is a
partner, receives legal fees as counsel to the Company. As of the date of this
Statement of Additional Information, the directors and officers of the Company,
as a group, own less than 1% of the outstanding shares of each of the Company's
investment portfolios.
Under a retirement plan approved by the Board of Directors,
including a majority of its directors who are not "interested persons" of the
Company, a director who dies or resigns after five years of service is entitled
to receive ten annual payments each equal to the greater of: (i) 50% of the
annual director's retainer that was payable by the Company during the year of
his/her death or resignation, or (ii) 50% of the annual director's retainer then
in effect for directors of the Company during the year of such payment. A
director who dies or resigns after nine years of service is entitled to receive
ten annual payments each equal to the greater of: (i) 100% of the annual
director's retainer that was payable by the Company during the year of his/her
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. Further,
the amount payable each year to a director who dies or resigns is increased by
$1,000 for each year of service that the director provided as Chairman of the
Board.
Years of service for purposes of calculating the benefit described
above are based upon service as a director or Chairman after February 28, 1994.
Retirement benefits in which a director has become vested may not be reduced by
later Board action.
In lieu of receiving ten annual payments, a director may elect to
receive substantially equivalent benefits through a single-sum cash payment of
the present value of such benefits paid by the Company within 45 days of the
death or resignation of the director. The present value of such benefits is to
be calculated (i) based on the retainer that was payable by the Company during
the year of the director's death or resignation (and not on any retainer payable
to directors thereafter), and (ii) using the interest rate in effect as of the
date of the director's death or resignation by the Pension Benefit Guaranty
Corporation (or any successor thereto) for valuing immediate annuities under
terminating defined benefit pension plans. A director's election to receive a
single sum must be made in writing within the 30 calendar days after the date
the individual is first elected as a director.
In addition to the foregoing, the Board of Directors may, in its
discretion and in recognition of a director's period of service before March 1,
1994 as a director and possibly as Chairman, authorize the Company to pay a
retirement benefit following the director's death or resignation (unless the
director has vested benefits as a result of completing nine years of service).
Any such action shall be approved by the Board and by a majority of the
directors who are not "interested persons" of the Company within 120 days
following the director's death or resignation and may be authorized as a single
sum cash payment or as not more than ten annual payments (beginning the first
anniversary of the director's date of death or resignation and continuing for
one or more anniversary date(s) thereafter).
The obligation of the Company to pay benefits to a former director
is neither secured nor funded by the Company but shall be binding upon its
successors in interest. The payment of benefits under the retirement plan has
no priority or preference over the lawful claims of the Company's creditors or
shareholders, and the right to receive such payments is not assignable or
transferable by a director (or former director) other than by will, by the laws
of descent and distribution, or by the director's written designation of a
beneficiary.
The following chart provides certain information about the
director/trustee fees of the Company as of February 28, 1995.
NAME OF PERSON/ AGGREGATE PENSION OR ESTIMATED TOTAL
POSITION COMPENSATION RETIREMENT ANNUAL COMPENSATION
FROM THE BENEFITS BENEFITS FROM
COMPANY ACCRUED AS UPON REGISTRANT
PART OF FUND RETIREMENT AND FUND
EXPENSES COMPLEX* PAID
TO DIRECTORS
Thomas M. Collins $100,000 $0 $0 $110,000
President and
Chairman of the
Board
Douglas B. Fletcher $57,500 $0 $0 $57,500
Vice Chairman of
the Board
Robert E. Greeley** $57,500 $0 $0 $65,781
Director
Kermit O. Hanson $57,500 $0 $0 $63,500
Director
Cornelius J. Pings $57,500 $0 $0 $57,500
Director
Kenneth L. Trefftzs $57,500 $0 $0 $57,500
Director
______________________________
* The "Fund Complex" consists of the Company, Seafirst Retirement Funds, Master
Investment Trust, Series I and Master Investment Trust, Series II.
**Mr. Greeley became a director of the Company on April 25, 1994.
Investment Adviser
Bank of America is the successor by merger to Security Pacific
National Bank, which previously served as investment adviser to the Company
since the commencement of its operations. In the Investment Advisory Agreement,
Bank of America has agreed to provide investment advisory services as described
in the Prospectus. Bank of America has also agreed to pay all expenses incurred
by it in connection with its activities under its agreement other than the cost
of securities, including brokerage commissions, if any, purchased for the
Company. In rendering its advisory services, Bank of America may utilize Bank
officers from one or more of the departments of the Bank which are authorized to
exercise the fiduciary powers of Bank of America with respect to the investment
of trust assets. In some cases, these officers may also serve as officers, and
utilize the facilities, of wholly-owned subsidiaries or other affiliates of Bank
of America or its parent corporation. For the services provided and expenses
assumed pursuant to the Investment Advisory Agreement, the Company has agreed to
pay Bank of America fees, accrued daily and payable monthly, at the following
annual rates: .10% of the first $7 billion of the Fund's net assets, plus .09%
of the next $3 billion of the Fund's net assets, plus .08% of the Fund's net
assets over $10 billion. From time to time, Bank of America may waive fees or
reimburse the Company for expenses voluntarily or as required by certain state
securities laws.
For the period March 16, 1993 (commencement of operations) through
February 28, 1994 and the fiscal year ended February 28, 1995, Bank of America
was paid advisory fees (net of fee waivers) with respect to the Fund of $2,840
and $289,793, respectively. For the same periods, Bank of America waived
advisory fees with respect to the Fund in the amount of $116,991 and $121,169,
respectively. Additionally, for the periods indicated, Bank of America assumed
certain operating expenses with respect to the Fund in the amount of $75,521 and
$4,439, respectively.
The Investment Advisory Agreement will continue with respect to the
Fund until October 31, 1995 and thereafter for successive annual periods of one
year, provided such continuation is approved at least annually by the Company's
Board of Directors or by a majority of the outstanding shares of the Fund (as
described under "Miscellaneous"), and by a majority of the directors who are not
interested persons of any party to the agreement by vote cast in person at a
meeting called for such purposes. The agreement is terminable at any time with
respect to the Fund without payment of any penalty by the Company's Board of
Directors or by vote of a majority of the Fund's outstanding shares on 60 days'
written notice to Bank of America. Similarly, Bank of America may terminate the
Investment Advisory Agreement without penalty upon 60 days' written notice to
the Fund. In addition, the agreement provides that it will terminate
automatically in the event of its "assignment" (as defined in the Investment
Company Act of 1940).
The Company's Investment Advisory Agreement with respect to the Fund
provides that Bank of America shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Company in connection with the
performance of the Investment Advisory Agreement, except a loss resulting from a
breach of fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad faith or negligence
in the performance of its duties or from reckless disregard by it of its duties
and obligations thereunder.
The Glass-Steagall Act and Proposed Legislation
The Glass-Steagall Act, among other things, prohibits banks from
engaging in the business of underwriting securities, although national and
state-chartered banks generally are permitted to purchase and sell
securities upon the order and for the account of their customers. In 1971,
the United States Supreme Court held in Investment Company Institute v. Camp
that the Glass-Steagall Act prohibits a national bank from operating a
fund for the collective investment of managing agency accounts. Subsequently,
the Board of Governors of the Federal Reserve System (the "Board") issued
a regulation and interpretation
to the effect that the Glass-Steagall Act and such decision forbid a bank
holding company registered under the Federal Bank Holding Company Act of 1956
(the "Holding Company Act") or any non-bank affiliate thereof from sponsoring,
organizing or controlling a registered, open-end investment company continuously
engaged in the issuance of its shares, but do not prohibit such a holding
company or affiliate from acting as investment adviser, transfer agent and
custodian to such an investment company. In 1981, the United States Supreme
Court held in Board of Governors of the Federal Reserve System v. Investment
Company Institute that the Board did not exceed its authority under the Holding
Company Act when it adopted its regulation and interpretation authorizing bank
holding companies and their non-bank affiliates to act as investment advisers to
registered closed-end investment companies.
Bank of America believes that if the question were properly
presented, a court should hold that Bank of America may perform the services for
the Company contemplated by the Investment Advisory Agreement, the Prospectus
and this Statement of Additional Information without violation of the Glass-
Steagall Act or other applicable banking laws or regulations. It should be
noted, however, that there have been no cases deciding whether a national bank
may perform services comparable to those performed by Bank of America and future
changes in either federal or state statutes and regulations relating to
permissible activities of banks or trust companies and their subsidiaries or
affiliates, as well as further judicial or administrative decisions or
interpretations of present and future statutes and regulations, could prevent
Bank of America from continuing to perform such services for the Company or from
continuing to purchase Company shares for the accounts of its customers.
On the other hand, as described herein, the Fund is currently
distributed by the Distributor, and the Administrator, its parent, provides the
Company with administrative services. If current restrictions under the Glass-
Steagall Act preventing a bank from sponsoring, organizing, controlling or
distributing shares of an investment company were relaxed, the Company expects
that Bank of America would consider the possibility of offering to perform some
or all of the services now provided by the Administrator or the Distributor.
From time to time, legislation modifying such restriction has been introduced in
Congress which, if enacted, would permit a bank holding company to establish a
non-bank subsidiary having the authority to organize, sponsor and distribute
shares of an investment company. If this or similar legislation were enacted,
the Company expects that Bank of America's parent bank holding company would
consider the possibility of one of its non-bank subsidiaries offering to perform
some or all of the services now provided by the Administrator or the
Distributor. It is not possible, of course, to predict whether or in what form
such legislation might be enacted or the terms upon which Bank of America or
such a non-bank affiliate might offer to provide services for consideration by
the Company's Board of Directors.
Administrator
Concord Holding Corporation (the "Administrator"), with principal
offices at 125 West 55th Street, New York 10019, is a wholly-owned subsidiary of
The BISYS Group, Inc. The Administrator also serves as administrator to several
other investment companies.
The Administrator provides administrative services for the Fund as
described in the Prospectus pursuant to a Basic Administrative Services
Agreement. The agreement will continue in effect with respect to the Fund until
October 31, 1995 and thereafter will continue for successive periods of two
years, provided that each such extension is specifically approved (a) by vote of
a majority of those members of the Company's Board of Directors who are not
interested persons of any party to the agreement, cast in person at a meeting
called for the purpose of voting on such approval, and (b) the Company's Board
of Directors or by vote of a majority of the outstanding voting securities of
such Fund. The agreement is terminable during any term for cause at any time by
the Company's Board of Directors, "cause" being defined and limited for this
purpose to mean willful misfeasance, bad faith or negligence by the
Administrator in the performance of its obligations and duties under the
agreement. The Company's Board of Directors may terminate the agreement at the
end of the term without cause upon 60 days prior written notice to the
Administrator.
For the services provided and expenses assumed pursuant to the Basic
Administrative Services Agreement, the Administrator is entitled to receive an
administration fee, accrued daily and payable monthly, at the following annual
rates: .10% of the first $7 billion of the Fund's net assets, plus .09% of the
next $3 billion of the Fund's net assets, plus .08% of the Fund's net assets
over $10 billion. From time to time, the Administrator may waive fees or
reimburse the Company for expenses, either voluntarily or as required by certain
state securities laws.
For the period March 16, 1993 (commencement of operations) through
February 28, 1994 and the fiscal year ended February 28, 1995, the Administrator
was paid administration fees (net of fee waivers) with respect to the Fund of
$2,840 and $289,793, respectively. For the same periods, the Administrator
waived administration fees with respect to the Fund in the amount of $116,991
and $121,169, respectively.
The Administrator will bear all expenses in connection with the
performance of its services under its Basic Administrative Services Agreement
for the Fund with the exception of fees charged by The Bank of New York for
certain fund accounting services described below, which are borne by the Fund.
The Basic Administrative Services Agreement provides that the
Administrator shall not be liable for any error of judgment or mistake of law or
any loss suffered by the Fund in connection with the matters to which the
agreement relates, except a loss resulting from willful misfeasance, bad faith
or negligence in the performance of the Administrator's duties or from the
reckless disregard by the Administrator of its obligations and duties
thereunder.
Bank of America has received an option entitling it to purchase
approximately 4% of the Administrator's authorized common stock on or before
December 31, 1998.
Special Management Services Agreement
Bank of America and the Administrator provide services with respect
to the Fund's Pacific Horizon Shares as described in the Prospectus pursuant to
a Special Management Services Agreement. The agreement has been entered into by
the Company pursuant to an exemptive order granted by the Securities and
Exchange Commission, and in approving the agreement, the Board of Directors
determined that there was a reasonable likelihood that it would be beneficial to
Pacific Horizon Shares of the Fund. Under the exemptive order, the agreement
may not be amended to increase materially the amount payable thereunder unless
approved by a majority vote of the Disinterested Directors (as defined below)
cast in person at a meeting called for the purpose of voting on the amendment.
The Board of Directors must be provided with and must review, at least
quarterly, a written report of all amounts expended pursuant to the agreement.
The Special Management Services Agreement will continue in effect
with respect to the Fund until October 31, 1995 and thereafter for successive
periods of one year, provided such continuation is approved at least annually by
the Company's Board of Directors or by the vote of a majority of the outstanding
Pacific Horizon Shares of the Fund (as defined under "Miscellaneous-Shareholder
Vote"), and by a majority of the directors who are not interested persons of the
Company and who have no direct or indirect interest in the agreement (the
"Disinterested Directors") by vote cast in person at a meeting called for such
purpose. The agreement is terminable at any time with respect to the Fund by
the Disinterested Directors, by vote of a majority of the outstanding Pacific
Horizon Shares of the Fund, by Bank of America, or by the Administrator upon 60
days' notice to the other parties to the agreement.
For the services provided and expenses assumed pursuant to the
Special Management Services Agreement, Bank of America and the Administrator are
entitled to receive an aggregate fee at the annual rate of .32% of the average
daily net asset value of the Fund's Pacific Horizon Shares. From time to time,
Bank of America and the Administrator may waive the fees payable to them under
the agreement. Bank of America and the Administrator bear all expenses in
connection with the performance of their services under the Special Management
Services Agreement.
For the period March 16, 1993 (commencement of operations) through
February 28, 1994, and the fiscal year ended February 28, 1995 the Fund incurred
expenses (before fee waivers) of $386,941 and $307,526, respectively, pursuant
to the Special Management Services Agreement, of which $0 was earned by Bank of
America, $3,320 was earned by affiliates of Bank of America, $111 was earned by
the Administrator and $0 was earned by affiliates of the Administrator for the
period ended February 28, 1994, and $0 was earned by Bank of America, $0 was
earned by affiliates of Bank of America, $0 was earned by the Administrator and
$0 was earned by affiliates of the Administrator for the fiscal year ended
February 28, 1995. For the period March 16, 1993 through February 28, 1994 and
the fiscal year ended February 28, 1995, Bank of America and its affiliates, the
Administrator and other Service Organizations agreed to waive Special Management
Services fees of $383,510 and $307,526, respectively.
The Special Management Services Agreement provides that Bank of
America and the Administrator shall not be liable for any error of judgment or
mistake of law or any loss suffered by the Fund in connection with the matters
to which the agreement relates, except a loss resulting from willful
misfeasance, bad faith or negligence in the performance of their duties or from
the reckless disregard by them of their obligations and duties thereunder.
Fee Waivers and Expense Reimbursements
If total expenses borne by the Fund in any fiscal year exceed the
expense limitations imposed by applicable state securities regulations, the
Company may deduct from the payments to be made with respect to the Fund to Bank
of America and the Administrator, respectively, or Bank of America and the
Administrator each will bear, the amount of such excess to the extent required
by such regulations. Such amount, if any, will be estimated and accrued daily
and paid on a monthly basis. As of the date of this Statement of Additional
Information, the most restrictive expense limitation that may be applicable to
the Company limits aggregate annual expenses with respect to the Fund, including
management and advisory fees but excluding interest, taxes, brokerage
commissions, and certain other expenses, to 2-1/2% of the first $30 million of
its average daily net assets, 2% of the next $70 million, and 1-1/2% of its
remaining average daily net assets. During the course of the Company's fiscal
year, the Administrator and Bank of America may assume certain expenses and/or
not receive payment of fees of the Fund, while retaining the ability to be
reimbursed by the Fund for such amounts prior to the end of the fiscal year.
This will have the effect of increasing yield to investors at the time such fees
are not received or amounts are assumed and decreasing yield when such fees or
amounts are reimbursed.
Distributor
The Distributor acts as the exclusive distributor of the shares of
the Fund pursuant to a distribution agreement with the Company. Shares are sold
on a continuous basis by the Distributor as agent, although the Distributor is
not obliged to sell any particular amount of shares. No compensation is payable
by the Fund to the Distributor for its distribution services. The distribution
agreement shall continue in effect with respect to the Fund until October 31,
1995. Thereafter, if not terminated, the distribution agreement shall continue
automatically for successive terms of one year, provided that such continuance
is specifically approved at least annually (a) by a vote of a majority of those
members of the Board of Directors of the Company who are not parties to the
distribution agreement or "interested persons" of any such party, cast in person
at a meeting called for the purpose of voting on such approval, and (b) by the
Board of Directors of the Company or by vote of a "majority of the outstanding
voting securities" of the Fund; provided, however, that the distribution
agreement may be terminated by the Company at any time, without the payment of
any penalty, by vote of a majority of the entire Board of Directors of the
Company or by a vote of a "majority of the outstanding voting securities" of the
Fund on 60 days' written notice to the Distributor, or by the Distributor at any
time, without the payment of any penalty, on 90 days' written notice to the
Company. The agreement will automatically and immediately terminate in the
event of its "assignment."
Custodian and Transfer Agent
The Company has appointed The Bank of New York, 90 Washington
Street, New York, New York 10286, as custodian, and DST Systems, Inc., 811 Main,
Kansas City, Missouri 64105-2005, as transfer and dividend disbursing agent for
the Fund. The Bank of New York also provides the Company with certain
accounting services pursuant to a fund accounting services agreement. The Bank
of New York has agreed to provide certain accounting, bookkeeping, pricing, and
dividend and distribution calculation services with respect to the Company. The
monthly fees charged by the bank under the fund accounting agreement are borne
by the Fund (and other portfolios of the Company). The Company and The Bank of
New York have appointed Bank of America to act as sub-custodian pursuant to a
sub-custodian agreement. As sub-custodian of the Company's assets, Bank of
America (i) maintains a separate account or accounts in the name of the Company,
(ii) holds and disburses portfolio securities on account of the Company, (iii)
makes receipts and disbursements of money on behalf of the Company, (iv)
collects and receives all income and other payments and distributions on account
of the Company's portfolio securities held by Bank of America, (v) responds to
correspondence from security brokers and others relating to its duties, and (vi)
makes periodic reports to the Company's Board of Directors concerning its duties
thereunder. Under the sub-custodian agreement, the Company will reimburse Bank
of America for its costs and expenses in providing services thereunder. For the
period March 16, 1993 (commencement of operations) through February 28, 1994 and
the fiscal year ended February 28, 1995 Bank of America, in its capacity as sub-
custodian, did not hold any of the Fund's assets and accordingly received no
fees.
Additional Performance Information
The "yield" and "effective yield" of the Fund are calculated
according to formulas prescribed by the Securities and Exchange Commission. The
standardized seven-day yield for the Fund is computed by determining the net
change, exclusive of capital changes, in the value of a hypothetical pre-
existing account in the Fund having a balance of one share at the beginning of
the period, dividing the net change in account value by the value of the account
at the beginning of the base period to obtain the base period return, and
multiplying the base period return by (365/7). The net change in the value of
an account in the Fund includes the value of additional shares purchased with
dividends from the original share, and dividends declared on both the original
share and any such additional shares, net of all fees, other than nonrecurring
account or sales charges, that are charged to all shareholder accounts in
proportion to the length of the base period and the Fund's average account size.
The capital changes to be excluded from the calculation of the net change in
account value are realized gains and losses from the sale of securities and
unrealized appreciation and depreciation. The effective annualized yield for
the Fund is computed by compounding the Fund's unannualized base period return
(calculated as above) by adding 1 to the base period return, raising the sum to
a power equal to 365 divided by 7, and subtracting 1 from the result. The fees
which may be imposed by institutional investors directly on their customers for
cash management services are not reflected in the Fund's calculations of yields.
The current yields for the Fund may be obtained by calling (800)
227-1545. Based on the foregoing calculations, for the seven-day period ended
February 28, 1995, the annualized yield and effective yield (after fee waivers)
of the Fund's Pacific Horizon Shares were 5.96% and 6.14%, respectively.
From time to time, the yield of the Fund may be quoted in and
compared to other mutual funds with similar investment objectives in
advertisements, shareholder reports or other communications to shareholders.
The Fund may also include calculations in such communications that describe
hypothetical investment results. (Such performance examples will be based on an
express set of assumptions and are not indicative of the performance of the
Fund.) Such calculations may from time to time include discussions or
illustrations of the effects of compounding in advertisements. "Compounding"
refers to the fact that, if dividends or other distributions on the Fund
investment are reinvested by being paid in additional Fund shares, any future
income of the Fund would increase the value of the Fund investment more quickly
than if dividends or other distributions had been paid in cash. The Fund may
also include discussions or illustrations of the potential investment goals of a
prospective investor (including but not limited to tax and/or retirement
planning), investment management techniques, policies or investment suitability
of the Fund, economic conditions, legislative developments (including pending
legislation), the effects of inflation and historical performance of various
asset classes. From time to time advertisements or communications to
shareholders may summarize the substance of information contained in shareholder
reports (including the investment composition of the Fund), as well as the views
of the investment adviser as to current market, economic, trade and interest
rate trends, legislative, regulatory and monetary developments, investment
strategies and related matters believed to be of relevance to the Fund. The
Fund may also include in advertisements charts, graphs or drawings which
illustrate the potential risks and rewards of investment in various investment
vehicles. In addition, advertisements or shareholder communications may include
a discussion of certain attributes or benefits to be derived by an investment in
the Fund. Such advertisements or communications may include symbols, headlines
or other material which highlight or summarize the information discussed in more
detail therein. With proper authorization, the Fund may reprint articles (or
excerpts) written regarding the Fund and provide them to prospective
shareholders. Performance information with respect to the Funds is generally
available by calling (800) 227-1545.
In addition to the publications listed in the Fund's Prospectus,
yield data as reported in the following publications may be used in comparing
the yields of the Fund to those of other mutual funds with similar investment
objectives: Business Week, Investor's Business Daily, Kiplinger, U.S. News,
Financial World, USA Today, Morningstar, Mutual Fund Monitor and American
Banker.
GENERAL INFORMATION
Description of Shares
The Company is an open-end management investment company organized
as a Maryland corporation on October 27, 1982. The Company's Charter authorizes
the Board of Directors to issue up to two hundred billion full and fractional
shares of capital stock. The Board of Directors has authorized the issuance of
twenty-three classes of common stock - Classes A through W Common Stock
representing interests in twenty-three separate investment portfolios. Each
share of capital stock has a par value of $.001. This Statement of Additional
Information describes the Pacific Horizon Shares of the Prime Value Fund.
Shares have no preemptive rights and only such conversion or
exchange rights as the Board may grant in its discretion. When issued for
payment as described in the Prospectus, the Fund's shares will be fully paid and
non-assessable. For information concerning possible restrictions upon the
transferability of the Fund's shares and redemption provisions with respect to
such shares, see "Additional Purchase and Redemption Information" in this
Statement of Additional Information.
The Fund's Horizon Shares and Horizon Service Shares differ from
Pacific Horizon Shares in the following respects. Only Pacific Horizon Shares
are subject to the Special Management Services fee described above, which is
payable at the rate of .32% (on an annualized basis) of the average daily net
asset value of the Pacific Horizon Shares that are outstanding from time to
time. Only Horizon Service Shares bear the fees payable under the Shareholder
Services Plan that has been adopted for Horizon Services Shares, which are
payable at the rate of up to .25% (on an annualized basis) of the average daily
net asset value of the Horizon Service Shares that are outstanding from time to
time as described in the Prospectus for such shares. As a result, at any given
time, the net yield on the Fund's Pacific Horizon Shares will be approximately
.32% lower than the yield on the Fund's Horizon Shares and .07% lower than the
yield on the Fund's Horizon Service Shares. Standardized yield quotations will
be computed separately for each series of shares.
Holders of the outstanding shares of the Fund will vote together in
the aggregate and not by class on all matters, except that only Pacific Horizon
Shares of the Fund will be entitled to vote on matters submitted to a vote of
shareholders pertaining to the Special Management Services Agreement and only
Horizon Service Shares of the Fund will be entitled to vote on matters submitted
to a vote of shareholders pertaining to the expenses that are borne exclusively
by such shares. Further, shareholders of the Fund, as well as those of any
other investment portfolio now or hereafter offered by the Company, will vote
together in the aggregate and not separately on a fund-by-fund basis, except as
otherwise required by law or when permitted by the Board of Directors. Rule
18f-2 under the 1940 Act provides that any matter required to be submitted to
the holders of the outstanding voting securities of an investment company such
as the Company shall not be deemed to have been effectively acted upon unless
approved by a majority of the outstanding shares of each fund affected by the
matter. A fund is affected by a matter unless it is clear that the interests of
each fund in the matter are substantially identical or that the matter does not
affect any interest of the fund. Under the Rule, the approval of an investment
advisory agreement or any change in a fundamental investment policy would be
effectively acted upon with respect to a fund only if approved by a majority of
the outstanding shares of such fund. However, the Rule also provides that the
ratification of independent public accountants, the approval of principal
underwriting contracts and the election of directors may be effectively acted
upon by shareholders of the Company voting in the aggregate without regard to
particular funds.
Notwithstanding any provision of Maryland law requiring a greater
vote of the Company's common stock (or of the shares of a fund voting separately
as a class) in connection with any corporate action, unless otherwise provided
by law (for example, by Rule 18f-2 discussed above) or by the Company's Charter,
the Company may take or authorize such action upon the favorable vote of the
holders of more than 50% of the outstanding common stock of the Company voting
without regard to class.
Reports
Shareholders will be sent unaudited semi-annual reports describing
the Fund's investment operations, and annual financial statements together with
a report of the independent accountants.
Counsel
Drinker Biddle & Reath (of which W. Bruce McConnel, III, Secretary
of the Company, is a partner), Philadelphia National Bank Building, 1345
Chestnut Street, Philadelphia, Pennsylvania 19107, serve as counsel to the
Company and will pass upon the legality of the shares offered hereby.
Independent Accountants
Price Waterhouse LLP, independent accountants, with offices at 1177
Avenue of the Americas, New York, New York 10036, has been selected as the
independent accountants for the Fund for the fiscal year ending February 28,
1996.
Miscellaneous
As used in the Prospectus and this Statement of Additional
Information, a "vote of a majority" of the outstanding shares of the Fund means,
with respect to the approval of an investment advisory agreement, a distribution
plan or a change in a fundamental investment policy, the affirmative vote of the
lesser of (a) more than 50% of the outstanding shares of the Fund, or (b) 67% of
the shares of the Fund present at a meeting at which more than 50% of the
outstanding shares of the Fund are represented in person or by proxy.
At June 15, 1995, the name, address and share ownership of the
entities which held of record more than 5% of the outstanding Pacific Horizon
Shares of the Treasury Fund were as follows: BA Investment Services Inc., For
the Benefit of Clients, 555 California Street, 4th Floor, Department #4337,
San Francisco, CA 94104, 98,230,626.530 shares (7.70%); Bank of America State
Trust Co., 299 N. Euclid Avenue, Pasadena, CA 91101, 1,044,975,154.790 shares
(82.00%); and Hellman & Freidman Capital Partners II, Limited Partnership,
Attention: Georgia Lee, 1 Maritime Plaza, 12th Floor, San Francisco, CA 94111,
1,216,118,073.700 shares (095.42%).
At June 16, 1995, the name, address and share ownership of the
entities which held of record more than 5% of the outstanding Horizon Shares of
the Treasury Fund was as follows: Bank of America Trustee/Custodian for
Investing in Horizon Treasury, Attn: Eric Peterson, 701 S. Western Avenue, 2nd
Floor, Glendale, CA 91201, 398,540,438.170 shares (68.901%); Security Pacific
State Trust Co., Agreement for Sec. PACWA Participants, Attn: Cash Sweep Funds
(L. Goekjian), P.O. Box 91630, Pasadena, CA 91101, 94,279,024.120 shares
(16.299%).
At June 16, 1995, the name, address and share ownership of the
entities which held beneficially more than 5% of the outstanding Horizon Service
Shares of the Treasury Fund were as follows: Bank of America FM&TS Operat CA,
Attn: CTF Unit, 701 South Western Avenue, Glendale, CA 91201, 65,745,555.320
shares (23.658%); Bank of America Nevada Southern Comm. Bank, Attn: Dan Dykes,
P.O. Box 98600, Las Vegas, NV 89193, 63,974,589.270 shares (23.020%). Security
Pacific State Trust Co., Agreement for Sec. PACWA Participants, Attn: Cash Sweep
Funds, P.O. Box 91630, Pasadena, CA 91101, 56,906,301.540 shares (20.477%); and
Security Pacific Cash Management, c/o Bank of America - GPO M/C 5533, Attn:
Liezel Barangan, 1850 Gateway Boulevard, Concord, CA 94520, 77,003,300 shares
(27.709%). At June 15, 1995, the name, address and, share ownership of the
entity which held of record more than 5% of the outstanding Horizon Service
Shares of the Treasury Fund was as follows: Omnibus A/C for the Shareholder
Accounts maintained by Concord Financial Services, Inc., Attn: Linda Zerbe,
First and Market Building, 100 First Avenue, Suite 300, Pittsburgh, PA 15222,
263,629,755.130 shares (65.51%). At June 15, 1995 the name, address and share
ownership of the entities which held of record more than 5% of the outstanding
Pacific Horizon Shares of the Prime Fund were as follows: BA Investment
Services Inc., For the Benefit of Clients, 555 California Street, 4th Floor,
Department #4337, San Francisco, CA 94104, 514,119,226.900 shares (38.76%); Bank
of America State Trust Co., 299 N. Euclid Avenue, Pasadena, CA 91101,
392,983,248.780 shares (29.63%); and Southwest Securities Inc., Attn:
Cashiering, 201 Elm Street, Suite 4300, Dallas, TX 75270, 169,018,910.270 shares
(12.74%). At June 16, 1995, the name, address and share ownership of the
entities which held of record more than 5% of the outstanding Horizon Shares of
the Prime Fund were as follows: Bank of America Trustee/Custodian for Investing
Horizon Prime, Attn: Eric Peterson, 701 S. Western Avenue, 2nd Floor, Glendale,
CA 91201, 385,058,852.030 shares (56.838%); and Bank of America NT&SA, Attn: Kay
Warren/Dept. #5596, 1455 Market Street, San Francisco, CA 94103, 57,300,000.00
shares (9.934%). At June 15, 1995, the name, address and share ownership of the
entity which held of record more than 5% of the outstanding Horizon Service
Shares of the Prime Fund were as follows: Omnibus A/C for the Shareholder
Accounts maintained by Concord Financial Services, Inc., Attn: Linda Zerbe,
First and Market Building, 100 First Avenue, Suite 300, Pittsburgh, PA 15222,
752,776,315.610 shares (70.26%).
At June 16, 1995, the name, address and share ownership of the
entities which held beneficially more than 5% of the outstanding Horizon Service
Shares of the Prime Fund were as follows: Bank of America NT&SA Financial
Management and Trust Services, 701 S. Western Avenue, Glendale, CA 91201,
74,038,082.090 shares (9.835%); Capital Network Services, Attn: Donna Novell,
One Bush Street, 11th Floor, San Francisco, CA 94104, 86,407,261.23 shares
(11.478%); Security Pacific Cash Management, c/o Bank of America. GPO. M/C 5533
Attn: Liezel Barangan, 1850 Gateway Boulevard, M/C 5533, Concord, CA 94520,
379,755,600.000 shares (50.447%); Security Pacific State Trust Co., Agreement
for SecPAC WA Participants, Attn: Cash Sweep Funds (L. Goekjian) P.O. Box 91630,
Pasadena, CA 91101, 54,321,621.330 shares (7.216%); and Southwest Securities
Inc., Attn: Mary Lisenber, 1201 Elm Street, Suite 4300, Dallas, TX 75270,
130,146,660.030 shares (17.289%).
At June 15, 1995, the name, address and share ownership of the
entities which held of record more than 5% of the outstanding Pacific Horizon
Shares of the Tax-Exempt Money Fund were as follows: BA Investment Services,
Inc., For the Benefit of Clients, 555 California Street, 4th Floor, Department
#4337, San Francisco, CA 94104, 12,233,845.190 shares (39.73%); Southwest
Securities Inc., Attn: Cashiering, 1201 Elm Street, Suite 4300, Dallas, TX,
75270, 10,387,253.930 shares (33.73%); and Bank of America State Trust Co., 299
N. Euclid Avenue, Pasadena, CA 91101, 6,515,635.730 shares (21.16%).
At June 16, 1995, the name, address and share ownership of the
entities which held of record more than 5% of the outstanding Horizon Shares of
the Tax-Exempt Money Fund were as follows: Bank of America Custodian For
Investing in Horizon Tax-Exempt Money Fund, Attn: Eric Peterson, 701 S. Western
Avenue, 2nd Floor, Glendale, CA 19201, 129,582,555.65 shares (38.576%);
Continental Bank National Association Custodian for the Benefit of Custodian Co.
Attn: Mary Chester, 231 South LaSalle Street, 6Q, Chicago, IL 60697,
152,699,416.270 shares (45.458%); and Maine Midland Bank NA, Investment
Services, 17th Floor, Attn: Christine Mincel, One Marine Midland Center,
Buffalo, NY 14203, 21,684,672.980 shares (6.455%).
At June 15, 1995, the name, address and share ownership of the
entities which held of record more than 5% of the outstanding shares of the
Horizon Service Shares of the Tax-Exempt Money Fund were as follows: Furman C.
Moseley and Susan R. Moseley Tenn. In Common, 1201 3rd Avenue, Box 7C, Seattle,
WA 98101, 4,165,513.060 shares (9.91%); Omnibus A/C for the shareholder accounts
maintained by Concord Financial Services Inc., Attn: Linda Zerbe, First and
Market Building, 100 First Avenue, Suite 300, Pittsburgh, PA 15222,
22,398,544.590 shares (53.31%); and Omnibus A/C for the Shareholder Accounts
maintained by Concord Financial Services Inc. Attn: First and Market Building,
100 First Avenue, Suite 300, Pittsburgh, PA 15222, 3,494,305.180 shares (8.31%).
At June 16, 1995, the name, address and share ownership of the entities which
held beneficially more than 5% of the outstanding Horizon Service Shares of the
Tax-Exempt Money Fund were as follows: BA Investment Services Inc., 555
California Street, 4th Floor Dept. #4337, San Francisco, CA 94104, 1,362,028.590
shares (5.260%); Bank of America FM&TS Oper. CA, Attn: CTF Unit, 701 South
Western Avenue, Glendale, CA 91201, 2,293,907.40 shares (8.859%); and Southwest
Securities, Inc., Attn: Mary Lisenber, 1201 Elm Street, Suite 430, Dallas, TX
75270, 21,021,580.530 shares (81.187%). At June 15, 1955, the name, address and
share ownership of the entities which held of record more than 5% of the
outstanding Pacific Horizon Shares of the Government Fund were as follows: Bank
of America, NT&SA, The Private Bank, Attn: ACI Unit #8329, 701 S. Western
Avenue, Glendale, CA 91201, 79,875,532.090 shares (22.71%); Bank of America
State Trust Co., 299 N. Euclid Avenue., Pasadena, CA 91101, 64,756,966.280
shares (18.41%); and BA Investment Services Inc., For the Benefit of Clients,
555 California Street, 4th Floor, Department #4337, San Francisco, CA 94104,
170,940,404.650 shares (48.60%). At June 16, 1995, the name, address and share
ownership of the entities which held of record more than 5% of the outstanding
Horizon Shares of the Government Fund were as follows: Bank of America NT&SA
Trustee/Custodian for Investing in Horizon Shares of the Government Fund, Attn:
Cynthia Beauvais, 701 South Western Avenue., Glendale, CA 91201, 9,327,446.350
shares (5.028%); Bank of America State Trust, Attn: Rigo Barrett, 299 N. Euclid
Avenue, Pasadena, CA 91101, 28,063,486.740 shares (15.129%); Capital Network
Services, Attn: Donna Novell, One Bush Street, 11th Floor, San Francisco, CA
94104, 24,227,801.980 shares (13.061%); County of Orange, Matt Raabe, P.O. Box
4515, Santa Ana, CA 92702, 10,000,000.000 shares (5.391%); Cypress Insurance
Co., Attn: Larry Tetzloff, 9290 W. Dodge Road, Omaha, NE 68124, 9,996,515.930
shares (5.389%); Harr & Co., c/o Bank of New York, Attn: Bimal Sana, Spec. Prec.
Dept., One Wall Street, 5th Floor, New York, NY 10286, 14,000,000.000 shares
(7.547%); Micron Electronics Inc., Attn: Debbie Meigand, 900 East Karcher Road,
Nanpa, ID 83687, 16,080,510.14 shares (8.669%); and Silocin Magic Corp., Attn:
Meng A. Lim, 20300 Stevens Creek Boulevard., Suite 400, Cupertino, CA 95014,
18,058,262.110 shares (9.735%). At June 15, 1995, the name, address and share
ownership of the entities which held of record more than 5% of the outstanding
Horizon Service Shares of the Government Fund were as follows: Spacelabs
Medical, Inc., Attn: Scott Bender, P.O. Box 97013, Redmond, WA 98073,
14,572,000.000 shares (5.70%); Good Health Plan of WA, Attn: Tsai Cheng, 1501
9th Avenue, Suite 500, Seattle, WA 98101, 16,584,866.580 shares (6.49%); Omnibus
A/C for the Shareholder Accounts maintained by Concord. Financial Services
Inc., Attn: Linda Zerbe, First and Market Building, 100 First Avenue, Suite 300,
Pittsburgh, PA 15222, 68,555,257.020 shares (26.85%). At June 16, 1995, the
name, address and share ownership of the entities which held beneficially more
than 5% of the Horizon Service Shares of the Government Fund were as follows:
Bank of America Nevada Southern Comm. Bank, Attn: Dan Dykes, P.O. Box 98600, Las
Vegas, NV 89193-8600, 35,849,966.050 shares (52.294%); and Capital Network
Services, Attn: Donna M. Howell, One Bush Street, 11th Floor, San Francisco, CA
94104-4425, 23,929,840.440 shares (34.906%). At June 15, 1995, the name,
address and share ownership of the entities which held of record more than 5% of
the Pacific Horizon Shares of the Treasury Only Fund were as follows: Bank of
America NT&SA, the Private Bank, Attn: ACI Unit 48329, 701 South Western Avenue,
Glendale, CA 91201, 48,516,900.490 shares (31.68%) Bank of America State Trust
Co., 299 N. Euclid Avenue, Pasadena, CA 91101, 22,350,831.320 shares (14.59%);
and BA Investment Services Inc., For the Benefit of Clients, 555 California
Street, 4th Floor, Department #4337, San Francisco, CA 94104, 69,016,521.500
shares (45.06%). At June 15, 1995, the name, address and share ownership of the
entities which held of record more than 5% of the outstanding Horizon Service
Shares of the Treasury Only Fund were as follows: National Home Mortgage Corp.,
Attn: Mortgage Banking Treasury Operations, 5565 Morehouse Drive, 3rd Floor, San
Diego, CA 92121, 12,147.667,580 shares (9.42%); Comcare, Inc., 4001 N. 3rd
Street, Suite 120, Phoenix, AZ 85012, 26,230,243.620 shares (20.34%); and
Omnibus A/C For the Shareholder Accounts Maintained by Concord Financial
Services Inc., Attn: Linda Zerbe, First and Market Building, 100 First Avenue,
Suite 300, Pittsburgh, PA 15222, 21,883,084.450 shares (16.97%). At June 16,
1995, the name, address and share ownership of the entities which held
beneficially more than 5% of the outstanding Horizon Service Shares of the
Treasury Only Fund were as follows: BA Investment Service Inc., 555 California
Street, 4th Floor Dept. #4337, San Francisco, CA 94104, 6,403,628.120 shares
(28.679%); Bank of America NT&SA Trustee/Custodian for Investing in Horizon
Service Shares of the Treasury Only Fund, Attn: Cynthia Beauvais, 701 South
Western Avenue, Glendale, CA 91201, 3,501,414.020 shares (15.681%); Bank of
America State Trust, Attn: Rigo Barrett, 299 N. Euclid Avenue, Pasadena, CA
91101, 5,420,893.150 shares (24.277%); Fair Isaac & Co., Attn: Christine Tam,
120 North Redwood, San Rapheal, CA 94903-1996, 1,338,800.750 shares (5.996%);
Foothill/Eastern Transportation Corridor Agency, Attn: Laura Barker, 201 East
Sandpot, Suite 200, Santa Anna, CA 92707, 2,559,586.380 shares (11.463%); and
Nexus, Attn: Kathleen Menace, P.O. Box 60637, Sunnyvale, CA 94088-0637,
2,525,153.380 shares (11.309%). At June 15, 1995, the name, address and share
ownership of the entities which held of record more than 5% of the outstanding
Pacific Horizon Shares of the Prime Value Fund were as follows: BA Investment
Services Inc., For the Benefit of Clients, 555 California Street, 4th Floor,
Department #4337, San Francisco, CA 94104, 16,383,467.170 shares (26.45%); and
Bank of America State Trust Co., Attn: Leon Goekjian, P.O. Box 91630, Pasadena,
CA 91101, 45,078,465.290 shares (72.79%). At June 16, 1995, the name, address
and share ownership of the entity which held of record more than 5% of the
outstanding Horizon Shares of the Prime Value Fund was as follows: Tice & Co.,
c/o M&T, Attn: Cash Management Clerk, 8th Floor, P.O. Box 1377, Buffalo, NY
14240, 453,078,561.590 shares (93.510%). At June 15, 1995, the name, address
and share ownership of the entity which held of record more than 5% of the
outstanding shares of the Pacific Horizon Shares of the California Tax-Exempt
Money Market Fund was as follows: BA Investment Services Inc., For the Benefit
of Clients, 555 California Street, 4th Floor, Department #4337, San Francisco,
CA 94104, 204,443,886.590 shares (22.07%). At June 15, 1995, the name, address
and share ownership of the entities which held of record more than 5% of the
outstanding shares of the Horizon Service Shares of the California Tax-Exempt
Money Market Fund were as follows: Leo Zuckerman Trust, DTD 12-11-91,4444
Viewridge Avenue, San Diego, CA 92123, 4,850,877.280 shares (5.35%); and Omnibus
A/C for the Shareholder Accounts Maintained by Concord Financial Services Inc.
Attn: Linda Zerbe, First and Market Building, 100 First Avenue, Suite 300,
Pittsburgh, PA 15222, 13,391,453.970 shares (14.77%). At June 16, 1995, the
name, address and share ownership of the entity which held beneficially more
than 5% of the outstanding shares of the Horizon Service Shares of the
California Tax-Exempt Money Market Fund was as follows: BA Investment Services
Inc., 555 California Street, 4th Floor, Dept. #4337, San Francisco, CA 94109,
13,792,509.310 shares (99.206%). At June 15, 1995, the name, address and shares
ownership of the entities which held of record more than 5% of the outstanding
shares of the Flexible Bond Fund were as follows: Peter F. Smith and Jacquelyn
L. Smith, JTWROS, 1785 C. Blodgett Road, Mount Vernon, WA 98273, 13,973.917
shares (5.58%); and BA Investment Services, Inc., FBO 200724011, 185 Berry
Street, 3rd Floor #2640, San Francisco, CA 94104, 22,436.531 shares (8.96%). At
June 15, 1995 the name, address and share ownership of the entity which held of
record more than 5% of the outstanding shares of the Asset Allocation Fund was
as follows: Bank of America, Texas AATTEE. National-O'Neill Supplemental
Savings Plan, Attn: Mutual Funds (81-6-01005-0), P.O. Box 94627, Pasadena, CA
91109, 24,289,973 shares (5.07%). At June 15, 1995 the name, address and share
ownership of the entities which held of record more than 5% of the outstanding
shares of the National Municipal Bond Fund were as follows: BA Investment
Services, Inc. FBO 405084421, 555 California Street, 4th Floor, #2640, San
Francisco, CA 94104, 26,336.154 shares (8.31%); and BA Investment Services,
Inc., FBO 405266591, 555 California Street, 4th Floor, #2640, San Francisco, CA
94104, 25,034.024 shares (7.90%). At June 15, 1995 the name, address and share
ownership of the entities which held of record more than 5% of the outstanding
shares of the Corporate Bond Fund were as follows: Dean Witter Reynolds Inc., 5
World Trade Center, 4th Floor, Attn: 5th O Div., New York, NY 10048, 138,820.000
shares (6.93%); and Smith Barney Shearson, Inc., 333 W. 39th Street, 8th Floor,
New York, NY 10001, 148,925.482 shares (7.43%).
At such dates, no other person was known by the Company to hold of
record or beneficially more than 5% of the outstanding shares of any investment
portfolio of the Company.
Financial Statements and Experts
The Annual Report for the Fund for the period ended February 28,
1995 (the "Annual Report"), accompanies this Statement of Additional
Information. The Financial Statements and notes thereto in the Annual Report
are incorporated in this Statement of Additional Information by reference and
have been audited by Price Waterhouse LLP, whose report thereon also appears in
the Annual Report and is also incorporated herein by reference. Such financial
statements have been incorporated herein in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
APPENDIX A
Commercial Paper Ratings
A Standard & Poor's commercial paper rating is a current assessment
of the likelihood of timely payment of debt considered short-term in the
relevant market. The following summarizes the rating categories used by
Standard and Poor's for commercial paper:
"A-1" - Issue's degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are
denoted "A-1+."
"A-2" - Issue's capacity for timely payment is satisfactory.
However, the relative degree of safety is not as high as for issues designated
"A-1."
"A-3" - Issue has an adequate capacity for timely payment. It is,
however, somewhat more vulnerable to the adverse effects of changes and
circumstances than an obligation carrying a higher designation.
"B" - Issue has only a speculative capacity for timely payment.
"C" - Issue has a doubtful capacity for payment.
"D" - Issue is in payment default.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an original
maturity in excess of 9 months. The following summarizes the rating categories
used by Moody's for commercial paper:
"Prime-1" - Issuer or related supporting institutions are considered
to have a superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established industries; high
rates of return on funds employed; conservative capitalization structures with
moderate reliance on debt and ample asset protection; broad margins in earning
coverage of fixed financial charges and high internal cash generation; and well
established access to a range of financial markets and assured sources of
alternate liquidity.
"Prime-2" - Issuer or related supporting institutions are considered
to have a strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, will be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternative
liquidity is maintained.
"Prime-3" - Issuer or related supporting institutions have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuer does not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment. Short-
term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
"D-3" - Debt possesses satisfactory liquidity, and other protection
factors qualify issue as investment grade. Risk factors are larger and subject
to more variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch short-term ratings apply to debt obligations that are payable
on demand or have original maturities of up to three years. The following
summarizes the rating categories used by Fitch for short-term obligations:
"F-1+" - Securities possess exceptionally strong credit quality.
Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues assigned
this rating have a satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as the "F-1+" and "F-1" categories.
"F-3" - Securities possess fair credit quality. Issues assigned
this rating have characteristics suggesting that the degree of assurance for
timely payment is adequate; however, near-term adverse changes could cause these
securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues assigned
this rating have characteristics suggesting a minimal degree of assurance for
timely payment and are vulnerable to near-term adverse changes in financial and
economic conditions.
"D" - Securities are in actual or imminent payment default.
Fitch may also use the symbol "LOC" with its short-term ratings to
indicate that the rating is based upon a letter of credit issued by a commercial
bank.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely or incomplete payment of principal or interest of unsubordinated
instruments having a maturity of one year or less which is issued by United
States commercial banks, thrifts and non-bank banks; non-United States banks;
and broker-dealers. The following summarizes the ratings used by Thomson
BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest
rating category and indicates a very high degree of likelihood that principal
and interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents the lowest investment grade
category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher ratings,
capacity to service principal and interest in a timely fashion is considered
adequate.
"TBW-4" - This designation indicates that the debt is regarded as
non-investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1+" - Obligations supported by the highest capacity for timely
repayment.
"A1" - Obligations are supported by the highest capacity for timely
repayment.
"A2" - Obligations are supported by a satisfactory capacity for
timely repayment, although such capacity may be susceptible to adverse changes
in business, economic or financial conditions.
"A3" - Obligations are supported by a satisfactory capacity for
timely repayment. Such capacity is more susceptible to adverse changes in
business, economic or financial conditions than for obligations in higher
categories.
"B" - Obligations for which the capacity for timely repayment is
susceptible to adverse changes in business, economic or financial conditions.
"C" - Obligations for which there is an inadequate capacity to
ensure timely repayment.
"D" - Obligations which have a high risk of default or which are
currently in default.
Corporate and Municipal Long-Term Debt Ratings
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - This designation represents the highest rating assigned by
Standard & Poor's to a debt obligation and indicates an extremely strong
capacity to pay interest and repay principal.
"AA" - Debt is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in small degree.
"A" - Debt is considered to have a strong capacity to pay interest
and repay principal although such issues are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay
interest and repay principal. Whereas such issues normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher-rated categories.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
"BB" - Debt has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
"B" - Debt has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.
"CCC" - Debt has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
"CC" - This rating is typically applied to debt subordinated to
senior debt that is assigned an actual or implied "CCC" rating.
"C" - This rating is typically applied to debt subordinated to
senior debt which is assigned an actual or implied "CCC-" debt rating. The "C"
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
"CI" - This rating is reserved for income bonds on which no interest
is being paid.
"D" - Debt is in payment default. This rating is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S & P believes such payments
will be made during such grace period. "D" rating is also used upon the filing
of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid, and
certain other obligations that S & P believes may experience high volatility or
high variability in expected returns due to non-credit risks. Examples of such
obligations are: securities whose principal or interest return is indexed to
equities, commodities, or currencies; certain swaps and options; and interest
only and principal only mortgage securities.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" represents a poor standing; "Ca"
represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in
default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
Moody's applies numerical modifiers 1, 2 and 3 in each generic
classification from "Aa" to "B" in its bond rating system. The modifier 1
indicates that the issuer ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issuer ranks at the lower end of its generic rating category.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt
rated "B" possesses the risk that obligations will not be met when due. Debt
rated "CCC" is well below investment grade and has considerable uncertainty as
to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the "AA,"
"A," "BBB," "BB" and "B" ratings may be modified by the addition of a plus (+)
or minus (-) sign to show relative standing within these major categories.
The following summarizes the highest four ratings used by Fitch for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
"AA" - Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated "F-1+."
"A" - Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
"BB," "B," "CCC," "CC," "C," "DDD," "DD," and "D" - Bonds that
possess one of these ratings are considered by Fitch to be speculative
investments. The ratings "BB" to "C" represent Fitch's assessment of the
likelihood of timely payment of principal and interest in accordance with the
terms of obligation for bond issues not in default. For defaulted bonds, the
rating "DDD" to "D" is an assessment of the ultimate recovery value through
reorganization or liquidation.
To provide more detailed indications of credit quality, the Fitch
ratings from and including "AA" to "C" may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major rating
categories.
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions may
increase investment risk albeit not very significantly.
"A" - Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is strong,
although adverse changes in business, economic or financial conditions may lead
to increased investment risk.
"BBB" - Obligations for which there is currently a low expectation
of investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial conditions
are more likely to lead to increased investment risk than for obligations in
higher categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one of
these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree of
speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating to
denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely repayment
of principal or interest over the term to maturity of long term debt and
preferred stock which are issued by United States commercial banks, thrifts and
non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk compared
to issues rated in the highest category.
"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned by
Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
Municipal Note Ratings
A Standard and Poor's rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" - Loans bearing this designation are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high
quality, with margins of protection ample although not so large as in the
preceding group.
"MIG-3"/"VMIG-3" - Loans bearing this designation are of favorable
quality, with all security elements accounted for but lacking the undeniable
strength of the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - Loans bearing this designation are of adequate
quality, carrying specific risk but having protection commonly regarded as
required of an investment security and not distinctly or predominantly
speculative.
"SG" - Loans bearing this designation are of speculative quality and
lack margins of protection.
Fitch and Duff & Phelps use the short-term ratings described under
Commercial Paper Ratings for municipal notes.
Exhibit 17.4 to Form N-14
PACIFIC HORIZON FUNDS, INC.
Horizon Shares and
Horizon Service Shares
of the
Prime Fund, Treasury Fund, Government Fund,
Treasury Only Fund, Tax-Exempt Money Fund,
California Tax-Exempt Money Market Fund
and Prime Value Fund
July 1, 1995
Statement Of Additional Information
TABLE OF CONTENTS
PAGE
The Company 3
Investment Objectives and Policies 3
Purchase and Redemption of Shares 43
Management of the Funds 46
Taxes 64
Yield Information 69
General Information 72
Appendix A A-1
- -------------------------
This Statement of Additional Information applies to the Horizon
Shares and Horizon Service Shares of the Prime Fund, Treasury Fund, Government
Fund, Treasury Only Fund, Tax-Exempt Money Fund and Prime Value Fund and the
Horizon Service Shares of the California Tax-Exempt Money Market Fund (the
"Funds") of Pacific Horizon Funds, Inc. (the "Company"). This Statement of
Additional Information is meant to be read in conjunction with the prospectuses
dated July 1, 1995 with respect to Horizon Shares and Horizon Service Shares of
the Prime, Treasury, Government, Treasury Only, Tax-Exempt Money and Prime Value
Funds, and the Horizon Service Shares of the California Tax-Exempt Money Market
Fund, as the same may from time to time be revised (individually, a "Prospectus"
and collectively, the "Prospectuses"), and is incorporated by reference in its
entirety into each such Prospectus. No Horizon Shares are offered in the
California Tax-Exempt Money Market Fund. Because this Statement of Additional
Information is not itself a Prospectus, no investment in shares of any Fund
should be made solely upon the information contained herein. Copies of the
Prospectuses relating to the Company's Horizon and Horizon Service Shares may be
obtained by calling Concord Financial Group, Inc. at (800) 426-3863.
Capitalized terms used but not defined herein have the same meanings as in the
Prospectuses.
THE COMPANY
The Company was organized on October 27, 1982 as a Maryland
corporation and commenced operations on March 30, 1984. On January 19, 1990 the
Prime Fund and Treasury Fund of The Horizon Funds, a Massachusetts business
trust (sometimes called the "Predecessor Prime Fund" and "Predecessor Treasury
Fund," respectively), were combined with the Money Market Portfolio and
Government Money Market Portfolio, respectively, of the Company; the Company
changed the names of its resulting portfolios to "Prime Fund" and "Treasury
Fund"; and the Company began offering Horizon Shares and Horizon Service Shares
in such Funds. On January 19, 1990 the Tax-Exempt Money Fund of The Horizon
Funds (the "Predecessor Tax-Exempt Fund") was reorganized as a new portfolio of
the Company. Each of these three Predecessor Funds originally commenced
operations on July 10, 1987. The California Tax-Exempt Money Market Fund
commenced operations on December 6, 1989 by offering a single series of shares
known as Pacific Horizon Shares and began offering Horizon Service Shares on
March 1, 1993. The Government Fund and Treasury Only Fund commenced operations
on June 4, 1990 as separate investment portfolios (the "Predecessor Government
Funds" and "Predecessor Treasury Only Funds," respectively) of First Cash Funds
of America and First Funds of America, which were organized as Massachusetts
business trusts. On March 1, 1993, the Predecessor Government Funds and
Predecessor Treasury Only Funds were reorganized as new portfolios of the
Company. Prior to this reorganization, these Predecessor Funds offered and sold
shares of beneficial interest that were similar to the Company's Horizon Service
and Pacific Horizon Shares. The Prime Value Fund commenced operations on March
16, 1993 by offering a single series of shares known as Pacific Horizon Shares
and began offering Horizon Shares on May 16, 1994.
The Company offers other classes and series of shares, including
Pacific Horizon Shares, in the aforementioned Funds and in other investment
portfolios which are described in separate Prospectuses and Statements of
Additional Information. For information concerning these other shares contact
the Distributor at the telephone number stated on the cover page of this
Statement of Additional Information.
INVESTMENT OBJECTIVES AND POLICIES
The Prospectus for each Fund describes the investment objective of
the Fund to which it applies. The following information supplements the
descriptions of the investment objective and policies in the Prospectuses for
the Funds.
Portfolio Transactions
Subject to the general control of the Company's Board of Directors,
Bank of America National Trust and Savings Association ("Bank of America") is
responsible for, makes decisions with respect to and places orders for all
purchases and sales of portfolio securities for each Fund. Securities purchased
and sold by each Fund are generally traded in the over-the-counter market on a
net basis (i.e., without commission) through dealers, or otherwise involve
transactions directly with the issuer of an instrument. During their last three
fiscal periods, the Prime Fund, Treasury Fund, Government Fund, Treasury Only
Fund, Tax-Exempt Money Fund and California Tax-Exempt Money Market Fund did not
pay any brokerage commissions. In addition, during the period March 16, 1993
(commencement of operations) through February 28, 1994 and the fiscal year ended
February 28, 1995, the Prime Value Fund did not pay any brokerage commissions.
The cost of securities purchased by the Funds from underwriters generally
includes an underwriting commission or concession, and the prices at which
securities are purchased from and sold to dealers include a dealer's mark-up or
mark-down.
In executing portfolio transactions and selecting brokers or
dealers, it is the Company's policy to seek the best overall terms available.
The investment advisory agreement between the Company and Bank of America
provides that, in assessing the best overall terms available for any
transaction, Bank of America shall consider factors it deems relevant, including
the breadth of the market in the security, the price of the security, the
financial condition and execution capability of the broker or dealer, and the
reasonableness of the commission, if any, for the specific transaction and on a
continuing basis. In addition, the investment advisory agreement authorizes
Bank of America, subject to the approval of the Company's Board of Directors, to
cause the Company to pay a broker-dealer which furnishes brokerage and research
services a higher commission than that which might be charged by another broker-
dealer for effecting the same transaction, provided that such commission is
deemed reasonable in terms of either that particular transaction or the overall
responsibilities of Bank of America to the particular Fund and the Company.
Brokerage and research services may include: (1) advice as to the value of
securities, the advisability of investing in, purchasing or selling securities
and the availability of securities or purchasers or sellers of securities, and
(2) analyses and reports concerning industries, securities, economic factors and
trends, portfolio strategy and the performance of accounts.
The Directors will periodically review the commissions paid by the
Company to consider whether the commissions, if any, paid over representative
periods of time appear to be reasonable in relation to the benefits inuring to
the Company. It is possible that certain of the supplementary research or other
services received will primarily benefit one or more other investment companies
or other accounts for which investment discretion is exercised. Conversely, the
Company or any given Fund may be the primary beneficiary of the research or
services received as a result of portfolio transactions effected for such other
accounts or investment companies.
Brokerage or research services so received are in addition to and
not in lieu of services required to be performed by Bank of America and do not
reduce the advisory fee payable to Bank of America by the Company. Such
services may be useful to Bank of America in serving both the Company and other
clients and, conversely, supplemental information obtained by the placement of
business of other clients may be useful to Bank of America in carrying out its
obligations to the Company. The Company will not acquire certificates of
deposit or other securities issued by Bank of America or its affiliates, and
will give no preference to certificates of deposit or other securities issued by
Shareholder Organizations. In addition, portfolio securities in general will be
purchased from and sold to Bank of America, Concord Financial Group, Inc. (the
"Distributor") and their affiliates acting as principal underwriter, syndicate
member, market-maker, dealer, broker or in any other similar capacity, provided
such purchase, sale or dealing is permitted under the investment Company Act of
1940 and the rules thereunder.
A Fund's annual portfolio turnover rate is calculated by dividing
the lesser of purchases or sales of portfolio securities for the year by the
monthly average value of the Fund's portfolio securities. The calculation
excludes all securities the maturities of which at the time of acquisition were
thirteen months or less. There is not expected to be any portfolio turnover for
the Funds for regulatory reporting purposes.
A Fund may participate, if and when practicable, in bidding for the
purchase of securities directly from an issuer in order to take advantage of the
lower purchase price available to members of a bidding group. Any such Fund
will engage in this practice only when Bank of America, in its sole discretion,
subject to guidelines adopted by the Board of Directors, believes such practice
to be in the Fund's interest.
Subsequent to its purchase by a Fund, an issue of securities may
cease to be rated or its rating may be reduced below the minimum rating required
for purchase by the Fund. The Board of Directors or Bank of America, pursuant
to guidelines established by the Board, will promptly consider such an event in
determining whether the Fund involved should continue to hold the obligation,
but will only continue to hold the obligation if retention is in accordance with
the interests of the Fund and applicable regulations of the Securities and
Exchange Commission. In addition, it is possible that unregistered securities
purchased by a Fund in reliance upon Rule 144A under the Securities Act of 1933
could have the effect of increasing the level of the Fund's illiquidity to the
extent that qualified institutional buyers become, for a period, uninterested in
purchasing these securities.
To the extent permitted by law, Bank of America may aggregate the
securities to be sold or purchased for a Fund with those to be sold or purchased
for other investment companies or common trust funds in order to obtain best
execution.
The Company is required to identify any securities of its regular
brokers or dealers (as defined in Rule 10b-1 under the Investment Company Act of
1940) or their parents held by the Company as of the close of its most recent
fiscal year. As of February 28, 1995: (a) the Treasury Fund held the following
securities, Repurchase Agreement with Goldman, Sachs & Co. in the principal
amount of $95,000,000; Repurchase Agreement with Merrill Lynch Government
Securities, Inc. in the principal amount of $95,000,000; (b) the Prime Fund held
the following securities, Merrill Lynch & Co., Inc., commercial paper in the
principal amount of $l00,000,000; Goldman, Sachs Group L.P., Daily Variable Rate
Master Note in the principal amount of $120,000,000; Morgan Stanley Group, Inc.,
Daily Variable Rate Master Note in the principal amount of $120,000,000; Bear
Stearns Co., Inc., Series B, Monthly Variable Rate Note in the principal amount
of $100,000,000; Repurchase Agreement with Goldman, Sachs & Co. in the principal
amount of $120,000,000; (c) the Government Fund held the following securities,
Repurchase Agreement with Goldman, Sachs & Co. in the principal amount of
$40,000,000; Repurchase Agreement with Merrill Lynch Government Securities, Inc.
in the principal amount of $40,000,000; and (d) the Prime Value Fund held the
following securities, Merrill Lynch & Co., Inc., commercial paper in the
principal amount of $7,000,000; Goldman, Sachs Group L.P., Daily Variable Rate
Master Note in the principal amount of $7,000,000; Repurchase Agreement with
Dean Witter Reynolds, Inc. in the principal amount of $8,000,000; Repurchase
Agreement with Goldman, Sachs & Co. in the principal amount of $8,000,000.
Merrill Lynch & Co., Inc., Goldman, Sachs & Co., Bear Stearns Co., Inc., Morgan
Stanley & Co. Incorporated, Shearson Lehman Brothers, Inc., Dean Witter
Reynolds, Inc. and Paine Webber are considered to be regular brokers and dealers
of the Company.
Portfolio Instruments
Certificates of Deposit, Bankers' Acceptances, Commercial Paper and
Short-Term Notes. Certificates of deposit are negotiable certificates issued
against funds deposited in a commercial bank for a definite period of time and
earning a specific return. Bankers' acceptances are negotiable deposits or
bills of exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank (meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument at maturity).
Certificates of deposit and bankers' acceptances acquired by a Fund will be
dollar-denominated obligations of domestic or foreign banks having total assets
at the time of purchase (including assets of both domestic and foreign branches)
in excess of $2.5 billion ($1 billion in the case of the Prime Value Fund).
Commercial paper consists of unsecured promissory notes issued by corporations.
Short-term notes acquired by a Fund may be issued by commercial or investment
banking firms, financing companies or industrial or manufacturing concerns.
Commercial paper and short-term notes, except for variable and floating rate
instruments, will normally have maturities of nine months or less and fixed
rates of return, although such instruments may have maturities of up to thirteen
months. Commercial paper and short-term notes will consist of issues which,
with respect to the Prime, Treasury, Tax-Exempt Money and Prime Value Funds are
"First Tier Securities" as defined by the Securities and Exchange Commission
and, with respect to the California Tax-Exempt Money Market Fund are "Eligible
Securities" as defined by the Securities and Exchange Commission. During
temporary defensive periods or if in the investment adviser's opinion suitable
First Tier Securities are not available for investment, the Tax-Exempt Money
Fund may also acquire "Eligible Securities" as defined by the Securities and
Exchange Commission. First Tier Securities consist of instruments that are
either rated at the time of purchase in the top rating category by one or more
unaffiliated nationally recognized statistical rating organizations ("NRSROs")
or issued by issuers with such ratings. Eligible Securities consist of
instruments that are either rated at the time of purchase in the top two rating
categories by one or more unaffiliated NRSROs or issued by issuers with such
ratings. See the Appendix to this Statement of Additional Information for a
description of the applicable NRSRO ratings. Unrated instruments (including
instruments with long-term but no short-term ratings) purchased by a Fund will
be of comparable quality as determined by Bank of America pursuant to guidelines
approved by the Board of Directors and Bank of America.
A Fund holding Euro CDs, Yankee CDs, Yankee BAs, commercial paper or
other obligations of foreign issuers may be subject to investment risks that are
different in some respects from those incurred by a Fund which invests only in
obligations of domestic issuers. Such risks include future political and
economic developments, the possible imposition of withholding taxes by the
particular country in which the issuer is located on interest income payable on
the securities, the possible seizure or nationalization of foreign deposits, the
possible establishment of exchange controls or the adoption of other foreign
governmental restrictions which might adversely affect the payment of principal
and interest on these securities.
Domestic banks and foreign banks are subject to different
governmental regulations with respect to the amount and types of loans which may
be made and interest rates which may be charged. In addition, the profitability
of the banking industry is dependent largely upon the availability and cost of
funds for the purpose of financing lending operations under prevailing money
market conditions. General economic conditions as well as exposure to credit
losses arising from possible financial difficulties of borrowers play an
important part in the operations of the banking industry.
As a result of federal and state laws and regulations, domestic
banks are, among other things, required to maintain specified levels of
reserves, limited in the amount which they can loan to a single borrower, and
subject to other regulations designed to promote financial soundness. However,
such laws and regulations do not necessarily apply to the Euro CDs, Yankee CDs,
Yankee BAs and other foreign bank obligations that a Fund may acquire.
U.S. Government Obligations. Obligations of the U.S. Government and
its agencies and instrumentalities include Treasury bills, certificates of
indebtedness, notes and bonds, Treasury strips, and issues of such entities as
the Federal Home Loan Banks, Federal Land Banks, Federal Housing Administration,
Farmers Home Administration, Export-Import Bank of the United States, Small
Business Administration, Government National Mortgage Association, General
Services Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks, Maritime Administration, Resolution Funding Corporation, Tennessee
Valley Authority and Federal National Mortgage Association. The Prime,
Treasury, Tax-Exempt Money and California Tax-Exempt Money Market Funds will not
acquire obligations issued by the International Bank for Reconstruction and
Development, the Asian Development Bank or the Inter-American Development Bank;
however, the Government, Treasury Only and Prime Value Funds may acquire such
obligations in accordance with their investment policies.
Government National Mortgage Association ("GNMA") certificates are
U.S. Government agency mortgage-backed securities representing part ownership of
a pool of mortgage loans. These loans, issued by lenders such as mortgage
bankers, commercial banks and savings and loan associations, are either insured
by the Federal Housing Administration or guaranteed by the Veterans
Administration. A "pool" or group of such mortgages is assembled and, after
being approved by GNMA, is offered to investors through securities dealers.
Once approved by GNMA, the timely payment of interest and principal on each
mortgage is guaranteed by GNMA and backed by the full faith and credit of the
U.S. Government. GNMA certificates differ from bonds in that principal is paid
back monthly by the borrower over the term of the loan rather than returned in a
lump sum at maturity. GNMA certificates are called "pass-through" securities
because both interest and principal payments (including prepayments) are passed
through to the holder of the certificate. In addition to GNMA certificates,
mortgage-backed securities issued by the Federal National Mortgage Association
("FNMA") and by the Federal Home Loan Mortgage Corporation ("FHLMC") may also be
acquired. Securities issued and guaranteed by FNMA and FHLMC are not backed by
the full faith and credit of the United States. If either fixed or variable
rate pass-through securities issued by the U.S. Government or its agencies or
instrumentalities are developed in the future, the Prime, Government, Tax-Exempt
Money, California Tax-Exempt Money Market and Prime Value Funds reserve the
right to invest in them, after making appropriate disclosure to investors.
Certain securities issued by all governmental agencies may be prepaid.
Prepayment of mortgages underlying most mortgage-backed securities may reduce
their current yield and total return. During periods of declining interest
rates, such prepayments can be expected to accelerate and the Funds would be
required to reinvest the proceeds at the lower interest rates then available.
Variable and Floating Rate Instruments. The Funds may acquire
variable and floating rate instruments as described in their Prospectuses.
Variable and floating rate instruments are frequently not rated by credit rating
agencies; however, unrated variable and floating rate instruments purchased by a
Fund will be determined by the investment adviser under guidelines established
by the Company's Board of Directors to be of comparable quality at the time of
purchase to rated instruments eligible for purchase by such Fund. In making
such determinations, the investment adviser will consider the earning power,
cash flows and other liquidity ratios of the issuers of such instruments (such
issuers include financial, merchandising, bank holding and other companies) and
will continuously monitor their financial condition. There may not be an active
secondary market with respect to a particular variable or floating rate
instrument purchased by a Fund. The absence of such an active secondary market
could make it difficult for a Fund to dispose of the variable or floating rate
instrument involved. In the event the issuer of the instrument defaulted on its
payment obligations, the Fund involved could, for this or other reasons, suffer
a loss to the extent of the default. Variable and floating rate instruments may
be secured by bank letters of credit and may have maturities of more than
thirteen months. In determining a Fund's average weighted maturity and whether
a variable or floating rate instrument has a remaining maturity of thirteen
months or less, each variable rate instrument having a demand feature that
entitles the Fund to receive the principal amount thereof at any time, or at
specified intervals not exceeding thirteen months, in each case on not more than
thirty days' notice, shall be deemed by the Company to have a maturity equal to
the longer of the period remaining until its next interest rate adjustment or
the period remaining until the principal amount can be recovered through demand;
each variable rate instrument not having such a demand feature but having a
stated maturity of thirteen months or less or issued or guaranteed by the U.S.
Government or its agencies will be deemed to have a maturity equal to the period
remaining until the next interest rate adjustment; each floating rate instrument
having a demand feature that entitles the Fund to receive the principal amount
thereof at any time, or at specified intervals not exceeding thirteen months, in
each case on not more than thirty days' notice, shall be deemed to have a
maturity equal to the period of time remaining until the principal amount owed
can be recovered through demand. Variable and floating rate instruments which
are not payable upon seven days' notice and which do not have an active trading
market are considered illiquid securities.
Ratings and Issuer's Obligations. The ratings of Moody's Investors
Service, Inc. ("Moody's"), Standard & Poor's Ratings Group, Division of McGraw
Hill ("S&P"), Duff & Phelps Credit Rating Co. ("D&P"), Fitch Investors Service,
Inc. ("Fitch"), Thomson Bankwatch, Inc. ("Thomson") and IBCA Limited and IBCA
Inc. ("IBCA") represent their opinions as to the quality of debt securities.
However, ratings are general and are not absolute standards of quality, and debt
securities with the same maturity, interest rate and rating may have different
yields while debt securities of the same maturity and interest rate with
different ratings may have the same yield.
An issuer's obligations under its debt securities are subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Code and laws which may be
enacted by federal or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations or, in the case of governmental entities, upon the ability
of such entities to levy taxes. The power or ability of an issuer to meet its
obligations for the payment of interest on, and principal of, its debt
securities may be materially adversely affected by litigation or other
conditions.
Municipal Securities. Substantially all of the assets of the Tax-
Exempt Money Fund and primarily all of the assets of the California Tax-Exempt
Money Market Fund are invested in "Municipal Securities" (securities issued by
or on behalf of states, territories and possessions of the United States, the
District of Columbia and their political subdivisions, authorities, agencies and
instrumentalities, the interest on which is exempt from regular Federal income
tax in the opinion of bond counselor to the issuer). The Tax-Exempt Money Fund
may concentrate more than 25% of its assets in California Municipal Securities
and the California Tax-Exempt Money Market Fund intends that under normal market
conditions at least 80% of its net assets will be invested in California
Municipal Securities. Although the Prime and Prime Value Funds are also
authorized to invest in Municipal Securities under certain circumstances, no
more than 5% of the value of such Funds' respective net assets will be so
invested at any one time. (The purchase of Municipal Securities by the Prime
and Prime Value Funds may be advantageous when, as a result of prevailing
economic, regulatory or other circumstances, the yield on such securities, on a
pre-tax basis, is comparable to that of other short-term money market
instruments that these Funds may purchase. Dividends paid by the Prime and
Prime Value Funds that are derived from interest on Municipal Securities would
be taxable to a Fund's shareholders for federal income tax purposes.)
Municipal Securities include debt obligations issued by governmental
entities to obtain funds for various public purposes, including the construction
of a wide range of public facilities, the refunding of outstanding obligations,
the payment of general operating expenses and the extension of loans to public
institutions and facilities. In addition certain types of private activity
bonds are issued by or on behalf of public authorities to finance various
privately-operated facilities. Municipal Securities also include short-term tax
anticipation notes, bond anticipation notes, revenue anticipation notes and
other forms of short-term loan obligations. Such notes are issued with a short-
term maturity in anticipation of the receipt of tax funds, the proceeds of bond
placements or other revenues.
There are variations in the quality of Municipal Securities between
classifications (such as general obligation, revenue and moral obligation
issues) and within a particular classification, and the yields on Municipal
Securities depend upon a variety of factors, including general money market
conditions, the financial condition of the issuer, general conditions of the
municipal bond market, the size of a particular offering, the maturity of the
obligation and the rating of the issue. It should also be noted, with respect
to all Municipal Securities issued after August 15, 1986 (August 31, 1986 in the
case of certain bonds), that the issuer must comply with certain rules formerly
applicable only to "industrial development bonds" which, if the issuer fails to
observe them, could cause interest on the Municipal Securities to become taxable
retroactive to the date of issue.
The payment of principal and interest on most Municipal Securities
purchased by the Funds will depend upon the ability of the issuers to meet their
obligations. The District of Columbia, each state, each of their political
subdivisions, agencies, instrumentalities and authorities and each multi-state
agency of which a state is a member is a separate "issuer" as that term is used
in this Statement of Additional Information and the Prospectuses. The non-
governmental user of facilities financed by private activity bonds is also
considered to be an "issuer."
From time to time proposals have been introduced before Congress for
the purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Securities. For example, pursuant to federal tax
legislation passed in 1986, interest on certain private activity bonds must be
included in an investor's federal alternative minimum taxable income, and
corporate investors must include all tax-exempt interest in their federal
alternative minimum taxable income. (See the relevant Funds' Prospectuses under
"Taxes.") The Funds cannot predict what legislation, if any, may be proposed in
Congress or in the California legislature in the future as regards the federal
and California state personal income tax status of interest on Municipal
Securities in general, or California Municipal Securities in particular, or
which proposals, if any, might be enacted. Such proposals, if enacted, might
materially adversely affect the availability of Municipal Securities (and
California Municipal Securities) for investment by the Tax-Exempt Money Fund and
the California Tax-Exempt Money Market Fund and the liquidity and value of such
Funds' portfolios. In such an event the Board of Directors would reevaluate the
Funds' investment objectives and policies and consider changes in their
structure or possible dissolution.
Repurchase Agreements. The Prime Fund, Treasury Fund, Government
Fund, Tax-Exempt Money Fund, California Tax-Exempt Money Market Fund and Prime
Value Fund may enter into repurchase agreements with respect to their portfolio
securities as indicated in their Prospectuses. Pursuant to such agreements, a
Fund purchases securities from financial institutions such as banks and broker-
dealers which are deemed to be creditworthy by the investment adviser under
guidelines approved by the Board of Directors, subject to the seller's agreement
to repurchase and the Fund's agreement to resell such securities at a specified
date and price. No Fund will enter into repurchase agreements with Bank of
America or Bank of America's affiliates, nor will any Fund give preference to
repurchase agreements with Shareholder Organizations. The repurchase price
generally equals the price paid by the Fund plus interest negotiated on the
basis of current short-term rates (which may be more or less than the rate on
the underlying portfolio security). Securities subject to repurchase agreements
will be held by the Funds' custodian or a sub-custodian or in the Federal
Reserve/Treasury book-entry system, and a Fund will make payment for such
securities only upon receipt of evidence of physical delivery of the securities
or of such book entry. The seller under a repurchase agreement will be required
to maintain the value of the underlying securities at not less than 102% of the
repurchase price under the agreement. If the seller defaulted on its repurchase
obligation, the Fund holding the repurchase agreement would suffer a loss to the
extent that the proceeds from a sale of the underlying securities were less than
the repurchase price under the agreement. Bankruptcy or insolvency of such a
defaulting seller may cause the particular Fund's rights with respect to such
securities to be delayed or limited. Repurchase agreements are considered to be
loans by a Fund under the Investment Company Act of 1940.
Reverse Repurchase Agreements. The Funds may also enter into
reverse repurchase agreements with respect to their securities. Whenever a Fund
enters into a reverse repurchase agreement, it will place in a segregated
account maintained with its custodian liquid assets such as cash, U.S.
Government securities and other liquid high-grade debt securities having a value
equal to the repurchase price (including accrued interest) and will subsequently
monitor the account for maintenance of such equivalent value. Reverse
repurchase agreements are considered to be borrowings by a Fund under the
Investment Company Act of 1940.
Investment Practices
When-Issued Securities, Forward Commitments and Delayed Settlements.
The Funds may purchase securities on a "when-issued," forward commitment or
delayed settlement basis (i.e., for delivery beyond the normal settlement date
at a stated price and yield). When a Fund agrees to purchase securities on a
when-issued, forward commitment or delayed settlement basis, its custodian will
set aside cash or liquid portfolio securities equal to the amount of the
commitment in a separate account. Normally the custodian will set aside
portfolio securities to satisfy a purchase commitment, and in such a case a Fund
may be required subsequently to place additional assets (cash or liquid
securities) in the separate account so that the value of the account remains
equal to the amount of such Fund's commitment. The Funds do not intend to
engage in these transactions for speculative purposes but only in furtherance of
their investment objectives. Because a Fund will set aside cash or liquid
investments to satisfy its purchase commitments in the manner described, the
Fund's liquidity and the ability of the investment adviser to manage it may be
affected in the event the Fund's forward commitments, commitments to purchase
when-issued securities and delayed settlements ever exceeded 25% of the value of
its assets.
A Fund will purchase securities on a when-issued, forward commitment
or delayed settlement basis only with the intention of completing the
transaction. If deemed advisable as a matter of investment strategy, however, a
Fund may dispose of or renegotiate a commitment after it is entered into, and
may sell securities it has committed to purchase before those securities are
delivered to the Fund on the settlement date. In these cases the Fund may
realize a taxable capital gain or loss.
When a Fund engages in when-issued, forward commitment and delayed
settlement transactions, it relies on the other party to consummate the trade.
Failure of such party to do so may result in the Fund's incurring a loss or
missing an opportunity to obtain a price considered to be advantageous.
The market value of the securities underlying a when-issued
purchase, a forward commitment to purchase securities, or a delayed settlement
and any subsequent fluctuations in their market value is taken into account when
determining the market value of a Fund starting on the day the Fund agrees to
purchase the securities. The Fund does not earn interest on the securities it
has committed to purchase until they are paid for and delivered on the
settlement date.
Stand-By Commitments. The Tax-Exempt Money Fund and California Tax-
Exempt Money Market Fund may acquire "stand-by commitments" with respect to
Municipal Securities held in their respective portfolios. Under a "stand-by
commitment," a dealer agrees to purchase from a Fund, at the Fund's option,
specified Municipal Securities at a specified price.
The amount payable to the Tax-Exempt Money Fund or the California
Tax-Exempt Money Market Fund upon its exercise of a "stand-by commitment" is
normally the amortized cost of the underlying instruments plus accrued interest,
if any. "Stand-by commitments" can be acquired when the remaining maturity of
the underlying Municipal Securities is not greater than thirteen months, and are
exercisable by a Fund at any time before the maturity of such obligations. In
determining net asset value, a Fund values Municipal Securities on the basis of
amortized cost without reference to the presence of the "stand-by commitment,"
as described below. A "stand-by commitment" may be sold, transferred or
assigned by a Fund only with the instrument involved.
The Tax-Exempt Money Fund and California Tax-Exempt Money Market
Fund expect that "stand-by commitments" will generally be available without the
payment of any direct or indirect consideration. However, if necessary or
advisable, a Fund may pay for a "stand-by commitment" either separately in cash
or by paying a higher price for portfolio securities which are acquired subject
to the commitment (thus reducing the yield to maturity otherwise available for
the same securities). The total amount paid in either manner for outstanding
"stand-by commitments" held by a Fund will not exceed 1/2 of 1% of the value of
its total assets calculated immediately after each "stand-by commitment" is
acquired.
The Tax-Exempt Money Fund and California Tax-Exempt Money Market
Fund intend to enter into "stand-by commitments" only with dealers, banks and
broker-dealers which, in the investment adviser's opinion, present minimal
credit risks. A Fund's reliance upon the credit of these dealers, banks and
broker-dealers is secured by the value of the underlying Municipal Securities
that are subject to a commitment.
The Tax-Exempt Money Fund or California Tax-Exempt Money Market Fund
would acquire "stand-by commitments" solely to facilitate portfolio liquidity
and do not intend to exercise their rights thereunder for trading purposes. The
acquisition of a "stand-by commitment" would not affect the valuation or assumed
maturity of the underlying Municipal Securities, which would continue to be
valued at amortized cost in accordance with the ordinary method of valuation
employed by a Fund. "Stand-by commitments" which would be acquired by a Fund
would be valued at zero in determining net asset value. Where a Fund paid any
consideration directly or indirectly for a "stand-by commitment," its cost would
be reflected as unrealized depreciation for the period during which the
commitment was held by the Fund. "Stand-by commitments" would not affect a
Fund's average weighted maturity.
Loans of Securities. The Prime Fund, Government Fund, Treasury Only
Fund and Prime Value Fund may lend their securities to brokers, dealers and
financial institutions, provided (1) the loan is secured continuously by
collateral consisting of U.S. Government securities (U.S. Treasury securities
with respect to the Treasury Only Fund) or cash or letters of credit which is
marked to the market daily to ensure that each loan is fully collateralized at
all times; (2) the Fund involved may at any time call the loan and obtain the
return of the securities loaned within five business days; (3) the Fund will
receive any interest or dividends paid on the securities loaned; and (4) the
aggregate market value of securities loaned will not at any time exceed 30% of
the total assets of the Fund (33_% with respect to the Treasury Only Fund).
A Fund will earn income for lending its securities because cash
collateral pursuant to these loans will be invested in short term money market
instruments. In connection with lending securities, a Fund may pay reasonable
finders, administrative and custodial fees. Loans of securities involve a risk
that the borrower may fail to return the securities or may fail to provide
additional collateral.
Special Considerations Relating to California Municipal Securities
Economic Factors. The Governor's 1993-1994 Budget, introduced on
January 8, 1993, proposed general fund expenditures of $37.3 billion, with
projected revenues of $39.9 billion. To balance the budget in the face of
declining revenues, the Governor proposed a series of revenue shifts from local
government, reliance on increased federal aid, and reductions in state spending.
The Department of Finance of the State of California's May Revision
of General Fund Revenues and Expenditures (the "May Revision"), released on
May 20, 1993, projected the State would have an accumulated deficit of about
$2.75 billion by June 30, 1993, essentially unchanged from the prior year. The
Governor proposed to eliminate this deficit over an 18-month period. Unlike
previous years, the Governor's Budget and May Revision did not calculate a "gap"
to be closed, but rather set forth revenue and expenditure forecasts and
proposals designed to produce a balanced budget.
The 1993-1994 budget act (the "1993-94 Budget Act") was signed by
the Governor on June 30, 1993, along with implementing legislation. The
Governor vetoed about $71 million in spending.
The 1993-94 Budget Act was predicated on general fund revenues and
transfers estimated at $40.6 billion, $400 million below 1992-93 (and the second
consecutive year of actual decline). The principal reasons for declining
revenue were the continued weak economy and the expiration (or repeal) of three
fiscal steps taken in 1991--a half cent temporary sales tax, a deferral of
operating loss carryforwards, and repeal by initiative of a sales tax on candy
and snack foods.
The 1993-94 Budget Act also assumed special fund revenues of
$11.9 billion, an increase of 2.9 percent over 1992-93.
The 1993-94 Budget Act includes general fund expenditures of
$38.5 billion (a 6.3 percent reduction from projected 1992-93 expenditures of
$41.1 billion), in order to keep a balanced budget within the available
revenues. The 1993-94 Budget Act also included special fund expenditures of
$12.1 billion, a 4.2 percent increase. The 1993-94 Budget Act reflected the
following major adjustments:
1. Changes in local government financing to shift about
$2.6 billion in property taxes from cities, counties, special districts and
redevelopment agencies to school and community college districts, thereby
reducing general fund support by an equal amount. About $2.5 billion is
permanent, reflecting termination of the State's "bailout" of local governments
following the property tax cuts of Proposition 13 in 1978 (See "Constitutional,
Legislative and Other Factors" below).
The property tax revenue losses for cities and counties were offset
in part by additional sales tax revenues and mandate relief.
2. The 1993-94 Budget Act projected K-12 Proposition 98 funding
on a cash basis at the same per-pupil level as 1992-93 by providing schools a
$609 million loan payable from future years' Proposition 98 funds.
3. The 1993-94 Budget Act assumed receipt of about $692 million
of aid to the State from the federal government to offset health and welfare
costs associated with foreign immigrants living in the State, which would reduce
a like amount of General Fund expenditures. About $411 million of this amount
was one-time funding. Congress ultimately appropriated only $450 million.
4. Reductions of $600 million in health and welfare programs and
$400 million in support for higher education (partly offset by fee increases at
all three units of higher education) and various miscellaneous cuts (totalling
approximately $150 million) in State government services in many agencies, up to
15 percent.
5. A 2-year suspension of the renters' tax credit ($390 million
expenditure reduction in 1993-94).
6. Miscellaneous one-time items, including deferral of payment to
the Public Employees Retirement Fund ($339 million) and a change in accounting
for debt service from accrual to cash basis, saving $107 million.
The 1993-94 Budget Act contained no general fund tax/revenue
increases other than a two year suspension of the renters' tax credit. The
1993-1994 Budget Act suspended the 4
percent automatic budget reduction trigger, as
was done in 1992-1993, so cuts could be focused.
Administration reports during the course of the 1993-1994 Fiscal
Year indicated that while economic recovery appeared to have started in the
second half of the fiscal year, recessionary conditions continued longer than
had been anticipated when the 1993-1994 Budget Act was adopted. Overall,
revenues for the 1993-1994 Fiscal Year were about $800 million lower than
original projections, and expenditures were about $780 million higher, primarily
because of higher health and welfare caseloads, lower property taxes which
required greater State support for K-14 education to make up the shortfall, and
lower than anticipated federal government payments for immigration-related
costs. The reports in May and June, 1994, indicated that revenues in the second
half of the 1993-1994 Fiscal Year have been very close to the projections made
in the Governor's Budget of January 10, 1994, which is consistent with a slow
turnaround in the economy.
The Department of Finance's July 1994 Bulletin, including the final
June receipts, reported that June revenues were $114 million (2.5 percent) above
projection, with final end-of-year results at $377 million (about 1 percent)
above the May Revision projections. Part of this result was due to end-of-year
adjustments and reconciliations. Personal income tax and sales tax continued to
track projections very well. The largest factor in the higher than anticipated
revenues was from bank and corporation taxes, which were $140 million (18.4
percent) above projection in June. While the higher June receipts are reflected
in the actual 1993-94 Fiscal Year cash flow results, and help the starting cash
balance for the 1994-95 Fiscal Year, the Department of Finance has not adjusted
any of its revenue projections for the 1994-95 or 1995-96 Fiscal Years.
During the 1993-94 Fiscal Year, the State implemented the deficit
retirement plan, which was part of the 1993-94 Budget Act, by issuing $1.2
billion of revenue anticipation warrants in February 1994 maturing December 21,
1994. This borrowing reduced the cash deficit at the end of the 1993-94 Fiscal
Year. Nevertheless, because of the $1.5 billion variance from the original
1993-94 Budget Act assumptions, the
General Fund ended the fiscal year at June 30,
1994 carrying forward an accumulated deficit of approximately $2 billion.
Because of the revenue shortfall and the State's reduced internal
borrowable cash resources, in addition to the $1.2 billion of revenue
anticipation warrants issued as part of the deficit retirement plan, the State
issued an additional $2.0 billion of revenue anticipation warrants, maturing
July 26, 1994, which were needed to fund the State's obligations and expenses
through the end of the 1993-94 Fiscal Year.
On January 17, 1994, a major earthquake measuring an estimated 6.8
on the Richter Scale struck Los Angeles. Significant property damage to private
and public facilities occurred in a four-county area including northern Los
Angeles County, Ventura County, and parts of Orange and San Bernardino Counties,
which were declared as State and federal disaster areas by January 18. Current
estimates of total property damage (private and public) are in the range of $20
billion, but these estimates are still subject to change.
Despite such damage, on the whole, the vast majority of structures
in the areas, including large manufacturing and commercial buildings and all
modern high-rise offices, survived the earthquake with minimal or no damage,
validating the cumulative effect of strict building codes and thorough
preparation for such an emergency by the State and local agencies.
Damage to state-owned facilities included transportation corridors
and facilities such as Interstate Highways 5 and 10 and State Highways 14, 118
and 210. Major highways have now been reopened. The campus of California State
University at Northridge (very near the epicenter) suffered an estimated $350
million damage, resulting in temporary closure of the campus. It has reopened
using borrowed facilities elsewhere in the area and many temporary structures.
There was also some damage to the University of California at Los Angeles and to
an office building in Van Nuys (now open after a temporary closure). Overall,
except for the temporary road and bridge closures, and CSU-Northridge, the
earthquake did not and is not expected to significantly affect State government
operations.
The State in conjunction with the federal government is committed to
providing assistance to local governments, individuals and businesses suffering
damage as a result of the earthquake, as well as to provide for the repair and
replacement of State-owned facilities. The federal government will provide
substantial earthquake assistance.
The President immediately allocated some available disaster funds,
and Congress has approved additional funds for a total of at least $9.5 billion
of federal funds for earthquake relief, including assistance to homeowners and
small businesses, and costs for repair of damaged public facilities. The
Governor originally proposed that the State will have to pay about $1.9 billion
for earthquake relief costs, including a 10 percent match to some of the federal
funds, and costs for some programs not covered by the federal aid. The Governor
proposed to cover $1.05 billion of these costs from a general obligation bond
issue which was on the June 1994 ballot, but it was not approved by the voters.
The Governor subsequently announced that the State's share for transportation
projects would come from existing Department of Transportation funds (thereby
delaying other, non-earthquake related projects), that the State's share for
certain other costs (including local school building repairs) would come from
reallocating existing bond funds, and that a proposed program for homeowner and
small business aid supplemental to federal aid would have to be abandoned. Some
other costs will be borrowed from the federal government in a manner similar to
that used by the State of Florida after Hurricane Andrew; pursuant to Senate
Bill 2383, repayment will have to be addressed in 1995-96 or beyond. The 1995-
96 Governor's Budget includes $60 million as the first repayment of an estimated
$121.4 million in loans prior to June 30, 1995.
The 1994-95 Fiscal Year represents the fourth consecutive year the
Governor and Legislature were faced with a very difficult budget environment to
produce a balanced budget. Many program cuts and budgetary adjustments have
already been made in the last three years. The Governor's Budget proposal, as
updated in May and June, 1994, recognized that the accumulated deficit could not
be repaid in one year, and proposed a two-year solution. The budget proposal
sets forth revenue and expenditure forecasts and revenue and expenditure
proposals which result in operating surpluses for the budget for both 1994-95
and 1995-96, and lead to the elimination of the accumulated budget deficit,
estimated at about $1.8 billion at June 30, 1994, by June 30, 1996.
The 1994-95 Budget Act, signed by the Governor on July 8, 1994,
projects revenues and transfers of $41.9 billion, $2.1 billion higher than
revenues in 1993-94. This reflects the Administration's forecast of an
improving economy. Also included in this figure is a projected receipt of about
$360 million from the Federal Government to reimburse the State's cost of
incarcerating undocumented immigrants. The State will not know how much the
Federal Government will actually provide until the Federal FY 1995 Budget is
completed. Completion of the Federal Budget is expected by October 1994. The
Legislature took no action on a proposal in the January 1994-95 Governor's
Budget to undertake an expansion of the transfer of certain programs to
counties, which would also have transferred to counties 0.5% of the State's
current sales tax.
The 1994-95 Budget Act projects Special Fund revenues of $12.1
billion, a decrease of 2.4% from 1993-94 estimated revenues.
The 1994-95 Budget Act projects General Fund expenditures of $40.9
billion, an increase of $1.6 billion over 1993-94. The 1994-95 Budget Act also
projects Special Fund expenditures of $12.3 billion, a 4.7% decrease from 1993-
94 estimated expenditures. The principal features of the 1994-95 Budget Act
were the following:
1. Receipt of additional federal aid in 1994-95 of about $400
million for costs of refugee assistance and medical care for undocumented
immigrants, thereby offsetting a similar General Fund cost. The State
will not know how much of these funds it will receive until the Federal FY
1995 Budget is passed.
2. Reductions of approximately $1.1 billion in health and welfare
costs. A 2.3% reduction in Aid to Family with Dependent Children payments
(equal to about $56 million for the entire fiscal year) has been suspended
by court order.
3. A General Fund increase of approximately $38 million in
support for the University of California and $65 million for California
State University. It is anticipated that student fees for both the
University of California and the California State University will increase
up to 10%.
4. Proposition 98 funding for K-14 schools is increased by $526
million from 1993-94 levels, representing an increase for enrollment
growth and inflation. Consistent with previous budget agreements,
Proposition 98 funding provides approximately $4,217 per student for K-12
schools, equal to the level in the past three years.
5. Legislation enacted with the Budget clarifies laws passed in
1992 and 1993 which require counties and other local agencies to transfer
funds to local school districts, thereby reducing State aid. Some
counties had implemented a method of making such transfers which provided
less money for schools if there were redevelopment agency projects. The
new legislation bans this method of transfer. If all counties had
implemented this method, General Fund aid to K-12 schools would have been
$300 million higher in each of the 1994-95 and 1995-96 Fiscal Years.
6. The 1994-95 Budget Act provides funding for anticipated growth
in the State's prison inmate population, including provisions for
implementing recent legislation (the so-called "Three Strikes" law) which
requires mandatory life prison terms for certain third-time felony
offenders.
7. Additional miscellaneous cuts ($500 million) and fund
transfers ($255 million) totalling in the aggregate approximately $755
million.
The 1994-95 Budget Act contains no tax increases. Under legislation
enacted for the 1993-94 Budget, the renters' tax credit was suspended for two
years (1993 and 1994). A ballot proposition to permanently restore the renters'
tax credit after this year failed at the June, 1994 election. The Legislature
enacted a further one-year suspension of the renters' tax credit, for 1995,
saving about $390 million in the 1995-96 Fiscal Year.
The 1994-95 Budget assumed that the State will use a cash flow
borrowing program in 1994-95 which combines one-year notes and two-year
warrants, which have now been issued. Issuance of warrants allows the State to
defer repayment of approximately $1.0 billion of its accumulated budget deficit
into the 1995-96 Fiscal Year.
The State's cash flow management plan for the 1994-95 fiscal year
included the issuance of $4.0 billion of revenue anticipation warrants on July
26, 1994, to mature on April 25, 1996, as part of a two-year plan to retire the
accumulated State budget deficit.
Because preparation of cash flow estimates for the 1995-96 Fiscal
Year necessarily entails greater risks of variance from assumptions, and because
the Governor's two-year budget plan assumes receipt of a large amount of federal
aid in the 1995-96 Fiscal Year for immigration-related costs which is uncertain,
the Legislature enacted a backup budget adjustment mechanism to mitigate
possible deviations from projected revenues, expenditures or internal borrowable
resources which might reduce available cash resources during the two-year plan,
so as to assure repayment of the warrants.
Pursuant to Section 12467 of the California Government Code, enacted
by Chapter 135, Statutes of 1994 (the "Budget Adjustment Law"), the State
Controller was required to make a report by November 15, 1994 on whether the
projected cash resources for the General Fund as of June 30, 1995 will decrease
more than $430 million from the amount projected by the State in its official
statement in July, 1994 for the sale of $4,000,000,000 of Revenue Anticipation
Warrants. On November 15, 1994, the State Controller issued the report on the
State's cash position required by the Budget Adjustment Law. The report
indicated that the cash position of the General Fund on June 30, 1995 would be
$581 million better than was estimated in the July, 1994 cash flow projections
and therefore, no budget adjustment procedures will be invoked for the 1994-95
Fiscal Year. As explained earlier, the Law would only be implemented if the
State Controller estimated that borrowable resources on June 30, 1995 would be
at least $430 million lower than projected.
The State Controller's report identified a number of factors which
have led to the improved cash position of the State. Estimated revenues and
transfers for the 1994-95 Fiscal Year other than federal reimbursement for
immigration costs were up about $650 million. The largest portion of this was
in higher bank and corporation tax receipts, but all major tax sources were
above original projections. However, most of the federal immigration aid
revenues projected in connection with the 1994-95 Budget Act and in the July,
1994 cash flows will not be received, as indicated above, leaving a net increase
in revenues of $322 million.
On the expenditure side, the State Controller reported that
estimated reduced caseload growth in health and welfare programs, reduced school
enrollment growth, and an accounting adjustment reducing a transfer from the
General Fund to the Special Fund for Economic Uncertainties resulted in overall
General Fund expenditure reductions (again before adjusting for federal aid) of
$672 million. However, the July, 1994 cash flows projected that General Fund
health and welfare and education expenditures would be offset by the anticipated
receipt of $407 million in federal aid for illegal immigrant costs. The State
Controller now estimates that none of these funds will be received, so the net
reduction in General Fund expenditures is $265 million.
Finally, the State Controller indicated that a review of balances in
special funds available for internal borrowing resulted in an estimated
reduction of such borrowable resources of $6 million. The combination of these
factors results in the estimated improvement of the General Fund's cash position
of $581 million. The State Controller's revised cash flow projections for 1994-
95 have allocated this improvement to two line items: an increase from $0 to
$427 million in the estimated ending cash balance of the General Fund on June
30, 1995, and an increase in unused borrowable resources of $154 million.
The State Controller's report indicated that there was no
anticipated cash impact in the 1994-95 Fiscal Year for recent initiatives on
"three strikes" criminal penalties and illegal immigration which were approved
by voters on November 8, 1994. At a hearing before a committee of the
Legislature on November 15, 1994, both the Legislative Analyst and the
Department of Finance concurred in the reasonableness of the State Controller's
report. (The Legislative Analyst had issued a preliminary analysis on November
1, 1994 which reached a conclusion very close to that of the State Controller.)
The State Controller's report makes no projections about whether the Law may
have to be implemented in 1995-96. However, both the State Controller and the
Legislative Analyst in the November 15 hearing noted that the July, 1994 cash
flows for the 1995-96 Fiscal Year place continued reliance on large amounts of
federal assistance for immigration costs, which did not materialize this year,
indicating significant budget pressures for next year. The Department of
Finance indicated that the budgetary issues identified in the hearing would be
addressed in the Governor's Budget proposal for the 1995-96 Fiscal Year, which
was released in early January, 1995.
The 1995-96 Governor's Budget, discussed below, contains a
reforecast of revenues and expenditures for the 1994-95 Fiscal Year. The
Department of Finance Bulletins for February and March 1995 report that combined
General Fund revenues for February, 1995 were about $356 million below forecast,
but combined revenues for January and February were only about $82 million (or
0.3 percent) below the 1995-96 Governor's Budget forecast. The largest
component of the decrease is attributable to personal income tax receipts, which
were about $131 million (or 1.1 percent) below the two months' forecast. This
decrease in personal income tax receipts appears to be largely attributable to
fourth quarter 1994 activity, probably in the anticipation of tax reform, with
some taxpayers shifting income into 1995 to the extent possible. The
withholding component comprised $77 million of this shortfall, but the
Department of Finance does not yet view this as significant. Additionally,
sales and use tax receipts were very close to forecast for the two-month period,
while bank and corporation tax receipts were about $42 million (or 1.5 percent)
below the two months' forecast. Miscellaneous revenues were about $117 million
(or 6.2 percent) above forecast for the two months, but the Department of
Finance is not yet able to determine whether this gain is real, or is instead
attributable to cash flow factors.
Initial analysis of the federal Fiscal Year 1995 budget by the
Department of Finance indicates that about $98 million was appropriated for
California to offset costs of incarceration of undocumented and refugee
immigrants, less than the $356 million which was assumed in the State's 1994-95
Budget Act. Because of timing considerations in applying for these federal
funds, the Department estimates that about $33 million of these funds will be
received during the State's 1994-95 Fiscal Year, with the balance received in
the following fiscal year. It does not appear that the federal budget contains
any of the additional $400 million in funding for refugee assistance and health
costs which were also assumed in the 1994-95 Budget Act, but the Department
expects the State to continue its efforts to obtain some or all of these federal
funds.
On January 10, 1995, the Governor presented his 1995-96 Fiscal Year
Budget Proposal (the "Proposed Budget"). The Proposed Budget estimates General
Fund revenues and transfers of $42.5 billion (an increase of 0.2 percent over
1994-95). This nominal increase from the 1994-95 Fiscal Year reflects the
Governor's realignment proposal and the first year of his tax cut proposal (see
principal features of the Proposed Budget below for further discussions).
Without these two proposals, General Fund revenues would be projected at
approximately $43.8 billion, or an increase of 3.3 percent over 1994-95.
Expenditures are estimated at $41.7 billion (essentially unchanged from 1994-
95). Special Fund revenues are estimated at $13.5 billion (10.7 percent higher
than 1994-95) and Special Fund expenditures are estimated at $13.8 billion (12.2
percent higher than 1994-95). The Proposed Budget projects that the General
Fund will end the fiscal year at June 30, 1996 with a budget surplus in the
Special Fund for Economic Uncertainties of about $92 million, or less than 1
percent of General Fund expenditures, and will have repaid all of the
accumulated budget deficits.
The following are the principal features of the Proposed Budget:
1. The principal feature of the Proposed Budget is a proposed 15
percent cut in personal income and corporate tax rates, which would be
phased in at 5 percent per year starting in 1996. Existing personal
income tax rates, which are scheduled to drop from 11 percent top rate to
9.3 percent in 1996, would be continued during the time the overall tax
cut takes effect. This proposal would reduce General Fund revenues by
$225 million in 1995-96, but the revenue reduction would reach $3.6
billion by 1998-99.
2. The Governor has proposed an expansion of the realignment
program between the State and counties, so that counties will take on
greater responsibility for welfare and social services, while the State
will take on increased funding of trial court costs. The proposal
includes transfer of about $1 billion of State revenues, from sales taxes
and trial court funding moneys, to counties. The net effect of the
shifts, however, is estimated to save the General Fund about $240 million.
3. The Governor proposes further cuts in health and welfare costs
totaling about $1.4 billion. Some of these cuts would require federal
legislative approval.
4. Proposition 98 funding for schools and community colleges will
increase by about $1.2 billion, reflecting strong General Fund revenue
growth. Per-pupil expenditures are projected to increase by $61 to
$4,292. For the first time in several years, a cost-of-living increase
(2.2 percent) is added to the enrollment growth factor. The Governor
proposes to set aside about $514 million of the Proposition 98 funding
increase to repay prior years' loans from the General Fund to schools. As
the legality of these loans is currently being challenged in a lawsuit,
the Governor proposes to set the amount aside in escrow until the
litigation is resolved.
5. The Proposed Budget includes increases in funding for the
University of California ($63 million General Fund) and the California
State University system ($3 million General Fund). The Governor has
proposed a four-year funding "company" for the higher education units
which includes both annual increases in State funding and increases in
student fees.
6. The Proposed Budget assumes receipt of $830 million in new
federal aid for costs of undocumented and refugee immigrants, above
commitments already made by the federal government. This amount is much
less than an estimated $2.8 billion which had been included in the
Governor's pro-forma two-year plan from last summer.
The Proposed Budget contains a cash flow projection (based on all
the assumptions described above) which shows about $1 billion of unused
borrowable resources at June 30, 1996, providing this amount of "cushion" before
the budget "trigger" would have to be invoked.
However, a report issued by the Legislative Analyst in February,
1995 notes that the Proposed Budget is subject to a number of major risks,
including receipt of the expected federal immigration aid and other federal
actions to allow health and welfare costs, and the outcome of several lawsuits
concerning previous budget actions which the State has lost at the trial court
level, and which are under appeal. This Analyst's Report also estimates that,
despite more favorable revenues, the two-year budget estimates made in July,
1994 are about $2 billion out of balance, principally because federal
immigration aid appears likely to be much lower than previously estimated. This
shortfall is much smaller than the State has faced in recent years, and has been
addressed in the Governor's Budget.
The Director of Finance is required to include updated cash-flow
statements for the 1994-95 and 1995-96 Fiscal Years in the May revision to the
1995-96 Fiscal Year budget proposal. By June 1, 1995, the State Controller must
concur with these updated statements or provide a revised estimate of the cash
condition of the General Fund for the 1994-95 and the 1995-96 Fiscal Years. For
the 1995-96 Fiscal Year, Chapter 135 prohibits any external borrowing as of June
30, 1996, thereby requiring the State to rely solely on internal borrowable
resources, expenditure reductions or revenue increases to eliminate any
projected cash flow shortfall.
Commencing on October 15, 1995, the State Controller will, in
conjunction with the Legislative Analyst's Office, review the estimated cash
condition of the General Fund for the 1995-96 Fiscal Year. The "1996 cash
shortfall" shall be the amount necessary to bring the balance of unused
borrowable resources on June 30, 1996 to zero. On or before December 1, 1995,
legislation must be enacted providing for sufficient General Fund expenditure
reductions, revenue increases, or both, to offset any such 1996 cash shortfall
identified by the State Controller. If such legislation is not enacted, within
five days thereafter the Director of Finance must reduce all General Fund
appropriations for the 1995-96 Fiscal Year, except the Required Appropriations,
by the percentage equal to the ratio of said 1996 cash shortfall to total
remaining General Fund appropriations for the 1995-96 Fiscal Year, excluding the
Required Appropriations.
On December 6, 1994, Orange County, California and its Investment
Pool (the "Pool") filed for bankruptcy under Chapter 9 of the United States
Bankruptcy Code. Approximately 187 California public entities, substantially
all of which are public agencies within the County, are investors in the Pool.
Many of the agencies have various bonds, notes or other forms of indebtedness
outstanding, in some instances the proceeds of which have been invested in the
Pool. Such agencies also have additional funds invested in the Pool. Since the
filing, investor access to monies in the Pool has been pursuant to Court order
only and severely limited. Various investment advisors have been employed by
the County to restructure the Pool. Such restructuring has resulted in the sale
of substantially all of the Pool's portfolio resulting in losses estimated to be
approximately $1.7 billion or approximately 22% of amounts deposited by the Pool
investors, including the County. It is anticipated that such losses may result
in delays or failures of the County as well as investors in the Pool to make
scheduled debt service payments. Further, the County expects substantial budget
deficits to occur in Fiscal Year 1995 with possibly similar effects upon
operations of investors in the Pool. The County has failed to make certain
deposits to a fund for repayment of $169,000,000 aggregate principal amount of
its short term indebtedness resulting in a technical default under its note
resolution. There has been no default in payment to noteholders. Principal and
interest on such notes is due on June 30, 1995. Additionally, the County has
defaulted in its obligation to accept tenders of its $110,200,000 aggregate
principal amount of its Taxable Pension Obligation Bonds, Series B used to
finance County pension obligations. Interest at a rate set pursuant to the bond
documents has been timely paid on such Pension Bonds. Principal and interest
payments on other indebtedness of the County and the investors will come due at
various times and amounts throughout 1995 and thereafter. Both Standard & Poors
and Moody's Investors Service have suspended or downgraded ratings on various
debt securities of the County and certain of the investors in the Pool. Such
suspensions or downgradings could affect both price and liquidity of such
securities. The Fund is unable to predict when funds may be released from the
Pool to investors, the amount of such funds, if any, whether additional
technical and payment defaults by the County and/or investors in the pool may
occur and the financial impact upon the value of securities of the County and
the investors in the Pool. Further, continuing audits of various funds by
outside consultants and the State Auditor have initially identified transfers to
and among various funds as unauthorized and/or inappropriate. Such undertakings
could result in materially greater or lesser losses among the County and the
investors. The County recently filed a motion seeking Bankruptcy Court approval
of a proposed comprehensive settlement agreement ("CSA") between the County and
Pool investors. On May 2, 1995, the Bankruptcy Court approved the CSA which
among other things, (i) established a formula for distribution of all available
cash and securities from the Pool to the Pool investors, including the County,
(ii) established formulas for distribution among certain settling Pool investors
of several tranches of new County obligations to be payable from, and in some
instances secured by, certain designated sources of potential recoveries on Pool
related claims, and (iii) designated certain outstanding short term note
obligations of the County, including the Series B Pension Obligation Bonds, to
be senior to or on a parity with certain of the new County obligations.
The California Tax-Exempt Money Market Fund currently holds an
Orange County Note, with a par value of $4,500,000 that matures on August 11,
1995. The Orange County Note is supported by a Letter of Credit issued by PNC,
Bank ("PNC"). BankAmerica Corporation has agreed to reimburse PNc for any
payments PNC may make under the Letter of Credit. The Letter of Credit expires
after August 11, 1995.
Constitutional, Legislative and Other Factors. Certain California
constitutional amendments, legislative measures, executive orders,
administrative regulations and voter initiatives could result in the adverse
effects described below. The following information constitutes only a brief
summary, does not purport to be a complete description and is based on
information drawn from official statements and prospectuses relating to
securities offerings of the State of California and various local agencies in
California, available as of the date of the Tax-Exempt Money Fund's and
California Tax-Exempt Money Market Fund's Prospectus and this Statement of
Additional Information. While the Tax-Exempt Money Fund and California Tax-
Exempt Money Market Fund have not independently verified such information, they
have no reason to believe that such information is not correct in all material
respects.
Certain California Municipal Securities in the Tax-Exempt Money Fund
and California Tax-Exempt Money Market Fund may be obligations of issuers which
rely in whole or in part on California State revenues for payment of these
obligations. Property tax revenues and a portion of the State's general fund
surplus are distributed to counties, cities and their various taxing entities
and the State assumes certain obligations theretofore paid out of local funds.
Whether and to what extent a portion of the State's general fund will be
distributed in the future to counties, cities and their various entities, is
unclear.
In 1988, California enacted legislation providing for a water's-edge
combined reporting method if an election fee was paid and other conditions met.
On October 6, 1993, California Governor Pete Wilson signed Senate Bill 671
(Alquist) which modifies the unitary tax law by deleting the requirements that a
taxpayer electing to determine its income on a water's-edge basis pay a fee and
file a domestic disclosure spreadsheet and instead requiring an annual
information return. Significantly, the Franchise Tax Board can no longer
disregard a taxpayer's election. The Franchise Tax Board is reported to have
estimated state revenue losses from the Legislation as growing from $27 million
in 1993-94 to $616 million in 1999-2000, but others, including Assembly Speaker
Willie Brown, disagree with that estimate and assert that more revenue will be
generated for California, rather than less, because of an anticipated increase
in economic activity and additional revenue generated by the incentives in the
Legislation.
Certain California Municipal Securities in the Tax-Exempt Money Fund
and California Tax-Exempt Money Market Fund may be obligations of issuers who
rely in whole or in part on ad valorem real property taxes as a source of
revenue. On June 6, 1978, California voters approved an amendment to the
California Constitution known as Proposition 13, which added Article XIIIA to
the California Constitution. The effect of Article XIIIA is to limit ad valorem
taxes on real property and to restrict the ability of taxing entities to
increase real property tax revenues. On November 7, 1978, California voters
approved Proposition 8 and on June 3, 1986, the California voters approved
Proposition 46, both of which amended Article XIIIA.
Section 1 of Article XIIIA limits the maximum ad valorem tax on real
property to 1% of full cash value (as defined in Section 2), to be collected by
the counties and apportioned according to law; provided that the 1% limitation
does not apply to ad valorem taxes or special assessments to pay the interest
and redemption charges on (i) any indebtedness approved by the voters prior to
July 1, 1978, or (ii) any bonded indebtedness for the acquisition or improvement
of real property approved on or after July 1, 1978, by two-thirds of the votes
cast by the voters voting on the proposition. Section 2 of Article XIIIA
defines "full cash value" to mean "the County Assessor's valuation of real
property as shown on the 1975/76 tax bill under `full cash value' or,
thereafter, the appraised value of real property when purchased, newly
constructed, or a change in ownership has occurred after the 1975 assessment."
The full cash value may be adjusted annually to reflect inflation at a rate not
to exceed 2% per year, or reduction in the consumer price index or comparable
local data, or reduced in the event of declining property value caused by
damage, destruction or other factors. The California State Board of
Equalization has adopted regulations, binding on county assessors, interpreting
the meaning of "change in ownership" and "new construction" for purposes of
determining full cash value of property under Article XIIIA.
Legislation enacted by the California Legislature to implement
Article XIIIA (Statutes of 1978, Chapter 292, as amended) provides that
notwithstanding any other law, local agencies may not levy any ad valorem
property tax except to pay debt service on indebtedness approved by the voters
prior to July 1, 1978, and that each county will levy the maximum tax permitted
by Article XIIIA of $4.00 per $100 assessed valuation (based on the former
practice of using 25%, instead of 100%, of full cash value as the assessed value
for tax purposes). The legislation further provided that, for the 1978/79
fiscal year only, the tax levied by each county was to be apportioned among all
taxing agencies within the county in proportion to their average share of taxes
levied in certain previous years. The apportionment of property taxes for
fiscal years after 1978/79 has been revised pursuant to Statutes of 1979,
Chapter 282, which provides relief funds from State moneys beginning in fiscal
year 1979/80 and is designed to provide a permanent system for sharing State
taxes and budget funds with local agencies. Under Chapter 282, cities and
counties receive more of the remaining property tax revenues collected under
Proposition 13 instead of direct State aid. School districts receive a
correspondingly reduced amount of property taxes, but receive compensation
directly from the State and are given additional relief. Chapter 282 does not
affect the derivation of the base levy ($4.00 per $100 assessed valuation) and
the bonded debt tax rate.
On November 6, 1979, an initiative known as "Proposition 4" or the
"Gann Initiative" was approved by the California voters, which added Article
XIIIB to the California Constitution. Under Article XIIIB, State and local
governmental entities have an annual "appropriations limit" and are not allowed
to spend certain moneys called "appropriations subject to limitation" in an
amount higher than the "appropriations limit." Article XIIIB does not affect
the appropriation of moneys which are excluded from the definition of
"appropriations subject to limitation," including debt service on indebtedness
existing or authorized as of January 1, 1979, or bonded indebtedness
subsequently approved by the voters. In general terms, the "appropriations
limit" is required to be based on certain 1978/79 expenditures, and is to be
adjusted annually to reflect changes in consumer prices, population and certain
services provided by these entities. Article XIIIB also provides that if these
entities' revenues in any year exceed the amounts permitted to be spent, the
excess is to be returned by revising tax rates or fee schedules over the
subsequent two years.
At the November 8, 1988 general election, California voters approved
an initiative known as Proposition 98. This initiative amends Article XIIIB to
require that (i) the California Legislature establish a prudent state reserve
fund in an amount as it shall deem reasonable and necessary and (ii) revenues in
excess of amounts permitted to be spent and which would otherwise be returned
pursuant to Article XIIIB by revision of tax rates or fee schedules, be
transferred and allocated (up to a maximum of 4%) to the State School Fund and
be expended solely for purposes of instructional improvement and accountability.
No such transfer or allocation of funds will be required if certain designated
state officials determine that annual student expenditures and class size meet
certain criteria as set forth in Proposition 98. Any funds allocated to the
State School Fund shall cause the appropriation limits established in Article
XIIIB to be annually increased for any such allocation made in the prior year.
Proposition 98 also amends Article XVI to require that the State of
California provide a minimum level of funding for public schools and community
colleges. Commencing with the 1988-89 fiscal year, state monies to support
school districts and community college districts shall equal or exceed the
lesser of (i) an amount equalling the percentage of state general revenue bonds
for school and community college districts in fiscal year 1986-87, or (ii) an
amount equal to the prior year's state general fund proceeds of taxes
appropriated under Article XIIIB plus allocated proceeds of local taxes, after
adjustment under Article XIIIB. The initiative permits the enactment of
legislation, by a two-thirds vote, to suspend the minimum funding requirement
for one year.
On June 30, 1989, the California Legislature enacted Senate
Constitutional Amendment 1, a proposed modification of the California
Constitution to alter the spending limit and the education funding provisions of
Proposition 98. Senate Constitutional Amendment 1, on the June 5, 1990 ballot
as Proposition 111, was approved by the voters and took effect on July 1, 1990.
Among a number of important provisions, Proposition 111 recalculates spending
limits for the State and for local governments, allows greater annual increases
in the limits, allows the averaging of two years' tax revenues before requiring
action regarding excess tax revenues, reduces the amount of the funding
guarantee in recession years for school districts and community college
districts (but with a floor of 40.9 percent of State general fund tax revenues),
removes the provision of Proposition 98 which included excess moneys transferred
to school districts and community college districts in the base calculation for
the next year, limits the amount of State tax revenue over the limit which would
be transferred to school districts and community college districts, and exempts
increased gasoline taxes and truck weight fees from the State appropriations
limit. Additionally, Proposition 111 exempts from the State appropriations
limit funding for capital outlays.
Article XIIIB, like Article XIIIA, may require further
interpretation by both the Legislature and the courts to determine its
applicability to specific situations involving the State and local taxing
authorities. Depending upon the interpretation, Article XIIIB may limit
significantly a governmental entity's ability to budget sufficient funds to meet
debt service on bonds and other obligations.
On November 4, 1986, California voters approved an initiative
statute known as Proposition 62. This initiative (i) requires that any tax for
general governmental purposes imposed by local governments be approved by
resolution or ordinance adopted by a two-thirds vote of the governmental
entity's legislative body and by a majority vote of the electorate of the
governmental entity, (ii) requires that any special tax (defined as taxes levied
for other than general governmental purposes) imposed by a local governmental
entity be approved by a two-thirds vote of the voters within that jurisdiction,
(iii) restricts the use of revenues from a special tax to the purposes or for
the service for which the special tax was imposed, (iv) prohibits the imposition
of ad valorem taxes on real property by local governmental entities except as
permitted by Article XIIIA, (v) prohibits the imposition of transaction taxes
and sales taxes on the sale of real property by local governments, (vi) requires
that any tax imposed by a local government on or after August 1, 1985 be
ratified by a majority vote of the electorate within two years of the adoption
of the initiative or be terminated by November 15, 1988, (vii) requires that, in
the event a local government fails to comply with the provisions of this
measure, a reduction in the amount of property tax revenue allocated to such
local government occurs in an amount equal to the revenues received by such
entity attributable to the tax levied in violation of the initiative, and (viii)
permits these provisions to be amended exclusively by the voters of the State of
California.
In September 1988, the California Court of Appeal in City of
Westminster v. County of Orange, 204 Cal. App. 3d 623, 215 Cal. Rptr. 511 (Cal.
Ct. App. 1988), held that Proposition 62 is unconstitutional to the extent that
it requires a general tax by a general law city, enacted on or after August 1,
1985 and prior to the effective date of Proposition 62, to be subject to
approval by a majority of voters. The Court held that the California
Constitution prohibits the imposition of a requirement that local tax measures
be submitted to the electorate by either referendum or initiative. It is not
possible to predict the impact of this decision on charter cities, on special
taxes or on new taxes imposed after the effective date of Proposition 62.
On November 8, 1988, California voters approved Proposition 87.
Proposition 87 amended Article XVI, Section 16, of the California Constitution
by authorizing the California Legislature to prohibit redevelopment agencies
from receiving any of the property tax revenue raised by increased property tax
rates levied to repay bonded indebtedness of local governments which is approved
by voters on or after January 1, 1989. It is not possible to predict whether
the California Legislature will enact such a prohibition nor is it possible to
predict the impact of Proposition 87 on redevelopment agencies and their ability
to make payments on outstanding debt obligations.
Certain California Municipal Securities held by the Tax-Exempt Money
Fund and California Tax-Exempt Money Market Fund may be obligations which are
payable solely from the revenues of health care institutions. Certain
provisions under California law may adversely affect these revenues and,
consequently, payment on those Municipal Securities.
The Federally sponsored Medicaid program for health care services to
eligible welfare beneficiaries in California is known as the Medi-Cal program.
Historically, the Medi-Cal program has provided for a cost-based system of
reimbursement for inpatient care furnished to Medi-Cal beneficiaries by any
hospital wanting to participate in the Medi-Cal program, provided such hospital
met applicable requirements for participation. California law now provides that
the State of California shall selectively contract with hospitals to provide
acute inpatient services to Medi-Cal patients. Medi-Cal contracts currently
apply only to acute inpatient services. Generally, such selective contracting
is made on a flat per diem payment basis for all services to Medi-Cal
beneficiaries, and generally such payment has not increased in relation to
inflation, costs or other factors. Other reductions or limitations may be
imposed on payment for services rendered to Medi-Cal beneficiaries in the
future.
Under this approach, in most geographical areas of California, only
those hospitals which enter into a Medi-Cal contract with the State of
California will be paid for non-emergency acute inpatient services rendered to
Medi-Cal beneficiaries. The State may also terminate these contracts without
notice under certain circumstances and is obligated to make contractual payments
only to the extent the California legislature appropriates adequate funding
therefor.
California enacted legislation in 1982 that authorizes private
health plans and insurers to contract directly with hospitals for services to
beneficiaries on negotiated terms. Some insurers have introduced plans known as
"preferred provider organizations" ("PPOs"), which offer financial incentives
for subscribers who use only the hospitals which contract with the plan. Under
an exclusive provider plan, which includes most health maintenance organizations
("HMOs"), private payors limit coverage to those services provided by selected
hospitals. Discounts offered to HMOs and PPOs may result in payment to the
contracting hospital of less than actual cost and the volume of patients
directed to a hospital under an HMO or PPO contract may vary significantly from
projections. Often, HMO or PPO contracts are enforceable for a stated term,
regardless of provider losses or of bankruptcy of the respective HMO or PPO. It
is expected that failure to execute and maintain such PPO and HMO contracts
would reduce a hospital's patient base or gross revenues. Conversely,
participation may maintain or increase the patient base, but may result in
reduced payment and lower net income to the contracting hospitals.
These California Municipal Securities may also be insured by the
State of California pursuant to an insurance program implemented by the Office
of Statewide Health Planning and Development for health facility construction
loans. If a default occurs on insured California Municipal Securities, the
State Treasurer will issue debentures payable out of a reserve fund established
under the insurance program or will pay principal and interest on an
unaccelerated basis from unappropriated State funds. At the request of the
Office of Statewide Health Planning and Development, Arthur D. Little, Inc.
prepared a study in December 1983, to evaluate the adequacy of the reserve fund
established under the insurance program and based on certain formulations and
assumptions found the reserve fund substantially underfunded. In September of
1986, Arthur D. Little, Inc. prepared an update of the study and concluded that
an additional 10% reserve be established for "multi-level" facilities. For the
balance of the reserve fund, the update recommended maintaining the current
reserve calculation method. In March of 1990, Arthur D. Little, Inc. prepared a
further review of the study and recommended that separate reserves continue to
be established for "multi-level" facilities at a reserve level consistent with
those that would be required by an insurance company.
Certain California Municipal Securities in the Tax-Exempt Money Fund
and California Tax-Exempt Money Market Fund may be obligations which are secured
in whole or in part by a mortgage or deed of trust on real property. California
has five principal statutory provisions which limit the remedies of a creditor
secured by a mortgage or deed of trust. Two limit the creditor's right to
obtain a deficiency judgment, one limitation being based on the method of
foreclosure and the other on the type of debt secured. Under the former, a
deficiency judgment is barred when the foreclosure is accomplished by means of a
nonjudicial trustee's sale. Under the latter, a deficiency judgment is barred
when the foreclosed mortgage or deed of trust secures certain purchase money
obligations. Another California statute, commonly known as the "one form of
action" rule, requires creditors secured by real property to exhaust their real
property security by foreclosure before bringing a personal action against the
debtor. The fourth statutory provision limits any deficiency judgment obtained
by a creditor secured by real property following a judicial sale of such
property to the excess of the outstanding debt over the fair value of the
property at the time of the sale, thus preventing the creditor from obtaining a
large deficiency judgment against the debtor as the result of low bids at a
judicial sale. The fifth statutory provision gives the debtor the right to
redeem the real property from any judicial foreclosure sale as to which a
deficiency judgement may be ordered against the debtor.
Upon the default of a mortgage or deed of trust with respect to
California real property, the creditor's nonjudicial foreclosure rights under
the power of sale contained in the mortgage or deed of trust are subject to the
constraints imposed by California law upon transfers of title to real property
by private power of sale. During the three-month period beginning with the
filing of a formal notice of default, the debtor is entitled to reinstate the
mortgage by making any overdue payments. Under standard loan servicing
procedures, the filing of the formal notice of default does not occur unless at
least three full monthly payments have become due and remain unpaid. The power
of sale is exercised by posting and publishing a notice of sale for at least 20
days after expiration of the three-month reinstatement period. Therefore, the
effective minimum period for foreclosing on a mortgage could be in excess of
seven months after the initial default. Such time delays in collections could
disrupt the flow of revenues available to an issuer for the payment of debt
service on the outstanding obligations if such defaults occur with respect to a
substantial number of mortgages or deeds of trust securing an issuer's
obligations.
In addition, a court could find that there is sufficient involvement
of the issuer in the nonjudicial sale of property securing a mortgage for such
private sale to constitute "state action," and could hold that the
private-right-of-sale proceedings
violate the due process requirements of the Federal or State
Constitutions, consequently preventing an issuer from using the nonjudicial
foreclosure remedy described above.
Certain California Municipal Securities in the Tax-Exempt Money Fund
and California Tax-Exempt Money Market Fund may be obligations which finance the
acquisition of single family home mortgages for low and moderate income
mortgagors. These obligations may be payable solely from revenues derived from
the home mortgages, and are subject to California's statutory limitations
described above applicable to obligations secured by real property. Under
California antideficiency legislation, there is no personal recourse against a
mortgagor of a single family residence purchased with the loan secured by the
mortgage, regardless of whether the creditor chooses judicial or nonjudicial
foreclosure.
Under California law, mortgage loans secured by single-family owner-
occupied dwellings may be prepaid at any time. Prepayment charges on such
mortgage loans may be imposed only with respect to voluntary prepayments made
during the first five years during the term of the mortgage loan, and cannot in
any event exceed six months' advance interest on the amount prepaid in excess of
20% of the original principal amount of the mortgage loan. This limitation
could affect the flow of revenues available to an issuer for debt service on the
outstanding debt obligations which financed such home mortgages.
Investment Limitations
The Prospectuses for each Fund sets forth certain fundamental
policies that may not be changed with respect to such Fund without the
affirmative vote of the holders of the majority of the Fund's outstanding shares
(as defined below under "Miscellaneous"). Similarly, the following enumerated
additional fundamental policies may not be changed with respect to a Fund
without such a vote of shareholders.
The Prime Fund may not:
1. Purchase securities of any one issuer (other than obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities)
if immediately thereafter more than 15% of its total assets would be invested in
certificates of deposit or bankers' acceptances of any one bank, or more than 5%
of its total assets would be invested in other securities of any one bank or the
securities of any other issuer (except that up to 25% of the Fund's total assets
may be invested without regard to this limitation).
In accordance with current regulations of the Securities and
Exchange Commission, the Prime Fund presently intends to limit its investments
in the securities of any single issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) to not
more than 5% of the Fund's total assets at the time of purchase, provided that
the Fund may invest up to 25% of its total assets in the securities of any one
issuer for a period that does not exceed three business days. This intention is
not, however, a fundamental policy of the Fund.
The Prime Value Fund may not:
1. Purchase securities of any one issuer (other than obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities)
if immediately thereafter more than 5% of its total assets would be invested in
the securities of any one issuer (except that up to 25% of the Fund's total
assets may be invested without regard to this limitation).
In accordance with current regulations of the Securities and
Exchange Commission, the Prime Value Fund presently intends to limit its
investments in the securities of any single issuer (other than securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities) to not
more than 5% of the Fund's total assets at the time of purchase, provided that
the Fund may invest up to 25% of its total assets in the securities of any one
issuer for a period that does not exceed three business days. This intention is
not, however, a fundamental policy of the Fund. Additionally, for purposes of
the above fundamental policy, the guarantor of a guaranteed security may, in
certain circumstances, also be considered to be an issuer in connection with
such guarantee.
The Prime Fund, Treasury Fund, California Tax-Exempt Money Market Fund and Prime
Value Fund may not:
1. Purchase or sell real estate (however, a Fund may, to the
extent appropriate to its investment objective,
purchase securities issued by companies investing in real estate or interests
therein and the California Tax-Exempt Money Market Fund may purchase Municipal
Securities secured by real estate or interests therein).
2. Underwrite the securities of other issuers.
3. Purchase securities of companies for the purpose of exercising
control.
4. Purchase securities on margin, make short sales of securities
or maintain a short position.
5. Except for the Prime Value Fund, acquire any other investment
company or investment company security except in connection with a merger,
consolidation, reorganization or acquisition of assets.
6. Make loans except that (i) a Fund may purchase or hold debt
instruments and enter into repurchase agreements pursuant to its investment
objective and policies, and (ii) the Prime Fund and the Prime Value Fund may
lend portfolio securities.
Neither the Government Fund nor the Treasury Only Fund may:
1. Purchase any security or evidence of interest therein on
margin, except that a Fund may obtain such short term credit as may be necessary
for the clearance of purchases and sales of securities.
2. Underwrite securities issued by other persons, except that all
of the assets of a Fund may be invested in a corresponding investment company
with the same investment objective and policies and except insofar as a Fund may
technically be deemed an underwriter under the Securities Act of 1933 in selling
a security.
3. Make loans to other persons except (a) through the lending of
securities held by a Fund, (b) through the use of fixed time deposits or
repurchase agreements or the purchase of short term obligations, or (c) by
purchasing all or a portion of an issue of debt securities of types commonly
distributed privately to financial institutions; for purposes of this investment
restriction the purchase of short-term commercial paper or a portion of an issue
of debt securities which are part of an issue to the public shall not be
considered the making of a loan.
4. Purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts in
the ordinary course of business (each Fund reserves the freedom of action to
hold and to sell real estate acquired as a result of the ownership of securities
by such Fund).
5. Issue any senior security (as that term is defined in the
Investment Company Act of 1940) if such issuance is specifically prohibited by
the Investment Company Act of 1940 or the rules and regulations promulgated
thereunder, except as appropriate to evidence a debt incurred without violating
Investment Restriction No. 2 as stated in the Funds' Prospectus regarding
borrowing.
6. Concentrate its investments in any particular industry
(excluding obligations of the U.S. Government, obligations of domestic banks,
and repurchase agreements), but if it is deemed appropriate for the achievement
of its investment objective, up to 25% of the assets of the Fund (taken at
market value at the time of each investment) may be invested in any one
industry; provided, that nothing in this investment restriction shall affect the
Fund's ability to invest a portion or all of its assets in a corresponding
investment company with the same investment objective and policies.
The Tax-Exempt Money Fund may not:
1. Purchase the securities of any issuer if as a result more than
5% of the value of the Fund's total assets would be invested in the securities
of such issuer, except that up to 25% of the value of the Fund's total assets
may be invested without regard to this 5% limitation. Securities issued or
guaranteed by the United States Government or its agencies or instrumentalities
are not subject to this investment limitation. For purposes of this limitation
and the Fund's policy on concentration of investments set forth in the
Prospectus, a governmental agency, authority, instrumentality or other political
subdivision is deemed to be an issuer, separate from the government creating
such subdivision, if the security issued by such subdivision is backed only by
the assets and revenues of the subdivision, and a guarantee of a security is not
deemed to be a security issued by the guarantor, provided that no more than 10%
of the value of the Fund's total assets is invested in securities issued or
guaranteed by such guarantor.
2. Underwrite any issue of securities, except to the extent that
the purchase of securities directly from the issuer thereof in accordance with
the Fund's investment objective, policies and limitations may be deemed to be
underwriting.
3. Purchase or sell real estate, except that the Fund may, to the
extent appropriate to its investment objective, invest in securities issued by
companies which invest in real estate or interests therein.
4. Purchase securities on margin, make short sales of securities
or maintain a short position.
5. Write or sell puts, calls, straddles, spreads or combinations
thereof.
6. Purchase or sell commodities or commodity contracts, or invest
in oil, gas or mineral exploration or development programs, except that the Fund
may, to the extent appropriate to its investment objective, invest in securities
issued by companies which purchase or sell commodities or commodity contracts or
which invest in such programs.
7. Purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition or reorganization.
8. Make loans, except that the Fund may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations, and may enter into repurchase agreements with respect to
securities.
9. Purchase any securities which would cause 25% or more of the
value of its total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal business activities
in the same industry; provided, however, that (a) there is no limitation with
respect to investments in Municipal Securities or obligations issued or
guaranteed by the Federal Government and its agencies and instrumentalities; (b)
although there is no limitation with respect to investments in certificates of
deposit and bankers' acceptances issued by domestic branches of United States
banks, no more than 10% of the total value of the Fund's assets at the time of
purchase may be invested in certificates of deposit and bankers' acceptances
issued by domestic branches of foreign banks and no more than 25% of the total
value of the Fund's assets at the time of purchase may be invested in
certificates of deposit and bankers' acceptances issued by domestic branches of
foreign banks and foreign branches of domestic banks; (c) each utility service
(such as gas, gas transmission, electric and telephone service) will be
considered a single industry for purposes of this policy; and (d) wholly-owned
finance companies will be considered to be in the industries of their parents if
their activities are primarily related to financing the activities of their
parents.
The California Tax-Exempt Money Market Fund may not:
1. Invest in industrial revenue bonds where the payment of
principal and interest are the responsibility of a company (including its
predecessors) with less than three years of continuous operation.
2. Purchase or sell commodity contracts, or invest in oil, gas or
mineral exploration or development programs (however, the Fund may, to the
extent appropriate to its investment objective, purchase publicly traded
securities of companies engaging in whole or in part in such activities).
3. Purchase securities while its borrowings (including reverse
repurchase agreements) are outstanding.
4. Write or sell puts, calls, straddles, spreads, or combinations
thereof except that the Fund may acquire stand-by commitments with respect to
its Municipal Securities.
5. Purchase any securities which would cause 25% or more of the
Fund's total assets at the time of purchase to be invested in the securities of
one or more issuers conducting their principal business activities in the same
industry, provided that this limitation shall not apply to Municipal Securities
or governmental guarantees of Municipal Securities; and provided, further, that
for the purpose of this limitation only, industrial development bonds that are
backed only by the assets and revenues of a non-governmental user shall not be
deemed to be Municipal Securities.
* * *
If a percentage restriction is satisfied at the time of investment,
a later increase or decrease in such percentage resulting from a change in asset
value will not constitute a violation of such restriction.
For purposes of the Prime Value Fund's investment limitation
concerning industry concentration, U.K. Building Societies will be considered to
be in the banking industry.
The Prime Value Fund will not invest more than 5% of its net assets (at the time
of purchase) in instruments issued by U.K. Building Societies
For purposes of Investment Limitation P 1 relating to the Prime Fund
in such Fund's Prospectus, Investment Limitation P 1 relating to the Prime Value
Fund in such Fund's Prospectuses, Investment Limitation P 6 relating to the
Government Fund and Treasury Only Fund in this Statement of Additional
Information, Investment Limitation P 9 relating to the Tax-Exempt Money Fund in
this Statement of Additional Information and Investment Limitation P 5 relating
to the California Tax-Exempt Money Market Fund only in this Statement of
Additional Information, these Funds treat, in accordance with the current views
of the staff of the Securities and Exchange Commission and as a matter of non-
fundamental policy that may be changed without a vote of shareholders, all
supranational organizations as a single industry and each foreign government
(and all of its agencies) as a separate industry.
For purposes of Investment Limitation P 6 of this Statement of
Additional Information with respect to the Prime Fund, Treasury Fund, California
Tax-Exempt Money Market Fund and Prime Value Fund, Investment Limitation P 3 of
this Statement of Additional Information with respect to the Government Fund and
Treasury Only Fund and Investment Limitation P 8 of this Statement of Additional
Information with respect to the Tax-Exempt Money Fund, the Funds may hold debt
instruments whether such instruments are part of a public offering or privately
negotiated.
In order to permit the sale of shares in certain states, a Fund may
make commitments more restrictive than the investment policies and limitations
described above. To permit the sale of the shares of the Funds in Texas, the
Company has agreed to the following additional restrictions:
1. The Funds will not invest in oil, gas or mineral leases.
2. The Funds will not invest more than 5% of their net assets in
warrants (valued at the lower of cost or market), of which not more than 2% may
be warrants which are not listed on the New York or American Stock Exchanges.
3. The Funds will not invest in real estate limited partnerships.
4. Any Horizon Shares of the Funds (other than the Prime Value
Fund) offered for sale to Texas residents will generally be issued for cash
only. Transactions involving the issuance of Horizon Shares of such Funds for
securities or assets other than cash will meet the requirements of Section
123.2(4) of the Texas Blue Sky Regulations.
Should a Fund determine that these commitments or any other
commitments are no longer in the best interests of the Fund, it will revoke such
commitments by terminating sales of its shares in the state involved.
PURCHASE AND REDEMPTION OF SHARES
In General
The Company or its transfer agent may require any information
reasonably necessary to evidence that a redemption has been duly authorized.
Under the Investment Company Act of 1940 any of the Funds may suspend the right
of redemption or postpone the date of payment upon redemption for any period
during which the New York Stock Exchange is closed (other than customary weekend
and holiday closings), during which trading on such Exchange is restricted,
during which an emergency exists (as determined by the Securities and Exchange
Commission by rule or regulation) as a result of which disposal or valuation of
portfolio securities is not reasonably practicable or for such other periods as
the Securities and Exchange Commission may permit. A Fund may also suspend or
postpone the recordation of the transfer of its shares upon the occurrence of
any of the foregoing conditions.
In addition a Fund may redeem shares involuntarily in certain
instances if such redemption is appropriate to carry out the Company's
responsibilities under the Investment Company Act of 1940. If the Board of
Directors determines that conditions exist which make payment of redemption
proceeds wholly in cash unwise or undesirable, a Fund may make payment wholly or
partly in readily-marketable securities or other property. In such an event a
shareholder would incur transaction costs in selling the securities or other
property. See "Net Asset Value" below for an example of when such form of
payment might be appropriate. The Company has committed that it will pay all
redemption requests by a shareholder of record in cash, limited in amount with
respect to each shareholder during any ninety-day period to the lesser of
$250,000 or 1% of the Company's net asset value at the beginning of such period.
Any institution purchasing shares on behalf of separate accounts
will be required to hold the shares in a single nominee name (a "Master
Account"). Institutions investing in more than one Fund must maintain a
separate Master Account for each Fund. Institutions may arrange with the Funds'
transfer agent for certain sub-accounting services (such as purchase, redemption
and dividend record keeping).
National Banking Regulations
The Comptroller of the Currency has ruled that a national bank may
invest in shares of an investment company to the extent that the portfolio of
such company consists of investments in which the bank might invest directly.
As a national bank could invest directly without limitation in general
obligations of the U.S. Treasury and the portfolios of the Treasury Fund and
Treasury Only Fund are limited to such investments, national banks may acquire
shares of the Treasury Fund and Treasury Only Fund without limitation.
In addition, the regulations of the Comptroller of the Currency
provide that funds held in a fiduciary capacity by a national bank approved by
the Comptroller to exercise fiduciary powers must be invested in accordance with
the instrument establishing the fiduciary relationship and local law. In the
opinion of the Company's counsel, the purchase of shares of the Funds by such
national banks acting on behalf of their fiduciary accounts is not contrary to
applicable regulations if consistent with the particular account and proper
under the law governing the administration of the account. Prospective
investors should consult their advisers regarding the law applicable to their
purchase of shares.
Net Asset Value
In General. Each Fund's net asset value per share is calculated by
dividing the total value of the assets belonging to the Fund, less the value of
any liabilities applicable to the Fund, by the total number of outstanding
shares of that Fund. Each Fund's net asset value is calculated separately from
each other Fund's net asset value. "Assets belonging to" a Fund consist of the
consideration received upon the issuance of shares representing interests in the
Fund together with all income, earnings, profits and proceeds derived from the
investment thereof, any proceeds from the sale, exchange or liquidation of such
investments, any funds or payments derived from any re-investment of such
proceeds, and a portion of any general assets of the Company not belonging to a
particular Fund. Each Fund is charged with the direct expenses of that Fund and
with a share of the general expenses of the Company. The determinations by the
Board of Directors as to direct and allocable expenses and the allocable portion
of general assets with respect to the various portfolios are conclusive. The
expenses that are charged to a Fund are borne equally by each share of the Fund
except for the payments to Service Organizations that are borne solely by
Horizon Service Shares and certain payments that are borne solely by Pacific
Horizon Shares as described in the Prospectuses for such Shares.
A "business day" for purposes of processing share purchases and
redemptions received by the Transfer Agent at its Kansas City office is a day on
which the New York Stock Exchange is open for trading, except a "business day"
does not include Martin Luther King, Jr. Day, Columbus Day or Veteran's Day. In
1995 the holidays on which the New York Stock Exchange is closed are:
President's Day, Good Friday, Memorial Day (observed), Independence Day, Labor
Day, Thanksgiving Day and Christmas.
Amortized Cost Method. The Funds use the amortized cost method of
valuation in computing the net asset value of their shares for purposes of sales
and redemptions. Under
this method a Fund values each of its portfolio securities at cost on the date
of purchase and thereafter assumes a constant proportionate amortization of any
discount or premium until maturity of the security. As a result the value of a
portfolio security for purposes of determining net asset value normally does not
change in response to fluctuating interest rates. While the amortized cost
method seems to provide certainty in portfolio valuation it may result in
periods during which values, as determined by amortized cost, are higher or
lower than the amount such Fund would receive if it sold its portfolio
securities. The market value of the securities in the Funds can be expected to
vary inversely with changes in prevailing interest rates. Thus, if interest
rates have increased from the time a security was purchased, such security, if
sold, might be sold at a price less than its amortized cost. Similarly, if
interest rates have declined from the time a security was purchased, such
security, if sold, might be sold at a price greater than its amortized cost. In
either instance, if the security is held to maturity, no gain or loss will be
realized.
In connection with their use of amortized cost valuation, the Funds
limit the dollar-weighted average maturity of their portfolios to not more than
90 days and do not purchase any instrument with a remaining maturity of greater
than 397 calendar days. The Company's Board of Directors has also established,
pursuant to rules promulgated by the Securities and Exchange Commission,
procedures that are intended to stabilize each Fund's net asset value per share
for purposes of sales and redemptions at $1.00. Such procedures include the
determination, at such intervals as the Board deems appropriate, of the extent,
if any, to which a Fund's net asset value per share calculated by using
available market quotations deviates from $1.00 per share. In the event such
deviation exceeds 1/2 of 1% the Board will promptly consider what action, if
any, should be initiated. If the Board believes that the amount of any
deviation may result in material dilution or other unfair results to investors
or existing shareholders, it will take such steps as it considers appropriate to
eliminate or reduce to the extent reasonably practicable any such dilution or
unfair results. These steps may include selling portfolio instruments prior to
maturity, shortening a Fund's average portfolio maturity, withholding or
reducing dividends, reducing the number of a Fund's outstanding shares without
monetary consideration or determining net asset value per share by using
available market quotations. If a Fund reduces the number of its outstanding
shares without monetary consideration it will mail written notice to
shareholders at least three business days before the redemption and in the
notice will state the reason for the redemption and the fact that the redemption
may result in a capital loss to shareholders.
The Funds' administrator, Concord Holding Corporation (the
"Administrator"), may use a pricing service to value certain portfolio
securities where the prices provided are believed by the Administrator pursuant
to guidelines adopted by the Board of Directors to reflect the fair value of
such securities. In valuing a Fund's securities, the pricing service would
normally take into consideration such factors as yield, risk, quality, maturity,
type of issue, trading characteristics, special circumstances and other factors
it deems relevant in determining valuations for normal institutional-sized
trading units of debt securities and would not rely on quoted prices. The
methods used by the pricing service and the valuations so established will be
utilized under the general supervision of the Company's Board of Directors.
Additionally, in determining market-based net asset value per share all
portfolio securities for which market quotations (or appropriate substitutes
that reflect current market conditions) are not readily available shall be
valued at their fair value as determined by the valuation committee in
accordance with procedures established by the Board of Directors.
MANAGEMENT OF THE FUNDS
Directors and Officers
The directors and officers of the Company, their addresses, ages,
and principal occupations during the past five years are:
<TABLE>
<CAPTION>
Position with
Name and Address Age Company Principal Occupations
<S> <C> <C> <C>
Thomas M. Collins* 61 President and Of counsel, law firm of
McDermott & Trayner Chairman of the McDermott & Trayner;
225 S. Lake Avenue Board Partner of the law firm
Suite 410 of Musick, Peeler &
Pasadena, CA 91101-3005 Garrett (until April,
1993); Trustee, Master
Investment Trust Series I
and Master Investment
Trust, Series II
(registered investment
companies); former
Director, Bunker Hill
Income Securities, Inc.
through 1991 (registered
investment company).
Douglas B. Fletcher 70 Vice Chairman Chairman of the Board
Fletcher Capital of the Board and Chief Executive
Advisors Incorporated Officer, Fletcher
4 Upper Newport Plaza Capital Advisors,
Suite 100 Incorporated,
Newport Beach, CA 92660- (registered
2629 investment adviser) 1991 to date;
Partner, Newport Partners (private venture capital
management firm) 1981 to date; Chairman of the Board
and Chief Executive Officer, First Pacific Advisors,
Inc. (registered investment adviser) and seven
investment companies under its management, prior to
1983; former Allied Member, New York Stock Exchange;
Chairman of the Board of FPA Paramount Fund, Inc.
through 1984; Director, TIS Mortgage Investment
Company (real estate investment trust); Trustee and
former Vice Chairman of the Board, Claremont McKenna
College; Chartered Financial Analyst.
Robert E. Greeley 60 Director Chairman, Page Mill
Page Mill Asset Asset Management (a
Management private investment
433 California Street company) since 1991;
Suite 900 Manager, Corporate
San Francisco, CA 94104 Investments, Hewlett
Packard Company from 1979
to 1991; Director, Morgan
Grenfell Small Cap Fund
(since 1986); former
director, Bunker Hill
Income Securities, Inc.
(since 1989) (registered
investment company);
Trustee, Master Investment
Trust, Series I and Master
Investment Trust, Series
II (registered investment
companies); former
Trustee, SunAmerica Fund
Group (previously Equitec
Siebel Fund Group) from
1984 to 1992.
Kermit O. Hanson 79 Director Vice Chairman of the
17760 14th Ave., N.W. Advisory Board, 1988 to
Seattle, WA 98177 date, Executive
Director, 1977 to 1988,
Pacific Rim Bankers
Program (a non-profit
educational institution);
Dean Emeritus, 1981 to
date, Dean, 1964-81,
Graduate School of
Business Administration,
University of Washington;
Director, Washington
Federal Savings & Loan
Association; Trustee,
Seafirst Retirement Funds
(registered investment
company).
Cornelius J. Pings 66 Director President, Association
Association of American of American
Universities Universities, February
One DuPont Circle 1993 to date; Provost,
Suite 730 1982 to January
Washington, DC 20036 1993, Senior Vice
President for Academic
Affairs, 1981 to January
1993, University of
Southern California.
Kenneth L. Trefftzs 83 Director Private Investor;
11131 Briarcliff Drive formerly Distinguished
San Diego, CA 92131-1329 Emeritus Professor
of Finance and Chairman of
the Department of Finance
and Business Economics of
the Graduate School of
Business of the University
of Southern California;
former Director, Metro
Goldwyn Mayer, Inc.;
Director, Fremont General
Corporation (insurance and
financial services holding
company); Director, Source
Capital, Inc. (closed-end
investment company);
Director of three open-end
investment companies
managed by First Pacific
Advisors, Inc.; formerly
Chairman of the Board of
Directors (or Trustees) of
nineteen investment
companies managed by
American Capital Asset
Management, Inc.
Richard E. Stierwalt Executive Chairman of the Board
125 West 55th Street 40 Vice President and Chief Executive
New York, NY 10019 Officer, July 1993 to
date, prior thereto Senior
Director, Managing
Director and Chief
Executive Officer of the
Administrator and
Distributor, February 1987
to July 1993; President,
Master Investment Trust,
Series I, Master
Investment Trust, Series
II and Seafirst Retirement
Funds (registered
investment companies);
First Vice President,
Trust Operation
Administration, Security
Pacific National Bank,
1983-1987.
William B. Blundin 57 Executive Vice Vice Chairman, July 1993
125 West 55th Street President to date, prior thereto
New York, NY 10019 Director and President
of the Administrator and
Distributor, February 1987
to July 1993; Executive
Vice President, Master
Investment Trust, Series
II and Seafirst Retirement
Funds (registered
investment companies);
Senior Vice President,
Shearson Lehman Brothers
(a securities firm), 1978-
1987.
Ann E. Bergin 35 Vice President Senior Vice President,
125 West 55th Street October 1994 to date,
New York, NY 10019 prior thereto First
Vice President of the
Administrator, February
1993 to October 1994; Vice
President, Master
Investment Trust, Series
II and Seafirst Retirement
Funds (registered
investment companies);
Vice President of the
Administrator, August 1991
to February 1993;
Assistant Vice President,
The Dreyfus Corporation,
December 1982 to August
1991.
Susan L. West 37 Assistant Vice Chief Operating Officer,
125 West 55th Street President July 1993 to date, prior
New York, NY 10019 thereto Executive Vice
President of the
Administrator, May 1987 to
July 1993; Vice President,
Master Investment Trust,
Series II and Seafirst
Retirement Funds
(registered investment
companies); Assistant Vice
President, Fund
Administration and
Operations, The Vanguard
Group, October 1981 to May
1987.
Irimga McKay 35 Assistant Vice Senior Vice President,
7863 Girard Avenue President July 1993 to date, prior
Suite 306 thereto First Vice
La Jolla, CA 92037 President of the
Administrator and
Distributor, November 1988
to July 1993; Vice
President, Master
Investment Trust, Series
II and Seafirst Retirement
Funds (registered
investment companies);
Regional Vice President,
Continental Equities, June
1987 to November 1988;
Assistant Wholesaler, VMS
Realty Partners (a real
estate limited
partnership), May 1986 to
June 1987.
Richard A. Fabietti 36 Treasurer Senior Vice President
125 West 55th Street of the Administrator and
New York, NY 10019 Distributor, July 1987
to date; Treasurer, Master
Investment Trust, Series
II and Seafirst Retirement
Funds (registered
investment companies);
Assistant Controller-
Mutual Funds, Alliance
Capital Management Corp.,
March 1986 to July 1987.
Martin G. Flanigan 31 Assistant Vice-President of the
125 West 55th Street Treasurer Administrator and
New York, NY 10019 Distributor, 1987 to
date; Assistant Treasurer,
Master Investment Trust,
Series II and Seafirst
Retirement Funds
(registered investment
companies).
W. Bruce McConnel, III 52 Secretary Partner of the law firm
1345 Chestnut Street Drinker Biddle & Reath;
Philadelphia National Bank Secretary, Master
Building, Suite 1100 Investment Trust, Series
Philadelphia, PA 19107 II and Seafirst
Retirement
Funds (registered investment companies).
Linda Mahon 38 Assistant Vice President of
125 West 55th Street Secretary the Administrator and
New York, NY 10019 Distributor, 1994
to date; Assistant
Secretary, Master
Investment Trust, Series
II and Seafirst Retirement
Funds (registered
investment companies);
Corporate Secretary of J.
& W. Seligman & Co.
Incorporated, 1991-1994;
Vice President of Paribas
Asset Management, Inc.
1989-1991.
George O. Martinez 36 Assistant Senior Vice President
1900 East Dublin-Granville Road Secretary and Director of Legal
Columbus, OH 43229 and Compliance Services,
BISYS Fund Services, since
April 1995; prior thereto,
Vice President and
Associate General Counsel,
Alliance Capital
Management L.P.
* Mr. Collins is an "interested director" of the Company as defined in the
Investment Company Act of 1940.
The Audit Committee of the Board is comprised of all directors and
is chaired by Dr. Trefftzs. The Board does not have an Executive Committee.
Each director is entitled to receive an annual fee of $25,000 plus
$1,000 for each day that a director participates in all or a part of a Board
meeting; Mr. Collins receives an additional $40,000 per annum for his services
as President; each member of a Committee of the Board is entitled to receive
$1,000 for each Committee meeting they participate in (whether or not held on
the same day as a Board meeting); and each Chairman of a Committee of the Board
shall be entitled to receive an annual retainer of $1,000 for his services as
Chairman of the Committee. The Funds, and each other Fund of the Company, pays
its proportionate share of these amounts based on relative net asset values.
For the fiscal year ended February 28, 1995, the Company paid or
accrued for the account of its directors as a group for services in all
capacities a total of $334,168; of this amount, the following amounts of
directors' compensation were allocated to the following Funds: Treasury Fund -
$22,408; Prime Fund - $23,318; Government Fund - $23,093; Treasury Only Fund -
$22,179; Tax-Exempt Money Fund - $21,538; California Tax-Exempt Money Market
Fund - $23,388 and Prime Value Fund - $22,999. Each director is also reimbursed
for out-of-pocket expenses incurred as a director. Drinker Biddle & Reath, of
which Mr. McConnel is a partner, receives legal fees as counsel to the Company.
As of the date of this Statement of Additional Information, the directors and
officers of the Company, as a group, own less than 1% of the outstanding shares
of each of the Company's investment portfolios.
Under a retirement plan approved by the Board of Directors,
including a majority of its directors who are not "interested persons" of the
Company, a director who dies or resigns after five years of service is entitled
to receive ten annual payments each equal to the greater of: (i) 50% of the
annual director's retainer that was payable by the Company during the year of
his/her death or resignation, or (ii) 50% of the annual director's retainer then
in effect for directors of the Company during the year of such payment. A
director who dies or resigns after nine years of service is entitled to receive
ten annual payments each equal to the greater of: (i) 100% of the annual
director's retainer that was payable by the Company during the year of his/her
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. Further,
the amount payable each year to a director who dies or resigns is increased by
$1,000 for each year of service that the director provided as Chairman of the
Board.
Years of service for purposes of calculating the benefit described
above are based upon service as a director or Chairman after February 28, 1994.
Retirement benefits in which a director has become vested may not be reduced by
later Board action.
In lieu of receiving ten annual payments, a director may elect to
receive substantially equivalent benefits through a single-sum cash payment of
the present value of such benefits paid by the Company within 45 days of the
death or resignation of the director. The present value of such benefits is to
be calculated (i) based on the retainer that was payable by the Company during
the year of the director's death or resignation (and not on any retainer payable
to directors thereafter), and (ii) using the interest rate in effect as of the
date of the director's death or resignation by the Pension Benefit Guaranty
Corporation (or any successor thereto) for valuing immediate annuities under
terminating defined benefit pension plans. A director's election to receive a
single sum must be made in writing within the 30 calendar days after the date
the individual is first elected as a director.
In addition to the foregoing, the Board of Directors may, in its
discretion and in recognition of a director's period of service before March 1,
1994 as a director and possibly as Chairman, authorize the Company to pay a
retirement benefit following the director's death or resignation (unless the
director has vested benefits as a result of completing nine years of service).
Any such action shall be approved by the Board and by a majority of the
directors who are not "interested persons" of the Company within 120 days
following the director's death or resignation and may be authorized as a single
sum cash payment or as not more than ten annual payments (beginning the first
anniversary of the director's date of death or resignation and continuing for
one or more anniversary date(s) thereafter).
The obligation of the Company to pay benefits to a former director
is neither secured nor funded by the Company but shall be binding upon its
successors in interest. The payment of benefits under the retirement plan has
no priority or preference over the lawful claims of the Company's creditors or
shareholders, and the right to receive such payments is not assignable or
transferable by a director (or former director) other than by will, by the laws
of descent and distribution, or by the director's written designation of a
beneficiary.
The following chart provides certain information about the
director/trustee fees of the Company as of February 28, 1995.
NAME OF PERSON/ AGGREGATE PENSION OR ESTIMATED TOTAL
POSITION COMPENSATION RETIREMENT ANNUAL COMPENSATION
FROM THE BENEFITS BENEFITS FROM
COMPANY ACCRUED AS UPON REGISTRANT
PART OF FUND RETIREMENT AND FUND
EXPENSES COMPLEX* PAID
TO DIRECTORS
Thomas M. Collins $100,000 $0 $0 $110,000
President and
Chairman of the
Board
Douglas B. Fletcher $57,500 $0 $0 $57,500
Vice Chairman of
the Board
Robert E. Greeley** $57,500 $0 $0 $65,781
Director
Kermit O. Hanson $57,500 $0 $0 $63,500
Director
Cornelius J. Pings $57,500 $0 $0 $57,500
Director
Kenneth L. Trefftzs $57,500 $0 $0 $57,500
Director
______________________________
* The "Fund Complex" consists of the Company, Seafirst Retirement Funds, Master
Investment Trust, Series I and Master Investment Trust, Series II.
** Mr. Greeley became a director of the Company on April 25, 1994.
Investment Adviser
Bank of America is the successor by merger to Security Pacific
National Bank ("Security Pacific"), which previously served as investment
adviser to each of the Funds, other than the Government and Treasury Only Funds
and the Prime Value Fund, since the commencement of their operations. In the
investment advisory agreement, Bank of America has agreed to provide investment
advisory services as described in the Prospectuses. Bank of America has also
agreed to pay all expenses incurred by it in connection with its activities
under its agreement other than the cost of securities, including brokerage
commissions, if any, purchased for the Company. In rendering its advisory
services, Bank of America may utilize Bank officers from one or more of the
departments of the Bank which are authorized to exercise the fiduciary powers of
Bank of America with respect to the investment of trust assets. In some cases,
these officers may also serve as officers, and utilize the facilities, of wholly-
owned subsidiaries or other affiliates of Bank of America or its parent
corporation. For the services provided and expenses assumed pursuant to the
investment advisory agreement, the Company has agreed to pay Bank of America
fees, accrued daily and payable monthly, at the following annual rates, with
respect to the Funds (other than the Prime Value Fund): .10% of the first $3
billion of each Fund's net assets, plus .09% of the next $2 billion of each
Fund's net assets, plus .08% of each Fund's net assets over $5 billion. With
respect to the Prime Value Fund, the Company has agreed to pay Bank of America
fees, accrued daily and payable monthly, at the following annual rates: .10% of
the first $7 billion of the Fund's net assets, plus .09% of the next $3 billion
of the Fund's net assets, plus .08% of the Fund's net assets over $10 billion.
From time to time, Bank of America may waive fees or reimburse the Company for
expenses voluntarily or as required by certain state securities laws.
For the fiscal years ended February 28, 1993, February 28, 1994, and
February 28, 1995, Bank of America (and Securities Pacific prior to April 22,
1992) were paid in the aggregate, pursuant to the investment advisory agreements
applicable to them, advisory fees (net of waivers) of $8,106,253, $11,293,545,
and $2,330,203, respectively, by the Prime Fund, $2,841,285, $2,717,321, and
$2,140,125, respectively, by the Treasury Fund and $466,339, $472,766, and
$501,956, respectively, by the Tax-Exempt Money Fund. For the fiscal years
ended February 28, 1993, February 28, 1994, and February 28, 1995, Bank of
America (and Security Pacific prior to April 22, 1992) were paid in the
aggregate, pursuant to the investment advisory agreements applicable to them,
advisory fees (net of waivers and expense reimbursements) of $22,306, $269,869,
and $301,964, respectively, by the California Tax-Exempt Money Market Fund. For
the fiscal years ended February 28, 1993, February 28, 1994, and February 28,
1995, Bank of America (and Security Pacific prior to April 22, 1992) did not
effect any fee waivers or expense reimbursements with respect to the Treasury
Fund but did reimburse expenses or waive fees to the Prime Fund, in the
aggregate, in the amount of $0, $367,233, and $920,627, and the Tax-Exempt Money
Fund, in the amount of $3,692, $23,524, and $11,611, respectively. For the
fiscal years ended February 28, 1993, February 28, 1994, and February 28, 1995,
Bank of America (and Security Pacific prior to April 22, 1992) in the aggregate,
waived fees and reimbursed expenses with respect to the California Tax-Exempt
Money Market Fund in the amount of $82,350, $22,998, and $0, respectively. For
the period March 16, 1993 (commencement of operations) through February 28, 1994
and the fiscal year ended February 28, 1995, Bank of America was paid advisory
fees (net of waivers) with respect to the Prime Value Fund of $2,840 and
$289,793, respectively. For the period ended February 28, 1994, Bank of America
waived fees of $116,991 and reimbursed expenses to the Prime Value Fund in the
amount of $75,521, and for the fiscal year ended February 28, 1995, Bank of
America waived fees of $121,169 and reimbursed expenses to the Prime Value Fund
in the amount of $4,439.
For the fiscal year ended February 28, 1994, the Government Fund and
Treasury Only Fund paid Bank of America investment advisory fees (net of fee
waivers) of $877,515 and $68,888, respectively. For that same period Bank of
America waived fees and reimbursed the Government Fund and Treasury Only Fund in
the amounts of $6,537 and $127,607, respectively. For the fiscal year ended
February 28, 1995, the Government Fund and Treasury Only Fund paid Bank of
America investment advisory fees (net of fee waivers or expense reimbursements)
of $321,634 and $293,305, respectively. For that same period, Bank of America
waived fees of $8,313 for the Treasury Only Fund and waived fees of $313,740 and
reimbursed expenses to the Government Fund in the amount of $14,000. For the
fiscal year ended March 31, 1992 and the period April 1, 1992 through February
28, 1993, the Predecessor Treasury Only Funds bore investment advisory fees
pursuant to the investment advisory agreement then in effect of $70,579 and
$61,676, respectively, and the Predecessor Government Funds bore investment
advisory fees of $361,035 and $308,729, respectively. All of these fees were
paid to Seattle Capital Management Company (the "Former Adviser"), which is a
wholly-owned, indirect subsidiary of BankAmerica Corporation. For the periods
and fiscal year referenced above, the Former Adviser waived additional
investment advisory fees of $194,089 and $169,608, respectively, with respect to
the Predecessor Treasury Only Funds, and $227,281 and $154,364, respectively,
with respect to the Predecessor Government Funds.
The Company's investment advisory agreement for the Funds provides
that Bank of America shall not be liable for any error of judgment or mistake of
law or for any loss suffered by the Company in connection with the performance
of the investment advisory agreement, except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services or a
loss resulting from willful misfeasance, bad faith or negligence in the
performance of its duties or from reckless disregard by it of its duties and
obligations thereunder.
The Glass-Steagall Act and Proposed Legislation
The Glass-Steagall Act, among other things, prohibits banks from
engaging in the business of underwriting securities, although national and state-
chartered banks generally are permitted to purchase and sell securities upon the
order and for the account of their customers. In 1971, the United States
Supreme Court held in Investment Company Institute v. Camp that the Glass-
Steagall Act prohibits a bank from operating a fund for the collective
investment of managing agency accounts. Subsequently, the Board of Governors of
the Federal Reserve System (the "Board") issued a regulation and interpretation
to the effect that the Glass-Steagall Act and such decision forbid a bank
holding company registered under the Federal Bank Holding Company Act of 1956
(the "Holding Company Act") or any non-bank affiliate thereof from sponsoring,
organizing or controlling a registered, open-end investment company continuously
engaged in the issuance of its shares, but do not prohibit such a holding
company or affiliate from acting as investment adviser, transfer agent and
custodian to such an investment company. In 1981, the United States Supreme
Court held in Board of Governors of the Federal Reserve System v. Investment
Company Institute that the Board did not exceed its authority under the Holding
Company Act when it adopted its regulation and interpretation authorizing bank
holding companies and their non-bank affiliates to act as investment advisers to
registered closed-end investment companies.
Bank of America believes that if the question were properly
presented, a court should hold that Bank of America may perform the services for
the Company contemplated by the investment advisory agreement, the Prospectuses,
and this Statement of Additional Information without violation of the Glass-
Steagall Act or other applicable banking laws or regulations. It should be
noted, however, that there have been no cases deciding whether a bank may
perform services comparable to those performed by Bank of America and future
changes in either federal or state statutes and regulations relating to
permissible activities of banks or trust companies and their subsidiaries or
affiliates, as well as further judicial or administrative decisions or
interpretations of present and future statutes and regulations, could prevent
Bank of America from continuing to perform such services for the Company or from
continuing to purchase Company shares for the accounts of its customers.
For a discussion of the Glass-Steagall Act in connection with the
Company's Shareholder Services Plan, see "Shareholder Services Plan" in the
Prospectuses for Horizon Service Shares.
On the other hand, as described herein, the Funds are currently
distributed by the Distributor, and the Administrator, its parent, provides the
Company with administrative services. If current restrictions under the Glass-
Steagall Act preventing a bank from sponsoring, organizing, controlling or
distributing shares of an investment company were relaxed, the Company expects
that Bank of America would consider the possibility of offering to perform some
or all of the services now provided by the Administrator or the Distributor.
From time to time, legislation modifying such restriction has been introduced in
Congress which, if enacted, would permit a bank holding company to establish a
non-bank subsidiary having the authority to organize, sponsor and distribute
shares of an investment company. It is not possible, of course, to predict
whether or in what form such legislation might be enacted or the terms upon
which Bank of America or such a non-bank affiliate might offer to provide
services for consideration by the Company's Board of Directors.
Administrator
Concord Holding Corporation (the "Administrator"), with principal
offices at 125 West 55th Street, New York, New York 10019, is a wholly-owned
subsidiary of The BISYS Group, Inc. The Administrator also serves as
administrator to several other investment companies.
The Administrator provides administrative services for the Funds as
described in their Prospectuses pursuant to a Basic Administrative Services
Agreement. The agreement will continue in effect with respect to each Fund
until October 31, 1995 and thereafter will be extended with respect to each Fund
for successive periods of two years, provided that each such extension is
specifically approved (a) by vote of a majority of those members of the
Company's Board of Directors who are not interested persons of any party to the
agreement, cast in person at a meeting called for the purpose of voting on such
approval, and (b) the Company's Board of Directors or by vote of a majority of
the outstanding voting securities of such Fund. The agreement is terminable
during any term for cause at any time by the Company's Board of Directors,
"cause" being defined and limited for this purpose to mean willful misfeasance,
bad faith or negligence by the Administrator in the performance of its
obligations and duties under the agreement. The Company's Board of Directors
may terminate the agreement at the end of any term without cause upon 60 days'
prior written notice to the Administrator.
For its services under the Basic Administrative Services Agreement,
the Administrator is entitled to receive an administration fee, accrued daily
and payable monthly, at the following annual rates: .10% of the first $7
billion of each Fund's net assets, plus .09% of the next $3 billion of each
Fund's net assets, plus .08% of each Fund's net assets over $10 billion. From
time to time, the Administrator may waive fees or reimburse the Company for
expenses, either voluntarily or as required by certain state securities laws.
For the fiscal years ended February 28, 1993, February 28, 1994, and
February 28, 1995 the Administrator was paid, pursuant to the administration
agreement then in effect, administration fees (net of waivers) of $8,835,608,
$12,158,419, and $2,366,035, respectively, by the Prime Fund, $2,845,014,
$2,717,606, and $2,140,125, respectively, by the Treasury Fund and $466,339,
$472,766, and $501,956, respectively, by the Tax-Exempt Money Fund. For the
fiscal years ended February 28, 1993, February 28, 1994, and February 28, 1995,
the Administrator was paid, pursuant to the administration agreement then in
effect, administrative fees (net of waivers) of $104,656, $269,869, and
$301,618, respectively, by the California Tax-Exempt Money Market Fund. For the
fiscal years ended February 28, 1993, February 28, 1994, and February 28, 1995,
the Administrator did not effect any fee waivers or expense reimbursements with
respect to the Treasury Fund but did reimburse the Prime Fund and Tax-Exempt
Money Fund for expenses or waive fees in the amount of $0, $381,513 and $949,233
and $3,692, $23,524, and $11,611, respectively. For the fiscal years ended
February 28, 1993, February 28, 1994, and February 28, 1995 aggregate fee
waivers and expense reimbursements by the Administrator with respect to the
California Tax-Exempt Money Market Fund were $0, $22,998, and $0, respectively.
For the period March 16, 1993 (commencement of operations) through February 28,
1994, the Administrator was paid administration fees (net of fee waivers) with
respect to the Prime Value Fund of $2,840. For this same period the
Administrator waived fees to the Prime Value Fund in the amount of $116,991.
For the fiscal year ended February 28, 1995, the Administrator was paid
administration fees (net of fee waivers) with respect to the Prime Value Fund of
$289,793. For the same period the Administrator waived fees to the Prime Value
Fund in the amount of $121,169.
For the fiscal year ended February 28, 1994, the Government Fund and
Treasury Only Fund paid the Administrator (net of fee waivers), $877,515 and
$68,888, respectively. For this same period the Administrator waived fees due
from the Government Fund and Treasury Only Fund in the amounts of $6,537 and
$127,607, respectively and reimbursed the Funds $0 and $0, respectively. For
the fiscal year ended February 28, 1995, the Government Fund and Treasury Only
Fund paid the Administrator (net of fee waivers), $463,641 and $293,305,
respectively. For this same period the Administrator waived fees due from the
Government Fund and Treasury Only Fund in the amounts of $185,733 and $8,313,
respectively and reimbursed the Funds $0 and $0, respectively. For the fiscal
year ended March 31, 1992 and the fiscal period April 1, 1992 through February
28, 1993, pursuant to the administration agreement then in effect, Signature
Broker-Dealer Services, Inc., the former administrator of the Predecessor
Government and Treasury Only Funds (the "Former Administrator"), accrued direct
and indirect administrative fees of $252,708 and $187,981, respectively, with
respect to the Predecessor Government Fund of First Cash Funds of America and
$126,430 and $117,319, respectively, with respect to the Predecessor Treasury
Only Fund of First Cash Funds of America.
If total expenses borne by any Fund in any fiscal year exceed the
expense limitations imposed by applicable state securities regulations, the
Company may deduct from the payments to be made with respect to such Fund to
Bank of America and the Administrator, respectively, or Bank of America and the
Administrator each will bear, the amount of such excess to the extent required
by such regulations. Such amount, if any, will be estimated and accrued daily
and paid on a monthly basis. As of the date of this Statement of Additional
Information, the most restrictive expense limitation that may be applicable to
the Company limits aggregate annual expenses with respect to a Fund, including
management and advisory fees but excluding interest, taxes, brokerage
commissions, and certain other expenses, to 2-1/2% of the first $30 million of
its average daily net assets, 2% of the next $70 million and 1-1/2% of its
remaining average daily net assets. During the course of the Company's fiscal
year, the Administrator and Bank of America may assume certain expenses and/or
not receive payment of fees of one or more of the Company's Funds, while
retaining the ability to be reimbursed by such Funds for such amounts prior to
the end of the fiscal year. This will have the effect of increasing yield to
investors at the time such fees are not received or amounts are assumed and
decreasing yield when such fees or amounts are reimbursed.
The Administrator will bear all expenses in connection with the
performance of its services under the Basic Administrative Services Agreement
for the Funds with the exception of fees charged by The Bank of New York for
certain fund accounting services which are borne by the Funds. See "Custodian
and Transfer Agent" below. Expenses borne by the Company include taxes,
interest, brokerage fees and commissions, if any, fees of directors who are not
officers, directors, partners, employees or holders of 5% or more of the
outstanding voting securities of Bank of America or the Administrator or any of
their affiliates, Securities and Exchange Commission fees and state securities
qualification fees, advisory fees, administrative fees, fees payable to
Shareholder Organizations, charges of custodians, transfer and dividend
disbursing agents' fees, certain insurance premiums, outside auditing and legal
expenses, costs of maintaining corporate existence, costs attributable to
investor services, including without limitation telephone and personnel
expenses, costs of preparing and printing prospectuses and statements of
additional information for regulatory purposes, cost of shareholders' reports
and corporate meetings and any extraordinary expenses.
The Basic Administrative Services Agreement provides that the
Administrator shall not be liable for any error of judgment or mistake of law or
any loss suffered by any Fund in connection with the matters to which the
agreement relates, except a loss resulting from willful misfeasance, bad faith
or negligence in the performance of the Administrator's duties or from the
reckless disregard by the Administrator of its obligations and duties
thereunder.
Bank of America has received an option entitling it to purchase
approximately 4% of the Administrator's authorized common stock on or before
December 31, 1998.
Distributor
The Distributor acts as the exclusive distributor of the shares of
each of the Funds pursuant to a distribution agreement with the Company. Shares
are sold on a continuous basis by the Distributor as agent, although the
Distributor is not obliged to sell any particular amount of shares. No
compensation is payable by the Funds to the Distributor for its distribution
services. The distribution agreement shall continue in effect with respect to
each Fund until October 31, 1995. Thereafter, if not terminated, the
distribution agreement shall continue automatically for successive terms of one
year, provided that such continuance is specifically approved at least annually
(a) by a vote of a majority of those members of the Board of Directors of the
Company who are not parties to the distribution agreement or "interested
persons" of any such party, cast in person at a meeting called for the purpose
of voting on such approval, and (b) by the Board of Directors of the Company or
by vote of a "majority of the outstanding voting securities" of the Funds as to
which the distribution agreement is effective; provided, however, that the
distribution agreement may be terminated by the Company at any time, without the
payment of any penalty, by vote of a majority of the entire Board of Directors
of the Company or by a vote of a "majority of the outstanding voting securities"
of such Funds on 60 days' written notice to the Distributor, or by the
Distributor at any time, without the payment of any penalty, on 90 days' written
notice to the Company. This Agreement will automatically and immediately
terminate in the event of its "assignment."
For the period June 4, 1990 (commencement of operations) through
March 31, 1991 (fiscal year end), the fiscal year ended March 31, 1992 and the
period April 1, 1992 through February 28, 1993, Signature Broker-Dealer
Services, Inc., which also served as the former distributor of the Predecessor
Government and Treasury Only Funds' shares, was paid $2,814, $17,167 and $6,166,
respectively by the Predecessor Government Fund of First Cash Funds of America
and $5,148, $5,746 and $2,680, respectively by the Predecessor Treasury Only
Fund of First Cash Funds of America as reimbursement for expenses related to the
distribution of such Predecessor Funds' shares. No such fees will be charged to
the Government Fund or the Treasury Only Fund or to any other Fund.
Custodian and Transfer Agent
The Company has appointed The Bank of New York, 90 Washington
Street, New York, New York 10286, as custodian and Concord Financial Services,
Inc., a wholly-owned subsidiary of Concord Holding Corporation, located at First
and Market Building, 1100 First Avenue, Suite 300, Pittsburgh, PA 15222, as
transfer and dividend disbursing agent for the Prime, Treasury, Government,
Treasury Only, Tax-Exempt Money and Prime Value Funds' Horizon Shares. DST
Systems, Inc., 811 Main, Kansas City, Missouri 64105-2005 serves as transfer and
dividend disbursing agent for the Funds' Horizon Service Shares; however, DST
Systems, Inc. has appointed Concord Financial Services, Inc. as sub-transfer
agent for certain Horizon Service Share accounts of the Prime, Treasury,
Government, Treasury Only, Tax-Exempt Money, Prime Value and California Tax-
Exempt Money Market Funds. The Bank of New York also provides the Company with
certain accounting services pursuant to a fund accounting services agreement
with the Administrator. Under the fund accounting services agreement, The Bank
of New York has agreed to provide certain accounting, bookkeeping, pricing, and
dividend and distribution calculation services with respect to the Company. The
monthly fees charged by the bank under the fund accounting agreement are borne
by the Funds. The Company and The Bank of New York have appointed Bank of
America to act as sub-custodian pursuant to a Sub-Custodian Agreement. As sub-
custodian of the Company's assets, Bank of America (i) maintains a separate
account or accounts in the name of the Company, (ii) holds and disburses
portfolio securities on account of the Company, (iii) makes receipts and
disbursements of money on behalf of the Company, (iv) collects and receives all
income and other payments and distributions on account of the Company's
portfolio securities held by Bank of America, (v) responds to correspondence
from security brokers and others relating to its duties, and (vi) makes periodic
reports to the Company's Board of Directors concerning its duties thereunder.
Under the Sub-Custodian Agreement, the Company will reimburse Bank of America
for its costs and expenses in providing services thereunder. Bank of America is
the successor to Security Pacific under the Sub-Custodian Agreement. For the
fiscal years ended February 28, 1993, February 28, 1994 and February 28, 1995,
Bank of America (and Securities Pacific prior to April 22, 1992), in their
capacity as sub-custodian, did not hold any of the Company's assets and,
accordingly, received no fees. For its services as transfer and dividend
disbursing agent to the Horizon Shares of the Prime, Treasury, Government,
Treasury Only, Tax-Exempt Money and Prime Value Funds, Concord Financial
Services, Inc. receives a fee, payable monthly, at the annual rate of $15,000
per Fund. Each Fund also reimburses Concord Financial Services, Inc. for any
out-of-pocket expenses incurred as transfer and dividend disbursing agent. For
the fiscal year ended February 28, 1995, Concord Financial Services, Inc.
received $27,063, $19,693, $17,873 and $18,221 from the Prime Fund, Treasury
Fund, Government Fund and Tax-Exempt Fund, respectively, for services as
transfer and dividend disbursing agent for such funds Horizon Shares. No fees
are currently charged for the sub-transfer agent services provided.
Bank of America and Seattle-First National Bank, an affiliate of
Bank of America, previously provided transfer agency, custodial and fund
accounting services for the Predecessor Government Funds and Predecessor
Treasury Only Funds. For the period June 4, 1990 (commencement of operations)
through March 31, 1991 (fiscal year end), the fiscal year ended March 31, 1992
and the period April 1, 1992 through February 28, 1993, Bank of America and
Seattle-First National Bank received directly and indirectly for such services
$129,116, $254,824 and $200,624, respectively, with respect to the Predecessor
Government Funds and $38,761, $114,630 and $100,225, respectively, with respect
to the Predecessor Treasury Only Funds.
TAXES
The following is only a summary of certain additional considerations
generally affecting the Funds and their shareholders that are not described in
the Prospectuses for the Funds. No attempt is made to present a detailed
explanation of the tax treatment of the Funds or their shareholders, and the
discussion here and in the Prospectuses is not intended as a substitute for
careful tax planning. Investors are advised to consult their tax advisers with
specific reference to their own tax situations.
All Funds
Each Fund will be treated as a separate corporate entity under the
Internal Revenue Code of 1986, as amended (the "Code"), and intends to qualify
as a "regulated investment company." By following this policy, each Fund
expects to eliminate or reduce to a nominal amount the federal income taxes to
which it may be subject. If for any taxable year a Fund of the Company does not
qualify for the special federal tax treatment afforded regulated investment
companies, all of the Fund's taxable income would be subject to tax at regular
corporate rates (without any deduction for distributions to shareholders). In
such event, the Fund's dividend distributions (including amounts derived from
interest on Municipal Securities in the case of the Tax-Exempt Money Fund and
California Tax-Exempt Money Market Fund) to shareholders would be taxable as
ordinary income to the extent of the current and accumulated earnings and
profits of the particular Fund and would be eligible for the dividends received
deduction in the case of corporate shareholders.
Qualification as a regulated investment company under the Code
requires, among other things, that each Fund distribute to its shareholders an
amount equal to at least the sum of 90% of its investment company taxable income
(if any) and 90% of its tax-exempt income (if any) net of certain deductions for
each taxable year. In general, a Fund's investment company taxable income will
be its taxable income, subject to certain adjustments and excluding the excess
of any net long-term capital gain for the taxable year over the net short-term
capital loss, if any, for such year. A Fund will be taxed on its undistributed
investment company taxable income, if any.
A Fund will not be treated as a regulated investment company under
the Code if 30% or more of the Fund's gross income for a taxable year is derived
from gains realized on the sale or other disposition of securities and certain
other investments held for less than three months (the "short-short test").
Interest (including original issue and market discount) received by a Fund upon
maturity or disposition of a security held for less than three months will not
be treated as gross income derived from the sale or other disposition of such
security within the meaning of this requirement. However, any other income that
is attributable to realized market appreciation will be treated as gross income
from the sale or other disposition of securities for this purpose.
Any distribution of the excess of net long-term capital gains over
net short-term capital losses is taxable to shareholders as long-term capital
gains, regardless of how long the shareholder has held the distributing Fund's
shares and whether such gains are received in cash or additional Fund shares.
The Fund will designate such a distribution as a capital gain dividend in a
written notice mailed to shareholders after the close of the Fund's taxable
year.
Ordinary income of individuals is taxable at a maximum nominal rate
of 39.6%; however, because of limitations on itemized deductions otherwise
allowable and the phase-out of personal exemptions, the maximum effective
marginal rate of tax for some taxpayers may be higher. An individual's long-
term capital gains are taxable at a maximum nominal rate of 28%. For
corporations, long-term capital gains and ordinary income are both taxable at a
maximum nominal rate of 35% (or at a maximum effective marginal rate of 39% in
the case of corporations having taxable income between $100,000 and $335,000).
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to currently distribute specified percentages of their
ordinary taxable income for each calendar year and capital gain net income
(excess of capital gains over capital losses). Each Fund intends to make
sufficient distributions or deemed distributions of its ordinary taxable income
and any capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.
The Company will be required in certain cases to withhold and remit
to the United States Treasury 31% of taxable dividends or gross sale proceeds
realized paid to shareholders who have failed to provide a correct tax
identification number in the manner required, who are subject to withholding by
the Internal Revenue Service for failure to properly include on their return
payments of taxable interest or dividends or who have failed to certify to the
Company that they are not subject to backup withholding when required to do so
or that are "exempt recipients."
At February 28, 1995 the Prime Fund, Treasury Fund, Government Fund,
Treasury Only Fund, Tax-Exempt Money Fund California Tax-Exempt Money Market
Fund, and Prime Value Fund had unused capital loss carryovers of approximately
$2,764,492 (of which $22,098 will expire in fiscal 1999, $1,171,786 will expire
in fiscal 2002 and $1,570,608 will expire in fiscal 2003), $239,007 (which will
expire in fiscal 2002), $1,073,801 (of which $129,811 will expire in fiscal 2002
and $943,990 will expire in fiscal 2003), $113,421 (of which $21,276 will expire
in fiscal 2002 and $92,145 will expire in fiscal 2003), $156,373 (of which
$35,348 will expire in fiscal 1997, $16,664 will expire in fiscal 1998, $14,011
will expire in fiscal 2000, $71,218 will expire in fiscal 2002 and $19,132 will
expire in fiscal 2003) and $12,116 (of which $5,893 will expire in fiscal 2001,
and $6,223 will expire in fiscal 2002 and $293,460 (of which $3,571 will expire
in fiscal 2002 and $289,889 will expire in fiscal 2003), respectively, available
for federal income tax purposes to be applied against future securities profits,
if any.
Federal - Tax-Exempt Money Fund and California Tax-Exempt Money Market Fund
The policy of the Tax-Exempt Money Fund and the California Tax-
Exempt Money Market Fund is to pay each year as exempt-interest dividends
substantially all the respective Fund's Municipal Securities interest income net
of certain deductions. An exempt-interest dividend is any dividend or part
thereof (other than a capital gains dividend) paid by a Fund and designated as
an exempt-interest dividend in a written notice mailed to shareholders after the
close of the Fund's taxable year. However, the aggregate amount of dividends so
designated by the Fund cannot exceed the excess of the amount of interest exempt
from tax under Section 103 of the Code received by the Fund during the taxable
year over any amounts disallowed as deductions under Sections 265 and 171(a)(2)
of the Code. The percentage of total dividends paid for any taxable year which
qualifies as exempt-interest dividends will be the same for all shareholders
receiving dividends from the Fund for such year. In order for the Tax-Exempt
Money Fund and California Tax-Exempt Money Market Fund to pay exempt-interest
dividends for any taxable year, at the close of each quarter of its taxable year
at least 50% of the aggregate value of the respective Fund's assets must consist
of exempt-interest obligations.
Exempt-interest dividends may be treated by shareholders of the Tax-
Exempt Money Fund and the California Tax-Exempt Money Market Fund as items of
interest excludable from their gross income under Section 103(a) of the Code.
However, each shareholder is advised to consult his or her tax adviser with
respect to whether exempt-interest dividends would retain the exclusion under
Section 103(a) if such shareholder would be treated as a "substantial user" or a
"related person" to such user with respect to facilities financed through any of
the tax-exempt obligations held by the respective Funds. A "substantial user"
is defined under U.S. Treasury Regulations to include a non-exempt person who
both (1) regularly uses a part of such facilities in his or her trade or
business and (2) whose gross revenues derived with respect to the facilities
financed by the issuance of bonds are more than 5% of the total revenues derived
by all users of such facilities, who occupies more than 5% of the usable area of
such facilities or for whom such facilities or a part thereof were specifically
constructed, reconstructed or acquired. A "related person" includes certain
related natural persons, affiliated corporations, partners and partnerships and
S corporations and their shareholders. A percentage of the interest on
indebtedness incurred by a shareholder to purchase or carry shares of the Fund,
equal to the percentage of the total non-capital gain dividends distributed
during the shareholder's taxable year that are exempt-interest dividends, is not
deductible for federal income tax purposes.
Income itself exempt from federal income taxation will be considered
in addition to adjusted gross income when determining whether Social Security
payments received by a shareholder are subject to federal income taxation.
California - California Tax-Exempt Money Market Fund
As a regulated investment company, the California Tax-Exempt Money
Market Fund will be relieved of liability for California state franchise and
corporate income tax to the extent the Fund's taxable income is distributed to
its shareholders. The Fund will be taxed on its undistributed taxable income.
If for any year the Fund does not qualify as a regulated investment company, all
of its taxable income (including interest income on California Municipal
Securities for franchise tax purposes only) may be subject to California state
franchise or income tax at regular corporate rates.
If, at the close of each quarter of its taxable year, at least 50%
of the value of the total assets of a regulated investment company, or series
thereof, consists of obligations the interest on which, if held by an
individual, is exempt from taxation by California ("California Exempt
Securities"), then the regulated investment company, or series of that company,
will be qualified to pay dividends exempt from California state personal income
tax to its non-corporate shareholders (hereinafter referred to as "California
exempt-interest dividends"). For this purpose, California Exempt Securities are
generally limited to California Municipal Securities and certain U.S. Government
and U.S. Possession obligations. "Series" of a regulated investment company is
defined as a segregated portfolio of assets, the beneficial interest in which is
owned by the holders of an exclusive class or series of stock of the company.
The California Tax-Exempt Money Market Fund intends to qualify under the above
requirements so that it can pay California exempt-interest dividends. If the
Fund does not so qualify, no part of its respective dividends to shareholders
will be exempt from the California state personal income tax.
Within sixty days after the close of its taxable year, the
California Tax-Exempt Money Market Fund will notify its respective shareholders
of the portion of the dividends paid by the Fund to each shareholder with
respect to such taxable year which is exempt from California state personal
income tax. The total amount of California exempt-interest dividends paid by
the Fund with respect to any taxable year cannot exceed the excess of the amount
of interest received by the Fund for such year on California Exempt Securities
over any amounts that, if the Fund were treated as an individual, would be
considered expenses related to tax exempt income or amortizable bond premium and
would thus not be deductible under federal income or California state personal
income tax law. The percentage of total dividends paid for any taxable year
which qualifies as California exempt-interest dividends will be the same for all
shareholders receiving dividends from the Fund for such year.
In cases where shareholders are "substantial users" or "related
persons" with respect to California Exempt Securities held by the California Tax-
Exempt Money Market Fund, such shareholders should consult their tax advisers to
determine whether California exempt-interest dividends paid by the Fund with
respect to such obligations retain California state personal income tax
exclusion. In this connection rules similar to those regarding the possible
unavailability of federal exempt-interest dividend treatment to "substantial
users" are applicable for California state tax purposes. See "Additional
Information Concerning Taxes - Federal - Tax-Exempt Money Fund and California
Tax-Exempt Money Market Fund" above. Interest on indebtedness incurred by a
shareholder to purchase or carry California Tax-Exempt Money Market Fund shares
is not deductible for California state personal income tax purposes if the Fund
distributes California exempt-interest dividends during the shareholder's
taxable year.
The foregoing is only a summary of some of the important California
state personal income tax considerations generally affecting the California Tax-
Exempt Money Market Fund and its shareholders. No attempt is made to present a
detailed explanation of the California state personal income tax treatment of
the Fund or its shareholders, and this discussion is not intended as a
substitute for careful planning. Further, it should be noted that the portion
of any Fund dividends constituting California exempt-interest dividends is
excludable from income for California state personal income tax purposes only.
Any dividends paid to shareholders subject to California state franchise tax or
California state corporate income tax may therefore be taxed as ordinary or
capital gains dividends to such purchasers notwithstanding that all or a portion
of such dividends is exempt from California state personal income tax.
Accordingly, potential investors in the Fund, including, in particular,
corporate investors which may be subject to either California franchise tax or
California corporate income tax, should consult their tax advisers with respect
to the application of such taxes to the receipt of Fund dividends and as to
their own California state tax situation, in general.
Other Information
Depending upon the extent of activities in states and localities in
which its offices are maintained, in which its agents or independent contractors
are located or in which it is otherwise deemed to be conducting business, a Fund
may be subject to the tax laws of such states or localities.
Exempt-interest dividends generally will be exempt from state and
local taxes as well. However, except as noted above with respect to California
state personal income tax, in some situations income distributions may be
taxable to shareholders under state or local law as dividend income even though
all or a portion of such distributions may be derived from interest on tax-
exempt obligations or U.S. Government obligations which, if realized directly,
would be exempt from such income taxes. Shareholders are advised to consult
their tax advisers concerning the application of state and local taxes.
The foregoing discussion is based on tax laws and regulations which
are in effect on the date of this Statement of Additional Information. Such
laws and regulations may be changed by legislative or administrative action.
YIELD INFORMATION
The "yields" and "effective yields" of each Fund are calculated
according to formulas prescribed by the Securities and Exchange Commission. The
standardized seven-day yield for each Fund's series of shares is computed
separately for each series by determining the net change, exclusive of capital
changes, in the value of a hypothetical pre-existing account in the particular
Fund involved having a balance of one share at the beginning of the period,
dividing the net change in account value by the value of the account at the
beginning of the base period to obtain the base period return, and multiplying
the base period return by (365/7). The net change in the value of an account in
a Fund includes the value of additional shares purchased with dividends from the
original share, and dividends declared on both the original share and any such
additional shares, net of all fees, other than nonrecurring account or sales
charges, that are charged to all shareholder accounts in proportion to the
length of the base period and the Fund's average account size. The capital
changes to be excluded from the calculation of the net change in account value
are realized gains and losses from the sale of securities and unrealized
appreciation and depreciation. The effective annualized yields for each Fund
are computed by compounding a particular Fund's unannualized base period returns
(calculated as above) by adding 1 to the base period returns, raising the sums
to a power equal to 365 divided by 7, and subtracting 1 from the results. In
addition, the Tax-Exempt Money Fund and California Tax-Exempt Money Market Fund
may quote a standardized "tax-equivalent yield" for each of its series of shares
which is computed by: (a) dividing the portion of the Fund's yield (as
calculated above) for such series that is exempt from federal, or in the case of
the California Tax-Exempt Money Market Fund both federal and California state,
income tax by one minus a stated federal, or in the case of the California Tax-
Exempt Money Market Fund a combined federal and California state, income tax
rate; (b) with respect to the California Tax-Exempt Money Market Fund dividing
the portion of that Fund's yield (as calculated above) that is exempt from
federal income tax only by one minus a federal income tax rate, and (c) adding
the figure resulting from (a) above (with respect to the Tax-Exempt Money Fund)
or from (a) and (b) above (with respect to the California Tax-Exempt Money
Market Fund) to that portion, if any, of the Fund's yield for such series of
shares that is not exempt from federal income tax. The fees which may be
imposed by institutions directly on their customers for cash management services
are not reflected in the Funds' calculations of yields.
Based on the foregoing calculations, for the seven-day period ended
February 28, 1995, the yield (and effective yield) for Horizon Shares and the
Horizon Service Shares of the Prime Fund, Treasury Fund, Government Fund,
Treasury Only Fund, Tax-Exempt Money Fund and Prime Value Fund after fee waivers
and expense reimbursements by Bank of America and the Administrator, were as
follows: Prime Fund - Horizon Shares -- 5.96% (6.13%); Prime Fund - Horizon
Service Shares -- 5.71% (5.87%); Treasury Fund - Horizon Shares -- 5.81%
(5.97%); Treasury Fund - Horizon Service Shares -- 5.56% (5.71%); Government
Fund - Horizon Shares -- 5.98% (6.15%); Government Fund - Horizon Service
Shares -- 5.73% (5.89%); Treasury Only Fund - Horizon Service Shares -- 5.14%
(5.26%); Tax-Exempt Money Fund - Horizon Shares -- 3.73% (3.79%); Tax-Exempt
Money Fund - Horizon Service Shares -- 3.48% (3.53%) and Prime Value Fund -
Horizon Shares -- 5.96% (6.14%). For the same period, the tax-equivalent yield
for the Tax-Exempt Money Fund was 5.41% for Horizon Shares and 5.04% for Horizon
Service Shares. The federal income tax rate used in calculating the tax-
equivalent yields of the Tax-Exempt Money Fund was 31%. The annualized yield,
effective yield and tax-equivalent yield (after fee waivers and expense
reimbursements) for Horizon Service Shares of the California Tax-Exempt Money
Market Fund was 3.43%, 3.48% and 5.25%, respectively, for the seven-day period
ended February 28, 1995. The combined federal and California income tax rate
used in calculating the foregoing tax-equivalent yields was 34.70%.
No Horizon Service Shares of the Prime Value Fund were outstanding
during the seven-day period ended February 28, 1995.
From time to time, the yields of the Funds may be quoted in and
compared to other mutual funds with similar investment objectives in
advertisements, shareholder reports or other communications to shareholders.
The Funds may also include calculations in such communications that describe
hypothetical investment results. (Such performance examples will be based on an
express set of assumptions and are not indicative of the performance of any
Fund.) Such calculations may from time to time include discussions or
illustrations of the effects of compounding in advertisements. "Compounding"
refers to the fact that, if dividends or other distributions on a Fund
investment are reinvested by being paid in additional Fund shares, any future
income of a Fund would increase the value of the Fund investment more quickly
than if dividends or other distributions had been paid in cash. The Funds may
also include discussions or illustrations of the potential investment goals of a
prospective investor (including but not limited to tax and/or retirement
planning), investment management techniques, policies or investment suitability
of a Fund, economic conditions, legislative developments (including pending
legislation), the effects of inflation and historical performance of various
asset classes. From time to time advertisements or communications to
shareholders may summarize the substance of information contained in shareholder
reports (including the investment composition of a Fund), as well as the views
of the investment adviser as to current market, economic, trade and interest
rate trends, legislative, regulatory and monetary developments, investment
strategies and related matters believed to be of relevance to a Fund. The Funds
may also include in advertisements charts, graphs or drawings which illustrate
the potential risks and rewards of investment in various investment vehicles.
In addition, advertisements or shareholder communications may include a
discussion of certain attributes or benefits to be derived by an investment in a
Fund. Such advertisements or communications may include symbols, headlines or
other material which highlight or summarize the information discussed in more
detail therein. With proper authorization, a Fund may reprint articles (or
excerpts) written regarding the Fund and provide them to prospective
shareholders. Performance information with respect to the Funds is generally
available by calling (800) 227-1545.
In addition to the publications listed in the Funds' Prospectuses,
yield data as reported in the following publications may be used in comparing
the yields of the Funds to those of other mutual funds with similar investment
objectives: Business Week, Investor's Business Daily, Kiplinger, U.S. News,
Financial World, USA Today, Morningstar, Mutual Fund Monitor, and American
Banker.
GENERAL INFORMATION
Description of Shares
The Company is an open-end management investment company organized
as a Maryland corporation on October 27, 1982. The Fund's Charter authorizes
the Board of Directors to issue up to two hundred billion full and fractional
shares of capital stock. The Board of Directors has authorized the issuance of
twenty-three classes of stock - Classes A through W, Common Stock representing
interests in twenty-three separate investment portfolios. Each share of capital
stock has a par value of $.001. This Statement of Additional Information
describes the Horizon and Horizon Service Shares of the Prime, Treasury,
Government, Treasury Only, Tax-Exempt Money, California Tax-Exempt Money Market
(Horizon Service Shares Only) and Prime Value Funds.
Shares have no preemptive rights and only such conversion or
exchange rights as the Board may grant in its discretion. When issued for
payment as described in its prospectuses, the Company's shares will be fully
paid and non-assessable. For information concerning possible restrictions upon
the transferability of the Company's shares and redemption provisions with
respect to such shares, see "Purchase and Redemption Information" in this
Statement of Additional Information.
The Funds' Horizon Shares and Horizon Service Shares differ from
Pacific Horizon Shares in the following respects. Only Pacific Horizon Shares
are subject to the Special Management Services fee described in the prospectuses
for such shares, which is payable at the rate of .32% (on an annualized basis)
of the average daily net asset value of the Pacific Horizon Shares that are
outstanding from time to time. Only Horizon Service Shares bear the fees
payable under the Shareholder Services Plan described below, which are payable
at the rate of up to .25% (on an annualized basis) of the average daily net
asset value of the Horizon Service Shares that are outstanding from time to
time. As a result, at any given time, the net yield on a Fund's Horizon Shares
will be approximately .25% higher than the yield on that Fund's Horizon Service
Shares and .32% higher than the yield on the same Fund's Pacific Horizon Shares.
Standardized yield quotations will be computed separately for each series of
shares.
Holders of all outstanding shares of a particular Fund will vote
together in the aggregate and not by class on all matters, except that only
Horizon Service Shares of a Fund will be entitled to vote on matters submitted
to a vote of shareholders pertaining to the Fund's payments to Service
Organizations and only Pacific Horizon Shares of a Fund will be entitled to vote
on matters submitted to a vote of shareholders pertaining to the expenses that
are borne exclusively by such shares. Further, shareholders of all of the
Funds, as well as those of any other investment portfolio now or hereafter
offered by the Company, will vote together in the aggregate and not separately
on a Fund-by-Fund basis, except as otherwise required by law or when permitted
by the Board of Directors. Rule 18f-2 under the 1940 Act provides that any
matter required to be submitted to the holders of the outstanding voting
securities of an investment company such as the Company shall not be deemed to
have been effectively acted upon unless approved by a majority of the
outstanding shares of each Fund affected by the matter. A Fund is affected by a
matter unless it is clear that the interests of each Fund in the matter are
substantially identical or that the matter does not affect any interest of the
Fund. Under the Rule, the approval of an investment advisory agreement or any
change in a fundamental investment policy would be effectively acted upon with
respect to a Fund only if approved by a majority of the outstanding shares of
such Fund. However, the Rule also provides that the ratification of independent
public accountants, the approval of principal underwriting contracts and the
election of directors may be effectively acted upon by shareholders of the
Company voting in the aggregate without regard to particular Funds.
Notwithstanding any provision of Maryland law requiring a greater
vote of the Company's common stock (or of the shares of a Fund voting separately
as a class) in connection with any corporate action, unless otherwise provided
by law (for example, by Rule 18f-2 discussed above) or by the Company's Charter,
the Company may take or authorize such action upon the favorable vote of the
holders of more than 50% of the outstanding common stock of the Company voting
without regard to class.
Horizon Service Shares
As stated in the Prospectuses for such Shares, Horizon Service
Shares are sold to institutions ("Service Organizations") which enter into
service agreements requiring them to provide support services to their customers
who beneficially own Horizon Service Shares in consideration of the Funds'
payment of up to .25% (on an annualized basis) of the average daily net asset
value of the Horizon Service Shares beneficially owned by the customers. For
the fiscal years ended February 28, 1993, February 28, 1994, and February 28,
1995, payments to Shareholder Organizations totalled $1,935,140, $2,029,346 and
$2,115,780, respectively, with respect to the Horizon Service Shares of the
Prime Fund, $758,331, $1,231,895 and $989,269, respectively, with respect to
Horizon Service Shares of the Treasury Fund, and $118,727, $118,946 and
$103,606, respectively, with respect to the Horizon Service Shares of the Tax-
Exempt Money Fund. Of these amounts, for the fiscal years indicated,
$1,578,092, $940,512 and $391,875, respectively, $716,174, $1,160,141 and
$224,434, respectively, and $95,544, $56,412 and $28,442, respectively, were
paid to Bank of America (Security Pacific prior to April 22, 1992) and/or its
(their) affiliates with respect to the Prime Fund, Treasury Fund and Tax-Exempt
Money Fund, respectively, and $0 was paid to the Administrator and/or its
affiliates with respect to the Prime Fund, Treasury Fund and Tax-Exempt Money
Fund, respectively.
For the fiscal year ended February 28, 1994, payments to Shareholder
Organizations totaled $884,419 and $323,937, respectively with respect to the
Government Fund and Treasury Only Fund. Of these amounts, $445,463 and
$213,799, respectively was paid by the Government Fund and Treasury Only Fund to
Bank of America and/or its affiliates, and $0 and $0, respectively was paid by
the Government Fund and Treasury Only Fund to the Administrator and/or its
affiliates. In addition, during the same period, Bank of America, the
Administrator and Service Organizations waived fees totaling $160,284 for the
Government Fund and $171,993 for the Treasury Only Fund. For the fiscal year
ended February 28, 1995, payments to Shareholder Organizations totaled $590,188
and $604,380, respectively, with respect to the Government Fund and Treasury
Only Fund. Of these amounts, $132,934 and $569,889, respectively, were paid by
the Government Fund and Treasury Only Fund to Bank of America and/or its
affiliates, and $0 was paid by the Government Fund and the Treasury Only Fund to
the Administrator and/or its affiliates.
Horizon Service Shares of the California Tax-Exempt Money Market
Fund were first offered on March 1, 1993. For the fiscal year ended February
28, 1994, payments to Service Organizations totalled $294,140. Of this amount
$226,495 was paid to Bank of America and/or its affiliates; and $0 was paid to
the Administrator and/or its affiliates. In addition, Bank of America, the
Administrator and/or its affiliates waived fees totaling $59,369. For the
fiscal year ended February 28, 1995, payments to Service Organizations totalled
$255,299 with respect to the California Tax-Exempt Money Market Fund. Of this
amount, $251,505 was paid to Bank of America and/or its affiliates, and $0 was
paid to the Administrator and/or its affiliates. No Horizon Service Shares were
outstanding at any time prior to February 28, 1995 with respect to the Prime
Value Fund.
Services provided by Shareholder Organizations under service
agreements may include: (i) aggregating and processing purchase and redemption
requests for Horizon Service Shares from customers and placing net purchase and
redemption orders with the Distributor; (ii) providing customers with a service
that invests the assets of their accounts in Horizon Service Shares pursuant to
specific or pre-authorized instructions; (iii) processing dividend payments on
behalf of customers; (iv) providing information periodically to customers
showing their positions in Horizon Service Shares; (v) arranging for bank wires;
(vi) responding to customer inquiries relating to the services performed by the
Shareholder Organizations; (vii) providing subaccounting with respect to Horizon
Service Shares beneficially owned by customers or providing the information to
the Company necessary for subaccounting; (viii) if required by law, forwarding
shareholder communications from the Company (such as proxies, shareholder
reports, annual and semi-annual financial statements and dividend, distribution
and tax notices) to customers; (ix) forwarding to customers proxy statements and
proxies containing any proposals regarding the Company's arrangements with
Shareholder Organizations; and (x) providing such other similar services as
requested by the Funds.
Pursuant to an exemptive order granted by the Securities and
Exchange Commission in connection with the creation of Horizon Service Shares,
the Company's agreements with Shareholder Organizations are governed by a Plan
(called a "Shareholder Services Plan"). The Plan has been approved by the Board
of Directors of the Company, including a majority of the Directors who are not
"interested persons" of the Company as defined in the Investment Company Act of
1940 and have no direct or indirect financial interest in the Plan or any
related service agreement (the "Disinterested Directors"). In approving the
Plan, the Directors determined that there was a reasonable likelihood that it
would be beneficial to each Fund and to the holders of its Horizon Service
Shares. The Plan will continue with respect to each Fund until October 31,
1995, unless earlier terminated in accordance with its terms, and thereafter it
will continue in effect indefinitely provided that the Directors approve the
Plan at least annually in the manner described above.
Under the Plan, the Board of Directors must be provided with and
must review, at least quarterly, a written report of all amounts expended
pursuant to the Plan. The Plan and any service agreements implementing the Plan
must be in writing. The Plan may be terminated at any time with respect to any
Fund by a vote of the majority of the Disinterested Directors. Each service
agreement under the Plan is also terminable at any time without payment of any
penalty by a vote of a majority of the Disinterested Directors. Any material
amendment of the Plan must be approved by a majority vote of the Board of
Directors and of the Disinterested Directors cast in person at a meeting called
for the purpose of voting on the amendment.
With respect to the purchase or sale of portfolio securities and the
execution of portfolio transactions, no Fund will give preference to Shareholder
Organizations with which the Fund enters into service agreements.
First Cash Funds of America, pursuant to an Administrative Services
Plan, had previously entered into a shareholder servicing agreement with Bank of
America (and prior to that shareholder servicing agreement had entered into a
shareholder servicing agreement with Seattle-First National Bank, an affiliate
of Bank of America). Under the shareholder servicing agreement, Bank of
America, as shareholder servicing agent, or an affiliate of Bank of America
pursuant to a sub-shareholder servicing agreement, provided certain services to
shareholders in exchange for a fee from each Predecessor Fund of First Cash
Funds of America not in excess of .20% of the average daily net assets of such
Predecessor Fund. Such fees were actually incurred by the Predecessor
Government Fund of First Cash Funds of America at the effective annual rate of
.12% of its average daily net assets and by the Predecessor Treasury Only Fund
of First Cash Funds of America at the effective annual rate of .06% of its
average daily net assets for the period ended February 28, 1993. For the period
June 4, 1990 (commencement of operations) through March 31, 1991 (fiscal year
end), the fiscal year ended March 31, 1992 and the period April 1, 1992 through
February 28, 1993, the Predecessor Government Fund and Predecessor Treasury Only
Fund of First Cash Funds of America, respectively, accrued shareholder servicing
fees of $269,126 (of which $46,068 was waived), $501,845 (of which $170,760 was
waived) and $378,058 (of which $138,771 was waived), respectively, and $76,982
(of which $69,283 was waived), $253,503 (of which $164,166 was waived) and
$234,373 (of which $160,559 was waived), respectively.
Counsel
Drinker Biddle & Reath (of which W. Bruce McConnel, III, Secretary
of the Company, is a partner), 1345 Chestnut Street, Philadelphia National Bank
Building, Philadelphia, Pennsylvania 19107, serves as counsel to the Company and
will pass upon the legality of the shares offered hereby. O'Melveny & Myers,
400 South Hope Street, Los Angeles, California 90071, acts as special California
counsel for the Company and has reviewed the portions of the Prospectus and
Statement of Additional Information for the California Tax-Exempt Money Market
Fund concerning California taxes and the description of the special
considerations relating to California Municipal Securities.
Independent Accountants
Price Waterhouse LLP, with offices at 1177 Avenue of the Americas,
New York, New York 10036, has been selected as independent accountants of each
Fund for the fiscal year ending February 28, 1996. Deloitte & Touche LLP served
as independent accountants for the Predecessor Government Funds and Predecessor
Treasury Only Funds for the 11-month period ended February 28, 1993, the fiscal
year ended March 31, 1992 and the period from June 4, 1990 (commencement of
operations) through March 31, 1991.
Reports
Each Fund will send its shareholders unaudited semi-annual reports
including a description of the Fund's investments, and annual financial
statements together with a report of independent accountants.
Shareholder Vote
As used in the Prospectuses and this Statement of Additional
Information, a "vote of a majority" of the outstanding shares of a Fund or a
particular series means, with respect to the approval of an investment advisory
agreement, a distribution plan or a change in a fundamental investment policy,
the affirmative vote of the lesser of (a) more than 50% of the outstanding
shares of the Fund or of the series, or (b) 67% of the shares of the Fund or of
the series present at a meeting at which more than 50% of the outstanding shares
of the Fund or series are represented in person or by proxy.
At June 15, 1995, the name, address and share ownership of the
entities which held of record more than 5% of the outstanding Pacific Horizon
Shares of the Treasury Fund were as follows: BA Investment Services Inc., For
the Benefit of Clients, 555 California Street, 4th Floor, Department #4337,
San Francisco, CA 94104, 98,230,626.530 shares (7.70%); Bank of America State
Trust Co., 299 N. Euclid Avenue, Pasadena, CA 91101, 1,044,975,154.790 shares
(82.00%); and Hellman & Freidman Capital Partners II, Limited Partnership,
Attention: Georgia Lee, 1 Maritime Plaza, 12th Floor, San Francisco, CA 94111,
1,216,118,073.700 shares (095.42%).
At June 16, 1995, the name, address and share ownership of the
entities which held of record more than 5% of the outstanding Horizon Shares of
the Treasury Fund was as follows: Bank of America Trustee/Custodian for
Investing in Horizon Treasury, Attn: Eric Peterson, 701 S. Western Avenue, 2nd
Floor, Glendale, CA 91201, 398,540,438.170 shares (68.901%); Security Pacific
State Trust Co., Agreement for Sec. PACWA Participants, Attn: Cash Sweep Funds
(L. Goekjian), P.O. Box 91630, Pasadena, CA 91101, 94,279,024.120 shares
(16.299%).
At June 16, 1995, the name, address and share ownership of the
entities which held beneficially more than 5% of the outstanding Horizon Service
Shares of the Treasury Fund were as follows: Bank of America FM&TS Operat CA,
Attn: CTF Unit, 701 South Western Avenue, Glendale, CA 91201, 65,745,555.320
shares (23.658%); Bank of America Nevada Southern Comm. Bank, Attn: Dan Dykes,
P.O. Box 98600, Las Vegas, NV 89193, 63,974,589.270 shares (23.020%). Security
Pacific State Trust Co., Agreement for Sec. PACWA Participants, Attn: Cash Sweep
Funds, P.O. Box 91630, Pasadena, CA 91101, 56,906,301.540 shares (20.477%); and
Security Pacific Cash Management, c/o Bank of America - GPO M/C 5533, Attn:
Liezel Barangan, 1850 Gateway Boulevard, Concord, CA 94520, 77,003,300 shares
(27.709%). At June 15, 1995, the name, address and, share ownership of the
entity which held of record more than 5% of the outstanding Horizon Service
Shares of the Treasury Fund was as follows: Omnibus A/C for the Shareholder
Accounts maintained by Concord Financial Services, Inc., Attn: Linda Zerbe,
First and Market Building, 100 First Avenue, Suite 300, Pittsburgh, PA 15222,
263,629,755.130 shares (65.51%). At June 15, 1995 the name, address and share
ownership of the entities which held of record more than 5% of the outstanding
Pacific Horizon Shares of the Prime Fund were as follows: BA Investment
Services Inc., For the Benefit of Clients, 555 California Street, 4th Floor,
Department #4337, San Francisco, CA 94104, 514,119,226.900 shares (38.76%); Bank
of America State Trust Co., 299 N. Euclid Avenue, Pasadena, CA 91101,
392,983,248.780 shares (29.63%); and Southwest Securities Inc., Attn:
Cashiering, 201 Elm Street, Suite 4300, Dallas, TX 75270, 169,018,910.270 shares
(12.74%). At June 16, 1995, the name, address and share ownership of the
entities which held of record more than 5% of the outstanding Horizon Shares of
the Prime Fund were as follows: Bank of America Trustee/Custodian for Investing
Horizon Prime, Attn: Eric Peterson, 701 S. Western Avenue, 2nd Floor, Glendale,
CA 91201, 385,058,852.030 shares (56.838%); and Bank of America NT&SA, Attn: Kay
Warren/Dept. #5596, 1455 Market Street, San Francisco, CA 94103, 57,300,000.00
shares (9.934%). At June 15, 1995, the name, address and share ownership of the
entity which held of record more than 5% of the outstanding Horizon Service
Shares of the Prime Fund were as follows: Omnibus A/C for the Shareholder
Accounts maintained by Concord Financial Services, Inc., Attn: Linda Zerbe,
First and Market Building, 100 First Avenue, Suite 300, Pittsburgh, PA 15222,
752,776,315.610 shares (70.26%).
At June 16, 1995, the name, address and share ownership of the
entities which held beneficially more than 5% of the outstanding Horizon Service
Shares of the Prime Fund were as follows: Bank of America NT&SA Financial
Management and Trust Services, 701 S. Western Avenue, Glendale, CA 91201,
74,038,082.090 shares (9.835%); Capital Network Services, Attn: Donna Novell,
One Bush Street, 11th Floor, San Francisco, CA 94104, 86,407,261.23 shares
(11.478%); Security Pacific Cash Management, c/o Bank of America. GPO. M/C 5533
Attn: Liezel Barangan, 1850 Gateway Boulevard, M/C 5533, Concord, CA 94520,
379,755,600.000 shares (50.447%); Security Pacific State Trust Co., Agreement
for SecPAC WA Participants, Attn: Cash Sweep Funds (L. Goekjian) P.O. Box 91630,
Pasadena, CA 91101, 54,321,621.330 shares (7.216%); and Southwest Securities
Inc., Attn: Mary Lisenber, 1201 Elm Street, Suite 4300, Dallas, TX 75270,
130,146,660.030 shares (17.289%).
At June 15, 1995, the name, address and share ownership of the
entities which held of record more than 5% of the outstanding Pacific Horizon
Shares of the Tax-Exempt Money Fund were as follows: BA Investment Services,
Inc., For the Benefit of Clients, 555 California Street, 4th Floor, Department
#4337, San Francisco, CA 94104, 12,233,845.190 shares (39.73%); Southwest
Securities Inc., Attn: Cashiering, 1201 Elm Street, Suite 4300, Dallas, TX,
75270, 10,387,253.930 shares (33.73%); and Bank of America State Trust Co., 299
N. Euclid Avenue, Pasadena, CA 91101, 6,515,635.730 shares (21.16%).
At June 16, 1995, the name, address and share ownership of the
entities which held of record more than 5% of the outstanding Horizon Shares of
the Tax-Exempt Money Fund were as follows: Bank of America Custodian For
Investing in Horizon Tax-Exempt Money Fund, Attn: Eric Peterson, 701 S. Western
Avenue, 2nd Floor, Glendale, CA 19201, 129,582,555.65 shares (38.576%);
Continental Bank National Association Custodian for the Benefit of Custodian Co.
Attn: Mary Chester, 231 South LaSalle Street, 6Q, Chicago, IL 60697,
152,699,416.270 shares (45.458%); and Maine Midland Bank NA, Investment
Services, 17th Floor, Attn: Christine Mincel, One Marine Midland Center,
Buffalo, NY 14203, 21,684,672.980 shares (6.455%).
At June 15, 1995, the name, address and share ownership of the
entities which held of record more than 5% of the outstanding shares of the
Horizon Service Shares of the Tax-Exempt Money Fund were as follows: Furman C.
Moseley and Susan R. Moseley Tenn. In Common, 1201 3rd Avenue, Box 7C, Seattle,
WA 98101, 4,165,513.060 shares (9.91%); Omnibus A/C for the shareholder accounts
maintained by Concord Financial Services Inc., Attn: Linda Zerbe, First and
Market Building, 100 First Avenue, Suite 300, Pittsburgh, PA 15222,
22,398,544.590 shares (53.31%); and Omnibus A/C for the Shareholder Accounts
maintained by Concord Financial Services Inc. Attn: First and Market Building,
100 First Avenue, Suite 300, Pittsburgh, PA 15222, 3,494,305.180 shares (8.31%).
At June 16, 1995, the name, address and share ownership of the entities which
held beneficially more than 5% of the outstanding Horizon Service Shares of the
Tax-Exempt Money Fund were as follows: BA Investment Services Inc., 555
California Street, 4th Floor Dept. #4337, San Francisco, CA 94104, 1,362,028.590
shares (5.260%); Bank of America FM&TS Oper. CA, Attn: CTF Unit, 701 South
Western Avenue, Glendale, CA 91201, 2,293,907.40 shares (8.859%); and Southwest
Securities, Inc., Attn: Mary Lisenber, 1201 Elm Street, Suite 430, Dallas, TX
75270, 21,021,580.530 shares (81.187%). At June 15, 1955, the name, address and
share ownership of the entities which held of record more than 5% of the
outstanding Pacific Horizon Shares of the Government Fund were as follows: Bank
of America, NT&SA, The Private Bank, Attn: ACI Unit #8329, 701 S. Western
Avenue, Glendale, CA 91201, 79,875,532.090 shares (22.71%); Bank of America
State Trust Co., 299 N. Euclid Avenue., Pasadena, CA 91101, 64,756,966.280
shares (18.41%); and BA Investment Services Inc., For the Benefit of Clients,
555 California Street, 4th Floor, Department #4337, San Francisco, CA 94104,
170,940,404.650 shares (48.60%). At June 16, 1995, the name, address and share
ownership of the entities which held of record more than 5% of the outstanding
Horizon Shares of the Government Fund were as follows: Bank of America NT&SA
Trustee/Custodian for Investing in Horizon Shares of the Government Fund, Attn:
Cynthia Beauvais, 701 South Western Avenue., Glendale, CA 91201, 9,327,446.350
shares (5.028%); Bank of America State Trust, Attn: Rigo Barrett, 299 N. Euclid
Avenue, Pasadena, CA 91101, 28,063,486.740 shares (15.129%); Capital Network
Services, Attn: Donna Novell, One Bush Street, 11th Floor, San Francisco, CA
94104, 24,227,801.980 shares (13.061%); County of Orange, Matt Raabe, P.O. Box
4515, Santa Ana, CA 92702, 10,000,000.000 shares (5.391%); Cypress Insurance
Co., Attn: Larry Tetzloff, 9290 W. Dodge Road, Omaha, NE 68124, 9,996,515.930
shares (5.389%); Harr & Co., c/o Bank of New York, Attn: Bimal Sana, Spec. Prec.
Dept., One Wall Street, 5th Floor, New York, NY 10286, 14,000,000.000 shares
(7.547%); Micron Electronics Inc., Attn: Debbie Meigand, 900 East Karcher Road,
Nanpa, ID 83687, 16,080,510.14 shares (8.669%); and Silocin Magic Corp., Attn:
Meng A. Lim, 20300 Stevens Creek Boulevard., Suite 400, Cupertino, CA 95014,
18,058,262.110 shares (9.735%). At June 15, 1995, the name, address and share
ownership of the entities which held of record more than 5% of the outstanding
Horizon Service Shares of the Government Fund were as follows: Spacelabs
Medical, Inc., Attn: Scott Bender, P.O. Box 97013, Redmond, WA 98073,
14,572,000.000 shares (5.70%); Good Health Plan of WA, Attn: Tsai Cheng, 1501
9th Avenue, Suite 500, Seattle, WA 98101, 16,584,866.580 shares (6.49%); Omnibus
A/C for the Shareholder Accounts maintained by Concord. Financial Services
Inc., Attn: Linda Zerbe, First and Market Building, 100 First Avenue, Suite 300,
Pittsburgh, PA 15222, 68,555,257.020 shares (26.85%). At June 16, 1995, the
name, address and share ownership of the entities which held beneficially more
than 5% of the Horizon Service Shares of the Government Fund were as follows:
Bank of America Nevada Southern Comm. Bank, Attn: Dan Dykes, P.O. Box 98600, Las
Vegas, NV 89193-8600, 35,849,966.050 shares (52.294%); and Capital Network
Services, Attn: Donna M. Howell, One Bush Street, 11th Floor, San Francisco, CA
94104-4425, 23,929,840.440 shares (34.906%). At June 15, 1995, the name,
address and share ownership of the entities which held of record more than 5% of
the Pacific Horizon Shares of the Treasury Only Fund were as follows: Bank of
America NT&SA, the Private Bank, Attn: ACI Unit 48329, 701 South Western Avenue,
Glendale, CA 91201, 48,516,900.490 shares (31.68%) Bank of America State Trust
Co., 299 N. Euclid Avenue, Pasadena, CA 91101, 22,350,831.320 shares (14.59%);
and BA Investment Services Inc., For the Benefit of Clients, 555 California
Street, 4th Floor, Department #4337, San Francisco, CA 94104, 69,016,521.500
shares (45.06%). At June 15, 1995, the name, address and share ownership of the
entities which held of record more than 5% of the outstanding Horizon Service
Shares of the Treasury Only Fund were as follows: National Home Mortgage Corp.,
Attn: Mortgage Banking Treasury Operations, 5565 Morehouse Drive, 3rd Floor, San
Diego, CA 92121, 12,147.667,580 shares (9.42%); Comcare, Inc., 4001 N. 3rd
Street, Suite 120, Phoenix, AZ 85012, 26,230,243.620 shares (20.34%); and
Omnibus A/C For the Shareholder Accounts Maintained by Concord Financial
Services Inc., Attn: Linda Zerbe, First and Market Building, 100 First Avenue,
Suite 300, Pittsburgh, PA 15222, 21,883,084.450 shares (16.97%). At June 16,
1995, the name, address and share ownership of the entities which held
beneficially more than 5% of the outstanding Horizon Service Shares of the
Treasury Only Fund were as follows: BA Investment Service Inc., 555 California
Street, 4th Floor Dept. #4337, San Francisco, CA 94104, 6,403,628.120 shares
(28.679%); Bank of America NT&SA Trustee/Custodian for Investing in Horizon
Service Shares of the Treasury Only Fund, Attn: Cynthia Beauvais, 701 South
Western Avenue, Glendale, CA 91201, 3,501,414.020 shares (15.681%); Bank of
America State Trust, Attn: Rigo Barrett, 299 N. Euclid Avenue, Pasadena, CA
91101, 5,420,893.150 shares (24.277%); Fair Isaac & Co., Attn: Christine Tam,
120 North Redwood, San Rapheal, CA 94903-1996, 1,338,800.750 shares (5.996%);
Foothill/Eastern Transportation Corridor Agency, Attn: Laura Barker, 201 East
Sandpot, Suite 200, Santa Anna, CA 92707, 2,559,586.380 shares (11.463%); and
Nexus, Attn: Kathleen Menace, P.O. Box 60637, Sunnyvale, CA 94088-0637,
2,525,153.380 shares (11.309%). At June 15, 1995, the name, address and share
ownership of the entities which held of record more than 5% of the outstanding
Pacific Horizon Shares of the Prime Value Fund were as follows: BA Investment
Services Inc., For the Benefit of Clients, 555 California Street, 4th Floor,
Department #4337, San Francisco, CA 94104, 16,383,467.170 shares (26.45%); and
Bank of America State Trust Co., Attn: Leon Goekjian, P.O. Box 91630, Pasadena,
CA 91101, 45,078,465.290 shares (72.79%). At June 16, 1995, the name, address
and share ownership of the entity which held of record more than 5% of the
outstanding Horizon Shares of the Prime Value Fund was as follows: Tice & Co.,
c/o M&T, Attn: Cash Management Clerk, 8th Floor, P.O. Box 1377, Buffalo, NY
14240, 453,078,561.590 shares (93.510%). At June 15, 1995, the name, address
and share ownership of the entity which held of record more than 5% of the
outstanding shares of the Pacific Horizon Shares of the California Tax-Exempt
Money Market Fund was as follows: BA Investment Services Inc., For the Benefit
of Clients, 555 California Street, 4th Floor, Department #4337, San Francisco,
CA 94104, 204,443,886.590 shares (22.07%). At June 15, 1995, the name, address
and share ownership of the entities which held of record more than 5% of the
outstanding shares of the Horizon Service Shares of the California Tax-Exempt
Money Market Fund were as follows: Leo Zuckerman Trust, DTD 12-11-91,4444
Viewridge Avenue, San Diego, CA 92123, 4,850,877.280 shares (5.35%); and Omnibus
A/C for the Shareholder Accounts Maintained by Concord Financial Services Inc.
Attn: Linda Zerbe, First and Market Building, 100 First Avenue, Suite 300,
Pittsburgh, PA 15222, 13,391,453.970 shares (14.77%). At June 16, 1995, the
name, address and share ownership of the entity which held beneficially more
than 5% of the outstanding shares of the Horizon Service Shares of the
California Tax-Exempt Money Market Fund was as follows: BA Investment Services
Inc., 555 California Street, 4th Floor, Dept. #4337, San Francisco, CA 94109,
13,792,509.310 shares (99.206%). At June 15, 1995, the name, address and shares
ownership of the entities which held of record more than 5% of the outstanding
shares of the Flexible Bond Fund were as follows: Peter F. Smith and Jacquelyn
L. Smith, JTWROS, 1785 C. Blodgett Road, Mount Vernon, WA 98273, 13,973.917
shares (5.58%); and BA Investment Services, Inc., FBO 200724011, 185 Berry
Street, 3rd Floor #2640, San Francisco, CA 94104, 22,436.531 shares (8.96%). At
June 15, 1995 the name, address and share ownership of the entity which held of
record more than 5% of the outstanding shares of the Asset Allocation Fund was
as follows: Bank of America, Texas AATTEE. National-O'Neill Supplemental
Savings Plan, Attn: Mutual Funds (81-6-01005-0), P.O. Box 94627, Pasadena, CA
91109, 24,289,973 shares (5.07%). At June 15, 1995 the name, address and share
ownership of the entities which held of record more than 5% of the outstanding
shares of the National Municipal Bond Fund were as follows: BA Investment
Services, Inc. FBO 405084421, 555 California Street, 4th Floor, #2640, San
Francisco, CA 94104, 26,336.154 shares (8.31%); and BA Investment Services,
Inc., FBO 405266591, 555 California Street, 4th Floor, #2640, San Francisco, CA
94104, 25,034.024 shares (7.90%). At June 15, 1995 the name, address and share
ownership of the entities which held of record more than 5% of the outstanding
shares of the Corporate Bond Fund were as follows: Dean Witter Reynolds Inc., 5
World Trade Center, 4th Floor, Attn: 5th O Div., New York, NY 10048, 138,820.000
shares (6.93%); and Smith Barney Shearson, Inc., 333 W. 39th Street, 8th Floor,
New York, NY 10001, 148,925.482 shares (7.43%).
At such dates, no other person was known by the Company to hold of
record or beneficially more than 5% of the outstanding shares of any investment
portfolio of the Company.
The Prospectuses relating to the Horizon Shares and Horizon Service
Shares and this Statement of Additional Information omit certain information
contained in the Company's registration statement filed with the Securities and
Exchange Commission. Copies of the registration statement, including items
omitted herein, may be obtained from the Commission by paying the charges
prescribed under its rules and regulations.
Financial Statements and Experts
The Annual Reports for each Fund for their fiscal year or periods
ended February 28, 1995 (the "Annual Reports") accompanies this Statement of
Additional Information. The financial statements and notes thereto in each
Annual Report are incorporated in this Statement of Additional Information by
reference, and have been audited by Price Waterhouse LLP, whose report thereon
also appears in each Annual Report and is also incorporated herein by reference.
Such financial statements have been incorporated herein in reliance on the
report of Price Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
The financial highlights and financial statements for the 11-month
period ended February 28, 1993, the fiscal year ended March 31, 1992 and the
period June 4, 1990 through March 31, 1991 of the Predecessor Government Fund
and Predecessor Treasury Only Fund of First Cash Funds of America, as well as of
the Government Money Trust and Treasury Money Trust in which said Funds invested
included in the Prospectus for the Government Fund and Treasury Only Fund (with
regard to the financial highlights) and incorporated by reference in this
Statement of Additional Information (with regard to the financial statements),
have been audited by Deloitte & Touche LLP as set forth in their reports thereon
which are incorporated herein by reference. The financial statements and
financial highlights audited by Deloitte & Touche LLP have been incorporated
herein by reference (with regard to the financial statements) and included
herewith (with regard to the financial highlights) in reliance on the report
given on their authority as experts in accounting and auditing.
APPENDIX A
Commercial Paper Ratings
A Standard & Poor's commercial paper rating is a current assessment
of the likelihood of timely payment of debt considered short-term in the
relevant market. The following summarizes the rating categories used by
Standard and Poor's for commercial paper:
"A-1" - Issue's degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are
denoted "A-1+."
"A-2" - Issue's capacity for timely payment is satisfactory.
However, the relative degree of safety is not as high as for issues designated
"A-1."
"A-3" - Issue has an adequate capacity for timely payment. It is,
however, somewhat more vulnerable to the adverse effects of changes and
circumstances than an obligation carrying a higher designation.
"B" - Issue has only a speculative capacity for timely payment.
"C" - Issue has a doubtful capacity for payment.
"D" - Issue is in payment default.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an original
maturity in excess of 9 months. The following summarizes the rating categories
used by Moody's for commercial paper:
"Prime-1" - Issuer or related supporting institutions are considered
to have a superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established industries; high
rates of return on funds employed; conservative capitalization structures with
moderate reliance on debt and ample asset protection; broad margins in earning
coverage of fixed financial charges and high internal cash generation; and well
established access to a range of financial markets and assured sources of
alternate liquidity.
"Prime-2" - Issuer or related supporting institutions are considered
to have a strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, will be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternative
liquidity is maintained.
"Prime-3" - Issuer or related supporting institutions have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuer does not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment. Short-
term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
"D-3" - Debt possesses satisfactory liquidity, and other protection
factors qualify issue as investment grade. Risk factors are larger and subject
to more variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch short-term ratings apply to debt obligations that are payable
on demand or have original maturities of up to three years. The following
summarizes the rating categories used by Fitch for short-term obligations:
"F-1+" - Securities possess exceptionally strong credit quality.
Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues assigned
this rating have a satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as the "F-1+" and "F-1" categories.
"F-3" - Securities possess fair credit quality. Issues assigned
this rating have characteristics suggesting that the degree of assurance for
timely payment is adequate; however, near-term adverse changes could cause these
securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues assigned
this rating have characteristics suggesting a minimal degree of assurance for
timely payment and are vulnerable to near-term adverse changes in financial and
economic conditions.
"D" - Securities are in actual or imminent payment default.
Fitch may also use the symbol "LOC" with its short-term ratings to
indicate that the rating is based upon a letter of credit issued by a commercial
bank.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely or incomplete payment of principal or interest of unsubordinated
instruments having a maturity of one year or less which is issued by United
States commercial banks, thrifts and non-bank banks; non-United States banks;
and broker-dealers. The following summarizes the ratings used by Thomson
BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest
rating category and indicates a very high degree of likelihood that principal
and interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents the lowest investment grade
category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher ratings,
capacity to service principal and interest in a timely fashion is considered
adequate.
"TBW-4" - This designation indicates that the debt is regarded as
non-investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1+" - Obligations supported by the highest capacity for timely
repayment.
"A1" - Obligations are supported by the highest capacity for timely
repayment.
"A2" - Obligations are supported by a satisfactory capacity for
timely repayment, although such capacity may be susceptible to adverse changes
in business, economic or financial conditions.
"A3" - Obligations are supported by a satisfactory capacity for
timely repayment. Such capacity is more susceptible to adverse changes in
business, economic or financial conditions than for obligations in higher
categories.
"B" - Obligations for which the capacity for timely repayment is
susceptible to adverse changes in business, economic or financial conditions.
"C" - Obligations for which there is an inadequate capacity to
ensure timely repayment.
"D" - Obligations which have a high risk of default or which are
currently in default.
Corporate and Municipal Long-Term Debt Ratings
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - This designation represents the highest rating assigned by
Standard & Poor's to a debt obligation and indicates an extremely strong
capacity to pay interest and repay principal.
"AA" - Debt is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in small degree.
"A" - Debt is considered to have a strong capacity to pay interest
and repay principal although such issues are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay
interest and repay principal. Whereas such issues normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher-rated categories.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
"BB" - Debt has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
"B" - Debt has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.
"CCC" - Debt has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
"CC" - This rating is typically applied to debt subordinated to
senior debt that is assigned an actual or implied "CCC" rating.
"C" - This rating is typically applied to debt subordinated to
senior debt which is assigned an actual or implied "CCC-" debt rating. The "C"
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
"CI" - This rating is reserved for income bonds on which no interest
is being paid.
"D" - Debt is in payment default. This rating is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S & P believes such payments
will be made during such grace period. "D" rating is also used upon the filing
of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid, and
certain other obligations that S & P believes may experience high volatility or
high variability in expected returns due to non-credit risks. Examples of such
obligations are: securities whose principal or interest return is indexed to
equities, commodities, or currencies; certain swaps and options; and interest
only and principal only mortgage securities.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" represents a poor standing; "Ca"
represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in
default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
Moody's applies numerical modifiers 1, 2 and 3 in each generic
classification from "Aa" to "B" in its bond rating system. The modifier 1
indicates that the issuer ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issuer ranks at the lower end of its generic rating category.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt
rated "B" possesses the risk that obligations will not be met when due. Debt
rated "CCC" is well below investment grade and has considerable uncertainty as
to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the "AA,"
"A," "BBB," "BB" and "B" ratings may be modified by the addition of a plus (+)
or minus (-) sign to show relative standing within these major categories.
The following summarizes the highest four ratings used by Fitch for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
"AA" - Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated "F-1+."
"A" - Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
"BB," "B," "CCC," "CC," "C," "DDD," "DD," and "D" - Bonds that
possess one of these ratings are considered by Fitch to be speculative
investments. The ratings "BB" to "C" represent Fitch's assessment of the
likelihood of timely payment of principal and interest in accordance with the
terms of obligation for bond issues not in default. For defaulted bonds, the
rating "DDD" to "D" is an assessment of the ultimate recovery value through
reorganization or liquidation.
To provide more detailed indications of credit quality, the Fitch
ratings from and including "AA" to "C" may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major rating
categories.
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions may
increase investment risk albeit not very significantly.
"A" - Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is strong,
although adverse changes in business, economic or financial conditions may lead
to increased investment risk.
"BBB" - Obligations for which there is currently a low expectation
of investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial conditions
are more likely to lead to increased investment risk than for obligations in
higher categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one of
these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree of
speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating to
denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely repayment
of principal or interest over the term to maturity of long term debt and
preferred stock which are issued by United States commercial banks, thrifts and
non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk compared
to issues rated in the highest category.
"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned by
Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
Municipal Note Ratings
A Standard and Poor's rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" - Loans bearing this designation are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high
quality, with margins of protection ample although not so large as in the
preceding group.
"MIG-3"/"VMIG-3" - Loans bearing this designation are of favorable
quality, with all security elements accounted for but lacking the undeniable
strength of the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - Loans bearing this designation are of adequate
quality, carrying specific risk but having protection commonly regarded as
required of an investment security and not distinctly or predominantly
speculative.
"SG" - Loans bearing this designation are of speculative quality and
lack margins of protection.
Fitch and Duff & Phelps use the short-term ratings described under
Commercial Paper Ratings for municipal notes.
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