^
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 September ^ 26, 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,
^
Cornelius J. Pings
Chairman and President
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 September ^ 26, 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 ^ 1900 East Dublin-
Granville Road, Columbus, Ohio 43229 on September
^ 26, 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
August 21, 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
September 11, 1995
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 September 11, 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 September
^ 26, 1995 (the "Meeting") at ^ 1900
East Dublin-Granville Road, Columbus, Ohio 43229, 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 August 22, 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 September 11, 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 September 11, 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
Comparative Fee Table 6
SUMMARY 9
Proposed Reorganization 9
Reasons for Reorganization 9
Federal Income Tax Consequences 10
Comparison of the Investment Objectives of the Funds
10
Risk Factors 11
^
Investment Advisers and Advisory Fees 11
Purchase Procedures 12
Redemption Procedures 13
Exchange Procedures 15
Dividends, Distributions and Pricing 15
INFORMATION RELATING TO THE PROPOSED REORGANIZATION
16
Description of the Reorganization Agreement 16
Board Considerations 18
Federal Income Tax Consequences. 20
Capitalization. 20
Performance 21
COMPARISON OF THE FUNDS 22
Investment Objectives and Policies -
Prime Value Fund and Prime Obligations Fund 22
Fundamental Investment Limitations of the
Prime Value Fund and the Prime Obligations Fund 24
Other Information 25
INFORMATION RELATING TO VOTING MATTERS 26
General Information 26
Shareholder ^ Approval 27
Quorum 27
Appraisal Rights 27
Principal ^ Shareholders 28
ADDITIONAL INFORMATION ABOUT MMOT AND PACIFIC HORIZON
29
FINANCIAL STATEMENTS AND EXPERTS 29
OTHER BUSINESS 30
LITIGATION 30
NOTICE TO BANKS, BROKER-DEALERS, VOTING DIRECTORS
AND THEIR NOMINEES 30
SHAREHOLDER INQUIRIES 31
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
Prime Value Estimated
Fund Prime Value Prime
Pacific Fund Obligations
Horizon Horizon Fund
Shares Shares Institutional
Shares*
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of
average
daily net assets)
Management Fees (after 0.04%(1) 0.04%(2) 0.07%(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 0.19%(1) 0.19%(2) 0.20%(3)
Expenses
(after waivers)
*It is anticipated that the Estimated Prime Obligations Fund
Institutional Shares Total Fund Operating Expenses (after waivers)
will not be different after giving effect to the acquisition of Prime
Value Fund.
__________________________
(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 shareholder services fee is
incurred to obtain certain shareholder services and to
maintain shareholder accounts. The fee is paid by the
Fund to Federated Shareholder Services pursuant to a
Shareholder Services Agreement. 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.
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, as well as this
Combined Proxy Statement and Prospectus in the section
entitled COMPARISON OF THE FUNDS: Investment Objectives and
Policies - Prime Value Fund and Prime Obligations Fund.
Both Prime Obligations Fund and Prime Value Fund seek to
comply with the requirements of Rule 2a-7 under the
Investment Company Act of 1940 and, in that regard, pursue a
stable net asset value of $1.00 per share while producing
current income. 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.
Both Funds seek to achieve their objectives by
investment primarily in U.S. dollar-denominated money
market instruments such as bank certificates of deposit,
time deposits, bankers' ^ acceptances,
commercial paper, repurchase agreement, short-term notes,
asset-backed securities, corporate bonds and government
obligations. Prime Value Fund, unlike Prime Obligations
Fund, invests in dollar-denominated obligations issued by
foreign governments and their political subdivisions,
"Yankee" bankers' acceptance, municipal securities,
participation interests in high quality debt securities of
domestic financial institutions, and "stripped" securities
issued by the U.S. Treasury. In addition, Prime Value Fund
must invest at least 25% of its total assets in obligations
of issuers in the banking industry or obligations, such as
repurchase agreements, secured by obligations of such
issuers (unless the Fund is in a temporary defensive
position). Prime Obligations Fund, unlike Prime Value Fund,
may enter into or participate in short-term borrowing
arrangements with corporations through either a short-term
credit facility or a master note agreement payable on
demand, as well as invest 25% or more of its total assets in
commercial paper issued by commercial finance companies and
consumer finance companies.
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.
A risk associated with investments in the Funds relates
to the ability of Prime Obligations Fund to invest 25% or
more of its total assets in commercial paper issued by
commercial finance companies and consumer finance companies.
In contrast, Prime Value Fund must invest at least 25% of
its total assets in obligations of issuers in the banking
industry or obligations, such as repurchase agreements,
secured by obligations of such issuers (unless the Fund is
in a temporary defensive position). Because each Fund can
concentrate its investments in a particular industry, each
Fund is subject to the unique risks that are associated with
investment in such industries.
^
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 ^ in
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 September
^ 26, 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 September
^ 27, 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 (approximately $2.7 billion as
of August 21, 1995 versus approximately $524 million for the
Prime Value Fund as of August 21, 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 August 25, 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 ^ $481,896,785 $3,048,571,773
$3,530,468,558
Shares Outstanding ^ 482,203,370
3,048,571,773 3,530,468,558
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 ^ 5.66%
5.81%
(Pacific Horizon Shares)
Prime Value Fund ^ 5.66%
5.81%
(Horizon Shares)
Prime Obligations Fund ^ 5.73%
5.89%
(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.
Both Prime Value Fund and Prime Obligations Fund seek
to comply with the requirements of Rule 2a-7 under the
Investment Company Act of 1940. In that regard, both Funds
are subject to the same diversification and quality
limitations imposed by the Rule.
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. The Prime Value Fund concentrates its
investment in obligations of issuers in the banking
industry. 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. The Prime Value Fund concentrates its investment
in obligations of issuers in the banking industry, not
limited to consumer finance companies. Concentrating
investments in any one industry may subject the Prime
Obligations Fund and the Prime Value Fund to more
risk than if ^ they 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 and the
Prime Value Fund to more risk than if
^ they 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 personally 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
August 21, 1995 will be entitled to vote at the Meeting. On
that date, there were outstanding and entitled to be voted
^ 539,190,564.630 shares of the Prime Value
Fund, ^ (68,502,971.640 Pacific Horizon Shares
and ^ 470,687,592.990 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 August 21, 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 ^ are as follows:
Pacific Horizon Shares: Bank of America
Investment Services Inc., for the benefit of
its clients, San Francisco, California, owned
41.78% (28,626,048.590 shares), and Bank of
America State Trust Company, Pasadena,
California, owned 57.51% (39,398,552.940
shares).
Horizon Shares: TICE & Co, c/o M&T,
Buffalo, New York owned 96.925%
(456,214,910.180 shares).
As of August 21, 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 August 21, 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 ^ are as
follows:
Prime Obligations Fund: Institutional
Shares: VAR & Co., St. Paul, Minnesota, owned
10.29% (277,985,176.000 shares), and Society
National Bank - Trust Fund Unit, Cleveland,
Ohio, owned 6.19% (167,278,317.370 shares).
On a pro forma basis, giving account to the
Reorganization, the above-referenced owners
^ of the outstanding shares of Prime Obligations Fund
- Institutional Shares, as of August 21, 1995, would have
been: TICE & Co., c/o M&T, Buffalo, New York, would have
owned ^ 14.08% (456,214,910.180 shares), VAR &
CO., St. Paul, Minnesota, would have owned
^ 8.58% (277,985,176.000 shares),
^ Society National Bank - Trust Funds Unit, Cleveland,
Ohio, would have owned ^ 5.16% (167,278,317.370
shares); Bank of America Investment Services, Inc., for
the benefit of its cients, San Francisco, California, would
have owned 0.88% (28,626,048.590 shares); and Bank of
America State Trust Company, Pasadena, California, would
have owned 1.22% (39,398,552.940 shares).
As of August 21, 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 September 11, 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
September 11, 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
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 Curtis
Barnes, 1900 East Dublin-Granville Road, Columbus, Ohio,
43229 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 AS OF August 22, 1995
Table of Contents
Page
Transfer of Assets of the Prime Value Fund
^ 1
Liquidating Distributions of the Prime Value
Fund 5
Valuation Time 6
Certain Representations, Warranties and
Agreements of Pacific Horizon ^
6
Certain Representations, Warranties and
Agreements of MMOT 13
Shareholder Action on Behalf of the Prime
Value Fund ^ 17
N-14 Registration Statement ^ 18
Effective Time of the Reorganization ^
18
MMOT Conditions ^ 18
Pacific Horizon Conditions ^ 25
Tax Documents ^ 29
Further Assurances ^ 29
Termination of Representations and Warranties
^ 30
Termination of Agreement ^ 30
Amendment and Waiver ^ 30
Governing Law ^ 31
Successors and Assigns ^ 31
Beneficiaries ^ 31
MMOT Liability ^ 31
Pacific Horizon Liability ^ 32
Notices ^ 33
Expenses ^ 34
Entire Agreement ^ 34
Counterparts ^ 34
AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement")
made as of the 22nd day of August, 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
September ^ 26, 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,
fraudulent conveyance, 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, fraudulent conveyance, 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, reorganization,
arrangement, 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,
reorganization, arrangement, 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 ^ October 3, 1995.
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:
^
/s/ W. Bruce McConnell, III By: /s/ Thomas M.
Collins
Secretary President
MONEY MARKET OBLIGATIONS TRUST
ATTEST:
^
/s/ John W. McGonigle By: /s/ J. Christopher
Donahue
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:
^
/s/ Sandra Brown By: /s/ Debra McGinty-
Poteet
Vice President Senior Vice President
PRIME VALUE FUND - PACIFIC HORIZON SHARES
SPECIAL MEETING OF SHAREHOLDERS ^ SEPTEMBER 26,
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
^ Barbara A. Nugent and Gino Malaspina, or
either 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
^ September 26, 1995, at 1900 East Dublin-Granville
Road, Columbus, Ohio 43229, 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 BY AND BETWEEN PACIFIC HORIZON
FUNDS, INC. AND MONEY MARKET OBLIGATIONS TRUST AND THE
TRANSACTIONS CONTEMPLATED THEREBY.
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 BY AND BETWEEN
PACIFIC HORIZON FUNDS, INC. AND
MONEY MARKET OBLIGATIONS TRUST AND
THE TRANSACTIONS CONTEMPLATED
THEREBY
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)
^
PRIME VALUE FUND - HORIZON SHARES
SPECIAL MEETING OF SHAREHOLDERS ^ SEPTEMBER 26,
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
^ Barabara A. Nugent and Gino Malaspina, or
either 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
^ September 26, 1995, at 1900 East Dublin-Granville
Road, Columbus, Ohio 43229, 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 BY AND BETWEEN PACIFIC HORIZON
FUNDS, INC. AND MONEY MARKET OBLIGATIONS TRUST AND THE
TRANSACTIONS CONTEMPLATED THEREBY.
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 BY AND BETWEEN
PACIFIC HORIZON FUNDS, INC. AND
MONEY MARKET OBLIGATIONS TRUST AND
THE TRANSACTIONS CONTEMPLATED
THEREBY
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)
STATEMENT OF ADDITIONAL INFORMATION
Dated ^ September 11, 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
^ September 11, 1995, is not a prospectus. A
Proxy Statement and Prospectus dated ^ September
11, 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 (attached).
2. Annual Report of Prime Value Fund, dated February 28,
^ 1995 (attached).
3. Combined Statement of Additional Information of Prime
Obligations Fund (Institutional Shares and
Institutional Service Shares), dated November 30,
^ 1994 (attached).
4. Annual Report of Prime Obligations Fund, dated July 31,
^ 1994 (attached).
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
^ September 28, 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).
6. Semi-Annual Report of Prime Obligations Fund,
dated February 28, 1995 (attached).
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 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 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 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:
Position with
Name and Address Age Company Principal Occupations
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.
* 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 COMPENSATI RETIREMENT ANNUAL COMPENSATI
ON FROM BENEFITS BENEFITS ON FROM
THE ACCRUED AS UPON REGISTRANT
COMPANY PART OF RETIREMENT AND FUND
FUND COMPLEX*
EXPENSES PAID TO
DIRECTORS
Thomas M. $100,000 $0 $0 $110,000
Collins
President and
Chairman of the
Board
Douglas B. $57,500 $0 $0 $57,500
Fletcher
Vice Chairman of
the Board
Robert E. $57,500 $0 $0 $65,781
Greeley**
Director
Kermit O. Hanson $57,500 $0 $0 $63,500
Director
Cornelius J. $57,500 $0 $0 $57,500
Pings
Director
Kenneth L. $57,500 $0 $0 $57,500
Trefftzs
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.
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 1 relating to the Prime
Fund in such Fund's Prospectus, Investment Limitation 1 relating to the
Prime Value Fund in such Fund's Prospectuses, Investment Limitation 6
relating to the Government Fund and Treasury Only Fund in this Statement
of Additional Information, Investment Limitation 9 relating to the Tax-
Exempt Money Fund in this Statement of Additional Information and
Investment Limitation 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 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 3 of this Statement of Additional Information with respect
to the Government Fund and Treasury Only Fund and Investment Limitation
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:
Position with
Name and Address Age Company Principal Occupations
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 ofthe 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 RETIREMENT AND FUND
FUND COMPLEX*
EXPENSES PAID TO
DIRECTORS
Thomas M. $100,000 $0 $0 $110,000
Collins
President and
Chairman of the
Board
Douglas B. $57,500 $0 $0 $57,500
Fletcher
Vice Chairman of
the Board
Robert E. $57,500 $0 $0 $65,781
Greeley**
Director
Kermit O. Hanson $57,500 $0 $0 $63,500
Director
Cornelius J. $57,500 $0 $0 $57,500
Pings
Director
Kenneth L. $57,500 $0 $0 $57,500
Trefftzs
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.
Prime Obligations Fund
(A Portfolio of Money Market Obligations Trust)
Institutional Shares
Institutional Service Shares
Statement of Additional Information
This Statement of Additional Information should be read with the
prospectus(es) of Prime Obligations Fund (the "Fund"), a portfolio
of Money Market Obligations Trust (the "Trust") dated November 30,
1994. This Statement is not a prospectus. To receive a copy of a
prospectus, write or call the Fund.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated November 30, 1994
Federated Securities
Corp.
Distributor
A subsidiary of Federated Investors
Investment Policies 1
Bank Instruments 1
When-Issued and Delayed
Delivery Transactions 1
Repurchase Agreements 1
Reverse Repurchase Agreements 1
Lending of Portfolio
Securities 2
Investment Limitations 2
Brokerage Transactions 3
Money Market Obligations Trust
Management 4
Officers and Trustees 4
The Funds 7
Fund Ownership 7
Trustee Liability 8
Investment Advisory Services 8
Investment Adviser 8
Advisory Fees 8
State Expense Limitations 8
Administrative Services 8
Custodian 9
Transfer Agent and Portfolio
Recordkeeper 9
Shareholder Services Plan 9
Determining Net Asset Value 9
Redemption in Kind 9
The Fund's Tax Status 10
Performance Information 10
Yield 10
Effective Yield 10
Total Return 10
Performance Comparisons 10
Financial Statements 11
Appendix 12
Investment Policies
Unless indicated otherwise, the policies described below may be changed
by the Trustees without shareholder approval. Shareholders will be
notified before any material change in these policies becomes effective.
Bank Instruments
The instruments of banks and savings and loans whose deposits are
insured by the Bank Insurance Fund ("BIF") or the Savings Association
Insurance Fund ("SAIF"), such as certificates of deposit, demand and
time deposits, savings shares, and bankers' acceptances, are not
necessarily guaranteed by those organizations. In addition to domestic
bank instruments, the Fund may invest in: Eurodollar Certificates of
Deposit issued by foreign branches of U.S. or foreign banks; Eurodollar
Time Deposits, which are U.S. dollar-denominated deposits in foreign
branches of U.S. or foreign banks; Canadian Time Deposits, which are
U.S. dollar-denominated deposits issued by branches of major Canadian
banks located in the United States; and Yankee Certificates of Deposit,
which are U.S. dollar-denominated certificates of deposit issued by U.S.
branches of foreign banks and held in the United States.
When-Issued and Delayed Delivery Transactions
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses,
other than normal transaction costs, are incurred. However, liquid
assets of the Fund sufficient to make payment for the securities to be
purchased are segregated on the Fund's records at the trade date. These
assets are marked to market daily and are maintained until the
transaction has been settled. The Fund does not intend to engage in
when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 20% of the total value of its assets.
Repurchase Agreements
The Fund or its custodian will take possession of the securities subject
to repurchase agreements, and these securities will be marked to market
daily. In the event that a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be
delayed pending court action. The Fund believes that under the regular
procedures normally in effect for custody of the Fund's portfolio
securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow retention or
disposition of such securities. The Fund will only enter into
repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are deemed by the Fund's
adviser to be creditworthy pursuant to guidelines established by the
Trustees.
Reverse Repurchase Agreements
The Fund may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase
agreement, the Fund transfers possession of a portfolio instrument in
return for a percentage of the instrument's market value in cash and
agrees that on a stipulated date in the future the Fund will repurchase
the portfolio instrument by remitting the original consideration plus
interest at an agreed upon rate. The use of reverse repurchase
agreements may enable the Fund to avoid selling portfolio instruments at
a time when a sale may be deemed to be disadvantageous, but does not
ensure this result. When effecting reverse repurchase agreements, liquid
assets of the Fund, in a dollar amount sufficient to make payment for
the obligations to be purchased, are: segregated on the Fund's records
at the trade date; marked to market daily; and maintained until the
transaction is settled.
U.S. Government Securities
The types of U.S. government securities in which the Fund may invest
generally include direct obligations of the U.S. Treasury (such as U.S.
Treasury bills, notes, and bonds) and obligations issued or guaranteed
by U.S. government agencies or instrumentalities. these securities are
backed by:
o the full faith and credit of the U.S. Treasury;
o the issuer's right to borrow from the U.S. Treasury;
o the discretionary authority of the U.S. government to purchase
certain obligations of agencies or instrumentalities; or
o the credit of the agency or instrumentality issuing the
obligations.
Lending of Portfolio Securities
The collateral received when the Fund lends portfolio securities must be
valued daily and, should the market value of the loaned securities
increase, the borrower must furnish additional collateral to the Fund.
During the time portfolio securities are on loan, the borrower pays the
Fund any dividends or interest paid on such securities. Loans are
subject to termination at the option of the Fund or the borrower. The
Fund may pay reasonable administrative and custodial fees in connection
with a loan and may pay a negotiated portion of the interest earned on
the cash or equivalent collateral to the borrower or placing broker.
Investment Limitations
Selling Short and Buying on Margin
The Fund will not sell any securities short or purchase any securities
on margin but may obtain such short-term credits as may be necessary for
clearance of transactions.
Issuing Senior Securities and Borrowing Money
The Fund will not issue senior securities except that the Fund may
borrow money directly or through reverse repurchase agreements in
amounts up to one-third of the value of its total assets, including the
amounts borrowed.
The Fund will not borrow money or engage in reverse repurchase
agreements for investment leverage, but rather as a temporary,
extraordinary, or emergency measure or to facilitate management of the
portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Fund will not purchase any securities while
borrowings in excess of 5% of the value of its total assets are
outstanding. During the period any reverse repurchase agreements are
outstanding, the Fund will restrict the purchase of portfolio securities
to money market instruments maturing on or before the expiration date of
the reverse repurchase agreements, but only to the extent necessary to
assure completion of the reverse repurchase agreements.
Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may pledge assets
having a market value not exceeding the lesser of the dollar amounts
borrowed or 15% of the value of total assets of the Fund at the time of
the pledge.
Lending Cash or Securities
The Fund will not lend any of its assets, except portfolio securities.
This shall not prevent the Fund from purchasing or holding bonds,
debentures, notes, certificates of indebtedness or other debt
securities, entering into repurchase agreements, or engaging in other
transactions where permitted by its investment objective, policies, and
limitations or Declaration of Trust.
Investing in Commodities and Real Estate
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts. The Fund will not purchase or sell real
estate, although it may invest in securities of issuers whose business
involves the purchase or sale of real estate or in securities which are
secured by real estate or interests in real estate.
Underwriting
The Fund will not underwrite any issue of securities, except as it may
be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its investment
objective, policies, and limitations.
Concentration of Investments
The Fund will not invest 25% or more of the value of its total assets in
any one industry, except that the Fund will generally invest 25% or more
of the value of its total assets in the commercial paper issued by
finance companies. The Fund may invest 25% or more of the value of its
total assets in cash or cash items, securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities or instruments
secured by these money market instruments, such as repurchase
agreements.
Diversification of Investments
With respect to 75% of the value of its total assets, the Fund will not
purchase securities issued by any one issuer (other than cash, cash
items, or securities issued or guaranteed by the government of the
United States or its agencies or instrumentalities and repurchase
agreements collateralized by such securities) if as a result more than
5% of the value of its total assets would be invested in the securities
of that issuer.
Investing in Restricted Securities
The Fund will not invest more than 10% of the value of its net assets in
securities which are subject to legal or contractual restrictions on
resale, except for commercial paper issued under Section 4 (2) of the
Securities Act of 1933.
The above limitations cannot be changed without shareholder approval.
The following investment limitations, however, may be changed by the
Trustees without shareholder approval. Shareholders will be notified
before any material change in these limitations becomes effective.
Investing in Illiquid Securities
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities.
Investing in Securities of Other Investment Companies
The Fund will not purchase securities of other investment companies,
except as part of a merger, consolidation, or other acquisition.
Investing in New Issuers
The Fund will not invest more than 5% of the value of its total assets
in securities of issuers which have records of less than three years of
continuous operations, including the operation of any predecessor.
Investing for Control
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
Investing in Issuers Whose Securities are Owned by Officers of the Trust
The Fund will not purchase or retain the securities of any issuer if the
Officers and Trustees of the Trust or the Fund's investment adviser
owning individually more than .50 of 1% of the issuer's securities
together own more than 5% of the issuer's securities.
Investing in Options
The Fund will not invest in puts, calls, straddles, spreads, or any
combination of them.
Investing in Minerals
The Fund will not purchase or sell interests in oil, gas, or other
mineral exploration or development programs or leases, although it may
purchase the securities of issuers which invest in or sponsor such
programs.
For purposes of the above limitations, the Fund considers certificates
of deposit and demand and time deposits 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 to be "cash
items." Except with respect to borrowing money, if a percentage
limitation is adhered to at the time of investment, a later increase or
decrease in percentage resulting from any change in value or net assets
will not result in a violation of such limitation.
The Fund did not borrow money or pledge securities in excess of 5% of
the value of its net assets during the last fiscal year and has no
present intent to do so during the coming fiscal year.
Brokerage Transactions
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the adviser looks for prompt execution of the
order at a favorable price. In working with dealers, the adviser will
generally use those who are recognized dealers in specific portfolio
instruments, except when a better price and execution of the order can
be obtained elsewhere. The adviser makes decisions on portfolio
transactions and selects brokers and dealers subject to guidelines
established by the Board of Trustees. The adviser may select brokers
and dealers who offer brokerage and research services. These services
may be furnished directly to the Fund or to the adviser and may include:
advice as to the advisability of investing in securities; security
analysis and reports; economic studies; industry studies; receipt of
quotations for portfolio evaluations; and similar services. Research
services provided by brokers and dealers may be used by the adviser or
its affiliates in advising the Trust and other accounts. To the extent
that receipt of these services may supplant services for which the
adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses. The adviser and its affiliates exercise
reasonable business judgment in selecting brokers who offer brokerage
and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research
services provided. During the fiscal year(s) ended July 31, 1994, 1993,
and 1992, the Fund paid no brokerage commissions.
Although investment decisions for the Fund are made independently from
those of the other accounts managed by the adviser, investments of the
type the Fund may make may also be made by those other accounts. When
the Fund and one or more other accounts managed by the adviser are
prepared to invest in, or desire to dispose of, the same security,
available investments or opportunities for sales will be allocated in a
manner believed by the adviser to be equitable to each. In some cases,
this procedure may adversely affect the price paid or received by the
Fund or the size of the position obtained or disposed of by the Fund.
In other cases, however, it is believed that coordination and the
ability to participate in volume transactions will be to the benefit of
the Fund.
Money Market Obligations Trust Management
Officers and Trustees
Officers and Trustees are listed with their addresses, principal
occupations, and present positions.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers,
Federated Management, and Federated Research; Chairman and Director,
Federated Research Corp.; Chairman, Passport Research, Ltd.; Director,
AEtna Life and Casualty Company; Chief Executive Officer and Director,
Trustee, or Managing General Partner of the Funds. Mr. Donahue is the
father of J. Christopher Donahue, President and Trustee of the Trust.
Thomas G. Bigley
28th Floor, One Oxford Center
Pittsburgh, PA
Trustee
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's
Hospital of Pittsburgh; Director, Trustee, or Managing General Partner
of the Funds; formerly, Senior Partner, Ernst & Young, LLP.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Trustee
President, Investment Properties Corporation; Senior Vice-President,
John R. Wood and Associates, Inc., Realtors; President, Northgate
Village Development Corporation; Partner or Trustee in private real
estate ventures in Southwest Florida; Director, Trustee, or Managing
General Partner of the Funds; formerly, President, Naples Property
Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.;
Director, Trustee, or Managing General Partner of the Funds; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and
Director, Ryan Homes, Inc.
J. Christopher Donahue *
Federated Investors Tower
Pittsburgh, PA
President and Trustee
President and Trustee, Federated Investors, Federated Advisers,
Federated Management, and Federated Research; President and Director,
Federated Research Corp.; President, Passport Research, Ltd.; Trustee,
Federated Administrative Services, Federated Services Company, and
Federated Shareholder Services; President or Vice President of the
Funds; Director, Trustee, or Managing General Partner of some of the
Funds. Mr. Donahue is the son of John F. Donahue, Chairman and Trustee
of the Trust.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Director,
Blue Cross of Massachusetts, Inc.
Lawrence D. Ellis, M.D.
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Trustee
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
Hospitals; Professor of Medicine and Trustee, University of Pittsburgh;
Director of Corporate Health, University of Pittsburgh Medical Center;
Director, Trustee, or Managing General Partner of the Funds.
Edward L. Flaherty, Jr.@
5916 Penn Mall
Pittsburgh, PA
Trustee
Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat'N Park
Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Counsel,
Horizon Financial, F.A., Western Region.
Peter E. Madden
225 Franklin Street
Boston, MA
Trustee
Consultant; State Representative, Commonwealth of Massachusetts;
Director, Trustee, or Managing General Partner of the Funds; formerly,
President, State Street Bank and Trust Company and State Street Boston
Corporation and Trustee, Lahey Clinic Foundation, Inc.
Gregor F. Meyer
5916 Penn Mall
Pittsburgh, PA
Trustee
Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare, Inc.;
Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or Managing
General Partner of the Funds; formerly, Vice Chairman, Horizon
Financial, F.A.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Trustee
Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak
Management Center; Director, Trustee, or Managing General Partner of the
Funds; President Emeritus, University of Pittsburgh; formerly, Chairman,
National Advisory Council for Environmental Policy and Technology.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Trustee
Public relations/marketing consultant; Director, Trustee, or Managing
General Partner of the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Vice President
Executive Vice President and Trustee, Federated Investors; Director,
Federated Research Corp.; Chairman and Director, Federated Securities
Corp.; President or Vice President of some of the Funds; Director or
Trustee of some of the Funds.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Vice President and Treasurer
Vice President, Treasurer, and Trustee, Federated Investors; Vice
President and Treasurer, Federated Advisers, Federated Management,
Federated Research, Federated Research Corp., and Passport Research,
Ltd.; Executive Vice President, Treasurer, and Director, Federated
Securities Corp.; Trustee, Federated Services Company and Federated
Shareholder Services; Chairman, Treasurer, and Trustee, Federated
Administrative Services; Trustee or Director of some of the Funds; Vice
President and Treasurer of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Vice President and Secretary
Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Federated Management, and Federated Research; Vice President and
Secretary, Federated Research Corp. and Passport Research, Ltd.;
Trustee, Federated Services Company; Executive Vice President,
Secretary, and Trustee, Federated Administrative Services; Secretary and
Trustee, Federated Shareholder Services; Executive Vice President and
Director, Federated Securities Corp.; Vice President and Secretary of
the Funds.
* This Trustee is deemed to be an "interested person" of the Trust as
defined in the Investment Company Act of 1940, as amended.
@ Member of the Trust's Executive Committee. The Executive Committee
of the Board of Trustees handles the responsibilities of the Board of
Trustees between meetings of the Board.
The Funds
As referred to in the list of Trustees and Officers, "Funds" includes
the following investment companies: American Leaders Fund, Inc.;
Annuity Management Series; Arrow Funds; Automated Cash Management Trust;
Automated Government Money Trust; California Municipal Cash Trust; Cash
Trust Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D.
Jones & Co. Daily Passport Cash Trust; Federated ARMs Fund; Federated
Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust;
Federated Growth Trust; Federated High Yield Trust; Federated Income
Securities Trust; Federated Income Trust; Federated Index Trust;
Federated Institutional Trust; Federated Intermediate Government Trust;
Federated Master Trust; Federated Municipal Trust; Federated Short-
Intermediate Government Trust; Federated Short-Term U.S. Government
Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated U.S.
Government Bond Fund; First Priority Funds; Fixed Income Securities,
Inc.; Fortress Adjustable Rate U.S. Government Fund, Inc.; Fortress
Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S.
Government Securities, Inc.; Government Income Securities, Inc.; High
Yield Cash Trust; Insight Institutional Series, Inc.; Insurance
Management Series; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty
Equity Income Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty
Municipal Securities Fund, Inc.; Liberty U.S. Government Money Market
Trust; Liberty Term Trust, Inc. - 1999; Liberty Utility Fund, Inc.;
Liquid Cash Trust; Managed Series Trust; The Medalist Funds: Money
Market Management, Inc.; Money Market Obligations Trust; Money Market
Trust; Municipal Securities Income Trust; New York Municipal Cash Trust;
111 Corcoran Funds; Peachtree Funds; The Planters Funds; Portage Funds;
RIMCO Monument Funds; The Shawmut Funds; Short-Term Municipal Trust;
Star Funds; The Starburst Funds; The Starburst Funds II; Stock and Bond
Fund, Inc.; Sunburst Funds; Targeted Duration Trust; Tax-Free
Instruments Trust; Trademark Funds; Trust for Financial Institutions;
Trust For Government Cash Reserves; Trust for Short-Term U.S. Government
Securities; Trust for U.S. Treasury Obligations; World Investment
Series, Inc.
Fund Ownership
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of October 28, 1994, the following shareholder(s) of record owned 5%
or more of the outstanding Institutional Shares of the Fund: Var & Co,
St. Paul, Minnesota, owned approximately 249,260,420 shares (14.14%);
Ombit Co., Omaha, Nebraska, owned approximately 106,643,069 shares
(6.05%); Boston Safe Deposit and Trust, Pittsburgh, Pennnsylvania, owned
approximately 100,000,000 shares (5.67%); and Detroit Public Schools,
Detroit, Michigan, owned approximately 94,383,519 shares (5.35%).
As of October 28, 1994, the following shareholder(s) of record owned 5%
or more of the outstanding Institutional Service Shares of the Fund:
Peoples Bank, Bridgeport, Connecticut, owned approximately 82,325,760
shares (81.93%) and National Instruments Corp., Austin, Texas, owned
approximately 6,483,695 shares (6.45%).
Trustee Liability
The Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, they are
not protected against any liability to which they would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence,
or reckless disregard of the duties involved in the conduct of their
office.
Investment Advisory Services
Investment Adviser
The Fund's investment adviser is Federated Management. It is a
subsidiary of Federated Investors. All the voting securities of
Federated Investors are owned by a trust, the trustees of which are John
F. Donahue, his wife and his son, J. Christopher Donahue.
The adviser shall not be liable to Trust, the Fund, or any shareholder
of the Fund for any losses that may be sustained in the purchase,
holding, or sale of any security or for anything done or omitted by it,
except acts or omissions involving willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties imposed upon it by its
contract with the Trust.
Advisory Fees
For its advisory services, Federated Management receives an annual
investment advisory fee as described in the prospectus. For the fiscal
years ended July 31, 1994, 1993, and 1992, the adviser earned
$2,368,688, $2,033,502, and $1,227,947, respectively, of which
$1,615,921, $955,268, and $633,165, respectively, were voluntarily
waived.
State Expense Limitations
The adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose
shares are registered for sale in those states. If the Fund's
normal operating expenses (including the investment advisory fee,
but not including brokerage commissions, interest, taxes, and
extraordinary expenses) exceed 2-1/2% per year of the first $30
million of average net assets, 2% per year of the next $70 million
of average net assets, and 1-1/2% per year of the remaining
average net assets, the adviser will reimburse the Fund for its
expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by
the amount of the excess, subject to an annual adjustment. If the
expense limitation is exceeded, the amount to be reimbursed by the
adviser will be limited, in any single fiscal year, by the amount
of the investment advisory fees.
This arrangement is not part of the advisory contract and may be
amended or rescinded in the future.
Fund Administration
Administrative Services
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
described in the prospectus. Prior to March 1, 1994, Federated
Administrative Services, Inc., also a subsidiary of Federated Investors,
served as the Fund's administrator. (For purposes of this Statement of
Additional Information, Federated Administrative Services and Federated
Administrative Services, Inc., may hereinafter collectively be referred
to as the "Administrators.") For the fiscal year ended July 31, 1994,
the Administrators collectively earned $762,145. For the fiscal years
ended July 31, 1993 and 1992, Federated Administrative Services, Inc.,
earned $455,288 and $283,251, respectively. Dr. Henry J. Gailliot, an
officer of Federated Management, the adviser to the Fund, holds
approximately 20% of the outstanding common stock and serves as a
director of Commercial Data Services, Inc., a company which provides
computer processing services to Federated Administrative Services, Inc.
and Federated Administrative Services.
Custodian
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Fund.
Transfer Agent and Portfolio Recordkeeper
Federated Services Company, Pittsburgh, PA, serves as transfer agent and
dividend disbursing agent for the Fund. The fee paid to the transfer
agent is based upon the size, type and number of accounts and
transactions made by shareholders.
Federated Services Company also maintains the Trust's accounting
records. The fee paid for this service is based upon the level of the
Fund's average net assets for the period plus out-of-pocket expenses.
Shareholder Services Plan
This arrangement permits the payment of fees to Federated Shareholder
Services and, indirectly to financial institutions to cause services to
be provided to shareholders by a representative who has knowledge of the
shareholder's particular circumstances and goals. These activities and
services may include, but are not limited to, providing office space,
equipment, telephone facilities, and various clerical, supervisory,
computer, and other personnel as necessary or beneficial to establish
and maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in
changing dividend options, account designations, and addresses.
For the period from July 5, 1994 (date of initial public offering), to
July 31, 1994, payments in the amount of $652 were made pursuant to the
Shareholder Services Plan on behalf of the Institutional Service Shares.
In addition, for the period from March 1, 1994 through July 5, 1994,
payments in the amount of $205,170 were made on behalf of the
Institutional Shares.
Determining Net Asset Value
The Trustees have decided that the best method for determining the value
of portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for
amortization of premium or accumulation of discount rather than at
current market value. Accordingly, neither the amount of daily income
nor the net asset value is affected by any unrealized appreciation or
depreciation of the portfolio. In periods of declining interest rates,
the indicated daily yield on shares of the Fund computed by dividing the
annualized daily income on the Fund's portfolio by the net asset value
computed as above may tend to be higher than a similar computation made
by using a method of valuation based upon market prices and estimates.
In periods of rising interest rates, the opposite may be true.
The Fund's use of the amortized cost method of valuing portfolio
instruments depends on its compliance with certain conditions in Rule 2a-
7 (the "Rule") promulgated by the Securities and Exchange Commission
under the Investment Company Act of 1940. Under the Rule, the Trustees
must establish procedures reasonably designed to stabilize the net asset
value per share, as computed for purposes of distribution and
redemption, at $1.00 per share, taking into account current market
conditions and the Fund's investment objective. The procedures include
monitoring the relationship between the amortized cost value per share
and the net asset value per share based upon available indications of
market value. The Trustees will decide what, if any, steps should be
taken if there is a difference of more than 0.5 of 1% between the two
values. The Trustees will take any steps they consider appropriate (such
as redemption in kind or shortening the average portfolio maturity) to
minimize any material dilution or other unfair results arising from
differences between the two methods of determining net asset value.
Redemption in Kind
The Fund is obligated to redeem shares solely in cash up to $250,000 or
1% of the Fund's net asset value, whichever is less, for any one
shareholder within a 90-day period. Any redemption beyond this amount
will also be in cash unless the Trustees determine that further payments
should be in kind. In such cases, the Fund will pay all or a portion of
the remainder of the redemption in portfolio instruments valued in the
same way as the Fund determines net asset value. The portfolio
instruments will be selected in a manner that the Trustees deem fair and
equitable. Redemption in kind is not as liquid as a cash redemption.
If redemption is made in kind, shareholders who sell these securities
could receive less than the redemption value and could incur certain
transaction costs.
The Fund's Tax Status
To qualify for the special tax treatment afforded to regulated
investment companies, the Fund must, among other requirements: derive
at least 90% of its gross income from dividends, interest, and gains
from the sale of securities; derive less than 30% of its gross income
from the sale of securities held less than three months; invest in
securities within certain statutory limits; and distribute to its
shareholders at least 90% of its net income earned during the year.
Performance Information
Performance depends upon such variables as: portfolio quality; average
portfolio maturity; type of instruments in which the portfolio is
invested; changes in interest rates; changes in expenses; and the
relative amount of cash flow. To the extent that financial institutions
and broker/dealers charge fees in connection with services provided in
conjunction with an investment in shares of the Fund, the performance
will be reduced for those shareholders paying those fees.
Yield
The yield is calculated based upon the seven days ending on the day of
the calculation, called the "base period." This yield is computed by:
determining the net change in the value of a hypothetical account with a
balance of one share at the beginning of the base period, with the net
change excluding capital changes but including the value of any
additional shares purchased with dividends earned from the original one
share and all dividends declared on the original and any purchased
shares; dividing the net change in the account's value by the value of
the account at the beginning of the base period to determine the base
period return; and multiplying the base period return by 365/7.
For the seven-day period ended July 31, 1994, the yield for
Institutional Shares was 4.30% and Institutional Service Shares was
4.08%.
Effective Yield
The effective yield is calculated by compounding the unannualized base
period return by: adding 1 to the base period return; raising the sum to
the 365/7th power; and subtracting 1 from the result.
For the seven-day period ended July 31, 1994, the effective yield for
Institutional Shares was 4.39% and Institutional Service Shares was
4.16%.
Total Return
Average annual total return is the average compounded rate of return for
a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value
is compounded by multiplying the number of shares owned at the end of
the period by the net asset value per share at the end of the period.
The number of shares owned at the end of the period is based on the
number of shares purchased at the beginnning of the period with $1,000,
adjusted over the period by any additional shares, assuming the monthly
reinvestment of all dividends and distributions.
Cumulative total return reflects the total performance over a specific
period of time. For the period from July 5, 1994 (date of initial
public offering) through July 31, 1994, the cumulative total return for
Institutional Service Shares was 0.30%. This total return is
representative of less than one month of activity since the date of
initial public offering.
Prior to the creation of separate classes of shares, for the one-year
period ended July 31, 1994, and for the period from March 26, 1990
(start of performance) through July 31, 1994, the average annual total
returns were 3.47% and 4.98%, respectively, for Institutional Shares.
Performance Comparisons
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance,
investors should consider all relevant factors such as the composition
of any index used, prevailing market conditions, portfolio compositions
of other funds, and methods used to value portfolio securities and
compute net asset value. The financial publications and/or indices which
the Fund uses in advertising may include:
o Lipper Analytical Services, Inc., ranks funds in various fund
categories based on total return, which assumes the reinvestment
of all income dividends and capital gains distributions, if any.
o Donoghue's Money Fund Report publishes annualized yields of money
market funds weekly. Donoghue's Money Market Insight publication
reports monthly and 12-month-to-date investment results for the
same money funds.
o Money, a monthly magazine, regularly ranks money market funds in
various categories based on the latest available seven-day
effective yield.
o Bank Rate MonitorC National Index, Miami Beach, Florida, published
weekly, is an average of the interest rates of personal money
market deposit accounts at ten of the largest banks and thrifts in
each of the five largest Standard Metropolitan Statistical Areas.
If more than one rate is offered, the lowest rate is used. Account
minimums and compounding methods may vary.
Financial Statements
The financial statements for the fiscal year ended July 31, 1994, are
incorporated herein by reference to the Fund's Annual Report dated July
31, 1994 (File No. 811-5950). A copy of the Annual Report may be
obtained without charge by contacting the Fund at the address located on
the back cover of the prospectus.
Appendix
Standard and Poor's Ratings Group Corporate Bond Rating Definitions
AAA Debt rated "AAA" has the highest rating assigned by Standard &
Poor's Ratings Group. Capacity to pay interest and repay principal is
extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effect
of changes in circumstances and economic conditions than debt in higher
rated categories.
Moody's Investors Service, Inc. Corporate Bond Rating Definitions
Aaa Bonds which are rated Aaa 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 which are rated Aa 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 which are rated A 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.
Fitch Investors Service, Inc. Investment Grade Bond Rating Definitions
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
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
Standard & Poor's Ratings Group Commercial Paper Rating Definitions
A-1 -- This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
A-2 -- Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated A-1.
Moody's Investors Service, Inc. Commercial Paper Rating Definitions
Prime-1 Issuers rated Prime-1 (or related supporting institutions)
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 structure with moderate reliance on
debt and ample asset protection.
- Broad margins in earning coverage of fixed financial charges and
high internal cash generation.
- Well-established access to a range of financial markets and assured
sources of alternate liquidity
Prime-2 Issuers rated Prime-2 (or related supporting institutions)
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 alternate liquidity is
maintained.
Fitch Investors Service, Inc. Short-Term Debt Rating Definitions
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for timely
payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect
an assurance for timely payment only slightly less in degree than issues
rated "F-1+."
F-2 Good Credit Quality. Issues carrying this rating have a
satisfactory degree of assurance for timely payment, but the margin of
safety is not as great as for issues assigned "F-1+" and "F-1"
ratings.
60934N708
60934N203
9110205B (11/94)
--------------------------------------------------------------------------------
PRIME OBLIGATIONS FUND
(A PORTFOLIO OF MONEY MARKET OBLIGATIONS TRUST)
INSTITUTIONAL SHARES
PROSPECTUS
The Institutional Shares of Prime Obligations Fund (the "Fund")
offered by this prospectus represent interests in a diversified
portfolio of Money Market Obligations Trust (the "Trust"), an open-end
management investment company (a mutual fund). The Fund invests in
money market securities to provide current income consistent with
stability of principal.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS
OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT
INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO
ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO.
This prospectus contains the information you should read and know
before you invest in the Fund. Keep this prospectus for future
reference.
The Fund has also filed a Statement of Additional Information dated
November 30, 1994, with the Securities and Exchange Commission. The
information contained in the Statement of Additional Information is
incorporated by reference into this prospectus. You may request a copy
of the Statement of Additional Information free of charge by calling
1-800-235-4669. To obtain other information, or make inquiries about
the Fund, contact the Fund at the address listed in the back of this
prospectus.
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.
Prospectus dated November 30, 1994
TABLE OF CONTENTS
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
SUMMARY OF FUND EXPENSES 1
---------------------------------------------------
FINANCIAL HIGHLIGHTS--INSTITUTIONAL
SHARES 2
---------------------------------------------------
GENERAL INFORMATION 3
---------------------------------------------------
INVESTMENT INFORMATION 3
---------------------------------------------------
Investment Objective 3
Investment Policies 3
Investment Risks 7
Investment Limitations 7
Regulatory Compliance 7
TRUST INFORMATION 7
---------------------------------------------------
Management of the Trust 7
Distribution of Shares 8
Administration of the Fund 9
Expenses of the Fund and Institutional
Shares 9
NET ASSET VALUE 10
---------------------------------------------------
INVESTING IN THE FUND 10
---------------------------------------------------
Share Purchases 10
Minimum Investment Required 11
Subaccounting Services 11
Certificates and Confirmations 11
Dividends 11
Capital Gains 11
REDEEMING SHARES 11
---------------------------------------------------
By Mail 12
Telephone Redemption 12
Accounts with Low Balances 13
SHAREHOLDER INFORMATION 13
---------------------------------------------------
Voting Rights 13
Massachusetts Partnership Law 13
TAX INFORMATION 14
---------------------------------------------------
Federal Income Tax 14
Pennsylvania Corporate and Personal
Property Taxes 14
PERFORMANCE INFORMATION 14
---------------------------------------------------
OTHER CLASSES OF SHARES 15
---------------------------------------------------
FINANCIAL HIGHLIGHTS--INSTITUTIONAL
SERVICE SHARES 16
---------------------------------------------------
ADDRESSES 17
---------------------------------------------------
</TABLE>
I
SUMMARY OF FUND EXPENSES
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)....................... None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)............ None
Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption
proceeds, as applicable)........................................................................ None
Redemption Fee (as a percentage of amount redeemed, if applicable)................................ None
Exchange Fee...................................................................................... None
ANNUAL INSTITUTIONAL SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (1)................................................................. 0.08%
12b-1 Fee......................................................................................... None
Total Other Expenses.............................................................................. 0.12%
Shareholder Services Fee (2)......................................................... 0.00%
Total Institutional Shares Operating Expenses (3)......................................... 0.20%
<FN>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.20%.
(2) The maximum shareholder services fee is 0.25%.
(3) 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 were 0.34% absent the voluntary waiver of a
portion of the management fee.
</TABLE>
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Institutional Shares of the
Fund will bear, either directly or indirectly. For more complete descriptions of
the various costs and expenses, see "Investing in the Fund" and "Trust
Information." Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return and (2) redemption at the end of
each time period................................................. $2 $6 $11 $26
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The information set forth in the foregoing table and example relates only to
Institutional Shares of the Fund. The Fund also offers another class of shares
called Institutional Service Shares. Institutional Shares and Institutional
Service Shares are subject to certain of the same expenses. See "Other Classes
of Shares."
1
PRIME OBLIGATIONS FUND
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
--------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Arthur Andersen LLP, the Fund's
independent public accountants. Their report, dated September 15, 1994, on the
Fund's financial statements for the year ended July 31, 1994, and on the
following table for each of the periods presented, is included in the Annual
Report, which is incorporated by reference. This table should be read in
conjunction with the Fund's financial statements and notes thereto, which may be
obtained free of charge from the Fund.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------------------------------------------------
1994 1993 1992 1991 1990*
------------------------------------------------------------ ---------- ---------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00
------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
------------------------------------------------------------
Net investment income 0.03 0.03 0.05 0.07 0.03
------------------------------------------------------------
LESS DISTRIBUTIONS
------------------------------------------------------------
Dividends to shareholders from net investment income (0.03) (0.03) (0.05) (0.07) (0.03)
------------------------------------------------------------ ---------- ---------- ---------- ---------- ---------------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00
------------------------------------------------------------ ---------- ---------- ---------- ---------- ---------------
TOTAL RETURN** 3.47% 3.25% 4.74% 7.30% 2.89%
------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
------------------------------------------------------------
Expenses 0.20% 0.20% 0.20% 0.20% 0.20%(b)
------------------------------------------------------------
Net investment income 3.47% 3.20% 4.53% 6.54% 8.21%(b)
------------------------------------------------------------
Expense waiver/reimbursement (a) 0.14% 0.09% 0.10% 0.24% 0.68%(b)
------------------------------------------------------------
SUPPLEMENTAL DATA
------------------------------------------------------------
Net assets, end of period (000 omitted) $1,250,979 $1,098,159 $917,418 $473,593 $34,777
------------------------------------------------------------
<FN>
* Reflects operations for the period from March 26, 1990 (date of initial
public investment) to July 31, 1990.
** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Computed on an annualized basis.
</TABLE>
2
GENERAL INFORMATION
--------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated October 3, 1988. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. With respect to this Fund, as of the date of this
prospectus, the Trustees have established two classes of shares known as
Institutional Shares and Institutional Service Shares. This prospectus relates
only to Institutional Shares of the Fund, which are designed primarily for
financial institutions as a convenient means of accumulating an interest in a
professionally managed, diversified portfolio investing primarily in short-term
money market securities. A minimum initial investment of $25,000 is required.
Eligibility for investment in the Fund is contingent upon an investor
accumulating and maintaining a minimum aggregate investment of $200,000,000 in
Federated funds within a twelve-month period. For this purpose, (1) an investor
is defined as a financial institution or its collective customers, including
affiliate financial institutions and their collective customers, or other
institutions that are determined to qualify by Federated Securities Corp., and
(2) Federated funds are those mutual funds which are distributed by Federated
Securities Corp. or are advised by or administered by investment advisers or
administrators affiliated with Federated Securities Corp. ("Federated Funds").
An investor's minimum investment will be calculated by combining all accounts
the investor maintains with the Federated Funds, which includes the Trust.
The Fund attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income consistent
with stability of principal. This investment objective cannot be changed without
shareholder approval. While there is no assurance that the Fund will achieve its
investment objective, it endeavors to do so by following the investment policies
described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing primarily in a portfolio
of money market securities maturing in 13 months or less. The average maturity
of the securities in the Fund's portfolio, computed on a dollar-weighted basis,
will be 90 days or less. Unless indicated otherwise, the investment policies may
be changed by the Trustees without shareholder approval. Shareholders will be
notified before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS. The Fund invests in high quality money market
instruments that are either rated in the highest short-term rating category by
one or more nationally recognized statistical
3
rating organizations ("NRSROs") or are of comparable quality to securities
having such ratings. Examples of these instruments include, but are not limited
to:
- domestic issues of corporate debt obligations, including variable rate
demand notes;
- commercial paper (including Canadian Commercial Paper and Europaper);
- certificates of deposit, demand and time deposits, bankers' acceptances
and other instruments of domestic and foreign banks and other deposit
institutions ("Bank Instruments");
- short-term credit facilities;
- asset-backed securities;
- obligations issued or guaranteed as to payment of principal and interest
by the U.S. government or one of its agencies or instrumentalities; and
- other money market instruments.
The Fund invests only in instruments denominated and payable in U.S. dollars.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term debt
instruments that have variable or floating interest rates and provide the
Fund with the right to tender the security for repurchase at its stated
principal amount plus accrued interest. Such securities typically bear
interest at a rate that is intended to cause the securities to trade at par.
The interest rate may float or be adjusted at regular intervals (ranging
from daily to annually), and is normally based on a published interest rate
or interest rate index. Most variable rate demand notes allow the Fund to
demand the repurchase of the security on not more than seven days prior
notice. Other notes only permit the Fund to tender the security at the time
of each interest rate adjustment or at other fixed intervals. See "Demand
Features." The Fund treats variable rate demand notes as maturing on the
later of the date of the next interest rate adjustment or the date on which
the Fund may next tender the security for repurchase.
BANK INSTRUMENTS. The Fund only invests in Bank Instruments either issued
by an institution having capital, surplus and undivided profits over $100
million, or insured by the Bank Insurance Fund ("BIF") or the Savings
Association Insurance Fund ("SAIF"). Bank Instruments may include Eurodollar
Certificates of Deposit ("ECDs"), Yankee Certificates of Deposit ("Yankee
CDs") and Eurodollar Time Deposits ("ETDs"). The Fund will treat securities
credit enhanced with a bank's letter of credit as Bank Instruments.
ASSET-BACKED SECURITIES. Asset-backed securities are securities issued by
special purpose entities whose primary assets consist of a pool of loans or
accounts receivable. The securities may take the form of beneficial
interests in special purpose trusts, limited partnership interests, or
commercial paper or other debt securities issued by a special purpose
corporation. Although the securities often have some form of credit or
liquidity enhancement, payments on the securities depend predominantly upon
collections of the loans and receivables held by the issuer.
SHORT-TERM CREDIT FACILITIES. The Fund may enter into, or acquire
participations in, short-term borrowing arrangements with corporations,
consisting of either a short-term revolving
4
credit facility or a master note agreement payable upon demand. Under these
arrangements, the borrower may reborrow funds during the term of the
facility. The Fund treats any commitments to provide such advances as a
standby commitment to purchase the borrower's notes.
RATINGS. An NRSRO's highest rating category is determined without regard for
sub-categories and gradations. For example, securities rated A-1 or A-1+ by
Standard & Poor's Ratings Group ("S&P"), Prime-1 by Moody's Investors Service,
Inc. ("Moody's"), or F-1 (+ or -) by Fitch Investors Service, Inc. ("Fitch") are
all considered rated in the highest short-term rating category. The Fund will
follow applicable regulations in determining whether a security rated by more
than one NRSRO can be treated as being in the highest short-term rating
category; currently, such securities must be rated by two NRSROs in their
highest rating category. See "Regulatory Compliance."
REPURCHASE AGREEMENTS. Certain securities in which the Fund invests may be
purchased pursuant to repurchase agreements. Repurchase agreements are
arrangements in which banks, broker/dealers, and other recognized financial
institutions sell securities to the Fund and agree at the time of sale to
repurchase them at a mutually agreed upon time and price. To the extent that the
seller does not repurchase the securities from the Fund, the Fund could receive
less than the repurchase price on any sale of such securities.
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit
enhanced by a guaranty, letter of credit, or insurance. The Fund typically
evaluates the credit quality and ratings of credit enhanced securities based
upon the financial condition and ratings of the party providing the credit
enhancement (the "credit enhancer"), rather than the issuer. Generally, the Fund
will not treat credit enhanced securities as having been issued by the credit
enhancer for diversification purposes. However, under certain circumstances
applicable regulations may require the Fund to treat the securities as having
been issued by both the issuer and the credit enhancer. The bankruptcy,
receivership, or default of the credit enhancer will adversely affect the
quality and marketability of the underlying security.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities, or by
another third party, and may not be transferred separately from the underlying
security. The Fund uses these arrangements to provide the Fund with liquidity
and not to protect against changes in the market value of the underlying
securities. The bankruptcy, receivership, or default by the issuer of the demand
feature, or a default on the underlying security or other event that terminates
the demand feature before its exercise, will adversely affect the liquidity of
the underlying security. Demand features that are exercisable even after a
payment default on the underlying security may be treated as a form of credit
enhancement.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which the Fund purchases securities with payment and delivery scheduled for a
future time. The seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering into these transactions, and the market
5
values of the securities purchased may vary from the purchase prices.
Accordingly, the Fund may pay more/less than the market value of the securities
on the settlement date.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend its portfolio securities on a short-term or long-term basis, or
both, to broker/dealers, banks, or other institutional borrowers of securities.
The Fund will only enter into loan arrangements with broker/ dealers, banks, or
other institutions which the adviser has determined are creditworthy under
guidelines established by the Trustees and will receive collateral at all times
equal to at least 100% of the value of the securities loaned.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
otherwise invest pursuant to its investment objective and policies but which are
subject to restrictions on resale under federal securities law. However, the
Fund will limit investments in illiquid securities, including certain restricted
securities not determined by the Trustees to be liquid, non-negotiable time
deposits, and repurchase agreements providing for settlement in more than seven
days after notice, to 10% of its net assets.
The Fund may invest in commercial paper issued in reliance on the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933. Section
4(2) commercial paper is restricted as to disposition under federal securities
law, and is generally sold to institutional investors, such as the Fund, who
agree that they are purchasing the paper for investment purposes and not with a
view to public distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) commercial paper is normally 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) commercial paper,
thus providing liquidity. The Fund believes that Section 4(2) commercial paper
and possibly certain other restricted securities which meet the criteria for
liquidity established by the Trustees of the Fund are quite liquid. The Fund
intends, therefore, to treat the restricted securities which meet the criteria
for liquidity established by the Trustees, including Section 4(2) commercial
paper, as determined by the Fund's investment adviser, as liquid and not subject
to the investment limitation applicable to illiquid securities. In addition,
because Section 4(2) commercial paper is liquid, the Fund intends to not subject
such paper to the limitation applicable to restricted securities.
CONCENTRATION OF INVESTMENTS. The Fund will invest 25% or more of its total
assets in commercial paper issued by finance companies. The finance companies in
which the Fund intends to invest can be divided into two categories, commercial
finance companies and consumer finance companies. Commercial finance companies
are principally engaged in lending to corporations or other businesses. Consumer
finance companies are primarily engaged in lending to individuals. Captive
finance companies or finance subsidiaries which exist to facilitate the
marketing and financial activities of their parent will, for purposes of
industry concentration, be classified in the industry of their parent's
corporation. Concentrating investments in any one industry may subject the Fund
to more risk than if it did not concentrate investments.
6
In addition, the 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.
INVESTMENT RISKS
ECDs, ETDs, Yankee CDs, CCPs and Europaper are subject to different risks than
domestic obligations of domestic banks or corporations. Examples of these risks
include international economic and political developments, foreign governmental
restrictions that may adversely affect the payment of principal or interest,
foreign withholding or other taxes on interest income, difficulties in obtaining
or enforcing a judgment against the issuing entity, and the possible impact of
interruptions in the flow of international currency transactions. Risks may also
exist for ECDs, ETDs, and Yankee CDs because the banks issuing these
instruments, or their domestic or foreign branches, are not necessarily subject
to the same regulatory requirements that apply to domestic banks, such as
reserve requirements, loan limitations, examinations, accounting, auditing,
recordkeeping, and the public availability of information. These factors will be
carefully considered by the Fund's adviser in selecting investments for the
Fund.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a money market instrument for a percentage
of its cash value with an agreement to buy it back on a set date) or pledge
securities except, under certain circumstances, the Fund may borrow up to
one-third of the value of its total assets and pledge assets to secure such
borrowings. This investment limitation cannot be changed without shareholder
approval.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in this
prospectus and its Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940, as amended. In particular, the Fund
will comply with the various requirements of Rule 2a-7 which regulates money
market mutual funds. For example, with limited exceptions, Rule 2a-7 prohibits
the investment of more than 5% of the Fund's total assets in the securities of
any one issuer, although the Fund's investment limitation only requires such 5%
diversification with respect to 75% of its assets. The Fund will invest more
than 5% of its assets in any one issuer only under the circumstances permitted
by Rule 2a-7. The Fund will also determine the effective maturity of its
investments, as well as its ability to consider a security as having received
the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Fund may
change these operational policies to reflect changes in the laws and regulations
without the approval of its shareholders.
TRUST INFORMATION
--------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the Fund's business affairs and for exercising all
the Trust's powers except those reserved
7
for the shareholders. An Executive Committee of the Board of Trustees handles
the Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated
Management, the Fund's investment adviser, subject to direction by the Trustees.
The adviser continually conducts investment research and supervision for the
Fund and is responsible for the purchase and sale of portfolio instruments.
ADVISORY FEES. The adviser receives an annual investment advisory fee equal
to .20 of 1% of the Fund's average daily net assets. The adviser has
undertaken to reimburse the Fund up to the amount of the advisory fee for
operating expenses in excess of limitations established by certain states.
The adviser also may voluntarily choose to waive a portion of its fee or
reimburse other expenses of the Fund, but reserves the right to terminate
such waiver or reimbursement at any time at its sole discretion.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust,
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services to
a number of investment companies. Total assets under management or
administration by these and other subsidiaries of Federated Investors are
approximately $70 billion. Federated Investors, which was founded in 1956 as
Federated Investors, Inc., develops and manages mutual funds primarily for
the financial industry. Federated Investors' track record of competitive
performance and its disciplined, risk averse investment philosophy serve
approximately 3,500 client institutions nationwide. Through these same
client institutions, individual shareholders also have access to this same
level of investment expertise.
DISTRIBUTION OF SHARES
Federated Securities Corp. is the principal distributor for Institutional Shares
of the Fund. It is a Pennsylvania corporation organized on November 14, 1969,
and is the principal distributor for a number of investment companies. Federated
Securities Corp. is a subsidiary of Federated Investors.
SHAREHOLDER SERVICES PLAN. The Fund has adopted a Shareholder Services Plan
(the "Services Plan") under which it may pay Federated Shareholder Services, an
affiliate of Federated Investors, an amount not exceeding .25 of 1% of the
average daily net asset value of the Institutional Shares to provide personal
services and/or maintenance of shareholder accounts to the Fund and its
shareholders. From time to time and for such periods as deemed appropriate, the
amount stated above may be reduced voluntarily.
8
Federated Shareholder Services may elect to pay financial institutions fees
based upon shares owned by their clients or customers for services provided to
those clients and customers. The schedules of such fees and the basis upon which
such fees will be paid will be determined from time to time by Federated
Shareholder Services.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative personnel and services (including
certain legal and accounting services) necessary to operate the Fund. Federated
Administrative Services provides these at an annual rate as specified below:
<TABLE>
<CAPTION>
MAXIMUM FEE AVERAGE AGGREGATE DAILY NET ASSETS
-------------------- ------------------------------------
<C> <S>
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares. Average
aggregate daily net assets include those of all mutual funds advised by
affiliates of Federated Investors. Federated Administrative Services may choose
voluntarily to waive a portion of its fee.
CUSTODIAN. State Street Bank and Trust Company, Boston, MA, is custodian for
the securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Pittsburgh, PA, is transfer agent for the shares of, and dividend disbursing
agent for, the Fund.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, PA, and Dickstein, Shapiro & Morin, L.L.P., Washington, DC.
INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for the Fund
are Arthur Andersen LLP, Pittsburgh, PA.
EXPENSES OF THE FUND AND INSTITUTIONAL SHARES
Holders of Institutional Shares pay their allocable portion of Fund and Trust
expenses.
The Trust expenses for which holders of Institutional Shares pay their allocable
portion include, but are not limited to: the cost of organizing the Trust and
continuing its existence; registering the Trust with federal and state
securities authorities; Trustees' fees; auditors' fees; the cost of meetings of
Trustees; legal fees of the Trust; association membership dues; and such
non-recurring and extraordinary items as may arise.
The Fund expenses for which holders of Institutional Shares pay their allocable
portion include, but are not limited to: registering the Fund and shares of the
Fund; investment advisory services; taxes and commissions; custodian fees;
insurance premiums; auditors' fees; and such non-recurring and extraordinary
items as may arise.
9
At present, no expenses are allocated to the Institutional Shares as a class.
However the Board of Trustees reserves the right to allocate certain expenses to
holders of Institutional Shares as it deems appropriate ("class expenses"). In
any case, class expenses would be limited to: transfer agent fees as identified
by the transfer agent as attributable to holders of Institutional Shares;
printing and postage expenses related to preparing and distributing materials
such as shareholder reports, prospectuses and proxies to current shareholders;
registration fees paid to the Securities and Exchange Commission and
registration fees paid to state securities commissions; expenses related to
administrative personnel and services as required to support holders of
Institutional Shares; legal fees relating solely to Institutional Shares; and
Trustees' fees incurred as a result of issues relating solely to Institutional
Shares.
NET ASSET VALUE
--------------------------------------------------------------------------------
The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by subtracting liabilities attributable to shares from
the value of Fund assets attributable to shares, and dividing the remainder by
the number of shares outstanding. The Fund cannot guarantee that its net asset
value will always remain at $1.00 per share.
The net asset value is determined at 12:00 noon, 3:00 p.m., and 4:00 p.m.
(Eastern time) Monday through Friday except on: (i) days on which there are not
sufficient changes in the value of the Fund's portfolio securities that its net
asset value might be materially affected; (ii) days during which no shares are
tendered for redemption and no orders to purchase shares are received; or (iii)
the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
INVESTING IN THE FUND
--------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days on which the New York Stock
Exchange and the Federal Reserve wire are open for business. Shares may be
purchased either by wire or mail. The Fund reserves the right to reject any
purchase request.
To make a purchase, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken by telephone.
BY WIRE. To purchase by Federal Reserve wire, call the Fund before 3:00 p.m.
(Eastern time) to place an order. The order is considered received immediately.
Payment by federal funds must be received before 3:00 p.m. (Eastern time) that
day. Federal funds should be wired as follows: Federated Services Company, c/o
State Street Bank and Trust Company, Boston, Massachusetts; Attention: EDGEWIRE;
For Credit to: Prime Obligations Fund--Institutional Shares; Fund Number (this
number can be found on the account statement or by contacting the Fund); Group
Number or Order Number; Nominee or Institution Name; and ABA Number 011000028.
10
BY MAIL. To purchase by mail, send a check made payable to Prime Obligations
Fund--Institutional Shares to: Federated Services Company, P.O. Box 8602,
Boston, MA 02266-8602. Orders by mail are considered received when payment by
check is converted into federal funds. This is normally the next business day
after the check is received.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment is $25,000. Eligibility for investment in the
Fund is contingent upon an investor accumulating and maintaining a minimum
aggregate investment of $200,000,000 in Federated Funds within a 12-month
period.
SUBACCOUNTING SERVICES
Financial institutions are encouraged to open single master accounts. However,
certain financial institutions may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent charges a fee based on the level of subaccounting services
rendered. Financial institutions may charge or pass through subaccounting fees
as part of or in addition to normal trust or agency account fees. They may also
charge fees for other services provided which may be related to the ownership of
Fund shares. This prospectus should, therefore, be read together with any
agreement between the customer and the financial institution with regard to the
services provided, the fees charged for those services and any restrictions and
limitations imposed.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Fund or Federated Services Company in writing.
Monthly confirmations are sent to report transactions such as all purchases and
redemptions as well as dividends paid during the month.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in additional shares of the Fund unless cash
payments are requested by writing to the Fund. Shares purchased by wire before
3:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends the day after the check is converted into federal
funds.
CAPITAL GAINS
The Fund does not expect to realize any capital gains or losses. If capital
gains or losses were to occur, they could result in an increase or decrease in
dividends. The Fund will distribute in cash or additional shares any realized
net long-term capital gains at least once every 12 months.
REDEEMING SHARES
--------------------------------------------------------------------------------
Shares are redeemed at their net asset value next determined after the Fund
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Redemption requests must be received in
proper form and can be made as described below.
11
BY MAIL
Shares may be redeemed by sending a written request to: Prime Obligations Fund,
P.O. Box 8602, Boston, MA 02266-8602. The written request should state: Prime
Obligations Fund--Institutional Shares; shareholder's name; the account number;
and the share or dollar amount requested. Sign the request exactly as the shares
are registered. Shareholders should call the Fund for assistance in redeeming by
mail.
If share certificates have been issued, they must be properly endorsed and
should be sent by registered or certified mail with the written request.
Shareholders requesting a redemption of $50,000 or more, a redemption of any
amount to be sent to an address other than that on record with the Fund, or a
redemption payable other than to the shareholder of record must have their
signatures guaranteed by:
- a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund which is administered by the Federal Deposit Insurance
Corporation ("FDIC");
- a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchanges;
- a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund, which is administered by the
FDIC; or
- any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and the transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of the
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed within one business day, but in no
event more than seven days, after receipt of a proper written redemption
request. Dividends are paid up to and including the day that a redemption
request is processed.
TELEPHONE REDEMPTION
Shares may be redeemed by telephoning the Fund. Telephone instructions may be
recorded and if reasonable procedures are not followed by the Fund, it may be
liable for losses due to unauthorized or fraudulent telephone instructions. An
authorization form permitting the Fund to accept telephone requests must first
be completed. Authorization forms and information on this service are available
from Federated Securities Corp.
If the redemption request is received before 3:00 p.m. (Eastern time), the
proceeds will be wired the same day to the shareholder's 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). However, the proceeds are not wired until the following
business day. Under limited
12
circumstances, arrangements may be made with the distributor for same-day
payment of proceeds, without that day's dividend, for redemption requests
received before 3:00 p.m. (Eastern time).
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as "By Mail," should be considered. If at any time
the Fund shall determine it necessary to terminate or modify this method of
redemption, shareholders would be promptly notified.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the 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,
due to shareholder redemptions.
Before shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
--------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Trust gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each portfolio in the Trust have equal voting rights, except that in matters
affecting only a particular portfolio or class, only shares of that portfolio or
class are entitled to vote. As a Massachusetts business trust, the Trust is not
required to hold annual shareholder meetings. Shareholder approval will be
sought only for certain changes in the Trust's or the Fund's operation and for
the election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders for this purpose shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
outstanding shares of the Trust.
As of October 28, 1994, Peoples Bank, Bridgeport, Connecticut owned 81.93% of
the voting securities of the Institutional Service Shares, and, therefore, may,
for certain purposes, be deemed to control the class and be able to affect the
outcome of certain matters presented for a vote of shareholders.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in each
agreement, obligation, or instrument the Trust or its Trustees enter into or
sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On
13
request, the Trust will defend any claim made and pay any judgment against a
shareholder for any act or obligation of the Trust. Therefore, financial loss
resulting from liability as a shareholder will occur only if the Trust itself
cannot meet its obligations to indemnify shareholders and pay judgments against
them.
TAX INFORMATION
--------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies. The Fund will be
treated as a single, separate entity for federal income tax purposes so that
income (including capital gains) and losses realized by the Trust's other
portfolios will not be combined for tax purposes with those realized by the
Fund.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional shares.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
In the opinion of Houston, Houston, & Donnelly, counsel to the Trust:
- the Fund is not subject to Pennsylvania corporate or personal property
taxes; and
- Fund shares may be subject to personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania to the extent that
the portfolio securities in the Fund would be subject to such taxes if
owned directly by residents of those jurisdictions.
OTHER STATE AND LOCAL TAXES. Shareholders are urged to consult their own tax
advisers regarding the status of their accounts under state and local tax laws.
PERFORMANCE INFORMATION
--------------------------------------------------------------------------------
From time to time, the Fund advertises its yield and effective yield for
Institutional Shares.
Yield represents the annualized rate of income earned on an investment over a
seven-day period. It is the annualized dividends earned during the period on an
investment shown as a percentage of the investment. The effective yield is
calculated similarly to the yield, but when annualized, the income earned by an
investment is assumed to be reinvested daily. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment.
Advertisements and sales literature may also refer to total return. Total return
represents the change, over a specified period of time, in the value of an
investment in the shares after reinvesting all income distributions. It is
calculated by dividing that change by the initial investment and is expressed as
a percentage.
14
Performance figures will be calculated separately for each class of shares.
Because each class of shares is subject to different expenses, the performance
of Institutional Shares will exceed the yield and effective yield of
Institutional Service Shares for the same period.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare its
performance to certain indices.
OTHER CLASSES OF SHARES
--------------------------------------------------------------------------------
The Fund also offers the following class.
Institutional Service Shares are sold at net asset value primarily to accounts
for which financial institutions act in an agency or fiduciary capacity.
Investments in Institutional Service Shares are subject to a minimum initial
investment of $25,000. Institutional Service Shares are currently subject to the
maximum shareholder services fee of 0.25%.
Financial institutions providing distribution or administrative services may
receive additional compensation depending upon which class of shares of the Fund
is sold. The distributor pays this compensation and is reimbursed from sources
other than the assets of the Fund.
The amount of dividends payable to shareholders of any particular class may be
more or less than that payable to the shareholders of any other class depending
upon the existence of and differences in class expenses and Services Plan
expenses. The stated advisory fee is the same for all classes of shares.
15
PRIME OBLIGATIONS FUND
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
--------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table has been audited by Arthur Andersen LLP, the Fund's
independent public accountants. Their report dated September 15, 1994, on the
Fund's financial statements for the year ended July 31, 1994, and on the
following table for the period presented, is included in the Annual Report,
which is incorporated by reference. This table should be read in conjunction
with the Fund's financial statements and notes thereto, which may be obtained
free of charge from the Fund.
<TABLE>
<CAPTION>
YEAR ENDED
JULY 31,
----------
1994*
------------------------------------------------------------ ----------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00
------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
------------------------------------------------------------
Net investment income 0.003
------------------------------------------------------------
LESS DISTRIBUTIONS
------------------------------------------------------------
Dividends to shareholders from net investment income (0.003)
------------------------------------------------------------ ----------
NET ASSET VALUE, END OF PERIOD $1.00
------------------------------------------------------------ ----------
TOTAL RETURN** 0.30%
------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
------------------------------------------------------------
Expenses 0.34%(b)
------------------------------------------------------------
Net investment income 4.68%(b)
------------------------------------------------------------
Expense waiver/reimbursement (a) 0.14%(b)
------------------------------------------------------------
SUPPLEMENTAL DATA
------------------------------------------------------------
Net assets, end of period (000 omitted) $9,387
------------------------------------------------------------
<FN>
* Reflects operations for the period from July 5, 1994 (date of initial public
offering) to July 31, 1994.
** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Computed on an annualized basis.
</TABLE>
16
ADDRESSES
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Prime Obligations Fund
Institutional Shares Federated Investors Tower
Pittsburgh, PA 15222-3779
-------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, PA 15222-3779
-------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, PA 15222-3779
-------------------------------------------------------------------------------------------
Custodian
State Street Bank and Trust Company P.O. Box 8602
Boston, MA 02266-8602
-------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, PA 15222-3779
-------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, PA 15222
-------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin, L.L.P. 2101 L Street, N.W.
Washington, DC 20037
-------------------------------------------------------------------------------------------
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, PA 15222
-------------------------------------------------------------------------------------------
</TABLE>
17
--------------------------------------------------------------------------------
PRIME OBLIGATIONS FUND
INSTITUTIONAL SHARES
PROSPECTUS
A Diversified Portfolio of
Money Market Obligations Trust,
an Open-End Management
Investment Company
Prospectus dated November 30,
1994
[LOGO] FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
60934N203
9110205A (11/94) [RECYCLED PAPER SYMBOL]
<TABLE>
<CAPTION>
Portfolio of Investments
July 31, 1994 (unaudited)
<S> <C> <C> <C> <C> <C>
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%
$ $ 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
20,000,000 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
* 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)
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%
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
* 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>
<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.
Bank of America, the investment adviser to the Prime
Value Fund, will bear the legal costs of the reorganization
(i.e., the preparation of the prospectus/proxy statement,
closing documents, and shareholder meeting material) and the
proxy solictation.
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.
^
[FOOTERS]
PRESIDENT'S MESSAGE
--------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Semi-Annual Report to Shareholders for Prime
Obligations Fund (the "Fund"). The report covers the six-month period ended
January 31, 1995. It begins with the Fund's Investment Review, followed by
Financial Statements which include the Portfolio of Investments. In addition,
separate Financial Highlights tables have been included for both classes of
shares of the Fund ("Institutional Shares" and "Institutional Service Shares").
The Fund pursues current income consistent with stability of principal through a
diversified portfolio of short-term, high quality money market securities. In
addition, you have daily access to your money.
During the six-month reporting period, dividends paid to holders of
Institutional Shares totaled $42.8 million, or $0.03 per share. For the same
period, dividends paid to holders of Institutional Service Shares totaled $2.4
million, or $0.02 per share. At the end of the period, net assets stood at $2.5
billion.
Thank you for your confidence in the Fund. We welcome your questions and
comments.
Sincerely,
J. Christopher Donahue
President
March 15, 1995
INVESTMENT REVIEW
--------------------------------------------------------------------------------
Prime Obligations Fund (the "Fund") invests primarily in money market
instruments maturing in thirteen months or less. The average maturity of these
securities, computed on a dollar weighted basis, is restricted to 90 days or
less. Portfolio securities must be rated in the highest short-term rating
category by one or more of the nationally recognized statistical rating
organizations or be of comparable quality to securities having such ratings.
Typical security types include, but are not limited to, commercial paper,
certificates of deposit, time deposits, variable rate instruments and repurchase
agreements.
During the reporting period, the Federal Reserve Board (the "Fed") continued its
restrictive interest rate stance. The Fed tightened monetary policy by
increasing the Federal Funds target rate from 4.25% to 5.50% over the period.
Despite the continued low inflationary environment, solid economic growth,
growing employment rolls and capacity constraints would point toward another
increase to the targeted Federal Funds rate early in 1995.
The target average maturity range for the Fund has remained in its current 30-40
day range throughout the reporting time period. This reflects management's
continuing bias that the money market yield curve is fairly steep, and value can
be obtained through both structure as well as by stepping out the curve a bit.
In structuring the Fund, there is continued emphasis placed on positioning 25%
to 30% of the Fund's assets in variable rate demand notes and accomplishing a
modest barbell structure.
Being on the shorter end of the average maturity spectrum has proven to be
helpful over the reporting period. The Fed has raised short-term rates two times
since July 31, 1994. Despite the fact that the Consumer Price Index and the
Producer Price Index indicate moderate inflationary levels, the Fed continues to
fight "inflation expectations".
During the six months ended January 31, 1995, the net assets of the Fund
increased from $1.3 billion to $2.5 billion, while the 7-day yield for
Institutional Shares and Institutional Service Shares increased from 4.30% to
5.76% and from 4.08% to 5.51%, respectively.* The effective average maturity of
the Fund on January 31 was 30 days.
*Performance quoted represents past performance and is not indicative of future
results. Yield will vary.
PRIME OBLIGATIONS FUND
PORTFOLIO OF INVESTMENTS
JANUARY 31, 1995 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
-------------- ------------------------------------------------------------------------------ ----------------
*COMMERCIAL PAPER--40.1%
----------------------------------------------------------------------------------------------
BANKING--7.2%
------------------------------------------------------------------------------
$ 6,000,000 Abbey National N.A. Corp., (Guaranteed by Abbey National Bank PLC, London),
6.017%, 5/9/1995 $ 5,905,587
------------------------------------------------------------------------------
27,000,000 Bank of Nova Scotia, Toronto, 5.869%, 4/25/1995 26,645,175
------------------------------------------------------------------------------
14,000,000 Canadian Imperial Holdings, Inc., (Guaranteed by Canadian
Imperial Bank of Commerce, Toronto), 5.246%-6.093%,
2/24/1995-3/2/1995 13,946,508
------------------------------------------------------------------------------
24,700,000 City of Cleveland, (Union Bank of Switzerland, Zurich LOC), 6.250%, 2/6/1995 24,700,000
------------------------------------------------------------------------------
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
------------------------------------------------------------------------------
25,418,000 Queensland Alumina Ltd., (Credit Suisse, Zurich LOC),
6.269%-6.302%, 4/13/1995-4/21/1995 25,087,813
------------------------------------------------------------------------------
8,000,000 Royal Bank of Canada, Montreal, (Guaranteed by Royal Bank of Canada), 6.134%,
4/28/1995 7,884,760
------------------------------------------------------------------------------
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
------------------------------------------------------------------------------
30,000,000 UBS Finance (Delaware), Inc., (Guaranteed by Union Bank of Switzerland,
Zurich), 5.831%, 2/1/1995 30,000,000
------------------------------------------------------------------------------ ----------------
Total 180,735,595
------------------------------------------------------------------------------ ----------------
DIVERSIFIED--2.4%
------------------------------------------------------------------------------
62,000,000 Rockwell International Corp., 6.819%-6.824%, 6/2/1995-6/6/1995 60,606,300
------------------------------------------------------------------------------ ----------------
FINANCE-COMMERCIAL--16.5%
------------------------------------------------------------------------------
83,500,000 Asset Securitization Cooperative Corp., 5.734%-6.219%,
2/10/1995-4/28/1995 82,982,257
------------------------------------------------------------------------------
44,500,000 Beta Finance, Inc., 5.340%-6.746%, 3/13/1995-6/27/1995 44,081,347
------------------------------------------------------------------------------
34,000,000 CIESCO, Inc., 5.235%-6.262%, 2/9/1995-5/3/1995 33,543,504
------------------------------------------------------------------------------
50,000,000 CIT Group Holdings, Inc., 5.782%, 2/9/1995 49,936,111
------------------------------------------------------------------------------
</TABLE>
PRIME OBLIGATIONS FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
-------------- ------------------------------------------------------------------------------ ----------------
*COMMERCIAL PAPER--CONTINUED
----------------------------------------------------------------------------------------------
FINANCE-COMMERCIAL--CONTINUED
------------------------------------------------------------------------------
$ 13,400,000 Corporate Asset Funding Co., Inc. (CAFCO), 5.132%-6.677%,
2/2/1995-7/26/1995 $ 13,203,678
------------------------------------------------------------------------------
127,000,000 General Electric Capital Corp., 5.629%-6.718%, 4/6/1995-7/17/1995 124,808,948
------------------------------------------------------------------------------
66,000,000 Sheffield Receivables Corp., 6.253%-6.273%, 5/1/1995-5/2/1995 64,989,499
------------------------------------------------------------------------------ ----------------
Total 413,545,344
------------------------------------------------------------------------------ ----------------
FINANCE-RETAIL--11.7%
------------------------------------------------------------------------------
25,000,000 American General Finance Corp., 5.851%, 2/1/1995 25,000,000
------------------------------------------------------------------------------
60,000,000 Associates Corp. of North America, 5.831%-6.404%,
2/1/1995-4/7/1995 59,601,875
------------------------------------------------------------------------------
53,700,000 Ford Credit Receivables Funding, Inc., 5.883%-6.270%,
2/23/1995-5/4/1995 53,091,057
------------------------------------------------------------------------------
152,000,000 New Center Asset Trust, A1+/P1 Series, 5.209%-6.824%,
2/17/1995-7/21/1995 149,359,177
------------------------------------------------------------------------------
6,000,000 Norwest Financial Corp., 6.255%, 4/27/1995 5,912,875
------------------------------------------------------------------------------ ----------------
Total 292,964,984
------------------------------------------------------------------------------ ----------------
INSURANCE--2.2%
------------------------------------------------------------------------------
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
------------------------------------------------------------------------------
13,000,000 Prudential Funding Corp., 6.030%, 5/11/1995 12,790,863
------------------------------------------------------------------------------ ----------------
Total 55,824,702
------------------------------------------------------------------------------ ----------------
TOTAL COMMERCIAL PAPER 1,003,676,925
------------------------------------------------------------------------------ ----------------
CORPORATE BONDS--1.1%
----------------------------------------------------------------------------------------------
BANKING--1.1%
------------------------------------------------------------------------------
28,000,000 (a)SMM Trust Series 1994-H, (Guaranteed by Morgan Guaranty Trust Co., NY),
6.034%, 2/22/1995 27,995,249
------------------------------------------------------------------------------ ----------------
</TABLE>
PRIME OBLIGATIONS FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
-------------- ------------------------------------------------------------------------------ ----------------
**VARIABLE RATE INSTRUMENTS--15.6%
----------------------------------------------------------------------------------------------
BANKING--8.9%
------------------------------------------------------------------------------
$ 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
------------------------------------------------------------------------------
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
------------------------------------------------------------------------------
12,064,000 Adesa Funding Corp., (Bank One, Indianapolis, IN LOC), 6.220%, 2/2/1995 12,064,000
------------------------------------------------------------------------------
8,610,000 Alexandria Executive Club L.P., (Huntington National Bank, Columbus, OH LOC),
6.360%, 2/2/1995 8,610,000
------------------------------------------------------------------------------
16,900,000 Beverly California Corp., (PNC Bank, N.A. LOC), 6.304%, 2/6/1995 16,900,000
------------------------------------------------------------------------------
1,642,790 Bowling Green Manor L.P., (Huntington National Bank, Columbus, OH LOC),
6.360%, 2/2/1995 1,642,790
------------------------------------------------------------------------------
17,400,000 CMH Funding, (Huntington National Bank, Columbus, OH LOC), 7.040%, 7/3/1995 17,400,000
------------------------------------------------------------------------------
22,105,000 Capital One Funding Corp., (Bank One, Cleveland, N.A. LOC), 6.560%, 2/2/1995 22,105,000
------------------------------------------------------------------------------
1,062,337 Clyde Manor L.P., (Huntington National Bank, Columbus, OH LOC), 6.360%,
2/2/1995 1,062,337
------------------------------------------------------------------------------
4,020,000 Eastwinds Investment, Ltd., (Huntington National Bank, Columbus, OH LOC),
6.360%, 2/2/1995 4,020,000
------------------------------------------------------------------------------
2,485,000 Grote Family L.P., (Huntington National Bank, Columbus, OH LOC), 6.360%,
2/2/1995 2,485,000
------------------------------------------------------------------------------
5,000,000 Hunt Club Apartments, Inc., (Huntington National Bank, Columbus, OH LOC),
6.360%, 2/1/1995 5,000,000
------------------------------------------------------------------------------
4,500,000 Kokosing Construction Co., Inc., (National City Bank, Cleveland, OH LOC),
6.200%, 2/1/1995 4,500,000
------------------------------------------------------------------------------
8,600,000 Mississippi Business Finance Corp., (Comercia Bank, Detroit, MI LOC), 6.360%,
2/2/1995 8,600,000
------------------------------------------------------------------------------
5,000,000 Olen Corp., (National City Bank, Cleveland, OH LOC), 6.20%,
2/1/1995 5,000,000
------------------------------------------------------------------------------
</TABLE>
PRIME OBLIGATIONS FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
-------------- ------------------------------------------------------------------------------ ----------------
**VARIABLE RATE INSTRUMENTS--CONTINUED
----------------------------------------------------------------------------------------------
BANKING--CONTINUED
------------------------------------------------------------------------------
$ 29,000,000 PHH/CFC Leasing, Inc., (Banque Nationale de Paris LOC), 6.320%, 2/1/1995 $ 29,000,000
------------------------------------------------------------------------------
2,350,000 Ramsey Real Estate Enterprises, (National City Bank, Kentucky LOC), 6.200%,
2/2/1995 2,350,000
------------------------------------------------------------------------------
7,900,000 Roby Company Ltd. Partnership, (Huntington National Bank, Columbus, OH LOC),
6.360%, 2/2/1995 7,900,000
------------------------------------------------------------------------------
13,450,000 Rooker, J.W., (Wachovia Bank of Georgia NA, Atlanta LOC), 6.339%, 2/1/1995 13,450,000
------------------------------------------------------------------------------
20,000,000 (a)SMM Trust 1994-B, (Guaranteed by Morgan Guaranty Trust Co., NY), 5.892%,
2/11/1995 19,994,010
------------------------------------------------------------------------------
7,040,000 Shenandoah Partners L.P., (Huntington National Bank, Columbus, OH LOC),
6.360%, 2/2/1995 7,040,000
------------------------------------------------------------------------------
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
------------------------------------------------------------------------------
3,526,000 Vista Funding Corp., (Bank One, Akron, N.A. LOC), 6.220%,
2/2/1995 3,526,000
------------------------------------------------------------------------------
6,678,000 Vista Funding Corp., (Fifth Third Bank of Northwestern OH LOC), 6.360%,
2/2/1995 6,678,000
------------------------------------------------------------------------------
1,011,431 Wauseon Manor II L.P., (Huntington National Bank, Columbus, OH LOC), 6.360%,
2/2/1995 1,011,431
------------------------------------------------------------------------------
3,775,000 Wexner Heritage House, (Huntington National Bank, Columbus, OH LOC), 6.360%,
2/2/1995 3,775,000
------------------------------------------------------------------------------
2,500,000 YMCA of Central, OH, (Huntington National Bank, Columbus, OH LOC), 6.360%,
2/2/1995 2,500,000
------------------------------------------------------------------------------ ----------------
Total 223,258,568
------------------------------------------------------------------------------ ----------------
ELECTRICAL EQUIPMENT--1.7%
------------------------------------------------------------------------------
13,058,538 GS Funding Corp., (Guaranteed by General Electric Co.), 6.304%, 2/6/1995 13,058,537
------------------------------------------------------------------------------
6,000,000 Lauda Air, (Guaranteed by General Electric Co.), 6.337%, 2/1/1995 6,000,000
------------------------------------------------------------------------------
</TABLE>
PRIME OBLIGATIONS FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
-------------- ------------------------------------------------------------------------------ ----------------
**VARIABLE RATE INSTRUMENTS--CONTINUED
----------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT--CONTINUED
------------------------------------------------------------------------------
$ 25,388,464 Northwest Airlines, Inc., (Guaranteed by General Electric Co.), 6.337%,
2/6/1995 $ 25,388,464
------------------------------------------------------------------------------ ----------------
Total 44,447,001
------------------------------------------------------------------------------ ----------------
FINANCE-AUTOMOTIVE--2.9%
------------------------------------------------------------------------------
32,000,000 Carco Auto Loan Master Trust, Series 1993-2, 5.791%, 2/15/1995 32,000,000
------------------------------------------------------------------------------
40,000,000 Money Market Auto Loan Trust, 5.896%, 2/15/1995 40,000,000
------------------------------------------------------------------------------ ----------------
Total 72,000,000
------------------------------------------------------------------------------ ----------------
INSURANCE--1.0%
------------------------------------------------------------------------------
25,000,000 (a)Peoples Security Life Insurance, 6.290%, 2/1/1995 25,000,000
------------------------------------------------------------------------------ ----------------
MUNICIPAL--1.1 %
------------------------------------------------------------------------------
26,700,000 (a)City of Columbus, Ohio, 6.610%, 2/2/1995 26,700,000
------------------------------------------------------------------------------ ----------------
TOTAL VARIABLE RATE INSTRUMENTS 391,405,569
------------------------------------------------------------------------------ ----------------
***REPURCHASE AGREEMENTS--43.4%
----------------------------------------------------------------------------------------------
130,000,000 Chase Securities, Inc., 5.800%, dated 1/31/1995, due 2/1/1995 130,000,000
------------------------------------------------------------------------------
218,000,000 Chemical Banking Corp., 5.820%, dated 1/31/1995, due 2/1/1995 218,000,000
------------------------------------------------------------------------------
250,000,000 First Chicago Capital Markets, Inc., 5.820%, dated 1/31/1995,
due 2/1/1995 250,000,000
------------------------------------------------------------------------------
130,000,000 Fuji Government Securities, Inc., 5.820%, dated 1/31/1995,
due 2/1/1995 130,000,000
------------------------------------------------------------------------------
250,000,000 Lehman Government Securities, Inc., 5.830%, dated 1/31/1995,
due 2/1/1995 250,000,000
------------------------------------------------------------------------------
90,000,000 Nationsbank of North Carolina N.A., 5.820%, dated 1/31/1995,
due 2/1/1995 90,000,000
------------------------------------------------------------------------------
</TABLE>
PRIME OBLIGATIONS FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
-------------- ------------------------------------------------------------------------------ ----------------
***REPURCHASE AGREEMENTS--CONTINUED
----------------------------------------------------------------------------------------------
$ 20,500,000 State Street Bank and Trust Co., Boston, MA, 5.820%,
dated 1/31/1995, due 2/1/1995 $ 20,500,000
------------------------------------------------------------------------------ ----------------
TOTAL REPURCHASE AGREEMENTS 1,088,500,000
------------------------------------------------------------------------------ ----------------
TOTAL INVESTMENTS, AT AMORTIZED COST $ 2,511,577,743+
------------------------------------------------------------------------------ ----------------
</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 the repurchase agreements are through participation in joint
accounts with other Federated funds.
(a) Restricted Securities.
Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($2,505,887,460) 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.)
PRIME OBLIGATIONS FUND
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1995 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
-----------------------------------------------------------------------------------------------
Investments in repurchase agreements $ 1,088,500,000
-----------------------------------------------------------------------------
Investments in securities 1,423,077,743
----------------------------------------------------------------------------- ----------------
Total investments, at amortized cost and value $ 2,511,577,743
-----------------------------------------------------------------------------------------------
Income receivable 2,937,444
-----------------------------------------------------------------------------------------------
Receivable for shares sold 39,237
----------------------------------------------------------------------------------------------- ----------------
Total assets 2,514,554,424
-----------------------------------------------------------------------------------------------
LIABILITIES:
-----------------------------------------------------------------------------------------------
Income distribution payable 8,317,966
-----------------------------------------------------------------------------
Accrued expenses 43,401
-----------------------------------------------------------------------------
Payable to Bank 305,597
----------------------------------------------------------------------------- ----------------
Total liabilities 8,666,964
----------------------------------------------------------------------------------------------- ----------------
NET ASSETS for 2,505,887,460 shares outstanding $ 2,505,887,460
----------------------------------------------------------------------------------------------- ----------------
NET ASSETS VALUE, Offering Price and Redemption Proceeds Per Share:
-----------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES:
-----------------------------------------------------------------------------------------------
($2,348,306,099 / 2,348,306,099 shares outstanding) $1.00
----------------------------------------------------------------------------------------------- ----------------
INSTITUTIONAL SERVICE SHARES:
-----------------------------------------------------------------------------------------------
($157,581,361 / 157,581,361 shares outstanding) $1.00
----------------------------------------------------------------------------------------------- ----------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
PRIME OBLIGATIONS FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JANUARY 31, 1995 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
---------------------------------------------------------------------------------------------------
Interest $ 47,165,529
---------------------------------------------------------------------------------------------------
EXPENSES:
---------------------------------------------------------------------------------------------------
Investment advisory fee $ 1,767,789
-------------------------------------------------------------------------------------
Administrative personnel and services fee 669,108
-------------------------------------------------------------------------------------
Custodian fees 85,117
-------------------------------------------------------------------------------------
Transfer agent and dividend disbursing agent fees and expenses 27,249
-------------------------------------------------------------------------------------
Trustees' fees 7,000
-------------------------------------------------------------------------------------
Auditing fees 6,375
-------------------------------------------------------------------------------------
Legal fees 11,158
-------------------------------------------------------------------------------------
Portfolio accounting fees 109,350
-------------------------------------------------------------------------------------
Institutional Service Shares--Shareholder services fee 115,646
-------------------------------------------------------------------------------------
Share registration costs 194,606
-------------------------------------------------------------------------------------
Printing and postage 5,250
-------------------------------------------------------------------------------------
Insurance premiums 16,380
-------------------------------------------------------------------------------------
Taxes 10,515
-------------------------------------------------------------------------------------
Miscellaneous 8,950
------------------------------------------------------------------------------------- ------------
Total expenses 3,034,493
-------------------------------------------------------------------------------------
Deduct--Waiver of investment advisory fee 1,150,753
------------------------------------------------------------------------------------- ------------
Net expenses 1,883,740
--------------------------------------------------------------------------------------------------- -------------
Net investment income $ 45,281,789
--------------------------------------------------------------------------------------------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
PRIME OBLIGATIONS FUND
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JANUARY 31, 1995 YEAR ENDED
(UNAUDITED) JULY 31, 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
--------------------------------------------------------------------------
OPERATIONS--
--------------------------------------------------------------------------
Net investment income $ 45,281,789 $ 41,204,591
-------------------------------------------------------------------------- ------------------ -----------------
DISTRIBUTIONS TO SHAREHOLDERS--
--------------------------------------------------------------------------
Institutional Shares--Distributions from net
investment income (42,846,135) (41,183,125)
--------------------------------------------------------------------------
Institutional Service Shares--Distributions from net
investment income (2,435,654) (21,466)
-------------------------------------------------------------------------- ------------------ -----------------
Change in net assets resulting from
distributions to shareholders (45,281,789) (41,204,591)
-------------------------------------------------------------------------- ------------------ -----------------
SHARE TRANSACTIONS--
--------------------------------------------------------------------------
Proceeds from sale of Shares 13,741,680,250 8,598,402,134
--------------------------------------------------------------------------
Net asset value of Shares issued to shareholders in
payment of distributions declared 12,692,842 6,605,494
--------------------------------------------------------------------------
Cost of Shares redeemed (12,508,852,103) (8,442,800,343)
-------------------------------------------------------------------------- ------------------ -----------------
Change in net assets resulting from share
transactions 1,245,520,989 162,207,285
-------------------------------------------------------------------------- ------------------ -----------------
Change in net assets 1,245,520,989 162,207,285
--------------------------------------------------------------------------
NET ASSETS:
--------------------------------------------------------------------------
Beginning of period 1,260,366,471 1,098,159,186
-------------------------------------------------------------------------- ------------------ -----------------
End of period $ 2,505,887,460 $ 1,260,366,471
-------------------------------------------------------------------------- ------------------ -----------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
PRIME OBLIGATIONS FUND
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
--------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JANUARY 31,
1995 YEAR ENDED JULY 31,
(UNAUDITED) 1994 1993 1992 1991 1990(A)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
----------------------------------------------------
Net investment income 0.03 0.03 0.03 0.05 0.07 0.03
----------------------------------------------------
LESS DISTRIBUTIONS
----------------------------------------------------
Distributions from net investment income (0.03) (0.03) (0.03) (0.05) (0.07) (0.03)
---------------------------------------------------- ------ ----- ----- ----- ----- -----
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
---------------------------------------------------- ------ ----- ----- ----- ----- -----
TOTAL RETURN (B) 2.58% 3.47% 3.25% 4.74% 7.30% 2.89%
----------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
----------------------------------------------------
Expenses 0.20%(c) 0.20% 0.20% 0.20% 0.20% 0.20%(c)
----------------------------------------------------
Net investment income 5.12%(c) 3.47% 3.20% 4.53% 6.54% 8.21%(c)
----------------------------------------------------
Expense waiver/reimbursement (d) 0.13%(c) 0.14% 0.09% 0.10% 0.24% 0.68%(c)
----------------------------------------------------
SUPPLEMENTAL DATA
----------------------------------------------------
NET ASSETS, END OF PERIOD (000 OMITTED) $2,348,306 $1,250,979 $1,098,159 $917,418 $473,593 $34,777
----------------------------------------------------
</TABLE>
(a) Reflects operations for the period from March 26, 1990 (date of initial
public investment) to July 31, 1990.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
PRIME OBLIGATIONS FUND
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
--------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JANUARY 31, YEAR ENDED
1995 JULY 31,
(UNAUDITED) 1994(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00
----------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
----------------------------------------------------------------------------------
Net investment income 0.02 0.003
----------------------------------------------------------------------------------
LESS DISTRIBUTIONS
----------------------------------------------------------------------------------
Distributions from net investment income (0.02) (0.003)
---------------------------------------------------------------------------------- ------- --------------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00
---------------------------------------------------------------------------------- ------- --------------
TOTAL RETURN (B) 2.45% 0.30%
----------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
----------------------------------------------------------------------------------
Expenses 0.45%(c) 0.34%(c)
----------------------------------------------------------------------------------
Net investment income 5.27%(c) 4.68%(c)
----------------------------------------------------------------------------------
Expense waiver/reimbursement (d) 0.13%(c) 0.14%(c)
----------------------------------------------------------------------------------
SUPPLEMENTAL DATA
----------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $157,581 $9,387
----------------------------------------------------------------------------------
</TABLE>
(a) Reflects operations for the period from July 5, 1994 (date of initial public
offering) to July 31, 1994.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) This volunatry expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
PRIME OBLIGATIONS FUND
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1995
(UNAUDITED)
--------------------------------------------------------------------------------
(1) ORGANIZATION
Money Market Obligations Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end management investment
company. The Trust consists of 5 diversified portfolios. The financial
statements presented herein present only those of Prime Obligations Fund (the
"Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The Fund offers 2
classes of shares; Institutional Shares and Institutional Service Shares.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value
its portfolio securities is in accordance with Rule 2a-7 under the Act.
REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral in support of
repurchase agreement transactions. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of
each repurchase agreement's underlying securities to ensure that the value
of collateral at least equals the repurchase price to be paid under the
repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers which are deemed
by the Fund's adviser to be creditworthy pursuant to guidelines and/or
standards reviewed or established by the Board of Trustees (the
"Trustees").
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discounts, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
PRIME OBLIGATIONS FUND
--------------------------------------------------------------------------------
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
RESTRICTED SECURITIES--Restricted securities are securities that may only
be resold upon registration under federal securities laws or in
transactions exempt from such registration. Many restricted securities may
be resold in the secondary market in transactions exempt from registration.
In some cases, the restricted securities may be resold without registration
upon exercise of a demand feature. Such restricted securities may be
determined to be liquid under criteria established by the Board of
Trustees. The Fund will not incur any registration costs upon such resales.
Restricted securities are valued at amortized cost in accordance with Rule
2a-7 under the Investment Company Act of 1940. Additional information on
each restricted security held at January 31, 1995 is as follows:
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION
SECURITY DATE COST
<S> <C> <C>
Peoples Security Life Insurance 7/11/94 25,000,000
City of Columbus 1/30/95 26,700,000
SMM Trust Series 1994-H 11/22/94 - 12/29/94 28,000,000
SMM Trust Series 1994-B 9/7/94 20,000,000
</TABLE>
OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. At January 31, 1995, capital paid-in aggregated $2,505,887,460.
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR
SIX MONTHS ENDED
ENDED JULY 31,
INSTITUTIONAL SHARES JANUARY 31, 1995 1994
<S> <C> <C>
Shares sold 12,135,270,589 8,582,784,664
----------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 12,105,310 6,585,754
----------------------------------------------------------------------------
Shares redeemed (11,050,049,062) (8,436,550,343)
---------------------------------------------------------------------------- ----------------- -----------------
Net change resulting from Institutional Shares transactions 1,097,326,837 152,820,075
---------------------------------------------------------------------------- ----------------- -----------------
</TABLE>
PRIME OBLIGATIONS FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR
SIX MONTHS ENDED
ENDED JULY 31,
INSTITUTIONAL SERVICE SHARES JANUARY 31, 1995 1994*
Shares sold 1,606,409,661 15,617,470
<S> <C> <C>
----------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 587,532 19,740
----------------------------------------------------------------------------
Shares redeemed (1,458,803,041) (6,250,000)
---------------------------------------------------------------------------- ----------------- -----------------
Net change resulting from Institutional Service Shares
transactions 148,194,152 9,387,210
---------------------------------------------------------------------------- ----------------- -----------------
Net change resulting from Fund share transactions 1,245,520,989 162,207,285
---------------------------------------------------------------------------- ----------------- -----------------
</TABLE>
*For the period from July 5, 1994 (date of initial public offering) to July 31,
1994.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to .20 of 1% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive a portion of its fee and reimburse certain operating
expenses of the Fund. The Adviser can modify or terminate this voluntary waiver
and reimbursement at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with administrative personnel and services. The FAS fee is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during the
period of the Administrative Services Agreement shall be at least $125,000 per
portfolio and $30,000 per each additional class of shares.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to .25 of
1% of average daily net assets of the Fund for the period. This fee is to obtain
certain services for shareholders and to maintain the shareholder accounts. For
the six months ended January 31, 1995, Institutional Shares did not incur a
Shareholder Services Fee.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated
Services Company ("FServ") serves as transfer and dividend disbursing agent for
the Fund. This fee is based on the size, type, and number of accounts and
transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES--FServ also maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period plus, out-of-pocket expenses.
PRIME OBLIGATIONS FUND
--------------------------------------------------------------------------------
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
TRUSTEES OFFICERS
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
John F. Donahue John F. Donahue
Thomas G. Bigley Chairman
John T. Conroy, Jr. J. Christopher Donahue
William J. Copeland President
J. Christopher Donahue Richard B. Fisher
James E. Dowd Vice President
Lawrence D. Ellis, M.D. Edward C. Gonzales
Edward L. Flaherty, Jr. Vice President and Treasurer
Peter E. Madden John W. McGonigle
Gregor F. Meyer Vice President and Secretary
Wesley W. Posvar David M. Taylor
Marjorie P. Smuts Assistant Treasurer
Jeannette Fisher-Garber
Assistant Secretary
</TABLE>
Mutual funds are not bank deposits or obligations, are not guaranteed
by any bank, and are not insured or guaranteed by the U.S. government,
the Federal Deposit Insurance Corporation, the Federal Reserve Board, or
any other government agency. Investment in mutual funds involves
investment risk, including possible loss of principal. Although money market
funds seek to maintain a stable net asset value of $1.00 per share, there is no
assurance that they will be able to do so.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the Fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses and other information.
PROSPECTUS
July 1, 1995
Horizon Shares and
Horizon Service Shares of the
Prime Value Fund
(An Investment Portfolio Offered by Pacific Horizon Funds,
Inc.)
[--- Unable To Translate Graphic ---]
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.
[--- Unable To Translate Graphic ---]
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.
[--- Unable To Translate Graphic ---]
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
Service
Shares 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
Yea Year Year Years
r s s
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 seriesmay 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 Appendixto 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 $10billion 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 $7billion of the
Fund's net assets, plus .09% of the next $3billion of the
Fund's net assets, plus .08% of the Fund's net assets over
$10billion. 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 $7billion of the Fund's net assets, plus .09% of the
next $3billion of the Fund's net assets, plus .08% of the
Fund's net assets over $10billion. 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 February28, 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 12:00noon Eastern time on a Business
Day will be executed at such time on that day if payment is
received by 4:00p.m. Eastern time on such Business Day.
Orders received after 12:00noon Eastern time on a Business
Day, and orders for which payment has not been received by
4:00p.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
12:00noon 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 12:00noon 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 $5million. 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 60days 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 12:00noon Eastern
time and the close of regular trading hours on the Exchange
(or 4:00p.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, Suite300, 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 December31, 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 October27, 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
March16, 1993 as a portfolio of the Company with a single
series of shares, Pacific Horizon Shares. Horizon Shares
were first offered on May16, 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 seriesexcept
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
PROSPECTUS
July1, 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 July1, 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 Period
Ended Ended
February February
28, 1995 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 March16, 1993 (commencement of
operations) through February28, 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 February28, 1995
and 0.58% (annualized) for the period ended
February28, 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 90days. 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 Appendixto 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 $1billion. 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 Section4(2) of the Securities Act
of 1933 ("Section 4(2)paper"). Section4(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. Section4(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 Section4(2) paper. Section4(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
30days' 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 60days. 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 Rule144A, 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 $50billion under management,
including over $10billion 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 $7billion of the Fund's net
assets, plus .09% of the next $3billion of the Fund's net
assets, plus .08% of the Fund's net assets over $10billion.
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 February28, 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 55thStreet,
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 $7billion of the Fund's net assets, plus .09% of the
next $3billion of the Fund's net assets, plus .08% of the
Fund's net assets over $10billion. 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 February28, 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 abovee.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
February28, 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 125West 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 90Washington Street, New York, New York 10286, serves as
the Fund's custodian. DST Systems, Inc. (the "Transfer
Agent"), 811Main, 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 mailshould
complete an Account Application and mail the Application and
a check payable to"Pacific Horizon Prime Value Fund"
totheCompany c/oDST Systems, Inc., P.O.Box419955,
Kansas City, Missouri 64141-6955. All subsequent payments
should be mailed to DST Systems, Inc., P.O.Box419940,
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
12:00noon (Pacific Time) and are effected as of 4:00p.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 12:00noon Eastern Time and the
close of regular trading hours on the Exchange (or 4:00p.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 bytelephoning 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/oDST Systems, Inc., P.O.Box419955, 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
60days, 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)
ClassA 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
ClassA 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 60days' 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 $50per 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.Box419955, 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. Aninvestor may deposit as much of such
paymentsashe 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 30days' 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/oDST
Systems, Inc., P.O.Box419955, 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 December31, 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 October27, 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 seriesexcept
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 ofthe investment. The
"effective yield" is calculatedsimilarly 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
July1, 1995
NOT FDIC INSURED
and
Horizon Service Shares
of the
Prime Value Fund
PROSPECTUS
July1, 1995
NOT FDIC INSURED
